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Today’s Market View – Vast Resources, Serabi Gold, KEFI Gold and Copper and more…

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SP Angel . Morning View . Thursday 22 10 20

Copper extends gains over USD 7,000 per ton on strong fundamentals 

 

Anglo American (LON:AAL) – Q3 production recovery

Bluejay Mining* (LON:JAY) – Danish Maritime Authority accepts Navigational Safety for Dundas titanium sand mine

Empire Metals* (LON:EEE) –– Drilling starts at Eclipse gold project in Kalgoorlie, Western Australia

KEFI Gold and Copper* (LON:KEFI) – Tulu Kapi $221m funding consortium update

Hochschild Mining (LON:HOC) – Guidance maintained as production rises in Q3

Serabi Gold* (LON:SRB) –– Expansion of Sao Chico exploration area

Trans-Siberian Gold (LON:TSG) – 9M20 revenues hit record high on strong gold prices

Vast Resources* (LON:VAST) – Baita plant up and running with first concentrate shipment due shortly

 

Commodities headed for bull market in 2021 on inflation fears, stimulus – Goldman Sachs

Reuters report Goldman are forecasting a commodity market bull run stoked by inflation and new demand driven by additional fiscal and monetary stimulus.

We agree.

Goldman also forecast a return of 28% over the next 12 months on their commodity index though individual commodities are likely to perform much better.

We see junior mining companies offer good leverage to metals prices:

Our top pics are:

Copper (for stimulus demand and EV cabling): Arc Minerals, Empire Metals, Phoenix Copper, SolGold, Strategic Minerals

Titanium Ilmenite (for pigments and paint): BlueJay Mining PLC,

Vanadium (for hardening steel): Bushveld Minerals

Lithium (Li-ion batteries): Savannah Resources, IronRidge Resources Ltd, Kodal Minerals PLC

Graphite & Graphene (Li-ion batteries): Talga Resources, Versarien, Renascor

Nickel  (Li-ion batteries & stainless steel): Amur Minerals, URU Metals Limited

Rare Earth Elements (REEs for offshore wind farms and EVs): Mkango Resources Ltd, Rainbow Rare Earths

Gold (inflation hedge): Anglo Asian Mining, Altus Strategies, Chaarat Gold, Condor Gold, Scotgold Resources Ltd           

Manganese (EV batteries): Keras Resources

*SP Angel act as Nomad and broker to all the above companies

 

Copper prices touched $7,000/t yesterday driven by some mystery buying and lifted by the threat of strike action in Chile

Copper traders are interested to know where the ongoing buying is coming from.

Traders do not expect this to be China’s SRB at this level and do not see the buying coming from China.

There are no significant ETFs backed by physical copper to our knowledge so the new buying is a mystery for now.

While many investment funds view copper as good for longer-term investment some traders feel the metal has had its run for now.

Asian investors view copper as a good longer term hedge .

 

US dollar weakness continues to help metals and other commodity prices higher

Strength in the Chinese currency coupled with new found US dollar weakness is likely to continue to help metals prices higher.

Many traders see this as setting a new trend for the next few months and potentially into 2021.

China remains the world’s largest importer of most if not all commodities and is also a major consumer due to its ongoing stimulus programs.

We expect most metals prices to continue to appreciate due to the combination of new demand from stimulus programs and US dollar weakness.

Critical raw materials are also likely to see additional new demand from strategic stockpiling by Western nations and companies preparing for new Li-ion battery and EV manufacturing.  

 

China stainless steel prices rise on nickel gains

Three-month nickel prices on the LME are up over $900/t or 6% compared to a week earlier, which has lent support to the stainless steel market.

Stainless steel cold-rolled prices have risen over 100 yuan/t this week to 14,600-15,200 yuan ($2,193-2,283)/t, according to Fastmarkets MB.

 

Dow Jones Industrials -0.35% at 28,211

Nikkei 225 -0.70% at 23,474

HK Hang Seng +0.11% at 24,782

Shanghai Composite -0.38% at 3,312

 

Economics

Germany – Consumer confidence falls to lowest level in four months

The GfK consumer climate reading fell to -3.1 from -1.7 previously, as virus cases rise in the country.

