SP Angel . Morning View . Markets await Fed chief speech at Jackson Hole
Paul Kettle
SP Angel Research Note -4 min read
11:01, 23rd August 2019

SP Angel – Morning View – Friday 23 08 19

Markets await Fed chief speech at Jackson Hole

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MiFID II exempt information – see disclaimer below

 

Bluejay Mining (JAY LN) 7.3p, Mkt cap £63m – Hudson’s White Mountain Anorthosite mine starts production this week in Greenland

Hudson Resources (HUD CN) C$0.38/s, Mkt cap 68m

Hummingbird Resources (HUM LN) 22.0p, Mkt Cap £77.8m – Interim results

Katoro Gold (KAT LN) – Disposing of its Tanzanian gold projects

Prospect Resources (PSC AU)  – Power supply agreement for Arcadia

 

Tin price fall indicates potential further slowing of markets for consumer electronics

  • While global manufacturing pauses and signal contraction, the tin market appears to be trading as if recession were a reality – the London Metal Exchange tin price tumbled lower at the beginning of July and has kept falling ever since, touching a fresh three-year low of $16,255/t on Monday.
  • The level is lower than the Global Financial Crisis sell-off in 2009, with value approaching the decade’s lows seen over the 2015-2016 metallic bear market.
  • Fundamental weakness in demand is the core issue, with a cyclical downturn in the semiconductor sector exacerbated by the current trade tensions between Japan and South Korea.
  • By some margin, the International Tin Association note the largest end-use for tin is soldering in semiconductors, representing around 47% of global usage.
  • Global semiconductor sales fell 14.5% year-on-year in the first half of 2019, according to the Semiconductor Industry Association (SIA). “Year-to-date sales were down across all regional markets and semiconductor product categories,” noted John Neuffer, SIA president and chief executive.
  • Falling prices has been accompanied by rising LME warehouse stocks, rebuilding from 740t at the start of May to 6,175t currently.
  • The cash-to-three-months spread flexed out to $340/t backwardation at one stage in May, the high cash premium sucking metal into the LME warehouse system.
  • However, the closure of the spread valued at a marginal backwardation of just $5/t could signal a more structural issue.
  • Collapsing tin price is already activating a response from Chinese producers, now actively cutting production, according to the ITA’s Beijing branch, which estimates national output fell by 8% in the January-July period.
  • Further, new major sources of tin concentrate from Myanmar is already signalling it has peaked with volumes and grades falling.China’s imports of tin concentrates, just about all of them from Myanmar, slumped by 28% in the first half of the year.Weak demand, too much production and a falling price are currently the defining features of the tiny tin market.

 

Dow Jones Industrials

 

+0.19%

at

26,252

Nikkei 225

 

+0.40%

at

20,711

HK Hang Seng

 

+0.51%

at

26,181

Shanghai Composite

 

+0.49%

at

2,897

FTSE 350 Mining

 

+1.01%

at

17,315

AIM Basic Resources

 

+0.89%

at

2,140

 

Economics

US central bankers hawkish despite signs of downturn

  • Some US central bankers remain hawkish over the need for further rate cuts, following the beginning of the much-anticipated Jackson Hole meeting of Federal Reserve officials (FT).
  • There was broad expectation for further rate cuts following recent signs of an economic downturn, including an inversion of the US yield curve last week.
  • The conservative tone of some members of the Fed has spooked investors who fear economic stimulus may come too late, triggering a second temporary inversion of the yield curve.
  • IHS Markit’s US manufacturing purchasing managers’ index (PMI) dropped to 49.9 in August, dipping below the neutral level of 50 for the first time since September 2009, adding to concerns over growth.
  • Markit’s US services sector PMI also contracted, dropping from 53 to 50.9, indicating the vast US services industry risks stalling.
  • Markets are still awaiting the speech of Federal Reserve chair Jay Powell at the close of the Jackson Hole meeting, which has historically been used to set out Federal Reserve stimulus plans.

 

Japan – Inflation remained at a two year low in July despite massive stimulus carried by the central bank over the years.

