The problems inherent in a battery metals supply chain supremely concentrated on China have been spotlighted by coronavirus, but the problems have been in play for years.
The bottleneck was there for all to see long before the spread of Covid-19 shuttered factories across China.
According to a Wednesday report by the Associated Press “the problem is supply chains. China’s are famously nimble and resourceful, but they lack raw materials and workers after the most intensive anti-disease measures ever imposed closed factories [and] cut off most access to cities with more than 60 million people.”
While companies have begun to re-open, there are ongoing higher costs and significant delays. A mid-February survey by The American Chamber of Commerce in Shanghai found that 78% of businesses in Shanghai, Suzhou, Nanjing and the wider Yangtze River Delta did not have enough staff to run full production lines.
Nearly half said their global operations had already been affected by the shutdown and 58% said their output would be lower than normal until at least the second half of 2020.
Away from China
Manufacturers are looking for new suppliers but few can compete on price and almost none can match China’s levels of service.
These problems have been evident since President Donald Trump ignited the ongoing US-China trade war by imposing tariffs on imports from the trading giant.
And shifting production away from the Chinese state and into perceived cheaper South East Asian alternatives comes with its own set of problems.
A Wall Street Journal report written in the wake of the early stages of the trade dispute noted: “This should be Vietnam’s chance to shine. Instead it is becoming increasingly clear that it will be years, if ever, before this nation and other aspiring manufacturing destinations are ready to replace China as the world’s factory floor.”
The problem is even more acute for producers and users of battery metals.
Mitchell Smith, chief executive and president of cobalt development company Global Energy Metals (TSX-V:GEMC) told MiningMaven: “Coronavirus is having a large disruptive effect on the overall commodity marketplace as we are already witnessing large builds in stockpiles of minerals given the inability to transport and handle material at Chinese ports. The same can be said about exports of refined product.”
Gigafactory
Battery metals are key to the growth of the renewables industry: lithium-ion batteries form the basis for powering electric vehicles, for example.
And while the explosion in the number of electric vehicles is set to drive the renewables revolution, the fact is that supply chains are simply not ready to produce the number of batteries that this wholesale change will require.
Elon Musk’s Tesla is ahead of the curve. Its $4.5 billion Gigafactory 1 in Nevada opened in 2016. Musk said at least 100 of these gigantic electric vehicle assembly lines would be needed to power the future growth of the industry.
And yet Tesla has started building its latest Gigafactory not in the United States, but in China. Tesla has struggled to recruit enough engineers in America to run operations, an issue it believes — or believed, until coronavirus broke out — could be solved by China’s army of specialists.
Europe’s first Tesla-inspired battery megafactory belongs to Sweden’s Northvolt. That company received a €350 million loan from the European Investment Bank in May 2019 to get the project started. But this is one of only a handful being built outside China.
In 2017, there were 17 lithium-ion battery mega-factories under construction globally. Today, 46 of the 70 in construction are in China.
Another problem
There is vast and increasing demand for refined cobalt in the manufacturing of lithium-ion batteries. But few have tracked the scarcity of these in-demand resources. According to a MassifCapital report on risks in the supply chain: “If every battery manufacturing facility under construction today is built and operates at 100% capacity, then the next ten years will see an 8x increase in demand for lithium, a 7x increase in graphite anodes, a 19x increase in nickel and a 4x increase in cobalt.”
China’s domestic and foreign influence on the global cobalt supply chain also remains substantial. This dependence has already caused significant problems and industry experts expect the trend to continue.
Mitchell Smith put it like this: “Prolonged economic disruption due to the coronavirus epidemic should make end-users in the automotive and electronics industries reflect on the over-reliance upon one country.”
As a whole the industry desperately needs to consider diversification of supply and refinement of the materials critical for the new renewable world we will all be living in, Smith added.
Author: Mark Sheridan
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.
AIM-listed gold and nickel player Katoro Gold (LSE:KAT) says the climbing price of gold has had a positive impact on its well-received plans to exploit a South African gold resource.
The spot price of gold hit a seven-year peak of $1686.74/oz on 24 February, reaching record levels against the Euro and Canadian and Australian dollars.
Global fears about the spread of coronavirus and its effect on global supply chains caused a growing flight to safety on Monday as Italian authorities enforced a quarantine around a worsening outbreak of Covid-19. The Dow saw a 1,000 point drop that day, while the FTSE 100 cratered nearly 4%.
Nicky Shiels, commodities analysts at Scotiabank, noted that Covid-19 represented a “black swan” or unforeseen event that could roil global markets for months to come, with gold prices “doing what they should given renewed global growth risks”. Prices have already “taken out our average forecast for 2020 ($1,600) and it’s likely the floors are shifting up,” Shiels added.
The gold price has since edged backwards a little from its multi-year high to settle around the $1,650 mark. But with fears about the spread of coronavirus in Europe, we would suggest that jittery markets will support this price point in the near term.
All of this means good news for gold producers, especially those who can point to near-term revenue.
Katoro intend to reprocess an existing gold tailings resource rated at approximately 1.34Moz at a South African mine owned by Blyvoor. It and entered into a joint venture with the company on 30 January 2020.