According to GfK, the strong recovery of the mood from early summer has comer to a standstill, with three-quarters of those surveyed saying Covid-19 was “a major or very major threat”.

 

Poland – New Covid-19 cases jump 21% to 12,107

The country reported 10,040 cases on Wednesday, and 130 Covid-19 related deaths.

 

US – Intelligence agencies believe Iran and Russia have tried to interfere in election

U.S. Director of National Intelligence John Ratcliffe said on Wednesday that both countries have tried to interfere with the 2020 presidential election.

Ratcliffe said: “We have confirmed that some voter registration information has been obtained by Iran, and separately, by Russia,”

U.S. intelligence agencies previously warned that Iran might interfere to hurt Trump, whilst Russia was trying to help him win the election.

The announcements were made in a news conference which also included FBI Director Chris Wray.

 

Taiwan – $1.8bn arms deal signed with US

Taiwan further consolidated its defence ties with the US, with the latest batch of proposed arms sales the eighth to be approved during Donald Trump’s presidency.

The package includes 35 AGM-84H cruise missiles and 11 truck-based rocket launchers with a striking range of more than 270km.

 

Indonesia – landslide kills 11 at coal mine

Heavy rain caused a landslide on Indonesia’s Sumatra island that killed 11 miners.

The slide occurred Wednesday in a mine tunnel about 20m deep in Muara Enim, a southern province of the island.

 

Currencies

US$1.1848/eur vs 1.1858/eur yesterday.  Yen 104.54/$ vs 105.16/$.  SAr 16.339/$ vs 16.409/$.  $1.313/gbp vs $1.301/gbp.  0.711/aud vs 0.708/aud.  CNY 6.665/$ vs 6.647/$. 

 

Commodity News

Precious metals:         

Gold US$1,917/oz vs US$1,919/oz yesterday – Sukhoi Log in Russia is reported to be the world’s largest undeveloped gold deposit hosting 40moz in JORC compliant reserves accounting for more than a quarter of the nation’s precious metal mineral inventory.

Polyus Gold announced maiden ore reserve on the deposit this morning showing 540mt at 2.3g/t for 40moz in contained gold/

Mineral resources stand at 1,110mt at 1.9g/t for 67moz (21moz in the Inferred category).

The Company is continuing with in-fill drilling programme designed to convert more ounces from the Inferred category into Measured and Indicated.

The project PFS is in final stages and is expected to be ready by year end.

Polyus consolidated the project ownership to 100% in Q3/20 acquiring the remaining 22% for $128m.

   Gold ETFs 111.0moz vs US$111.0moz yesterday

Platinum US$891/oz vs US$881/oz yesterday

Palladium US$2,405/oz vs US$2,413/oz yesterday

Silver US$24.92/oz vs US$25.03/oz yesterday           

 

Base metals:   

Copper US$ 6,974/t vs US$6,972/t yesterday – Copper extends gains beyond $7000/t before settling lower

The copper price rose to its highest level since June 2018 on stimulus hopes and Chilean supply woes, gaining as much as 2% to $7,034/t on the LME (Bloomberg).

Copper prices have rallied nearly 60% since mid-March, and prices look to be supported into the future as the ICSG expect copper production to decline for a second year.

The suspension of Lundin’s Candelaria operations has been well documented, despite the mine producing a fraction of the copper compared to Chilean mines owned by Codelco and BHP.

However, the industrial action at Candelaria is fuelling supply uncertainty as it reaffirms the power that workers unions have in the country, and an improved deal could encourage other mines to attempt wage negotiations.

 

Aluminium US$ 1,844/t vs US$1,848/t yesterday

Nickel US$ 15,815/t vs US$16,125/t yesterday – Trafigura-led consortium set to bid for Vale’s New Caledonia operations

The global commodity house are preparing to lead a consortium with four French companies to acquire Vale’s Goro mine in the French territory of New Caledonia, Fastmarkets report.

The mine has never reached full production as a result of multiple incidents on site, including blockades from the local population.

Last year saw the mine produce 23,400t of nickel- just over a third of its annual capacity.

Vale have been attempting to divest the asset since December 2019, and announced on the 8th of October that they would cease operations there entirely by 2021.

Recent market developments show Trafigura is keen to increase its exposure to producing assets, after it was announced last week that the trader has been building a stake in Finnish nickel and cobalt producer Terrafame.

