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Today's Market View - Gold and copper take-off on prospect of deep Fed rate cut

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SP Angel – Morning View – Friday 19 07 19

Gold and copper take-off on prospect of deep Fed rate cut

Silver surges away from elevated gold-silver ratio

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MiFID II exempt information – see disclaimer below

 

BlueRock Diamonds* (LON:BRD) – 12.2ct diamond sold for US$105,000

Cora Gold* (LON:CORA) – Drilling returns good grades in the sulphide mineralisation at Selin

Highland Gold (LON:HGM) – Q2 production update

Solgold* (LON:SOLG) – Expanding the drilling fleet to expedite the PFS

 

Cobalt – Roskill forecast a doubling of the market in the next decade

  • The market is looking for cobalt projects outside the DRC to meet this very substantial forecast rise in demand.
  • Zambia has the closest geology to the Katanga region of the DRC where cobalt is contained in relatively high grades in the Roan Group rocks and with copper in deposits along the ‘Lufilian Arc’.
  • Arc Minerals* has a copper cobalt mine at Kalaba some 40km away from First Quantum’s massive Trident mining complex near Solweizi. Arc also has a new copper discovery at Chezewa.
  • First Quantum have a number of copper mines in Zambia at Kansanshi and Sentinel (Trident).
  • Glencore have significant copper and cobalt operations in the DRC and Zambia but are suffering from artisanal mining and tax issues in the both regions. The DRC government recently posted troops to clear out artisanal miners from Glencore mines. Clearing out artisanal miners is a difficult business at the best of times and is particularly difficult in the DRC where there are few other opportunities for meaningful employment.
  • Phoenix Copper* (PXC LN) is working on the Redcastle and Bighorn cobalt exploration claim blocks in Idaho including samples showing 3,000ppm (0.3%) cobalt in the Idaho cobalt belt.
  • Talga Resources* (TLG AU) have the Kiskama cobalt project in Sweden including 36m at 0.11% cobalt.
  • Amur Minerals* carries cobalt grades of 0.02% in their giant Kun Manie nickel project in Russia.
  • Power Metals Resources* (formerly African Battery Metals) has surface grab samples containing copper and cobalt at Kisinka in the DRC

*SP Angel act as Nomad and Broker to these companies.

 

Dow Jones Industrials

 

+0.01%

at

  27,223

Nikkei 225

 

+2.00%

at

  21,467

HK Hang Seng

 

+0.97%

at

  28,739

Shanghai Composite

 

+0.79%

at

   2,924

FTSE 350 Mining

 

+1.12%

at

  20,555

AIM Basic Resources

 

-0.22%

at

   2,114

 

Economics

US – New York Fed Governor advocated for a rate cut at the next FOMC meeting on July 30-31.

  • “Its better to make preventative measures that to wait for disaster to unfold… when you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”
  • Comments increased speculation the committee might go for a 50bp cut rather than 25bp previously forecast.

 

US/Iran – US warship USS Boxer is reported to have downed an Iranian drone in the strait of Hormuz.

  • President Trump said the US navy took defensive action after the drone came within 1,000 yards of the warship and ignore multiple calls to stand down.
  • Tehran denied US claims saying no drone have been lost in the region.
  • “I am worried that USS Boxer has shot down their own UAS (unmanned aerial system) by mistake,” the deputy foreign minister, Abbas Araqchi, said.

 

South Africa – The Sarb unanimously decided to cut rates by 25bp to 6.5% joining other central banks in the their latest monetary easing cycle amid faltering growth outlook.

