SP Angel – Morning View – Tuesday 30 07 19
Gold jumps on potential for Fed rate cut tomorrow as trade talks resume
MiFID II exempt information – see disclaimer below
This note may not be entirely Jacob Rees-Mogg style guide compliant
Anglo American (LON:AAL) – De Beers diamond sales
Arc Minerals* (LON:ARCM) – Drillers take stock after drill results highlight value in Cheyeza East copper discovery
Chaarat Gold* (LON:CGH) – Kapan H1/19 operational update and new MRE; 2021 convertible notes update
Keras Resources* (LON:KRS) – Calidus hits 1m of 107g/t gold at Warrowoona in Australia
MOD Resources (LON:MOD) – Quarterly report and operations update
Dow Jones Industrials
+0.11%
at
27,221
Nikkei 225
+0.43%
at
21,709
HK Hang Seng
+0.22%
at
28,169
Shanghai Composite
+0.39%
at
2,952
FTSE 350 Mining
+0.98%
at
20,415
AIM Basic Resources
+0.92%
at
2,141
Economics
US – US and China kick off two days of negotiations in Shanghai today.
- The FOMC is set to deliver the first rate cut since the start of the tightening cycle in 2015 on Wednesday, according to market estimates.
- Non farm payrolls numbers are to round off the busy week on Friday with the economy expected to have added 165k jobs in July v 224k in June.
Japan – The BoJ cut its inflation outlook and pledged to keep rates interest rates extremely low through at least spring 2020.
- In line with expectations, the BoJ maintained its short-term interest rate target at -0.1% and a pledge to guide 110-year government bond yields around 0%.
- The central bank left its ETF purchases at around 6tn yen and its J-REIT purchases at around 90bn yet annually.
- The bank has gone further and added that additional steps will be taken without hesitation “if there is a greater chance the momentum for hitting its price target is lost”.
- The announcement follows the ECB pledge to act if the outlook worsens and comes ahead of the Fed monetary policy decision to be announced later this week.
- The yen was up slightly this morning after hitting the lowest level in over two weeks earlier today.
UK – The pound continued to slide this morning losing further 0.4% and 0.5% against the US$ and the €.
- The new PM position is that unless the EU renegotiates terms of the divorce deal the UK will be leaving the union on October 31 without the deal.
- “The Withdrawal Agreement is dead, its got to go. But there is scope to do a new deal,” Johnson told reporters yesterday.
- The UK currency hit 1.2120 against the US$ this morning marking the lowest level since early 2017.
France – Economic growth came in short of expectations as consumer spending slowed despite the government fiscal stimulus.
- Weaker growth came from slowing consumer demand, destocking and a contraction in the manufacturing sector.
- Household spending growth fell to 0.2%qoq in Q2 v 0.4%qoq in Q1.
- Manufacturing output contracted 0.4%qoq.
- The data highlights slowing growth momentum in the single currency region with Eurozone GDP due tomorrow and estimates for the pace to half to 0.2%qoq (from 0.4%qoq in Q1) and 1.0%yoy, the lowest level since early 2014.
- GDP (%qoq/yoy): 0.2/1.3 v 0.3/1.2 in Q1/19 and 0.3/1.4 forecast.
Saudi Arabia / UAE - Eid Al Adha will fall on 11th August
- The Zul Hijjah moon is expected in the region Thursday 1st August which marks the end of Ramadan
- If Zul Hijjah begins on 2nd August then Eid Al Adha will fall on August 11 in the region, including UAE.
Currencies
US$1.1134/eur vs 1.1122/eur yesterday. Yen 108.69/$ vs 108.62/$. SAr 14.234/$ vs 14.306/$. $1.217/gbp vs $1.235/gbp. 0.690/aud vs 0.691/aud. CNY 6.887/$ vs 6.889/$.
Commodity News
Precious metals:
Gold US$1,426/oz vs US$1,419/oz yesterday
Gold ETFs 75.4moz vs US$75.2moz yesterday
Platinum US$880/oz vs US$869/oz yesterday
Palladium US$1,553/oz vs US$1,534/oz yesterday
Silver US$16.46/oz vs US$16.41/oz yesterday
Base metals:
Copper US$ 6,006/t vs US$5,958/t yesterday
Aluminium US$ 1,812/t vs US$1,809/t yesterday
Nickel US$ 14,340/t vs US$13,945/t yesterday
Zinc US$ 2,480/t vs US$2,454/t yesterday
Lead US$ 2,055/t vs US$2,054/t yesterday
Tin US$ 17,600/t vs US$17,700/t yesterday
Energy:
Oil US$64.1/bbl vs US$63.1/bbl yesterday
Natural Gas US$2.114/mmbtu vs US$2.181/mmbtu yesterday
Uranium US$25.65/lb vs US$25.70/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$114.4/t vs US$114.3/t
Chinese steel rebar 25mm US$605.4/t vs US$607.8/t
Thermal coal (1st year forward cif ARA) US$67.7/t vs US$68.5/t
Coking coal futures Dalian Exchange US$212.9/t vs US$212.9/t
Other:
Cobalt LME 3m US$26,000/t vs US$26,000/t
NdPr Rare Earth Oxide (China) US$42,036/t vs US$42,027/t
Lithium carbonate 99% (China) US$8,785/t vs US$8,783/t
Ferro Vanadium 80% FOB (China) US$38.5/kg vs US$38.0/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$210-225/mtu
Battery News
Company News
Anglo American (LON:AAL) 2087.5 pence, Mkt Cap £27.0bn – De Beers diamond sales
- Anglo American reports that De Beers sold US$250m of diamonds in its 6th sales cycle of the year. This represents a decline of approximately 36% compared with sales for the 5th sales cycle of US$391m and of more than 50% compared with the $533m in the sixth cycle last year.
- On a year to date basis using the company’s previous sales announcements, we calculate that sales of approximately $2.6bn are approximately 23% below the US$3.4bn at the end of sales cycle 6 in 2018.
- Commenting on the underlying causes of the decline, De Beers CEO, Bruce Cleaver, said that “With ongoing macroeconomic uncertainty, retailers managing inventory levels, and polished diamond inventories in the midstream continuing to be higher than normal, De Beers Group provided customers with additional flexibility to defer some of their rough diamond allocations to later in the year. As a result, we saw a reduction in sales during the sixth cycle of 2019”.
Conclusion: De Beers diamond sales are sharply lower than at this time last year which De Beers attributes to continuing macroeconomic uncertainty.
Arc Minerals* (LON:ARCM) 4.3p, Mkt Cap £31m – Drillers take stock after drill results highlight value in Cheyeza East copper discovery
(The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort)
STRONG BUY - CLICK FOR PDF
- Arc Minerals have reduced their contribution to drilling costs to just 16% at Cheyeza East in Zambia.
- This has been done by persuading the drilling contractor to take half their fee in stock along with cash contributions from the minority partner, Kopara Investments.
- The deal with the drillers covers the initial 10,000m which should give sufficient to determine the scale and potentially the approximate value of the Cheyeza East copper project. This should cover the first 50-100 drill holes depending on how deep the mineralisation runs and how many deeper holes are used to test for potential repeating structures at greater depth.
- The effective price for the first allotment of 3.85m new share under the agreement is 4.78pence/s. Results to date include:
- CHDDE004:
- 18.00m at 2.35% Copper from 30.60m down hole including:
- 7.60m at 4.15% Copper from 39.00m
- 26.4m at 0.32% copper from 53.6m
- CHDDE005: ~200m from hole 4:
- 28.5m @ 1.32% copper inc.
- 13m @ 2.31% copper from 26.2m down the hole.
- 7.5m @ 0.3% from 59.6m
- CHDDE001:
- 3.94m, 0.72% copper from 35.8m down hole
- CHDDE002:
- 25m of 1.05% copper mineralisation from just 2m depth including:
- 1.7% copper over 9.3m from 18.5m depth and
- 13.34% copper over a short 0.56m intersection from 27m depth.
Conclusion: Drillers are the bed-rock of the exploration industry and while they might not be phd’s in geology but they are often expert at the rocks they drill into.
Experience says the drillers know a good thing when they drill into it and if they are anywhere near as lucky as the drillers at SolGold, they will soon be picking out condos on Caribbean islands.
*SP Angel acts as nomad and broker to Arc Minerals.
Chaarat Gold* (LON:CGH) 31p, Mkt Cap £123m – Kapan H1/19 operational update and new MRE; 2021 convertible notes update
- The Company released operating results at the polymetallic Kapan mine, Armenia, for five months (Feb-Jun) after closing the acquisition on 30th January 2019.
- Mine rate improved to 276kt during the period, +8%yoy, (2018: 255kt); although, ROM grades came off to 3.25g/t (2018: 3.74g/t).
- The plant processed 322kt at 3.24g/t (2018: 262kt at 3.74g/t) treating both ROM material as well as available stockpiles.
- Contained metal production climbed 8%yoy to 26.9koz AuEq (2018: 24.9koz AuEq) as higher throughput more than compensated for lower grades.
- Payable metal production climbed 9%yoy to 24.9koz (2018: 22.9koz AuEq).
- The Company reiterated its annual guidance for 65koz AuEq in 2019 as grade is forecast to recover in H2/19.
- Operating costs per ore treated were 10%yoy lower, however, the team highlights profitability during the period came short of expectations on the back of lower mined grades resulting in medium-term pressure on Kapan’s financial performance.
- The team has identified a number of areas that is focuses its efforts on targeting an improvement in grades and recovery rates as well as reduction in costs.
- Additionally, the Company is streamlining maintenance programmes at its mining operations. In particular, the team expedited required engine replacement works on its haul trucks to improve availability of equipment, while in the meantime using a mining contractor to fill in the gap resulting in increased trucking costs.
- A cost reduction programme is underway reviewing all major cost areas including all contracts and procurement basis.
- Financial performance of the mine to be included in H1/19 interim results.
- MRE update incorporates 69,000m of underground drilling completed in 2018 as well as mill reconciliation data collected during the Kapan operation.
- Measured and Indicated category is estimated at 8.9mt at 6.20g/t AuEq for 1,775koz AuEq.
- Inferred category amounted to 8.69mt at 5.42g/t for 1,513koz AuEq.
- An updated mineral reserve statement to be issued on completion of the midyear LoM planning.
- This morning, the Company announced the previous investor who committed to invest $15m in 2021 convertible notes failed to deliver the subscription cash proceeds and the Company is exploring legal recourse on the matter.
- The team is planning to place the bonds with alternative sources with $0.5m already subscribed for by a different investor.
- Polymetal, a holder of $10m in 2021 convertible bonds, agreed to convert its holding in 14.6m shares becoming a 3.5% shareholder in Chaarat in exchange the Company agreed to release Polymetal from warranties and indemnities under the Kapan sale deal.
Conclusion: The announcement highlights both challenges in the mine with the management addressing the dilution issue while also working on improving maintenance procedures to improve equipment availability rates, as well as, on a positive note, a significantly expanded resource with the Measured and Indicated category ounces up 50% following 69,000m of underground drilling completed in 2018. The latter will be incorporate in the updated mining plan and extend the current life of mine past 2023 supporting the management conviction that Kapan ultimately offers +10y LoM.
*SP Angel acts as Broker to Chaarat Gold
Keras Resources* (LON:KRS) 0.48p, Mkt Cap £10.9m – Calidus hits 1m of 107g/t gold at Warrowoona in Australia
(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
Click for our last full note on Keras
- Keras Resources which plans to distribute some 39.1% of Calidus Resources shares to Keras shareholders reports on the latest set of Calidus drill results.
- Calidus reports the following grades from the Klondyke section of the Warrowoona gold resource:
- 13m grading 11.1g/t gold form from 30m, including:
- 1m @ 107.16g/t Au from 36m
- 13m @ 5.58g/t Au from 46m
- 10m @ 6.81g/t Au from 47m, including:
- 1m @ 50.77g/t Au from 49m
- 22m @ 2.13g/t Au from 19m
- 5m @ 3.16g/t Au from 126m
- The recently published PFS at Warrawoona shows:
- IRR - 47% post-tax
- NPV - US$118m at an 8% discount rate assuming a US$1,400/oz gold price
- CAPEX - US$66.5m
- AISC costs - US$811/oz LOM
- JORC Probable Ore Reserve - 8.9Mt grading 1.5g/t for 418koz gold at Klondyke.
- Gold production estimated at 97,000ozpa
- Throughput 2mtpa mining rate and conventional CIL processing.
- LOM – 6 years
Conclusion: Calidus is likely to raise the scale and grade of its gold resource at Warrowoona in Australia based on these results which is more than likely to push up the value of the Warrowoona project and Calidus as its operator.
*SP Angel act as Nomad and broker to Keras Resources
MOD Resources (LON:MOD) 24p, Mkt Cap £73.0m – Quarterly report and operations update
- In a quarter dominated by news of Sandfire Resources’ recommended scheme of arrangement to acquire MOD Resources valuing the company at an equivalent of A$0.45/share or A$167m (approximately 25.5p/share at current exchange rates) MOD Resources reports on the continuing work on the T3 open-pit and underground projects and the T20 exploration project in Botswana.
