SP Angel . Morning View . Tuesday 27 09 22
Copper picks up from two month low as US$ pulls back from record
MiFID II exempt information – see disclaimer below
Cora Gold Ltd (AIM:CORA) – DFS update
Gemfields Group (JSE: GML) – September auction yields $4.2m in sales as strong coloured gemstone demand continues
GoldStone Resources (AIM:GRL)* (LON: GRL) – Initial positive results
Rio Tinto (ASX: RIO) – Kennecott underground mining to commence
Rambler Metals and Mining* (LON: RMM) – Inflationary pressures and lower copper prices offset cost and operational improvements and trigger revised production guidance as Ming mine delivery accelerates
Private Equity / joint venture opportunity
We are looking for investors / jv partners for an exploration opportunity on a newly discovered copper / moly porphyry system with two adjacent non-porphyry gold and silver deposits over 6km in South-East Asia
- 2,000m in 8 holes already drilled with intersections of visible chalcopyrite and molybdenite both disseminated and in B-veins
- Positive indications of grade at shallow depths. Total funding $2.34m to date. Current implied valuation $4.4m. Best drill result:
- 60m grading 0.4% copper, 0.2% gold plus molybdenum from 24m eg. below the leached cap
- 3m grading 0.51% copper, 9.2g/t gold, and 49g/t silver from 64m down hole
- 2m grading 0.3% copper, 6% zinc and 9g/t gold, 40 g/t silver from 33m down hole related to a massive pyrite-magnetite-sphalerite-chalcopyrite vein
*SP Angel’s role is limited to making introductions. No due diligence or verification of information supplied by the company has been performed. Interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.
Dow Jones Industrials -1.11% at 29,261
Nikkei 225 +0.53% at 26,572
HK Hang Seng -0.18% at 17,823
Shanghai Composite +1.40% at 3,094
Economics
US – Fed officials reiterated FOMC hawkish rhetoric arguing more rate increases are needed to bring inflation back down.
Boston Fed President Susan Collins (voting FOMC member) and her Cleveland counterpart Loretta Mester (voting) supported more hikes in their recent comments.
China – The renminbi is on track for its largest annual drop since the nation switched to a floating exchange rate regime in 2005, FT reports.
- The currency is off 11.5% YTD reflecting worsening economic growth outlook as well as a divergence in the hawkish US Fed stance and dovish PBOC outlook aiming to support flagging growth.
- Beijing attempted to curb the currency’s depreciation as the PBOC forced banks to post reserves when they sell currency derivatives contracts making it more expensive to bet against the national currency.
- World Bank cuts its GDP growth forecasts for China suggesting the pace of expansion in the economy will lag behind the rest of Asia for first time since 1990.
- Downgrade is driven by zero Covid policy restrictions and a contracting property market.
- Growth rates were revised to 2.8% for this year, down from 4-5% expected in April and 8.1% recorded last year.
- The rest of east Asia and the Pacific is expected to grow at 5.3% in 2022, up from 2.6% last year.
- Industrial profits drop accelerated in August as producer prices slowed adding pressure to growth and employment outlook.
- Industrial Profits (%YTD): -2.1 August v -1.1 July.
European gas prices jumped 3% higher on reports of a leak in both Nord Stream gas pipelines between Russia and Europe.
- Sweden said today there were two leaks in the Nord Stream 1 pipeline with a separate leak reported on the now defunct Nord Stream 2.
- Nord Stream 2 pipeline is not operational as German authorities cancelled the project just before Russia’s invasion of Ukraine, but the pipeline had been filled with gas in anticipation of its start up already.
- Putin has idled the pipeline flows; however, concerns are being raised over potential sabotage following an unusual simultaneous pressure drop at both lines.
- Denmark is ‘strengthening security’ around its energy infrastructure.
UK – The central bank issues a commentary following the latest sell off in the national currency saying it will “not hesitate to change interest rates” to rein in inflation.
- The statement fell short of offering any immediate response to a depreciation in the pound and inflationary tax cuts announced in the mini budget.
