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Today's Market View - Escalation in US-China tensions drive copper and oil down

European Metal Holdings, Jubilee Metals Group, Oriole Resources and more...

Jubilee Metals Group - Today's Market View - Escalation in US-China tensions drive copper and oil down

SP Angel – Morning View – Monday 05 08 19

Escalation in US-China tensions drive copper and oil down

MiFID II exempt information – see disclaimer below

This note is not quite Jacob Rees-Mogg style guide compliant

 

European Metals Holdings (LON:EMH) – Licence extension granted at Cinovec

Jubilee Metals Group (LON:JLP) – Interim operations update highlights acquisition of Sable Zinc

Hudbay Minerals (CVE:HBM) – Setback for Rosemont

KEFI Minerals* (LON:KEFI) – Convertible note restructuring and operation update

Oriole Resources (LON:ORR) – Madina Bafe drilling

Thor Mining* (LON:THR) – Thor confirms it has sufficient funds to meet commitments over next six months

 

Renminbi – US dollar rate falls 1.4% today on tariff news – potential for further renminbi falls as China PBOC allows currency to fall to offset impact of US tariffs

The weaker renminbi will not only make Chinese goods cheaper in the US but also in the rest of the world causing further unintended consequences

 

Ferro-vanadium prices rise on Chinese buying

Vanadium prices are rising in China and Western Europe with strong gains in China seen as driving a turnaround in European pricing.

Ferro-vanadium prices recovered 10.8% to US$40-42/kgVin China last week (prices are from FastmarketsMB).

Prices for ferro-vanadium also recovered by 3.6% to US$31-32.95/kgV in Western Europe

Vanadium pentoxide prices in Rotterdam also recovered US$10.1% to 6.7-7.5/lb.

The weaker renminbi combined with strengthening demand in China may cause traders to move vanadium stocks into China and away from weaker demand growth in Europe.

Expectations for greater stimulus in China to support the economy during US-China trade war negotiations may have some impact. China’s green shied and other environmental policies are keeping steel makers busy through the summer with maintenance shutdowns now scheduled in the winter months.

Greater enforcement of China’s new construction steel and rebar standards is also expected to drive vanadium demand in the short term. Chinese regulators appear to have allowed smaller steelmakers to continue to get away with producing lesser quality Quench & Temper steel which is tough but brittle and does not perform so well in earthquake or stress situations.

We suspect that steel mills supplying into major government infrastructure projects should use the higher standard vanadium rebar.

Vanadium demand should also rise for Vanadium Redox Flow Batteries ‘VRFBs’ as power storage to match solar and wind power gains increasing acceptance.

While Lithium-ion battery storage has delivered much of short-term power storage demand for new instillations a developing shortage of lithium-ion batteries combined with their cost and shorter lifespan should cause power utilities and industrial consumers to favour VRFBs going forward.

Bushveld Mineral’s recent innovation in vanadium rental finance should make VRFBs very much more affordable for utilities with vanadium prices becoming less of an issue.

 

Dow Jones Industrials

-0.37%

at

  26,485

Nikkei 225

-1.74%

at

  20,720

HK Hang Seng

-2.81%

at

  26,161

Shanghai Composite

-1.62%

at

   2,821

FTSE 350 Mining

-2.47%

at

  18,056

AIM Basic Resources

+0.10%

at

   2,108

 

Economics

US – Risk sell off continues with major equity indices down on Monday and safe haven assets like gold, government debt, Swiss franc and Japanese yen well bid.

S&P 500 Index futures are down 1.2% today after closing 0.7% down on Friday.

Declines in mining and tech shares drove losses in the Stoxx Europe 600 with the market in Hong Kong off 2.8%.

US 10y Treasury yields are trading at 1.76%, their lowest since Oct/16, while gold climbed nearly $20/oz trading a little short of the $1,460/oz mark, the strongest level since 2013.

Negotiations between the US and China have broken down as Trump levied 10% on extra $300bn of Chinese imports effective from September 1 while China asked its state-owned companies to suspend imports of US agricultural products.

Additionally, the PBoC set its daily reference rate at the weakest level since December with the currency depreciating past the 7.0 mark for the first in more than a decade.

The central bank attributed the yuan move to protectionism and expectations of additional tariffs on Chinese goods.

The moves are likely to cause further escalation of the row between two nations as President Trump has been previously highly critical of Beijing managing it s currency unfairly and failing to ramp up US crops purchases.

Payroll numbers came broadly in line on Friday (164k v 165k forecast) although previous month’s reading was revised lower by (-31k) and earnings’ growth picked in July (+0.1pp to 3.2%).

 

UK – New PM fiscal easing announced recently may be treated as a preparation for a snap election, Bloomberg reports.

On Monday, Johnson was expected to announce a £1.8bn boost to the NHS budget as part of a general increase in public spending to prepare the economy for a no-deal Brexit.

Meanwhile, the pound is continuing to slide against the US$ and the € hitting the lowest level since 2017 against the euro.

 

Philippines – The central bank governor is expecting another 50bp in rate cuts before the rest of the year, conditional on the incoming economic data.

Bangko Sentral ng Pilipinas left its benchmark rate unchanged in June after cutting it by 25bp in the previous meeting.

Estimates are for the central bank to cut the rate by 25bp to 4.25% on Thursday.

Inflation is being revised lower with the Governor forecasting inflation to average 2.6% and 2.9% in 2019 and 2020, respectively, down from the central bank’s previous projections of 2.7% and 3.0%.

 

Zimbabwe – Authorities are suspending reporting of annual inflation data until February next year, to enable the government to collect more data comparing price information on a like-for-like basis, a top official said.

The nation is suffering from a run away inflation amid a large fiscal and current account deficits as well as increasing local money supply.

The latest data showed annualised inflation hit 176% in June, up from 98% in May.

The country has suspended inflation reporting in 2008 just before abolishing the Zimbabwean dollar in favour the basket of foreign currencies.

 

Currencies

US$1.1134/eur vs 1.1094/eur yesterday. Yen 105.92/$ vs 106.91/$. SAr 14.888/$ vs 14.650/$. $1.211/gbp vs $1.212/gbp. 0.676/aud vs 0.680/aud. CNY 7.033/$ vs 6.938/$.

 

Commodity News

Precious metals:         

Gold US$1,457/oz vs US$1,439/oz yesterday

   Gold ETFs 75.9moz vs US$75.8moz yesterday

Platinum US$856/oz vs US$849/oz yesterday

Palladium US$1,417/oz vs US$1,427/oz yesterday

Silver US$16.49/oz vs US$16.18/oz yesterday

           

Base metals:   

Copper US$ 5,707/t vs US$5,829/t yesterday

Aluminium US$ 1,767/t vs US$1,778/t yesterday

Nickel US$ 14,685/t vs US$14,440/t yesterday

Zinc US$ 2,349/t vs US$2,371/t yesterday

Lead US$ 1,949/t vs US$1,972/t yesterday

Tin US$ 16,955/t vs US$17,300/t yesterday

           

Energy:           

Oil US$60.9/bbl vs US$61.7/bbl yesterday

Natural Gas US$2.095/mmbtu vs US$2.190/mmbtu yesterday

Uranium US$25.35/lb vs US$25.40/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$102.5/t vs US$107.4/t

Chinese steel rebar 25mm US$581.4/t vs US$594.2/t

Thermal coal (1st year forward cif ARA) US$67.4/t vs US$68.5/t

Coking coal futures Dalian Exchange US$208.5/t vs US$211.3/t

           

Other:  

Cobalt LME 3m US$26,000/t vs US$26,000/t

NdPr Rare Earth Oxide (China) US$42,019/t vs US$42,441/t

Lithium carbonate 99% (China) US$8,390/t vs US$8,575/t

Ferro Vanadium 80% FOB (China) US$40.0/kg vs US$39.5/kg

Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.3/kg

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

 

Battery News

Tesla Li-ion batteries degrade just 6% after 200,000km

So far data collected by Tesla shows the batteries should run for more than 500,000 miles on a single battery pack according to a CapEx Purchasing Intern at Tesla.

Tesla batteries are built to last at least 500,000miles or 800,000km before replacement.

Replacement is at 20% battery degradation and Tesla will replace your battery if it degrades by 20% in its first 8 years.

New batteries are installed for $10,000 should you need another one.

This is good news for Tesla and good news for Electric Vehicles in general. It also goes to highlight how critical it is to collect data on battery performance and to get the battery pack right from the start.

 

Company News

European Metals Holdings (LON:EMH) 20.0p, Mkt Cap £28.0m – Licence extension granted at Cinovec

European Metal Holdings has confirmed that the Czech authorities have granted an extension, until 31st December 2020, of its Exploration Licence covering the Cinovec lithium/tin licence.

The company explains that although its Preliminary Mining Permits (PMPs) “convey the sole and exclusive rights upon the Company to apply for a Final Mining Permit, however [they] do not allow for further drilling. As the Company wishes to conduct further metallurgical and measured resource drilling, the extension to the exploration license that was due to expire in July 2019 was sought.”

“The Czech Ministry of the Environment stated in its extension decision the possibility of a further extension of the licence if necessary to complete all planned work. The Company does not envisage that a further extension will be necessary”.

