SP Angel . Morning View . Friday 27 01 23
Gold rally cools as strong US economy likely holding rates higher
MiFID II exempt information – see disclaimer below
(Bluerock Diamonds PLC (AIM:BRD)) – Mining operations restart at the Kareevlei diamond mine
(Power Metal Resources PLC (AIM:POW)) – 2023 Exploration underway at Tati Project, Botswana
(Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTCQX:GALKF)) – Acquisition of 217km2 mineral license area in Scotland
(GoldStone Resources (AIM:GRL)) – Issue of £2,400,000 Convertible Loan Note and 60,000,000 Warrants to expand Homase Mine and boost exploration
(Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)) – BUY, 17.9p – Option Agreement with MRG Metals (ASX:MRQ) terminated
(Versarien PLC (AIM:VRS, OTC:VRSRF)) 10.6p, Mkt Cap £20m – OEKO-TEX® Eco Passport certification for Graphene-Wear®
Gold rally cools as strong US economy likely holding rates higher but ETFs continue to add
- Gold prices pared gains slightly to $1,925/oz having touched $1,948/oz on Wednesday.
- The US economy continues to defy recession expectations, with GDP data yesterday beating forecasts.
- Expectations of a soft landing are rising, with US inflation data continuing to ease – PCE data is expected to cool in line with expectations.
- Gold ETFs continue to add physical holdings as demand picks up from the retail sector, with ETFs holding their largest amount of gold since November 11th.
Copper steadies higher as Peru and Chile continue to struggle with production
- Copper prices have held ground above $9,350/t on thin trading as traders focus on supply picture and concerns over Chinese demand eases.
- Protests continue to dominate Southern Peru, adding further logistical issues and forcing mine suspensions to an area providing 2% of global copper supply.
- Chile is also struggling with setbacks, suffering from inflationary impacts, and permitting delays from government.
- A swathe of infrastructure stimulus measures have helped buoy concerns of China’s property sector stifling demand, with supply concerns now considered to be driving the copper price higher.
Dow Jones Industrials +0.61% at 33,949
Nikkei 225 +0.07% at 27,383
HK Hang Seng +0.54% at 22,689
Shanghai Composite +0.76% at 3,265
Economics
US – Economic growth slowed in the final quarter of the year but as much as markets expected it to easing recession fears.
- Inflation slowed last quarter as well which would be a welcome news for the Fed aiming to bring price pressures down without ideally triggering a hard landing of the economy.
- Although, a worse than expected reading for consumer spending was a disappointing development.
- GDP (%qoq, annualised): 2.9 v 3.2 Q3/22 and 2.6 est.
- Personal Consumption (%qoq): 2.1 v 2.3 Q3/22 and 2.9 est.
- Core PCE (%qoq): 3.9 v 4.7 Q3/33 and 3.9 est.
Initial jobless claims fall 3% to 186,000
- The figures are well below expectations and support the view that the US will avoid recession with a relatively soft economic landing.
- Liquidity: The Fed is looking to drain liquidity from financial markets this year meaning that Wall Street will have to get used to managing with lower liquidity.
- Quantitative tightening will affect bond markets where yields are shrinking on expectations for lower inflation and expectations for Fed easing on rate hikes.
- The Fed has been supporting bank reserves creating liquidity. As the Fed reduces support bank reserves are likely to fall causing investors to further reduce their exposure.
Japan – Inflation continued to build up through January adding to pressure on the central bank to potentially revise its expansionary monetary policy stance.
- Core inflation in the capital jumped to 4.3%yoy in January marking the strongest reading since 1981 and bearing market estimates.
- The data follows the IMF recommendation that the central bank increases flexibility for its long term yields as inflationary risks rise.
- Tokyo CPI (%yoy): 4.4 v 4.0 December and 4.0 est.
- Tokyo CPI ex Fresh Food (%yoy): 4.3 v 4.0 December and 4.2 est.
