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Today's Market View - Bacanora Minerals, Bushveld Minerals, Glencore, Highland Gold, Stratex and others

Published: 21:50 20 Nov 2017 AEDT

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Bacanora Minerals (LON:BCN) – Seeking to set aside 3% royalty
Bushveld Minerals (LON:BMN) BUY – Target price maintained at 11p – Vametco ramps up Nitrovan production as costs rise
Glencore (LON:GLEN) –Nominating 3 directors to Katanga Mining
Highland Gold (LON:HGM) – Novo JORC reserves and resources statement released
Kodal Minerals* (LON:KOD) – Lithium expert appointed as non-executive director
Savannah Resources (LON:SAV) – Pilot plant commissioning underway at Mutamba
Shanta Gold (LON:SHG) – New Sinigida resource + operations update
Stratex (LON:STI) / Crusader (ASX:CAS) - Crusader appoints Marcus Engelbrecht, formerly at Stratex as ceo

Dow Jones Industrials  -0.43% at 23,358
Nikkei 225   -0.60% at 22,262
HK Hang Seng   +0.25% at 29,273
Shanghai Composite    +0.28% at 3,392
FTSE 350 Mining   +0.14% at 16,985
AIM Basic Resources   +0.32% at 2,655

Economics
Currencies
US$1.1760/eur vs 1.1793/eur yesterday.           Yen 112.07/$ vs 112.56/$.         SAr 14.063/$ vs 14.182/$.            $1.325/gbp vs $1.325/gbp
            0.757/aud vs 0.755/aud.            CNY 6.633/$ vs 6.634/$

Commodity News
Tesla truck to fuel battery metal demand
• Surging demand for battery metals are driven by a rapidly expanding global fleet of electric vehicles. Elon Musk’s latest Tesla truck is only expected to exacerbate consumption of fundamental metals for battery technologies including lithium, nickel, cobalt, and copper.
• The “game changing” usage in the all-electric “Beast” big rig is forecast to follow a smoother path to acceptance as adoption for electric commercial vehicles could be incredibly fast as a consequence of reduced costs in an industry where margins are incredibly tight.
• Banks including Goldman Sachs Group, UBS Group and Bank of America are rapidly updating market forecasts to accommodate the additional booming projections, with the price of nickel reacting positively to the announcement with a 1.5% rise.
• The transition from conventional fossil fuel vehicles is bad news to the supply of some raw materials, with demand for palladium forecast to drop by 90% by 2040 as electric vehicle sales climb according to ABN Amro Bank.

Precious metals:         
Gold US$1,291/oz vs US$1,283/oz last week
• Uncertainty surrounding the proposed tax cuts in the US saw safe haven asset demand rising as the spot gold price rose to one-month high of $1,297.20/oz during Friday’s trading. US President Donald Trump looks to delay corporate cuts to 2019, and will not include a repeal of Obamacare’s individual mandate.
• ANZ reported that “Buying was also encouraged by reports that [former US Federal Bureau of Investigation director Robert Mueller] had subpoenaed the Trump Campaign for more documents regarding Russia involvement during the US presidential elections”.
   Gold ETFs 69.4moz vs US$69.4moz last week
Platinum US$942/oz vs US$935/oz last week
Palladium US$997/oz vs US$996/oz last week
Silver US$17.15/oz vs US$17.10/oz last week
           
Base metals:   
Copper US$ 6,769/t vs US$6,774/t last week
• Resilient Chinese property data, indicating new house prices rising at a slightly faster pace in October, support manufacturing metals. Despite falling sales and a tighter liquidity environment, the underlying fundamentals in the property sector remain robust, maintaining strong consumption for copper beyond the weak winter season.
Aluminium US$ 2,085/t vs US$2,104/t last week
Nickel US$ 11,605/t vs US$11,490/t last week
• Philippine President Rodrigo Duterte favoured to maintain the ban on open pit mining across the world’s top nickel ore exporter. The former environmental minister Regina Lopez moved to ban the practice during her 10 months in office as environmental degradation had the potential to ruin economic potential of mining regions. Despite recommendations from the newly elected Environment and natural Resources Secretary Roy Cimatu and the Mining Industry Coordinating Council (MICC), President Rodrigo’s final say maintained the restrictions.
• The nickel market is forecast to undergo significant tightening as elevated LME and SHFE stockpiles are rapidly consumed to support the stainless steel industry, while budding demand for nickel sulphates in battery technologies are expected to drive strong future consumption.
Zinc US$ 3,155/t vs US$3,158/t last week
Lead US$ 2,437/t vs US$2,420/t last week
Tin US$ 19,500/t vs US$19,430/t last week
           
