SP Angel . Morning View . Gold price rise ahead of IMF presentation at Davos

SP Angel . Morning View . Monday 20 01 20

Gold price rise ahead of IMF presentation at Davos

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Sirius Minerals (SXX LN) / Anglo American (AAL LN) - Anglo American agrees to buy Sirius Minerals for 5.5/s (£404m)

Chaarat Gold* (CGH LN) 36p, Mkt Cap £169m – Issue of shares

Keras Resources* (KRS LN) – Keras hires local team for Q1 start of production

 

Million mile battery looks to be nearing reality as materials innovation improves Li-ion cathode and anode performance

• John Dahn at Dalhousie which has an exclusive agreement with Tesla reckons new advances in battery materials should enable dramatic improvement in Li-ion battery performance.
• The key advance is in the protective coating around the nickel-manganese cathode which enables more efficient charging and discharge.
•  more than double service life, reduce failure rates and cut maintenance and replacement costs ‘Journal of Electrochemical Society’ (Energy & Capital).
• Dalhousie is not the only company improving cathode performance with CTO engineering a new ‘single crystal’ protective coating to improve range and reliability.
• The development of a number of new coatings for the cathode combined with improvements to anode materials being made by Talga Resources* should result in very much better Li-ion batteries in future years.
• Better, longer-range batteries will further open the market for electric vehicles for taxis, delivery vehicles and aircraft as the new technology should serve to make batteries lighter and more efficient.

*SP Angel act for Talga Resources

 

IMF – Head of IMF warns of risk of Great Depression driven by unequal growth and financial instability (The Guardian)

The IMF will be releasing its global economic outlook report later today in Davos where the World Economic Forum will be taking place for the 50^th time.

• Kristalina Georgieva, the head of the International Monetary Fund sees similarities between today and the ‘1920s’ which led to the market crash of 1929 and Great Depression.
• The inequality gap combined with the instability of financial institutions is of particular concern with the top 10% in the UK now controlling nearly as much wealth as the bottom 50% with similar wealth profiles seen across the OECD.
• Ms Georgieva sees climate change and trade protectionism as likely to cause social unrest, financial market volatility and increasing uncertainty
• A new IMF study highlights how access to the financial sector in the 1990s enabled enormous economic gains in India and China helping to lift a billion people out of poverty.
• Unfortunately the excesses which led to the 2008 global financial crisis risks one in four young people in Europe falling into poverty indicating there is no substitute for high-quality regulation and supervision.

 

Dow Jones Industrials		+0.17%	at	29,348
Nikkei 225		+0.18%	at	24,084
HK Hang Seng		-0.90%	at	28,796
Shanghai Composite		+0.66%	at	3,096
FTSE 350 Mining		-0.11%	at	19,710
AIM Basic Resources		+0.93%	at	2,140

 

Economics

US – Equity and bond markets are closed for the Martin Luther King Jr day.

 

China – The Lunar New Year starts this weekend seeing local markets closed for a week starting on Friday.

 

EU – The ECB is holding a press conference on Thursday with expectations for no change in the current monetary policy stance.

• Local PMIs have been recovering in December the regional Bloomberg uncertainty gauge coming down on the back of positive news that the US and China agreed the phase one trading agreement.
• Developments seem to be consistent with the ECB’s forecasts for growth to recover this year and, hence, likely to see no change in the monetary policy.

 

Japan – Final industrial production numbers showed the manufacturing sector remained in contraction in November weighing on the nation’s growth outlook.

• Adding weak December PMI results, the economy is likely to have recorded negative GDP growth in the final quarter hampered by a sales tax hike, typhoon and trade war.
• The data suggests “that the impetus is back on Abe and the Bank of Japan to look at ways to stimulate the domestic economy”, Markit wrote in the latest PMI report.
• Industrial Production (%mom/yoy): -1.0/-8.2 v -4.5/-7.7 in October.

 

UK – Property prices growth jumped to the strongest in more than two years in January on reduced uncertainty over the Brexit outlook.