Reprocessing of gold from tailings is a relatively new technological approach which examines and exploits mining materials previously thought of as waste. This process gained popularity in South Africa in the 1970s, using a technique known as flotation to recover pyrite uranium and gold. Given the vast amount of tailings (in the region of hundreds of millions of tonnes) produced from gold mining, more efficient scientific methods developed in recent years have been able to extract and recover metals that were not discovered in the original mining process.
Katoro agreed to provide a loan worth £790,000 to the JV. £263,000 of this amount has already been advanced with the remaining £527,000 expected to be released in the near future.
To fund the loan Katoro issued a convertible loan note to SI Capital for £397,000 and secured £400,000 from Sanderson Capital Partners.
Katoro said in a 25 February market update that it had issued notice to Sanderson that it intended to draw down the additional £400,000 in full to fund ongoing work.
Executive chairman Louis Coetzee noted that his team was “very pleased” with progress so far, saying that feasibility studies and plant design were progressing ahead of expectations.
“The Board notes the strengthening gold price which further bolsters what we consider to be very robust project economics,” Katoro said.
Shares in the London-headquartered explorer have gained 325% in the last 12 months. On this latest news, the KAT share price has gained 3% to 2.7p.
Author: Tom Rodgers
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.
Rockfire Resources (LSE: ROCK) chief executive David Price has hailed a set of “extremely positive” results from its drilling in north Queensland, Australia, where all its holes hit gold. The firm's shares opened 20% higher at 1.445p in Tuesday trading.
Rockfire reported that it found “extensive intercepts of continuous gold mineralisation” at its Plateau deposit, 30 miles southeast of Charters Towers on the country’s east coast. Drilling revealed a 2.0 grams per tonne (“g/t”) gold zone at 145 metres, closer to the surface than the 2.0 g/t zone discovered at the nearby Mt Wright Gold Mine.
The exploration means the gold explorer is now confident that the Plateau deposit extends to an area thought to be more than 200 metres long, 70 metres wide and 200 metres deep.
Price told in the market in an RNS: “These long intervals of gold in the upper levels of Plateau are extremely positive and demonstrate the size of the mineralising system.”
He added that his technical team believed Plateau presents “similarities” to Mt Wright, an existing underground mine that is thought to host 1.5 million ounces of gold, with the main ore between 400 metres and 850 metres below surface level.
"We appear to be at the top of a similarly large gold deposit,” said Price.
The drill results at Plateau include three holes of 0.4 g/t, 0.4 g/t and 0.2 g/t, extending mineralisation more than 100 metres east of previously reported results.
Shares in the AIM-listed explorer have been active of late. Positive results from late November 2019 drilling which announced a major gold system at Plateau saw the price surge from 0.41p to a three-year high of 2.2p. The company then told the market last month that its x-ray analysis of October 2019 drill samples had unveiled significant silver deposits of 2 ounces per tonne at Plateau.
Rockfire said its next steps would be to conduct a geophysical survey called controlled source audio frequency magnetotellurics, which was expected to provide target generation below the levels drilled thus far at Plateau. The same survey method identified deep drill targets at Mt Wright, Price said.
Author: Tom Rodgers
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.
Armadale Capital (LSE:ACP) has reiterated its intention to deliver a definitive feasibility study (“DFS”) for its Mahenge Liandu graphite project in the current quarter.
Based in south-east Tanzania, Mahenge Liandu contains one of the country’s most substantial high-grade graphite resources, with high-grade coarse flakes and near-surface mineralisation contained within one ore body. Armadale is currently completing a DFS based on the results of a scoping study centred around a 400,000tpa throughput ratio. This put Mahenge Liandu’s net present value at $349 million and its pre-tax internal rate of at 122% against development capital expenditure of just $35 million, implying an after-tax payback period of 1.2 years.
In Friday’s update, Armadale said the DFS ramps up to 1 million tonnes per annum throughput after four years and will initially target high-grade, near-surface graphite mineralisation for production to maximise value. Meanwhile, it said metallurgical test-work is being completed on high-grade composites with average grades of 14.9% and 15.6% total graphitic carbon to confirm the project flowsheet is suited to high-grade ore. Likewise, site locations for all elements of the project have been finalised, an access road has been marked out, and logistics have been costed out with a local well-established Tanzanian contractor.
Beyond the DFS, Armadale said that its director Steve Mahede is confident that developing mining projects through to production is a major priority for Tanzania’s government following a recent meeting with officials. Finally, the organisation said it was beginning to advance post-DFS work programmes focused on road access, production bores, and – critically – commercialisation and project funding discussions with potential partners.
The company’s chairman, Nick Johansen, said: “With one of the largest high-grade resources in Tanzania this dovetails perfectly with our ongoing commitment to push the envelope to transform into an emerging producer by H1 2021.
“In support of this, refinements to our resource modelling and mine plan from the scoping study have increased our confidence that the project is going to be a low cost, long life operation.
“We look forward to sharing these key value metrics within the next month as we finalise the DFS, results for which we know are eagerly anticipated. I would like to thank shareholders for their patience in this regard and give my assurance that finalising this study is our primary objective. We will then look to accelerate commercialisation and funding initiatives with our partners to ensure we remain on track with our fast-paced growth plans.”
