SP Angel – Morning View – Wednesday 10 07 19
Global copper deficit forecast despite Peruvian mine approval
MiFID II exempt information – see disclaimer below
Central Asia Metals (LON:CAML) – H1 2019 operations on track to meet full year 2019 guidance
KEFI Minerals* (LON:KEFI) – Q2 operational update
Koppar Resources (ASX:KRX) – Acquisition of disruptive Vulcan Lithium project
Petropavlovsk (LON:POG) – Site visit notes
Saudi Arabia - $28bn industrial fund mandate to include mining projects
- Saudi Arabia has expanded the mandate of its $28bn industrial fund to include mining projects.
- The expanded mandate will also include energy and logistics.
- The fund could add substantially to the available pool of capital to fund new mining and exploration projects and follows Oman which is increasing its investment in mining and refining in Oman and overseas.
- The move is evidence of oil-rich nations looking to diversify away from oil as the
Smog hits Solar power generation in China
- Smog issues not only offer health concerns, it also decreases the effectiveness of solar panels. Especially in world leading China, with at least 130GW capacity.
- A new study published in Nature Energy estimates that solar PV potential decreased “on average by 11–15% between 1960 and 2015.”
- So cleaning up that air won’t just help the health of millions of Chinese: The relationship between observed surface radiation and emissions of sulfur dioxide and black carbon suggests that strict air pollution control measures, combined with reduced fossil fuel consumption, would allow surface radiation to increase.
- Reverting back to 1960s radiation levels in China could yield a 12–13% increase in electricity generation, equivalent to an additional 14 TWh produced with 2016 PV capacities, and 51–74 TWh with the expected 2030 capacities.
- The corresponding economic benefits could amount to US$1.9bn in 2016 and US$4.6–6.7bn in 2030.
Electric Mini – likely to be a big seller from 2020 (Autocar)
- BMW have released specs for the new electric Mini to be released next year
- Range 124-144 miles equivalent to the Honda E.
- 0-62 in 7.3 seconds - Front wheel drive.
- Can charge to 80% om 34mins.
- We can see huge demand for this mini as a city and short-haul run-around particularly where owners are able to recharge in their driveways. Eg. No more visits to smelly petrol stations.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – The administration slightly softened its stance on supplying equipment to the Chinese Huawei Technologies.
- The Department of Commerce will “issue licenses where there is no threat to US national security,” though Huawei will remain on the export blacklist demanding suppliers to seek exports’ approvals from authorities.
China – Producers price index fell to zero in June adding to pressures on manufacturers that may translate in lower Company profits and risk debt repayments.
- This suggests the central bank may prefer to keep more of an easing bias amid a continuing standoff between the US and China.
- Lower factory gates prices also put pressure on global inflation outlook which would add to other nations’ central banks concerns that have been struggling to hit inflation targets, Bloomberg reports.
- CPY (%yoy): 2.7 v 2.7 in May and 2.7 forecast.
- PPI (%yoy): 0.0 v 0.6 in May and 0.2 forecast.
- Auto sales fell 9.6% to 2.06m vehicle sales in June in China mom continuing the trend of falling auto sales seen over the past year (China Association of Automobile Manufacturers)
- China auto sales also fell 16.4% in May and 14.6% in April.
Sterling recovering this morning on the better than expected GDP numbers helped by a rebound in car production.
- British car manufacturers brought forward their annual summer maintenance shutdowns to April amid the planned March 29 Brexit deadline which translated in a dip that month and worked as a low base for May numbers.
- GDP (%mom): 0.3 in May v -0.4 in April and 0.3 forecast.
- GDP (3m/3m): 0.3 v 0.4 in the previous 3m and 0.1 forecast.
Auto production recovers 24% in May following 24% fall in April
- Mathematically a 24% recovery is less than a 24% fall so its only a partial recovery.
France – The economy registered the strongest performance since 2017 offering a breath of positive data in a series of weak numbers from the single currency zone.
- The 4%yoy surge was led by an acceleration in pharmaceutical output and rebounds in the automotive and chemicals sectors.
