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Today’s Market View – Alba Minerals, Altus Strategies, Antofagasta and more…

SP Angel . Morning View . Wednesday 22 07 20

Gold surges past $1,850/oz on weakening virus outlook

MiFID II exempt information – see disclaimer below

Alba Minerals (LON:ALBA) – Bulk sampling at Clogau St David mine

Altus Strategies* (LON:ALS) – Diba PEA delivers $81m NPV10% (after tax)

Antofagasta (LON:ANTO) – 2020 Maintaining production and cost guidance despite Covid19

Bluejay Mining (LON:JAY) BUY – Target 20p – Offtake agreement for up to 70% of Dundas Ilmenite production

Edenville Energy* (LON:EDL) – ILTL $1m loan agreement and Rukwa update

Jangada Mines (LON:JAN) – Drilling results from Goela

Kodal Minerals* (LON:KOD) – Results highlight progress at Bougouni lithium and other gold projects

OXIS Energy* – Private – OXIS Energy agrees with Texas Aircraft Manufacturing to develop new electric aircraft

China – Yangtze River level rises again renewing pressure on Three Gorges Dam

River levels on the Yangtze continued to rise yesterday, as more heavy rains add further pressure to the river system that has already left more than 140 people dead as a result of seasonal flooding.

Flooding since the beginning of the month has displaced 1.8 million people in 24 provinces, and direct losses attributed to flooding are estimated at more than $7bn (South China Morning Post).

It was reported yesterday that a 10 million cubic meter landslide has blocked a tributary of the Yangtze in Hubei province, forming a barrier lake that is threatening the downstream city of Enshi (Xinhua).

The water level in the reservoir behind the Three Gorges Dam is at its highest level since construction was completed in 2009, as the swell of water reaches 55,000 cubic meters per second- exceeding the official warning level of 50,000 cubic meters.

Flooding has disrupted domestic coal shipping and weakened coal demand which has led to falling domestic coal prices.

Shippers are reluctant to send vessels to ports along the river because they must load the vessels below capacity, undermining the economics on cargo (Argus Media).

Maersk to stop handling scrap cargoes destined for China

The world's largest shipping line by cargo capacity have announced that they will stop handling scrap cargoes destined for mainland China and Hong Kong (Fastmarkets MB).

Policy uncertainties regarding scrap cargoes of material such as non-ferrous and ferrous metal scrap have meant that Maersk will not schedule ships to depart after the 1st of September.

Maersk know scrap shipments are banned from the 31st of December, so do not want any shipments arriving close to the date.

The move has shocked, as many scrap traders use their services. One scrap trader told Fastmarkets MB that they use Maersk 70-80% of the time.

The move is likely to disrupt scrap deliveries into China reducing metal production from scrap sources.

Stimulus tally – Expect $1tn from US to drive total pledged stimulus to over $17.8 trillion

$860bn – EU Stimulus package for EU economic recovery

+ former $825bn (€750bn) EU – European Commission aid package yesterday aimed at supporting EU nations hit by the pandemic which was itself an expansion on the previous $543bn (€500bn ) EU Crisis Recovery fund backed France and Germany + $963bn (€750bn)

ECB scraped limits on sovereign bond purchases. ECB PEPP buying running at around €250bn

EU Finance Ministers have so far failed to agree on a strategy to mitigate the economic impact of the pandemic.

The pandemic emergency purchase programme (PEPP) and asset purchase programme (APP) have been reiterated with a cap of €750bn and €120bn, respectively.

The ECB bank was reported to have used €100bn of the PEPP so far.

$304bn – China Ministry of Finance Rmb550bn (US$77bn) of special purpose debt.

+ another Rmb1,600bn (US$226bn) is available for issue before the year end. Much of this will be for housing and connecting infrastructure

$140bn – China PBOC buying CNY1tn of bank loans issued by local lenders to small firms this week in an effort to ease the flow of credit.

$56bn – The PBOC also announced a Rmb400bn ($56bn) purchase loan program to boost available credit by supporting bank loans to SMEs

$1.55tn – China – Bloomberg estimates a fiscal impulse of more than 11% of nominal GDP which was estimated at US$14.14tn

We previously assumed China at $909m comprised $344bn of China stimulus + $565bn in special bonds for infrastructure by local authorities

$438m Zambia – Government approves $438m stimulus package

$2tn – US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries

The House passed a $484bn aid package to rescue small small businesses, hospitals ($75bn) and coronavirus testing ($25bn).

$2tn US – Trump looking at $2tn infrastructure fund

$700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE to buy Treasuries and mortgage-backed securities.

