SP Angel . Morning View . Wednesday 02 10 19
Base metal pull back on growth outlook concerns
Geodrill (CVE:GEO) – Drill for equity contract with IronRidge
Horizonte Minerals (LON:HZM) – Appointment of Project Director for Araguaia
Hochschild Mining (LON:HOC) – Rare earths acquisition*
Kavango Resources (LON:KAV) – Kavango selects new targets for 1,000m drill campaign
Premier African Minerals* (LON:PREM) – Zulu lithium project
Strategic Minerals* (LON:SML) – Director Share Purchase
Talga Resources* (ASX:TLG) – Talga to develop a graphite-based battery anode for solid state batteries
Vast Resources* (LON:VAST) – £1.8m equity placing and $13.5m funding update
Low lithium prices are preventing US firms challenging China’s supply dominance (Bloomberg)
US companies such as Tesla and GM are aiming to manufacture more electric cars at home to protect themselves from supply disruptions if trade tensions escalate.
Lithium processing, which allows the mineral to be used in batteries is dominated by China.
The falling lithium price, now at a two-year low has hampered US manufacturers who wish to develop lithium mines in the US and form a local supply chain.
The U.S. accounts for just 186,300 metric tons of global lithium reserves, compared with 42.6mt in Chile and Australia’s 14.4mt.
Lithium carbonate 99.5% Li2CO3 is currently trading at around US$8,200/t, compared to May 2018 when it was trading at around $19,000/t according to Fastmarkets MB.
The drop in price is partly due to Australian producers ramping up production over the last five years, now scrambling to cut supplies due to difficult market conditions (BusinessDay).
Looking ahead, analysts are predicting that the market could move into deficit around 2023 as the development of a new mine can take three to four years (Benchmark Mineral Intelligence).
As the automotive industry transitions to electric, lithium demand is expected to increase to approximately 1.3m metric tonnes of Lithium Carbonate Equivalent, more than five times today’s levels (Forbes).
Solar and wind stocks outperform oil and gas shares (FT)
Renewable energy developers have benefited from a sharp fall in the cost of production of energy.
According to BloombergNEF, the cost of solar has fallen 85% since 2010, while wind power has dropped about 50%.
The iShares Global Clean Energy ETF tracks the investment results of an index composed of global equities in the clean energy sector.
The fund has risen by 32% so far this year, compared to the oil-dominated Vanguard Energy ETF, which has risen by only 1%.
The largest renewable energy ETF in the US is Invesco Solar, which has increased 58% this year.
Low interest rates and government schemes have encouraged the development of renewable energy.
However, with the cost of renewable energy falling, new projects in the UK are seeing subsidies hit record lows.
The recent Dogger Bank scheme off the coast of Yorkshire has the potential to provide power to over 4.5m homes, however will generate clean electricity at no extra cost to consumers after record low-subsidy deals fell below the market price for the first time (Guardian).
London firms seen struggling as MiFID II and lack of IPOs hit Panmure Gordon year-end results
The financial results of Panmure Gordon tell a sorry story of woe according to the Financial Times yesterday.
Losses at Panmures rose to near £24m for the first full year under Bob Diamond’s investment group including some £6.5m of exceptional “remediation and restructuring costs”.
The £24m loss looks all the greater when compared with revenues of just £20m vs £28m a year earlier according to the FT.
Some £46m has been ploughed into the group since Panmure was acquired by Atlas Merchant Capital for £15.5m highlighting the scale of its losses.
Panmure’s CEO, Ian Axe, comments that its owners had bought “a subscale microcap stockbroker” and he was targeting a “far greater portfolio of companies”, valued at between £50m and £1bn, with the group’s services.”
Mr Axe also commented that ‘Panmure would continue a programme of spending that saw costs reach almost £43m in 2018’ according to the FT.
Panmure said it had made a “significant investment in equities” to comply with Mifid II rules and be “relevant to institutional investors”, which had meant a “substantial” expansion of its equity research provision and hiring more “top rated analysts” (FT).