Providing additional background information on the required permitting process, European Metals confirms that, having successfully lodged the required geological and mineral resources information with the authorities, it “currently holds PMP's for East and South deposits. A PMP application for the Northwest deposit area is currently in the permitting process. If the process is successfully completed, the 3 granted PMP's will cover the entire area of the Cínovec deposit.” The deadline for submission of this application is the end of 2021.

 

Jubilee Metals Group (LON:JLP) 3.2p, mkt cap £59m – Interim operations update highlights acquisition of Sable Zinc

Formerly Jubilee Platinum

Jubilee Metals Group report a 75% increase in H1 sales to £14.36m on H2 last year.

Earnings also rose by 47% to £5.64m on H2 last year.

Platinum Group Metals production rose to 11,559oz with 6,473oz delivered in Q2 this year.

The acquisition of the Sable Zinc Kabwe Refinery is the major news here.

‘The Agreement for the acquisition of the Sable Zinc Kabwe Refinery for the processing of the Kabwe material has become effective with all contractual conditions precedent met with final competition commissioning approval received for the transaction from the Zambian Competition and Consumer Protection Commission.’

‘Jubilee's engineers will now commence the process upgrade to integrate the Kabwe Tailings project. 

The project targets to integrate the process over two phases with the first phase targeting the production of vanadium pentoxide (V2O5) and an intermediate saleable zinc concentrate, while phase two is targeting production of refined zinc and a lead concentrate.

The Kabwe Tailings project has the potential to significantly enhance Company earnings on the back of three revenue producing metals.

During this period the Company will also look towards bringing the copper refining line into operation to capitalise on the regional demand for such refining capacity..

Conclusion: The acquisition of the Sable Zinc Refinery at Kabwe should be great news for Jubilee and enable the production of vanadium, zinc and copper from the tailings pile at Kabwe. The refinery should be a good business stream for Jubilee while having the added benefit of cleaning up much of the toxic tailings left over from 113 years of lead and zinc mining in Kabwe, Zambia.

*An SP Angel analyst has visited Jubilee’s operations at Kabwe in Zambia

 

Hudbay Minerals (CVE:HBM) C$4.86, Mkt Cap C$1.27bn – Setback for Rosemont

Hudbay Minerals received a setback late last week in its plans to develop the US$1.9bn Rosemont copper project in Arizona were blocked when a US District Court ruled in favour of legal challenges to the Forest Service’s grant of the Final Record of Decision (FROD) for the project.

The decision to revoke the earlier decision which was initially “issued in June 2017 after a thorough process of ten years involving 17 co-operating agencies at various levels of government, 16 hearings, over 1,000 studies, and 245 days of public comment resulting in more than 36,000 comments”, means that “Rosemont cannot proceed with construction at this time”.

In response to the court ruling, Hudbay Minerals has said that it “believes that the Court has misinterpreted federal mining laws and Forest Service regulations as they apply to Rosemont. As such the company will be appealing the Court’s decision to the U.S. Ninth Circuit Court of Appeals”.

Commenting on the Court’s decision, which he described as extremely disappointing, Chief Executive, Peter KuKielski, said “We strongly believe that the project conforms to federal laws and regulations that have been in place for decades … We will be appealing the decision as we evaluate next steps for the Rosemont Project.”

The company’s website says that the mine is expected to be the third largest copper mine in the United States (producing 10% of US domestic copper output) with over 500 employees and annual production of 112,000tpa of copper over a 19 year mine life.

Conclusion: After ten years of preparation and exhaustive study, Hudbay Minerals will, no doubt, have enormous volumes of technical, environmental and legal data as well as a very substantial commercial incentive to support its challenge to re-instate permission to construct the third largest copper project in the US. The late stage setback underlines, however, that mine developers are subject to significant political risk even in jurisdictions with an established legal system.

 

KEFI Minerals* (LON:KEFI) 1.5p, Mkt Cap £9.9m – Convertible note restructuring and operation update

The Company is replacing the existing £4m Loan Facility under which it has drawn £900k to date and repaid £450k.

The remaining £3.1m balance is in part being replaced with a new £1.5m Loan Facility and once it is repaid the Company would have access to the balance £1.6m

The new loan is not secured, to be drawn in £250k tranches (up to £500k per month) and has a term of 24 months.

The facility carries no coupon but is repayable in cash in an amount of 105% of the principal amount plus a fee of 10% of the principal.

The conversion price has been brought down with the provider of capital now having an option to convert at the lower of 90% of the lowest VWAP for the 3 days immediately preceding the notice for conversion from the provider or 2p.

The loan can be repaid at any time in cash in an amount of 105% of the principal plus a fee of 10%.

