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Today's Market View – Bluebird Merchant Ventures, Greatland Gold, Petropavlovsk, Savannah Resources and Syrah Resources Limited

Today's Market View – Bluebird Merchant Ventures, Greatland Gold, Petropavlovsk, Savannah Resources and Syrah Resources Limited

Bluebird Merchant Ventures Ltd - Today's Market View –  Bluebird Merchant Ventures, Greatland Gold, Petropavlovsk, Savannah Resources and Syrah Resources Limited

Bluebird Merchant Ventures* (LON:BMV) – Permit to Develop Gubong gold mine granted

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

Petropavlovsk (LON:POG) – Interims – earnings grow, FY19 TCC guidance reduced, POX production ramps up

Savannah Resources* (LON:SAV) – Mutamba mining concessions

Syrah Resources Limited (ASX:SYR) – Syrah takes decisive action to cut Q4 graphite production and cut costs as sales pull back in China

 

Economics

China – 10% inflation in food prices driven by 46.7% yoy rise in pork prices in August

An outbreak of African Swine Fever has caused the culling of around half the pig population decimating pork supplies and causing pork prices to rise by 46.7% this year. July saw a 27% rise in pork prices yoy.

The crisis has caused food prices rose 10% yoy in August (China’s National Bureau of Statistics).

China CPI rose 2.8% yoy in August.

China PPI fell 0.8% yoy in August.

Currency weakness has combined with the pork crisis to lift other foodstuff prices with fresh fruit jumping 24% yoy and other meats rising 11.6%-12.5%.

Capital Economics reckons Chinese consumer prices are due to rise further as pig culling continues.

Food inflation has the potential to further destabilise China political system which is already facing a major challenge in Hong Kong.

The PBoC has already announced it is to cut bank reserve ratios in an act of monetary easing and is likely to continue to do so as the US – China trade war starts to impact on Chinese manufacturing sales and the economy as a whole.

The African Swine Fever crisis could not come at a worse time for China’s authorities as it battles to contain dissent in Hong Kong.

Food inflation has the potential to spark unrest in many regions fuelled by news of the pro-democracy movement in Hong Kong.

China has every reason to settle the Trade War with the US and with the US Presidential election due on 3 November 2020 the US President will be looking to settle with China. Interestingly, the Democrats appear to be supportive of the Republican stand against China helping the US negotiating team to fight hard to gain key concessions relating to trade, technology theft and copyright.

 

US – Treasury Secretary Steven Mnuchin highlighted “a lot of progress” in US/China trade talks while calling the planned arrival of Chinese officials’ delegation to Washington in October a “sign of good faith”.

Both nations are slated to meet in Washington in early October in an effort to end their escalating tariff war.

Positive comments from Mnuchin supported demand for risky assets with sovereign bonds and gold prices down.

 

UK – The pound held on to its recent gains as Parliament voted down the second attempt of PM Johnson to call a snap election.

This marked a sixth consecutive defeat of the acting PM.

Additionally, Parliament ruled for the PM to seek a delay Brexit to 31 January 2020 if no deal is agreed with the EU by 19 October.

The pound is currently rangebound between 1.23-1.24 against the US$, the strongest level since the end of July.

 

Italy – Industrial sector continued to contract with output down 0.7%mom and 0.7%yoy in July.

 

Saudi Arabia – Oil prices trade at the highest level in almost six weeks as Saudi Arabia’s new energy minister offered his commitment to production cuts ahead of an OPEX+ meeting later this week.

 

Currencies

US$1.1049/eur vs 1.1028/eur yesterday. Yen 107.28/$ vs 106.94/$. SAr 14.725/$ vs 14.792/$. $1.233/gbp vs $1.224/gbp. 0.686/aud vs 0.686/aud. CNY 7.102/$ vs 7.132/$.

 

Commodity News

Gold US$1,494/oz vs US$1,507/oz yesterday – Gold prices pull back as US dollar strengthens and on progress in US trade talks with China

   Gold ETFs 79.2moz vs US$79.4moz yesterday

Platinum US$941/oz vs US$950/oz yesterday

Palladium US$1,546/oz vs US$1,544/oz yesterday

Silver US$17.98/oz vs US$18.04/oz yesterday

           

Base metals:   

Copper US$ 5,835/t vs US$5,816/t yesterday

Aluminium US$ 1,803/t vs US$1,785/t yesterday

Nickel US$ 18,150/t vs US$17,735/t yesterday

Zinc US$ 2,319/t vs US$2,315/t yesterday

Lead US$ 2,093/t vs US$2,071/t yesterday

Tin US$ 17,305/t vs US$17,110/t yesterday

           

Energy:           

Oil US$62.7/bbl vs US$62.1/bbl yesterday

Natural Gas US$2.611/mmbtu vs US$2.502/mmbtu yesterday

Uranium US$25.15/lb vs US$25.20/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$89.0/t vs US$85.4/t - Chinese demand boosts iron ore prices

The Chinese import price of iron ore (62% Fe) jumped by 4.4% on Monday to $92.97 per dry metric tonne (Fastmarkets MB).

