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Today’s Market View – Amur Minerals, Sunrise Resources, Kodal Minerals and more…

SP Angel . Morning View . Wednesday 02 09 20

Iron ore prices jump in China, US dollar gains, Global manufacturing accelerates

Adriatic Metals* (LON:ADT1) – Government approval granted for land extension at Vares Silver project

Amur Minerals* (LON:AMC) – Board appointment

Ariana Resources* (LON:AAU)– Underground mining options considered and new vein discovered at Kiziltepe

BlueRock Diamonds* (LON:BRD) –Diamond sales from Kareevlei average US$330/carat

Bushveld Minerals (LON:BMN) BUY – Valuation 46.5p – Vanadium sales rise in first half despite Lockdown

Ferro-Alloy Resources (LON:FAR) – Development of electrolyte for VFBs

Kodal Minerals* (LON:KOD) – BUY – Sinohydro MoU offers potential to realise significant value

Sunrise Resources (LON:SRES) – CS Project appeals window closes without any objections

Global Manufacturing activity growth accelerated to 21-month high in August with new orders increasing at the strongest pace since Jun/18 as factories ramp up operations post the virus outbreak.

Manufacturing production increased for the second month following a five-month stretch of declines.

China, the US, Germany, the UK, India and Brazil were among of the larger nations to post expansions of output in August.

New orders increased for the second successive month in August as well driven by domestic markets as international trade remained subdued; new export orders have now decreased throughout the past two years running weak from Sep/18.

Employment in the manufacturing sector continue to drop for the ninth consecutive month, although the pace of declines slowed down to the lowest since January; employment fell in China, Japan, the eurozone the UK, South Korea, Taiwan and India (among others), but rose in the US, Brazil, Canada, Turkey and Myanmar.

Dollar gains on solid US economic data

The dollar index is reversing losses seen yesterday which saw it fall to a two-year low, with the DXY up 0.24% so far on Wednesday (FX Street).

The greenback bounced after US manufacturing activity increased to 56.0- nearly a two year high amid a surge in new orders.

Sterling fell 0.4% against the dollar at $1.33, whilst the Aussie dollar weakened as much as 0.5% to $0.7337 amid poor Australian GDP data (FT).

Gold prices slid as a result of the strengthening dollar, with spot gold falling 0.3% to $1,965/oz after hitting $1,992/oz on Tuesday, whilst US gold futures dropped 0.4% to $1,971/oz (Reuters).

Dow Jones Industrials +0.76% at 28,646

Nikkei 225 +0.47% at 23,247

HK Hang Seng -0.33% at 25,102

Shanghai Composite -0.15% at 3,405

Economics

US – A survey released by the ISM showed the manufacturing sector expanded in August at the quickest rate since late 2018 (56.0 v 54.2 in July) driven by a strong growth in new orders (67.6 v 61.5 in July).

ISM Manufacturing: 56.0 v 54.2 in July and 54.8 est.

US construction spending rises slightly despite collapse in public construction projects.

Construction spending rose 0.1%mom in July vs a fall of 0.5% in June (Commerce Department)

Construction spending fell 0.1% yoy in July

Spending on private construction projects rose 0.6%, helped by investment in homebuilding and low mortgage rates.

Spending on residential projects climbed 2.1% offsetting a 1.0% fall in spending on non-residential construction.

Spending on public construction projects tumbled 1.3% despite expectations that the government would ramp up construction spend..

US – Fed moves indicate US rates should stay lower for longer as a result of new focus on average inflation in favour and lower unemployment should

Longer term weaker US interest and dollar rates should stimulate US manufacturing though competing with China is still not easy based on the massive difference in labour and other costs between the US and Asia.

China has been exporting its lower cost manufacturing to Vietnam and other nearby Asian countries as it works to increase the value of its business back home with the result that the US is now investigating imports from the region.

US nursing homes and assisted living facilities account for 0.6% of the US population but 42% of its Covid-19 deaths (The Foundation for Research on Equal Opportunities).

Berkshire Hathaway bought 5% in five major Japanese trading houses which feed commodities into Japan and other manufacturers.

China – Authorities are bracing for the 14th five-year plan starting next year and to be laid out next week with the focus on development of domestic consumption and production of more critical technology at home, Bloomberg reports.

Described as a strategy of “dual circulation”, the plan is for a more self-reliant domestic economy supported by foreign technologies and investment.

Eurozone – Consumer prices posted a drop for the first time in four years in the Eurozone in August as nations battle with the coronavirus pandemic aftermath.

While consumption and industrial production picked up in the euro area since lockdown measures were relaxed, weak inflation and the threat of high unemployment offer a negative backdrop for the ECBs policy meeting next week.

CPI (%yoy): -0.2 v 0.4 in July and 0.2 est.

Core CPI (%yoy): 0.4 v 1.2 in July and 0.8 est.

Germany – Retail sales recorded another monthly decline as purchases slowdown amid uncertainty over the second wave of infections and a potential winddown of fiscal support.

Although, retail sales still remained above pre-pandemic levels.

Retail Sales (%mom/yoy): -0.9/+4.2 v -1.6/+5.9 in June and +0.5/+4.1 est.

UK – Property prices climbed at the strongest monthly pace in more than 16 years on pent up demand and government announcement stamp duty holidays.

House prices increase 2%mom in August taking the annual increase to 3.7%, according to Nationwide.

“House prices have now reversed the losses recorded in May and June and are at a new all-time high,” Nationwide said.

The data also shows that the number of mortgage approvals jumped to near-pre pandemic levels in July.

Australia – The economy contracted by more than expected 7% in Q2 on coronavirus containment measures marking the sharpest drop on record.

All categories except government spending and reduced imports contributed negatively to the headline GDP rate with a drop in private spending accounting for most of it.

The second consecutive quarterly drop also means the economy recorded the first recession in nearly 30 years.

GDP (%qoq/yoy): -7.0/-6.3 v -0.3/+1.4 in Q1 and -6.0/-5.1 est.

Brazil – Quarterly GDP data showed the largest Latin Americas economy contracted the most on record in Q2 with a recovery expected to be irregular as services sector remains weak despite emergency government spending, Bloomberg reports.

GDP (%qoq/yoy): -9.7/-11.4 v -1.5/-0.3 in Q1 and -9.2/-10.7 est.

Currencies

US$1.1896/eur vs 1.1973/eur yesterday. Yen 106.02/$ vs 105.72/$. SAr 16.689/$ vs 16.797/$. $1.336/gbp vs $1.341/gbp. 0.736/aud vs 0.740/aud. CNY 6.826/$ vs 6.821/$.

Commodity News

Precious metals:

Gold US$1,961/oz vs US$1,989/oz yesterday – Gold prices likely to rise on raised risk of military build-up around Cyprus

Turkey is claiming that the addition of Greek soldiers in Cyprus violates the 1947 peace treaty. Turkey is also accusing the US of violating the spirit of the treaty by lifting an arms embargo on Cyprus.

Gold ETFs 109.1moz vs US$108.9moz yesterday

Platinum US$934/oz vs US$952/oz yesterday

Palladium US$2,272/oz vs US$2,288/oz yesterday

Silver US$27.81/oz vs US$28.78/oz yesterday

Base metals:

Copper US$ 6,683/t vs US$6,821/t yesterday – Peru copper mining almost completely recovered from pandemic, according to minister of energy and mines

Copper prices dropped on Wednesday morning from the two-year highs seen yesterday, as data from Peru suggested that the copper mining sector has almost fully recovered.

Perus copper production fell 2.4% YoY in July to 199,000 tonnes, a small drop bearing in mind that last month the government said that copper production fell 20.4% in H1 2020 vs H1 2019 (Mining Weekly).

Dollar strength also contributed to the copper price falling this morning, as it makes dollar-denominated metals more expensive to holders of other currencies.

Three-month copper on the LME fell 0.5% to $6,656/t earlier this morning, whilst the most traded October copper contract on the SHFE fell 1.4% $7,572/t (Reuters).

In other news, a 6.8 magnitude earthquake struck the coast of northern Chile on Tuesday, although this was more than 300km away from the Antofagasta region and copper production is said to have not been affected.

Aluminium US$ 1,818/t vs US$1,816/t yesterday

Nickel US$ 15,625/t vs US$15,735/t yesterday

Zinc US$ 2,557/t vs US$2,579/t yesterday

Lead US$ 1,975/t vs US$2,009/t yesterday

Tin US$ 18,815/t vs US$17,240/t yesterday

Energy:

Oil US$46.0/bbl vs US$45.8/bbl yesterday – Oil prices continue to struggle for direction even as risk appetite appears to be buoyant

While 2020 is understandably pegged as a dismal year for global growth – an upshift in expectations amid record-setting stimulus efforts suggests 2021 will bring the fastest worldwide GDP expansion in a decade (at 5.1%)

Nevertheless, the EIA has implied crude oil demand statistics at very low uptake levels – 17.4MMbopd as of last week, well below the 52-week average of 18.2MMbopd

That is itself low relative to recent history. That same demand trend average stood at close to 19.2MMbopd before the Coronavirus outbreak, making its latest setting the lowest in over two years

The spotlight now turns to the upcoming “EIA-914” monthly US production report

It is likely to endorse weekly data showing output has plunged to 10.8Mbopd, the lowest since early 2018

While that has helped drain bloated inventories since mid-June, stockpiles remain dramatically higher than the underlying trend (508MMbbls vs. the 474MMbbls 52-week average)

Natural Gas US$2.530/mmbtu vs US$2.646/mmbtu yesterday

Natural gas prices fell 4% in early trading as tropical storm Nana formed in the Gulf of Mexico but is headed for Latin American and is not going to target any of the natural gas installations according to the most recent report from NOAA

The weather is expected to be much cooler than normal in the US mid-west which should increasing heating demand earlier than expected

Manufacturing data released yesterday was stronger than expected which should buoy natural gas demand

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$119.5/t vs US$116.8/t – Brazilian iron ore exports fall 7.4% YoY

Iron ore exports totalled 31.33mt in August, down from 33.82mt during the same period last year.

The impact of the Covid-19 pandemic has prompted worlds largest producer Vale to adjust its production expectations, although it expects to deliver to the bottom range of its full-year 2020 guidance at 310-330mt.

Part of the decrease is also attributed to this year having one less working day than August last year, although daily average exports were down 3% from last year (Fastmarkets MB).

Lower iron ore supply from Brazil along with robust Chinese demand has fuelled a iron ore prices rallying to multi-year highs, with prices gaining 34% year-to-date.

Chinese steel rebar 25mm US$556.6/t vs US$557.1/t

Thermal coal (1st year forward cif ARA) US$58.0/t vs US$57.1/t – Coal India production falls 7% YoY over past six months

The worlds largest coal miner reported a 7% decline in its production to 195.54mt in the period April to August.

Despite the drop over the six months, production rose 7.1% YoY in August to 37.17mt, whilst coal offtake increased 9.3% to 44.34mt.

This was the first time in the ongoing fiscal year that the company has clocked growth in both facets on a yearly basis.

Coking coal futures Dalian Exchange US$126.0/t vs US$126.0/t

Other:

Cobalt LME 3m US$33,200/t vs US$33,200/t

NdPr Rare Earth Oxide (China) US$49,800/t vs US$49,993/t

Lithium carbonate 99% (China) US$4,980/t vs US$4,985/t – Tianqi Lithium posts significant H1 loss

Chinese lithium producer Tianqi Lithium posted a 696.57m yuan (US$101m) net loss in H1. The downswing for the Company has been substantial, Tianqi posted a 193.41m yuan net profit for the same period last year.

The Company has accumulated 6.87bn yuan (US$1bn) of losses in the last 4 quarters as it struggles to repay a $3.5bn loan debt taken out to buy a stake in Chilean miner SQM. (Reuters)

The Company cited falling sales volumes and prices of lithium chemicals and the price of lithium concentrate as reasons for the decline in their operating income whilst a decline in performance resulted in the lower investment income.

The results are further evidence of struggling lithium producers after Ganfeng Lithium came out last week with similarly poor results.

Ganfeng reported that net income in H! was down 47.1% compared to the same time last year.

The industry has fallen on hard times as a result of capacity expansion and production ramp creating inventory backlogs and oversupply. The pandemic demand shock has worsened this position.

Ferro Vanadium 80% FOB (China) US$30.3/kg vs US$30.3/kg

Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/kg

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

Tesla to raise $5bn as popularity continues to soar

Californian EV giant Tesla is set to raise a further $5bn, taking advantage of positive investor sentiment towards the company and the EV space.

Anticipation continues to build ahead of Teslas battery day on September 22 with the Company hinting towards major developments in its battery technology including the possibility of a million mile battery.

The popularity of EV vehicles has begun to improve in 2020, with the coronavirus seeming to fuel momentum as consumers attitudes towards EVs improve and the auto market struggles.

Tesla has seen strong sales in the US where it leads the sector, making up 81% of sales Q1. The Model 3 made up 44% of total sales, 38,314 vehicles.

In Asia Tesla has continued to make gains, taking the #1 position in China with 11,041 sales while passenger car sales fell 5.5% YoY in July. The Company saw similarly strong sales in South Korea improving its market share to 43%.

The Company announced a Q2 adjusted profit of $104, (50c/share), beating expectations of an adjusted loss of 2c/share and providing the company with a 4th consecutive quarter of profitability.

Tesla was trading at over $2000 before the 5-for-1 stock split undertaken on Friday.

Company News

Adriatic Metals* (LON:ADT1) 136p, Mkt cap £231m – Government approval granted for land extension at Vares Silver project

The Company has announced this morning that the government of Zenica-Doboj has approved the companys application for a significant land extension, following the approval of a 30-day public announcement period.

The area covered by this new agreement is 3,212 ha or 32.12 km2 taking the total area covered by Adriatic Metals' concessions to 4,078 ha (40.78 km2).

The Concession Fee of KM 481,800 (€246,335) will be paid to Zenica Doboj Canton, and it is expected that 70% of the fee will directly benefit the Vares Municipality.

Adriatic's Managing Director & CEO, Paul Cronin, commented: “it clearly demonstrates the positive environment for mining in Bosnia and the willingness of both the Municipality of Vares and of Zenica-Doboj Canton to work cooperatively with Adriatic to significantly expand our land holding, and as a result, increase exploration investment in Bosnia & Herzegovina. Our focus now will be to continue to identify the right structural, lithological and geo-chemical conditions that resulted in the high grade Rupice silver deposit and explore for possible repeats of that mineralisation in the new concession area."

One area of particular interest for the company is the Berzik Concession to the West of the Veovaca deposit, which hosts the disused Brezik iron-ore mine and the historical Droskovac iron-ore mine. Droskovac was historically mined in the 1980s for iron ore, but it has an historical A + C1 resource of 0.9Mt @ 1.0% Zn & 2.9% Pb.

The Company will now make all the required steps for exploration permits following an upcoming campaign of airborne geophysical surveys to complement the existing historical data and geochemical surveys recently completed by the Company.

*An SP Angel mining analyst has visited Adriatic Metals operations in Bosnia

Amur Minerals* (LON:AMC) 1.9p, Mkt Cap £26m – Board appointment

Adam Habib joined the Board as an executive member yesterday.

Mr Habib acted as Advisor to the Board on Transactions and Corporate Development since February this year successfully delivering the investment into Nathan River Resources that is aiming to commission the Roper Bar Iron Ore project in the Northern Territory in Australia.

Adam is an experience senior banker having 17 years of investment banking experience (Credit Suisse, Lehman Brother and recently ICBC Standard Bank) with a proven track record in the energy, mining and infrastructure industries.

*SP Angel act as Nomad and Broker to Amur Minerals

Ariana Resources* (LON:AAU) 5.95p, Mkt Cap £62.2m – Underground mining options considered and new vein discovered at Kiziltepe

Ariana Resources reports the discovery of a high grade vein in the hanging-wall of the Arzu South Vein at its 50%-owned Kiziltepe gold mine in Turkey.

The discovery resulted from recent resource and exploration drilling, totalling 2,390.5m in 13 holes, which intersected 12.8m averaging 6.09g/t gold and 107.58g/t silver from a depth of 102.1m in hole KTP-D11-20. A second intersection of the hanging wall vein from a depth of 46.1m in hole KTP-D06-20 intersected 2.10m at an average grade of 4.75g/t gold and 14.76g/t silver.

The company explains that discovery of additional veins was a secondary objective of a drilling programme whose principal objective was to “identify opportunities for underground development beneath and along strike of the Arzu South open-pit” and to establish down-plunge extensions of known mineralisation at Arzu South.

The company explains that “the northwest extension of Arzu South into the Arzu Central Zone, remains one of the most promising areas in which to initiate underground mining” and that the recent drilling extends Arzu South by “a further 50m into the Arzu Central Area. As a result, the Arzu South vein currently extends a total of 200m into the Arzu Central Area”.

Among the results of this extension drilling highlighted in todays announcement are:

A 10.8m wide intersection averaging 3.39g/t gold and 40.35g/t silver from a depth of 81.9m in hole KTP-D07-20, which also hit a single metre averaging 5.48g/t gold and 76g/t silver at 108.3m depth as well as 2.4m from 119.9m depth which averaged 1.03g/t gold and 118g/t silver; and

A 9.6m wide intersection averaging 3.31g/t gold and 53.53g/t silver from a depth of 121m in hole KTP-D08-20 which also intersected a single metre averaging 0.84g/t gold from 80.5m depth: and

A 10.5m wide intersection averaging 2.18g/t gold and 31.68g/t silver from 91.1m depth in hole KTP-D10-20

The company plans to update its internal scoping study for underground mining on the Arzu South structure to incorporate the results of the recent drilling as well as geotechnical information resulting from recent drilling.

