SP Angel . Morning View . Tuesday 21 06 22
Metal prices rise as sentiment improves after sell off
MiFID II exempt information – see disclaimer below
Bluebird Merchant Ventures Ltd (LSE:BMV) – Kochang gold mine fieldwork in South Korea
BlueJay Mining PLC (AIM:JAY, OTCQB:BLLYF)* – Kangerluarsuk survey to define drill targets around high-grade zinc, lead and copper samples
Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)* – £500,000 convertible advance
Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF) – Drilling intersects nickel and copper sulphides at Nyanga, Gabon
Ormonde Mining PLC (AIM:ORM)* – New Board examining opportunities following €1.6m loss in transitional year, 2021
Rockfire Resources PLC (LSE:ROCK) – Gold in soil geochemical anomaly at the Plateau project, Queensland
Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)* (SAV LN) – BUY, 17.9p - Metallurgical testwork suggests potential to reduce reagent application rates
Scotgold Resources Limited (AIM:SGZ)* – BUY, 154p - £2m drawn down of the £3m Fern Wealth loan facility
Tianqi Lithium Corp. (SHE: 002466) – Looks to IPO in HK
The Great Economic Reset
Metals saw substantial long liquidation last week as hedge funds and other investors cut long positions
- But, metals prices still remained relatively stable considering the billion dollars’ worth of net sales combined with nearly the same again in short sales.
- Hedge funds have moved slightly on the short side due to potential for recession from high energy prices and other inflation
- Higher inflation in the US sparked the move with investors correctly anticipating a higher than expected 0.75% rate hike.
- Policymakers cannot raise interest rates much further without killing growth and threatening stagflation.
- We believe they are, in all probability, raising interest rates so they can cut them as soon as inflation abates, probably when oil & gas prices pull back.
- Markets have moved into short territory, as a defensive policy, as there is little clear direction from policymakers in the US, UK and China for now.
- But, the US is reshoring business from China and capital is flowing back from China to the US as manufacturers run from ongoing covid lockdowns.
- While this could result in a lower US trade deficit, it may also result in some inflation due to higher US labour rates.
- How long will China play cat and mouse with covid / Omicron – will it be one, two or three years or till it forcibly vaccinates the population with better vaccines
- Interest rate moves:
- US raised rates by 75bps,
- UK by 25bps
- China kept its one-year prime rate LPR and five year LPR unchanged at 3.7% and 4.45% today.
- Inflation – targeting 11% in the US and UK for the year – so it’s painful to sit on cash
- Equities: US Teck stocks were long overdue for correction with some really painful Tech sector IPO shockers.
- So, is this really the end of the era of cheap money, or is it just be beginning of a longer run in relatively low interest rates
- Recommendations:
- Old Economy, industrials, utilities and resources may outperform services which are struggling to recover from covid with persistent lower customer numbers.
- Margins
- Manufacturers - raising margins despite higher input costs
- Commodities - holding relatively high levels despite uncertain outlook and China covid lockdowns
- Labour - rates rising
- Energy – raising costs for energy intensive industries
- Margins were under pressure before Covid but 20-30% costs increases suddenly seem acceptable.
- Oil & Gas / Energy company margins rising.
- Service margins may rise – despite & due to lower staffing levels – eg forced efficiency
- Buy dips
- Look for automation / efficient industries where lower staffing levels can lead to higher margins
- Battery, Electric Vehicle and Wind Farm / Solar related metals
- Any recession / stagflation is likely to be very brief and probably more of a technical nature.
- High oil and gas prices will lead to greater energy efficiency with increasing investment into Electric Vehicles, heat pumps, Nuclear, wind, solar, hydro
- Putin and Russia is not going away – so the world has to contain the threat and reduce dependence on Russian oil and gas
Conclusion: More stimulus on energy efficiency with the US already waving tariffs on Chinese solar panels for 24 months
Bitcoin loses $900bn in value as cryptocurrencies collapse
- Bitcoin has now lost over 70% of its value from its peak of $69,000 in November last year
- Ethereum has also lost 78%
- Celsius Network has frozen customer cryptocurrency withdrawls and transfers between accounts.
- The company offers interest-bearing products to customers who deposit cryptocurrencies with them and then lends out those cryptos, presumably for short sellers to sell. It’s always great to see funds and traders acting in the worst interest of their long-only customers.
