SP Angel – Morning View – Monday 18 03 19
Gold pauses as global equities climb to five-month high
MiFID II exempt information – see disclaimer below
Bluebird Merchant Ventures* (LON:BMV) – Funding raised to complete pre-construction phase for Gubong gold mine
Chaarat Gold* (LON:CGH) – Joint venture to build gold mine in Kyrgyzstan
Strategic Minerals* (LON:SML) – Moving to 100% ownership of Redmoor
Canadian mining sector losing global competitiveness
- A report by the Mining Association of Canada finds the North American nation in danger of losing its global significance in mining, despite recent government initiatives to improve competitiveness.
- Canada’s major Barrick Gold Corp. and Goldcorp Inc. mega-merger stands to erode its global influence, resulting in sweeping job cuts and further decentralization away from Canada, a trend that will likely increase under Barrick’s newly inked joint-venture in Nevada with Newmont Mining Corp.
- “For decades, our industry has been a leader in the production of minerals and metals. A leader in mining services and supplies. A leader in mine finance. A leader in sustainability and safety, but that position is in jeopardy and will be lost without continued, decisive action at both the federal and provincial levels,” Pierre Gratton, chief executive officer of the association reports.
- Key findings of the report highlight capital investment across the mining sector has fallen every year since 2012, with competitor Australia extending its lead on Canada in terms of the number of companies supplying the sector and as a percentage of total foreign direct investment.
- Despite losing ground, the sector still represents 5% of the total nominal GDP and 19% of the value of Canadian goods exports in 2017.
- The report concludes more policies are necessary to reverse the trend, including renewing the Mineral Exploration Tax Credit for a five-year term.
Shifting low-carbon source sees Shell targeting world’s largest electricity company
- Royal Dutch Shell, one of the world’s largest oil and gas groups, is targeting a move to become the largest electricity company by the 2030s, as the company prepares for a fundamental shift in global energy supplies towards lower-carbon sources.
- Speaking at the CERAWeek conference in Houston, director of gas and new energies, Maarten Wetselaar, said that if Shell achieved its goal for cutting its greenhouse gas emissions by 2035, “the amount of power – of clean power – we will need to be selling…will make us by far the biggest power company in the world”.
- By 2020, Shell plans to be investing $1-2bn per year in new energy technologies including electricity – a fraction of the group’s annual capital expenditure of $25bn.
- The plan is a strong response to an expected shift in the world’s energy system to much greater use of electricity, up from around 20% today to levels greater than 50%.
- Like other European energy majors, Shell has been investing heavily along the electricity supply chain, including Sonnen, a German battery company, and last year’s takeover of UK power supplier First Utility, which gave it direct access to retail electricity consumers for the first time. It also bought New Motion, one of Europe’s largest electric vehicle charging enterprises.
- Mr Wetselaar also reported electricity is changing “from a boring, predictable system to a complex intermittent system”, which was “a really good opportunity for people that are good at energy trading. And we are very good at energy trading”.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – Asian and European equities are up on Monday in anticipation for a dovish signal on monetary policy from the Fed this week.
- The Fed is widely expected to leave rates unchanged on Wednesday while markets will be closely watching its plans on the rate of winding down the current balance sheet as well as revised economic forecasts.
- Previously, Fed Chairman Powell said that an announcement on the central bank’s balance sheet would come “fairly soon”.
- The balance sheet peaked at $4.5tn in 2017 but has come to just under $4tn since then.
Japan – Exports dropped for a third consecutive month in February further highlighting slowing global growth momentum.
- Exports were down 1.2%yoy in February coming in worse than forecast 0.9%yoy drop and following a 8.4%yoy decline in January.
- “The export climate index, a weighted average of the PMIs of Japan’s main trading partners, remained at a three-year low in February and suggests that export volumes will remain subdued… all told, we still think that net trade will remain a drag on GDP growth both in the first quarter and throughout 2019,” Capital Economics commented on the data.
US$1.1348/eur vs 1.1332/eur last week Yen 111.51/$ vs 111.64/$ SAr 14.414/$ vs 14.423/$ $1.329/gbp vs $1.332/gbp 0.712/aud vs 0.707/aud CNY 6.713/$ vs 6.716/$
Gold US$1,304/oz vs US$1,304/oz last week
- Gold remains steady as a falling dollar counters a rise in Asian stocks gained on early Monday after a positive finish to a strong week for US stocks to drive global shares to the highest in 5 months.
- Traders will be monitoring the Federal Reserve’s meeting this week, where officials are likely to reinforce the policy-pause stance, with the central bank bringing the current cycle of interest rate hikes to a close after one more raise later this year, according to the latest Bloomberg survey of economists. The median of responses in the March 13-15 poll predicted one hike in September, compared with two 2019 increases forecast in the December survey.
