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Gold prices rise on HK rioting, Argentine market collapse and central bank buying

Bluejay Mining – Dr. Bo Møller Stensgaard appointed as Executive Director Caledonia Mining – Guidance adjustment and positive news on Zimbabwe’s fiscal discipline Horizonte Minerals – Initial resource estimate for Serra do Tapa

BlueJay Mining PLC - Today's Market View - Gold prices rise on HK rioting, Argentine market collapse and central bank buying

SP Angel – Morning View – Thursday 08 08 19

Gold prices rise on HK rioting, Argentine market collapse and central bank buying

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MiFID II exempt information – see disclaimer below

 

Bluejay Mining* (LON:JAY) – Dr. Bo Møller Stensgaard appointed as Executive Director

Caledonia Mining (LON:CMCL) – Guidance adjustment and positive news on Zimbabwe’s fiscal discipline

Horizonte Minerals (LON:HZM) – Initial resource estimate for Serra do Tapa

Savannah Resources* (LON:SAV) –Tests demonstrate potential glass and ceramic feedstock from Mina do Barroso

Transense Technologies (LON:TRT) - Joint Collaboration Agreement with Bridgestone

 

Dow Jones Industrials

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at

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Nikkei 225

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at

20,455

HK Hang Seng

-1.88%

at

25,338

Shanghai Composite

-0.63%

at

2,797

FTSE 350 Mining

-0.17%

at

17,749

AIM Basic Resources

+0.05%

at

2,174

 

Economics

UK wage growth hits 11-year high

Annual growth in average weekly earnings (excluding bonuses) in the three months to June increased to 3.9%, the highest figure since June 2008 and in excess of expectations of 3.8% growth offered by economists polled by Reuters (Financial Times).

Jobs creation also trumped markets expectations, with 115,000 jobs added in the same period compared to the previous three months. The figure represents a pick-up from 28,000 added in the three months to May this year.

The strength of the UK labour market contrasts weakness in other areas of the economy: UK GDP suffered a 0.2% contraction in the three months to June, the first fall in GDP in six and a half years.

Despite strong wage growth, pay levels have yet to return to their pre-downturn peak, according to ONS deputy head of labour market statistics Matt Hughes.

 

Singapore heading for possible recession

Global threats to economic growth including the US-China trade war and a slowdown in demand for electronics are threatening to push Singapore into recession in Q3 of this year (South China Morning Post).

Second quarter growth for the southeast Asian economy was confirmed at -3.3% today, the worst reported quarterly growth for seven years.

Imports and exports have both experienced sharp falls, with June’s exports suffering a 17.3% drop, their worst decline in six years.

Singapore’s trade dependence, second only to Luxembourg in trade-to-GDP, makes its economy a leading indicator in the health of other nations and trade globally.

Singapore’s purchasing managers’ index, a gauge of industry sentiment on outlook, has been in contraction for the past three months, raising fears that the slowdown is becoming entrenched.

In July the IMF cut its 2019 growth forecast for Singapore from 2.3% to 2.0%.

 

Argentina – President Macri’s shock defeat in primary vote unnerves investors causing peso to fall on prospect of Cristina Fernandez de Kirchner return to power

An unexpectedly strong showing by opposition candidate Alberto Fernández in Argentina’s primary elections has stoked concerns of a populist comeback in presidential elections later this year.

Investors who were looking for stability and for President Macri to return for a second term in power are liquidating assets causing the peso to fall

The Argentine peso dropped by 25.3% on Monday, before pulling back slightly (Financial Times).

Argentine stocks and bonds also fell, with the Merval index dropping 48% in US dollar terms the second largest single one-day rote on an stock exchange we have seen.

Argentine Bond yields are seen rising as sellers lower prices looking for liquidity at lower levels, with the Argentine century bond fell nearly 18c on the dollar, its biggest fall since 2017.

The prospect of a return of discredited former president Cristina Fernandez de Kirchner is unnerve investors and could lead to a collapse in the peso as investors scramble for the exit

Argentina’s reputation was always going to take years to build in international markets due to extent and depth of corruption at home under the previous regime

Investors have always worried about what comes after Macri and a return of the Peronists may serve to hold back international investment and economic advance

If Alberto Fernandez wins for the Peronists this will bring in, former president Cristina Fernandez de Kirchner back into power

Alberto Fernandez may be a better leader but he will not find much international support with Ms Fernandez de Kirchner as a vice-presidential candidate

We remember the Argentina debt crises of 2001/2 and it would be easy to see a populist government overspending again in a country where it’s not easy to collect tax as business people don’t trust the state and where so much business is transacted in US dollars offshore.

