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Today's Market View - Gold well supported ahead of the ECB meeting

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SP Angel – Morning View – Thursday 25 07 19

 

Gold well supported ahead of the ECB meeting

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MiFID II exempt information – see disclaimer below

  

Altus Strategies* (LON:ALS) – Agreement to sell a stake in Toura Ni-Co Project, Cote d’Ivoire

Firestone Diamonds (LON:FDI) – Strong Q4 production delivers 2018/19 guidance

Greatland Gold (LON:GGP) – Initial results from Newcrest Mining’s drilling at Havieron

Strategic Minerals* (LON:SML) – Settlement of acquisition

 

Dow Jones Industrials

 

-0.29%

at

  27,270

Nikkei 225

 

+0.22%

at

  21,757

HK Hang Seng

 

+0.26%

at

  28,597

Shanghai Composite

 

+0.48%

at

   2,937

FTSE 350 Mining

 

+0.40%

at

  20,220

AIM Basic Resources

 

-0.73%

at

   2,124

 

Economics

US – S&P 500 and Nasdaq Composite reached all time high on Wednesday on good earnings reports and as investors shook off regulatory concerns facing Big Tech.

  • Around a quarter of S&P 500 companies had reported second-quarter earnings through yesterday’s open with 78% of those posting better-than-expected profit, according to FactSet data.
  • The manufacturing sector growth was flat in July all part of the general weakening production growth trend while services industry posted stronger growth, according to latest Markit PMI data.
  • Manufacturing wise, export orders declined at the fastest pace since early 2016, although domestic demand remained strong.
  • While services sector remained in the growth territory, the pace remains modest and much lower than recorded in Q1/19.
  • “The overall picture of modest growth conceals a two-speed economy, with steay service sector growth masking a deepening downturn in the manufacturing sector… the survey’s gauge of factory production has slumped to its lowest since Aug/09,” Markit wrote.
  • “Future prospects has also darkened to the gloomiest since comparable data were first available in 2012… geopolitical worries, trade wars and increasingly widespread expectations of slower economic growth at home and internationally have all pulled business optimism lower.”

 

Germany – Business confidence continued to slide further hitting the weakest level in more than six years in July.

  • Trade tensions, auto industry struggles as well as low levels of water on the Rhine river, the nation’s main transport link, all add up to the manufacturing industry woes.
  • The confidence gauge came in below the most pessimistic forecast in a Bloomberg survey.
  • The central bank said the economy is might have contracted in the second quarter.
  • Ifo Business Climate Index: 95.7 v 97.5 (revised from 97.4) in June and 97.2 forecast.

 

ECB – The governing council to release its monetary policy statement today with the central bank widely expected to cut rates of restart purchases in the coming months.

  • Weakening growth outlook and subdued inflation make the case for the restart of the monetary easing stronger.
  • The euro is trading at a two month low against the US$ ahead of the decision.

 

Australia – Head of the central bank suggested to further ease the monetary policy if previous back-to-back cuts fail to support growth.

  • “On current projections, it will be some time before inflation is comfortably back within the target range,” Philip Lowe said.
  • The central bank cut rates in June and July by 25bp to a record low of 1% and signalled at the time that it would wait and see how it filters through the economy.
  • The Australian dollar is off 0.2% this morning against the US$.

 

South Korea – The economy grew more than forecast in Q2, although the outlook remains weak.

  • Q2 GDP climbed 1.1%qoq recovering from a 0.4%qoq contraction in Q1 and coming in above 0.9%qoq growth forecast.
  • On the YoY basis, the economy expanded 2.1%yoy, up from 1.7%yoy in Q1 and 1.9% forecast.
  • Investment remained the main drag on growth (-3.6%yoy v -8.6%yoy in Q1) while government spending offered main support (+7.3% v 5.5% in Q1). Exports were up 1.5%yoy v -0.2%yoy in Q1 while private demand increased 2.0%yoy v 1.9%yoy in Q1.

 

North Korea – Two short-range missiles are reported to have been launched by North Korea that travelled c.690km off the coast towards the Sea of Japan.

  • Tokyo said the missiles did not reach the nation’s exclusive economic zone and posed no imminent threat to Japan.
  • The news was largely shrugged off by the market with yen little changed this morning and Asian equity indices up

 

Currencies

US$1.1128/eur vs 1.1145/eur yesterday.  Yen 108.05/$ vs 108.04/$.  SAr 13.928/$ vs 13.908/$.  $1.248/gbp vs $1.244/gbp.  0.697/aud vs 0.698/aud.  CNY 6.873/$ vs  6.881/$.

