Market Briefing - Ortac Resources, Galileo Resources, Australian Mines and others


Clean energy tax credit axe undermines US’s fight against climate change
• America’s changing stance towards combating climate change looks to increase pollution and weaken the country’s leadership in energy innovation, as the proposed Republican Tax Plan cuts electric vehicle and clean energy tax credits.
• The draft bill released by the U.S. House Ways and Means Committee would eliminate the electric vehicle tax credit ($7,500 per EV), reduce the Production Tax Credit for wind power by more than a third, and axe the permanent 10 percent Investment Tax Credit for solar and geothermal power.
• Removal of these incentives are expected to weaken the growth of the clean technology revolution in the US, hampering efforts to reduce the global impact on harmful pollution, negatively impact one of the fastest growing employment sectors in the country and reduce demand for crucial battery raw materials.
• The impact of the bill on the electric economy growth is unclear given that the US is a single country in the global EV market, however sales of electric vehicles in Hong Kong plummeted to zero when subsidies were cut by 20 percent. The move is likely to heighten the importance of producing economically competitive vehicles, with cost reducing batteries looking to lessen the amount of cobalt and replacing it with cheaper nickel.

Batteries - Enevate promises 5 minute charge time for lithium ion battery
• Uses silicon dominant lithium ion technology to make 5 minute charging possible
• Says electric car with one of its batteries can add 240 miles of range in just 5 minutes

Iron ore prices continue to rise as production cuts may not be as severe as expected
• China’s winter war on smog is lifting steel prices as the nation’s top steel producing province surpasses its capacity reduction targets, slashing 25.55 million tonnes. Steel’s gains helped push up the prices of raw materials, with iron ore futures surging more than 6 percent to their highest levels in two weeks.
• In an effort to curb pollution during winter, encompassing the heating months of November to March, Hebei province looks to limit steel and iron ore output by 50 percent in major producing cities including Tangshan, Handan, and Shijiazhuang. The air quality measures are helping to tighten supply of iron ore, while bullish market demand outlook in 2018 is expected to drive prices to new highs.
• China’s biggest steel producing city Tangshan has ordered various levels of capacity cuts though there is speculation that output may not be curtailed as much as expected
• There is little financial incentive to shut capacity with profit margins >Rmb1,000/t

Saudi purge orders detention of 11 princes, four ministers and many more
• The purge led by an anti-corruption body in the Kingdom of Saudi Arabia is seen as consolidating the power of the new Crown Prince Mohammed bin Salman.
• In separate news Prince Mansour bin Muqrin, the son of a former crown prince was killed in a Helicopter crash close to the Yemen border.
• There is no speculation of foul play.

Dow Jones Industrials  +0.10% at 23,539
Nikkei 225   +0.04% at 22,548
HK Hang Seng   +0.02% at 28,610
Shanghai Composite    +0.49% at 3,388
FTSE 350 Mining   +1.39% at 18,059
AIM Basic Resources   +0.12% at 2,569

US – Employment figures came in strong on Friday on the back of a rebound in hiring post hurricane-affected months.
• Strong upward revisions to previous months suggested adverse effects of weather on the labour market were less severe.
• In particular, categories most impacted by storms including leisure and hospitality recorded complete recoveries.
• Unemployment rate continued to grind lower; although, participation rate has also came down slightly in October (62.7% v 63.1% in September).
• Continuing tightening in the labour market provides confidence to the Fed to hike rates in December with markets putting chances of a rate increase at 92%.
• US bond yields were little changed on the back of the news swingin a couple of basis points mid-day on Friday while gold settled around $10/oz lower as expectations for a rate hike in December remained on the cards.
• NFPs: 261k v 18k (revised from -33k) in September and 313k forecast.
• Unemployment Rate (%): 4.1 v 4.2 in September and 4.2 forecast.
• Earnings (%yoy): 2.4 v 2.8 (revised from 2.9) in September and 2.7 forecast.

China – The PBOC will target the policy of financial deleveraging as the central bank governor reiterated his concerns over the nation’s escalating debt levels.
• Zhou Xiaochuan who nears retirement and may be replaced as early as next month published an article over the weekend warning of “hidden, complex, sudden, contagious and hazardous” financial risks in the economy.

