Today’s Market View – Condor Gold; Kavango Resources; Oriole Resources; Vast Resources and more…

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SP Angel . Morning View . Monday 23 08 21


Copper prices rebound following as supply disruptions deplete China’s inventories


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MiFID II exempt information – see disclaimer below


Altus Strategies* (AIM:ALS) – First closing of the Caserones deal with finalisation targeted for 1 September


Botswana Diamonds (AIM:BOD) – Acquiring an interest in the Ghaghoo diamond mine, Botswana


Condor Gold* (AIM:CNR) – Appointment of CFO


Gem Diamonds (LON:GEMD) – Sale of the Ghaghoo diamond mine


Kavango Resources (LON:KAV) – Drilling progress at KSZ & awarding of new licenses


KEFI Gold and Copper* (LON:KEFI) – Funding package outlined for Tulu Kapi


Oriole Resources (LON:ORR) – Initial mineral resource estimate for Fare South prospect at Senala, Senegal


Vast Resources (AIM:VAST) – Acquiring 90% interest in the Ghaghoo diamond mine, Botswana




Dow Jones Industrials -+0.65% at 35,120


Nikkei 225 +1.78% at 27,494


HK Hang Seng +1.02% at 25,104


Shanghai Composite +1.42% at 3,476




Concerns mount over Chilean copper supply as droughts continue to impede production


Water scarcity in Chile is impacting copper mining facilities, with BHP forced to halt groundwater pumping for three months at its Cerro Colorado mine.


Antofagasta has advised investors it will struggle to keep up with production targets owing to water supply constraints.


It is important to note that Cerro Colorado is coming to the end of its mine life and Antofagasta has not cut production targets significantly.


The Chilean droughts have encouraged efforts to utilise seawater, which miners hope to account for 50% of consumption by 2031.


Social unrest in Chile has been rising as a result of private corporations’ exploitation of water supplies.


Antofagasta expect ‘low levels of precipitation will continue until at least the Southern Hemisphere winter next year’, with an additional 50,000t of copper production at risk whilst a desalination plant is in construction.




Planned Panama Canal closure to increase strain on shipping logistics


Maintenance is set to get underway at the Panama Canal’s Miraflores Locks between 29th Aug. and Sept. 10th.


Sources in the industry have stated that this could extend transit delays for ‘days, if not weeks after completion’.


Previous maintenance periods have seen delays for non-booked ships by up to 14 days.


Current wait times of around 4 days are expected to extend to 10-11 days.




Economics


UK – Economic growth slowed again in August amid labour and materials shortages


Britain’s post-lockdown economic bounce-back slowed in August as companies reported unprecedented shortages of staff and materials.


The IHS flash composite purchasing managers’ output index came in at 55.3 from 59.2 in July.


Services 55.5 vs 5.9 in July.


Manufacturing 60.1 vs 60.4 in August.




Europe – Service sector exceeds manufacturing in Euro-area for the first time since crisis


Growth in the euro area’s service sector is exceeding that in manufacturing for the first time since the pandemic took hold last year.


Surveys of purchasing managers by IHS market showed manufacturers struggled to keep up with demand in August.


The IHS flash composite purchasing managers’ output index came in at 59.5 in August vs the 15-year high of 60.2 in July.


Services 59.7 in August vs 59.8 in July.


Manufacturing 59.2 vs 61.1 in July.


Both figures signal a strong recovery in the region, although covid infections in the area are on the rise again and supply chain issues are pushing up costs for companies and consumers.




Australia – Record number of jabs administered last week amid weekend of social unrest over lockdown


Australia gave a record of 1.8m vaccines in the past week, bringing the country’s total doses to 17.15m.


The country is currently in the midst of an outbreak, with 818 cases recording in the past 24 hours in NSW.


Social media and news outlets showed videos of the public clashing with police over the decision to implement strict lockdowns for Australians over what protestors thought was a menial number of cases.