 

Zinc US$ 2,571/t vs US$2,562/t yesterday

Lead US$ 1,802/t vs US$1,799/t yesterday

Tin US$ 18,550/t vs US$18,725/t yesterday – International Tin Association – consumption forecast to fall 5.9% this year

The latest annual survey released by the ITA yesterday estimated a refined tin use contraction of 5.4% in 2019, with a further decline of 5.9% forecast for 2020.

Refined tin use decreased 5.4% to 359,200 tonnes, lower than the preliminary estimate of -1.8% made by market participants in last year’s Q2/Q3 survey.

Total global tin use, including refined and unrefined forms, totalled 427,400 tonnes in 2019, down -5.8% compared to a year earlier.

Solder still accounts for the largest global share of tin use and increased its share further this year to 49%.

           

Energy:           

Oil US$41.8/bbl vs US$42.7/bbl yesterday

Oil prices fell slightly on tempered stimulus hopes and a falling US Dollar after US House Representatives Speaker Nancy Pelosi self-imposed a deadline for the White House to approve the relief package

The DXY US Dollar index fell for a second day to 92.92 – the lowest level seen in a month

Oil traders are also eyeing Today’s EIA inventory reports, expecting a 1.02MMbbl fall in US crude oil stockpiles

Oil prices have historically exhibited a negative correlation with inventory changes

Elsewhere, further global lockdowns, Libya’s plans to boost output, and poor data out of China continue to weigh on prices

Global coronavirus cases have now passed 40m, and a number of European countries have re-entered stricter lockdowns in a bid to slow the growing number of cases as we move into the Northern Hemisphere winter

The White House announced it is ‘cautiously optimistic’ that Speaker Pelosi may be edging closer to agreeing a deal on the new coronavirus bill

China’s Q3 economic GDP Growth came in below expectations at 4.9% YoY and 2.7% QoQ

The Joint Ministerial Monitoring Committee (JMMC) met on Sunday under the Chairmanship of the Saudi Minister of Energy

Production data for September 2020 showed overall conformity was 102% across OPEC and non-OPEC countries, the highest level since May 2020

The committee reiterated the commitments of all participating countries to achieve full conformity and to make up for shortfall under compensation plans

There was also emphasis on the ongoing positive contribution of the DoC in supporting rebalancing of the global oil market

Looking to out to next year the IMF said on Monday that they expect oil prices to stay in the US$40-50/bbl into next year, putting pressure on oil exporters in the Middle East

The IMF projects GDP in the region will fall 4.1% in 2020, with oil exporters in the Middle East and North Africa expected to suffer a 6.6% decline this year

Oversupply and an inventory glut remain concerns in the short to medium term with reduced air traffic volumes negatively effecting demand

The Aire Travel Association expects the global passenger traffic to return to pre-COVID levels by 2024, 12 months further out than initially thought

Short haul travel is expected to come back online faster, returning to levels resembling pre-pandemic footfall by 2023

 

Natural Gas US$3.041/mmbtu vs US$2.962/mmbtu yesterday

Natural gas prices broke through the US$3/mmbtu level ahead of today’s inventory report from the Department of Energy

Expectations are for a 39Bcf build in natural gas stockpiles according to survey provider Estimize

The weather is expected to be much colder than normal throughout the west and mid-west over the next 6-10 days and then it’s expected to moderate as the cold weather moves east

There is one disturbance in the Caribbean that is moving toward the Gulf of Mexico, with a zero chance of turning into a tropical cyclone over the next 48-hours

Natural gas deliveries for LNG declined in the latest week according to the EIA

        

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$117.4/t vs US$115.8/t

Chinese steel rebar 25mm US$567.4/t vs US$567.5/t

Thermal coal (1st year forward cif ARA) US$59.3/t vs US$60.0/t – Glencore to keep its coal mines 

Glencore wants to maintain its coal mines and close them down over time, rather than sell them to another operator or turning them into a new company because it believes keeping them will be better for the environment. 

This could cause conflict between Glencore and shareholders who are likely to want firmer action on coal. Ivan Glasenberg, the chief executive, told the Financial Times Mining Summit that they will not replace their coal mines as the reserves are exhausted. He also said that they will not sell off coal assets like others have done, as this would not do much to reduce Scope 3 carbon emissions.   

