SP Angel . Morning View . Tuesday 03 11 20
Gold and copper prices rise as China focusses on new investment
MiFID II exempt information – see disclaimer below
Mkango Resources* () – Rutile exploration commences in Malawi
Rainbow Rare Earths* (LON:RBW) – Acquisition of rich rare earth project in Gypsum stacks in South Africa
Renascor Resources () – Exploration recommenced at Carnding Gold Project
* () – TSTR share in SPMP reduced to 16% as part of Settlement, AIM listing cancellation and Board resignation
China – Communist Party Plenary focusses on driving growth in manufacturing, construction, infrastructure and consumption (Dual Circulation)
Manufacturing: China continues to focus on upgrading the value of its manufacturing
This should be good for industrial metals as China moves to redevelop and refurbish its factories.
Urbanisation: China continues to push on its Urbanisation strategy to bring more people out of villages and reduce the migrant workforce
Poverty: President Xi is keen to reduce poverty thus reducing the threat of revolution to the kleptocratic communist system over which he prevails
Part of this strategy is to encourage more Chinese people to buy property encouraging yet more urban construction and enriching politburo members who continue to get preferential rates on development land.
Consumption: China is looking to stimulate and drive greater internal consumption as part of its Dual Circulation strategy.
Chinese consumption has been managed through quotas in the past such as restrictions on the number of number plates.
New policy is to control the use of new vehicles for example rather than their purchase. So you can buy as many cars as you want but you might only be able to drive them on alternate days. This should serve to stimulate demand.
EVs: Preference will be given to EVs and the instillation of EV Charging points with subsidies and stimulus to encourage their rollout.
Diplomacy: China continues to drive its international reach as it looks to extend its trade with the rest of the world.
There are some sinister aspects to this as China adds to the list of banned imports from Australia, probably for punishment over Huawei.
Many countries and politicians will shy away from trade conflict with China allowing China to continue to get its way.
Infrastructure: China continues to stimulate growth through substantial new infrastructure projects.
China reported on some 4,500 (>Rmb3tn) new infrastructure and other construction projects last month driving excavator sales.
China to halt key Australian Commodity imports from Friday
China has ordered traders to stop purchasing at least seven categories of Australian commodities, as tensions mount between the two countries.
Commodities traders in China won’t be able to import products including coal, barley, copper ore & concentrate, sugar, timber, wine and lobster- according to unnamed Chinese traders.
The notice was verbally relayed to major traders, and iron ore will not to be included in the halt (Bloomberg).
Relations between the two countries have deteriorated since Australia barred Huawei from building a 5G network in the country, and Prime Minister Scott Morrison’s government called for an independent probe into the origins of coronavirus.
APEX survey rankings for SP Angel commodity forecasts: 2nd in Gold, 2nd in Copper, 2nd in Nickel, 1st in Tin, 5th in Iron ore
Dow Jones Industrials +1.60% at 26,925
Nikkei 225 closed at 23,295
HK Hang Seng +2.10% at 24,973
Shanghai Composite +1.42% at 3,271
US – US retailers are boarding up stores preparing for potential post-election unrests as voters head to polls following the most divisive presidential campaigns in recent history, FT writes.
Nearly 99m Americans have already voted either in person or by mail, equivalent to 72% of the entire 2016 vote.
This puts the nation on track for record turnout this year.
UK – The central bank is widely expected to announce an expansion of the bond buying programme this week amid new lockdown measures announced by the government, Bloomberg reports.
The decision will come along with updated economic forecasts at midday on Thursday.
Bloomberg survey last week showed the BOE might increase its QE by £100bn to £845bn, almost double the level seen at the start of the year.
Italy – Nationwide restrictions are expected to be announced shortly including night-time curfew, shop closures and limitations on travel within the country, but no full lockdown.
There will be tougher restrictions for regions where the infection rate is highest with PM insisting on the need for a more flexible approach rather than a nationwide lockdown.
