SP Angel – Morning View – Wednesday 03 07 19
Gold jumps on increased bets for a Fed rate cut
MiFID II exempt information – see disclaimer below
Bushveld Minerals* (LON:BMN) – Vanadium rental / leasing structure to accelerate value creation. Vanadium forecasts adjusted.
Highland Gold (LON:HGM) – Tax concessions secured for Kekura and Klen projects
Keras Resources* (LON:KRS) – Keras to distribute more than its market capitalisation value in Calidus shares
Rainbow Rare Earths (LON:RBW) – Proposed £4m fundraising
Talga Resources* (ASX:TLG) – Drilling results from Niska
Thor Mining* (LON:THR) – Work plan for Jervois Vanadium project
Vast Resources* (LON:VAST) – All focus on Baita and Heritage
Dow Jones Industrials
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26,787
Nikkei 225
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at
21,638
HK Hang Seng
-0.28%
at
28,796
Shanghai Composite
-0.94%
at
3,015
FTSE 350 Mining
+0.37%
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+0.92%
at
2,047
Economics
US – US equities post new record highs while longer term Treasury yields dropped to 1.95% hitting two year lows on expectations the Fed would be willing to ease the monetary policy.
- Easing bias supports prices for gold which are up nearly $20/oz today trading around $1,423/oz.
- Additionally, President Trump is reported to consider two pro-rate cut nominations to the Fed’s Board including Christopher Waller and Judy Shelton.
- The US market closes early today and will remain shut tomorrow for the Independence Day holiday.
Eurozone – Better than previously reported services sector performance lifts the composite index in June more than compensating for slowdown in manufacturing.
- Services sector recorded the best reading in eight months with the respective PMI up at 53.6 v 52.9 in May and 53.4 estimated previously.
- “The June PMI surveys indicate that the pace of eurozone economic growth picked up at the end of the second quarter, though it would be wrong to get overly excited by the upturn,” Markit reported.
- Region-wise, composite growth was little changed in Germany and Spain while Italy remained the weakest-performing country, despite registering a slight increase in overall activity for the first time since March.
- New orders growth was modest overall while price pressures showed further signs of waning in June.
- Business outlook dropped for a second month to a level that broadly matched last December’s 50-month low as global trading conditions deteriorated.
- Services PMI: 53.6 v 53.4 flash and 52.9 in May.
- Composite PMI: 52.2 v 52.1 flash and 51.8 in May.
ECB – Christine Lagarde, a former finance minister of France and a current head of the IMF, to become the next President of the ECB once Mario Draghi steps down in Oct/19.
EC – Ursula von der Leyen, Germany’s defence minister, has been voted nearly unanimously to replace Jean Claude Juncker and lead the European Commission
- A longtime aide of Ms Merkel, Ms von der Leyen is the only minister to have served in every cabinet under the German chancellor since she took office more than 13 years ago, FT reports.
UK – PM May is set to deliver a warning over a potential risk to the unity of the UK from the no-deal Brexit during a farewell speech in Scotland.
- “The prime minister has said we have to deliver a Brexit which works for all parts of the UK… that is a point which I’m sure she will want to make again in Scotland,” said one ally of Mrs May.
- Mrs May is to argue that a chaotic no-deal Brexit would support Scottish demands for independence.
- Separately, the BoE’s Carney said that a global trade war and prospects of a no-deal Brexit have been increasingly weighing on the British economy that may potentially require monetary policy support.
- The pound hit a two-week low of 1.2584 yesterday.
South Korea – The nation, a bellweather for global trade and technology, cut its inflation and GDP growth forecasts for 2019.
- The Finance Ministry forecasts price growth to slow down to 0.9% this year v 1.6% estimated previously.
- The economy is expected to expand 2.4-2.5%, down from 2.6-2.7% forecast previously.
Australia – The A$ is up 0.3% this morning on the back of stronger than forecast trade surplus in May.
- The record high reading has been led by a spike in iron ore prices with the value of monthly iron ore shipments hitting A$8.8bn, up 17%mom/65%mom and marking the highest level since the start of the data series.
- Overall, the trade surplus climbed to A$5.8bn in May, up from A$4.8bn recorded in April.
Iran – The country will resume work at its Arak nuclear reactor if Europe does not comply with obligations under a 2015 nuclear deal, President Hassan Rouhani was cited a saying in the semi-official Mehr news agency.
- “Our level of enrichment will no longer be at 3.67%.... we put aside this commitment and will increase enrichment as we please, as it necessitates as we need.”
