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Today's Market View - Rare earth stocks surge as China acts to ban Myanmar imports

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SP Angel – Morning View – Thursday 16 05 19

Rare earth stocks surge as China acts to ban Myanmar imports

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MiFID II exempt information – see disclaimer below 

Anglo Asian Mining (LON:AAZ) – FY18 show +68% in free cash flow with the Board proposing 4USc final dividend

Anglo American (LON:AAL) – BUY, 126p (from 96p) – Investing $234m in a new diamond recovery vessel

Birimian Limited (LON:BGS) – Goulamina lithium project update

Kodal Minerals (LON:KOD) – see Birimian comment

Bushveld Minerals* (LON:BMN) – BUY, Target price 90p from 87p  – South Australia moves to vanadium redox-flow storage as base technology

Fura Gems (CVE:FURA) – C$30m raised for Colombia emeralds and Mozambique ruby projects

Kvango Resources (LON:KAV) – Laws of probability to be rewritten after Kvango strikes mineralisation in first and second drill holes under Karoo sand in Botswana

Strategic Minerals* (LON:SML) – Redmoor Scoping study indicates potential to construct new tin/tungsten mine in Cornwall

Thor Mining* (THR LN) – Drilling results from Hawkstone Mining’s Big Sandy lithium project

 

Rare earth stocks surge as China acts to ban Myanmar imports

  • Domestic China rare earth companies climbed the biggest intraday gain since April 2016 as imports of rare earth ore from Myanmar through Tengchong in the nations Yunnan province were halted on May 14, according to SMM Information & Technology Co.
  • China Minmetals Rare Earth Co., China Northern Rare Earth Group High-Tech Co. and Xiamen Tungsten Co. all climbed 10%, the daily limit.
  • The location acts as the sole entry point from Myanmar into China, and there is no time frame quoted for trade to resume, with Chen Zhanheng, vice secretary-general of the Ministry of Natural Resources and Environmental Conservation, said in March that the trade would stop from mid-May.
  • China produces about 70% of the world’s mined rare earths and has strict limits on domestic output.
  • Lower first-round quota’s for domestic production are placing higher dependence on import to make up a potential shortfall in mined rare earths, according to Chen.
  • The industry will have a clearer picture on supply once the second round of production quotas is issued by the end of June.
  • Chinese dominance and variable import/export controls only serve to highlight the importance of reliable, long-term supply from ex-China projects. Importance sources of rare earths under development include Mkango Resources’ Songwe Hill project in Malawi, currently undergoing it DFS.

 

Sherpa climbs Mount Everest for 23rd time

  • Kami took the route pioneered by Sir Edmund Hillary and Sherpa Norgay in 1953.
  • He is going to climb the mountain another two times.

 

Dow Jones Industrials

 

+0.45%

at

  25,648

Nikkei 225

 

-0.59%

at

  21,063

HK Hang Seng

 

+0.32%

at

  28,359

Shanghai Composite

 

+0.58%

at

   2,956

FTSE 350 Mining

 

+1.30%

at

  19,144

AIM Basic Resources

 

-0.24%

at

   2,001

 

Currencies

US$1.1211/eur vs 1.1207/eur yesterday  Yen 109.36/$ vs 109.57/$  SAr 14.215/$ vs 14.258/$  $1.283/gbp vs $1.291/gbp  0.691/aud vs 0.692/aud  CNY 6.881/$ vs 6.867/$

 

Commodity News

Precious metals:         

Gold US$1,298/oz vs US$1,295/oz yesterday

  • Gold could see a multi-month rally as China’s retaliatory tariffs fuel bearish sentiment on the global economy, according to CEO of Sprott Inc. Peter Grosskopf.
  • While the precious metal has struggled to gain traction this year, posting three straight monthly losses through April as a strong dollar and a rally in equities drew investor demand, bullion for immediate delivery is up only about 1% this year.
  • The breakdown in trade talks creates a stronger argument for owning bullion, stocks sold off and gold rose the most in more than three months on Monday after China hit back on tariffs.
  • Speculation that the U.S., the world’s largest economy, could be in need of stimulus may further support bullion’s climb, Grosskopf said. “There’s considerable feeling that the economy is not as strong as it’s advertised to be.”

