SP Angel . Morning View . Markets pull back amid looming mid-December deadline for new tariffs
Paul Kettle
SP Angel Research Note -4 mins read
11:55, 10th December 2019

SP Angel . Morning View . Tuesday 10 12 19

Markets pull back amid looming mid-December deadline for new tariffs

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MiFID II exempt information – see disclaimer below

 

 

 

Adriatic Metals* (ADT AU) – Trading on LSE expected to commence on 12th December

 

Asiamet Resources (ARS LN) – Project update

 

Erris Resources (ERIS LN) – Erris signs option to acquire 80% of Scottish gold project

 

Nano One Materials* (NNO CN) – report progress with Pulead in the evaluation of production for lithium-iron-phosphate cathode material

 

NOVONIX Limited* (NVX AU) – conditional agreement to supply lithium-ion battery anode material to Samsung SDI

 

Resolute Mining (RSG LN) – Completion of roaster repairs at Syama

 

 

 

EU approves €3.2bn state aid fund for battery technology innovation

 

  • City AM report the Eu has approved €3.2bn in state aid for battery research and innovation.
  • Funding is to come from Belgium, Finland, France, Germany, Italy, Poland and Sweden, all nations that expect to benefit from the construction of new facilities in the battery and EV supply chain.
  • The funding is expected to unlock and additional €5bn of private investment into the battery research and innovation in the period to 2031.
  • The project is to ‘support the development of innovative and sustainable technologies for lithium-ion batteries that last longer, have shorter charging times and are safer and more environmentally friendly than those currently available’. According to Energy Live News
  • The fund will target strategic areas in which to help European companies develop new technology, to keep up with global competition.
  • It is for funding ambitious and risky research and development activities for innovation across the battery value chain, from mining and processing the raw materials, production of advanced chemical materials, design of battery cells and modules and their integration into smart systems, to recycling and repurposing of used batteries.
  • The project will target all stages of battery development, including the mining and processing of raw materials, production of advanced chemical materials, the design of battery cells and the recycling of used batteries (CITY A.M).
  • The European Commission said it expected a further €5bn in private investment along with the €3.2bn provided by the seven member states.
  • The plan will involve 17 direct participants, mostly industrial firms including small and medium sized businesses.

 

*SP angel acts for Talga Resources which has developed a number of graphite anode materials for enhancing the performance of lithium batteries using graphite from it’s mine in Sweden and facilities in the UK and Germany.

 

 

Dow Jones Industrials

 

-0.38%

at

27,910

Nikkei 225

 

-0.09%

at

23,410

HK Hang Seng

 

-0.22%

at

26,437

Shanghai Composite

 

+0.10%

at

2,917

FTSE 350 Mining

 

-1.34%

at

17,880

AIM Basic Resources

 

-1.10%

at

1,994

 

 

 

Economics

 

US – Equities are in a risk off mode amid growing concerns that the US may go forward with December 15 tariffs and no clarity on the status of Phase One talks.

 

  • The government is expected to sign off on adjustments to a free trade agreement with Mexico and Canada today.

 

 

 

China – Surging food prices see CPI climbing more than forecast last month while falling factory gate prices pressure industrial sector margins.

 

  • Pork prices were up 110.2%yoy contributing 2.64pp to headline inflation.
  • Core consumer prices (excl food and energy) showed only modest increases (+1.4%yoy).
  • CPI (%yoy): 4.5 v 3.8 in October and 4.3 forecast.
  • PPI (%yoy): -1.4 v -1.6 in October and -1.5 forecast.

 

 

 

Germany – Machine manufacturers association is forecasting a bleak 2020 expecting production to return to growth only in H2 next year.

 

  • Overall, equipment production is set to fall 2% following a similar scale drop this year, according to the Mechanical Emergency Industry Association (VDMA).
  • “Our industry isn’t in crisis but many of our customers are rattled and postpone or stop their investments,” VDMA said.
  • Production in the machine industry was down 1.8% through October, with order slumping 9%.
  • The German current account surplus was larger than expected yesterday with data suggesting the impact of the US-China trade war on German might be easing helping the German economy avoid a contraction this year.

 

 

 

UK – GDP climbed 0.7%yoy in October marking the weakest pace since March 2012 as the nation nears general elections.

