SP Angel – Morning View – Tuesday 27 08 19
Gold hits $1,555/oz on Monday amid US-China trade row escalation
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Adriatic Metals* (ASX:ADT) – Drilling results from Rupice
Amur Minerals* (LON:AMC) – NED subscribes for £163k worth of shares at 2.2p
Kodal Minerals* (LON:KOD) – Bougouni ESIA submitted
MOD Resources (LON:MOD) – Public review of the T3 ESIA
Negative rate growth poses long-term risk
A major spike in negative-yielding debt since 2015 may be set to continue, as the power of central banks to stimulate growth becomes increasingly limited (FT).
Already, US debt accounts for 95% of available investment-grade yield globally, per Bank of America.
A US recession may buck this trend, pushing yields lower and effectively eliminating investment-grade yields.
This could be bad news for long-term investors that depend on a return from fixed-income instruments, such as pension funds.
Low yields are already dimming the long-term value of pension fund liabilities, prompting funds to set aside more money.
The pension deficit of FTSE 350 companies rose £2bn to £51bn in July, before the sharp decline in bond yields witnessed in August.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – Equity index futures are little changed this morning after recovering some of last week’s losses on Monday amid Trump comments that trade deal prospects look promising and China was willing to restart trade discussions.
“We are going to start talking very seriously… (Chinese) mean business,” Trump said during his meeting of the Group of Seven recently.
News over escalation in the US/China trade dispute overshadowed the Jerome Powell speech at Jackson Hole on Friday last week.
On Friday, China announced retaliatory tariffs on $75bn of US imports, which was met with an announcement of higher tariffs from President Trump.
Trump tweeted existing 25% tariffs on some $250bn in imports from China would increase to 30% from October 1, while $300bn worth imports would be taxed at 15% (up from 10%) starting from September 1.
S&P 500 index closed 76 points down (-2.6%) on Friday while bonds (2y US Treasury yields -12bp) and gold prices (+$35/oz) rallied.
Powell refrained from explicit future policy guidance during his speech at Jackson Hole on Friday while hinting that the major driver behind the July rate cut remain and may have even intensified.
The central bank said the economy is in favourable place but faces “significant risks”.
Fed Chairman mentioned US/China trade row, growing possibility of a hard Brexit, rising tensions in Hong Kong and the dissolution of the Italian government among geopolitical risks to growth momentum.
Markets see rates to come down further 25bp during the September meeting.
China – The yuan is allowed to sink further amid a continuing trade dispute hitting 7.17 this morning, the weakest in more than a year.
Industrial production report released this morning surprised on the upside, although, better than expected reading is attributed to the lower base effect.
Having climbed 2.6%yoy in July, the industrial production remains down 1.7%yoy in the first seven months of the year.
The slowdown in industrial production and weak local demand should continue to weigh on profits with the economy remaining in need of support that is expected to eventually come through, Bloomberg Economics said.
Industrial Production (%yoy): 2.6 v -3.1 bin June.
Germany – The economy contracted 0.1%qoq, matching estimates, with trade subtracting 0.5pp from growth during the quarter.
Business investment (-0.1%qoq v +1.6qoq in Q1) and weak domestic consumption (0.1%qoq v 0.8%qoq in Q1) have also weighed on the GDP during the quarter.
Falling business confidence and warnings from large local business groups adding to concerns over the outlook and urging authorities to provide stimulus.
The ECB is meeting on September 12 and is widely expected to at least cut the deposit rate deeper below zero.
More bad news are potentially lurking ahead with President Trump threatening to impose tariffs on European car imports. Angela Merkel said Monday she wants the EU to start trade talks with the US.
UK – PM Boris Johnson ‘marginally more optimistic’ about prospect of new Brexit deal.
Prime Minister Boris Johnson has said he is ‘marginally more optimistic’ about the prospects of a new Brexit deal following discussions with European leaders at the annual G7 summit (FT).
The PM added that talks with the EU may run up to the October 31st deadline before a deal is reached, or take the decision to leave the EU without a deal within hours of the deadline.
