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Today's Market View - Iron ore makes new five year high at USD107 as Vale mine remains closed

Today's Market View - Iron ore makes new five year high at USD107 as Vale mine remains closed

SP Angel – Morning View – Wednesday 19 06 19

Iron ore makes new five year high at USD107 as Vale mine remain closed

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MiFID II exempt information – see disclaimer below  

 

Anglo Asian Mining* (LON:AAZ) – New prospective targets follow aerial geophysics

Beowulf Mining* (LON:BEM) – Management update

Ormonde Mining* (LON:ORM) – 2018 Results and Barruecopardo progress report

Strandline Resources (ASX:STA) – Fungoni mineral sands project correction

W Resources (LON:WRES) – Contract for crushing and haulage at Regua

 

Miners lift FTSE as rising copper prices indicate better profits ahead

  • Copper lifted the FTSE 100 yesterday as strike action across a number of major copper mines in Chile gained momentum
  • Never mind the huge profits being generated in iron ore and other steel-related commodities
  • News that environmental restrictions were cutting back tungsten production in Ganzhou, Jiangxi province maybe also helped (Roskill)
  • Some short covering to reduce risk positions may also have helped as hedge fund managers head off for Ascot in the UK

 

Dow Jones Industrials

 

+1.35%

at

  26,466

Nikkei 225

 

+1.72%

at

  21,334

HK Hang Seng

 

+2.27%

at

  28,122

Shanghai Composite

 

+0.96%

at

   2,918

FTSE 350 Mining

 

+0.40%

at

  20,515

AIM Basic Resources

 

+0.23%

at

   2,021

 

Economics

UK – inflation falls to 2%

  • The 2% rate is bang on the Bank of England target though there is relatively weak underlying pressure
  • The level of inflation gives the Bank of England room to manoeuvre should it wish to adjust interest rates

 

US – Trump may be gearing up for a currency war (Bloomberg)

  • Trump has indicated that he would like to see a weaker US dollar and a stronger Chinese Yuan

 

World to get half its power from wind and solar by 2050 (Bloomberg)

  • Bloomberg is telling us to expect titanic change in the production of electrical power. Lets hope it not too much ‘Titanic’ change!

 

Miners pull back following rise on the back of copper yesterday

  • Copper lifted the FTSE 100 yesterday as strike action across a number of major copper mines in Chile gained momentum
  • Never mind the huge profits being generated in iron ore and other steel-related commodities
  • News that environmental restrictions were cutting back tungsten production in Ganzhou, Jiangxi province maybe also helped (Roskill)
  • Some short covering to reduce risk positions may also have helped as hedge fund managers head off for Ascot in the UK

 

Greenland* – temperatures well above normal levels in Greenland for the time of year

  • The early and rapid rise in temperatures to a peak of 40oC above normal in Greenland on Wednesday
  • This is said to be causing around 45% of the ice sheen to start melting
  • Greenland's ice sheet melts each year normally with melting from June to August with some 250bnt lost each year on average
  • Bloomberg reports a polar bear has been spotted in a Russian industrial city in Siberia, far south of its normal hunting grounds

*SP Angel act as Nomad for Bluejay Mining which has a mineral sands project operating in Greenland

 

Currencies

US$1.1197/eur vs 1.1240/eur yesterday  Yen 108.29/$ vs 108.23/$  SAr 14.503/$ vs 14.787/$  $1.254/gbp vs $1.254/gbp  0.688/aud vs 0.684/aud  CNY 6.905/$ vs 6.925/$

 

Commodity News

Precious metals:         

Gold US$1,345/oz vs US$1,345/oz yesterday

   Gold ETFs 72.5moz vs US$72.5moz yesterday

Platinum US$801/oz vs US$798/oz yesterday

Palladium US$1,496/oz vs US$1,480/oz yesterday

Silver US$14.97/oz vs US$14.88/oz yesterday

           

Base metals:   