  • Core consumer prices (ex food) climbed 0.6%yoy in July in line with a two year low in June.
  • Headline inflation dipped to 0.5%yoy, the lowest level since March.
  • Investors expect the BoJ to step up its asset purchases in a meeting in September.

 

ECB – The central bank is expected to announce a package of stimulus measures during the September meeting amid a continuing weak series of economic data.

  • “The view was expressed that the various options should be seen as a package; i.e. a combination of instruments with significant complementarities and synergies,” the ECB meeting minutes read.
  • “Experience has showed that a package – such as the combination of rate cuts and asset purchases- was more effective than a sequence of selective actions.”

 

Mali – Mining companies will no longer be exempt from VAT during production and will only be protected from fiscal changes for a shorter period, according to a new mining code.

 

Ethiopia – planting 4 billion trees to conter environmental degradation and climate change (CNBCAfrica.Com)

  • Ethiopia planted 350m trees in a single day as part of a plan to grow 4 billion trees as part of the country’s national green legacy initiative to counter environmental degradation and climate change according to CNBC Africa.
  • Unsustainable agricultural practices including vegetation clearance and overgrazing have degraded soils and leading to a cycle of clearance and further degradation as the population grows.
  • If climate change causes the rains in Ethiopia to fail and the land is not able to store water then Ethiopia could see further famine.
  • In Ethiopia industrial crops currently account for some 85% of export earnings while hydropower generates some 90% of Ethiopian electricity.
  • The challenge for Ethiopia is to retain the water which so often floods the land in the Awash River Basin and elsewhere and conserve this resource to counter drought conditions.
  • The planting of some four billion trees appears to be a major step forward in an initiative which could transform the nation and hopefully prevent further droughts going forward.
  • One of the problems seen in Ethiopia is the prevalence of Eucalyptus trees which were originally introduced and planted by Emperor Menelik II in 1895.
  • The problem is that the Eucalyptus drains water and nutrients, enhances soil erosion and is poor for local wildlife.
  • Kefi Minerals which is looking to build the Tulu Kapi gold mine in Ethiopia identified some 246 vascular plant taxa in areas which have not been cultivated of which nine were endemic to Ethiopia.
  • Many of the trees around the mine site have already been previously cut down by local farmers to reduce competition with the cultivated coffee trees.
  • Kefi like many other mining companies will naturally replace any trees removed in the development of the mine and will most finance and inspire the planting of many more new trees in the region where appropriate.

*SP Angel acts as nomad and broker to Kefi Minerals

 

Currencies

US$1.1073/eur vs 1.1080/eur yesterday. Yen 106.61/$ vs 106.36/$. SAr 15.142/$ vs 15.227/$. $1.220/gbp vs $1.212/gbp. 0.676/aud vs 0.677/aud. CNY 7.083/$ vs 7.076/$.

Commodity News

Precious metals:         

Gold US$1,496/oz vs US$1,501/oz yesterday - Gold on track for worst week in five months

  • Gold prices continue to trend downward, pushing the precious metal towards its worst week in five months (Reuters).
  • The metal has lost nearly 1.3% so far this week already, meaning gold prices face the biggest weekly percentage decline since March.
  • Concerns over the health of the economy, trade and geo-politics persist, however uncertainty over the outcome of the Jackson Hole meeting of central bankers has investors waiting on the sidelines.
  • Markets had expected support for economic stimulus, however it has since become clear that the Federal Reserve is divided over the need for further rate cuts.
  • The mixed sentiment offers no clear path for risk-averse investment in gold, which has now lost the buttress of a $1,500/oz valuation.