US Fed may soon start buying in up to $750 billion of corporate debt and ETFs

US Fed has flooded all markets with dollar liquidity through repo and swap lines.

US$1.02tn – Japan – BoJ injecting US$1.02tn into the economy through a variety of programmes. (will check if this is in addition to the Y117tn stimulus announced)

US$1.1tn – 117tn-yen stimulus, funded partly by a second extra budget, will be on top of another 117tn package already rolled out takes total spending in Japan at 234tn yen ($2.18tr) – 40% of Japans GDP. Japan to issue Y31.9tn in government bonds.

$298bn Japan parliament passed ¥31.9tn ($298bn) second extra budget today to help struggling economy.

¥117tn stimulus programme + ¥10tn as a coronavirus reserve fund

$825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds

$934bn (£745bn) – UK Bank of England injects another £100bn ($125bn)

$387bn (€304bn) France, $200bn (€200bn) Spain, $214bn (A$320bn) Australia – RBA ready to buy bonds again.

US$260bn – India representing 10% of GDP.

$62bn – South Korea – The government unveiled a 76tn won ($62bn) “New Deal” aimed at supporting the economy amid the pandemic focused on creating jobs and new industries through 2025. South Korea – New Deal will create jobs and foster new industries like 5G.

$13.3bn – Saudi Arabia central bank will inject 50bn riyals ($13.3bn) into the banking system on top of US$43.7bn already pledged

$78bn (C$107bn) Canada, $32bn, Singapore, $22.6bn India, $19.3bn HK, $13.7bn South Korea, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, Philippines further $26bn proposed, Indonesia – adding $43bn, Thailand creating a corporate bond fund.

South African buys ZAR10.2bn (US$119m) government bonds in May. Argentina to default on $10bn of dollar debt issued till the end of the year.

$1,000bn – IMF available + $12bn World Bank,

>16.86tn from ($16tn) – Total stimulus reported. Figures may include some political double counting and we suspect some funds may not be spent

IG TV interviews on copper and gold

VOX Markets podcast on mining

https://www.voxmarkets.co.uk/media/5f05abf49f98da001bbc4b10/?context=/listings/LON/SAV/multimedia/

Dow Jones Industrials +0.60% at 26,840

Nikkei 225 -0.58% at 22,752

HK Hang Seng -0.48% at 25,513

Shanghai Composite +0.23% at 3,328

Economics

US – President Trump downplayed expectations for a quick recovery saying the pandemic in the US will “get worse before it gets better”.

New cases accelerated in California, Texas, Arizona, Florida and other states in the US sunbelt in the past several weeks.

Gold jumped above $1,850/oz while silver climbed to the highest level in almost seven years as governments ramp up stimulus and coronavirus outlook weakens.

US Dept. of Defense resumes rare earth funding programme

The Pentagon has resumed funding two rare earth projects, after previously suspending them pending 'further research' into the award process for the projects.

An independent party reviewed the award process was fair for Lynas and privately held MP Materials to build rare earth separation facilities in Texas and California respectively.

US officials have previously stressed the importance of domestic supply of rare earths, as China controls the vast majority of supply.

The amount awarded to both Lynas and MP has not been published by the US government, though the funds were allocated for planning work and the construction of processing facilities (Reuters).

US State Department orders closure of Chinas consulate in Houston to protect American Intellectual Property

There is a strong sense that the US has had enough of China stealing valuable intellectual information and data on individuals.

Stories of Chinese nationals working in the US being forced back to China through threats to their families back home are worrying.

Japan is paying companies to re-shore manufacturing back to Japan

China needs the US to continue to buy its products and can not afford to risk an all-out trade war.

China – Bank of China cuts money market purchases to 20% from 40%.

Germany – The Dax Index is close to recovering all its 2020 losses coming within less than 1% of the start of the year supported by unprecedented government and central banks stimulus programmes.

UK – Mike Pompeo hopes Free Trade Agreement can be finalised soon with the UK

The UK government sees the US-UK trade deal is unlikely to come through before the US presidential elections in November as Covid-19 related disruptions delay negotiations. Previously, PM Johnson and international trade secretary Liz Tuss aimed for a fast-track agreement by late summer.

Australia – New cases continue to climb in Victoria which accounts for more than half the nations number of infections.

A record 484 new infections were recorded today.

Daniel Andrews, Victorias state premier, blamed the surge on failure of people to follow self-isolation rules immediately after first symptoms

Massive 7.8m earthquake in Alaska creates tsunami warnings

The epicentre was around 500miles south of Anchorage and just 60 miles south of Perryville.

Experts reckon coastline within 200 miles of the epicentre is at risk.

Given that tsunamis can travel huge distances very fast some parts of the north west Canadian coast facing the epicentre could experience could see some impact.

COVID-19 – Surviving the coronavirus may not confer immunity for long

Oxford vaccine helps generate antibodies and more importantly T-cells which may hold the answer to longer term immunity.

BBC headlines are grim reading today on the Coronavirus with experts warning that the epidemic is unlikely to be over by Christmas in the UK.

Even Donald Trump has conceded that the pandemic will get worse.

The UK government has, at long last, given nurses a pay rise.

Russia – Meting permafrost possible cause of Norilsk oil leaks

Scientists have estimated 40bn tons of CO2 may be released by melting soil in the Artic by 2100.

The frozen permafrost primes the rhizosphere causing microbes to accelerate the conversion of plant matter into CO2.

The process accelerates as the ground thaws and plants grow stimulating more microbial activity.

Currencies

US$1.1539/eur vs 1.1458/eur yesterday. Yen 106.81/$ vs 107.32/$. SAr 16.424/$ vs 16.525/$. $1.272/gbp vs $1.270/gbp. 0.716/aud vs 0.705/aud. CNY 6.975/$ vs 6.992/$.

Commodity News

Precious metals:

Gold US$1,860/oz vs US$1,822/oz yesterday – Gold continues to close in on 2011 record high

The price of gold surged on Tuesday, boosted by a weaker US dollar and sustained uncertainty regarding the United States' response to COVID-19- as President trump conceded things could get worse.

The US dollar hit a four-month low, making the price of gold cheaper for buyers holding other currencies.

Spot gold rose 1.5% to $1,843/oz, hitting its highest since September 2011 whilst US gold futures settled up 1.5% at $1,844/oz (Reuters).

Spot silver climbed 7.2% yesterday to $22.84/oz- the highest since 2013 (Bloomberg).

This latest run in the gold price lifts the price closer to the record high of $1,921/oz seen in 2011.

Gold ETFs 105.8moz vs US$105.3moz yesterday

Platinum US$888/oz vs US$848/oz yesterday

Palladium US$2,175/oz vs US$2,080/oz yesterday

Silver US$22.32/oz vs US$20.33/oz yesterday

Base metals:

Copper US$ 6,571/t vs US$6,489/t yesterday

Aluminium US$ 1,700/t vs US$1,669/t yesterday

Nickel US$ 13,425/t vs US$13,315/t yesterday

Zinc US$ 2,242/t vs US$2,207/t yesterday

Lead US$ 1,834/t vs US$1,849/t yesterday

Tin US$ 17,695/t vs US$17,425/t yesterday

Energy:

Oil US$44.1/bbl vs US$43.6/bbl yesterday

Natural Gas US$1.668/mmbtu vs US$1.652/mmbtu yesterday

Uranium US$32.75/lb vs US$32.60/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$108.2/t vs US$106.0/t

Chinese steel rebar 25mm US$538.6/t vs US$533.7/t

Thermal coal (1st year forward cif ARA) US$60.9/t vs US$59.3/t – Vale's Q2 thermal coal output falls 53% YoY

Vale's second-quarter thermal coal production stood at 585,000t- as demand fell sharply as a result of the COVID-19 pandemic.

The company scaled back production at its coal project in Mozambique from April due to "demand constraints", and suspended operations in June.

Coking coal swap Australia FOB US$110.5/t vs US$111.0/t

Other:

Cobalt LME 3m US$28,500/t vs US$28,500/t

NdPr Rare Earth Oxide (China) US$42,294/t vs US$42,190/t

Lithium carbonate 99% (China) US$4,946/t vs US$4,934/t

Ferro Vanadium 80% FOB (China) US$29.5/kg vs US$29.5/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$205-210/mtu vs US$205-215/mtu

Graphite flake 94% C, -100 mesh, fob China US$430/t vs US$430/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,275/t vs US$2,275/t

Battery News

Israeli start up develops EV skateboard platform

Israeli EV start up REE automotive has been developing a modular EV platform.

It is flat, scalable and adaptive, providing 3x times the average space for batteries.

The platform enables complete design freedom for the body of the vehicle.

REE is supported by partners which include Mitsubishi, KYB and FIAT Chrysler.

XPeng raises $500m in latest funding round

Chinese EV start up Xpeng Motors announced this week it has raised $500m in its latest funding round.

Investors in the Companys C+ funding round include Aspex, Coatue, Hillhouse and Sequoia Capital China.