Increasingly rigid regulation combined with the new MiFID II rules appears to have put companies off coming to the market for IPO while some the US / China trade war is impacting investment flows.
Rumours are rife in city circles over which investment banks / brokers might not survive the current business environment.
Speculation suggests one or more mid-sized firms may potentially collapse under the weight of heavy fixed costs and other overheads if market conditions do not improve soon.
Conclusion: Listed, regulated markets offer liquidity, transparency and relative safety for shareholders.
If companies do not come to market and remain private there will be much less liquidity and very little oversight to protect investors.
The effect of fewer IPOs is to trap investors into fewer investments and effectively slow the velocity of money in the economy.
As always, the market needs adjust the way it works to restore confidence and restart the IPO market.
Explorers have first mover advantage in many areas while Major Miners move to lock up larger tracts of prospective ground
Reports suggest the major miners are increasingly looking to sign up prospective ground.
While markets grapple with Trade Wars, slowing China growth, likely European recession, Brexit and a range of other worries the Major Miners are busy taking a longer term view on the value of what’s in the ground.
Most miners are of the view that future demand is going to far outstrip future commodity production and there is great value to be made from future discoveries.
SolGold started a land grab on its discovery of the Alpala project at Cascabel in Ecuador with many majors staking ground in this largely unexplored region looking for similar and potentially larger copper porphyry orebodies.
Discovery of the next generation of copper mines is proving elusive and the skills and licenses for these discoveries largely rest in junior companies run by entrepreneurial and sometimes unemployable geologists.
Similar land grabs are going on with tales of majors moving in on gold projects on major structural trends in the major greenstone belts in Ghana and The Ivory Coast in West Africa.
IronRidge, which like SolGold came out of the DGR incubation stable, is leading the way when it comes to the land grab that has been going on in the Ivory Coast with significant interest in the region from many larger miners.
Copper miners have locked up many of the old mines and prospective licenses along the Copper Belt in Zambia and the DRC.
Ivory Coast and Ecuador are good examples of regions which were poorly explored and where experts see good opportunity for large scale discovery.
As usual it is the entrepreneurial and fast moving geologists who trail blaze their way into these regions followed by the Majors who reckon they can use their bulging cheque books to buy into the better discoveries.
Dow Jones Industrials -1.28% at 26,573
Nikkei 225 -0.49% at 21,779
HK Hang Seng -0.19% at 26,043
Shanghai Composite CLOSED
FTSE 350 Mining -2.56% at 17,558
AIM Basic Resources -0.21% at 2,139
The IMF expects weaker global growth than it did three months ago arguing economic recovery is unlikely as long as trade uncertainty continues, First Deputy MD David Lipton said.
Latest global growth outlook guided for 3.2% in 2019 released in July marking the fourth downgrade since last October.
“The that’s come out since then leads us to expect some further slowdown,” Lipton highlighted.
The IMF is due to release updated growth projections for the world economy this month.
While central banks stepped their efforts to stimulate demand, the IMF argues more fiscal stimulus may also be needed.
US – Equities pulled back yesterday following disappointing manufacturing numbers.
A measure of US manufacturing unexpectedly dropped deeper into contraction marking the weakest reading in about a decade.
Weak data pulled global shares to one-month lows with the S&P 500 closing 1.2% down yesterday.
Firms grow increasingly concerned over softer business conditions with the trend worsening in September and slowing global trade cited as the single most important issue.
Measures of new orders, employment, production and backlogs remained in a contractionary territory some of which fell at accelerating pace.
Chances for another rate cut during the October meeting have gone up to 76% from around 58%, Bloomberg reports; the next announcement is due October 30.
ISM Manufacturing: 47.8 v 49.1 in August and 50.0 forecast - lowest since June 2009
Germany – Five leading research institutes cut their growth forecasts predominantly led by challenges in the manufacturing sector.
2019 and 2020 growth estimates have been cut to 0.5% (from 0.8%) and 1.1% (1.8%), respectively.
2020 forecasts still come above 0.9% as per Bloomberg survey and 0.6% guided by the OECD.
