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Today's Market View - Bacanora Lithium, Chaarat Gold, Serabi Gold and more...

Bacanora Lithium (LON:BCN) – Update on Sonora lithium project Beowulf Mining* (LON:BEM) – Concluding statement submitted to Swedish government on Kallak North Iron Ore project Chaarat Gold* (LON:CGH) – Kapan mine plan and reserves update

3M - Today's Market View - Bacanora Lithium, Chaarat Gold, Serabi Gold and more...

SP Angel . Morning View . Monday 11 11 19

Base metals pull back as trade talks drag on

MiFID II exempt information – see disclaimer below   
 

Bacanora Lithium (LON:BCN) – Update on Sonora lithium project

Beowulf Mining* (LON:BEM) – Concluding statement submitted to Swedish government on Kallak North Iron Ore project

Chaarat Gold* (LON:CGH) – Kapan mine plan and reserves update

Oriole Resources (LON:ORR) – £105,000 R&D rebate

Serabi Gold (LON:SRB) – Quarterly results show 11% increase in year-to-date gold production

Sirius Minerals (LON:SXX) – Strategic review update shows more modest 1mtpa plan

Thor Mining (LON:THR) – Preliminary drilling results from White Violet prospect

Vast Resources* (LON:VAST) – Board appointment

 

Ferro Vanadium 80% FOB (China) US$26.5/kg vs US$28.5/kg - Ferro-vanadium prices rise in Western Europe

Ferro-vanadium prices rose by 4.2% last week to $20.6/kg and $21.6/kg from $20.0/kg and $20.5/kg last week according to FastmarketsMB.

 

Dow Jones Industrials +0.02% at 27,681

Nikkei 225 -0.26% at 23,332

HK Hang Seng -2.62% at 26,927

Shanghai Composite -1.83% at 2,910

FTSE 350 Mining -2.25% at 18,178

AIM Basic Resources -0.38% at 2,130

 

Economics

US – Trump plays down trade agreement expectations suggesting earlier reports on how much the US was ready to roll back tariffs on China were “incorrect”.

  • While saying that trade negotiations were going “very nicely”, President Trump highlighted on Friday that there was no agreement in place and said that he would not eliminate all tariffs.
  • Markets are expected to open relatively flat later today.

 

China – Monthly credit growth collapsed in October to the weakest pace since 2017 amid weak corporate demand exacerbated by seasonal effects.

  • Aggregate financing amounted to CNY 619bn versus CNY 2.27tn in September and CNY 737bn last year.
  • Median market estimate was for CNY 950bn.
  • Local government debt issuance came in weak during the month while borrowing by non-financial companies was the least in amount since August 2016.
  • Bank lending typically drops in October compared to the previous month amid week-long National Day celebrations.
  • In a separate report released over the weekend, deflation in producer prices deepened in October weakening outlook for industrial firms’ profits.
  • This marked the fourth consecutive negative reading reflecting lower commodity prices and lacklustre domestic demand.
  • PPI (%yoy): -1.6 v -1.2 in September and -1.5 forecast.
  • CPI (%yoy): 3.8 v 3.0 in September and 3.4 forecast.

 

UK – The economy avoids recession in Q3/19, although the data came in weaker than expected and marked the weakest annual growth pace in nearly a decade.

  • Growth in consumer and government spending offset weak business investment while a pick up in exports led to a sharp narrowing of the trade deficit.
  • Services and construction increased while manufacturing flat-lined.
  • Economists expect growth to slow to 0.2%qoq in Q4 and average 1.2% for 2019, the slowest rate since the financial crisis a decade ago.
  • The outlook for 2020 is contingent on both the election and Brexit agreement.
  • The pound is slightly stronger against the US$ this morning trading at 1.2802 (+0.21%).
  • GDP (%qoq/yoy): 0.3/1.0 in Q3/19 v -0.2/1.3 in Q2/19 and 0.4/1.1 forecast.

 

Spain – The political deadlock only worsened following inconclusive general elections over the weekend.

  • The Spanish Socialist Party won the elections but scored three seats less than in April’s vote with main opposition People’s Party securing more support and the Spanish nationalists of Vox more than doubling their representation.

 

Bolivia – Evo Morales steps down on advice from Military following disputed election

  • Ex President Morales stepped down saying “the fight does not end here” from his stronghold in the Chapare region of Central Bolivia.
  • Morales also says he is the victim of a Coup and claims to be fighting for equality.
  • We wonder if he is referring to his equality with the other poor people at Davos.
  • The Military say they are launching air and land operations to neutralise groups acting unlawfully.
  • Mexico has offered Morales asylum and is currently looking after 20 members of the Bolivian executive and legislative at its official residence in La Paz.
  • We advise the Bolivian ministers should take the train from La Paz to Antofagasta which is operated by Antofagasta PLC, the London listed copper miner.
  • Antofagasta agreed to operate a regular passenger service from La Paz to the port of Arica in Chile following to maintain the to run the service as part of the Treaty of Valparaiso at the end of the ‘Saltpeter War’ (Guerra del salitre) which ran from 1879-1884.

 

Germany - 34 German miners trapped underground at German potash mine on Friday (Deutsche Welle)

  • An explosion at a German potash mine left two people injured and trapped 34 workers underground temporarily.
  • Workers took refuge in a safe sector of the Teutschenthal mine, and were brought to the surface several hours later through an intact shaft.
  • An investigation into the cause of the explosion point towards a hydrogen explosion or deflagration.
  • Since the beginning of 2008, the Teutschenthal mine has been a subsidiary of the Geiger Group.

 

Currencies

US$1.1031/eur vs 1.1046/eur last week.  Yen 108.97/$ vs 109.32/$.  SAr 14.874/$ vs 14.843/$.  $1.280/gbp vs            $1.281/gbp.  0.687/aud vs 0.687/aud.  CNY 7.008/$ vs 6.993/$.

 

Commodity News

Gold US$1,466/oz vs US$1,469/oz last week

Gold ETFs 81.7moz vs US$82.1moz last week

Platinum US$886/oz vs US$897/oz last week

Palladium US$1,726/oz vs US$1,792/oz last week

Silver US$16.90/oz vs US$17.00/oz last week

           

Base metals:   

Copper US$ 5,866/t vs US$5,960/t last week

Aluminium US$ 1,802/t vs US$1,818/t last week -  - Nickel US$ 15,885/t vs US$16,230/t last week - Indonesia allows nine companies to resume nickel ore exports (Reuters)

  • The world’s largest nickel exporter halted shipments on the 28th of October due to export rule violations.
  • In order to export ore, nickel companies are required to build smelters, and progress would be reviewed by the government every six months.
  • A mining minister said that the nine companies have demonstrated that smelting projects are progressing, and that the exported ore was of the required content.
  • Indonesia only allows exports of ore with less than 1.7% nickel content, and it has been previously reported that companies broke this rule.
  • Two other companies are facing a review on smelter development, and this will hopefully finish this week.

Zinc US$ 2,479/t vs US$2,485/t last week

Lead US$ 2,115/t vs US$2,097/t last week

Tin US$ 16,580/t vs US$16,610/t last week

           

Energy:           

Oil US$61.8/bbl vs US$61.8/bbl last week

Natural Gas US$2.682/mmbtu vs US$2.792/mmbtu last week

Uranium US$24.70/lb vs US$24.65/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$77.6/t vs US$80.4/t - British Steel agrees £70m rescue deal with Chinese firm (BBC)

  • Jingye Group has agreed in principle to buy the firm, and it is understood that the government will offer loan guarantees and other financial support.
  • British Steel employ 4,000 people at its Scunthorpe and Teesside sites, and support a further 20,000 jobs in the supply chain.
  • According to the lobby group UK Steel, Jiingye are going to make a significant investment in the company’s Scunthorpe works.

Chinese steel rebar 25mm US$569.0/t vs US$572.6/t - Chinese iron ore futures down 3% this morning (Reuters)

  • China’s iron ore futures fell 3.1% as demand declined due to a weakening manufacturing sector.
  • The most traded futures on the Dalian Commodity Exchange for Jan 2020 fell 2.1% to US$84.93/t.
  • Iron ore stocks across 35 Chinese ports decreased by 350,000mt from the week before due to weakened demand (Hellenic Shipping News).
  • China posted its biggest decline in producer prices in three years last month, due to falling demand in the manufacturing sector.

Thermal coal (1st year forward cif ARA) US$63.6/t vs US$63.8/t

Coking coal futures Dalian Exchange US$179.8/t vs US$180.2/t

           

Other:  

Cobalt LME 3m US$36,000/t vs US$36,000/t

NdPr Rare Earth Oxide (China) US$40,885/t vs US$40,971/t

Lithium carbonate 99% (China) US$6,921/t vs US$6,936/t

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg

Antimony Trioxide 99.5% EU (China) US$5.3/kg vs US$5.3/kg

Tungsten APT European US$225-245/mtu vs US$225-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

UK faces waste battery crisis due to growing use of electric vehicles (Telegraph)

  • According to researchers at Birmingham University, the one million EVs sold in 2017 will produce 250,000mt of unprocessed battery pack waste.
  • The researchers say that landfill is not an option for the waste lithium batteries which are flammable and could release toxic chemicals such as cobalt, nickel and magnesium.
  • The report says that better ways of gauging battery health are required, as it would be easier to assess whether they could be reused or repaired.

 

Company News

Bacanora Lithium (LON:BCN) 27.5p, Mkt Cap £52.8m – Update on Sonora lithium project

  • Bacanora Lithium has provided a progress report on the Sonora lithium project in Mexico following the £22m strategic investment from Ganfeng Lithium which leaves Ganfeng with a 29.99% equity interest in Bacanora and a 22.5% interest in the project.
  • In addition to the equity and project level interest, Ganfeng Lithium and Hanwa Corporation have an agreement for 100% of the stage 1 production of 17,500tpa of lithium product.
  • “Ganfeng's technical review of the hydrometallurgical circuit has commenced with a view to potentially sourcing key sections of the lithium production equipment from their current equipment suppliers in China. This work is expected to be completed in H1 2020.”
  • Bacanora and Ganfeg are working together to “develop testwork programmes for the potential production of other downstream high value lithium products in addition to the battery-grade lithium carbonate used in the Company's feasibility study”.
  • Current indications are that the review of the engineering costs reported in the 2018 feasibility study are expected to remain in line with the forecast US$420m.
  • “Once Ganfeng completes its review, the Company will deliver final engineering costs for Stage 1 of the Project, following which the Company will look to finalise the funding package for the Project”.
  • Commenting on recent media reports that an oversupply of lower grade bulk spodumene concentrates from Australia into the Asian lithium converter markets had resulted in the delay, closure or reduced production levels at a number of these projects Bacanora’s CEO, Peter Secker, explained that “the majority of these concentrate operations … [are] … higher cost [and] … this supports the Bacanora strategy of developing a fully integrated lithium project that produces a final battery grade lithium product at much lower costs rather than an intermediate concentrate”.
  • Identifying a low position on the cost-curve; reliable engineering cost estimates; sufficient project scale; and “a location with a favourable environmental and political climate” as key factors for success, Mr. Secker said that “The Sonora Lithium Project is one of the very few projects globally that can deliver on all of these factors."
     

Beowulf Mining* (LON:BEM) 6p, Mkt Cap £36m – Concluding statement submitted to Swedish government on Kallak North Iron Ore project

(Beowulf holds 41.5% of Vadar. Beowulf also holds 100% Kallak iron ore in Sweden, 100% of Aitolampi graphite in Finland and 40% of the Mitrovica and Viti projects in Kosovo)

  • Beowulf Mining have submitted a Concluding statement to the government of Sweden in relation to its Kallak North iron ore project.
  • There is no new information in the statement which simply summarises the circumstances relevant to a judicial review on the award of an Exploitation Concession to Beowulf.
  • Eg it’s the summary that goes before the judge setting out the key facts and circumstances.
  • The letter stresses the positive effects on the local economy and on the Jokkmokk Kommun which is facing a lack of new investment and job creation as a result of the government’s intransigence on this and other projects.
  • The statement notes the Reindeer herding impact assessment and the EIA conclude there is no threat to the reindeer herding communities. It also highlights the similarities between Kallak and available case law which support the approval of the concession.

Conclusion: Beowulf is preparing the ground with the government of Sweden to enable the granting of a full exploitation license at Kallak using the legal process.

*SP Angel acts as nomad and broker to Beowulf Mining.

 

Chaarat Gold* (LON:CGH) 36.5p, Mkt Cap £166m – Kapan mine plan and reserves update

Target Price and Recommendation under review

  • The updated Kapan mine plan and reserves expand the life of mine to seven years and build on the reviewed Mineral Resource Statement.
  • Mineral Reserves estimated at 4.5mt at 3.25g/t AuEq for 471koz AuEq (at 2.5g/t COG).
  • The GE grade includes 1.69g/t Au, 31.72g/t Ag, 0.35% Cu and 1.34% Zn and uses $1,400/oz Au, $17/oz Ag, $6,000/t Cu and  $2,400/t Zn prices assumptions.
  • The estimate is based on the Measured and Indicated Resource of 8.8mt at 5.89g/t AuEq for 1,663koz AuEq (effective as of Aug/19).
  • Additionally, Kapan hosts 7.6mt at 5.29g/t AuEq for 1,298koz in the Inferred Resource category.
  • Kapan is estimated to run at $817/oz and $1,032/oz in operating and AISC cash costs, respectively.
  • This in turn is projected to translate into $20m in EBITDA per annum and $16m in annual pre-tax cash flows (after accounting for $4m in sustaining capex).
  • Pre-tax NPV for the LOM is $102m using a discount rate of 5%.
  • The mine plan is based on 750ktpa throughput rates comprised of 700ktpa sourced from the Kapan underground mine and 50ktpa of third party material ($1m pa EBITDA contribution) taking advantage of spare capacities at the plant.
  • Conclusion: New mineral reserve extends the life of mine to seven years, up from five year mine plan at the start of the year, through an ongoing replacement of mined with newly discovered ounces. Furthermore, ~1,300koz AuEq sitting outside the mine plan in the Inferred resource is almost certainly to further extend the life of mine past its current seven years while exploration at areas of satellite mineralisation should further expand the Kapan MRE.

*SP Angel acts as Broker to Chaarat Gold

 

Oriole Resources (LON:ORR) 0.275p, Mkt cap £1.9m – £105,000 R&D rebate

  • Oriole Resources reports the receipt of a rebate of £105,000 from HMRC related to research and development grants for its exploration programmes.
  • The rebate relates to the 2017 and 2018 calendar years and comes in addition to the previously announced £40,000 rebate relating to 2016.
  • The company explains that it expects to submit a claim relating to the work in 2019 “in early 2020, once the Company’s financial accounts have been approved by its auditors”.
  • CFO, Bob Smeeton, explained that “The continued support from the R&D tax credit regime is a valuable resource to extend our geological research work in Cameroon. Following the excellent early results to date at the Bibemi project in particular, the team is currently mobilising to site and will be following-up on these results and on the outcomes of the technical review meetings we held over the summer”.
     

Serabi Gold (LON:SRB) 81p Mkt value £47.7m – Quarterly results show 11% increase in year-to-date gold production

  • Serabi Gold reports a pre-tax profit of US$3.8m for the nine months to 30th September (nine months to end September 2018 – loss of US$2.1m).
  • The result stems from an 11% increase in gold production to 29,878oz of gold (equivalent 2018 – 26,852 oz) at an all-in-sustaining cost of US$1,078/oz and a cash cost of US$844/oz (nine months to end September 2018 – US$1,108/oz and US$ 846/oz).
  • CEO, Mike Hodgson, commented that “The strong performance has also been translated into good cash flow. Cash generation for the quarter, at an operational level after allowing for on-going mine development costs, was US$3.7 million which was an improvement of US$5.9 million compared with the same quarter in 2018 when operations consumed US$2.2 million of cash. For the year to date operational cash flow now totals US$11.7 million.”
  • The company reports a 30th September 2019 cash balance of US$13.44m.
  • Commenting on the potential impact of the Coringa project, which is currently in the licensing and permitting process, Mr. Hodgson explained that the development would spread “the Group’s fixed costs over a larger production base and improving margins”.
  • He also highlighted the “exploration potential around the existing operations” and expressed confidence that these would “yield opportunities for further production growth to enhance the improvements that our ore-sorter and the development of the Coringa project will bring.  By maintaining a focus of near mine site potential, we should be able to develop any further growth at relatively low cost.”
     

Sirius Minerals (LON:SXX) 3.7p, Mkt cap £261m – Strategic review update shows more modest 1mtpa plan

  • Sirius Minerals updates the market on its strategic review for its stalled Woodsmith polyhalite mine development in North Yorkshire.
  • The company is looking for a strategic partner to take the project on as part of a US$600m funding to drive 1mtpa of polyhalite production.
  • The idea is to significantly de-risk the project and enable first cash flow for a more modest cash flow.

Conclusion:  De-risking any project and reducing it’s initial capital outlay is normally a good idea but is often only come to after management fail to achieve their grand ambitions.

We wish management well with the raising of US$600m for the project. While this is still significant funding for a mining project it may be easier to pull together than the previous multibillion dollar estimated shortfall.

We still see considerable risk in the Woodsmith project due to the risk of placing polyhalite in the market, potential price variance for polyhalite and the technical risk of shaft sinking into this polyhalite deposit.

Given that each of the major UK political parties are threatening to invest hundreds of billions into infrastructure in the UK, maybe the Woodsmith will become the government’ next White Elephant to be funded with hard won cash from the British taxpayer.

 

Thor Mining (LON:THR) 0.28p, Mkt Cap £2.6m – Preliminary drilling results from White Violet prospect

  • Thor Mining has announced preliminary results from 11 holes drilled on the White Violet part of the Bonya licence area in the Northern Territory of Australia.
  • Thor Mining holds a  40% interest in the Bonya licence (Arafura Resources (60%) and is the operator of the exploration programme. Bonya is located adjacent to Thor Mining’s Molyhil tungsten / molybdenum project.
  • The preliminary results come from portable XRF (X-Ray Fluorescence) analysis and are subject to confirmation by geochemical determination. Highlights of the XRF analysis include:
  • An intersection of 20m averaging 0.24% tungsten trioxide from a depth of 2m in hole 19RC034, including a section of 8m averaging 0.38% copper from a depth of 3m; and
  • An intersection of 8m also averaging 0.24% tungsten trioxide from a depth of 26m in hole 19RC035; and
  • An intersection of 14 averaging 0.23% tungsten trioxide from a depth of 65m in hole 19RC037 which also contains 8m averaging 0.63% copper from 62 m depth; and
  • 2m averaging 0.71% tungsten trioxide from a depth of 11m and 5m averaging 0.33% tungsten trioxide from 17m depth in hole 19RC039
  • In addition to the highlighted results a more detailed table included in today’s announcement show a further 5 holes with tungsten mineralisation and only two of the eleven failing to intersect mineralisation.
  • The company comments that “Tungsten-bearing mineralisation extended by 40 metres to both the east and west with a total strike length of 120 metres and vertical depth of 110 metres”.
  • Following completion of this initial work at White Violet, the drilling rig “has now moved to the Samarkand deposit for the 2nd part of the programme”.

Conclusion: Preliminary results from drilling at the White Violet prospect show tungsten mineralisation in nine of the eleven holes drilled. Confirmation of the initial XRF results by geochemical assay is awaited.

 

Vast Resources* (LON:VAST) 0.44p, Mkt Cap £45m – Board appointment

  • Paul Fletcher (CFO) is joining the Board.
  • Paul spent 25 years working in the commodity and financial services industries and more recently acted as Global CFO and Controller at Bunge Financial Services before joining Vast.
  • He also held various senior positions at Cargill (energy business and internal audit), PepsiCo (audit and tax management) and KPMG (audit).

*SP Angel acts as Broker to Vast 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

Metal Bulletin

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