China’s iron ore purchases in August marked the highest level of imports since January 2018, totalling 94.85m tonnes.

Prices fell 28% in August boosted by rebounding supplies from big miners, causing Chinese steel mills to take advantage of the falling price to rebuild stocks.

Iron ore imports are set to reach another record in 2019, with annualized shipments running at 1.12 billion tonnes (mining.com).

Chinese steel rebar 25mm US$559.9/t vs US$556.0/t

Thermal coal (1st year forward cif ARA) US$66.2/t vs US$66.0/t

Coking coal futures Dalian Exchange US$213.0/t vs US$203.3/t

           

Other:  

Cobalt LME 3m US$35,500/t vs US$35,500/t

NdPr Rare Earth Oxide (China) US$46,086/t vs US$45,917/t

Lithium carbonate 99% (China) US$7,036/t vs US$7,010/t

Ferro Vanadium 80% FOB (China) US$38.7/kg vs US$38.7/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$195-205/mtu vs US$198-205/mtu

 

Battery News

Calcium-based batteries could be a step closer to replacing Lithium-ion

A recently synthesized chemical has led to the prospect of calcium-based batteries functioning as a viable alternative to lithium-ion batteries.

Calcium is about 2,500 times more abundant than lithium in the Earth’s crust, and is therefore seen as a cheaper alternative when harnessing its properties for storage solutions.

Researcher Zhirong Zhao-Karger, at the Helmholtz Institute Ulm in Germany  "reacted a calcium compound with a fluorine-containing compound to create a new type of calcium salt” (Nature). The calcium salt overcomes the previous challenge of using a calcium based battery which is being able to find a workable electrolyte. An electrolyte serves as a catalyst to make a battery conductive by promoting the movement of ions from the cathode to the anode on charge and reverse on discharge, according to Battery University.

According to the description in Nature, “The Ca electrolytes exhibit state-of-the-art electrochemical properties in terms of high oxidative stability, high ionic conductivity and good capability of long-term reversible Ca cycling. The outstanding properties of the electrolyte pave an avenue towards room temperature high-energy Ca batteries.”

 

Company News

Bluebird Merchant Ventures* (LON:BMV) 2.6p, Mkt Cap £9.4m – Permit to Develop Gubong gold mine granted

(Bluebird hold 50% of the Gubong and Kochang licenses in jv with Southern Gold Ltd)

 

Bluebird Merchant Ventures reports that ‘confirmation has been received that the "Permit to  Develop" the Gubong Mine has been granted. 

‘The Joint Venture Company expects to receive the formal permit soon and shall update the market in due course. 

The "Permit to Develop" is the first to be issued for a gold development project since Ivanhoe Mines were issued a permit in the 1990s.’

Colin Patterson, Bluebird’s Mining Engineer and CEO is quoted as saying:

“  In four decades in the mining industry I have never seen a permit issued so quickly to allow a mine to enter the production phase.” 

The news is testament to the professionalism of Colin and his teammates including Charles Barclay, COO who has worked in gold mining for more years than he cares to remember.

The reopening and restoration of production at the historic Gubong gold mine should be relatively simple with a modest process plant due to recover gold from previously mined stopes within the mine at relatively low cost.

We expect gold production at Gubong to start off at a modest 4,912oz in its first year rising to 10,232oz in its second year and then to 28,651oz the year after.

Conclusion: The issuance of a development permit sounds like good news for the company. Further permits may be required before gold production is able to start.

*SP Angel act as broker to Bluebird Merchant Ventures

 

Greatland Gold (LON:GGP) 1.81p, Mkt cap £64.2m – Further results from Newcrest Mining’s drilling at Havieron

Greatland Gold reports the latest 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.

The results are reported to “define a series of higher-grade zones within a broad envelope of mineralisation and extend mineralisation to the north by an additional 100 metres with the system remaining open.”

Newcrest is expected to “complete Phase 1 drilling in September and commence Phase 2 of the Havieron exploration programme which includes plans to significantly increase the amount of both step out and infill drilling”.

Among the results highlighted today are:

A 139.4m long intersection averaging 2.9g/t gold and 0.39% copper from a depth of 865.7m in hole HAD012 which is located approximately 100m north of Hole HAD005 and includes a higher grade section of 43m averaging 7.9g/t gold and 0.83% copper from a depth of 900m as well as a second intersection of 27m averaging 0.99g/t gold and 0.10% copper from 1056m depth.