“The reasons for the cooling in growth are primarily to be found in manufacturing… production there has been shrinking since the middle of last year, particularly as demand for capital goods in key markets has weakened,” the forecasters reported.
UK – PM Johnson is set to present terms of his Brexit deal during his address to the Conservative Party’s annual conference in Manchester today.
The PM office said his plan will be his “final” proposal and should it be rejected the UK would walk away and prepare for a no-deal Brexit.
Selected conditions of the offer include that the UK including Norther Ireland will be in a separate British customs regime outside the EU customs union, special temporary arrangements for customs and regulatory enforcement on goods crossing the Northern Irish border would come into force and be applied for around four years and the policy will be subject to the “consent” of the communities in the region through the restoration of the power-sharing assembly in Northern Ireland and other institutions that are currently suspended, Bloomberg reports.
The pound is little changed against the € this morning trading oscillating around the 1.1250 level.
Brazil – Pension system reforms’ bill passed a first of two votes in Senate after being watered down.
Senators voted to leave an annual bonus to low-income workers that will reduce the amount of budget savings by 70bn reais over 10 years to 800bn reais.
Lawmakers are yet to vote on six other amendments that could further water down the proposal with the second vote due later this month.
The bill that includes a minimum retirement age and tightens access to benefits has already been approved by the lower house and is critical to restore investor confidence in the nation’s finances.
US$1.0908/eur vs 1.0892/eur yesterday. Yen 107.64/$ vs 108.38/$. SAr 15.399/$ vs 15.218/$. $1.224/gbp vs $1.227/gbp. 0.668/aud vs 0.670/aud. CNY 7.148/$ vs 7.148/$.
Sterling to potentially fall further if Boris blows the b***** doors off Brexit negotiations
- Boris Johnson is to present a revised Brexit deal to the European Union.
- Speculation on BBC Newsnight yesterday suggests there may be insufficient compromise to avert a hard Brexit from an EU perspective.
- Sterling may well fall further on the news and could suffer further losses if the UK somehow achieves to Brexit at the end of this month, though legally the UK PM must seek a 3-month extension in the event of a no deal Brexit.
Gold US$1,482/oz vs US$1,461/oz yesterday
Gold ETFs 81.1moz vs US$81.1moz yesterday
Platinum US$875/oz vs US$880/oz yesterday
Palladium US$1,645/oz vs US$1,666/oz yesterday
Silver US$17.26/oz vs US$17.00/oz yesterday
Copper US$ 5,681/t vs US$5,654/t yesterday
Aluminium US$ 1,730/t vs US$1,718/t yesterday
Nickel US$ 17,465/t vs US$17,010/t yesterday
Zinc US$ 2,284/t vs US$2,343/t yesterday
Lead US$ 2,085/t vs US$2,121/t yesterday
Tin US$ 16,255/t vs US$16,110/t yesterday
Oil US$58.7/bbl vs US$59.8/bbl yesterday
Natural Gas US$2.278/mmbtu vs US$2.303/mmbtu yesterday
Uranium US$25.40/lb vs US$25.55/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$88.6/t vs US$88.8/t
Chinese steel rebar 25mm US$559.4/t vs US$559.4/t
Thermal coal (1st year forward cif ARA) US$66.0/t vs US$65.5/t
Coking coal futures Dalian Exchange US$181.8/t vs US$181.8/t
Cobalt LME 3m US$36,000/t vs US$36,000/t
NdPr Rare Earth Oxide (China) US$44,416/t vs US$44,416/t
Lithium carbonate 99% (China) US$6,925/t vs US$6,925/t
Ferro Vanadium 80% FOB (China) US$38.3/kg vs US$38.3/kg
Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg
Tungsten APT European US$205-215/mtu vs US$195-205/mtu
Cornish Lithium raise £1.4m through crowdfunding campaign (BusinessGreen)
- The company have said it will use the funding to drill holes for lithium in geothermal waters below Cornwall later this month.