Ariana Resources will also undertake “a trade-off study between further open-pit development and underground mining … to determine the relative economic merits of either option”. The company explains that “This is particularly relevant following the increase in gold price which has occurred since late 2019 to the present, which represents an increase in value of approximately 33%. Furthermore this change in price represents an increase of over 50% above the feasibility base case for the Kiziltepe Mine”.

Conclusion: The evaluation of underground mining options and the discovery of a new vein in the hanging-wall at Arzu South indicates that the Kiziltepe mine may have a longer life than previously envisaged. We look forward to the outcome of the studies currently underway and to further information on the mineral resource implications of the recent drilling.

*An SP Angel mining analyst has visited Arianas licenses in Turkey

BlueRock Diamonds* (LON:BRD) – 54.5p, Mkt cap £4.5m – Diamond sales from Kareevlei average US$330/carat

BlueRock Diamonds report that sales of a parcel of 3,805 carats of diamonds from its Kareevlei mine near Kimberley, S Africa have been sold for a total of US$1.225m or an average of US$330/carat.

Commenting on the private sale arranged through an agent in South Africa, Executive Chairman, Mike Houston said that the price achieved represented “a 14% increase over the price achieved in June 2020” and that it showed that “Our diamonds remain attractive to buyers even in what continues to be an uncertain market”.

Mr. Houston confirmed that BlueRock Diamonds was continuing its efforts to “finalise the necessary export requirements which have proven to be a lengthy process in the current COVID-19 environment. As soon as this is completed, we will commence exports which gives us the flexibility of bridge financing our inventory, if required. Until then we have the option of selling our diamonds locally at a price which allows us to operate profitably”.

Conclusion: News of a 14% increase in received unit prices for diamonds from Kareevlei since the sale in June brings confirmation that there is buyer appetite for BlueRock Diamonds output. The continuing discussions to establish export capacity have been slowed by the Covid19 pandemic but when concluded should provide access to alternative routes to market. In the meantime it is encouraging to hear management confirm that Kareevlei is operating profitably.

*SP Angel act as Nomad and broker to Bluerock Diamonds

Bushveld Minerals (LON:BMN) 12.5p, Mkt cap £144m – Vanadium sales rise in first half despite Lockdown

Valuation adjusted to 46.5p

(Bushveld Minerals owns 74% of Vametco, 100% of Vanchem, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin, 8.71% in Invinity and Bushveld Energy, as part of a consortium of investors also controls Enerox)

Bushveld report a rise of 5% in Q2 production of 778mtV vs 742mtV yoy.

Total production of mainly Nitrovan rose by 18% yoy to 1,649 mtV (1,332 mtV attributable)

The Lockdown caused Vametco and Vanchem to lose some 380 mt of vanadium production which we estimate it is worth around $9.3m at a price of $24.4mtV.

Sales into China increased to 18% of total sales due to higher demand and prices as production of rebar steel rose in the region.

High iron ore prices indicate ongoing strong production of steel in the region.

Vametco: Q2 production was 24% lower yoy at 566 mtV vs 742 mtV due to the 35-day lockdown, restart time and reduced workforce.

Production for H1 2020 was 1,218 mtV and 901 mtV attributable interest

Costs: Q2 production cash cost fell 17% yoy to US$15.0/kgV due to the weaker SA rand vs $18.1/kgV in Q2 2019.

H1 2020 cash cost rose 11% yoy to US$17.20/kgV due to the lockdown vs 19.30/kgV in H1 2019.

Vanchem

production lost just 80 mtV or just 3% to 212 mtV due to the lockdown on Q1 in Q2 2020 vs 219 mtV in Q1 2020

Q2 cash costs fell 54% qoq to US$10.60/kgV vs $22.90/kgV in Q1 2020.

Vanchem production guidance is for the lower end of the range of 960-1,100mtV.

Cash costs are guided to come in at $18.4-19.0/kgV.

Guidance: warns of rising Coronavirus cases in South Africa and at the companys operations potentially affecting production and the commissioning of the kiln-off gas project. Management now expect to meet the lower end of 3,660–3,950 mtV guidance vs 3,960-4,300 previously. We have assumed production of 3,837mtV in our modelling based on and assumed 30% fall in our expected production at Vametco and at Vanchem.

Kiln Off-gas project should improve production capacity and performance. The Off-gas project has been delayed but should start up shortly.

The project will help Vametco get to its 3,200mtV target

Vanadium market: Bushveld see strong vanadium consumption from China supported by increased infrastructure spending in line with ~US$500bn of infrastructure spend.

Ferro-vanadium prices are holding steady in China at $29.5-30.5/mtV which is around $5.5/mtV higher than the rest of the world due to increasing local dRead More – Source

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