SP Angel . Morning View . Wednesday 06 07 22
Copper prices continue to fall on recession fears while China maintains Covid Zero policy
MiFID II exempt information – see disclaimer below
Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)* – Ratification of new licenses strengthens development pipeline
Bluerock Diamonds PLC (AIM:BRD)* – Teichmann, T-Three Drilling and three Teichmann employees subscribe for £1.6m of stock
Cora Gold Ltd (AIM:CORA) – Sanankoro ESIA submitted to Malian authorities
Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTC:GALKF) – Production imminent with commencing of longhole drilling
Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)* – Change of CEO and EIA update
Dow Jones Industrials -0.42% at 30,968
Nikkei 225 -1.20% at 26,108
HK Hang Seng -1.76% at 21,468
Shanghai Composite -1.43% at 3,355
Economics
China – Shanghai rolls out emergency testing amid commitment to Covid Zero strategy
- Shanghai reported 24 infections for Tuesday, raising the prospect of another lockdown as authorities roll out emergency testing.
- Nine out of sixteen districts in Shanghai are now being subjected to mass testing.
- Shanghai’s 25m residents have only just emerged from a two-month lockdown.
- China’s CSI 300 Index fell as much as 1.4% on the news.
Germany – Factory orders +0.1% in May vs -1.8% in April
- German factory orders unexpectedly rose in May, with foreign orders up 1.3% on the month.
Currencies
US$1.0261/eur vs 1.0385/eur yesterday. Yen 135.65/$ vs 136.25/$. SAr 16.603/$ vs 16.335/$. $1.198/gbp vs $1.208/gbp. 0.682/aud vs 0.682/aud. CNY 6.704/$ vs 6.698/$.
Commodity News
Copper prices continue to fall on recession fears while China maintains Covid Zero policy
- Copper price continued to slide on Wednesday morning following a 4.2% slump on Tuesday to its lowest close in 19-months.
- Economic slowdowns in both the US and Europe are weighing on industrial metal prices, while monetary tightening is also bearish for copper.
- In China, a fresh round of mass virus testing add fresh doubt on China changing policy from its Zero Covid policy.
- China accounts for ~50% of global copper demand, with prices therefore sensitive to policy changes.
Precious metals:
Gold US$1,768/oz vs US$1,807/oz yesterday
Gold ETFs 103.7moz vs US$104.0moz yesterday
Platinum US$870/oz vs US$881/oz yesterday
Palladium US$1,947/oz vs US$1,930/oz yesterday
Silver US$19.24/oz vs US$20.02/oz yesterday
Rhodium US$13,450/oz vs US$13,450/oz yesterday
Base metals:
Copper US$ 7,546/t vs US$7,895/t yesterday
Aluminium US$ 2,381/t vs US$2,437/t yesterday
Nickel US$ 22,300/t vs US$22,360/t yesterday
Zinc US$ 3,078/t vs US$3,078/t yesterday
Lead US$ 1,944/t vs US$1,934/t yesterday
Tin US$ 25,350/t vs US$26,060/t yesterday
Energy:
Oil US$105.1/bbl vs US$113.2/bbl yesterday
Crude oil prices tumbled by 10% yesterday afternoon as part of a wider commodity rout as recession fears swamped global markets.
European energy prices fell back as the Norwegian government intervened to end industrial action by offshore workers and emergency legislation was enacted in Germany to protect struggling energy suppliers.
Shell announced that it has taken a final investment decision on the 200MW Holland Hydrogen I facility, which will be Europe’s largest renewable hydrogen plant once operational in 2025.
