SP Angel . Morning View . Metals rise as fundamentals indicate supply demand deficits to come


SP Angel . Morning View . Thursday 16 01 20

Metals rise as fundamentals indicate supply demand deficits to come

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MiFID II exempt information – see disclaimer below   

Aura Energy* (AURA LN) – Swedish compensation claim to be handled by Chancellor of Justice in Sweden

Cora Gold* (CORA LN) – Sanankoro scoping study delivers attractive economics

Scotgold Resources* (SGZ LN) – Exploration update

Shanta Gold (SHG LN) – Robust Q4 results conclude strong FY19 year

Phoenix Copper* (PXC LN) – Ryan McDermott moves into CEO role as company heads towards production from Red Star project.

 

Trade Deal – China pledges to buy ~US$95bn of additional US goods in Phase 1 trade deal

  • The deal sounds good for US agriculture and for Donald Trump ratings and may also serve to raise fertiliser demand and prices.
  • The Trade deal does not appear to have much other impact indicating to us that Trade War issues will remain an uncertain feature of the economic environment.
  • We suspect that Trade deal will continue to weigh on the global economic environment and trade flows and will serve to hold related equity markets.
  • As always with China we need to watch what they really do rather than listen to what they say

China agrees to buy US rare earths as part of trade agreement (Reuters)

  • The agreement gives China two years to ramp up purchases of hundreds of US products, including scandium and yttrium.
  • The agreement does not involve neodymium or praseodymium, the two most commonly used types of rare earths, used to make permanent magnets.
  • Several US junior miners are developing rare earths such as scandium and yttrium, and the initial trade deal gives those miners a guaranteed customer, which is expected to help project financing.

*SP Angel act as Nomad and broker to Mkango Resources, SP Angel acts as financial advisor and broker to Rainbow Rare earths

Tesla to benefit from provision in US-China trade negotiations (Bloomberg)

  • China will import more energy storage systems and parts from the US in the trade-deal signed between the two nations on Wednesday.
  • Owning the largest Gigafactory in the US Tesla is well placed to benefit from increased trade with the largest battery producer in the world, China produces more batteries than any other nation by some distance.
  • The majority of the batteries produced by Tesla go into EV but the company is looking to branch out into building battery packs for large scale energy storage.

 

EHang – video on future of on-demand passenger drone mobility

 

Toyota funds $394m in $720m funding for Joby Aviation

  • Joby Aviation have a five-seat vertical take-off, drone-like aircraft designed to fly at 200mph for 150 miles on a single charge
  • Other new investors include Baillie Gifford and Global Oryx.
  • “Air transportation has been a long-term goal for Toyota, and while we continue our work in the automobile business, this agreement sets our sights to the sky” according to Toyota president and CEO.

 

Ferro-vanadium prices jump 6.8% to $23.7-25.95/kgV in Western Europe as consumers restock

  • Ferro-vanadium prices are leading the recovery in demand for steel and related raw materials.
  • European and Chinese steel producers and traders are thought to be restocking in preparation for new demand.
  • Miners and ferro-alloy producers are seen as refusing to take lower offers causing spot-market prices to move higher.
  • Ferro-molybdenum, ferro-tungsten and ferro-vanadium prices have moved higher according to FastmarketsMB.
  • Lower production or rebar from EAF ‘electric arc furnace’ mills is supporting rebar prices. EAF mills were previously suffering from relatively high scrap input prices.
  • Some EAF mills may not resume production till after the Chinese New Year potentially enabling blast furnaces to make up production.
  • Vanadium pentoxide prices also rose 2.3% in Rotterdam to $4.8-6.1/kgV.

 

Dow Jones Industrials

 

+0.31%

at

29,030

Nikkei 225

 

+0.07%

At

23,917

HK Hang Seng

 

+0.38%

At

28,883

Shanghai Composite

 

-0.52%

at

3,074

FTSE 350 Mining

 

+0.54%

at

19,345

AIM Basic Resources

 

-0.66%

at

2,105

 

Economics

Philippines’ volcano ready to erupt

  • Volcanologists are warning that the Taal volcano is ready to erupt within hours or days.
  • The volcano remains on Alert level 4. Alert level 5 is the actual eruption.
  • The volcano is around 80km from Manila with the ash cloud closing Manila airport to most but not all flights as the airport partially reopens.
  • Jets need to avoid flying through the ash cloud due to the stickiness of volcanic ash in the engines.

 

UK – Bank of England increasingly likely to cut rates in January

 

Australia – thunderstorms and heavy rain in Australian east coast brings some respite in fire fighting

 

Currencies

US$1.1156/eur vs 1.1129/eur yesterday.  Yen 110.00/$ vs 109.93/$.  SAr 14.368/$ vs 14.398/$.  $1.305/gbp vs $1.302/gbp.  0.691/aud vs 0.689/aud.  CNY 6.879/$ vs 6.888/$.