   Gold ETFs 77.9moz vs US$78.0moz yesterday

Platinum US$861/oz vs US$850/oz yesterday

Palladium US$1,491/oz vs US$1,461/oz yesterday

Silver US$17.05/oz vs US$17.03/oz yesterday

           

Base metals:   

Copper US$ 5,720/t vs US$5,703/t yesterday

Aluminium US$ 1,769/t vs US$1,775/t yesterday

Nickel US$ 15,780/t vs US$15,660/t yesterday

Zinc US$ 2,270/t vs US$2,271/t yesterday

Lead US$ 2,087/t vs US$2,072/t yesterday

Tin US$ 15,915/t vs US$16,205/t yesterday

           

Energy:           

Oil US$60.0/bbl vs US$60.2/bbl yesterday

Natural Gas US$2.145/mmbtu vs US$2.168/mmbtu yesterday

Uranium US$25.30/lb vs US$25.30/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$82.8/t vs US$80.7/t

Chinese steel rebar 25mm US$554.4/t vs US$552.7/t

Thermal coal (1st year forward cif ARA) US$63.6/t vs US$63.8/t - Moody’s slash outlook for North American coal output

  • Credit ratings agency Moody’s has lowered its 12-18 month outlook for North America’s coal industry to ‘negative’ from ‘stable’ amid declining profitability, weak export prices and diminishing demand from utilities.Sector EBITDA is expected to fall by more than 3% over the next 12 months, driven by a substantive decrease in thermal coal export prices — particularly in Europe, where strict environmental measures are being pushed through.
  • Over a longer period, the US coal sector might see a substantial volume reduction for the next decade, as a combination of economic, environmental and social factors continue to push utilities towards renewable energy.“The combination of a now-weakened export market and significant retirement of coal-fired power plants in 2018 is creating an oversupplied domestic market and could drive prices lower,” says a Moody’s analyst.

Coking coal futures Dalian Exchange US$198.2/t vs US$198.6/t

           

Other:  

Cobalt LME 3m US$32,600/t vs US$32,600/t

NdPr Rare Earth Oxide (China) US$44,263/t vs US$44,303/t

Lithium carbonate 99% (China) US$7,695/t vs US$7,843/t

Ferro Vanadium 80% FOB (China) US$38.7/kg vs US$38.7/kg (Asian Metal) – FastmarketsMB trade log shows lots of prices indicated and small tonnages sold in Europe reflecting the summer slowdown in Europe

  • Ferro-vanadium prices pull back 2.6% in China to $36-30/kgV this week (FastmarketsMB)
  • Prices for ferro-vanadium rose in Pittsburgh, USA by 0.8% to $14.75-15.5/lb (FastmarketMB)

Antimony Trioxide 99.5% EU (China) US$5.3/kg vs US$5.3/kg

Tungsten APT European US$210-225/mtu vs US$210-225/mtu

 

Battery News

Tesla replacing connectors and optimisers to solar panels fitted to Walmart stores (Businessinsider.com)

  • News today that Tesla is replacing connectors and optimisers on many of its solar panels is interesting.
  • Tesla are reported to be replacing Amphenol H4 connectors and SolarEdge optimizers which may have caused seven fires on Walmart solar roofs.
  • The news indicates to us that while solar power plants are seen as reliable with relatively long lifespans that poor connectors, optimisers and other electrical kit can be problematic.

 

Company News

Bluejay Mining (JAY LN) FOLLOW 7.3p, Mkt cap £63m – Hudson’s White Mountain Anorthosite mine starts production this week in Greenland

Hudson Resources (HUD CN) C$0.38/s, Mkt cap 68m

  • Hudson Resources loaded its first bulk shipment onto the Happy Dragon ship this week from its White Mountain mine in Greenland (Mining.com).
  • The ship contains some 14,400t of anorthosite product with mainly GreenSpar 250 anorthosite and 56t of GreenSpar 90 (98% finer than 90 microns).
  • The company has a 1,000t per hour ship loader which loads directly onto the vessel via a small harbour front from its process plant and stock pile.
  • The ship is scheduled to take 10 days to reach the compamy’s port facility in Charleston, South Carolina.
  • Hudson is mining anorthosite minerals for its hard feldspar with the high refractive index to make its GreenSpar products, mainly used for interior paints and coatings.
  • The rest goes into fiberglass, alumina and heat-resistant cement.
  • The White Mountain anorthosite mine is unique for size and purity with only other known larger anorthosite occurrence on the moon, just 384,000km away.
  • Hudson Resources has a 10-year supply agreement with the world’s largest fiberglass producer.
  • The company hosted a tour of
  • In July, the company hosted a vist by US state department officials to the White Mountain mine including an update on the Husdon’s Sarfartoq Rare Earth Project in Greenland.
  • The official mine opening will be on 28 August, we wonder if President Trump might attend.
  • This is the first fully permitted mining project in Greenland for several years.
  • Capital cost around $45m highlights the ability to build low-cost mining operations relatively easily and quickly in Greenland.
  • Hudson’s port and process plant infrastructure design and construction should provide some useful pointers to Bluejay Mining for the construction of their new Dundas ilmenite mine.
  • Bluejay are currently constructing a similar pier for the loading of their 5,000-10,000 bulk sample destination Rio Tinto Iron & Titanium in Canada

