SP Angel . Morning View . Monday 07 02 20
Supply chain disruption in China halts Assembly plants
MiFID II exempt information – see disclaimer below
Georgian Mining (LON:GEO) (LON:EEE from tomorrow) - name change to Empire Metals Limited Georgian Mining is changing it’s name to Empire Metals Limited.
Ormonde Mining* (LON:ORM) – Proposed board changes
Petropavlovsk (LON:POG) – Uzhuralzoloto becomes a 28% shareholder
Serabi Gold (LON:SRB) – Coringa hearing and Palito ore sorter commissioning
Shanta Gold (LON:SHG) – Acquisition of high grade gold projects in Kenya
LME base metals rise despite virus outbreak causes supply shortage worries (Reuters)
LME base metals rose this morning despite fears of supply shortages in China, where the coronavirus has killed >900 people and threatened to disrupt the global supply chain.
Three-month copper on the LME rose 0.6% to $5,693/t earlier this morning, and nickel jumped 1.8% to $12,995/t.
The price of zinc and tin also increased earlier this morning, up 1.1% to $2,167/t and 2% to $16,500/t respectively.
Dow Jones Industrials -0.94% at 29,103
Nikkei 225 -0.60% at 23,686
HK Hang Seng -0.59% at 27,241
Shanghai Composite +0.51% at 2,890
FTSE 350 Mining -0.30% at 18,020
AIM Basic Resources -0.20% at 2,249
Risk to Global GDP as supply-chain disruption halts automotive plants
Life is tough for most automotive manufacturers, Tesla excepted.
Cargo is also in quarantine in Wuhan, a major hub in the Chinese economy.
Hyundai has stopped production in South Korea as the Coronavirus has disrupted supply chains
Foxconn, Nissan, PSA, Jaguar Land Rover, Airbus, have also stopped specific production lines
Wuhan remains in lockdown with local plans run by Honda, General Motors, and Dongfeng Motor all affected
Critical materials: Chinese feedstock and battery producers may choose to ration critical materials to their closest customers with whom they have their best relationships and these will inevitably be within China.
China's nonferrous metal output will fall at least 10% yoy in February as the country continues to try and contain the coronavirus, according to China's Metal Association.
Ironically, if the Coronavirus halts electric vehicle production in China it may enable the export of some surplus batteries though it looks likely that the entire supply chain will be disrupted.
The only real solution is for automotive manufacturers is to become more fully integrated and to strike supply deals with non-Chinese suppliers.
The problem for EV and wind farm manufacturers is that virtually all permanent magnet production is based in China along with all the world’s lithium carbonate and hydroxide processing.
China has an army of experienced metallurgists, pyrometallurgists and hydrometallurgists who have had free reign to develop production with little if any environmental restriction.
Their skills, low labour costs and lack of environmental costs has enabled China to stifle competition elsewhere in the world leaving China as often the only supplier.
Competing with their costs, knowledge, systems and experience will be difficult for the west but may be essential if western auto manufacturers are to ever have supply chain security.
Conclusion: The Coronavirus will likely knock Chinese growth far more than Trump’s trade war requiring China to ease further on credit and accelerate infrastructure spend to maintain employment and GDP growth.
Coronavirus – Number of new confirmed cases in regions outside Hubei falls to 444 yesterday from 890 on 3 February (Global Times)
If the number of infected cases is much higher than the official figures then the mortality rate of this highly infectious virus may not prove to be much worse than a bad flu.
US – Trump to propose a $4.8tn budget
The Trump Administration is proposing to cut non-defence spending by 5% t0 $590bn
US Taxes could continue to run Trump’s $1.5tn tax cut package to 2025
The plan also requests $2bn for Trump’s wall on the Mexican border
The UK government has declared the Coronavirus to be a public health emergency
Experts talk of 500,000 infections in Wuhan, China
60 more cases reported on cruise ship held offshore Japan
8 cases reported in the UK
New cases being reported worldwide though not at a major rate China is all but quarantined
China is back at work today albeit with Wuhan and other major cities under lock-down
Scientists need time to develop and trial tests and vaccines to contain the virus. Our health-team expect this to take some eight or nine months.
We suspect the number of infections is running at a much higher rate than China’s official statistics
US$1.0952/eur vs 1.0960/eur last week. Yen 109.74/$ vs 109.86/$. SAr 15.054/$ vs 15.024/$. $1.292/gbp vs $1.293/gbp. 0.670/aud vs 0.669/aud. CNY 6.982/$ vs 6.989/$.
Gold US$1,575/oz vs US$1,567/oz last week
Gold ETFs 83.1moz vs US$83.1moz last week
Platinum US$971/oz vs US$967/oz last week
Palladium US$2,357/oz vs US$2,333/oz last week
Silver US$17.80/oz vs US$17.78/oz last week
Copper US$ 5,677/t vs US$5,688/t last week
Aluminium US$ 1,707/t vs US$1,735/t last week
Nickel US$ 12,995/t vs US$13,030/t last week
Zinc US$ 2,136/t vs US$2,178/t last week
Lead US$ 1,805/t vs US$1,837/t last week
Tin US$ 16,375/t vs US$16,580/t last week
Oil US$54.2/bbl vs US$55.2/bbl last week
Natural Gas US$1.790/mmbtu vs US$1.862/mmbtu last week
Uranium US$24.75/lb vs US$24.75/lb last week
Iron ore 62% Fe spot (cfr Tianjin) US$78.8/t vs US$79.6/t - Chinese Honbridge Confident that US$2bn Brazil iron ore mine will go ahead (Rio Times)
Chinese mining company Sul Americana de Metais (SAM), a unit of China's Honbridge Holdings, is confident it will receive the necessary permits to develop its iron ore project in Minas Gerais.
The company's CEO told Reuters that he believed the Brazilian authorities would approve the project, despite tow fatal dam bursts in the last four years.
The mine in the north of Minas Gerais will have an initial capacity of 27.5mtpa.
The company has invested $74m in research and testing, as obtaining licenses was delayed after the two fatal tailing dam bursts.
Two dams are planned to receive tailings, and the largest will have a capacity to store 645 million cubic meters of tailings, 17 times more than the Samarco dam which burst in 2015.
Chinese steel rebar 25mm US$550.3/t vs US$553.4/t
Thermal coal (1st year forward cif ARA) US$58.7/t vs US$60.2/t
Coking coal futures Dalian Exchange US$150.5/t vs US$150.0/t
Cobalt LME 3m US$34,500/t vs US$34,500/t
NdPr Rare Earth Oxide (China) US$40,248/t vs US$39,920/t
Lithium carbonate 99% (China) US$5,514/t vs US$5,509/t
Ferro Vanadium 80% FOB (China) US$29.7/kg vs US$29.5/kg
Antimony Trioxide 99.5% EU (China) US$5./kg vs US$5./kg
Tungsten APT European US$240-245/mtu vs US$235-245/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
Ganfeng Lithium to take control of Argentina lithium project (Deal Street Asia)
The Chinese lithium producer said on Friday that it will take control of an Argentina lithium project it has been developing with Lithium Americas Corp.
The move helps Lithium Americas cut its debt which is up more than eight times in the past year, and also allows the company to develop its lithium project in Nevada.
Ganfeng will pay $16m to increase its stake in the project by 1 percentage point to 51%. Lithium Americas will retain a 49% stake and also get $40m cash.
Vancouver-based Lithium Americas plans to start building its $400m Thacker Pass lithium project in Nevada next year.
Jaguar I-Pace runs out of batteries. (The Times)
Jaguar has halted production of the EV SUV at it Graz factory in Austria. The shut down will be effective for a week as the company experiences a shortage of batteries from its South Korean supplier LG Chem.
Jaguar are not the first company to experience a supply shortage from LG Chem this year, Mercedes-Benz has been forced to cut production on its EV EQC model in half, down to 30,000 vehicles for the year. (Yahoo Finance)
Similarly Reuters reported in late 2018 that Tesla expected a shortage of key minerals used in battery production moving forward due to long term supply challenges. (Reuters)
All are symptoms of a shortage of key materials as the EV evolution continues at a pace and the supply chain struggles to keep up. Sales of EVs in Germany and Italy have been strong in January, whilst general demand for autos decreases. (Cleantechnica)
Great Wall Motors (GWM) to invest $1bn into its Indian auto and battery manufacturing. (Auto Story)
The investment will be phased in through research, development, manufacturing, sales and marketing, including battery research, development and manufacturing.
The Company has stated they intent to use the facilities to export to other countries.
GWM recently completed a deal to acquire GM’s India Talegaon-based facility. The plant will be used to manufacture EV and SUV models.
GWM is a Chinese auto manufacturer headquartered in Baoding, Hebei, China. The company has been involved in the EV space for a decade, with facilities for battery core construction, mechanism analysis, PACK and BMS trial laboratories and battery trial-manufacture workshops and test centres. (GWM)
Solar – Shell Australia to build a 120MW solar farm in Queensland, Australia
The solar farm will use some 400,000 photovoltaic panels at around 300Watts per panel
The idea is for the solar farm to work alongside Shell’s onshore natural gas project to reduce CO2 emissions by some 300,000tpa
The project should power some 50,000 homes
We wonder if Shell will install VFRB or Li-ion batteries to iron out variations in power output eg. when clouds pass over the panels
Georgian Mining (LON:GEO) 1.5p, Mkt Cap £1.9m - Georgian Mining is changing it’s name to Empire Metals Limited
(EEE LN from tomorrow)
In line with previous announcements, the board have decided to broaden the company’s focus and direction to include new advanced projects in new jurisdictions alongside the development of the Bolnisi Copper and gold project in Georgia.
The company recently received notice of approval for its key licenses from the Georgian government, a major step forward for the company though the approval should not have taken so long. We suspect the government may have had some corporate, social and environmental issues with Georgian’s Russian jv partner which may still need to be resolved.
Conclusion: It is a great shame that development of the Kvemo Bolnisi Copper and Gold project has been disrupted by the 18-month license delay. The administrative/political holdup has shaken confidence in Georgia.
If the government has issues with the jv partner then it should resolve these directly through action over the Madneuli mine and it’s owners rather than by holding up the development of a project which should be a significant local employer and of benefit to the Georgian people through its economic impact in the Bolnisi region.
*SP Angel act as Nomad and broker to Georgian Mining now Empire Metals
Ormonde Mining* (LON:ORM) 0.7p, Mkt Cap £3.3m – Proposed board changes
Ormonde Mining has announced that, following the previously announced retirement of Michael Donoghue and John Carroll from the board at the EGM to be held on 13th February, it has identified candidates for the vacant non-executive posts in the shape of Tim Livesey, currently Chief Executive of Oriole Resources and Richard Brown, the current Chief Financial Officer of Canadian-listed Gabriel Resources.
Mr. Livesey is an experienced geologist who, in addition to his role at Oriole Resources also serves as a non-executive director of “a mining investment and advisory company”, Minexia Limited. Mr. Livesey has previously held executive roles in Barrick Gold, Tethyan Copper, Rakita Exploration and Reservoir Minerals.
Mr. Brown is an accountant with experience in “corporate finance advisory roles, specialising in M&A/takeovers, equity capital markets, AIM/TSX regulatory advice, including positions as Head of Corporate Finance and Chief Operating Officer at mining focused investment bank Ambrian Partners”.
Commenting on the proposed changes to the Board, incoming Executive Chairman, Jonathon Henry, said that “With individuals of the calibre of Tim and Richard ready to join the Board as non-executive directors, the Company will benefit from their vital combination of skills, experience and mining business acumen, which will assist the Company greatly as it seeks to transition into a new phase.”
Mr. Henry also explained that “It is our intention, in the short term, for the new Board to work together with executive management to build a fresh and exciting vision and strategy for Ormonde, absolutely focused on value creation for shareholders”.
Conclusion: The proposed refreshing of the Board should provide a new perspective as Ormonde refocuses after the disposal of the Barruecopardo tungsten mine.
*SP Angel acts as Broker to Ormonde Mining
Petropavlovsk (LON:POG) 17.4p, Mkt Cap £576m – Uzhuralzoloto becomes a 28% shareholder
Uzhuralzoloto Group of Companies (UGC) becomes the largest shareholder in Petropavlovsk taking up the Aeon Mining’s stake on 5 Feb/20.
UGC is a privately owned one of Russia’s top five gold producers operating open pit and underground operations in the Chelyabinsk Region, the Krasnoyarsk Territory and the Republic of Khakassia.
The Company is reported to own development assets with refractory gold ores.
Serabi Gold (LON:SRB) 83.5p Mkt value £49.2m – Coringa hearing and Palito ore sorter commissioning
Serabi Gold reports that a public meeting convened by the State Environmental authority to consider the Coringa gold project took place in Novo Progresso on 6th February.
The meeting was attended by some 600 people and lasted approximately 5 hours and the company says that it “passed-off as expected”. The meeting is an important part of the consultation process leading to the award of a formal licence. Serabi Gold says that it “expects that the decision … will be made within the next two months”.
The company has also provided a progress report on the commissioning of the ore-sorter at the Palito mine. “Full-scale trials on the Palito ore have been ongoing since 8 January … [with] … representatives from … the manufacturer … present on site. The focus has been on passing low grade Palito development ore through the ore sorter, which by its nature is the plant feed that contains most waste rock and is therefore consuming vital plant capacity that could be otherwise used to treat other higher-grade stope ore.”
The company also says that “Trials will continue over the next six weeks, including test work on ore from the Sao Chico deposit, which has, to date, not been subject to such intensive testing as the Palito ore”.
CEO, Mike Hodgson, said that “I am pleased to report that the five hour long Public Hearing was positive, and the Company feels optimistic, with the comments and concerns of various stakeholders having now been heard, that the various government bodies who will be responsible for granting the Licençia Previa (Preliminary License) left the meeting with a positive view of our plans for Coringa”.
Mr Hodgson also confirmed that, having been on site at Palito last week, he was “delighted to see our newly installed ore sorter in action. At Palito we are mining high grade, but narrow orebodies, and despite mining these as selectively as possible, there is still a significant volume of waste rock dilution in the plant feed. As we are a plant-constrained operation, this creates issues in being able to expand gold production. Working on the principle that “tonnes cost and grade pays”, our focus has been to eliminate the waste from the ore feed before it reaches the milling circuit and the waste that we still cannot practically eliminate through good mining practices can now be significantly reduced through ore sorting.”
Figures tabulated in today’s announcement indicate that tests on 1266 tonnes of ore at a grade of 1.2g/t gold treated by the ore sorter resulted in a rejection of 85% of the tonnage resulting in an upgrading of the remaining 15% (190t) to 5.17g/t gold with rejected material grading 0.5g/t gold.
Conclusion: We look forward to further news on the Coringa licence over the next two months. The ore-sorting trials at Palito are showing promising results and we await news on whether similar upgrading of the Sao Chico ore can be achieved.
Shanta Gold (LON:SHG) 11.3p, Mkt Cap £89m – Acquisition of high grade gold projects in Kenya
The Company entered into a definitive agreement with two subsidiaries of Barrick Gold to acquire 100% interest in Acacia Exploration (Kenya) (AEKL).
AEKL holds a 100% interest in the West Kenya Project located 350kim NW of Nairobi and 25km NW of Kisumu (Kenya’s third largest city), on the edge of Lake Victoria.
The project straddles seven exploration licenses covering 1,161km2 within the Lake Victoria greenstone gold field with two principal prospects being two ore bodies – Isulu and Bushiangala, – hosted with the Liranda Corridor.
Acacia Mining and previous owners spent ~$55m on exploration over the license areas since 2010 with 221,000m of drilling,~80,000 of soil samples and regional IP completed.
A maiden NI43-101 mineral resources was prepared on the Isulu and Bushiangala prospects in 2017 followed by an update in May 2018 for 1.2moz at 12.6g/t including:
Isulu: 2.5mt at 13.0g/t for 1.1moz in the Inferred category (2.0g/t COG);
Bushiangala: 0.4mt at 9.9g/t for 0.1moz in the Inferred category (7.0g/t COG).
The consideration includes $7m in cash, $7.5m in Shanta Gold shares (54.7m new shares at 10.5p, Barrick to become a 6.4% shareholder in Shanta) and 2% life of mine NSR on all seven prospecting licenses.
Additionally, Shanta may need to cover certain existing AEKL liabilities on or after completion of the deal of up to $4m.
The deal is expected to be completed around mid-2020.
Following the completion, the plan is to launch an infill drilling programme and a scoping study followed by feasibility studies before the construction decision that could take up to 36 months.
Conclusion: Shanta is paying a low multiple of $12-16/oz for the high grade West Kenya Project in the prospective Lake Victoria gold fields area expanding the resource inventory to over 3moz and adding to the pipeline of future development projects. Assets have seen a fair amount of investment by previous owners de-risking the project and delivering a high grade compliant resource as well as identifying a series of adjacent exploration targets.
Trans-Siberian Gold (LON:TSG) 54.5p, Mkt Cap £60m – Rodnikova mineral resource
The JORC-compliant Rodnikova mineral resources is estimated at 1,010koz gold at 5.0g/t with more than 50% hosted within the higher confidence Indicated category.
Indicated category: 3.1mt at 5.3g/t Au and 43.9g/t Ag for 519koz gold and 4.3moz silver;
Inferred category: 3.2mt at 4.8g/t Au and 29.9g/t Ag for 491koz gold and 3.1moz silver.
The resource is split in two vein zones, namely Rodnikovy (75% of total mineral resource) and Vilyuchinsky(25%) located 4km away from each other.
The Rodnikova underground project is located 61km from the operating Asacha Gold Mine.
The scoping study is expected to be completed in Q2/20
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.