Currencies
US$1.0924/eur vs 1.0847/eur yesterday. Yen 129.67/$ vs 128.92/$. SAr 17.072/$ vs 17.252/$. $1.242/gbp vs $1.236/gbp. 0.712/aud vs 0.694/aud. CNY 6.793/$ vs 6.776/$.
Dollar Index 101.63 vs 102.01 yesterday.
Commodity News
Precious metals:
Gold US$1,943/oz vs US$1,929/oz yesterday
Gold ETFs 94.3moz vs US$94.1moz yesterday
Platinum US$1,039/oz vs US$1,053/oz yesterday
Palladium US$1,700/oz vs US$1,739/oz yesterday
Silver US$23.78/oz vs US$23.56/oz yesterday
Rhodium US$12,250/oz vs US$12,250/oz yesterday
Base metals:
Copper US$ 9,350/t vs US$9,335/t yesterday
Aluminium US$ 2,655/t vs US$2,651/t yesterday
Nickel US$ 29,000/t vs US$28,756/t yesterday
Zinc US$ 3,490/t vs US$3,435/t yesterday
Lead US$ 2,209/t vs US$2,146/t yesterday
Tin US$ 30,715/t vs US$30,000/t yesterday
Energy:
Oil US$86.4/bbl vs US$85.0/bbl yesterday
- Crude oil prices edged higher ahead of meeting next week by OPEC+ to review crude production levels and the US Fed to determine interest rates.
- The US EIA storage report detailed a draw of 91bcf to 2,729bcf last week, mainly from the East and Midwest regions, with storage now 4.9% above its 5-year average.
- The EIA reported that natural gas has displaced most coal-fired power generation in Pennsylvania, which fell from 57% of the electricity generated in 2001 to 12% in 2021, while gas increased from 2% to 52% in the state.
- Vestas expects profitability in the wind power industry to be negatively impacted in 2023 by high inflation levels throughout the supply chain and reduced installations, driven by slow permitting processes in Europe and moderated activity levels in the USA ahead of the IRA-driven ramp-up in 2024.
Natural Gas US$2.895/mmbtu vs US$2.955/mmbtu yesterday
Uranium UXC US$50.25/lb vs US$48.90/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$125.3/t vs US$126.4/t
Chinese steel rebar 25mm US$619.6/t vs US$619.6/t
Thermal coal (1st year forward cif ARA) US$178.0/t vs US$178.0/t
Thermal coal swap Australia FOB US$255.0/t vs US$290.0/t
Coking coal swap Australia FOB US$335.0/t vs US$330.0/t
Other:
Cobalt LME 3m US$49,000/t vs US$49,000/t
NdPr Rare Earth Oxide (China) US$106,364/t vs US$106,364/t
Lithium carbonate 99% (China) US$65,880/t vs US$65,880/t
China Spodumene Li2O 5%min CIF US$5,970/t vs US$5,970/t
Ferro-Manganese European Mn78% min US$1,349/t vs US$1,343/t
China Tungsten APT 88.5% FOB US$325/mtu vs US$325/mtu
China Graphite Flake -194 FOB US$885/t vs US$885/t
Europe Vanadium Pentoxide 98% 9.0/lb vs US$9.0/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
China Ilmenite Concentrate TiO2 US$342/t vs US$342/t
Spot CO2 Emissions EUA Price US$86.4/t vs US$89.0/t
Brazil Potash CFR Granular Spot US$510.0/t vs US$510.0/t
Company News
(Bluerock Diamonds PLC (AIM:BRD)) – 2.01p, Mkt cap £0.83m – Mining operations restart at the Kareevlei diamond mine
- BlueRock report the restart of open cast mining at the Kareevlei open cast mine in the Kimberley region of South Africa.
- The mine was issued with a Section 54 notice earlier this week by the Department of Mineral Resources which inspects mines for health and safety.
- The process plant continued to operate due to sufficient ore stock in front of the plant.