 

Commodity News

Gold US$1,555/oz vs US$1,552/oz yesterday – World Gold Council 2020 Outlook – Risk appetite amid high uncertainty

  • The WGC predict that low interest rates, market uncertainty and geopolitical tension could support both price gains and lead to wild swings.
  • The council stated “We don’t anticipate a reduction in gold volatility in the near term,” and “Should the global economic and political environment deteriorate, it may even rise.” – meaning the driving forces behind gold’s 2019 bull run are here to stay.

   Gold ETFs 81.2moz vs US$81.0moz yesterday

Platinum US$1,025/oz vs US$997/oz yesterday

Palladium US$2,342/oz vs US$2,208/oz yesterday

Silver US$17.95/oz vs US$17.84/oz yesterday

           

Base metals:   

Copper US$ 6,328/t vs US$6,260/t yesterday – Deziwa mine starts copper-cobalt production in DRC. The mine is operated by Somdez a jv with Gecamines and CNMC (51%) of China

  • Deziwa’s target production is of 80,000tpa copper and 8,00tpa cobalt.

Aluminium US$ 1,814/t vs US$1,808/t yesterday

Nickel US$ 14,410/t vs US$13,745/t yesterday

Zinc US$ 2,415/t vs US$2,365/t yesterday

Lead US$ 2,031/t vs US$1,971/t yesterday

Tin US$ 17,600/t vs US$17,450/t yesterday

           

Energy:           

Oil US$64.6/bbl vs US$64.2/bbl yesterday –

  • A day after the API’s crude oil inventory report pressured prices, the EIA relieved some of the pressure by report an inventory draw of 2.5MMbbls for the week to January 10
  • While prices spiked above the US$70 and US$65 level for Brent and WTI respectively just last week, calming tensions around the US-Iran scenario have allowed for an aggressive retreat
  • Nevertheless, prices saw a welcome boost yesterday after the expected signing of an initial Sino-US trade deal that sets the stage for a surge in Chinese purchases of American energy products, while U.S. crude inventories fell more than expected
  • Under the ‘Phase 1’ deal to call a truce in a trade war between the world’s two biggest economies, China committed to buying over US$50bn more of US oil, LNG and other energy products over two years
  • Brent futures were up 0.2% to $65.4/bbl, whilst WTI futures were up 0.2% to US$59.3/bbl

Natural Gas US$2.133/mmbtu vs US$2.155/mmbtu yesterday

  • The EIA Short-Term Energy Outlook forecasts that average US natural gas prices will be 9% lower in 2020 than in 2019
  • EIA expects lower natural gas prices will be the result of continued production growth primarily in response to the following factors including improved drilling efficiency and cost reductions
  • Additionally, increased takeaway pipeline capacity from the Appalachian and Permian production regions should increase production capabilities
  • The latest European model still shows colder air into the northern US January 17-24 for stronger demand, just not nearly as cold

Uranium US$24.60/lb vs US$24.60/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$94.3/t vs US$94.6/t

Chinese steel rebar 25mm US$573.0/t vs US$572.2/t

Thermal coal (1st year forward cif ARA) US$63.1/t vs US$62.5/t

Coking coal futures Dalian Exchange US$181.0/t vs US$178.1/t

           

Other:  

Cobalt LME 3m US$32,750/t vs US$32,750/t – Tesla in talks to buy cobalt from Glencore (FT)

  • Tesla have held recent discussions with Glencore over a long-term supply deal, although no final agreement has been signed.
  • The automaker is looking to secure supplies of metal for its Shanghai Gigafactory which opened this month.
  • Direct deals with miners are rare in the auto industry, however it is thought that carmakers are concerned about securing cobalt from ethical sources, prompting BMW to sign a deal with Glencore to buy cobalt from its Australian mines (Mining.com).
  • Around 75% of the world’s cobalt comes from the DRC, where mine related fatalities and human-rights abuses are rife, motivating automakers to secure more ethical supply to maintain a respectable public image.

NdPr Rare Earth Oxide (China) US$40,557/t vs US$40,506/t

Lithium carbonate 99% (China) US$5,597/t vs US$5,590/t – Bolivia’s new lithium chief plans strict limits on foreign direct investment (New York Times)

  • The new head of state-owned lithium company YLB plans strict limits on foreign investment in the extraction and processing of lithium.
  • Juan Carlos Zuleta announced a deal with German firm ACI Systems has been scrapped, and a deal with Chinese partner Xinjiang TBEA is currently under review.
  • Zuleta announced that Bolivia would not strike short-term deals allowing overseas firms to come in to help ramp up production, and instead look to strengthen local expertise.
  • Bolivia has been producing 400mtpa from a test site under ousted president Evo Morales, however Zuleta has set a goal to produce around 50,000mtpa in the next five years.

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

Hyundai and Kia form a strategic partnership with Arrival to develop mobility solutions and electrify their vehicles (City AM)

  • Hyundai and Kia will inject €100m (£85.6m) into London based EV firm Arrival.
  • The partnership will make use of Arrival’s flexible skateboard technology to create several purpose built EVs.
  • The commercial vehicle market is the focus of the scaleup.

 

Tokyo University team testing using potassium driven rechargeable batteries (Eurekalert)

  • Lithium-ion batteries excellent performance has made them the go to rechargeable battery but increased demand and limited availability of the metal may create problems moving forward.
  • Replacing the lithium with potassium has shown promising results, with comparable or better performance than Li-ion and at a lower cost.
  • The Tokyo study is the first to analyse several aspects of rechargeable batteries, their review comparing materials used in lithium, sodium and potassium batteries.
  • It is hoped further research and development will lead to a viable and perhaps even a superior alternative to lithium-ion batteries.

 

Company News

Aura Energy* (AURA LN) FOLLOW 0.275p, Mkt Cap £4.2m – Swedish compensation claim to be handled by Chancellor of Justice in Sweden

  • Aura Energy reports that it has received formal notification that its claim for compensation in relation to the Government’s August 2018 decision to ban uranium mining is to be handled by the Chancellor of Justice.
  • Aura Energy had conducted exploration on the uranium development potential of the Häggån deposit and is “seeking compensation for the financial loss resulting from this decision”.
  • Commenting on the developments, the company said that it “is pleased with this latest development indicating the case is progressing strongly and that it has been presented at the highest level of government”.

Conclusion: The Chancellor of Justice in Sweden is to consider Aura Energy’s claim for compensation over the Government’s decision to ban uranium mining and the losses it incurred as a result. We await the adjudication with interest.

*SP Angel act as Nomad & Broker to Aura Energy

 

Cora Gold* (CORA LN) FOLLOW 6.6p, Mkt Cap £8.6m – Sanankoro scoping study delivers attractive economics

  • The Scoping Study was overseen by Wardell Armstrong investigating the potential for a near surface oxide operation potential at the Sanankoro Gold Project in southern Mali.
  • The study was based on the oxide part of the Sanankoro Mineral Resource that stands at 4.5mt at 1.6g/t for 233koz gold contained (SRK Dec/19, JORC-compliant).
  • 1.5mtpa heap leaching production scenario economics include:
    • Pre-tax and post-tax NPV8%/IRR of $30.9/84% and $24.2m/73% at $1,400/oz gold price, respectively;
    • Annual production is assumed to run at 45kozpa and $942/oz in AISC with benefits of predominantly free-digging nature of the ore and no milling partly compensated by an elevated waste stripping ratio (av. 5.9x over LOM);
    • Oxide open pit mineral inventory of 4.2mt at 1.5g/t to feed 1.5mtpa heap leaching operation for ~3 year mine life;
    • Development capex optimised by the use of mining contractors and rented diesel power generation sets and estimated at $20.6m;
    • Average annual FCF (pre-tax) estimated at $19.3m;
    • Applying different gold price assumptions, Sanankoro project NPV8%/IRR (pre-tax) range between $41.5m/107% at $1,500/oz and $20.4m/60% at $1,300/oz.
  • 1.5mtpa plant capacity option has been chosen as an optimal scenario generating best returns as well as in anticipation of a potential Sanankoro mineral resource scale expansion.
  • The near term aim is to drill out the on structure targets with a view to grow resources expanding the life of mine past three years with nearly 75% of the total 40km strike length remaining undrilled.
  • SRK has previously reiterated its 1-2moz exploration target within 100m from surface at Sanankoro.
  • On a side note, the Company applied for a new permit over the area covered by the current Sanankoro Permit that includes most of the Sanankoro Gold Project replacing the previous license that will expire on 1 Feb/20.

Conclusion: The preliminary economic study reflects attractive economics of the project with a potential to improve on numbers as the team continues with a drilling programme at the Sanankoro Gold Project to grow the near surface mineral resource and extend the life of mine. While more work will need to be completed to further de-risk Sanankoro before current and potential future resource ounces would be reclassified into higher confidence categories, the study is a good starting point on a road towards a viable mining project.

*SP Angel acts as Nomad and Broker to Cora Gold

 

Scotgold Resources* (SGZ LN) FOLLOW 70.5p, Mkt Cap £36.2m – Exploration update

  • The Company completed a series of stream sediment sampling and soil sampling across some of its option areas.
  • At Inverchorachan prospect located within the Inverliever East option area the team explored extensions to the previously identified gold anomaly.
  • Consistently high gold and silver values have been encountered at the prospect extending the anomaly to the south and southwest.
  • Additionally to high gold/silver in soil values recorded previously of 125ppb/420ppb, respectively, values of 70ppb/55ppbb have been detected during the latest programme.
  • The recent programme confirmed the anomaly continues along strike to the southwest following the regional Tyndrum fault and further work planned to test further anomaly extensions.
  • At Beinn Udlaidh prospect located within the Glen Orchy Central option area the Company focused on improving the understanding of the target area as well as test previously highlighted anomalies using more sensitive Ionic Leach soil sampling technique.
  • A total of 599 samples were collected and analysed with encountered gold/silver values coming in at 9ppb/90ppb.
  • Another linea anomaly was recorded to the southwest that may be potentially an extension of the main Beinn Udlaidh vein.
  • Also, the Company carried a series of regional ionic leach stream sediment sampling test with a total of 197 samples collected form 6 of the 13 option areas with a view to identify and prioritise exploration targets for follow up work including ground-based geophysics and ultimately drilling.

Conclusion: As the high grade Cononish gold project nears commercial production, the team is carrying an exploration programme across its portfolio of prospective licenses with a view to improve the understanding of target areas and potentially establish a pipeline of new projects.

*SP Angel acts as Nomad and Broker to Scotgold Resources

 

Shanta Gold (SHG LN) FOLLOW 10.3p, Mkt Cap £80.7m – Robust Q4 results conclude strong FY19 year

  • Q4 production amounted to 19.6koz (Q3/19: 22.7koz) as milled grades came down from the previous quarter (3.83g/t v 4.54g/t in Q3/19) with more lower grade stockpiles treated during the quarter.
  • Q4 AISC averaged $902/oz (Q3/19: $723/oz) reflecting lower output as well as $47/oz contribution from an accelerated power station generator refurbishment.
  • FY19 production totalled 84.5koz, slightly ahead of the targeted 80-84koz range, with AISCs averaging $779/oz, in line with the $740-780/oz guided range.
  • Annual gold sales were 80.8koz at an average gold price of $1,378/oz which excludes 2.8koz delivered to the refinery at the end of the year for which proceeds remained yet unremitted for.
  • The Company is managing its forward gold sales as to minimise the effect of fixed lower forward gold price (40koz forwards at $1,244/oz to June 2020 is currently outstanding).
  • Adjusted EBITDA estimated at $47.7m fir FY19.
  • Net debt came down to $14.3m, down from $20.7m in the previous quarter.
  • Outstanding VAT receivables by $5.6m to $21.8m as the Company used the balance to offset against corporate taxes falling due in regards of 2019; the Company has also received $2.7m in cash refunds.
  • Operations have been successfully connected to the TANESCO power grid allowing the Company to draw on initial 10% of the NLGM power requirement in the future; this may be potentially increased to 25%.
  • Extending the life of mine (2024 at the moment) at New Luika remained the key focus of the team with the Board approving a 65% increase in the exploration budget to $5.0m for 2020
  • All ounces mined this year have been replaced with new reserves.
  • FY20 guidance includes 80-85koz in production at $830-880/oz AISC.

Conclusion: Good quarterly results are led by robust gold production, good cost management and strong gold price environment with the management expecting to go net cash positive this year. Other positive news include a connection to the grid power that would help with unit costs in coming periods, an acceleration in outstanding VAT rebates through cash and corporate tax credits and an increase in approved exploration budget for 2020 that would target to further extend the NLGM life of mine.

 

Phoenix Copper* (PXC LN) FOLLOW 10p, Mkt Cap £4.5m – Ryan McDermott moves into CEO role as company heads towards production from Red Star project.

Phoenix holds 80% of the Empire mining property in Idaho

  • Phoenix Copper reports the appointment of Ryan McDermott, who, as Chief Operating Officer has led the company’s work in Idaho, to the role of Chief Executive Officer with immediate effect.
  • Mr. McDermott assumes the new role from Dennis Thomas who relinquishes the post and becomes a non-executive director and Vice President of investor relations.
  • Thanking Mr. Thomas for his past contribution and continuing commitment Chairman, Marcus Edwards-Jones commented on the appointment of Ryan Mc Dermott and said “We expect 2020 to be a significant year for the Company as we move from exploration and evaluation into project development, construction and production, which is anticipated in 2021. Ryan’s appointment reflects this change in operational emphasis and our clear focus on expediting the timeframe to production from the Empire project in Idaho, USA.”
  • Ryan’s strong local connections, mine exploration, permitting and project development experience is expected to benefit the transition towards expected production, initially from the Red Star deposit, in 2021.

Conclusion: The management re-organisation retains the existing expertise and aligns the available skill sets with the move towards initial mine production from Red Star expected in 2021.

*SP Angel acts as Nomad and broker to Phoenix Copper

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

 

Sales

Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*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

DCE

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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