 

Currencies

US$1.1264/eur vs 1.1236/eur yesterday  Yen 107.59/$ vs 107.75/$  SAr 13.836/$ vs 13.974/$  $1.252/gbp vs $1.246/gbp  0.707/aud vs 0.704/aud  CNY 6.872/$ vs 6.879/$

 

Commodity News

Precious metals:         

Gold US$1,419/oz vs US$1,420/oz yesterday

  • Precious metals continued to surge, with gold touching fresh six-year highs amid dovish comments from Federal Reserve officials and rising Middle East tensions are the focus on investors.
  • Two senior Federal Reserve officials, Fed Vice Chairman Richard Clarida and New York Fed chief John Williams, stressed the need to act quickly if the US economy looked likely to stumble, before New York Fed spokeswoman said that Williams’ comments had been in the context of an academic speech and were not about potential upcoming policy actions.
  • Tensions also climbed between the US and Iran as President Donald Trump said the US “immediately destroyed” an Iranian drone that approached the USS Boxer “within threatening range” near the Strait of Hormuz.
  • The action closely followed an announcement from the Islamic Revolutionary Guard Corps of Iran that it had detained a tanker, which it claimed had been smuggling fuel.
  • The gold-silver ratio dropped from it highest level since 1992 as silver heads for weekly gain of 8%, the biggest weekly gain since July 2016.

   Gold ETFs 75.0moz vs US$74.6moz yesterday

Platinum US$847/oz vs US$849/oz yesterday

Palladium US$1,520/oz vs US$1,541/oz yesterday

Silver US$16.08/oz vs US$15.98/oz yesterday

  • Investors bet big on silver, as the sister precious metal pulls back from the highest gold-silver ratio since 1992. The $5.3bn iShares Silver Trust saw the biggest inflow in over six-and-a-half years on Wednesday, adding $133m, according to Bloomberg data.
  • The market is turning to silver to hedge against uncertainty instead of gold. The price of silver has jumped to its highest in five months as a result, and there is little indication the rally could fade.
  • While the gold-silver ratio has slipped over the last few days, it remains elevated versus its longer-term average, suggesting it still has room to fall.

           

Base metals:   

Copper US$ 5,995/t vs US$5,962/t yesterday

  • Chilean lawmakers have unanimously approved changes to the law dictating state-owned Codelco, the world’s top copper producer, to transfer 10% annual export sales to the nations armed forces. The ruling, known as Ley Reservada del Cobre (Restricted Law on Copper), has been on the books since 1958 and was strengthened during the 1973-90 military dictatorship of Augusto Pinochet.
  • The minimum contribution expected is $180m/annum, though in periods with high copper prices, such as during the super cycle at the start of the decade, it increases to nearly $1bn.
  • The decades-old law has limited the amount of funds Codelco has available for reinvestment at a time when is in the midst of a $39bn,10-year overhaul of its aging mines necessary to sustain fundamental copper production.
  • Legislation has also represented an obstacle for Codelco to invest in foreign projects or form joint ventures, with governments dissuaded by indirect financing of armed forces of a regional competitor.
  • According to official data, over the past 17 years Codelco has injected about $13.7bn into the country’s armed forces coffers.
  • The copper giant holds vast deposits of the red metal, accounting for over 10% of the world’s known proven and probable reserves and about 11% of the global annual copper output with 1.8mt of production.

Aluminium US$ 1,851/t vs US$1,846/t yesterday

Nickel US$ 14,880/t vs US$14,885/t yesterday

  • Nickel remains on track for its best week in a decade, following a sudden influx of investor enthusiasm fueled by low stockpiles and long-term demand prospects.
  • The stainless steel raw material has risen nearly 12% this week on the London Metal Exchange for its best weekly run since April 2009, as trading volumes have spiked with bullish interest.
  • While specifics are difficult to identify, analysts point to factors including dwindling global stockpiles, signs of China’s economy bottoming out, and battery demand on the verge of taking off.
  • Concerns are rising the spike is overdone, with the powerful surge technical indicators and fundamental measures pointing to prices being too high. Its relative strength rating is 85.8, far above the 70 level that can indicate an asset is oversold.
  • Nickel’s supercharged run puts its gains for this year at more than 40%, far ahead of any other base metal.

