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Today's Market View - Amur Minerals, Arc Minerals,Bushveld Minerals, Cradle Arc and Lonmin

Published: 06:12 28 Jun 2018 EDT

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Amur Minerals* (LON:AMC) – Annual results and Kun Manie EBITDA estimates
Arc Minerals* (LON:ARCM) BUY – Arc reports rise in Akyanga gold resource to 3moz at 2.26g/t
Bushveld Minerals* (LON:BMN) BUY - Target 25p – Vanadium production expansion on time and within budget
Cradle Arc (LON:CRA) – 2017 results and Mowana copper mine update
Lonmin PLC (LPN:LMI) – Update on Sibanye

Copper US$6,676/t - Consumption of copper fell almost 4% y/y through May as power grid investment and property completions slumped.
• China Power grid investment plunged 21% y/y while property completions fell 10%.
• Growth in consumer, auto, electrical and machinery sectors help offset weakness elsewhere.

BP to takeover Chargemaster
• BP reckons autonomous electric vehicles will become available in from the early 2020s with a 100 times growth by 2040.

BHP – Cultural change and Nickel West asset no longer up for sale
• Interesting comments from BHP yesterday indicating that the company needed to undergo cultural change.
• We wonder if moving the headquarters from Melbourne to Kirkintilloch, Scotland might do the trick, though we are not sure the Aussies could cope with the delightful Scottish weather.
• Rumour has it on the old mining grapevine that the environmental liabilities at Nickel West might be the main obstacle to is sale. Time for a quick change of direction into the battery materials sector, me thinks!

Mining Journal Select conference
• Well done to the organisers of the Mining Journal Select conference which was in London over the lat two days.
• Tom Albanese, former CEO at Rio Tinto, did a great job introducing a line-up of exceptionally good speakers on metals and battery raw materials.
• This is a good value event for investor education and an opportunity to meet many of the growth junior mining companies which we expect to do well in the coming years.

Dow Jones Industrials  -0.68% at   24,118
Nikkei 225  -0.01% at   22,270
HK Hang Seng  -0.50% at   28,214
Shanghai Composite  -0.93% at    2,787
FTSE 350 Mining  -0.34% at   18,796
AIM Basic Resources  -1.13% at    2,393

Economics
US – Trump decided not to impose new restrictions on Chinese investment in the US; although responsibilities of the national committee for foreign investments will be expanded implying higher scrutiny for future investors.
• At the moment, the Committee on Foreign Investment in the US reviews all Chinese acquisitions on national security basis.
• The new legislation provides broader the scope of investments subject to Cfius review including minority stakes in start-ups and real estate transactions.
• Both houses passed versions of the legislation which would need to be reconciled before Trump sign it into law.
• White House economic adviser Larry Kudlow said that the Trump decision not to adopt a more stringent approach on trade did not mean the stance on China has softened.
• On a separate note, durable goods reported a drop in May, although, upward revisions for the previous month has largely offset those declines.
• All attention is on whether latest protective trade policies would challenge positive economic outlook led by enacted earlier tax reforms.
• Durable Goods Orders (%mom): -0.6 v -1.0 (revised from -1.6) in April and -1.0 forecast.
• Core Durable Goods Orders (%mom): -0.3 v 1.9 (revised from 0.9) in April and 0.5 forecast.

China – Equities posted new declines this morning with Shanghai Composite and CSI 300 indices down 0.9% and 1.0%, respectively.
• The government is launching a six month crackdown programme on property speculation in 30 cities to fight violations in the housing market.
• The campaign will be directed towards unlicensed real estate agencies and developers’ violations including postponement of sales to fetch higher prices and non-compliant loans to fund down payments.

Japan – Retail sales dropped the most in nearly two years in May highlighting the fragile state of private consumption.
• The government is considering further hiking sales tax this fiscal year in an effort to improve government balance sheet.
• The hike in 2014 sent the economy into a technical recession in the coming quarters.
• Retail Sales (%mom/yoy): -1.7/+0.6 v 1.3/1.5 in April and -0.8/+1.4 forecast.