Japan – Abe general election win lifts business confidence.
• “The level of positive sentiment strengthened to the join-highest since May, on a par with June,” the latest Markit Servcies PMI report showed.
• Strong inflow of new business orders saw composite production index climbing to the joint-highest level in almost four years “indicating a marked improvement in private sector business conditions”.
• Manufacturing PMI (released last week): 52.8 v 52.9 in September.
• Services PMI (released today): 53.4 v 51.0 in September.

Germany – Factory orders growth unexpectedly accelerated in September pointing to a strong finish to Q3.
• “Order activity increased further from an already high level,” the Economy Ministry said commenting on numbers.
• Manufacturing remains a “pillar” of a continuing robust economic growth amid “vigorous” export demand and an “excellent” level of orders, Bundesbank said.
• Factory Orders (%yoy): 9.5 v 8.3 in August and 7.1 forecast.

UK – Car registrations fell 12.2%yoy in October amid “declining business and consumer confidence”, the Society of Motor Manufacturers and Traders (SMMT) report showed.
• Declines reported across all consumer groups including private buyers (-10.1%yoy) and business demand (-26.8%yoy).

Italy – Economic data points to a bifurcation of growth dynamics in manufacturing and services industries.
• The latest services PMI showed growth in the sector eased to a one year low on the back of weak new business orders which climbed at the slowest pace since last October.
• On the other hand, manufacturing PMI report has previously showed “a strong upturn in external demand for capital goods”, Markit wrote.
• “Growth in the services economy – which is naturally pivoted to domestic demand developments – is lagging that of industry.”
• Manufacturing PMI (released last Thursday): 57.8 v 56.3 in September and 56.5 forecast.
• Services PMI (released today): 52.1 v 53.2 in September and 52.9 forecast.

Spain – Carles Puigdemont has been released on bail as the Belgian court is reviewing whether to execute the European arrest warrant issued by Spain over the next 15 days.
• Puigdemont is facing charges of misuse of public funds, disobedience and breach of trust relating to the secessionist.
• Last Friday, the Spanish government has issued European arrest warrants against Puigdemont, Antoni Comin, Clara Ponsati, Meritxell Serret and Lluis Puig for trying to “illegally change the organisation of the state through a secessionist process that ignores the constitution”.
• Latest PMI showed business outlook has been slowing down reflecting uncertainty around Catalonia.
• “Events in Catalonia acted to dampen growth, with the impact on service providers greater than was seen for manufacturers in the sister PMI survey last week…there were reports of clients delaying spending decision amid uncertainty, while business sentiment dropped to the lowest in over a year,” Markit wrote.
• Manufacturing PMI (released last Thursday): 55.8 v 54.3 in September and 54.8 forecast.
• Services PMI (released today): 54.6 v 56.7 in September and 55.6 forecast.

US$1.1608/eur vs 1.1644/eur yesterday.           Yen 114.29/$ vs 114.09/$.         SAr 14.225/$ vs 14.083/$.            $1.308/gbp vs $1.304/gbp
          0.765/aud vs 0.768/aud.            CNY 6.635/$ vs 6.629/$.

