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Cadence Minerals and the next Commodity Supercycle
There is little doubt that historians will conclude that the global impact of COVID-19 represents the worst crisis since the Great Depression. The pandemic is leaving deep and enduring scars on the global economy, taxing health and medical services to the limit, depriving children of education, while decimating sectors of commerce and industry and in particular leisure and travel.
But history has shown on numerous occasions that the indomitable human spirit has a remarkable capacity for survival and evolution amidst existential crises. As areas such as traditional High St retail and seem to be drawing to a close, sectors such as commodities and mining are booming thanks to a near perfect storm created in part by the COVID crisis.
In October 2020, the IMF stated that the total bill for the global pandemic would reach some $28tn (£21.5tn) in lost output. The rapid intervention by global Governments with rate cuts, looser monetary policies and fiscal stimulus have certainly avoided a financial catastrophe, but at the same time these actions have effectively weakened fiat currencies and increased demand for commodities.
Historically the consequences of such events invariably see a strong recovery in commodity markets. This factor was clearly in evidence as 2020 progressed, and as the COVID noose tightened, prices of commodities such as Iron Ore, Copper and Nickel, along with precious metals including Gold and Silver, all increased in value.
As a consequence, as 2020 progressed prices of commodities such as Iron Ore, Copper and Nickel, along with precious metals including Gold and Silver, all increased in value.
In the wake of the sharp economic contractions in 2020, the IMF forecast that only China was expected to emerge with any economic growth during the year. 2021 is set to be a different story however, and with the vaccine rollout accelerating globally, there are expectations for sharp recoveries across most of the leading economies. Added to this, the new $1.9tn stimulus package in the US from the Biden administration will see heavy investment into ageing US infrastructure. These factors should ensure sustained demand and pricing for iron ore and base metals.
There is also the revolution taking place within the automotive industry to consider. The move towards EV’s is accelerating rapidly, with a plethora of commitments from key automotive manufacturers such as Ford, Volvo, BMW and Jaguar to switch to electric only production in the next few years. This move of course sounds the death knell for the internal combustion engine, but at the same time is driving the cost of battery metals and component commodities such as lithium, nickel, cobalt and graphite
The net effect is that mining, specific commodities and minerals, along with the sector’s nebulous support service industries are undergoing a significant global resurgence. Projects considered uneconomical to develop, and that have remained dormant for years are returning to life, newly financed and fast tracked thanks to the array of modern desktop technologies, data and modelling tools.
Iron Ore
In a note published last December, Goldman Sachs outlined their expectations for another substantial deficit next year (27Mt, GSe), supported by a combination of gradually decelerating China steel demand growth, sharply re-accelerating demand for Western steel and tepid supply growth. GS added that the weighting of the 2021 deficit to the front half of the year points to fundamental support for a sustained price path higher over Q1 and Q2, revising near-term targets for the benchmark 62% iron ore price to 3M $140/t and 6M $150/t.
These numbers of course imply material upside longer term, and GS have also upgraded full year forecasts for 2021 to $120/t ($90/t previously) and for 2022 to $95/t ($75/t previously).
GS sees four core drivers supporting this bullish view:
- Chinese steel production has remained strong & production in 2021 remains supported by a healthy infrastructure and property project pipeline, alongside a resurgence in China’s manufacturing capex cycle and steel exports.
- With construction and heavy industry remaining relatively less affected by second-wave lockdowns, Western steel demand is also recovering ahead of expectations. Significant regional price strength in the US and Europe is likely to spur further blast furnace restarts (and hence iron demand) after an aggressive suspensions phase in 2020 contributed to the current steel supply shortfalls as demand recovers.
- Iron ore supply growth is likely to stagnate in 2021. The limited growth that exists next year is concentrated with Vale Brazil operations, which is why their recent substantive downgrade to production guidance has had such an outsized positive impact on price.
- Chinese mill iron ore inventories remain low, raising the prospect of restocking bursts through the year.
For Cadence Minerals, this bullish outlook for iron ore puts two very firm ticks in the box, firstly for what is widely regarded as the company’s flagship Amapa Iron Ore project in Brazil, and secondly the investment in ASX and TSX listed Macarthur Minerals, with whom Amapa shares numerous infrastructural and evolutionary similarities.
