SP Angel . Morning View . Powell Congress address in focus after strong NFPs on Friday
Paul Kettle
SP Angel Research Note -4 min read
09:49, 8th July 2019

SP Angel – Morning View – Monday 08 07 19

Powell Congress address in focus after strong Non-Farm Payrolls on Friday

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MiFID II exempt information – see disclaimer below

Beowulf Mining* (BEM LN) 6.6p, Mkt Cap £39m – CEO outlines plans for Kallak iron ore project in Sweden

BlueRock Diamonds* (BRD LN) 0.11p, Mkt Cap £1.8m – Q2 production report

Condor Gold (CNR LN) 19.5p, Mkt Cap £14.5m – £4.04m private placing

Firestone Diamonds (FDI LN) 1.325 pence, Mkt Cap £7.5m – 54 carat fancy yellow diamond recovered from Liqhobong

Horizonte Minerals (HZM LN) 1.95p, Mkt Cap £28.2m –Energy supply agreement for Araguaia

Premier African Minerals* (PREM LN) 0.047p, Mkt Cap £3.8m – Strategic loan to Namibian manganese projects

 

Dow Jones Industrials

 

-0.16%

at

  26,922

Nikkei 225

 

-0.98%

at

  21,534

HK Hang Seng

 

-1.68%

at

  28,290

Shanghai Composite

 

-2.58%

at

   2,933

FTSE 350 Mining

 

+0.87%

at

  20,255

AIM Basic Resources

 

-0.50%

at

   2,054

 

Economics

Africa – Africa Union summit agrees free-trade deal with 54 member states (Bloomberg)

  • The free-trade deal cuts 90% of tariffs by 2030 and opens the continent to greater cross-border regional trade.
  • Nigeria and Benin signed up to the free-trade deal on Sunday. Morocco is expected to also sign this week.
  • Ghana will house the new secretariat for the free-trade zone which is expected to start trading on 1 July 2020.
  • Maybe the EU can learn from African trade negotiators on how to bring countries into the union rather than help them out?

 

Henry Ford said you can have any colour of Model-T Ford so long as it is black

  • Europe says you can have any head of the ECB so long as it is European.
  • France says you can have any head of the ECB so long as it is French. Step forward Christine Lagarde.
  • Germany says you can have any president for the EC so long as they are supported by Mrs Merkel. Step forward nominee Ursula von der Leyen.
  • Turkey says the central bank governor can have any view so long as it is that of President Erdogan.
  • The US Fed can have any view so long as it does not appear to agree with President Trump.
  • China simply expects everyone to adhere to the party line

 

German – 10-year German sovereign debt yield -0.38%

Greece – 10-year Greek sovereign debt yield falls to 2.09%

  • This is below, below the 10-year US Treasury yields at 2.02%

 

Boeing loses an order for 50 737 Max jets valued at $5.9bn from Flyadeal, a Saudi Arabian low-cost carrier, in another setback for the Company.

  • Flyadeal will be now directing the order to Airbus for their A320 models.
  • Additionally, the European Aviation Safety Agency is reported to identified five major issues it wants Boeing to address before allowing 737 Max to return to service.
  • These include one issue that has not been flagged before involving the aircraft’s autopilot function.

 

US – Employment numbers surprised markets on Friday leading to a pull back in equities and a jump in the US$.

  • The reading (224k) exceeded the top end of the consensus forecast range that led to some doubt the FOMC will cut the rate this month.
  • US Treasury yields are coming back this morning with markets continuing to price a certain rate cut at the end of the month.
  • A sharp recovery in NFPs during the month saw the 3m average coming at 171k.
  • Pay growth has also held up well having grown 3.1%yoy in June v 3.1% in May and 3.2% forecast.
  • Fed Chairman Jerome Powell will address Congress on Wednesday in his twice-yearly testimony on monetary policy and the state of the economy.
  • NFPs (‘000): 224 v 72 (revised from 75) in May and 160 forecast.

 

China – Auto sales post the first increase since May/18 as dealers offer discounts to clear inventories ahead of new emissions rules.

  • Retail sales of sedans, SUVs, minivans and multipurpose vehicles climbed 4.9%yoy to 1.8m units in June, according to the China Passenger Car Association.
  • Dealers are said to have cut prices by as much as 50% in recent weeks, according lo local media reports, as to reduce inventories of vehicles that do not meet new stricter emission standards.
  • 18 provinces and regions that account for most of Chinese car sales require vehicles to meet the new criteria as of July 1, Bloomberg reports.

 

Japan – BoJ Deputy Governor said the central bank is ready to increase the stimulus and will consider all policy options including cutting negative interest rates more should weaker economic outlook risk the 2% inflation target.