- The proposed Sandfire Resources transaction is to be put to shareholders of MOD Resources for approval in a meeting expected to be held on 1st October.
- The company says that the Sandfire Resources transaction “Provides MOD shareholders with certainty of funding for development of T3 Copper Project and exposure to substantial exploration upside”.
- The final draft of the T3 Environmental and Social Impact Assessment (ESIA) has been submitted and “Once the approved ESIA is received, MOD's in-country operator, Tshukudu Metals Botswana Pty Ltd ("Tshukudu Metals"), expects to apply for the T3 Mining Licence”.
- Meanwhile, the company reports the results of drilling completed during the quarter although it also says that “While MOD focuses on implementation of the Sandfire transaction, exploration and resource drilling activity has been put on hold. This has provided an opportunity for the in-country exploration team … to progress with the interpretation of geological and drill data from the T3 Infill program and the A4 Dome and T23 Dome prospects in preparation for further drilling expected to resume in the fourth quarter”.
- Infill drilling at the planned T3 open pit “continued to intersect wide intervals of copper/silver mineralisation within the pit boundaries”, including the following recent intersections:
- A 20.4m wide intersection averaging 1.1% copper and 5g/t silver from a depth of 86.2m in hole MO-G-239D; and
- A 21.0m wide intersection averaging 1% copper and 7g/t silver from a depth of 81m in hole MO-G-241D which also intersected a second mineralised horizon 35.3m wide averaging 1.5% copper and 19g/t silver from a depth of 119.7m; and
- A 2.7m wide intersection averaging 1.9% copper and 19g/t silver from 106.5m depth in hole MO-G-247D; and
- A 13m wide intersection averaging 1% copper and 5g/t silver from 71m depth in hole MO-G-252D.
- The start of resource definition drilling of the T3 Underground project during the quarter produced 1,884m from five holes including the following highlighted results:
- Hole MO-G- 253D intersected 6.6m at an average grade of 1.7% copper and 25g/t silver from a depth of 331m; and
- Hole MO-G- 256D intersected 7.4m at an average grade of 1.3% copper and 31g/t silver from a depth of 275m; and
- MO-G- 253D intersected 3 mineralised horizons with 2.7m at an average grade of 1.5% copper and 26g/t silver from a depth of 260m as well as 6.1m averaging 1.1% copper and 26g/t silver from 277.4m and 5.2m averaging 1.6% copper and 32g/t silver from a depth of 296.8m.
- Exploration drilling on the T20 project continued with work on the T23 Dome structure which is interpreted as “part of a major ENE trending structural zone linking the T23 Dome to the T4 Prospect along the northern margin of the T20 Exploration Project, over 20-30km.”
- “The recent drilling at T23 Dome intersected further zones of disseminated and bedded copper/silver mineralisation dominated by the high tenor copper sulphide, chalcocite. A total of nine holes have been completed to date … Disseminated mineralisation has now been intersected along ~1km strike length along the southern limb of the interpreted T23 domal structure and remains open.”
- Among the recent results from the drilling at T23 are:
- Hole MO-T23-004R which intersected 13m of disseminated mineralisation at an average grade of 0.4% copper at 6g/t silver from a depth of 67m and further intersections of 3m averaging 0.5% copper and 15g/t silver from 87m and 6m averaging 0.4% copper and 5g/t silver from 175m depth; and
- Hole MO-T23-005R which intersected 3m of disseminated mineralisation at an average grade of 0.5% copper and 13g/t silver from a depth of 467m as well as further intersections of 4m averaging 0.6% copper and 10g/t silver from 62m, 3m averaging 1.4% copper and 29g/t silver from 77m, 3m averaging 0.6% copper and 16g/t silver from 125m and 7m averaging 0.5% copper and 14g/t silver from 188m depth.
- The company says that “While further drilling is required to demonstrate potentially economic grades of mineralisation at T23 Dome, the continuity of copper mineralisation intersected in the initial drilling is very encouraging.”
Conclusion: MOD’s achievement in discovering of the T3 deposit and showing the wider potential of the broader Kalahari Copper Belt attracted the interest of Sandfire Resources which is, as already announced, looking to acquire the company in a recommended offer valuing MOD Resources at A$167m.
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