SP Angel . Morning View . Monday 28 10 19
US close to trade deal with China
US rate cut this week priced in with guidance on future easing in focus
MiFID II exempt information – see disclaimer below
Altus Strategies* (LON:ALS) 4.1p, Mkt Cap £7m – Lakanfla and Tabakorole due diligence period extension
BlueRock Diamonds* (LON:BRD) 112.5p, Mkt Cap £3.7m – Sale of 20.72ct diamond for US$ 236,000
Botswana Diamonds (LON:BOD)* 1.25p, Mkt Cap £7.8m –Marsfontein mining permit
Edenville Energy* (LON:EDL) 0.04p, Mkt Cap £2m – New CEO
Solgold* (LON:SOLG) 21.7p, Mkt cap £400.7m – Metallurgical test results from Alpala
Walkabout Resources* (ASX:WKT) A$0.30, Mkt Cap A$95m – Proposed Senior Secured US$40m Loan Note Issue to finance Lindo Jumbo graphite mine in Tanzania
Protesters block lithium production in Northern Chile (rt.com)
- Friday saw protests in Chile reach their most intense, as protesters blocked roads at the Atacama salt flats.
- The world’s top two lithium producers - SQM and Albemarle are operating in the area.
- According to the president of the Atacama Indigenous Council, SQM’s operations have been shut down since Wednesday morning.
- Albemarle’s operation in the area has not been affected, except for some minor staffing issues (Reuters).
- According to Reuters, the riots in Chile has caused more than $1.4 billion of losses to businesses in a week.
Rare Earths (REEs) - Former Illinois coal mine to be mined for its rare earth minerals (mining.com)
- Avalon Advanced Materials have signed a binding letter of intent with Coal Strategy Advisors (CSA), to earn 50% interest in the Will Scarlett rare earths project.
- Geochemical sampling has found elevated levels of rare earth elements and other metals such as cobalt and nickel.
- Sampling of the precipitates and acid mine drainage has revealed high concentrations of total rare-earth oxides in excess of 500ppm (engineering news).
- CSA has applied for funding being made available for the US government for new rare earth supply chain projects.
- Avalon and CSA will enter a formal joint venture once the full scope of work required to advance the project is determined.
*SP Angel act for Mkango Resources which is looking to develop the Songwe Hill rare earth project in malawi
EY (Ernst & Young) covered up evidence of smuggling and laundering of drug money by organised crime gang (BBC Panorama)
- The Accountancy profession is in the spotlight again today, this time EY is accused of failing to report suspicious activity at one of the world’s largest gold refineries.
- Worse still the firm altered a compliance report to hide the crime according to the BBC Panorama report.
- BBC Panorama discovered that the gang laundered money by selling 3.6 tonnes of gold to the Kaloti refinery in Dubai..
- The gang had collected cash from drug dealers in the UK and other European countries. They then laundered the dirty money by buying and selling black market gold.
- See full report at: https://www.bbc.co.uk/news/uk-50194681
Motor technology improvements to have profound effect on the performance of electric vehicles
- The head of technology trends at the Advanced Propulsion Centre ‘APC’ says improvements in motor technology are set to have a profound effect on EV performance.
- Electric motors are relatively simple but still offer significant room for improvement .
- Rearranging the motor’s magnets increases torque and enables better cooling for example with 3D printing enabling new designs to be more easily tested.
- In-wheel motors improves handing and performance with minimal transmission losses enabling greater range and .
Dow Jones Industrials +0.57% at 26,958
Nikkei 225 +0.30% at 22,867
HK Hang Seng +0.84% at 26,891
Shanghai Composite +0.85% at 2,980
FTSE 350 Mining +0.87% at 18,070
AIM Basic Resources +0.40% at 2,178
Economics
US – The central bank is widely expected to cut the rate by 25bp this Wednesday.
- Parts of the text for Phase 1 of a trade deal are “basically completed” following consensus on subjects including standards used by agricultural regulator Chinese officials reported, according to Bloomberg.
- The update follows a similar statement Friday from the US side, with President Donald Trump and Xi aiming to sign a pact in Chile next month.
China – Industrial profits dropped at the steepest rate in four years during September adding to the evidence of slowing economic growth in China.
- Earnings across manufacturing sectors were down 5.3%yoy last month accelerating from a 2%yoy decline recorded in August.
- YTD profits were down 2.1%yoy, according to the statistics agency.
UK – The pound is little changed against the € this morning despite the EU agreeing to extend the Brexit deadline to 31 January.
- PM will be putting the proposal to hold snap elections to vote in the House of Commons on Monday arguing new mandate is the only way to resolve the deadlock over Brexit.
- Boris Johnson needs the support from the opposition to secure 2/3s of the House for the vote to go through.