However, recently the trend against investing in coal has been accelerated. Glencore is also a top producer of cobalt, nickel and copper. However, they may struggle to sell its role in powering the energy transition whilst still mining coal. Although selling coal assets does nothing to cut the volume of coal being produced, it does mean companies can market themselves as part of the climate change solution.  

Glencore’s shares are down 29.4% in London this year compared to its competitors Anglo American which has gone down 10.2% and Rio has gone up 1.9%. 

Therefore, although keeping its coal mines which will be better for the environment long term, this could impact the company negatively by protecting the coal industry.

 Coking coal swap Australia FOB US$131.0/t vs US$129.0/t

           

Other:  

Cobalt LME 3m US$33,305/t vs US$33,305/t

NdPr Rare Earth Oxide (China) US$48,909/t vs US$48,894/t

Lithium carbonate 99% (China) US$5,251/t vs US$5,266/t

Ferro Vanadium 80% FOB (China) US$29.0/kg vs US$29.0/kg

Antimony Trioxide 99.5% EU (China) US$5.3/kg vs US$5.3/kg

Tungsten APT European US$212-220/mtu vs US$212-220/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

Japan to announce net zero emissions target by 2050 

Prime minister of Japan, Yoshihide Suga will outline plans on Monday to reach carbon neutrality by 2050. It is expected that he will reveal plans to cut all. Greenhouse gas emissions to net zero by 2050 and announce measures to boost the deployment of renewable energy.  

It is likely that he will announce a carbon removal package which may involve support for carbon capture and storage, and green hydrogen. 

Japan’s previous climate strategy relied on technological solutions to cut down on emissions and did not give much detail on addressing Japan’s coal dependency. A coal phase out is vital if it wants to reach its target by 2050. To do this, they will have to reduce coal’s share by much more than the 26% target and address emissions in the industrial sector as a whole.   

 

Tesla announces record quarter as it begins exporting made-in-China model 3 to Europe

Tesla has delivered a fifth straight quarterly profit and above expectations revenue of $8.77bn in Q3 a 39% increase YoY.

Revenue from the sale of regulatory credits was $397m. This year regulatory credits have accounted for $1.18bn in sales, 7% of total revenue and without them the Company would not have recorded a profitable Q3.

Net income rose 131% YoY to $331m, $0.27 EPS.

Tesla produced 145,036 vehicles in the quarter and delivered 139,593, 76% and 54% increases YoY respectively. The average selling price of vehicles declined as the Company shifts products mix towards the more affordable Model 3 and Model Y.  

Construction of Berlin and Texas Gigafactories remain ongoing. The Company also posted a summary of the September battery day, confirming their targets to increase range 54% and reduce $/kWh costs by 56% through innovations announced on the day.

The Californian EV maker has begun exporting Model 3 vehicles produced at its Gigafactory in Shanghai to Europe. This represents a change of heart from Tesla, when the factory was announced Musk assured the market that the factory would supply local demand and not export.

 

Researchers reengineering current collectors

Stanford University and Department of Energy SLAC National Accelerator Laboratory have reengineered current collectors to reduce their weight by 80% and quench fires as their appear. (Science Daily)

The team designed a current collector based on a lightweight polymer called polyimide which is resistant to fire and can withstand the high temperatures prevalent during fast charging.

Triphenyl phosphate was also embedded in the polymer coated on surfaces with an ultrathin layer of copper. Both the polymer and the copper are fire retardant. The team found that fires burnt out within a few seconds when the collector was tested.

The researchers suggest the reduction in weight increased the energy density of lithium ion batteries by 16-26%. Lithium ion batteries contain two current collectors one in each electrode distributing the current.

Reductions in weight would not only make vehicles lighter but the improved energy density would also enable EVs to go further on a single charge.

Improved safety is an important consideration with a number of battery fires occurring in recent months in vehicles equipped with lithium-ion batteries with higher proportions of nickel.

The team thinks the polymer collector should be easier and cheaper to produce given the polymer is inexpensive and scalability to commercial production is feasible. The researchers are awaiting a patent.

