SP Angel . Morning View . Wednesday 09 10 19

US-China trade conflict sees global growth slowing further

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MiFID II exempt information – see disclaimer below

  

Erris Resources (ERIS LN) – Scandinavian exploration update

Rainbow Rare Earths (RBW LN) – Annual results and strategic review

Strategic Minerals* (SML LN) – Redmoor acquisition payment

 

Dow Jones Industrials

 

-1.19%

at

  26,164

Nikkei 225

 

-0.61%

at

  21,456

HK Hang Seng

 

-0.81%

at

  25,683

Shanghai Composite

 

+0.39%

at

   2,925

FTSE 350 Mining

 

-0.58%

at

  17,202

AIM Basic Resources

 

+0.38%

at

   2,121

 

Economics

The IMF is guiding for global growth rates’ downgrade with new estimates due October 15, new head of the financial institution Kristalina Georgieva said.

  • The fund lowered its projections to 3.2% this year and 3.5% next year in the previous World Economic Outlook (July) marking the fourth downward revision since last October.
  • The US/China conflict is reported to have caused a drop in manufacturing and a slowdown in business investment which poses “serious risk” of spillover to other areas of the economy including services and consumption, Georgieva said.
  • The fund estimates that 90% of the world is seeing slower growth which contrasts to growth accelerating across 3/4s of all countries two years ago.
  • Georgieva urged governments to offer “a coordinated fiscal response” to avoid a deeper slowdown.
  • Earlier World Bank President David Malpass said they will be cutting their world growth rate from 2.6% estimated in June that is already the slowest pace in three year further down.

 

US – Escalation of the trade war standoff between the US and China drives the risk off sentiment with equity indices closing lower while gold and US Treasuries attracting more demand.

  • Earlier the US blacklisted eight Chinese companies as well as announced visa bans on a number of Chinese officials on the grounds of human rights’ violations in dealing with Muslim minorities in the region of Xinjiang.
  • Additionally, the administration is said to be exploring options over possible restrictions on portfolio flows into China, especially carried by US government pension funds, Bloomberg reports; the White House denied such claims.
  • People familiar with the matter are suggesting the government is arguing that Americans are harmed by providing funds to Chinese firms that are allegedly involved in human-rights violations and at the of US national security concerns.
  • In response to the news over backlisted companies, a Chinese official said the country will retaliate.
  • This all offers ramps up concerns that top level negotiations scheduled for tomorrow are unlikely to lead to a deal.
  • New 5% additional tariffs on $250bn of Chinese goods are expected to come into effect from Tuesday next week (15th October) with tariffs on remaining Chinese goods to take effect on December 15.
  • On a separate note, factory gate prices unexpectedly fell in September marking the weakest annual increase in nearly three years bolstering case for Fed rate cut; CPI report is due tomorrow.
  • PPI (%mom/yoy): -0.3/1.4 v 0.1/1.8 in August and 0.1/1.8 forecast.

 

Japan – Machine tool orders slump 35.5%yoy in September extending the negative run to 12 months and highlighting weak business outlook.

  • The drop was driven by both domestic (-28.5%yoy) and overseas (-40.6%yoy) markets.

 

UK – The pound is trading around a one-month low against the € as all parties to Brexit negotiations are reported to be pessimistic over prospects of reaching a compromise.

  • The UK administration accused the EU of adopting a new, harder position on Tuesday.
  • The European Parliament questioned if PM Johnson was ever serious about reaching a deal .
  • PM is scheduled to meet with his Irish counterpart on Thursday or Friday.
  • “I think it will be very difficult to secure an agreement by next week, quite frankly,” Irish PM said earlier on Tuesday.

 

Australia – Consumer confidence index fell to the weakest level since mid-2015 in October

  • Consumers assessment of the current situation and outlook weakened this month despite with majority remaining concerned despite a rate cut announced by the central bank earlier this month.
  • Westpac Consumer Confidence: 92.8 v 98.2 in September.