Energy:           
Oil US$62.5/bbl vs US$61.7/bbl last week
• The world’s largest $1 trillion Norwegian sovereign wealth fund’s proposal to remove its oil and gas shares marked a symbolic shift towards a clean, renewable future. Although unlikely to be replicated by major investors in the short term, the move presents one of the biggest threats to companies such as Royal Dutch Shell, Exxon Mobil and BP as the world sentiment alters to sustainable energy.
Natural Gas US$3.059/mmbtu vs US$3.097/mmbtu last week
Uranium US$25.00/lb vs US$24.40/lb last week

Bulk:   
Iron ore 62% Fe spot (cfr Tianjin) US$61.7/t vs US$62.2/t - Hong Kong taking on Singapore for iron ore trading dominance
• Hong Kong Exchanges and Clearing started trading iron ore futures, challenging Singapore's leading position as futures trader for the commodity used in steelmaking
• Dollar-denominated futures contracts will go head to head with those offered by SGX, which started its first swap contracts in 2009 and is now the world's largest clearer of the derivatives
• As an incentive, all fees will be waived for the next six months
Chinese steel rebar 25mm US$656.5/t vs US$654.6/t
Thermal coal (1st year forward cif ARA) US$81.9/t vs US$82.0/t - Replacing Liddell coal plant with clean energy $1.3bn cheaper
• Governments plan to keep the Australian’s oldest coal fired plant open beyond its use by date would cost upwards of $1.3bn more than replacing it with mix of renewables and energy management systems
• Reports found that combination of wind power, demand management and energy efficiency would cost $2.2 billion over five years, compared to a cost of $3.6 billion to keep Liddell open for five years beyond its retirement age
Premium hard coking coal Aus fob US$188.9/t vs US$188.0/t
Lithium - UK based Hiab introduces electric truck and lithium ion forklift
• First electric powered skip loader truck – operates silently and with no emissions
• Said to be ideal for businesses that use urban deliveries or out of hour operations – forklift used by Pets at Home to make delivery’s
           
Other:  
Tungsten APT European US$271-285/mtu vs      US$275-285/mtu last week
Cobalt LME 3m US$61500/t vs US$61000/t last week
• Growing demand for the key ingredient of electric-car batteries is generating a competitive supply market as Volkswagen continues to hunt to secure long-term supplies of cobalt. The world’s largest automaker had requested producers to submit tender proposals on supplying cobalt for up to ten years from 2019 by the end of September, although the procurement issue remains unresolved.
• VW, who aim to manufacture up to three million EVs a year by 2025, plans to invest more than 20 billion euros ($23.5 billion) in its bid to challenge Tesla in creating a mass market.

Company News
Bacanora Minerals (BCN) 98p, Mkt Cap £130.1m – Seeking to set aside 3% royalty
• Bacanora Minerals reports that it is applying to the courts in Alberta “to void … a 3% gross over-riding royalty held by the estate of Colin Orr-Ewing over certain of the Company’s lithium assets in Sonora, Mexico.”
• The move comes after “The Board of Directors of Bacanora has completed a review of the historical background and concluded that no such pre-existing royalty existed and accordingly there was no basis for the grant of the royalty by the Company”. At this stage, there is no indication as to the expected timing of any adjudication by the Canadian court.
• Bacanora Minerals expects to complete the feasibility study for its Sonora lithium project during the current quarter and has restructured a number of the terms of employment of members of its senior executive team.
• Chief Executive, Peter Secker’s existing Canadian law contract is being terminated in favour of a new contract under English law which removes both a performance bonus of up to  £250,000 and a £250,000 change of control payment and increases Mr. Secker’s salary by £50,000pa as well as addressing new pension arrangements and a number of other issues.
• Mr. Secker and Bacanora’s Executive Chairman, Mark Hohnen, are to receive cash payments relating to accelerated “unvested options in the event of a change of control of the Company at an acquisition price of at least 130p per Bacanora share. Such cash payment will be calculated on the basis of the difference between the acquisition price per Bacanora Share and 102p (being the middle market price of a Bacanora share at close of business in London on 17 November 2017)”.
Conclusion: Bacanora is updating its executive compensation arrangements ahead of the imminent completion of the feasibility study for the Sonora Lithium Project. The decision to apply to set aside the royalty held by the late Colin Orr-Ewing will await the adjudication of the courts, however, we comment that it was Orr-Ewing’s vision and persistence over many years which laid the foundation for the project which is now close to being mapped out in detail in the forthcoming feasibility study.

