Today's Market View - Altus Strategies, Bushveld Minerals Limited, Bluebird Merchant Ventures Ltd, European Metals Holdings, Hochschild Mining, Jangada Mines Plc

  • Thursday, August 17, 2017
  • Source:ferro-alloys.com

  • Keywords:vanadium
[Fellow][ferro-alloys.com] Today's Market View - Altus Strategies, Bushveld Minerals Limited, Bluebird Merchant Ventures Ltd, European Metals Holdings, Hochschild Mining, Jangada Mines Plc

Altus Strategies* (LON:ALS) – Laboum gold prospect update

Bluebird Merchant Ventures* (LON:BMV, Standard List)  – Bluebird team find three entrances for Gubong gold mine

Bushveld Minerals* (LON:BMN) – BUY – Target Price raised to 14p (formerly 11.6p) – Vametco profits exceed expectations as management target ambitious expansion

European Metals (LON:EMH) – Infill drilling at Cinovec

Hochschild Mining (LON:HOC) – On track for record 37m oz attributable silver production in 2017

Jangada Mines (LON:JAN) – Revised Pedra Branca resource estimate including copper and nickel.

 

Gold is trading lower with the US$ little changed ahead of the Fed July meeting minutes due later today.

• Gold is down nearly $20/oz from the start of the week as geopolitical tensions between the US and North Korea subsided while good US retail sales numbers support the monetary tightening case.

• Zinc prices climbed past the $3,000/t level reaching the highest level in almost a decade on the back of strong Chinese infrastructure demand and a shortage of the metal in the market.

• Iron ore and steel futures are trading lower as Chinese steel mills are reported to be delaying purchases after restocking; steel prices are off for fifth consecutive day in longest losing streak since April.

• Brent is stronger this morning as industry data showed US stockpiles continued to drop led by a seasonally strong demand.

 

Vanadium prices continue to soar despite the emergence of old ferro-vanadium stock

• Vanadium prices have taken off Ferro Vanadium prices climbing to $19.5/kg today from $12/kg in mid July

• Vanadium pentoxide prices have also jumped to $9.5/lb from around $5.75/lb in a similar timeframe.

• The resurfacing of some old ferro-vanadium stock in China is seen as temporarily easing some tightness in China as traders and consumers compete for material

• The Metal Bulletin report Chinese ferro-vanadium prices as high as $55-60/kg FOB last week, with V2O5 prices held at $12-13/lb FOB China.

• Chinese domestic prices for ferro-vanadium are reported to have been indicated at $60-65/kg with exporters refusing to sell into the weaker European market

• European Vanadium Pentoxide ‘V2O5’ prices are reported to have doubled since March to $9-10/lb, in Rotterdam as seen last week.

 

Zambia – Energy price rise causing problems for copper miners and farmers

• ZESCO, the Zambian Electricity Supply Corporation is proposing a further rise in electricity prices of 25% on top of the 50% price rise already imposed.

• Glencore has already suspended operations at its Mopani copper mine after CEC which supplies power into the Kitwe and Mufulira regions raised prices to  ~9.3USc/kWh from ~6USc/kWh previously negotiated.

• The government is looking to generate a million new jobs in the energy sector by making it more attractive for investment.

• Zambia continues to suffer from lower hydropower availability due to low water levels in the Kariba dam.

 

Dow Jones Industrials  +0.02% at   21,999

Nikkei 225   -0.12% at   19,729

HK Hang Seng   +0.86% at   27,409

Shanghai Composite    -0.15% at    3,246

FTSE 350 Mining   +1.58% at   16,479

AIM Basic Resources   -0.91% at    2,464

 

Economic News

US – Good retail sales numbers for July and upwards revised June were led by a broad pick up in consumer spending from department stores and to building materials.

• 10 of 13 major retail categories posted gains as retail control group sales used in GDP calculations increased 0.6%mom following a 0.1%mom in June.

• On a separate note, surveys in the manufacturing sector in the state of New York conducted by the local Fed showed an improvement in the sentiment to the highest in over two and a half years on the back of robust gains in new orders, shipments, and employment trends.

 

Eurozone – Q2 GDP growth was revised upwards slightly from initial estimates with the pace of expansion accelerating and hitting the highest since 2011.

• Q2 GDP (%qoq): 0.6 v 0.5 in Q1 and 0.6 forecast.

• Q2 GDP (%yoy): 2.2 v 1.9 in Q1 and 2.1 forecast.

 

UK – The pound climbs on the back of good employment data with both jobs numbers and earnings growth beating market estimates in June.

