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3M - Today's Market View - Planned October trade talks restart drives risk-on sentiment

SP Angel – Morning View – Thursday 05 09 19

Planned October trade talks restart drives risk-on sentiment

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MiFID II exempt information – see disclaimer below

Altus Strategies* (ALS LN) – New gold anomaly discovered next to Diba in Western Mali

Cora Gold* (CORA LN) – £1.95m equity raise

Gem Diamonds (GEMD LN) – Half year results

Dow Jones Industrials

+0.91%

at

26,355

Nikkei 225

+2.12%

at

21,086

HK Hang Seng

-0.51%

at

26,387

Shanghai Composite

+0.96%

at

2,986

FTSE 350 Mining

-0.78%

at

18,153

AIM Basic Resources

+1.09%

at

2,296

Economics

US – Washington and Beijing agreed to restart high level trade talks in early October contributing to the risk on sentiment in global markets.

The announcement came after a call earlier between China’s VP Liu He and US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.

“Both sides agreed that they should work together and take practical actions to create good conditions for consultations,” the ministry said.

Germany – Factory orders dropped more than forecast aggravating concerns over increasing recession risks in the largest economy in the EU.

Orders from outside the euro region came in weak, in particular.

The economy ministry said “in light of ongoing international trade conflicts and modest business expectations in manufacturing, no fundamental improvement in momentum is in sight for the coming months”.

The economy posted a 0.1%qoq decline in Q2/19 with the Bundesbank warning that it is likely to do so again this quarter.

Factory Orders (%qoq/yoy): -2.7/-5.6 v 2.7/-3.5 in June and -1.4/-4.2 forecast.

UK – The government conceded two defeats yesterday as Parliament voted down the no-deal Brexit option and supported the delay to the 31 October deadline while the PM Johson plan for a snap election was also rejected.

The pound recorded the strongest rally in six months on Wednesday and continued its ascent against the US$ climbing more than 2.6% from the dip hit on Tuesday.

Against the €, the national currency is up 1.7% since the Tuesday low trading 0.4% stronger this morning.

Italy – Giuseppe Conte was reappointed as PM less than a month after being forced out.

New government is formed after Five Star and the Democrats agreed to form a coalition after failed bid by the rightist League to force snap elections.

New cabinet announced by Conte suggests a far more pro-European stance of the new administration.

“The formation of the new government ends the summer political crisis in Italy and gives short-term relief to investors,” Amundi, Europe’s largest fund manager, commented on the news.

The equity index (FTSE MIB) is up 0.3% this morning while the spread between German and Italian 10y sovereign bond yields remained at a more than a year low hovering around 150bp.

Currencies

US$1.1033/eur vs 1.0992/eur yesterday. Yen 106.45/$ vs 106.20/$. SAr 14.776/$ vs 14.926/$. $1.223/gbp vs $1.214/gbp. 0.681/aud vs 0.678/aud. CNY 7.137/$ vs 7.154/$.

Commodity News

Precious metals:         

Gold US$1,548/oz vs US$1,538/oz yesterday

   Gold ETFs 79.4moz vs US$79.3moz yesterday

Platinum US$984/oz vs US$970/oz yesterday

Palladium US$1,558/oz vs US$1,546/oz yesterday

Silver US$19.47/oz vs US$19.30/oz yesterday

Base metals:   

Copper US$ 5,754/t vs US$5,690/t yesterday

Aluminium US$ 1,769/t vs US$1,759/t yesterday

Nickel US$ 17,680/t vs US$18,000/t yesterday

Zinc US$ 2,310/t vs US$2,250/t yesterday

Lead US$ 2,056/t vs US$2,019/t yesterday

Tin US$ 17,475/t vs US$17,010/t yesterday

Energy:           

Oil US$60.5/bbl vs US$58.5/bbl yesterday

Natural Gas US$2.438/mmbtu vs US$2.345/mmbtu yesterday

Uranium US$25.25/lb vs US$25.25/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$88.6/t vs US$86.3/t

Chinese steel rebar 25mm US$553.7/t vs US$548.5/t

Thermal coal (1st year forward cif ARA) US$64.8/t vs US$64.7/t

Coking coal futures Dalian Exchange US$202.5/t vs US$201.9/t

Other:  

Cobalt LME 3m US$35,000/t vs US$34,000/t

NdPr Rare Earth Oxide (China) US$45,185/t vs US$44,873/t

Lithium carbonate 99% (China) US$7,005/t vs US$7,199/t

Ferro Vanadium 80% FOB (China) US$38.6/kg vs US$38.5/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.1/kg

Tungsten APT European US$198-205/mtu vs US$210-225/mtu

Battery News

Company News

Altus Strategies* (ALS LN) 4.9p, Mkt Cap £8.7m – New gold anomaly discovered next to Diba in Western Mali

The team defined a potentially significant new prospect at the Diba gold project that is trategically located 13km south of the multi-million ounce Sadiola gold mine and 5km west of the Company’s Lakanfla gold project.

The Diba SW is located 0.5km to the south west and directly along strike of the historical Diba resource area in Western Mali.

The anomaly is defined by a discontinuous 1.2km long gold in termite soil anomaly along flanks of a topographic ridge and matches with a geophysical anomaly.

The next phase for Diba SW would be detailed mapping and RAB drilling to identify targets for testing with RC and/or diamond drilling.

On the back of a discovery of Diba SW, the Company has reinterpreted the historical geochemical, geophysical and topographical data at Diba identifying at least three further potential prospects and increasing the total number of new prospects at Diba to six.

The team believes the opportunity to increase the size of the historic resources at Diba is considerable given new additional targets identified.

Historic Diba resource includes a near surface, shallow dipping, oxide deposit where previous drilling returned a number of high grade and wide intersections including 20m at 5.02g/t and 13m at 5.36g/t.

The resource currently stands at 6.3mt at 1.35g/t for 275koz in the Indicated category and 0.7mt at 1.40g/t for 33koz in the Inferred category.

*SP Angel acts as Nomad and Broker to Altus Strategies

Cora Gold* (CORA LN) 7.5p, Mkt Cap £7.6m – £1.95m equity raise

The Company closed an oversubscribed equity raise of £1.95m (gross) placing 27.9m shares at a price of 7p.

Each share has an attached warrant to subscribe for one new ordinary share at a price of 10p per share for a period of 12 months.

Since the Company is now in a closed period with interim results due before the end of Sep/19, a number of directors and members of the management indicated their intension to subscribe for new shares on delayed basis with some additional £45k to be raised once accounts are released.

Proceeds of the placing are planned to be directed towards drilling and related exploration activities at the flagship Sanankoro Gold Project once new field season starts in Q4/19.

Growth of the oxide potential of the discovery as well as newly discovered sulphide mineralisation at depth will be the focus of further drilling.

Additionally, this will pay for further targeted exploration at the Cora’s other licenses and general working capital.

Among selected investors, Hummingbird and Lord Farmer subscribed for 4.7m and 3.8m shares, respectively.

Conclusion: The raised funds will help the Company to continue de-risking the flagship Sanankoro gold project assessing the scale of the potential deposit. The team is planning to release maiden mineral resource and the scoping study on the Sanankoro before year end.

*SP Angel acts as Nomad and Broker to Cora Gold

Gem Diamonds (GEMD LN) 73.4p, Mkt Cap £102.0m – Half year results

Gem Diamonds reports reduced revenue, EBITDA and profits for the six months to 30th June 2019 compared with the first half in 2018.

Sales revenues from the 70% owned Letseng mine reflected a decline in both carats sold (to 55,714 carats H1 2019 compared to 61,696 carats) and average selling prices from US$2,742/carat to US$1,697/carat with group revenues declining from US$167.7m in H1 2018 to US$91.3m. Sales included a 13.3 carat pink gem diamond which sold for US$8.8m (a record US$656,934 per carat) and the mine recovered 3 diamonds in excess of 100 carats in size.

Chief Executive, Clifford Elphick, pointed out, however, that “prices achieved for the Period are 10% up from the prices achieved in the preceding 6-month period”.

EBITDA declined to US$25.3m (H1 2018 – US$70.7m) and attributable profit from continuing operations (excluding the Ghaghoo mine in Botswana where confirmation of the sale is expected during H2 2019) declined to US$6.6m (H1 2018 – US$26.8m).

The company explains the background to weaker sales saying that “Pressure on pricing of smaller, commercial type rough diamonds has continued with inventories in the manufacturing and polished markets remaining high following a disappointing 2018 holiday season and weak subsequent restocking … [and also that] … rough prices of large, high-value diamonds have shown signs of weakness, albeit to a much lesser extent than the smaller, commercial type rough diamonds.”

In a note of optimism, however, Gem Diamonds goes on to say that “In the medium to long term, rough diamond prices are expected to be supported by the favourable demand/supply fundamentals, which are underpinned by a continued growth in demand from emerging markets coupled with a limited growth in supply. In the short term, supply is expected to decrease with the depletion of existing mines.”

Despite a decline in investment from US$52m during the first half of 2018 to US$23m, lower operating cash-flows of US$23m compared to US$98m during the first half of the previous year, the company’s balance sheet moved from net cash of approximately US$16.7m at 31st December 2018 to a modest, US$1.7m, level of net debt with cash on hand of US$25.7m.

At the Letseng operation, the implementation of the Business Transformation the company reports that “US$42 million has been realised net of implementation costs and fees in the first 18-months of the 4-year Business Transformation programme”.

During H2 2019, at the company operational priorities for Letseng will focus on:

“Maximising the treatment of the planned higher-value Satellite pipe material;

Further enhancing the mining fleet and activities to reduce diesel consumption; and

Monitoring the feed rates through Plant 2 following the DMS improvements implemented.”

The Business Transformation initiative is “on track to deliver the planned US$100 million in revenue, productivity and cost saving by 2021”.

Conclusion: In common with the rest of the diamond industry, Gem Diamonds is under pressure from weakness in the diamond market. However, the ability of the Leseng mine to deliver high value diamonds, coupled with the company’s Business Transformation programme’s expected US$100m contribution by 2021 helps position Gem Diamonds for the longer term when a supply/demand imbalance and limited supply growth to offset expected mine closures underpins the longer term future.

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

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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