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Today's Market View - Central banks look increasingly likely to cut interest rates

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SP Angel – Morning View – Monday 17 06 19

Central banks look increasingly likely to cut interest rates

Fresh economic stimulus likely to raise metals prices

Lithium prices pause on weak China demand

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MiFID II exempt information – see disclaimer below  

Altus Strategies* (LON:ALS) – Expiry of term sheets on Mali projects

Avesoro Resources (LON:ASO) – Processing resumed at Youga

BlueRock Diamonds* (LON:BRD) – BlueRock diamonds has sold its 24.98ct diamond for US$190,000

European Metals Holdings (LON:EMH) – Lithium hydroxide PFS confirmed

Hummingbird Resources (LON:HUM) – Installation of Yanfolila’s second  ball-mill running ahead of schedule

Vast Resources* (LON:VAST) – Progress report on the Heritage Diamond concession

 

NASA – plans to mine asteroids and the moon for resources

  • One satellite is being designed for 3D recon while another may use ‘Optical mining’ to use energy from the sun to expose minerals below the surface
  • An inflatable bag might then be used to capture debris produced in the weathering process.
  • NASA will also be after water and Helium 3 which has long been touted as a potential non-radioactive replacement for nuclear fuel.
  • The mission may involve 37 separate launches over the next 10 years with the construction of a ‘Lunar Gateway’ moon base by 2028.
  • Several firms have advanced plans for lunar landers and other vehicles along with a vehicle to carry payload back into lunar orbit.
  • Moon Express is planning its ‘Harvest Moon’ expedition for 2020 to return commercial samples from lunar resource prospecting.
  • Given that it takes an average of 17 years to develop a copper mine and >30 years for a third of all copper discoveries since 1950 (World Bank), it may be quicker to develop a mine on the moon when compared with Minnesota for example due to the lack of environmental regulations applied to mining on the moon.
  • Who knows what economically disadvantaged Moon Nazis we might find on the dark side of the moon (See ‘Iron Sky’).

 

Dow Jones Industrials

 

-0.07%

at

  26,090

Nikkei 225

 

+0.03%

at

  21,124

HK Hang Seng

 

+0.52%

at

  27,258

Shanghai Composite

 

+0.20%

at

   2,888

FTSE 350 Mining

 

+0.19%

at

  19,994

AIM Basic Resources

 

+1.14%

at

   2,011

 

Economics

US Fed to cut rates this week according to CSFB

 

Japan – treasury seen my many as easing in next policy move

 

Eurozone likely to cut rates and increase stimulus

  • European bond markets indicate further slowing of the Eurozone according to the ECB executive board member Benoit Coeure.
  • The comments indicate a potential move to negative interest rates and further stimulus to support the Eurozone.
  • Low inflation and a relatively strong Euro is not helping many economically weaker countries in the Eurozone.
  • Brexit uncertainty and increasing potential for a no-deal Brexit is likely to cause further disruption and slowing in the Eurozone.
  • Eurozone economic concerns may force the ECB to put pressure on the European Parliament leadership to agree a sensible trade deal with the Eurozone in an effort to avert a more damaging Eurozone meltdown.

 

China auto sales fall by 16.4% yoy in worst-ever monthly fall

  • China auto sales fell for an 11th consecutive month on sentiment over the US – China trade war.
  • Sales also fell 14.6% yoy in April and 5.2% yoy in March.
  • A number of provinces have brought forward the introduction of China VI emissions standards making it difficult for the automotive supply chain to keep up.
  • Lower purchasing power in the low to middle income market held back purchases.
  • Buyers are waiting for new government stimulus before stepping in to buy new cars.
  • China central government announced that it will stop local authorities from restricting purchases and reducing restrictions on new Electric Vehicles.
  • Premium brands like Toyota and Honda bucked the trend with double digit growth outpacing local auto manufacturers.

 

US manufacturing output rises in May

  • US manufacturing output rose in May for the first month this year as a rise auto production offset falls in aerospace and metal production.
  • Fed figures saw manufacturing production rise by 0.2% in May ahead of analyst forecasts and a turnaround on the contraction seen in the first three months this year.
  • US auto parts production rose 2.4% in May
  • Primary metal production fell 1.9% in May
  • Fabricated metal products fell 0.1% in May
  • Outlook for the US manufacturing sector, which accounts for about 12% of the economy, is also suffering as stimulus from last year's $1.5 trillion tax cut package diminishes.
  • Industrial output including utilities and mining production, rose 0.4% in May.
  • Utilities output rose 2.1% and mining production crept up 0.1%.
  • Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, edged higher to 75.7% last month vs 75.6% in April.
  • Capacity utilization rose to 78.1% just 1.7% below its 1972-2018 average indicating that the economy can continue to grow some way before the growth is seen by the Fed as inflationary.