• “The housing market dislikes uncertainty, and the unsettled political outlook over the last three and a half years since the EU referendum caused some potential home movers to hesitate… there now seems to be a release of this pent-up demand, which suggests we are in store for an active spring market,” Rightmove commented on numbers.
• Volume of agreed sales has also jumped by 7.5%yoy in the first month of the year.
• The Withdrawal Agreement Bill is scheduled for a vote in the house of Lords tomorrow, with the House of Commons likely to debate on any amendments the following day.
• Rightmove House Prices (%mom/yoy): 2.3/2.7 v  -0.9/+0.8 in December.

UK – heads for non-alignment with EU rules as Trade minister says UK will not be a rule taker

 

South Africa  - President Ramaphosa signals to those that are plotting to oust him that he is ready to take them on

• Cyril Ramaphosa is having to deal with factions within the ANC in his battle against corruption
• We suspect the challenge of dealing with incompetence and graft within ESCOM is just one of many battles that Ramaphosa is having to take on.

 

Ecuador – Enrique Gallegos-Anda appointed Vice Minister of Mines

• Gallegos-Anda is a Lawyer of the Courts of Justice of the Republic of Ecuador. He is seen as a professional with experience in the mining and has acted as a negotiator and mediator in conflict management with communities and business groups.
• The new vice minister aims to work with a clear vision of transparency and institutional efficiency, promoting the development of economically profitable, socially necessary, environmentally sustainable and sustainable projects.

 

US federal council adds mining projects to fast-track permitting process (Mining Weekly)

• The Federal Permitting Improvement Steering Council (FPISC) has voted to include mining projects covered by the Fixing America’s Surface Transportation Act (FAST-41).
• This vote highlights that the nation’s key infrastructure projects are reliant on timely access to raw materials made available through domestic mining.
• The FAST Act of 2015 was designed to improve the timeliness, predictability and transparency of the federal environmental review and authorisation process for covered infrastructure projects, and establishes new procedures that standardise interagency consultation and coordination practices.
• Environmental groups have not welcomed the decision, and argue mining has a more harmful impact than any of the covered sectors.

 

Currencies

US$1.1089/eur vs 1.1136/eur last week.  Yen 110.17/$ vs 110.18/$.  SAr 14.553/$ vs 14.395/$.  $1.297/gbp vs            $1.309/gbp.  0.687/aud vs 0.691/aud.  CNY 6.864/$ vs  6.859/$.

 

Commodity News

Gold US$1,561/oz vs US$1,555/oz last week

   Gold ETFs 81.7moz vs US$81.0moz last week

Platinum US$1,027/oz vs US$1,014/oz last week - North Macedonia gives insight into PGM market (The Washington Post)

• Production and consumption of platinum and palladium in North Macedonia are giving clues into the way automakers are using the two elements in catalytic converters.
• Sales of platinum-heavy diesel vehicles have been hit by the aftermath of the diesel emissions scandal, causing demand of palladium-heavy gasoline vehicles to rise.
• The rally in palladium has seen the price increase by nearly five times over the past four years, whereas platinum has only increased 25%.
• At some point, the current price mismatch between two metals should cause manufacturers to reform their autocatalysts to include less palladium and more platinum.
• North Macedonia has no domestic supply of PGM metals, meaning metal import data gives a good indication of the proportions being used in the catalytic converters at Johnson Matthey’s Skopje plant.
• Surprisingly, the ratio of between platinum and palladium imports are falling – from around 3:1 a few years ago to 1.8:1 the past year. Furthermore, platinum imports for October were up just 3.9% compared to palladium which were up 61%.
• Data from the Balkan state only gives insight into one plant, which was set up to produce diesel catalysts, so gives little insight into the gasoline end of the market.

Palladium US$2,570/oz vs US$2,382/oz last week

Silver US$18.07/oz vs US$18.02/oz last week

           

Base metals:   

Copper US$ 6,273/t vs US$6,318/t last week - Chilean Mining Commission to investigate $22m insurance fraud involving Codelco (mining.com)

• The government have announced it will investigate Codelco’s allegations last week that an insurance company inflated policies for workers at two key mines.
• Codelco filed a complaint against Chilena Consolidada, a firm linked to Zurich Insurance Group, of blowing up premiums for life and personal accident insurance.
• Government officials have said that the Mining Commission will analyse the evidence submitted by Codelco before the tribunal (Biobio Chile)

Aluminium US$ 1,812/t vs US$1,814/t last week

Nickel US$ 13,890/t vs US$13,950/t last week

Zinc US$ 2,437/t vs US$2,426/t last week

Lead US$ 1,989/t vs US$1,990/t last week

Tin US$ 17,795/t vs US$17,800/t last week

           

Energy:           

Oil US$65.2/bbl vs US$64.9/bbl last week

Natural Gas US$1.932/mmbtu vs US$2.053/mmbtu last week

Uranium US$24.60/lb vs US$24.55/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$94.7/t vs US$94.1/t

Chinese steel rebar 25mm US$574.3/t vs US$574.7/t

Thermal coal (1st year forward cif ARA) US$60.4/t vs US$61.9/t

Coking coal futures Dalian Exchange US$181.4/t vs US$181.5/t

           

Other:  

Cobalt LME 3m US$32,250/t vs US$32,750/t

NdPr Rare Earth Oxide (China) US$40,649/t vs US$40,674/t - Lynas faces new challenge to rare earth processing plant (Au Manufacturing)

• The Australian rare earths producer has faced new opposition to its continuing operations in Malaysia with the lodging of proceedings in the High Court of Kuala Lumpur.
• Lynas is building a processing plant in W. Australia to remove radioactive waste before shipment to Malaysia, with the company having only six months to remove the waste due to a Malaysian government decision.
• The legal challenge says the decision to renew Lynas’ license should have been made by the Science and Environment Minister, and not the cabinet, as locals claim Malaysia has become a dumping ground for other countries waste.
• Lynas is expected to give details of its W. Australian plant, but it is expected that the plant will extract radioactive waste before exporting to Malaysia for further processing (Sydney Morning Herald).

Lithium carbonate 99% (China) US$5,609/t vs US$5,613/t - Australia’s Orocobre signs lithium supply deal with Chinese firms (Reuters)

• The lithium miner announced that two contracts were signed to supply battery grade lithium carbonate to Toyota Tsusho.
• The metal will be supplied from the company’s flagship Olaroz Lithium project in Argentina.
• Toyota Tshusho signed one contract for supply of 7,200t of battery grade lithium carbonate and a second order of 2,880t of micronized battery grade lithium carbonate.
• The orders will be delivered over three years, with the first shipment expected in the March quarter.

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg

Antimony Trioxide 99.5% EU (China) US$5./kg vs US$5.1/kg

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

American company Real Graphene to market graphene batteries to smartphone manufacturers (GizChina)

• Real Graphene replace the graphite electrode in the battery with an electrode covered in a thin layer of graphene. Graphene is an extremely thin, lightweight and strong material and a near perfect conductor of electricity. This enables faster charging and less heat is emitted than by a regular lithium-ion batteries.
• A full charge for a graphene battery takes 20 minutes using a 60W power source and the battery can last 1500 cycles compared to the average phone battery with the same capacity.
• Real Graphene has begun manufacturing its special cells. The Company manufactures the graphene, the battery and the chipset required for charging. CEO Samuel Gong explained that this would enable the company to scale up quickly if a company wanted to put their graphene=enhanced cells into phones. (Digital Trends)

 

Audi has invested €100m into EV charging infrastructure on its sites (Auto.com)

• The Company is putting in place 4,500 charging points for battery operated vehicles as part of its initiative to have 1 in 10 parking spaces electrified at its German plants by 2022.
• The charging spaces will in large part be open to the public. Brussels, Ingolstadt and Neckarsulm sites already have a charging infrastructure with a power input of 21 megawatts according to Audi.
• Charging infrastructure on this scale is unique in Germany and as such Audi have employed a project team to both build and manage the process. Moving forward Audi are looking into how the required expertise can be transferred to other companies to enable them to build out their charging infrastructures, part of Audi’s move towards becoming a mobility service provider (EV Trader).

 

Battery advancements could leave lithium behind (Mining Weekly)

• Demand for Lithium created by the EV battery industry has led to investment into the space and several new mining projects being brought online but the evolution in battery technology may outrun the lithium market.
• Recent examples include batteries using hydrogen fuel cells, components from seawater  and solid state batteries to develop battery technology that is more sustainable and provides better potentially performance.
• In the last 5yrs the cost of batteries for EV has dropped by a factor of 3 while power density has increased similarly. The next generation of technologies promise even better performance but development is unlikely to continue at the same pace.

