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SP Angel . Morning View . Monday 18 05 20 Chinese steel production rises ahead of China NPC meeting

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SP Angel . Morning View . Monday 18 05 20

Chinese steel production rises ahead of China NPC meeting

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MiFID II exempt information – see disclaimer below

 

Arkle Resources* (LON:ARK) – Raising £250,000 to fund August drilling programme at Stonepark

Beowulf Resources* (AIM:BEM) – Testwork continues to show good results on graphite projects in Finland

Centamin (LON:CEY) –2019 results confirm 2020 production and cost guidance intact

Cora Gold* (AIM:CORA) – FY19 results highlight progress at the flagship Sanankoro gold project

Oriole Resources (LON:ORR) – £165,000 HMRC rebate

Vast Resources* (AIM:VAST) - £0.9m raised to accelerate Baita Plai drilling programme and metallurgical work

 

China NPC ‘National People’s Congress’ this week to determine the shape of China’s recovery plan

China’s NPC is likely to decide on the form and cost of stimulus to be used to restore growth to China’s economy.

Steel producers are watching carefully to see if China will resurrect its policy for significant national infrastructure spend.

One of the key drivers for the past 20 years of phenomenal Chinese economic growth was the need to reconstruct Chinese society to move the population into new cities away from historically impoverished villages to improve the health of the nation.

China is likely to ramp up its drive to improve healthcare services and to ensure infrastructure is better suited to operating in an emergency.

This may come in the form of new regulations for social distancing in factories, trains, busses and other infrastructure, eg more space for less people.

COVID-19 is just one of many deadly viruses which have developed in China in the last 30 years. Chinese politicians will almost certainly rule on how to contain the current crisis and better manage the next one.

China has successfully transformed its economy through construction of substantial infrastructure, we suspect it will use this drive to build new factories, housing and transport infrastructure to better manage virus outbreaks.

 

German car dealers report 40% of cars sold in recent months were EVs (Spiegel mobility)

Main beneficiaries are likely to be Tesla and Nissan (Renault)

The news reflects an acceleration in the collapse in sales in conventional cars with diesel and petrol engines and the commitment of Electric Vehicle buyers to take delivery of their new cars

 

Dow Jones Industrials

+0.25%

at

23,685

Nikkei 225

+0.48%

at

20,134

HK Hang Seng

+0.36%

at

23,883

Shanghai Composite

+0.24%

at

2,875

 

Economics

China - industrial production rose 3.9% yoy in April vs -1.1% in March

Retail sales fell 7.5%yoy in April vs -15.8% in March

Fixed asset investment (ex rural) fell 10.5% ytd in April ,yoy vs -16.1% in March but rose 6.2% mom on a 7% rise in property investment rose

Unemployment rose a touch to 6% in April vs 5.9% in March

 

Hong Kong - GDP fell 5.3% in Q1 on Q4 and fell 0.5% yoy

 

 UK – government discusses air travel between low risk countries

Discussions to allow British tourists to fly to European destinations will be interesting against the backdrop of Brexit negotiations and an inevitable European recession.

 

Currencies

US$1.0822/eur vs 1.0806/eur last week.  Yen 107.21/$ vs 107.14/$.  SAr 18.441/$ vs 18.396/$.  $1.210/gbp vs $1.221/gbp.  0.644/aud vs 0.646/aud.  CNY 7.112/$ vs 7.100/$.

 

Commodity News

Precious metals:         

Gold US$1,761/oz vs US$1,737/oz last week

   Gold ETFs 98.6moz vs US$98.2moz last week

Platinum US$810/oz vs US$774/oz last week

Palladium US$1,962/oz vs US$1,847/oz last week

Silver US$17.25/oz vs US$16.22/oz last week

           

Base metals:  

China -  Nonferrous metal production rose 2.1% in April to 4.93mt up 2.6% ytd to 19.12mill tonne

 

Copper US$ 5,268/t vs US$5,242/t last week

Aluminium US$ 1,468/t vs US$1,480/t last week - China output was rose to 99kt per day and 2.97mt for April its highest level since June last year

Nickel US$ 12,045/t vs US$12,005/t last week

Zinc US$ 1,984/t vs US$1,964/t last week

Lead US$ 1,620/t vs US$1,619/t last week

Tin US$ 15,185/t vs US$15,075/t last week

           

Energy:           

Oil US$33.9/bbl vs US$32.4/bbl last week

Oil prices continue to rise as Baker Hughes reported that the number of oil and gas rigs in the US fell again last week by 35, now standing at 339

Total oil and gas rigs are now 648 fewer than this time last year, a more than 65% drop off in a single year

According to the data, the number of oil rigs decreased for the week by 34, bringing the total to 258

It is the fewest number of active oil rigs in play since mid-2009

As a result, the EIA’s estimate for last week is that oil production in the US fell to 11.6MMbopd on average, which is 1.5MMbopd off the all-time high and 300,000bopd lower than the week prior

It is the sixth straight weekly production decline

Natural Gas US$1.717/mmbtu vs US$1.705/mmbtu last week

Natural gas prices held steady as the EIA reported that domestic supplies of natural gas rose by 103Bcf for the week ended May 8

That compared with an estimated increase of 101Bcf from S&P Global Platts Analytics

Total stocks now stand at 2.422Tcf, up 799Bcf from a year ago, and 413Bcf above the five-year average

Uranium US$33.60/lb vs US$33.45/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$90.5/t vs US$87.6/t – Rising Chinese steel production output seen driving iron ore prices higher.

Chinese steel rebar 25mm US$532.3/t vs US$533.3/t - Crude steel came 2.83mt per day or 85.02mt for April again its highest level since last June

Thermal coal (1st year forward cif ARA) US$52.8/t vs US$52.7/t

Coking coal futures Dalian Exchange US$119.0/t vs US$117.0/t – prices rising on higher Chinese steel production

           

Other: 

Cobalt LME 3m US$30,000/t vs US$30,000/t

NdPr Rare Earth Oxide (China) US$38,102/t vs US$38,172/t

Lithium carbonate 99% (China) US$5,132/t vs US$5,141/t

Ferro Vanadium 80% FOB (China) US$27./kg vs US$27.5/kg – prices pull back 0.7% in Western Europe to 25.4-26/kgV (FastmarketsMB)

Antimony Trioxide 99.5% EU (China) US$4.9/kg vs US$4.9/kg

Tungsten APT European US$210-220/mtu vs US$215-225/mtu – tungsten prices fall 2.3% in Rotterdam against expectations to $210-220/mtu

Graphite flake 94% C, -100 mesh, fob China US$500/t vs US$500/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,350/t vs US$2,350/t

 

Battery News

 

Company News

Arkle Resources* (LON:ARK) 0.93p, Mkt Cap £2.06m – Raising £250,000 to fund August drilling programme at Stonepark

Arkle Resources reports that it is raising £250,000 via the issue of approximately 33.3m shares at a price of 0.75p/share in order to fund further exploration of its 23.4% owned Stonepark zinc project in Co Limerick and its wholly owned gold projects in Ireland.

We estimate that the new shares represent approximately 15% of the enlarged capital of Arkle Resources.

The Stonepark zinc project is located close to Glencore’s 45mt Pallas Green deposit and exploration at Stonepark has already defined an inferred resource of 5.1mt at an average grade of 8.7% zinc and 2.6% lead at depths of between 190-395m below surface.

CEO, Patrick Cullen explained that ʺWe believe this investment and confirmation that our joint venture partner [Group Eleven Resources] has received further funding from Glencore is a strong endorsement of the Stonepark Project.ʺ

Mr. Cullen went on to clarify that ʺthere is exciting exploration potential in the south of the project along the 'Pallas Corridor'.  We look forward to drilling recommencing as planned in August, subject to Covid-19 restrictionsʺ.

Conclusion: Subject to easing of restrictions curbing the spread of Covid19, additional funding to advance exploration of the Stonepark zinc deposit and other Irish exploration projects should lead to further drilling at Stonepark in August.

*SP Angel is Nomad and Joint-Broker to Arkle Resources

 

Beowulf Resources* (AIM:BEM) 3.75p, Mkt cap £23m – Testwork continues to show good results on graphite projects in Finland

(Beowulf’s graphite lincenses are held through its 100% owned Fennoscandian subsidiary in Finland)

Aitolampi:  Beowulf has invested €1.56m in exploration on graphite projects in Finland, on metallurgical testwork and on evaluating the market for graphite from the Aitolampi project.

Aitolampi has an indicated  and inferred mineral resource of 26.7mt grading at 4.8% TGC for 1,275,000t contained graphite.

Fennoscandian, Beowulf’s subsidiary in Finland, will report on spheroidization testwork and battery tests on the Aitolampi graphite shortly.

Karhunmäki: testwork produced a concentrate grade of 96.4% TGC ‘Total Graphitic Carbon’ with 51.3% large flake of +180 micron size.

This is an unusually high proportion of large flake from our experience and indicates potential production of a very good value product going forward.

Prices for large flake graphite were last reported to be around $850/t for +80 mesh on 3rd Feb according to Northern Graphite.

The group is also looking at how best to feed into the supply chain for Lithium-ion Batteries in Finland and is also collaborating with the Åbo Akademi university in, Finland.

Fennoscandian has also joined the Business Finland funded BATTrace project to improve traceability in the battery raw materials value chain using mineralogical/geochemical fingerprinting to validate responsible and sustainable sourcing of cobalt, nickel, lithium and graphite.

The team at Fennoscandian is busy assessing the results of spheroidization and battery tests on the Aitolampi graphite and contributing to studies on the supply chain for Lithium Ion Batteries in Finland and the traceability of graphite being used to manufacture batteries despite the Lockdown in Finland.

Conclusion: The development of new European battery and Electric Vehicle manufacturing supply chains are moving apace. Other companies report strong interest for graphite products for battery manufacturing in Europe indicting that there may not be much interruption to capital plans in the Li-ion and Electric Vehicle area. Beowulf appears to have two graphite projects with significant potential to make the grade though much will depend on the results of further testwork.

*SP Angel acts as Nomad and broker to Beowulf Resources

 

Centamin (LON:CEY) 185.4p, Mkt Cap £2,040m –2019 results confirm 2020 production and cost guidance intact

Centamin has reported a 13% improvement in pre-tax profit during 2019 to $173.0m(2018 – US$152.7m).

Free cash flow increased by 17% to US$74.363.4m during the year (2018 – US$63.4m) and the company continues to remain debt free and unhedged, with cash of US$348.9m, allowing it to benefit in full from the recent strength of the gold price.

Although it cautions on the uncertainty surrounding restrictions related to the Covid19 virus, Centamin has also taken the opportunity to maintain its guidance for operational performance in 2020 of gold production in the range 510-540,000oz (with production weighted towards the second half of the year), cash costs between US$630-680/oz with all-in-sustaining costs in the range US$870-920/oz

Referring to the impact of the virus, the company confirms that operations at the Sukari mine ʺhave continued to be uninterrupted with sufficient staffing resources and critical supplies in to Q3, during which it is expected global travel restrictions may begin to ease. Should such restrictions be extended well into H2, it is possible that operations may be affectedʺ.

Centamin does, however, say that as a result of its virus containment measures ʺnon-essential capital expenditure has been temporarily deferred, including the Sukari solar plant. This is in order to minimise additional contractors and other non-operating traffic on and off site, while restrictions related to COVID-19 remain in place. As a result, 2020 capital expenditure is expected to be in the range of US$150-US$170 million (previously US$190 million)ʺ.

Centamin highlights the discovery of the Horus Deeps deposit as an important exploration success during 2019. The mineralisation is ʺlocated 300 metres below the current underground infrastructure of two high-grade shallow dipping structures. Mineralisation was similarly intersected below the Ptah and Amun zones, indicating that the structure extends to both the north and south. A surface step-out drill programme is underway in 2020ʺ.

Exploration during 2019 also included a small-scale regional programme within the wider Sukari licence area to investigate ʺseveral underexplored known deposits, all within trucking distance to our process plantʺ. This initial exploration is reported to have identified ʺ multiple potential gold systems and exploration targets for further investigation during 2020 and beyond.ʺ

The company’s west African exploration programme ʺhas grown to over five million Measured and Indicated ounces, all located within 250 metres from surface. After nine months of drilling, the exploration team increased the Doropo Project resource by greater than 20% and made the significant Kilosegui discoveryʺ.

Conclusion: Centamin remains financially robust and debt free and is currently maintaining its production and cost guidance although the company expects slightly lower levels of capital expenditure than previously indicated as it cuts back its capital programmes as part of its Covid19 containment measures. Exploration continues to expand the known mineralisation at Sukari and in west Africa the company has defined a total in excess of 5moz of relatively shallow gold mineralisation.

 

Cora Gold* (AIM:CORA) 6.0p, Mkt Cap £11m – FY19 results highlight progress at the flagship Sanankoro gold project

The Company released 2019 accounts highlighting the progress at the flagship Sanankoro gold project in southern Mali.

In Dec/19, the team released a maiden mineral resource for 5.0mt at 1.6g/t for 265koz in the inferred category.

The estimate was based on 25% of the total 40km strike length of the potential mineralised zones identified to date offering good potential to grow the resource base.

Additionally, SRK reiterated the Sanankoro exploration target for 30-50mt at 1.0-1.3g/t for 1-2moz.

In Jan/20, the Company announced Scoping Study results highlighting attractive economics of the heap leaching operation at Sanankoro.

The $20.6m project for a 1.5mtpa and 50kozpa operation generates $41.5m NPV8% (pre-tax) and 107% IRR (pre-tax) at $1,500/oz gold price.

Sanankoro drilling is in progress mainly focused on the continuity of mineralisation at depth with recent highlights including 29m at 2.61g/t from 82m.

Bert Monro has been appointed as CEO in early 2020 with Jon Foster becoming Head of Exploration managing the Company’s onsite technical activities,

Loss for the year totalled $1.5m (2018: $0.8m) with overhead costs accounting for $0.7m (2018: $0.8m) and the remainder coming from an impairment of some previously capitalised exploration costs at Diangounte Est, Mokoyako and Karan in Mali ($0.8m).

Cash flow wise, the Company incurred $2.8m in negative FCF (2018: $3.2m) reflecting $2.4m spent in capex mostly at Sanankoro.

The Company remained debt free with strong cash position after having raised £2.9m in Apr/20 ($2.1m closing cash position as of Dec/19).

Conclusion: 2019 marked the release of the maiden resource at Sanankoro shortly followed by the Scoping Study highlighting attractive economics of the oxide heap leaching project. The Company is well funded and is focused on metallurgical work as well as drilling at Sanankoro with a view to expand the oxide resource as well as testing extensions at depth offering upside potential through discovering ounces in the sulphide material.

*SP Angel acts as Nomad and Broker to Cora Gold

 

Oriole Resources (LON:ORR) 0.35p, Mkt cap £2.4m – £165,000 HMRC rebate

Oriole Resources reports that it has received a rebate of £165,000 from HMRC in relation to its exploration work during 2019. The rebate follows earlier payments from HMRC amounting to £145,000 for work undertaken between 2016-2018.

ʺThe Claim submitted by the Company continues to demonstrate that it qualifies for the R&D tax relief by performing research work on potential areas of mineralisation in order to build the geological data necessary to prove or disprove the economic feasibility of future mining operations in those areasʺ.

The company explains that the rebate rose as a result of its ʺenhanced exploration activities by the Group during the Periodʺ.

ʺThe funds will be used to progress our technical programme in Cameroon, which the Company anticipates will continue with a maiden drilling programme later this year, subject to ongoing travel restrictions around Covid-19.ʺ

 

Vast Resources* (AIM:VAST) 0.16p, Mkt Cap £19m - £0.9m raised to accelerate Baita Plai drilling programme and metallurgical work

The Company raised £0.9m by issuing 600.9m shares at 0.15p to fund accelerated drilling and metallurgical testwork at Baita Plai as well as general working capital.

Andrew Prelea (CEO) subscribed for 23.3m shares and Paul Fletcher (CFO) acquired 6.7m shares.

Separately, the Company released the full assay of Batch 2 that demonstrated high base metals’ recoveries in the flotation circuit.

In particular, gold and silver feed grades ranged around 2.17-4.42g/t and 127.4g/t-372.7g/t, respectively.

Assayed samples are higher grade than initially forecast and the underground drilling programme that is currently in progress will provide evidence if similar grades continue at depth.

On refinancing of the outstanding convertible debt facility, the Company is in talks with two institutional investors in relation to a non-equity linked asset backed debt structure to Baita Plai with due diligence process launched.

In this regard, the team is planning to accelerate the drilling and metallurgical testwork programmes with equity raised today helping to fund it.

Conclusion: Following positive metallurgical testwork results, the team completed a £0.9m fundraising to accelerate drilling and further metallurgical studies while holding talks with investors on a potential refinancing of the convertible loan facility.

*SP Angel acts as Broker to Vast Resources

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

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