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Today's Market View - Ariana Resources, Bougainville, Glencore and more...

Ariana Resources (LON:AAU) – Due diligence at Salinbas Bougainville – Vote on independence may enable restoration of production at historic Bougainville copper mine Glencore (LON:GLEN) – Investors line up to sue Glencore following share price fall on SFO investigation

Ariana Resources PLC - Today's Market View - Ariana Resources, Bougainville, Glencore and more...

SP Angel . Morning View . Monday 09 12 19

Weak China trade data highlights the need for Phase One Trade deal

MiFID II exempt information – see disclaimer below
 

Ariana Resources (LON:AAU) – Due diligence at Salinbas

Bougainville – Vote on independence may enable restoration of production at historic Bougainville Copper mine

Glencore (LON:GLEN) – Investors line up to sue Glencore following share price fall on SFO investigation

Landore Resources (LON:LND) – Soil sampling  identifies additional drill targets at BAM gold project

Savannah Resources* (LON:SAV) – Mining licence issued at Mutamba

 

World’s longest salt cave discovered in Israel

Researchers reckon this is the site where Lot’s wife was said to have been turned into a pillar of salt

https://twitter.com/i/status/1203975741253259266

 

New Zealand – White Island volcano eruption

Around 50 people were thought to be on the island when the volcano erupted.

 

Dow Jones Industrials +1.22% at 28,015

Nikkei 225 +0.33% at 23,431

HK Hang Seng -0.01% at 26,495

Shanghai Composite +0.08% at 2,914

FTSE 350 Mining +0.49% at 18,109

AIM Basic Resources -0.66% at 2,017

 

Economics

US – The Fed is widely expected to stay put this week bringing an end to the mid-cycle policy adjustment that started this summer.

Strong payrolls data released on Friday further supports the case for a pause in rate cuts.

The announcement on Wednesday will be accompanied by updates on growth and inflation projections.

Equities closed stronger while safe haven assets including Treasuries and gold drifted lower on Friday.

Meanwhile, no clarity on the status of Phase One trade agreement negotiations is available while a series of new US import tariffs is due to come into effect mid-December.

NFPs: 266k v 156k (revised from 128k) in October and 180k forecast.

Av Hourly Earnings (%mom/yoy): 0.2/3.1 v 0.4/3.2 in October and 0.3/3.0 forecast.

US – Trump claims NATO countries will contribute US$530bn a year more

The US will therefore contribute less to NATO.

 

China – The latest US/China trade data show a drop of 11.1%yoy in overall volumes between two nations in 11 months to November.

This is an acceleration from a 10.6%yoy decline in ten months to October and compares to a 28.5% growth recorded in 2018.

Overall, Chinese trade data came in weak with a fourth consecutive decline in exports and a modest increase in imports.

Weak trade momentum further highlights the need for a trade truce with the US and a completion of the Phase One agreement that was first flagged in October.

China’s Assistant Commerce Minister told reporters on Monday he hoped the two sides could reach a trade agreement “as soon as possible”.

November car sales fall 4.2% yoy to 1.97m new vehicles

This is the 17th decline in the past 18th months with sales on course for a second consecutive annual drop.

While the rate of the decline in auto markets is less than it was the ongoing fall in auto sales will be problematic for manufacturers who planned for rising demand.

FAW-VW are the top seller closely followed by SAIC-VW at over 200,000 passenger vehicles each in November according to the China Passenger Car Association.

VW AG and its partners expect to investo >$4.4bn in 2020 in developing a new range of electric vehicles and SUVs

Sales of EVs fell 42% yoy in China in November to just 79,000 vehicles following the reduction in subsidies

Tesla expects to start production at it’s new Shanghai plant shortly

 

Japan – The economy grew 1.8%qoq (annualised) in the third quarter marking a significant revision from 0.2% estimated previously on the back of stronger capital investment and private consumption ahead of October’s sales tax hike.

Unwinding of front loading ahead of the October sale tax increase as well as typhoon related disruptions in October is likely to drag GDP growth rates into negative territory in the final quarter.