The question of the backstop, considered the linchpin to any breakthrough in negotiations, remains unresolved, however German Chancellor Angela Merkel has indicated a new deal could be reached should the UK provide a viable alternative to the backstop within 30 days.
Italy – Bond yields pull back to the lowest level since 2016 as the Five Star Movement and the Democratic Party drew close to forming a coalition dialling down markets’ concerns of fresh elections.
The spread over German bonds, touched a one-month low (190bp), while the euro climbed against the US$ this morning.
The meeting with Luigi di Maio (Five Star), Nicola Zingaretti (Democrats) and Giuseppe Conte lasted in the early hours on Tuesday with further talks scheduled to continue today.
Democrats have yet to agree for Conte to head the government as well as details on the next year’s budget.
South Korea – Consumer confidence gauge hit the weakest level in more than a half years with trade battles and an export slump weighing on the economic outlook.
The central bank’s monthly consumer sentiment index fell to 92.5 in August, the weakest since Jan/17, with Japan’s new export restrictions, escalation of the US/China trade war, the nation’s export slump and a drop in equity prices cited among the reasons for the worsening sentiment.
Hong Kong – Chief Executive Carrie Lam said her government can handle unrest without assistance from Chinese military and still willing to hold talks with protesters.
“To this day, the SAR government is still confident it’s able to solve the disturbance that’s gone for two months,” HK leader said during a briefing today.
On Sunday, Beijing issued its most direct warning yet, saying in a Xinhua News Agency that the central government had the legal authority and responsibility to intervene military to halt what it said had become a “colour revolution”, Bloomberg reports.
Lam is reported to have met with 19 senior city leaders and community figures on Saturday in an effort to broker a dialogue with protesters with more than half of participants urging authorities to meet at least some of the protesters’ demands, including an inquiry into the unrest and formally withdrawing a now-suspended extradition bill.
Among other demands, Lam was urged to resign her post, something the Chief Executive refused to do.
“A responsible Chief Executive at this point in time should continue to hold the fort and do her utmost to restore in law and order in Hong Kong… I wouldn’t say my government has lost control,” Lam said.
US$1.1110/eur vs 1.1073/eur last week. Yen 105.65/$ vs 106.61/$. SAr 15.350/$ vs 15.142/$. $1.224/gbp vs $1.220/gbp. 0.675/aud vs 0.676/aud. CNY 7.164/$ vs 7.083/$.
Gold US$1,534/oz vs US$1,496/oz last week – Gold bullish, reaching 6-year peak over bank holiday weekend.
Gold surged to highs in excess of $1,550/oz yesterday before closing lower, following US President Trump’s escalation of tensions with China, which included a Twitter ‘order’ to US businesses to seek alternatives to China.
Those gains were pared back by Trump’s suggestion that China had called seeking a restart of trade negotiations, a claim that was later disputed by the Chinese state-owned newspaper Global Times.
Long-term uncertainty over the ongoing US-China trade war may push gold higher in the long run.
A wider trend of ‘de-dollarisation’, or central banks buying into alternatives to the dollar including gold, may also strengthen gold prices. Bank of England governor Mark Carney stated at the recent Jackson Hole meeting that the dollar’s position as the world’s reserve currency should be challenged.