Amapa Project
Bringing a project the size and scale of Amapa back to life has as expected proved to be a complex and challenging process. Nonetheless, DEV Mineração, Cadence and Indo Sino Pty Ltd are reaching a legal settlement with the project creditors, and with the ruling in February by the Commercial Court of São Paulo that port operations and the shipment of iron ore stockpiles can begin, the company is set to take the first practical step towards bringing the project back to life, which will in turn bring benefits to the Amapa region in terms of employment, health and education.
Once the creditor settlement agreement has been signed, an initial $2.5m investment will be released from escrow, meaning that the Pedra Branca Alliance (Cadence & Indo Sino JV co) will own 99.9% of DEV, the owner of the entire Amapa mining and processing assets,. At this point Cadence will proportionately own 20% of Amapa. The next step will involve a further $3.5m investment following the granting of the necessary environmental licenses required to operate the mine, which will see Cadence move to a 27% stake, with an option to increase to 49% once project financing has been raised to complete recommissioning and commence production.
Last November Cadence completed an updated Mineral Resource Estimate for Amapa, which increased the 2012 Anglo American MRE estimate by 21% to 176.7 million tonnes (“Mt”) grading 39.7% Fe in the Indicated category. With a production capacity of 5.3Mt per annum, the survey also noted there was significant potential to increase the resource base after the completion of metallurgical and optimisation studies.
Lake Giles Iron Project
Cadence also has a stake (c1%) in ASX and TSX listed Macarthur Minerals, owner of the Lake Giles Iron Project near Kalgoorlie in Western Australia. The Lake Giles project consists of the Moonshine magnetite deposit and the Ularring hematite deposit, which together have an indicated Mineral Resource Estimate of 218Mt grading 27.5% Fe in the Indicated category.
Lake Giles and Amapa share many similarities in regard to facilities and production routes, and with the Feasibility Study already underway, Lake Giles has a 3.4 Mt per annum production target with potential to scale-up operations.
Lithium
A recent paper published by commodities expert Fastmarkets FB noted that global lithium supply was developing at accelerating pace due to strong and continually growing demand. In particular the demand for compounds used in lithium-ion (li-ion) batteries such as lithium carbonate and lithium hydroxide has prompted lithium producers to expand total production while diversifying their investments in different lithium operations to ramp up production and diminish asset risk.
Despite an effective over supply in 2018-2019 that saw a price moratorium and a 50% fall in the price of battery-grade lithium carbonate in China, the subsequent seismic shift to bring forward EV production and commitments from major automotive manufacturers around the world saw the price of Lithium in China surge to an 18 month high of $9450 per tonne in January 2021.
The Fastmarkets’ research team expects global lithium demand to grow to at least 1.1 million tonnes per year of lithium-carbonate equivalent (LCE) by 2025 from an expected 300,000 tonnes of LCE in 2019, with Global lithium producers set to boost output year on year to maintain pace with growing demand. Despite this, as can be seen from the table above the numbers still don’t add up, with massive shortfalls projected by Benchmark Intelligence in lithium and other key constituent metals by 2030.
Over 2018, China emerged as the world’s leading lithium-processing hub with the rapid growth of companies like Ganfeng Lithium, which specialise in converting lithium concentrate from hard rock.
Cinovec – European Metals Holdings
The Cinovec project is the largest hard rock lithium resource in Europe and 4th largest non-brine resource in the world. Perfectly located to become the central lithium supply hub for the European EV industry, Cadence owns a 12% stake in AIM listed European Metals Holdings (EMH), which in turn owns 49% of the Cinovec project, (51% owned by utilities giant CEZ Group).
Cinovec is a potential low-cost producer at the bottom of the cost curve, and will sustainably supply 25,267 tpa lithium hydroxide or 22,500 tpa lithium carbonate into the European battery market.
Sonora Lithium Project
Cadence is a 30% joint venture partner with Bacanora Lithium (BCN) on the Fleur Lease (Mexalit & Megalit) at the Sonora Lithium Project in Mexico. A completed feasibility study values Sonora Mexico at US$1.25bn NPV, with some of the lowest production costs at $4,000/t in the industry.
AIM listed Bacanora is focused on building a 35,000 tpa lithium carbonate operation at Sonora with 50% owner and take off partner Ganfeng Lithium.
Australia Hard Rock Lithium Projects
Cadence owns three dormant hard rock lithium assets in Australia. These are Picasso (Western Australia – WA), Litchfield (Northern Territories – NT) and Alcoota (NT) all of which are in regions with proven lithium mineralisation and supportive mining infrastructure.