- According to the companies website, Cornish Lithium are not extracting or testing historic mine water, instead targeting the geothermal waters which occur at greater depths.
- This is one of several exploration phrases to occur over the next few years, in order to understand the lithium content of the geothermal water.
- A domestic supply of lithium would reduce dependency on foreign imports, allowing Cornwall to supply the lithium required for electric vehicles and battery storage.
Geodrill (GEO CN) C$1.5, Mkt cap C$67m – Drill for equity contract with IronRidge
- Geodrill recently signed up for a US$4m / 40,000m drilling campaign to drill test all IronRidge’s gold and lithium portfolios throughout Africa
- We understand that IronRidge’s broad exploration portfolio in West Africa was a major draw for Geodrill.
- We also see the company’s lithium project in Ghana as underpinning value at IronRidge.
- Either way, Geodrill’s earn-in into IronRidge stock should hopefully reap rewards for both companies as the low cost of drilling helps IronRidge develop value within its exploration and development portfolio.
Horizonte Minerals (HZM LN) 4.45p, Mkt Cap £64.4m – Appointment of Project Director for Araguaia
- Horizonte Minerals has announced the appointment of a Brazilian civil-engineer, Pedro Rodrigues dos Reis as Project Director, in a non-board capacity, of its Araguaia ferro-nickel project.
- His previous experience includes similar roles for Minsur’s Marcobre Mina Justa mine in Peru and at MMG’s US$7bn Las Bambas copper project, also in Peru, where the mine produced its first copper three months ahead of schedule and US$500m under budget.
- Welcoming the appointment, CEO Jeremy Martin said that Mr. Rodrigues “will be fundamental as we build-up the owner's team, select the EPCM contractor and progress the project through financing and into construction”.
- Mr. Martin added that “His experience in managing projects from the feasibility study phase through to construction and on to operation, positions Horizonte well to deliver the Araguaia project on time and on budget”.
Hochschild Mining (HOC LN) 198.9 pence, Mkt Cap £1,015.5m – Rare earths acquisition*
- Hochschild Mining has announced that it has acquired the BioLantanidos ionic clay rare-earth deposit in Chile. The company is acquiring the 93.8% which it did not previously own for a consideration of US$56.3m following an initial 6.2% (US$2.5m) investment in 2018.
- “The deposit has a high concentration of key rare earth minerals and in particular those with permanent magnet properties such as Terbium, Dysprosium and Neodymium. These metals offer highly attractive enhancement properties for a wide range of end-use applications and play a pivotal role in driving the efficiency of motors, particularly in electric vehicles and wind turbines”.
- The deposit is described as an “ionic clay resources, similar to those found in China, but very different from most other rock-based rare earth projects worldwide. Mineralisation occurs from the surface to 20-30 metres deep and mining will not require explosives. The clay undergoes a simple washing process in which rare earths will be desorbed into a solution, concentrated and calcined to obtain a rare earth oxide.”
- Hochschild Mining comments that the project is expected to be environmentally benign with no harmful chemicals involved and the ability to backfill the tailings into the open pits.
- Although there is no comment on the resources within the deposit, the company explains that “BioLantanidos owns approximately 72,000 hectares of concessions, an initial modular project has been developed in the Penco area in an area of 300 hectares approximately 15km from Concepcion in Chile with excellent access to infrastructure and energy”.
- Chief Executive, Ignacio Bustamante, confirmed the group’s continuing focus on its precious metal business but explained that the investment “represents a unique opportunity for our shareholders” and is “the result of an extensive long-term project to identify commodities with very strong growth characteristics as well as our ability to discover regional investment options that might not otherwise be available.”
*SP Angel act as Nomad and broker to Mkango Resources which is developing the Songwe Hill rare-earths project in Malawi
Kavango Resources (KAV LN) 2.0p, Mkt Cap £3.1m – Kavango selects new targets for 1,000m drill campaign
- Kavango Resources has signed a contract mobilising a number of drill rigs to test targets in Botswana.