- Meanwhile, money markets priced in more than 200bp of increases by the BOE’s next meeting in November, four times the size of the last increase (50bp), Bloomberg writes.
Hurricane Ian threatens to be Florida’s worst in 100-years as fertilizer and energy producers evacuate employees
- Florida is expected to endure its worst hurricane in a century as Ian approaches Cuba.
- Chevron and BP have suspended several oil production platforms, but the storm is expected to miss the majority of the Gulf’s energy infrastructure.
- The Gulf has had an unusually calm hurricane season in a boost to global energy supplies.
- Fertilizer producer Mosaic has suspended various operations at its phosphate mining and production facilities in Florida.
- 300,000 Floridan residents are being evacuated.
Global grain stocks slide to decade lows on disrupted supply from Ukraine and droughts
- Global corn stocks are expected to be 28% lower than 5-years ago this year, hitting 2010/11 lows. (Reuters)
- High food prices raise the prospect of destabilisation in less developed economies, as evidenced by the Arab Spring between 2010-12.
- Biden announced a $3bn funding package to tackle global food insecurity last week and the World Bank will use $30bn to ease shortages.
- EU production of grain is expected to hit 15-year lows.
- Soaring food prices have fed into higher fertilizer costs as well as being a major contributor to global inflationary pressures.
Currencies
US$0.9647/eur vs 0.9678/eur yesterday. Yen 144.26/$ vs 143.80/$. SAr 17.903/$ vs 17.989/$. $1.079/gbp vs $1.068/gbp. 0.650/aud vs 0.651/aud. CNY 7.154/$ vs 7.152/$.
Dollar Index 113.58 / +3.84% on week
Commodity News
US steel industry activity slides to slowest rate since Jan 2021
- US steel production fell 0.6% to 1.68mt last week while the capacity utilization rate slipped to 76.4% - the lowest in 20 months.
Gold bounces off March 2020 lows on pause in Dollar and Treasury yield rally
- Gold prices have risen this morning from $1,620/oz to currently trading around the $1,640/oz level.
- The minor bounce followed a minor sell off of the dollar against other major currencies, with the index sliding 1% from yesterday’s 20-year high.
- US Treasury yields have also sold off slightly on buyer exhaustion following a major rally. 10 Year yields fell 2% to 3.85%.
- Both the Dollar and Treasury yields have been a major headwind to gold prices this year.
Chinese copper smelters ramp up treatment and refining charges by 16% in sight of looser supply
- Major smelters in China have boosted their T&C charges from $80/t to $93/t. (Bloomberg)
- The hike takes T&C charges to a 5-year high as global mine production climbed 1.3% in H122 to 10.63mt vs same period last year. (WBMS)
- Sources told Bloomberg that charges have been boosted on ample supply of copper concentrate.
- The International Copper Study Group forecasts global copper mine production to increase 5.1% from a low base last year, with mines hit by Covid restrictions.
- Shanghai copper stocks have increased 18.24% from August lows but remain over 70% lower than the seasonal average over the past 5 years.
- Global inventories continue to rise, up 15% from September lows.
Nickel erases September gains on encouraging short-term supply dynamics and steel demand concerns
- Nickel prices have fallen 13% from September highs of $25,635/t.
- LME and SHFE nickel stocks have hit record lows, partially triggered by concerns over the unprecedented short squeeze earlier this year on the LME.
- Nickel demand is expected to increase dramatically in the long term due to EV battery demand.
- However, short term steel demand in Europe has reduced on a number of energy-starved smelter shutdowns.
- Supply is ramping up from Indonesia’s jump in pig iron production and Russian nickel exports have ramped up 27% to China, 70% to the US and 22% to the EU since Putin’s invasion – despite sanctions.
- China nickel-based stainless-steel output remained strong this summer at 2.202mt, despite the slumping property sector, hovering above the 5-year seasonal average of 1.938mt, supporting nickel prices.