Natural Gas US$5.658/mmbtu vs US$5.716/mmbtu yesterday
Uranium UXC US$51.05/lb vs US$51.25/lb last yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$112.8/t vs US$113.7/t
Chinese steel rebar 25mm US$649.4/t vs US$650.1/t
Thermal coal (1st year forward cif ARA) US$251.0/t vs US$251.0/t
Thermal coal swap Australia FOB US$393.0/t vs US$374.0/t
Coking coal swap Australia FOB US$286.0/t vs US$285.0/t
Other:
Cobalt LME 3m US$65,445/t vs US$65,445/t
NdPr Rare Earth Oxide (China) US$136,855/t vs US$138,119/t
Lithium carbonate 99% (China) US$67,942/t vs US$68,015/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,585/t vs US$1,646/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% 9.1/lb vs US$9.1/lb
Europe Ferro-Vanadium 80% 36.25/kg vs US$36.25/kg
China Ilmenite Concentrate TiO2 US$362/t vs US$362/t
Spot CO2 Emissions EUA Price US$85.2/t vs US$89.5/kg
Brazil Potash CFR Granular Spot US$1,100.0/t vs US$1,100.0/kg
Battery News
LGES to supply Japan’s largest commercial vehicle battery with batteries
- South Korea's LG Energy Solution is on track to supply Japanese commercial vehicle maker, Isuzu Motors, with an estimated $763m or more worth of batteries, according to reports from South Korea.
- According to the report, LGES is reportedly working on a project to supply cylindrical batteries for Isuzu’s Elf electric vehicle model for four years from 2023.
- Isuzu is Japan’s largest commercial vehicle company with a 33% market share in Japan last year.
Company News
Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)* 97p, Mkt Cap £110m – Ratification of new licenses strengthens development pipeline
BUY
- Three new Contract Areas (CAs) were ratified by the Parliament of Azerbaijan and signed off by the President yesterday.
- Garadagh, Xarxar and Demirli CAs with combined area of 882km2 takes the Company’s total landholding to 2,544km2 offering exceptional exploration potential.
- Licenses were granted in return for the relinquished Soutely contract area that hosts the Zod gold/silver mine in Sep/21.
- Garadagh and Xarxar CAs are adjacent to Gedabek and Gosha offering significant exploration, development and operational synergies.
- Garadagh is estimated to host 49mt at 0.65% Cu for ~320kt Cu contained in both C1 and C2 categories.
- Demirli CA extends the existing Kyzlbulag Contract Area to fully cover the Demirli copper-molybdenum porphyry deposit along with production facilities in the northern part of the Karabakh economic region.
- Following the ratification, the Company is expecting to receive all geological data in due course that will be used to prioritise exploration and development works.
- Following the review, the Company will announce its strategy for the development of the new Contract Areas.
Conclusion: The ratification secures ownership of three new CAs offering exception explorational potential and representing exciting organic growth opportunities. New CAs are set to increase the Company’s exposure to copper and support the strategic objective to become a mid-tier copper and gold producer. Refer to our previous note on details of secured CAs and exciting potential licenses bring to the group (CLICK FOR PDF). The Company will provide a strategic update once it completed a review of all the available data on new CAs.
*SP Angel act as Nomad and broker to Anglo Asian Mining
Bluerock Diamonds PLC (AIM:BRD)* – 8.38p, Mkt cap £1.82m – Teichmann, T-Three Drilling and three Teichmann employees subscribe for £1.6m of stock
- BlueRock Diamonds report the subscription of £1.6m of stock by Teichmann, T-Three-Drilling and three Teichmann employees.
- BlueRock will issue a £1m loan note to Teichmann alongside the provision of a debt funding facility of up to ZAR 30m(£1.8m) to its Kareevlei diamond mine
- The loan note will convert into 15,234,437 BlueRock shares at 7p/s on 31 August raising the Teichmann concert party stake to 51% from 17.4%.
- The loan note will be converted into equity alongside the a new convertible loan note of £0.6m subject to independent shareholder approval.
- Exceptional rain through February to May (up 200%) in South Africa has had a significant impact on the company, delaying the expansion of the open pit with the plant processing lower grade stockpiles.
- This combined with the need to finance the pushback in the pit created a significant and unexpected working capital issue.
- “It is anticipated a material portion of the main pit will be opened up during Q3 and with that a more composite feed and improved grade.”
- “Despite the difficult weather conditions the developed tonnes mined in first half of 2022 was 1,165,336t versus 645740t in 2021 clearly demonstrating the Company's commitment to the critical capital development in its mining operations that will ensure consistent throughput in the plant and allow better preparation for the 2023 wet season.“
- Teichmann, the main contractor at Kareevlei, T-Three Drilling and certain employees have offered to provide the financing and to work to resolve the issue.