India – Plans to raise $81bn from infrastructure asset sales


India plans to raise 6 trillion rupees ($81bn) from selling state owned infrastructure assets over the next four years to help bolster the government’s finances and reduce its budget deficit.


The plan will include the sale of road and railway assets, airports, power transmission lines and gas pipelines.




US – Dollar eases on Delta variant concerns and prospect of an extension of Fed stimulus


The dollar index moved eased from 9-month highs this morning, down 0.2%.


Dallas Fed President Robert Kaplan said on Friday that the increase in cases of the more contagious Delta variant could reduce support for an early tapering.


Covid restrictions have caused the Fed to take part in the Jackson Hole meeting at the end of this week virtually.


Gold has risen on the weak dollar and hopes of continued large-scale asset purchasing beyond September, with spot gold up 0.4% to $1,787.48.


Analysts have described the Delta variant as ‘throwing a sort of spanner into the works’ regarding the likelihood of an early tapering announcement.




Currencies


US$1.1711/eur vs 1.1683/eur last week. Yen 109.93/$ vs 109.68/$. SAr 15.287/$ vs 15.297/$. $1.364/gbp vs $1.362/gbp. 0.715/aud vs 0.712/aud. CNY 6.495/$ vs 6.500/$.




Commodity News


Copper rises as China’s Delta fears ease and investors seek depressed bargains


Copper prices have risen this morning amid optimism over China’s lack of Covid-19 cases.


The Yangshan premium, a gauge for the country’s requirement for imports, has surged to the highest level since 2017, according to data from SMM.


China has reported no new locally acquired Covid cases for the first time since July, although we suggest making up your own mind on the accuracy of this data.


Recent fears of China’s economic growth being slowed by rising cases caused copper to hit a 4-month low.


Analysts have suggested that the rise may be the result of low trading volumes in Asian and US markets.


Threats of a strike at Chile’s El Teniente mine have also caused supply concerns, supporting the price rise


Copper prices rose 0.6% earlier this morning on the LME, following a 5.6% slump last week.




Precious metals:


Gold US$1,786/oz vs US$1,787/oz last week


Gold ETFs 100.1moz vs US$100.2moz last week


Platinum (AIM:ZERO) US$1,012/oz vs US$987/oz last week


Palladium US$2,308/oz vs US$2,342/oz last week


Silver US$23.22/oz vs US$23.28/oz last week




Base metals:


Copper US$ 9,072/t vs US$8,984/t last week


Aluminium US$ 2,576/t vs US$2,558/t last week


Nickel US$ 18,775/t vs US$18,610/t last week


Zinc US$ 2,921/t vs US$2,962/t last week


Lead US$ 2,281/t vs US$2,257/t last week


Tin US$ 31,705/t vs US$32,345/t last week




Energy:


Oil US$66.5/bbl vs US$66.8/bbl last week


The number of oil and gas rigs in the US rose by 3 last week, according to Baker Hughes, following an increase of 9 the previous week


The total rig count is now 503, up 249 from the same time last year, the highest rig count since April 2020, but still down sharply from the 790 active rigs in March 2020


The EIA’s estimate for oil production in the US rose by 100,000bopd for the third week in a row to an average of 11.4MMbopd


US crude inventories fell 3.2MMbbls last week to 435.5MMbbls, their lowest since January 2020, according to US Energy Department figures


Gasoline stocks, however, rose modestly, and gasoline product supplied to the market, a measure of demand, was 9.5MMbopd, just 1% below 2019 levels


Fuel demand in the world’s top consumer has steadily increased throughout the year with the four-week average of overall US product supplied was 20.8MMbopd, in line with pre-coronavirus levels from 2019


That has come just as the OPEC+ agreed to raise output by 400,000bopd every month into next year, returning some of the supply the group has held back since early 2020


The IEA estimates that demand for oil is expected to increase at a slower rate over the rest of 2021 because of surging cases of the Delta variant


Also bearish for the markets in the longer term, a US offshore regulator yesterday said efforts to resume a federal oil and gas leasing program were underway and would soon bear results following a court decision ending a suspension


