SP Angel . Morning View . Monday 28 03 22
Metals remain volatile as Ukraine disrupts trade flows
MiFID II exempt information – see disclaimer below
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Cornish Metals Inc (AIM:CUSN, TSX-V:CUSN, OTC:SBWFF)* – Vision Blue Commits £25m as part of £40.5m funding for South Crofty tin project
Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF)* – Strengthening links with its host community in Idaho
PureGold (OTCMKTS:PGCMF) – 2022 operational improvements listed and ~$50m funding gap flagged
Rio Tinto PLC (LSE:RIO) – Guinea’s ruling junta reaches deal with miners to resume Simandou mine development
Strategic Minerals Corporation NL (ASX:SMC)* – Continuing long-term access to Cobre secured
Gold pares gains as ETFs continue to increase holdings
- Gold prices have settled back to $1,929/oz as the US dollar index climbs to a 2-year high and US 10-year Treasury yields rise to 2.5%.
- A more significantly more aggressive rate hike schedule from the Fed is now expected with some banks expecting four 0.50% rate hikes this year.
- Longer-term positions in gold ETFs continue to rise, up 315,000oz today - an 8% increase this year, while hedge funds have cut gold holdings to a 5-week low.
Copper pulls back as investors weigh up disruption against potentially weaker demand from Shanghai Covid-19 rolling lockdowns
- Copper prices weakened to $10,225/t from a $10,845/t high on March 7th.
- Shanghai is a major metals trading hub for copper but should not see significant disruption to trade from the lockdowns.
- Shanghai manufacturers will see some disruption depending on how long the lockdown lasts.
Iron ore rises on positive Chinese industrial data and seasonal demand bets despite Covid lockdowns
- Iron ore up to $152/t from $149/t.
- Traders are buying the steelmaking ingredient following data that Chinese industrial companies enjoyed strong profit growth in Jan-Feb 2022.
- Analysts expect strong demand for restocking on an easing of the lockdown in Tangshan, China’s steelmaking hub.
- Steel rebar and HRC both rose overnight.
Nickel prices fall 8% while trade volumes remain very thin
- Nickel prices opened lower in extremely illiquid trading in London, slumping around 8% but avoiding the 15% daily price limit set by the LME.
- According to bourse data, just 174 contracts changed hands in the first 25 minutes of trading as investors and traders still seem weary of trading a metal which has seen unprecedented volatility in recent weeks.
Dow Jones Industrials +0.44% at 34,861
Nikkei 225 -0.73% at 27,944
HK Hang Seng +0.96% at 21,610
Shanghai Composite +0.02% at 3,213
Economics
China – The government announced a two stage lockdown in Shanghai, a city of 25m people.
- The staggered eight day lockdown will bar the city’s residents from leaving home and target half of the city at a time.
Ukraine/Russia – Two sides are set to resume in-person talks this week.
- Ukraine authorities fear Russia will now try to split the nation into a North Korea / South Korea style situation creating ongoing tension
- Russian Stalingrad tank division destroyed in Ukraine.
- Ukraine claims to have killed seven Russian generals with one tank commander reported to have been run over by his own soldiers.
- Low morale and mutiny by Russian forces may be a part of the Russian retreat towards the Donbas region with significant advances reported by Ukraine forces.
Bond market raises concern over global economic growth as inflation and quantitative tightening weigh on sentiment
- The Treasury curve inverted as the 5-year note’s yield rose above the 30-year yield for the first time since 2006.
- The bond sell-off is raising concerns among investors of a major economic downturn, with the potential for a recession.
- The impact of Putin’s war on commodity prices is adding to investor concern over inflation, with the Fed’s monetary tightening policy weighing on equity sentiment.
- Rampant covid infections in China, triggering mass testing and lockdowns, are raising expectations of falling demand, further weighing on markets.
- Analysts are highlighting falling liquidity in markets, with banks tightening lending standards, creditors’ margin requirements rising, as visible with commodity trading houses, and the Fed reducing its balance sheet.
Currencies
US$1.0951/eur vs 1.1024/eur last week. Yen 123.59/$ vs 121.79/$. SAr 14.621/$ vs 14.549/$. $1.316/gbp vs $1.319/gbp. 0.752/aud vs 0.751/aud. CNY 6.372/$ vs 6.364/$.
Commodity News
LME to double size of its default fund following nickel market turmoil
- The LME has told its members that it will nearly double the size of its clearing house default fund in order to make the exchange better equip, following the unprecedented nickel short squeeze.