 

Battery quality lithium carbonate produced at Kachi Brines

Lake Resources has announced that the tests carried out by Hazen Research Inc have produced 99.97% lithium carbonate from lithium chloride produced at Lilac Solutions Plant and sourced from the Kachi Brines. Battery grade lithium is considered to be above 99.5% purity.

The samples were found to have low impurities which Lake believes will make the product attractive to the battery market.

Hazen will continue production of lithium carbonate samples which are expected to be sent to Novonix to be tested in NMC622 batteries.

Lilac’s pilot plant module treatment was conducted at approx.. 1000x earlier laboratory bench-scale test with scale-up to full production modules expected to be 3-5x. The Pre-feasibility study was based on utilizing modules to produce 25,5000 tonnes of lithium carbonate equivalent per annum.

 

Company News

Anglo American (LON:AAL) 1964.2p, Mkt Cap £26.6bn – Q3 production recovery

Anglo American reports that its operations are operating at around 95% of normal capacity following a 24% recovery in production levels during the quarter.

The company highlights the 17% recovery in copper production at its Collahuasi mine in Chile as an important factor in a 4% rise in the group’s overall copper production.

Overall copper production of 165,700t (Q3 2019 158,900t0 brings year to date output to 479,500t (2019 – 479,100t) with the increase in Anglo American’s share of production from Collahuasi to 75,500t more than offsetting the 1% decline at Los Bronces to 79,400t and the larger, 23% reduction from El Soldado to 10,800t as a result of planned lower grades.

Anglo American’s copper price guidance for 2020 “has been tightened to 630,000-660,000 tonnes (previously 620,000-670,000 tonnes), subject to the extent of further Covid-19 related disruption”.

PGM production “was broadly flat” with platinum output of 517,000oz (Q3 2019 – 527,000oz) bringing year to date production to 1.265moz (2019 – 1,519moz down 17%) and palladium production of 352,000oz the same as for Q3 2019 and year-to date output of 884,000oz (2019 – 1.026moz)  – down 14%).

The company reports a “strong performance from the open pit Mogalakwena mine … [up 7% for platinum] …, with 12% higher palladium production, largely mitigated lower production from the underground Amandelbult” where production of platinum fell by 13% and palladium fell by 11% “due to the continuation of Covid-19 protocols and as Tumela Upper section comes to the end of its life.”

The company’s PGM production guidance “is revised to 1.7-1.8 million ounces of platinum (previously 1.5-1.7 million ounces) and 1.1-1.2 million ounces of palladium (previously 1.0-1.2 million ounces), subject to the extent of any further Covid-19 related disruptions”.

Rough diamond sales are reported to be picking up ahead of the holiday season although “Rough diamond production decreased by 4% to 7.2 million carats driven by planned reductions in production to reflect the lower demand for rough diamonds due to the Covid-19 pandemic”.

Anglo American reports a 43% decline in Namibian rough diamond output to 0.2m carats while “South African production increased to 1.2 million carats due to an expected change in ore mix, with more ore sourced from the higher grade material from the last cut of the open pit (rather than from low grade stockpiles) as the mine transitions to the underground” and Canadian output grew “by 17% to 0.9 million carats, due to treatment of higher grade material at Gahcho Kué”.

Diamond production guidance is unchanged for the year at 25-27m carats.

Iron ore production of 9.5mt from Kumba brings output for the year to date to 27.5mt (2019 – 30.6mt) while the resumption of production at Minas Rio following the completion of the pipeline inspection and maintenance. Quarterly output of 5.0mt from Minas Rio brings year-to-date output to 17.6mt (2019 –  17.0mt).

Previously published production guidance for the year at both Kumba 37-39mt) and Minas Rio (22-24mt) remains intact.

Metallurgical coal production in Australia “decreased by 26% to 4.8 million tonnes, principally due to the suspension of operations at Grosvenor following the underground gas ignition incident in May 2020. Open cut operations have been scaled back at Dawson and Capcoal in response to Covid-19 reduced demand for lower quality metallurgical coal.”

South African export thermal coal output “increased by 7% to 4.6 million tonnes, principally driven by the ramp up of the Navigation lifex section at Khwezela.” The company reports that its S African coal operations have been “operating at circa 90% production due to the impact of Covid-19 measures” since August.