Following series C funding in November 2019 Alibaba backed Xpeng has launched its second EV model the P7 sports sedan and secured the production license for a factory in Zhaoqing, Guangdong Province.

The funding will enable Xpeng to further develop its intelligent technologies.

Xpeng has delivered 19,376 G3 SUVs up to June. (Reuters)

NanoGraf partners with US DOD to develop lithium-ion batteries

Advanced battery material company NanGraf has partnered with the US DOD to develop long lasting lithium-ion batteries for the US military.

The DOD will invest $1.65m to develop silicon anode-based lithium-ion technology for portable batteries via The Small Business Innovation Research (SBIR) program.

The goal is a 50-100% increase in runtime compared to comparable graphite anode lithium-ion cells.

The funding requires NanoGraf to develop a battery cell that can operate in a temperature range of -4 degree Fahrenheit to 131 degrees Fahrenheit with a lifetime of at least 2yrs.

Company News

Alba Minerals (LON:ALBA) 0.08p, Mkt cap £3.4m – Bulk sampling at Clogau St David mine

Alba Minerals reports that, following the easing of measures to restrict the spread of the Covid19 pandemic, it plans to resume exploration at the historic Clogau St David gold mine in north-west Wales with, subject to regulatory approvals, the extraction of an underground bulk sample.

The work “will be focused on extracting several bulk samples from target areas within the existing mine development. As the gold at Clogau is highly nuggety and contained in narrow quartz veins, bulk sampling is typically deployed in order to obtain a representative idea of gold content across a particular vein or zone”.

The company expects to take samples totaling approximately 5-10 tonnes of mineralised material with the objective of “identifying unexploited gold zones and known payshoot extensions within the Mine which will support a decision to reopen the Mine for long-term commercial production”.

Altus Strategies* (LON:ALS) 54.5p, Mkt Cap £38m – Diba PEA delivers $81m NPV10% (after tax)

The Company released a Preliminary Economic Assessment for the 100% owned Diba gold project in western Mali.

Project economics include:

Average production of 52,000oz per year with 3.25 year mine life;

AISCs estimated at $635/oz reflecting low strip ratio of 1.37x thanks to a shallow dipping (~30 degrees) nature of the mineralisation;

The heap leaching operation is estimated to run at 1.5mtpa at an average grade of 1.33g/t and 80% gold recoveries;

Development capex estimated at $20m;

Pre-tax NPV10% ($1,500/oz base case) of US$115 million, IRR of 728% and payback of 6.2 months;

After-tax NPV10% ($1,500/oz base case) of US$81 million, IRR of 469% and payback of 6.9 months;

Using $1,800/oz gold price and 5% discount rate NPV climbs to $167m (pre-tax) and $118m (post-tax);

PEA used contractor mining assumption and conventional open pit extraction (drilling, blasting, loading, haulage and ancillary services);

The PEA is based on the recently released Mineral Resources Estimate of 4.8mt at 1.39g/t for 217koz in the Indicated category and 5.5mt at 1.06g/t for 187koz in the Inferred category;

Oxide material susceptible to heap leaching currently stands at 4.8mt at 1.39g/t for 216koz (accounting for a little over 50% of total resource).

The Company highlighted upside potential to Diba economics including drill testing seven further significant oxide gold targets as well as metallurgical studies to be carried to test potential for sulphide ores (~50% of current resource) processing using CIL.

The project is strategically located only 13km away from the Sadiola Gold mine.

Conclusion: The PEA delivers attractive economics for the Diba project envisaging low capital cost heap leaching operation running at 52kozpa for 3.25 years at low $635/oz AISCs thanks to low waste stripping required. The study values the project at $81m (post tax) using 10% discount rate and base case gold price assumption of $1,500/oz that climbs to $118m at 8% and $1,800/oz, respectively, highlighting the upside potential to the Companys current market capitalisation excluding other assets in the portfolio. The team is well capitalised and is planning to carry a drill programme aimed at growing the resource base at Diba testing a number of contingent oxide gold targets while also exploring CIL sulphide processing potential with a series of metallurgical tests.

*SP Angel acts as nomad and broker to Altus Strategies

Antofagasta (LON:ANTO) 1040.5p, Mkt Cap £10.2bn – 2020 Maintaining production and cost guidance despite Covid19

In its Q2 2020 quarterly production report Antofagasta confirms that, despite uncertainty arising from the impact of Covid19, it is maintaining its 2020 production guidance at the lower end of its previously published range of 725-755,000t of copper and that net costs are expected to be US$1.20lb, in line with the costs anticipated at Q1 but 10ȼ/lb lower than originally expected.

