SP Angel – Morning View – Wednesday 17 07 19
Home charging supports EV copper demand
MiFID II exempt information – see disclaimer below
Arc Minerals* (LON:ARCM) – STRONG BUY – High-grade copper seen in next two drill holes at Cheyeza East
Ariana Resources (LON:AAU) – Kiziltepe Q2 Production
BHP (LON:BHP) – Annual Production report
Petropavlovsk (LON:POG) – Major shareholder shuffle
Premier African Minerals* (LON:PREM) – RHA re-commissioning progress report
Home charging supports EV copper demand
- Home charging stations for electric vehicles are expected to drive 88-99% annual copper demand from electric vehicle charging infrastructure by 2030, according to Bloomberg NEF data.
- Accelerating demand is due to significantly higher numbers of home chargers to be deployed compared to public charging stations.
- Even in the most extreme scenario of deployment of public chargers (where only 70% of EVs have a home charger), home chargers still account for two-thirds of copper used in charging infrastructure.
- BNEF forecasts 119-136m public and private EV chargers will be deployed globally by 2030, requiring nearly 60,000tpa of copper.
- Home chargers are far less copper intensive, requiring only 2kg/charger compared against Level 2 public charging stations at 7kg/charger and DCFC public charging stations using 25kg/charger.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – Jerome Powell comments at the Bank of France in Paris yesterday suggested the FOMC is likely to cut rates at the end of the month.
- Members “have… raised concerns about a more prolonged shortfall in inflation below our 2% target,” he said.
- President Trump reiterated he could impose additional tariffs on Chinese imports if he wants, Bloomberg reports.
- “We have a long way to go as far as tariffs where China is concerned, if we want. We have another $325bn we can put a tariff on, if we want,” Trump said.
- China responded that “if the US imposes new tariffs, this would create a new obstacle for US and China trade negotiations, would make the road to coming to an agreement longer”.
- “A long way to go” comments by President Trump led drops in equity markets despite positive corporate earnings reported so far.
- With just over 5% of S&P 500 companies having reported their quarterly data so far, more than 85% have posted better than expected earnings, according to FactSet.
- Retail sales outperformed expectations in an encouraging sign of the resilience of household demand.
- June retail sales (+0.4%mom v 0.2% projected) increased overall retail spending in Q2 up 7.5% annualised – the strongest quarterly performance since the fourth quarter of 2017 (9.8%).
ECB – The central bank board member Benoit Coeure highlighted poor growth outlook for the eurozone over Q2 and Q3 arguing the ECB is standing ready to provide stimulus if required.
- Risks surrounding euro area growth outlook continue to be tilted to the downside.
- The Governing Council is holding a monetary policy meeting next week.
EU – Auto registrations drop c.8%yoy in June, marking the sharpest decline since Dec/18.
- Autosales have been weighed down by weakening domestic demand as well as a sharper contraction in China and emerging markets.
- Calendar effects also account for lower registrations with two fewer sales days recorded this June.
- Industry association ACEA has already revised its forecasts for sales this year to a 1% drop versus a 1% growth estimated previously blaming flattening demand and Brexit uncertainty.
- The industry has been enjoying uninterrupted run of annual gains since 2013 before posting a marginal decline in 2018 (-0.3%).
Zimbabwe – Alrosa and the state owned Zimbabwe Consolidated Diamond Company (ZCDC) signed a JV to explore for diamonds in the country potentially developing mining operations.
- The agreement has been signed in the presence of current Zimbabwe President Emmerson Mnangagwa and Alrosa CEO Sergey Ivanov.
- Under the deal, Alrosa may secure 70% of greenfield projects based on successful exploration..
- “there will be exploration in new areas that are not known to have diamonds and there will also be work in areas such as Marange and Chimanimani which are known to have diamonds,” ZCDC said.
- "This is part of our vision to produce 10-million carats annually and to earn $1bn every year from diamonds."
- ZCDC expects to lift production this year to 4.1mcts from 2.8mcts recorded last year.
US$1.1209/eur vs 1.1255/eur yesterday Yen 108.21/$ vs 108.05/$ SAr 13.972/$ vs 3.880/$ $1.240/gbp vs $1.249/gbp 0.701/aud vs 0.703/aud CNY 6.879/$ vs 6.875/$
Sterling seen as under pressure despite support at 1.12 against the US dollar on ongoing Brexit issues
- Further expected slowing in Germany and the Eurozone makes ECB support more likely.