 

  • Weak construction and industrial production weighed on headline numbers.
  • The pound held on to its earlier gains trading close to its highest in months against the US$ amid expectations for Conservatives to secure a majority in coming elections.
  • GDP (%yoy): 0.7% v 0.9% in September.

 

 

 

France – Industrial production growth was unchanged from the pace recorded the previous month in October while outlook weakens amid pension reform related regulation.

 

  • Industrial Production (%mom/yoy): 0.4/-0.2 v 0.4/0.2 in September and 0.2/-0.4 forecast.

 

 

 

Australia – Philip Lowe, an RBA Governor, is optimistic private spending will pick up supported by low interest rates.

 

  • “Its quite possible in the current environment that the spending is taking a bit longer… many of us have got a high level of debt, probably too much debt, and we’re using the opportunity of extra income to pay down the debt, but eventually when we do that, I think we’ll spend more of it,” Lowe said.
  • The RBA left rates unchanged at a record-low 0.75% following three cuts since June this year.
  • Household spending climbed a modest 0.1%qoq in Q3, the data last week showed.
  • “The weak consumption growth was a bit of a surprise, but I don’t think it has particular messages about the future.”

 

 

 

Sub-Saharan Africa (SSA) debt levels doubled in the past decade helped by high commodity price and low global interest rates, IMF estimates.

 

  • African governments raised ~$26bn in international markets this year v $30bn in 2018 as investors are searching for higher yields.
  • South Africa issued its largest Eurobond yet to help cover a widening budget deficit as economic growth slows and public-sector wages and bailouts for state companies require new funds.
  • Of the 54 countries on the continent, 20 are near or at distressed levels, IMF estimates.

 

 

 

South Africa – Eskom to impose its biggest ever rolling power blackouts

 

  • State company Eskom produces nearly all of the nation’s electricity, however more than a quarter of the generating capacity has broken down.
  • Eskom announced on Monday that it would remove an unprecedented 6,000MW of demand from the grid, in a move known as stage 6 ‘load shedding’.
  • Last week, Eskom announced Stage 4 load shedding which saw 4,000MW of electricity shed due to losing 1/3 of the output from its fleet of ageing coal power stations, causing blackouts across South Africa (The South African).
  • A technical problem at the Medupi Power Station caused the elevation to stage 6 load shedding, exacerbated by heavy rains which caused operational problems at several power stations.
  • Medupi and a twin power station Kusile have a combined capacity of 9,600MW, however have been riddled with design flaws and the cost of the plants has doubled to $20bn.
  • Petra Diamonds has suspended operations at all of its mines in South Africa as a result of Eskom failing to provide electricity (mining.com).
  • Mining companies Harmony Gold, Impala Platinum, and Sibanye-Stillwater have been forced to cut production since Monday due to power shortages (Reuters).

 

 

 

Indonesia – Energy and mining minister targets EV battery plants by 2023

 

  • The coordinating Minister for Maritime and Investment Affairs says that he wants investors to start putting money into plants to make batteries, along with plants producing battery chemicals from nickel ore.
  • Chinese battery firms GEM and CATL are already in talks with the Indonesian government to build lithium battery plants in the country.
  • Chinese steel maker Tsingshan Holding Group are currently building Indonesia’s first battery chemical plant.
  • GEM expects to start trial production at its Indonesian battery chemicals plant in August 2020, with the first phase of operations up and running by the end of next year.

 

 

 

Currencies

 

US$1.1079/eur vs 1.1067/eur yesterday.  Yen 108.60/$ vs 108.47/$.  SAr 14.669/$ vs 14.646/$.  $1.316/gbp vs $1.317/gbp.  0.682/aud vs 0.683/aud.  CNY 7.039/$ vs 7.041/$.

 

 

 

Commodity News

 

Gold US$1,464/oz vs US$1,463/oz yesterday

 

   Gold ETFs 81.0moz vs US$81.0moz yesterday

 

Platinum US$901/oz vs US$892/oz yesterday

 

Palladium US$1,884/oz vs US$1,883/oz yesterday - Palladium climbs to just shy of $1,900 (Reuters)

 

  • The Autocatalyst metals climbed to an all time high of $1,898.50/oz yesterday.
  • The metal has risen nearly 50% this year due to a prolonged supply shortage and increasingly stringent emissions regulations, despite a weakening global auto sector.
  • Some analysts expect that palladium prices are heading towards the $2,000/oz mark, and that the market will be in deficit for the foreseeable future.