Zinc US$ 2,485/t vs US$2,494/t yesterday

Lead US$ 2,031/t vs US$2,018/t yesterday

Tin US$ 17,905/t vs US$17,925/t yesterday

           

Energy:           

Oil US$62.8/bbl vs US$63.6/bbl yesterday

Natural Gas US$2.289/mmbtu vs US$2.313/mmbtu yesterday

Uranium US$25.70/lb vs US$25.95/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$114.1/t vs US$115.3/t

Chinese steel rebar 25mm US$615.8/t vs US$618.1/t

Thermal coal (1st year forward cif ARA) US$68.5/t vs US$68.1/t

Coking coal futures Dalian Exchange US$207.0/t vs US$207.0/t

           

Other:  

Cobalt LME 3m US$28,000/t vs US$28,000/t

NdPr Rare Earth Oxide (China) US$45,128/t vs US$45,431/t

Lithium carbonate 99% (China) US$9,156/t vs US$9,159/t

Ferro Vanadium 80% FOB (China) US$37.2/kg vs US$37.0/kg

Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.4/kg

Tungsten APT European US$210-225/mtu vs US$230-242/mtu

 

Battery News

Samsung to provide batteries for Volvo’s electric trucks

  • Volvo Group and Samsung SDI have entered a new strategic alliance that focuses on the development and supply of batteries for Volvo’s electric trucks.
  • The two companies will jointly develop battery packs for Volvo’s large electric trucks, with Samsung providing battery cells and modules. Volvo will use the battery pack tech in the assembly of its manufacturing operations.
  • Volvo delivered its first electric truck earlier this year in the form of the Volvo FL Electric. Those were “pre-series production vehicles.” Volvo announced its intention to bring a “limited” number of trucks to European markets in the second half of 2019.
  • Volvo also unveiled an all-electric garbage truck as well as an autonomous, cab-less all-electric truck last year, and teased its Volvo VNR Electric semi, which it plans on testing this year before selling in North America in 2020.
  • In Samsung, Volvo now seems to have a partner that will help it reach its electric truck goals.

 

Company News

BlueRock Diamonds* (LON:BRD) 0.1p, Mkt Cap £1.8m – 12.2ct diamond sold for US$105,000

  • BlueRock Diamonds is increasingly knocking out good quality diamonds from its Kareevlei mine in South Africa.
  • Today the company reports the sale of a 12.2ct stone for US$105,000 which should help to lift their average sales price to over $400/ct for the quarter.
  • This is BlueRock’s second best diamond sold with a 24.98ct stone sold in June for US$196,000.
  • The increasing recovery of these exceptional quality and size stones is great news for BlueRock and its investors.

Conclusion: Statistically we should expect to see the recovery of more similar size and possibly larger stones going forward as the mining rate rises and recovery rates improve.

It is no coincidence between the better operation of the Kareevlei mine and plant and the employment of Mike Houston and Gus Simbanegavi a Zimbabwean mining engineer.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Cora Gold* (LON:CORA) 4.9p, Mkt Cap £4.9m – Drilling returns good grades in the sulphide mineralisation at Selin

  • The Company released first batch of drilling results of the recently completed c.6,500m programme.
  • Initial results from Central Selin Prospect targeting sulphide mineralisation at depth include:
    • 9m at 3.07g/t from 117m (hole ended in mineralisation);
    • 8m at 3.12g/t from 114m;
    • 2m at 4.09g/t from 99m.
  • Additionally, drilling focused on oxide zone in the Central part of the Prospect returned:
    • 22m at 2.68g/t from 51m.
  • Drilling programme included 2,690m of AC and 3,406m RC as well as 463m of core drilling.
  • The focus of the programme has been on infill drilling of the identified mineralisation, exploration step out drilling as well as, for the first time, testing deeper sulphide mineralisation below oxide gold at Sanankoro.
  • Sulphide mineralisation may offer a potential expansion of the resource as the SRK exploration target of 1-2moz released last year focused only on oxide part of the mineralisation.

