SP Angel . Morning View . China fiscal stimulus lifts copper

SP Angel – Morning View – Wednesday 16 01 19

China fiscal stimulus lifts copper

MiFID II exempt information – see disclaimer below

 

Chaarat Gold (CGH LN) – Kapan acquisition closing date delayed to 31 January

Keras Resources* (KRS LN) BUY, Target price 1.04p – High-grade manganese ore looks good for Keras cash flow

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Strategic Minerals* (SML LN) – Magnetite sales for Q4 2018

 

Vedanta – argues that Zambia pollution case should be held in Zambian court

• Vedanta which is beset by pollution issues is arguing in the UK Supreme Court that a case brought by villagers in Zambia relating to the pollution of their land should be heard in Zambia and not the UK.
• Lawyers for the villagers are arguing that a court in the UK is the only place whereby the villagers can achieve justice.
• Similar cases may follow if Vedanta’s lawyers lose the cast relating to alleged pollution by Unilever in Kenya and BHP for its Fundao dam disaster in Brazil.

Dow Jones Industrials		+0.65%	at	24,066
Nikkei 225		-0.55%	at	20,443
HK Hang Seng		+0.27%	at	26,902
Shanghai Composite		+0.00%	at	2,570
FTSE 350 Mining		+0.20%	at	17,587
AIM Basic Resources		-0.32%	at	2,182

 

Economics

US – Empire state manufacturing gauge posted a sharp deterioration in conditions in January following weak reading in December reflecting concerns over the government shutdown and US/China trade related conflict.

• While the sector remained strong through the early fourth quarter, the last two months have seen the sharpest slide in new orders in nearly two years.
• Consumer related statistics are being delayed due to a continuing impasse between the White House and Democrats.
• Retail sales for December will not be released today as the Commerce Department remains closed.
• New York Manufacturing Index: 3.9 v 11.5 (revised from 10.9) in December and 10.0 forecast.

 

China – The latest round of tax cuts pledged by senior officials yesterday may add $300bn (CNY 2tn) to the economy or 1.2% of GDP, JP Morgan estimates.

• Last May, the government cut VAT for manufacturing, transportation, construction, telecommunications and farm produce industries.
• This followed by a cut in a personal income taxes and the introduction of more deductions.
• Earlier this month, the State Council announced a $29bn annual tax cut plan for small companies.
• JP Morgan estimates that may see the fiscal deficit to expand 0.6pp to 11.3 of GDP this year.
• On a separate note, another bit of evidence pointing to the weakening growth momentum was released today with new home prices growth slowing in December.
• Growth in 70 cities tracked by the government came down to 0.77%mom versus 0.98%mom recorded in November and gains of 1% and more in each of the preceding five months.
• Developer sales slowed at the end of last year despite offering discounts and incentives to buyers.
• Three cities loosened property curbs last month adding to speculation that authorities may ease more restrictions, Bloomberg reports.

 

UK – May loses the vote on the her Brexit proposal by a wide margin (432 against v 202 in favour) in Parliament.

• Opposition leader launched a no confidence vote in the government which is scheduled for this evening and may potentially lead to new general election.
• The pound is little changed today trading around levels recorded before the announcement of results on the Brexit proposal implying markets are not expecting the vote to succeed.
• 10y gilt yields are hovering around the 1.29% mark while FTSE 100 is weaker trading 0.6% lower this morning.

 

Italy – One forward looking indicators of industrial production came in weak in November highlighting risks to waning growth in the single currency region.

• Industrial Orders (%mom/yoy): -0.2/-2.0 v -0.5/+1.8 (revised from -0.3/+2.0) in October.

 

Vedanta – argues that Zambia pollution case should be held in Zambian court

• Vedanta which is beset by pollution issues is arguing in the UK Supreme Court that a case brought by villagers in Zambia relating to the pollution of their land should be heard in Zambia and not the UK.
• Lawyers for the villagers are arguing that a court in the UK is the only place whereby the villagers can achieve justice.
• Similar cases may follow if Vedanta’s lawyers lose the cast relating to alleged pollution by Unilever in Kenya and BHP for its Fundao dam disaster in Brazil.