As we have previously written, the scoping study at Mahenge Liandu was based around a conservative $1,272 per tonne graphite price and an average concentrate purity of 95%. Graphite prices are currently sitting much higher than this, and Mahenge Liandu is proven to be able to produce the material consistently at a grade considerably higher than 95%. Last year, we looked at whether investors were missing a significant opportunity at Armadale given this conservative approach.
As we highlighted, Australian miner Black Rock recently agreed to supply “premium” graphite with a nominal grade of between 97.5-98.5% for $1,490 a tonne and “ultra” graphite grading more than 99% for $2,161/t. Both of these prices come in at a significant premium to the $1,272/t used by Armadale in the scoping study for Mahenge Liandu, which neighbours and shares many similarities with Black Rock’s Mahenge asset. f Armadale can secure binding sales agreements at a much higher price than $1,272, then Mahenge Liandu’s fundamentals would be enhanced even further.
Author: Daniel Flynn
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.
Tuesday saw gold prices cross the key psychological level of $1,600 an ounce for the first time since 2013 as concerns over the COVID-19 epidemic in China continued to drive investors towards safe-haven assets.
Spot gold hit highs of $1,605.10 an ounce during the day’s trading due to increased risk aversion at the hands of the so-called “coronavirus”.
This followed a warning from the World Health Organisation that confirmed cases of the virus now total 73,332 since first being identified late last year in Wuhan, China. Meanwhile, there has been at least 1,873 deaths from the virus, which is now thought to have spread across as many as 25 countries- including several in Europe.
The rush towards safe-haven assets – which include government bonds and the US dollars as well as gold – stems from concerns over the long-term economic fallout that could arise from the spread of coronavirus. Analysts have suggested that supply chain disruption caused by the virus across numerous industries in China and around the world could hit GDP rates in many leading nations and curtail global consumption.
In response, the likelihood of central banks taking an increasingly dovish stance on monetary policy – cutting interest rates, for example – to stimulate their economy is expected to rise.
While this dynamic can result in falling stock markets and declining bond yields, lower interest rates favour gold as they reduce the opportunity cost of holding non-yielding bullion. As such, concerns around the long-term coronavirus fallout have even enabled the gold price to withstand the impact of a drop in new virus cases over the last two days. Indeed, the precious metal has remained above $1,600 an ounce despite a cautious move forward by equity markets around the world.
Should the current dynamic in the gold market continue, then a very direct beneficiary will be the UK’s junior gold businesses. When the price these firms can command for the precious metal they produce rises, so too does their margins per ounce. The end result is obvious – revenues and profits can soar without any correlation to production rates.
A fantastic example of this dynamic in action can be found in Hochschild Mining’s (LSE:HOC) preliminary 2019 results, which were released on Wednesday.
Precious metal prices recovered significantly throughout the second half of the results period, helping average gold prices for the year as a whole hit $1,414 an ounce- 12% higher than 2018’s $1,268 an ounce average. Average silver prices for the year, meanwhile, reached $16.5 an ounce, compared to $15.3 an ounce in 2018.
Thanks to the higher price it could demand for its gold and silver, the FTSE 250-listed miner noted that it was able to deleverage and: “… generate strong free cash flow allowing us to strengthen our balance sheet, further invest in our exploration initiatives and add value accretive projects to our portfolio.”
Meanwhile, it delivered a 28% year-on-year increase in adjusted EBITDA ($343.3 million), a 100% jump in post-exceptional profit before income tax ($76.8 million), and a 100% leap in post-exceptional basic earnings per share ($0.06). Elsewhere, its cash balance as at 31 December 2019 sat at $166.4 million, compared to $79.7 million.
Critically, however, all of this came despite the firm revealing that year-on-year silver production had fallen by 15% to 16,808,000 ounces, while gold production rose by just 4% to 270,000 ounces.
What Hochschild’s results demonstrate is the real power that metal prices carry over the fates of producing firms in the sector. Despite unremarkable production progress, favourable macro conditions alone enabled the company to deliver transformational year-on-year financial improvements. As at writing, the £902.5 million business is sitting 10% higher at 176.29p – its highest level since the beginning of January.
If global concerns continue to buoy gold prices – be it coronavirus, the US/China trade war, or shifting monetary policy – then we could well see more success stories like Hochschild throughout results season.
Author: Daniel Flynn
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has not been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance
Shares in gold and nickel exploration and development player Katoro Gold (LSE:KAT) are currently experiencing a lot of interest in the market – they are currently sitting at 3.16p after rising 241% so far this year.
Katoro’s strong momentum began recently with news of a new, near-term gold production opportunity in South Africa. With the deal immediately putting a near-term revenue stream on the horizon, it is not hard to see why Katoro has captured the attention of investors. That being said, even after recent price movements, Katoro is currently only valued at around £6 million. This demonstrates how far many junior exploration and development firms have really fallen in recent years.
Given the true scale of the JV’s revenue potential amid bullish gold market conditions and the likelihood of positive near-term news flow, we believe Katoro’s current bull-run could well continue for some time.
