SP Angel . Morning View . Wednesday 01 06 22
Copper posts a second monthly loss on Covid lockdowns in China
MiFID II exempt information – see disclaimer below
We're taking a break in the UK to celebrate the Queen's Platinum Jubilee; we will be back on Monday 6th June.
Aurania Resources Ltd (TSX-V:ARU, OTCQB:AUIAF) – Identification of 400 years-old mining site downstream of exploration area in SE Ecuador.
Bluerock Diamonds PLC (AIM:BRD)* – Bluerock resets production guidance following heavy rain in Kimberley, South Africa
Castillo Copper Ltd (LSE:CCZ, ASX:CCZ) – Cobalt resource estimate at Broken Hill East
Leo Lithium a spin out from the Firefinch Limited (ASX: FFX), raised A$100m in an IPO to progress development of the Goulamina Lithium Project in southern Mali.
Power Metal Resources PLC (AIM:POW)* – FDR raises £1.1m in pre-IPO financing
Sovereign Metals Ltd (ASX:SVM, AIM:SVML) – Pre-feasibility drilling campaign underway at Kasiya, Kenya
Gold prices fall amid China virus optimism and rising US yields
- Gold prices continued to edge lower this morning as China’s virus restrictions eased, triggering risk on sentiment which saw stocks move higher.
- Shanghai reported the fewest Covid-19 cases in almost three months, triggering optimism that the outbreak has been contained.
- Over the past months, certain large cities in China have been under lockdown which has dampened growth prospects.
- US Treasury yields continued to rise following Tuesday’s surge, up 0.96% this morning to 2.8713%.
- The dollar index rose 0.2% after rising 0.4% on Tuesday.
- Rising yields reduce investors’ incentive of holding non-interest yielding gold, while a stronger dollar makes gold more expensive for holders of other currencies.
LME base metal stocks continue to fall with another 3,250t leaving LME warehouses overnight
Why are LME and SHFE base metals falling:
- Restocking of inventory levels due to the relaxation of lockdown restrictions in Shanghai and other Chinese cities.
- Ongoing restocking and recovery from Covid restrictions in the US and Europe.
- Logistics disruption caused by Covid and by Ukraine causing manufacturers to buy in more inventory.
- Sanctions on Russia and new EU oil embargo potentially affecting logistics with potential for disruption to diesel supplies and availability of power for European smelters.
- Loss of confidence in the LME and other commodity exchanges since the LME cancelled trades and suspended trading in nickel on 8th March.
- This was the first time the LME had ever unilaterally cancelled trades and will see substantial financial claims against the market according to our sources
Conclusion: Restocking to protect against further disruptions in logistics is probably the main driver for
Dow Jones Industrials -0.67% a 32,990
Nikkei 225 +0.65% at 27,458
HK Hang Seng -0.56% at 21,296
Shanghai Composite -0.13% at 3,182
Economics
China – Private sector gauge of manufacturing activity climbed in May indicating a slowing pace of contraction in the industry on the back of tough lockdowns easing.
- The momentum matches official PMI numbers that covers mostly larger, state-owned enterprises, and that also reported a sub 50 reading for Manufacturing PMI (49.6) yesterday.
- Caixin Manufacturing PMI: 48.1 v 46.0 in April and 49.0 est.
Japan – Vehicle sales continued to struggle in May that is likely to reflect a disruption in the supply chain from lockdowns in China.
- Vehicle Sales (%yoy): -16.7 v -15.0 in April.
ECB – Record high inflation supports the case for a 50bp hike in July, Governing Council member and a top ECB hawk Robert Holzmann said.
- “A 50 basis-point rise would send the necessary clear signal that the ECB is serious about fighting inflation,” Holzmann, the Austrian central bank chief, said Wednesday in emailed comments to Bloomberg.
Germany – Retail sales drop 5.4%mom in April with the turnover of German shops falling to the lowest since Feb/21.
- Consumers are being squeezed by accelerating inflation seeing a drop in real incomes.
- Retail Sales (%mom/yoy): -5.4/2.5 v -0.1/-5.4 in March and -0.5/4.4 est.
UK – Growth in property prices slowed to 11.2%yoy in May, down from 12.1%yoy in April, although double digit rate suggests the market “retained a surprising amount of momentum” despite prospects of higher interest rates.
- “Demand is being supported by strong labour market conditions, where the unemployment rate has fallen towards 50-year lows, and with the number of job vacancies at a record high,” Nationwide commented on the data.
- “At the same time, the stock of homes on the market has remained low, keeping upward pressure on house prices”.
- Nationwide House Prices (%mom/yoy): 0.9/11.2 v 0.3/12.1 in April and 0.6/10.5 est.