Natural Gas US$3.863/mmbtu vs US$3.875/mmbtu last week




Bulk:


Iron ore 62% Fe spot (cfr Tianjin) US$140.5/t vs US$131.7/t


Chinese steel rebar 25mm US$802.8/t vs US$796.6/t


Thermal coal (1st year forward cif ARA) US$101.3/t vs US$105.0/t


Coking coal swap Australia FOB US$208.0/t vs US$203.0/t


China Ilmenite Concentrate TiO2 US$364.15/t vs US$360.8/t




Other:


Cobalt LME 3m US$51,500/t vs US$51,500/t


NdPr Rare Earth Oxide (China) US$93,770/t vs US$94,013/t


Lithium carbonate 99% (China) US$15,705/t vs US$15,387/t


China Spodumene Li2O 5%min CIF US$890/t vs US$880/t


Ferro-Manganese European Mn78% min US$1,739/t vs US$1,735/t


China Tungsten APT 88.5% FOB US$305/t vs US$305/t


China Graphite Flake -194 FOB US$520/t vs US$520/t


Europe Vanadium Pentoxide 98% 9.6/lb vs US$9.6/lb


Europe Ferro-Vanadium 80% 40.25/kg vs US$40.25/kg


Spot CO2 Emissions EUA Price US$66.9/t vs US$66.8/t




Battery News


$5.4bn climate fund backed by Gates invests in long-duration battery start-up


The TPG Rise Climate fund has joined investors such as ArcelorMittal in backing Form Energy with an undisclosed amount.


Form Energy is a start-up developing cheap battery technology that assists electricity grids in integrating renewable energy.


The fund’s executive chair is ex-US Treasury secretary Hank Paulson and marks a rise in private equity ventures into the clean energy space.


Form Energy’s technology aims to reduce reliance on lithium in batteries, using iron and air to store energy instead.


The company believes its tech will deliver electricity for 100 hours at competitive cost vs conventional power plants and a 1/10th of the cost of lithium-ion batteries.


They aim for a cost of $10/KWh by 2030.


Form hopes to reduce reliance on lithium by utilising the abundance of the iron product already used on a mass scale by the steel industry.




Tianqi Lithium and IGO Ltd produce first Australian lithium hydroxide for batteries


Australian company IGO and Chinese company Tianqi have produced Australia’s first batch of battery-ready lithium hydroxide.


The product is in high demand for battery makers as a key component of cathodes used in EVs.


IGO expect to be producing high-quality, battery grade lithium hydroxide on a commercial level by the end of this year.


IGO’s Chief Executive stated that ‘there is going to be a desire to build out our lithium hydroxide capacity’ as battery demand grows alongside rising EV sales.


IGO announced last week that it plans to acquire Australian nickel miner Western Areas.




Company News


Altus Strategies* (AIM:ALS) 68.5p, Mkt Cap GBP49.8m – First closing of the Caserones deal with finalisation targeted for 1 September


The Company announced first closing of the Caserones royalty deal acquiring ~76% of NSR for US$26.2m.


Final closing and acquisition of the agreed remaining interest is expected on 1 September 2021.


Previously announced $34.1m acquisition of an effective 0.418% NSR royalty is being funded by $29m La Mancha bridge loan and available cash balances.


The loan has been drawn down and is due 17 February 2022 by which time the Company is expecting it to be refinanced.


Following, the acquisition the Company will have ~US$8.7m in cash in the bank.


The Company also owns ~US$2.8m in publicly traded shares originated from previous deals.


*SP Angel acts as Nomad and Broker to Altus Strategies




Botswana Diamonds (AIM:BOD) 1.15p, Mkt Cap GBP8.5m – Acquiring an interest in the Ghaghoo diamond mine, Botswana


Botswana Diamonds has announced that Okwa Diamonds, “a joint venture with Vast Resources PLC (AIM:VAST) … in which Botswana Diamonds has an initial 10% carried interest” has conditionally agreed to acquire the fully permitted Ghaghoo diamond mine in central Botswana for US$4m in cash.


