SP Angel – Morning View – Tuesday 06 08 19
Base Metals and oil rise following trade-war selloff
Iron ore slips into a bear market on weaker demand outlook
MiFID II exempt information – see disclaimer below
BlueRock Diamonds* (LON:BRD) – BlueRock sign five-year mining contract with Teichmann Group
Continental Gold (CVE:CNL) – Drilling shows great gold intersections on Buriticá gold project
Serabi Gold (LON:SRB) – Coringa PEA delayed to end August due to move to dry stack tailings
Solgold* (LON:SOLG) – Further exploration results from northern Ecuador
Tesla cutting Li-ion battery costs to $100/kWh
Head of Tesla battery research group, comments in developers are “virtually there” in the pursuit of $100/kWh battery cell costs. (interview with YouTuber Sean Mitchell)
Costs of $100/kWh have been tipped as the crossover point where electric vehicles are genuinely cost-competitive with the internal combustion engine.
These changes may help to reinvigorate EV sales, which experienced a yoy sales drop for the first time since mid-2015 last month (per InsideEVS).
EV sales stalling (InsideEVs)
July 2019 marks the first month since mid-2015 that sales of electric vehicles have experienced a yoy drop.
Tesla continues to dominate the EV market, accounting for over half of all plug-in EV sales in July 2019, however the lack of significant EV sale increases by other companies means overall sales are liable to trend downward should Tesla fail to bring in significant monthly sale increases.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US trade deficit rises to $439m in H1
The US-China trade war sees Chinese imports down by more than $30bn in H1/19, although, the US trade deficit remains high hitting the largest level since 2008, according to data released on Friday.
US imports climbed to a historical high of $1.27tn in H1/19 with a fall in inbound shipments from China more than compensated by an increase in imports from elsewhere.
US – The administration has officially labelled China a currency manipulator further escalating its trade conflict with Beijing.
Under the designation, Treasury Secretary Steven Mnuchin “will engage with the IMF to eliminate the unfair competitive advantage created by China’s latest actions,” the Treasury department said in a statement.
Investors adjusting their expectations on the timing for a resolution of the trade war reducing positions in risky assets.
The S&P 500 recorded the worst day (-2.98%) since the start of the year while 10y treasury yields a low of 1.68% and the spread with 3m notes widened to -32bp.
S&P futures are currently trading slightly stronger this morning (+0.2%).
The yen pulls back after closing at its strongest level in more than a year.
Global inventory of negative yielding debt continues to expand hitting record high of $15tn on Monday, up from ~$14tn at the start of the month.
China – The yuan is rangebound this morning trading around the 7.04 mark.
The PBoC set the reference rate at 6.9683 per US$, stronger than the 6.9871 level forecast by Bloomberg.
The onshore yuan is allowed to trade 2% in either direction around the daily reference rate.
Germany – A bit of positive news released this morning showing industrial orders climbed more than forecast in June (%mom).
Nonetheless, orders were still down when compared to the previous year marking 13 months of negative growth rates.
A pick up from the previous month was driven by orders outside the Eurozone (+8.6%mom) with domestic orders (-1%mom) and within the single currency region (-0.6%) both down.
Factory Orders (%mom/yoy): 2.5/-3.6 v -2.0/-8.4 in May and 0.5/-5.2 forecast.
Australia – The central bank keeps rates unchanged at a record low of 1%, in line with expectations, while trimming economic growth forecasts.
GDP growth projections have been reduced by 25bp to 2.5% for this year and reiterated 2.75% for the next.
“The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected,” Governor Lowe said.
10y yields continued to decline hitting a record low of 1.04%.
Iran – The UK joins the US to protect commercial ships transitioning through the Strait of Hormuz.
The news comes on the back of reports that Iran captured another commercial ship over the weekend.
US$1.1205/eur vs 1.1134/eur yesterday. Yen 106.53/$ vs 105.92/$. SAr 14.812/$ vs 14.888/$. $1.217/gbp vs $1.211/gbp. 0.680/aud vs 0.676/aud. CNY 7.035/$ vs 7.033/$.
Gold US$1,461/oz vs US$1,457/oz yesterday
Gold ETFs 76.4moz vs US$75.9moz yesterday
Platinum US$857/oz vs US$856/oz yesterday
Palladium US$1,435/oz vs US$1,417/oz yesterday
Silver US$16.41/oz vs US$16.49/oz yesterday
Copper US$ 5,697/t vs US$5,707/t yesterday
Aluminium US$ 1,765/t vs US$1,767/t yesterday –
Nickel US$ 14,915/t vs US$14,685/t yesterday – BHP boosts nickel reserves by 77% as the company looks to ramp up production to meet expected new EV battery demand
BHP has increased its nickel reserves by 77% to 1.5mt and has expanded its license area to 13,000sqkm in Western Australia along WA’s southern coast.
A 60kwh nickel-manganese-cobalt (NMC811) battery needs 9kg of cobalt, 11kg of lithium and 70kg of nickel.
We expect EV production to drive prices for nickel hydroxide to a significant premium and for the hydroxide form to probably become more valued in the market than nickel metal on the LME.
Zinc US$ 2,333/t vs US$2,349/t yesterday
Lead US$ 1,986/t vs US$1,949/t yesterday
Tin US$ 17,015/t vs US$16,955/t yesterday
Oil US$60.2/bbl vs US$60.9/bbl yesterday
Natural Gas US$2.095/mmbtu vs US$2.095/mmbtu yesterday
Uranium US$25.35/lb vs US$25.35/lb yesterday - US firm becomes first authorised to use low-pH uranium leaching in USA
The Wyoming Department of Environmental Quality has approved the use of low pH in-situ leaching (ISL) of uranium at the Lance Projects, Wyoming, the first such license in the US (World Nuclear News reports).
ISL involves the recovery of minerals from ores by dissolving them and pumping the solution to the surface. The use of acidic or alkaline leaching solution is dependent on the geology of the ore, however the use of an acidic solution has shown to provide higher uranium yields and lower operating costs.
Peninsula Energy Ltd, the firm behind the Lance Projects, is now expected to carry out low PH field demonstrations before commercial operations can begin.
Iron ore 62% Fe spot (cfr Tianjin) US$95.6/t vs US$102.5/t – Worsening trade relations between the US and China weighing on demand outlook see spot iron ore prices hitting $99.5/t, more than 20% down on the five year high reached in July.
September futures are trading at $94.7/t (-1.2%) this morning.
September futures are trading at $94.7/t (-1.2%) this morning.
Chinese steel rebar 25mm US$576.6/t vs US$581.4/t
Thermal coal (1st year forward cif ARA) US$66.9/t vs US$67.4/t
Coking coal futures Dalian Exchange US$208.4/t vs US$208.5/t
Cobalt LME 3m US$26,000/t vs US$26,000/t - Volvo uses blockchain to track cobalt
Volvo Cars claims to have produced the first cars containing recycled cobalt mapped using blockchain, providing a fixed, public transaction database.
The use of blockchain may facilitate open and consistent tracking of cobalt use, an area of particular concern given that the global distribution of cobalt is dominated by the DRC, where the risk of child labour use and other human rights abuses is high.
Development of the blockchain logistics was done by Circulor in the UK using technology developed by Oracle.
We are sure to see more distributed electronic ledger technology used in this way for the tracking and managing of commodity and inventory supply chains.
NdPr Rare Earth Oxide (China) US$42,996/t vs US$42,019/t
Lithium carbonate 99% (China) US$8,315/t vs US$8,390/t
Ferro Vanadium 80% FOB (China) US$40.0/kg vs US$40.0/kg
Tungsten APT European US$210-225/mtu vs US$210-225/mtu
China dominating lithium-ion battery production
China is ‘dominating’ global lithium-ion battery production, according to a recent article in Forbes magazine.
Exponential growth in lithium-ion battery production and sales is enabling significant cost-reductions, supporting expansion across a number of markets including consumer electronics, electric vehicles and heavy industry.
That growth is expected to continue, driven by growth in electric vehicle manufacturing where sales have risen by >10 x over the past five years.
China manufactures ~73% of lithium cell manufacturing capacity vs 12% in the US (BloombergNEF).
China’s dominant market share is boosted by cheaper labour costs and greater lithium carbonate and hydroxide processing capacity.
Chinese lithium production was 8,000t in 2018 driven by imports of lithium in spodumene concentrate which was ~10x US production.
China is looking to continue to dominate the Lithium-ion battery manufacturing as it has done with solar panels where it has driven manufacturing prices down to unexpectedly low levels largely driven by local subsidies which overseas producers have little chance to compete with.
Wastewater/Saltwater battery – wastewater treatment plants in coastal regions could theoretically generate 18Gw of power (ACS Omega journal via electrek)
Researchers at Stanford University reckon the world could theoretically generate some 18Gw of power through electrochemistry with waste water and sea water.
The team have a prototype battery which they will test in wastewater treatment plants.
Sodium and chloride ions from electrodes in the battery create a flow of current from one electrode to the other. Wastewater and saltwater flow the system causing the ions to reverse the current flow.
BlueRock Diamonds* (LON:BRD) 61p, Mkt Cap £2.0m – BlueRock sign five-year mining contract with Teichmann Group
BlueRock have signed a significant contract for the mining and supply of kimberlite ore to the plant at its Karveli mine in South Africa.
The contract is for the mining of waste and ore delivered to the process plant and its associated stockpile and for the ore to be broken to the required size.
Teichmann started the contract on 1st July and is being almost entirely paid on a cost per tonne basis which should improve the economics of the project.
‘Based on the lower end of the Company's current production expectations, the estimated cost of Teichmann's services for the 12 months ended 30 June 2020 will be approximately ZAR 21 million (approximately GBP 1.179 million).’
The Teichmann Group invested £310,000 into BlueRock’s latest fundraising announced on 16 May.
Our previous assumption for mining ore and waste costs was $2.53m for 300,000t of ore delivered. The new contract offers significant benefits on our assumptions and should enable a meaningful increase in margins depending on the resulting diamond production and pricing received.
Conclusion: The improved contract combined with better grades, ore delivery and processing rates and plant availability should enable a significant increase in margins and profitability for the group. While the Kareevli diamond mine is relatively low grade, this is made up for by a high proportion of gem quality diamonds and good auction prices seen to date.
*SP Angel acts as Nomad & Broker to BlueRock Diamonds
Orosur Mining* (LON:OMI) 5.1p, Mkt Cap £7.6m – Orosur shares run on Continental Gold drilling and positive gold price
Continental Gold (CVE:CNL) – Drilling shows great gold intersections on Buriticá gold project
Orosur Mining shares are enjoying a bit of a run this week as investors look for Colombian gold discoveries following positive drill results from Continental Gold.
Continental Gold’s Buriticá discovery is approx. 60 km from Anzá and is on the same mid-Cauca belt and prospective Tonusco Fault as Orisur’s Anzá property in Colombia.
Recent drilling from Continental Gold looks really good
Continental Gold reported the following results from the Buriticá project on 25th July
40.20 metres @ 6.43 g/t gold and 19.3 g/t silver (BUSY424)
23.00 metres @ 7.27 g/t gold and 53.0 g/t silver (BUSY433)
11.10 metres @ 8.43 g/t gold and 2.6 g/t silver (BUSY418)
10.10 metres @ 7.40 g/t gold and 6.0 g/t silver (BUSY423)
9.75 metres @ 10.59 g/t gold and 5.5 g/t silver (BUSY426)
19.10 metres @ 3.08 g/t gold and 17.4 g/t silver (BUSY435)
High-grade master veins, located predominately to the north of BMZ4, were intersected through drilling, with highlight results as follows:
6.20 metres @ 32.36 g/t gold and 10.7 g/t silver (BUSY435, SA vein)
3.05 metres @ 54.31 g/t gold and 19.7 g/t silver (BUSY421, AD vein)
1.10 metres @ 37.93 g/t gold and 13.3 g/t silver (BUSY424, AD vein)
Buriticá hosts reserves of 3.71moz of gold grading 8.4g/t and 10.7moz of silver grading 24.3g/t.
Buriticás mineral resources stand at 5.32moz of gold grading 10.32g/t gold and 21.0moz of silver grading 40.8g/t.
