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Today's Market View - Copper pulls back on weak global PMIs and US-EU trade row

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SP Angel – Morning View – Tuesday 02 07 19

Copper pulls back on weak global PMIs and US-EU trade row

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MiFID II exempt information – see disclaimer below

 

ARC Minerals* (LON:ARCM) – Maiden Drilling confirms 25m over 1% Copper

Bacanora Lithium (BCN) – Correction - Genfeng signs agreement to buy 29.99% of Bacanora for £14.4m

Bluejay Mining* (LON:JAY) – Disko-Nuussuaq exploration program highlights scale and potential for discovery

Bushveld Minerals* (LON:BMN) - BUY – Valuation 90p – Vanadium rental / leasing structure to accelerate value creation. Vanadium forecasts adjusted.

Caledonia Mining (LON:CMCL) – Quarterly dividend declared

Ironveld (LON:IRON) – Strategic review of mining assets

Keras Resources* (LON:KRS) BUY, Valuation 1.04p – Drilling at Calidus returns very good grade over 4m composite results

Orosur Mining* (LON:OMI) – Investment into Continental Gold for Colombian gold mine encourages Orosur

Continental Gold (CVE:CNL) – US$25m investment by Eric Sprott

Panoramic Resources (ASX:PAN) – Disposal of Thunder Bay North Project

 

Dow Jones Industrials

 

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FTSE 350 Mining

 

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Economics

Global manufacturing PMI slumped deeper in the contractionary territory with the JPMorgan/Markit index hitting the lowest level since 2012 in June.

  • The monthly reading dropped to 49.4 last month v 49.8 in May.
  • New orders weakened sharply and business optimism dropped to the lowest on record highlighting challenging growth outlook.

 

US – The administration is considering imposing additional $4bn in tariffs on goods from the EU in response to aircraft subsidies.

  • The office of the US trade representative released a statement saying that it is proposing a list of “additional products for tariff countermeasures…” with an approximate value of $4bn, in addition to the list published on April 12 accounting for $21bn worth of trade, FT reports.
  • The list covers a range of goods from a number of cheeses to coffee, olives and pasta.
  • The proposal comes as the US condemns subsidies to Airbus that were ruled illegal by the WTO and is reported to have weakened competitive position of its main rival US-headquartered Boeing.
  • Meanwhile, positive news over the resumption of the trade deal related dialogue between the US and China and the delay in potential tariffs on £300bn worth of Chinese goods saw US equity markets hitting record highs on Monday; S&P 500 futures are pointing to a slightly weaker opening on Tuesday (-0.16%).
  • US Manufacturing PMI climbed to 50.6 in June marking only a marginal improvement on 50.5 recorded in May.
  • “US manufacturers reported business conditions to have remained the toughest for nearly a decade in June…. After inventories rose sharply earlier in the year, large companies have moved to destocking in May and June amid a sharp slowing in new order inflows,” the report read.
  • Business outlook remained “solemn and among the weakest in the survey history” with manufacturing firms highlighting risks surrounding tariffs and the weaker trend in new orders as top concerns.
  • Firms are reported to have slowed the pace of hiring to the least since August 2016.

 

China –Authorities are planning cuts in bank RRR as well as targeting lower real interest rates to help small firms, Premier Li Keqiang said today.

  • Although, the government is determined to keep its monetary policy prudent and is not considering “flood-like” stimulus.

 

UK – Property prices growth slowed to the weakest pace since February, the latest Nationwide House Price Index data showed.

  • House prices were up 0.5%yoy in June, down from 0.6%yoy recorded in May.
  • “While healthy labour market conditions and low borrowing costs will provide underlying support, uncertainty is likely to continue to act as a drag on sentiment and activity, with price growth and transaction levels remaining close to current levels over the coming months,” Nationwide said.
  • In London, prices were down for the eighth straight quarter in the three months to June, with the pace of declines moderating slightly to 0.7% v 3.8% in the previous quarter.

 

Australia – The A$ is little changed this morning as the RBA cuts the benchmark rate by 25bp to a record low of 1.0%, in line with market expectations.

  • The central bank also said it will be closely watching the labour market and would adjust policy “if needed” to support growth.
  • The decision follows a 25bp cut announced last month, although, markets expect another rate drop before year end.

 

Hong Kong – Protesters break in and occupy parliament building amid a continuing discontent with the latest government attempt to introduce an extradition bill.