  • In further loosening the monetary policy the BoJ has four options including deepening negative interest rates, cutting its 0% long-term bond yield target, ramping up asset buying and accelerating the pace of its money printing, Reuters reports.

 

Germany – Industrial production reported a marginal increase in May from the previous month, although the outlook remains weak as reflected by a sharp drop in orders reported in Friday.

  • A 0.3%mom increase comes after a 2.0%mom drop in April and is reported to have been driven by gains in capital and consumer goods production while construction dropped.
  • German economy has been heavily hit by both troubles in the car industry as well as its reliance on exports amid a weakening global growth outlook.
  • Industrial Production (%mom/yoy): 0.3/-3.7 v -2.0/-2.3 in April and 0.4/-3.2 forecast.

 

Turkey – The lira was off 3$ in the morning trading hitting a low of 5.793 on the news that President Erdogan fired the central bank head.

  • Murat Cetinkaya has been removed from the role on Saturday with a year left of his four year term.
  • Mr Erdogan has been criticising the central bank monetary policy saying last month that the benchmark rate was too high at 24%.

 

Iran – On Sunday, Iran said it will shortly boost its uranium enrichment above a cap set by the 2015 agreement in an effort to persuade the remaining signatories to help work around the US sanctions.

  • All measures taken to violate commitment to the agreement were “reversible” should the European members of the pact fulfil their obligations, Foreign Minister Zarif tweeted n Sunday.
  • President Trump urged Iran to “better be careful” hours after Thran announced its intentions to breach the cap.

 

Deutsche Bank cuts 18,000 jobs mainly in equities and investment banking

  • While the cuts are deeper than expected they have also been coming for a long time with many employees knowing they were being cut for some time.
  • Deutsche is reported by Bloomberg to be closing most of its Asia equity businesses. Deutsche’s London office is expected to bear significant job losses.

 

Currencies

US$1.1225/eur vs 1.1268/eur last week.  Yen 108.34/$ vs 107.97/$.  SAr 14.188/$ vs 14.059/$.  $1.252/gbp vs            $1.258/gbp.  0.699/aud vs 0.702/aud.  CNY 6.888/$ vs  6.873/$.

 

Commodity News

Precious metals:         

Gold US$1,407/oz vs US$1,415/oz last week

   Gold ETFs 74.1moz vs US$74.2moz last week

Platinum US$813/oz vs US$832/oz last week

Palladium US$1,562/oz vs US$1,566/oz last week

Silver US$15.07/oz vs US$15.22/oz last week

           

Base metals:   

Copper US$ 5,886/t vs US$5,889/t last week

Aluminium US$ 1,804/t vs US$1,804/t last week

Nickel US$ 12,570/t vs US$12,280/t last week

Zinc US$ 2,392/t vs US$2,420/t last week

Lead US$ 1,880/t vs US$1,880/t last week

Tin US$ 18,430/t vs US$18,350/t last week

           

Energy:           

Oil US$64.4/bbl vs US$63.1/bbl last week

Natural Gas US$2.426/mmbtu vs US$2.288/mmbtu last week

Uranium US$24.55/lb vs US$24.50/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$109.3/t vs US$116.0/t

Chinese steel rebar 25mm US$619.3/t vs US$621.2/t

Thermal coal (1st year forward cif ARA) US$67.7/t vs US$66.0/t

Coking coal futures Dalian Exchange US$204.0/t vs US$198.2/t

           

Other:  

Cobalt LME 3m US$29,000/t vs US$29,000/t

NdPr Rare Earth Oxide (China) US$49,020/t vs US$50,193/t

Lithium carbonate 99% (China) US$9,223/t vs US$9,239/t

Ferro Vanadium 80% FOB (China) US$36.7/kg vs US$36.9/kg

Antimony Trioxide 99.5% EU (China) US$5.6/kg vs US$5.6/kg

Tungsten APT European US$230-242/mtu vs US$250-255/mtu

*Pricing sourced from Bloomberg

 

Battery News

Toyota tests electric vehicle powered by new high-efficiency solar cells

  • Sunny parking spots may become more popular with Toyota’s new solar powered electric vehicle.
  • Toyota reckon that by plastering high-efficiency solar panels all over a car then you could boost your range by some 35 miles a day.
  • Given that many cars are only driven at weekends then five days of solar recharging could give an extra 175 miles of free motoring or 245 for the week
  • The concept could radically reduce charging times and the power supply required to run the next generation of electric vehicles.
  • This combined with significant advances in electric motor efficiency, regenerative braking and battery capacity could bail out utilities that appear ill-prepared to meet future power supply or distribution expectations for millions of electric vehicles.
  • Toyota currently have a $2,000 solar roof option for the Prius plug-in hybrid weighing in at 180 watts which might just get you the last few miles to a charging station .
  • The new high-energy cells convert solar power at a 34% rate offering 860 watts of power, though these are not commercial cells as yet.