Immediate impact
To recap, on 30 January 2020, Katoro announced its binding, conditional entry into a 50/50 unincorporated joint venture (“JV”) with a company called Blyvoor. The partners plan to reprocess and exploit an existing 1.34 million ounce, JORC-compliant gold resource spanning six tailing dams 75 kilometres south-west of Johannesburg in South Africa.
As part of the deal, Katoro will provide up to a £790,000 repayable loan to the JV to fund ongoing development work on the project. To support this, Katoro has already raised £397,000 in the form of a convertible loan note with investors through SI Capital and has also agreed further facilities with external finance partners for the balance if this is called down. This means finance for Kataro’s entry into this transaction is already resolved, an important element for investor confidence.
The first critical point to note about the South Africa JV is that it represents a considerable, near-term revenue-generating production opportunity for Katoro.
Much of the groundwork has already been covered at the South African tailings project. For example, the mining licence and environmental impact assessment required for the reprocessing of the tailings is already in place. This means that production can begin immediately once a processing plant has been constructed and commissioned.
Plant progress may not be too far off, either – Katoro has already held discussions with potential funding parties for the project. It believes this will be secured at the project level in the form of debt funding – meaning shareholders would not be diluted at the PLC level.
The second key point to note is the potential economic impact that the 50/50 JV project could have for Katoro once gold recovery begins.
The partners are targeting an initial production rate of up to 250,000 tonnes of material a month at an average grade of 0.3 grams per tonne gold from the tailings. This is expected to mark the first stage of a production ramp-up to 500,000 tonnes of material a month within two years. At 500,000 tonnes of material per month, the project is targeted to produce around 35,000 ounces of gold a year and to have a 35-year life of mine.
So, what does this mean financially?
Katoro’s board believes that the project enters economic territory at a $1,300 an ounce (“/oz”) gold price. As such, this figure has used this to calculate economic fundamentals.
Including an all-in-sustaining cost of just $664/oz for the first five years planned production and project capital costs of $30-35 million, the firm puts the project’s net present value (10) at $49 million and its internal rate of return at 31%.
To put this another way, at an annual production rate of 35,000 ounces of gold, the project would generate around $22.3 million per annum for the JV ( (35,000 X 1,300) – (35,000 X 664) ). Katoro’s 50% share of this comes in at $11.15 million (c.£8.6 million per annum), a figure that compares very favourable to its current, c.£6 million market cap.
This type of comparison begins to look even more favourable when you consider the fact that, in reality, gold prices currently sit much higher than $1,300/oz. If we use the $1,565/oz quoted by Katoro as the current gold price in its 30 January release, then Katoro’s annual take from the project at a 35,000-ounce per annum production rate comes in at $15.8 million, or c.£12.2 million per annum ( ( (35,000 X 1,565) – (35,000 X 664) ) /2 ).
With many expecting gold prices to continue rising after climbing 20% in the third quarter of 2019, there is room for these figures to become even more attractive.
Moreover, the project currently has a projected life of 33 years, demonstrating the long-term production and revenue generating potential.
Finally, there are several important indications that the JV will be able to quickly and easily build on the strong economic foundations in place at the South African tailings project.
First, the funds provided by Katoro as part of the JV agreement will be used to, in the company’s own words, “optimise mining strategy”. The firms will complete final detailed mine planning and scheduling to perfect mining strategy and better define the expected plant feed grades and identify possible low-grade zones. They will also look at ways to keep operating costs down as much as possible and maximise processing efficiency. Currently, gold recoveries of 56-60% are thought to be achievable – could this figure rise?
Meanwhile, the JV has already shown its commitment to forming as strong a management team as possible to drive forward. On 10 February 2020, less than two weeks after the deal was announced, the firms had formed a JV management committee and appointed new JV manager Graham Briggs – former chief executive of Harmony Gold Mining. The group have already started “moving forward multiple workstreams”, according to Katoro.
The JV’s new management, rapid pace, and work to optimise its project alongside financing discussions show commitment to advancing as quickly and in as economical a way as possible. Not only that, but these points are likely to provide a great deal of short-term news that – if positive – could provide further fuel for Katoro’s share price.
The sky is the limit
The bottom line is that Katoro’s entry into the South Africa JV has changed its outlook significantly, putting near-term revenue generation on the horizon. Although the meteoric rise in Katoro’s share price reflects this, the project’s potential in a strong gold market and the pro-active approach to its optimisation may mean the firm has not yet peaked. Now that Katoro has got the ball rolling, the next few months will be about maintaining the pace with frequent project updates and progress towards gold production.
Author: Daniel Flynn
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance
Greatland Gold (LSE:GGP) powered forward to a record high of 3.78p at the end of last week after posting an “outstanding” set of drilling results for the Havieron asset it is advancing with Newcrest Mining (ASX:NCM). With a market cap of £104.1 million, the Australia-focused gold explorer and developer sat nearly 110% higher than it did at the beginning of 2020 after riding a massive wave of increased trading volume in its shares. The market is now eager to see the extent to which Greatland can build on this success and how big Havieron could ultimately prove to be, with an extra $25 million expected to be spent on the property this year.