  • The demonstration that attracted hundreds of thousands of people on streets forced the government to suspend the law which would allow the extradition of criminal suspects to China.
  • Although, demonstrators are demanding is full withdrawal as well as the resignation of Hong Kong leader Carrie Lam and an investigation into the actions of the police.
  • The police has regained control of the parliament just after midnight on Monday.

 

Iran – The nation is reported to have broken its stock levels of low-enriched uranium set under the 2015 nuclear deal in attempt to force the US to reconsider its position on Tehran and lift sanctions, the WSJ reports.

  • The White House responded on Monday it will maintain its maximum-pressure campaign until Iran ends “its nuclear ambitions and its malign behaviour”.

 

Currencies

US$1.1297/eur vs 1.1324/eur yesterday.  Yen 108.32/$ vs 108.36/$.  SAr 14.179/$ vs 14.110/$.  $1.263/gbp vs $1.267/gbp.  0.699/aud vs 0.700/aud.  CNY 6.868/$ vs  6.844/$.

 

Commodity News

Precious metals:         

Gold US$1,392/oz vs US$1,388/oz yesterday

   Gold ETFs 74.3moz vs US$74.2moz yesterday

Platinum US$838/oz vs US$835/oz yesterday

Palladium US$1,554/oz vs US$1,541/oz yesterday

Silver US$15.18/oz vs US$15.23/oz yesterday

           

Base metals:   

Copper US$ 5,942/t vs US$6,045/t yesterday

Aluminium US$ 1,796/t vs US$1,808/t yesterday

Nickel US$ 12,180/t vs US$12,470/t yesterday

Zinc US$ 2,455/t vs US$2,511/t yesterday

Lead US$ 1,910/t vs US$1,938/t yesterday

Tin US$ 18,570/t vs US$18,845/t yesterday

           

Energy:           

Oil US$65.2/bbl vs US$66.7/bbl yesterday

Natural Gas US$2.288/mmbtu vs US$2.310/mmbtu yesterday

Uranium US$24.55/lb vs US$24.60/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$114.7/t vs US$107.9/t

Chinese steel rebar 25mm US$626.2/t vs US$628.7/t

Thermal coal (1st year forward cif ARA) US$64.9/t vs US$65.0/t

Coking coal futures Dalian Exchange US$206.0/t vs US$207.7/t

           

Other:  

Cobalt LME 3m US$29,000/t vs US$29,000/t

NdPr Rare Earth Oxide (China) US$50,251/t vs US$50,385/t

Lithium carbonate 99% (China) US$9,322/t vs US$9,347/t

Ferro Vanadium 80% FOB (China) US$37.5/kg vs US$38.0/kg

Antimony Trioxide 99.5% EU (China) US$5.6/kg vs US$5.7/kg

Tungsten APT European US$250-255/mtu vs US$250-255/mtu

*Pricing sourced from Bloomberg

 

Space News

SpaceX – to fly five missions with one rocket this year

  • SpaceX have never been shy of ambition but the target to fly a single rocket five times by the year end is impressive to say the least.
  • The Company is also planning on launching its Starship, next generation spacecraft in 2021.

 

Company News

ARC Minerals* (LON:ARCM) 3.4p, Mkt Cap £24m – Maiden Drilling confirms 25m over 1% Copper

(The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort)

  • Arc Minerals report assay results from its maiden drilling program at the new Cheyeza East target in Zambia.
  • Hole 2 shows 25m of 1.05% copper mineralisation from just 2m depth including:
    • 1.7% copper over 9.3m from 18.5m depth and
    • 13.34% copper over a short 0.56m intersection from 27m depth.
  • A third hole 200m to the south also shows significant mineralisation.
  • Table 1. Drilling Intercepts
  • The Cheyeza target is estimated to be around 3,000m by 800m in size according to soil geochemistry and geophysics.

Conclusion:  The identification of probable economic copper grades in the first few drill holes is very exciting for ARC Minerals and its investors.

For a geologist the discovery of such allot of copper so close to surface in the first few holes is the equivalent to getting to the quarter finals at Wimbledon.

If the drill assays keep coming like this then the Cheyeza prospect could turn into a major discovery for Arc Minerals

*SP Angel acts as nomad and broker to Arc Minerals.