Bushveld Minerals (BMN) 8.8p, mkt cap £70.6m – Vametco ramps up Nitrovan production as costs rise
BUY – Target price maintained at 11p
(Bushveld Minerals holds 26.6% of Vametco)
• Vametco, the ferro-vanadium producer in which Bushveld Minerals holds a 26.6% stake has reported key third quarter operational and financial figures.
• Production ramped up to a new higher run rate of 3,035tpa of ferro-vanadium in September vs our model of 2750tpa.
• Production is forecast to rise further to 3,750tpa by June 2018 indicating production of 3,392.5t through 2018 which is 23% ahead of our previous expectations for the year and represents a larger and faster ramp up of ferro-vanadium production both this year and next year.  Production is scheduled to rise to 5,000tpa of ferro-vanadium production by end-2019 as in our existing forecasts.
• Costs: rose by 23% yoy in Q3 due to an unplanned refractory repair to the kiln in the treatment plant in September and a further two weeks of planned maintenance is scheduled for the December quarter.  Maintenance is often carried out at end December in South Africa as the country largely shuts down for Christmas and Southern hemisphere summer holiday.
• Costs also rose through the year-to-date by 15.8% yoy.  This is partly due to the Q3 refractory repair but must also reflect some underlying inflationary pressure.  We will review our future cost assumptions with the company and feel that the ramp up in throughput and production should help to offset much of the cost inflation seen this year.  In general we expect a weakening in the South African rand to also offset local inflationary pressures.
• EBITDA: while the unexpected rise in costs of 15.8% for the year to date has a negative impact on our EBITDA forecast this is largely compensated for by the increase in the production run rate through the fourth quarter despite the two week maintenance shutdown in December.
Conclusion:  We have reduced our profit numbers on cost inflation and on the impact of the kiln repairs.  Our valuation is maintained though the faster than expected ramp up in ferro-vanadium (Nitrovan) production.
*An SP Angel Mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.

Vametco plant assuming 100%     2017 2018 2019 2020 2021
Price V2O5 $/lb  6.40  7.37  6.01  6.01  6.01
Vanadium flake price US$/kg  30.80  33.00  27.50  27.50  27.50
Vanadium sales kg  2,750  3,390  3,234  4,823  4,823
Sales US$m  80.46  106.28  84.49  125.99  125.99
Operating costs US$m  57.34  67.59  61.76  89.81  89.81
Operating costs US$/kg 20.85 19.94 19.10 18.62 18.62
Operating profit US$m  23.13  38.69  22.73  36.17  36.17
Pre-tax profit US$m  22.89  38.24  21.39  33.99  34.12
tax inc royalty US$m  7.60  12.32  8.73  14.92  14.92
Post-tax profit US$m  15.29  25.92  12.66  19.08  19.20
EPS US$c/s  1.89  3.21  1.57  2.36  2.38
PE x  6.2  3.7  7.5  5.0  5.0
EV/EBITDA x  4.1  2.5  4.2  2.6  2.6
Figures based on 100% of Vametco plant. Bushveld currently equity account for 26.6% of the Vametco plant

Crusader (CAS) A$0.08, mkt cap A$23.5m - Crusader appoints Marcus Engelbrecht, formerly at Stratex as ceo
Stratex (STI)
• Crusader must love something about London’s AIM market.
• Not only have they
• Mr Engelbrecht is to receive a salary package of US$360,000 inclusive of base salary, superannuation contributions, taxes and non-cash benefits.
• Short term incentive bonuses are payable in addition of US$360,000 at any time during 12 months the share price on a 10-day VWAP is at or above A$0.20/s.
• Performance rights are granted over 5% of shares in issue if the market cap of Crusader gets to A$150m
• Lets hope Crusader is quick to repay the loans Mr Engelbrecht and the board of Stratex paid out to Crusader following its failed takeover bid which was effectively voted down by Stratex shareholders.