Copper US$ 5,943/t vs US$5,847/t yesterday

  • Typically a benchmark of global growth, copper demand has remained resilient in the face of the global trade war, however a protracted conflict could hurt investment in the industry at a time when uses for the metal are expanding, according to Freeport-McMoRan Inc.
  • We have not experienced unusual disruption in demand,” Stephen Higgins, senior vice president and chief administrative officer responded to questions from Bloomberg News. “The physical market for the most part has not been affected. Customers are closely monitoring the situation and generally are concerned about the current uncertainties.
  • Clearly, in the near term, the negative general sentiment associated with the trade issues coupled with rising geopolitical tensions have had a negative impact on industrial metals and many commodities,” said Higgins, who is also chairman of the Copper Club, a trade group made up of producers, refiners, dealers, traders and merchants. “We believe a prolonged dispute will impact investment decisions.”
  • The expected global deficit isn’t supported by an ongoing strike at Codelco’s major operation.
  • While near-term uncertainty remains obvious, growth of renewable-power generation is having a positive impact on copper demand.
  • Distributed renewable power generation – both solar and wind – consumes at least four to six times as much copper as traditional power generation according to Freeport estimates.

Aluminium US$ 1,778/t vs US$1,763/t yesterday

Nickel US$ 11,875/t vs US$11,745/t yesterday

Zinc US$ 2,493/t vs US$2,460/t yesterday

Lead US$ 1,908/t vs US$1,891/t yesterday

Tin US$ 19,075/t vs US$18,800/t yesterday

           

Energy:           

Oil US$62.3/bbl vs US$60.5/bbl yesterday

Natural Gas US$2.336/mmbtu vs US$2.384/mmbtu yesterday

Uranium US$24.45/lb vs US$24.45/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$107.2/t vs US$101.9/t

  • Iron ore tops five-year highs on growing supply concerns as prosecutors said one of Vale SA’s mines will remain shuttered, dampening expectations normal output will resume.
  • Brazilian supply disruptions have trickled through to tumbling port inventories with steel mills producing record volumes.
  • The mine -- which produces 30mtpa -- is part of the 93mt operations that Vale had to shut as the Company came under stricter government scrutiny after a fatal dam disaster in January.
  • Renewed optimism is arising over potential resolution to the US-China trade war and driving steel demand, as both presidents will meet in Japan next week to relaunch talks after a month-long stalemate.

Chinese steel rebar 25mm US$588.5/t vs US$586.9/t

Thermal coal (1st year forward cif ARA) US$62.5/t vs US$62.8/t

Coking coal futures Dalian Exchange US$205.5/t vs US$203.5/t

           

Other:  

Cobalt LME 3m US$28,000/t vs US$28,000/t

NdPr Rare Earth Oxide (China) US$53,219/t vs US$53,069/t

Lithium carbonate 99% (China) US$9,558/t vs US$9,531/t

Ferro Vanadium 80% FOB (China) US$39.0/kg vs US$39.0/kg

Antimony Trioxide 99.5% EU (China) US$5.7/kg vs US$5.7/kg

Tungsten APT European US$255-265/mtu vs US$260-270/mtu - APT refiners reduce production in Jiangxi in symbolic cut to support prices (Roskill)

  • In a move that would mobilise the anti-competition authorities in most countries, producers of ‘APT ‘ammonium paratungstate’ in Ganzhou, Jiangxi province, have report on a plan to cut production by at least 30% for 30 days following a meeting of the province’s main refiners.
  • Falling auto and machinery sales combined with the US – China trade dispute is seen as reducing prices below the cost of production at around US$240–250/mtu in China and $255-265/mtu in Europe (FastmarketsMB). See Roskill Tungsten: Market Outlook to 2028 for further info.