Australia – Economic growth slowed down in Q1/22 but beat estimates supported by private consumption, government spending and a positive change in inventories with markets pricing in tighter monetary policy outlook.
- A number of economists are predicting a 40bp move next week, Bloomberg reports.
- GDP (%qoq/yoy): 0.8/3.3 v 3.4/4.2 in Q4/21 and 0.7/3.0 est.
Currencies
US$1.0725/eur vs 1.0743/eur yesterday. Yen 129.49/$ vs 127.81/$. SAr 15.594/$ vs 15.556/$. $1.260/gbp vs $1.262/gbp. 0.718/aud vs 0.719/aud. CNY 6.684/$ vs 6.661/$.
Commodity News
Precious metals:
Gold US$1,836/oz vs US$1,855/oz yesterday
Gold ETFs 105.2moz vs US$105.2moz yesterday
Platinum US$979/oz vs US$963/oz yesterday
Palladium US$2,018/oz vs US$2,082/oz yesterday
Silver US$21.61/oz vs US$21.87/oz yesterday
Rhodium US$15,250/oz vs US$15,400/oz yesterday
Base metals:
Copper US$ 9,446/t vs US$9,536/t yesterday
Aluminium US$ 2,786/t vs US$2,882/t yesterday
Nickel US$ 28,325/t vs US$28,600/t yesterday
Zinc US$ 3,870/t vs US$3,939/t yesterday
Lead US$ 2,168/t vs US$2,188/t yesterday
Tin US$ 34,505/t vs US$34,625/t yesterday
Energy:
Oil US$117.2/bbl vs US$123.3/bbl yesterday
Crude oil prices remain elevated following the EU’s ban on seaborne Russian oil, c.90% of the total supply to Europe, as investors anticipate further disruption to already stretched product supply chains.
European energy prices fell despite Gazprom halting flows to Denmark’s Orsted and Shell Energy for refusing to pay in roubles, following comments that it was unlikely to cut off supply to any more buyers.
Media reports that the halted supply amounts to c.23bcm, or about 15% of the total Russian supply to the EU.
Natural Gas US$8.388/mmbtu vs US$8.758/mmbtu yesterday
Uranium UXC US$48.45/lb vs $47.85/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$134.2/t vs US$134.4/t
Chinese steel rebar 25mm US$712.6/t vs US$714.6/t
Thermal coal (1st year forward cif ARA) US$244.0/t vs US$248.5/t
Thermal coal swap Australia FOB US$400.0/t vs US$400.0/t
Coking coal swap Australia FOB US$455.0/t vs US$455.0/t
Other:
Cobalt LME 3m US$74,000/t vs US$74,000/t
NdPr Rare Earth Oxide (China) US$142,509/t vs US$142,598/t
Lithium carbonate 99% (China) US$65,756/t vs US$65,970/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,861/t vs US$1,864/t
China Tungsten APT 88.5% FOB US$336/t vs US$336/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 9.6/lb vs US$9.6/lb
Europe Ferro-Vanadium 80% 38.25/kg vs US$38.25/kg
China Ilmenite Concentrate TiO2 US$370/t vs US$372/t
Spot CO2 Emissions EUA Price US$90.0/t vs US$86.3/kg
Brazil Potash CFR Granular Spot US$1,200.0/t vs US$1,200.0/kg
Battery News
Stellantis and Toyota to launch electric light-commercial van in Europe
- Stellantis and Toyota Motor (NYSE:TM) Europe have announced the launch of a large-sized light commercial van (LCV) for Europe.
- Stellantis will build the LCV, which will be sold in Europe under the Toyota badge.
- The two automakers have previously worked together on LCV projects before – in 2012 on a mid-size LCV and again in 2019 for a compact LCV.
- Stellantis plans to build TME’s LCVs in Poland and Italy, starting mid-2024. The new large LCV will have full-electric variants, aligning with Stellantis’ goal to expand its LCV lineup in Europe aligned with its ‘Dare Forward 2030’ objectives.
- Stellantis has plans for 100% of sales in Europe and 50% of sales in the United States to be EVs by the end of 2030. It plans to launch more than 75 BEVs and reach five million global annual BEV sales by the end of the decade
ABB and Siemens back Norwegian battery startup
- ABB and Siemens are leading a €100m fundraising round by Morrow Batteries, a start-up that aims to start producing in Norway by the end of next year.
- Morrow said it would use the funding to build a 1.2GW pilot factory, which will produce batteries used in energy storage systems such as those used for rooftop solar panels.
- Morrow’s battery development line is currently located in South Korea, and the company said it would relocate the production to the new factory in Arendal on Norway’s southern coast.
- The battery chemistry of the batteries that Morrow will develop has not been disclosed, but Chief Executive Terje Andersen has said that the company was planning a battery that had no cobalt and used significantly less nickel.