- Despite a pick up in May, the latest data on business confidence in the manufacturing sector slumped to the lowest level in six years.
- Industrial Production (%mom/yoy): 2.1/4.0 v 0.4/1.1 in April and 0.3/1.6 forecast.
Iran – The US may impose new sanctions on Tehran, according to the US Special Representative for Iran Brian Hook told Al-Jazeera.
US$1.1212/eur vs 1.1206/eur yesterday Yen 108.96/$ vs 108.87/$ SAr 14.211/$ vs 14.184/$ $1.246/gbp vs $1.248/gbp 0.692/aud vs 0.695/aud CNY 6.885/$ vs 6.882/$
Sterling expected by some economists to continue to fall on reports the UK economy may weaken further in relation to Brexit
- One solution for UK investors is to buy US$-denominated mining equities and assets as a hedge against further sterling weakness.
- The flip side of a weaker sterling is that it makes UK manufacturing more competitive, though this is still a relatively small sector at around 18% of UK GDP.
- Services including banking and tourism account for around 71% of UK GDP with agriculture at under 1%.
- Manufacturing employs 2.7m people in the UK, accounts for some 45% of total exports, 11% GVA (value of goods) at around £275bn, 69% of business R&D and 13% of business investment (themanufacturer.com)
Gold US$1,392/oz vs US$1,394/oz yesterday
Gold ETFs 74.1moz vs US$74.2moz yesterday
Platinum US$811/oz vs US$812/oz yesterday
Palladium US$1,547/oz vs US$1,558/oz yesterday
Silver US$15.08/oz vs US$15.06/oz yesterday
Copper US$ 5,843/t vs US$5,881/t yesterday
- Suffering from sustained deficit, the global copper market received a boost as Latin America’s second-largest copper producer, Southern Copper Corp, is awarded the licence to mine the giant Tia Maria project.
- The Peruvian government awarded the licence to start construction of its $1.4bn Tia Maria project, which has been delayed at least since 2010 amid sometimes deadly protests. Southern Copper report it won’t start building the mine until concerns from local communities are resolved.
- Southern Copper plans to invest more than $10bn to boost production to 1.81mt by 2026 from 987,000t projected this year, Chief Financial Officer Raul Jacob said.
- Southern Copper’s operations at Tia Maria will not affect other economic activities in the Tambo valley because it will use desalinated water, according to the statement. The company will build an industrial railway to carry mine supplies and copper ore, as well as a road access to the mine at a “prudent distance” from the Tambo valley, it said.
- Tia Maria is expected to produce 120,000t of copper annually. The market is currently expected to post a 189,000t deficit by the end of this year, according to the International Copper Study Group.
Aluminium US$ 1,824/t vs US$1,808/t yesterday
Nickel US$ 12,820/t vs US$12,585/t yesterday - Nickel – Glencore Koniambo nickel plant reopens after blockade
- Glencore has reopened its giant Koniambo nickel plant after an early morning blockade in New Caledonia.
- The mine and process plant was acquired as part of the Xstrata portfolio following Xstrata’s acquisition of Falconbridge.
Zinc US$ 2,390/t vs US$2,377/t yesterday
Lead US$ 1,939/t vs US$1,886/t yesterday
Tin US$ 18,340/t vs US$18,470/t yesterday
Oil US$65.0/bbl vs US$64.0/bbl yesterday
Natural Gas US$2.425/mmbtu vs US$2.390/mmbtu yesterday
Uranium US$24.75/lb vs US$24.80/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$114.7/t vs US$115.0/t
Chinese steel rebar 25mm US$617.0/t vs US$616.2/t
Thermal coal (1st year forward cif ARA) US$67.0/t vs US$68.5/t
Coking coal futures Dalian Exchange US$200.4/t vs US$204.1/t
Cobalt LME 3m US$27,050/t vs US$27,050/t
NdPr Rare Earth Oxide (China) US$47,568/t vs US$49,045/t
Lithium carbonate 99% (China) US$9,150/t vs US$9,228/t
Ferro Vanadium 80% FOB (China) US$36.7/kg vs US$36.7/kg – Vanadium – vanadium-nitrogen production still sees healthy margins at current vanadium prices
- Yesterday we reported that Vanadium nitrogen producers such as Bushveld Minerals with its Nitrovan product are seen as reluctant to sell at current prices suggesting the market may try to form a new floor at around current levels.