 

Power Resources Group offers to buy Metalysis out of administration

  • Metalysis has electrochemical processes for the production of tantalum and titanium powder alloys from refined raw material concentrates.
  • Power Resources Group have operations in Malta, Macedonia, Slovenia and Rwanda

 

Company News

Beowulf Mining* (BEM LN) FOLLOW 6.6p, Mkt Cap £39m – CEO outlines plans for Kallak iron ore project in Sweden

  • Beowulf Mining have outlined plans for the Kallak iron ore project in Sweden where management have an immediate three-step plan for advancing the project when the Swedish Government awards the Concession.
  • Scoping Study completion within 12 months of the concession award and environmental permitting.
  • Formation of a ‘Development Taskforce’ with the local community for the coordination of the project development.
  • To advance discussions with the Sami reindeer herding communities and that Sami communities benefit from the development of a mine at Kallak.
  • Kurt Budge, Beowulf, CEO, has been presenting his three-point plan a the Swedish Almedalen Political Week gathering which occurs once a year in Visby, Sweden and provides an opportunity for businesses to meet with politicians and other key decision makers.
  • Beowulf Mining is now 62% owned by Swedish shareholders with 38% still held by UK investors.

Conclusion: With iron ore prices at US$109.3 per tonne and with LKAB running out of iron ore at its Kiruna mine in the north of Sweden, Beowulf’s Kallak project should be of increasing interest to the Swedish people as well as to LKAB from a potential resource-replacement perspective.

*SP Angel acts as nomad and broker to Beowulf Mining

 

BlueRock Diamonds* (BRD LN) FOLLOW 0.11p, Mkt Cap £1.8m – Q2 production report

  • BlueRock Diamonds reports record quarterly production, throughput and grade for the 2nd quarter 2019. Total diamond production for the quarter amounted to 3,516 carats (Q2 2018 -875 carats) from the processing of 78,759 tonnes of ore (Q2 2018 – 13,247 tonnes).
  • Among the factors identified as contributing to the improved operational performance are reduction in mine dilution resulting from changes to operating procedures which “has also led to an improved grade and the increased volumes have resulted in the expected increase in the incidence of larger and higher grade stones.“
  • As previously reported, during June, the company sold a 24.9 carat diamond recovered from Kareevlei for US$190,000 contributing to overall revenue of US$1.08m (Q2 2018 – US$0.27m) and improved average value per carat of US$430/ct (Q2 2018 -US$305/ct).
  • Commenting on the improving performance, Chief Executive, Mike Houston, said “Once we have achieved our key objective of operating the Company profitably, which we expect to happen in the second half of 2019, we will explore how to increase production volumes further to the optimum level which the resource can comfortably sustain. With all this in mind, we remain on track to meet our guidance targets for 2019 and 2020” which currently stand at 280-335,000t or ore at a grade of 4.25-5.00cpht (carats per hundred tonnes) for the production of 12,000-16,500 carats at a projected value of US$340/carat.
  • The company also indicates guidance for 2020 when it expects to process 380-430,000t of ore at similar grades to produce 16- 21,500 carats of diamonds.
  • Looking further ahead, “Management continue to develop and refine its mining plan in order to optimise mining across the five known kimberlite pipes at Kareevlei in line with the Company's strategy to have a higher level of flexibility in its mining operation.  The Board is also considering ways to increase monthly production to above the current target of 40,000 tonnes a month”.
  • We also note that “The Board has proposed a 1 for 500 share consolidation in order that the BlueRock shares can trade in a more normal price range. This proposal is to be considered and voted upon at the Shareholders' AGM meeting on 25 July 2019.”

Conclusion: The new management team has produced a record operating performance in Q2 2019 and its guidance for the full year 2019 and also for 2020 indicates that it expects to increase production rates further while also examining the opportunities to lift production beyond 40,000tpm.

*SP Angel acts as Nomad & Broker to BlueRock Diamonds

 