South Africa – Moody’s is expected to issue an update on the nation’s credit rating this week.
- Markets are divided if the agency will join other firms and cut the rating into junk category forcing investors to dump the nation’s debt.
- Losing the investment grade rating means South Africa will fall out of key debt gauges including the FTSE World Government Bond Index that may see outflows of around $1.5bn, according to IMF.
- The report will follow the medium-term budget policy statement that will outline plans for the next three years and to be presented on Wednesday.
Argentina – The central bank enacts capital controls limiting dollar withdrawals to just $200 per month up from $10,000 set in September after Alberto Fernandez wins presidential elections.
- Fernandez secured 48% in presidential elections on Sunday with pro-market Macri taking 40%.
- The win marks the return of Peronism to power with Cristina Fernandez de Kirchner, a former president, acting as Fernandez’ deputy.
- While president elect’s advisers insist he will control policies, Fernandez did benefit from his deputy’s popularity.
- The economy is faced with negative growth rates, high unemployment, runaway inflation and increasing foreign debt levels that need to be restructured.
Currencies
US$1.1095/eur vs 1.1122/eur last week. Yen 108.71/$ vs 108.60/$. SAr 14.576/$ vs 14.636/$. $1.285/gbp vs $1.284/gbp. 0.683/aud vs 0.683/aud. CNY 7.066/$ vs 7.070/$.
Commodity News
Gold US$1,505/oz vs US$1,504/oz last week - Happy Diwali
- The Indian community celebrated the Diwali festival yesterday.
- India Today reports that sales fell by as much as 40% due to higher gold prices and lower consumer activity on Dhanteras day, the most auspicious day in the Hindu calendar.
- The confederation of All India Traders CAIT reckoned some 6,000kg of gold worth Rs2,500crore was sold till the evening on Dhanteras day vs some 17,000kg of gold worth some Rs5,500 crore.
- Traders reckon consumers were just making token purchases while waiting for gold prices to correct to lower levels.
Gold ETFs 82.1moz vs US$82.0moz last week
Platinum US$929/oz vs US$928/oz last week
Palladium US$1,781/oz vs US$1,773/oz last week
Silver US$18.04/oz vs US$18.04/oz last week
Base metals:
Copper US$ 5,899/t vs US$5,871/t last week
Aluminium US$ 1,733/t vs US$1,720/t last week
Nickel US$ 16,745/t vs US$16,840/t last week
Zinc US$ 2,532/t vs US$2,507/t last week - Zinc prices rose as LME inventories fall to 12 year low (Reuters)
- Zinc prices rose for the fourth straight day on Monday, as inventories hit a 12 year low.
- Three- month zinc on the LME rose as much as 0.4% to $2,519/t.
- Inventories fell to 58,525t, their lowest level since 2007.
Lead US$ 2,215/t vs US$2,232/t last week
Tin US$ 16,715/t vs US$16,775/t last week
Energy:
Oil US$61.8/bbl vs US$61.4/bbl last week - Brazil – oil slick on beaches of Brazil from Venezuelan oil
- Brazilian Navy tests prove the oil slick covering beaches on the coast of Brazil is from Venezuelan heavy crude.
- The most likely theory is the crude has been spilled from a ship-ship transfer which went wrong.
- The heavy crude probably spilled at night by ships trying to fool the US crude embargo.
- Some 600t of crude sludge have been recovered so far.
Natural Gas US$2.368/mmbtu vs US$2.319/mmbtu last week
Uranium US$24.10/lb vs US$24.30/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$85.8/t vs US$84.6/t
Chinese steel rebar 25mm US$556.9/t vs US$555.2/t
Thermal coal (1st year forward cif ARA) US$64.8/t vs US$65.8/t
Coking coal futures Dalian Exchange US$183.4/t vs US$183.3/t
Other:
Cobalt LME 3m US$36,000/t vs US$36,000/t
NdPr Rare Earth Oxide (China) US$41,111/t vs US$42,082/t
Lithium carbonate 99% (China) US$6,934/t vs US$7,002/t
Ferro Vanadium 80% FOB (China) US$35.5/kg vs US$35.8/kg
Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.4/kg
Tungsten APT European US$225-245/mtu vs US$205-215/mtu
Company News
Altus Strategies* (LON:ALS) 4.1p, Mkt Cap £7m – Lakanfla and Tabakorole due diligence period extension
- The Company extended the exclusivity period for Glomin Services to complete due diligence on the Company’s Lakanfla and Tabakarole gold projects in western and sourhern Mali, respectively, to 30 November 2019.
- Under the agreement Glomin may potentially earn up to 80% interest in projects in return for exploration and development funding as well as milestone cash payments to Altus.
- Altus will remain the operator of the JV during the initial earn-in periods.