- El Salvador and Central African Republic use Bitcoin as legal tender
- The fall in Bitcoin appears to be having some short term impact on gold prices
Dow Jones Industrials - closed
Nikkei 225 +1.84% at 26,246
HK Hang Seng +1.46% at 21,474
Shanghai Composite -0.26% at 3,307
Economics
US – St Louis Fed President James Bullard, a voting member on the FOMC who advocated for tighter monetary policy in the past, warned that US inflation expectations could “become unmoored without credible Fed action”, Bloomberg reports.
- Jerome Powell will be presenting his semi annual Congress address tomorrow and Thursday.
- Former Treasury Secretary Lawrence Summers argued that the unemployment rate would need to rise to >5% for a sustained period in order to reduce price pressures (latest jobless rate stood at 3.6% as of May).
China – Latest Beijing economic data points to a devastating effect of the zero covid strategy.
- Retail sales and industrial production fell 26%yoy and 40%yoy in May.
- That compares to declines of 37%yoy and 28%yoy, respectively, in Shanghai for the same month.
- Two regions contribute a sizeable share of the nation’s GDP having accounted for 3.5% and 3.8%, respectively, in 2021.
EU - Legislators maintain ban on sales of cars with internal combustion engines in 2035
ECB – President Lagarde reiterated the ECB’s commitment to raise rates in July and September suggesting a sell off in financial markets did little to change the outlook for monetary policy tightening.
- “We intend to raise the key ECB interest rates by 25 basis points at our July monetary policy meeting,” and hike again in September, Lagarde said to EU lawmakers yesterday after an emergency meeting last week.
- “Russia’s unjustified aggression toward Ukraine is severely affecting the euro area economy and the outlook is still surrounded by high uncertainty… but the conditions are in place for the economy to continue to grow and to recover further over the medium term,” Lagarde said.
- On details of the plan to avoid a blowout in borrowing costs for more leveraged Eurozone members, the ECB is likely to finalise the plan before the next Governing Council meeting on July 20-21.
Exxon CEO sees oil markets as tight for next three to five years due to lack of investment since the pandemic began
Currencies
US$1.0548/eur vs 1.0521/eur yesterday. Yen 135.17/$ vs 134.79/$. SAr 15.982/$ vs 16.014/$. $1.230/gbp vs $1.223/gbp. 0.697/aud vs 0.697/aud. CNY 6.695/$ vs 6.702/$.
Commodity News
Precious metals:
Gold US$1,834/oz vs US$1,842/oz yesterday
Gold ETFs 105.1moz vs US$105.1moz yesterday
Platinum US$942/oz vs US$942/oz yesterday
Palladium US$1,874/oz vs US$1,853/oz yesterday
Silver US$21.57/oz vs US$21.60/oz yesterday
Rhodium US$13,450/oz vs US$13,450/oz yesterday
Base metals:
Copper US$ 8,978/t vs US$8,962/t yesterday
Aluminium US$ 2,527/t vs US$2,498/t yesterday
Nickel US$ 25,738/t vs US$25,669/t yesterday
Zinc US$ 3,518/t vs US$3,524/t yesterday
Lead US$ 2,069/t vs US$2,062/t yesterday
Tin US$ 30,800/t vs US$31,184/t yesterday
Energy:
Oil US$114.3/bbl vs US$113.3/bbl yesterday
Crude oil prices edged higher on persistent supply concerns and as President Joe Biden said a US recession isn’t “inevitable”.
European energy prices remain elevated on reports that European gas inventories are about 55% full, with a target of 80% full by November 1.
Media reported that the first ice-breaking LNG carrier of 2022 is currently sailing from Russia’s Yamal LNG plant through the northern Arctic Sea route to supply to Asian markets.
Natural Gas US$6.667/mmbtu vs US$6.823/mmbtu yesterday
Uranium UXC US$47.85/lb vs US$47.85/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$121.0/t vs US$121.0/t
Chinese steel rebar 25mm US$646.0/t vs US$648.3/t
Thermal coal (1st year forward cif ARA) US$248.0/t vs US$235.0/t
Thermal coal swap Australia FOB US$346.0/t vs US$346.0/t
Coking coal swap Australia FOB US$385.0/t vs US$385.0/t
Other:
Cobalt LME 3m US$72,400/t vs US$72,400/t
NdPr Rare Earth Oxide (China) US$140,768/t vs US$141,831/t
Lithium carbonate 99% (China) US$68,330/t vs US$68,483/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,756/t vs US$1,773/t
China Tungsten APT 88.5% FOB US$327/t vs US$327/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 9.9/lb vs US$9.9/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
China Ilmenite Concentrate TiO2 US$367/t vs US$367/t
Spot CO2 Emissions EUA Price US$87.5/t vs US$88.9/kg
Brazil Potash CFR Granular Spot US$1,150.0/t vs US$1,150.0/kg
Battery News
Honda begins construction of Guangdong EV factory
- Honda’s joint venture in China, with Guangzhou Automobile Group, has begun construction of an EV factory in Guangdong province, with an initial investment of $522m.
