Today's Market View - China copper giant warns black swan trade war twist

Proactive Published 07/05/2019

Share X in f @

SP Angel – Morning View – Tuesday 07 05 19

China copper giant warns black swan trade war twist

CLICK FOR PDF

MiFID II exempt information – see disclaimer below

Phoenix Global Mining* (LON:PGM) – Resource upgrade at the Empire mine

Shanta Gold (LON:SHG) – Drilling results at BC underground point to extension of the life of mine

Solgold* (LON:SOLG) – Porphyry copper/gold target in southern Ecuador

Thor Mining* (LON:THR) – Drilling results from Bonya tungsten project

Walkabout Resources* (ASX:WKT) – Placement to fund project early start

China copper giant warns ‘black swan’ trade war twist

President Donal Trump’s escalation of the trade war between the world’s top economics is a ‘black swan’ event that is rattling commodities markets, as Trump threatened Beijing with steeper tariffs on the slow pace of negotiations.
Asian stocks tumbled on the announcement from top trade negotiator saying the US will raise tariffs on Chinese goods on Friday.
Base metals have been trading in a narrow range following a slump from a five-year high when the trade war broke out last summer, clouding the outlook of global growth.
The trade friction between China and U.S. will involve a long-term bargaining process and will affect market sentiment, said He Jinbi, Chairman of Maike Group, which imports about 1.3mtpa of refined copper into China, more than a third of the country’s total.
China’s copper consumption has been stable so far this year and the expansion of infrastructure and property into inland cities will support long-term usage, He said. “China’s copper consumption is still there -- though it’s a stable and weak growth that’s in line with GDP,” he said.
Growth is expected to arrive in the second half of the year as Chinese smelters move to start maintenance while global stockpiles hover at a historical medium-to-low level.
The expansion of Chinese smelters over the past few years has also altered the style of copper imports, creating more demand for concentrate. This is creating buying opportunities, with the company targeting overseas mines in the coming two-to-three years.

EIB and EBRD to back new Battery Raw Materials Investment Fund

The European Investment Bank ‘EIB’ and the European Bank for Reconstruction and Development ‘EBRD’ are to provide facilities for the launch of a new battery raw materials investment fund to promote battery raw materials production within the EU.
The fund is likely to invest in mining, raw materials processing and refining to support the EU’s Battery Alliance initiative to catch up with the massive battery plant growth in Asia. The EBRD is reported to be collaborating with EIT Raw Materials.

Potash – Turkmenistan to claim US$1bn against a company in Belarus over the construction of a $-billion potash fertiliser plant

The action is also supported by SCC which had joined as an additional party to the claim.
The Belarus-built fertilizer plant is producing well below capacity.
The Garlyk plant produced just 24,000t in the first eight months of last year vs the 2018 of 720,000t.
Turkmenistan has impounded Belarusian construction equipment

BBC Newsnight on Vale’s Brumadinho iron ore tailings dam collapse

One hundred days after the collapse of Brazil's Brumadinho dam, why did it happen?
https://www.bbc.co.uk/iplayer/episode/m0004p1w/newsnight-02052019
We also note that iron ore tailings are not generally considered to be toxic. Fatal yes, toxic no!

*Warning, this program has been balanced to make the BBC seem less leftist than it normally appears

Audi new E-Tron GT makes guest appearance in new Disney film

Auto manufacturers are placing their new EV concept vehicles in futuristic films in a move which is likely to accelerate EV sales.
Audi has placed its new E-Tron GT vehicle into Disney’s Avengers Endgame $350m superhero film.

Dow Jones Industrials

-0.25%

26,438

Nikkei 225

-1.51%

21,924

HK Hang Seng

+0.44%

29,338

Shanghai Composite

+0.69%

2,926

FTSE 350 Mining

+0.02%

19,241

AIM Basic Resources

-0.53%

2,028

Economics

US – US accused China on backtracking on trade deal risking the potential to agree the trade deal and sending risky assets down yesterday.