- Poor outlook for auto sales hitting ZEW survey sentiment in Germany
- Lower interest rates in the Eurozone are expected
- Further ECB QE measures to support economic activity European Union also required.
- Italy is barely out of recession but may easily slip back into decline if the recent rise in exports is not sustained .
- The US economy appears in relatively good shape though the Federal Reserve now looks likely to cut rates by 25bps to support growth damaged by the Trade War with China
Gold US$1,406/oz vs US$1,414/oz yesterday
- Global gold reserves continue to climb, tracking the 8% gain in June, the biggest monthly surge in three years as trade and economic tensions rise.
- Kazakhstan raised gold holdings to 12.07m oz last month from 11.925m in May, data on IMF website show.
- Russia’s reserves climbed to 70.96m oz in June from 70.42m a month earlier.
- Turkey increased reserves to 16.3m oz last month from 16.03m in May.
- Kyrgyz Republic’s holdings rose to a record 0.42m oz in June, according to data going back to 1995.
Gold ETFs 74.3moz vs US$74.3moz yesterday
Platinum US$841/oz vs US$845/oz yesterday
Palladium US$1,526/oz vs US$1,559/oz yesterday
Silver US$15.64/oz vs US$15.44/oz yesterday
Copper US$ 5,963/t vs US$5,988/t yesterday
- China’s refined copper production rebounded in June, signaling robust demand, rising around 13% from May after capacity additions and the return of some smelters from maintenance, according to official data.
- Refined copper output rose to 804,000t in June, up from 711,000t in May to the highest since December, according to China’s national statistics bureau.
- The pressure on treatment and refining charges is a reflection on offline producers in the second quarter, and new capacity under development. Treatment charges have shrunk about 36% this year amid tighter raw materials supply and rising copper output in China. Lower fees are bad for smelters.
- National Statistics Bureau data suggests copper output has risen 11.8% in 2019.
Aluminium US$ 1,842/t vs US$1,845/t yesterday
Nickel US$ 14,110/t vs US$13,920/t yesterday
Zinc US$ 2,456/t vs US$2,436/t yesterday
Lead US$ 1,988/t vs US$1,984/t yesterday
Tin US$ 17,950/t vs US$18,100/t yesterday
Oil US$64.7/bbl vs US$66.5/bbl yesterday
Natural Gas US$2.324/mmbtu vs US$2.395/mmbtu yesterday
Uranium US$26.30/lb vs US$26.30/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$115.7/t vs US$117.9/t
Chinese steel rebar 25mm US$618.0/t vs US$616.9/t
Thermal coal (1st year forward cif ARA) US$67.3/t vs US$68.4/t
Coking coal futures Dalian Exchange US$207.0/t vs US$207.1/t
Cobalt LME 3m US$28,000/t vs US$28,000/t
NdPr Rare Earth Oxide (China) US$45,429/t vs US$45,454/t
- Major beneficiaries of Chinese curbs on rare earth exports could be Japanese magnet makers. Following the 2010 decision by the Chinese to restrict exports and curtail shipments to Japan, producers have been actively seeking to reduce the reliance on rare earths and develop substitutes, according to Toshiyuki Inouchi, an executive of Tokyo-based Hitachi Metals Ltd.
- Permanent rare-earth magnets represent the single largest market for the broad group of 17 elements, with Japanese and Chinese producers looking to capitalise on surging demand for magnets and motors in electric vehicles.
- Hitachi estimates that the need for the magnets it manufactures will expand at an annual pace of about 10% to 15%, led by growth in the auto sector, said Inouchi, senior manager of the planning department in the advanced components and metals division.
- The global supply of rare earth production is dominated by China, accounting for 70% of production and more than 90% permanent rare-earth magnets, and has indicated it has a plan to restrict exports to the US as part of escalating trade war threats.
- Hitachi Metals has already reported development of heavy rare-earth free magnets with sourcing raw materials outside of China, which brings into focus advanced-staged exploration and development projects such as Mkango Resources’ Songwe Hill project.
- Indeed, Hitachi Metals has cut its consumption of dysprosium, typically incorporated for heat tolerance and efficiency, by half since the 2010 de facto ban on Japanese shipments.
- “If heavy rare earths were not coming out from China for years to come, the impact would spread globally, but we wouldn’t see any problem if a suspension lasts only for several months,” Shigekazu Suwabe, general manager of Hitachi Metals’ magnetic materials business unit said. Heavy elements are harder to source, while light rare-earths are broadly produced by Lynas Corp.