• Despite stronger than expected increase in labour earnings, real wages posted a 0.5%yoy decline amid strong consumer prices inflation.

• 3m Unemployment Rate: 4.4% v 4.5% in May and 4.5% forecast.

• 3m Employment Change: 125k v 175k in May and 97k forecast.

• 3m Av Weekly Earnings (incl bonus, %yoy): 2.1 v 1.9 in May and 1.8 forecast.

 

Sierra Leone – mudslides kill around 400 with some 600 unaccounted in Freetown

 

Currencies

US$1.1735/eur vs 1.1756/eur yesterday.   Yen 110.93/$ vs 110.32/$.   SAr 13.244/$ vs 13.313/$.   $1.290/gbp vs $1.294/gbp.

0.786/aud vs 0.784/aud.   CNY 6.694/$ vs 6.676/$.

 

Commodity News

Precious metals:

Gold US$1,270/oz vs US$1,275/oz yesterday

Gold – India is banning exports of gold products with purity above 22 carats with immediate effect.

• The measure is directed at reducing “round-tripping of jewellery and coins,, wherein a trader can import the gold coins or jewellery at a lower import tax because of trade agreements with some countries and re-export the same stock without any value addition,” the India Bullion and Jewellers Association commented on the regulation.

• Exporters, thus, previously managed to avoid the 10% import tax which is levied on most inbound shipments.

   Gold ETFs 66.6moz vs US$66.5moz yesterday

Platinum US$965/oz vs US$963/oz yesterday

Palladium US$896/oz vs US$897/oz yesterday

Silver US$16.68/oz vs US$16.91/oz yesterday

           

Base metals:   

Copper US$ 6,442/t vs US$6,418/t yesterday

Copper – Flash floods late on Tuesday in the Grasberg mine area left one worker missing and led to water and power outages.

• Mining operations are said to continue as normal while water and power disruptions are expected to continue in the coming days, the Company said.

• “One person remains unaccounted for after flash floods that occurred late Tuesday destroyed roads, bridges, water lines and most of the plant that supplies power to Tembagapura and Hidden Valley,” the Indonesian unit of Freeport said.#

• 5,000 workers at Grasberg operations remain on strike since May protesting against mass layoffs announced by the Company earlier this year in response to government led initiative to revise taxes and royalties.

Aluminium US$ 2,067/t vs US$2,033/t yesterday

Aluminium – China Hongqiao Group, one of the largest aluminium producers, is raising funds through a sale of a stake to Citic and an issuance of convertible debt.

• Citic Group, a state-owned conglomerate, will invest $702m in the Company in exchange for a 10% stake with another $320m to be raised through a sale of convertible bonds to CNCB Capital, another Citic unit.

• A separate announcement by Hongqiao confirmed the curtailment of 2.7mt of aluminium production capacity accounting for around 29% of its total on the back of “misconducted construction” of five plants.

Nickel US$ 10,545/t vs US$10,435/t yesterday

Zinc US$ 3,009/t vs US$2,939/t yesterday

Lead US$ 2,419/t vs US$2,363/t yesterday

Tin US$ 20,080/t vs US$20,375/t yesterday

           

Energy:           

Oil US$51.2/bbl vs US$50.5/bbl yesterday

Natural Gas US$2.901/mmbtu vs US$2.961/mmbtu yesterday

Uranium US$20.75/lb vs US$20.80/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$70.5/t vs US$70.6/t

Chinese steel rebar 25mm US$635.4/t vs US$644.4/t

Thermal coal (1st year forward cif ARA) US$77.3/t vs US$77.5/t yesterday

Premium hard coking coal Aus fob US$196.9/t vs US$196.9/t

 

Other:

Tungsten APT European US$248-256/mtu vs US$230-235/mtu

 

Titanium – Chinese environmental inspections are restricting TiO2 supply in China.

• Coatings manufacturers in China are said to be the worst affected.

• September is said to be peak season for TiO2 sales in China according to ‘Industrial Minerals’

• EU proposal:  The British Coatings Federation ‘BCF’ is countering proposals by the European Commission to classify titanium dioxide as a potential carcinogen.

• The proposed classification could lead to products containing titanium dioxide being labelled as ‘suspected of causing cancer’ even when included in products where titanium dioxide can nor be inhaled.

Ilmenite prices hold at $170/t (MB price)

• Prices for basic Ilmenite recovered to around $170/t in August following a very brief dip to around $155/t at end July.

 

Company News

Altus Strategies* (LON:ALS) 10.4p, Mkt Cap £11.2m – Laboum gold prospect update

• The exploration team completed high resolution ground magnetics on the Laboum gold prospect covering a 15km long and 5km wide shear zone in northern Cameroon.