Aside from Havieron’s ongoing potential, there were several key reasons why investors were particularly excited about the latest drilling campaign here. The long-term implications factors could prove to be truly transformational. Here, we take a detailed look at what is causing all this excitement.
Firstly, and perhaps most obviously, investors were highly encouraged by the quality of the news itself.
To recap, Havieron is a gold deposit centred on a magnetic anomaly in the Paterson region of Western Australia. Newcrest operates it under a farm-in agreement with Greatland. Exploration drilling by Greatland in 2018 led to the discovery of significant gold and copper mineralisation under 400 metres of cover.
After following this with its own set of strong drilling results in mid-2019, Newcrest completed nearly 19,000 metres of additional drilling in the final quarter of last year to enhance its understanding of Havieron’s true scale. With its latest work extending continuity of mineralisation at the asset over 450 metres of strike, including widths of up to 150 metres and depths over 600 metres, Newcrest has undoubtedly met its primary objective. What’s more, these extents could extend further yet, with mineralisation remaining open both to the north-west and at depth.
Meanwhile, highlight intersections included 136 metres at 2.9 grams per tonne (“g/t”) gold and 0.6% copper from 504 metres and 73 metres at 3.2 g/t gold and 0.67% copper from 513 metres.
In its update, Greatland put the importance of the results into context, stating:
“The latest drill results and the initial observed dimensions of the deposit suggest that Havieron represents a significant gold-copper discovery.”
Newcrest exceeds expectations
A second, highly encouraging sign for investors was Newcrest’s enthusiastic reaction to its latest results at Havieron.
The Havieron deposit is based just 45 kilometres east of Telfer, one of Newcrest’s flagship project that produces up to 460,000 ounces of gold and 13,000 kilotonnes of copper a year. Newcrest’s ultimate goal, alongside Greatland, is to truck high-grade ore from Havieron to Telfer for processing - extending its mine’s life and reducing production costs per ounce. To do this, the major miner entered a deal with Greatland last year that granted it the right to earn up to a 70% interest in Havieron target by spending up to $65 million on its development across four stages, as seen below.
Newcrest is currently in the second stage of the farm-in. However, the firm’s outpouring of support for Havieron in the wake of its latest results suggests that Greatland will continue to benefit from the major’s massive firepower moving forward.
For example, in its exploration report, Newcrest described the grades it has seen at the deposit as “unique” for the region, adding that it now plans to “progress and accelerate our evaluation of this opportunity”. Likewise, in a tweet, the company said Havieron “signals a new era in our asset portfolio”, adding: “Grades like this are rare & we’re excited with our progress”.
Newcrest also appears to be putting its money where its mouth is when it comes to this enthusiasm. As Greatland highlighted in its update:
-Drilling has recently recommenced drilling at Havieron following a short Christmas break;
-An additional 20,000-30,000 metres of drilling are planned in the next two quarters to support the potential delivery of a maiden resource by the end of the calendar year 2020;
-A number of environmental, geotechnical, and metallurgical studies have commenced to support the potential delivery of a resource and future permitting requirements.
Meanwhile, Newcrest itself said it expects its exploration expenditure to be $25 million higher than anticipated at Havieron in light of the positive results.
Things could not have got off to a better start at Havieron for Newcrest, and this paints a very bright picture for Greatland’s future at the asset.
Mapping out Havieron
With Havieron’s dimensions now established, the third (and perhaps most important) point that is likely to be on the minds of excited Greatland investors is that it is now possible to make an estimate of the project’s contained gold. Although by no means definitive at this stage, the early signs are very encouraging.
Let’s take a look.
With a 450-metre strike length, a 150-metre width, and a depth of 600 metres, it is reasonable at this stage to assume that mineralisation at Havieron covers roughly 40,500,000 cubic metres (450 X 150 X 600). Next, if we apply a specific gravity of three (which is broadly expected in the regional geology), we get to approximately 120,000,000 tonnes of ore (40,500,000 X 3 = 121,500,000).
Now it becomes a question of what grade we apply to the ore. To provide a range of potential outcomes, let’s apply three scenarios (note that we divide by 31.1 because this is the number of grams in onetroy ounce):
-LOW: 1 g/t ore, which results in roughly 3,900,000 ounces of gold ( (120,000,000 X 1) / 31.1 );
-MID: 1.5 g/t ore, which results in roughly 5,800,000 ounces of gold ( (120,000,000 X 1.5) / 31.1 ); and
-HIGH: 2 g/t ore, which results in roughly 7,700,000 ounces of gold ( (120,000,000 X 2 ) / 31.1 )
Now, we have to assign a valuation to each ounce contained within the Havieron. The table below, taken from our recent report on Greatland, demonstrates the value of a few of Australia’s largest gold miners, in US dollar per resource terms.