- Money managers have cut their bullish gold bets by 6,098 net-long positions to 41,774, the lowest since Jan. 22, weekly CFTC data on futures and options show.
- Gold may find some safe-haven support as Theresa May threatens to give up trying to pass Brexit unless euroskeptics in her Conservative party back down and promise to vote for her deal this week.
Gold ETFs 71.7moz vs US$71.7moz last week
Platinum US$833/oz vs US$834/oz last week
Palladium US$1,558/oz vs US$1,560/oz last week
Silver US$15.34/oz vs US$15.37/oz last week
Copper US$ 6,474/t vs US$6,437/t last week
Aluminium US$ 1,900/t vs US$1,911/t last week
Nickel US$ 12,920/t vs US$12,980/t last week
Zinc US$ 2,781/t vs US$2,798/t last week
- Zinc prices faded for the third day as stockpiles across Shanghai rose amid sustained oversupply by mines, surging more than four-fold this year.
- The country’s refined zinc output, which capped the weakest January-February volume in five years, is expected to recover as treatment charges for imported ore jumped to the highest since 2013 on rising mine supply. Chinese TCs for imported zinc ore climbed to $235/t, the most since data back to 2013, according to SMM Info & Tech.
- Substantial increase in SHFE inventory is a reflection on sluggish zinc demand, as refined zinc production falls -8.2% yoy to 851,000t.
Lead US$ 2,063/t vs US$2,102/t last week
Tin US$ 21,140/t vs US$21,275/t last week
Oil US$67.2/bbl vs US$67.5/bbl last week
Natural Gas US$2.781/mmbtu vs US$2.854/mmbtu last week
Uranium US$27.25/lb vs US$27.40/lb last week
Iron ore 62% Fe spot (cfr Tianjin) US$84.7/t vs US$84.4/t
Chinese steel rebar 25mm US$617.0/t vs US$616.5/t
Thermal coal (1st year forward cif ARA) US$73.4/t vs US$75.2/t
Coking coal futures Dalian Exchange US$188.1/t vs US$188.0/t
Cobalt LME 3m US$30,000/t vs US$31,000/t
China NdPr Rare Earth Oxide US$42,826/t vs US$43,539/t
China Lithium carbonate 99% US$9,757/t vs US$9,750/t
China Ferro Vanadium 80% FOB US$72./kg vs US$73./kg – ferro-vanadium prices fell a further 3.2% in Western Europe to $66-71/kgV on Friday
- The move follows ferro-vanadium prices which fell 6% on Thursday to $68-72kgV as reported by Fastmarkets MB
China Antimony Trioxide 99.5% EU US$6.9/kg vs US$6.9/kg
Tungsten APT European US$271-282/mtu vs US$271-282/mtu
Battery start-ups are raising millions in the battle to crush Tesla
- Since its introduction in 1991, the rechargeable lithium battery has been the standard for everyday tech devices and electric vehicle power. Many of the world’s more than three million electric vehicles run on lithium ion batteries.
- Battery start-ups are trying to build better batteries, with lower costs, improved energy densities and better performance for supercharged industrial products and consumer technology, as well as electric vehicles, which would charge more quickly and travel longer distances.
- CEO of Sila Nanotechnologies said “It's taken us eight years and probably 35,000 iterations of our material synthesis just to have something that's commercially ready."
- Sila is just one of several battery start-ups that recently received major funding to continue tweaking battery tech. Last year the Alameda, California-based company took on $70m in Series D financing from several investors, including Siemens' global venture firm, to build its first commercial production line for silicon anode batteries.
- Taking another approach towards solid-state battery technology, Solid Power, a Colorado-based manufacturer, received $20m in Series A financing in 2018. According to company executives, the battery they're developing leads to at least 50% more energy density.
- Secretive Stanford University spinoff QuantumScape is also developing a solid-state battery, in partnership with Volkswagen. Last year Volkswagen increased its stake with a $100m investment.
- While investment is pouring into the industry, fruits of their labour won’t hit the markets en masse until sometime next decade. QuantumScape’s press release states a commercial production target for 2025. The long development timeline for these start-ups signals the difficulty in pushing battery technology.
Bluebird Merchant Ventures* (LON:BMV) 2.45p, Mkt Cap £5.6m – Funding raised to complete pre-construction phase for Gubong gold mine
Target price reduced to 8.1p/s from 12.8p/s
(Bluebird is earning into a 50:50 jv with Southern Gold Ltd at Gubong and Kochang)
- Bluebird Merchant Ventures report the placing of 19.4m new shares raising £0.4m to advance and finalise the pre-construction phase of the project.