- The Japanese automaker is aiming to begin factory operation in 2024, it said in a statement – the new factory will have an annual production capacity of 120,000 units.
- Honda said a second EV plant in China, in another joint venture with Dongfeng Motor Group, is also expected to start operations in 2024.
- Honda has projected its annual vehicle production in China to increase by around 16%, to 1.73m vehicles, within two years.
Volvo announce details of 1000km range hydrogen-powered truck
- Volvo Trucks has unveiled a hydrogen fuel cell truck which the company claims will have a range of up to 1,000km and a refuelling time of less than 15 minutes.
- The total weight for the truck will be around 65t, potentially even higher, and two fuel cells will generate 300kW of electricity onboard.
- “Hydrogen-powered fuel cell electric trucks will be especially suitable for long distances and heavy, energy-demanding assignments,” said Volvo Trucks president, Roger Alm. “They could also be an option in countries where battery charging possibilities are limited.”
Company News
Bluebird Merchant Ventures Ltd (LSE:BMV) – 2.41p, Mkt cap £16m – Kochang gold mine fieldwork in South Korea
- Bluebird report today on fieldwork at the Kochang gold, silver mine in South Korea.
- The team have now discovered seven openings at the mine with six adits and one stope daylighting to surface.
- Stopes and tunnels were visible in most adits.
- The lowest adit has been concreted up. Bricking up adits is normally done to ensure safety, security and to prevent water flow.
- If the other adits are not blocked then we suspect the previous mine owners may have wanted to preserve the value contained in the lower stopes.
- But, always worth checking that there is not 1,000 tonnes of water held back before blowing the blockage.
- Samples: the team also collected a couple of grab samples recording 4.91g/t and 6.76g/t and while geologists have a tendance to pick up the shiny stuff the grades do give hope for more high-grade to come from the mine.
- Channel sampling is more respected and informative with channel samples of 1.07g/t and 1.02g/t collected from six channels.
- We suspect higher grades will be present in the lower levels of the historic mine.
- Bluebird has been delayed by Covid and delaying its previous plan to start gold production at 7,000oz in 2021 rising to 40,000oz in 2024 and then onto 100,000ozpa from 2025
- The new prioritisation of Kochang should reduce the overall capital costs which was previously estimated at $28m to reopen the two mines at Kochang and Gubong.
- Phase 1 capex was previously estimated at just $2.2m and cash costs of US$576/oz, pre-the rise in oil and gas prices.
BlueJay Mining PLC (AIM:JAY, OTCQB:BLLYF)* 5.67p, Mkt cap £60m – Kangerluarsuk survey to define drill targets around high-grade zinc, lead and copper samples
(Bluejay holds 100% of the Kangerluarsuk Zinc-Lead-Copper-Silver project in Greenland)
- Bluejay Mining are to survey their Kangerluarsuk Zinc-Lead-Copper-Silver project in central west Greenland.
- The survey plans to cover 587-line km of aerial gravity gradiometer, gravity and magnetics starting in July for ~seven days.
- The survey is designed to further refine targets in for drilling in 2023.
- Kangerluarsuk is ~ 12km north of the historic Black Angel zinc, lead and silver mine but has never been drilled.
- Previous work shows rock channel results of up to 41.1% Zinc & 45.4% lead and grab samples up to 9.3% Pb, 1.2% Cu and 596g/t Ag.
- Bluejay’s Kangerluarsuk prospect covers ~700sqkm.
- The aerial surveys is relatively quick and inexpensive by Greenland standards and should give the exploration team useful data to work from to target new drilling.
- Cominco and later Boliden produced some 11mt grading 12.6% Zinc, 4.1% Lead and 29 g/t Silver from The historic Black Angel Zinc-Lead-Silver mine between 1973-86 and 1986-90.