- The default fund is expected to increase to $2.075bn from $1.1bn in April as a result of the exchange’s monthly stress-testing exercise.
- The fund is mostly paid for by LME members, meaning the increase will add to financial strains for market participants already hurt from the dramatic price moves earlier this month.
- The fund is used to cover the losses if one of more of its members defaults on their obligations to the LME.
- Members’ contribution to the default fund are calculated monthly and based on relative initial margins.
Precious metals:
Gold US$1,935/oz vs US$1,955/oz last week
Gold ETFs 105.8moz vs US$105.4moz last week
Platinum US$996/oz vs US$1,027/oz last week
Palladium US$2,303/oz vs US$2,531/oz last week
Silver US$25.09/oz vs US$25.53/oz last week
Rhodium US$18,800/oz vs US$18,500/oz last week
Base metals:
Copper US$ 10,225/t vs US$10,412/t last week
Aluminium US$ 3,619/t vs US$3,617/t last week
Nickel US$ 33,500/t vs US$40,415/t last week
Zinc US$ 4,060/t vs US$4,063/t last week
Lead US$ 2,353/t vs US$2,333/t last week
Tin US$ 42,360/t vs US$42,525/t last week
Energy:
Oil US$116.3/bbl vs US$117.9/bbl last week
Oil prices continue to see-saw as lockdowns in China affecting perceived near-term demand counter enduring supply risks emanating from the Russia’swar in Ukraine.
Gazprom reported that gas nominations stood at 109.5mcm for March 28, in line with its LT contracts.
The U.S. and E.U. agreed on Friday to form a new task force, chaired by White House and European Commission representatives, which will work on a raft of new measures designed to reduce Europe’s dependency on Russian oil, gas and coal by 2027.
Natural Gas US$5.592/mmbtu vs US$5.410/mmbtu last week
Uranium UXC US$59.05/lb vs $59.10/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$152.0/t vs US$149.1/t
Chinese steel rebar 25mm US$788.1/t vs US$779.9/t
Thermal coal (1st year forward cif ARA) US$187.0/t vs US$187.0/t
Thermal coal swap Australia FOB US$263.0/t vs US$277.5/t
Coking coal swap Australia FOB US$480.0/t vs US$505.0/t - India looks to increase Russian coking coal imports despite Western sanctions
- India’s steel minister announced they ‘are moving in the direction of importing coking coal from Russia.’
- The country is planning to double imports of the steelmaking ingredient from Russia.
- Russia was India’s 6th largest supplier of coking and thermal coal, but its share may start to increase if India is able to access more competitive prices.
- Ministers have also raised the potential for a rouble-rupee trading arrangement, further boosting the appeal to India.
Other:
Cobalt LME 3m US$82,000/t vs US$82,000/t
NdPr Rare Earth Oxide (China) US$155,365/t vs US$155,575/t
Lithium carbonate 99% (China) US$74,151/t vs US$74,252/t
China Spodumene Li2O 5%min CIF US$2,810/t vs US$2,810/t
Ferro-Manganese European Mn78% min US$2,174/t vs US$2,188/t
China Tungsten APT 88.5% FOB US$340/t vs US$340/t
China Graphite Flake -194 FOB US$805/t vs US$805/t
Europe Vanadium Pentoxide 98% 12.3/lb vs US$12.3/lb
Europe Ferro-Vanadium 80% 62.25/kg vs US$62.25/kg
China Ilmenite Concentrate TiO2 US$398/t vs US$398/t
Spot CO2 Emissions EUA Price US$83.1/t vs US$84.0/t
Brazil Potash CFR Granular Spot US$1100/t vs US$1100/t
Company News
Cornish Metals Inc (AIM:CUSN, TSX-V:CUSN, OTC:SBWFF)* – 27p, Mkt cap £78.6m – Vision Blue Commits £25m as part of £40.5m funding for South Crofty tin project
- Cornish Metals reports that it plans to raise up to £40.5m to finance de-watering of the South Crofty tin mine in Cornwall and to complete feasibility and associated technical studies and preliminary site work “in advance of a potential construction decision”.
- The placing is subject to effective approval for Vision Blue Resource’s £25m (>25%) subscription in the placing.
- The new shares are, unusually, subject to a 12-month lock-in with directors and officers also agreeing to an orderly market arrangements for a further 12 months after that.
- This means that none of the new shares should appear on the market till 24 May 2023.
