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Today's Market View - Metals prices fall on potential for new tariffs on the EU

Published: 11:42 25 Sep 2019 BST

3M - Today's Market View - Metals prices fall on potential for new tariffs on the EU

SP Angel – Morning View – Wednesday 25 09 19

Metals prices fall on potential for new tariffs on the EU

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MiFID II exempt information – see disclaimer below

 

Adriatic Metals* (ASX:ADT) – Metallurgical results from samples at Rupice and Veovaca

Alexander Mining (LON:AXM) – to become cash shell following disposal of MetaLeach subsidiary

Aura Energy Limited* (LON:AURA) – Tiris water programme and project update

Europa Metals Limited (LON:EUZ) – Further drilling results from Toral zinc, lead, silver project in Spain

Savannah Resources* (LON:SAV) – Grandao co-product resource estimate

 

Metals prices turn south as Trump turns up hard rhetoric on China at UN meeting in the US

EU – Euro falls as US contemplates new tariffs on the EU

  • The US is not only considering a raft of new tariffs on the EU but is also looking at moving tariffs around amongst goods to maximise the impact of the new tariffs
  • The US sees the EU as having cheated in not just its Auto emissions but also in other areas such as subsidies for Airbus which competes directly with Boeing.
  • We would not be surprised if the US saw the EU as passing through Chinese goods into the US
  • The Trump Administration also sees the EU and in particular Angela Merkel as undermining its foreign policy in many areas.
  • The US Administration is also very keen for closer alignment with the UK post Brexit and may well be the first to put a trade agreement in place.

German potash producer follows rivals and cuts production (Worldfertilizer)

  • German producer K+S have announced they will reduce fertilizer production by up to 300,000t by the end of 2019 due to the current weak demand for the fertilizer.
  • This news follows others in the industry who announced production of potash would be scaled back such as producers Uralkali and Nutrien- reported last week. Belarus have also said they are planning to cut production by one third within the next three months.
  • The weak market environment for potash has been worsened by the Chinese continuing to ban imports of potash, a ban put in place in an attempt to develop the domestic supply of strategically important resources (CRU).  
  • The effect of the production adjustment on K+S’ EBITDA is expected to be approximately €80 million.

 

Dow Jones Industrials -0.53% at 26,808

Nikkei 225 -0.36% at 22,020

HK Hang Seng -1.27% at 25,948

Shanghai Composite -0.82% at 2,961

FTSE 350 Mining -2.29% at 17,924

AIM Basic Resources +0.12% at 2,175

 

Economics

EU - ECB incoming president Christine Lagrde says the global economy is likely to dodge an outright contraction though trade tensions remain a threat to global growth (Bloomberg)

Danske Bank executive at center of $220bn money laundering scandal found dead

China – President Xi opens new US$11bn new Beijing airport

  • The airport is expected to handle 72m passengers a year by 2025
  • In the UK Luton Airport expands for £150m for 18m passengers a year

South Korea – deflation seen as biggest domestic risk to the nation (Reuters)

Sea levels are rising faster than expected due mainly to the ice melt in Greenland and Antarctica. Sell Norfolk!


Currencies

US$1.1000/eur vs 1.0990/eur yesterday.  Yen 107.37/$ vs 107.56/$.  SAr 14.970/$ vs 14.867/$.  $1.247/gbp vs $1.244/gbp.  0.678/aud vs 0.678/aud.  CNY 7.116/$ vs  7.104/$.

  • South Africa rand close to breaking the R15 per US dollar rate

 

Commodity News

Gold US$1,529/oz vs US$1,522/oz yesterday

Gold ETFs 80.2moz vs US$80.2oz yesterday

Platinum US$951/oz vs US$954/oz yesterday

Palladium US$1,671/oz vs US$1,655/oz yesterday

Silver US$18.53/oz vs US$18.54/oz yesterday

           

Base metals:   

Copper US$ 5,765/t vs US$5,789/t yesterday - The International Copper Study Group reports a copper supply deficit of 220,000 during the first half of 2019.

  • Overall production of 9.9mt over the six months period was reported to have been adversely affected by weather related supply disruption and lower grades in Chile and also by operational changes at the Grasberg and Batu Hijau mines in Indonesia.
  • “China’s bonded stocks are thought to have increased by about 30,000 t in the 1st Half of 2019 compared to the year-end 2018 level”
     

Aluminium US$ 1,760/t vs US$1,783/t yesterday

Nickel US$ 17,085/t vs US$17,370/t yesterday - Nickel exports from Indonesia rise as steel producers prepare for ban (Reuters)

  • China’s nickel ore imports rose 26.5% year-on-year in August as Indonesia are set to ban exporting the metal. This is to encourage investors to build smelters at home to produce value-added products.
  • China imported 5.7MT of nickel ore last month, 1.6MT of which was from Indonesia up from 1.3MT a year earlier.
  • The Philippines accounted for 59% of global supply in 2018 and are likely to boost production in order to reduce the supply deficit left by Indonesia restricting its exports. The Philippines are China’s biggest supplier of nickel, supplying nearly 4MT of ore last month.
  • Although miners in the Philippines will attempt to increase production, the government has recently suspended miners due to environmental shortcomings which has restricted supply at times. Also, the ore is of a lesser grade than the nickel produced in Indonesia meaning the Philippines may struggle filling the supply void.
     

Zinc US$ 2,284/t vs US$2,304/t yesterday

Lead US$ 2,069/t vs US$2,080/t yesterday

Tin US$ 16,500/t vs US$16,575/t yesterday

           

Energy:           

Oil US$62.5/bbl vs US$64.3/bbl yesterday

Natural Gas US$2.507/mmbtu vs US$2.532/mmbtu yesterday

Uranium US$25.70/lb vs US$25.75/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$87.8/t vs US$90.3/t

Chinese steel rebar 25mm US$562.1/t vs US$559.8/t

Thermal coal (1st year forward cif ARA) US$67.7/t vs US$69.0/t

Coking coal futures Dalian Exchange US$185.9/t vs US$186.2/t

           

Other:   82.7

Cobalt LME 3m US$37,500/t vs US$37,000/t

NdPr Rare Earth Oxide (China) US$45,037/t vs US$45,397/t

Lithium carbonate 99% (China) US$6,956/t vs US$6,986/t

Ferro Vanadium 80% FOB (China) US$38.3/kg vs US$38.3/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg

 

Battery News

 

Company News

Adriatic Metals* (ASX:ADT) A$1.05, Mkt cap A$158m – Metallurgical results from samples at Rupice and Veovaca

 

  • Adriatic Metals report metallurgical recoveries from the Rupice deposits in Bosnia.
  • Metallurgical recoveries:
  • Gold 66.70%, Silver 92.60%, Zinc 81.70%, Lead 90.40%, Copper 82.70%, BaSO4 71.70%
  • The company has mineral resources for:
  • Rupice:

 

  • We should see news on the application for exploitation licenses for Rupice and Veovaca at end September.
  • Management should start work on a full Feasibility Study based on the metallurgical results and are due to deliver on a Scoping Study mid-November.
  • Regional exploration continues.
  • The company reported some high-grade results from Rupice in August showing38m averaging 6.2% zinc, 3.8% lead, 174g/t silver, 1.9g/t gold and 0.4% copper from 208m depth
  • Including 12m width averaging 13.2% zinc,7.8% lead, 154g/t silver, 2.4g/t gold and 0.6% copper from 208m; and
  • 20m averaging 2.0% zinc, 2.8% lead, 96g/t silver 0.3g/t gold and 0.6% copper from a depth of 254m.
  • 36m averaging 2.1% zinc, 1.2% lead, 56g/t silver, 0.13g/t gold and 0.2% copper from a depth of 234m and a second mineralised horizon of
  • 18m width averaging 2.1% zinc, 1.2% lead, 48g/t silver, 0.11g/t gold and 0.2% copper from a depth of 280m
  • Metal Equivalent (Rupice): Combining the metal grades, recovery rates and current metal prices with grades from the indicated resource at Rupice gives metal equivalent numbers of (not including the BaSO4) of:
  • 6.01g/t gold equivalent
  • 12.93% zinc equivalent
  • 5.12% copper equivalent

Conclusion:  Our metal equivalent figures indicate a relatively strong value proposition for the reopening of the Rupice mine in Bosnia.

Adriatic appear to be making good progress in their evaluation of the Rupice and Veovaca deposits in Bosnia. The metallurgical work indicates that the same process plant can be used for both projects saving on capital costs and improving on the economics and running of the process plant through the effective consolidation of two plants into one.

*An SP Angel mining analyst has visited Adriatic Metals operations in Bosnia

 

Alexander Mining (LON:AXM) 0.0225p, Mkt cap $0.986m – to become cash shell following disposal of MetaLeach subsidiary

  • Alexander Mining is finally capitulating on the development and commercialization of its MetaLeach processing technology.
  • Management propose the disposal of the subsidiary and to move to become a Rule 15 AIM shell.
  • Under the rules the company must complete an acquisition or a suitable reverse takeover within six months or it will be ejected from the exchange.
  • The company has a 2.5% NSR royalty on the Kapili Tepe project in Turkey if it uses the MetaLeach technology.

Conclusion: Alexander Mining could potentially add value through the disposal of its MetalLeach subsidiary and will hopefully present greater opportunity as a relatively clean shell going forward.

 

Aura Energy Limited* (LON:AURA) 0.55p, Mkt Cap £7.2m – Tiris water programme and project update

  • Aura Energy reports that its water drilling programme aimed at identifying a potential source of supply within a 30km radius of the proposed plant site has achieved “significant success”. To date, five of a potential 9 or 10 high priority targets have been tested with two so far showing potentially suitable flow rates.
  • Moderately saline water flowing at a rate of 14,000 litres/hour of a quality potentially suitable for the project has been identified at a depth of between 30m to 44m below surface at geophysical Target 22 located between 25-30km west of the plant site.
  • Drilling at the Target 10 site located around 30km south-east of the plant site yielded flow rates of 3,000 litres per hour, however due to mechanical difficulties encountered during drilling “the hole is not yet complete”.
  • The company comments that “Ironically the Sahara region has experienced unusually heavy rainfall in the last week making movement difficult and drilling has been temporarily suspended for approximately 10 days until access is again possible”.
  • The company also reports that it has started to evaluate opportunities to enhance the Tiris Definitive Feasibility Study (DFS) which was released in July 2019. This work is focussing on areas including:
  • “Conversion of additional Resources to Reserves
  • Extension of the known Mineral Resource Base
  • Recovery of vanadium from the process streams
  • Further reduction of the operating cost via mining initiatives and cut-off grade”
  • Aura Energy explains that these “studies are expected to provide strong improvement to the Tiris DFS outcomes and have been flagged by our ECA Finance advisors as being important in the next round of ECA [Export Credit Agency] Finance negotiations”. The current DFS, based on a contract price of US$60/lb U3O8 and a capital cost of US$62.9m, the study envisages development of the Tiris project generating an after tax NPV8% of US$89.9m and an after tax IRR of 26%.
  • The study envisages mining an average of 1.25mtpa of ore at an overall grade of 364ppm U3O8 (0.036%) over a 15 years mine life in order to produce an average of 823,000lbs of U3O8 annually at an average cash operating cost of US$25.43/lb and all-in-sustaining (AISC) cost of US$29.81/lb.
  • The company has previously announced that it is exploring the opportunities of low cost debt finance from ECAs and reports today that “At this stage seven Export Credit Agencies have expressed ongoing interest in reviewing the Tiris Finance Package and this included some of the major ECAs. A number of these agencies have indicated interest to act on a sole basis”.
  • Although at this stage, no formal application has been made for ECA finance, “There was good interest and capacity in funding Mauritanian projects with some ECAs indicating ability to provide Direct Lending at OECD CIRR … [Commercial Interest Reference Rate are the official lending rates of Export Credit Agencies. They are calculated monthly and are based on government bonds issued in the country's domestic market for the country's currency] …rates and also indications they are able to provide guarantees covering 100% of the political risks and 100% for the commercial risks.”

Conclusion: Aura Energy has successfully identified potential water sources for its Tiris uranium project and although the continuing evaluation is currently temporarily suspended due to bad weather, there are reasons to hope that water supply will not constrain project development. The company is also receiving positive initial responses to its investigations of low cost ECA debt funding for the project although no doubt detailed negotiations lie ahead. We also look forward to results from the continuing project optimisation work which may enhance the technical and operational outcomes reported in July’s DFS.

*SP Angel act as Broker to Aura Energy

 

Europa Metals Limited (LON:EUZ) 0.044 pence, Mkt Cap £5.3m – Further drilling results from Toral zinc, lead, silver project in Spain

  • Europa Metals has announced results from its recent drilling at the Toral project in Spain where the company is working to update the previously announced JORC inferred resource estimate of 16mt at an average grade of 3.9% zinc, 3.1% lead and 24g/t silver.
  • The company reports the results from four holes, TOD 021, TOD 022, TOD 023 and its “daughter” TOD 23D. The first of these, TOD 021, “deviated significantly away from the intended target location and returned no significant mineralised intercepts.”
  • Europa Metals says that “holes TOD-023 and TOD-023D also identified a faulted breccia above the main mineralised vein in the hanging wall, where visible mineralisation was identified and sampled from the hanging wall position approximately 25m up hole from the main zone”. This additional zone of mineralisation, if it proves to be reasonably extensive may, in our view, provide scope for additional resource tonnage within the updated resource estimate when it is completed, currently expected to take around four weeks.
  • Hole TOD 022 was drilled to help improve the confidence in an area of higher grade mineralisation “within the corridor of mineralisation already identified, in order to provide both further sampling density …[and to recover] …a metallurgical sample for recovery testwork purposes”. The hole intersected 6.1m (4.77m true width) at an average grade of 0.03% copper, 0.35% lead, 0.69% zinc and 1.11g/t silver.
  • Hole TOD 023 “intercepted a broad zone of mineralisation in the main contact zone … Within this wide zone of mineralisation there were higher grade intersections of up to 2m”. The results were an intersection in the hanging-wall zone of 4.35m (2.45m true width) averaging 0.29% copper, 0.63% lead, 1.9% zinc and 30.57g/t silver from a depth of 638.55m with a deeper intersection of the Main zone of 13.07m (7.33m true width) from a depth of 668.43m which averaged 0.02% copper, 1.04% lead, 1.2% zinc and 17.52g/t silver.
  • The “daughter” hole TOD 023D also intersected the hanging wall zone with a 10.5m wide intersection (6.16m true width) from a depth of 636.85m at an average grade of 0.09% copper, 1.65% lead, 0.49% zinc and 12.51g/t silver.

Conclusion: The identification of a hanging wall zone of mineralisation at Toral provides the possibility to generate additional resource tonnage when the mineral resource estimate is updated. We await the results.

Savannah Resources* (LON:SAV) 2.0p, Mkt Cap £24.7m – Grandao co-product resource estimate

  • Savannah Resources has released a mineral resource estimate for the co-product quartz and feldspar content of the Grandao deposit which forms part of the Mina do Barroso Lithium Project in Portugal.
  • The estimate, which is contained wholly within the existing lithium mineral resource of 27mt at an average grade of 1.06% Li2O announced in May 2019, is based on the results from 92 reverse circulation drill-holes, 31 diamond-core holes and a further 25 reverse circulation holes with diamond-cored tails, amounts to 14.35mt at an average grade of 33.4% quartz and 42.6% feldspar.
  • The company comments that “the majority of co-products will be recovered from the tailings stream of the proposed lithium production. However, it is also likely that bulk pegmatite products can also be marketed from material that is not processed for lithium production. This is currently occurring on a small scale at the Aldeia and NOA deposits.”
  • Over 90% of the co-product resource (13.4mt) is classed as measured or indicated.
  • Flow-sheet development work conducted by the Nagrom Laboratory in Perth, WA, identifies that the tailings from lithium production in the form of spodumene could produce four co-products:
  • “Fine Grade Feldspar: Bulk tailings product from the process of concentrating spodumene bearing pegmatites and for use in ceramics; glass; paints; polymers and welding rods.
  • High Grade Feldspar: Superior quality sodium, potassium feldspar refined from pegmatite tailings for use in ceramics; glass; paints; polymers and welding rods.
  • Coarse Grade Feldspar: Feldspathic pegmatite produced by traditional blasting and crushing techniques sold as bulk rock for use in Flux for ceramics (tiles, earthenware, sanitaryware, glaze).
  • Fine Quartz: High quality quartz refined from Portuguese pegmatite tailings for use in ceramics; glass; paints and polymers.”
  • Production of quartz and feldspar products destined for the local, national and wider EU glass and ceramics industries is a traditional industry in the area which implies that material of appropriate specification is likely to be acceptable to these markets.
  • The company highlights that its marketing studies have “concluded that prices for Mina do Barroso co-products could be significantly higher than reported in the 2018 Scoping Study, with feldspar at US$65-100/t vs. US$39/t, quartz at US$60-100/t vs. US$33/t and a bulk tail at US$40-45/t.”
  • As well as the enhanced revenue generating potential of producing co-products from the lithium production at higher than expected prices, the reduction in the volumes of waste requiring disposal is likely to generate, as yet unquantified, cost savings providing a double benefit to the overall project economics.
  • Commenting on the new resource estimate, CEO, David Archer, acknowledged it as “another important milestone achievement for Savannah and further enhances the commercial appeal and robustness of the Mina do Barroso Project which is leading the way as Europe’s most immediate producer of high quality, lithium feedstocks”.

Conclusion: Savannah Resources has previously indicated that co-products for the ceramics and glass-making industries could enhance the Mina do Barroso Lithium Project. The publication of a resource estimate for one of the deposits, at Grandao, adds further detail and we look forward to similar news from the other deposits at NOA, Reservatorio, Pinheiro, Aldeia and others as the evaluation proceeds.

*SP Angel acts as Nomad to Savannah Resources


Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

 

Sales

Richard Parlons – 0203 470 0472

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

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