SP Angel . Morning View . Gold rises on escalation of tension in Middle East

SP Angel – Morning View – Friday 14 06 19

Gold rises on escalation of tension in Middle East

Clean air drive boosting European lithium prospects

CLICK FOR PDF

MiFID II exempt information – see disclaimer below  

Asiamet Resources (ARS LN) – BKM Feasibility Study and resource upgrade

Edenville Energy* (EDL LN) – Coal plant upgrades near completion

 

Gold prices likely to gain as tensions rise in the Middle East on Tanker torpedo

US – Trump “‘If Iran wants to fight, that will be the official end of Iran. Never threaten the United States again!” May 19

• Trump has since placed sanctions on oil and metals from Iran
• The US also send 1,500 troops, drones, and fighter jets into the region to counter the threat from Iran.
• Trump is keen to talk to Iran, but for those talks to be supported with troops at his back.

 

US – Federal Reserve increasingly likely to cut rates as US economic data weakens

• Copper prices rallied as US and other hedge funds cut their short positions in copper in case of a Fed-led rally in commodities on lower interest rates.
• Unfortunately, there is an increasing view that the US–China Trade War may not be settled till later in the year, which may serve to hold back copper and other metals prices.
• China has talked of ramping up its Belt & Road infrastructure initiative which extends road and rail for transport of goods out of China towards the West and into key markets.
• The Belt & Road initiative requires major rail, road and related infrastructure such as bridges, cargo terminals, stations, etc….

 

Trump holds back on deadline for next $325bn of tariffs

US – threatens Tariffs on French wine - Sacre Bleu!

• Trump has described negotiations with China as good but ‘testy’.
• Trump says he is still keen to meet with President Xi Jinping despite threatening to put tariffs on nearly everything not already covered by the current tariff structure.

 

China – Industrial growth falls to 17-year low on Trade War sentiment (Reuters)

• China reports that Industrial Production growth has cooled to 5.0% yoy in May vs expectations for 5.5% and 5.4% seen in April.
• The fact that 5.0% is at a 17-year low is testament to China’s amazing expansion over the past 17 years.
• The figures are also distorted by the ramp up of production last year to beat the introduction of rump’s new tariffs.
• 5.0% yoy growth is still a remarkably strong number though other economic forecasters are often a little more cautious over the real rate of Chinese economic activity.
• Other Chinese stats also showed slower growth.
• Fixed Asset investment also came in at +5.6% yoy vs 6.1% in polling.
• Private sector fixed-asset investment (60% of total investment) rose 5.3% vs 5.5% for the year to end April.
• Infrastructure investment grew 4.0% in May down from 4.4% in April.
• Retail sales growth was slightly better at +8.6% vs 8.1% in a recent poll.

 

Belt & Road Initiative ‘BRI’ could cost US$4-8 trillion globally as China trade reconnects with the world

China investment into BRI to cost $1.2-1.3tr by 2027 (Morgan Stanley Chief China Economist)

China-Pakistan Economic Corridor ‘CPEC’ cost US$54bn

• China’s massive Belt & Road infrastructure program is seen as driving substantial demand for steel and related raw materials.
• Reacceleration of this huge project is being used to support Chinese industry at a time when other manufacturing activity is pulling back due to the Trade war with the US.
• The program is being partly funded through loans to governments which will struggle to repay the massive cost of the new infrastructure.
• Benefits will be increased trade and traffic through China’s neighbouring nations as well  as closer integration though this may benefit China more than its neighbours.
• One rail project in Laos is estimated to cost US$5.95bn with $1.78bn being paid for by a local government which can ill afford such debt.
• The ability for China to ramp up the ‘BRI’ is a powerful tool for PRC to use to offset the impact of slowing trade with the US while developing new markets to sell Chinese products into.
• Ironically, having witnessed the deconstruction and scrapping of Russian-built factories in a number of Central Asian countries to feed Chinese scrap mills, China might start to restore economic activity in some of the regions. Sadly, we suspect the Communist system may, one day, repeat the economic disaster inflicted on these regions by the collapse of the FSU.