- The mine is situated only 12 km south of Bluejay's new licence area which consists of two 100% owned mineral exploration licences totalling 692 sq km.
- Prospecting by RTZ and Platinova Resources in the early 1990s revealed several locations with outcropping high-grade, stratabound sediment-hosted Zn-Pb-Ag ± Cu mineralisation including channel sample profiles up to 1 meter at 41.1% Zinc, 0.4 m at 45.4% Zinc and grab samples up to 9.3% Lead, 1.2% Copper and 596 g/t Silver within Bluejay’s licence areas.
- Bluejay is exploring the possibility of a demerger and separate stock market listing for its Disko Exploration subsidiary which will include Kangerluarsuk if approved by shareholders.
*SP Angel acts as nomad and broker to Bluejay Mining. The analyst holds shares in Bluejay Mining
Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)* 22.75p, Mkt Cap £49m – £500,000 convertible advance
- Mkango reports the completion of the documents for a previously announced “£500,000 (C$793,651) unsecured convertible advance note” which will result in CoTec Holdings transferring £500,000 “to Mkango within 7 business days of conditional TSXV approval … [and] … no later than 30th June 2022”
- CoTec is described as “an ESG-focused company investing in innovative technologies that have the potential to fundamentally change the way metals and minerals can be extracted and processed … [and is] … a publicly traded mining issuer listed on the Toronto Venture Stock Exchange”.
- Mkango is nearing completion of its feasibility study into the development of the Songwe Hill rare-earths project in Malawi and is working with a major Polish chemical company, Grupa Azoty, on the development of a rare-earths separation plant at Pulawy in Poland.
- In addition to its primary rare-earths projects, Mkango Resources “is also developing green technology opportunities in the rare earths supply chain, encompassing neodymium (NdFeB) magnet recycling as well as innovative rare earth alloy, magnet, and separation technologies” through its 42% interest in Magnito
Conclusion: Mkango has completed its convertible and is expected to receive the £500,000 proceeds by the end of June. We look forward to the forthcoming Feasibility Study for the development of the Songwe Hill mine project in Malawi and news on progress of the rare-earths separation plant in Poland.
*SP Angel acts as nomad and broker to Mkango Resources
Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF) 16p, Mkt Cap £25m – Drilling intersects nickel and copper sulphides at Nyanga, Gabon
- Metal Tiger draws attention to the announcement from its 14.4% owned, ASX-listed, Armada Metals which reports that drilling in Gabon has intersected “magmatic sulphides” at three targets along the Libonga Matchiti trend in the Nyanga project area.
- Metal Tiger confirms that this phase of drilling is now complete with 3,240m in ten holes now completed.
- Although assay data from the drilling, is not included in Armada Metals’ release to the ASX, it does confirm “All ten diamond holes have intersected disseminated to strongly disseminated and blebby magmatic sulphide, with a typical magmatic assemblage of pyrrhotite and chalcopyrite”.
- The Armada announcement says that “The core is currently being processed and sections will be assayed for the normal magmatic suite of elements including nickel, copper, cobalt and the platinum group elements … which will also aid geological understanding and future targeting”.
- Armada says that “Further exploration programmes will be mobilised soon with focussed target drilling planned for later in 2022”.
Ormonde Mining PLC (AIM:ORM)* 0.65p, Mkt Cap £3.1m – New Board examining opportunities following €1.6m loss in transitional year, 2021
- Ormonde Mining has reported a loss of €1.62m for the year ending 31st December 2021 (2020 - €0.46m profit) and a year end cash balance of €3.75m.
- Chairman, Brian Timmons, described the year as one “of transition for the Company” as it restructured the Board and examined a “range of opportunities … [including] … precious metals, precious stones, battery metals and some base metals in a number of jurisdictions including Africa and Europe” and the future of its Spanish assets.
- The company says that discussions are underway “regarding a transaction” on its La Zarza project in southern Spain where “Following an internal review of its assets at La Zarza, Ormonde now values its La Zarza interests at €2.0 million, a €0.4 million reduction from previous guidance”.
Conclusion: Ormonde Mining is examining future opportunities following the disposal of its residual interest in the Barruecopardo tungsten project and a restructuring of its Board.
*SP Angel acts as Broker to Ormonde Mining
Rockfire Resources PLC (LSE:ROCK) 0.46p, Mkt Cap £5.1m – Gold in soil geochemical anomaly at the Plateau project, Queensland
- Rockfire Resources reports the identification of new potential gold targets as a result of outlining a gold-in-soil geochemical anomaly extending for at least 200m at its Plateau gold project in Queensland.