All non-essential commercial activities will be closed in the regions of Lombardy surrounding Milan, Piedmont, whose capital is Turin, and Calabria to the south, according to Bloomberg.
The government is planning to announce new stimulus relief programme of at least €1.5bn for businesses affected by new restrictions.
Australia – Central bank cut rates by 15bp to 0.10% and announced A$100bn in purchases of 5-10 year government bonds over the next six months.
“The combination of the RBA’s bond purchases and lower interest rates across the yield curve will assist the recovery by: lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise; and supporting asset prices and balance sheets,” RBA comments on the decision.
The move was largely expected by markets while A$ climbed this morning driven by a more broad risk on sentiment in the market.
Argyle diamond mine in Australia closes after 37 years
The Argyle mine in Western Australia’s Kimberley region has closed down, with the mine in operation since 1983.
The mine is famous as it is responsible for 90% of the world’s coloured diamonds, notably pink ones, and has produced 865 million carats of rough diamonds.
US$1.1671/eur vs 1.1628/eur yesterday. Yen 104.63/$ vs 104.92/$. SAr 16.121/$ vs 16.306/$. $1.287/gbp vs $1.294/gbp. 0.708/aud vs 0.700/aud. CNY 6.691/$ vs 6.700/$.
Gold US$1,893/oz vs US$1,882/oz yesterday
Gold ETFs 110.9moz vs US$110.8moz yesterday
US$865/oz vs US$851/oz yesterday
Palladium US$2,243/oz vs US$2,241/oz yesterday
Silver US$24.10/oz vs US$23.82/oz yesterday
Copper US$ 6,789/t vs US$6,707/t yesterday – Copper prices rise on positive Chinese manufacturing data
Copper prices rose on Monday afternoon as China’s Caixin PMI for factory activity remained in expansion territory for a sixth straight month in October with a reading of 53.6.
LME copper closed 0.7% higher at $6,762/t on Monday and continued to extend gains on Tuesday morning.
According to the South China Morning Post, imports of Australian copper ores and concentrate will be banned from this week.
China imported 1.05mt of copper concentrates from Australia throughout 2019 – about 4.77% of its total imports for the year (Fastmarkets MB).
Aluminium US$ 1,877/t vs US$1,846/t yesterday
Nickel US$ 15,275/t vs US$15,090/t yesterday
Zinc US$ 2,551/t vs US$2,539/t yesterday
Lead US$ 1,806/t vs US$1,796/t yesterday
Tin US$ 17,955/t vs US$17,800/t yesterday
Oil US$39.1/bbl vs US$36.5/bbl yesterday
Oil prices saw a welcome boost yesterday as top executives of Russia’s oil companies discussed the future of the OPEC+ deal with Russian Energy Minister Alexander Novak, including an option to extend the cuts for three months until March 2021, instead of easing the cuts from January as planned
The OPEC+ group, in which Russia is the leader of the non-OPEC producers, currently plans to taper the 7.7MMbopd collective cut by 2MMbopd beginning in January 2021
However, the second coronavirus wave sweeping across the US and Europe, and already prompting the return of lockdowns in major European economies, is further delaying the global oil demand recovery
In recent weeks, concerns about demand and rising supply from Libya have weighed on oil prices and intensified market speculation that the OPEC+ group may not have a choice but to roll over the current cuts and delay the plans to ease those cuts in January
Russian oil firms have openly criticized the OPEC+ deal in the past because, they argue, it burdens them with production cuts aimed at supporting oil prices, which in turn help US producers to pump more oil.
Russia’s oil firms, however, will not have a final say in Moscow’s options in the OPEC+ deal, as the ideas discussed today will also be discussed at a higher level
Russian President Vladimir Putin will likely have the final say
Natural Gas US$3.175/mmbtu vs US$3.315/mmbtu yesterday
Natural gas prices moved lower in early trading today as Hurricane Zeta is expected to move westward and potentially could miss the Gulf of Mexico avoiding any natural gas infrastructure
weather is expected to be much colder than normal throughout the west coast and upper mid-west over the next 6-10 days
ISM manufacturing showed an increase in activity which would help buoy natural gas demand
The EIA forecasts that residential natural gas demand will increase during the 2020-2021 winter season
Iron ore 62% Fe spot (cfr Tianjin) US$114.1/t vs US$113.1/t
Chinese steel rebar 25mm US$571.5/t vs US$570.7/t
Thermal coal (1st year forward cif ARA) US$54.3/t vs US$54.0/t
Coking coal futures Dalian Exchange US$122.7/t vs US$122.7/t
Cobalt LME 3m US$32,835/t vs US$32,835/t
NdPr Rare Earth Oxide (China) US$49,918/t vs US$49,775/t
Lithium carbonate 99% (China) US$5,380/t vs US$5,373/t
Ferro Vanadium 80% FOB (China) US$27.7/kg vs US$28./kg
Antimony Trioxide 99.5% EU (China) US$5.3/kg vs US$5.3/kg
Tungsten APT European US$220-225/mtu vs US$220-225/mtu
Graphite flake 94% C, -100 mesh, fob China US$440/t vs US$440/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,275/t vs US$2,275/t
Floating wind turbine Nezzy² passes test at Baltic Sea
The floating wind turbine Nezzy² has passed a test lasting two months in the Bay of Greifswald. The turbine is 18m tall and built on a 1:10 scale, made up of two wind turbines on a floating platform.
180 sensors have been used in 30 different measurements to determine how Nezzy² reacts when exposed to various wind directions and speeds as well as wave heights and directions, with the turbine even surviving a storm tide in October equal to a category four to five hurricane.
Before this, offshore wind turbines have been anchored to the seabed with solid foundations at a maximum water depth of 50m. Now, an increasing number of countries and sea regions at greater depths can accommodate floating turbines.
The 1:10 scale model has now been dismantled and the data is currently being evaluated, as these findings will be used in the design of the 1:1 scale model, which will be tested in China at the end of 2021 or start of 2022.
Rehn advises regular strategy review for sustainable investments in the ECB
Olli Rehn, policy maker for The European Central Bank, has said that they should review its strategy on a regular basis in the future and use more sustainable investment practices, with the ECB currently undertaking the first broad review of its strategy since 2003.
The review should consider growing global challenges like climate change and the need for sustainable economic development.
Rehn states that his own bank has committed to the United Nation’s Principles for Responsible Investment, which require recognising environmental, social and corporate governance issues in investment practises.
Rehn has also advised the ECB to learn from the Unites States and their Federal Reserve Board’s findings in a strategic review it did this year. He continued that the ECB should adopt a similar strategy to that of the Federal Reserve Board which adopted a flexible inflation target and therefore allowed inflation to overshoot above its 2% limit.
Mkango Resources* () 10.5p, Mkt cap £14m – Rutile exploration commences in Malawi
(Mkango’s 75.5% subsidiary, Maginto Ltd holds a 25% stake in HyProMag which is a partner in the ‘Rare–Earth Recycling for E-Machines’ RaRE project)
Mkango has begun extensive hand-auger drilling and soil sampling within its wholly-owned 869sq km Mchinji license in the Mchinji district of Malawi, funded from the Company’s existing working capital.
The drill programme follows up on previous reconnaissance work at Mchinji, which resulted in the discovery of rutile during a shallow soil sampling and auger programme completed in September.
Initial exploration work showed high TiO2 grades returned by nine consecutive samples in a single auger hole, drilled to a depth of 8.9m that contain between 4.10% and 9.01% total heavy minerals with a grade between 3.17% and 4.09% TiO2.
The Company believe that these early stage results show geological similarities to the saprolite-hosted rutile mineralisation recently discovered on the adjoining licence to the east, suggesting the potential for discovering high-grade rutile deposits within Mkango’s large license area.
Rutile is the highest-grade natural form of TiO2 and is the preferred feedstock in manufacturing titanium pigment and producing titanium metal, with finely powdered rutile also used as white pigment in paints, plastics, paper and foods.
Mkango’s Chief Geologist, Dr Paul Armitage, commented: “This drilling programme and soil sampling will help us to target saprolite-hosted mineralisation. It will test the extent of the rutile and ilmenite mineralisation over a large part of our licence area and aims to confirm the potential for discovering high-grade rutile deposits in the licence.”
*SP Angel act as Nomad and Broker to Mkango Resources
Rainbow Rare Earths* (LON:RBW) 6p, Mkt Cap £25m – Acquisition of rich rare earth project in Gypsum stacks in South Africa
(Rainbow deal for 70% of Phalaborwa jv, 30% to be held by Bosveld. There is no BEE holding as this is a processing operation)
Rainbow Rare Earths have signed a deal to acquire a high-grade rare earth in tailings project ‘Phalaborwa’ in South Africa.
The rare earths which are unusually rich in NdPr ‘Neodymium and Praesidium’ are contained in tailings which have been processed and further reprocessed enriching their REE content and making the REE material particularly amenable for processing into a value-added concentrate.
The Gypsum tailings have come from the mining and extraction of Phosphates by Bosveld Phosphates Ltd using the Foschor process..
The Phalaborwa Rare Earths project contains around 35mt of REEs grading 0.6% TREO ‘Total Rare Earth Oxides’.
The really valuable part of this is the 30% NdPr content within the 0.6% grade which will raise the overall value of the contained REE material.
The grade has been ascertained through grab sample assays around the gypsum tailings stacks.
Metallurgy: Phosphate extraction using the Foskor floatation process has left the REE minerals in chemical form making the extraction of the REEs very much simpler and cheaper than for other REE projects.
Pilot plant test work sun by Sasol showed 80% REE recovery producing ~3t of REE carbonate which was sold to a Japanese company.
Sasol Nitrates was forced to abandon the site along with its work on REE project due to a South African anti-competition ruling in 2011.
Sasol’s pilot plant remains in place and comes with the deal.
The site continues to process phosphates and the REE extraction project and site is fully permitted with a completed EIA.
RBW are paying US$0.75m for the tailings, plant and right to operate at the site in cash and shares in three tranches over 12 months..
Ownership of the joint venture may vary between 60-85% depending on the results of the Pre Feasibility Study.
Management have 35 days to complete their due diligence.
World’s highest grade REE in tailings, probably: The proportion of NdPr within the REE grades appears to be the highest in the world and its presence in chemical form should make its processing cheaper than for ionic clay production which is where the majority of the world’s REEs still come from. Phalaborwa grades also run at around 10x ionic clay deposits.
Ionic clay grades normally run from 0.03% to 0.08% REE and with much lower proportion of NdPr content so the proportion of more valuable NdPr material at Phalaborwa is much higher than for other deposits.
Sasol appear to have done all or the vast majority of work required for the extraction and processing of the REEs in the Gypsum and have left a good size pilot process plant in place.
Rainbow should be able to refurbish and restart this plant relatively quickly and for minimal cost to further confirm the process for the extraction of the REEs and to take this further to a more value added carbonate product.
Conclusion: Rainbow have the opportunity to acquire a high grade NdPr project with an unusually simple route to extraction.
The gypsum tailings should contain ~210,000t of REEs with ~63,000t of NdPr available for recovery assuming an 80% recovery rate though we believe the pilot plant recoveries were significantly better than this.
NdPr Oxide prices are currently US$49,918/t in China though carbinate producers are lucky to get close to half this price on sales.
The REEs contained in the tailings appear to contain significant value.
Mining costs should be insignificant and processing costs should be significantly lower than for a primary ore body.
Selling a carbonate will generate significantly higher revenue than selling an oxide raising the proportion of the NdPr price received.
*SP Angel act as broker and financial advisor to Rainbow Rare Earths
Renascor Resources () A$0.012p, Mkt Cap A$20m – Exploration recommenced at Carnding Gold Project
Renascor has recommenced exploration at its wholly owned Carnding project in South Australia, with geophysical surveying, soil sampling and drilling now underway.
The works planned will target the existing target area at Soyuz, where drilling has intersected the following results:
7m @ 5.14g/t Au from 26m (to end of hole), including 2m @ 16.42 g/t Au from 30m;
6m @ 4.94g/t Au from 14m
Anomalies from an existing IP survey and soil sampling area along with locations informed by the results of a new IP survey and soil sampling programmes are to be targeted by approximately 2,000m of drilling.
In August, Renascor announced newly identified gold prospects at Carnding, whilst also identifying further shallow gold targets along strike from the Soyuz Project from a previous IP survey.
Renascor considers the IP anomaly to be consistent with sulphide development and hydrothermal alteration/silicification favourable for gold mineralisation.
Separately, a Heritage Survey conducted in October 2020 cleared the Soyuz prospect for the recommencement gold exploration activities, with no significant cultural heritage interest identified in the targeted exploration area.
Tri-Star Resources* () SUSPENDED – TSTR share in SPMP reduced to 16% as part of Settlement, AIM listing cancellation and Board resignation
Tri Star Resources reached a settlement agreement with Oman Investment Authority (IAC) and DNR Industries (DNR), JV partners in SPMP.
IAC and DNR agreed to provide sufficient further funding in order to bring the plant into production without further equity dilution to TSTR and that all sums invested to date are converted into equity and equity loans proportionately.
TSTR invested ~16.3% of the total amount put in to date of $206m, the balance was provided by IAC and DNR.
TSTR interest in SPMP will comprise 16.3% (down from 40%) reflecting $2.6m in equity and $30.8m in equity loans (16.3% of the total equity loans); the balance will be held by IAS and DNR.
That would value SPMP equity at $16m.
Equity loans are zero coupon, undated and repayable at the option of SPMP, subordinated but ranking above equity.
TSTR is set to receive $500k of $2m for the assignment of IP rights to SPMP in cash with the remainder directed towards TSTR’s funding of SPMP.
A further $100k representing other outstanding amounts will also be paid in cash to TSTR.
The Board reports that the resolution is a better result than an alternative that would have led to arbitration and cost at least £250k in costs and fees, funds that the Company does not have.
The funding gap previously announced of $120m of which $40m was already covered as equity and equity loans by IAC and DNR is likely to be funded by third party sources or new debt in the form of subordinated non0-convertible debt with a coupon of 20%.
TSTR interest may be diluted in certain circumstances including potential new equity investment required by existing or new parties among others.
TSTR losses its representation on the Board of SPMP and becomes a passive investor in SPMP.
The bank guarantee provided by equity investors in SPMP including TSTR, IAC and DNR to Bank Nizwa and Alizz Islamic Bank (~$57.3m) will remain in place with all parties agreeing to renegotiate its terms with a potential release once the plant is commissioned.
The updated plant completion date is now H1/21.
The TSTR Board will be asking shareholders to vote on cancelling AIM listing since the costs of keeping the Company public are not seen as warranted while the current Board is expected to resign.
*SP Angel acts as Nomad to Tri-Star Resources. David Facey, a former partner at SP Angel is the CEO & CFO at Tri-Star Resources.
John Meyer – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy –[email protected] – 0203 470 0474
Joe Rowbottom – [email protected] – 0203 470 0486
Richard Parlons –[email protected] – 0203 470 0472
Abigail Wayne – [email protected] – 0203 470 0534
Rob Rees – [email protected]co.uk – 0203 470 0535
Grant Barker – [email protected] – 0203 470 0471
Prince Frederick House
35-39 Maddox Street London
*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
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony
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