British Steel to commence feasibility study into green hydrogen usage
- British Steel reports that it has received government support for a feasibility study into the switching from natural gas to green hydrogen for heating furnaces.
- The company is collaborating with EDF UK, University College London and the Materials Processing Institute, having pledged to deliver net zero steel by 2050.
- If successful, an industrial scale demonstration will be rolled out followed by using the technology across all sites.
- The study links to the Tees Green Hydrogen project – a scheme that will use green electricity from the nearby Teesside Offshore Wind Farm along with a new solar farm, which EDF intends to construct locally.
Company News
Aurania Resources Ltd (TSX-V:ARU, OTCQB:AUIAF) C$0.61 Mkt Cap C$32.9m – Identification of 400 years-old mining site downstream of exploration area in SE Ecuador.
- Canadian listed Aurania Resources reports the discovery of a lost – ‘city of gold’ known as Logroño de los Caballeros downstream of its exploration tenements in south-east Ecuador.
- The company says that no “archaeology has been found” at the alluvial gold mining site said to be “one of seven historic mining areas operating during the time of the Spanish conquistadors in the land that became Ecuador”.
- The location of Logroño de los Caballeros “and that of a second site, Sevilla del Oro, have been lost over time. Aurania’s Project is partly based and is named … [the Lost Cities - Cutucu Project] … on the premise, that the two lost cities would be within Aurania’s large concession package”.
- Dr. Keith Barron, President and CEO of Aurania commented, “More than four hundred years have passed since Spanish activity at Logroño ceased, and even though many of the records have been lost, what survives is a compelling narrative of gold mining in what would have been one of the most remote and isolated areas on Earth”.
- He confirmed that “To date, we have found many epithermal gold-silver prospects on our concession package, and I believe that this key discovery can ultimately lead us to Logroño’s gold source”.
Bluerock Diamonds PLC (AIM:BRD)* – 27p, Mkt cap £6m – Bluerock resets production guidance following heavy rain in Kimberley, South Africa
- BlueRock Diamonds reports disruption from significant heavy rain through the first five months of the year.
- The Kimberley region of South Africa has seen nearly double the level of normal rainfall this year with over three times the long term average so far in May.
- The disruption has cut mine development work by 400,000t representing around 36% of the work planned for April and May.
- The cut has limited fresh ore availability causing the team to use more lower grade material with higher clay content.
- The rain has also delayed the ramp up to 1mtpa of throughput cutting the budget by 48% on tonnes processed, 51% on grade and 74% on carats produced.
- Management are looking at taking on a new debt finance / offtake facility as lower diamond sales combined with higher diesel and supplier prices have squeezed cash availability.
- Discussions are ongoing with Teichmann, BlueRock’s major shareholder on the level and form of debt to be provided.
- Guidance has been reduced to:
- Tonnes processed: ('000) -15% to 780 – 830t from 900-950t
- Carats produced: -30% to 28,000-33,000cts from 36,000-43,000cts
- Grade: -12% to 3.60-4.00cpht from 4.0 - 4.5cpht
- Value Per Carat (USD): +14% to $500–550/ct from $450/ct
- Revenue (USDm): -9% to $14–18m from $16-19m
- Guidance for 2023 remains at 1mtpa throughput, 43,000cts produced, 4.3cpht grade, $450/ct value and $19m of revenue.
Conclusion: BlueRock have been unlucky with extreme rainfall events this year. There is only so much a mine can do to protect against the impact of heavy rain with clay in the kimberlite making mining and trucking difficult. The mine should show strong recovery through the second half as the region dries out.
We still see BlueRock as performing substantially better through the second half and we expect the mine to see improved performance through the rainy season next year.
*SP Angel act as Nomad and broker to Bluerock Diamonds. The analyst subscribed to BlueRock shares in the last placing but feels confident that the company will perform better going forward.
Castillo Copper Ltd (LSE:CCZ, ASX:CCZ) 1.05p, Mkt Cap £12.4m – Cobalt resource estimate at Broken Hill East
- Castillo Copper has announced a maiden, inferred, mineral resource estimate (MRE) for cobalt at its BHA East Zone at Broken Hill, NSW.
- Using cut-off grades of 125ppm cobalt (0.0125%) for the ‘Fence Gossan’ zone and 180ppm cobalt (0.018%) for the larger ‘Reef Tanks’ zone, the company reports an overall resource of 64.4mt at an average grade of 318ppm (0.0318%) cobalt and 0.07% copper.
- The Fence Gossan zone contains 22.1m inferred tonnes at an average grade of 315ppm cobalt and 0.08% copper while the Reef Tanks zone hosts 42.3m inferred tonnes at an average grade of 345ppm cobalt and 0.06% copper.