 

Ferro-vanadium prices rise 0.7% in China to $35-37/kgV

• Vanadium pentoxide prices have also picked up 3.9% to $7.9-8.2/lb V2O5.
• Ferro-vanadium prices remain steady in Western Europe at $34-37/kgV following its pull back from a high of $128/kgV in mid-November.
• We feel vanadium has been oversold by Chinese traders into Europe and suspect that news on China’s acceleration of its Belt & Road infrastructure initiative may prompt the restocking of ‘compliant’ vanadium-bearing rebar and other steel alloys in China.

 

Dow Jones Industrials		+0.39%	at	26,107
Nikkei 225		+0.40%	at	21,117
HK Hang Seng		-0.73%	at	27,095
Shanghai Composite		-0.99%	at	2,882
FTSE 350 Mining		+0.35%	at	20,130
AIM Basic Resources		-0.05%	at	1,988

 

Economics

EU – warns UK must pay $49bn for Brexit or risk relations with entire EU block

• UK relations with the EU are so low we struggle to see significant further downside risk

 

Toyota – accelerates rollout of Electric vehicles and new models

• Half global sales targeted by 2025, five years earlier than its previous forecast.
• Toyota has also made its secret electric vehicle and hybrid technology open source in a generous move to help the industry move faster to EV production

 

Cameroon – 88 killed in suspected Boko Haram attack

• The attack killed 16 Cameroonian soldiers.

 

Uganda – second Ebola victim dies

• Ebola has spread from the Eastern DRC into Uganda indicating a potential escalation of the threat to humanity.
• Between 1,400 and 2,000 people have died in the DRC over the past 10 months with aid workers trying to contain the disease hampered by violence and a lack of fooperation with outsiders.
• If the disease spreads further within the DRC it could threaten supplies of copper, cobalt, tin and tantalum.

 

The avocado toast index

• Some years ago we started off with the London Stock Exchange index.
• The some clever chap invested the Big Mac index.
• Today we have the Avocado Toast index – to show Gen X and other millennials how sacrificing a few tasty breakfasts might help the younger generation buy seemingly unaffordable property.
• http://www.bbc.com/capital/story/20170530-the-avocado-toast-index-how-many-breakfasts-to-buy-a-house

 

China – heavy rain washes away buildings in Yongzhou City, Hunan

• Heavy rain has hit a number of provinces in Central China.
• A video released by the China Xinhua News agency shows the shocking state of housing in Yongzhou indicating that China has a long way to go in terms of reconstruction and proper building standards.
• A but of extra vanadium in Chinese steel rebar will go along way to firming up these buildings through the collapsed structures look like they may not have had much in the way of reinforcement.
• https://twitter.com/XHNews/status/1139415646502977538

 

Currencies

US$1.1282/eur vs 1.1296/eur yesterday  Yen 108.21/$ vs 108.28/$  SAr 14.845/$ vs 14.889/$  $1.267/gbp vs $1.267/gbp  0.690/aud vs 0.691/aud  CNY 6.922/$ vs 6.917/$

 

Commodity News

Precious metals:         

Gold US$1,356/oz vs US$1,338/oz yesterday

• Gold busts through $1,350/oz, hitting the highest level since April 2018, as geopolitical tensions escalate in the Mideast.
• Gold has advanced in June, shaking off a lackluster few months, as investors brace for more uncertainty around global trade and expectations the Federal Reserve is set to lay the groundwork for looser monetary policy at its meeting next week.
• Save-haven assets also go support from jitters in the Middle East after Secretary of State Mike Pompeo said intelligence reviewed by American officials blamed Iran for attacks on two oil tankers in the Gulf of Oman, a critical waterway for the transit of much the world’s oil.