- We understand that Bushveld still sees healthy margins at current prices and continues to sell into the market
- Bushveld’s strategy is to keep costs as low as possible in the current volatile and lower price environment
- Ferrovanadium prices are at $34.5-36.5/kgV in China and $31-32.kgV in Western Europe on Fastmarkets MB
- Vanadium 80% FOB (China) US$36.7/kgV on Asian Metal via Bloomberg
Antimony Trioxide 99.5% EU (China) US$5.6/kg vs US$5.5/kg
Tungsten APT European US$230-242/mtu vs US$250-255/mtu
*Pricing sourced from Bloomberg
VW under pressure for battery suppliers to commit to electric cars
- Long-term battery supply contracts need pressure, with VW identifying a need to create joint ventures and offer financial help to its battery suppliers – board member Stefan Sommers stating “Not every supplier is convinced that electric mobility will come on such a large scale. You need to spend more time convincing them to invest in the auto industry.”
- The major automaker last year awarded $48bn in battery contracts, but highlights there are risks; “When it comes to normal components, suppliers have the opportunity to sell to other car makers, if VW buys less. But with electromobility we all know: if it does not work for VW, then it won’t work for others.”
- Supplier LG Chem reportedly threatened to cut its battery supply to VW over its proposed gigafactory plans with other supplier, SK Innovation. LG Chem later sued SK Innovation over the alleged theft of battery trade secrets.
- Samsung has also suggested it can’t deliver on most of its promised supply.
- Last month, VW announced a venture with Northvolt for a joint gigafactory — the carmaker is also investing €350m in Northvolt’s own gigafactory.
- Sommers finally reported “We have not been able to build as many cars as we wanted to. Our supplier is not delivering the numbers that we need.”
- The latest New York Times report suggests Queens and Staten Island are solar installation leaders, with Brooklyn catching up.
- The borough has historically been held back by its flat roofs, with solar panels generally need to be angled to capture light and the city’s building codes require that firefighters must have enough room to manoeuvre on roofs. But recent developments, like the “canopy” system sold by Brooklyn SolarWorks, have offered more people a way in.
- Government incentives for installations and access to community solar are also seen as key in bringing more solar energy to New Yorkers.
Avesoro Resources (LON:ASO) 81p, Mkt Cap £66.1m – Q2 production reflects past disruption but mines getting back on track
- Avesoro Resource reports that, following the previously reported disruption to operations at both the New Liberty mine in Liberia and the Youga gold mine in Burkina Faso gold production for the quarter ended 30th June 2019 declined to 34,438oz (Q2 2018 – 60,231oz) bringing total gold output for H1 2019 to 79,435oz.
- Production at New Liberty declined by 27% during the quarter to 18,822oz (Q1 2019 – 25,855oz) where “during April a number of staff in the mining and heavy mining equipment ("HME") maintenance teams chose to resign rather than accept the alternate employment terms being offered by the new mining contractor… . As a consequence, mining productivity was hampered during April and early May 2019,”
- The decline in gold production at New Liberty is attributed to a reduction in mined ore and a consequent 13% decline in mill throughput, “combined with a scheduled decrease of mined ore grade”.
- However, the delivery of 12 new dump trucks, six new excavators and five loaders during June “is expected to increase material movement from Q3 2019 onwards”.
- The Phase 2 construction of the New Liberty tailings storage continued and the remaining construction work is expected to be completed during the current quarter.
- At the Youga mine, where the transition to mining by contractors also caused disruption, mining of both ore and waste declined and, with “mining focused predominantly on the Gassore pit adjacent to the Youga process plant, where mined grades continued to be below forecast” and, despite the mitigating effect of increased plant throughput, gold production declined to 15,516oz during the quarter (Q1 2019 – 19,243oz).