- The company says that the resource is “at relatively shallow depths (2-80m) … [and that] … In addition, the global MRE includes 44,260t of contained copper (63Mt @ 0.07% Cu)”.
- The estimates used historical data from an “initial total of 6,346 drill-holes across the East Zone which was undertaken by reputable explorers, but notably, North Broken Hill Group”.
- Castillo Copper says that it plans an infill drilling campaign to “extend the known cobalt MRE”.
- Managing Director, Dr. Dennis Jensen, said that “there is considerable potential to extend known mineralisation with targeted drilling campaigns”.
- He also confirmed that “Castillo plans to actively participate in the NSW government's critical minerals initiative”.
Leo Lithium (ASX: FFX) a spin out from the Firefinch Limited, raised A$100m in an IPO to progress development of the Goulamina Lithium Project in southern Mali.
- Shares are expected to start trading on the ASX in mid-June.
- The IPO is reported to be oversubscribed and supported by eligible Firefinch shareholders as well as new names.
- Firefinch subscribed for A$20m of new shares and will hold a 20% interest in Leo Lithium on listing.
- The Goulamina Lithium Project comprises a land holding of 100km2 covering highly prospective hard rock lithium pegmatites in the Bougouni Region of southern Mali.
- The project is owned by a 50/50 JV with Ganfeng and is planned as a spodumene concentrate production facility running at ~510ktpa in Stage 1 expanding to ~830ktpa in Stage 2 over 21.5 years.
- The US$325m in development capex project (Stage 1 + Stage 2) is estimated to run at $312/t FOB port (ex royalties of $46/t) operating costs generating ~$2.9B and 83.0% in NPV8% and IRR (both post tax) using $900/t long term concentrate price ($1,250/t first 5 years).
- The deposit hosts 52.0mt at 1.51% Li2O in reserves and 108.5mt at 1.45% Li2O in total resource (~60% in the M&I category).
Power Metal Resources PLC (AIM:POW)* 1.30p, Mkt Cap £19m – FDR raises £1.1m in pre-IPO financing
- Power Metal reports that its subsidiary, First Development Resources, has raised £1,125,000 in pre-IPO financing to fund its planned IPO and operational expenses.
- FDR is focused on developing its portfolio of exploration assets in Australia.
- The most advanced project is Wallal, where geophysics have identified three magnetic bullseye anomalies located under Phanerozoic sedimentary cover which are interpreted to have possible geological similarities major Au-Cu deposits within the Paterson Province.
- The sum was raised through the issue of 16,866,566 new First Development ordinary shares at a price of 6.67p per Ordinary Share, which will represent 27.14% of the issued share capital of First Development on completion of the Financing.
- This raise values FDR at £4.125 million, and Power Metal's 62.12% holding will be valued at circa £2.562 million.
- The company is planning to list in London in the third quarter of this year.
*SP Angel acts as nomad and broker to Power Metal
Sovereign Metals Ltd (ASX:SVM, AIM:SVML) 32.5p, Mkt Cap £144m – Pre-feasibility drilling campaign underway at Kasiya, Kenya
- Sovereign Metals reports that it has started a 12,000m drilling programme at its Kasiya rutile project in Kenya.
- The drilling forms part of the company’s pre-feasibility study for the deposit, described as “the largest rutile deposit in the world”, and is intended to “upgrade higher-grade Mineral Resource areas to underpin conversion to Reserves as part of the planned PFS”.
- The Kasiya Mineral Resource Estimate (MRE) at a 0.7% Rutile Cut-off currently contains:
- Indicated – 662mt @ 1.05% rutile for 6.9mt; 1.43% TGC for 9.5mt
- Inferred – 1,113mt @ 0.99% rutile for 11.0mt; 1.26% TGC for 14.0mt
- Infill drilling “will be on a 200m x 200m grid to target Indicated classification which should convert to Probable Reserves as part of the forthcoming PFS”.
- As well as infill drilling, “the Company is continuing extensional and regional hand-auger drilling with multiple drill teams active across the Company's extensive target areas at Kasiya with the aim to expand the overall mineralised footprint and identify further high-grade rutile zones”.
- Sovereign Metals also confirms that it expects to complete an update of its December 2021 Scoping Study “in the coming weeks”.
- The original scoping study envisaged a capital investment of US$ 332m generating a post-tax NOV8% of US$861m and IRR of 36% from the processing of 12mtpa of material to produce a heavy mineral concentrate containing 122,000tpa of rutile and a separate coarse-flake graphite product containing 80,000tpa over a 25 year mine life.
Conclusion: We look forward to the results from the new drilling campaign as well as to the updated scoping and pre-feasibility studies.
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The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Analysts
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Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
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Sales
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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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