The Litchfield project, located near Darwin (NT), has an exploration license granted and is contiguous to Core Lithium’s (ASX: CXO) territory. Core has a JORC compliant mineral resource of 8.55Mt @ 1.33% Li2O for its Finnis project (for all six deposits).
Yangibana Rare Earths Project
Operated by ASX listed Hastings Technology Metals, Yangibana is a substantial Rare Earths deposit near Gascoyne in Western Australia. Drilling and sampling have revealed high concentrations of Neodymium and Praseodymium (NdPr), essential components in permanent magnets used in electric vehicles.
Cadence is a 30% joint venture partner with Hastings on part of the Yangibana Rare Earth Element Project. Probable Ore Reserves within the tenements held by Cadence are just over 2m tonnes with TREO of 1.66%.
The current mine plan anticipates production to start from the joint venture areas (Yangibana) in year 6.
A Key Role?
Around the world today there are countless mining exploration companies, commodity investors and mine operators with projects offering scope for development and potential for investment. The challenge with any project of this nature is matching the opportunity with the macro backdrop, projected demand for the commodity alongside capex vs. return, production routes, shipping and completion of cycle to bring the product to the customer.
Rarely if ever has the industry been presented with so compelling a backdrop for the commodity market as a whole. The significant global resurgence seen in the mining sector at present given is entirely sustainable given the level of asset purchases and spending by Governments to rejuvenate damaged economies and the inevitable resulting erosion in fiat currency value.
As economies emerge from the havoc wrought by the COVID virus and restrictions on spending are lifted, it is clear that in many cases demand will outstrip availability. This will apply almost without exception across the commodity spectrum – iron ore for steel to fund reconstruction – lithium, nickel, cobalt, graphite and rare earths to address the burgeoning demand for lithium-ion battery production.
There is no doubt that the recovering global economy is embarking on the next great Commodity Supercycle. Many mining groups and commodity project investors will benefit from this phenomenon by owning the right projects, at the right stage of evolution at the right time. On the evidence available today, Cadence Minerals is certainly one of them.
Gold Could Experience Mother-Of-All Short Covering – via Forbes
Gold is back under the spotlight because of the renewed appetite amidst traders. This is primarily because of the rising geopolitical tensions and worries over the slowing global economic growth. The gold price traded near a two-and-a-half-month peak last week and is at $1,227 at the time of writing. Year to date, the price is down nearly 5.18%.
At the start of the year, gold was trading near $1,350 and hit the highest point of $1,366 on January 25th, 2018. Not many in the street were expecting the Fed to be aggressive with their monetary policy. However, the strength in the economic data and the robust growth in the U.S. economy made the Fed to fine-tune their monetary policy. The hawkish stance towards their monetary policy pushed the dollar index higher and this triggered the sell-off in gold.
In other words, since January the price of gold has been out of luck and we have seen a clear downward trend. On August 16th, 2018, the yellow metal made a low of $1,160 but since then we have seen some serious changes in the price action because of the change in the underlying fundamentals. Anxieties around the trade war started to impact the sentiment and this triggered a profit warning by Wall Street analysts. On top of this, we also had the International Monetary Fund (IMF) coming out with a downward revision of the global economic growth. The bearish sentiment since then has picked up strength and many more hedge fund analysts have started to believe that there are more chances for a serious correction than a bull run.
On top of this, there are heightened geopolitical tensions between Saudi Arabia and the West due to the killing of journalist Jamal Khashoggi. This has put traders off from loading up major risk on bets in their portfolio. The situation is serious, and this has brought the special relation between Donald Trump and Saudi Crown Prince Mohammed Bin Salman under the spotlight. These geopolitical tensions are further anchored when we look at the mess created by Theresa May over Brexit. These geopolitical tensions are further anchored when we look at the mess created by Theresa May over Brexit. Italian budget woes just add the cherry on top . Simply put, the geopolitical tensions have started to make investors seriously worried about their portfolios and if we factor in the growth concerns over in China, it becomes clear why speculators have started to scale back from their short positions.