President Trump tweeted on Sunday he would raise tariffs on $200bn worth of Chinese imports to 25% by the end of the week and would “soon” target the remaining ($325bn) Chinese imports with tariffs citing slow progress of the negotiations.
Chinese stocks dropped 5.8% on return from week long holidays this Monday marking the biggest one-day fall in more than three years. Mainland indices are bounced back slightly this morning (Shanghai Composite Index +0.7%).
US futures pointed to further weakness on chief negotiators’ comments arguing China started to renege on prior commitments.
“Over the course of the last week or so we have seen an erosion in commitments by China,” Mr Lighthizer said.
“A big change in direction for the negotiations,” Mnuchin commented on the situation.
Liu He, a Chinese vice-premier, was due to lead a delegation of high level Chinese officials on a trip to Washington for the next round of discussions this week. The trip has been confirmed by the Ministry of Commerce this morning.
Labour data released on Friday showed robust gains in employment numbers in April with jobless rate down at 3.6% (mostly attributed to weaker participation), that, surprisingly, failed to translate into labour earnings growth pressures.
NFP (‘000): 263 v 189 (revised from 196) in March and 190 forecast.
Unemployment Rate: 3.6% v 3.8% in March and 3.8% forecast.
Av Hourly Earnings (%mom/yoy): 0.2/3.2 v 0.2/3.2 in March and 0.3/3.3 forecast.

China – Beijing responded to Trump tweets using the local state media arguing China will not make concessions in repose to tariff threats.

“Things we think are advantageous for us, we will do it even without anyone asking,” the People’s Daily reported relaying Beijing position.
“Things that are unfavourable to us, no matter how you ask, we will not take any step back. Do not even think about it.”
The government may add to official stimulus in response to new tariffs including more tax cuts, incentives for appliance and car purchases and a further reduction in borrowing rates, market commentators suggested,

Japan – Manufacturing sector returned to growth in April, but only modestly.

The Nikkei Markit PMI climbed to 50.2 in April, up from its March reading of 49.2.
An increase is attributed to weaker downturns in the index’s two key components, output and new orders. Although, export orders drop accelerated during the month highlighting challenging overseas demand conditions.
Employment climbed and business confidence increased to five-month high.
Manufacturing PMI: 50.2 v 49.2 in March.

Germany – Factory orders missed expectations on weak domestic demand in March.

Factory Orders (%mom/yoy): 0.6/-6.0 v -4.0/-8.1 (revised from -4.2/-8.4) in February and 1.4/-5.4 forecast.

Turkey – Istanbul mayoral elections results have been cancelled by the election board which is dominated by the ruling AKP members.

The ruling AK party founded by Recep Tayyip Erdogan lodged a number of challenges claiming voter fraud and other irregularities.
Unsurprisingly the board is contesting the win of the opposition leader Ekrem Imamoglu who narrowly claimed a victory in March beating the AKP candidate Binali Yildirim.
A number of recounts have also failed to overturn the winning margin.
The lira is off 1.3% this morning on the back of the news.

Currencies

US$1.1216/eur vs 1.1184/eur last week Yen 110.64/$ vs 111.53/$ SAr 14.472/$ vs 14.508/$ $1.313/gbp vs $1.303/gbp 0.703/aud vs 0.701/aud CNY 6.763/$ vs 6.735/$

Commodity News

Precious metals:

Gold US$1,284/oz vs US$1,269/oz last week – 20-years since Gordon Brown’s Brown Bottom

The BBC today mark the 20th anniversary of the sale of gold from the Bank of England by Gordon Brown.
Brown sold 401 tonnes of UK gold reserves at an average price of $275/oz for some $3.5bn in revenue.
Today the gold would be worth >$16bn
The UK Treasury were happy to support the sale despite warnings from the Bank of England.
While a number of central banks had been selling gold at around the time, Gordon Brown’s very public auctions of UK gold had the effect of dragging the market lower with each new auction.
The gold price has made a significant and predictable recovery since the Brown Bottom hitting a peak of $1,900/oz in 2011.
Central banks are now net buyers of gold with prices looking likely to trend higher particularly with the ongoing US – China trade dispute.