Thermal coal operations in Colombia have halved to 1mt “as a result of an ongoing strike at Cerrejón, which started in September. This more than offset the ramp up in production earlier in Q3 following the lifting of lockdown restrictions”.

The company is maintaining its full-year guidance for metallurgical coal production of 16-18mt while “guidance for export thermal coal is revised to c.19 million tonnes (previously c.21 million tonnes), owing to the ongoing strike disruption in Colombia, subject to the extent of further Covid-19 related disruption”.

Nickel production guidance is maintained within the range 42-44,000t following production of 10,200t during the quarter bringing the year-to-date output to 31,900t.

Conclusion: Anglo American reports that it is now operating at around 95% capacity as it adjusts to operating in the current pandemic. A strong recovery in output at Collahuasi helped increase overall copper output while open-pit PGM output helped counterbalance reductions from underground operations where Covid-safe working practices are probably more challenging to implement. Strike action in Colombia has prompted a 2mt reduction in thermal coal production guidance.

 

Bluejay Mining* (LON:JAY) 9.96p, Mkt cap £97m – Danish Maritime Authority accepts Navigational Safety for Dundas titanium sand mine

The Danish Maritime Authority has accepted Bluejay’s Navigational Safety Investigation for the new Dundas Ilmenite mine

The Navigational Safety Investigation involved work and cooperation from the Greenland Pilot Service and the Danish Metrological Institute which is responsible for the safety of navigation in Greenland waters and the Arctic region.

The Investigation is a is a prerequisite for any project in Greenland which relies on shipping for production and its construction. 

The bulk sample shipments made by Bluejay to date demonstrate how well the navigation and loading processes work.

*SP Angel act Nomad and broker to Bluejay. The analyst has previously visited the Dundas ilmenite project in Greenland and has bought stock in the company.

 

Empire Metals* (LON:EEE) – 4.3p, Mkt cap £11.5m – Drilling starts at Eclipse gold project in Kalgoorlie, Western Australia

(Empire hold a 75% interest in the Eclipse gold license)

Empire Metals have joined the gold rush just outside Kalgoolie in Western Australia.

We hope to see gold grades in drilling at the Eclipse Gold project and expect the program to verify the hypothesis that gold might extend over a greater area around the historic Eclipse gold mine.

Empire are drilling 2,300m to infill gaps between previous drill holes and develop a better understanding of the potential resource, test potential extensions to the mineralisation at depth at Eclipse and test the mineralisation the Houdini target 1.2km to the north-west.

Eclipse shaft – previous drilling shows:

7m @ 13.07 g/t Au from 34m depth,

12m @ 5.13 g/t Au from 39m,

8m @ 3.11 g/t Au from 66m,

6m @ 3.92 g/t Au from 87m

The Eclipse shaft historically produced 954t grading 24.6 g/t for 754.25oz of gold.

Soils sampling show an area of around 200x75m aligning with a distinct magnetic offset.

Mineralisation remains open along strike in both directions and at depth and is seen for around 2.5km on the licence.

The high-grade gold mineralisation occurs in a quartz-carbonate vein with an average width of 2.2m.

Houdini: The Houdini target appears to have a similar geological setting to the Eclipse shaft area

Conclusion: Management are looking to define sufficient resources for an open pit gold target. We look forward to the results of the gold assays.

*SP Angel act as Nomad and Broker to Empire Metals

 

KEFI Gold and Copper* (LON:KEFI) 2.32p, Mkt Cap £43.5m – Tulu Kapi $221m funding consortium update

The Company assembled the $221m funding consortium and signed non-bonding term sheets for a combined minimum of $40m investment for Tulu Kapi Gold Project development.

$40m conditional commitment is with the Ethiopian division of a global industrial company (equity ~$10m) and a commodity trading company (ofttake ~$30m)

The Tulu Kapi funding requirement of $221m is expected to come from:

$132m in senior debt of up to ~60% of capex;

$20m in equity from Government’s partners in the project;

$10m in equity from a local investor;

$30m in offtake-linked capital to be structured as a shareholder loan to the local subsidiary (TKGM) via a KEFI Group company

$29m to be refined and allocated within consortium in the form of project-level equity once Senior Lenders complete their due diligence and regulators confirm compliance.