The recent CFTC data showed that hedge funds have decided that it is about time for them to start scaling back from their short position. This sends a strong bullish signal for the metal. This capitulation factor could intensify even further, should the Fed have a change of heart about their hawkish monetary policy. After all, Donald Trump has criticised the Fed several times about hiking the interest rate so many times this year. It is important to emphasise that back in 2015, when speculators had net long positions, it triggered a 30% move in the gold price. A similar move would help the price move to $1,500.
Sepp Blatter to Head The IMF ?
Let us start with interest rates. The month after US home sales slumped by 10.5%, the Fed under Janet Yellen announced a 0.25 rise in US interest rates to stop the economy overheating. That level of logic appears about par for the course as far as the worlds bankers and world banking are concerned. To you and me it seems completely illogical but then we are living in the real world on planet earth.
One result of the tiny interest rate tweak has been a sharp fall in sterling from over $1.40 to the pound to $1.35, showing how strong the UK economy really is and putting a big smile on David Cameron’s face by making our exports cheaper and our imports more expensive by some 3%. This will automatically lead to a rise in inflation in the UK, thereby giving the Governor of the Bank of England the opportunity which he is so plainly seeking, to raise UK interest rates, and thereby stoke inflation even higher. So even the UK banking establishment is firmly established in the unreal land of world banking which sadly has for years involved incompetence, corruption and dishonest practices on an enormous scale.
One of the worst culprits has been our own much loved HSBC which has over the past few years been fined billions upon billions of dollars by various regulatory bodies, for its part in massive fraudulent and dishonest practices. Indeed in some cases it has voluntarily agreed to pay huge penalties to prevent full exposure of how naughty it has really been.
Now we have the head of the IMF, Christine Lagarde, facing trial on charges of criminal negligence, as a person in a position of public authority, over her handling of an alleged fraud by Bernard Tapie and involving a payment of £294. The official IMF response to its Managing Director’s invidious position, is;
The IMF ” continues to express its confidence in the Managing Directors ability to effectively carry out her duties.” i.e. irrespective of whether she has been criminally negligent or not This is the IMF for God’s sake. Christine Lagarde is its head. It’s not a toy town bank. There can hardly be a greater position of public authority, anywhere in the world. And the IMF believes it is not necessary to suspend her pending her trial. Has the IMF sunk so low that it regards itself as operating on the same level as some of of the worlds shadier sporting bodies. Perhaps only now has the IMF revealed its true character.
Oxfam saw it as early as 2011 when it described the appointment process under which Lagarde had been elected as “farcical” and argued that the lack of transparency hurt the IMF’s credibility.
One wonders what credibility it did have even then, 5 years ago – her predecessor was one Dominic Strauss Kahn. Nuff said.
Perhaps there is only one person who can save the IMF, one person with the ability, the experience and the skills which the IMF really needs and where they could both work hand in glove at the same level, .- the much maligned Sepp Blatter, He even has the added advantage that he is under investigation for alleged fraud.
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Is the IMF For Real ?
After years of subjecting the Greek economy to the closest and longest scrutiny to which any modern economy has been subjected, the IMF has suddenly at the 11th hour, claimed to have “discovered” that Greece will need an extra 50 billion Euros over the next three years. Who are these people who preside over the worlds only monetary rescue organisation ? Are they so clueless that they are incapable of adding up and getting their sums right ? What explanation can they give for having missed this rather vital hole in their calculations.
Or is there a simple explanation, namely that the IMF has suddenly adjusted Greeces growth prospects downwards from a healthy 2.5% to zero over the next 3 years. Or did it get its sums wrong ? Are the new figures based on the effects which the troikas own proposals will have on the benighted Greek economy. Perhaps in the Alice in Wonderland world in which the IMF lives, it is sensible to impose additional taxes on tourism, Greece’s largest industry, additional taxes which will help to shrink the one area of the Greek economy which has been booming for the past three years.
Because Greece dared to have a democratically held referundum, the troika, like a spoilt child, has thrown a tantrum. And the euro- bureaucracy has done that with every country which has dared to hold a referendum. Even to the extent that when the result has gone against its wishes, it has forced those countries to hold a second referendum to make sure that in the end the result is the “correct” one.
And this is an organisation, let it not be forgotten, which is presided over by a woman against whom an investigation has been launched by the prosecuting authorities in her own country, for alleged involvement in a massive fraud.
No wonder the Chinese are now taking the first steps to set up an alternative fund to deal with the worlds economic casualties, an attempt supported by the UK. One can only hope that it succeeds.
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