- “The major remedial action was the installation of a fire retardent conveyor belt and activation of proximity distance sensors on plant at the mining operation”.
- We are waiting on the Q4 production, sales and cost performance before we judge how well all is working
- Kareevlei is one of the world’s highest quality diamond mines in terms of average value per carat and offers potential for significant operating margin.
- This improves to $55/ct as throughput rises to 1mpta.
- The licence covers some 3,000ha with five known diamondiferous kimberlite pipes with a combined inferred resource of 10.4mt hosting some 516,200cts.
- The resources are calculated using a planned production rate of 1mtpa covering an approximate 10-year mine life
- Margins: A very rough estimate should realise around $100/ct assuming throughput of 830,000tpa, a sales price of $430/ct and no inflation, according to our modelling
- Inflation: our modelling shows a halving of the operating margin to $51/ct on 20% inflation assuming the same $430/ct sales value.
Conclusion: Financial modelling an reality do not always reconcile but so long as management can control costs, raise throughput to 1mpta and assuming the market holds up for better quality diamonds then BlueRock should be able to generate good operating margins.
*SP Angel acts as nomad and broker to Bluerock Diamonds. The analyst holds shares in BlueRock Diamonds.
(Power Metal Resources PLC (AIM:POW)) 1.32p, Mkt cap £23m – 2023 Exploration underway at Tati Project, Botswana
- Power Metal has begun the next state of exploration at its Tati licence on the Tati Greenstone Belt in Botswana.
- Last season’s exploration campaign highlighted near surface gold mineralisation through RC drilling, intersecting the quartz reef structure associated with the Cherished Hope mine.
- The programme is looking to follow up on a previously identified 8km long gold-in-soil anomaly, with the aim of confirming the presence of a gold-bearing system with the potential for a deposit.
- It will include mechanised trenching, high-resolution geochemical surveys, RC drilling and diamond core drilling alongside geophysics surveys.
- To date, the Company has begun geophysical work and mechanised trenching, with additional soil sampling scheduled.
- High priority gold targets, if identified, will be tested via RC and diamond drilling.
*SP Angel acts as Nomad and Broker for Power Metal Resources
(Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTCQX:GALKF)) 29p, Mkt Cap £30m – Acquisition of 217km2 mineral license area in Scotland
- The Company agreed to acquire a 100% interest and the exclusive rights to explore and develop the Gairloch Project located on the northwest coast of Scotland.
- The project covers a 217km2 mineral license area over a highly prospective, 10km long gold bearing VMS trend.
- Historical drilling results sourced from the British Geological Survey show high grade polymetallic intersections including:
- 16m at 1.29 g/t Au, 2.44 g/t Ag, 0.58% Cu and 0.19% Zn from 80m (GBH39);
- 18m at 3.16 g/t Au, 3.39 g/t Ag, 0.90% Cu and 0.51% Zn from 33m (GBH30):
- 6m at 1.5 g/t Au, 16.5 g/t Ag, 5.92% Cu and 0.54% Zn from 262m (GBH68).
- Outcrop sampling carried 10km away from historical drillhole also returned high grade results (4 g/t Au, 1.5% Cu and 2.3% Zn).
- Most of the drilling was conducted by Consolidated Goldfields in late 1970s to early 1980s with ~9,000m of drilling discovering the Kerry Road deposit with work abandoned in 1982 due to low commodity prices.
- More recently, commercial exploration carried by GreenOre in 2018 confirmed the presence of mineralisation at Kerry Road as well as identified elevated levels of cobalt in bedrock following a rock chip sampling programme.
- The host rock at Gairloch appears to be geologically similar to those in the Trans-Hudson Orogen in Manitoba and Saskatchewan which contain the prolific Flin-Flon and Snow Lake VMS mining camps.
- The Company secured licenses following an initial payment of £347k to owners of the property and agreed to annual payments of £69k from year six along with a separate NPI/NSR (5%/2%) option.