 

Bacanora Lithium (BCN) 44.5p, Mkt Cap £60m – Correction - Genfeng signs agreement to buy 29.99% of Bacanora for £14.4m

  • Genfeng Lithium (of China) has signed its previously announced strategic investment agreement to buy 29.99% of Bacanora for £14.4m.
  • Genfeng is also making a project level investment in Sonora Lithium, for 22.5% of the project holding company of £7.6m.
  • Genfeng has an option to increase its interest in Sonora Lithium to 50%  within 24 months at a share price based valuation at the time of investment.
  • Offtake agreement:
  • Genfeng is also entitled to take 50% of Bacanora’s Stage 1 lithium production plus 75% of Stage 2 lithium production.
  • Sonora project review
  • Genfeng will complete a review within six months of the EPC engineering design and capital costs of Sonora Lithium Project with a view to reducing costs and accelerating the timetable. It will also provide a plant and process commissioning team to assist Bacanora in delivering first production in 2021
  • Production
  • Bacanora plans to produce 17,500 tpa of lithium carbonate during phase 1 of the project before doubling output to 35,000 tpa during phase 2.
  • Capex
  • Overall capital cost estimates for Phase 1 amount to US$420m of which, according to the January 2018 feasibility study, approximately US$232m is attributable to the beneficiation plant, lithium extraction plant and the shared plant services.
  • Hanwa Corporation
  • In April 2017, Bacanora Lithium secured a five year lithium product offtake agreement with the major Asian battery chemicals trader, Hanwa Corporation of Japan and in June this year announced that they had agreed to extend the offtake partnership by a further 5 years, effectively underpinning the Phase 2 expansion of the project.
  • We understand that Hanwa Corporation remain as a key shareholder in Bacanora and interested in the Sonora project.
  • Last year Bacanora announced that plans by the Chinese investor NextView, to invest an initial £31m in Bacanora had failed to materialise.

Conclusion:  Bacanora’s Sonora project plans to produce lithium carbonate from clay in Mexico. The project has run a fairly large scale C$20m pilot plant over more than two years to confirm the extraction process and train local staff.

While Chinese and Japanese companies are not normally natural bedfellows in mining and committing 100% of offtake feels unusual if not slightly unwise, Hanwa Corp. (Japanese) appear to continue to remain interested 50% of the Stage 1 offtake which then would convert to 25% at Stage 2.

 

Bluejay Mining* (LON:JAY) 7p, Mkt Cap £60m – Disko-Nuussuaq exploration program highlights scale and potential for discovery

Included in MSCI index (Dundas Ilmenite project, Greenland, 100% owned)

  • Bluejay Mining report the identification of 20 large scale drill targets in West Greenland.
  • A recent site visit identified significant and multiple nickel / copper gossans which can represent an oxidised mineralised cap over a larger sulphide orebody.
  • The work program is designed to refine the drill targets through the reprocessing of historical data and on the acquisition of new geophysical and geochemical data.
  • An aerial survey using AustinBridgeporth’s Lockheed Martin developed Enhanced Full Tensor Gradiometer Gravity (‘eFTG’) technology will be done.
  • The team recently acquired ~10,000km2 of licenses around the Disko project highlighting the team’s determination to own the region should a major discovery be made.

Conclusion: Bluejay are working to better evaluate Disko-Nuussuaq as the Dundas ilmenite project works through it’s mining license application.  The team are also focussed on shipping sufficient ilmenite concentrate feedstock to Canada for Rio Tinto Iron and Titanium to use in their 5,000t Smelter test.

*SP Angel act as nomad to Bluejay Mining. *SP Angel have visited the Dundas, Itelak ilmenite sands project in Greenland.

 

Bushveld Minerals* (LON:BMN) 24p, Mkt Cap £269m – Vanadium rental / leasing structure to accelerate value creation. Vanadium forecasts adjusted.