Precious metals:
Gold US$1,639/oz vs US$1,641/oz yesterday
Gold ETFs 97.9moz vs US$98.2moz yesterday
Platinum US$865/oz vs US$859/oz yesterday
Palladium US$2,052/oz vs US$2,065/oz yesterday
Silver US$18.72/oz vs US$18.62/oz yesterday
Rhodium US$14,000/oz vs US$14,000/oz yesterday
Base metals:
Copper US$ 7,426/t vs US$7,371/t yesterday
Aluminium US$ 2,139/t vs US$2,152/t yesterday
Nickel US$ 22,340/t vs US$23,160/t yesterday
Zinc US$ 2,933/t vs US$2,958/t yesterday
Lead US$ 1,759/t vs US$1,808/t yesterday
Tin US$ 20,965/t vs US$20,320/t yesterday
Energy:
Oil US$85.0/bbl vs US$85.4/bbl yesterday
Natural Gas US$7.038/mmbtu vs US$6.788/mmbtu yesterday
Uranium UXC US$49.40/lb vs US$49.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$96.7/t vs US$96.1/t
Chinese steel rebar 25mm US$574.2/t vs US$571.1/t
Thermal coal (1st year forward cif ARA) US$273.5/t vs US$282.0/t
Thermal coal swap Australia FOB US$422.0/t vs US$410.0/t
Coking coal swap Australia FOB US$268.0/t vs US$268.0/t
Other:
Cobalt LME 3m US$51,955/t vs US$51,955/t
NdPr Rare Earth Oxide (China) US$90,856/t vs US$88,778/t
Lithium carbonate 99% (China) US$69,120/t vs US$68,436/t
China Spodumene Li2O 5%min CIF US$5,590/t vs US$5,460/t
Ferro-Manganese European Mn78% min US$1,192/t vs US$1,195/t
China Tungsten APT 88.5% FOB US$325/t vs US$325/t
China Graphite Flake -194 FOB US$825/t vs US$825/t
Europe Vanadium Pentoxide 98% 7.2/lb vs US$7.2/lb
Europe Ferro-Vanadium 80% 30.75/kg vs US$30.75/kg
China Ilmenite Concentrate TiO2 US$318/t vs US$318/t
Spot CO2 Emissions EUA Price US$64.7/t vs US$67.3/kg
Brazil Potash CFR Granular Spot US$680.0/t vs US$680.0/t
Battery News
US Vice President Harris seeks to smooth US-South Korea EV dispute
- Kamala Harris has vowed to work with South Korea to resolve a trade dispute stemming from the Inflation Reduction Act.
- South Korea remains unhappy as they say that tax credits of as much as $7,500 for purchases of EVs made in North America threaten to disadvantage major South Korean brands.
- The countries are key to the Indo-Pacific Economic Framework, an alliance focused on supply chains that Chinas says is “doomed to fail”
Company News
Cora Gold Ltd (AIM:CORA) 4.8p, Mkt Cap £14m – DFS update
- The Company provided an update on the status of the DFS at the Sanankoro Gold Project.
- A number of work streams are reported to have been completed, although, the Company continues to optimise various aspects of the study.
- As such, the Company guides to provide “further updates on the DFS during Q4/22”.
- Previously, the team expected to complete the study in Q3/22.
- The plan is for development of an open pit operation at Sanankoro that hosts 25mt at 1.15g/t for 920koz in total resource including 16mt at 1.27g/t for 657kos in the Indicated category.
Gemfields Group (JSE: GML) 18.5p, Mkt Cap £223m – September auction yields $4.2m in sales as strong coloured gemstone demand continues
- Gemfields reports that a sale of sapphires, corundum and low-quality rubies from its 75% owned Montepuez mine in Mozambique held between 19th-23rd September realised US$4.2m sales.
- The company confirms that “All of the 18.1 million carats (3.6 tonnes) offered in 18 lots were sold” realising an average sales price of US$0.23/carat.
- Today’s news follows yesterday’s Trading Statement from the company which confirmed that “Gemfields is reasonably certain that its net profit after tax1 will be USD 56.7 million for the six months ending 30 June 2022 (comparative six-month period: USD 23.8 million) … [and that] … Gemfields’ two key operating assets, MRM and Kagem, generated revenues of USD 95.6 million and USD 85.2 million respectively during the six-month period to 30 June 2021”.