Commodity News
Precious metals:
Gold US$1,269/oz vs US$1,276/oz last week
• Strong US data helped boost the dollar index in range with a high of more than three-months, as the labour market sustained acceleration and the services sector grew to its strongest rate since August 2005. Despite falling 16% short of expectations, US non-farm employment grew 261,000 in October, the largest increase since July 2016, while non-manufacturing purchasing managers’ index boosted services sentiment to climb to 60.1 points.
• Gold dropped further as market confidence grew in a US Fed interest rate rise between 1.25% and 1.5% in December, as 96.7% market participants favour the rise (CME Group’s FedWatch).
• The metal may find support as President Donald Trump starts his 12-day Asian tour. The trip looks to present a united front with Japan, as a military deal with the ally aims to “qualitatively and quantitatively” enhance its defense capabilities with American military equipment given the “very tough” North Korea situation.
   Gold ETFs 69.2moz vs US$69.2moz last week
Platinum US$922/oz vs US$922/oz last week
Palladium US$1,002/oz vs US$998/oz last week
Silver US$16.88/oz vs US$17.10/oz last week
Base metals:   
Copper US$ 6,951/t vs US$6,945/t last week
• Hedge funds and money managers reduced net long positions in COMEX copper contracts despite positive electric vehicle sentiment helping the metal climb 6.7 percent this quarter to record its sixth consecutive growth quarter.
Aluminium US$ 2,177/t vs US$2,177/t last week
Nickel US$ 12,890/t vs US$12,690/t last week
Zinc US$ 3,237/t vs US$3,232/t last week - New Century Resources (NCZ AU) raises A$52.9m to bring massive zinc mine back into production
• During operation was one of biggest zinc mines in the world, producing and processing 475,000 tonnes of zinc concentrate
• The mine the world’s third largest zinc mine and was closed last year due to its low grade.
• The inferred mineral resource in the silver king deposit which lies 1.5km from the original century pit contains 2.7mt grading 6.9% zinc, 12.5% lead and 120g/t silver.
• The bulk of the resource appears to be contained in the tailings.
Lead US$ 2,482/t vs US$2,456/t last week
Tin US$ 19,490/t vs US$19,570/t last week
Oil US$62.5/bbl vs US$60.9/bbl last week
Natural Gas US$3.059/mmbtu vs US$2.946/mmbtu last week
Uranium US$20.30/lb vs US$20.30/lb last week
Iron ore 62% Fe spot (cfr Tianjin) US$59.7/t vs US$59.6/t
Chinese steel rebar 25mm US$630.9/t vs US$627.1/t
• China’s winter war on smog lifts steel prices as the nation’s top steel producing province surpasses its capacity reduction targets, slashing 25.55 million tonnes. Steel’s gains helped push up the prices of raw materials, with iron ore futures surging more than 6 percent to their highest levels in two weeks.
• In an effort to curb pollution during winter, encompassing the heating months of November to March, Hebei province looks to limit steel and iron ore output by 50 percent in major producing cities including Tangshan, Handan, and Shijiazhuang. The air quality measures are helping to tighten supply of iron ore, while bullish market demand outlook in 2018 is expected to drive prices to new highs.
Thermal coal (1st year forward cif ARA) US$85.6/t vs US$86.3/t
Premium hard coking coal Aus fob US$179.7/t vs US$177.3/t
• Unexpected physical demand for coking coal and iron ore has initiated strong buying of futures as investors forecast the gap between physical and future prices to close on higher consumption.

Tungsten APT European US$275-285/mtu vs US$275-285/mtu last week

Company News
Australian mines (ASX:AUZ) – raises A$20m to accelerate cobalt, nickel projects
• The, Perth-based, company is currently undertaking a Bankable Feasibility Study ‘BFS’ on its Sconi Cobalt-Nickel-Scandium Project in Queensland.
• Management are continuing trial mining and and are building a demonstration-scale process plant to produce commercial-grade samples of cobalt sulphate, nickel sulphate and scandium oxide.
• Samples will be used to progress negotiations with potential off-take partners and financiers.
• Further funding will be required to build a commercial scale mine and plant if sufficient offtake partners are secured.
• This placement ensures Australian Mines is fully-funded to complete the BFS, increase its trial mining activities, finalise construction the demonstration plant and produce commercial-grade samples.

Condor Gold (LON:CNR) 41p, Mkt Cap £25.2m – Results from final six holes at Mestiza
• Condor Gold has announced results from the final six holes of its recently completed 43 hole drilling programme testing the Mestiza Vein Set on the La India property in Nicaragua.
• The objective of drilling four veins comprising the Mestiza Vein Set (the Tatiana, Buenos Aires, Jicaro and Mestiza veins) “was to convert the upper part of a Historic Soviet mineral resource (2,392,000 tonnes at 10.2 grams per tonne gold for 785,694 ounces of gold ) to Canadian NI 43-101 standard however this has now also developed into allowing Condor to better understand the extent of the mineralisation and further resource potential at Mestiza, which is open along strike beyond the Soviet resource.”
• The current drilling, which extends to a maximum of 200m below surface, has demonstrated “excellent continuity of the structures, high grade ore from surface and open pit potential.”
• Among the results highlighted today are
o A 0.5m intersection at an average grade of 17.4g/t gold and 3g/t silver from a depth of 77.30m in hole LIDC378 on the Buenos Aires Vein and
o A 1.4m wide intersection averaging 18.5g/t gold and 22.1 g/t silver from a depth of 19.6m in hole LIDC383 on the Tatiana Vein.
o Analysis of the structural geology indicates that “correlates high grade gold mineralisation with bends in the vein … [where] … bends created more open space, allowing more hydrothermal fluid circulation, resulting in higher grade.”
o The company also comments that “The deepest drill holes, about 200m below surface, intersected lower grades and/or narrower veins. [which] … may reflect pinching of the vein or the base of the oxide zone and supergene enrichment.” We also wonder whether, with the higher grade portions of the veins said to be pitching steeply towards the west, drilling may have missed the higher grade portions at depth.
o In addition to the drilling on the Mestiza veins, known to extend over a strike length of “at least 3.5km”,recent mapping has identified a parallel vein, the Tortuga Vein which will no doubt be a candidate for future drilling.
Conclusion: The La India project already hosts a 1.3m oz gold resource on the main La India Vein Set. Drilling at the Mestiza veins and a recently identified parallel vein at Tortuga point to the scope for substantial increases to the overall resource as exploration develops.

Galileo Resources (LON:GLR) 1.6 pence, Mkt Cap £4m – Star Zinc Project
• The company has outlined the characteristics of the Star Zinc Project in Zambia where it recently acquired a 51% interest and may earn up to 85% through the completion of a preliminary economic assessment.
• The project hosts “An independently verified non-JORC compliant hard rock resource” of 275,166 tonnes at an average grade of 20.2% zinc, using a 14% zinc cut-off grade. The company comments that reducing the cut-off to 12% zinc increases the tonnage by 18% to 325,941 tonnes at an average grade of 19.1% zinc.
• The project operated intermittently during the 1950s and 1960s and the “mineralisation is interpreted to form two shallowly dipping lenses east and west of the open pit, mineralisation of which is around 40m deep, based on the independent model used for the resource calculation.”
• Initial works, including soil sampling “on a 400m x 200m grid pattern covering the accessible and exploitable areas of the licence” and updating environmental work is expected to take around six weeks.
• Galileo has committed to spend US$250,00 over an 18 months period to complete the preliminary studies which are expected to include drilling in order to upgrade the current resource to the JORC (2012) Code and to test the potential for resource expansion.
• Expansion potential has been identified both to the east and west and in “new ground to the south”.
Conclusion: At this stage, the Star Zinc Project appears to be relatively small but high grade zinc deposit. Further work is to be undertaken to establish the potential for resource expansion and to investigate additional geological environments for mineralisation in sub vertical structures identified within the old pit. We await news of the exploration results in due course.

Ortac Resources* (LON:OTC) 2.8p, £6.4m Mkt Cap – Acquisition of CASA Mining
• Ortac Resources has announced its intention to acquire CASA Mining.
• Management are converting their US$2m loan note and simultaneously acquire a further 33.82% of CASA Mining to take their stake in CASA to  70.09%.
• Ortac will then offer to acquire remaining CASA shares from its minority shareholders.
• Ortac are offering CASA shareholders a total of 100m new Ortac shares with shares being locked in for six months following the admission of the new shares issued to them to ensure an orderly market.
• The new shares will represent around 30.43% of the enlarged group.
• The deal marks a ramp up in activity at Ortac with a new determination to drive the business forward.
• CASA Mining holds 71.25% of the Misisi Gold project in South Kivu in the Eastern part of the DRC.  CASA’s licenses cover some 60km of the Misisi Corridor which include the Akyanga gold resource as well as the Lubitchako, Tulongwe, Kilombwe and Mutshobwe prospects.
• US$30m has been spent drilling and exploring these Misisi targets, much of this was formerly funded by expert PE mining investor, Denham Capital before the fund consolidated its funding and attention onto the super-high grade open pit Alphamin tin project which has a resource of 3.6mt grading 4.52% tin.  Denham Capital holds 44% of Alphamin (AFM CN)
• CASA recently reported a series of high-grade gold intersections from the Akyanga project including:
o 24.75m grading 8.04 g/y gold from 200.75m.
o 7.15m at 1.1g/t from a depth of 100.15m
o 5.8m grading 3.49g/t from a depth of 118.4m.
o 8m grading 1.14 g/t gold from a depth of 129m
o The latest results join with other higher-grade gold intersections to indicate better potential at Akyanga where the calculated gold resource is currently at 5.5mt grading 1.5g/t gold.
o The apparent nature of what looks like coarse grained gold in the results indicates to us that process costs could be relatively low with much of the gold easily recovered by gravity.
Conclusion:  Ortac is now pushing ahead in the consolidation of CASA Mining.  The new strategy to drive the business forward should lead to new value generation from Ortac’s current asset base.
*SP Angel acts as nomad and broker to Ortac Resources

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