- The admission of the new shares is on or before 24th May 2022 subject to approval at a Special Meeting on 19th May.
- The funds are to be raised through “a unit offering (the "Offering") comprising one common share priced at 18p (C$0.30 for Canadian investors) per common share and a warrant to purchase one common share priced at 27p (C$0.45 for Canadian investors) for a period of 36 months”.
- Vision Blue Resources was founded by Sir Mick Davis, ex CEO at Xstrata, to invest in green energy-related metal and mineral resource companies” as well as £15.5m “from a private placing to existing and new UK institutional investors as well as a subscription by existing Canadian investors and eligible accredited private investors”.
- The issue is being supported by existing shareholders, including directors and officers, representing 34.4% of the existing shares who have “entered into irrevocable undertakings pursuant to which each have agreed to vote in favour of the requisite resolutions at the Special Meeting”.
- Sir Mick Davis said that the “investment in South Crofty has the potential to deliver significant tin production to meet an expected supply shortfall and enable the deployment of new, green technologies. At the same time, restarting production at an historic underground mine, within the existing footprint, and with the benefit of modern production techniques, provides an opportunity to minimise environmental and other impacts whilst creating significant benefits for local communities”.
- Welcoming the support of VBR, Cornish Metals’ CEO, Richard Williams, explained that “Tin is essential to anything electronic, including electric vehicle (EV) components, computing, 5G, robotics, renewable power generation, and the electrification of the economy, making South Crofty a strategic asset with the ability to provide a secure, traceable, sustainable supply of this important metal”.
- Vision Blue has the right to nominate one person to the company board.
- He said that Cornish Metals is “excited to embark on this new chapter of Cornwall's mining history which will see South Crofty make a significant contribution to the local and UK economy, with the potential to create up to 1,000 direct and indirect jobs, as well being at the forefront of the drive towards net zero”.
- The proceeds of the fund-raising will finance a 30-month work programme at South Crofty including £16.1m of dewatering costs, with a further £13m to be spent on securing underground access and surface and underground resource drilling and £1.2m to fund the completion of a mine feasibility study.
- Directors and officers of the company intend to subscribe for £146,000 worth of stock.
Conclusion: Elevated tin prices and an increasing recognition of the strategic importance of tin in the development of green technologies make re-opening the South Crofty mine increasingly appealing. The financial support of VBR helps facilitate the de-watering of the mine and preparation of a feasibility study over the next 30 months.
* SP Angel acts as broker and financial advisor to Cornish Metals. One of our Analysts holds shares in Cornish Metals and has subscribed for stock in this placing.
Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF)* 54p, Mkt Cap £63.2m – Strengthening links with its host community in Idaho
(Phoenix holds 80% of the Empire mining property in Idaho)
- Phoenix Copper has announced a loss of $0.97m for the year ending 31st December 2021 (2020 – also a loss of $0.97m).and a year-end cash balance of $13.0m.
- The company highlights progress on its plans for permitting its planned open-pit mine at the historic Empire mine in Idaho where the permitting process is nearing completion.
- During 2021, Phoenix Copper initiated feasibility study work for the Empire project to help convert existing mineral resources to reserves and to build upon the “current preliminary economic assessment level cash flow model … [which] … shows gross revenue of $836 million over ten years of mine life, and $43 million post-tax cash flow in year 1 at a $3.60/lb copper price”.
- The current measured and indicated mineral resource at the Empire project is 22.9mt at an average grade of 0.38% copper, 0.19% zinc, 10.3g/t silver and 0.32g/t gold plus an additional inferred resource of 10.6mt averaging of 0.4% copper, 0.14% zinc, 7.4g/t silver and 0.34g/t gold. This estimate, announced in October 2020 increased the pre-existing estimate by approximately 19%.
- Chairman, Marcus Edwards-Jones, reports that “several US, as well as other investors, have expressed interest in participating in a debt instrument to fund the entire capital expenditure needed to put the Empire open-pit mine into production”.
- In addition to the Empire open-pit project, exploration is continuing on the deeper level sulphide mineralisation at Emipre as well as on the nearby Red Star lead/silver mineralisation and the gold potential of the Navarre Creek, and Horseshoe Creek/White Knob prospects.
- A total of 997m of a planned 4,500m of drilling to investigate the deeper level sulphides at Empire has been completed, including “high grade mineralisation across a suite of metals, including 8.38% copper, significant intercepts of gold, silver and zinc, as well as anomalous molybdenum and tungsten mineralization” and “further drilling will continue during 2022”.
- At Red Star, Phoenix Copper completed a programme of ten drill holes, completed during 2021, “confirmed the need for greater understanding of the structural geology in order to direct further exploration. As a result, in 2021 the Company commissioned a ground-based magnetics geophysical survey which identified four high-amplitude areas of interest, including the original discovery outcrop. The size and amplitude of the three new areas of interest appear to be significantly greater than that of the discovery outcrop, whilst further north-northeast magnetic anomalies trending from the outcrop were also identified”. Three-thousand metres of follow-up diamond drilling is planned for 2022.
Conclusion: Phoenix Copper’s permit application for the Empire open-pit is “nearing completion” while feasibility study work is underway to refine the earlier PEA work and to convert resources to reserves.
*SP Angel acts as nomad to Phoenix Copper
PureGold (OTCMKTS:PGCMF) 36p, Mkt Cap £168m – 2022 operational improvements listed and ~$50m funding gap flagged
- 2021 production was constrained by a shortage of high grade feed from underground stopes.
- Lack of material from high grade stopes led to less than full utilisation of the mill with operations using up available low grade development and stockpiles to raise throughput tonnage.
- Expedite access to higher grade stopes by developing sills faster and improving drilling and grade control procedures.
- Drilling pads will be brought closer to production areas leading to improvement in drilling efficiency with shorter holes and tighter spacing with definition drilling expected to accelerate in the coming months allowing to have inventory of several months of high confidence stopes developed by H2/22.
- Better mining fleet maintenance programme to improve availability rates held back by insufficient inventory parts, supply chain issues and a lack of maintenance space for service in the past.
- Assessment and repair phase will start immediately and expected to conclude in Q3/22.
- Ventilation capacity upgrade has also been highlighted as an opportunity to improve ore production and enhance mining flexibility.
- New electric air compressors used by underground production drills have been ordered to replace diesel ones that experienced availability issues in the past.
- An accommodation camp will be installed on site able to house ~90 people that should enhance Company’s ability to attract and retain top talent.
- The camp is expected to be operational in Q3/22.
- Updated Mineral Resources, Reserves and Life of Mine plan are expected to be released in late Q3 early Q4 2022.
- New team identified a number of initiatives to improve stope access that should improve ore throughput, increase processed grades and reduce costs in 2022.
- Closing cash balance as of today is ~$9m with the Company saying it will need ~$50m in external funding to bring the mine to the state of sustainable positive free cash flows at the corporate level.
- Additionally, it will be seeking financing to cover interest rate payment on its debt in the next 30 days.
- The team estimates the Company can reach sustainable positive FCF status by the end of the year.
- 2022 guidance is split into two halves with H1/22 guided for 15-20koz prom processing 600-700tpd at 4.0-5.0g/t with H2/22 guidance to be released later in the year (by Jun/22).
- H2/22 is expected to see an increase in plant throughput and processed grades.
Rio Tinto PLC (LSE:RIO) – 5,936p, Mkt cap £74bn – Guinea’s ruling junta reaches deal with miners to resume Simandou mine development
- Guinea’s ruling junta has reached an agreement for the Simandou iron ore deposit owned by Rio Tinto and a Chinese-backed consortium, after resolving infrastructure disputes.
- Earlier this month, Guinea’s government said that the site's development would be halted as they sought clarification on how Guinea's interests would be preserved.
- Simandou contains more than 2bn of high-grade iron ore, however development has been stalled by protracted legal disputes and the cost of infrastructure.
- Guinea's government has said any developer of the mine must build the railway spanning the country, even though it adds significantly to the cost of developing the mine and the route to port through neighbouring Liberia is much shorter
- The government has also set an ambitious target that the project must be completed by December 2024 and commercial production must start by March 31, 2025.
- Rio Tinto owns a 45.05% stake in Blocks 3 and 4 of Simandou. Aluminium Corp of China (Chinalco) holds 39.95% and Guinea's government 15%.
Strategic Minerals Corporation NL (ASX:SMC)* 0.3p, Mkt Cap £6.1m – Continuing long-term access to Cobre secured
- Strategic Minerals has confirmed that it has now secured access to the Cobre magnetite stockpile in New Mexico until 3rd March 2027.
- Previously, extension of access had been secured on a year-by-year basis as “the stockpile m owner had been reticent to provide longer term access to allow for the possibility of reorganising its mining activities, conducted nearby the stockpile”.