Changes to the security provision and related arrangements come at a cost of £207,500 that would be part paid in shares (8.5m at 2p for £170k) with the balance of £37.5k paid in cash.

Additionally, the lender is getting 13m of warrants for one ordinary share in the Company at an exercise price of 2.5p for a period of 3 years.

On operational side of things, the local administration has been expanded at the local level to accelerate development of Tulu Kapi while 300 local people are reported to have been recruited to start preparing new lands and home sties for the community to be resettled.

Independent experts are working on updating reports on security and the readiness of the community to resettle.

In Saudi Arabia, an initial 2,500m core drilling programme is planned to start in Sep/19.

*SP Angel act as Nomad and Broker to KEFI Minerals

 

Oriole Resources (LON:ORR) 0.39p, Mkt cap £2.7m – Madina Bafe drilling

Oriole Resources reports on the results of aircore drilling conducted by IAMGOLD at Oriole’s Madina Bafe prospect within its Dalafin project area in eastern Senegal. IAMGOLD is funding the drilling as part of its commitment to earn a 70% interest in the project.

The aircore drilling, totalling 4,167m in 869 hole, has helped define geochemical anomalies and “outlined multiple new anomalies in the south of the Prospect as well as in a new area several kilometres (“km”) to the north”.

Among the results highlighted today are:-

A “3.5km long northeast-trending anomaly in the south of the Prospect - related to a previously-defined 0.4km anomaly (>50 ppb Au) c.1km to the southwest” and

A “2km long northeast-trending anomaly in the north of the Prospect, related to cross-cutting zones of higher-grade anomalism”

The company advises that exploration work has now been suspended and is expected to resume in October after the wet season when follow up work is expected to include:

A “4,000m reverse circulation ('RC') drilling at Madina Bafé to follow-up on best results to date” and

A “2,500m regional AC drilling at Saroudia prospect, c.2 km to the north west” and

“1,600m RC drilling at Saroudia to follow-up on best AC results.”

 Commenting on the results, CEO, Tim Livesey confirmed that “The identification of yet more gold targets has expanded our area of interest in the south of Madina Bafé to a substantial 16km2. The identification of a further 2km long anomaly several kilometres north of this, leaves us convinced of the more prospective nature of our Dalafin licence within this highly endowed geological terrane”.

Mr. Livesey expressed confidence that “follow-on RC Drilling will provide further definition of these targets at Madina Bafé, and that more anomalism will be identified as the programme extends to the Saroudia area”.

Conclusion: The definition of further anomalies for follow up exploration within the Dalafin licence, which is located approximately 12km WNW of IAMGOLD’s 2.5moz Boto gold project should encourage the continuing involvement of IAMGOLD which is currently in the second year of its 4 year programme to earn a 70% interest in the project. We await further news when exploration resumes after the wet season.

 

Thor Mining* (LON:THR) 0.70p, Mkt Cap £5.8m – Thor confirms it has sufficient funds to meet commitments over next six months

(100% Molyhil Tungsten Project, Australia, 40% ownership of Bonya, close to Molyhill, 100% Pilot Mountain Tungsten in USA, 30% EnviroCopper Ltd in Australia)

Thor Mining have responded to a query by the Australian Stock Exchange on its funding position.

The company confirms that it expects to continue operations and meet its business objective on the basis of having sufficient funding to meet expenditure commitments for at least the next two quarters, in conjunction with various options being considered to raise further funds within that timeframe.

Thor recently reported a work plan for its Jervois vanadium project where Thor Mining is the operator but where Arafura Resources hold 60% ownership.

Jervois is located approximately 290km east-northeast of Alice Springs in Australia.

The company also intends to re-assay up to 1200 samples from 27 holes drilled at its Pilot Mountain project in Nevada between 2012 to 2017 for gold..

Thor is also in joint venture with Arafura Resources on its 40% owned Bonya tungsten project in Australia.

The Bonya prospect lies close to Thor Mining’s wholly owned Molyhil tungsten project.

 

Health & Safety News

Health & Safety – scaffolding vs ladders

Did you know that ladder-related incidents contributed to more than 150 workplace fatalities and more than 20,000 nonfatal workplace injuries among all industries in 2015.

10,000 construction workers are injured every year in scaffolding accidents with 88 fatal scaffolding accidents. We suspect some of the ladder injuries also relate to ladders on scaffolding.

While there is no maximum height for using a ladder, were a ladder rises 9m or more above its base, landing areas or rest platforms should be provided at suitable intervals.

So that’s why scaffolding companies are so busy these days.

 

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

Quick facts: Jubilee Metals Group

Price: £0.03

Market: AIM
Market Cap: £51.95 m
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