 

Commodity News

Precious metals:         

Gold US$1,426/oz vs US$1,423/oz yesterday

   Gold ETFs 75.4moz vs US$75.4moz yesterday

Platinum US$881/oz vs US$863/oz yesterday

Palladium US$1,539/oz vs US$1,527/oz yesterday

Silver US$16.54/oz vs US$16.51/oz yesterday

           

Base metals:   

Copper US$ 6,003/t vs US$5,995/t yesterday

Aluminium US$ 1,824/t vs US$1,827/t yesterday

Nickel US$ 14,050/t vs US$14,240/t yesterday

Zinc US$ 2,441/t vs US$2,447/t yesterday

Lead US$ 2,082/t vs US$2,049/t yesterday

Tin US$ 17,675/t vs US$17,725/t yesterday

           

Energy:           

Oil US$63.5/bbl vs US$64.1/bbl yesterday

Natural Gas US$2.225/mmbtu vs US$2.295/mmbtu yesterday

Uranium US$25.70/lb vs US$25.50/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$111.3/t vs US$112.0/t

Chinese steel rebar 25mm US$611.7/t vs US$612.2/t

Thermal coal (1st year forward cif ARA) US$70.0/t vs US$71.3/t

Coking coal futures Dalian Exchange US$213.4/t vs US$207.8/t

           

Other:  

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

NdPr Rare Earth Oxide (China) US$42,558/t vs US$43,087/t

Lithium carbonate 99% (China) US$9,094/t vs US$9,082/t

Ferro Vanadium 80% FOB (China) US$37.4/kg vs US$37.4/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$210-225/mtu

 

Battery News

 

Company News

Altus Strategies* (LON:ALS) 4.8p, Mkt Cap £8.5m – Agreement to sell a stake in Toura Ni-Co Project, Cote d’Ivoire

  • The Company an option agreement with Firering Holdings Limited in regards of an interest in the Toura nickel-cobalt license in the west of the Republic of Cote d’Ivoire.
  • Upon securing the license, Altus will transfer 95% interest in the asset to Firefing in return for €15,000 cash payment and a price-dependent royalty on gross proceeds less transportation costs.
  • The remaining 5% is subject to anti-dilution provisions until Firefing has invested $1m with Altus having an option to co-found the project thereon.
  • The royalty depends on the price of nickel – 0% for prices <$12,000 t="" 0="" 5="" for="" 12="" 000-18="" 000="" and="" 1="" prices="">$20,000/t.
  • The deal validated the Altus model of generating projects, monetising assets and retaining royalties.

*SP Angel acts as nomad and broker to Altus Strategies

 

Firestone Diamonds (LON:FDI) 1.275 pence, Mkt Cap £7.2m – Strong Q4 production delivers 2018/19 guidance

  • Firestone Diamonds reports that a 34% increase in diamond production during the final quarter of 2018/19 to 208,572 carats (Q3 155,206 carats) brought the full year total to 829,458 carats (2017/18 – 835,832 carats) meeting the company’s guidance range of 820-870,000 carats. Guidance for 2019/20 is maintained at the same level of 820-870,000 carats.
  • Mining at the Liqhobong mine moved into the southern part of the pit and helped the improvement in grades to 23.0 carats per hundred tonnes (cpht) compared to the 18.0cpht in the preceding quarter, although the company comments that Q4 grades were “9% below the expected reserve grade which seems at this stage to result from treating harder, more competent ore in the southern part of the pit. Work is on-going to improve post-blast fragmentation as well as further optimisation of the tertiary crushing section to improve liberation and throughput.”
  • The Liqhobong mine is known for producing high quality, exceptional diamonds and reports today that these included “a 72 carat yellow makeable stone, a 22 carat makeable white stone and an 11 carat fancy light-pink stone”.
  • Commenting on the performance of the diamond market, Firestone Diamonds says that “prices realised for the smaller goods that make up the bulk of our production by volume remain subdued mainly due to a build-up of rough and polished inventory in the midstream. Prices are expected to increase during 2020 as rough supply reduces as a result of lower production volumes from De Beers and the anticipated closure of Argyle mine.”
  • Chief Executive, Paul Bosma, elaborated; “From a market and pricing perspective, it was a tough financial year, particularly for the smaller, lower value goods and these conditions are expected to persist for the rest of 2019 and possibly improving during 2020 when global rough supply is expected to reduce.”

 

Greatland Gold (LON:GGP) 1.965p, Mkt cap £65.3m – Initial results from Newcrest Mining’s drilling at Havieron

  • Greatland Gold reports the first results from Newcrest Mining’s 10,000m drilling programme as part of its farm-in agreement at Greatland Gold’s wholly owned Havieron copper/gold project in the Paterson region of Western Australia.
  • Today’s announcement highlights the results from two drill holes and quotes Newcrest Mining’s Quarterly Exploration Report, issued today, saying “First drill results from the Havieron Project in Paterson province Western Australia have confirmed the presence of higher grade copper-gold mineralisation”. The highlighted results are:
    • A 52m wide intersection averaging 7.0g/t gold and 0.17% copper from a depth of 1,122m in Hole HAD006 which, though originally drilled by Greatland Gold, has been extended from a depth of 838m to 1,216m as part of Newcrest’s campaign. This is now “the deepest on the project to date, and successfully identified high-grade mineralisation at depth, with mineralisation now observed over 700m in vertical extent”.
    • Hole HAD011 intersected 39m at an average grade of 1.1g/t gold and 0.82% copper from a depth of 754m, including 14m averaging 2.9 g/t gold and 1.1% copper from 779m depth  and a second intersection of 48m width averaging 0.59g/t gold and 0.90% copper from 838m depth.
    • Hole HAD011 “extended the known mineralised breccia and confirmed that copper grades are increasing with depth, with local values up to 2.3% Cu”.
    • A further hole, HAD010, “traversed over the top of the mineralised zone in the cover sequence and did not intersect significant mineralisation”
  • The company reports that Newcrest is to “expand its exploration campaign from two drill rigs to four - third drill rig has commenced operation and a fourth is scheduled to arrive at site in August”
  • With the mineralisation reported to remain open, the drilling programme aims to “Test the depth extents of the mineralisation and associated magnetic anomaly; and  Search for additional zones of mineralised breccia within the footprint of the coincident magnetic anomaly” as well as to better define the extent of the upper gold zone.
  • Greatland Gold’s Chief Executive, Gervaise Heddle, welcomed “Newcrest's acceleration of the exploration programme at Havieron as demonstrated by the commencement of a third rig at site and the imminent addition of a fourth.” He went on to express “our view that Havieron has the potential to become a large, underground mining operation in one of the most mining-friendly jurisdictions in the world.”
  • In addition to Newcrest, the Paterson region has attracted the interest of other major mining companies with Rio Tinto advancing its own Winu discovery as well as currently earning a 75% interest in Antipa Minerals’ nearby Citadel project.

Conclusion: Initial drilling results from Newcrest Mining as part of its earn-in agreement with Greatland Gold have extended the depth of known mineralisation at Havieron and encouraged Newcrest to double the number of rigs operating on the property to four. We look forward to future results.

 

Strategic Minerals* (LON:SML) 1.35p, Mkt Cap £19.8m – Settlement of acquisition

  • Strategic Minerals reports that it has now settled the acquisition of New Age Exploration’s (NAE) 50% holding in Cornwall Resources which holds the Redmoor tin/tungsten project in Cornwall.
  • Strategic Minerals has made an initial A$290,000 payment, which takes total cash paid to date to A$300,000, and agreed to make three further cash payments each of A$300,000 quarterly “before 31 October 2019, 31 January 2020 and 30 April 2020. The balance [of the A$2,700,000 currently outstanding] is then to be paid on or before26 June 2020.”
  • Interest on the balance of the outstanding A$2.7m is charged at “5%pa calculated on a daily balance basis, payable at the end of each calendar quarter”.
  • Commenting on the revised acquisition arrangements for Cornwall Resources and the Redmoor project which he said would enable the company to build on “this potentially world class mining opportunity over the coming years”, Managing Director, John Peters, explained that “The provision of a vendor loan has assisted the Company in managing its cash flow while ensuring that any future arrangements can be planned with the knowledge that the Company has total control of Cornwall Resources Limited.”
  • In our opinion, consolidating full ownership of Cornwall Resources should benefit the project through a simpler management structure while the revised schedule of payments to NAE should more closely match the expected addition of a second source of cash generation from Strategic Minerals’ Leigh Creek copper project in South Australia, where, following initial sales of copper cement which were announced in May, full production is scheduled for commencement in late 2019 / early in 2020.

Conclusion: The revised payment schedule for the acquisition of NAE’s 50% interest in Cornwall Resources should simplify the future exploration management of the Redmoor tin/tungsten project and assist Strategic Minerals in matching the staged payments to NAE with the expected build up of copper production from its Leigh Creek operation in South Australia.

*SP Angel act as Nomad and Broker to Strategic Minerals

 

 

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

W1S 2PP

 

*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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