The mine, which has been on care & maintenance since early 2017, covers a 10.8-hectare kimberlite pipe and was developed as a small scale underground mine “that was ultimately not profitable due largely to the poor diamond market conditions at that time and operational issues”, however, “There is extensive infrastructure on-site including a diamond processing plant comprising an autogenous mill, dense media separation plant (“DMS”), x-ray recovery and sort house. BOD’s due diligence has identified that there is a small low-grade kimberlite stockpile and DMS tailings of up to approximately 80,000 m3 and which may contain up to 60% kimberlite”.


Ghaghoo currently has a SAMREC standard indicated resource of 79.4mt at an average grade of 19.51 carats per hundred tonnes (cpht) based on a lower cut size of +1.5mm and a diamond price of US$242/carat plus an additional inferred resource of 28.8mt at 17.53cpht “and an average diamond value of $239/ct”.


Under the joint-venture agreement with Vast Resources, Botswana Diamonds “will be responsible for leadership and technical advice until the mine reaches steady state production and will be appointed … as the operator of the Ghaghoo mine until such time as an agreed management team is in place. BOD will oversee the recruitment of the operational team which will be directly employed by Okwa. BOD also has diamond marketing rights equivalent to its shareholding in Okwa.”


Vast Resources “is responsible for funding Okwa with the first US$15 million of funding required for the purposes of carrying out due diligence, acquiring GDB and placing the mine back into production. BOD has a 10% free carry in consideration of the services it has provided to Okwa up to maximum total expenditure of US$15 million (including the acquisition consideration) and may not be diluted below 2.5% thereafter. BOD also can earn-in up to a further 20% interest in Okwa (thereby increasing its total interest to 30%) through funding 20% of expenditure”.


Plans for the rejuvenation of Ghaghoo include the preparation of an updated feasibility study and on producing a detailed underground mine plan as well as dewatering the workings which flooded in 2017 as a result of a “are large earthquake with an epicentre approximately 40km east of Ghaghoo in 2017 resulted in the rupture of the underground water seal leading to a large influx of water into the underground workings”.


The “Upper production levels will need to have reduced stope extraction so as to better manage the crown pillar and thereby reduce any potential further sand ingress into the underground workings. The changes to the mine plan are not expected to delay access to first ore as there are existing pre-developed crosscuts in place”.


Conclusion: Botswana Diamonds is bringing its technical and operational expertise to the Okwa Diamonds joint-venture with Vast Resources as Okwa works to reopen the Ghaghoo mine in Botswana.




Condor Gold* (AIM:CNR) 43p, Mkt Cap GBP58m – Appointment of CFO


Condor Gold has announced the appointment of a former Newmont Mining executive, John Seaberg, as Chief Financial Officer with effect from 1st September.


Mr. Seaberg was, until recently, Senior Vice-President of Calibre Mining which operates mines in Nicaragua, providing valuable in-country expertise as Condor Gold progresses the development of the permitted and wholly-owned La India project to its target of 100,000oz pa of gold production.


Welcoming the appointment, Chairman and CEO, Mark Child, commented on Mr. Seaberg’s “extensive experience as a CFO while also being actively involved in corporate development and investors relations”.


Mr Child also thanked the outgoing CFO, Jeffrey Karoly “who has served admirably as Condor’s part time CFO for 4 years”.


*SP Angel act as a broker to Condor Gold




Gem Diamonds (LON:GEMD) 62.2p, Mkt Cap GBP87m – Sale of the Ghaghoo diamond mine


Gem Diamonds has announced a binding agreement to sell its Gem Diamonds Botswana subsidiary, the owner of the Ghaghoo diamond mine, to Okwa Diamonds for a total of US$4m payable in two equal installments of US$2m each.


Okwa Diamonds is “an SPV company registered in Botswana, … owned by Vast Resources PLC… and by Botswana Diamonds …[and] … both parties … guarantee the obligations of Okwa Diamonds”.


The mine has been on care & maintenance since March 2017. The first installment is payable “5 (five) days after the date on which the last Suspensive Condition … [ which include relevant regulatory and competition authority approvals within Botswana] … has been fulfilled or waived”.


CEO, Clifford Elphick, confirmed that the sale of Ghaghoo which has been on the agenda for some time, “is in line with our strategic objective to dispose of non-core assets”.


He also confirmed that “Gem Diamonds remains focused on optimising production and efficiency at the Letseng mine in Lesotho”.




Kavango Resources (LON:KAV) 3.9p, Mkt cap GBP18m – Drilling progress at KSZ & awarding of new licenses


Kavango reports that the second hole in the planned 6-hole programme is currently being undertaken to investigate the Karoo gabbros in the Hukuntsi section of the KSZ.


As of Sunday evening, Hole TA2DD002 was at 137m, with the hole designed to test deeper Karoo gabbro “keel”, believed to be connected to the same gabbro encountered in Hole TA2DD001, 1km to the west.


Kavango has also been awarded two new licenses in the KSZ covering a combined 1,258km2 – both of which are three year licenses with the option of two 2-year renewal periods.


Kavango have a GBP52,000 spending commitment in each PL over first 3 years, and now hold 14 PLs in the KSZ, covering 8,751.7km2.




KEFI Gold and Copper* (LON:KEFI) 1.9p, Mkt Cap GBP37.7m – Funding package outlined for Tulu Kapi


Kefi reports that it has secured the full funding package of US$356m estimated to be required for the development of the Company’s Tulu Kapi Gold Project.


This package is designed to fund all infrastructure, the start-up of the open pit mine and the initial development of the underground mine.


The signing of detailed binding documentation and the launch of full Project development is expected to coincide with the end of the Ethiopian wet season in October 2021.


All equity and debt funding would be committed and binding upon signing, and subject only to normal conditions for such a transaction.


Upon completion, Kefi will be fully funded to develop the Tulu Kapi Gold Project for start of production in mid-2023, while having reserves set aside for cost-overruns.


Kefi will retain ownership of C.70% of the project, and it is expected that the non-Kefi shareholding will comprise Government and non-Government local organisations.


Advanced conditional approvals, which have already been received, account for c.63% of the US$356m aggregated funding sources and the remaining c.37% expected to come from existing identified parties working alongside those who have already resolved their conditional approval. All parties have agreed to enter into binding documentation at the same time.


The AISC of Tulu Kapi Open Pit project is estimated at US$870/oz which is similar to previous estimates, while the NPV of KEFI’s beneficial ownership in the two main projects is estimated at GBP274m (US$376m) or 12.6 pence per KEFI share in issue.


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




Oriole Resources (LON:ORR) – 0.53p, Mkt cap GBP7.5m -Initial mineral resource estimate for Fare South prospect at Senala, Senegal


(IAMGOLD has the option to spend up to US$8m to earn a 70% interest in Senala)


Oriole reports that it has, independently of IAMGOLD, estimated an initial, JORC-compliant inferred mineral resources estimate for the Fare South part of the Senala project in Senegal.


Using a 0.3g/t gold cut-off Oriole’s “independent consultants have estimated a maiden JORC-compliant MRE for Fare South of 155,000oz Au grading 1.26 g/t Au in the Inferred category”.


The estimate comprises 2.61mt of oxide material at an average grade of 1,26g/t gold (105,000oz gross) plus 1.24mt of “Fresh” material at an average grade of 1.27g/t gold (50,000oz gross).


The company says that with over “two thirds of this Resource … defined within oxide material, … [this] … supports the case for low-cost extraction should the Resource undergo future development”.


The estimate uses the results from “25 diamond holes and 55 RC holes for a total 8,496.80m” and lies within a larger exploration target for Fare South which is located “along strike of the Mineral Resource in areas of the deposit where there is insufficient sample support to be Classified as Inferred Resource. With infill drilling it is hoped that the size and confidence level of the existing Resource will be increased”.


CEO, Tim Livesey, clarified the geological setting saying that “The bulk of the mineralisation included in this mineralised envelope at Fare South is associated with the shallower, oxide component of the deposit. This has positive commercial implications on any future mining here as the ore will be comparatively easier and cheaper to extract, using open-pit mining techniques.”


He also confirmed that “Whilst additional work will be required to confirm a larger deposit, capable of supporting standalone economics, there is plenty of potential to expand this maiden Resource estimate, both laterally and at depth, with the addition of more drilling at Fare South”.


Conclusion: Initial mineral resources estimates for Fare South show 155,000oz of inferred gold content of which around two-thirds is contained within shallow oxides. Potential exists to expand the initial estimate through infill drilling within a wider target area along strike




Vast Resources (VAST LN) 7.1p, Mkt Cap GBP15.6m – Acquiring 90% interest in the Ghaghoo diamond mine, Botswana


Vast Resources has announced a conditional agreement to acquire a 90% interest in the former producing Ghaghoo diamond mine in central Botswana from Gem Diamonds.


Vast Resources will be the majority 90% partner in the joint venture company, Okwa Diamonds, which is paying US$4m to acquire Ghaghoo with 10% held by Botswana Diamonds which is to provide technical and operating expertise to reopen the mine located around 300km NW of the Botswana capital, Gabarone.


Ghaghoo currently has a SAMREC standard indicated resource of 79.4mt at an average grade of 19.51 carats per hundred tonnes (cpht) based on a lower cut size of +1.5mm and a diamond price of US$242/carat plus an additional inferred resource of 28.8mt at 17.53cpht and an average diamond value of $239/ct and a 60,000tpm processing plant.


Vast Resources says that previous operations at the mine “were based on a small underground mine that was ultimately not profitable due to operational issues arising through a focus on activities in another jurisdiction at a time of poor diamond market conditions. Accordingly, in February 2017, Gem Diamonds placed the mine on care and maintenance after recovery of just under 150,000 carats of diamonds”.


Among the operational difficulties cited by Vast Resources in today’s announcement are “A sinkhole, caused by the partial collapse of a portion of the crown pillar possibly due to over mining, covers an area on the first level of eight in the kimberlite pipe and limits the access to this particular zone of higher-grade kimberlite” and as a result, “Upper production levels will need to have reduced stope extraction so as to better manage the crown pillar and thereby reduce any potential further sand ingress into the underground workings”.


In addition, the “Ghaghoo mine will also need to be de-watered. A rare large earthquake with an epicentre approximately 40km east of Ghaghoo in 2017 resulted in the rupture of the underground water seal leading to a large influx of water into the underground workings. A Botswana Diamonds PLC (AIM:BOD) technical team site visit indicated that the water seal has been repaired and that this has significantly reduced the water ingress into the underground workings and which should result in a mine dewatering time to about 4 months”.


Andrew Prelea, CEO of Vast Resources, described the acquisition as “a highly compelling opportunity for Vast to deliver diamond production in a relatively short period, benefitting from a fully equipped mine that has $250 million of investment, infrastructure and a significant Resource of quality gems that include large stones and fancy colours. Importantly Ghaghoo is substantially de-risked both from an exploration and development perspective, and also from the funding structure that we are advancing with third party financiers”.


Vast Resources confirms that it does not intend “to provide funding that may be required for the acquisition of the Ghaghoo Mine from new equity raisings and the Company is currently engaged with third party financiers to support the development of Ghaghoo into production”.


Conclusion: Vast Resources is spearheading efforts to reopen the Ghaghoo diamond mine in Botswana through its purchase of Gem Diamonds’ wholly owned local subsidiary for US$4m.




No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”


No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”


The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020




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.




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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, Tungsten, Spodumene, Ferro-Manganese, Graphite – Asian Metal




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