Corruption trial: Ms Fernandez de Kirchner’s corruption trial starts on Tuesday in Buenos Aires. Ms Fernandez de Kirchner is accused of heading up an illicit association that awarded 51 public works projects at inflated prices to a friend and businessman, Lazaro Baez, in her home province of Santa Cruz.

This is the first of 11 court cases against Kirchner, which include allegations of bribery and coverup (Aljazeera). Ms Fernandez de Kirchner has described the charges as a new act of persecution.

Rumours of corruption around Cristina Fernandez de Kirchner have persisted for many years with de Kirchner rumoured to have been seen carrying bags of cash in a plane from Venezuela following a meeting with President Chavez.

An Argentine court recently jailed Jose Lopez, Argentina’s former minister of Public Works to six years in jail after he was caught by police trying throwing bags of cash over the wall of a convent to hide his corruption. Jose Lopez is seen as close to Cristina Fernandez de Kirchner.

A 80-year-old Catholic nun, Sister Celia Ines Aparicio, was also charged with complicity but was acquitted. We do wonder how she explained the donations to her Mother Superior and if the felt the need to return the cash to its ‘corrupt’ owners?

"There is an old phrase, that is overused, in Argentine politics that goes something like, 'they steal, but they do'" according to Ana Paola Zuban, a political analyst with Argentine polling firm Gustavo Cordoba & Asociados (Aljazeera).

 

Japanese corporations expected to accelerate China move

Additional US tariffs of 10% on US$300bn of Chinese goods are expected to accelerate movement of Japanese corporations out of China (Financial Times).

The fourth round of tariffs will include game systems, affecting manufacturers Sony and Nintendo, both of which operate factories in China.

Other companies including Dynabook and Ricoh are considering, or have already begun, moving production to other parts of southeast Asia such as Vietnam and Thailand.

 

Utilities markets poised for transformational switch to battery storage technology

A global surge in investment in high-capacity batteries is expected to transform the market for renewable energy in coming years (WSJ).

Government-owned utilities and companies are buying high-capacity batteries for flexible storage of renewable energy susceptible to variations in output, such as solar and wind.

The World Bank has set aside US$1b to invest in battery projects, and anticipates an additional US$4b in private funding to drive the uptake of battery storage technology.

Forecasts by Wood Mackenzie suggest spending on high-capacity batteries may grow by as much as six times current levels to US$71b by 2024.

Keith Anderson, chief executive of ScottishPower has said “our vision for the future of energy has storage at its core”. ScottishPower is expected to spend approx. US$7.2b on renewable energy, grid upgrades and battery storage between 2018 and 2022.

 

Currencies

US$1.1197/eur vs 1.1170/eur yesterday. Yen 105.32/$ vs 105.49/$. SAr 15.324/$ vs 15.339/$. $1.205/gbp vs $1.206/gbp. 0.676/aud vs 0.678/aud. CNY 7.066/$ vs 7.066/$.

Commodity News

Precious metals:         

Gold US$1,523/oz vs US$1,490/oz yesterday - Gold price rally to benefit from de-dollarization

The recent increase in gold prices may be set to continue on the strength of a global push for de-dollarization.

Countries increasingly hostile to the US and dollar hegemony, such as Russia and China, are searching for alternatives to the dollar including gold.

According to the World Gold Council, central banks purchased 70% more gold in Q1 of this year than during the same period last year, the most gold bought since Q1 2013.

   Gold ETFs 77.5moz vs US$77.2moz yesterday

Platinum US$865/oz vs US$857/oz yesterday

Palladium US$1,442/oz vs US$1,430/oz yesterday

Silver US$17.37/oz vs US$16.86/oz yesterday

           

Base metals:   

Copper US$ 5,732/t vs US$5,799/t yesterday

Aluminium US$ 1,772/t vs US$1,789/t yesterday

Nickel US$ 15,740/t vs US$15,270/t yesterday - Nickel prices react to Indonesia export ban speculation

The Indonesian government are considering bringing forward a ban on nickel ore exports currently scheduled for 2022, according to multiple sources (Reuters).

LME nickel prices reacted to the news by rising sharply on Monday, with three-month nickel jumping by as much as 3.8%.

No official decision as to changes to the ban have been announced.

Zinc US$ 2,276/t vs US$2,278/t yesterday

Lead US$ 2,036/t vs US$2,085/t yesterday

Tin US$ 16,955/t vs US$16,900/t yesterday

           

Energy:           

Oil US$58.2/bbl vs US$58.4/bbl yesterday

Natural Gas US$2.116/mmbtu vs US$2.122/mmbtu yesterday

Uranium US$25.30/lb vs US$25.30/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$86.5/t vs US$86.0/t

Chinese steel rebar 25mm US$557.2/t vs US$555.7/t

Thermal coal (1st year forward cif ARA) US$64.7/t vs US$65.1/t

Coking coal futures Dalian Exchange US$207.6/t vs US$207.5/t

           

Other:  

Cobalt LME 3m US$31,500/t vs            US$28,500/t

NdPr Rare Earth Oxide (China) US$43,522/t vs            US$43,517/t

Lithium carbonate 99% (China) US$8,209/t vs US$8,279/t - Lithium carbonate price fall is no indicator of lack of future growth

Lithium producers remain bullish about demand for lithium in the near future, claiming that current market rebalancing from oversupply is temporary.

Chinese lithium processors appear to be reworking their plants as the market pauses while moving to increase capacity.

While cuts in government incentives have slowed Electric Vehicle sales in China future expected growth in the electric vehicles and energy storage system as well as other portable electronics are all expected to continue to expand new lithium-ion battery demand.

Ferro Vanadium 80% FOB (China) US$39.8/kg vs        US$40.0/kg

Antimony price falls further in China on renewed Fanya auction concerns (FastmarketsMB)

FastmarketsMB report the price of antimony MMTA standard-grade II, ddp China is falling after a number of domestic suppliers lowered their offer prices to secure sales.

The market is concerned over possible antimony sales from the Administration of the Fanya Metal Exchange warehouses.

‘Better-than-expected demand for antimony trioxide both domestically and abroad also encouraged some antimony consumers to restock some volumes of antimony, but they kept their procurement at a minimum level.’

“Concerns over possible auctions of the large volume of antimony stocks held in Fanya were sparked after the second trial of Fanya [associates] came to an end. And this has struck an already fragile nerve of the market, leading to a lack of confidence” according to one source in China quoted by FastmarketsMB.

Another source quoted “Demand [for antimony trioxide] from abroad is better than expected in August, and this gives us momentum to restock some tonnages of antimony”

 

Company News

Bluejay Mining* (LON:JAY) 6.45p, Mkt Cap £55m – Dr. Bo Møller Stensgaard appointed as Executive Director

Included in MSCI index (Dundas Ilmenite project, Greenland, 100% owned)

Dr. Bo Møller Stensgaard has been appointed as an Executive Director of Bluejay Mining with immediate effect.

Dr. Stensgaard is a Danish national and geologist with extensive operational experience in Greenland. 

Stensgaard joined Bluejay last September as General Manager of and as Executive Director of Dundas Titanium A/S and Disko Exploration Limited, a subsidiary company.

The team are currently constructing a new causeway and barge landing ramp for ship loading in preparation for the transport of a fully-funded 5,000t smelter test sample for Rio Tinto Iron & Titanium ‘RTIT’ in Canada.

Ship loading and departure is estimated to start in the next four weeks with three companies tendering for the ship loading.

The Greenland government has granted an export permit for 40,000t run-of-mine material which is being mined and screened at the Dundas mine site in Greenland.

It is possible that further material may be shipped under this export permit given its scale.

Conclusion: Bo's has over 20 years of experience in Greenland and has been working closely with the board advising on operational performance and other development initiatives. His move to the board should further strengthen the group’s operational capability.

*SP Angel act as nomad to Bluejay Mining. *SP Angel have visited the Dundas, Itelak ilmenite sands project in Greenland.

 

Caledonia Mining (LON:CMCL) 460p, Mkt Cap £49.4m – Guidance adjustment and positive news on Zimbabwe’s fiscal discipline

Caledonia Mining reports a 6.4% increase in gold production (to 12,712oz) from the Blanket gold mine in Zimbabwe during the quarter ending 30th June bringing H1 production to 24,660oz. The previously announced milestone event of the completion of the shaft sinking phase on the Central Shaft is, however, described by CEO, Steve Curtis as “By far the most important news in the period covered by this review” as it keeps the longer term strategic plan to increase gold production to the 80,000oz pa level by 2022 on track.

Net attributable profit, compared to the corresponding period in 2018 increased by almost 800% to US$23.3m during the quarter and by over 460% for the half year to US$32.6m, reflecting cost reductions and improving gold prices.

The increased quarterly output was, however, less than planned as a result of a combination of lower than expected grades arising from mining dilution exacerbated by unreliable electricity supplies. The company states that “The electricity situation worsened considerably in July and early August and Blanket experienced frequent and long interruptions to its power supply. To address this problem Blanket has procured additional back-up diesel generators which will be installed in the coming weeks”.

Referring to its constructive relationship with the state electricity utility, the company has also “signed a new electricity supply agreement in terms of which it will receive un-interrupted imported power at a lower cost than it previously paid” and is also “at an advanced stage of evaluating a solar PV generating facility which would reduce Blanket's dependence on grid power”.

In response to these challenges, the company is reducing its production guidance “from the previous range of 53,000 to 56,000 ounces to a revised guidance range of 50,000 to 53,000 ounces. Whilst it is disappointing to reduce production guidance, earnings guidance for 2019 remains unchanged at 86 to 117 cents per share due to a higher than anticipated gold price and lower than expected costs.”

On the positive side, “devaluation of the Zimbabwe currency, the South African rand and sterling” contributed to a 25% reduction, compared to Q2 2018, in on-mine costs to US$534/oz while all-in sustaining costs fell 23% to US$656/oz.

We are also encouraged by the company’s commentary on the fiscal regime in Zimbabwe as it reports that the, following “an almost 10-fold devaluation since late February 2019” the currency “appears to have stabilized in recent weeks and it is important to note that government fiscal discipline remains robust.”

Elaborating on this background, Mr. Curtis explains that “The current currency devaluation and inflationary conditions appear for the most part to be a legacy of past fiscal indiscipline rather than as a result of current policy: indeed, government continues to run a primary budget surplus, a level of fiscal discipline that bodes well for future stability. Moreover, in the Finance Minister's recent interim budget statement he announced the royalty payable to the Zimbabwe government will be deductible for the purposes of calculating income tax. He also revised the royalty rate which is reduced from five per cent to three per cent of revenues when the gold price is below $1,200 per ounce.”

Conclusion: Following completion of the shaft sinking phase at Blanket Mine’s Central Shaft, the mine remains on course to achieve its 80,000oz pa production target by 2022. News that the Zimbabwe Government is addressing the legacy of historic financial mismanagement and implementing practical incentives for the mining industry is welcome

 

Horizonte Minerals (LON:HZM) 2.45p, Mkt Cap £35.4m –Initial resource estimate for Serra do Tapa

Horizonte Minerals reports an initialNi-43-101 compliant resource estimate for its wholly owned Serra do Tapa nickel deposit located in the Carajas region of Brazil and approximately 90km north of the company’s flagship Araguaia ferro-nickel project.

Based on 48,845m of drilling in 952 holes, at a cut-off grade of 0.9% nickel, Serra do Tapa is estimated to contain 70.3mt of measured and indicated resources at an average grade of 1.22% nickel, and 0.05% cobalt. An additional 2.7mt is classified as inferred at an average grade of 1.14% nickel and 0.06% cobalt.

We note that “The Mineral Resource was estimated in 2016 by Snowden Mining Industry Consultants”.

The company adds that, taken together with the Araguaia and Vermelho deposits, the resources at Serra do Tapa bring its overall mineral resources inventory to 280mt of measured and indicated material at an average grade of 1.25% nickel and 0.06% cobalt with an additional inferred resource of 16.9mt at an average grade of 1.18% nickel and 0.06% cobalt (all at a 0.9% nickel cut-off).