*SP Angel acts as nomad and broker to Bluejay Mining

 

Hummingbird Resources (HUM LN) FOLLOW 22.0p, Mkt Cap £77.8m – Interim results

  • Sales totalled 51.0koz at an average price of $1,304/oz (H1/18: 50.7koz at $1,312/oz).
  • Revenue was $67.1m (H1/18: $66.6m).
  • AISC averaged $1,135/oz (H1/18: $884/oz) having been coming down from $1,677/oz in Q4/18 to $998/oz in Q2/19 recovering from pit wall stability issues at Komana East in Q4/18 and remediation works that followed.
  • EBITDA amounted to $9.9m (H1/18: $21.9m) reflecting higher operating costs.
  • FCF (ex interest and lease payments) came in at $5.5m (H1/18: $11.6m).
  • Net income totalled -$6.5m (H1/18: $2.6m).
  • Total debt (including lease liabilities) stood at $70.5m (Dec/18: $60.9m) with closing cash balance of $8.2m (Dec/18: $21.5m).
  • FY19 production guidance for 110-125koz to be tilted towards H2/19 reflecting higher processing rates with the second mill up and running.
  • FY20 production forecast at 130koz with a further reduction in unit costs (previously HUM guided for 130-145kozpa at AISC $800/oz over the 2020-2022).

Conclusion: Weak interim results reflect challenges the team encountered at the Yanfolila operation between H2/18 and H1/19 including weather related disruptions as well as lower than anticipated grades and availability of softer oxide ore. The commissioned second ball mill should help with throughput rates and production moving forwards while stronger gold prices contribute to good outlook for H2/19.

 

Katoro Gold (KAT LN) FOLLOW  1.10 pence, Mkt Cap £1.9m –Disposing of its Tanzanian gold projects

(Katoro holds 75% of the Haneti nickel project alongside Power Metal Resources plc* which holds 25%)

  • Following its announcement in July that it had received interest in its Tanzanian gold projects at Imweru and Lubando in the Lake Victoria goldfields, Katoro Gold reported yesterday that it had agreed a term sheet with Lake Victoria Gold for the disposal of its wholly owned subsidiary, Reef Miners Limited, which owns the projects.
  • The disposal price is for a series of staged cash payments  totalling US$1m over the next 2 years plus a 1.5% net smelter royalty with Katoro Gold retaining the right to receive shares in lieu of all or part of the final US$850,000 of cash payments.
  • Disposing of its gold projects reflects “Katoro's evolved strategy to develop a portfolio of assets focused on the battery metals sector. The recent acquisition of the Haneti Nickel Project has attracted significant interest from investors and the Company has been involved in the evaluation of further opportunities as it looks to capitalise on the battery metal demand fundamentals and deliver value for its shareholders”.
  • Expressing continuing confidence in the merit of the gold projects, Louis Coetzee, Executive Chairman, said that the disposal “releases our resources so that we can focus on our highly prospective nickel, platinum-group-elements and lithium asset, Haneti, as well as exploring other value driving opportunities.”
  • The transaction is conditional on the approval of shareholders, however Katoto Gold reports that its “majority shareholder, Kibo Energy plc ("Kibo"), which is currently interested in approximately 54.6% of the Company's issued share capital, [and, we note, vended the Imweru and Lubando gold projects into Katoro Gold in May 2017] has indicated in writing to the Board of Katoro that it will vote in favour of the Resolution”.