- The company commissioned a review of grade-control and mining practices at Youga and as a result, has recruited additional technical staff to improve the management of the operation.
- Commenting on the quarterly results and the improvements implemented, CEO, Serhan Umurhan, said “I am confident that the challenges experienced during Q2 have been overcome and that total material movement and gold production will increase in the second half of the year. As such, I am pleased to reiterate our revised 2019 production guidance of 180,000 to 200,000 ounces of gold.”
- He also said that at New Liberty, “I am pleased to report that production performance during May and June returned to our budgeted levels and we are now well prepared for the onset of the wet season during the third quarter of 2019."
Conclusion: Avesoro Mining had previously aired its difficulties over the implementation of contract mining at its mines in West Africa and the quarterly production figures reflect this. At this stage the company is not reporting costs for the quarter but these will, no doubt, have been adversely affected. We are encouraged that the arrival of additional equipment at New Liberty and the implementation of more rigorous mining controls at Youga will result in operating improvements relatively rapidly.
Central Asia Metals (LON:CAML) 201 pence, Mkt Cap £353.7m – H1 2019 operations on track to meet full year 2019 guidance
- Central Asia Metals reports that it produced 6,594t of copper from its Kounrad operation during the six months ending 30the June leaving it on track to achieve its full year guidance of 12,500-13,500 tonnes.
- At the Sasa mine in North Macedonia, production of 11,517t of zinc in concentrates and 14,357t of lead in concentrate keeps the mine on course to meet its full year guidance targets of 22-24,000t of zinc in concentrate and 28-30,000t of lead in concentrate.
- The company reports that at 30th June 2019 it “had cash in the bank of $30.2 million and gross debt of $126.4 million” and that its H1 financial results are to be published on 17th September.
- CEO, Nigel Robinson, summarised by saying that “Today's update demonstrates another period of consistent delivery from our low cost Sasa and Kounrad operations, and we are pleased to be on track to meet our 2019 production guidance for all three base metals”.
KEFI Minerals* (LON:KEFI) 1.1p, Mkt Cap £7.5m – Q2 operational update
- The Company continues to work with its partners on completing all conditions for the release of equity development funding.
- $20m in Ethiopian Governmetn equity investment to be directed towards road access and power infrastructure has started being deployed off.
- $11.4m equity investment by Ethiopian private sector partner ANS Mining is expected to be released in due course on satisfaction of few conditions with the remainder of the $38m commitment to be invested upon the completion of the full development funding including a $160m infrastructure bond.
- Reported at the end of June, ANS wanted updated independent reports on security and the readiness of the community and local government to trigger development of the Project.
- The Company is planning to provide the report in August with equity closings to be completed this quarter.
- No change in the start of the first gold production (currently scheduled for mid-21) is expected as long as the first phase of community resettlement is triggered in Sep/19 for completion in Nov/19.
- The $160m bond placing awaits triggering of the balance of its compliance procedures and their associated costs.
- In Saudi Arabia, the Company started field work at the Hawiah Exploration License within the Wadi Bidah in June.
- The Company drawn on £0.9m of the available £4m convertible facility of which £450k has been already converted by lenders in stock at 2p.
- Maturity of the facility was extended to May/20.
- On H2/19 targets, the Company is planning to:
- In light of a recent strong run in gold prices, the Company highlighted attractive project economics with the KEFI’s 45% interest in Tulu Kapi valued from $52m at $1,300/oz at start of construction this year to $112m at $1,400/oz at start of production in 2021 v under $10m market capitalisation of the Company.
- Prepare the security and readiness of community and local administration update report
- Receive first $11.4m equity investment from ANS
- Trigger resettlement programme and complete the first stage
- Mobilise mining contractors for bulk earthworks funded by project equity
- Complete compliance procedures for Tulu Kapi infrastructure finance implementation.
*SP Angel act as Nomad and Broker to KEFI Minerals
Koppar Resources (ASX:KRX) A$0.19, Mkt Cap A$6.0m – Acquisition of disruptive Vulcan Lithium project
- Koppar Resources announce a binding heads of agreement to acquire 100% of Vulcan Energy Resources, owner of the Vulcan Lithium geothermal brine project in the Upper Rhine Valley in Germany.