Condor Gold (CNR LN) FOLLOW 19.5p, Mkt Cap £14.5m – £4.04m private placing

  • Condor Gold reports that it has raised approximately £4.04m via a private placing of approximately 20.2m units at a price of 20p per unit. Each unit comprises one share and one third of a share purchase warrant entitling the holder to purchase an additional share at a price of 25p for a period 36 months.
  • The placement proceeds will be used to advance the La India Project towards production following the grant of an Environmental Permit to construct and operate a 2,800 tonne per day processing plant with capacity to produce 100,000 oz gold per annum from La India open pit. The proceeds will also be used to meet conditions of the Environmental Permit including the completion of engineering and other technical studies and for the acquisition of some or all of land for the mine site infrastructure.”
  • Commenting on the placement, in which he and other directors participated, CEO, Mark Child, said “Condor Gold has conducted a private placement to raise gross proceeds of approximately £4.04 million by issuing new ordinary shares representing 27% of the Company's existing issued share capital”.
  • Jim Mellon, a director, provided “the lead order of £1.25million for the Placing and several other existing shareholders who have participated in the Placing. I take this opportunity to welcome Nicaragua Milling Company Limited as a 10.4% shareholder post placement. Nicaragua Milling Company Limited is controlled by Randy Martin, a mining engineer with a long history of operating in Nicaragua, Central and South America. Mr Martin was founder and CEO of RNC Gold Limited until its merger with Yamana Gold Inc in 2006.”

 

Firestone Diamonds (FDI LN) FOLLOW 1.325 pence, Mkt Cap £7.5m – 54 carat fancy yellow diamond recovered from Liqhobong

  • Firestone Diamonds reports the recovery of “a 54 carat intense fancy yellow, sawable diamond from its Liqhobong Mine in Lesotho. The diamond will go on sale at the next tender which is scheduled to take place during September 2019.”
  • CEO, Paul Bosma, while commenting that the mine “has become known for its fancy yellow stones” confirmed that “this one is the largest we've recovered so far and is therefore quite special. Although certain segments of the diamond market are currently struggling, the demand for unique natural stones remains positive."

 

Horizonte Minerals (HZM LN) FOLLOW 1.95p, Mkt Cap £28.2m –Energy supply agreement for Araguaia

  • Horizonte Minerals reports that it has been awarded the Energy Decree which guarantees national grid power for the 80Mwh required to produce 14,500 tonnes per year of nickel in ferro-nickel Phase 1 capacity of its wholly owned Araguaia project in Brazil.
  • The company confirms that engineering and permitting work for the 230kV power transmission line to connect Araguaia to the grid is underway.
  • Commenting on the award of the Energy Decree, Chief Executive, Jeremy Martin, confirmed that “This is another key permit as we move towards the implementation phase. The availability of energy for mining projects is a risk in many countries, and this Decree guarantees the Company has access to the grid for the full-scale Stage 1 commercial operation with nameplate capacity of 14,500 tonnes of nickel per year.”
  • Mr. Martin also confirmed that “we continue to advance the project financing (PF) on Araguaia … [and that] … Discussions are also underway with a number of groups on product marketing and offtake.”

 

Premier African Minerals* (PREM LN)FOLLOW  0.047p, Mkt Cap £3.8m – Strategic loan to Namibian manganese projects

  • Premier African Minerals has announced that, in conjunction with Cambrian Limited, it has agreed to lend US$1.35m to the operating Otjozondu Manganese Mining Project in Namibia.
  • The loan, which carries a 10%pa interest rate “will enable … [the Otjozondu mine] … to conclude the purchase of significant additional plant and equipment from the nearby Purity Mine to allow Otjozundu to steadily increase production and revenues.”
  • The mine is located approximately 150km north-east of Windhoek in what is described as “a well-known and established manganese district”. Otjozunu management is reported to be consolidating tenements in the district and now controls some 1,367km2 “and more than 114 kilometres of strike, of which only 14 kilometres has been explored to the point of declaration of a JORC resource”.
  • The current indicated mineral resource for the Otjozundu mine is reported, in accordance with JORC (2004) amounts to 4.3mt at an average grade of 22.3% manganese with an additional 10.7mt classified as inferred at an average grade of 22.5% manganese.
  • The Otjozundu mine is “Currently exporting 4,500 tonnes lump ore per month at better than 35% Mn, 54,000 tonnes per annum, equivalent to not less than 150,000 dmtu per month” via established road and rail links to the port of Walvis Bay. The company says that “Current monthly gross revenue generated exceeds US$750,000”.
  • The “loan proceeds will be specifically used … to purchase additional mining fleet and processing equipment, both used and new, from Purity Mining which has operated in an adjacent area” and increase “throughput … [to] … 220,000 lump ore, or not less than 7,7 million dmtu of exports by the end of 2020, which should result in substantially increased gross revenues. MNH believes that there is also the opportunity for further increase in sales through the reprocessing of fines that have been contained in waste dumps at Otjozondu that have been built up since mining commenced in late 1930s.”

Conclusion: The loan to the operating Otjozundu manganese mine in Namibia is intended to facilitate expansion and further exploration within an established manganese producing area. We interpret this as consistent with Premier African Minerals stated desire to diversify beyond Zimbabwe and to focus on profitable revenue generating assets.

*SP Angel have an agreement with Premier African Minerals as a result of the acquisition of Northland Capital Partners

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

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.

 

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

DCE

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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