 

Currencies

US$1.0984/eur vs 1.0988/eur yesterday.  Yen 107.26/$ vs 107.17/$.  SAr 15.210/$ vs 15.152/$.  $1.224/gbp vs $1.227/gbp.  0.674/aud vs 0.675/aud.  CNY 7.134/$ vs 7.131/$.

 

Commodity News

Gold US$1,505/oz vs US$1,499/oz yesterday – Gold-backed ETFs holdings hit record highs in September (WGC)

  • Last month, global gold-backed ETFs and similar products had US$3.9bn of net inflows across all regions, increasing their collective gold holdings by 75.2t to 2,808t, the highest levels of all time.
  • This level of holdings surpassed late 2012 levels at which the gold price was near US$1,700/oz, 18% higher than current levels.
  • North American and European listed funds make up 52% and 44% of global holdings respectively, compared to 2012 when two-thirds of global holdings were concentrated in North America.
  • Gold-backed ETFs remained strong in September despite the price falling 3% as global rates increased and the US dollar strengthened.
  • European-listed funds brought in 7.7t, mainly in the UK, as investors positioned themselves for the Brexit decision due at the end of this month.
  • Factors which are set to be positive for future gold ETFs include continuing global uncertainty, especially the US-China trade war and uncertainty over a no deal Brexit.
  • Secondly, the WGC estimates that over 80% of sovereign debt is trading with negative real rates, lowering the opportunity cost of investing in gold.

   Gold ETFs 81.6moz vs US$81.5moz yesterday

Platinum US$886/oz vs US$881/oz yesterday

Palladium US$1,664/oz vs US$1,646/oz yesterday

Silver US$17.87/oz vs US$17.51/oz yesterday

           

Base metals:   

Copper US$ 5,685/t vs US$5,710/t yesterday

Aluminium US$ 1,739/t vs US$1,742/t yesterday

Nickel US$ 17,580/t vs US$17,540/t yesterday

Zinc US$ 2,276/t vs US$2,289/t yesterday

Lead US$ 2,124/t vs US$2,176/t yesterday

Tin US$ 16,325/t vs US$16,305/t yesterday

           

Energy:           

Oil US$58.1/bbl vs US$58.7/bbl yesterday

Natural Gas US$2.293/mmbtu vs US$2.303/mmbtu yesterday

Uranium US$24.95/lb vs US$25.20/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$89.2/t vs US$88.5/t – Brazil’s iron ore exports fall in September (Argus Media)

  • Exports of iron ore fell by 20% in September compared to last year, as the country exported 27.14mt.
  • July saw exports reach their highest level this year at 33.97mt however since then exports have fallen in both August and September.  
  • China remained the largest recipient of Brazilian iron ore, receiving 19.39mt in September and not far off last years shipment levels of 19.64mt in September 2018.
  • Exports to Malaysia were 1.57mt, down 39% from last year, Japan exports were 989,000t, down 34%, and South Korea exports were 344,000t, down 61%.

Chinese steel rebar 25mm US$564.8/t vs US$566.5/t

Thermal coal (1st year forward cif ARA) US$68.3/t vs US$67.0/t

Coking coal futures Dalian Exchange US$182.1/t vs US$182.2/t

           

Other:  

Cobalt LME 3m US$34,500/t vs US$34,500/t

NdPr Rare Earth Oxide (China) US$44,500/t vs US$44,521/t

Lithium carbonate 99% (China) US$6,938/t vs US$6,941/t – Millennial Lithium Corp granted tax relief from Argentinian government (mining.com)

  • The National Mining Secretary of Argentina have granted Millennial Lithium with a Federal Fiscal Stability Certificate for its Pastos Grandes lithium project.
  • The certificate outlines the tax regime and additional benefits that the project will receive for the next 30 years (juniorminingnetwork.com).
  • According to Millennial’s president and CEO, the main aspect of the Federal Fiscal Stability Certificate is the confirmation of a reduction in the corporate tax rate to 25% as of January 1, 2020”.
  • So far, the companies Canadian owner has invested over C$40 million in exploration and development work.
  • Inferred resources are 150,000 tonnes of in situ Li; 798,000 Li2CO3 equivalent tonnes; 1,559,000 tonnes of in situ K; and 2,973,000 KCI equivalent tonnes.