Gold ETFs 70.5moz vs US$70.9moz last week

Platinum US$884/oz vs US$853/oz last week

Palladium US$1,353/oz vs US$1,360/oz last week

Silver US$14.94/oz vs US$14.62/oz last week

Base metals:

Copper US$ 6,254/t vs US$6,163/t last week

Aluminium US$ 1,798/t vs US$1,836/t last week

Nickel US$ 12,125/t vs US$12,155/t last week

Zinc US$ 2,739/t vs US$2,747/t last week

Lead US$ 1,887/t vs US$1,874/t last week

Tin US$ 19,565/t vsUS$19,360/t last week

Energy:

Oil US$71.0/bbl vs US$70.8/bbl last week

Natural Gas US$2.519/mmbtu vs US$2.580/mmbtu last week

Uranium US$25.00/lb vs US$25.20/lb last week

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$91.1/t vs US$91.4/t

Iron ore’s rally reignites as Brazilian giant Vale SA’s operations were hit by fresh disruptions at one of its major mines, raising the chances for $100/t levels. A local court in Brazil suspended a decision allowing Vale’s operation at Brucutu to resume; a project which accounts for 1.5-2% of seaborne supply.
The global iron ore market has been convulsed this year by a series of hits to supplies in Brazil and Australia at a time of record steel production in China. Vale suffered a fatal dam disaster in January that spurred mine suspensions. In the latest setback, the ruling by a court in Minas Gerais state forced Vale to halt wet-processing operations at the 30mt Brucutu site, hitting output just after supply had resumed.
Annual supply losses could account for as much as 120mt, with futures in Singapore advancing as much as 2.8% to $93.57/t to bring the total year-to-date gain to 31%.
Following the decision, Vale pared back expectations for 2019 volumes, reporting sales of iron ore and pellets should be at the middle-to-lower end of its guidance of 307-332mt.

Chinese steel rebar 25mm US$644.0/t v US$646.1/t

Thermal coal (1st year forward cif ARA) US$71.7/t vs US$70.3/t

Coking coal futures Dalian Exchange US$172.7/t vs US$179.4/t

China’s top coal and coke producing region, Shanxi, has relaxed environmental policies regarding output despite repeated orders from Beijing to curb production from coke plants, according to the Ministry of Ecology and Environment.
The MEE has said the province had allowed and encouraged the expansion of coke capacity and had also fallen behind on a campaign to switch rural households to gas rather than coal for heating.

Other:

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

NdPr Rare Earth Oxide (China) US$39,702/t vs US$39,869/t

Lithium carbonate 99% (China) US$9,759/t vs US$9,726/t

Ferro Vanadium 80% FOB (China) US$50.5/kg vs US$51./kg

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

Tungsten APT European US$270-280/mtu vs US$270-282/mtu

Battery News

CATL outperforms battery market by a factor of five

In March 2019, total passenger EV battery capacity deployed globally with major CATL cells was 553% higher one year earlier, according to Adamas Intelligence.
Over the same period, total passenger EV battery capacity deployed increased by a lesser 94%, meaning that CATL outperformed the market by a factor of almost five.
In March 2019, CATL was responsible for 13% of all passenger EV battery capacity deployed globally, slightly less than compatriot BYD, and less than half the market share of Panasonic.