   Gold ETFs 70.4moz vs US$70.5moz yesterday

Platinum US$849/oz vs US$855/oz yesterday

Palladium US$1,345/oz vs US$1,331/oz yesterday

Silver US$14.81/oz vs US$14.79/oz yesterday

           

Base metals:   

Copper US$ 6,081/t vs US$6,074/t yesterday

Aluminium US$ 1,857/t vs US$1,840/t yesterday

Nickel US$ 12,100/t vs US$12,020/t yesterday

Zinc US$ 2,628/t vs US$2,623/t yesterday

Lead US$ 1,829/t vs US$1,819/t yesterday

Tin US$ 19,755/t vs US$19,800/t yesterday

           

Energy:           

Oil US$72.1/bbl vs US$71.0/bbl yesterday

Natural Gas US$2.604/mmbtu vs US$2.658/mmbtu yesterday

Uranium US$24.65/lb vs US$24.60/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$92.3/t vs US$90.8/t

Chinese steel rebar 25mm US$618.4/t vs US$622.3/t

Thermal coal (1st year forward cif ARA) US$71.4/t vs US$69.2/t

Coking coal futures Dalian Exchange US$179.6/t vs US$183.5/t

           

Other:  

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

NdPr Rare Earth Oxide (China) US$39,022/t vs US$39,103/t

Lithium carbonate 99% (China) US$9,665/t vs US$9,685/t

  • Rio Tinto may begin mining lithium from its Jadar Project in Serbia by 2023, as the project progressing from its preliminary stage.
  • There are 26 steps to be able to extract the lithium”, chief executive Jean-Sebastien Jacques adds. Pricing has always been an issue, but the company is becoming more comfortable with the lithium market.
  • Discovered in 2004, Jadar contains boron and lithium in high concentrations, placing it among largest lithium deposits in the world, according to Rio Tinto.
  • The green project also boasts feed of borates into insulation fiberglass and wind turbines.

Ferro Vanadium 80% FOB (China) US$45.0/kg vs US$46.0/kg

Antimony Trioxide 99.5% EU (China) US$5.9/kg vs US$6.0/kg

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

 

Battery News

China lithium production breakthrough

  • Chinese government report claims a new technological breakthrough pushes lithium production costs to record lows, with the groundbreaking process extracting lithium for 15,000 yuan (US$2,180)/t.
  • As reported in the South China Morning Post, precise costs of lithium production are “a closely guarded business secret”, with industry insiders confirming the new production rate could be the lowest cost.
  • China produces about two-thirds of all lithium-ion batteries and controls most of the world’s lithium processing facilities, with the cost saving processing a significant factor in accelerating Asian market dominance.
  • In response to rising supply risk, the US has been discussing vital new legislation – the American Mineral Security Act – which aims to create a national electric vehicle supply chain policy.
  • The act would “require a tally of metal reserves in the United States and seek to streamline permitting for the EV sector.”
  • US senator Lisa Murkowski, R-Alaska, a co-sponsor of the bill, adds “we are not doing ourselves any favours when we don’t know what we have in our inventory.”
  • Albemarle Corp operates the only lithium mine in the US — said to be capable of producing 6,000t annually — though more projects are in development.

 

More than 2 million electric vehicles sold in 2018, EVs expected to make up 57% of all sales by 2040

  • A new forecast of electric vehicle sales says more than 2 million EVs were sold worldwide last year, with sales expected to continue a rapid rise in the coming years, passing ICE cars in sales by the 2030s.
  • The analysis comes from BloombergNEF, which foresees passenger EV sales hitting 10 million in 2025, 28 million in 2030, and 56 million by 2040. At that point, EVs are expected to make up the majority of new car sales, with a predicted 57% share.
  • BNEF cites falling battery prices as a major factor driving the “rapid uptake,” expecting price parity between EVs and ICE cars by the middle of next decade. Tighter emissions regulations will also play a role.
  • By 2040, BNEF expects 500 million passenger EVs and 40 million commercial EVs on the road, but ICE vehicles will still make up most of the global fleet by then. The global ICE fleet isn’t forecasted to start declining until 2030.
  • Shared mobility services are also expected to be a major factor driving EV fleets going forward, making up 19% of total kilometres traveled by passenger vehicles by 2040. By that time, four out of five shared mobility vehicles are expected to be electric.
  • BNEF is including both all-electric vehicles and plug-in hybrids in its numbers, though all-electric vehicles will make up the vast majority of the electric segment going forward.

 

Volvo secures ‘multi-billion dollar battery supply deals’ to support its electric car plans

  • Volvo, both through Polestar and its own brand, plans to bring several new all-electric vehicles to market and in order to do that, it needs significant battery supply.
  • The automaker now says that it has secured ‘multi-billion dollar battery supply deals’ with CATL and LG Chem.
  • According to a press release Volvo Car Group signed contracts with CATL, China’s biggest battery maker, LG Chem, the Korea-based battery cell manufacturer, to buy several billion dollar worth of battery cell and modules for ” all models on the upcoming SPA2 and the existing CMA modular vehicle platforms.”
  • Currently Volvo doesn’t have a fully electric vehicle, but an all-electric XC40 compact SUV is expected to be brought to the market soon.
  • The company also relaunched its Polestar performance brand as an electric vehicle brand with a factory in China.
  • Volvo says that its “first battery assembly line is currently under construction at its manufacturing plant in Ghent, Belgium” and “it will be finalized by the end of this year.”
  • It will supply battery packs to its Compact Modular Architecture (CMA), which currently underpins the XC40, as well as the fully electric Polestar 2 fastback and several models sold by LYNK & CO, Volvo’s sister brand which it co-owns with Geely, Volvo’s parent company.
  • The company says that by the end of this year, “all three models will be built on a single production line at a Volvo-operated manufacturing plant in Luqiao, China.”

 

Company News

Anglo Asian Mining (LON:AAZ) 101p, Mkt Cap £115m – FY18 show +68% in free cash flow with the Board proposing 4USc final dividend

BUY – 126p (form 96p)

  • Revenue climbed to $90.4m (+26%) on sales of gold in dore (ex 12.75% PSA) 59.5koz (+37%) at $1,265/oz (2017: $1,265/oz) as well as $14.9m (2017: $16.4m) proceeds from copper concentrate sales.
  • AISC costs averaged $541/oz (2017:$604/oz) reflecting higher production from the agitation leaching plant with higher grades processed and better gold recoveries.
  • Costs of reagents dropped by $2.8m due to operational efficiencies and processing of easy to leach Ugur ores.
  • The Company added experienced managers to look after blasting, transportation logistics and ore handling as well as equipment maintenance.
  • EBITDA increased to $49.8m (+55%) highlighting low unit costs status of the operation with margins improving to 55%, up from 45% in the previous year.
  • PBT and PAT came in at $25.2 and $16.3m up from $5.7m and $2.5m, respectively.
  • FCF (after tax and interest) increased to $27.4m (+68%) allowing the Company to the dividend policy in place.
  • The Board recommended a final dividend of 4USc which in addition to 3USc paid in respect of H1/18 brings total dividend for the year to 7USc or $8m, equivalent to 10.2% dividend yield on 2018 average price of 53p.
  • Capital expenditures on PPE amounted to $15.3m (2017: $9.4m) including $7.2m in deferred stripping costs at Gedabek and Ugur pits, $2.8m for the jaw crusher and flotation plant related equipment, $3.0m in Gedabek and Gadir development as well as $2.3m in other costs.
  • Installation of a dedicated jaw crusher at the flotation plant allowed the Company to launch a parallel processing circuit for rich in copper sulphide material in Jul/18.
  • Exploration costs climbed to $2.9m (2017: $1.0m) in line with the management plan to discover organic growth opportunities within Gedabek, Gosha and Ordubad contract areas.
  • The Group had $17.7m in cash and $6.9m in outstanding debt as of Mar/19.
  • The Company reiterated 2019 production guidance at 82-86 GEOs including 65-67.5koz in gold and 3.1-3.3kt in copper.