- Endowed with lithium-rich (average grade 161mg/L Li and up to 210mg/L Li) , hot sub-surface brines, the project offers the potential to yield net zero-carbon lithium product through dual-purpose wells. Concentrations of lithium are similar to the Hell’s Kitchen lithium project in California owned by Controlled Thermal Resources.
- The project comprises two granted licenses and three license applications covering a total 78,600ha.
- Project location is within the hear of the EU auto and EV battery industry, with significant lithium battery capacity growth forecast for the region.
- The Upper Rhine Valley brine field has been extensively studied due to its geological and geothermal characteristics, including oil and gas exploration. As a consequence, the Company is acquiring a project in a very well understood brine field with considerable amounts of existing seismic and drilling data potentially available for exploration and resource evaluation.
- The early stage development plan proposes direct precipitation of battery-grade lithium hydroxide which is quicker and less water and carbon-intensive relative to South American salar evaporative methods.
- Subject to entry into an offtake or joint venture agreement with a geothermal power producer, renewable geothermal energy by-production could offset energy consumed in lithium production and processing.
- Net zero-carbon production is significant as it offers OEMs a truly sustainable electric vehicle, with Volkswagen placing great importance on CO2-neutral production supply chain for its new EV range.
- Koppar plans to rapidly advance the Vulcan Lithium project to a Scoping Study over the next 12 months, with programmes focusing on the acquisition of all available seismic and geochemical data from the region. Concomitant, the company will undertake processing test work on brine samples taken from existing wells within the Upper Rhine Valley.
Conclusion – The trend towards CO2 neutrality along the value chain is significant, with the opportunity for renewable geothermal lithium production aligned with OEMs sustainability focus. Subject to developing direct lithium extraction, Koppar Resources will be ideally located to capitalise on the fastest growing global lithium demand region.
Petropavlovsk (LON:POG) 9.7p, Mkt Cap £321m – Site visit notes
- The Company hosted a site visit in the second half of June 2019 demonstrating production facilities at Malomir and Pioneer as well as newly commissioned POX plant at Pokrovka.
- The site visit highlights the good progress management team has achieved in commissioning and ramping up flotation and POX processing facilities as the Company emerges from a capital intensive period and is set to unlock the value of the Group’s ample refractory ore mineral base.
- At Malomir, two flotation lines are operating at full 3.6mtpa (1.8mtpa per line) processing capacity with metallurgical recoveries demonstrated to date at +86%.
- Some variability in recoveries is observed and the Company is currently in the process of fully automatizing the control of the chemical reagents that should help to stabilise recoveries.
- The team tested the susceptibility of the low grade material mined during stripping at Malomir central pit (c.0.7g/t) to flotation during Q1 with good recoveries demonstrated (+86%) producing 25kt of concentrate (22.8g/t) and offering potential to process low grade stockpiles at later years of LoM.
- Grades in H2/19 are expected increase as higher grade material from the Central pit (c.1.4g/t) is to be fed into mills with average for the year forecast at 1.3g/t, although at slightly lower recoveries of 83%.
- This together with stockpiled concentrate from last year accumulated ahead of the POX commissioning should see 155-160kt of concentrate processed at Pokrovka taking up a little over a third of available autoclave capacity (440kt for high S concentrate) and yielding 147koz in gold production from Malomir refractory feed.
- Additionally, the Company operates 0.6mtpa RIP line for processing of high grade underground non-refractory ores blended with low grade stockpiles/open pit material.
- Underground mine is running at 20ktpm (6g/t on latest Reserves) operated by contractors utilising shrinkage stoping with waste backfill; the life of mine is currently estimated at 4y (c.H1/21 estimated from the start of mining in H2/17) but is due to be extended as the orebody remains open at depth with the team planning more exploration drilling from lower horizons; although, the extension is unlikely to be significant as the orebody narrows and grades slightly tail off with depth.