If we take a relatively conservative view and assume that each Havieron ounce is valued at $200, then the total value of Greatland’s 30% project interest (on the assumption that Newcrest takes a 70% stake) is as follows:
-LOW: $234 million (£178.7 million) ( (3,900,000 X 200) X 0.3 )
-MID: $348 million (£265.8 million) ( (5,800,000 X 200) X 0.3 )
-HIGH: $462 million (£352.8 million) ( (7,700,000 X 200) X 0.3 )
No matter what scenario you apply, this initial estimate compares very attractively to Greatland’s current all-time high market cap of £104.1 million. This is especially encouraging when we take into account that gold prices are on one of their strongest runs in years and Havieron’s resource remains open – the project’s ultimate dimensions could be significantly larger than the numbers we have used here.
A bright future at Havieron
Three clear takeaways emerge from our analysis:
-Joint venture work has got off to as good a start as possible at Havieron, with the deposit showing more and more signs of boasting the prospectivity that Greatland has long suspected;
- With Newcrest indicating an additional $25 million spend here, this is a most encouraging indicator of its commitment to Havieron over the long term; and
-Rough early resource estimates suggest Havieron, even when using conservative assumptions, could be a vast economic force for Greatland- especially in combination with the remainder of its portfolio.
All of these points have the potential to have a very positive impact of Greatland’s share price and market cap, potentially pushing it to further hights. Heddle was keen to express his enthusiasm for the Havieron’s game-changing potential when we spoke to him, saying:
“It is a really exciting time for Greatland and Newcrest. We are just starting to see the true potential scale of the Havieron project, and we will see a lot more over the next six months. Our eyes are now on delivering a maiden resource by the end of the year, and this will be a really huge milestone for us.”
If Newcrest and Greatland can remain on track at Havieron as they have so far been able to, the future could indeed be very bright for shareholders.
Author: Daniel Flynn
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance
The global shift away from internal combustion engine-powered cars and towards electric vehicles (“EVs”) continues to accelerate at a record pace. With growing demand for the metals involved in the production of EV batteries being complemented in many cases by supply-side disruption, a major investment opportunity has arisen.
According to the International Energy Agency (“IEA”), electric car usage has been soaring over the last decade, with global stock passing five million in 2018 – a 63% increase on the previous year. However, this annual growth rate looks set to accelerate further moving forward. The same organisation expects the number of EVs on the road to hit 125 million by 2030, while JP Morgan believes that EVs and hybrid electric vehicles will account for 30% of all vehicle sales by 2025.
The reasons for this accelerating uptake are varied, encompassing improving technology, increasing environmental consciousness, and – critically – growing government support. Leaders around the world are setting ambitious targets and granting generous incentives to encourage the complete phase-out of traditional vehicles in favour of plug-in EVs in their respective nations. For example, the UK government’s current policy is to insist that, by 2040, all new cars and vans sold in the UK should be zero-emissions capable. Meanwhile, China aims to have five million EVs on the road by the end of 2020, increasing to over 80 million by 2030.
However, when it comes to meeting these ambitious targets, getting the public on board is just one half of the battle. The other half is ensuring that the capacity exists to meet the demand for EVs and their related charging infrastructure – a burden shared by governments and automobile manufacturers alike.
The wheels are already in motion here. Earlier this month, Canada and the US announced that they had finalised the Canada-US Joint Action Plan on Critical Minerals Collaboration. This aims to reduce both nations’ dependency on outside sources when it comes to sourcing “critical minerals” – many of which are required to build EV batteries – by securing supply chains. As well as the EV sector, this covers areas like manufacturing, communications, aerospace, and defence. Likewise, the US and China recently inked an initial trade deal that will boost America’s production of rare earth metals – critical to EV production because of their powerful magnetic properties.
Waking up to change
Key EV nations have woken up to the need to secure domestic energy metal supply, and these growing efforts throw yet more weight behind forecasts of a real explosion in uptake. The metals used in the production of these vehicles – particularly their batteries - are a clear beneficiary of this milestone. One of the most interesting is cobalt, a critical raw material for electric transport used in most common types of lithium-ion batteries.
Alongside an anticipated surge in demand like many of its battery metal peers, cobalt is experiencing severe supply-side disruption. This comes almost entirely down to the fact that nearly two-thirds of the metal comes from the Democratic Republic of the Congo (“DRC").
The cobalt industry in the DRC is well known for its vast artisanal mining contingent. Artisanal mining may be a vital source of income for many, but it also throws up many issues such as safety, child labour, and human rights abuses. These problems faced unprecedented levels of exposure last July when dozens of illegal miners were killed at Glencore’s Mutanda copper/cobalt mine after a wall collapsed. The firm subsequently shut the mine, effectively removing 20% of the world’s cobalt supply from the market. In the wake of this, several companies – including BMW and Apple – announced that they would stop buying cobalt from the DRC or at the very least insist on tighter regulations over working conditions.
Meanwhile, some areas of the EV market are even looking at ways to cut the amount of cobalt used in the batteries powering their vehicles. Tesla boss Elon Musk has pledged to remove the mineral from the next generation of his company’s cars and has already reduced the amount used in Tesla batteries from 11 kilograms per vehicle to 4.5 kilograms. Likewise, global tech companies like South Korea’s SK Innovation and LG Chem and the UK’s Johnson Matthew are researching ways of making cobalt-free batteries.