Renewable energy capacity stalls worldwide after nearly two decades of annual growth

Global renewable energy net capacity expanded as much in 2018 as it did in 2017.
The new report comes from the International Energy Agency, which calls the added net capacity “an unexpected flattening of growth trends that raises concerns about meeting long-term climate goals.”
The IEA says the world added 177GW of renewable energy net capacity in 2018, the same as in 2017. Solar, wind, hydro, bioenergy, and other renewable sources are counted in that net capacity. This is only enough to meet 60% of the annual net additions necessary to meet long-term climate goals.
A change in China’s solar PV incentives was the main reason for the slowdown, the IEA claims. Nevertheless, China still made up nearly 45% of the total capacity increase in renewable electricity last year.
The EU saw a slight overall decline in renewable additions, while the US experienced a slight increase in growth. Other countries saw accelerated growth, which made up for the remaining deficit to equal 2017’s numbers.
The International Renewable Energy Agency (IRENA) previously reported the world added 171GW of renewable net capacity in 2018, which pushed renewable capacity to make up a third of the world’s total power capacity.
Another recent study found that 100% renewable energy is possible across all sectors by 2050, with solar handling the bulk of the energy supply.

Company News

Phoenix Global Mining* (LON:PGM) 15.5p, Mkt Cap £6.0m – Resource upgrade at the Empire mine

Phoenix Global Mining has announced an increase of approximately 46% or 4.75mt in the measured and indicated resources estimate for oxide mineralisation at the historic Empire mine in Custer County, Idaho.
The new estimate for measured and indicated resources, at the same 0.184% copper cut-off grade as the previous resource estimate announced in November 2017, is now 15.2mt at an average grade of 0.49% copper, 0.20% zinc, 12.4g/t silver and 0.28g/t gold compared with the previous estimate of 10.4mt at an average grade of 0.52% copper, 0.14% zinc, 9.6g/t silver and 0.21g/t gold.
A reduction of approximately 4.7mt in the inferred resources to 4.3mt at an average grade of 0.44% copper, 0.13% zinc, 9.8g/t silver and 0.32g/t gold underlines the success of the 2018 drilling programme in upgrading the inferred portion of the resource to the measured and indicated level which qualifies its inclusion in the mine development plan currently underway as part of the feasibility work for the Empire mine oxide project.
The resource update also shows increased grades of zinc (from 0.14% to 0.20%) and, possibly of greater economic significance, of silver (from 9.6g/t to 12.4g/t albeit with a minor reduction in copper grades from 0.52% to 0.49%.
We also observe that the latest estimate more than doubles the measured and indicated tonnage reported in the company’s AIM Admission Document of April 2017 which was reported at the slightly lower cut-off of 0.17% copper.
In a reference which hints at the possible development options under consideration for the oxide pit, CEO, Dennis Thomas, explained that “At a 0.325% cut-off grade, we now have over 10 million tonnes in the Measured and Indicated category at a copper grade of 0.61% copper. This will be the corner stone for the development of a low capital cost fast-track open pit oxide operation, to produce 8,000 tonnes of combined copper and zinc annually.”
At current copper prices this cut-off grade represents costs of around US$20/t.
As well as the resource upgrade, Phoenix Global Mining reports an initial, inferred, sulphide mineral resource estimate from the Red Star prospect, which was discovered during the 2018 exploration programme. Based on three drill-holes, the company reports an inferred resource of approximately 104,000t at an average grade of 173.4g/t silver, 0.85g/t gold with 0.33% copper, 3.85% lead and 0.92% zinc.
Red Star is located to the NNW of the planned oxide pit and mid-way along the emerging mineralised trend which extends for more than 5km from the Empire site, through Red Star and into Phoenix Mining’s other licence areas covering the historic Horseshoe mine and the recently acquired Windy Devil Claims. Judging by the initial results from Red Star, further exploration of the more extensive northern part of this trend may prove fruitful as the company’s assessment of its wider holdings evolves.

Conclusion: Phoenix Global Mining’s 2018 exploration programme has successfully upgraded the measured and indicated mineral resources estimate at the Empire oxide project by almost 5mt (46%) through the conversion of previously inferred resources. The initial estimate from Red Star provides a tantalising glimpse of the longer term exploration potential of the more extensive mineralised trend extending for over 5km from the Empire mine through the old Horseshoe Mine area and into the Windy Devil Claims area.