- The financing will also repays trade creditors, mainly Teichmann, which is owed around ZAR23m (£1.4m) alongside an existing loan note maturing in October 2022 and provides working capital for the operation of the Company.
- In addition, a new loan note of £583,475 is to be issued to Teichmann, with a conversion price of 7p/s maturing on 30 November 2025, subject to regulatory approval in South Africa and secured by a charge over the Company's shares in Kareevlei Mining Pty Limited.
- The existing £1,610,000m loan note will be extended to 30 November 2025. Interest on this note is removed with the conversion price reduced to 24.9p/s from 40p/s.
- The Teichmann concert party stake could rise to 65.5% on conversion of all the loan notes.
- “If the Waiver is not granted or if the relevant shareholder authorities are not obtained, then BlueRock will be required to redeem the loan note at the amount invested plus the greater of: £1m and the market value of the 15,234,437 shares on the redemption date less £1,066,412.
- BlueRock has also entered into a new extended credit facility with Teichmann for up to ZAR30m (£1.8m) which reduces to ZAR20m (£1.2m) after the first 180 days subject to South African regulatory approvals with the facility secured over the assets of the mine and plant.
- Teichmann also get the right to appoint up to three directors so long as this number is matched by independent directors who will retain the casting vote.
- Teichmann also have a right to participate in future fundraisings to maintain its stake..
- There is also a Governance Agreement under which Teichmann and other material shareholders can appoint directors at the Kareevlei level subject to BlueRock retaining control of the operation of Kareevlei through a casting vote.
- General meeting: The will hold a General Meeting as soon as practicable.
- The Company expects to issue its Q2 production update on 11 July 2022.
- The Kareevlei Diamond Mine ranks in the top ten in the world in terms of average value per carat and has a combined inferred resource of 10.4mt (516,200cts) giving a 10-year mine life based on a 1mtpa production rate. The Kareevlei licence area hosts five known diamondiferous kimberlite pipes.
- Gary Teichmann, Non-Executive Director said, "We are fully committed to the success of BRD and Kareevlei for all shareholders and the fair treatment of, all shareholders. Our further investment in BRD and Kareevlei demonstrates this. Going forward we will be taking a more active role in the management of BRD and Kareevlei and I look forward to updating the market on progress."
- “The Board is conscious of the dilutive effect of the Teichmann Financing and is exploring with Teichmann the possibility of offering a limited number of new ordinary shares to shareholders as at the SLN Redemption Date at the same price of 7p per share while allowing Teichmann to maintain its intended holdings as at that time following SLN redemption.”
Conclusion: It is disappointing that Bluerock was not able to access sufficient fresh ore in recent months and that more time is needed to push back the pit walls to mine the higher-grade kimberlite material. Teichmann’s commitment is substantial but comes at a painful 7p/s conversion price.
Gary Teichmann, the former Springbok and Newport captain is firmly behind the financing and is looking to ensure the mine continues development to access higher-grade kimberlite ore.
*SP Angel act as Nomad and broker to Bluerock Diamonds. The analyst subscribed to stock in the last financing at 35p/s.
Cora Gold Ltd (AIM:CORA) 6.15p, Mkt Cap £18m – Sanankoro ESIA submitted to Malian authorities
- Cora Gold reports that it has completed the Environmental and Social Impact Assessment (ESIA) for its flagship Sanankoro gold project in southern Mali and submitted the documents to the Direction Nationale de l'Assainissement et du Contrôle des Pollutions et des Nuisances ('DNACPN'), the governing administration for environmental matters in Mali for formal approval.
- The company explains that the ESIA is a critical part of its Definitive Feasibility Study for the project which is expected to be completed in Q3 this year.
- Describing the submission of the ESIA as a “significant milestone for Cora”, CEO, Bert Monro, said that the “ESIA work programme comprised multiple workstreams, including stakeholder engagement, specialist baseline and impact assessment studies (including biodiversity, water and social studies), an integrated environmental and social management programme, a conceptual closure and rehabilitation plan, a resettlement policy framework and a community development plan”.
- He also said that completion and submission of the ESIA “together with the recent completion of our 2022 drill programme that will be used to inform an updated Mineral Resource Estimate, mark the next key objectives towards delivering our DFS”.