Conclusion: The disposal of the gold projects sharpens Katoro Gold’s focus on developing its battery metals strategy and in particular on the 75% owned flagship Haneti nickel project which it holds in conjunction with Power Metal Resources.

*SP Angel act as Nomad and broker to Power Metal Resources plc formerly African Battery Metals

 

Power Metal Resources (POW LN)FOLLOW  xxp, Mkt Cap £xxm – Katoro Gold update

  • Power Metal Resources guide to the Katoro Gold announcement, with POW holding shares representing 5.90% of Katoro Gold’s issued share capital.
  • In addition, POW also holds 10,000,000 warrants in Katoro Gold exercisable at 1.25p (2,500,000 warrants expiring on 15 March 2022 and 7,500,000 warrants expiring on 15 May 2022).
  • POW also has a 25% interest in Katoro Gold's Haneti Nickel project in Tanzania, with a right to increase its interest to 35% by a payment to Katoro Gold of £25,000 in cash by 15 May 2020.
  • Katoro report agreement of a term sheet for the proposed disposal of 100% of wholly owned subsidiary, Reef Miners Limited, which owns the Imweru gold project and the Lubando gold project in northern Tanzania to Lake Victoria Gold Limited. As part of the term sheet, Katoro will receive total staged cash consideration of up to US$1.0m and a 1.5% Net Smelter Royalty.
  • The proposed disposal allows for development of the projects utilising external resources, with Katoro retaining project exposure through the option to exchange cash consideration for shares in Lake Victoria Gold Limited, and from the 1.5% NSR.Katoro is to focus its resources on the development of a portfolio of assets focused on the battery metals sector including the Haneti nickel project which has attracted significant interest from investors.

 

Prospect Resources (PSC AU) A$0.13cm Mkt Cap A$30.7m – Power supply agreement for Arcadia

  • Prospect Resources reports the signing of a Memorandum of Understanding (MoU) with African Continental Minerals (ACM)for  the supply of power from ACM’ coalbed methane gas-to-power project to Prospect Resources’ Arcadia lithium project near Harare, Zimbabwe.
  • The MoU, which is for a term of five years covers a “Minimum supply of 20 Megawatts daily power to meet all of Arcadia’s power supply requirements (Arcadia’s peak power requirement is 16 Megawatts1)” with an “Option for an additional 25 Megawatts of supply in the event of further expansion of the facility or downstream processing (Lithium Carbonate or Hydroxide plant).“
  • Currently, “Arcadia’s primary source of power supply is from the national electricity grid that is owned and operated by Zimbabwe Electricity Transmission & Distribution Company (“ZETDC”),whose main power distribution lines runs adjacent to Arcadia, some 15 kms away. Prospect has secured Arcadia’s required supply at this interconnection. The MOU provides Arcadia with optionality for power supply and competitive tension for future supply agreements”.
  • Our understanding is that reliable power supply continues to be a major issue in Zimbabwe with low water levels and ageing infrastructure in the Kariba Dam exacerbating shortages; Prospect Resources also says that as well as its agreement with ACM, it “continues to consider alternative secondary power supply options including purchase of power from the South African Power Pool, a power purchase agreement with the existing Cahora Bassa hydroelectric scheme or even the creation of a solar farm on site to ensure that it has the appropriate power solution with contingencies to support the development and operations of the Arcadia Mine.”
  • A Definitive Feasibility Study for the Arcadia project dated November 2018 and summarised on Prospect Resources’ website indicates that a 2.4mtpa base case development of the Arcadia Lithiium Project would deliver 212,000tpa of a 6% spodumene concentrate (plus 216,000tpa of 4% petalite concentrate and 188,000lb/annum of tantalum) over a 12 year mine life. The study indicates that a capital investment of US$163m is expected to generate a pre-tax NPV10% of US$533m and generate an IRR of 45%.
  • The company’s website says that the “Project [is] expected to be in production 18 months from securing finance”

 

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

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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