However, the reality is that removing cobalt from lithium-ion batteries is more easily said than done. Benchmark Minerals’ forecasts suggest that global demand for cobalt in 2029 will be 300,000 tonnes compared with an estimated 70,000 tonnes in 2019. Meanwhile, Tesla is thought to be inking a long-term contract with Glencore to ship cobalt to its new EV factor in Shanghai – suggesting the metal will remain key to the company’s expansion over the next few years at least.
So, while the movement away from cobalt may one day occur, for the time being, it appears to remain merely an idea than a reality. This poses an interesting dynamic for the metal in which its usage has to grow alongside accelerating EV adoption at the same time as industry participants are eschewing its key supplying nation. A clear beneficiary, therefore, appears to be companies with cobalt projects in the remaining 40% of supplying countries that are presumably giving rise to fewer ethical and jurisdictional issues than the DRC.
One such example is Global Energy Metals (TSX-V:GEMC), a pure-play cobalt business building a portfolio of projects in stable jurisdictions such as Queensland in Australia, Nevada in the US, and Ontario in Canada. Chief executive Mitchell Smith explains that the company has positioned itself ahead of the curve when it comes to the global trend of moving away from areas such as the DRC to source increasing amounts of cobalt.
“As the global energy landscape evolves it is becoming much more mineral and metal intensive. Increasing the global production of batteries to electrify vehicles and power electronic devices will demand enormous quantities of critical minerals like cobalt. But the development of new mines, especially those in jurisdictionally safe mining districts in close proximity to refining capacity and end-use markets is not keeping pace,” he says.
“This paves the way for Global Energy Metals to continue to grow its strategies on a number of verticals and be integrated into the battery economy through collaboration with fellow industry peers with the direction of building a stable supply chain and mineral independence.”
Author: Daniel Flynn
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance
2019 was an exciting period for the nickel market, with increasing demand and supply disruption helping to drive the metal’s price higher at a time when other commodities trod water. Having started the year at $10,600/t (“per tonne”) on the London Metals Exchange (“LME”), the metal hit a high of $18,000/t in September and became one of the year’s strongest performing metals.
The price of nickel subsequently dropped, hitting a low of $13,000/t in December. However, this pullback could have created an opportunity, and investors are now eagerly anticipating what might come in 2020 for the base metal.
With many of the forces that propelled last year’s nickel rally still in place, we have taken a look at several of the London-listed firms that will benefit if the metal soars.
Strong supply/demand dynamics
On the demand side, stainless steel – which accounts for most of nickel’s global usage – experienced a surge during 2019.
Meanwhile, the level of nickel required for electric vehicles (“EVs”) continued to grow, with more units being sold at the same time as critical developments in battery technology increased dependency on the base metal. According to the Nickel Institute, two of the most commonly used types of EV batteries, Nickel Cobalt Aluminium and Nickel Manganese Cobalt (“NMC”), are now made up of 80% and 33% nickel respectively. Meanwhile, newer formulations of NMC batteries are also approaching 80% nickel content, the body says.
Elsewhere, nickel prices were bolstered by fears on the supply side. Indonesia, the world’s largest nickel producer, confirmed plans to bring forward a ban on the export of raw nickel ores from 2022 to January 2020. With Chinese producers stocking up on nickel inventories in anticipation of the ban, LME nickel warehouse stock levels have reportedly dropped by almost 50%. In October, Reuters reported that stocks had even fallen to 79,800 tonnes, their lowest value since January 2009.
A secure setting for 2020
Nickel currently sits at around $13,800/t, approximately 30% higher than it was a year ago in spite of the recent decline. This suggests that the bull market is still intact, with fundamental growth expected across core markets as supply concerns continue.
From a demand perspective, the use of nickel in the stainless-steel sector is expected to continue to rise at a steady rate.
But the real game-changer for the metal this year could be in EV space. According to Kitco, batteries (including those used to power laptops, phones, etc.) currently account for 5% of the global nickel market. However, with a record four million EV units slated for global sale over the next 12 months, this share could rise to 8% in 2020.
With EV use set to grow by 30-40% annually for some years, the nickel market is likely to witness enduring change. Global demand is expected to rise from two million tonnes per annum, where it currently sits, to six million tonnes per annum by 2035. Batteries are expected to account for almost half of this demand growth.
Meanwhile, nickel’s bleak supply outlook is also set to linger. Wood Mackenzie has estimated that Indonesia’s export ban will directly result in the loss of 190,000 metric tons of nickel globally by next year. Meanwhile, very few large-scale nickel projects have been developed in recent years. With the process of moving greenfield nickel assets from exploration through to production taking many years, many analysts believe that LME stocks will continue to fall as demand grows. This is expected to result in an annual average deficit of 60 kilotonnes of the metal through to 2027.
Add the Federal Reserve’s dovish rate stance into the mix, and the combination of dwindling supply and rising demand could create an ideal setting for nickel explorers and producers globally.
For example, Fastmarkets analysts forecast an average LME nickel cash price of $16,375/t in 2020- a considerable leap on the metal’s current position. Meanwhile, Wood Mackenzie expects nickel prices to continue breaking out beyond the current 12-month period, reaching $25,000/t by 2025 and $28,000/t by 2027.
Who will be the big nickel winners?
Several firms listed on London’s junior market are well primed to benefit from an increase in nickel prices throughout 2020.
Horizonte Minerals (LSE:HZM) is one of the most likely candidates. The company wholly-owns the advanced Araguaia ferronickel project and the earlier-stage Vermelho nickel-cobalt asset to the south of the major Carajás mining district in Brazil.
Horizonte has grown the resources of its assets by more than 800% in just seven years. It now plans to turn Araguaia into Brazil’s next major tier-one producing ferronickel mine by 2022.
The firm recently entered a $25 million royalty agreement with Orion Mine Finance, providing the initial capital required to begin an early works programme at Araguaia and advance the project towards construction. At a nickel price of $14,000/t, the project has an estimated net present value (“NPV) of $741 million and an internal rate of return (“IRR”) of 23.8% (provided stage two expansion is completed).
Applying recent nickel price highs of $16,000/t only serves to improve Araguaia’s economics. Under these conditions, the asset’s NPV rises to $1 billion while its IRR hits 30%. This would see the project generate free cash flow of $3.5bn. For perspective, Horizonte’s market cap currently sits at £51.8 million.
Another London-based stock that could benefit from surging nickel prices is Power Metal Resources(LSE:POW). This company recently confirmed that it would earn-in to a 40% interest in the Molopo Farms Complex (“MFC”) nickel-copper-PGM (“platinum group metals”) project in Botswana, giving it an effective project interest of 50.96%.
Following an airborne survey and follow-up groundwork in 2019, five targets have been selected at the MFC project as a focus for an initial drilling programme. Power Metal describes these targets as highly conductive bodies that “could potentially be host to massive nickel sulphides” due to their location, geology, and associated magnetic responses.
Finally, a third London-listed firm operating in the nickel space is Regency Mines (LSE:RGM). Following a significant management shakeup last year in the wake of a challenging period, the organisation plans to push forward at its flagship, 50%-owned Mambare nickel-cobalt project in Papua New Guinea. Mambare covers 256 square kilometres and contains a compliant resource of 162.5 million tonnes at 0.94% nickel and 0.09% cobalt.
A valuable investment opportunity
The macro trade winds for the price of nickel look highly favourable. Given that Indonesia’s export ban will come into force imminently, supply is inevitably going to tighten this year. Meanwhile, the Federal Reserve’s hesitancy around raising interest rates any further this year is likely to cause further dollar weakness- a generally bullish force for commodities.
In parallel, 2020 is also expected to welcome in a great deal of EV market growth, putting further upward pressure on nickel prices. Following the nickel sell-off in the last quarter of last year, this could open up a valuable investment opportunity – especially given that stocks operating in the nickel market generally fell alongside the base metal. If the bullish outlook for nickel materialises into another price rally, it stands to reason stocks with nickel exposure will follow suit.
Given the stage of Araguaia’s development and the potential for news flow from Vermelho, Horizonte Minerals offers low risk and potentially sizeable returns at 3.1p (as at 21 January 2020). Power Metal, on the other hand, is a racier option. However, after raising £700,000 in December, the organisation has the funding in place to deliver exploration progress.
If looking to take a punt on nickel having another bumper year, these two stocks could present significant upside to your portfolio.
Author: Daniel Flynn
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance
Rockfire Resources (LSE:ROCK) was trading 27% higher at 1.05p on Monday morning after announcing that drilling to extend gold mineralisation had kicked off at its Plateau deposit in Queensland, Australia.
The firm said that a reverse circulation programme consisting of 13 proposed holes totalling 1,500m has now begun. This will aim to explore at depths of around 250m below the surface at the deposit as well as extending and infilling near-surface resources.
The development comes after Rockfire intersected 177m at 0.5 grams per tonne gold at Plateau in November last year with hole BPL025. The company will now test this geophysical anomaly by drilling holes 50 metres and 150 metres east of BPL025.
Alongside this work, which is expected to take 15 days to complete, Rockfire is also completing geological mapping and rock chip sampling at Plateau. Meanwhile, specialist analysis of drill chips collected in October last year is also nearing completing.
Rockfire’s chief executive David Price labelled the current drilling programme as “very exciting”, adding that success will demonstrate “significant extension of this deep gold mineralisation in an east-west orientation”.
"A second aim of the current program is to expand and build greater confidence in the gold mineralisation at our near-surface JORC resource, in an effort to define an open cut resource, 80m from surface,” he added. "We are fortunate to get underway with drilling at this time of the year, as the usual wet season in northern Australia has not yet arrived, and we intend to make the most of this window of good weather. Geological mapping, rock sampling and XRF analysis of drill samples from October 2019 drilling is in progress and the company expects results from this analysis within the next few weeks. We will keep the market informed of our progress."
Plateau is based around 50 kilometres southeast of the gold mining centre of Charts Towers in Queensland and 47 kilometres of the Ravenswood mining operations, which contain more than 10 million ounces of gold. The deposit is a breccia-hosted gold system and comprises similar mineralisation and geology to that at nearby mines Mt. Wright and Kidston. Rockfire’s ultimate goal is to identify another Mt Wright-style gold opportunity.
Author: Daniel Flynn
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.
MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance
