SP Angel . Morning View . Tuesday 05 11 19
Base Metals rise on risk-on trade as Yuan gains against USD weakness
MiFID II exempt information – see disclaimer below
Arc Minerals* (LON:ARCM) STRONG BUY – More high-grade copper mineralisation discovered close to surface at Cheyeza East target in Zambia
Gem Diamonds (LON:GEMD) – Letšeng production and cost guidance adjustments and quarterly update
Lucara Diamonds (CVE:LUC) – Positive underground feasibility study for Karowe
Shefa Gems (LON:SEFA) – Convertible facility
Guy Fawkes Day today, where the UK celebrates Guido Fawkes gunpowder plot to blow up the British parliament
- We continue to celebrate Guido’s plot for many good reasons to this day
Angela Merkel – wants one million EV charging points by 2030 (engadget.com)
- The German leader’s statement came ahead of yesterday’s meetings with the automotive industry, discussing how the transition to EVs can be accelerated.
- Germany currently has 20,000 charging points, however German minister Stephan Weil said he wanted to see commitments for 100,000 public charging points by 2021.
- Overhaul of Germany’s transport sector can help meet national emissions targets, and would-be buyers have cited a lack of fuel infrastructure as a reason from not converting to an EV.
- Weil also said that rental and property legislation need to be simplified to ease the installation of home charging points.
- The average amount of copper used per charging point is estimated at 20kg according to Glencore plus 138kg per electric vehicle according to the IDTechEx consultancy.
- Added together Mrs Merkel’s derive to create 1m charging points along with 1m new EVs is likely to result in additional demand for around 158,000t of copper not including the extra cabling to connect all these charging points to grid infrastructure.
First UK deep coal mine in decades to go ahead (BBC)
- West Cumbria Mining (WCM) said the new mine in Whitehaven would create 500 jobs.
- Cumbria country councillors gave the mine the go-ahead in March, and the government decided not to intervene despite objections from green groups.
- WCM will extract coking coal used in steel and chemical works, and argue that the mines production will reduce imports and bring a net carbon benefit.
- Work could begin on the site as soon as early 2020, with coal production starting two years later.
Conclusion: While UK investors are shunning coal and US coal mines are going out of business like vegan sausage rolls at Gregs, West Cumbria Mining has decided to go coal mining.
We feel this is a technically difficult coal mining area though the deposits of the woodhouse colliery host highly volatile hard coking coal which provides good furnace performance characteristics.
Dow Jones Industrials +0.42% at 27,462
Nikkei 225 +1.76% at 23,252
HK Hang Seng +0.49% at 27,683
Shanghai Composite +0.54% at 2,992
FTSE 350 Mining +0.53% at 18,831
AIM Basic Resources +0.25% at 2,180
US – FT run a story this morning that the US is considering removing some tariffs on Chinese goods helping the market risk sentiment.
- The White House may roll back levies on $112bn on Chinese imports including clothing, appliances, and flat screen monitors that were introduced at a 15% on September 1.
- US officials also suggested that China may avoid the planned imposition of tariffs on $156bn of mostly consumer goods dur to take effect during the holiday season on December 15.
- China is reviewing locations in the US where President Xi could meet President Trump to sign the Phase 1 agreement, Bloomberg reports citing people familiar with the plans.
- US equity indices closed at record highs on Monday while index futures point to further gains once markets open later today.
China – The yuan strengthened past the 7.0 mark this morning for the first time since early August on trade hopes.
- The central bank cut the rate for one-year loans to banks only marginally (-5bp) which in turn was interpreted as largely a symbolic and should not be considered as an indicator of further cuts to come.
- The PBOC lent 400bn CNY ($57bn) with its medium-term lending facility and lowered the interest rate on the loans to 3.25% from 3.3%, according to a statement.
- The injection replaced 404bn CNY of loans that mature.
Australia – The central bank kept rates unchanged at a record low of 0.75% following three cuts since June.
- The decision was broadly expected by markets with a slightly positive tone to the announcement seeing the A$ appreciating this morning (+0.4%).
- “The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices in some markets and a brighter outlook for the resources sector should all support growth,” the RBA governor said.
South Africa – Moody’s decided to keep the sovereign debt rating in investment-grade territory late on Friday despite a downgraded budget outlook presented earlier.
- The agency did cut its outlook for the debt from “stable” to “negative” on the back of a material risk that the government would not be able to fix the budget.
- A cut in the rating would have caused the debt to be excluded from bond indices and a sell off by institutional investors.
- Some commentators suggest the government has now three months to demonstrate a tangible progress ahead of its budget in February or face a downgrade.
- Bond yields dropped and the rand climbed on Monday and Tuesday on the back of the news as well as a general rally in emerging markets amid speculation of a positive trade talks’ outcome.
US$1.1128/eur vs 1.1166/eur yesterday. Yen 108.85/$ vs 108.35/$. SAr 14.709/$ vs 14.786/$. $1.290/gbp vs $1.293/gbp. 0.693/aud vs 0.691/aud. CNY 6.991/$ vs 7.027/$.
Gold US$1,505/oz vs US$1,511/oz yesterday – India gold demand expected to hit three-year low – World Gold Council
- India’s gold demand is expected to fall to its lowest level in three years in 2019, according to the WGC on Tuesday.
- Domestic gold prices have continued to climb making gold less affordable at the time of the Diwali festival, when the metal is usually bought.
- Earnings have also fallen in rural areas, a key market for the precious metal (Reuters).
- According to the MD of the WGC’s Indian operations, gold demand in 2019 could fall 8% form a year ago to around 700t, the lowest since 2016.
- India’s Q3 gold consumption was down nearly 1/3 from a year ago to 124t.
Gold ETFs 82.2moz vs US$82.2moz yesterday
Platinum US$935/oz vs US$955/oz yesterday
Palladium US$1,785/oz vs US$1,819/oz yesterday
Silver US$18.06/oz vs US$18.12/oz yesterday
Copper US$ 5,920/t vs US$5,860/t yesterday
Antofagasta cuts its expected copper output due to Chilean protests (mining.com)
- The Chilean copper miner has cut its production forecast for 2019, due to ongoing unrest in the country.
- Supplies to its flagship Los Pelambres mine have been disrupted, and equipment has also been damaged.
- The company expects annual copper production of 750,000t to 770,000t compared to a prior forecast of 750,000t to 790,000t.
- BHP said that its Escondida copper mine in Chile was operating at a reduced rate last week, as workers went on strike to show solidarity with the anti-government protests.
- Copper prices rose on Tuesday, up 0.2% to $5,866/t on the LME (Reuters).
Copper – supply disruptions continue to tighten copper market. We suspect China’s State Reserve Bureau ‘SRB’ will be taking advantage of current low copper prices and quietly buying stock in the background
- Strike action at Asarco (Grupo Mexico), blockades in Peru and protests in Chile may all serve to restrict copper production further.
- Copper-alloy cables for high-speed rail use 10t of copper per kilometre
Aluminium US$ 1,814/t vs US$1,790/t yesterday
Nickel US$ 16,320/t vs US$16,610/t yesterday
Zinc US$ 2,543/t vs US$2,524/t yesterday
Lead US$ 2,164/t vs US$2,166/t yesterday
Tin US$ 16,575/t vs US$16,425/t yesterday
Oil US$62.7/bbl vs US$61.7/bbl yesterday
Natural Gas US$2.895/mmbtu vs US$2.819/mmbtu yesterday – BHP considering tender for LNG-fuelled iron ore shipments (Reuters)
- Them miner will decide early next year who has won a tender for LNG-fuelled transport to ship 27mt, or about 10% of its iron ore.
- Miners are facing increased pressure to become less polluting, and according to a BHP senior executive, this move will see the companies emissions cut by around a quarter.
- BHP is considering 17 submissions from established companies to start-ups before awarding the tender in Q1 of 2020.
Uranium US$24.20/lb vs US$24.05/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$80.3/t vs US$81.2/t
Chinese steel rebar 25mm US$568.3/t vs US$563.8/t
Thermal coal (1st year forward cif ARA) US$65.1/t vs US$64.5/t
Coking coal futures Dalian Exchange US$185.4/t vs US$184.4/t
Cobalt LME 3m US$36,000/t vs US$36,000/t
NdPr Rare Earth Oxide (China) US$41,411/t vs US$41,199/t
Lithium carbonate 99% (China) US$6,938/t vs US$6,902/t
Ferro Vanadium 80% FOB (China) US$30.2/kg vs US$31.0/kg
Antimony Trioxide 99.5% EU (China) US$5.3/kg vs US$5.4/kg
Tungsten APT European US$225-245/mtu vs US$205-215/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
Altus Strategies* (LON:ALS) 4.8p, Mkt Cap £8.5m – La Mancha strategic investment and an equity raise
- Under the terms of a non-binding Letter of Intent, La Mancha Holdings agreed to subscribe for 124m Altus Strategies’ shares at C$0.09 for C$11.2m ($8.5m).
- The subscription price reflects a 20% premium to the previous market closing price of C$0.075 and a 30% premium to the 30d VWAP.
- The investment is expected to be completed during January 2020 and is subject to receipt of all relevant shareholder and regulatory approvals including the grant by the UK Panel on Takeovers and Mergers of a “whitewash” waiver.
- The Company is also planning to complete a non-brokered private placement at the same price for C$5.3m ($4.0m) with the Directors intending to subscribe for $0.5m worth of stock.
- The placement is expected to be launched this month on entering into binding transaction documentation with regards to the La Mancha investment.
- Proceeds to be used to fund project generation activities across the portfolio of projects, identifying and making new acquisitions as well as for general working capital purposes.
- On completion of both deals, La Mancha is expected to hold 34.5% of Altus.
- La Mancha agreed to offer Altus a $0.75m bridge loan that is interest rate free and to be converted in Altus shares on approval of the main deal at C$0.09/share with the investment to be reduced by the amount drawn down; should the deal fail to be approved, the loan is to be repaid in cash.
- The investment is subject to a 24 months’ lock-in period and La Mancha may nominate two non-executive directors to the Board.
- The Company proposed a 5:1 share consolidation.
Conclusion: The proposed deal is positive news on several fronts including a strategic investment by the Company with ~$1bn worth of assets in the gold mining space, an endorsement of the Altus’ team ability to find new projects as well as a provision of growth/development capital that will allow the Company to continue with the project generation model.
*SP Angel acts as nomad and broker to Altus Strategies
Arc Minerals* (LON:ARCM) 2.85p, Mkt Cap £21m – More high-grade copper mineralisation discovered close to surface at Cheyeza East target in Zambia
(The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort)
- Arc Minerals reports further near surface high-grade copper intersections from drilling at its 3×0.8km Cheyeza East target in Zambia.
- The results are excellent with >75% of holes drilled at Cheyeza showing decent grade copper mineralisation.
- Hole 47: 20m @ 1.44% copper from 34.50m down hole
- + 11m grading 1.41% copper from 52m down the drill hole
- inc. 5m @ 3.67% copper from 34m and 5m @ 2.46% copper from 52m
- Hole 49: 14m @ 1.20% from 38m
- inc. 7m @ 1.78% Cu from 44m
- Hole 51: 14.50m @ 0.93% from 17.50m
- inc. 1.36% Cu over 7.50m from 18.50m
- Hole 27: 15.50m @ 0.62% from 44.50m – drilled to test extremity to the west of the high-grade core
- inc. 3m @ 1.51% from 46.50m
- Hole 45: 10.74m @ 0.61%from 74.50m – drilled to test extremity to the west of the high-grade core
- Drill holes 47, 49 and 51 are drilled into higher grade mineralisation in an area estimated to be 250m x 250m at Cheyeza East.
- Assays have been received from SGS Inspection Service Ltd in Kalulushi, Zambia.
- Previous high grade holes include:
- Hole 4 – 2.35% Cu over 18.00m
- Hole 5 – 1.32% Cu over 28.50m
- Hole 23 – 0.95% Cu over 17.00m
- Hole 25 – 1.27% Cu over 32.50m
- Holes 27, 28, 38 and 45 were drilled to test the extremities to the west of the current high grade core and appear to show economic grades of copper mineralisation despite being not quite as thick as seen in the high-grade core.
- Hole 30, 32, 33, 39 and 44 were drilled to test the extremities to the south east of the current high grade core.
- Holes 46 and 48 were drilled to test the extremities to the north west of the current high grade core, indicate the grade and thickness of the mineralisation in this area of the prospect are lower in grade.
- See link for full results:
- Recommendation: we recommend Arc Minerals as a STRONG BUY due to its potential for a major copper discovery at Cheyeza East in Zambia.
- The potential value of a significant copper discovery is likely to be a significant multiple of Arc’s current market capitalisation.
- We expect the market will recognise the value of the Cheyeza East discovery on the publication of further drill results and resource estimation.
- Other significant discoveries in Zambia in recent years include Sentinel in 2014 with 939mt grading 0.49% copper just 40km away from Kalaba and is producing >190,000tpa of copper.
- Lumwana which is 100km to the east also has a reserve of 758mt grading 0.51% copper and is producing >116,000tpa of copper.
Conclusion: Arc Minerals is working hard to evaluate the value of its exploration portfolio with minimum dilution to shareholders.
Management recently reported on its first commercial sale of 15t of copper concentrate from the Kalaba process plant which serves to substantially de-risk the project from an investor perspective and brings some cash flow into the business. While the sale of 15t of copper concentrate should net something over $80,000 it is a first step towards significant cash flow if high-grade copper is trucked from Cheyeza East.
Arc Minerals also holds a 47.5% interest in Zaco Limited which holds copper, cobalt licenses next to Zamsort’s license blocks. Arc Minerals also owns 100% of CASA Mining, which has a 3moz inferred gold resource in the DRC at Akyanga. Arc also holds 100% of the Kremnica Mining project in Slovakia which holds 1.3moz of gold equivalent.
*SP Angel acts as nomad and broker to Arc Minerals.
Gem Diamonds (LON:GEMD) 63.8p, Mkt Cap £88.7m –Letšeng production and cost guidance adjustments and quarterly update
- Gem Diamonds reports the production of 27,539 carats of diamonds at its 70% owned Letšeng diamond mine in Lesotho during the three months to 30th September bringing the total for the year to date to 84,207 carats.
- Production, which is broadly similar to the 27,210 carats produced during the preceding quarter, included four stones larger than 100 carats bringing the total of these large stones recovered so far this year to seven.
- Diamond sales during the quarter of 25,631carats realised an average price of US$1,417/carat, lower than the US$1,501/carat in the preceding quarter and included five individual stones which each realised in excess of US$1m and collectively generated over US$11m.
- The company has amended its guidance for the full calendar year 2019 and although diamond production guidance remains unchanged at 114-118,000 carats, Gem Diamonds has reduced its expected sales for the year to 111-113,000 carats from the 115-119,000 carats indicated earlier in the year which we interpret as a reflection of the company’s comments that “Prices for smaller and commercial type goods remain under pressure with polished inventory levels remaining high. … [and that] … Larger high-quality diamonds have also experienced some price pressures in 2019, contributing to the lower prices achieved during the Period.“
- On the positive side, the company comments that “The targeted US$ 100 million in incremental revenue, productivity improvements and cost savings over the 4-year period to end 2021 is on track to be delivered and is expected to deliver US$ 50 million by the end of 2019.”
- The efficiency savings are reflected in adjustments to operating cost guidance for 2019 to US$245-255 per tonne treated (previously US$257-268/t) and the expected capital expenditure which is reduced to US$11-13m from the earlier guidance of US$18-20m as a result of the identification of further opportunities to achieve savings.
- Corporate costs have also been trimmed with the company indicating that they are expected to be around US$1m lower than the 2018 level of US$9.3m.
Lucara Diamonds (CVE:LUC) C$1.06, Mkt Cap C$420.7m – Positive underground feasibility study for Karowe
Lucara Diamonds has announced a positive outcome to its feasibility study into underground mining at the Karowe mine in Botswana. Underground expansion is expected to double the mine’s life to 2040 “extending benefits to the Company, its employees, shareholders, communities surrounding the mine, and Botswana.”
The company expects the underground expansion to increase life-of-mine diamond production to 7.8m carats, although it reports that the resource remains open at depth and the updated resource estimate 54.3mt of indicated resources at an average grade of 15.3cpht is said to confirm increasing value with depth.
Based on an initial pre-production capital investment of US$513.7m and an additional sustaining capital investment of US$153.8m, and un-escalated diamond prices, the study indicates that a combined open pit/underground mining operation generates an after-tax NPV8% of US$536m and a 2.8 years payback from the production of an average 374,000 carats per year. At a 5% discount rate, the project NPV after tax is reported to be US$718m.
Looking forward to 2020, the company expects to focus on detailed engineering and procurement for the underground development and to review the financing structure and Lucara Diamonds points out that “The anticipated capital requirements in 2020 represent less than 10% of the pre-production capex estimate and can be funded out of the Company’s anticipated cash flow, as financing options are explored”.
Lucara Diamonds also provides a reminder that Karowe is “one of the world’s most prolific producers of large, high value type IIA diamonds and the only diamond mine in recorded history to have produced two +1000 carat diamonds”. Most recently, in April this year, the mine produced the 1,758 carat Sewelo diamond while Karowe also yielded the 1,109 carat Lesedi La Rona diamond which was sold for US$53m as well as the 813 carat Constellation diamond which was sold in 2015 for US$63m.
Shefa Gems (LON:SEFA) – 5p, Mkt cap £8.6m – Convertible facility
- Shefa Gems reports on an agreement for a convertible loan agreement for US$200,000 with a ‘lender’
- The name of the lender is not specified, rather unusually.
- The convertible grants the lender one unlisted warrant for every share received on conversion at a price of 10p per warrant.
- If the shares do not reach 10p/s then then the lender will receive additional shares after 24 months in such an amount as to make the total number of shares issued to the Lender have a value, based on the market price at that time, of £312,500.
- The loan note and it’s 5% coupon are convertible into ordinary shares in the company at 5p/s.
Conclusion: This is not a Death Spiral but it if the shares rise to over 10p investors are likely to see significant new stock selling into the market
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Richard Parlons – 0203 470 0472
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
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