Conclusion: Annual results highlight a transformational period for the year with full year contribution from Ugur, installation of the dedicated crushing unit for the flotation circuit significantly improving flexibility of processing operations, good cost control and strong FCF generation that ultimately allowed the Group to go net cash by the end of the year as well as establish 25% of FCF dividend policy.

Additionally, the Company has ramped up investment in exploration including near mine, brownfield and greenfield areas. The recently completed maiden helicopter-borne geophysical survey identified a number of new targets for follow-up exploration work again highlighting prospectivity of the region.

Further discoveries are ready to be accommodated by an extensive existing processing infrastructure at Gedabek significantly reducing operational risks as well as accelerating development schedule.

We firmly believe the three year exploration work is set to deliver on the strategy to extend the life of existing operations past 2024 as well as potentially lead to a greenfield discovery at Ordubad.

Earnings came in better than we expected (EBITDA18e $39.8m) beating forecasts on operating costs (AISC18e $612/oz) highlighting low cost status of Gedabek operations. We have adjusted our unit costs lower moving forwards leading to improved EBITDA and FCF generation numbers.

We have applied 5.0x EV/EBITDA multiple to our average EBITDA19 ($37.4m) and EBITDA20 ($41.2m) estimates as well as adjusting for $6.1m in net cash as of Dec/18 to arrive at our target valuation of $203m or 126p per share. We reiterate our BUY recommendation.

 

(Dec year end)

 

2014

2015

2016

2017

2018

2019E

2020E

Gold price

US$/oz

1,267

1,161

1,253

1,261

1,271

1,302

1,350

Copper price

$/t

6,828

5,505

4,872

6,196

6,554

6,368

7,000

Gold production

koz

60.3

72.0

65.4

59.6

72.8

67.1

65.7

Copper production

kt

0.8

1.0

1.9

2.0

1.6

3.2

3.6

GE production

koz

65.0

77.0

75.2

71.6

83.8

85.3

86.9

AISC (incl PSA, reported)

US$/oz

1,050

858

616

604

541

569

536

Revenue

US$m

68.0

78.1

79.2

71.8

90.4

95.4

99.1

EBITDA

US$m

10.1

18.7

33.7

32.0

49.8

37.4

41.2

FCF

US$m

-6.9

3.4

14.6

16.3

27.4

20.5

24.8

EV/EBITDA

x

7.7

3.1

1.7

1.7

1.5

3.8

3.5

PER

x

-

-

5.5

13.9

4.9

23.8

17.0

DY

%

-

-

-

-

10.2%

4.6%

4.6%

Net Debt

US$m

52.4

49.0

34.6

18.1

-6.1

-18.6

-36.5

*SP Angel act as Nomad and broker to Anglo Asian Mining

 

Anglo American (LON:AAL) 1957 pence, Mkt Cap £25.3bn – Investing $234m in a new diamond recovery vessel

  • Anglo American reports that its 50:50 Debmarine Namibia  joint venture with the Government of Namibia is to invest US$468m in a new, seventh, diamond recovery ship which is expected to begin production in 2022.
  • The new vessel is expected to provide an additional 500,000 carats of production capacity “a 35% increase above Debmarine’s current levels”.
  • Commenting on the investment, Chief Executive, Mark Cutifani explained that “This highly attractive investment offers a three-year payback, a more than 25% IRR and an EBITDA margin of more than 60%”.
  • De Beers’ CEO, Bruce Cleaver elaborated saying that “Some of the highest quality diamonds in the world are found at sea off the Namibian coast. With this investment we will be able to optimise new technology to find and recover diamonds more efficiently and meet growing consumer demand across the globe.”

 

Birimian Limited (LON:BGS) A$0.16, Mkt Cap A$41.0m – Goulamina lithium project update