 

Currencies

US$1.1411/eur vs 1.1460/eur yesterday. Yen 108.58/$ vs 108.67/$. SAr 13.676/$ vs 13.785/$. $1.287/gbp vs $1.288/gbp. 0.720/aud vs 0.722/aud. CNY 6.756/$ vs 6.753/$.

 

Commodity News

Precious metals:         

Gold US$1,291/oz vs US$1,288/oz yesterday

   Gold ETFs 71.9moz vs US$71.9moz yesterday

Platinum US$802/oz vs US$804/oz yesterday - Platinum and palladium prices may rise as AMCU calls for strike action in South African mines

• The AMCU union of South Africa called for strike action at Sibanye’s platinum mines on Monday.
• Sibanye-Stillwater which employees >17,000 staff in its PGM mines mainly at Rustenburg and Kroondal is in the process of acquiring Lonmin
• Sibanye management recently extended the long-stop date on the agreed takeover of Lonmin to June 30 from February 28.

Palladium US$1,331/oz vs US$1,327/oz yesterday

Silver US$15.62/oz vs US$15.61/oz yesterday

           

Base metals:   

Copper US$ 5,981/t vs US$5,952/t yesterday

Aluminium US$ 1,870/t vs US$1,840/t yesterday – The environmental agency in Brazil allowed to resume normal operations at the Alunorte alumina refinery, the world’s largest, owned by Norsk Hydro.

• Nevertheless, the plant will continue to operate at half capacity as long as the federal court does not follow suit.
• The refinery has been running at half capacity after admitting early last year to making unlicensed emissions of untreated water during severe rains.
• “We will continue the dialogue with the authorities pursuing full resumption of production,” the Company’s executive VP for bauxite and alumina said.
• Norsk Hydro (NHY NO) is trading up 5.3% today.

Nickel US$ 11,750/t vs US$11,525/t yesterday

Zinc US$ 2,501/t vs US$2,483/t yesterday

Lead US$ 1,981/t vs US$1,992/t yesterday

Tin US$ 20,700/t vs US$20,590/t yesterday

           

Energy:           

Oil US$60.9/bbl vs US$59.6/bbl yesterday

Natural Gas US$3.483/mmbtu vs US$3.608/mmbtu yesterday

Uranium US$28.90/lb vs US$28.90/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.8/t vs US$72.3/t - Indian government considering raising import duties on iron ore

Chinese steel rebar 25mm US$588.6/t vs US$587.8/t

Thermal coal (1st year forward cif ARA) US$82.4/t vs US$81.8/t

Coking coal futures Dalian Exchange US$208.0/t vs US$214.1/t

           

Other:  

Cobalt LME 3m US$45,000/t vs US$40,000/t

China NdPr Rare Earth Oxide US$46,252/t vs US$46,278/t

China Lithium carbonate 99% US$9,991/t vs US$9,996/t – Lithium quotas threatened as Chile Nuclear watchdog CCHEN looks into production and export records

• Chile’s nuclear watchdog which is probably a hangover from the cold war is looking at investigating lithium export documentation.
• Lithium is a strategic mineral in Chile due to its importance in nuclear fusion.
• It now appears the watchdog may have lost track of tonnage and destination data for lithium exports.
• The review follows CCHEN’s refusal to allow Albemarle to triple lithium production in Chile.
• The move now appears to have sparked a review of CCHEN’s own record keeping on lithium production and export destinations.
• SQM and Albemarle are subject to quotas for lithium production. The two companies accounted for some 40% of global lithium production in 2017 (Reuters).
• Australia recently overtook Chile as the world’s largest lithium producer

Australian Lithium supply near term contracts nearly all sold

• Alliance Minerals which merged last year with Tawana Resources which developed the Bald Hill lithium mine in Australia reports that it has 80,000-100,000t of lithium concentrate to sell.
• It expects to confirm final buyers in weeks.
• Reckons near term lithium concentrate supply is nearly all sold.