- The drill program is for three vertical holes covering 1,000m on the Kalahari Suture Zone ‘KSZ’
- The team plan to intersect conductor targets at depths of between 200m and 400m.
- To save time and cost, the holes will be pre-collared to approximately 150m with reverse circulation drilling followed by diamond core drilling for better information on the geology below this point.
- Management are hoping to find mineralisation in a 10km x 6km magnetic anomaly, which is interpreted as a potential magma chamber.
- The other two targets relate to significant linear magnetic and conductive structures.
- Water will be trucked in from a local town.
Conclusion: Botswana hides many interesting mineral discoveries under a significant depth of Kalahari desert sand.
Kavango hopes the use of modern remote sensing techniques will help it pinpoint mineralisation in anomalies of significant scale under the sand.
While drilling these targets feels a bit like wildcatting in the oil industry investors can rest assured that target generation is supported by a thorough analysis of the latest data,
Power Metal Resources (LON:POW) 0.45p, Mkt Cap £1.7m – Giant SQUID superconducting quantum interference device used to generate drill targets
POW owns 18.26% of Kalahari Key Mineral Exploration PTY Ltd (“KKME”) which owns 100% of the Molopo Farms Complex (“MFC”)
POW has the right to acquire (earn-in) to a direct interest in 40% of MFC by spending US$500k on MFC. Assuming POW spends US$500k then its economic interest in MFC becomes: 40% of MFC. (Total interest in MFC = 50.956%)
- Power Metal confirms that it has identified a number nickel sulphide targets in Botswana
- The targets have come from interpretation of the ground geophysics done by Kalahari Key Mineral Exploration Pty Ltd at the Molopo Farms Complex project in Botswana
- The project licenses cover some 2,725sqkm with a number of conductors identified indicating potential for massive nickel sulphides under the Kalahari sand.
- Management plan to drill eight holes into the six highest priority targets just as soon as permitting allows.
- Eleven conductor targets were generated from a combined helicopter borne XCITETM electromagnetic-magnetic survey, were followed up with ground electromagnetics in recent months.
- The work follows involves the use of a High-Power Electro-Magnetic transmitter capable of transmitting up to 200A together with the ultra-sensitive Supracon Jesse-Deep SQUID (superconducting quantum interference device) sensor hooked up to a industry standard EMIT Smartem24 receiver.
- Transmitter loops of approximately 1km by 1km were laid out using 35mm2 aluminium wire and lines (100 or 200m spacing) were surveyed at either 50m or 100m reading interval, depending on depth to target. In total 11 loops were undertaken around 14 individual targets from the original helicopter EM Survey.
Conclusion: This is the first time we have come across targets generated by a Supracon Jesse-Deep SQUID (superconducting quantum interference device). We look forward to the results and to a plate load of crispy-fried quantum squid-lets.
*SP Angel act as broker to Power Metals Resources (formerly African Battery Metals)
Premier African Minerals* (LON:PREM) 0.043p, Mkt Cap £4.1m – Zulu lithium project
- Premier African Minerals has responded to what it describes as “the recent comments in a number of Zimbabwean online news sites relating to the current status of the exclusive prospecting order application ("EPO") made by the Company's for its wholly-owned Zulu Lithium and Tantalum Project”.
- The company confirms that it is continuing to work with Zimbabwe’s Mining Affairs Board and attended a meeting yesterday to advance the EPO and undertakes to “notify the market as and when the Company receives written communication pertaining to the status of Zulu's EPO application.”
- The Zulu lithium project is located around 80km north-east of Bulawayo and contains an inferred mineral resource estimate (reported under South Africa’s SAMREC Code) of 20.1mt at an average grade of 1.06% Li2O and 51ppm TaO2. The company’s website says that the “Mineral Resource Estimate covers only 35% of Zulu’s known 3.5km surface strike length and the drilling continues to upgrade and expand this Mineral Resource Estimate as the deposit remains open at depth and along strike.”