Gold ETFs 78.0moz vs US$77.9moz last week
Platinum US$858/oz vs US$861/oz last week
Palladium US$1,478/oz vs US$1,491/oz last week
Silver US$17.76/oz vs US$17.05/oz last week
Copper US$ 5,646/t vs US$5,720/t last week
Aluminium US$ 1,763/t vs US$1,769/t last week
Nickel US$ 15,770/t vs US$15,780/t last week
Zinc US$ 2,252/t vs US$2,270/t last week
Lead US$ 2,069/t vs US$2,087/t last week
Tin US$ 15,705/t vs US$15,915/t last week
Oil US$58.9/bbl vs US$60.0/bbl last week
Natural Gas US$2.230/mmbtu vs US$2.145/mmbtu last week
Uranium US$25.30/lb vs US$25.30/lb last week
Iron ore 62% Fe spot (cfr Tianjin) US$83.6/t vs US$82.8/t
Chinese steel rebar 25mm US$546.3/t vs US$554.4/t
Thermal coal (1st year forward cif ARA) US$63.5/t vs US$63.6/t
Coking coal futures Dalian Exchange US$195.6/t vs US$198.2/t
Cobalt LME 3m US$32,600/t vs US$32,600/t
NdPr Rare Earth Oxide (China) US$43,131/t vs US$44,263/t
Lithium carbonate 99% (China) US$7,398/t vs US$7,695/t
Ferro Vanadium 80% FOB (China) US$38.5/kg vs US$38.7/kg
Antimony Trioxide 99.5% EU (China) US$5.3/kg vs US$5.3/kg
Tungsten APT European US$210-225/mtu vs US$210-225/mtu
Adriatic Metals* (ASX:ADT) A$1.035, Mkt cap A$156.6m – Drilling results from Rupice
Adriatic Metals reports the results of nine holes from its exploration programme at Rupice in Bosnia with the most northerly of the holes returning what the company describes as “the best intersection” in a direction which remains open.
This hole, BR-17-19, was drilled “some 35m further north of the most northerly drill section and some 80m down-plunge and north of the original Rupice licence boundary and intersected two thick zones of mineralisation with the upper lens returning the best mineralised intersection in the new Concession area”. The intersections included:
38m averaging 6.2% zinc, 3.8% lead, 174g/t silver, 1.9g/t gold and 0.4% copper from a depth of 208m with a higher grade zone of 12m width averaging 13.2% zinc,7.8% lead, 154g/t silver, 2.4g/t gold and 0.6% copper from 208m; and
20m averaging 2.0% zinc, 2.8% lead, 96g/t silver 0.3g/t gold and 0.6% copper from a depth of 254m.
Another hole, BR-20-19 was drilled to test the down dip extent of the mineralisation encountered in Hole BR-17-19 and intersected
36m averaging 2.1% zinc, 1.2% lead, 56g/t silver, 0.13g/t gold and 0.2% copper from a depth of 234m and a second mineralised horizon of
18m width averaging 2.1% zinc, 1.2% lead, 48g/t silver, 0.11g/t gold and 0.2% copper from a depth of 280m
The company interprets this mineralisation as “the northerly down dip continuation of the mineralisation intersected in hole BR-12-19” which intersected
A 22m wide zone averaging 2.9% zinc, 1.8% lead, 308g/t silver, 1.2g/t gold and 0.2% copper with 16% barite from a depth of 176m and included a higher grade zone of 4m from 178m depth which averaged 8.7% zinc, 5.3% lead, 114g/t silver, 1.4g/t gold and 0.4% copper and a second, deeper zone of
30m averaging 2.1% zinc, 2.5% lead, 103g/t silver, 0.6g/t gold and 0.6% copper from a depth of 218m and also included a 4m wide zone from 220m depth which averaged 6.7% zinc, 12.7% lead, 227g/t silver, 2.8g/t gold and 2.7% copper
The next drill section towards the south targeting the same zones of mineralisatio appear to show it “pinched out by a fault” although hole BR-19-19 intersected
18m of mineralisation averaging 3.9% zinc, 2.1% lead, 180g/t silver, 0.98g/t gold and 0.7% copper with 34$ barite from a depth of 254m.
The company says that “The mineralisation in the north remains open” and that it continues to drill the down-plunge extensions.
At the southern end of the area, drilling of hole BR-18-19 “extended the down-dip mineralisation some 70m from the historical drill hole returning”
8m of mineralisation averaging 2.5% zinc, 1.8% lead, 143g/t silver, 1.4g/t gold and 0.6% copper with 18% barite from a depth of 230m
The company expects to move a rig “to the Brestic-Jurasevac prospect” to investigate a geophysical chargeability anomaly.
Conclusion: The drilling is continuing at the Rupice prospect in Bosnia and encountering high- grade intersections in a mineralised structure, which though not yet fully understood remains open both laterally and at depth.
*An SP Angel mining analyst visited Adriatic Metals operations in Bosnia
Amur Minerals* (LON:AMC) 2.2p, Mkt Cap £15.8m – NED subscribes for £163k worth of shares at 2.2p
Tom Bowens, None Executive Director, subscribed for 7.5m new shares at 2.165p per share equivalent to £163k in gross proceeds.