 

Silver US$16.65/oz vs US$16.60/oz yesterday

 

           

 

Base metals:   

 

Copper US$ 6,097/t vs US$6,009/t yesterday - Copper stocks continue to fall with another 5,625t coming of out LME warehouses and another 70,250t of cancelled warrants

 

  • The steady erosion of LME copper stocks indicates to us that there is an ongoing buyer in the copper market, probably China’s State Reserve Bureau taking advantage of prevailing low copper prices.

 

Aluminium US$ 1,756/t vs US$1,766/t yesterday

 

Nickel US$ 12,965/t vs US$13,215/t yesterday - Work at Australia’s Forrestania Nickel Operation resumes (mining-technology)

 

  • Nickel mining firm Western Areas has resumed normal operations at its Forrestania project in Western Australia, following a bush fire incident last week.
  • The bush fire last week was most likely caused by a lightning strike, and led to the temporary suspension of operations at Forrestania.
  • Power lines were damaged during the weekend as a result of the fire, however power was restored by the end of the weekend and mining operations were restarted using back-up generation.
  • According to Western Areas, the incident has no impact on the company’s nickel production or cost guidance for the 2020 financial year.

 

Zinc US$ 2,230/t vs US$2,225/t yesterday

 

Lead US$ 1,911/t vs US$1,866/t yesterday

 

Tin US$ 17,370/t vs US$17,060/t yesterday

 

           

 

Energy:           

 

Oil & Gas M&A activity builds momentum across the sector

 

  • UK oil and gas continues to thrive this quarter, demonstrated by the recent £5m Union Jack* (UJO LN) placing which follows Reabold Resources’ (RBD LN) £24m fundraise announced in October, primarily for the same West Newton conventional field onshore UK
  • Further institutional support has been demonstrated by the £10m raise and IPO of Longboat Energy, or Faroe Petroleum mark II, to build a new full-cycle North Sea E&P
  • The past 12 months has seen the acquisition of Faroe Petroleum (FPM LN) by DNO (DNO ASA); a £380m bid for Eland Oil & Gas (ELA LN) by Seplat Petroleum (SEPL LN); and a £242m bid for Amerisur Resources (AMER LN) by Geopark

 

*SP Angel acts as Nominated Advisor and Broker to Union Jack Oil

 

Oil US$64.1/bbl vs US$64.0/bbl yesterday - Oil continues to nudge up as the market digests last weeks announced production cuts

 

  • The combination of raising the production cuts to 1.7MMbopd, plus the unilateral over-compliance by Saudi Arabia, adding another 400,000bopd of additional cuts, suprised the market last week
  • In addition, Saudi Arabia hopes to apply pressure to all member countries to comply with their allotted reductions
  • With the Saudi cuts, the total contributions rise to 2.1MMbbl/d of reductions. The deal takes effect in January 2020, and the group will meet again in March.
  • Of the 500kbbl/d in extra cuts, OPEC will shoulder c.372kbb/d and the non-OPEC group led by Russia will take on 131kbbl/d
  • U.S. crude futures were up 0.2% at $64.9/bbl on the New York Mercantile Exchange
  • US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

 

Natural Gas US$2.222/mmbtu vs US$2.231/mmbtu yesterday - Gas Price News

 

  • Natural gas prices dipped lower again yesterday completing the bear flag continuation pattern
  • The weather is expected to remain near normal or warmer than normal for the next 6-10 and 8-14 days according to the National Oceanic Atmospheric Administration
  • Supply is rose more than expected, which continues to weigh on prices

 

Uranium US$25.85/lb vs US$25.90/lb yesterday

 

           

 

Bulk:   

 

Iron ore 62% Fe spot (cfr Tianjin) US$91.8/t vs US$87.2/t

 

Chinese steel rebar 25mm US$587.1/t vs US$586.5/t

 

Thermal coal (1st year forward cif ARA) US$59.4/t vs US$60.0/t

 