Kodal Minerals (LON:KOD) 0.13p, Mkt Cap £11.0m

  • Independent, third-party review of the Mineral Resource and Ore Reserve inventory concludes the Goulamina project may be enhanced, to the benefit of Project NPV, with limited, targeted exploration work. Birimian has commenced exploration, which includes further drilling, expected to be completed within the Sept. quarter.
  • Updates on Mineral Resources and Ore Reserves will also be dependent on the completion of ongoing metallurgical test work program, with potential revisions to metallurgical recovery estimates.
  • The first phase of the review is High Pressure Grinding Rolls (HPGR) test work, followed by reflux classification and floatation programs. All impacts resulting from the potential use of an HPGR will be assessed, with the target of ensuring an optimised process flowsheet and metallurgical recovery estimate.
  • A detailed survey of all available road routes for concentrate export between the Goulamina mine site and the Mali ports of San Pedro and Abidjan has been completed, concluding that the available road routes to both Abidjan and San Pedro (bulk material ports in Ivory Coast) are suitable for the transport.
  • AQ2 Pty water supply report concludes the use of surface water dams for water supply is viable and likely to be the most cost effective and secure option.
  • Birimian have completed the core environmental approvals process for the project, completing the final public meetings required under the Malian ESIA process.
  • The Company also strengthened its in-house lithium expertise, hiring Marc Rowley (Project Director) and Walter Mädel (Processing Manager), who both have vast experience in the design, commissioning and operation of W. Australia spodumene mines.
  • Advances in metallurgical optimisation give strong signal for the ongoing metallurgical test work at Kodal Minerals in southern Mali. Targeting similar spodumene to Birimian, the company hope to maximise yields of the fundamental battery metal.

 

Bushveld Minerals* (LON:BMN) 25.8p, Mkt Cap £288m – South Australia moves to vanadium redox-flow storage as base technology

BUY – Target price 90p from 87p

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  • The economic and operational rationale is moving towards vanadium redox batteries following further trials and better comprehension of their advantages.
  • The number of fires, parasitic losses, degradation and shorter life span of grid-scale lithium battery instillations is also an important factor in swinging decision making towards larger and more robust vanadium redox flow batteries.
    • News yesterday that Pangea Energy in Australia has signed an agreement with Celltube to build 50MW / 200MWh of VFRB energy storage in Port Augusta is good news for the technology and for balancing power instability in the area which already has a number of Li-ion grid storage systems in place.
    • The $200m battery will be integrated with 50MW of solar in the area with constructions due to start this year with commissioning in 2020.

Conclusion: This is great news for Bushveld Energy and for longer-term demand for vanadium in VFRB electrolyte

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

 

Fura Gems (CVE:FURA) C$0.25, Mkt C$34m – C$30m raised for Colombia emeralds and Mozambique ruby projects

  • Fura Gems is the reincarnation of Gemfields, led by former Gemfields COO Dev Shetty.
  • Shetty is professional and impressive in his new role as founder and CEO at Fura Gems, not something we normally say about a director.
  • Dev has taken the Gemfields concept of creating a coloured gemstones business balanced between Emeralds in Colombia and Rubies in Mozambique.
  • Gemstone mining is a specialist business and Shetty knows it well having lived through the ups and downs of the Gemfields story.
  • Investors should see Fura as offering good exposure to emerald and ruby mines without wasting investor funds on over-marketing and vanity projects. Not that its not nice being surrounded by supermodels but it can distract from ones real business.
  • Fura raised C$35m on listing and have acquired the iconic Coscuez mine in Colombia which has produced many gem quality emeralds in its time.
  • The net proceeds of the latest offering are expected to be used for the advancement of its Coscuez emerald project in Colombia and ruby assets in Mozambique, and general corporate purposes.

 

Kvango Resources (LON:KAV) 3.6p, Mkt Cap £5.7m – Laws of probability to be rewritten after Kvango strikes mineralisation in first and second drill holes under Karoo sand in Botswana

  • Kvango, which is exploring for a large-scale bushveld igneous-type mineralisation reports results from a second drill hole in Botswana.
  • The team which are highly experienced in the geology of the region have used geophysical data and remote sensing to establish drilling locations.
  • Remarkably, the first drill hole hit mineralisation under the sandy Karoo sediments
  • Even more remarkably the second drill hole is reported to have also hit mineralisation including copper in chalcopyrite with a 1.5% XRF gun reading. X-Ray Frequency gun readings are not considered to be reliable due to their potential for miss-reporting but we do place some value on the readings when in the honorable hands of Messrs. Foster and Moles.
  • The first drill hole hit a 200m zone of intensely altered rock with indicative cobalt values of up to 0.9%, averaging 0.2% co

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