Glencore (GLEN) 350.4 pence, Mkt Cap £50.4bn –Nominating 3 directors to Katanga Mining
• Glencore reports that it is nominating 3 directors to the board of 56% owned Katanga Mining following the resignation of three Katanga directors in the aftermath of an “internal review of certain of Katanga's historic accounting practices (the "Review") and the restatement of Katanga's financial statements. The Review was undertaken at the direction of the independent directors of Katanga, who engaged Canadian legal counsel, and an international accounting firm, to assist them in conducting the Review”.
• The new Glencore nominees include its CFO, Steven Kalmin and two un-named others “to work with the independent directors of Katanga to implement the required remediation measures to strengthen Katanga's corporate governance, compliance and control processes.”
• Glencore states that “The adjustments arising from the Review do not have a material adverse effect on the consolidated income, financial position or cash flows of Glencore.” The company also emphasises that “Glencore does not expect any change in the anticipated timing for the commissioning of the Whole Ore Leach project at Katanga.”
• The announcement also discloses that Katanga Mining is under investigation by the Ontario Securities Commission in a number of respects including the alleged filing of “periodic public disclosures contain statements that are misleading in a material respect and the adequacy of Katanga's corporate governance practices and compliance with those practices and the related conduct of certain directors and officers of Katanga. Katanga has also been advised that OSC enforcement staff are reviewing Katanga's risk disclosure in connection with applicable requirements under certain international bribery, government payment and anti-corruption laws.”
Conclusion: Glencore is strengthening its management control of Katanga Mining following the revelations of a number of shortcomings and continuing investigations into regulatory breaches and possible corruption allegations.

Highland Gold (HGM) 151p, Mkt Cap £490m – Novo JORC reserves and resources statement released
• Wardell Armstrong International (WAI) completed the update of the JORC-compliant reserves/resources following a 2014 re-evaluation of GKZ reserves.
• Proven and probable reserves are provided below including previous JORC-compliant estimates (2011) adjusted for mining dilution through 2011-16:
• Conclusion: Updated JORC reserves/resources come broadly in line with previous 2014 GKZ estimates (16,690kt at 3.59g/t AuEq) driving modelled grades in line with ROM grades. Previous JORC grades were inflated through mining dilution adjustments as mining operations delivered lower than modelled grades.
• Currently in development 1.3mtpa processing plant and mining operations expansion programme scheduled for commissioning in 2019 will accommodate higher ore tonnages helping to maintain production at 120koz on our estimates.
Ore Au Ag Pb Zn AuEq Au Ag Pb Zn AuEq
Novo PP reserves kt g/t g/t % % g/t koz koz kt kt koz
PP (2017) 17,991 1.81 35.73 0.96 0.53 3.3 1,047 20,667 173 95 1,909
PP (2011) 3,392 4.67 94.14 1.34 1.33 9.8 509 10,266 45 45 1,069
Prices used for conversion   1,279 20 2,008 2,001           
Source: Company          
• Updated Resources are provided below:
Ore Au Ag Pb Zn PbEq Au Ag Pb Zn
Novo PP resources kt g/t g/t % % % koz koz kt kt
Measured and Indicated 19,684 2.32 47.74 1.32 0.71 7.32 1,468 30,212 260 140
Inferred 4,462 1.09 34.46 1.01 0.69 4.34 156 4,944 45 31
Total 24,146 2.09 45.29 1.26 0.71 6.77 1,625 35,156 305 171
Source: Company         
New reserves/resources are calculated at a lower cut-off grade (1.6% PbEq).


Kodal Minerals* (KOD) 0.213p, Mkt Cap £13.9m – Lithium expert appointed as non-executive director
• Following the announcement earlier this month that Suay Chin International had completed its subscription for 20% of Kodal Minerals the company now reports the appointment of Dr. Qingtao Zeng as a non-executive director representing the interest of Suay Chin which, under the agreements between the companies, has the right to appoint a director while its holding exceeds 12% of Kodal Minerals.
• Dr. Zeng, holds a doctorate in geology from the University of Western Australia and is currently working as a consulting geologist with the international consulting group, CSA Global based in Perth.
• He seems particularly suited for the role with Kodal Minerals given that “Since 2015, Dr. Zeng has been extensively involved in the lithium exploration and development sector and through his strong network of contacts throughout China has helped clients complete a range of contracts relating to the supply or purchase of lithium in the form of concentrate or direct shipping ores”.
• Dr. Zeng has been granted options, exercisable at 0.38p per share for a period of 5 years, over 10m Kodal Minerals shares.
Conclusion: The appointment of an experienced technical consultant with extensive experience in lithium and a network of industry contacts in China as Suay Chin’s representative to Kodal’s board should bring important additional expertise to Kodal and help to cement its relations with its major shareholder.
*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.

Savannah Resources (SAV LN) 5.25p, Mkt cap £33.4m – Pilot plant commissioning underway at Mutamba
• Savannah Resources reports that it has completed construction and stared commissioning of its 20tph pilot plant at the Mutamba mineral sands project in Mozambique.
• The principal purpose of the pilot plant, which is expected to be fully commissioned by the end of 2017, is to produce bulk samples of mineral sand “concentrate for metallurgical and product test work.”
• The testing is “to act as proof-of-concept for future development model - currently targeting first production in 2020 with estimated average annual production of 456,000t of ilmenite and 118,000t of non-magnetic concentrate over a 30-year life of mine”.
• Commenting on the successful construction being achieved within both time and budget, CEO, David Archer, highlighted that “the completion of the plant is another key milestone for the Mutamba Consortium as we move the Project towards a development decision”.
• Mr. Archer went on to comment that “the overall market setting for TiO₂ feedstocks continues to improve and new supply of TiO₂ feedstocks will be required to meet forecast demand and to ease anticipated market tightness."
Conclusion: The pilot plant at Mutamba is expected to be fully operational before the end of the year and will help to provide detailed information to inform a production decision at a time when there is reported to be a supply deficit for mineral sands concentrates.

Shanta Gold (SHG) 3.5p, Mkt Cap £27m – New Sinigida resource + operations update
• Updated Singida JORC compliant resources statement prepared by independent consultants (Sphynx Consulting CC based in South Africa) have been released this morning.
• Measured and Indicated resources totalled 5.11mt at 2.09g/t for 345koz of gold.
• Inferred resources category amounted to 7.17mt at 1.66g/t for 383koz.
• The majority of the measured and indicated resources are close to surface (less than 120m).
• Current resource estimate includes three mining licenses and seven mineralised zones with a combined strike length of 4.9km, widths ranging from 5-15m and traced for around 500m below surface.
• The mineralisation is reported to remain open at depth and along strike with numerous parallel structures.
• The team is expecting to shortly launch new exploration programme targeting further resources and infill drilling of the inferred resources at Jem, Gold Tree and Corn Patch deposits.
• On operations update, the Company reported significant progress on the cost saving programme as well as improvements to the processing plant expected to yield better gold recoveries at the NLGM operations.
• The management achieved $5.1m in annualised cost reductions with full benefit expected in Q1/18 on the back of review of contracts with suppliers, a reduction in the headcount and further cuts in non-essential G&A.
• The team is planning to substitute cut and fill underground mining method at Luika to long hole open stoping which is estimated to save $3.6m in 2018.
• Additionally, the Company is expecting to put in an additional pre-leach tank for $0.5m to increase the residence time of processed gold in the circuit allowing to improve gold recoveries by 1.5-2.0pp from current 91-92%; the management expects a four month payback period.
Conclusion: Updated resources constitute a downgrade to previous JORC resources estimates with grades and gold contained down 35% and 15%, respectively. Singida remains an early stage project with the management planning to continue exploration works infill drilling previously delineated targets to increase confidence in the resource ahead of reserves update.
On a positive side, side the management is doing well identifying further cost cutting opportunities. Although, we hope changes to underground operations do not risk sustainability of the mine.

Australian Strategic Materials signs US$600 million LoI

Rowena Smith, CEO and managing director of Australian Strategic Materials Ltd (ASX:ASM, OTC:ASMMF), joins Jonathan Jackson in the Proactive studio to discuss the company’ s Dubbo Project, in Central West New South Wales. This project aims to extract and process critical minerals and rare earth...

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