Conclusion: The Company expands its portfolio of assets with a 217km2 license area in the northwest coast of Scotland prospective in VMS type mineralisation.
*SP Angel act as Broker to Galantas Gold
GoldStone Resources (AIM:GRL)) – 3.5p, Mkt cap £17m – Issue of £2,400,000 Convertible Loan Note and 60,000,000 Warrants to expand Homase Mine and boost exploration
- GoldStone has issued convertible loan notes to Blue Gold International (BGL) with a nominal total of £2.4m, due for redemption on 30th November 2024, at an interest rate of 8% pa.
- Loan notes, alongside accrued interest to date, may be converted by BGL at a conversion price of £0.0325/share.
- Alongside the loan notes, BGL has received 60m warrants at a price of £0.04 per share exercisable any time until 26th Jan 2025.
- The Company notes the importance of expanding the Homase Mine in Ghana.
- Expansion of Homase aims to increase production and boost recovery rates of the heap leach operation, currently yielding 65% of contained gold delivered to heap.
- Management will also utilise funds to purchase plant and equipment in order to reduce the mine’s operating osts.
- An exploration programme aimed along strike and down dip of the current resource is also under review, whilst the exploration programme at the Akrokeri underground mine continues.
- Anomalies identified over the course of the Q1 2022 soil sampling and auguring programme will also be analysed for further potential.
- GoldStone’s CEO Emma Priestley believes ‘Blue Gold shares Goldstone’s vision for the expansion of the Homase Mine and the potential development of the Homase-Akrokeri Project in Ghana.’
*SP Angel act as Broker to GoldStone Resources (AIM:GRL)
(Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF) ) 2.6p, Mkt Cap £44m – Option Agreement with MRG Metals terminated
BUY – 17.9p
- The Company terminated the agreement with MRG Metals for the sale of the remaining mineral sands’ mining concession in Mozambique.
- The deadline to complete the option agreement has expired and both parties decided not to proceed with the agreement.
- The 9735C license area subject to the agreement was the last remaining mining concession in the country held by the Company and is estimated to host 65mt at 4.20% THM.
- The Company sold its minority stake in its mineral sands licenses that host 4,280mt at 3.85% THM to Rio Tinto last year with the 9735C area remaining as the last one in the portfolio.
- Under the proposed agreement, the Company would have received US$0.8m payable in cash, MRG shares or a combination of both (MRG discretion).
Conclusion: As highlighted previously, we see this license as non-core in terms of the Company’s strategy focused on development of the flagship Barroso Lithium Project in Portugal and is neutral fro the valuation perspective given low contribution from envisaged sale proceeds.
*SP Angel act as Nomad and Broker to Savannah Resources
(Versarien PLC (AIM:VRS, OTC:VRSRF)) 10.6p, Mkt Cap £20m – OEKO-TEX® Eco Passport certification for Graphene-Wear®
- Versarien plc has secured OEKO-TEX® Eco Passport certification for Versarien's proprietary Graphene-Wear® technology.
- OEKO-TEX’s® Eco Passport is an important an independent certification which ensure retailers, manufacturers and customers on chemicals, colourants and auxiliaries used in the textile and leather industries.
- Versarien’s Graphene-Wear® has passed the relevant tests to ensure that it is safe from a health perspective when used in clothing as well as being ecologically responsible.
- Versarien is working with a number of brands including Superdry and Umbro, to integrate Versarien’s Graphene-Wear® technology into a number of their products.
- Versarien has a £5m loan facility from the Innovate UK fund for its G-Scale project (Seat / Concrete / Arch / Leisure / Elastomer)
*SP Angel acts as Nomad and Broker to Versarien
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Analysts
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*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 - Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt - LME
Oil Brent - ICE
Natural Gas, Uranium, Iron Ore - NYMEX
Thermal Coal - Bloomberg OTC Composite
Coking Coal - SSY
RRE - Steelhome
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite - Asian Metal
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