 

Battery News

US solar market sees strongest Q1 ever, industry boosts forecast as costs fall despite Trump tariffs

  • The US installed 2.7GW of solar photovoltaics in the first quarter of 2019, marking the country’s strongest installation numbers ever in a first quarter as the industry’s predicted solar rebound is indeed taking place, and looks to continue, according to the latest quarterly US Solar Market Insight Report from the Solar Energy Industries Association.
  • Wood Mackenzie also forecasts 25% growth in 2019 compared to 2018, with more than 13GW of installations expected by year’s end, a rather sizable jump from the 14% growth in installations predicted earlier this year.
  • Total installed U.S. PV capacity is expected to more than double over the next five years.
  • Florida’s solar development is the biggest reason for the jump, as that state alone boosted its five-year outlook from 6GW to 9GW, thanks to increased solar procurement from the likes of Florida Power & Light and Duke Energy.
  • Utility PV is also becoming more competitive with wind, as solar “begins to fall below the cost of wind on a levelized cost of energy (LCOE) basis in many traditional wind states” by the mid-2020s.
  • Residential solar was up 6% from Q1 2018 with 603 MW installed in Q1 2019.
  • Non-residential installations are still down, an 18% drop from Q1 2018, with the report attributing this to “state-level policy reforms and interconnection delays that continue to limit development opportunities.”
  • But even so, the industry expects to see some of that offset through community solar mandates and recent policy developments in some states.
  • The report also notes that pricing fell in all market segments in Q1 2019, with prices now at historic lows across the board despite the Trump administration’s tariffs. Bifacial solar panels were recently granted an exemption from those tariffs, opening up a new avenue for utility-scale solar.
  • The US also hit a milestone of 2m solar installations in this year’s first quarter.

 

Company News

Anglo Asian Mining* (LON:AAZ) 121p, Mkt Cap £138.4m – New prospective targets follow aerial geophysics

  • Anglo Asian Mining report initial assessment of the anomalies identified by the aerial ZTEM survey at its Gedabek Contract Area in Azerbaijan, yielding 31 favourable targets which are additional to prospects already identified in-house.
  • Newly identified targets have been ranked and combined with the existing exploration plan, with study commencing in parallel. Anomalies are broadly defined as:
    • Shallow – 20 targets at 300m or less
    • Deep – 5 targets between 301m – 500m
    • Porphyry – 6 targets at various depths
  • Based on the current lithological and structural geology understanding of Gedabek, each of the anomalies were assessed on the basis of their proximity to known mineral trends and structural position, as well as the nature of the anomalies themselves, including intensities of ZTEM and magnetic anomalies.
  • The shallow targets create the most significant interest, offering possible epithermal-porphyry mineralisation to increase the Company portfolio of exploitable oxide and sulphide deposits with resources similar to existing producing mines. To process these ores would require no major reconfiguration of the Company's current processing facilities.
  • The shallow nature is also more attractive for potential open pit mining, giving higher ‘ranking’.
  • Importantly signals of potential mineralisation have been identified where no previous exploration activity has been carried out. The data generated from the survey have provided information on the geometry and potential depths of mineralisation zones within a newly interpreted geological structural framework.
  • Follow-up geological field work will provide data layering, with surface investigation including mapping, sampling, geochemistry and ground geophysics, to be built up over the targets.
  • The Company recently mobilised core drill rigs to the Gedabek site with plans to shortly commence drilling work, allowing correlation of geophysical responses of conductivity-resistivity and magnetic signatures.
  • Fieldwork has commenced at two of the shallow anomalies, including the Zehmet target; an approx. 1.5km long feature within the Atabay-Slavyanka felsic intrusive rocks. Surface sampling of both rock float (grab samples) and outcrop has been conducted, resulting in rocks of significant gold grades of 43g/t and 95g/t being found.
  • A number of targets straddle the Gedabek contract area, which gives the company the rights (under production sharing agreement) to explore for and exploit mineral deposits outside to limits providing geological continuity can be demonstrated.