Lithium carbonate 99% (China) US$9,159/t vs US$9,164/t
Ferro Vanadium 80% FOB (China) US$37.0/kg vs US$36.8/kg
Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.5/kg
Tungsten APT European US$210-225/mtu vs US$230-242/mtu
Jaguar Land Rover gets £500m loan guarantee from UK to develop electric cars
- Jaguar Land Rover’s push to develop new electric cars has earned the carmaker a loan guarantee of £500m from the UK government.
- Prime Minister Theresa May said the guarantee would help Jaguar sell new EVs globally, according to The Guardian. A funding pot for the loan is said to include £500m from UK Export Finance, and an additional £125m comes from commercial lenders.
- May discussed the loan guarantee after a meeting with automakers including Aston Martin, BMW, Nissan and Vauxhall, and energy groups such as BP, Shell, and National Grid.
- After months of speculation, Jaguar recently confirmed it will make a new all-electric XJ. The carmaker will make the XJ and a new range of electric vehicles at its Castle Bromwich plant in the UK. With its announcement, JLR expressed a need to ramp up battery production domestically as well.
- It’s still unknown how many new JLR electric vehicles will be all-electric. The company announced plans years ago to bring electric powertrain options to all of its models by 2020, though it’s unclear how many of those “electrified” options will be hybrids.
Arc Minerals* (LON:ARCM) 4.7p, Mkt Cap £33.5m – High-grade copper seen in next two drill holes at Cheyeza East
(The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort)
STRONG BUY - CLICK FOR PDF
- Arc Minerals report further high-grade copper in drilling at Cheyeza in Zambia.
- Drilling at hole 4 shows significantly higher copper grades which need to be further verified before release to double check the grade of the results.
Drilling at hole 5 some 200m from hole 4 shows intersections of:
- 28.5m @ 1.32% copper
- 13m @ 2.31% copper from 26.2m down the hole.
- 7.5m @ 0.3% from 59.6m
- These results follow on from:
- 3.94m, 0.72% copper from 35.8m down hole
Hole 2 results:
25m of 1.05% copper mineralisation from just 2m depth including:
- 1.7% copper over 9.3m from 18.5m depth and
- 25m of 1.05% copper mineralisation from just 2m depth including:
- 13.34% copper over a short 0.56m intersection from 27m depth.
- Hole 3 – problems with rig mean this hole has not been drilled as yet.
- The Cheyeza target is estimated to be around 3,000m by 800m in size according to soil geochemistry and geophysics.
- Recommendation: we recommend Arc Minerals as a STRONG BUY due to it growing potential for a major copper discovery at the Cheyeza project in Zambia. The potential value of a significant copper discovery is likely to be a multiple of the current market capitalisation with the market recognising the value of the discovery on further drill results and resource estimation.
- Other significant discoveries in Zambia in recent years include Sentinel in 2014 with 939mt grading 0.49% copper just 40km away from Kalaba and is producing >190,000tpa of copper. Lumwana which is 100km to the east also has a reserve of 758mt grading 0.51% copper and is producing >116,000tpa of copper.
- Note: Technical issues with one of the rigs (since resolved) mean this hole has not yet been drilled.
- Well done to Vassilios (Sid) Carellas and the rest of the exploration team for their work in the Cheyeza discovery.
- West Lunga: The successful intersection of copper at Cheyeza raises the probability of a further copper discovery at the West Lunga target which contains anomalous copper in soil samples over 6km of strike.
- ARC’s geological team and their consultants African Mining Consultants and Douglas Haynes Discovery Ltd. are targeting the same horizon that hosts the world-class Kamoa deposit to the North in the DRC.
- Exploration theory: it is possible that ARC may have discovered a higher-grade portion of the Lufilian Arc which hosts a number of the world’s highest grade copper mines in Zambia and the DRC before the heads towards Namibia.
Conclusion: The drill assays indicate the presence of a significant mass of near-surface, higher-grade copper at Cheyeza.
The results suggest a minimum 200m continuation of higher-grade, near-surface copper mineralisation from the hole 4.
Further drilling will give better indication of the extent and continuity of the mineralisation.
While it is still early days with just five drill holes into the deposit the results already appear to indicate good potential for a mineable copper resource on further definition.
*SP Angel acts as nomad and broker to Arc Minerals.
Ariana Resources (LON:AAU) 2.3p, Mkt Cap £24.4m –Kiziltepe Q2 Production
- Ariana Resource reports that its 50% owned Kiziltepe gold mine in Turkey produced 6,438oz of gold during the quarter ending 30th June 2019, bringing the total for the year-to-date to 13,734oz.
