SP Angel – Morning View –Thursday 04 04 19
China import inflection highlights importance of global rare earth investment
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Atalaya Mining (LON:ATYM) – Strong performance at Proyecto Riotinto lifts 2018 results
Botswana Diamonds (LON:BOD) – Drilling defines bulk sampling targets at Thorny River
China import inflection highlights importance of global rare earth investment
- The transition to net importer will only increase global reliance on ex-Chinese rare earth production, highlighting the significance of advanced-stage exploration and development project including Mkango Resources’ Songwe Hill resource.
- The Asian nation has historically dominated export markets, raising shipments overseas by 4% yoy to more than 53,000t in 2018.
- The country imported 41,400t of rare earth oxides and oxide equivalents in 2018, up 167% yoy, as a crackdown on illegal production reduced domestic output, according to a report by consultancy Adamas Intelligence.
- Import volumes last year have surged to levels 10x higher than before 2015 reports China Merchants Securities analysts.
- Limiting the mining output quota for the first half of 2019 to 60,000t, down 18.4% from a year earlier, is placing even more emphasis on imports as domestic demand across technology sectors continues to expand. The joint statement of the Ministry of Industry and Information Technology and the Ministry of Natural Resources places restrictions at 50,400t light rare earths and 9,600t of medium and heavy rare earths.
- “It is already an industry consensus that the total (quotas) cannot meet the demand of China’s domestic market”, according to deputy secretary general of the Association of China Rare Earth Industry.
- Rare earth concentrates imported by China in 2018 and early 2019 have been largely sourced from Myanmar, with growing fears illegally mined Chinese material is being smuggled across borders.
- Adamas Intelligence managing director Ryan Castilloux adds “there needs to be a major increase (in production quotas) dedicated to heavy rare earths if China is to make up for impending lack of supplies from Myanmar”.
- The relevance of expanded rare earth resources such as Songwe Hill is therefore growing. Following a successful drilling campaign in 2018, Mkango Resources increase the Measured and Indicated Resource by 60% to 21Mt @ 1.41% TREO.
- The fully funded project to development decision was also significantly de-risked as the next £7m tranche of Talaxis investment was triggered to fund completion of the feasibility study.
- The updated technical study highlights the ability of the resource to support the Company’s long-term strategy of sustainable ex-China producer of neodymium, praseodymium, dysprosium and terbium used in permanent magnet motors for electric vehicles, wind turbines and other clean technologies.
Trump’s Mexico border threats smashes avo prices to fresh highs
- Trump’s latest US-Mexico border rhetoric has Hass avocado prices surging the most in almost a decade, with closure threatening major supply of the fruit.
- The Mexico City Hass price from Michoacan, the heartland of Mexican avocado production, jumped 34% on Tuesday. That would be the biggest one-day gain since April 2009.
- A demand shift has purchases rushing to get product into the US quickly on the risk of border closure. Mexican avocados account for 75-80% US consumption, with 16% find their way to Californian brunch plates.
- Avocado, once mainly confined to dips and salads, is now seen as a super-food thanks to its nutritional characteristics and smooth texture.
Canada’s cannabis mania driving junior miners to new markets
- Spiking interest in Canada’s emerging cannabis sector as recreational use was legalised in October is sucking investment capital away from the mining sector, hitting juniors hardest.
- According to BDO’s new study, investments in Canadian cannabis companies increased from C$43m to C$770m from the first half of 2016 to the same period in 2017.
- In direct contrast, total mining companies listed on the Toronto Stock Exchange and TSX-V dropped 25% from 2017 to 2018. During the period financing for juniors has decreased by 58% for those listed in the TSX and 23% for TSX-V from 2017-2018.
- The report warns if investors shy away from greenfield exploration projects, there will inevitably be a very limited number of new projects to be developed in the future, creating an industry glut.
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Economics
World growth rate picks up to four-month high led by gains in the services sector, the latest Global Composite PMI data suggests.
- The survey showed output growth was accompanied by stronger new orders’ reading that hit a four month high.
- With no US/China trade conflict resolution, global trade continued to suffer as new export orders are reported to have dropped for the seventh straight month and at the steepest rate since May/16.
- Country-wise, US remained the main spur of global economic growth, despite seeing its rate of expansion ease to a two-month low.
- Accelerated growth in China, Brazil and Russia also helped.
- Euro area and Japan posted weaker growth numbers with the UK in stagnation and Australia in contraction.
- “According to the global PMI, the rate of global economic growth picked up to a four-month high in March, as the stronger performance of service providers offset the ongoing lacklustre conditions in manufacturing… with new order intakes and employment also continuing to rise, the PMI suggests the global economy will expand at a solid yet steady pace in the months ahead, “ Markit/JPMorgan commented on the data.
- Composite PMI: 52.8 v 52.6 in Feb.
US – President Trump is set to meet with VP Liu He today as the momentum gathers pace for a potential solution to the US/China trade row.
- White House economic advisor Larry Kudlow told reports yesterday that Beijing for the first time admitted that the US has legitimate gripes about intellectual property theft, forced transfer and cyber hacking.
- Negotiations are believed to be centred around implementation and enforcement issues of the new trade arrangements.
Germany – Manufacturing orders dropped at the fastest pace in two years in February with declines registered both in domestic and foreign markets.
- Domestic orders decreased 1.6%mom and foreign orders were down 6%mom.
- Total orders fell 8.4%yoy in February and are set to post another weak reading in March as manufacturing PMI posted the lowest reading since Jul/12 last month.
- Additionally, new orders were reported to have fallen the most since Apr/09.
UK – Commons pass a bill to prevent no-deal Brexit by one vote in a late session yesterday forcing Theresa May to seek an extension to the 12 April deadline.
- The bill set in motion by Labour’s Yvette Cooper and the Conservative Sir Oliver Letwin now needs to be passed through the House of Lords.
- UK car registrations fell 3%yoy in March reflecting weak consumer confidence, according to preliminary data from the Society of motor Manufacturers and Traders (SMMT).
- Sales of diesel vehicles were down 20%yoy while demand for petrol cars was up 5%yoy.
Currencies
US$1.1236/eur vs 1.1237/eur yesterday Yen 111.39/$ vs 111.53/$ SAr 14.182/$ vs 14.117/$ $1.318/gbp vs $1.319/gbp 0.712/aud vs 0.712/aud CNY 6.715/$ vs 6.711/$
Commodity News
Precious metals:
Gold US$1,293/oz vs US$1,291/oz yesterday
Gold ETFs 71.8moz vs US$71.7moz yesterday
Platinum US$881/oz vs US$861/oz yesterday
Palladium US$1,413/oz vs US$1,436/oz yesterday
Silver US$15.14/oz vs US$15.18/oz yesterday
Base metals:
Copper US$ 6,503/t vs US$6,495/t yesterday
- Output from the world’s larger copper miner is at risk of tumbling unless the ongoing funding arrangement can be agreed. President Sebastian Pinera’s government will begin discussing a funding package for state-owned Codelco following passing of Chile’s Congress tax reform bill.
- Codelco has said it needs the Chilean government to resume funding an ongoing $21bn program to expand and upgrade its operations, some of which are over a century old, in order to avoid a decline in production. In 2018, output fell 3.2% and costs rose to the highest in four years. The struggle to maintain output at Codelco is happening amid slipping global stockpiles and expectations the market will end the year in deficit.
- Without funding “it is obvious that Codelco production would go down, and that the state’s income would go down”, according to Mining Minister Baldo Prokurica. The Company would turn to debt, expected to soar from $14bn to $21bn according to CEO Nelson Pizarro.
- However, the government’s bid to pass the tax reform this year is proving challenging as Pinera’s conservative coalition lacks a majority in both the Chamber of Deputies and the Senate, while a preliminary vote on debating the bill has been postponed twice.
- “Codelco’s debt is not the same as that of a private company because it has the state behind it, but we see their current debt levels as sufficient,” the minister said. “There is a will to assist Codelco so the debt doesn’t escalate excessively.”
Aluminium US$ 1,895/t vs US$1,899/t yesterday
Nickel US$ 13,225/t vs US$13,345/t yesterday
Zinc US$ 2,928/t vs US$2,900/t yesterday
Lead US$ 2,014/t vs US$1,998/t yesterday
Tin US$ 21,125/t vs US$21,245/t yesterday
Energy:
Oil US$69.2/bbl vs US$69.8/bbl yesterday
Natural Gas US$2.679/mmbtu vs US$2.680/mmbtu yesterday
Uranium US$25.85/lb vs US$25.60/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$91.0/t vs US$88.6/t
Chinese steel rebar 25mm US$627.6/t vs US$623.7/t
Thermal coal (1st year forward cif ARA) US$70.3/t vs US$70.8/t
Coking coal futures Dalian Exchange US$187.6/t vs US$187.6/t
Other:
Cobalt LME 3m US$31,500/t vs US$31,500/t
NdPr Rare Earth Oxide (China) US$41,443/t vs US$41,890/t
Lithium carbonate 99% (China) US$9,690/t vs US$9,690/t
Ferro Vanadium 80% FOB (China) US$56.0/kg vs US$57.5/kg
Antimony Trioxide 99.5% EU (China) US$6.5/kg vs US$6.5/kg
Tungsten APT European US$271-282/mtu vs US$271-282/mtu
Battery News
Renewables grow to a third of global power capacity
- ‘Renewable Capacity Statistics 2019’ reports strong gains in solar and wind energy have driven renewable energy to account for a third of global power capacity, according to the International Renewable Energy Agency.
- Global renewable capacity reached 2,351GW in total by the end of 2018, with hydropower still accounting for half of that. But the vast majority of the gains in 2018 came from solar and wind installations – rising 171GW throughout last year - which accounted for 84% of last year’s growth.
- Global wind capacity is now at 564GW, with solar capacity right behind at 480GW.
- The largest growth was focused in Asia, accounting for 61% of total new renewable energy installations. However, Oceania had the fastest growth rate at 17.7%, mainly driven by a huge spike in Australian solar capacity.
- IRENA Director-General Adnan Z. Amin highlights “countries taking full advantage of their renewables potential will benefit from a host of socioeconomic benefits in addition to decarbonising their economies”.
- While positive, sustained growth is necessary to achieve global climate objectives and Sustainable Development Goals. Recently reported by the International Energy Agency, worldwide energy demand increased 2.3% in 2018, and emissions reached a record high along with that fast pace. Demand for all fuels increased globally, with natural gas accounting for 45% of the rise in energy consumption.
- The World Economic Forum recently stressed a “need for speed in energy transition,” arguing that renewable growth is still not happening fast enough.
Company News
Atalaya Mining (LON:ATYM) 236.5 pence, Mkt Cap £324.8m – Strong performance at Proyecto Riotinto lifts 2018 results
- Atalaya Mining an 89% increase in 2018 profit to €34.4m (2017 - €18.2m) as its flagship Proyecto Riotinto performs ahead of expectations.
- Increased copper in concentrate production, up 13% to 42,114t (2017 – 37,164t), in conjunction with an 11% rise in received copper prices to US$2.95/lb increased operating revenues by 18% to €189.5m (2017 - €160.5m).
- Cash costs rose by 1.6% to US$1.94/lb while on an all-in-sustaining basis costs declined by 1.7% to US$2.26/lb.
- EBITDA increased by 29.5% to €53.5m (2017 - €41.3m) while operating cash flow increased by 81.4% to €55.3m (2017 - €30.5m). After investing €65.7m as the company presses ahead with the expansion of the Proyecto Riotinto to 15mtpa, Atalaya reports a 31st December 2018 cash balance of €33.1m (2017 - €42.9m).
- Operationally, Proyecto Riotinto treated 11.4% more ore at 9.8mt in 2018 while the expansion to 15mtpa”remains on track for mechanical completion at the end of Q2 2019”. At the end of December, over 80% of the project work had been completed and the company reports that:
- earthworks are complete;
- mechanical equipment in the flotation and concentrate handling areas is complete;
- Structural steel work in the flotation area has been finalised and the installation of pipework is underway; and
- Piping in the concentrate handling area has been completed and the electrical installation is now well underway
- At Proyecto Touro in northern Spain, environmental impact assessment documents have been submitted to the authorities and “a number of queries have been addressed and cleared as part of the consulting and permitting process. Atalaya is looking forward to the evaluation of the project from a regulatory perspective which is the next step in the permitting process.”
- Pre-feasibility studies indicate that Proyecto Touro in capable of producing 30,000tpa of copper in concentrate with 70,000oz pa of silver. Pre-production capital expenditure of $165m is reported to generate a post-tax NPV8% of $180m at a long term copper price of $3.00/lb and a net all-in sustaining cost of $1.85/lb.
- Commenting, CEO, Alberto Lavandeira, said “Our second year of production has successfully built on our first, with incremental growth quarter on quarter. We are delighted to have delivered ahead of or in line with expectations across the majority of our core key performance indicators, which has had a positive impact on our financials and bottom line.”
- He went on to underline that “We have achieved all this while also progressing the expansion of Riotinto, and the rate at which this programme is advancing means that we look forward to 2019 with confidence.”
Conclusion: Atalaya Mining’s strong growth during 2019 derived from the previous expansion project at Proyecto Riotinto which increased production rates from 5mtpa to 9.5mtpa, with the further expansion to the 15mtpa rate proceeding on track for mechanical completion at the end of the current quarter we expect production rates to build up during the second half of 2019. We look forward to news of the mechanical completion in the coming months.
Botswana Diamonds (LON:BOD) 0.725p, Mkt Cap £4.2m – Drilling defines bulk sampling targets at Thorny River
- Botswana Diamonds reports that, following the recent completion of its “intensification drilling programme” on the Frischgewaagt and Hartebeestfontein farms at its Thorny River project in South Africa, it has now completed a total of 3,299m of drilling in 77 drillholes, enabling it to plan a bulk sampling programme over 3.9km of kimberlite fissures distributed across five target areas.
- The bulk sampling programme “will commence after the necessary regulatory approvals have been received; these are expected during the course of Q2 2019”.
- The Thorny River project is located adjacent to the former Marsfontein and Klipspringer diamond mines and in November last year the company announced that it had reached a contractual agreement with “an experienced mining contractor”, Palaeo Minerals to undertake both bulk sampling and future full scale mining at the project.
Conclusion: We look forward to the outcome of the bulk sampling work at Thorny River in due course.