SP Angel – Morning View – Wednesday 04 09 19
Political news from Asia and Europe prop up the risk sentiment
MiFID II exempt information – see disclaimer below
KEFI Minerals* (LON:KEFI) – Tulu Kapi development works start scheduled for October
Landore Resources (LON:LND) – BAM drilling results
Orosur Mining* (LON:OMI) – Annual business review and results
Premier African Minerals* (LON:PREM) – Loan repayment extended until 31st January 2020
Economics
China – Positive services industry data came out this morning offering a welcome set of data as the market downgrades economic growth forecasts for 2020 to sub 6% on increasing risks of US-China trade war.
A number of economists are arguing the government’s current approach to stimulus is proving insufficient.
Caixin Services PMI: 52.1 v 51.6 in July.
Caixin Manufacturing PMI (released on Monday): 50.4 v 49.9 in July and 49.8 forecast.
Caixin Composite PMI: 51.6 v 50.9 in July.
Eurozone- The ECB is debating the re-start of financial assets purchases as inflation continues to grind lower away from the 2% target.
“Net asset purchases will remain an essential instrument of monetary policy… they are working powerfully: the ECB holds in its balance sheet a stock of almost 2.6tn euros and will maintain that elevated level for at least several years,” ECB policymaker and head of the French central bank Francois Villeroy said.
The option of re-starting purchases is there “at any time” while if it is “necessary to do so just now” Is a “question to be discussed”.
The next monetary policy decision to be announced on September 12.
Broadly positive services PMIs for major Eurozone economies released this morning highlighting the contrast with the faltering manufacturing sector.
Of Germany, Franca, Spain and Italy, only the latter recorded a slowdown in the expansion rate in the services sector in August lifting the Eurozone wide Services PMI last month.
Eurozone Services PMI: 53.5 v 53.2 in July and 53.4 forecast.
Eurozone Manufacturing PMI (released on Monday): 47.0 v 46.5 in July and 47.0 forecast.
Eurozone Composite PMI: 51.9 v 51.5 in July and 51.8 forecast.
UK – The pound rebounded from nearly a three year low against the US$ after MPs voted down Boris Johnson no-deal Brexit plan with expectations building for a delay in the 31 October deadline.
While PM Johnson argued the government will invoke a snap election, although, that would require the support of two-thirds of MPs that seem unlikely at the moment.
The opposition Labour party confirmed on Wednesday it would not back the motion unless the no-deal option is completely “off the table”.
MPs are expected to hold vote on the Brexit delay bill today potentially moving it until 31 January 2020.
Italy – Giuseppe Conte is due to meet with the president today securing the new coalition government between Five Star and the Democratic Party.
That should follow the announcement of the new cabinet.
The draft budget plan pledges to avert an increase in sales tax that was due to kick in next year by cutting spending and raising revenue in other areas.
Next year’s budget will also cut taxes on labour and introduce a minimum wage, but will not jeopardise public finances, according to the 26-point document.
The FTSE MIB Index is trading 1.6% up this morning.
Debt markets have also welcomed the new with The spread between 10y Italian and German sovereign debt is down at 151bp versus 238bp recorded in the middle of August.
Hong Kong – Carrie Lam is planning to announce the formal withdrawal of an extradition bill that triggered months of protests today.
The Hang Seng Index jumped 4.08% on the news.
The negative effect of the continuing unrest has been reflected in the latest PMI data that showed the business activity contracted at the fastest pace since 2008 in August.
New business sub index dropped at the fastest rate since Feb/09, dragged down by a series-record decline in orders from mainland China.
“The survey is now broadly indicative of the economy contracting at an annual rate of around 4.0-4.5%,” Markit wrote.
The index sank to 40.8 last month versus 43.8 in July.
Currencies
US$1.0992/eur vs 1.0945/eur yesterday. Yen 106.20/$ vs 106.05/$. SAr 14.926/$ vs 15.225/$. $1.214/gbp vs $1.200/gbp. 0.678/aud vs 0.672/aud. CNY 7.154/$ vs 7.179/$.