 

Argentina power grid may have been hit by cyber attack

  • The power outage is also symptomatic of ageing grid infrastructure which is common world over and not just in Argentina

 

HK – over 2 million people joined protest in HK in call for independence from China according to organisers

  • The demonstration shows that delaying the anti-extradition bill has done little to temper local tensions.
  • Many protestors wore face masks and reflective glasses to prevent identification by facial recognition cameras used by the Chinese authorities to identify protestors.
  • Carrie Lam, HK’s official leader has issued an apology

 

Currencies

US$1.1206/eur vs 1.1282/eur last week  Yen 108.58/$ vs 108.21/$  SAr 14.823/$ vs 14.845/$  $1.258/gbp vs $1.267/gbp  0.687/aud vs 0.690/aud CNY 6.925/$ vs 6.922/$

 

Commodity News

Precious metals:         

Gold US$1,337/oz vs US$1,356/oz last week

   Gold ETFs 72.5moz vs US$72.4moz last week

Platinum US$801/oz vs US$814/oz last week

Palladium US$1,463/oz vs US$1,455/oz last week

Silver US$14.83/oz vs US$15.05/oz last week

           

Base metals:   

Copper US$ 5,824/t vs US$5,846/t last week

Aluminium US$ 1,757/t vs US$1,779/t last week- Alumina prices spike higher as environmental shutdowns mean there is no bauxite available in Shanxi Province

Nickel US$ 11,935/t vs US$11,965/t last week

Zinc US$ 2,461/t vs US$2,479/t last week

Lead US$ 1,875/t vs US$1,893/t last week

Tin US$ 19,255/t vs US$19,280/t last week

           

Energy:           

Oil US$61.9/bbl vs US$61.5/bbl last week

Natural Gas US$2.396/mmbtu vs US$2.332/mmbtu last week

Uranium US$24.40/lb vs US$24.80/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$103.5/t vs US$106.8/t

  • Iron ore retreats from a five-year high as economic headwinds create growing concerns over Chinese demand.
  • China’s industrial output growth slowed to the weakest pace since 2002 and investment decelerated, government data showed Friday.
  • Steelmaking margins in China hover near the lowest since January, according to a Bloomberg Intelligence index, with investors assessing the fall in steel mill profitability amid concerns surging production is outpacing consumption.

Chinese steel rebar 25mm US$590.5/t vs US$600.2/t

Thermal coal (1st year forward cif ARA) US$63.5/t vs US$64.4/t

Coking coal futures Dalian Exchange US$196.8/t vs US$196.9/t

           

Other:  

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

NdPr Rare Earth Oxide (China) US$52,350/t vs US$51,789/t

Lithium carbonate 99% (China) US$9,531/t vs US$9,534/t

  • Weak Chinese domestic demand remains prevalent with downstream buyers cautious of buying more material and instead waiting for a clearer price direction, while the lithium hydroxide market moved down due to poor demand with some producers lowering prices to boost sales.
  • Fastmarkets assessed the price for battery-grade lithium hydroxide monohydrate (min 56.5% LiOH.H2O) spot market at 80,000-86,000 yuan/t on June 13, down from 83,000-88,000 yuan/t a week earlier, falling approx. 3%.
  • Lower prices have been heard in the last two months because some producers are eager to boost sales in the flat market. We haven’t started any new purchases this week and hold a watchful attitude on the market,” a downstream cathode producer told Fastmarkets.
  • Battery grade lithium carbonate and hydroxide prices in the European and United States’ spot markets were reported stable week on week on slow trading activity.