(Bushveld Minerals owns 74% of Vametco, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)

(Vanchem: Our figures assume Bushveld completes the acquisition of Vanchem later this year)

BUY – Valuation 90p

  • We are adjusting our valuation in Bushveld Minerals following our review of value offered by the new Vanchem business, Bushveld Energy and the other business units.
  • We have also adjusted our assumed vanadium price forecasts to account for the recent price correction.
  • Bushveld Minerals recently announced it is to acquire the operating Vanchem vanadium business in South Africa, a move which should bring low-cost expansion and greater flexibility to the group.
  • Bushveld agreed to pay US$68m to acquire the Vanchem plant and facilities to be settled in two stages. US$6.8m was paid on 30 April 2019, US$61.2m will be settled no later than 31 October plus a 12 month period after completion of the Transaction. A further US$0.5-1m will be paid to VVP, which provided services to Vanchem.
  • Vanchem is currently producing around 80mtV of vanadium per month but is also in Business Administration in South Africa. This is similar to being in Administration in the UK though the process appears to be more helpful to the longer term operation of businesses than our own medieval system.
  • Vanadium price assumption:
  • We are pulling back our Ferro-vanadium price forecasts for 2019 to $50/kgV from $60.4/kgV in response to the fall in ferro-vanadium prices to around US$36/kgV FOB China. For 2020 we assume $45/kgV and we maintain out longer term price forecast at $45/kgV.
  • We still see vanadium demand and prices rising in China in response to better compliance with the legislation introduced in November last year.
  • Demand for vanadium electrolyte for Vanadium Redox Flow Batteries VRFBs should also come into the market to support our estimate price assumptions.
  • While demand for vanadium for electrolyte may be price sensitive we see the invention of new lease finance structures for the vanadium in VRFB’s as enabling the financing of VRFBs at higher vanadium price levels going forward.
  • Bushveld Energy: Bushveld’s vanadium rental financing service should accelerate the planning and ordering of new VRFB systems to support South Africa’s power grid.
  • Critically it should reduce the cost of financing and spread the cost of the vanadium in the electrolyte over a longer period rendering the cost of vanadium less critical.
  • We are raising our valuation for Bushveld Energy to US$149m as we see the ‘VRFB’ business as offering a practical solution for the storage of growing solar and wind power in South Africa.  This assumes a relatively low margin on electrolyte sales for VRFB batteries and a more normal project finance type cost for VRFB unit sales.
  • While there are other battery solutions on offer, many of these suffer from high parasitic losses, high component renewal costs or increased risk of outright failure leaving VRFB’s as the preferred grid-scale storage solution for power utilities.
  • ADROIT market research forecast CAGR growth of 8.3%pa for grid power storage in Europe to hit $1.11bn by 2025 with VRFBs expected to account for 83.8% of the total market share.
  • Bushveld Energy aims to participate in 1,000 MWh of opportunities in Africa by 2020 and there is sufficient current demand in the market for vanadium electrolyte to support the installation of a 200 MWh capacity facility in South Africa.
  • We have cautiously assumed a more modest market of just 300,000MWh in 2021 and for Bushveld to be involved in the development of around half the VFRB instillations and electrolyte sales.
  • Bushveld’s current VRFB jv is being trialled at ESKOM should have a peak output of 450kWh as a single unit. It should be relatively simple to roll out multiple units to support the rapid growth in wind and solar farms being installed in South Africa as ESKOM moves to supplement its ageing coal-fired infrastructure.
  • Valuation: we value Bushveld Energy at US$149m representing 8.8 pence per share to our valuation on Bushveld Minerals. We have added 7.93p/s for Bushveld’s other assets, cash and subsidiaries including Lemur and the P-Q Iron and Titanium project. Our revised ferro-vanadium price forecast adjusts our valuation for the Vametco-Vanchem vanadium business to £801m representing 72 pence per share.

Conclusion:  Bushveld is extraordinarily well placed to participate in the high-tech Vanadium Redox Flow Battery business. The integration of the business to produce vanadium electrolyte from its in-house vanadium feedstock gives its security of supply, while the new and innovative lease-finance model for the vanadium in electrolyte should make the financing of VRFB’s less sensitive to spot vanadium prices. We see this as a major advantage for Bushveld placing the company at the very centre of this valuable growth market.

Bushveld’s location in South Africa should also help in the participation of a World Bank funded ESKOM renewables Support Project which is designed to facilitate accelerated development of large scale renewable energy capacity in support of the long-term carbon mitigation strategy of South Africa.