Germany – Regional inflation data comes in mixed; although, preliminary data suggests consumer prices growth held up close to the May reading which matched the highest level in a number of years reached in early 2017.
• Nationwide CPI is due later this afternoon with market estimates for a 2.1%yoy reading v 2.2% recorded in May.

UK – Auto production gains in May from a low base recorded in the previous year but remains down in the first months of the year.
• 137,225 vehicles were produced in May, up 1.3%yoy, as growth in domestic demand (+12.8%yoy) outpaced declines in exports (-1.5%yoy).
• Production is down 2.9%yoy year to date on the back of weak domestic and foreign demand.
• The SMMT chief executive highlighted the importance of sustaining the single market and customs union memebership to the industry’s frictionless performance.

Spain – Inflation continued to climb higher in June hitting the highest level in more than a year amid higher oil prices.
• “This behaviour highlights the increase in the prices of fules (diesel and gasoline/petrol) compared to the decrease experienced in 2017,” the nation al agency said commenting on numbers.
• CPI (%mom/yoy; EU harmonised): 0.2/2.3 v 0.9/2.1 in May and 0.2/2.3 forecast.

Currencies
US$1.1544/eur vs 1.1669/eur yesterday  Yen 110.40/$ vs 109.76/$  SAr 13.958/$ vs 13.545/$  $1.308/gbp vs $1.323/gbp  0.734/aud vs 0.739/aud  CNY 6.620/$ vs 6.588/$

Commodity News
Precious metals:         
Gold US$1,249/oz vs US$1,258/oz yesterday
• The US dollar finds support as the US President Donald Trump’s administration choose a less confrontational approach to trade dispute, causing gold to fall to its lowest level in more than six months. Bullion for immediate delivery dropped as much as -0.2%, the lowest since Dec. 15 to fall -3.7% in June, the biggest monthly drop since Nov. 2016.
• Meanwhile the Bloomberg Dollar Spot Index climbed a further +0.1% after gaining +0.6% during yesterday’s session, and remains on track for its 4th monthly gain in 5. Oanda Corp. note “prices went in the tank again as investors pile into the haven US dollar to buy US bonds, and the surging greenback is tarnishing gold’s appeal”.
• The White House moved forward on Weds with plans to limit Chinese investments but chose a less challenging tactic, deciding against invoking a rarely used law reserved for economic emergencies.
• Falling precious metal prices has drawn gold to its cheapest relative to crude oil in more than three years, despite concerns over a US-China trade conflict. Bullion is suffering in the wake of rising dollar value, while oil gains on the risk of supply crunch. As a result, an ounce of gold now buys fewer than 18 barrels of West Texas Intermediate crude, the least since December 2014.
   Gold ETFs 70.4moz vs US$70.5moz yesterday
Platinum US$852/oz vs US$865/oz yesterday
Palladium US$951/oz vs US$956/oz yesterday
Silver US$16.08/oz vs US$16.23/oz yesterday
           
Base metals:   
Copper US$ 6,676/t vs US$6,685/t yesterday
Aluminium US$ 2,164/t vs US$2,160/t yesterday
• United Co. Rusal is doing everything it can do avoid punitive US restrictions due for enforcement in October and return global aluminium supply to balance, according to the Russian major’s acting CEO. “Right now, we are taking all the actions that should be required to achieve the right result for the company. We are operating in full compliance with the conditions of our license” from the US Treasury’s Office of Foreign Assets Control.
• The Russian aluminium giant targets normal operation as US sanctions fueled extraordinary volatility in global aluminium prices after casting doubts on the future of the company in the global supply chain. Initial sanctions on about 6% of the world’s aluminium supply left market participants scrambling for alternative output, with China ramping up production to match new demand. The impact had global reach as the company operates mines, smelters and refineries in locations including Guinea, Ireland and Jamaica.
• Sanctions highlight the significant role that geopolitics are playing in commodities markets, with sanctions forming part of a package of measures targeting dozens of Russian tycoons to punish the country’s elite for actions including allegedly meddling in the US elections and incursions into Ukraine. While the metal sits 5% higher than before sanctions were introduced, Rusal has endured months of turmoil, with billionaire founder Oleg Deripaska resigning as a non-executive director in a bid to distance himself from the company. The curbs are poised to take full effect from Oct. 23 unless Deripaska relinquishes control.
Nickel US$ 14,870/t vs US$14,600/t yesterday
Zinc US$ 2,859/t vs US$2,837/t yesterday
Lead US$ 2,425/t vs US$2,418/t yesterday
Tin US$ 19,790/t vs US$19,870/t yesterday
           