China Ferro Vanadium 80% FOB US$69.5/kg vs US$69.5/kg

China Antimony Trioxide 99.5% EU US$7.0/kg vs US$7.0/kg

Tungsten APT European US$260-270/mtu unchanged from previous week

 

Company News

Chaarat Gold (CGH LN) FOLLOW27.5p, mkt cap £109m – Kapan acquisition closing date delayed to 31 January

• Chaarat Gold report that due to the extended winter holiday season in Armenia and Russia that closing of the Kapan acquisition from Polymetal has been delayed.
• Polymetal will be able to terminate the transaction if Chaarat are not able to make the US$40m cash payment within 10 days of closing. A termination fee of $10m will then be payable.

 

Keras Resources* (KRS LN) FOLLOW0.38p, Mkt Cap £8.6m – High-grade manganese ore looks good for Keras cash flow

BUY, Target price 1.04p

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• Keras Resources report positive assays from their 10,000t bulk sample taken in Togo, West Africa.
• The team report average manganese grades of 41.15% exceeding expectations.
• Grades range from 39.61-42.76% showing a remarkable consistency of manganese material.
• The assays are reported to have also exceeded the specifications of the specialist manganese alloy producer / offtaker.
• Keras is able to produce some 6,500t per month with its existing setup though this is over our assumed production rate of around 6,000t per month in our modelling.
• Manganese ore prices are reported to be 5.7% lower last Friday by Fastmarkets MB at $5.76/DMT for 37% manganese ore due to weak downstream demand in China
• Prices peaked in March last year at $8.21/DMT having risen through Q1 on strong demand.

Conclusion: The assay of higher than expected manganese ore grades is good for ongoing offtake demand and for premiums on the standard 37% manganese price

*SP Angel act as Nomad and broker to Keras Resources

 

Strategic Minerals* (SML LN) FOLLOW1.6p, Mkt Cap £22.1m – Magnetite sales for Q4 2018

• Strategic Minerals reports the sale of 10,931 tons of magnetite from its Cobre operation during the quarter ending 31^st December 2018 bringing sales for the full year to 54,565 tons.
• The sales realised US$633,000 bringing the annual total to US$US$3.35m and leaving Strategic Minerals with a cash balance of US$1.84m (30^th September 2018  balance of US$1.77m).
• On a per ton basis sales prices remain stable at approximately US$58/t for the quarter and US$61/t overall for the year.
• The cash generated at Cobre provided approximately $440,000 to fund the group’s drilling operations at the Redmoor project in Cornwall and further exploration at Hanns Camp and Mt Weld in W Australia as well as the work to restart operations at Leigh Creek copper in S Australia totalling and also funded corporate overheads of approximately $140,000.
• Commenting on the role of Cobre, where earlier this week the company announced that it had secured an early renewal of access to the stockpiled magnetite tailings, Managing Director, John Peters, emphasised that Strategic Minerals starts 2019 in robust financial shape as it moves to advance its other projects.

• Mr. Peters went on to say that “Undoubtedly, the primary focus of 2019 will be the re-commencement of operations at Leigh Creek Copper Mine, where the Board is increasingly excited by the growing prospects for the life and scope of the project, as well as the positive impact a second long-term cash flow generating asset will have on the Company”

Conclusion: Cash generation at Cobre continues to underpin Strategic Minerals from the as it works to develop a second cash generating asset through the re-start of production at Leigh Creek Copper and progresses the exploration at Redmoor and in W Australia. We look forward to further news from Leigh Creek and on the progress at Redmoor as the 2018 drilling results are incorporated into the existing mineral resource estimate.

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

 

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⁺SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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