Conclusion: Results confirm the presence of sulphide mineralisation over a 300m strike length underneath the 2,000m long oxide zone at the Selin Prospect with more drilling likely to extend the known mineralisation further. This is good news and offers the potential to grow the resource base at Sanankoro. Having completed the drilling programme before the start of the wet season the team is now awaiting assay results that would be used for the maiden resource and the scoping study to be released before the year end.

*SP Angel acts as Nomad and Broker to Cora Gold

 

Highland Gold (LON:HGM) 227p, Mkt Cap £828m – Q2 production update

  • Gold production totalled 70.3koz (64.7koz ex Valunistry acquired in Dec/18) v 72.0koz in Q1/19 and 69.6koz ex Valunisty in Q2/18 taking H1/19 production to 142.3koz (127.4koz ex Valunisty) v 128.9koz in H1/18.
  • MNV production amounted to 28.7koz, little changed on the last year, with H1/19 at 59.3koz, +23.3%yoy, reflecting low base in Q1/18 when the processing plant operated at reduced capacity.
  • Belaya Gora production totalled 6.5koz, -39.5%yoy, as mining operations focused on pit wall cutback (waste stripping +131%yoy) and more lower grade ore from inventories were processed at the plant. Additionally, mill throughput was reduced (-15%yoy) due to SAG mill repairs and a localised fire incident in a pipeline in the main processing plant. H1/19 production totalled 18.3koz, -7.5%yoy.
  • In-house reserve estimates suggest a potential conversion to a JORC-compliant estimate of 2mt at 1.16g/t hosted within the Kolchansky and Zayachy prospects at Belaya Gora flanks.
  • Novo production came in at 27.5koz, -8.6%yoy, reflecting lower processed grades, although those have recovered from Q1 (5.3g/t in Q2/19 v 4.2g/t in Q1/19 and 5.9g/t in Q2/18). The Company continues with production drilling to update the mine’s mineralogical and metallurgical balance.
  • Valunisty production totalled 7.6koz slightly down on the previous year with H1/19 of 14.9koz, -22%yoy, as the plant processed ore from lower grade Glavnaya and Novaya zones at Valunisty, as opposed to the main Valunisty orebody and the satellite Gorny mine in H1/18 (processed grade 3.4g/t in H1/19 v 5.6g/t in H1/18).
  • At Kekura, construction and preparations for subsequent stages of development continued through the quarter.
  • FY19 guidance reiterated at 290-300koz.

Conclusion: Flat production at MNV, a setback at Belaya Gora amid increased waste stripping in the pit and a welcome recovery in processed grades at Novo see Q2 production coming in at 70.3koz and H1/19 at 142koz. With company guiding for 290-300koz for the year, production is expected to post stronger H2/19.

 

Solgold* (LON:SOLG) 29.05p, Mkt Cap £536.4m – Expanding the drilling fleet to expedite the PFS