- Production for the quarter resulted from the processing of 48,132 tonnes of ore at an average recovered grade of 4.16g/t gold and a recovery rate of 95.2%.
- Commenting on the results, Managing Director, Dr. Kerim Sener, said that “Gold production during the quarter was again above target, although operations continued to be constrained by the pushback underway on the southern wall of the pit” and also pointed out that “While a pattern of unusually wet weather has continued even into July, progress on pit development has been continuing at pace and material movements have increased further”.
Asiamet Resources (LON:ARS) 4.70p, Mkt Cap £49.2m – BKM Environmental Permit
- Asiamet Resources reports that the Environmental Permit for its BKM copper project in Kalimantan has been awarded by the Provincial Government allowing “the Company to proceed with the development of the BKM project mine and infrastructure including supporting activities, through to closure of operations.”
- The company explains that the permit has been granted over the entire 39,443 hectares area covered by the Contract of Work and that “The next major regulatory milestone required for the commencement of project development is receipt of the Pinjam Pakai or "borrow and use" permit from the Government of Indonesia Forestry Department”. Asiamet confirms that it is already working “to secure a number of the sub-permits required to fulfil the requirements of the Pinjam Pakai”.
- Recognising the award of the Environmental Permit as a significant permitting milestone and evidence of the company’s ability to work with the Indonesian authorities, Peter Bird, Chief Executive explained that the company was “assessing each of the value enhancement opportunities identified in the BFS, further de-risking the BKM project through completion of the remaining permitting milestones, and advancing a range of funding options for ongoing development of both the BKM project and the Company's high quality copper, gold and polymetallic base metals project portfolio”
BHP (LON:BHP) 2,035p, £112.5bn – Annual Production report
- BHP reports that with a strong performance during the final quarter, production for the year ending 30th June 2019 met its revised guidance for copper and iron ore while it exceeded the guidance for petroleum and was marginally below the expectation for metallurgical and thermal coal.
- Commenting on the performance, Chief Executive, Andrew Mackenzie, said that “Our overall production was broadly in line with last year, overcoming the impacts of weather, grade and natural field decline, and unplanned outages in the first half”.
- Copper production for the year was 4% lower at 1.69mt with production at Escondida declining by 6% “as an expected 12 per cent decline in copper grade was partially offset by record average concentrator throughput of 344ktpd”. Production at Olympic Dam, however, rose by 17% to 160kt “as a result of the major smelter maintenance campaign in the prior period, which was partially offset by an unplanned acid plant outage in August 2018, and two minor production outages in May 2019 relating to the smelter and to the refinery crane. Underground operations continue to perform well, with record development kilometres achieved”.
- At the Antamina mine, production also increased by 6% to 147kt. The US$2.46bn concentrator expansion at Spence, which is planned to increase output by approximately 185,000tpa is reported to be 60% complete and on schedule for initial production in FY2021.
- The company’s FY 2020 production guidance envisages a 1% to 8% increase in Group copper production to the range 1.705-1.820mt.
- Iron Ore production “was broadly unchanged at 238 Mt (270 Mt on a 100 per cent basis). Production of between 242 and 253 Mt (273 and 286 Mt on a 100 per cent basis) is expected in the 2020 financial year as we undertake a significant maintenance program at Port Hedland.”
- In Brazil, “Mining and processing operations at Samarco remain suspended following the failure of the Fundão tailings dam and Santarém water dam on 5 November 2015.”
- The company explains that “record production at Jimblebar“ offset “inventory impacts from the Mt Whaleback fire in the prior period” to deliver broadly unchanged output for its Western Australian Iron Ore operations. Production guidance for FY 2020 is for between 242-253mt (273-286mt on a 100% basis).
- “Metallurgical coal production was broadly flat at 42 Mt (75 Mt on a 100 per cent basis). Production is expected to be between 41 and 45 Mt (73 and 79 Mt on a 100 per cent basis) in the 2020 financial year. … [while] … Energy coal production for the 2019 financial year decreased six per cent to 27 Mt. Production is expected to decrease to between 24 and 26 Mt in the 2020 financial year.”
- Energy coal output at Cerrejon in Colombia “decreased by 13 per cent due to adverse weather and its impacts on mine sequencing.”
- “Nickel West production decreased by six per cent to 87 kt as operations were suspended following a fire at the Kalgoorlie smelter in September 2018. The smelter returned to operation on 1 October 2018, with final repairs and ramp up completed in the March 2019 quarter.” Production in the 2020 FY is “expected to be broadly unchanged”.