The results from hole HAD005, reported in 2018 showed 103m averaging 3.5g/t gold and 0.93% copper from a depth of 459m and a second intersection of 128m averaging 7.4g/t gold and 0.54% copper from 660m; and

A 100.9m long intersection averaging 2.0g/t gold and 0.48% copper from a depth of 479m in hole HAD013 which is located approximately 500m north of Hole HAD005. The intersection includes a higher grade section of 36m from a depth of 481m which averages 4.1g/t gold and 0.84% copper. Hole HAD013 also intersected 162.3m averaging 0.89g/t gold and 0.17% copper from 712m depth (including 10.2m averaging 2.5g/t gold and 0.69% copper from 725.7m and 15.3m averaging 2.2g/t gold and 0.17% copper from 855m) as well as 146.1m averaging 0.93g/t gold and 0.1% copper from 917.9m depth; and

Hole HAD014 intersected “mineralisation to the west of and below hole HAD005” including 244.6m averaging 2.0g/t gold and 0.4% copper from a depth of 450m as well as an intersection of 75.3m averaging 3.4g/t gold and 0.43% copper from a depth of 816.6m.

The company reports that Hole HAD011 encountered “no significant intersections from 903.8m to end of hole” however, as announced on 25th July, higher up the hole it 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.

Five further drill holes “are at various stages of progress (HAD015-019) and assay results are awaited”.

There are currently four drilling rigs deployed at the project and a fifth is expected to become operational later this month as the second phase of work gets underway.

“Newcrest's minimum expenditure commitment (USD $5 million) is expected to be met during the current calendar month”.

A plan view shown on Newcrest Mining’s website http://www.newcrest.com.au/media/market_releases/2019/Newcrest_Market_Release_Exploration_Update_-_Havieron_2019.pdf shows at least three semi-contiguous broad mineralised structures extending for approximately 400m east/west while associated cross-sections show wide, apparently steeply dipping zones of mineralisation beneath approximately 400m of overlying cover rocks.

Commenting on the fact that “each of drill holes HAD012, HAD013 and HAD014 intersected significant widths of mineralisation (in excess of 100m at better than 2g/t gold) and higher-grade zones within those intersections”, Greatland Gold’s Chief Executive, Gervaise Heddle explained that “each of the three drill holes above extended the known mineralised envelope of the system, primarily to the north and the west.”

Conclusion: The Newcrest drilling at Havieron is extending the known mineralisation towards the north and the west and appears to be building a picture of mineral continuity in broad zones below some 400m of cover. Drilling activity is being expanded and we look forward to further results as the programme continues.

 

Petropavlovsk (LON:POG) 10.1p, Mkt Cap £334m – Interims – earnings grow, FY19 TCC guidance reduced, POX production ramps up

Revenues climbed 13%yoy to $305m (H1/18: $270m) reflecting stronger gold sales.

Sales increased 12%yoy to 225koz (H1/18: 201koz) attracting an average price of $1,286/oz (H1/18: $1,285/oz).

EBITDA was up 37% at $83m (H1/18: $61m) due to stronger revenues as well as a slight reduction in unit operating costs.

TCC were down 6% at $841/oz (H1/18: $899/oz) as lower operating costs at the mines were offset by costs of underutilised newly commissioned POX facility as well as higher mining tax rates.

A 10% depreciation in the USDRUB exchange rate helped to mitigate some of local price inflation (power +5%yoy in RUB terms, diesel +17% in RUB terms).

AISC reduced by 10% to $1,029/oz (H1/18: $1,138/oz) due to lower TCCs and lower impairment of non-refractory ore stockpiles.

Net Operating Cash Flow amounted to $1.0m after accounting for $33m in interest payments, $17m in tax as well as a $20m reduction in working capital.

Net Free Cash Flow totalled -$44m (H1/18: $61m) after accounting for $45m (H1/18: $67m) in capex including POX project completion, exploration and development at underground operations at Pioneer and Malomir and expansion of tailing dams at Pioneer and Albyn among other expenses.

Net Debt was little changed at $557m (Dec/18: $568m) with cash and cash equivalents of $39m (Dec/18: $26m).

2019 guidance improved on the operating costs’ front with forecast TCC expected at $750-850/oz, down from $850-950/oz expected previously.

The change is driven by better operational performance including smoother-than expected ramp up of the POX facility and its planned better utilisation in H2/19.

2019 production guidance remained at 450-500koz.

Annual capex reiterated at $45-55m which, in turn, excludes recently approved Pioneer flotation line construction (c.$30m over a 12-14 months period and commissioning expected to start in Q4/20).