Ferro Vanadium 80% FOB (China) US$39./kg vs US$38.8/kg

Antimony Trioxide 99.5% EU (China) US$5.7/kg vs US$5.8/kg

Tungsten APT European US$255-265/mtu vs US$260-270/mtu

 

Battery News

Scientists produce syngas from air in solar reactor with mini-refinery in Zurich

 

Anticipated VW-Ford EV deal

  • The two automakers have an existing “global alliance” involving commercial vans and pickups, with the anticipated partnership to expand to both electric vehicles and self-driving cars appearing to be inevitable.
  • It seems probable that Volkswagen and Ford would extend that partnership into other realms, including EVs, as both companies signed a memorandum of understanding to “investigate collaboration on autonomous vehicles, mobility services and electric vehicles.”
  • A February report suggested an upcoming $1.7bn investment from VW into Ford’s self-driving subsidiary.
  • Without a strong presence in the U.S. — still our weakest region — global trade conflicts risk putting us in a dire situation,” CEO Herbert Diess said. “Today we are a Company that’s strongly influenced by China. We need a counterweight in the U.S.”

 

Company News

Altus Strategies* (LON:ALS) 4.85p, Mkt Cap £8.6m – Expiry of term sheets on Mali projects

  • Altus Strategies reports that the extension period granted to ASX listed Indiana Resources for a potential joint-venture covering the company’s Lakanfla and Tabakorole gold projects in Mali has now expired and that consequently “the Company is now unrestricted from entering discussions with third parties in respect of a potential JV on the Projects.”
  • Both prospects are close to existing operating mines. The Lakanfla prospect is located 6km southeast of the Sadiola mien in western Mali while Tabakorole is “approximately 100km southwest of the Morila gold mine in southern Mali. Historical drilling has returned reported intercepts of 26.0m at 5.10 g/t Au and 12.0m at 9.78 g/t Au at Lakanfla and 16m at 9.31 g/t Au, 14m at 9.84 g/t Au and 60m at 2.91 g/t Au at Tabakorole.”
  • Expressing disappointment that it had “not been possible to conclude the proposed deal with Indiana on Lakanfla and Tabakorole, we are very confident that one or more alternative transactions can be advanced” Chief Executive, Steven Poulton stressed the exploration potential of both projects and explained that “Opportunities to secure assets which are as prospective and in proximity to existing tier-one gold deposits are incredibly limited”.
  • He went on to report that “We will now open discussion to third parties”.

Conclusion: The termination of the current agreements with Indiana Resources frees up the Lakanfla and Tabakarole gold prospects for the involvement of other parties with an interest in their exploration potential. We look forward to further news in due course.

*SP Angel acts as nomad and broker to Altus Strategies

 

Avesoro Resources (LON:ASO) 51p, Mkt Cap £41.6m – Processing resumed at Youga

  • Avesoro Resource reports the successful conclusion of negotiations resulting in the resumption of mining and processing operations at its Youga gold mine in Burkina Faso.
  • “Mining operations recommenced at Youga on June 15, with processing operations recommencing on June 16, following a period of building stockpiles”.
  • The company explained that during the suspension of operations it was able to reschedule and complete a number of electrical and mechanical maintenance jobs in and around the processing plant which we expect should help to ensure a smooth transition back to full operations and obviate the need for some future maintenance shut-downs in the short term.
  • Commenting on the developments at Youga and reaffirming the company’s revised 2019 production guidance of 180-200,000 oz of gold production, Serhan Umurhan, CEO, said that “My ongoing focus remains to minimise the impact of the temporary production stoppage at Youga, whilst successfully delivering the remaining transition to contractor mining operations at both Youga and New Liberty”.

 

BlueRock Diamonds* (LON:BRD) 0.12p, Mkt Cap £2m – BlueRock diamonds has sold its 24.98ct diamond for US$190,000

  • The largest diamond prior to this was 16.28cts which sold for US$78,947.
  • The recovery of a second large stone indicates that the mine hosts a significant number of larger diamonds and that these are being recovered in the plant.
  • It is not clear if the discovery of this stone is down to mining a better phase of the kimberlite pipe, better recovery rates or just down to chance. Either way this is great news and indicates a greater probability for more larger stones to come.