OPEC – Oil prices are hovering around the lowest level in two weeks on demand outlook concerns and despite OPEC+ agreeing production cuts’ extension.
- OPEC cartel production is reported to have dropped by 130,000bbl a day to 30mmbbl in June on the back of a combination of both voluntary cuts and involuntary supply disruptions.
- OPEC production has been falling for seven consecutive months now.
Currencies
US$1.1272/eur vs 1.1297/eur yesterday. Yen 107.66/$ vs 108.32/$. SAr 14.131/$ vs 14.179/$. $1.257/gbp vs $1.263/gbp. 0.699/aud vs 0.699/aud. CNY 6.892/$ vs 6.868/$.
Commodity News
Precious metals:
Gold US$1,403/oz vs US$1,392/oz yesterday
Gold ETFs 74.3moz vs US$74.3moz yesterday
Platinum US$833/oz vs US$838/oz yesterday
Palladium US$1,559/oz vs US$1,554/oz yesterday
Silver US$15.24/oz vs US$15.18/oz yesterday
Base metals:
Copper US$ 5,896/t vs US$5,942/t yesterday
Aluminium US$ 1,776/t vs US$1,796/t yesterday
Nickel US$ 12,090/t vs US$12,180/t yesterday
Zinc US$ 2,469/t vs US$2,455/t yesterday
Lead US$ 1,891/t vs US$1,910/t yesterday
Tin US$ 17,665/t vs US$18,570/t yesterday
Energy:
Oil US$62.8/bbl vs US$65.2/bbl yesterday
Natural Gas US$2.250/mmbtu vs US$2.288/mmbtu yesterday
Uranium US$24.55/lb vs US$24.55/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$117.4/t vs US$114.7/t
Chinese steel rebar 25mm US$625.6/t vs US$626.2/t
Thermal coal (1st year forward cif ARA) US$63.9/t vs US$64.9/t
Coking coal futures Dalian Exchange US$205.7/t vs US$206.0/t
Other:
Cobalt LME 3m US$29,000/t vs US$29,000/t
NdPr Rare Earth Oxide (China) US$50,207/t vs US$50,251/t
Lithium carbonate 99% (China) US$9,314/t vs US$9,322/t
Ferro Vanadium 80% FOB (China) US$37.5/kg vs US$37.5/kg
Antimony Trioxide 99.5% EU (China) US$5.6/kg vs US$5.6/kg
Tungsten APT European US$250-255/mtu vs US$250-255/mtu
*Pricing sourced from Bloomberg
Battery News
World’s largest solar plant now online
- Noor Abu Dhabi in United Arab Emirates, the world’s largest single solar plant, launched commercial operations, according to the Abu Dhabi governmen.
- A 1,177 megawatt plant, Noor Abu Dhabi has 3.2 million solar panels, enough to provide electricity to 90,000 people and reduce emissions by 1 million metric tons.
$4.5 trillion for 100% renewable US grid
- The cost of a total decarbonization of the US power grid is estimated at $4.5tn, according to latest Wood Mackenzie estimates.
- That amounts to c.$450bn a year over the course of 10 years and comes in less than the current annual US military budget.
- “The price tag may not be the highest hurdle to overcome. Eliminating fossil fuels represents a transformative investment opportunity for stakeholders of the new energy economy. But for legacy participants in the energy industry, it also creates an existential crisis. Companies, and in some cases, whole industries, must evolve or perish,” Wood Mackenzie said.
North Sea Wind
- The installation of wind turbines at East Anglia One paves the way for one of the largest offshore wind projects in the world. The project is to be built in phases, like another massive offshore wind project set for the coast of England, Hornsea.
- East Anglia One will be a 714 MW offshore wind farm, to be followed by three larger projects in the same area. The project is expected to be completed by next year, along with Hornsea One.
- “East Anglia One is already providing a significant boost to the local economy with over £70m being committed to date to companies across the East of England and further opportunities as the project becomes operational,” project director Charlie Jordan of ScottishPower Renewables told the BBC.
Company News
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$149m representing 8.8 pence per share to our valuation on Bushveld Minerals. We have added 7.93p/s for Bushveld’s other assets, cash and subsidiaries including Lemur and the P-Q Iron and Titanium project. Our revised ferro-vanadium price forecast adjusts our valuation for the Vametco-Vanchem vanadium business to £801m representing 72 pence per share.
Conclusion: Bushveld is extraordinarily well placed to participate in the high-tech Vanadium Redox Flow Battery business. The integration of the business to produce vanadium electrolyte from its in-house vanadium feedstock gives its security of supply, while the new and innovative lease-finance model for the vanadium in electrolyte should make the financing of VRFB’s less sensitive to spot vanadium prices. We see this as a major advantage for Bushveld placing the company at the very centre of this valuable growth market.