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

 

Vametco 74% & Vanchem 100%

 

 

2018A

2019e

2020e

2021e

2022e

2023e

 

 

 

 

 

 

 

 

 

 

Ferro Vanadium

US$/kg

 

 

81.2

50.0

45.0

45.0

45.0

45.0

Vanadium sales

mtV

 

 

2573

3096

4370

5432

6422

7911

Sales

US$m

 

 

192.1

148.5

188.7

234.6

277.3

341.6

Operating costs

US$m

 

 

65.0

78.9

98.3

120.0

139.7

167.7

Operating costs

US$/kg

 

 

25.3

25.5

22.5

22.1

21.7

21.2

Operating profit

US$m

 

 

95.2

69.6

90.4

114.6

137.7

173.9

Pre-tax profit

US$m

74.00%

 

86.6

60.9

85.3

110.5

132.9

169.8

tax

US$m

 

 

37.6

17.4

24.3

31.5

37.9

48.4

Post-tax profit

US$m

 

 

49.0

43.6

61.0

79.0

95.1

121.4

EPS

US$c/s

 

 

2.9

3.9

5.5

7.1

8.6

10.9

PE

x

 

 

6.9

7.8

5.6

4.3

3.6

2.8

EV/EBITDA

x

 

 

4.3

5.2

4.0

3.1

2.6

2.1

EBITDA

US$m

                     -  

 

95.2

69.6

90.4

114.6

137.7

173.9

Free Cash Flow

US$m

                     -  

 

 

35.0

57.0

77.9

98.0

133.0

Vametco Cash Flow

US$m

74.00%

 

 

41.1

48.7

57.3

65.5

68.4

Vanchem Cash Flow

US$m

100.00%

 

 

-6.1

8.2

20.6

32.4

64.5

*Source SP Angel. SP Angel acts as Nomad & Broker to Bushveld Minerals. 

Caledonia Mining (LON:CMCL) 475p, Mkt Cap £51.1m – Quarterly dividend declared

  • Caledonia Mining announces 6.875 cents per share dividend on each of the Company’s common shares, reiterating the strategy to maximise shareholder value including a quarterly dividend policy which the board of directors adopted in 2014.
  • The company reports a 31st March 2019 cash balance of US$9.7m and again confirms plans to increase production at its 49% owned Blanket gold mine in Zimbabwe “from 54,511 ounces of gold in 2018 to approximately 75,000 ounces in 2021 and approximately 80,000 ounces in 2022; Blanket Mine's target production for 2019 is between 53,000 and 56,000 ounces.”
  • Caledonia also restates the intention, originally announced in November 2018 “to increase its holding in Blanket Mine to 64%, subject to receipt of, amongst other things, regulatory approvals.”
  • In our view, increasing its holding in the Blanket mine is a sensible, low risk, expansion opportunity for Caledonia Mining in an asset which it knows extremely well and is in the process of transforming and rejuvenating through the new Central Shaft which is accessing deeper level ore reserves beneath the 750m level and extending the mine life.

Conclusion: Caledonia Mining is a consistent quarterly dividend payer in accord with a policy initiated in 2014. Major developments at the Blanket gold mine are aimed at increasing gold output to around 80,000oz by 2020 and underpinning the mine’s life beyond 2034.

 

Ironveld (LON:IRON) 0.85p, Mkt Cap £5.6m – Strategic review of mining assets

  • Ironveld reports that it has commissioned an independent strategic review of its mining assets in order to determine the best way to deliver shareholder value from its vanadium/titanium project located on the northern limb of South Africa’s Bushveld igneous complex.
  • The company states that during the course of funding discussions for the project development “the Company has received expressions of interest in acquiring certain underlying assets of, the Company. In view of this, the board has now determined to instigate the Strategic Review, that may result in the sale of the entirety of the mining rights over the Project.”
  • “Separately, negotiations with potential development partners who have completed due diligence continue and may lead to offers of financing that would facilitate the commencement of smelting operations by the Company”.
  • Commenting on the review, Giles Clarke, Chairman, said that “We believe that we have one of the premier in situ HPI, vanadium and titanium deposits in the world and we believe that the potential of the Project is best recognised by third parties. We have therefore initiated the Strategic Review to ascertain how our assets can best deliver value to our shareholders”
  • The company also points out that “The sale of the majority or the entirety of the mining rights over the Project would likely constitute a fundamental change of business for the purposes of Rule 15 of the AIM Rules. Accordingly, any disposal would be conditional, inter alia, on shareholder approval being obtained at a general meeting”.

Conclusion: The strategic review provides the company and its shareholders with the opportunity to decide whether their interests are better served by developing the titanium vanadium assets in South Africa or selling the project. We await the outcome with interest.

 

Keras Resources* (LON:KRS) 0.4p, Mkt Ca

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