Energy:           
Oil US$77.4/bbl vs US$76.8/bbl yesterday
Natural Gas US$2.969/mmbtu vs US$2.963/mmbtu yesterday
Uranium US$22.65/lb vs US$22.65/lb yesterday
           
Bulk:   
Iron ore 62% Fe spot (cfr Tianjin) US$64.5/t vs US$64.3/t
• China’s iron ore imports surged forward to their strongest month in June ahead of growing risks of a significant slowdown in the second half of 2018. Seaborne imports in June climbed to 88.9 million tonnes yesterday, according to vessel-tracking and port data complied by Thompson Reuters Supply Chain and Commodity Forecasts, with full month unloading possibly exceeding the official customs number of 94.1 million tonnes reported for last month.
• Despite escalating rhetoric and actions in the trade dispute with the administration of US President Donald Trump, the Chinese steel sector has remained resilient with strong margins encouraging higher production. Steel output rose 5.8% into May, climbing to 81.13 million tonnes according to data from the National Bureau of Statistics.
• Despite enforcements of stringent anti-pollution measures across some districts, boosted capacity utilisation has drawn production from the first five months 5.4% higher to 369.86 million tonnes.
• However, demand outlook is skewed to the downside, with vice chairman of the industry group, China Iron and Steel Association, expecting steady demand in the second half of the year, albeit with a risk of oversupply. Additional investment in advanced steel-making capacity and the resumption of low-end rebar production, some of it illegal, supported the risk of a glut in the market.
• Further, tit-for-tat tariffs promoted by Washington and Beijing could threaten wider economic growth. If exports of Chinese machinery and other steel-intensive manufactured goods start to decline, it will knock both sentiment and demand for steel and iron ore.
• A glut of steel-making raw material as global mine supply expands and renewed production curbs at mills blunting overall demand is expected to draw prices back into the $50s. Chinese ferrous metals analyst notes “the outlook of iron ore prices is not rosy, particularly in the fourth quarter.” The expected weakening of steel prices “will affect the market expectations of iron ore restocking by mills, therefore adding downward pressure upon iron prices”.
• Miners have added output at new projects, which has offset some supply glitches in Brazil and Canada. In Brazil, Vale SA has been bringing on its S11D project, although executives have vowed to act as a swing producer to calm prices should that be necessary if they spike. Australia’s Roy Hill, developed by billionaire Gina Rinehart, has been hitting maximum capacity, while in Canada, Rio Tinto Group’s Iron Ore Company of Canada was hit a by a strike.
Chinese steel rebar 25mm US$640.2/t vs US$642.5/t
Thermal coal (1st year forward cif ARA) US$88.4/t vs US$87.3/t
Premium hard coking coal Aus fob US$198.2/t vs US$200.8/t
           
Other:  
Cobalt LME 3m US$78,750/t vs US$77,250/t
Tungsten APT European US$350-354/mtu vs US$342-347/mtu