Looking ahead, the government is expecting the recently announced fiscal stimulus package to boost growth by 1.4pp over time.

While economists have doubted that figure and the speed at which spending will reach the economy, the package allows the BoJ to hold off on extra stimulus, Bloomberg reports.

 

ECB – The central bank to hold its monetary policy press conference on Thursday marking the first governing council meeting for Christine Lagarde.

 

France – 800,000 demonstrators walked out on Thursday protesting over the proposed Macron pension reform marking the biggest demonstration since President took office in May 2017.

More public sector employees are expected to join demonstrations as the government braces for a second week of protests.

Labour unions are planning fresh strikes today and nationwide walkouts tomorrow, with representatives meeting each evening too decide on the next course of action.

A Ifop poll published on Sunday showed 53% of French people are in support of the strikes, up six points from a similar survey last week.

 

UK - Sterling strengthens against US dollar to highest level since April

Sterling is trading a 7-month and 2.5-year highs against the US$ and the € as markets bet Conservatives will be able to secure an overall parliamentary majority this Thursday.

Sterling is strengthening towards the UK general election vote on Thursday.

Currency traders and investors are speculating on Boris Johnson’s 10pt lead over Labour’s Jeremy Corbyn.

The Economist reports that governments lose around US$500bn a years from multinational shifting profits to tax havens.

UK Senior Managers and Certification Regime ‘SMCR’ comes into force today

The new accountability rules apply to around 47,000 city firms and are designed to hold managers liable for failings.

Senior managers at asset managers, independent financial advisors and hedge fund managers are all accountable.

M&G Prudential suspend trading in property fund

M&G, known as Mean & Greedy, in financial markets has suspended trading in the M&G Property Portfolio Fund.

The investment strategy of the funds to buy units in the M&G PP UK Property fund.

There is potential for a number of similar funds to suspend if there is insufficient cash to support investor redemptions.

 

South Africa – ex President Zuma unable to reply to application for cross-examination in corruption case

Rumours indicate South Africa’s ex-President may be in hospital in Cuba.

Given the excellent healthcare on offer in South Africa one has to wonder why Zuma would feel the need to go elsewhere for treatment.

There is also increasing concern that South Africa will need to turn to the IMF for a bailout following finance minister’s Tito Mboweni’s gloomy medium-term budget policy statement

In the meantime ESKOM will cut 4,000MW of power to consumers today saying it has lost additional generating capacity

Corruption, cronyism and incompetence during Zuma’s presidency is blamed for ESKOM’s inability to supply sufficient power to South African consumers with 4,000MW being cut in Stage-4 load-shedding today

Four miners killed at South African gold mine (The South African)

The miners were trapped underground after a rockfall occurred at the Tau Lekoa gold mine in Orkney.

The mine is owned by Chinese capital management group Heaven-Sent through Village Main Reef Limited.

The National Union of Mineworkers were strongly critical of the mining company, saying ‘there was no escape route in the working area where the four mineworkers were found dead’ (Reuters).

In 2017, another four miners died at the mine after being trapped underground in a rockfall.

 

Currencies

US$1.1067/eur vs 1.1107/eur last week.  Yen 108.47/$ vs 108.62/$.  SAr 14.646/$ vs 14.639/$.  $1.317/gbp vs            $1.314/gbp.  0.683/aud vs 0.684/aud.  CNY 7.041/$ vs 7.034/$.

 

Commodity News

Gold US$1,463/oz vs US$1,474/oz last week

Gold ETFs 81.0moz vs US$81.0moz last week

Platinum US$892/oz vs US$898/oz last week

Palladium US$1,883/oz vs US$1,870/oz last week

Silver US$16.60/oz vs US$16.90/oz last week

           

Base metals:   

Copper US$ 6,009/t vs US$5,927/t last week - Chinese copper imports hit 13 month high in November (Reuters)

China’s copper imports rose 12.1% in November compared to the previous month, due to an unexpected improvement in the manufacturing sector.

November 2019 unwrought copper imports stood at 483,000t last month vs 431,000t in October and 456,000t in November 2018.