*SP Angel act as Nomad and broker to Anglo Asian Mining

 

Beowulf Mining* (LON:BEM) 7.1p, Mkt Cap £41.9m – Management update

  • Nordic-focused explorer gives a management update for its Kallak North, reporting the company is in regular contact with the Swedish government, however has received no definitive timescale for a decision to be taken on its application for an Exploitation Concession.
  • In the event that the Exploitation Concession for Kallak North is awarded, the Company has committed an additional SEK300,000 to the Collaboration Agreement (SEK500,000 already committed) it has with Jokkmokks Allmänning, supporting the development of small and medium enterprises.
  • The funds will match Allmänning's investment in Jokkmokks Log, a sustainable construction company, which uses Allmänning timber production for wooden building construction.
  • The CEO also attended the 3rd OECD Meeting for Mining Regions and Cities, organised to enable knowledge sharing, with a focus on developing policy recommendations and standards that can help maximise the benefits that mining can bring to a region. The Company has also been involved in the OECD's Rural Policy Review 'Linking the Indigenous Sami People with Regional Development in Sweden', and is firmly committed to working in partnership with communities.
  • Vardar is currently working on its Mitrovica exploration licence, prospective for a range of porphyry-related mineralisation types, including the Madjan Peak high-sulphidation epithermal gold target, the Wolf Mountain low-sulphidation lead-zinc-silver target and primary porphyry copper mineralisation in the southern part of the licence area.
  • In the northern part of the Wolf Mountain target, Vardar has now completed 651 metres of drilling and a total of 278.5 metres of trenching, carried out over outcropping stockwork and hydrothermal breccia mineralisation.

*SP Angel acts as nomad and broker to Beowulf Mining

 

Ormonde Mining* (LON:ORM) 3.15p, Mkt Cap £14.9m – 2018 Results and Barruecopardo progress report

  • Ormonde Mining has reported a loss of €1.65m for the year to 31st December 2018 (2017 – loss of €0.1m) as it developed the 30% owned Barruecopardo tungsten project in Spain. The loss included a €0.6m impairment charge against the La Zarza project in southern Spain as well as Ormonde Mining’s €0.78m share of the loss on the operating associate which holds the Barruecopardo project.
  • The company reports that the project construction has now been completed within the budget and “broadly in line with its construction schedule” and is now in the process of ramping-up phase to the targeted 1.1mtpa throughput under the management of the mine subsidiary, Saloro.
  • Throughput levels consistent with the targeted 1.1mtpa processing rate are being achieved and the plant is producing “concentrates … from low-grade ore feed are starting to achieve targeted specification on a regular basis while ongoing refinements to the processing circuits continue to be implemented”.
  • At this stage, ore is being mined from two small starter pits while waste removal “of around 80 vertical metres of waste rock from the east wall of the historic pit is to be accelerated to bring forward access to the main orebody, where the tungsten mineralisation is present as a much broader, more continuous high-grade zone”.
  • The lower than expected grades encountered in the northern starter pit have prompted a switch to the southern starter pit and an acceleration of the planned waste stripping over the main orebody in order to access higher grade feed for the plant.
  • Ormonde Mining’s Chairman and Interim Managing Director Michael Donoghue, commented that “the lower grade ore encountered in the initial, peripheral starter pit will make the remainder of this year somewhat challenging as Saloro's profitability and cashflows will continue to be constrained during the mine's ramp-up phase, however the progress made to date on processing of this lower grade material should stand the Project in good stead as it transitions into the main, higher grade orebody towards the end of 2019."
  • As the Barruecopardo project moves into the production phase, management is addressing opportunities for future expansion and has identified two longer term objectives, “to complete the disposal of our La Zarza interests and take a fresh look at our Spanish gold exploration holdings and new licence application areas, in western Spain which have been identified as having gold exploration potential.”
  • Commenting on the current tungsten market and the commodity outlook, the company explains that prices for the benchmark ammonium paratungstate (APT) peaked at US$352/mtu (metric tonne unit) in June 2018 as production declined in China as mines and plants were closed in response to more stringent implementation of environmental regulations. “Prices have declined steadily thereafter and although they have steadied somewhat of late, they remain weak, currently trading in the $255/mtu to $265/mtu range.”
  • Citing “two reputable metal research groups … suggesting short to medium term tungsten supply deficits and price rises”, the company points out that “While the tungsten supply-demand fundamentals in the western world are relatively transparent and the deficit predictions in this market seem well founded, the situation in the Chinese market remains less transparent”.
  • Ormonde Mining concludes however that “a summary of the Chinese situation by one forecaster is encouraging: "there is potential for a supply deficit in 2019 and 2020 as output from existing mines looks set to decline; ore grades at some of the larger and older Russian and Chinese mines are falling as resources become depleted. Importantly, there are no plans in China to bring online new tungsten mines to replace these depleted deposits".