   Gold ETFs 72.4moz vs US$72.3moz yesterday

Platinum US$814/oz vs US$814/oz yesterday

Palladium US$1,455/oz vs US$1,417/oz yesterday

Silver US$15.05/oz vs US$14.83/oz yesterday

           

Base metals:   

Copper US$ 5,846/t vs US$5,841/t yesterday

Aluminium US$ 1,779/t vs US$1,785/t yesterday

Nickel US$ 11,965/t vs US$11,995/t yesterday

Zinc US$ 2,479/t vs US$2,512/t yesterday

Lead US$ 1,893/t vs US$1,891/t yesterday

Tin US$ 19,280/t vs US$19,325/t yesterday

           

Energy:           

Oil US$61.5/bbl vs US$61.7/bbl yesterday - OPEC cuts demand growth forecast for 2019

Natural Gas US$2.332/mmbtu vs US$2.370/mmbtu yesterday

Uranium US$24.80/lb vs US$24.95/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$106.8/t vs US$102.5/t

Chinese steel rebar 25mm US$600.2/t vs US$600.8/t

Thermal coal (1st year forward cif ARA) US$64.4/t vs US$63.7/t

Coking coal futures Dalian Exchange US$196.9/t vs US$197.1/t

           

Other:  

Cobalt LME 3m US$28,000/t vs US$28,000/t

NdPr Rare Earth Oxide (China) US$51,789/t vs US$51,690/t

• While dominating global production of rare earths, unsustainable operations and environmental negligence have taken their toll on the quality of domestic supply for China.
• As reported in the document “Contrasting perspectives on China’s rare earth policies”, the production of one tonne of REE from southern Jiangxi province ion-absorbed ore can produce 60,000m3 waste gas containing hydrochloric acid, 200m3 acid-containing waste water and 1-1.4t radioactive waste.
• Another article “Rare Earths: Shades of Grey – Can China continue to fuel our global clean and smart future” estimates the cost of rehabilitating devastation in South China alone between US$10-20bn, with the re-handling of vast tailings taking 70 years.
• China’s ‘Blue Sky’ initiatives are now targeting more sustainable domestic supply by rationalisation of production into 6 major groups to minimise illegal mining and enforce stricter environmental controls. This will place more pressure on China to secure more international supply to maintain their global dominance.
• The top producer has also launched a survey of local production in seven regions, including Inner Mongolia and Jiangxi province, amid Beijing’s threats to curb global supplies in retaliation for tariffs imposed.
• According to China Securities Journal, the nation’s state planner, industry ministry and the natural resources ministry began site visits and meetings across the country on Monday to assess the “general upstream, midstream and downstream situation of rare earths and other strategic mineral resources.”

Lithium carbonate 99% (China) US$9,534/t vs US$9,615/t

Ferro Vanadium 80% FOB (China) US$38.8/kg vs US$38.5/kg

Antimony Trioxide 99.5% EU (China) US$5.8/kg vs US$5.8/kg

Tungsten APT European US$260-270/mtu vs US$260-270/mtu

 

Battery News

Geely & LG Chem form new EV battery joint venture for initial term of 20 years

 

Tesla to pay 25% tariffs on components made in China in Model 3

• Tesla had been hoping to be exempted from Trump’s new 25% tariffs.
• Sadly for Tesla the US administration is making few in any exemptions to its new Tariff structure

 

Clean air drive boosting European lithium prospects

• Swelling demand and growth figures are creating surging interest for capital to establish supply network in the world’s second-largest EV market after China.
• A regional EV supply chain would help achieve European Union goals to lower carbon emissions, cut fossil fuel consumption and strengthen the ability of the continent’s automakers and battery makers to compete with Asian rivals CATL, LG Chem and Samsung.
• Chris Berry, independent lithium analyst adds “there’s a lot of awareness from the top down, especially from government”.
• France and Germany last month teamed up on a plan worth up to €6bn ($6.8bn) to jointly invest in the European production of EV batteries.
• Indeed, Vice President of the European Commission, Maros Šefčovič, called for the “European Investment Bank to become more fully engaged in raw materials project in exploration, mining and refining. The European Bank for Reconstruction and Development is preparing a €60m Exploration Investment Facility.”
• In Spain, which is considering a ban on internal combustion engines, Infinity Lithium Corp, is pushing to open a hard-rock lithium mine and chemical plant within two to three years.
• In Portugal, Savannah Resources are targeting spodumene raw materials from a hard-rock mine. With limited refining across Europe, spodumene material would have to be transported to China for upgrading, before making the return leg as a battery-ready product.
• The Portuguese government also plans to launch an international auction of lithium exploration licenses this month, with bidders expected to commit to building a local lithium refinery.
• While environmental regulations have historically led to drawn out lead times, a focus on sustainable production should prove successful. Indeed, VW are actively seeking carbon neutrality along the entire value chain, placing equal weighting on sustainability as selection criteria on par with quality or price.

 

Southwestern states best for solar

• States in the Southwest US tend to have better solar resources and higher capacity factors than those in the rest of the country, the US Energy Information Administration notes.
• Arizona’s utility-scale solar PV plants were best of all, boasting a 29.1% capacity factor from 2014-2017. Utah and California ranked second and third respectively. Solar capacity factor is generally determined by three main factors - resource quality, tracking capabilities, and inverter size.
• States at similar latitudes in the Southeast, including Georgia and North Carolina, the latter of which has the second highest installed solar capacity in the US, only trailing California, didn’t measure up in capacity factor.
• And as you might expect, states in the Northeast fell behind those Southeast states.

 

France boosts wind targets

• French Prime Minister Edouard Philippe said the country will increase its offshore wind development targets from 500 MW to 1 GW annually, Reuters reports.
• A French energy plan released last year would see the country go from zero to 5 GW in offshore wind capacity by 2028, which would be about a 500 MW-per year pace. But dropping costs and an urge to get more power from renewables already has France increasing its target.
• Philippe also confirmed France’s remaining coal-fired power plants will be closed by 2022 as previously announced.

 

Uber to use drones for food deliveries

• It’s a great idea but it’s going to make for some funny delivery incidents.
• Delivery moped riders will have to get used to driving drones through screens

 

Tunisia Solar

• Tunisia is looking to increase foreign investment in its renewable energy sector, and the country’s industry and energy minister Slim Feriani said Wednesday that winners of its 500 MW solar tender will be announced in September.
• Sixteen investors from around the world are looking to get in on the action, Reuters reports. Feriani expects solar energy production could begin as soon as a year after the tender winners are announced.
• Tunisia has only built about 300 MW of renewable energy capacity in the last two decades, but the country has big plans going forward. The government wants to reach 3.5 GW of solar and wind by 2030, and Feriani now thinks the country may be able to hit those marks even earlier.

 

Solar-powered theme park

• Six Flags Great Adventure, a theme park in New Jersey, announced its completion of a new 23.5 MW solar project. The new project ensures Great Adventure is now “almost fully-powered by solar energy.”
• The project is made up of two portions: 12.5 MW of ground-mounted solar panels in a 40-acre space are joined by 11 MW of solar carports over three parking lots.
• Great Adventure’s project is also net-metered, and park officials claim it’s the largest net metered solar project in the state.

 

Company News

Asiamet Resources (ARS LN) FOLLOW 4.55p, Mkt Cap £47.5m – BKM Feasibility Study and resource upgrade

• Asiamet Resources reports that its feasibility study for the BKM copper project in Kalimantan has demonstrated  25,000tpa, of cathode copper production at a cash cost of US$1.65/lb and an all-in sustaining cost of $1.78/lb over an initial 9 years open-pit mine life using heap leaching and solvent-extraction/electrowinning (SX/EW).
• The company’s study shows that, at a copper price of US$3.30/lb (US$7,275/t), an initial capital expenditure of $192m is expected to generate an after tax NPV of $133.5m at an 8% discount rate and an IRR of 19.5% excluding closure costs.
• Asiamet believes that value enhancement opportunities are available which have the potential to  generate an additional $35m of value through implementing, amongst other improvements,
  • pre-treatment of less leachable ores which might add $20m; and
  • a further $5m from improvements to the understanding of the geological and structural controls on mineralisation;  and
  • “further refining the methodology of ore block classification to enhance metal and commercial returns ~$3.5 million”; and
  • $4m from the substitution of locally generated power generation from coal in preference to gas fired power generation; and
  • Savings of around $3m from “reduced construction earthworks costs using local contractors and delivering synergies working with the mining contractor”.
• As well as improvements to the current project, Asiamet has identified exploration targets “close to the proposed BKM mine” which could “expand the current mineral inventory and substantially impact the value of the BKM project through mine life extension beyond 2030”. These opportunities include investigating “the link zone target” between the BKM and BKZ deposits.
• Acknowledging the completion of the study as “a major milestone for Asiamet”, Chief Executive, Peter Bird, said that “Having successfully completed the Feasibility Study, we are now in a position to complete detailed discussions with potential partners and advance an array of debt and equity financing opportunities.”
• Asiamet has also upgraded the mineral resources estimate for the BKM deposit as part of its feasibility study. The overall resource, using a cut-off grade of 0.2% Cu Eq and the JORC (2012) standard,  is now 69.6mt at an average grade of 0.6% copper. Approximately 30% of the total (20.6mt averaging 0.7% copper) is classed as measured, 50% (34.1mt averaging 0.6%) is defined as indicated and the balance as inferred resources.
• The company explains that the deposit remains open both laterally and at depth. The depth extensions may be geologically complex as the company reports that “Three deep holes under the main areas of near surface mineralisation have failed to intersect significant copper mineralisation; however the depth repetition of mineralisation has not been fully tested.  There are indications from the structural interpretation that repeat systems at depth and proximal to the Beruang Kanan Main Zone may exist”, suggesting that in the first instance pursuing exploration laterally may prove more fruitful than at depth.

Conclusion: Completion of the feasibility study may now shift the company’s emphasis towards financing the project development. The company hints that further refinement of the existing plan has the scope to generate significant improvements to the valuation while identified exploration opportunities in close proximity to the planned pit may deliver enhanced mine life.

 

Edenville Energy* (EDL LN) FOLLOW 0.03p, Mkt Cap £0.5m – Coal plant upgrades near completion

• Edenville Energy report the the majority of the planned plant upgrades at their Rukwa coal project in Tanzania have now been completed.
• Modifications to the coal pre-screen to remove coal fines reducing consumption of costly consumables
• The modification should result in more efficient material sorting
• Better throughput capacity and cleaner coal recoveries.
• Edenville is also looking at processing its reject fines stockpile
• Management have also introduced a coal sizer at the start of the pre-screen which should become operational in July.
• Northern Mining Area: The team have opened up access to the new northern mining area with access in June from the pit to the plant. The new mine area is expected to produce better coal yields going forward.
• First coal deliveries from the Northern Area are scheduled for July with mining of the current pit area and stockpiles till then
• Sales: the company is confident it will be able to secure contracts with existing and new clients for its expanded coal production.
• Management consider Edenville is on track to become cashflow positive within the next 10 months, targeting an initial 6,000t per month which they consider a breakeven level. Production should increase to >10,000t per month thereafter.
• Edenville recently raised £454,000 by way of a placing for the expansion of the Rukwa coal mine. The new shares represent some 58% of the enlarged share capital.
• The company also recently extended it’s Lind convertible facility repayment holiday period from 16 February 2019 to 1 September 2019 in return for (among further conditions):

• An increase in the amount of the first convertible facility outstanding by 15% to $983k;
• Convene a General Meeting to approve a 100:1 consolidation
• Convene a General Meeting to approve allotment of 2bn new shares due to be issued to Lind under the Funding Arrangement (if the resolution not passed before 30 May, the outstanding amount of the first tranche to be increase by 10%)

*SP Angel acts as Nomad and Broker to Edenville Energy

 

 

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.

 

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II - Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%