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Morning View . Next-generation batteries to sustain cobalt demand

Published: 23:01 13 Feb 2018 AEDT

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Amur Minerals* (LON:AMC) – £10m convertible loan issued

Atalaya Mining (LON:ATYM) – Settling royalty for shares

Kodal Minerals* (LON:KOD) – Confirmation of Sogola-Baoule extension at Bougouni lithium project

MC Mining (formerly Coal of Africa) (LON:MCM) – Integrated water use licence secured for Vele Colliery

 

Lunar New Year

  • Trading activity is winding down ahead of the week-long Lunar New Year break that kicks off on Thursday. Many traders and workers across mills in China, the world’s top commodity producer, have taken leave and expectations are the market may only see a sharp revival in appetite next month.

  • Iron ore and steel demand is expected to remain in a lull into March, with no “major restocking activity soon after the holiday” according to a Shanghai iron ore trader.

  • Gold demand is expected to remain high during the festive period, building on the 3% rise in annual jewelry demand throughout 2017.

Demand growth combined with low stock levels and inelastic supply could make 2018 a good year for base metals

ABC News comments today that renewed demand and low stockpiles could make 2018 the year of the base metal

  • They highlight that wide industrial application and new technologies are driving demand, particularly from China which uses 50% of all base metals globally

BMW still looking for 10 year’s worth of Cobalt and Lithium supply

  • BMW’s procurement department continue to look ahead to secure 10 year supply of cobalt and lithium for EV batteries as part of new strategy according to comments to Germany’s Frankfurter Allgemeine Zeitung last week.

  • The head of supply chain, Markus Duesmann, said that ‘aim is to supply all the way down to the level of the mine, for 10 years. The contracts are ready to be signed,’

  • BMW is looking to release a series of all new electric vehicles starting with an electric mini next year, with plans for all 12 electric cars to be on the market by 2025

 

SP Angel rank No 1 in Copper price forecasting in the Q4 2017 MB APEX report

SP Angel analysts ranked:  See MB APEX report link for further details

  • 1st for copper, 1st = for gold, 2nd for Palladium, 3rd for Coking Coal, 5th for Zinc, 3rd in Q4 Precious Metals forecasts in Q4, 4th in Base Metals forecasting in Q4

SP Angel ranked No 1 for research by ‘Research Tree’ according to investor demand

 

 

Dow Jones Industrials

 

+1.70%

at

24,601

Nikkei 225

 

-0.65%

at

21,245

HK Hang Seng

 

+1.29%

at

29,840

Shanghai Composite

 

+0.98%

at

3,185

FTSE 350 Mining

 

+0.42%

at

18,147

AIM Basic Resources

 

+1.72%

at

2,529

 

Economics

US – The volatility in equity market is seen subsiding after the worst week in years has been followed by the strongest two-day increase in just over two years on Monday.

  • The S&P 500 closed 2.9% over the past two sessions.

  • The volatility index based on the CBOE VIX measure has come down to 27.2 this morning, down from a high of 37.3 recorded last week.

 

China – New credit surged in January ahead of Chinese New Year, although, the trend in money supply growth remains downward as the government continues with the deleveraging programme.

  • Despite stronger than forecast new credit numbers for January, the gauge was down 17.2%yoy.

  • Aggregate Financing (CNYbn): 3,060 v 1,140 in December and 3,150 forecast.

  • M2 Money Supply (%yoy): 8.6 v 8.2 in December and 8.2 forecast.

 

UK – Inflation data came in stronger than forecast in January raising expectations for a rate hike this year.

  • Weak price pressures in auto fueld and food prices were compensated by increasing costs in the recreation and culture sectors; additionally, clothing prices recorded weaker losses than last year as seasonal discounts failed to match those in 2017.

  • Markets currently price in around three interest rate hikes over the next three years, with the first coming as early as May.

  • The pound jumped past the 1.39 mark on the back of the news before coming off slightly trading at 1.388.

  • CPI (%mom/yoy): -0.5/+3.0 v 0.4/3.0 in December and -0.6/+2.9 forecast.

  • Core CPI (%yoy): 2.7 v 2.5 in December and 2.6 forecast.

 

South Africa – The ANC party has asked President Jacob Zuma to resign paving the way for Cyril Ramaphosa to take power, according to people familiar with the decision BBC report.

  • The ANC national executive committee has reached the decision following a 13-hour meeting with an official letter confirming the ousting of Mr Zuma to be sent later today.

  • Interestingly, the NEC has not legal binding power to remove Mr Zuma from the office and should the President disagree with the decision the official no-confidence vote will have to be launched through parliament.

  • In case of a resignation, Mr Ramaphosa will immediately replace the President for a period of up to 30 days before parliament confirms his candidature.

  • The rand has been little changed against the US$ this morning hovering around the strongest level since mid-2015 on the back of expected changes in the government.

 

Currencies

US$1.2326/eur vs 1.2263/eur yesterday  Yen 107.65/$ vs 108.54/$  SAr 11.930/$ vs 11.967/$  $1.386/gbp vs $1.382/gbp  0.787/aud vs 0.781/aud  CNY 6.343/$ vs 6.324/$

 

Commodity News

Precious metals:         

Gold US$1,329/oz vs US$1,321/oz yesterday

  • Gold advances for its second day as the dollar retreats and equity markets begin to stabilize following last week’s selloff. The S&P 500 regained 1.4% during yesterday’s trading following the biggest weekly rout in two years. Oanda trading analysis note “prices were supported by a weaker dollar and physical demand ahead of the Chinese Lunar New Year. The equity market carnage has abated, and the waves of cross-assets selling to replenish equity margins have temporarily decreased, providing calmer market to reestablish gold longs”.

  • Investors await tomorrow’s US consumer-price index data as a signal on inflation views and indication of the pace of monetary tightening. “Prices should remain within a range ahead of this weeks’ US inflation data as the CPI will be a monster print for the markets’ inflation views, and could provide a catalyst for gold to bounce higher”.

  • As yields on 10-year Treasuries sit near 2014 highs at 2.83%, billionaire hedge fund manager Ray Dalio notes the risk of recession in the next 18 to 24 months is rising.

   Gold ETFs 71.8moz vs US$71.8moz yesterday

Platinum US$974/oz vs US$968/oz yesterday

Palladium US$984/oz vs US$987/oz yesterday

Silver US$16.64/oz vs US$16.43/oz yesterday

           

Base metals:   

Copper US$ 6,919/t vs US$6,825/t yesterday

  • Higher copper prices and new labour rules in Chile are driving broad wage negotiations across the world’s top supplier of the red metal. One of the most anticipated at BHP Billiton’s Escondida mine lies in the hands of the company, according to Union No.1 spokesman Carlos Allendes. Despite the historically fractious relationship, the doors are open to dialogue. If the company maintains the same position as the last negotiation, the union doesn’t rule out actions including a strike.

  • This intensifies concerns over significant supply disruptions as wage talks between Union No.1 and BHP failed in February last year and workers went on a 44-day strike that ended with no accord.

Aluminium US$ 2,144/t vs US$2,130/t yesterday

Nickel US$ 13,185/t vs US$13,030/t yesterday

Zinc US$ 3,416/t vs US$3,385/t yesterday

Lead US$ 2,510/t vs US$2,520/t yesterday

Tin US$ 21,200/t vs US$21,140/t yesterday

           

Energy:           

Oil US$62.9/bbl vs US$63.4/bbl yesterday

  • Hedge funds have begun liquidating record bullish positions in crude oil and refined fuels as the recent rally reverses amid signs that US shale production is surging. The hedge funds and other money managers cut their combined long position in six most important futures and options contracts linked to petroleum by the equivalent of 41 million barrels in the week to Feb. 6.

Natural Gas US$2.610/mmbtu vs US$2.575/mmbtu yesterday

Uranium US$21.65/lb vs US$21.50/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$74.9/t vs US$74.0/t

Chinese steel rebar 25mm US$638.2/t vs US$640.1/t

Thermal coal (1st year forward cif ARA) US$78.8/t vs US$75.8/t

Premium hard coking coal Aus fob US$231.7/t vs US$228.4/t

 

Other:  

Tungsten APT European US$319-325/mtu vs US$317-325/mtu last week

Cobalt LME 3m US$81,250.0/t vs US$81,250.0/t

  • Despite next-generation lithium-ion batteries evolving towards higher nickel consumption, markers of electric vehicle batteries will have to continue using the scarce, expensive cobalt for the foreseeable future according to materials technology company Umicore. Manufacturers are trying to redesign battery compositions to increase the proportion of nickel used in electric vehicle batteries to boost energy density, while reducing cobalt use to cut costs.

  • South Korea’s SK Innovation and LG Chem have recently announced plans to produce NMC (nickel-manganese-cobalt) 811 batteries (80%-10%-10%) this year. However, Umicore chief executive Marc Grynberg noted that while the technology was evolving toward higher nickel loadings, it was not possible to design cobalt out of the batteries. “If you increase the nickel proportion, you reduce the stability of the battery and so it has an impact on cycle life, the ability to charge it fast. Cobalt is the element that makes up for the lack of stability of nickel. There isn’t a better element than nickel to increase energy density, and there isn’t a better element than cobalt to make the stuff stable. So (while) you hear about designing out cobalt, this is not going to happen in the next three decades.”

  • Belgium’s Umicore raised $1.1 billion in an equity placing to fund investment in its fast expanding rechargeable battery material business, supplying broad materials including cobalt.

  • In the near-term, enough cobalt is being produced to meet demand from the electric vehicle industry, with Umicore sourcing Congolese metal via a responsible supply agreement audited by PwC. Long-term supply will require significant advancement in recycled material. The company expects to ramp up recycling of spent electric vehicle batteries to “significant” levels in the next seven to nine years, when more feedstock returns to the market. “If you look at a more mature market, like the market for catalysts that contain platinum group metals, about half of our supply is coming from recycling”.

  • Further minor metals trading house Darton Commodities forecast a 40% growth in cobalt usage in electric vehicle batteries to 12,600 tonnes in 2018. This represents a 1,500 tonne surplus this year as global supply increases.

  • Deficits are expected to return in 2021, and deepen in following years as EV sales surge. “Any surplus availability, be it as unrefined feed or refined downstream products, is likely to be absorbed and stockpiled by other market players in anticipation of renewed, future supply constraints”.

 

Lithium

  • South Korean entities are “moving faster than just about everybody else”, including Europe and North America to lock in sources of lithium supply; second only to China in seeking deals. Pilbara Minerals Ltd. CEO Ken Brinsden has been in discussions with LG Chem Ltd. and Polaris Shipping Co. on a potential South Koreas JV. Meanwhile, the company has multiple engagements with other SK entities not focused on vehicle manufacture, and is continuing to work on potential supply deals with the aim of being a diversified supplier by customer, segment and country.

  • The major Australian spodumene hard rock producer has ~200,000 tonnes of output from its expansion project that is currently uncommitted, with Pilgangoora on track to begin commissioning in 2Q, with first shipment by end of July.  

 

Company News

Amur Minerals* (AMC LN) 6.0p, Mkt Cap £38.1m - £10m convertible loan issued

  • The Company agreed a 8% up to $10m loan facility with an investment consortium of Cuart Investments and Y A II PN arranged by RiverFort Global Capital.

  • Loan proceeds will be used for resources/reserves update, update of the economic model, metallurgical test work and G&A.

  • The loan will consist of three tranches ($4m, up to $3m and the remainder of $10m) to be made available to the Company through the year and to be drawn at the Company discretion, approximately 120 days apart between each tranche.

  • The first $4m drawdown to be made tomorrow with a maturity of 13 March 2019.

  • Each drawdown is repayable in 12 equal instalments, including accrued interest.

  • Should the Company elect not to make a periodic repayment, loan providers can convert the instalment into new shares at own discretion.

  • The conversion price is the lower of 130% of the Reference Price (the 20 trading days VWAP immediately prior to the date of each drawdown) or 90% of the lowest daily VWAP over the five trading days before the conversion.

  • The Company can repay all outstanding amounts of an advance before the end of the loan facility if VWAP for five trading days prior to the redemption notice comes in below 130% of Reference Price, but the amount payable will be 110% of the amount due.

  • Additionally, investors will receive warrants for 30% of the value of each drawdown with an exercise price of 130% of the price of the advance and an exercise period of three years.

  • Following the draw down of the first $4m tranche, the Company will issue 9.3m warrants with an exercise price of 9.3p (implying 7.2p the Reference Price).

  • At no point investors can convert into new shares if doing so will take their stake in the Company to 25% or more.

Conclusion: The funds secured will help the Company to advance the Kun Manie nickel/copper sulphide project as the management is studying long term financing alternatives with Medea Financial Partners. Using the 7.2p Reference Price for the first tranche and 1.4 GBPUSD exchange rate as well as assuming share price trades around the Reference Price during the conversion period, we estimate the first tranche (including accrued interest) potentially amounting to 47.6m in new shares or 7.5% of outstanding share capital (excluding 9.3m in warrants).

*SP Angel act as Nomad and Broker to Amur Minerals

 

Atalaya Mining (LON:ATYM) 191 pence, Mkt Cap £258m – Settling royalty for shares

  • Atalaya Mining reports that it has issued 192,540 shares at a price of 186.7p/share in settlement of a US$500m outstanding royalty to the former owner of certain plots of land at its Proyecto TioTinto mine.

  • The royalty holder, Rumbo, “is entitled to receive a royalty payment of up to US$250,000 per quarter if the average copper sales price or LME price for the period is equal to or above $2.60/lb. As such, and given the fact that the average copper price for the third and fourth quarter of 2017 was above $2.60/lb, the Company is obliged to pay US$500,000 to Rumbo”.

  • The company and Rumbo “remain engaged in discussions over how to satisfy future payments, should they be required as per the Royalty Agreement.”

Conclusion: The company’s website discloses that at 1st January 2017, it had 116,679,555 shares in issue. The issue of shares to Rumbo to settle the outstanding royalty represents, therefore, less than 0.2% of the capital of Atalaya Mining. We look forward to further news on the outcome of the discussions regarding future royalty payments to Rumbo.

 

Kodal Minerals* (LON:KOD) 0.19p, mkt cap £12.6m – Confirmation of Sogola-Baoule extension at Bougouni lithium project

  • Kodal Minerals reports that the final assay results from its recently completed 1263m of reverse circulation drilling in ten holes at the Sogola-Baoule prospect have confirmed the south-western extension of multiple mineralised pegmatite veins which were previously identified in drill hole MDRCO15 including 12m at an average grade of 1.68% Li2O from a depth of 216m, a second 12m long intersection averaging 1.59% Li2O from 241m and 17m at an average grade of 1.79% Li2O from 277m depth.

  • The recent programme was intended to explore the “continuity of these intersections, to target the up-dip and potential near-surface mineralisation and extend the project.”

  • “Geological logging and evaluation of the drilling has confirmed multiple mineralised pegmatite veins and extensions to the defined bodies.” Among the new results highlighted in today’s announcement are:

    • A 24m long intersection at an average grade of 1.58% Li2O from a depth of 115m in hole MDRC026;

    • An 8m long intersection at an average grade of 1.50% Li2O from a depth of 133m in hole MDRC025, which also contained a second 2 metres wide zone of mineralisation averaging 1.71% Li2O from 148m;

    • A 13m long intersection at an average grade of 1.17% Li2O from a depth of 101m in hole MDRC027, which contained three additional mineralised zones at shallower depths, including 1m averaging 1.16% Li2O from 23m, 6m averaging 1.12% Li2O 33m and 7m averaging 0.70% Li2O from 86m; as well as

    • 3 separate intersections exceeding 1% Li2O in hole MDRC021B - 5m averaging 1.50% from a depth of 81m; 6m averaging 1.0% from 91m and 12m averaging 1.69% Li2O from a depth of 110m.

  • The company points out that the mineralisation lies beneath up to 14m of alluvial cover and that “Additional drill testing is proposed to target the extensions both to the southwest and northeast and provide additional data to allow an evaluation of the prospect.”

  • Confirming that “The geological interpretation is showing continuity of high-grade pegmatite bodies that currently remain open along strike”, CEO, Bernard Aylward noted that Sogola Baoule was the second of the targets at Bougouni “that we have now been able to drill test over a consistent strike length”. He went on to comment that “As our exploration campaign continues at Bougouni we anticipate further results from the Ngoualana prospect where geological logging of drill holes indicates further strike extensions, and geological reconnaissance has located evidence of pegmatite bodies beyond the current drilling”.

Conclusion: The recent drilling by Kodal Minerals continues to extend the footprint of the lithium mineralisation at Bougouni. Although there is not yet a resource estimate and consequently no mine plan, the identification of multiple mineralised structures within the licence has the potential to generate operational cost savings through a possible future bulk mining development.

*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.

 

MC Mining (formerly Coal of Africa) (LON:MCM) 39.5 pence, Mkt Cap £55.6m –Integrated water use licence secured for Vele Colliery

  • MC Mining , which changed its name from Coal of Africa in December 2017, has announced that the South African Department of Water and Sanitation has granted its Vele Colliery an Integrated Water Use Licence for colliery’s “stream diversion and associated infrastructural activities.”

  • The company comments that “This approval completes the full regulatory suite of all authorisations required for the Vele Colliery.”

  • This now clears the way for the MC Mining Board to consider “the final decision on whether to proceed with the Plant Modification Project”.

  •  The Vele Colliery, which lies close to the Zimbabwe border, has been on care and maintenance since October 2013, however with 362mt of mineable resources and a planned 16 year mine life as an open-pit mine with the potential to extend into underground operations, it represents a significant asset. The plant Modification project, if approved, enables upgrading of the previously produced thermal coal product to include a semi-soft coking product.

 

Conclusion: We understand that the project has suffered issues of product quality and relatively poor yields in the past, and we await further news of the Board’s decision on whether to proceed with the development following resolution of the regulatory issues.

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