Following the subscription, Mr Bowens will have a beneficial interest in 7.5m shares, amounting to 1% of the outstanding share capital.
Tom has recently joined the Board (7Aug/19) bringing a wealth of experience to the Company having previously been directly responsible for two major deposit discoveries in the Russian Far East in the past 12 years including Svetloye and Malmyzh.
In Oct/18, Bowens successfully sold IG Copper, the company he founded in 2009 and an owner of the Malmyzh copper-gold porphyry in Khabarovsk Krai (1.4bn tones of ore with 5.6mt contained Cu and 9.4moz contained gold on Russian resources).
IG Copper was acquired by Russian Copper Company for $200m.
Conclusion: Subscription for £163k of new shares (at market spot) by one of the Company’s directors is a welcome news offering a vote of confidence in the project as well as providing additional funding to the group.
*SP Angel act as Nomad and Broker to Amur Minerals
Kodal Minerals* (LON:KOD) 0.07p, Mkt Cap £6.5m – Bougouni ESIA submitted
Kodal Minerals announced on Friday that it has submitted the Environmental and Social Impact Assessment (ESIA) for its proposed Bougouni Lithium project in southern Mali to the “Direction Nationale de l’Assainissement et du Controle des Pollutions et des Nuisances (‘DNACPN’), the governing administration for environmental matters in Mali.”
CEO, Bernard Aylward explained that “The formal ESIA submission to the Mali Government authorities represents the first critical step in the process of obtaining a Mining Licence”.
The submission of the ESIA is a prelude to the DNA CPN sending a delegation to the Bougouni site and formal workshops to “provide their feedback on the ESIA”.
Once these issues have been addressed and updates incorporated as necessary, “an updated final ESIA submission is tendered, and the DNACPN statutory approval period of 45 days commences.” At this stage, Kodal Minerals “anticipates no significant issues with the submission. The Company expects formal approval of the ESIA within the legislated timeframe”.
Mr. Aylward acknowledged the continuing support of the Malian Government and the local community and confirmed that the focus remains “on completion of a Feasibility Study that will be key for our application to obtain a Mining Licence at Bougouni.”
The company “expects to provide an update on the Engineering and Processing Study next week and will also include an update on the expected shipping of the Bulk Sample material currently in Dakar”.
Conclusion: The submission of the ESIA to the regulatory authorities in Mali is an important initial step in the formal permitting process and we look forward to the expected engineering studies which will also be a key component in obtaining a mining licence.
*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.
MOD Resources (LON:MOD) 22.75p, Mkt cap £69.2m – Public review of the T3 ESIA
MOD Resources reports that the Environmental and Social Impact Assessment (ESIA) for the proposed T3 copper mine in Botswana has now been assessed by the Department of Environmental Affairs (DEA) and is now entering a four week period of public review.
The company reports that the DEA concluded that the study had “adequately identified and assessed anticipated impacts associated with the proposed activity” relating to the mine development and adds that “Following the review period the ESIA is expected to be approved and Tshukudu [MOD’s wholly owned local operating company in Botswana] should be in a position to apply for a Mining Licence”.
Commenting on the “very important milestone” of the ESIA being released for public consultation, Managing Director, Julian Hanna, said that “the ESIA has received a high level of scrutiny which has involved consultation with many stakeholders in the district. The outcome is a testament to the quality of work that our staff and consultants in Perth and Botswana have produced.”
He went on to explain that the “T3 Copper Mine is expected to be a significant contributor to the local Ghanzi economy for many years, while operating to the highest health, safety and environmental standards. We recognise the importance of a robust consultation and approvals process and our Community Relations team has done an outstanding job in conveying the significant and lasting value that we expect to bring to the region."
MOD Resources remains the subject of a recommended offer from Sandfire Resources which is to be considered by shareholders at a meeting scheduled for 1st October.
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
James Mills -0203 470 0486
Richard Parlons – 0203 470 0472
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
Prince Frederick House
35-39 Maddox Street London
*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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