- Strategic Minerals says that “the good will built up during the ten years of operations, combined with the impeccable work undertaken by the SMG team, ensuring contactless and safe operations throughout the pandemic, have resulted in this milestone extension”.
- The company sees the agreement as offering the long term security of tenure which will provide “long term cash flow … [which] … establishes a framework in which SMG can more aggressively seek additional sales, through its ability to provide long term certainty of supply”.
- Managing Director, John Peters, explained that “While a long time in coming to fruition, the extension of access at Cobre to 31 March 2027 is a huge achievement by the excellent team at Cobre and especially by its President Clovis Hooper”.
- Mr. Peters added that the extension “should underpin the Company's future profitability and provides scope to broaden Cobre's clientele, which is expected to lead to higher sales in the future.”
- The company also takes the opportunity to provide a progress report on its long-running claim for US$21.9m against CV Investments confirming that it “expects to formally lodge its claim … , as per its recent arbitration, within the next two weeks … [and that] … Management and the Board anticipate this may produce a financial result for SMG before the end of the year, although there is no guarantee as to timing or amount”.
Conclusion: Continued long-term access to the magnetite stockpiles should ensure continuity of the cash flows generated at Cobre and underpin increased marketing of the product.
*SP Angel acts as Nomad and Broker to Strategic Minerals
SP Angel and Digbee ESG joint initiative for mining companies
https://www.uploadlibrary.com/SPAngel_JohnMeyer/DIGBEE_Press_release.pdf
- SP Angel and Digbee, a specialist ESG group, wish to announce their joint initiative in bringing ESG accreditation to mining companies in their drive to meet institutional investment and rapidly evolving ESG standards and regulatory requirements.
- We are rapidly approaching a point where a company’s ESG profile will not simply be a positive investment factor but will become a precondition to investment by many investment funds.
- The guidance and ratings process developed by Digbee is specifically designed to assist mining companies meet the new expectations and ensure directors meet their ESG compliance objectives.
- The initiative will not only quantify and score the ESG profile of qualifying companies but will also highlight ESG improvements and positive performance as companies develop.
- Importantly, the process will enable investment funds to demonstrate the positive results of their investments to their underlying investors and stakeholders which can, in turn, lead to further funding.
- It is imperative that any ESG Rating is seen to be credible. Digbee’s solution was developed to address this: it is mining specific, right sized and future looking, based on an independent assessment of a submission that is supported by evidence and approved by the company’s board of directors. It will also address investor frustration at a lack of comparable or meaningful data.
- For companies at an earlier stage of their ESG journey, recording improvements over time through the Digbee initiative is likely to prove attractive to investment funds as a demonstration of their ESG commitment permitting institutional investment at an earlier stage.
- The direction of travel is now firmly towards renewable sources of energy and a transition to environmental sensitivity. Historically, regardless of the individual facts, miners have collectively been identified as bad actors in this regard. Digbee engagement and ratings should improve the visibility of the good work being done.
- For example, installing, wind and solar generation to displace oil and gas should not only cut energy costs but also reduce carbon emissions. Sharing this energy with a local community may further reduce emissions, strengthen community engagement and lead to long-term sustainable benefits well beyond the end of the mine life. Similarly, a mine closure, thoughtfully done, can leave a positive community legacy that will stand a company in good stead when it is seeking new mining opportunities. Having a third party ESG specialist incorporate these initiatives into a rating accepted by investors will help secure the credit such initiatives deserve.
Jamie Strauss, Founder & CEO, Digbee Ltd: “We are delighted with this joint initiative with SP Angel, the number one ranked advisor to the AIM Mining sector*. SP Angel has acknowledged the importance of presenting their corporate clients to institutional investors with credible ESG disclosure as an increasing prerequisite to encourage new investment. We look forward to working together to achieve a more sustainable mining industry that is recognised for its positive actions ”
John Meyer, Mining Analyst & Partner at SP Angel “Working with Jamie Strauss and Digbee will help prepare our corporate clients for ESG-orientated investment. Mining, exploration, and development companies contribute much to local communities which combined with the potential benefits of increasingly sustainable operations is worthy of recognition. Quantifying the benefits, improvements and legacies of these operations should act a catalyst to further improvement to the benefit of all stakeholders.
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
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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35-39 Maddox Street London
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*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 - SSY
RRE - Steelhome
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite - Asian Metal
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