Today's Market View - Metals prices buoyed by Beijing trade talks

Proactive Published 01/05/2019

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SP Angel – Morning View – Wednesday 01 05 19

Metals prices buoyed by Beijing trade talks

MiFID II exempt information – see disclaimer below

Base Resources (LON:BSE) – Kwale North Dune mineral resource estimate

Bushveld Minerals* (LON:BMN) – Vanchem acquisition to potentially add 4,200mtVpa and unlock Mokopane Vanadium Project

Galileo Resources (LON:GLR) – Offtake negotiations for Star Zinc

Hummingbird Resources (LON:HUM) – Liberia assets update

Mkango Resources* (LON:MKA) – Full year 2018 results

Dow Jones Industrials

+0.15%

26,593

Nikkei 225

-0.22%

22,259

HK Hang Seng

-0.65%

29,699

Shanghai Composite

+0.52%

3,078

FTSE 350 Mining

-0.05%

19,504

AIM Basic Resources

-1.10%

2,009

Economics

US policymakers and President Trump are considering a massive US$2tn infrastructure programme covering roads, bridges, power grids, water and broadband infrastructure.

Little clarity has emerged on the way the US is planning to fund the programme.
“We agreed on a number, which was very, very good – US$2tn for infrastructure. Originally we had started with a lower – even the president was eager to push it up to US$2tn,” Senate Democratic leader Chuck Schumer said.

Currencies

US$1.1225/eur vs 1.1188/eur yesterday Yen 111.47/$ vs 111.38/$ SAr 14.282/$ vs 14.373/$ $1.306/gbp vs $1.295/gbp 0.705/aud vs 0.704/aud CNY 6.735/$ vs 6.739/$

Commodity News

Precious metals:

Gold US$1,280/oz vs US$1,284/oz yesterday

Gold ETFs 70.9moz vs US$70.9moz yesterday

Platinum US$883/oz vs US$899/oz yesterday

Palladium US$1,378/oz vs US$1,372/oz yesterday

Silver US$14.89/oz vs US$14.96/oz yesterday

Base metals:

London metal prices broadly climbed, buoyed as talks aimed at ending a bitter trade war between China and the US started in Beijing. US Treasury Secretary Steven Mnuchin described a working dinner with China Vice Premier Liu He the night before the talks as "nice".
Copper miner Rio Tinto "firmly believes" Washington and Beijing will reach a trade deal, its chief executive told the CNBC television network, adding that Rio's order books are "absolutely full".
Three-month copper on the London Metal Exchange had risen 0.3% to $6434.50/t, aluminium gained 0.6% and nickel advanced 0.9%, although zinc eased 0.1%.
President Donald Trump called for a sharp interest rate cut and renewed "quantitative easing" to pump trillions of dollars into the economy as the U.S. Federal Reserve officials met for their latest policy discussion.

Copper US$ 6,415/t vs US$6,396/t yesterday

Aluminium US$ 1,797/t vs US$1,828/t yesterday

Nickel US$ 12,201/t vs US$12,410/t yesterday

Zinc US$ 2,826/t vs US$2,792/t yesterday

Lead US$ 1,925/t vs US$1,969/t yesterday

Tin US$ 19,650/t vs US$19,655/t yesterday

Energy:

Oil US$71.3/bbl vs US$72.3/bbl yesterday

Natural Gas US$2.574/mmbtu vs US$2.593/mmbtu yesterday

Uranium US$25.20/lb vs US$25.30/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$91.0/t vs US$91.5/t

Chinese steel rebar 25mm US$646.0/t vs US$645.6/t

Thermal coal (1st year forward cif ARA) US$70.9/t vs US$71.2/t

Coking coal futures Dalian Exchange US$179.4/t vs US$173.1/t

Other:

Cobalt LME 3m US$34,500/t vs US$34,500/t

Zhejiang Huayou Cobalt Co., the world’s top cobalt refiner, fell by its daily limit in Shanghai after posting a 98.6% slump in 1Q net income and warning of possible losses to come.
Decline in cobalt prices has weakened profitability, and cumulative net profit by end of next reporting period could be negative or significantly lower than year earlier, co. said.
1Q net income was 12.4m million yuan vs 850.5 million a year earlier.
Cobalt prices down ~62% from year ago, according to Fastmarkets data