  • Solgold reports that it is expanding its drilling fleet at Cascabel to an expected 15 rigs by September in order to expedite the planned pre-feasibility study (PFS) for the Alpala project which is scheduled by the end of this year.
  • The company has drilled a further 68,354m since the completion of the mineral resource update in January 2019, bringing the total resource drilling to date to 216,552m, and now plans to incorporate this additional information into a further mineral resource update for inclusion in the PFS.
  • The January 2019 update identified an indicated resource of 2.05bn tonnes at an average  grade of 0.41% copper and 0.29g/t gold (0.60% copper equivalent CuEq) using a 0.2% copper equivalent grade cut-off. In addition, 900mt of inferred resource was identified at an average grade of 0.27% copper and 0.13g/t gold (0.35% copper equivalent.
  • Today’s announcement says that infill drilling is targeted at bringing a “Large additional tonnage … into the Indicated category of the resource” implying that a part of the 900mt of inferred resource is likely to be upgraded, which would allow its inclusion within the mine plan in terms of Canada’ Ni-43-101 protocol.
  • Some of the drilling is also being deployed to target “extensions to high-grade outliers peripheral to the main deposit … .  High grade outliers currently still not closed off by drilling, occur at Alpala Northwest, Alpala East, and Alpala Southeast, and demonstrate potential for further growth in the existing high grade resource tonnage. Follow up drilling is designed to infill and improve grades in the existing resource base”.
  • “Recent discoveries of previously unknown higher grade (>1.5%CuEq) and medium grade (>0.7% CuEq) mineralisation intersected within existing low grade Inferred Resource areas at Alpala highlight potential for upgrades to the existing resource base at Trivinio (Hole 93), Alpala North (Hole 75), Alpala Northwest (Hole 86), and Alpala South (Hole 89) and Alpala north east (Hole 106).”
  • The previous resource work has identified the presence of a higher grade core to the mineralisation at Alpala (810mt classed as indicated averaging 1.03% copper equivalent plus 150mt of inferred material at 0.65% CuEq at a 0.45% CuEq cut-off)   and, on the assumption that this higher grade zone will underpin a future mine development, significant expansion to the grade and/or tonnage of this part of the deposit should be particularly beneficial to the economics of the project.
  • As well as the infill drilling, Solgold is aiming to increase the overall resource base by targeting the Alpala Northwest, Trivinio, Alpala North, and Alpala Southeast areas to extend the identified mineralisation. The company highlights the “potential for resource extension in the Trivinio section of the deposit is bolstered by the Hole 93 intersection (862m @ 0.43% CuEq), 520m of which lies outside the existing Inferred Resource area”.
  • In addition, Solgold reports that “Despite further drill testing of extensions, the Alpala North targets are still open to the north, as shown by Hole 75 intersection (1918m @ 0.53% CuEq), 288m of which lies outside the existing Inferred Resource area … [and that] … The newly identified Alpala Southwest area also presents a significant target now being tested by Hole 114.“
  • In addition to the resource drilling, as part of the PFS, the company is also drilling for geotechnical, hydrological and metallurgical data as well as sterilisation drilling to ensure that no potentially economic mineralisation is rendered inaccessible as a result of the project development infrastructure.
  • The company’s Preliminary Economic Assessment (PEA) for Alpala, released in May, describes a number of development possibilities based around bulk underground mining using block-caving at rates between  40mtpa to 60mtpa. We note that the announcement earlier this week from Rio Tinto that it was extending the schedule for its Oyu Tolgoi underground block caving project in order to study some of the geotechnical aspects of a similar block caving operation, planned to operate at around 35mtpa, in greater detail, underlines the importance of a detailed geotechnical and hydrological understanding of the orebody characteristics for successful block caving.
  • Solgold’s PEA shows “Net Present Value ("NPV") estimates range from US$4.1Bn to US$4.5Bn (Real, post-tax, @ 8% discount rate, US$3.3/lb copper price, US$1,300/oz gold price and US$16/oz silver price) depending on production rate scenario.” The company expects “Pre-production Capex … [of] … approx. US$2.4B to US$2.8B, and total Capex including life of mine sustaining Capex of US$10.1B to US$10.5B depending on production rate scenario.”
  • In addition to the  accelerating work at Alpala, Solgold’s wider Ecuadorean exploration programme is generating a number of early stage successes with follow up targets identified at the Porvenir, Chical, Cisne-Loja and Rio Amarillo prospects so far this year.

Conclusion: Solgold’s more recent drilling at Alpala is to be incorporated in a further mineral resource update as part of its PFS work. Work is concentrated on upgrading some of the inferred resources as well as following up known extensions of the mineralisation and on identifying the higher grade areas. We look forward to the PFS later this year.

*SP Angel acts as broker and advisor to Solgold. SP Angel have raised funds for SolGold on eight previous occasions.

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

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*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

Bloomberg

Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt

LME

Oil Brent

ICE

Natural Gas, Uranium, Iron Ore

NYMEX

Thermal Coal

Bloomberg OTC Composite

Coking Coal

DCE

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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