New funding structure allows KEFI to retain 65% in the project as opposed to previously envisaged 45%.

All agreements remain conditional on completion of due diligence, confirmation of regulatory compliance, internal approvals and the execution of full detailed documentation by each consortium member.

The team expects senior debt funds draw down in mid-21 preceded by equity subscriptions that would allow to kick start relocation programme and construction preparatory works.

The Company reiterated Tulu Kapi first production target for Q4/22.

In the view of strong gold price environment the Company is considering to bring underground phase forward allowing to lift annual gold production rate from 140kozpa to 190kozpa within 3 years of commissioning.

In this case, inhouse estimates suggest updated Project NPV8% attributable to KEFI (65%) worth ~11p per share ($1,700/oz gold price), which excludes any upside from other KEFI portfolio assets including the Hawiah polymetallic deposit and Jibal Qutman gold project in Saudi Arabia.

Conclusion: The Company assembled together the $221m funding consortium including a $40m conditional commitment from a local Ethiopian investor and a commodity trader replacing previously envisaged equity investors (ANS). With ~$30m coming in the form of a potential offtake agreement allows the Company to minimise dilution to its interest in the Tulu Kapi project and retain 65%, up from previously envisaged 45%. Additionally, the KEFI is considering fast tracking underground development at Tulu Kapi front loading production schedule to take advantage of higher gold prices that in turn improves economics of the project.

*SP Angel act as Nomad and Broker to KEFI Gold and Copper

 

Hochschild Mining (LON:HOC) 238p, Mkt Cap £1.25bn – Guidance maintained as production rises in Q3

Hochschild’s attributable production in Q3 amounted to 39,200oz of gold and 2.5moz of silver, resulting in year-to-date production of 118,000oz and 6.6moz of gold and silver respectively.

The miner announces that it remains on track to deliver the revised full-year production target of 280-290,000 gold equivalent ounces and 24-25m silver equivalent ounces.

Attributable gold production was 99.5% higher than Q2 2020 and 42.2% lower than the same period last year, as the company continues to recover from Covid-19, with many precautions still in place.

The Inmaculada mine was temporarily halted for a second time in early July 2020 due to a number of cases of Covid-19, and operation restarted on the 28th of July and reached full production during the first weekend of September.

Average realisable precious metal prices in Q3 2020 were $1,958/oz for gold and $27.2/oz of silver.

The company had total cash of approx. $196m as at 30 September 2020 vs $162m at 30 June 2020.

Net debt of approx. $21m at 30 September vs $58m at 30 June 2020.

 Ignacio Bustamante, CEO commented: “Hochschild is recovering will from a challenging first half in which all of our operations were impacted by the global pandemic. Output has steadily increased and we have generated substantial free cash flow despite the Company not being in full production throughout the entire period”

 

Serabi Gold* (LON:SRB) – 94p, Mkt Cap £61.9m – Expansion of Sao Chico exploration area

Serabi Gold reports Q3 gold production of 7,224oz of gold bringing total year-to-date output to 24,748oz.

Production resulted from treating 46,135t of ore at an average grade of 4.75g/t gold. Typically, Serabi has treated grades of around 6-7g/t gold and the lower levels are directly attributed to the challenges imposed by virus containment measures which meant that “During the pandemic, the reduction in crews, and services in general meant we had little choice but to shrink and simplify the operation, reducing the number of faces…  This was unavoidable, and we have had to accept a rather more hand to mouth situation in the process.”

“In the third quarter, whilst run of mine (ROM) volumes have just kept pace with the plant capacity this has necessitated mining and processing of lower grade ore that might otherwise have been stockpiled.  This reduction in stock has also meant the ore sorter has not, to date, had its planned impact, due to lack of feed.  When it has been used, we are seeing its long-term potential with the year to date figures showing grades improved by a factor of 6 times with over 85% of sorted material being separated as low-grade waste”.

Describing the challenges of narrow-vein mining with a reduced workforce under Covid19 containment measures, Chief Executive, Mike Hodgson, explained that “At Serabi, I believe our remoteness, usually a challenge, was our salvation … [and commented that] … Considering these challenges, I am very satisfied with the 7,224 ounces of gold produced for the third quarter.  Whilst not a spectacular quarter, it remains very satisfactory given the limitation and brings the total gold production for the year to date to a little less than 25,000 ounces”.

He continued “The on-site labour force was reduced … keeping only a core of essential workers at site, whilst we ensured there was sufficient stock of all critical supplies and consumables in case of transport and other supply chain interruptions.  We introduced regular testing of staff, hunkered down, and produced what was possible within the new operational limitation and  managing to stay operational throughout.”

In July, the company indicated that it expected to produce in the range of 34-37,000oz of gold for the year and it is testament to the success of its containment strategy that Serabi Gold is now saying that “By the end of September 2020, with almost a full workforce complement back at the mine sites, many ancillary activities were resumed.  We anticipate fourth quarter production being approximately 8,000 ounces resulting in full year production of approximately 33,000 ounces”.

Serabi Gold reiterates its previously announced exploration success to the west of Sao Chico including the “Initial intersections into the Cicada prospect returned 3.00m @ 2.09g/t Au at a depth of 169 metres including a zone of 1m @ 5.42g/t Au (drill hole SCRC004)” as well as the recently announced acquisition of the Sao Domingos exploration licences which further expand the exploration potential in the vicinity of Sao Chico.

At Coringa, progreess on permitting has advanced and “we are now working on final approvals from FUNAI (agency for Indigenous communities) and INCRA (land registry), after which we can seek award of the Installation License (LI), which is the permit required to begin construction”.

Conclusion: Serabi Gold has adapted to the operational challenges of Covid19 containment and, aided by its remote location, is anticipating full year gold production only around 1,000oz -4,000oz lower than it indicated in July.

*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil

 

Trans-Siberian Gold (LON:TSG) 101p, Mkt Cap £88m – 9M20 revenues hit record high on strong gold prices

Q3/290 production came in at 11.6koz (Q2/20: 11.4koz) reflecting relatively stable throughput, gold grade feed and recoveries.

Q3/20 revenues totalled $21.0m (Q2/20: $19.7m), up 6.5%qoq, with realised gold price averaging $1,899/oz (Q2/20: $1,738/oz).

Test mining of the higher grade Vein 25 is continuing and contributing positively to the feed grade that compensated for the lower and variable gold grades from the Main Zone.

Record revenues reported for 9M20 of $50.1m, up 16.7%yoy, reflecting strong gold price performance.

Rodnikova scoping study is ongoing with completion targeted for 2020.

Little impact of COVID-19 on operations reported.

FY20 guidance reiterated at 38-42koz, having produced 29.8koz in 9M20.

Conclusion: Robust quarter reported with operations continuing to benefit from the Vein 25 higher grade feed and the team remaining on course to hit the FY20 38-42koz target. Strong gold price helped see revenues reach record levels in 9M20.

 

Vast Resources* (LON:VAST) 0.18p, Mkt Cap £23m – Baita plant up and running with first concentrate shipment due shortly

The Company reports the processing plant is now fully operations and producing concentrate.

First copper concentrate production is expected by the end of October with a delivery of 350-400t of copper concentrate to Mercuria to follow shortly after.

The team also highlights the Baita Plai operation is on track to beat its initial copper sales delivery target released earlier (7 September) and associated operational cash flows.

Previously, Vast expected Baita to deliver 644t of copper concentrate (along with 204t of zinc and 94t of lead concentrates) in Q4/20 generating $1.9m in net revenue.

Conclusion: Baita processing plant is up and running with first copper concentrate production expected by the end of the month followed by the first delivery to Mercuria. The operation offering exposure predominantly to copper (~40-50%) and precious metals (~40-50% Au/Ag) comes online at the time when prices for both see strong support in the market

*SP Angel acts as Broker to Vast Resources

 

 

Analysts

John Meyer – [email protected] – 0203 470 0490

Simon Beardsmore – [email protected] – 0203 470 0484

Sergey Raevskiy –[email protected] – 0203 470 0474

Joe Rowbottom – [email protected] – 0203 470 0486

 

Sales

Richard Parlons –[email protected] – 0203 470 0472

Abigail Wayne – [email protected] – 0203 470 0534

Rob Rees – [email protected] – 0203 470 0535

Grant Barker – [email protected] – 0203 470 0471

 

 

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

Gold, Platinum, Palladium, Silver

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

SSY

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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