Ferro Vanadium 80% FOB (China) US$38.2/kg vs US$38.2/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg

Tungsten APT European US$205-215/mtu vs US$205-215/mtu

 

Battery News

 

Company News

Erris Resources (ERIS LN) FOLLOW 5.35p, Mkt Cap £1.7m – Scandinavian exploration update

  • Erris Resources has provided a progress report on its Scandinavian exploration during the 2019 field season between May to September.
  • In association with Centerra Gold, geochemical soil sampling has identified four “new strong” copper gold anomalies “which are priority targets and three additional gold … anomalies” at the Sakiatieva project in northern Finland.
  • In northern Sweden, following mapping and sampling  work on the Pirunkoukka prospect the project has been downgraded and No further work is warranted since none of the  samples taken returned anomalous gold. Two permits in Sweden were relinquished prior to the first anniversary with refunds of approximately €11,800 returned to the Company. This will be used to fund other targeting work for the Erris-Centerra alliance”.
  • The company has expanded its Scandinavian exploration with the granting of four new exploration permits, each covering 10km2, in northern Norway. Two permits were granted over the Mauken prospect area and the remaining two over the Gautelis prospect.
  • The Mauken prospect is described as a newly recognised greenstone belt with mineralisation first described in 2008”. Previous owners reportedly drilled six holes at two locations within the prospect prior to 2010. Although “The drilling results are not known. … given the extensive length of the altered and mineralised zone, the various styles of mineralisation reported and the favourable structural setting, Erris Resources believes the mineralised structure has not been sufficiently tested and warrants a thorough review.
  • At the Gautelis prospect, “historic work identified three styles of mineralisation including high-sulfidation style massive arsenopyrite with gold that was mined for arsenic on a small scale in 1916-1920, Carlin style gold mineralisation hosted in carbonates and narrow sulphide-rich veins with high grades up to 329.66 g/t Au, 0.52 % Cu, 2.4 % Pb, 0.69 % Zn, 0.08 % As and 61 g/t Ag”.
  • The company reports that 1500m of drilling was completed at Gautelis in 1984/85 with one hole reported to have intersected 3m at an average grade of 6.66g/t gold between 50-53m depth and another hole intersecting 3m at an average grade of 3.3g/t gold between 44-47m depth.
  • Erris Resources comments that “The characteristics are similar to Carlin-type deposits for which knowledge has greatly advanced over the past 35 years; the project warrants further exploration as historic drilling was shallow and sections indicate mineralisation is open at depth”.

Conclusion: Exploration in northern Scandinavia has identified several gold prospects in Finland and Norway, however it is encouraging to see that the company has the management discipline to discard the less promising opportunity in Sweden in order to deploy its resources elsewhere.

 

Rainbow Rare Earths (RBW LN) FOLLOW 2.75p, Mkt Cap £10.5m – Annual results and strategic review