The company confirms that it is “running our operations with approximately two-thirds of our workforce on-site, with the remainder either quarantining or working at home.” As its operations gain experience of these different working practices Antofagasta expresses confidence that it “can continue to operate at current levels until the end of the year, assuming no further Covid-19 related restrictions are imposed.”

Copper production during the quarter amounted to 177,000t which is “a decrease of 8.4% compared to the previous quarter, mainly because of expected lower ore grades at Centinela Concentrates”.

Net cash costs of US$1.13/lb during the quarter bring the YTD cash costs to US$1.12/lb, “5.9% lower than in the first half of 2019” aided by “the weaker Chilean peso, lower input costs and continued tight cost control”.

Production at Los Pelambres increased by 1.6% to 183,200 for H1 2020 (2019 180,400t) with net cash costs of US$0.80/lb running 10.1% below the US$0.89/lb achieved in H1 2029.

Lower grades and recovery rates at Centinella led to a decline in copper in concentrate production during H1 of 25% to 74,800t (H1 2019 – 100,100t) although improved performance at the Encuentro Oxide plant resulted in an 11.7% increase in copper cathode output to 46,800t (H1 2019 – 41,900t).

Net cash costs for Centinella rose by 6.8% compared to H1 2019 to US$1.26/lb (H1 2019 – US$1.18/lb).

Production for H1 2020 rose by 7.7% at Antucoya to 40,400t (H1 2019 – 37,500t) while cash costs declined by 23.5% to US$1.73/lb (H1 2019 – US$2.26/lb) “due to tight cost control, higher production, favourable local exchange rate and lower input prices”.

At Zaldivar, H1 production declined by 3.6% to 26,500t (H1 2019 – 27,500t) as a result of “lower copper grades and recoveries, partially offset by improved throughput”. Benefitting from weaker exchange rates, net cash costs declined by 3.9% to US$1.72/lb (H1 2019 – US$1.79/lb).

Antofagasta reports that its major capital expansion projects at Los Pelambres, Centinella and Zaldivar “have largely been suspended since March with some limited work continuing, mostly on the desalination plant at Los Pelambres. Antofagasta plans to restart the Los Pelambres Expansion and Zaldívar Chloride Leach projects gradually during Q3 fully integrating new health protocols for COVID-19 into the revised project execution plans” and that consequently “Capital expenditure for the year is expected to be less than $1.3 billion, assuming the work on the Los Pelambres Expansion and Zaldívar Chloride Leach projects ramps-up as expected”.

Conclusion: Antofagasta has proved resilient during the first half of 2020 and is currently expecting to achieve the lower end of its 725-755,000t copper production guidance. Net cash costs for the year are expected to benefit from weakness in the Chilean Peso and with H1 costs of US$1.12/lb are expected to meet current, reduced, guidance of US$1.20/lb.

Bluejay Mining (LON:JAY) 6.75, Mkt cap £65m – Offtake agreement for up to 70% of Dundas Ilmenite production

BUY – Target 20p

Bluejay Mining and its offtaker have report have updated the Offtake MOU to potentially take up to 70% of total annual output of the Dundas ilmenite project.

The new MOU raises the off-take to 250-300,000tpa of ilmenite.

Management have also agreed a three-month extension to the MOU to negotiate a potential definitive distribution agreement, eg to firm up on many of the underlying details with the trading concern.

The potential increase in the offtake being agreed upon is great news as it underpins future sales for the group and will help with the project financing.

The offtaker has also indicated a willingness to participate in the project financing providing for another source of equity in the business.

Bluejay will now move to finalise buyers for the remaining 140-190,000tpa of planned scheduled production.

Production: This indicates the mine should produce some 390-490,000tpa.

Valuation: Our model assumes the mine starts at a rate of 430,000tpa rising to 641,000tpa in year four .

Our valuation is based on a $220/mtu ilmenite price, an 8% discount rate and a capital cost of $294m.

We see the high initial capital cost estimate as cautious as it has been simply adjusted to account for significant transport and logistics costs to land equipment at Dundas. This brings the IRR down to 16%.

Ilmenite: prices have held firm throughout the COVID-19 crisis at around $220/mtu ilmenite. Consumers in the west rushed out and continued to buy paint for their furlough destocking DIY stores and driving online sales.

Pigment producers who produce the titanium dioxide have continued to demand feed from convertors such as Rio Tinto Iron and Titanium who we believe have been working flat out to make up the shortfall caused by the Canadian Lockdown and problems with production in South Africa, Madagascar and Mozambique.

Any further supply shocks may cause ilmenite prices to rise if consumers areRead More – Source

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