• The study identified a strong correlation between magnetic signatures and regional gold in soil anomalies identified by previous soil sampling programmes and numerous artisanal gold workings.

• The Laboum license covers the northeast striking Tchollire-Banyo shear zone with regional dilational and fold structures considered to be potential hosts for economic mesothermal gold mineralisation.

• The survey identified three key prospect areas including:

o Landou prospect: 3.8km long NE trending structure with grab samples returning up to 6.86g/t Au from sheared meta sedimentary samples, visible gold in outcrop and artisanal workings;

o Tapare prospect:  7km long NE trending zone located on strike with Landou (4km NE) and remaining open along strike;

o Kalardje prospect: 2.5km long NE trending area with grab samples returning 2.03g/t Au and visible gold up to 3mm from reconnaissance trenches, the structure remains open along strike.

• This brings the total length of the delineated structure to 13.5km with the exploration team to “extend the programme in order to target potential strike extensions as defined by the presence of artisanal gold workings”.

• The magnetic survey was focused on identifying broad regional structures and lithological features and forming the basis for the infill soil sampling programme ahead of trenching and generation of potential drill targets.

• Infill soil sampling programme is currently in progress with samples being collected at 50m intervals along 100m lines.

*SP Angel act as Nomad and Joint Broker to Altus Strategies

 

Bluebird Merchant Ventures* (LON:BMV, Standard List) 2.3p, Mkt Cap £4.2m – Bluebird team find three entrances for Gubong gold mine

• The team at Bluebird Merchant Ventures have found three historic points of entry for the historic Gubong gold mine in South Korea.

• The main adit was found and opened in such a way as not to let water flow out of the flooded tunnel.  The water was not under pressure indicating that higher workings should be relatively dry.

• Water from the main adit and workings will be dewatered and the adit will be rehabilitated where necessary.

• A decline shaft and further adit have been identified with first entry to be through the decline shaft.

• The mine was closed in 1971 when gold prices were around US$38.9/oz.

• The mine was closed without any systematic closure program likely leaving blocks of developed and undeveloped ore in place.

Conclusion:  The Bluebird team are making rapid progress in gaining access and toward reopening the old Gubong gold mine.  We look forward to results from sampling from within the mine and early indications of what was left in-situ when the mine was closed.

*SP Angel act as broker to Bluebird Merchant Ventures

 

Bushveld Minerals* (LON:BMN) 9.5p, Mkt Cap £77m – Vametco profits exceed expectations as management target ambitious expansion

BUY – Target Price raised to 14p (formerly 11.6p)

• Bushveld Minerals report impressive results from the acquisition of Vametco, the South African vanadium producer.  Bushveld currently holds around 35% of Vametco though it has equity accounted 27% of Vametco in these accounts.

• This, well timed, deal has paid off its acquisition cost and associated debt within an impressive four months of its acquisition.

• The team are now looking to expand Vametco’s market share to >10% of global vanadium supply over the next 3-5 years in a move which could approximately treble production and is ahead of our modelled expectations.  The team plan to expand nameplate capacity to 5,000tpa of ferro vanadium from 3,000 tpa currently.

• Vametco increased production by 16% last year to 2,804t of ferrovanadium which is mainly sold under the ‘Nitrovan’ product name representing a 3.7% share of global production.

• The business produced some 1,441t of vanadium in the first six months to end June indicating that production is continuing at this rate

• Costs:  While production fell 16% to $14.50/kg of vanadium last year vs $17.23/kg in 2015 costs have risen slightly to $15.58/kg in the first six months of the year, though these costs remain at the bottom of the vanadium cost curve due to the higher grades mined by Vametco vs much of the rest of the industry.

• Vanadium Prices: have soared in recent weeks nearly doubling since June and more than doubling since last March.   We have assumed vanadium prices remain at elevated levels of around $42/kg for some months to give an average of $30.80/kg for the year but that prices will normalise in the last quarter.  We are using a more modest $25.25/kg vanadium price as our longer term assumption.  These may well prove to be very conservative assumptions if China continues to enforce environmental restrictions causing the long term closure of a number of vanadium plants.

• If Chinese vanadium producers are able to modify their plants to meet the new environmental regulations then we would expect prices to pull back but for prices to potentially rest at higher levels than previously seen to pay for higher processing and capital costs.

• Vanadium deficit:  Bushveld see the current market deficit as very real as evidenced by the Chinese releasing stock of older ferro-vanadium into the market.  Better enforcement of Chinese regulations on the quality of steel being used in construction combined with ongoing strong demand for steel is likely to increase demand for vanadium yet further at a time when European steel producers are also looking to increase capacity utilisation and raise production.

• Barrier to entry: Bushveld’s previous feasibility study indicates that prices of over $33/kg are required to stimulate new vanadium production to meet a pre-tax IRR of 24%.  While some new incremental vanadium production may come in at lesser price increases it is unlikely that any new mines and process plants would be built at this price level in our view.  Most vanadium plants in China process grades of 1-1.1% material exacerbating their environmental issues and requiring yet higher price levels for new investment.

• FOREX:  A stronger South African rand has served to dampen the impact of higher ferro vanadium prices.  Strengthening the Rand by around 7% eg from $14/US$ to $13/US$ knocks around 2p/s off our Bushveld valuation.  We assume a stable rand of SAR14/US$ over the life of the project.  We could assume this will weaken but we prefer to use stable price and currency rates in our modelling.

• Bushveld Energy (vanadium rexox batteries) are reported to be on plan to vindicate the IDC's choice of vanadium for large-scale energy storage as one of the significant new industries to support in South Africa.  This could mark a major milestone in the use of vanadium for large scale utility battery storage.

• Greenhills Resources (49.5% interest in Dawnmin, which owns an 85% interest in the Uis Tin Project in Namibia): Bushveld are looking to consolidate a critical mass of tin resource inventory and are implementing a pilot production programme and are exploring options for a potential listing of Greenhills Resources.

• Lemur (coal and power generation in Madagascar) - For Lemur this entails securing a power purchase agreement for a 60MW thermal coal power project as well as tying up partnerships with financial and EPC project involves securing an Independent Power Producer licence and a Power Purchase Agreement for a thermal coal fired power station next to the coal mine, thereby providing a captive market for the Imaloto project run-of-mine coal.  Lemur have signed a MoU with PowerChina for the development of a 60MW thermal coal power plant in Madagascar. The development of the Imaloto project, including the mine and the power plant could generate ~US$300m of new investment in Madagascar and increase the country's power supply by 15%.

• Valuation:  We have carefully considered the impact of the rise in vanadium prices, the strength of the South African rand and the increase in FerroVanadium production in our modelling.  We see significant potential for upside with higher prices over the longer term and if the South African rand weakens from here as it is likely to do.  We have not assumed any reduction in unit costs to come from the increase in production though it would be reasonable to assume so.

Conclusion:  We are excited to see vanadium prices take off but cautious in our revised valuation incase prices pull back for the fourth quarter.  We see Bushveld as offering unusually good value for investors.

*An SP Angel mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.

 

European Metals (LON:EMH) 48.8 pence, Mkt Cap £63.1m – Infill drilling at Cinovec

• European Metals Holdings has released the assay results from the first of a six-hole programme of infill drilling designed to cover areas of missing data within its resource model at its Cinovec lithium/tin project in the Czech Republic. The area warrants follow-up investigation as it “could potentially be targeted for mining in the initial years.”

• To date, the company has completed five holes (2163.1m) of the planned programme with the final hole currently underway.

• Hole CIS-4, which is located in the eastern part of Cinovec South, encountered a 148.3m wide mineralised intersection at an average grade of 0.4% Li2O from a depth of 297.7m in greisenised granite immediately beneath the contact with an overlying rhyolite. Upper parts of the mineralised section also contain tin and tungsten with the 15.85m interval between 279.7m and 295.55m averaging 0.70% Li2O, 0.29% tin and 0.073% tungsten.

• European Metals has also announced the strengthening of its management team with the appointment of Craig Reimer to manage the DFS for the project. Mr Reimer is a mechanical engineer with “over 25 years’ experience in project management, engineering management and business management and has delivered successful international mining projects for previous clients.” Previous projects include work for BHP, Vale, Lynas, Boddington Gold Mine and Alcoa.

• In addition, the company has secured the services of an experienced, former Manager of Lithium Chemicals for Talison Lithium, Grant Harman, as a consultant to the project DFS. Mr Harman, described as “one of the world’s foremost lithium metallurgists … was involved in the management of the Talison Lithium Carbonate Plant from Scoping Study to Definitive Feasibility Study.”

Conclusion: The infilling of previously undrilled parts of the resource model, particularly those to be mined early in the project life, should mitigate risks of encountering unexpected geological conditions early in the project. The appointment of additional, experienced technical and project management personnel to the project team should enhance the DFS work currently underway.