The growth in imports comes as factory activity in China improved unexpectedly in the manufacturing sector, as demand grew as a result of stimulus measures.

However, Imports of unwrought copper were down 8.5% at 4.45mt in the first 11 months of 2019 compared to a year earlier.

Analysts expect China’s Q4 copper imports to rise, due to it being the traditional consumer season for household appliances and property production, along with low inventory levels.

Copper stocks in bonded warehouses in China have been declining since June and were at 245,500t at the end of November- the lowest since at least June 2013 (Eikon).

Aluminium US$ 1,766/t vs US$1,744/t last week

Nickel US$ 13,215/t vs US$13,435/t last week

Zinc US$ 2,225/t vs US$2,264/t last week

Lead US$ 1,866/t vs US$1,909/t last week

Tin US$ 17,060/t vs US$16,875/t last week

           

Energy: - M&A activity builds momentum across the sector

UK oil and gas continues to thrive this quarter, demonstrated by the recent £5m Union Jack* (UJO LN) placing which follows Reabold Resources’ (RBD LN) £24m fundraise announced in October, primarily for the same West Newton conventional field onshore UK

Further institutional support has been demonstrated by the £10m raise and IPO of Longboat Energy, or Faroe Petroleum mark II, to build a new full-cycle North Sea E&P

The past 12 months has seen the acquisition of Faroe Petroleum (LON:FPM) by DNO (ASX:DNO); a £380m bid for Eland Oil & Gas (ELA LN) by Seplat Petroleum (SEPL LN); and a £242m bid for Amerisur Resources (AMER LN) by Geopark.

 *SP Angel acts as Nominated Advisor and Broker to Union Jack Oil

Oil US$64.0/bbl vs US$63.5/bbl last week -

As expected, OPEC+ agreed to cut production by 500kbbl/d, sending oil prices higher on Friday. During mid-day trading, WTI was just shy of US$60/bbl, and Brent moved closer to US$65/bbl

In total, the 1.2MMbbl/d cuts from OPEC will rise to 1.7MMbbl/d. Those details had been reported on Thursday, but when OPEC+ made it official on Friday, Saudi Arabia also assured the market that it would continue with its voluntary cuts beyond what is required

With the Saudi cuts, the total contributions rise to 2.1MMbbl/d of reductions. The deal takes effect in January 2020, and the group will meet again in March.

Of the 500kbbl/d in extra cuts, OPEC will shoulder c.372kbb/dand the non-OPEC group led by Russia will take on 131kbbl/d

U.S. crude futures were up 0.6% at $64.6/bbl on the New York Mercantile Exchange

US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

Natural Gas US$2.231/mmbtu vs US$2.418/mmbtu last week -

Natural gas futures moved lower today, which means the weather forecasts over the weekend came in on the seasonal-to-warm side

The move wasn’t much of a surprise after the midday run of the American weather model dropped a huge amount of demand from its long-range forecast, and the late European model held firm in its milder stance.

The market remains heavily short, which could lead to a short-squeeze if the weather forecast begins to show cooler than normal weather

Uranium US$25.90/lb vs US$25.90/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$87.2/t vs US$86.7/t - Iron ore – China iron ore futures jump on

Chinese steel rebar 25mm US$586.5/t vs US$589.0/t - New buyers on standby for British Streel (City AM)

Business secretary Andrea Leadsom has reassured the steel industry that back-up buyers are ready to swoop in if Chinese firm Jingye’s deal falls through.

Last month, Jingye Steel agreed to purchase the company for £50m, and was willing to invest $1.2bn in the company to improve is environmental credentials.

Last week Jingye were reportedly surprised to hear that British Steel’s French factory was up for sale in an independent process, and the site is one of the most profitable parts of British Steel’s business.

Liberty Group are reportedly still interested in taking over British Steel, who currently work closely with the company.  

Thermal coal (1st year forward cif ARA) US$60.0/t vs US$60.9/t

Coking coal futures Dalian Exchange US$188.2/t vs US$188.4/t

           

Other:  

Cobalt LME 3m US$34,750/t vs US$34,750/t

NdPr Rare Earth Oxide (China) US$41,115/t vs US$41,014/t - Kalgoorlie picked for Lynas rare earth processing plant (Reuters)

Australian rare earths miner Lynas Corp said on Monday that it will build a rare earth processing plant in Kalgoorlie, with material then being sent to Malaysia for final treatment.

The new planned cracking and leaching plant in Western Australia forms part of a $500m growth strategy to boost production by 2025.

The plant will remove low-level radioactivity from the material it ships to Malaysia, in order to appease Kuala Lumpur amid environmental concerns.

The facility will be competed in 2022/2023 and will support the employment of 200 people in the region (Perth Now).

Lithium carbonate 99% (China) US$6,107/t vs US$6,184/t - Lithium Australia and China’s DLG Group enter joint venture agreement (The Market Herald)

The 50:50 joint venture will see Lithium Australia enter the energy storage market, selling lithium-ion batteries and other energy storage products within Australia.

The Jointly owned Soluna Australia has been established, which will sell energy storage products in Australia, Europe and the US before expanding sales worldwide.

Under the agreement, both parties will cooperate for both cathode and battery research and development, with an initial focus on lithium-ferro-phosphate batteries.

Ferro Vanadium 80% FOB (China) US$29.0/kg vs US$29.0/kg

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

Tungsten APT European US$230-245/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

Afrochine Smelting launches first phase of US$25 million Selous Ferrochrome plant

The new smelter will have 50,000tpa ferrochrome capacity and create some 300 local jobs

Afrochine is a subsidiary of Tsingshan Group the second largest stainless steel producing company in China with an annual production capacity of 2.5mtpa.

Afrochine intends to scale up production to 250,000tpa in phase 2 starting next year.

Phase 2 capital cost US$100m for four furnaces with >1,000 jobs making it a major employer in the region plus another 3,000 jobs in downstream industries.

Sales expected at >US$300m for phase two.

Afrochine or Tsingshan may eventually build a stainless steel plant though this would need a 600MW power station as well as stable supplies of ferrochrome, coal and coal bed methane.

 

Battery News

 

Company News

Ariana Resources (LON:AAU) 2.40p, Mkt Cap £25.4m –Due diligence at Salinbas

Ariana Resource reports that a proposed joint-venture partner for its Salinbas project in north-east Turkey is to undertake approximately 600m of reverse-circulation drilling “in order to twin certain existing holes previously drilled by Ariana” as part of its due-diligence on the project.

“The drilling programme is expected to conclude within one week due to favourable weather conditions.”

The Salinbas project is located within the “Hot Gold Corridor” which hosts the 4moz Hot Maden project located approximately 16km south of Salinbas and which was acquired by Sandstorm Gold for around £170m in April 2017.

Dr. Kerim Sener, Managing Director, said that, in addition to the drilling, “detailed technical, environmental and financial due diligence is underway by the designated independent consultant of the Proposed Partner on the Kiziltepe and Tavsan Projects. Two separate teams are being sent out to the sites during the current week and will be conducting their independent assessments of each of the projects.”

Conclusion: Although the identity of the proposed partner is not being disclosed at this stage, the intensive due-diligence and inclusion of independently drilled twin holes as part of the assessment has the hallmarks of a major company approach. We await news of the outcome of due diligence at Salinbas.

 

Bougainville – Vote on independence may enable restoration of production at historic Bougainville copper mine

Independence vote may lead to restoration of mining at the historic Panguna (Bougainville) copper mine which once generated around half of PNG’s export income

The war for independence cost some 20,000 lives representing around a tenth of the population before peace was agreed with PNG in 2001.

The island has its own autonomous government

Rio Tinto relinquished its shareholding in the mine in 2016.

Rio handed its shares in Bougainville Copper Ltd (BOC AU) to the Autonomous Bougainville Government and Papua New Guinea in 2016

But RTG Mining (RTG CN & RTG AU) also claims the right to develop the Panguna copper mine after a deal with a local landowner group.

We note BCL is challenging the autonomous government’s decision to strip it of its mining leases in Papua New Guinea’s courts.

Caballus Mining in Australia also has a proposal in to the autonomous government of Bougainville for control of the historic copper mine

A Chinese delegation is also reported to have offered to invest substantial sums into Bougainville in in 2018 in mining, tourism and agriculture, as part of a development package to help the island make the transition to independence. This would no-doubt centre on the Panguna copper mine if approved.

 

Glencore (LON:GLEN) 220p, Mkt cap £29bn – Investors line up to sue Glencore following share price fall on SFO investigation

Life can not be much fun running Glencore right now.

The trader come miner is now facing enquiries from the US DoJ and the UK SFO into bribery and corruption allegations.

To make matters worse a number of major institutional investors are looking to sue Glencore for loss of value relating to the collapse in Glencore share price.

The investors have secured litigation funding as well as provision for adverse costs indicating that they can sue with impunity without bearing the cost of the litigation.

In the meantime, Ivan Glasberg, is looking for a successor to take over as the old guard move on. We suspect a key requisite of the new ceo will be some form of legal training.

 

Landore Resources (LON:LND) 0.69p, Mkt Cap £9.0m – Soil sampling  identifies additional drill targets at BAM gold project

Landore Resources reports that extensive geochemical soil sampling at its BAM Lake gold property at Junior Lake, Ontario has identified additional drill targets from the western extent of its BAM gold project to Juno Lake (approximately 1.3km) and also eastwards extending the overall zone of interest to approximately 7km.

Today’s announcement also reports that soil sampling of the Felix area covering approximately 5km long x 1.2km wide, located west of Juno Lake “has identified numerous gold anomalies and trends with similar geology and geophysics to that of the existing BAM Gold Project. The Felix area will require additional infill lines of soil sampling before drilling can commence”.

In January 2019, the company announced an updated mineral resource estimate for the BAM lake property to 28.6mt at an average grade of 1.03g/t gold (951,000 contained oz), including 20.2mt of indicated resources at an average grade of 1.08g/t (701,000oz).

The resource estimate underpinned a Preliminary Economic Assessment (PEA) released in February 2019  which envisaged open-pit mining in two pits and treating an average 2.2mtpa of ore to produce a total of 489,000oz of gold over 5.75 years. The base case, using a US$1300/oz gold price expected capital expenditure of $73.53m, plus $20.3m of pre-production capital expenditure to generate an after tax NPV of  US$69.2m and an IRR of 22.4m.

The company’s announcement today explains that “The proposed update of the PEA and preparation of an Independent Technical Report on the BAM Gold Project has been deferred until additional resource drilling has been completed on the new targets identified by the 2019 soil sampling program.”

 

Savannah Resources* (LON:SAV) 2.3p, Mkt Cap £29.8m – Mining licence issued at Mutamba

Savannah Resources reports that the Minister of Mineral Resources and Energy in Mozambique has issued a mining licence covering 11,948 hectares of the Mutamba heavy mineral sands project.

The licence, which is valid until April 2044 and eligible for a possible 25 years extension beyond that, is the “first of three contiguous concessions to be issued that will result in the full tenement permitting of Mutamba”.

David Archer, CEO, said that “We are delighted with the issue of the first Concession by the Government of Mozambique, and now look forward to the issue of the remaining two mining licences, 9229CC and 9228C.  When combined, these three concessions contain an Indicated and Inferred Mineral Resource of 4.4Bt at 3.9% total heavy minerals; this makes Mutamba one of the most attractive undeveloped mineral sands deposits in the world”

Mr. Archer went on to confirm that “Our focus is now on progressing the Pre-Feasibility Study ('PFS') at Mutamba towards completion, which, upon delivery, will trigger the increase in our interest in the Project from 20% to 35%.”

Under the terms of its agreement with Rio Tinto, Savannah Resources could ultimately move to a 51% interest in the project on completion of a Feasibility Study.

Conclusion: The award of the first mining licence at Mutamba is a milestone for the project where completion of the PFS, currently underway, will lead to Savannah Resources increasing its interest to 35%. Two further licence remain under application but given the precedent set by the granting of the first licence we are hopeful that the remaining licences will also be approved in due course.

*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

Metal Bulletin

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