*SP Angel acts as nomad and broker to Altus Strategies
BlueRock Diamonds* (LON:BRD) 112.5p, Mkt Cap £3.7m – Sale of 20.72ct diamond for US$ 236,000
- BlueRock diamonds reports the sale of a 20.72ct diamond from the Kareevlei diamond mine for US$ 236,000
- This is a new record value for a single stone from the Kareevlei diamond mine in the Kimberley region of South Africa.
Conclusion: The valuation of US$ 11,389/ct stone will surely lift the average price for the fourth quarter and we look forward to further news on the recovery of larger gem quality diamonds from the mine.
*SP Angel acts as Nomad & Broker to BlueRock Diamonds
Botswana Diamonds (LON:BOD)* 1.25p, Mkt Cap £7.8m –Marsfontein mining permit
- Botswana Diamonds has announced that its 40% owned associate, Vutomi Mining has been awarded a mining permit for the “diamond bearing gravels and residual unprocessed stockpiles surrounding the iconic Marsfontein Mine” in South Africa.
- The company reports that its partner at Marsfontein “has commenced with site establishment and commissioning is expected to commence within the next two weeks with production ramping-up once commissioning is complete.”
- Botswana Diamonds says that “Cash flows from Marsfontein will be used to fund ongoing exploration work in Botswana and South Africa.”
Conclusion: Marsfontein has historically produced large, high value diamonds and the permit to restart mining and processing of the surface gravels and remaining stockpiles may see further, similar, stones recovered.
*SP Angel also acts as Nomad & Broker to BlueRock Diamonds which operates the Kareevlei diamond mine in S Africa
Edenville Energy* (LON:EDL) 0.04p, Mkt Cap £2m – New CEO
- Alistair Muir who joined the Company in Sep/19 as a Non-Executive Director will act as new CEO from 1 November.
- Alistair has over 25 years of operational experience in the mining industry having worked in the coal, uranium and iron ore sectors.
- He has extensive experience in open pit mining, project evaluation and exploration with a particular focus on the coal and power generation sectors having been involved with both thermal and coking coal projects.
- Rufus Short, a former CEO, will remain on the Board of the Company as a Non-Executive Director.
- “I am pleased that we have someone of the calibre of Alistair to take on the role of Chief Executive… his international coal mining experience, coupled with project management expertise, make hime ideally suited to his new role as we continue to progress our flagship Rukwa coal project in Tanzania,” Edenville Chairman commented on the news.
*SP Angel acts as Nomad and Broker to Edenville Energy
Solgold* (LON:SOLG) 21.7p, Mkt cap £400.7m – Metallurgical test results from Alpala
- Solgold has provided a progress report on crushing, grinding and metallurgical testing of 980kg of mineralised material taken from drill core at its Alpala copper/gold project in Ecuador. A second phase of testing on a larger 2.5 tonne sample is already underway and the company plans to test approximately 30 tonnes of additional material in a pilot plant scale test during 2020.
- The results from the first phase of this work, published today, show improved recoveries of both copper, gold and silver in comparison with the Preliminary Economic Assessment (PEA) which was published in May 2019.
- Copper recoveries increased by an average of 3.8% to 93.4% over the mine life while gold and silver recoveries improved by 21.6% (to 87.2%) and 28.3% (to 87.6%) respectively. Charts published in today’s announcement show that the improved copper recoveries are achieved relatively uniformly across the planned 55 years mine life while both the precious metals now achieve relatively stable recoveries across the mine-life in contrast to the PEA work which suggested that they were expected to decline from the mid 80% level to around 30% by the end of life.
- Further testing is also evaluating the recovery of molybdenum and rhenium while the current work has established that “None of the assayed deleterious elements such as arsenic, bismuth, cadmium, chlorine, fluorine, mercury, selenium, tellurium or uranium, were present at levels that typically are of concern”.
- Commenting on the metallurgical work, CEO, Nick Mather, pointed out that the higher recovery levels point to the “recovery of an additional 4.4million ounces of gold and 354,000 tonnes … of copper and 24 million ounces of silver” relative to the projections in the PEA. Mr. Mather explained that, at the prices assumed in the PEA (gold US$1300/oz, copper US$3.30/lb and silver US$16/oz) the additional revenue generated amounted to a further US$8.7bn.
- In addition to the higher recovery rates, the testing has demonstrated that the Alpala deposit can produce higher grade concentrates than envisaged in the PEA. A 2.7% increase in the copper concentrate grade to a life-of-mine average of 28.7% provides “a projected 9% decrease” in transport and smelting charges which should further enhance the project’s economic returns.
- The ability to produce a high grade, clean concentrate over a lengthy mine-life should prove attractive to copper smelters particularly “as a … replacement for Grasberg when Freeport’s new smelter is built and export tonnages contract.”
- The continuing programme of metallurgical testing provides important data for the refinement of the detailed flowsheet and in helping to establish more detailed capital and operating cost information for incorporation in the company’s economic modelling as it builds from the PEA work into the DFS.
- For reference, the PEA for Alpala estimated an after-tax NPV8% in the range of US$4.1-4.5bn from pre-production capex of US$2.4-2.8bn and total capex of US$10.1-10.5bn over the mine’s life.
Conclusion: As Solgold completes more detailed work for the DFS, it has identified improved metallurgical recovery and the ability to produce higher grade, and potentially highly marketable, concentrates from the Alpala project. These tests provide detailed data for flowsheet design, improved capital and operating cost information and should enhance project economics. The work is continuing and may yet show further opportunities - we look forward to further reports as the testing progresses though Phase 2 and into pilot plant work next year.
*SP Angel act as Financial Advisor and broker to Solgold
Walkabout Resources* (ASX:WKT) A$0.30, Mkt Cap A$95m – Proposed Senior Secured US$40m Loan Note Issue to finance Lindo Jumbo graphite mine in Tanzania
- Walkabout Resources has launched a US$40m Loan Note to fund its Lindi Jumbo graphite project in Tanzania.
- The notes will be senior secured obligations of the Company, with a five-year term, unless earlier repurchased or redeemed, and bearing interest payable quarterly in arrears.
- The Loan Notes will be guaranteed against the Lindi Jumbo Project.
- The net proceeds of the Loan Note together with existing cash, exercise of outstanding options, the Bridging Debt Facility (announced on the 9 October 2019) and other equity proceeds will be used to fund the development and construction of the Lindi Jumbo Graphite Project in Tanzania.
- A new corporate presentation highlights Lindi Jumbo graphite’s:
- Reserve: 5.5mt reserves grading 17.9% Total Graphitic Content ‘TGC’
- Resource: 41.8mt mineral resource grading 10.8% TGC
- Average grade in the pit is 17.9% using a cut-off grade at 10%.
- High-grade zones above 20% TGC in early years
- Project economics
- Capex US$27.9m updated remaining capital investment
- 40,000tpa production of 95% graphite concentrate
- LOM revenues of US$1,445m.
- NPV@10 US$ 197m post-tax estimate from March DFS study
- NPV10% US$ 335m pre-tax
- IRR 119% est post-tax from March DFS study
- IRR of 142.0% est. pre tax
- EBITDA of US$44.3m, average annual steady stage
- Operating costs of US$ 282/t concentrate at mine
- Total perating costs of USD 347/t FOB producing 40,000 tpa of concentrate at a grade of 95-97% TGC.
- Concentrate transport US$ 65/t to the Port of Mtwara, Tanzania
- 24 month payback
- 24 year Life of Mine
- Lindi Jumbo project forecast to be the second highest margin graphite project/operation globally
- DFS based on graphite concentrate prices of:
- Super Jumbo: USD 2,350/t
- Jumbo: USD 1,850/t
- Large: USD 1,200/t
- Other: USD 890/t
- Blended basket price: USD 1,515/t
- Jumbo flake distribution 74% >180 microns
- Offtake:
- 10,000 - 20,000t offtake in binding term sheet with Qianxin Graphite
- 10,000 tpa of Large and Jumbo flake graphite with Qingdao Rising Dawn
- Agreement with Wogen Pacific Limited for an initial 10,000tpa up to a maximum of 30,000tpa of concentrate for a period of 5 years.
- Throughput capacity 280,000 tpa ore grading > 16% TGC
- All required construction approvals and permits in place.
- A combination of low forecast operating costs as a result of a high reserve grade and the distribution of product being larger flake sizes
- equates to the Lindi Jumbo project earning a higher blended basket price in comparison to nearly all other global operations and development projects
- Walkabout reported in July that their early start program remains on schedule and within budget at the processing plant, tailings storage facility, explosive magazine and topsoil storage areas.
- Strong progress was reported in clearing, topsoil removal and stockpiling, terracing and levelling and ROM pad, with the initial phase due for completion in July.
- Walkabout placed $3.1m of shares at A$0.23 in May for the securing of long-lead items with Yantai Jinpeng Mining and Machinery Co in China.
- Tanzania have settled with Barrick Gold over Acacia’s tax and concentrate issues. While this does not look like a good deal for Barrick in our view the deal should help restore confidence in the nation from an international investor perspective.
Conclusion: Walkabout are running fast to get the Lindo Jumbo graphite mine up and running. The DFS project economics look compelling and preparation of the mine site and ordering of long-lead items should enable a relatively rapid mine construction.
*SP Angel acts as UK Broker to Walkabout Resources Ltd
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
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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.
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