Bushveld’s location in South Africa should also help in the participation of a World Bank funded ESKOM renewables Support Project which is designed to facilitate accelerated development of large scale renewable energy capacity in support of the long-term carbon mitigation strategy of South Africa.
Vametco 74% & Vanchem 100%
2018A
2019e
2020e
2021e
2022e
2023e
Ferro Vanadium
US$/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.
Highland Gold (LON:HGM) 200.4p, Mkt Cap £729.2m – Tax concessions secured for Kekura and Klen projects
- Highland Gold reports that it has agreed with Russia’s Far East Development Corporation that its Kekura and Klen projects fall within the Chukotka Advanced Special Economic Zone (ASEZ) which aims to encourage investment in the Russian Far East
- The agreement confers concessions including “zero or reduced income tax, precious metals royalties, land rental, land tax, and property tax over the first five to ten years of operations. They will also pay a unified social tax on payroll of 7.6% versus the statutory rate of 30%, and be entitled to an expedited refund process for value added tax expenses.”
- The company describes the Kekura project as its “premier development project, with construction currently in progress, stripping and preliminary ore mining set to start later this year, and commercial production expected to begin in 2023”. The 2moz gold project is expected to produce “an initial 172,000 ounces of gold a year with forecasted total cash costs (TCC) of US$511 per ounce. The Company estimates that residency in the Chukotka ASEZ adds approximately US$100 million to the project's net present value (NPV).”
- Acknowledging the support of the Federal and Regional Governments, CEO, Denis Alexandrov, said “In addition to the ASEZ, the government is building a power line to Kekura as well as a year-round road not far from this remote site. This level of support confirms Chukotka's beneficial investment climate and Kekura's importance to the development of the region”.
Keras Resources* (LON:KRS) 0.4p, Mkt Cap £9m – Keras to distribute more than its market capitalisation value in Calidus shares
(Keras currently has 458m shares in Calidus, representing approximately 32.3% of the Calidus issued share capital. On successful completion of the PFS, due this month.
Keras will then receive an additional 265m performance shares in Calidus which will then be converted into ordinary shares)
Keras’s 723m shares in Calidus value at A$21.7m (£12m) at the current share price.
BUY, Valuation 1.04p
Click for our last full note on Keras
- Keras Resources reports that the Escrow period for its shares in Calidus has expired and the shares are now available for trading without restriction on the ASX.
- Keras intends to distribute its shares in Calidus pro-rata to its shareholders which should return greater value to Keras shareholders than its current market capitalisation.
- Furthermore, we also expect Calidus shares to go better on publication of its pre-feasibility study considering progress made on its 1.25moz Warrawoona gold project where latest results include intersections of: 8m grading 8.06g/t Au from 56m down hole, 4m @ 8.87g/t Au from 48m and 12m @ 2.37g/t Au from 52m.
- Recommendation and valuation: We base our recommendation on the value gap between the share price and our valuation of 1.04p per share.
- Around half our valuation is based on our assumption that Keras should produce some 6,000t per month of manganese concentrate in Togo where the Keras team are currently waiting for approval to move to a full-scale mining license and for confirmation of its offtake agreement. We assume no additional capital is required following the production of a 10,000t bulk sample for shipment.
- The remaining value is in Calidus Resources shares which recently moved higher in Australia to A$0.30c/s.
Conclusion: It is rare to see a company distribute more than its entire market value in shares in another listed vehicle. We also see Calidus Resources as offering good potential for further value depending on the results of the pre-feasibility study and ongoing exploration at the Warrawoona gold project.
*SP Angel act as Nomad and broker to Keras Resources
Rainbow Rare Earths (LON:RBW) 3.1p, Mkt Cap £6.7m – Proposed £4m fundraising
- Rainbow Rare Earths have announced plans to raise a minimum of £4.0m (US$5m) at a placing “price of not less than 3p per Placing Share.”
- The proposed placing to “new and existing investors … is not being made generally available to members of the public [and]… will allow the Company to invest in increasing production growth at its fully operational Gakara Rare Earth Project in Burundi through the opening of new mining sites”.
- The company says that its “largest shareholder, Pella Ventures Limited (in which the Company's Chairman, Adonis Pouroulis has a beneficial interest), is converting its US$700,000 loan, as announced on 7 May 2019, at the Placing Price … [and also that] … Rainbow's Board and management have agreed that a total of £145,789 in fees and deferred cash bonuses which were outstanding as of 30 June 2019, shall be satisfied by the issue to them of new Ordinary Shares, determined by reference to the Placing Price, as well as directly subscribing for at least a further £10,000 of Ordinary Shares by reference to the Placing Price”.
Talga Resources* (ASX:TLG) A$0.48, Mkt Cap A$105.1m – Drilling results from Niska
- Talga resource has released the balance of its drilling results from its Niska graphite prospect which forms part of the Vittangi project in Sweden.
- Among the results released today are:
- A 72m wide intersection averaging 29.9% graphite from 105.5m depth in hole NUN19023 – the intersection includes a 32m wide section from a depth of 127.5m at an average grade of 41.9%; and
- A 73m wide intersection averaging 29.7% graphite from 112.1m depth in hole NUN19026; and
- A 106.4m wide intersection averaging 25.5% graphite from 24.8m depth in hole NUN19015; and
- A 70.2m wide intersection averaging 25.6% graphite from 19.4m depth in hole NUN19017; and
- A 63.5m wide intersection averaging 23.1% graphite from a depth of6.6m in hole NUN19025
- Describing the results as “world class graphite results of a grade and width rarely seen, if ever, in a global context”, Managing Director, Mark Thompson, said that “The Vittangi project already contains the largest, highest grade graphite mineral deposit in Europe and these new zones add potential for numerous larger scale and longer life development options.”
- The company says that it will now start work on delineating a JORC compliant mineral resource estimate for the project “along with metallurgical and anode product testwork” which “will result in Niska being included with the other Nunasvaara resources in future feasibility studies.”
Conclusion – The most recent drilling results from Niska are to be included in mineral resource estimation and metallurgical testing for inclusion in feasibility work. We look forward to the resource estimate and further metallurgical results on the suitability of the high grade graphite for the company’s “planned integrated graphite anode production facility in northern Sweden”.
*SP Angel acts as UK broker to Talga Resources. SP Angel analysts have visited the leading battery R&D institution WMG partnering with Talga.
Thor Mining* (LON:THR) 0.80p, Mkt Cap £6.5m – Work plan for Jervois Vanadium project
- Thor Mining reports plans for the continuing evaluation of its 40% owned Jervois vanadium project where it is in joint venture with Arafura Resources (60%) and where Thor Mining is the operator.
- The future programme is expected to include:
- “Resource drilling at Casper, RD, and Coco deposits” which reported a number of wide vanadium intersections in historic drilling approximately 10 years ago; and
- “Drill test other deposits identified as magnetic targets
- Follow up gold, and platinum group element intersections”
- Thor Mining’s interest in the project, which is located approximately 290km east-northeast of Alice Springs in the Northern Territory of Australia, was acquired as part of the acquisition of the Bonya tungsten deposits.
- The project has been explored over a number of years with some 60 reverse-circulation drill holes drilled between 2006 to 2008 to follow up previously identified airborne magnetic and radiometric targets.
- Among the results from the 2008 drilling campaign, which included 1295m of mineralisation assayed for vanadium pentoxide (V2O5), titanium dioxide (TiO2) and iron (Fe) highlighted in today’s announcement are:
- A 44m wide intersection averaging 0.76% V2O5 and 8.30% TiO2 from an undisclosed depth in hole UNRC001; and
- A 49m wide intersection averaging 0.96% V2O5 and 8.55% TiO2 also from an undisclosed depth in hole UNRC018 which was drilled on the Coco deposit; and
- A 54m wide intersection averaging 0.72% V2O5 and 8.89% TiO2 from an unknow depth in hole UNRC019; and
- A 50m wide intersection averaging 0.62% V2O5 and 5.65% TiO2 from an undisclosed depth in hole UNRC024
- The company’s announcement says that “Significant exploration potential still exists and therefore it is possible to define an Exploration Target based on the knowledge gained from the existing drilling and assaying together with the magnetic data and modelling” and outline the potential for between 90-110m tonnes at grades ranging between 0.3-0.8% V2O5, 4-8% TiO2 and associated 25-45% iron. In accordance with JORC guidelines the company says that “The potential quantity and grade of the Exploration Target is conceptual in nature as there has been insufficient exploration to estimate a Mineral Resource and it is uncertain if further exploration will result in the estimation of a Mineral Resource.”
- As well as the vanadium potential, Thor Mining also points out that “536 samples from the 2008 drilling were analysed for Au, Pt and Pd. Samples were selected from 14 holes from across the major magnetite rich areas” and that the historic “maximum values for Pd [palladium] in particular provide encouragement that economic levels of min