- Gemfields also said in its statement yesterday that “Following on from the strong auction results in the second half of 2021, the auctions held in the first half of 2022 saw a continuation of the robust demand for coloured gemstones with record auction revenues and per carat prices being realised”.
Goldstone Resources* (LON: GRL) 7p, Mkt Cap £34m – Initial positive results
TP – Under Review
- GoldStone has released the assays from the first three holes of the Diamond Drill programme at the Akrokeri underground mine.
- Results for the three-diamond drill-holes have returned:
- 22AKDD001: 6.5m @ 1.63g/t from 7.7m, including 3.5m @ 2.35g/t
- 22AKDD002: 4.1m @ 11.01g/t from 46m, including 1m @ 41.04g/t
- 22AKDD003: 3.6m @ 5.77g/t from 69.4m, including 1m @ 12.06g/t
- Drilling indicates that mineralisation extends along strike and is also consistent with projections of previous campaigns, which have been relogged by GoldStone.
- The drilling confirmed continuity of the mineralised zone at vertical depths of between 36m and 65m and extending a minimum of 180m beyond the known southern limit of the mine
- Two of the three holes were inclined at 55o and one at 75o, and all three intersected significant widths of approximately 2.2m confirming the continuity of the zone along strike and with depth.
- GoldStone notes that “in the intervals reported with significant intercepts, much of the mineralisation is oxidized, transitioning through patchy weathering with low pyrite content and quartz being the dominate vein component.”
Conclusion: GoldStone’s initial results from the drill campaign at Akrokeri are encouraging and warrant further exploration in order to delineate this historic working.
*SP Angel acts as broker to GoldStone Resources
Rio Tinto (ASX: RIO) – 4,790p, Mkt cap £80bn –Kennecott underground mining to commence
- Rio have approved a $55m investment in development capital to start underground mining and expand production at its Kennecott copper operations in Utah, United States.
- Initial focus on the Lower Commercial Skarn (LCS) is expected to deliver around 30kt of additional high quality mined copper through the period to 2027 alongside open cut operations.
- First ore is expected to be produced in early 2023, with full production in the second half of the year.
- Ore will be processed through the existing copper smelter at Kennecott.
- The LCS has a Mineral Resource of 7.5 Mt at 1.9% copper, 0.84 g/t gold, 11.26 g/t silver, and 0.015% molybdenum, with a probable Ore Reserve of 1.7 Mt at 1.9% copper, 0.71 g/t gold, 10.07 g/t silver, and 0.044% molybdenum.
- The company also notes that underground battery electric vehicles are currently being trailed at Kennecott.
Rambler Metals and Mining* (LON: RMM) 5.5p, Mkt Cap £11m – Inflationary pressures and lower copper prices offset cost and operational improvements and trigger revised production guidance as Ming mine delivery accelerates.
NPV Valuation: 168p/s
- Yesterday afternoon, Rambler Metals and Mining released its half year financial results for the six months to 30th June showing a pre-tax loss of US$9.6m (H1 2021 – loss of US$4.8m) arising from the production of 2,635t of saleable copper at a cash cost of US$4.65/lb (H1 2021 – 1,147t at US$3.01/lb).
- Net debt “was $20.3 million at 30 June 2022 (31 December 2021: $22.2 million)”.
- The company reports operating improvements resulting from its establishment of multiple production areas in the Ming Mine aimed at filling the operating capacity of the Nugget Pond mill with production ramping up “from 25,000 tonnes of ore in January 2022 to 30,000 tonnes in June 2022 (peak months of 32,000 tonnes in April and May 2022), as well as a consistent increase of grade from 1.49% of copper ('Cu') to in excess of 1.8% Cu in June 2022”.
- Feed to the mill increased by 61% to 175,264t (H1 2021 – 108,871t) with concentrate output rising by 73% to 10,078t (H1 2021 – 5,825t).
- Costs of US$4.65/lb over the six months are broken down by quarter with Q1’s 2.35mlbs (1,066t) of copper output produced at a cash cost of US$6.42/lb improving during Q2 with higher copper output of 3.46mlbs (1,568t) produced at an average cash cost of US$3.47/lb.
- The company also points to continuing cost improvement trends saying that “a C1 operating cost in June 2022 of $2.91/lb is starting to show the true potential of this mine. This incorporates all the price increases experienced over the period and we expect this number to continue to reduce. We project our C1 cost at the end of 2022 to be in the range of $2.70-2.80/lb”.
- Rambler Metals and Mining confirms that Q1 incurred a “significant operational loss … as the Company ramped up towards full capacity but without the benefit of the subsequent increase in Cu volumes” but reports that the “second quarter contributed a small operating profit as the mine started to reach its budgeted production levels”.
- Reports of “Inflationary increases to consumables and energy costs post COVID-19” are similar to those being reported by other mining companies at the moment but will, in our opinion, have been intensified by the increased scale of operational activity during the production ramp-up as well as the “delay to production for the completion of a second egress and a crusher breakdown” which have previously been reported.
- As well as the cost pressures, including those on fuel and freight, Rambler Metals reports a “reduction in copper price during the second quarter” and is announcing that it “is revising its production guidance for 2022 to a range of 6,300 to 6,600 tonnes Cu from 7,000 tonnes”.
- To place the copper price in context, we point out that the copper price was US$9,721/t (US$4.41/lb) at the beginning of the year, declined by around 15% to US$8,298/t (US$3.76/lb) by 30th June and currently stands at US$7,405/t (US$3.36/lb), around 24% below the level at the start of 2022.
- Rambler Metals explains the revised guidance saying that, in the current quarter, “July and August have each produced in excess of 600 tonnes of payable copper … [but that] … underground mining in September has been challenged with a change in mining sequence where the root cause was a working capital issue. This specific issue has been addressed as a short-term impact but is expected to run into October”.
- Identifying that the Ming mine had, historically, faced twin challenges in the “operation of the underground mine and the weakness of the balance sheet”, President and CEO, Toby Bradbury, said that the “underground operational issues are largely resolved” although “we foresee more cost efficiencies being achieved in the future”.
- Mr. Bradbury explained that “Inefficiencies are still being imposed upon the operations due to the limited financial capacity. In many respects, what has been achieved across the board in the operations (mine and mill) is despite the financial challenges that have prevailed”.
- With the operational recovery well underway, emphasis is shifting to the second challenge as Rambler Mines addresses balance sheet restructuring “to support the operations by accelerating repayment of legacy commitments made during the intense Covid period and bringing operational accounts payable balances back to current terms”.
- In addition, the company is aiming to reschedule “the repayment of debt to match Rambler’s operational cash flow generation and further capital expenditures to create further efficiencies is required”.
- Mr. Bradbury also described the wider context of the Ming mine with a resource base which “could be sufficient to support an operation 2.5 times its current output (≈20,000 tonnes Cu p.a.) and still have a +15-year mine life” which is “the subject of a feasibility study that has to be conducted. However, even at current scale, this mine works and it is predominantly the legacy issues that are holding us back”.
- We recognise the long-term opportunity offered by the Ming mine orebodies and have previously pointed out that, infill and extension drilling, to better define the ore-body geometry and improve mine planning, has identified three new mineralised zones close to existing mine infrastructure so far this year.
Conclusion: Rambler Metals’ continuing operational and cost improvements and expansion of its resource base comes at a time of volatile copper prices and inflationary pressures on costs. Following a profitable Q2 the company envisages further cost reductions to around US$2.70-2.80/lb by the end of the year compared to Q1 costs of US$6.42/lb and Q2 costs of US$3.47/lb although production guidance has been reduced by around 4-10% to the range 6,300-6,600t compared to the previous 7,000t guidance and the 3,417t produced in 2021.
*SP Angel act as Nomad and Broker to Rambler Metals & Mining. An SP Angel analyst holds shares in Rambler Metals & Mining.
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
Prince Frederick House
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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