Conclusion: Ormonde Mining is ramping up production from the Barruecopardo tungsten mine. Initial low grade production from starter pits is likely to constrain profitability and cashflows until later in the year when the current waste removal programme will allow access to the broader, higher grade mineralisation within the main orebody. The company also reports an industry commentator suggesting that 2019/2020 may see a supply deficit in the tungsten industry.

*SP Angel acts as Broker to Ormonde Mining

 

Strandline Resources (ASX:STA) A$0.14, Mkt cap A$49.5m – Fungoni mineral sands project correction

  • Yesterday we reported on Nedbank’s US$26m 5-yr credit line for the ‘Fungoni’ mineral sands mine in Tanzania.
  • We also quoted resource numbers from Fungoni and then some DFS numbers from the much larger ‘Coburg’ project in Australia.
  • We apologise for any confusion this may have created, it’s not so normal for a mineral sands company to have DFS reports on two separate mineral sands projects.
  • The updated DFS for the smaller Fungoni project, shows: http://www.strandline.com.au/irm/PDF/2693_0/FungoniProjectUpdatedDFS
    • Capex - US$32.1
    • Production -2.0Mtpa
    • Life of Mine 6.2 years

Assumptions:

    • Forex A$/US$ 0.75
    • Zircon (FOB) - US$1,229/t premium product conc.
    • Rutile (FOB) US$1,129/t - welding rod grade
    • Ilmenite (FOB) US$266/t - Chloride grade ilmenite
    • Monazite (FOB) US$1,804/t concs.
    • Revenue to C1 Cost Ratio 2.8 First quartile RC ratio
    • Annual Average Operating Margin US$391/t
    • LOM Project Cash Flow US$81.7m
    • Pre-tax NPV @ 10% WACC US$48.7%.
    • IRR 61.1% - pre tax
    • Post-tax NPV @ 10% WACC US$30.8%.
    • IRR 42.1% - post tax

 

W Resources (LON:WRES) 0.45p, Mkt Cap £27.1m – Contract for crushing and haulage at Regua

  • W Resources has awarded a haulage and crushing contract for its Regua tungsten project in Portugal to Francisco Pereira Marinho Imaos (FPMI).
  • The contractor will haul mined ore approximately 27km from Regua to its crushing facility where it reduce the ore to 5-10mm in size to provide feed to the relocated La Parilla Concentrator Plant “which will be moved to Regua and upgraded later this year”.
  • Chairman, Michael Masterman, explained the significance of the FPMI contract; “The haulage and crushing services contract with FPMI allows W to advance Régua to development with efficient capital deployment. Our aim is to bring Régua into commercial production with sensible capital deployment leveraging contract mining, haulage and crushing contracts, thereby keeping the capital costs of development low”.
  • In a separate announcement today, the company also provided a progress report on developments at La Parilla in Spain where it has now commissioned the jig plant and that over 3500t of jigged preconcentrate has now been processed to a tungsten concentrate through the existing concentrator plant. Production “is expected to increase significantly in July to 20 tonnes of concentrate following the move to a 24 hour operation at the existing concentrator and the upgrade to higher grade ore feed now that initial commissioning is complete”.
  • The new concentrator at La Parilla is reported to be “advancing to primary construction completion in June, in line with guidance” which would presumably free up the existing plant for its planned re-siting at Regua referred to earlier.

 

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*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.

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