Company News
Amur Minerals* (LON:AMC) 4.0p, Mkt Cap £26m – Annual results and Kun Manie EBITDA estimates
• On updated EBITDA numbers, the Company reported open pit optimisation analyses on IKEN and KUB mineral resources integrated in the Kun Manie mining schedule.
• Prepared by RPM Global, estimates show a potential for Kun Manie to generate $3.7bn and $6.7bn in EBITDA over the life of a mine based on the Measured and Indicated category of the mineral resource and assuming Toll Smelting and own operated Low Grade Matte production facility, respectively.
• This compares to $2.7bn and $4.7bn estimated before using pre-2018 resource estimates for IKEN and KUB.
• Estimates suggest more than 92% of the combined Measured and Indicated resource tonnage to be mined equivalent to 109.4mt of ore at 0.66% Ni and 0.18% Cu diluted grades for 721.3kt and 197.4kt of nickel and copper contained.
• Assuming 6mtpa operation, that equates to in excess 8 years of mine life.
• Upon infill drilling the Inferred resource category, the Company estimates there is a potential to expand the mineable resource to 137.7mt taking the LoM to nearly 23 years.
• EBITDA estimates assumed open pit mining at MKF, VOD, IKEN and KUB combined with an underground development of parts of the MKF deposit.
• Latest RPM verified operating costs have been used with EBITDA estimates reported excluding royalty charges but including transport costs such as rail and customs clearance.
• The Toll Smelting option is based purely on nickel revenue proceeds only and accounts for no copper, cobalt, platinum or palladium by-product revenue streams; by product sales proceeds are included in the LGM production facility option.
• The Company used long term nickel price forecast of $16,530/t for its estimates ($6,612/t Cu, $84,854/t Co, $900/oz Pt and $1,000/oz Pd).
• On 2017 results, the Company released annual accounts yesterday and provided an overview of operations carried during the year including:
• A completion of c.26,500m drilling programme that delivered a 50% expansion in NiEq terms in Kun Manie mineral resources.
• A successful exploration programme launched a month ahead of the planned start with two inhouse drilling rigs last year extended the mineralised strike length at IKEN and KUB by 1,400m to 3,650m connecting two deposits into a single mineralised zone (ISK).
• The combined mineral resource at IKEN and KUB expanded nearly 150% both in tonnage and contained metal terms to 89.6mt at 0.99% NiEq for 884kt NiEq surpassing the MKF mineral inventory.
• Updated JORC compliant mineral resource released in March this year included 155.3mt at 1.02% NiEq for 1,577kt NiEq contained with more than 3/4s of that included in the Measured and Indicated category; this marks a signifant increase over a Feb/17 Kun Manie mineral resource statement for 101.3mt at 1.04% NiEq for 1,049kt NiEq contained.
• In January last year, Gipronickel reviewed historical metallurgical results amending treatment flowsheet to a two-stage grinding process as well as carried tests on a bulk sample from MKF showing that a step up in recoveries of 11pp and 6pp for nickel and copper, respectively, versus previous results is achievable.
• The Company and Gipronickel are currently studying an opportunity to generate separate nickel and copper streams allowing to capture better economic terms for the Kun Manie concentrate.
• In July last year, RPM global mining consultants completed an independent verification of operating costs for a combined open pit and underground development of Kun Manie showing an estimated operating cost (C1) of $1.78/lb Ni delivered to a rail siding.
• This would place Kun Manie in the lowest quartile compared to other nickel projects.
• On financial performance, the Company incurred a $1.2m loss in FY17 (FY16: -5.8m) with admin expenses coming down to $1.9m (FY16: $$3.8m) and a gain on issued warrants of $0.8m (FY16:-$2.0m).
• Free cash flow totalled -$6.4m for the period (FY16: -$6.7m) with -$2.7m in cash outflow from operations (Fy16: -$2.2m) and -$3.7m in capitalised exploration and other costs.
• The Company had $2.6m in the bank (FY16: $8.2m) and no debt as YE17.
• Post reporting period, the Company signed a $10m convertible loan facility with Cuart Investments PCC and YA II PN Ltd with $4m drawn on 13 February. As of today the Company has not met conditions for the release of the second tranche for $2m and is currently in discussions with counterparties to amend the terms to allow further drawdown on the facility. Proceeds of the loan are directed towards resource/reserves update, update of the economic model, metallurgical test work and G&A. The Company can repay the loan and interest with new shares. As part of the going concern section the Company adds that “based on the ongoing discussions with various interested parties, the Directors are confident that alternative funding could be secured should the revised terms of the convertible loan not be agreed…the Dircetors continue to adopt the going concern basis for the preparation of these financial statements”.
Conclusion: An upgraded life of mine EBITDA estimate reflects expanded mineral resources at IKEN and KUB. We understand there is a further room to improve on economics of the project considering a combined open pit and underground mining methods for IKEN and KUB with the current mine plan running at 12.8 times waste stripping ratio. Previously, optimisation of the MKF mining schedule allowed to reduce mined tonnages form 689mt to 99mt leading to a respective drop in the waste stripping ratio for open pit operations from 12.8 to 3.4.
The FY17 field programme has exceeded Company expectations more than doubling the mineral resource at KUB and IKEN both in tonnage and metal contained terms extending strike of the mineralisation by 1,400m to impressive 3,650m. ISK, an area comprising IKEN and KUB, is now the largest deposit in the Kun Manie trend hosting 89.6mt at 0.99% NiEq and accounting for more than half of the project mineral inventory. FY18 drilling programme (20,000m) is focused on infill drilling of high grade block at the IKEN deposit (15-20mt at 0.9-1.0% Ni currently part of the Inferred resource), further verification drilling at other deposits providing data for a potential mineral reserves update and a collection of a bulk metallurgical sample at ISK. The Company had $2.6 in cash as of YE17 with additional $4m drawn on the convertible loan facility in February. The team is in the process of renegotiating terms of the facility to allow for a drawdown on the remaining $6m.
*SP Angel act as Nomad and Broker to Amur Minerals

Arc Minerals* (LON:ARCM) 4.5p, Mkt Cap £25.3m – Arc reports rise in Akyanga gold resource to 3moz at 2.26g/t
(Arc holds around 73% of the Akayanga project)
• Arc Minerals today report a massive increase in their gold resource at Akyanga (Missi) in the DRC.
• The resource goes to an eye catching 3moz grading 2.16g/t on the assumption of a gold price of $1,500/oz used to reflect a longer-term view of the market.
• The company will now proceed with a scoping study for a 150-200,000oz pa mine.
• A previous scoping study showed 1.2moz of contained gold using a less aggressive $1,300/oz gold price.
• We look forward to further detail of the high-grade portion of the Akyanga project which is critical from a future value and cash flow perspective.
• Early production from the higher grade area could help to reduce initial capital costs and enable a lower risk approach to ramping up production at the project.
• Banro operate the Namoya mine in the region producing at a rate of around 180,000ozpa. We would expect Akyanga should produce a slightly better head grade than the Namoya gold mine which runs at around 1.8g/t.
Conclusion: while the new gold resource at Akyanga in the DRC is an eye catching number, real value should come from the recently consolidated interests in Zamsort in Zambia where ARC.
ARC are currently drilling the Zamsort asset and we expect to see some very interesting numbers from this drill program.
As a wild guess we would estimate the Zamsort asset to potentially be worth many times the current market capitalisation of the company and for the drill program to start to demonstrate this relatively quickly.
*SP Angel acts as nomad and broker to Arc Minerals

Bushveld Minerals* (LON:BMN) 18.7p, mkt cap £201m – Vanadium production expansion on time and within budget
BUY - Target 25p
(Bushveld Minerals controls and holds an effective 59.1% of Vametco)
• Bushveld Minerals report completion of Phase two of their organic vanadium expansion project on time and within budget .
• Phase Two raised production to 3,750,tV from 3,035mtV for just $2.5m with Phase Three targeting a production rate of around 5,000mtV.
• These targets are met through the expert work and diligence of the first-class team at Vametco who deserve much credit for their industrious ingenuity and practical application.
• Bushveld is set to see a significant uplift in profits this year as a direct result of the rise in production, lowering of unit production costs as well as persistently higher ferro-vanadium price levels
• The US dollar SA rand exchange rate has averaged 12.29 year to date but has depreciated recently 13.86 and could record 13.08 for the year if the current spot price is maintained
• Vanadium prices remain persistently high at around $73.5/kg of ferro-vanadium fob Europe and around $72/kg fob China (Metal Bulletin).
• We currently estimate that vanadium prices should average US$49.91/kg for the year though we may need to revise this estimate higher. This estimate gives an attributable free cash flow of some US$52m based on the 13.08 rand rate.
Conclusion: If we assume the current spot vanadium price for the year and the potential US dollar rand rate based on the average to date and the spot price through the rest of the year we could see attributable cash flow of US$168m for Bushveld for the year.
Spot price vanadium assumption for 2018
.
*SP Angel forecasts: Figures based on 100% of Vametco plant. Bushveld now hold an effective 59.1% of the Vametco plant
*An SP Angel mining analyst and nomad have visited the Vametco vanadium mine and processing facilities in South Africa.

Cradle Arc (LON:CRA) 6.5p, mkt cap £13m –2017 results and Mowana copper mine update
• Cradle Arc has announced a loss for 2017 of £11.4m (0.43p/share). The pre-tax loss of £13.8m is attributed largely to a £12.5m impairment charge against the value of exploration assets in Zambia and to administrative costs of £2.7m and finance costs of £1.6m, partially offset by a £2.5m gain on foreign exchange.
• In November, 2017, the company completed the acquisition of the Mowana  copper mine in Botswana and “restarted production on a campaign basis in March 2017.”
• The company reports a JORC (2012) proven and probable ore reserve of approximately 31.8mt at an average grade of 1.17% copper based on a copper price of US$6,063/t (US$2.75/lb) and an additional, inferred, resource of 3.7mt at an average grade of 0.93% copper.
• By the end of the year , mining rates are expected to reach 3mtpa and recovery rates are expected to build up from the 56% achieved during the current quarter to “reach an average of 85 per cent as more sulphide dominant areas are accessed”.
• In the longer term, “Once we have achieved our base case nameplate production, and subject to appropriate financing being secured, we can then seek to increase processing to 2.6 million tonnes per annum, producing over 21,000 tonnes Cu per annum, with an expected average LOM cash cost (C1) of US$4,099 per tonne Cu (US$1.86 per pound) and all-in sustaining costs of US$5,038 per tonne Cu (US$2.29 per pound) via planned Dense Media Separation (DMS) upgrades, which constitutes a low CAPEX expansion option through which we can process low oxide ores.”
• As part of Cradle Arc’s vision “to become a diversified metals producer in Africa”, the company has also secured an option with Singa Holdings Zambia “to establish a joint venture (JV) and potentially acquire the Company's Matala and Dunrobin gold assets in Zambia, for consideration of US$2.5 million in cash and a US$2.5 million NPV royalty if the mine is taken into production.”
• Earlier this week, the company announced that it expects to achieve cash break-even at the mine during this month and that “cash generation is expected to improve throughout H2 2018.” as production levels build up to estimated full year production of approximately 8,150 tonnes of copper.
Conclusion: Cradle Arc has brought the Mowana mine in Botswana back into production quickly and is currently building up production, improving recovery rates and is now starting to look for other opportunities in Africa, with an initial focus on Zambia.

Lonmin PLC (LON:LMI) 40 pence, Mkt Cap £113m – Update on Sibanye
• Lonmin reports that the Uk’s Competition and Markets Authority has, unconditionally, cleared the proposed acquisition of Lonmin by South Africa’s Sibanye-Stillwater.
• The transaction remains subject to the approval of the South African competition authorities as well as  the approval of the shareholders of both companies and the British courts.
• The combination of Sibanye-Stillwater with Lonmin will accelerate the consolidation of the platinum industry where Sibanye Stillwater has been building its position following the acquisition of the Aquarius Platinum operations  and Anglo American Platinum’s Rustenburg operations in S Africa as well as the Stillwater acquisition in the US.
Conclusion: Clearance by the CMA removes one potential obstacle in the proposed combination of Lonmin’s platinum business with Sibanye-Stillwater. There remain a number of other milestones to pass and the exact timetable is not yet clear.

Australian Strategic Materials signs US$600 million LoI

Rowena Smith, CEO and managing director of Australian Strategic Materials Ltd (ASX:ASM, OTC:ASMMF), joins Jonathan Jackson in the Proactive studio to discuss the company’ s Dubbo Project, in Central West New South Wales. This project aims to extract and process critical minerals and rare earth...

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