Veteran investor Eric Sprott recently put US$25m investment at C$3.10/s into Continental gold reported on 2nd July just ahead of Continental’s latest round of positive drill results. Continental’s shares are now at C$4.03/s.
Conclusion: Continental Gold are drilling out a major gold discovery at Buriticá. Newmont Mining owns almost 20% of Continental Gold and Orosur Mining and is funding Orosur’s work at Anzá. It makes sense for investors to look for further significant discoveries along mid-Cauca belt and Tonusco Fault.
*SP Angel act as Nomad and broker to Orosur Mining
Serabi Gold (LON:SRB) 59p Mkt value £35m – Coringa PEA delayed to end August due to move to dry stack tailings
Serabi Gold report the Preliminary Economic Assessment is going to take a little longer to complete due to a decision to move to a dry stacking solution and dispense with a conventional tailings dam.
We suspect this may be related to the two tailings dam disasters in Brazil which have so affected Brazil.
The report should be by end August
Recent results at Coringa show:
2.65m grading 8.51g/t gold from 273.75m
1.15m at 9.69g/t gold from 134.20m
0.75m at 7.61g/t gold from 174.80m
0.80m at 0.44g/t gold from 248.90m
Coringa indicated mineral resources estimate 845,000t grading 7.95g/t gold for 216,000oz contained gold
plus an additional 1.436mt grading 6.46g/t gold for 298,000oz
Conclusion: We look forward to the economic results and details of the Coringa PEA.
Solgold* (LON:SOLG) 28p Mkt Cap £517m – Further exploration results from northern Ecuador
SolGold has released results from its recent mapping and rock chip sampling at its wholly owned Blanca 1 prospect in northern Ecuador located around 5.1km north of the company’s flagship Cascabel project (85% owned).
High grade rock chip results along a 400m strike length of the Cielito Vein are said to confirm it “as a high grade epithermal priority drill target … [and are reported to] … compare favourably with previously reported rock chip samples of the Cielito Vein over 400m within the Blanca tenement that returned bonanza style epithermal gold mineralisation”.
The company says that its structural mapping has confirmed the “potential for multiple stacked flat lying high grade epithermal veins and over 118 mapped artisanal mining tunnels in the Cielito area”.
Among the results highlighted today are rock chip samples grading 144.5g/t, 31.5 g/t, 25.5g/t and 5.66g/t gold, while earlier results include a sample grading 617g/t gold with 317g/t silver and 0.59% copper and another sample averaging 542g/t gold with 254g/t silver and 0.54% copper.
Solgold says that a “Newly identified area of shallow artisanal workings located on the opposite ridge to the Cielito Vein, 380m to the SE is thought to be part of the same system with rock chip results of …” 25.5g/t gold and 2.63 g/t gold.
The Cielito system lies in a NNW trending corridor extending “over 1km strike length and 250m width within a broad circular … gold in soil geochemical anomaly which is over 1.5km in diameter”.
In addition to the Cielito Vein, Solgold has also identified the Cerro Quiroz prospect approximately 700m to the south within the Blanca 1 concession. The company says that it expects drilling permits for Cerro Quiroz to be granted “imminently” and that “The Blanca system is targeted to rapidly deliver a high-grade epithermal gold resource which may assist in the funding of Solgold’s share of the ENSA’s development of Alpala”.
The Alpala project area is the most advanced of a number of prospects within the Cascabel concession – in May 2019, the company published a Preliminary Economic Assessment for the development of Alpala indicating that pre-production capital expenditure in the Range US$2.4-2.8bn and life of mine sustaining capital of an additional US$10.1-10.5bn was expected to generate an after tax NPV8% in the region of US$4.1-4.5bn at a copper price of US$3.3/lb, a gold price of US$1300/oz and silver price of US$16/oz. The mine is to be developed through a major underground block-caving operation producing at rate of between 40mtpa to 60mtpa of ore.
Conclusion: Early stage exploration success over an extensive area within the Blanca 1 concession area is expected to be followed up with drilling in a campaign to identify a shallow high grade epithermal resource which could potentially help to fund Solgold’s share of the cost of developing Alpala.
*SP Angel acts as broker and advisor to Solgold.
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
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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.
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