NdPr Rare Earth Oxide (China) US$39,867/t vs US$39,841/t

Lithium carbonate 99% (China) US$9,725/t vs US$9,719/t

Ferro Vanadium 80% FOB (China) US$51.0/kg vs US$51.0/kg

Antimony Trioxide 99.5% EU (China) US$6.1/kg vs US$6.1/kg

Tungsten APT European US$270-282/mtu vs US$270-282/mtu

Battery News

Renewable energy to outpace coal for first time ever in US

Renewables (including hydro, solar, wind, biomass, and geothermal) are projected to generate more electricity than coal-fired plants in April, according to the Institute for Energy Economics and Financial Analysis (IEFFA).
The IEEFA also notes that new data from the US Energy Information Administration projects renewables to surpass coal in May.
Estimates show renewables generating 2,322 and 2,271 thousand megawatt-hours per day in April and May. Coal is expected to reach 1,997 and 2,239 thousand MWh/day during those same two months.
Energy-related CO2 emissions are also expected to fall in 2019 and 2020 after an increase last year. Part of this is due to an expected return to “near normal” temperatures over the next few years. But the other major factor is the increasing share in renewables and natural gas, compared to coal.
Renewables are now competing with coal in the same way natural gas was a few years ago. The IEEFA points out natural gas surpassed coal for the last time in January 2018, and “has held the uncontested top spot in electricity generation ever since.”

Company News

Base Resources (LON:BSE) 15p, Mkt Cap £175m – Kwale North Dune mineral resource estimate

African mineral sands producer, Base Resources, reports a total, JORC compliant, mineral resource estimate for the Kwale North Dune deposit in southern Kenya of 171mt at an average heavy mineral grade of 1.5% based on a 1% cut-off grade.
Approximately 80% (136 mt) of the resource is classified as indicated with the balance as inferred.
The company explains that the “Kwale Operation is currently based on the Central Dune and South Dune deposits, with mining operations to date focused on the Central Dune. A transition to the South Dune deposit is scheduled for June 2019”.
Despite a relatively high slimes content (38%) in the North Dune resource, in “expectation that the resource will support modest extensions to the Kwale Operations, a further drilling programme will now be completed on the North Dune deposit to allow a better understanding of the resources and a study phase commenced to assess the economics of potential life extensions.”
The company also reports that “In addition, some potentially valuable mineralisation was identified in the lower sandstone unit (which normally forms the basement to the Kwale Central Dune and South Dune deposits) … The mineralogy of this unit is quite different to the much younger overlying units … [and] … If it were to be mined, its saleable products would likely only be rutile and zircon”.

Conclusion: Base Resources is currently working on the Feasibility Study for its Toliara mineral sands project with a view to production in late 2021. The North Dune resource suggests scope for extension of the life of the existing Kwale sands operation, however, the high slimes content may limit how much of the resource will ultimately be incorporated in the mine plan.

Bushveld Minerals* (LON:BMN) 30p, Mkt Cap £16.8m – Vanchem acquisition to potentially add 4,200mtVpa and unlock Mokopane Vanadium Project