Commodity News
Precious metals:
Gold US$1,538/oz vs US$1,531/oz yesterday
Gold ETFs 79.3moz vs US$78.9moz yesterday
Platinum US$970/oz vs US$936/oz yesterday
Palladium US$1,546/oz vs US$1,536/oz yesterday
Silver US$19.30/oz vs US$18.51/oz yesterday
Base metals:
Copper US$ 5,690/t vs US$5,589/t yesterday – Copper hits two-year low
The price of copper, long considered an indicator of global economic health, fell to a two-year low yesterday as investors face growing headwinds (Bloomberg).
Markets continue to await de-escalation in the US-China trade war, which has buffeted global markets in recent months.
Signs of a slowdown in major economies including the US, China, Germany and the UK are also fuelling muted market sentiment.
The long-term prospects for copper are positive, however: Wood Mackenzie recently reported that the growing wind turbine capacity may catalyse a surge in copper demand over the next decade, consuming as much as 5.5 million tonnes of the metal by 2028.
Aluminium US$ 1,759/t vs US$1,740/t yesterday
Nickel US$ 18,000/t vs US$18,000/t yesterday – Indonesia anticipating surge in nickel-related exports following ore export ban
Indonesia expects nickel-related exports to surge as investment in processing follows news that an ore export ban will be expedited (Reuters).
Co-ordinating minister Luhut Pandjaitan, speaking at Indonesia’s first electric car show, suggested exports of nickel-related goods including stainless steel and battery materials may exceed US$30 billion by 2024.
The Indonesian government hopes that an ore export ban may encourage investment in new industries. To this end, new tax incentives to entice investment in the Asian country’s nascent electric vehicle industry were recently laid out.
Toyota and Hyundai are expected to invest $2bn and $880m respectively to develop electric vehicles in Indonesia, state authorities report.
Zinc US$ 2,250/t vs US$2,211/t yesterday
Lead US$ 2,019/t vs US$2,008/t yesterday
Tin US$ 17,010/t vs US$16,530/t yesterday
Energy:
Oil US$58.5/bbl vs US$58.1/bbl yesterday
Natural Gas US$2.345/mmbtu vs US$2.326/mmbtu yesterday
Uranium US$25.25/lb vs US$25.30/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$86.3/t vs US$81.7/t – Iron ore price experiences biggest monthly drop in eight years
Chinese steelmakers turning to domestic ores, along with improving global supplies have caused the price to plummet.
The price of the commodity has dropped from $US110.65 at the end of July to $US84.64 by the end of August (Market Index).
The factors which caused a surge in iron ore prices at the start of 2019 have eased off, predominantly Chinese steel production and waning global supply following the Vale mining disaster in Brazil.
Chinese steel rebar 25mm US$548.5/t vs US$544.4/t
Thermal coal (1st year forward cif ARA) US$64.7/t vs US$63.9/t
Coking coal futures Dalian Exchange US$201.9/t vs US$201.3/t
Other:
Cobalt LME 3m US$34,000/t vs US$34,000/t
NdPr Rare Earth Oxide (China) US$44,873/t vs US$44,716/t
Lithium carbonate 99% (China) US$7,199/t vs US$7,174/t – Chilean senate declares lithium expropriation unconstitutional (MINING.com).
The Chilean senate have rejected a bill allowing the expropriation of private companies involved in mining lithium in the country.
Lithium in the country cannot be extracted via new concessions, only by state- owned companies or private companies who hold special operating contracts. While some senators want the government to hold the power to expropriate private companies that exploit lithium, the senate declared this unconstitutional.
Chile is the second largest producer of Lithium after Australia, and Chile’s president Sebastian Piñera has vowed to double the country’s output to 230,000 tonnes of lithium carbonate per year.
Ferro Vanadium 80% FOB (China) US$38.5/kg vs US$38.5/kg
Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg
Tungsten APT European US$198-205/mtu vs US$210-225/mtu
Battery News
Company News
KEFI Minerals* (LON:KEFI) 1.01p, Mkt Cap £7.3m – Tulu Kapi development works start scheduled for October
The Company and its partners in TKGM have confirmed their respective commitments to the start of development of the Tulu Kapi gold project in October 2019.
“The Tulu Kapi Gold Project has full support from the Ethiopian Government at all levels because it is a priority for the country and community… we work closely with KEFI and look forward to the start of development next month,” the Ethiopian Ministry for Mines, Petroleum and Natural Gas said.
“All parties are completing the last-minute actions for next month’s start of the 24-month development schedule to achieve full production in 2021,” the Company said during the Africa Down Under Conference in Perth.
Additionally, the Company has completed the updated independent security report that showed KEFI management plans “once refined in detail and fully resourced, will maintain security risk at a level that should be acceptable”.
The update of the security report was one of the conditions for the release of the first $11.4m investment tranche form KEFI partners, ANS, allowing to kick start the community resettlement programme.
The beneficial uptrend in gold prices remain supportive of enhanced project economics. With gold at $1,400/oz, estimates for the open pit only are:
Project export revenues are projected at c. US$200m per annum which would likely make it the country's largest single-enterprise export generator;
TKGM NPV on start of production in 2021 is estimated at £196m (US$249m). And from KEFI's viewpoint, the Company's planned 45% beneficial interest in the Project NPV at start of production would be £88m (US$112m);
Today, at start of construction, KEFI's planned beneficial interest in the NPV is estimated at £59m ($74m); and
Project free cash flow is estimated at £31m per annum (US$40m), of which KEFI's beneficial interest would be c. £14m per annum (US$18m).
*SP Angel act as Nomad and Broker to KEFI Minerals
Landore Resources (LON:LND) 0.765p, Mkt Cap £9.5m – BAM drilling results
Landore Resources has the completion of 24 diamond drill holes totalling 3,966m at its BAM Lake gold property at Junior Lake, Ontario.
The drilling was conducted to enable an upgrading of some of the inferred resources to the indicated level which would qualify them for inclusion in a Preliminary Economic Assessment (PEA) scheduled for completion during Q4 2019.
A further 10 diamond-drill holes (1,407m) were completed along the strike of the BAM deposit extending the known mineralised zone by a further 500m to 3.6km. The company says that mineralisation “remains open down dip and along strike to the east and the west”.
Results are still awaited for 14 of the holes but among the results highlighted in today’s announcement are:
An intersection of 17.78m at an average grade of 1.08g/t gold from a depth of 169.62m in hole 0419-701, and
22.9m averaging 0.98g/t gold from a depth of 104.75m in hole 0419-704 which also included intersections of 11.32m averaging 1.22g/t gold from 126.04m depth and 0.30m averaging 9.57g/t gold from 158.34m depth
Hole 0419-709 reported a grade of 11.8g/t gold over 0.89m from 194.02m depth; and
Hole 0419-702 reported a grade of 2.76g/t gold over 6.65m from 96.25m depth including 10.15g/t over 1m from 97.2m.
As well as the drilling, ground geophysical surveying, geological mapping and soil sampling is underway “along the highly prospective area between the BAM Gold Deposit and Lamaune Gold Exploration Target located approximately 8.5 kilometres to the west. The campaign is expected to be completed by mid-September with the results available for reporting by the end of October.”
Orosur Mining* (LON:OMI) 4.9p, Mkt Cap £7.4m – Annual business review and results
Orosur Mining has announced a pre and post-tax loss of US$1.18m for the year ending 31st May 2019 (2018 – loss of US$0.85m) as it restructures the business with its Uruguay operations on care and maintenance and the focus switching to the Anza gold project in Colombia where Newmont Mining is earning up to 75% of the project over three-phases of investment.
Under the agreement with Newmont, it will pay a total of US$4m in cash to Orosur during phases 1 and 2, spend a minimum of US$30m in qualifying expenditure over a twelve year period and complete pre-feasibility and feasibility level studies to the standards of Canada’s NI-43-101 protocols. “The first two years of the Exploration and Option Agreement (since September 2018) have relatively low minimum work commitments ($1 million per year). The minimum work commitment increases in years 3 and 4, to $4 million per year”.
The company reports that “Exploration activities at the Anzá project commenced in July 2019 within the scope of the Exploration and Option Agreement. The Company has already relogged 2,400 metres of the drill core from an area north of APTA … [and that] … Newmont has made the first two of four semi-annual $0.5 million cash payments to Orosur (paid in February and August 2019) and must also complete a $1 million minimum work commitment by September 7, 2019 or pay any shortfall in cash to Orosur by November 7, 2019. As at the date of this announcement, the $1.0 million minimum work program has been partially completed.”
In addition to the re-logging of past drill core, continuing work at Anza also includes reinterpretation of past geochemical and geophysical information with the objective of working with Newmont to update the geological model.
In December 2018, the company reached agreement with the creditors of its Uruguayan operations stipulating that “the net proceeds from the sale of assets in Uruguay together with the issuance of 10 million common shares in Orosur shall fully satisfy all amounts owing to … creditors as well as provide funds … to conduct this process and close its operations responsibly”.
Commenting on these developments, CEO, Ignacio Salazar, explained that the conclusion of agreements with Newmont Mining and with the creditors in Uruguay during the first half of the financial year had enabled the company to focus “on implementation and steady progress” during the second half of the year. Mr. Salazar went on to confirm that “We remain committed to the plan to restructure, recapitalize and transform the Company”.
Conclusion: The re-evaluation of pre-existing drilling, geophysical and geochemical data and the systematic review of the geological model for Anza should enable Orosur and Newmont to develop a structured plan for the future exploration of the Anza project. We look forward to continuing news as the exploration gathers momentum.
*SP Angel act as Nomad and broker to Orosur Mining
Premier African Minerals* (LON:PREM) 0.027p, Mkt Cap £2.7m – Loan repayment extended until 31st January 2020
Premier African Minerals reports that it has agreed with Regent Mercantile Holdings that repayment of its US$350,000 convertible loan note can be extended until 31st January 2020.
Under the original terms, “Premier was required to make to two equal payments on 1 August 2019 and 1 September 2019. Failing direct repayment of the Loan Agreement by Premier, Regent at its sole discretion was allowed to convert any percentage of a payment into new Premier shares at a conversion price equal to 90 per cent. of the daily volume weighted average price during the five days trading days immediately prior to the relevant payment date”.
The loan “will continue to be secured over 350,000 shares of Circum Minerals Limited held by Premier.” On 30th August, the company announced that, subject to shareholder approval, it intended to dispose of its holding in Circum Minerals, which is working to develop the Danakil Potash Project in north-east Ethiopia, with the proceeds being used to “first repay all existing debts and liabilities” and then offer shareholders the alternatives of a distribution of the residual proceeds as dividends or a share buy-back or allow the company to retain them for investment “into existing or new projects”.
The revised term include the right for Regent “in its absolute discretion, to elect a Conversion of the Principal Amount, including all outstanding interest thereon during the Period at the Conversion Price. Upon the expiry of the Period, unless otherwise agreed in writing between the parties, Premier will have 5 days to settle any outstanding amounts under the Loan Agreement, including all outstanding interest thereon”.
CEO, George Roach, expressed appreciation for Regent’s support and commented that “The Loan Agreement was always concluded on helpful and supportive terms and this extension underlines that.”
Conclusion: The company has reached agreement with Regent Mercantile Holdings to move the repayment date for the US$350,000 convertible loan to 31st January 2020.
*SP Angel have an agreement with Premier African Minerals as a result of the acquisition of Northland Capital Partners
Analysts
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Sales
Richard Parlons – 0203 470 0472
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Rob Rees – 0203 470 0535
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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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