Taking the opportunity to provide a progress report on the company’s projects, Chief Executive, Jeremy Martin said that “Work on Araguaia is focused around advancing the project finance and the recruitment and selection of the project development team as we move towards construction”. He also disclosed that “The pre-feasibility study on the Vermelho nickel-cobalt project is at an advanced stage and is currently being finalised.  We aim to announce the PFS to the market later this quarter”.

 

Savannah Resources* (LON:SAV) 3.65p, Mkt Cap £38.2m –Tests demonstrate potential glass and ceramic feedstock from Mina do Barroso

Savannah Resources has announced that test results on feldspar and quartz waste products from the production of spodumene concentrate at its Mina do Barroso lithium project in Portugal have demonstrated that they are potentially suitable for use in glass and ceramic production.

We recall that the company has previously indicated that it believed testing the suitability of waste products from spodumene production had the potential to identify additional potential revenue sources from the development of Mina do Barroso.

The company says that studies of potential markets “concluded that prices for Mina do Barroso co-products could be significantly higher than reported in the 2018 Scoping Study, with feldspar at US$65-100/t vs. US$39/t, quartz at US$60-100/t vs. US$33/t and a bulk tail at US$40-45/t”.

Commenting on the results of the tests, CEO, David Archer, explained that “Glass and ceramics are huge global industries, with Europe representing 25% of global production of ceramics.  Feldspar and quartz products have been produced in this region of Portugal for decades and are well regarded by glass and ceramic manufacturers in the domestic market and in Spain”.

As well as the commercial potential of the feldspar and quartz by-products of future spodumene production from Mina do Barroso, the testing has also established “that there is potential for the sale of a combined feldspar and quartz bulk tail (Mina do Barroso Fine Grade Feldspar) from Mina do Barroso requiring no further processing.  Production of this bulk material would also potentially eliminate approximately US$15m from the estimated processing plant capex that would be required to produce separate quartz and feldspar co-products.”

We speculate that, the possibility of selling bulk tailings products may reduce the requirement to provide tailings disposal storage capacity on-site, which might simplify and expedite project development as well as offsetting some of the costs of producing a primary spodumene concentrate.

Describing the test procedures in more detail, Savannah Resources says that “A carefully selected blend of core drill samples, fully representative of the spodumene pegmatite, were ground to optimum particle size and processed by conventional flotation techniques by Nagrom in Kelmscott, Western Australia to produce three commercial co-products:

Quartz / Feldspar Tailings (bulk tail to be produced from the spodumene concentrator)

Refined Feldspar (separated product from the bulk tail)

Refined Quartz (separated product from the bulk tail)”

The company points out that globally the ceramics market is expected to grow at around 6.9% annually and that within the EU the “ceramics industry represents an annual production value of ~€30 billion, accounting for 25% of global production and supporting over 200,000 direct jobs throughout the EU”.

Conclusion: Demonstrating the technical feasibility of producing viable products for commercial use in the ceramics and glass industries should be beneficial to the economic viability of the Mina do Barroso lithium project.

*SP Angel acts as Nomad to Savannah Resources

 

Transense Technologies (LON:TRT) 69p, Mkt Cap £9.9m - Joint Collaboration Agreement with Bridgestone

Transense Technologies, which makes sensor systems for tyres and drive shafts for Formula 1 and mining equipment has announced a joint collaboration agreement with Bridgestone Corporation of Japan.

The joint collaboration agreement with Bridgestone will enable Bridgestone to offer the iTrack system exclusively as a mining tyre monitoring system for tyres 57 inches and above for its off-the-road (OTR) customers.  Try putting that on your Subaru Impreza?

Bridgestone is making an interest free loan of US$750,000 to help grow Transense’s Translogik business

Conclusion:  This is great news for Transense as it will enable Bridgestone to offer Transense sensors in its mining truck tyres ensuring that Bridgestone is better able to manage new tyre production to fit with replacement demand.  Bridgestone will be able to order and ship tyres in anticipation of expected replacement helping mining companies to achieve better utilization rates and manage on lower inventory levels. This looks like a win win all round.

 

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

Sales

Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

Sources of commodity prices

 

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BGNL (Bloomberg Generic Composite rate, London)

Gold ETFs, Steel

Bloomberg

Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt

LME

Oil Brent

ICE

Natural Gas, Uranium, Iron Ore

NYMEX

Thermal Coal

Bloomberg OTC Composite

Coking Coal

DCE

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

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