- BHP reports mineral exploration expenditure for the year of US$188m (US$128m expensed) with “Greenfield minerals exploration … predominantly focused on advancing copper targets within Chile, Ecuador, Peru, Canada, South Australia and the South-West United States.”
Conclusion: After a difficult first half BHP’s production finished strongly in the final quarter of FY19 to leave output broadly in line with last year’s performance and the most recent guidance.
Keras Resources* (LON:KRS) 0.55p, Mkt Cap £12.6m – Keras is awarded 265m Calidus shares as Warrawoona PFS is published
(Keras now has 723m shares in Calidus (CAI AU) representing 39.1% of the company at a value of A$22.4m (£12.78m).
BUY, Valuation 1.04p
- Keras Resources has received 265m additional shares in Calidus on publication of the Warrowoona PFS in accordance with its agreement.
- The Warrawoona Gold Project PFS demonstrates the commercial viability of the project at a range of assumed gold prices.
- Warrawoona shows a very encouraging post-tax IRR of 47% and NPV of US$118m at an 8% discount rate assuming a US$1,400/oz gold price
- The capital cost is estimated at US$66.5m which is relatively modest for a mining project and looks good against the IRR and post-tax NPV estimates.
- AISC costs are at US$811/oz on a life of mine basis.
- Maiden JORC compliant Probable Ore Reserve of 8.9Mt @ 1.5g/t for 418koz Au at Klondyke.
- Production is estimated at 97,000ozpa over a six year mine life based on a 2mtpa mining rate and conventional CIL processing.
- Recommendation and valuation: We base our recommendation on the value gap between the share price and our valuation of 1.04p per share.
Conclusion: Keras shareholders will shortly benefit from the distribution of shares in Calidus Resources. Calidus Resources should now move to better define the feasibility study in preparation for the financing of a new mine at Warrawoona.
*SP Angel act as Nomad and broker to Keras Resources
Petropavlovsk (LON:POG) 9.8p, Mkt Cap £324m – Major shareholder shuffle
- Kenes Rakishev is selling his stake in the Company including 22.4% in shares as well as convertible bonds to Roman Trotsenko.
- Rakishev has previously bought shares off Vekselberg in Dec/17 and is planning to focus on his cobalt and nickel projects located in Kazakhstan now.
- Trotsenko has been a long-time investor in Russia and the FSU region with the latest deal involving the purchase of a stkae in GeoProMining, a gold miner with assets in Russia and Armenia.
- Trotsenko formerly headed Russia’s largest state-owned shipbuilding company while in 2012 Rosneft CEO Igor Sechin appointed him as his aide on offshore projects.
Premier African Minerals* (LON:PREM) 0.043p, Mkt Cap £3.8m – RHA re-commissioning progress report
- Premier African Minerals reports that, following a meeting held yesterday with the National Indigenisation and Economic Empowerment Fund (NIEEF), the re-opening of the RHA tungsten mine (PREM 49%) has been identified as a priority project for the Zimbabwean Government.
- One of the outcomes of the meeting was that,”the Zimbabwe Electricity Supply Authority ("ZESA") has now quoted to electrify the mine at a price which is only approximately 30% greater in RTGS Dollars than the original quotation that was denominated in US$.”
- Citing the priority given to providing electrical power to the mine, CEO, George Roach, said that “We believe the value of the in-country funds provided by the Zimbabwe Government to support this project has still been generally misunderstood” and went on to explain that “approximately RTGS Dollars 1 million has the ability to discharge debts of RHA previously incurred in Zimbabwe of approximately US$ 1 million.”
- Cautioning that the funding received to date might still be insufficient to restore production at RHA, Mr. Roach confirmed that “it is certain that the payment by RHA of local operating costs within Zimbabwe has not been seriously adversely affected by the funding in RTGS Dollars, particularly in regard to transactions involving state-owned entities. And on the basis that RHA will seek to delay a decision to construct the planned decline shaft, any shortfall of funds is expected to be further limited.”
- Mr. Roach did, however, also confirm that “NIEEF have reaffirmed their commitment to provide additional RTGS Dollars based funding to the extent this is reasonably necessary to bring RHA back to production.”
Conclusion: Premier African Minerals has confirmed the support of the Zimbabwe Government in its planned resumption of tungsten production at the RHA mine. The plans to bring in electrical power are an initial tangible step and although there seems to be insufficient funding for the decline shaft at present, the NIEEF has stated its intention to support the mine back to production.
*SP Angel have an agreement with Premier African Minerals as a result of the acquisition of Northland Capital Partners
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.