- The company makes clear that the new target “is outside the area included in the +200,000 ounces of JORC resource already drilled at Plateau” and that the anomaly remains “open along strike and extends beyond the limit of the sampling grid”.
- The anomaly shows its strongest results “at the … [north-eastern] … edges of the intruded breccia pipe, where the main gold resource at Plateau is also located”.
- In January 2021, the company reported an updated Indicated and Inferred mineral resource for the Plateau gold deposit of 11.4mt at an average grade of 0.57g/t gold (208,000oz), of which around 37% (3.4mt at a grade of 0.71g/t) is classed as indicated at a 0.2g/t cut-off grade.
- CEO, David Price, explained that “These soil sampling results are more coherent than expected and confirm the outline and extent of near-surface gold on the north-eastern edge of the breccia … [and that] … Rockfire intends to drill the near-surface gold targets at Plateau to increase the JORC resources already defined”.
Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)* 3.8p, Mkt Cap £64m – Metallurgical testwork suggests potential to reduce reagent application rates
BUY – 17.9p
- The Company released metallurgical laboratory scale testwork results carried on an ore sample from the Grandao deposit of the 100% owned Barroso Lithium Project in Portugal.
- The team carried a locked cycle test based on the recently finalised process flowsheet and optimised 150µm grind size (+42% on Scoping Study).
- Based on optimised grind size as well as reagent usage rates, the testwork yielded Li2O recoveries in the range of 77-81% for production of 5.5% Li2O concentrate.
- This compares to earlier results of 70-79.5% at laboratory scale as part of the ore variability programme testwork and 80% recoveries assumed in the 2018 Scoping Study.
- Optimised flowsheet and latest testwork also suggested a potential to a reduction in reagent use (39% saving with production of SC5.5 at ~78% recoveries) that should translate into significant operating cost savings.
- Laboratory tests were carried on a single composite grading 1.23% Li2O from Grandao, which is slightly above the resource grade of 1.04% but is the largest deposit of the project accounting for >80% of the Measured and Indicated category representing major plant feed source in the first 10 years of the operation.
- The team is now planning to carry pilot plant scale testwork to be use for resource and mine optimisation as part of the upcoming DFS.
Conclusion: The Company continues to de risk the Barroso Lithium Project releasing results from the latest metallurgical testwork using optimised grind size and reagents application rates. Latest programme yielded recoveries in the range of 77-81% for production of 5.5% Li2O spodumene concentrate, which is broadly within the range demonstrated at other projects. The plan is to carry pilot plant testing in H2/22 to further optimise plant operating conditions.
*SP Angel act as Nomad to Savannah Resources
Scotgold Resources Limited (AIM:SGZ)* 84p, Mkt Cap £50m – £2m drawn down of the £3m Fern Wealth loan facility
BUY – 154p
- The Company completed the second draw down on the recently agreed £3m loan facility arranged by Fern Wealth, representing a syndicate of HNW investors.
- The Company has now drawn on £2.0m with the remaining tranche of £1.0m expected to be completed before the end of the month.
- As highlighted previously, new funds are directed towards optimisation initiatives at the mine and the processing plant ramping up production on course for ~23.5kozpa by the end of Q1/23.
- Among key initiatives are an installation of the tailings thickener allowing to ramp up throughput to 4ktpm and production to 16.0-17.5kozpa, further underground development improving mining flexibility as well as a commissioning of an ore sorter to debottleneck the plant for ~23.5kozpa production rates.
*SP Angel acts as nomad and broker to Scotgold Resources
Tianqi Lithium Corp. (SHE: 002466) CNY114.39, Mkt cap CNY174bn) – Looks to IPO in HK
- Tianqi, the world’s largest hard rock lithium producer, is reported to have started marketing to test demand for IPO in HK (wsj).
- The company employs >1,800 people
- Tianqi holds a 51% interest in the Greenbushes lithium mine in Australia through Talison Lithium in joint venture with Albermarle Corp.
- Tianqi has also developed a fully automated lithium hydroxide plant in the Kwinana Industrial Area, south of Perth in Western Australia,.
- The plant is held in jv between Tianqi Lithium Corporation (51%) and IGO Limited (ASX:IGO) (49%).
- The company held ~46% of global lithium production in 2018.
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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
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
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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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