Conclusion: The sale of the stone for $7,606/ct is great news for BlueRock and indicates that the overall value per carat will continue to rise as an increasing number of larger size stones are recovered. This is not the highest value per carat stone recovered but its total value is good for BlueRock and suggests to us that the overall effective grade and value at the mine should rise going forward.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

European Metals Holdings (LON:EMH) 22.5p, Mkt Cap £33.0m – Lithium hydroxide PFS confirmed

  • Test-work confirming the production of battery-grade lithium hydroxide from Cinovec ore allows European Metals Holdings to enhance the forecast project economics in the updated PFS.
  • The Cinovec project hosts a JORC 2012-compliant global Resource of 695.9Mt grading 0.4% Li20 in the Indicated and Inferred categories.
  • The PFS results reported 19 April 2017, and updated, were based on mining 34.5Mt of material, 100% of which lies within the Indicated Mineral Resource category. The tonnage used in the PFS represents only 5.0% of the total Mineral Resource and 9.3% of the Indicated Mineral Resource, giving a 21 year mine life processing an average 1.68Mtpa ore.
  • Enhanced workflow targets 25,267tpa battery-grade hydroxide from the zinnwaldite mineralisation.
  • The Company have “worked with Hatch to update the flowsheet and engineering required to adapt our lithium carbonate producing flowsheet into one that converts battery grade lithium carbonate into lithium hydroxide”, according to Managing Director Keith Coughlan.
  • The process used to produce lithium hydroxide allows for the staging of lithium carbonate and then lithium hydroxide production to minimize capital and startup risk and enables the production of either battery grade lithium hydroxide or carbonate as markets demand
  • The total capital costs for the development are US$482.6m, with net estimated overall cost of production (post credits) of $3,435/t LiOH.H2O.
  • The Cinovec Project achieves low operating costs due to:
    • By-product credits from the recovery of tin, tungsten, potash and sodium sulphate;
    • The ore is amenable to single-stage crushing and single-stage coarse SAG milling, reducing capital and operating costs and complexity;
    • Paramagnetic properties of zinnwaldite allow the use of low cost wet magnetic processing to produce a lithium concentrate for further processing at relatively high recoveries;
    • Relatively low temperature roasting at atmospheric pressure utilizing conventional technologies, reagent recycling and the use of waste gypsum.
  • Project Net Present Value increases 105% to:  $1.108B (post tax, 8%).
  • Internal Rate of Return increased 37% to 28.8% (post tax).

 

Hummingbird Resources (LON:HUM) 17.375p, Mkt Cap £61.5m – Installation of Yanfolila’s second  ball-mill running ahead of schedule

  • The Company reports that installation of the second ball-mill at Yanfolila is running ahead of schedule and remains on budget.
  • Hummingbird Resources expects the commissioning of the mill to start during July “with full capacity ore throughput expected in August 2019”. The commissioning team is expected to arrive on site before the end of June.
  • The new mill is expected to increase the existing capacity by 24% from 1mtpa to 1.24mtpa when processing fresh ore and by around 17% (from 1.2-1.4mtpa) when treating blended ore types.
  • CEO, Dan Betts, explained that “At full capacity, the mine will benefit from economies of scale, with no requirement for additional staff to the second mill, so we therefore look forward to a lowering cost profile with increasing production rates over the LoM."
  • Currently the remaining work required for the mill installation requires the installation of the sump pumps and electrical systems – both tasks are reported to be ahead of schedule and “all equipment for the project is now on site” suggesting that many of the potential risks to completing the installation and commissioning of the new mill have now been eliminated.
  • The mine’s draft LoM plant indicates with expanded capacity Yanfolila is expected to run at 130-145kozpa and AISC of $800/oz over the 2020-2022 period.

Conclusion: Commissioning of the second ball-mill, which should increase throughput by up to 24%, is due to start at Yanfolila next month with full capacity expected to be achieved during August.

 

Vast Resources* (LON:VAST) 0.12p, Mkt Cap £10.5m – Progress report on the Heritage Diamond concession

  • Vast Resources reports that it held meetings last week in Harare with the parastatal Zimbabwe Consolidated Diamond Company (ZCDC) and local community leaders from the region hosting the Heritage diamond concessions.
  • As a result of the meetings, “agreements concerning the Heritage Diamond Concession will now be directly between the Company and the ZCDC rather than the local community, but the local community will be maintained as a beneficial recipient of shared profits as per the original agreement”.
  • Commenting on the simplification of the negotiating structure, Chief Executive, Andrew Prelea, said that the “amendment to the structure of the arrangement should not only accelerate the process to commencement, but should also provide the Company further opportunities to work with the ZCDC.”
  • Mr. Prelea said that he planned to return to Zimbabwe shortly “for what I hope will be the finalisation of the contractual terms, and also to establish the commencement of the project.”

*SP Angel acts as Broker to Vast Resources

 

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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