Operationally, all four autoclaves of the POX facility are now fully operational and are working in rotation with the design rate of 7,000-7,5000 annual operating hours (per autoclave) achieved for Malomir concentrates.

H1/19 POX recoveries for the Malomir concentrate averaged 86%, but are expected to improve as the plant ramps up.

3rd party material recoveries averaged 95% in July.

Malomir TCCs for refractory ore averaged $980/oz in H1/19 including $230/t unit POX processing cost which in turn should normalise with higher throughput rates as high fixed costs’ component will be spread over higher processed tonnage.

61kt of Malomir concentrate were processed at Pokrovka POX in H1/19.

200-225kt of refractory ore concentrates are expected to be processed at POX in 2019 including 40-60kt of 3rd party material and 160-165kt of Malomir concentrate (including 35kt of Malomir concentrate produced in 2018).

 

Savannah Resources* (LON:SAV) 3.35p, Mkt Cap £35.1m – Mutamba mining concessions

Savannah Resources reports that Mozambique’s Minister of Mineral Resources and Energy has conditionally granted 25 year licences for two licences covering 280.74km2 of the Mutamba mineral sands project where Savannah Resources operates in joint-venture with Rio Tinto.

The Mutamba project area contains n indicated and inferred mineral resource of 4.4bn tonnes at an average grade of 3.9% heavy minerals and is described as “one of the largest remaining mineral sands deposits in the world that is yet to be developed”.

The project area is well served by infrastructure with road and air access and nearby port facilities at Inhambane as well as “Reliable grid power already installed and available in close proximity to the Concessions”.

Although the details of the remaining conditions and likely timetable for the completion of the licences are not apparent, although they are “now in the final stage“, Chief Executive Officer, David Archer, explained that “once these Mining Concessions are formalised, they will enable the Joint Venture to progress the PFS towards completion.  Upon delivery of the PFS, our interest in this world-class heavy mineral project will rise from 20% to 35%.”

Subsequent delivery of a project feasibility study would further increase Savannah Resources’ interest to 51%.

Mr. Archer also commented that “demand for global titanium feedstocks remains very strong, … [and] … these Mining Concessions hold the potential as a significant global project within the sector.

Conclusion: The award of licences at Mutamba is a prelude to the completion of the pre-feasibility study, delivery of which triggers an increase of Savannah Resources’ stake in the joint venture to 35%.”

*SP Angel acts as Nomad to Savannah Resources

 

Syrah Resources Limited* (ASX:SYR) A$0.47, mkt cap A$194m – Syrah takes decisive action to cut Q4 graphite production and cut costs as sales pull back in China

Syrah Resources shares fell 33% this morning as management report the group is is cutting graphite production to around 5,000t per month in Q4 in response to ‘a sudden and material decrease in spot natural flake graphite prices in China’.

The giant Balama Graphite mine was always going to disrupt the market for graphite but the timing of the increase in production at Balama has caught the market at a bad time.

Chinese buyers of graphite and some other commodities are holding back purchases due to currency weakness, rising local inventory levels and a fall in Electric Vehicle sales due to a reduction in EV subsidies in China.

Syrah see the impact on price negotiations and contract renewals as potential weakening prices further into the fourth quarter.

Management are pro-actively seeking further structural cost cutting and are to conduct a strategic and operational review for 2020.

Syrah has sufficient cash combined with further cost cutting to adjust its near-term production

Spot natural flake graphite prices fell suddenly and materially in China across all flake sizes impacting existing contract price re-negotiations and contract renewal discussions.

China imported 105,000t of graphite in the first six months of 2019 with 75% coming from Syrah’s Balma mine mainly for battery manufacturing.

Additional production from Madagascar and a seasonal increase in domestic Chinese production has also added to market supply;

Automotive manufacturing of batteries is expected to raise battery production capacity to 1,234.8 GWh 2023 (Benchmark Mineral Intelligence)

While Syrah can produce some 240ktpa it plans to limit sales to 45,000t in Q3

Syrah’s Q3 average weighted average price is now expected to be US$400/t versus US$457/t in Q2

Cash forecast at end September is revised to ~US$60m from ~US$64m previously

Syrah has additional available liquidity of A$55.8m (US$38.2 million)

Syrah estimates a non-cash post tax impairment of property, plant and equipment and mining assets of approximately US$60-US$70m

and an inventory write down of approximately US$5m.

Conclusion: It is good to see management taking decisive action to cut production and costs. While this is borne out of sudden necessity we reckon the market should recover relatively quickly.

New battery manufacturing capacity is coming to the market and new manufacturers will be looking to Syrah to provide more natural flake graphite for their battery anodes.

*SP Angel act for graphite manufacturer Talga Resources and graphite project company, Walkabout Resources

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