- Directors, Colin Patterson, Charles Barclay and Aidan Bishop contributed £186,500 to the placing taking 8.3m new shares.
- Management re-iterate the target for their first gold pour in Q4 next year and to increase gold production to 100,000oz over a five-year period.
- Agreement has also been reached with a local landowner at Kochang for use of the land outside the main adit entrance and the approval from the Mines Safety Department to carry out refurbishment works in the adit which is expected to commence in April, prior to definition drilling underground
- The team also have a similar agreement in place at the Gubong mine.
- Management await feedback on the application for a mining permit at the Gubong mine.
- Target price: We are reducing our target price on additional dilution to the shares and potential further dilution to the shares given prevailing market conditions.
- Our target price is based on a simple NPV valuation on the Gubong gold mine discounted at 12% with gold production rising to 28,651ozpa in 2021 from 4,912oz in 2019.
- We have raised our assumed gold price to $1,312.4/oz for 2019 from $1,294/oz and longer term to $1,350/oz.
- We also include further potential dilution assuming the mine may needs to raise 50% of its capital requirement in equity. We assume the current share price.
- We have not included a mine plan or valuation for the Kochang gold, silver mine in our evaluation as yet.
Conclusion: We look forward to further news of the approval for drilling at Gubong and on questions for the Gubong and Kochang mining permits..
*SP Angel act as broker to Bluebird Merchant Ventures
Cora Gold* (LON:CORA) 5.4p, Mkt Cap £3.5m – Sanankoro oxides demonstrate up to 97% gold recoveries
- The Company completed the preliminary metallurgical testwork on oxide mineralisation from Zone A and Selin prospects at the Sanankoro gold discovery in southern Mali.
- Encouraging results show coarse ore gold recoveries of up to 97% are achievable using standard cyanide leaching process.
- First stage programme tested gold recoveries on -20mm, -12.5mm and -6.5mm crush sizes that yielded ranges from nearly 70% to over 97%; while small subsamples from both of prospects have been further tested using -75 micron fraction in a bottle roll test which demonstrated a gold recovery of 97% for both samples suggesting good leaching kinetics and suitability of the CIL process.
- The next stage of the testwork will further assess the potential for gold recovery using either heap leach or gravity-CIL processes which will take two months to complete.
- A total of 80kg collected from representative diamond drill core at the Zone A and Selin have been used in studies.
Conclusion: The preliminary metallurgical testwork results show good gold recoveries on two priority targets within the Sanankoro gold discoveries. Further studies will ultimately help the team to identify the appropriate process flowsheet and contribute data for the potential assessment of the Sanankoro project economics.
*SP Angel acts as Nomad and Broker to Cora Gold
Chaarat Gold* (LON:CGH) 25p, Mkt Cap £99m – Joint venture to build gold mine in Kyrgyzstan
- The Company signed a binding term sheet to enter into a JV with Ciftay Insaat Tahhüt ve Ticaret A.S., the Turkish mining and mine construction contractor, for development of the Tulkubash and Kyzyltash projects in the Kyrgyz Republic.
- Ciftay will be appointed as construction and long-term mining contractor for the Tulkubash project. The Company managed mining operations at Copler gold mine of Alacer Gold, Mastra underground gold mine of Koza Altin, Caldag opencast nickel mine of VTG Holding as well as civil construction services at Oksut gold project of Centerra among others.
- Ciftay agreed to earn in 12.5% interest in Tulkubash and Kyzyltash projects by investing $31.5m.
- Total Tulkubash development capex is estimated at $120-130m with the vast majority of the remaining spend expected to be debt funded allowing Chaarat to minimise dilution to existing shareholders.
- Project funding is targeted to be completed in Q3/19.
- Updated feasibility study is expected to be announced in Q2/19 with the team targeting first gold production in 2021.
- The team have mobilised construction equipment to the site, set up a temporary construction camp in the winter and on stand by for an early spring start to major earthworks.
- Management: Chaarat Gold has new energy as is drives its business ahead under new management
- Atrem Volynets, Exec director joined last March and Martin Andersson, Chairman who joined nine months earlier are driving the business forward.
- The two are supported by Robert Benbow who has taken three gold mines through to production including Alacer Gold Corp.’s Çöpler Gold Mine in Eastern Turkey which has produced over 1moz as one of the lowest cost producers in the world.
- Non-execs include Hussein Barma, former CFO at Antofagasta. Rob Edwards, a former mining analyst, Gordon Wylie, ex Ashanti, Martin Wiwen-Nilsson, ex Goldman Sachs.
- The new team transforms Chaarat from a struggling junior with a gold project in Kyrgyzstan to a producing gold miner with a gold mine in Armenia and a fully financed near-production gold mine in Kyrgystan.
- SP Angel has been appointed as joint broker to Chaarat Gold. The CEO, Artem Volynets comments that “After a period of transformation for Chaarat, we feel the time is right to broaden our investor reach, and we are strengthening our corporate finance and broking team to that end. We look forward to working with SP Angel as we move towards our goal of becoming a leading emerging markets gold company with an initial focus on Central Asia and the FSU."
Conclusion: The agreement is a positive news bringing in a partner with extensive experience in the industry as well as providing around a quarter of the planned development capex for the Tulkubash project. The deal values Tulkubash and Kyzyltash assets at just above $250m or c.$220m attributed to Chaarat net of potential 12.5% Ciftay interest. The Company is planning to close the balance of the project funding in Q3/19 paving the way for the start of production in 2021.
*SP Angel acts as joint broker to Chaarat Gold Holdings Limited.
Strategic Minerals* (LON:SML) 1.7p, Mkt Cap £24m – Moving to 100% ownership of Redmoor
- Strategic Minerals has announced that it has reached an agreement with its joint venture partner in the Redmoor tin/tungsten project in Cornwall, New Age Exploration (NAE), to acquire its 50% interest in the local operating company Cornwall Resources.
Acquisition of the New Age Exploration’s 50% interest in Cornwall Resources gives Strategic Minerals 100% ownership of the project for an agreed price of £2.66m to be paid in three tranches:
- £1.06m in cash payable within 30 days of NAE shareholders’ approval;
- £0.54m as a promissory note payable 180days after settlement; and
- A 1.5% royalty on net smelter revenues generated by any future revenue generated by Redmoor – to a maximum of £1.06m.
- The consolidation of the Redmoor project under SML’s ownership should allow the company to pursue its project timetable and development agenda without the need to accommodate the financial constraints and potentially divergent development strategy of a partner.
- The Redmoor resource update, released in February increased the inferred mineral resource estimate from the March 2018 estimate of 4.5mt at an average grade of 1% tin equivalent (0.25% tin, 0.37% tungsten trioxide and 0.57% copper) to a new inferred resource estimate of 11.7mt at an average grade of 1.17% tin equivalent (0.17% tin, 0.56% tungsten trioxide and 0.50% copper) using a 0.45% tin equivalent cut-off grade.
- We note that Canadian listed Strongbow Exploration is currently capitalised at the equivalent of approximately £5.9m and that its principal asset, the South Crofty mine, also in Cornwall, has a combined mineral resource estimate in both the Upper and Lower Mine areas, of approximately 3.1mt of indicated and inferred resources at an average grade of 1.6% tin. Approximately 60% of the South Crofty Resource is classed as indicated and although its grade is higher than that at Redmoor, we consider that the purchase of 50% of the Redmoor project for an effective price of around £39/tonne of contained inferred tin equivalent in the resource compares favourably with the £115/t of contained tin in the indicated and inferred resources implied by the current market valuation of Strongbow.
- Our analysis of previous comments from the company (published in September 2018 - before the recent upgrade) indicated that, on a conceptual basis that at a tin price of US$22,000/ tonne and a tungsten price of US$330/metric tonne unit a resource tonnage closer to 10mt would be required for a viable project offering adequate returns. The February 2019 update, even though only delineating an inferred resource, makes an important step towards addressing this issue.
- The new estimate confirmed “the continuity of the Sheeted Vein System ("SVS"), which hosts the high-grade zones, over a strike length exceeding 1,000m and for some 650m down dip” implying that additional work could further extend the scale of the deposit although we speculate that the company might wish to deploy at least a part of any future drilling programme to upgrade at least a some of the inferred resource to the indicated level required to support formal prefeasibility assessment under the JORC Code.
- Commenting on the agreement to move to full ownership of the Redmoor project, Managing Director, John Peters, expressed delight that “this opportunity has arisen to acquire total control of the project” and he went on to say that the company “looks forward to the next phase of development … [and believes that ] … such development will further demonstrate the potential size and scope of the project and its position in a global context”.
- The company points out that its Chairman, Alan Broome, who also serves in a similar role at New Age Exploration, “after making the Board of Strategic Minerals aware of the Redmoor opportunity … recused himself from any further dealings with the Acquisition including any voting at Board level in both the Company and NAE.”
Conclusion: The consolidation of the Redmoor project under the sole ownership of Strategic Minerals should simplify the future development of the project. We consider the price paid compares well with the current market value applied to the mineral resource s at the South Crofty mine, also in Cornwall.
*SP Angel act as Nomad and broker to Strategic Minerals