*SP Angel acts as Nomad and broker to Phoenix Global Mining

Shanta Gold (LON:SHG) 6.6p, Mkt Cap £51.9m – Drilling results at BC underground point to extension of the life of mine

Phase I of the 2019 drilling programme at the underground Bauhinia Creek mine tested areas immediately beloe the existing reserves and mine plan.
The campaign included three diamond holes drilled from 740 level averaging c.140m in depth.
All holes intersected mineralised veins with results including:
Hole CSD115 intersected 7.33 meters grading 6.24 g/t Au;
Hole CSD116 intersected 2.03 meters grading 4.77 g/t Au;
Hole CSD117 intersected 3.68 meters grading 6.57 g/t Au;
Phase II will start shortly with another three holes for around 400m testing the continuity of the orebody to the west of the area that was tested by the Phase I drilling programme.
Results of Phase I and II will be compiled and included in an updated Mineral Resource Estimate leading to life of mine extension due for the release in July 2019.

Solgold* (LON:SOLG) 38p, Mkt cap £701.6m – Porphyry copper/gold target in southern Ecuador

Solgold has announced that continuing exploration sampling at its wholly owned Porvenir licence area in southern Ecuador has extended the initial discovery along the Cacharposa Creek and along the Mula Muerte Creek which lies on the northwest side of the ridge from Cacharposa Creek.
The two sites are believed to be part of a single mineralised system which is now known to extend along an 800m wide mineralised corridor more than 1200m long.
Rock saw sampling at Carchaposa Creek has extended the original intersection of 62.4m at an average grade of 0.71% copper and 0.71/t gold (reported in January 2019) to 147.83m length with an average grade of 0.37% copper and 0.43g/g gold. The intersection is still “open-ended” implying that further extensions may be possible as the exploration proceeds.

The sampling and associated exploration is following up large scale geochemical anomalies for copper, gold, molybdenum Cu/Zn and Mo/Mn with alteration and “mineralisation styles, size and geometry consistent with exposure of a vertically extensive, well-preserved porphyry copper-gold system”

The company comments that “The additional mineralisation in the Cacharposa Creek continues to display similar characteristics to Alpala, Cascabel”

Plans for future exploration include a ground magnetic survey of the area planned to start this month as well as an airborne-magnetic survey of the entire Porvenir land-holding during Q2 2019. Initial drilling is also planned for Q2 2019.
Commenting on the expertise of the Solgold team and its advantage as a “first-mover” in Ecuador, CEO, Nick Mather, pointed out that “SolGold has identified and secured the best of an entire copper-gold province, the size and metallurgy of northern Chile. That’s a unique approach that can’t be replicated. We are confident that Alpala and now Porvenir are the first projects in a long, large and rich string of them.”
Mr. Mather also said that “The size and grade of the outcropping mineralisation at Porvenir indicates a significant copper gold porphyry system. The 150m long channel sample is significantly longer and richer than the 50m long discovery outcrop at Alpala in the Cascabel tenement, which has so far yielded a contained resource of 23 million ounces of gold and nearly 11 million tonnes of copper”.
Mr. Mather also alluded to statements earlier this year to consolidate the Cascabel project saying that “The next generation of growth in SolGold is going to come from more spectacular discoveries on a 100% basis like Porvenir. All SolGold shareholders will enjoy that growth, including hopefully the Cornerstone Capital Corporation shareholders who are soon to be availed of our bid for Cornerstone”.

Conclusion: Solgold’s efforts to expand its exploration in Ecuador beyond its initial success at Cascabel have identified a large zone of porphyry copper/gold style mineralisation in and around the Cacharposa and Mula Muerte Creeks at its wholly owned Porvenir project area in southern Ecuador. Initial sampling results are to be followed up with detailed surface and airborne geophysical surveys, which proved highly effective in targeting at Cascabel’s Alpala deposit and with initial drilling. We look forward to further news on exploration progress at Porvenir as well as from the company’s other exploration projects in Ecuador.

*SP Angel acts as broker and advisor to Solgold. SP Angel have raised funds for SolGold on eight previous occasions.