- Malomir growth potential lies in the expansion of the refractory ore flotation circuit (non refractory resources account for less than 5% of the total) with the third 1.8mtpa line likely to be added after 2021 following the commissioning of the Pioneer 3.6mtpa flotation plant in Q4/20 utilising available in-house POX capacities.
- With the contribution from the RIP (48koz in 2019), Malomir is set to overtake Albyn production this year (159koz POG guidance) and become the largest operation (196koz POG guidance) in the Petropavlovsk portfolio.
- At Pioneer, the team brought plans to commission the flotation plant forward (H2/20 from previously planned H2/23) as non-refractory material is quickly depleting driving waste stripping costs up and demonstrating weak metallurgical recoveries when mixed with some of refractory ore.
- As such, the Company has successfully secured funding for the 3.6mtpa flotation line during the latest convertible bond refinancing (estimated capex $25-30m) that would add a two-stage sulphide flotation and one-stage cleaner circuit to already existing crushing/grinding capacities currently used by the RIP process for non-refractory ores.
- 07mtpa heap leaching operations are due to stop in Q4/19 while a third 1.8mtpa RIP line is likely to be converted into flotation in the future to supply concentrate to Pokrovka POX facility further increasing share of production from non-refractory ores (Pioneer resource is 75% non-refractory on the latest JORC estimate).
- Finally, the team carried a tour over POX plant facility including demonstrating four commissioned autoclaves, an oxygen plant, concentrate inventories building as well as Pokrovka milling operations that grind Malomir and 3rd party concentrate as well as limestone used for neutralisation of the autoclaves’ discharge.
- Pokrovka POX benefits from a strategic location including access to road and rail infrastructure, cheap hydroelectric power, deposits of limestone as well as historic milling and cyanide leaching operations that were integrated into the autoclave leaching circuit. Located only 18km from Tygda rail loading facilities on the Trans-Siberian Railway makes Pokrovka at attractive refractory ore processing hub (e.g. Malomir concentrate is delivered by rail), especially, with the Company’s focus on sourcing 3rd party material before Malomir and Pioneer flotation concentrate production is ramped up.
- Four autoclave vessels provide Pokrovka POX with flexibility to treat concentrates with different chemical composition separately allowing to maximise gold recoveries (eg high in organic carbon Malomir concentrate is processed separately with laboratory tests of mixing it with one of the 3rd party material showed >5pp knock down on recoveries versus planned 93%); the turnaround time it takes for the vessel to be emptied and filled in with new concentrate is only around one shift (12h).
- Malomir concentrate recoveries reached 91% in March before tailing off in April/May with the Company expecting those to recover towards designed 93% in H2/19.
- Design throughput parameters of 11.5tph have been reached and the plant is expected to operate continuously at budgeted 7,000h per annum rate in H2/19.
- The Company targets 450-500koz in production this year with upside to the forecast coming from any contribution of the 3rd party concentrate.
- Two sources have been secured so far with c.40kt at 40-75g/t available as of Mar/19 (c.70koz in gold production at 93% recoveries); as autoclave vessels have been tested and commissioned the management is looking to ramp up concentrate orders in H2/19.
- The Company is confident it can negotiate low 60-80% concentrate purchase price for 3rd party material further highlighting strategic position of the Porkovka POX facility.
Conclusion: The site visit centred around the refractory ore processing facilities including flotation and POX treatment plants with operations demonstrated to be moving towards design parameters. The team has done well in managing smooth commissioning process with all four autoclaves now tested and ready to use highlighting in house expertise supported by more than a decade of refractory ores processing research, first, carried on batch tests in the St Petersburg laboratory and then followed by trial processing at the Blagoveshchensk pilot plant (in operations since 2010) as well as the quality of selected partners. POX facility will help the Company to deleverage the business (ND/EBITDA 2018 stood at 5.4x including $165m in gold prepayments), while high operational leverage of the Company may prove to be appealing in the high gold price environment.
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
James Mills -0203 470 0486
Richard Parlons – 0203 470 0472
Jonathan Williams – 0203 470 0471
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
Prince Frederick House
35-39 Maddox Street London
*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony