SP Angel – Morning View – Thursday 25 04 19
Twin risks to hit Chinese steel sector
MiFID II exempt information – see disclaimer below
Bluebird Merchant Ventures* (LON:BMV) – Fast progress in Kochang mining permit application. Gubong permit questions answered.
Highland Gold (LON:HGM) – Q1 production +9% yoy in Q1/19
Rambler Metals & Mining* (LON:RMM) – Nomad and Broker appointment
Anzac Day today in Australia and New Zealand
- We remember the Australian and New Zealand soldiers fallen at Gallipoli and in the war.
Twin risks to hit Chinese steel sector
- Top Chinese steel mill offers a ‘one-two’ warning about the outlook, saying it sees the twin risk of slowing demand and rising output across the country that accounts for half global production.
- Contraction in industries including property and autos will slow consumption this year, although infrastructure remains relatively robust, Baoshan Iron & Steel Co. reported in addition to a record profit for 2018. Exports are set to drop amid global trade frictions while supply may expand, said the listed unit of China’s biggest steelmaker, China Baowu Steel Group.
- Mainland steel market sets the tone for global industry conditions, with trends in demand, supply, pricing and exports carrying implications for mills around the globe.
- The downbeat outlook from Baosteel contrasts with a run of positive signals from Asia’s biggest economy as first-quarter growth topped expectations, steel prices rebounded and mills’ profitability improved.
- While record profits were recorded in 2018, the net income in the first quarter 2019 slumped 46% to 2.73bn yuan, struck by surging iron ore prices.
- Full-year sales of steel products are expected to drop to 46.8mt in 2019 compared with 47.1mt in 2018, while revenue slides to 273.1bn yuan from 305.2bn, Shanghai-based Baosteel said.
- Steel demand was also struck by slowing auto consumption, with the Chinese auto market shrinking for the first time in almost three decades in 2018 as the economy faltered and the trade war with the US hurt spending.
- Domestic supply is also expected to continue rising, beyond record quarterly levels – climbing 10% between January and March to 231mt. Nationwide steel supply faces pressure to increase as new facilities gradually come on line under a swap-program with idled capacity.
South Africa – the South African Labour Registrar threatens to deregister the AMCU union
- The Registrar of Labour Relations is threatening to deregister the militant AMCU union.
- ‘The AMCU union has ceased to function in terms of its constitution and is not a genuine trade union as envisaged in the act’
- The AMCU union has violated its own rules by not holding a national congress for more than 5 years which means the senior officials have not been elected as they should have been.
- This is a victory for the NUM which was formerly run by Cyril Ramaphosa. A number of Gold and platinum mining companies will breathe a major sigh of relief.
- This is great news for AngloGold and also for Sibanye Stillwater and its takeover of Lonmin. This is also a good day for South Africa.
New UN law could open deep sea mining
- The quest for battery metals may inject momentum into a long UN process to agree a law on deep sea mining, which could be adopted by the end of 2020, according to the International Seabed Authority.
- Of the more than 160 ISA member states, China is the most active, with also strong interest from European countries including Belgium, Britain, Germany and Poland.
- While minerals could support growing green technologies, there is strong environmental push-back with the deep sea offering one of the last pristine areas of the planet with species barely understood.
- Glencore has a small, undisclosed stake in private DeepGreen which would eventually offer 50% of any copper and nickel output collected from deep sea nodules.
- While miners have been mining for diamonds offshore Namibia there remain key questions over the economics of deep-sea mining.
China foreign waste ban creates global plastic recycling chaos
- China’s decision to stop accepting almost all foreign waste had “major recycling centres looking for a new home as well as the companies that ship the plastic waste scrambling to find alternatives. It was like an earthquake”, according to Arnaud Brunet, director general of Brussels-based industry group The Bureau of International Recycling.
- Most major recyclers have looked to other locations in Southeast Asia to continue their businesses with many choosing Malaysia as their new home. Reports from the countries officials suggest plastic imports tripled from 2016 levels to 870,000t last year.
- China’s bid to improve its environmental impact responded to the toxic process required to melt plastics down to form plastic pellets, and control over illegal operations. Poorly maintained factors cause huge volumes of toxic fumes that can significantly lower local air quality.
- Developed nations like Australia are facing huge cost increases to process waste domestically.
- Founder of environmental NGO China Zero Waste Alliance reports the only evidence of a once thriving recycling centre was empty factories and job ads for experienced recycling personnel in Vietnam.
- The ban from China has not halted the waste commodity, simply moved it sideways.
- As the spike in imports hit Thailand and Vietnam, fresh limits have been created.
- These imports are now expected to head towards countries will less strict legislation like Turkey and Indonesia.
- Despite a strong drive to recycling plastics, only 9% of the world’s plastic is recycled.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – Equities inched lower amid concerns over the health of the global economy a day after the S&P 500 closed at record high on Tuesday.
- Recently companies like Twitter, Lockheed Martin and United Technologies reported robust results easing concerns of a sharp earnings slowdown.
- Boeing, Texas Instruments and eBay were among the companies whose stocks were rising Wednesday following their latest numbers, the WSJ reports.
- Microsoft reported Q3 earnings that beat analysts’ expectations and revenue topped estimates, yesterday.
- Nearly 78% of the 129 companies from S&P 500 index that have reported so far have surpassed earnings estimates, according to Refinitiv data.
Japan – The BoJ committed to keep rates low before spring 2020 highlighting central bank concerns over little progress in bringing inflation rate to the 2% target.
- Additionally, it also relaxed collateral conditions and fees on several of its lending facilities.
- The central bank will now accept BBB-rated corporate bonds as collateral.
- The BoJ warned over risks to the economic outlook saying Japan had been “affected by the slowdown in overseas economies for the time being (and that there are) high uncertainties regarding the outlook for economic activity and prices”, FT reports.
- 2020 fiscal year (Apr/19 start) growth forecasts have been cut to 0.9% v 1.0% estimated previously in January.
South Korea – The economy unexpectedly posted a 0.3%qoq contraction in Q1 marking the first negative reading since Q4/17.
- Growth has been dragged down by declines in exports (-2.6%qoq) and business investment (-10.8%qoq) as well as weak consumer spending (0.1%qoq).
- Previously, the central bank called concerns over a recession “excessive” and forecast the economy to grow 2.5% this year (revised from 2.6% estimated in January).
- GDP (%qoq/yoy): -0.3/+1.8 v 1.0/3.1 in Q4/18 and 0.3/2.4 forecast.
US$1.1150/eur vs 1.1210/eur yesterday Yen 111.79/$ vs 111.83/$ SAr 14.469/$ vs 14.372/$ $1.290/gbp vs $1.293/gbp 0.701/aud vs 0.704/aud CNY 6.736/$ vs 6.724/$
Gold US$1,278/oz vs US$1,270/oz yesterday
Gold ETFs 71.2moz vs US$71.3moz yesterday
Platinum US$887/oz vs US$888/oz yesterday
Palladium US$1,419/oz vs US$1,390/oz yesterday
Silver US$14.95/oz vs US$14.81/oz yesterday
Copper US$ 6,448/t vs US$6,411/t yesterday
Aluminium US$ 1,872/t vs US$1,874/t yesterday
Nickel US$ 12,407/t vs US$12,410/t yesterday
Zinc US$ 2,742/t vs US$2,732/t yesterday
Lead US$ 1,925/t vs US$1,924/t yesterday
Tin US$ 19,700/t vs US$19,760/t yesterday
Oil US$74.9/bbl vs US$74.1/bbl yesterday
Natural Gas US$2.467/mmbtu vs US$2.464/mmbtu yesterday
Uranium US$25.70/lb vs US$25.70/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$90.4/t vs US$91.4/t
Chinese steel rebar 25mm US$644.2/t vs US$650.9/t
Thermal coal (1st year forward cif ARA) US$72.0/t vs US$74.7/t
Coking coal futures Dalian Exchange US$179.6/t vs US$180.9/t
Cobalt LME 3m US$34,500/t vs US$34,500/t
NdPr Rare Earth Oxide (China) US$39,713/t vs US$39,782/t
Lithium carbonate 99% (China) US$9,650/t vs US$9,667/t
Ferro Vanadium 80% FOB (China) US$51.5/kg vs US$51.5/kg
Antimony Trioxide 99.5% EU (China) US$6.2/kg vs US$6.2/kg
Tungsten APT European US$270-282/mtu vs US$270-282/mtu
Tesla German factory
- Tesla continues to explore global expansion, currently building a new factory in China to complement its US operation, while considering a new facility in German.
- Tesla already operates its Fremont factory, which supplies vehicles around the world, but Tesla is currently building a factory in Shanghai to supply the least expensive versions of Model 3 and Model Y to the Chinese market and reduce logistics costs related to importing vehicles from the US.
- Last year, Musk says that Germany is the “leading choice” for a factory in Europe and he even specified that “the German-French border makes sense” for a factory near the Benelux countries.
- The electric automaker already has a facility in Tilburg, Netherlands, however it is only sed for ‘final assembly’ of the Model S and Model X vehicles.
Report reveals worsening US air pollution
- A new report shows air pollution is getting worse in the US, and the current Environmental Protection Agency’s efforts to weaken emissions regulations on cars and power plants are seen as a major threat to improving the state of affairs.
- The American Lung Association released its 20th annual “State of the Air” report, which focuses on the years 2015-2017. In these years, “more cities had high days of ozone and short-term particle pollution compared to 2014-2016.”
- Many cities also suffered from increased levels of year-round particle pollution.
- The report found that 141m Americans, about 43% of the population, live in counties that have monitored unhealthy ozone and/or particle pollution. While that’s an increase from 2014-2016, it’s still a big improvement from 2012-2014, which saw 166m Americans experience unhealthy pollution.
- The association has concerns with the direction of the Environmental Protection Agency under the Trump Administration.
- The report identifies a number of “key threats” toward halting the country’s progress toward cleaner air, first being the EPA’s efforts to “dismantle our nation’s best federal plan to limit carbon pollution from power plants, the Clean Power Plan.”
- Other threats identified are the EPA’s proposed steps to weaken methane regulations, and the plan to roll back fuel economy standards, which will lead to more pollution from cars and trucks.
San Francisco first US city to intro 100% renewable electricity requirement for commercial buildings
- San Francisco has unveiled a plan that would require its largest private commercial buildings to run on 100% renewable electricity, a first in the US.
- Mayor London Breed made the announcement on Earth Day, making San Francisco the latest major American city to unveil a plan for reducing emissions from its buildings. New York City approved a similar plan last week.
- While New York’s plan requires emission cuts from its largest buildings, San Francisco would specifically require buildings to run on electricity generated by renewables. The city’s requirement is expected to reduce 21% of emissions from commercial buildings by 2030, when the entire city aims to run on 100% renewable electricity.
- Almost half of San Francisco’s emissions come from its buildings, and the city says half of those emissions come from commercial buildings.
- San Francisco says it has already reduced its greenhouse gas emissions 36% below 1990 levels. Emissions from buildings and transport make up about 90% of the city’s total emissions, according to San Francisco’s Department of the Environment.
Anglo American (LON:AAL) 2057.5 pence, Mkt Cap £26.61bn – Production report shows mixed results
- Anglo American reports a mixed production performance for the quarter to 31st March with increased copper production offset by lower levels of metallurgical coal output resulting from two planned longwall moves compared to one in Q1 2018 and “isolated production issues” affecting the diamond, iron-ore and platinum operations.
- Overall, the company says that “Production is 6% lower in the quarter … [with] … Metallurgical Coal accounting for 80% of the reduction”. The company is, however, maintaining its metallurgical coal production guidance for 2019 at 22-24mt reflecting the planned nature of the lower output in the quarter.
- Copper production was 4% higher than in Q1 2018 at 161,100 tonnes which the company describes as the “the best first quarter performance since 2014, with strong performance at all operations”.
- Higher grades at the Los Bronces mine (0.8% copper compared to 0.71%) pushed output up by 8% to 91,700tonnes while higher grades at El Soldado (0.84% compared to 0.67%) increased output by 30% to 12,100 tonnes. Strong plant performance at Collahuasi offset by lower grades resulted in a 5% decline in attributable production to 57,300t. The company’s 2019 copper production guidance remains unchanged at 630-660,000tonnes.
- Production of metallurgical coal fell by 25% to 4.2mt (Q1 2018 – 5.5mt) as a result of longwall moves at both the Moranbah and Grasstree mines while in Q1 2018 only Grasstree was affected. The company explains that an extended longwall move at Moranbah lasted 15 weeks “enabling additional maintenance to be completed that will shorten a second longwall move planned for the second half of 2019.”
- Thermal coal exports from South Africa rose by 2% to 4.4mt while domestic coal production “decreased by 54% to 2.3 million tonnes mainly due to the completion of the sale of the Eskom-tied operations (New Vaal, New Denmark and Kriel) to Seriti on 1 March 2018.”
- In Colombia, “Attributable export thermal coal production from Cerrejón decreased by 10% to 2.2 million tonnes due to dust management restrictions”
- The 8% decline in diamond output to 7.9m carats are attributed to moves to change operations at the Venetia mine in South Africa from open-pit to underground operations with Venetia’s production declining by 65% to 382,000 carats (Q1 2018 – 1.09m carats) while production at the largest producer, Debswana, rose by 2% to 5.95m carats (Q1 2018 – 5.81m carats).
- Namibian and Canadian diamond output declined by 9% (to 483,000 carats) and by 3% (to 1.04m carats (Q1 2018 – 1.07m carats) respectively. Diamond production guidance for the full year remains unchanged in the 31-33m carats range.
- Platinum and palladium output declined by 5% (to 471,900oz) and by 6% (to 326,600oz) respectively reflecting the impact of “operational challenges … exacerbated by power disruptions.” Platinum and palladium production guidance is unchanged with the company expecting to produce between 2.0-2.1moz of platinum and 1.3-1.4moz of palladium.
- Lower iron ore output at Sishen (down 12% to 6.4mt) as a result of “unscheduled plant maintenance” contributed to a 12% reduction in Kumba’s output, however, the restart of operations at Minas Rio during December and a smooth ramp up of production saw iron ore production increase by 61% to 4.9mt. Production guidance for the full year remains unchanged at 43-44mt for Kumba and 18-20mt for Minas Rio.
- Anglo American reports a 19% increase (to US$69m) in its expenditure on exploration and evaluation. Exploration expenditure increased by 15% to $23m “driven by drilling activities at Sakatti (copper-nickel-PGMs) in Finland and increased work in our PGMs and Kumba Iron Ore businesses. Evaluation expenditure increased by 21% to $46 million driven by increased work on the Los Bronces Underground Project (Copper) in Chile.”
Conclusion: Largely planned reductions in output during the quarter has left Anglo American’s production guidance intact across its spread of commodities. The restart of Minas Rio and the strong performance of the copper operations are both positive news as is the performance of Debswana.
Bluebird Merchant Ventures* (LON:BMV) 2.3p, Mkt Cap £5m – Fast progress in Kochang mining permit application. Gubong permit questions answered.
(Bluebird hold 50% of the Gubong and Kochang licenses in jv with Southern Gold Ltd)
- Bluebird report further positive progress on the mining application process to reopen the Gubong and Kochang gold mines in South Korea.
- Gubong: The team have answered technical questions relating to the Gubong mine reopening application and have replied on their relationship with the local community.
- “Further to the previous announcement on 9 April 2019, the Joint Venture Company has now submitted a reply to the Provincial Government who had requested clarification and additional information, mostly of a technical nature, to support the Gubong application. One of the requests was regarding our relationships with the community going forward. The Company provided its anticipated Community Development Programme and also a letter, signed by a number of the local residents, supporting the reopening of the mine. The Company expects that the response will enable the application to reopen the mine to progress and reach a successful conclusion.”
- Kochang: application appears to be proceeding faster than previously envisaged
- “The Company announced on 12 March 2019 the application for the permit to develop the Kochang Mine was made on 8 March 2019. The Kochang application has progressed faster than expected and the request for additional information was minimal. The Joint Venture Company has now submitted the response and expects the application to reach a successful conclusion. In addition to the response, the Company is pleased to note that the County authorities, whose opinion is sought by the relevant Province, wished the Company well in its endeavours to bring the industry back to the county.”
- Colin Patterson, CEO, commented: “As previously stated, in four decades of working in the mining industry, I have never seen such efficiency with regard to permit application processing as we are experiencing with the South Korean authorities. This bodes very well for Bluebird as we advance towards gold production.”
Conclusion: It is encouraging and relatively rare for mine permit applications to progress so rapidly and so smoothly and is testament to the efficiency of the South Korean system that the applications are progressing so well.
Reopening old mines is a specialist business best handled by seasoned professionals such as the Bluebird team. The reopening should help in some aspects of remediation of some legacy environmental issues while modern gold and sliver recovery processes should improve on the historic economics.
The company should benefit from early cash flow from small scale processing of gold and sliver ores from within the stopes. While the mines are not expected to be particularly labour intensive, a combination of technology and access to a contract mining company in the Philippines who do international work should help the move to initial production.
Bluebird appears to enjoy an unusually positive relationship with the government and local authorities and looks well placed to help expand the mining industry in South Korea.
*SP Angel act as broker to Bluebird Merchant Ventures
Firestone Diamonds (LON:FDI) 2.025 pence, Mkt Cap £11.5m – Liqhobong mine sales benefit from large high quality diamonds
- Firestone Diamonds reports that it produced 155,206 carats of diamonds during Q3 ending 31st March bringing the total for the FYTD to 620,926 carats.
- Sales of 211,368 carats of diamonds, including a number of large, high value stone such as a 46 carat white diamond ,helped to increase the average sales price to US$80/carat (Q2 2018/19 – US$72/carat).
- CEO, Paul Bosma, commented that “We spent most of the third quarter mining in the lower grade northern part of the pit and it was pleasing to see an increase in average diamond value which resulted in improved revenue for the quarter”. He went on to say “During the final quarter of the year, mining will return to the higher grade, southern part of the pit. Waste stripping is accelerating according to plan and we achieved our highest ever monthly tonnes moved in March.”
- Reporting on the diamond market, Firestone Diamonds says that as well as the impact of the high value diamonds from Liqhobong, “it was also encouraging to see a modest increase in the average value realised for the smaller, lower value goods.”
- The company also said that “Alrosa's March sale also saw an increase compared to the previous sale (+9%) and commented that the market is gradually stabilizing and the demand for smaller-sized stones demonstrated recovery in the first quarter. Subsequently, in April, De Beers announced its best sale for 2019, commenting that demand was stable. We share the same cautious optimism expressed by many other diamond producers regarding diamond prices in the second quarter of 2019”.
- Firestone Diamonds reports that its operations continue “to generate positive cash flows after finance costs; with net cash as at 31 March 2019 of US$29.9 million (Q2: US$26.2 million).”
Conclusion: Firestone Diamonds is seeing the benefit of the larger higher quality diamonds from its Liqhobong mine. The discovery of a number of these stones since the end of the quarter, including a 72 carat yellow and 22 and 11 carat white diamonds, suggest that this trend will continue into the final quarter.
Highland Gold (LON:HGM) 164p, Mkt Cap £598m – Q1 production +9% yoy in Q1/19
- Q1 production (excluding newly acquired Valunisty) totalled 64.7koz, up 9%yoy and broadly in line with Q4/18.
- Valunisty operations added further 7.3koz (Q1/18: 11.2koz).
- MNV recorded a 58%yoy increase in production to 30.6koz as the plant throughput recovered to full capacity following mechanical issues in the milling circuit last year. The temporary closure of one of underground’s adits following avalanches last December had only negligible effect on mining operations with high grade underground ore (191kt at 4.18g/t) accounting for more than half of the plant feed.
- BG production amounted to 11.8koz, in line with Q4/18 and up 31%yoy, on the back of higher throughput after the Company resolved seasonal problems with water supply that reduced capacity in Q1/18.
- Novo production totalled 22.3koz, +3.3%qoq and -28%yoy, reflecting lower processed grades (4.18g/t GE v 5.80g/t GE in Q1/18) which in turn also saw metal recoveries dropping few percentage points (78.1% v 81.2% in Q1/18). Stage 1 of the capacity expansion to 1.3mtpa (from current c.0.8mtpa) that covers the mine is ongoing., while project documentation for the Stage 2 (mill capacity expansion) is in the process of being prepared.
- At Kekura, construction of supporting infrastructure continued including assay laboratory, fuel storage facility and communications tower. Power substation is expected ot be connected to the regional power network later this year. Additionally, work on a range of engineering studies is in progress.
- The Company reiterated 2019 gold production target of 290-300koz.
Conclusion: MNV and BG post yoy production increase more than compensating for a weaker output at Novo driven by a fall in processed grades. Production remains on track for 290-300koz targeted for FY19.
Rambler Metals & Mining* (LON:RMM) 1.35p, mkt cap £17m – Nomad and Broker appointment
- SP Angel is delighted to have been appointed Nomad and Broker to Rambler Metals and Mining and looks forward to working with the company as it continues to implement operational and productivity improvements of its Ming Copper/Gold mine in Newfoundland.
- The Ming underground copper/gold mine, located close to Baie Verte, is located in an area with an extensive mining history dating back to the mid‑1800s.
- More recent operations started in 2012 and the company has made significant progress in achieving its 1250tpd target of mill production and in returning the operation to profitable cash generation.
- The company is continuing to “advancing Phase III engineering studies with a view to further increase production to 2,000 mtpd at the Ming Mine.”
*SP Angel act as Nomad and broker to Rambler Metals & Mining