Thor Mining* (LON:THR) 0.75p, Mkt Cap £6.1m – Drilling results from Bonya tungsten project

Thor Mining has announced the latest results from its drilling at its 40% owned Bonya tungsten project in the Northern Territory where Thor Mining is in joint-venture with Arafura Resources. Bonya is located adjacent to Thor Mining’s wholly owned Molyhil tungsten deposit.
The assay results, which come from 9 holes drilled at the Samarkand deposit, are from portable X-Ray fluorescence analysis and are hence subject to laboratory confirmation
The results highlighted include:
A 15m wide intersection averaging 0.44% tungsten trioxide from a depth of 19 metres in hole 19RC 026; and
An 8m wide intersection averaging 0.36% tungsten trioxide from a depth of 38 metres in hole 19RC 028; and
An 11m wide intersection averaging 0.61% tungsten trioxide from a depth of 64 metres in hole 19RC 028 which includes a section of 2m width at an average grade of 0.21% copper from 69m;
Additional copper intersections include
A 5m wide intersection averaging 0.5% copper from 9m depth in hole 19RC029; and
A 12m intersection averaging 0.69% copper from 22m depth in hole 19RC030; and
A 6m wide intersection averaging 0.97% copper from 38m depth in hole 19RC032
Executive Chairman, Mick Billing, said that “We look forward to the full laboratory assays from this drill program, along with results from the trench sampling from Marrakech and Tashkent, all expected during May."
He also explained that “The proposed Molyhil processing facility is designed to extract copper as well as tungsten and molybdenum so any primary copper at Bonya can be extracted at minimal additional cost."

Conclusion: Drilling at Bonya is continuing to deliver encouraging XRF determined grades of both tungsten and copper. Although these will need to be validated by laboratory assay, the proximity of Bonya to Thor Mining’s Molyhil tungsten project, where the planned processing plant is being designed with the flexibility to extract copper as well as tungsten, should require a lower resource threshold than a stand-alone project at Bonya.

*SP Angel act as joint broker to Thor Mining

Walkabout Resources* (ASX:WKT) A$0.29, Mkt Cap A$88.23m – Placement to fund project early start

Simultaneous with an integrated international project ‘early-start’, Walkabout finalise a placement of $3.1m at a price of A$0.23 for a 10% discount to the 5-day volume weighted average price.
The objective of the early-start program is to advance the project construction process alongside funding negotiations, giving a reduction of the project construction timeline due to the period of manufacture of equipment in China.
An agreement has been executed with Yantai Jinpeng Mining and Machinery Co to commence with primary and long lead equipment procurement and manufacture for a down payment of US$0.5m and a final payment of US$0.5m upon delivery.
The long lead equipment focuses on the milling and float plant, and offer potential time saving of between 2 and 3 months through early procurement.
In agreement with stakeholders and local authorities, the company has made payment to select group of land-holders and has attained access to areas of the “foot-print affected” site. The remaining payments need to be finalised before mid-July 2019 in order to not breach the legislated payment window of 6 months.
Tanzanian earthworks and mining contract partner TNR Ltd have been contracted to commence early siteworks, demonstrating the company’s readiness to commence construction.
Increasing graphite exploration and development in the Ruangwa region has drawn considerable investment by business and government, focusing on the sealing of primary road to the south and ports.
Walkabout implemented its funding strategy to run simultaneously with two options;
A high-yield short term quasi-debt instrument (High Yield Note) offered to wholesale and sophisticated investor and shareholder groups. This Note will be underpinned by elective equity conversions or loan redemption and ultimately secured by the mineral asset; and/or
A high-yield short term debt provided by one or more institution/s under similar but not identical terms as above
Both options are currently in advanced stages of preparation and negotiation. It is the intention of the company to maximise the debt portion within the servicing capacity of the Project.

Conclusion: The funding and early-start commitment is significant in the timely development of the Lindi Jumbo project. We look forward to learning about the funding strategy to bring first production of this high-grade, jumbo flake product to feed fundamental expandable graphite industries.

*SP Angel acts as UK Broker to Walkabout Resources Ltd