 

Hochschild Mining (LON:HOC) 274 pence, Mkt Cap £1.4bn – On track for record 37m oz attributable silver production in 2017

• At the half way point, Hochschild Mining reports that it is on track “to deliver record attributable production target of 37.0 million silver equivalent ounces for 2017”. The company adds that all-in-sustaining costs are “expected to be in line with $12.2-12.7 per silver equivalent ounce guidance”.

• Production of 8.9m oz of attributable silver and 121,000 oz of gold brings silver equivalent output for the six months to 30th June to 17.9m oz. For comparison, attributable silver equivalent production in H1 2016 was 6% lower at 16.95moz.

• The wholly owned Peruvian mines at Inmaculada, Arcata and Pallancata produced 2.6m oz, 2.3m oz and 2.4m oz of silver respectively while the 51% owned San Jose mine in Argentina contributed a further 1.6m oz of attributable silver production.

• The group’s gold output was dominated by the 79,820oz from Inmaculada and the 23,776 attributable oz from San Jose with Arcata contributing a further 8,040 oz and Pallancata 9,790oz.

• Costs, on an all in-sustaining-cost basis, rose by around 10% to US$12/oz of silver equivalent (H1 2016 – US$10.9/oz). lower grades, and also in the case of Arcata, lower tonnages, increased costs by 7% at Inmaculada (to US$8.8/oz from US$8.2/oz), at Arcata by 35% to US$17.6/oz (H1 2016 US$13/oz) and by 23% to US$14.4/oz (H1 2016 11.7/oz) at San Jose.

• Pallancata on the other hand was able to lower its costs by 31% to US$10.9/oz (H1 2016 US$15.9/oz) reflecting “better than expected tonnage and silver grades which offset the loss of January's production due to the stoppage. AISC for full year 2017 is now expected to be approximately $12.0 per silver equivalent ounce.”

• Revenues of US$340.8m during the six months to 30th June 2017 were broadly in line with the H1 2016 revenue of US$339.3m, however he higher costs led to a reduction in adjusted EBITDA reported of 20% to US$136m (H1 2016 – US$170.3m).

• Despite the cost increases, however, cash balances increased to US$145m at 30th June (31st December 2016 US$140m) short term debt reduced by US$19m during the half year and overall net debt was reduced from the US$187.4m at the beginning of the year to US$165m.

• Looking towards the future, Chief Executive, Ignacio Bustamante, commented that “Towards the end of the year, once permits are in place, we can expect further progress with the development of the Pablo vein at the Pallancata deposit as well as several brownfield drilling campaigns across the Company's portfolio.”

Conclusion: Hochschild Mining has maintained its production target for the year though a trend towards higher costs, particularly at the Arcata mine in Peru where 2017 all-in-sustaining costs are projected to be US$17/oz are a concern. Continuing strong cost and production performance from Pallancata provide a firm base for the future.

 

Jangada Mines (LON:JAN) 4.9 pence, Mkt Cap £9.6m – Revised Pedra Branca resource estimate including copper and nickel.

• Jangada Mines has amplified the details on its previously announced resource update for its Pedra Branca PGM project located approximately 280km from the city of Fortaleza in north-east Brazil.

• The resource estimate, which now includes cobalt and chrome credits, comprises 23.114mt at an average grade of 0.76g/t palladium, 0.48g/t platinum, 0.04g/t gold, 0.05% copper, 0.21% nickel, 0.85% Cr2O3, and 127ppm of cobalt.

• The company notes that “At current cobalt prices, this represents a potential in-situ increase to the ore value of approximately USD170 million or USD7.80 per tonne subject to recovery rates.”

• Jangada Mines also comments, similarly, that “At current chrome ore prices, the Type 2 chrome horizons at the Project have the potential to add between USD55 million and USD80 million to the in-situ ore value or circa USD15 per tonne within the chrome ore horizon.”

• In terms of tonnage, 38% (8.8mt) is contained in oxide ore, a further 19% in material classed as “transitional” with the remaining 43% described as “sulphide“ ore. Around 13% (3mt) across all ore types is identified as “Measured” in terms of the JORC Code (2012) with a further 34% (7.9mt) is “Indicated” with the remaining 12.2mt (53%) “Inferred”.

Conclusion: The upgraded resource estimate for Pedra Branca brings in additional value for cobalt and chrome. With much of the overall resource still classed as inferred, there seems to be much work still to do in what appears to be a metallurgically complex, multi-element mineral assemblage. Metallurgical treatment of oxide/transitional PGM ores may add a further layer of complexity to process flowsheet design. We look forward to further news as the project develops.

  • [Editor:Wang Linyan]

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