  • Rainbow Rare Earths reports a net loss of US$12.3m for the year ending 30th June 2019 (2018 – US$2.6m loss) in a year which Chief Executive, George Bennett described as “tough”.
  • Mr. Bennett explained that “while production was challenging, it would be more correct to characterise our operating methods in the year as trial mining. We have been able to learn a lot about our project in the year, and are now adapting the way we operate, and while we will continue the trial mining at Gakara, we are moving to a more mechanised, efficient operation”.
  • This trial mining focusses on extracting high grade veins which the company now considers unlikely to be profitable in the foreseeable future”.
  • As a  result of the change in mining strategy, the loss includes a US$3.85m impairment charge writing off in full the carrying values of “the processing plant at Kabezi, and the Gasagwe and Murambi pits Whose profitability was predicated on mining and processing high grade ores”.
  • A limited drilling programme was conducted during 2018 mainly directed at the Kiyenzi deposit, one of over 30 RE targets, many of which were mined by the Belgians 40-60 years ago” and initial results from “relatively small number of drill cores …selected for analysis” appears to confirm that in addition to the high grade veins “mineralisation also exists in between the veins, which suggests that the area contains a very much larger deposit of rare earths that needs to be confirmed by our revised exploration strategy”.
  • Additional samples from the 2018 drilling programme are being sent for analysis “which should quickly give us a much better understanding of the deposit at Kiyenzi in particular. The initial two diamond drill cores, fully analysed from Kiyenzi, appear to confirm our belief that mineralisation exists between the high-grade veins”.
  • In order to establish the true potential of the entire 39km2 licence area exploration work is aimed at identifying an initial “10 year mine life, with concentrate production targeted at 10,000 tonnes per annum … [which is] …more ambitious than previous targets, but we believe they are achievable as a result of a change in the approach to defining the resource within our mining permit and a change in the mining method”.
  • In order to treat the larger volumes of lower grade material, the company is investigating the introduction of “a simple pre-concentration step possibly involving a scrubber, DMS and spirals, to be confirmed by the ongoing test work. This is likely to be most economical and practical if undertaken nearer the mechanical mining activity”.
  • Mining is continuing at the Murambi pit with the introduction of mechanised mining which is expected to be capable of providing ore for at least a year. The company is “investing in new mining fleet, which will deliver significant cost savings compared with the rented fleet currently in use”.
  • The company confirms that its objective is “to reach breakeven profitability at the mine site level by January 2020”.

Conclusion: In our opinion, the strategy of the new management team at Rainbow Rare Earths in concentrating on establishing long term resources, sustainable mechanised mining at a higher rate, and improved processing through the addition of a pre-concentration stage to produce 10,000tpa of rare-earths concentrate product, establishes a sustainable plan to optimise the development of its Burundi rare-earths project. We look forward to the results of the assaying from the historic drilling and the continuing exploration programme as well as the benefits of the implementation of mechanised mining.

*SP Angel act as Nomad and broker to Mkango Resources which is working on the Feasibility Study for the Songwe Hill rare-earths project in Malawi.

 

Strategic Minerals* (SML LN) FOLLOW 0.8p, Mkt Cap £11.7m – Redmoor acquisition payment

  • Strategic Minerals announced yesterday that it has made its first of three quarterly payments of A$300,000 to New Age Exploration (NAE) for the acquisition of NAE’s 50% interest in Cornwall Resources, the owner of the Redmoor tin/tungsten project in Cornwall.
  • The payment is being made ahead of the scheduled date of 31st October and “reflects the Board's commitment to completing the transaction and the efforts to manage cash flow effectively to ensure continuity of progress on the Company's key projects” said Managing Director, John Peters.
  • Further payments, also of A$300,000 each, are due on 31st January 2020 and 30th April 2020 with the balance of the agreed A$2.7m price due on or before 26th June 2020.
  • Strategic Minerals’ acquisition of NAE’s share in Cornwall Resources will give it 100% ownership of the Redmoor tin/tungsten project in Cornwall where the scoping study published in May 2019 outlines a potential 600tpd underground mine with a ten year mine life. Capital costs estimated at US$89m are expected to generate an NPV8% of US$94m and IRR of 19.4% using prices of US$22,000/tonne for tin, US$330/mtu for tungsten trioxide and US$3.18/lb for copper.

Conclusion: Consolidation of the ownership of the Redmoor project should simplify its management and provide Strategic Minerals with the flexibility to balance the competing interests of Redmoor with its other projects at Leigh Creek in South Australia and Cobre in New Mexico.

*SP Angel acts as Nomad and Broker to Strategic Minerals

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

 

Sales

Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

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*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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