SP Angel – Morning View –Friday 29 03 19
Copper prices rise as lower Tc/Rcs indicate tight con market
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Ariana Resources (LON:AAU) – Exploration progress in Turkey
Horizonte Minerals (LON:HZM) –2018 results and project update
Serabi Gold (LON:SRB) – 2018 results and 2019 production guidance
Shanta Gold (LON:SHG) – Singida project to be listed in Dar es Salaam
Vast Resources (LON:VAST) – Manaila polymetallic mine update
Rio Tinto force majeure on iron ore after Cyclone Veronica in Western Australia
- Cyclone Veronica has caused sufficient disruption for Rio Tinto to declare force majeure on certain iron ore contracts.
- Rio is assessing damage at its Cape Lambert port facility.
- Rail and shipping at the Cape Lambert B terminal and the Dampier port is returning to normal operations
Vanadium prices collapse 18.5% in US as US market catches up with price falls in EU and China
- Ferro-vanadium prices fell 18.5% yesterday in the US according to Fastmarkets MB.
- The analysis of trade activity shows prices moved to $28-31.5/lbV for US ferro-vanadium.
- Ferro-vanadium prices also fell 8% in China to $58-62.5/kgV.
- The fall follows a 4.6% price decline in Western Europe on Wednesday to $55-58/kgV.
- EU and Chinese buyers have stepped away from the market allowing prices to fall as sellers offer ever lower prices looking for new buyers.
- The move which is akin to professionals waiting for the auctioneer to declare a base reserve price in an action house in our view.
- We expect the market to bounce at some stage when a significant buyer dares to catch this falling ferro-vanadium knife
- The Fastmarkets MB trade log shows offers and indicated prices but no deals yesterday following a fair amount of trade reported on Wednesday.
Falling lithium imports signals China’s growing self-sufficiency
- China imports fell by nearly 100% to 45kg of lithium hydroxide from 656t a year earlier and by 58% for lithium carbonate to 720t from 2,517 a year earlier.
- Tumbling imports are a growing signal the nation is increasingly self-sufficient in the lithium carbonate market as China became a major exporter – swelling six-times to 11,131t in 2018.
- China also saw exports of lithium hydroxide increase by 40%, which went largely to Asian counterparts and major battery consumers South Korea and Japan.
- Through 2018 the primary feedstock of hard-rock spodumene, dominated by Australian production, saw an increase of its supply by around 20,000t.
- Ramping supplies could have a strong impact on Chinese conversion capacities in 2019. If all producers were to operate at full capacity this year, production could rise above 800kt spodumene concentrate from 2018’s newcomers alone.
- Despite the wave of new feedstock supplies, investment in conversion facility expansions slowed due to stalling lithium prices throughout 2018. Only Tier-1 producer provided firm timelines for increasing capacity.
- With Chinese battery output rising to 70.6GWh throughout 2018, is conversion capacity to battery-grade material a serious bottleneck?
- Limited capacity is presenting a global opportunity, with South Korea becoming a major player in the non-Chinese battery supply chain, accounting for 25% global capacity by 2028, according to Pilbara Minerals chief executive Ken Brinsden.
EU poised to ban single-use plastic products
- The move, as with all politically driven regulations will have some unintended consequences..
- The EU is looking to ban cotton swab sticks, plastic forks, knives, straws, coffee stirrers etc…
- We predict a sharp rise in stainless steel cutlery, dishwashers and metal stirrers and straws.
- What really bothers us is the proposed ban on single use cotton swab sticks.
- Maybe they will propose a multiple use swab stick, perhaps an Ebola swab on one end and some Cholera at the other?
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – Trade talks optimism lends support for a risk on sentiment with equities trading higher global bond prices pulling back.
- US Treasury Secretary Steven Mnuchin said on Friday he had a “productive working dinner” the previous night in Beijing.
- Although, Trump economic adviser Larry Kudlow said negotiations may continue for months. “This is not time-dependent. This is policy- and enforcement-dependent,” Kudlow commented on talks’ progress yesterday.
- A number of FOMC voting members spoke yesterday offering their take on the state of the economy and Fed monetary policy outlook.
- “Three of our most recent FOMC statements have highlighted concerns about global economic and financial developments… in the presence of these risks and inflation pressures muted, we can afford to be patient,” in deciding any further rate moves, Fed vice chairman and voting FOMC member Richard Clarida said yesterday.
- James Bullard, president of the St Louis Fed and a voting FOMC member, downplayed concerns over a recession signalling inverted yield curve saying it is currently premature to consider a rate cut.
- Bullard said that a more parts of the yield curve need to invert and saty there for several months before concluding that it is sending a clear recession signal.
- Bullard highlighted the US growth is expected to rebound in Q2 and rest of year with the economy still in good shape.
- Q4 GDP report released yesterday showed growth was weaker than initially expected with the data revised down to an annualised 2.2%qoq from an earlier reading of 2.6%qoq.
- Speaking at a conference on agriculture credit, another voting FOMC member, Michelle Bowman, did not comment on the outlook for monetary policy.
Germany – A set of positive economic data offers a breath of relief amid concerns for ailing growth in the single currency zone.
- Unemployment rate hit a new record low in March and retail sale climbed on the month in February.
- Retail Sales (%mom/yoy): 0.9/4.7 v 2.8/3.1 in February and -1.0/+2.1 forecast.
- Unemployment Rate: 4.9 v 5.0 in February and 4.9 forecast.
UK – MPs are set to vote for a third time on the May Brexit deal on Friday, the day that the UK was planning to leave the EU.
- Expectations are running low with commentators highlighting little support for the deal from Labour, hardline Eurosceptic Conservatives and the DUP.
- GDP numbers released today show economic growth slowed in the final quarter of the year (0.2qoq/1.4yoy v 0.6/1.6 in Q3).
Turkey – Lira continued to post losses (-2%) against the US$ after sliding 4.5% yesterday on reports that the central banks used up a third of its FX reserves to prop up local currency ahead of municipal elections due this weekend.
US$1.1212/eur vs 1.1236/eur yesterday. Yen 110.80/$ vs 110.12/$. SAr 14.523/$ vs 14.672/$. $1.303/gbp vs $1.315/gbp. 0.708/aud vs 0.709/aud. CNY 6.717/$ vs 6.732/$.
Gold US$1,291/oz vs US$1,310/oz yesterday
Gold ETFs 72.3moz vs US$72.3moz yesterday
Platinum US$848/oz vs US$863/oz yesterday
Palladium US$1,388/oz vs US$1,445/oz yesterday
Silver US$15.08/oz vs US$15.28/oz yesterday
Copper US$ 6,451/t vs US$6,358/t yesterday
Aluminium US$ 1,903/t vs US$1,908/t yesterday
Nickel US$ 13,050/t vs US$12,970/t yesterday
Zinc US$ 2,885/t vs US$2,886/t yesterday
Lead US$ 2,028/t vs US$2,023/t yesterday
Tin US$ 21,475/t vs US$21,340/t yesterday
Oil US$68.2/bbl vs US$67.5/bbl yesterday
Natural Gas US$2.700/mmbtu vs US$2.741/mmbtu yesterday
Uranium US$25.05/lb vs US$25.50/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$83.5/t vs US$83.6/t
Chinese steel rebar 25mm US$617.7/t vs US$616.6/t
Thermal coal (1st year forward cif ARA) US$71.5/t vs US$74.0/t
Coking coal futures Dalian Exchange US$187.4/t vs US$187.0/t
Cobalt LME 3m US$30,000/t vs US$30,000/t
NdPr Rare Earth Oxide (China) US$42,803/t vs US$42,727/t
Lithium carbonate 99% (China) US$9,752/t vs US$9,734/t
Ferro Vanadium 80% FOB (China) US$62.0/kg vs US$63.5/kg
Antimony Trioxide 99.5% EU (China) US$6.6/kg vs US$6.6/kg
Tungsten APT European US$271-282/mtu vs US$271-282/mtu
African Battery Metals* (LON:ABM) 0.4p, Mkt Cap £1.5m – Annual results 2018
- The rebranded African Battery Metals report details of the audited results which focus on the acquisition of a 70% interest in the Kisinka copper-cobalt project in the Democratic Republic of Congo, with an option secured over a second cobalt-copper licence in the DRC.
- The Company commenced field exploration and mapping including identification of targets from satellite imagery remote sensing and commencement of an auger drilling programme. Two lines of auger drilling were conducted and elevated levels of cobalt in soils were identified using a Niton XRF gun. The work led to an extension of the planned phase to include additional auger drilling and soil sampling.
- Disappointing cobalt grades, including 0.002% to 0.021%, do not invalidate the exploration target and the company is currently preparing a new exploration programme reported 11 March 2019.
- The Company also reported the acquisition of Cobalt Blue Holdings (“CBH”) which held four prospecting licences in Cameroon close to one of the largest undeveloped cobalt reserves in the world – the Nkamouna cobalt-nickel-manganese project historically owned by Geovic Mining Corporation with a NI 43-101 cobalt resource.
- Simultaneous with the acquisition of CBH in August 2018, the Company acquired Regent Resources Interests Corp. (“RRIC”) which held the irrevocable right to earn in to up to 70% of the 380km2 Lizetta II cobalt, chrome and nickel project in the Cote d'Ivoire.
- African Battery Metal report losses of £6.6m through 30 September 2018 (2017: -£3.9m); of which £5.49m relate to the discontinued activities of subsidiary Blue Horizon’s Ferensola Gold Project and voluntary liquidation in August 2018.
- The Company raised £2.0m in new equity financing during the period, with an announcement on 28 January 2019 of Conditional Financing and Business Update, including repayment proposals for the Company’s creditors, and a £1.0m equity fundraising at 0.50p per ordinary share.
Following trading on AIM on 18 February 2019, the Company outlined an initial Strategic and Operational plan including:
- To recommence prioritised and targeted exploration programmes across selected business interests; and
- To identify, review and, if appropriate, acquire new resource exploration and development opportunities to complement existing business interests.
- On 15 March 2019, the Company announced it had acquired an interest in Katoro Gold Plc and entered into an option agreement to acquire an interest in Katoro’s Haneti Nickel Project in Tanzania.
- In August 2018 Scott Richardson Brown joined as a non-executive Director and, following completion of the Company’s £1.0m refinancing in February 2019, Andrew Bell and Paul Johnson joined as Executive Chairman and Executive Director, respectively.
- Management recognise the company is robustly financed, and able to fund its corporate costs and operational activities.
*SP Angel act as broker to African Battery Metals
Ariana Resources (LON:AAU) 1.9p, Mkt cap £19.9m – Exploration progress in Turkey
- Ariana Resources, outlining what it describes as “the highest level of exploration and development activity undertaken in the history of the Company” has provided a progress report on its exploration in Turkey.
- At the wholly owned Kizilcukur Project a 13 holes, 745.8m, programme of infill resource diamond drilling has been completed and assay results are expected during April and will contribute to “an internal feasibility study, to be completed by the Company.”
- A new 1.7km long haul road is under construction in order to transport “mineralised material from the Kizilcukur trial mining area to a road which to connects to the Kiziltepe processing plant. Further trial mining and stockpiling at Kizilcukur is expected to commence during Q3 2019”.
- A 600m long programme of diamond drilling is expected to commence shortly at the Tavsan joint-venture project located 70km NE of Kiziltepe. Infill resource drilling of around 335m (13 holes) will be supplemented by 245m of geotechnical drilling “as part of the internal feasibility study. A further 1,300 meters of resource drilling is currently planned for Tavsan, as well as a further 1,600 meters of exploration drilling. This additional drilling will likely commence once recent applications to the Ministry of Agriculture and Forestry are approved.”
- Reverse-circulation drilling totalling 2000m is planned to start at Salinbas in north-eastern Turkey in May in order to test targets identified by exploration in 2017 and 2018 and the “southern extents of the Salinbas North JORC Target … [and] … Infill drilling at the Salinbas "A-S" zone … [of] … significant breccia-pipe style of mineralisation”.
- “A further 8,000m of drilling has been planned in and around the Ardala porphyry and Salinbas zones. Execution of this drilling programme is dependent on the completion of forestry permitting for the project and this process is now drawing to a successful close”.
Conclusion: Ariana Resources is stepping up its exploration activities in Turkey with drilling at three main areas. We look forward to results as the drilling progresses.
Horizonte Minerals (LON:HZM) 2.21p, mkt cap £32.6m –2018 results and project update
- Horizonte Minerals has reported an attributable loss of £5.0m for 2018 (2017 - £5.1m loss) as it progresses towards the development of its Araguaia ferronickel project in Brazil and advances the pre-feasibility study on the nearby Vermelho nickel cobalt project.
- The company reports a 31st December 2018 cash balance of £6.5m (31st December 2017 - £9.4m).
- The feasibility study for the Araguaia project, which is described as “construction ready, subject to financing” describes an initial production phase where approximately 900,000tpa of ore is treated in a Rotary Kiln Electric Furnace (RKEF) to produce approximately 14,500tpa of nickel contained in 52,000tpa of ferronickel.
- Capital investment of US$443m for the initial phase of the project is expected to generate an after tax NPV8% of US$401m and an IRR of 20.1% with cash costs equiValent to US$3.08/lb of contained nickel.
- The study includes the flexibility to double production to 29,000tpa of contained nickel by the addition of a second RKEF in the third year of the project.
- The additional capital expenditure of US$199.7m is to be funded from internally generated cash flow and enhances the after tax NPV8% to US$741m, increases the IRR to 23.1% and reduces the cash cost of production to US$3.00/lb.
- The construction licence for the project was awarded in January and advisors for the project financing have been appointed. Horizonte Minerals describes the award of the construction licence as a “major de-risking step for Araguaia, which is now fully permitted to commence construction, subject to financing. This is something the Company will prioritise in 2019, as well as working out how to optimise the structure for maximum shareholder value.”
- At Vermelho, which was acquired from Vale in January 2018, a pre-feasibility study is underway and is expected to be completed in mid-2019. The company points out that a “full Feasibility Study on Vermelho had been completed by Vale and it was scheduled for construction in 2006” which implies that the current pre-feasibility work will have a substantial body of historical technical data to draw on.
- Commenting on the nickel market, Horizonte Minerals’ Chairman, David Hall, explained that “Nickel like most metals experienced a lull both in price and market interest in the back end of 2018. However, Horizonte is well placed to benefit from the widely anticipated upwards trend in nickel demand from both the traditional stainless-steel markets as well as the new demand from Electric Vehicles (EVs).”
Conclusion: The completion of the feasibility study and the award of the construction licence for Aragauia puts the financing of the US$443m project centre-stage. We look forward to further news on the progress of the funding of Aragauia and on the results of the pre-feasibility work at Vermelho later in the year.
Serabi Gold (LON:SRB) 38.0p Mkt value £22.3m – 2018 results and 2019 production guidance
- Serabi Gold has reported an after tax loss of US$5.8m for 2018 (2017 -US$3.0m loss). EBITDA has, however, increased to US$6.3m (2017 – US$0.8m). Additionally, losses resulting from exchange differences increased from US$0.6m in 2017 to US$9.6m.
- The results reflect the production of 37,108oz of gold (2017 – 37,004oz) at a all-in sustaining cost of US$1093/oz (2017 – US$1071/oz). Commenting on the costs, CEO, Mike Hodgson said that “Our cash costs and AISC had seen a modest increase year on year and I am very hopeful that, with the increased production that we expect to generate in 2019, we will see a reduction in these as we spread our cost base over a larger level of gold production”. Gold production guidance for 2019 is in the range 40-44,000oz.
- Chairman, Mel Williams went on to say that “The real step change in production will begin during 2020 with the development of the Coringa gold project located approximately 200 kilometres to the south of the Palito Complex”.
- Describing exploration in the Coringa area which recently resulted in a 37% increase in the mineral resources, he confirmed, however, that “our near term focus will be what has been christened the Cinderella zone, a north east to south west trending feature extending over seven kilometres and traversing the south east corner of the Sao Chico mining tenement” which is a satellite of the existing Palito mine complex.
Conclusion: Serabi Gold is expanding its activity in Brazil as it works on the development of Coringa although the company highlights that the major changes are expected in 2020.
Shanta Gold (LON:SHG) 6.9p, Mkt Cap £54m – Singida project to be listed in Dar es Salaam
- Singida Resources will proceed with a targeted $20m minimum equity as part of an IPO on the Dar es Salaam Stock Exchange.
- The IPO is expected to take 6-12 months with Shanta targeting to retain at least 51% ownership as well as operational control in the Singida project.
- IPO proceeds will fund the development capital as well as future exploration looking at increasing available resources.
- The Singida project is estimated to host 5.7mt at 2.08g/t for 381koz in Measured and Indicated and 6.6mt at 1.63g/t for 344koz in Inferred Resources.
- The Company estimates Singida open pit project may run at 440ktpa and produce 26kozpa over six years mine life.
- Singida is expected to operate at $794/oz TCC generating $31m NPV8%(post-tax) and 67% IRR using forward gold price curve (62% IRR at flat $1,300/oz).
- The project is estimated to cost $27m to build and can be brought in production in 15 months after securing development funding.
- Economics are excluding Inferred mineral resources that may be potentially brought into the mine plan on completion of infill drilling.
Conclusion: The IPO will provide development capex for the project as well as put a market value estimate on the interest in Singida. We are looking forward to results of the IPO.
Vast Resources (LON:VAST) 0.16p, Mkt Cap £12.0m – Manaila polymetallic mine update
- The Company decided to leave operations at Manaila on care and maintenance and will only be reopened after a corporate restructuring that is currently in progress.
- Operations have been temporarily suspended since mid-December due to cold weather conditions with general repairs and maintenance carried in the meantime.
- The Company is in the middle of a corporate restructuring that seeks to implement a consolidation of the group’s assets to reduce cots and improve income generation of the Group.
- The Company has also decided to cease quarterly reporting amid continuing restructuring.
Conclusion: While suspending Manaila reduces concentrate production, the decision will help the Group to reduce the cash burn at operations that cost the group $1.0m and $3.1m in FCF in FY18 and FY17, respectively.