*SP Angel have an agreement with Premier African Minerals as a result of the acquisition of Northland Capital Partners
Strategic Minerals* (LON:SML) 0.675p, Mkt Cap £9.9m – Director Share Purchase
- Strategic Minerals announced yesterday that Executive Director, Peter Wale, had purchased an additional 3.5m shares at an average price of 0.719p/share bringing his interest in the company to 3.95%.
- Mr. Wale’s increased holding in the company comes after two of his fellow directors, Chairman, Alan Broome and Managing Director John Peters also increased their holdings to 0.44% and 3.6% respectively earlier this year.
Conclusion: Share purchases by Strategic Minerals’ directors is a welcome display of confidence.
*SP Angel acts as Nomad and Broker to Strategic Minerals
Talga Resources* (ASX:TLG) A$0.43, Mkt Cap A$96m – Talga to develop a graphite-based battery anode for solid state batteries
- Talga Resources which is developing superior performance graphite-based anodes for Li-ion batteries is teaming up with a consortium funded by Innovate UK to develop a new graphite-based anode for solid state batteries.
- Most Li-ion batteries are not considered to be solid state as they contain liquid electrolyte.
- The new Talnode®-E anode for solid state batteries is to be developed in co-operation with Johnson Matthey and Sheffield University
- The idea is for the Talnode-E anode to replace the metallic lithium anode in solid state batteries.
- Solid state batteries may take over from conventional Li-ion batteries in time on improved cycle life, power density and safety in time.
- The project will receive funding from the UK Government ISCF Faraday Battery Challenge initiative which has £246m of UK Government funding for battery research.
- The idea is to for the funding to help development and scale up of facilities to help create a new supply chain for battery production in the UK and income from battery technologies.
- Solid state batteries work by using a solid state electrolyte replacing the liquid electrolyte in conventional of today’s Li-ion batteries making them safer.
- A report by IDTechEx predicts the solid-state battery market to be worth > $4bn by 2026.
- Problem is that solid state batteries do not currently match the performance of Li-ion batteries despite their theoretical superiority.
- ‘A major bottleneck of solid state development is the anode, where the use of metallic lithium can cause a range of issues leading to slower charge/discharge characteristics, safety issues both within the battery and in mass production, and higher cost.
- Talga aims to overcome these issues with a new high capacity graphitic carbon composite anode, Talnode-E, designed to have multiple advantages including faster charge and higher power, easier processability, safer handling, highly scalable industrial manufacturing and lower costs.’
- Valuation: Our A$1.80/share valuation incorporates a 40% risked valuation of the Vittangi Graphite project to account for its early-phase of development and potentially protracted market growth.
- We estimate the value of the Vittangi Graphite project at a post-tax NPV8 of US$767m with strong 51.0% IRR.
Conclusion – Talga appears to be well placed for the development of superior anodes for both Lithium-ion and solid state batteries. Not only does the Innovate grant help pay for the development of new anode chemistries but it also brings Talga closer to other consortium partners such as Johnson Matthey from a development perspective.
*SP Angel acts as UK broker to Talga Resources. SP Angel analysts have visited the leading battery R&D institution WMG partnering with Talga.
Vast Resources* (LON:VAST) 0.31p, Mkt Cap £30m – £1.8m equity placing and $13.5m funding update
- The Company raised £1.8m (gross) through an equity issue of 903m shares at 0.20p.
- The subscription was taken up by an asset manager specialised in natural resources.
- The cash raised will be used for mobilisation and for general purposes in relation to the operation in Zimbabwe.
- Additionally, the team is expecting to sign binding documentation for a $13.5m (net) funding facility later this week followed by a further announcement regarding material terms of the facility and the status of the existing Mercuria loan.
Conclusion: The funds to be directed towards the development of Heritage Concession license area in Zimbabwe with a view to set up alluvial diamonds operation as the team is finalising terms of the mining license and ownership structure. The Company is planning to close the $13.5m funding deal this week that that should pave the way towards the restart of Baita Plai polymetallic mine as well provide capital for other development projects.
*SP Angel acts as Broker to Vast Resources
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Richard Parlons – 0203 470 0472
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
Prince Frederick House
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.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony