SP Angel . Morning View . Tuesday 06 04 21
Base and precious metals rise on Biden infrastructure stimulus and US dollar weakness
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Caledonia Mining* (AIM:CMCL) – Completion of the Central Shaft and a further rise in quarterly dividend
Oriole Resources (LON:ORR) – Earns 51% interest in Cameroon properties
Pure Gold Mining (LON:PUR) – Drilling results and ramp-up at Red Lake
Serabi Gold* (AIM:SRB) – Local management suspensions and internal investigation in Brazil
Tietto Minerals (ASX:TIE) – Abujar Gold PFS forecasts 168,000ozpa Au in first six years of production
IMF reckon the economic impact of the COVID-19 crisis will be less that the Global Financial Crisis of 2008
Base and precious metals rise on Biden’s new Infrastructure Stimulus and PMI figures from the US, India and China
- Biden proposes $2.3tn of new infrastructure stimulus
- S$612bn on bridges, roads, airports, ports, mainly repairs and upgrades as well as on EV development, mainly battery manufacturing and charging stations
- US$300bn to upgrade water and power supply and high speed internet
- US$580bn towards manufacturing, R&D and job training.
- Strong demand for consumer products and manufacturing is being held back by a shortage of semiconductor chips.
- Semiconductor shortages will defer deliveries and profits while raising unit costs for assemblers and major manufacturers.
- The shortages are also reported to be hitting production of LCD screens due to high demand in this area due to increased home working and Lockdown gaming.
- A pullback in the US dollar in recent days follows a strong first quarter for the US dollar index
Assassination of Blyvoor mine director and Workers Union
- Wels Sempe, a company director and leader of the Blyvoor Workers’ Union, was assassinated on 2 March while en-route to work when (Daily Maverick)
- Sempe’s pickup truck stopped at an intersection on the way to work where he was shot three times.
- The Blyvoor mine which is 75km south west of Johannesburg is now blockaded and under siege.
- “Blyvoor executives who spoke to Business Maverick said they are convinced his murder was linked to Blyvoor Workers’ Union (BWU) resistance to attempts by the local National Union of Mineworkers (NUM) to dislodge it.”
- The mine managed to send its first gold bars to the Rand refinery despite disruption which has been ongoing for the past two weeks where miners, including 60 NUM members, who have been dismissed for launching a wildcat strike.
Shortage of US$1 display driver semiconductor chips seen raising prices for TVs, monitors, laptops and other displays
- Himex, a major chip maker in Taiwan reports that a shortage of display driver chips (SCMP).
- Display drivers are cheap as chips, well almost at ~$1/chip, but they are essential for running LCD displays.
- But the companies that make display drivers can not keep pace with demand.
- Power management chips are also seen in short supply.
- Semiconductor shortages have already caused an estimated $60bn in lost sales within the Automotive industry this year.
- Foundries cut production expecting weaker sales as economies locked-down last year and as automakers also cut new orders last year.
- The strength of consumer demand for gaming consoles, laptops, computer monitors and new TVs has caught the industry by surprise.
- Worse still, a drought in Taiwan has caused the government to cut water supplies to two major science parks by 15% to ensure supplies to semiconductor foundries.
- The Taiwan government has issued a ‘red alert’ on water supplies warning that parts of central Taiwan are running dangerously low of water.
- Taiwan dominates the global foundry market producing >60% of total global foundry revenues (TrendForce).
- TSMC recorded a 55.6% global market share in Q4 ’20 due to its focus on manufacturing semiconductor chips on third-party designs.
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Economics
US – Services PMI rose to 60.4 in March up from 59.8 in February and above the previous flash estimate of 60.0
- Markit Composite PMI: 59.7 v 59.5 in February.
- USServices sector growth hit the highest level since Jul/14 with new order growth reaching six-year high.
- The rise is due to stronger expansion in business activity driven by client demand and the easing of virus restrictions in some states.
- A strong recovery in the sector led the quickest increase in new jobs in three months as well as the jump in inflation.
- In aggregate, Composite PMI improved further in March signalling the fastest upturn in private sector business activity since Aug/14.
- Although, the expansion in manufacturing sector production eased, service providers registered a marked rise in output.
- PMI data points to an annualise 5% growth in the economy in Q1, Markit said.
- “High levels of new business inflows, rising business confidence and an increasing appetite to hire new staff suggest the economy will also see a strong second quarter, especially if the vaccine roll-out continues apace,” Markit commented on the data.
- “The biggest concern is inflation, with price gauges hitting new survey highs in March as demand often exceeded supply for a wide variety of goods and services”.
A separate report on Friday showed that the US economy added the most jobs in seven months with a brad based recovery in March strongly beating market estimates.
- The data reflects a pick up in economic activity and accelerating vaccination rates with more than 2m Americans getting a jab daily.
- The $1.9tn stimulus programme signed last month by President Biden should provide additional support for growth momentum.
- NFPs (‘000): 916k v 468k (revised from 379k) in February and 660k est.
- Av Hourly Earnings (%mom): -0.1 v 0.3 (revised from 0.2) in February and 0.1 est.
- Av Hourly Earnings (%yoy): 4.2 v 5.2 (revised from 5.3) in February and 4.5 est.
- Unemployment Rate: 6.0 v 6.2 in February and 6.0 est.
- Participation Rate: 61.5 v 61.4 in February and 61.5 est.
Two Credit Suisse executives are to leave the bank after a reported $4.7bn loss on an Archegos account including the group’s chief risk and compliance officer as well as head of the investment bank.
- The loss is set to push the bank into a loss of SFr900m ($960m) in Q1 with the bank suspending its SFr1.5bn share buyback programme and cutting tis dividend by 2/3s.
US high yield bonds returned more than 23% over the last 12 months to the end of March, more than regaining the steep losses from last year’s sell off.
- It is only the third time in history that the rolling 12m return for the market has exceeded 20%.
- The other two moments were after the global financial crisis in 2008 and the dotcom bust at the start of the century, FT writes.
China – Services sector grows at the strongest pace in three months in March driven mostly by domestic demand, Caixin PMI data shows.
- New orders climbed driven by local markets, employment returned to growth while business sentiment hit highest for over a decade amid hopes of post-pandemic recovery.
- In general, Composite PMI recorded the strongest reading in three months largely driven by services activity, as manufacturing production growth was marginally slower that that seen in February.
- Aggregate employment climbed slightly, after a mild drop in February.
- “To sum up, the economy continued to recover from the epidemic… supply and demand in the manufacturing and services sectors remained in expansionary territory, though at different paces due to the end of the Covid-19 flare-ups in the fall and the winter… the recovery in manufacturing slowed for the fourth straight month, whereas for services, it expanded at a much faster pace… consequently, employment in the services sector significantly improved, while the job market in the manufacturing sector remained under clear pressure,” Caixin commented on data.
- Caixin Manufacturing PMI (released earlier): 50.6 v 50.9 in February and 51.4 est.
- Caixin Services PMI: 54.3 v 51.5 in February and 52.1 est.
- Caixin Composite PMI: 53.1 v 51.7 in February.
India – Manufacturing PMI pulls back to 55.4 in March vs 57.5 in February
- While the Indian manufacturing PMI is at a 7-month low it still shows strong manufacturing activity.
Tensions escalating between China PLA and the Japanese Maritime Self-Defence Force
- The tension is over China’s new coastguard law which allows China’s quasi-military force to use weapons against foreign ships that Beijing sees as illegally entering its waters (SCMP).
- Japan has asked Beijing to halt intrusions into the Diaoyu Islands (Senkaku Islands) which previously caused an unofficial ban on rare-earth exports from China to Japan.
- Japan has also joined with the US in criticism of China’s handling of Xinjiang and Hong Kong.
- China is now seen gaining support in the Middle East which needs aid and vaccines and is not critical of China’s human rights abuses.
UK - PM Johnson supported the idea of “Covid passports” with the government saying it was “right to provide a way for people to prove their virus status and reassure business, FT reports.
- More than 70 MPs last week planned to oppose the introduction of such certificates including 41 Tories.
- The certificate is expected to be based on the NHS app, which will show vaccinations, test results and immunity based on whether a person has suffered from the virus.
- So far the timetable for lifting the lockdown remains on track with step two allowing to open up outdoor pubs, non-essential shows, hairdressers and indoor gyms on next Monday (April 12).
- On travel, the government was hopeful that people will be able to travel to and from the UK for a summer holiday this year, although it was “too soon to say what is possible”.
Greenland – Public goes to the polls on today for parliamentary election
- The results of the election is likely to help decide the fate of vast rare earth deposits which have divided opinion on the island.
Chile border close not expected to impact copper production, says Mining Ministry
- Chile’s decision to close its borders to combat a surge in Covid cases is not expected to disrupt mining operations in the country, according to the government.
- “The closure of borders will not affect the normal functioning of operations”, the Energy and Mining Ministry said in an emailed response.
- Chilean copper production fell to 425,500t from 457,200t in January and 448,000t a year ago.
- State-miner Codelco saw production drop to 122,800t in Feb vs 142,000t in Jan.
Currencies US$1.1803/eur vs 1.1740eur last week. Yen 110.39$ vs 110.67/$. SAr 14.601/$ vs 14.770/$. $1.387/gbp vs $1.377/gbp. 0.763/aud vs 0.755/aud. CNY 6.550/$ vs 6.572/$.
Commodity News
Precious metals:
Gold US$1,729/oz vs US$1,718/oz last week
Gold ETFs 99.6moz vs US$99.8moz last week
Platinum US$1,207/oz vs US$1,194/oz last week
Palladium US$2,677oz vs US$2,631/oz last week
Silver US$24.87/oz vs US$24.44/oz last week
Base metals:
Copper US$ 8,985/t vs US$8,714/t last week
Aluminium US$ 2,261/t vs US$2,224/t last week
Nickel US$ 16,560/t vs US$16,060/t last week
Zinc US$ 2,837/t vs US$2,792/t last week
Lead US$ 1,956/t vs US$1,962/t last week
Tin US$ 25,955/t vs US$25,155/t last week
Energy:
Oil US$62.7/bbl vs US$63.3/bbl last week
Natural Gas US$2.539/mmbtu vs US$2.599mmbtu last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$160.3/t vs US$156.7/t - Brazilian iron ore exports rise 34% YoY in March
- Brazil exported 28.42mt of iron ore in March, up from 21.21mt the year prior (Fastmarkets MB)
- March 2020 volumes plummeted when the Covid-19 pandemic hit Brazil and miners halted activities.
Chinese steel rebar 25mm US$761.0/t vs US$743.5/t
Thermal coal (1st year forward cif ARA) US$72.6/t vs US$72.2/t
Coking coal swap Australia FOB US$149.0/t vs US$128.0/t
Other:
Cobalt LME 3m US$50,000/t vs US$50,500/t
NdPr Rare Earth Oxide (China) US$88,546/t vs US$88,639/t - China rare earth exports rose 28% in Jan-Feb
- China’s total shipments rose to 7,068t in Jan-Feb compared to 5,489t in the same period last year, according to customs data.
- Shipments to Japan rose 22.5% to 2,561t over the period.
- Shipments to the US rose 34.7% to 1,394t over the period.
Lithium carbonate 99% (China) US$12,824/t vs US$12,782/t
Spodumene 6% Li2O min, cif (China) US$660/t vs US$510/t
Ferro Vanadium 80% FOB (China) US$35.5/kg vs US$35.2/kg
Ferro-Manganese high carbon 78% Mn US$1,665/t vs US$1,625/t
Tungsten APT European US$270-278/mtu vs US$270-275/mtu
Graphite flake 94% C, -100 mesh, fob China US$550/t vs US$560/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,525/t vs US$2,525/t
Battery News
Tesla's market value set to gain $50 billion on record EV deliveries
- Tesla Inc was set to add about $50 billion to its market value as the electric car-maker’s shares surged on Monday, after it posted record deliveries on strong demand in China that helped it offset the impact of a global shortage in auto parts.
- The stock jumped nearly 8% in pre-market trading and it was on track to hit its highest in over a month.
- At least three brokerages raised their price targets on Tesla’s stock. Brokerage Wedbush was the most aggressive, increasing it by $50 to $1,000.
- Tesla delivered 184,800 vehicles globally during the first quarter of 2021, above estimates of 177,822 vehicles, according to Refinitiv data.
Company News
Caledonia Mining* (AIM:CMCL) 1130p, Mkt Cap £129m – Completion of the Central Shaft and a further rise in quarterly dividend
- Caledonia Mining has announced that the new Central Shaft at its’ Blanket gold mine in Zimbabwe is now fully operational bringing to a culmination a more than five-year long US$67m capital investment programme.
- Chief Executive, Steve Curtis described the new Central Shaft as “the deepest shaft of any gold mine in Zimbabwe” and explained that the development had been funded through internally generated cash-flow and developed and built by the mine’s own team “without any serious accidents”.
- He expressed thanks to the team for their effort and for the successful and safe delivery of the project which allows access to deeper level mineralisation, secures the future of the mine into the 2030s and underpins a production increase at the mine to 80,000oz pa.
- In what we interpret as the increasing confidence of the management team as its capital commitments to the Blanket development dissipate, Caledonia Mining has also announced a further increase in its quarterly dividend to 12US¢/share.
- The increase is the fifth since the 6.875¢ paid in October 2019 and lifts the quarterly payout by a further 1¢/share since the 11¢paid in January this year.
- Mr. Curtis explained that “As we reach the end of the six-year investment programme at Blanket Mine, the anticipated combination of rising production and declining capital investment gives us confidence to further increase the dividend payment in addition to providing funding for investment in new projects, including the exploration prospects at Glen Hume and Connemara North”.
Conclusion: The completion of the more than five-year project to access deeper level mineralisation at the Blanket mine secures the long-term future of the mine at increased production rates and is a testament to what can be achieved in single-mindedly deploying the company’s internal; expertise and financial resources. As the company moves on to the next chapter of its evolution, it is examining other opportunities to deploy its considerable in-country expertise with other projects elsewhere in Zimbabwe.
*SP Angel mining analysts have visited Caledonia’s mining operations in Zimbabwe
Oriole Resources (LON:ORR) – 0.93p, Mkt cap £13.7m – Earns 51% interest in Cameroon properties
- Oriole Resources has announced that, following expenditure of an initial US$1.65m it has now earned a 51% interest in Reservoir Minerals Cameroon which owns the Bibemi and Wapouzé orogenic projects in northern Cameroon.
- The expenditure also gives the company a 51% interest in the “Mana, Dogon and Sanga licences in central Cameroon … at no additional cost. These licences are contiguous with the Company's 90%-owned licences in central Cameroon, which together form a 3,592 square kilometre ("km2") district-scale land package”.
- The company also confirms that “Completion of the ongoing maiden drilling programme at Bibemi is expected to satisfy Oriole's second earn-in commitment to acquire a 90% interest in all five licences”.
- The planned drilling at Bibemi consists of a planned 3,080m in 28 drill-holes and the company confirms that “Recently reported results for the first hole have confirmed the continuity of the orogenic gold system to more than 90m below surface, with a best intersection of 1m grading 4.09 grammes per tonne” with further results expected to be released throughout the current quarter.
- “At the Wapouzé project, located 20 kilometres ('km') to the north, a recent 150m pilot trenching programme across of portion of the 8km-long gold-in-soil anomaly has not returned any significant intersections. The team is currently reviewing all data, including what it is seeing in the drill core at Bibemi, ahead of potential follow-up work later in the year”.
- The company says that the additional licences in Central Cameroon “are part of a contiguous, district-scale land package that covers 3,592km2 of highly prospective geological terrane. An orientation study has recently been completed at the licences ahead of a package-wide mapping and stream sediment sampling programme, planned to commence later this quarter”.
Pure Gold Mining (LON:PUR) 86p, Mkt Cap £347m – Drilling results and ramp-up at Red Lake
- Pure Gold Mining has announced results from underground drilling during Q1 close to the underground development at its Red Lake mine, Ontario.
- The drilling’s proximity to existing mine development and planned near term stoping areas mean that they can be “integrated into near-term mine planning … [and that] … Access development completed to date from the main ramp will facilitate production from some of these areas in 2021”.
- Among the high-grade drilling results highlighted in today’s announcement are
- An intersection averaging 56.6g/t gold over a single metre in hole PGB-0186; and
An intersection of 7.9m averaging 8.7g/t gold in hole PGU-0184, including a single metre averaging 44.4g/t gold; and
An intersection of 4.0m averaging 7.5g/t gold in hole PGB-0194, including a single metre averaging 19.9g/t gold; and
An intersection of 0.6m width averaging 30.5g/t gold in hole PGB-0195; and
An intersection of 7m averaging 4.6g/t gold in hole PGU-0182, including a single metre averaging 10.2g/t gold; and
1.1m averaging 13.4g/t gold in hole PGP-00004; and
A single meter averaging 11.5g/t gold in hole PGB-0203 which also included an intersection of 1.8m width averaging 10.5g/t gold.
- President & CEO, Darin Labrenz, welcomed the drilling’s confirmation of the “high-grade nature of this orebody” and said that “Our prioritized Main ramp development will continue to provide access to increasingly higher grades, and with the East ramp now touching the orebody we expect expanded mine flexibility and high-grade ore delivery from underground. Our drilling program will continue to focus on delineating these stopes and establishing production growth over the coming quarters as we get into the heart of the orebody and continue to execute on our organic growth strategy”.
- Prior to the Easter break, Pure Gold Mining also described progress on the ramp up of its gold mining operation at Red Lake, during Q1 2021. The company reported the first gold pour from the mine on 29th December.
- During the 3 months to 29th March, treated 47,182 tonnes of ore at an average grade of 2.8g/t gold and recovery rate of 95.0% to produce 4,011oz of gold (Q4 2020 – 3,535t at an average grade of 7.8g/t and recovery rate of 96.6% resulted in production of 860oz).
- The mill reached its “design capacity of 800 tonnes per day for multiple consecutive days and … [operated] … reliably during that time”.
- “Mill throughput peaked at 897 tonnes per day on March 19 and is now operating in alignment with the rate of ore production from the mine as the mine continues to ramp-up” and the company indicates that further optimisation and relatively minor plant enhancements “will position the milling facility for potential expansions beyond 800 tpd in the future”.
- Ramping up of the mine’s production capacity has continued towards steady state production although the company says that during the quarter “head grades for the first quarter were lower than anticipated due to ramp-up related issues including unplanned dilution in the first longhole stopes blasted by the Company and the feeding of low grade stockpile material to the mill to facilitate uninterrupted mill ramp-up during commissioning”.
- Remedial measures to reduce dilution, including modifications to blasting methods and converting some stopes from longhole mining to mechanised cut-and-fill “are expected to result in head grades improving in the second quarter and beyond”.
- The company has previously described the exploration potential along a 7km long mineralised trend exhibiting similar mineralisation and geological setting to that encountered at the mine while closer to the mine workings mineralisation may extend beyond the originally planned stopes which may be extended in future mine-planning as a result.
The high grade intersections, often over narrow widths, suggest that efficient grade control management will be important as the mine ramps up in order to ensure that these zones are captured in the mine layouts and stoping.
Conclusion: Recent drilling results confirm high-grade mineralisation close to planned near-term production areas at Red Lake and mine plans are being adjusted to ensure that these zones are incorporated. More generally, a substantial increase in throughput during the ramp-up has added to mine dilution, however, the company is implementing remedial measures to improve recovered grade and match mine production with milling capacity as it progresses towards commercial production at its Red Lake mine. We expect the next quarter’s results to indicate the impact of these steps on what at this stage appear to be the routine ‘teething troubles’ which, in the company’s words, are “symptomatic of ramp-up”.
Serabi Gold* (AIM:SRB) – 61.5p, Mkt Cap £50.7m – Local management suspensions and internal investigation in Brazil
- Serabi Gold has confirmed that, following a delay to the release of its annual audited accounts, originally planned for 31st March it “has suspended two local managers in Brazil.”
- The Company also confirms that it “has engaged lawyers in Brazil who have commenced their own internal enquiries whilst BDO LLP, the Company’s auditors, are undertaking further work to resolve the audit issues identified in Brazil”.
- Serabi Gold has also stated that “Continuing production at Palito and Sao Chico is unaffected, and the Company expects to provide its routine update on production for the first quarter ended 31 March 2021 towards the end of this month”.
*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil
Tietto Minerals (ASX:TIE) A$0.32, Mkt Cap A$145.6m – Abujar Gold PFS forecasts 168,000ozpa Au in first six years of production
- Tietto has released its PFS for its Abujar Gold Project in Cote d’Ivoire- based on a 3.5mt operation that is expected to produce 200,000oz in its first year of production.
- The report includes maiden reserves of 15.7mt at 1.7g/t for 860,000oz in the planed eight year Abujar AG open pit operation.
- The post-tax NPV and IRR are $266m and 42%, while free cashflow is expected to be more than $509 million over the first decade on current metrics and a US$1,506/oz gold price.
- AISC estimated at $839/oz, with revenues of $1.6bn.
- Capital costs are estimated at $230m, with payback expected in 2.8 years.
- The company say that the robust PFS economics support a substantial debt funding element to the funding mix for the project.
- Tietto has secured all mining and environmental approvals required for the project.
- Tietto expects to complete a DFS in Q3 2021, with the findings of the study expected to optimize throughput and reduce waste stripping costs.
- Around 25,000m of infill drilling is expected to be undertaken as part of the DFS, targeting inferred resources within and beneath the current ore reserve pit design.
Analysts
John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490
Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486
Sales
Richard Parlons –Richard.Parlons@spangel.co.uk - 0203 470 0472
Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534
Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
SP Angel
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+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 - SSY
RRE - Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony - Asian Metal
Tungsten - Metal Bulletin
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