 

Company News

Anglo American (AAL LN) FOLLOW 2240.5 pence, Mkt Cap £28.2bn  

Sirius Minerals (SXX LN) FOLLOW 5.15p, Mkt cap £386.8m - Anglo American agrees to buy Sirius Minerals

• Anglo American and Sirius Minerals have agreed a recommended offer under which Anglo will acquire the company for 5.5p/share in cash valuing Sirius Minerals at £404.9m.
• Sirius directors representing 2.46% of the shares have given irrevocable undertakings to accept the offer.
• As recently as May last year Sirius Minerals shares were trading at over 20p/share and the share price approached 40p/share during the summer of 2018.
• The possibility of the transaction was initially confirmed by both companies on 8^th January and today’s announcement formalises the offer which is being recommended to shareholders by the Board of Sirius Minerals and is expected to be completed by 31^st March.
• Completion of the development of Sirius Minerals’ Woodsmith polyhalite mine in Yorkshire was jeopardised by the inability to complete a $500m bond financing in August last year which triggered a strategic review of the project including an initiative to identify a suitable strategic partner.
• Acknowledging that some shareholders were likely to be disappointed by this outcome, Sirus Minerals’ Chairman, Russel Scrimshaw, said that the “board deeply regrets that we could not deliver the complete stage two financing in 2019 despite a very broad and thorough process. Going into the strategic review the Sirius Board's strong preference was a solution that allowed current Shareholders to participate as fully as possible in the future development of the Project. Following the strategic review process it is clear that no such options are currently available to us and in that context Anglo American's offer is the only feasible option”.
• Mr. Scrimshaw went on to explain that “given the current cash constraints of Sirius, and lack of realistic and deliverable alternative financing and development options, we believe this to be a fair approach from Anglo American, a company committed to approaching the Project in the right way, and with the resources to complete the job.”
• Anglo American’s Chief Executive, Mark Cutifani, pointed out that the “recommended offer provides greater certainty for Sirius' Shareholders, employees and wider stakeholders, while bringing the prospects for the development of this potential Tier 1 Project closer to reality.”
• Mr. Cutifani also confirmed the intention to “bring Anglo American's financial, technical and product marketing resources and capabilities to the development of the Project, which of course would be expected to unlock a significant and sustained associated employment and economic stimulus for the local area.”

Conclusion: Anglo American’s financial, technical and marketing resources should secure the local and regional employment and economic benefits the Woodsmith mine development brings to the area although many shareholders will incur significant losses.

 

Chaarat Gold* (CGH LN)  FOLLOW36p, Mkt Cap £169m – Issue of shares

• The Company issued 516.5k shares in regards to loan agreement fees with Labro Investments that now holds 35.15% of outstanding shares.
• Additionally, the Company issued 825k new shares in relation to exercised 15p warrants.

*SP Angel acts as Broker to Chaarat Gold

 

Keras Resources* (KRS LN)  FOLLOW0.183p, Mkt Cap £4.6m – Keras hires local team for Q1 start of production

(Keras hold an 85% interest in Societé General des Mines which holds the Nayega manganese project license in Togo; 33.71% interest in Calidus)

• Keras Resources report their CEO, Russell Lamming is currently in Togo meeting with government officials and other parties to close the permitting process at Nayega to move to production in Q1.
• Keras is also restructuring its local operating company SGM as required by the draft Mining Convention agreed between SGM and the Republic of Togo.
• Management are finalising contracts with service providers and hiring key management in Togo to ensure the business if wholly run by local staff after the initial production ramp-up.
• The new structure should cut overheads and other costs
• 1:10 consolidation: Keras are also proposing a 1 for 10 share consolidation to reduce the number of shares in issue and attract institutional investment as the company moves to be cash flow positive
• Management are also reworking their incentive options, cancelling the old SAR schemen and issuing 90m new EMI options to the executive management team.
• Keras reckons it remains on track to start commercial production in Q1 at from installed capacity at 6,500/month with this capacity effectively proven by management in trial mining.
• Keras is also giving up the Kamina Cobalt & Nickel exploration Project.

*SP Angel act as Nomad and broker to Keras Resources

 

 

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                                                            

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.

 

 

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