BUY – Target price under review

Integrated vanadium producer, Bushveld Minerals, announce entering into a business and share purchase agreement with Vanchem Vanadium Products Ltd (VVP) to acquire complementary vanadium production assets in South Africa.
The Company is acquiring the Vanchem Business for an aggregate Consideration of US$68m, settled in two phases:
US$6.8m paid on 30 April 2019; and
US$61.2m settled no sooner than 31 July 2019 and no later than 31 October 2019.
The Vanchem Business consists of integrated vanadium extraction and production facilities comprising:
Core salt-roast processing plant, including 3 roasting kilns, that output vanadium trioxide and pentoxide;
Electric smelting ferrovanadium converter, located at the Highveld Steel & Vanadium site, for conversion of vanadium trioxide to ferrovanadium;
Alumino-thermic smelting facility, located at Highveld, which converts vanadium pentoxide into ferrovanadium; and
Vanadium chemical plant producing various vanadium chemical products.
In addition, Bushveld will acquire 100% of the outstanding shares of Ivanti, which has economic rights to certain secondary vanadium units treated within the Vanchem Plant and generates profits from the sale of these secondary units to the Vanchem Plant. VVP will hold rights to 50% of Ivanti profits for a period of 12 months following the completion of the transaction.
The acquisition is consistent with the Company’s long-term strategy of acquiring existing, low cost scalable brownfield operating assets in South Africa to expedite the development of the Company’s significant and high-grade resource base. The transaction offers a pathway to production capacity of 10,000mtV/annum.
The Vanchem Business provides immediate production growth, adding an estimated 80mtV per month (approx. 960mtV on an annualised basis), utilising only one of three kilns on site (20-25% kiln capacity).
The acquisition also unlocks the potential supply of the feedstock from the Company’s Mokopane Vanadium Project significantly reducing development capex and accelerating the development schedule. By transporting a crushed, screened and dry magnetic separated ore approx. 200km for beneficiation at the Vanchem Plant, capital expenditure requirements are reduced to US$20m.
The expedited Mokopane development as primary feedstock does not remove the optionality to construct a primary vanadium beneficiation plant at Mokopane, as demonstrated in the 2016 PFS by MSA Group Ltd.
Vanchem processing facilities also provide product diversification producing vanadium oxides, ferrovanadium and vanadium chemicals in addition to the Vametco’s Nitrovan offering.
Refurbishment costs to bring all three kilns online are estimated at approx. US$45m. The capital expenditure is planned to be spent over a five year period, from the completion of the transaction, to allow the plant to reach a 4,200mtV/annum steady state.
The Company plans to finance the entire Consideration, the associated capital expenditure and Mokopane development from existing cash resources, future cash flows and, to the extent necessary, debt facilities.
CEO Fortune Mojapelo adds “The vanadium chemicals capability will be particularly key as the Company grows its exposure to the emerging stationary energy storage industry through vanadium redox flow batteries”.

Conclusion: The acquisition brings a number of benefits to the Group potentially ramping up production by 4,200mtVpa (ie more than doubling the current output rate), bringing the Group closer to the 10,000mtVpa target, unlocking the Mokopane Vanadium Project at significantly reduced development cost ($133m in acquisition and ramp up costs is c.45% of the DFS Mokopane development capex) and accelerated schedule (first Mokopane concentrate may be start feeding the Vanchem plant in 12 months period following the completion of the deal), significantly improving flexibility of existing operations reducing reliance on a single processing plant (number of kilns to go up to four from current one) and mine, expanding the final product mix including the output of vanadium electrolyte from the Vanchem’s existing chemical plant. The deal secures a cash generative asset and increases the Group exposure to the commodity supported by a structural deficit market dynamics. We will update our earnings and production estimates and release undated numbers in due course.

*SP Angel acts as Nomad & broker to Bushveld Minerals.

Galileo Resources (LON:GLR) 0.545 pence, Mkt Cap £1.7m – Offtake negotiations for Star Zinc

Galileo Resources reports that it is starting negotiations with Jubilee Metals Group (JMG) for the supply of ore from its Star Zinc project in Zambia to JMG’s recently acquired Sable zinc refinery in Kabwe.
CEO, Colin Bird, who also serves as non-executive Chairman of JMG, explained that “We will undertake all necessary work, related to expedite producing a JORC compliant maiden resource estimate and a mining plan for ore from Star Zinc.”
Recently reported drilling results from the Star Zinc project show wide, relatively shallow, intersections of high grade zinc, assaying in some cases in excess of 20%. As a result, “Mining risk and costs would be low since the deposit is shallow, mainly near surface to maximum 60 m deep and parts of the deposit could be mined using mechanical diggers without the need for blasting”.
Earlier this month, Galileo Resources raised £500,000 which should facilitate the additional exploration required to develop a JORC compliant mineral resource and mine plan for the project. The company has indicated that the more extensive Kashitu licence area “has the potential to be a bigger resource than Star Zinc and we intend to commence a study for exploration on this prospect as soon as practicable.”
Underlining the wider strategy, Mr. Bird also explained that “Jubilee's acquisition of the Sable refinery and development plans necessitates fast tracking negotiations for an off-take agreement to supply Star Zinc ore”.

Conclusion: JMG’s acquisition of the Sable refinery from Glencore not only serves its Kabwe tailings project but now appears to be part of a wider strategy which could eventually include Galileo Resources Star Zinc project. We look forward to the initial mineral resource estimate and details of the proposed mine plan to develop Star Zinc.

Hummingbird Resources (LON:HUM) 16.8p, Mkt Cap £59m – Liberia assets update

The Company secured the 25-year Mineral Development Agreement with the Government of Liberia over a land package of c.2,000km2 including the 4.2moz Dugbe project.
The agreement provides necessary long-term framework for further exploration, feasibility studies, mine development, productions and ultimately mine rehabilitation.
Fiscal terms agreed include stabilisation of taxes/duties for 15 years, 10% government free carried interest, 3% royalty, 25% income tax and $1.5m initial signature bonus payable to Liberia’s authorities.

Mkango Resources* (LON:MKA) 8.1p, Mkt Cap £9.2m – Full year 2018 results

Mkango remain focused on the development of advanced-exploration Songwe Hill project, in addition to its other exploration deposits in Malawi, and downstream opportunities within the rare earth supply chain.
In March 2017, Mkango announced a transaction with Talaxis, whereby Talaxis invested £500,000 for 12.5% interest. In addition, Talaxis owns warrants, which could, if exercised, take their ownership to 20.8% of Mkango’s outstanding common shares.
In November of 2017, Mkango announced a further transaction with Talaxis, totalling £12m in Lancaster BVI to fund a Feasibility Study for Songwe Hill, with an option to fund project development, and a further investment totalling £2m in Maginito to further advance its downstream strategy, including the collaboration with Metalysis.
On January 28, 2018, in accordance with the Talaxis Agreement, Talaxis invested an initial £5m for a 20% interest in Lancaster BVI and a further £1m for a 24.5% interest in Maginito.
In accordance with the Talaxis Agreement, Talaxis released the second tranche £7m for a further 29% interest. The Feasibility Study focuses on the upgraded resource from the major Phase 3 diamond drilling programme comprising 91 drill holes totaling 10,900m of infill, step-out and geotechnical drilling.
On February 4, 2019, Mkango announced an updated mineral resource estimate for Songwe: 8 Mt grading 1.50% TREO in the Measured category, 12.2 Mt grading 1.35% TREO in the Indicated category and 27.5 Mt grading 1.33% TREO in the Inferred category, applying a base case cut-off grade of 1.0% TREO.
Metallurgical optimisation is underway at laboratories in Australia and Canada, focused on floatation, hydrometallurgy and acid regeneration.
Following completion of the Feasibility Study, Talaxis have the option to acquire an additional 26% by arranging funding for project development, giving Mkango a 25% free carried interest.
The funds invested in Maginito by Talaxis will be used to advance complementary downstream opportunities in the rare earths supply chain, in particular new rare earth alloy, magnet and other technologies geared to accelerating growth in the electric vehicle market, including the Metalysis Joint Venture.
Mkango have also entered a non-binding heads of terms agreement with MetalNRG for $2m exploration funding for up to 75% interest in the Thambani licence.
Thambani licence development aims to build off new airborne geophysical data, surveyed as part of a $25m World Bank funded nationwide airborne geophysical programme, confirming the presence of the previously-identified uranium radiometric anomaly along the western flank of the Thambani East Ridge.
Subsequent rock grab samples returned high-grade uranium, tantalum and niobium values, ranging up to 3.3 % U3O8, 1.9 % Ta2O5 and 6.0 % Nb2O5 across 85 samples.
New areas of high-grade uranium, tantalum and niobium mineralisation were also identified at the foot of the West Ridge and on the East Ridge, becoming the focus of future exploration.
For the year end 31 Dec. 2018 total assets rise to $2.69m from $0.99m in Dec. 2017.
For the year end 31 Dec. 2018 shareholder surplus surged to $5.04m from $1.25m loss in Dec. 2017.

Conclusion: Mkango have very productively advanced both rare earth and uranium projects in Malawi, securing strong partnerships and funding the systematically progress each project to production.

*SP Angel act as Nomad and broker to Mkango Resources. The analyst has visited the Songwe Hill exploration site.