Conclusion: The submission of the ESIA is an important step towards completion of the Sanankoro DFS. We look forward to the new mineral resources estimate and DFS later this year and further information on the project.
Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTC:GALKF) 27.25p, Mkt Cap £23m – Production imminent with commencement of longhole drilling
- Galantas reported yesterday that it has commenced longhole drilling has commenced in the first series of stopes and thus commencing the production process.
- Installation of the secondary egress from the 1,096 to 1,052 level is in the final stage of completion and is expected to be commissioned in approximately two weeks followed by the blasting of the stopes.
- The mine has a series of five stopes which will be mined in the first block with cemented rockfill as the method of backfill. .
- In parallel with commencing production, Galantas has also continued to drill the Kearney vein, which it has already defined ~100,000oz in the measured and indicated category.
- Highlights from recent drilling at Kearney include:
- An intersection, in hole FRDD-22-UG-183, of 2.4m at an average grade of 21.4g/t gold and 32.9g/t silver within the dilated portion of the Kearney Vein; and
- Multiple intersection of the Kearney Vein in hole FRDD-22-UG-179 including 1.5m averaging 16.6g/t gold and 26.9g/t silver “at a vertical depth of 138 metres”; and
- An intersection, in hole FRDD-22-UG-180 of a “parallel-running vein known as the 'C-lens', approximately 50 metres east of the Kearney Vein” which averaged 7.1g/t gold and 13.2g/t silver over an interval of 3.4m estimated at a true width of 1.7m.
- Relating to yesterday’s announcement, Mario Stifano, CEO of Galantas, commented: "Thanks to the hard work of our team on the ground, Galantas has now entered the next significant phase of the Company's growth as we commence underground production. Galantas is uniquely positioned to deliver gold production while we grow our high-grade gold resources and unlock the full potential of a newly emerging high-grade gold district."
Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)* 2.3p, Mkt Cap £39m – Change of CEO and EIA update
BUY – 17.9p
- David Archer is stepping down as CEO of the Company.
- Dale Ferguson, the Company’s Technical Director, is stepping as an Interim CEO with the Company launching the search for a new full time CEO.
- Dale has been involved with the Barroso Lithium Project since the beginning and was a Board member for nine years.
- He graduated from Latrobe University, Melbourne, with Double Major in Geology in 1993 and brings a wealth of technical expertise and strong track record of brining mines into production.
- He is also an investor in the Company both directly and through Slipstream resources, the Company’s second largest shareholder, holding in total ~2.9% in Savannah.
- Separately, the Company released an update on the status of the environmental permit application for the Barroso Project.
- Agência Portuguesa do Ambiente ('APA'), the Portugal’s environmental regulator, notified the Company that the Environmental Impact Assessment (EIA) will need to be further optimised and application resubmitted under Article 16 of local regulations.
- Under regulations, the Company will now have six months to work together with APA to optimise physical aspects of the Project and associated environment, ecology and socio-economic considerations.
- The Company has already accepted the proposal to move the permitting process into the Article 16 phase and is committed to working closely with the regulator to deliver an environmentally responsible and socially optimised project.
- After submission of the updated application, the APA has up to 50 working days to decide on the environmental permit and issuance of the Declaration of Environmental Impact (DIA).
- Essentially, a DIA decision is expected to be reached no later than Mar/23.
- The Company remains well funded to see it though the permitting process and into the next phase of the DFS.
- The team previously guided the DFS is expected to be completed over 12 months following the approval of the EIA.
- The Company is debt free and held ~£13.0m in cash reflecting a £10m equity raise and £6.5m in proceeds from the disposal of the Company’s interest Mutamba mineral sands project disposal late last year.
Conclusion: Dale Ferguson is taking over from David Archer as Interim CEO with the Project now facing an up to six months’ environmental permitting application review process. Once an optimised project design is resubmitted over the next six months, environmental authorities should decided on the application within 50 working days. The update suggests there is an up to nine months’ delay to finalisation of the permitting process initiated in mid-2020 with the decision expected no later than Mar/23. New leadership is set to deliver on the updated timeline with permitting currently representing major de-risking and rerating event for the Barroso Lithium Project.
*SP Angel act as Nomad to Savannah Resources
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Analysts
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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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