Coking coal futures Dalian Exchange US$188.2/t vs US$188.2/t

 

           

 

Other:  

 

Cobalt LME 3m US$34,750/t vs US$34,750/t

 

NdPr Rare Earth Oxide (China) US$41,127/t vs US$41,115/t

 

Lithium carbonate 99% (China) US$6,038/t vs US$6,107/t

 

Ferro Vanadium 80% FOB (China) US$29.0/kg vs US$29.0/kg

 

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

 

Tungsten APT European US$230-245/mtu vs US$225-245/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

 

 

 

Company News

 

Adriatic Metals* (ADT AU) A$1.7, Mkt cap A$309m – Trading on LSE expected to commence on 12th December

 

  • Adriatic Metals reports thatʺ Subject to the UKLA’s final approval, the Company expects that Admission will become effective and that unconditional dealings in the Shares will commence at 08.00 a.m. on Thursday, 12 December 2019 under the ticker “LSE: ADT1ʺ
  • The company says that its Prospectus  ʺfor the dual listing of the Company's ordinary shares ("Shares") to the standard segment of the Official List and the LSE's Main Market for listed securities ("Admission") has been approved by the UK Listing Authority ("UKLA") and was published today, Monday, 9 December 2019, on its website at https://www.adriaticmetals.com/investors/lse-listing/ʺ
  • Adriatic Metals is exploring the Rupice and Jurasevac-Brestic prospects in Bosnia and has recently announced both lateral and depth extensions to the known extent of the polymetallic mineralisation as a result of its drilling programme which has now shown mineralisation over some 500m of strike length and established the possibility that the mineralisation at Rupice and that at Jurasevac-Brestic, located some 500-600m further southeast, remain open both laterally and at depth.

 

*An SP Angel mining analyst has visited Adriatic Metals operations in Bosnia

 

 

 

Asiamet Resources (ARS LN) FOLLOW 1.9p, mkt cap £21m – Project update

 

  • Asiamet Resources has provided an update of its projects in response to a sharp movement in the company’s share price. Asiamet Resources says that ʺThe Company is not aware of any operational or corporate reason for the large price movement.ʺ.
  • Recent drilling results have shown robust results and offer the potential to expand the resource inventory of the BKM copper project where the company has already established a maiden ore reserve of 51.5mt at an average grade of 0.6% copper.
  • As previously announced, this reserve underpins a the company’s feasibility study, which envisages production of around 25,000tpa of copper at an all-in-sustaining cost of US$1.78/lb over an initial 9 years mine life from relative shallow open pit mining. The 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..
  • Optimisation work since the completion of the study has identified ʺvalue enhancements to improve the Feasibility Study by a minimum of $35 million on a risk weighted basisʺ.
  • The company confirms that its licences both at KSK and at Beutong ʺare in full compliance and in good standingʺ.
  • Asiamet Resources also confirms that ʺstrategic discussions with respect to partnering continue with highly reputable and interested parties.  A number of participants are active in the corporate data room.ʺ

 

 

 

Erris Resources (ERIS LN) FOLLOW 3.7p, Mkt Cap £1.1m – Erris signs option to acquire 80% of Scottish gold project

 

  • Erris Resources report they have signed an option with GreenOre Gold plc to acquire 80% of the Loch Tay gold and associated base metals project in Perthshire, Scotland.
  • The agreement is for Erris to explore the 237sq km Loch Tay license and is conditional on due diligence by Erris.
  • The Erris statement refers to the presence of historic workings, mineralised outcrops and alluvial gold occourances with a 10g nugget discovered in the Glen Almond river in July this year by a team from the University of Leeds.
  • Erris has €1.6m in cash as of November 2019.

 

Conclusion: While we are big fans of mining in the UK due to local and government support for job creation and new projects we caution that the exploration on Loch Tay license is early stage and highly speculative.

 

Management refer to the discovery at Curraghinalt in Northern Ireland which is >300km away as well as Cononish Gold Mine operated by Scotgold which is just 40km away. Both projects demonstrate that mining is well supported by the authorities in the UK but that environmental concerns and local issues must be carefully managed. Dalradian has dropped the use of cyanide at Curraghinalt for example in an attempt to counteract strong local opposition in County Tyrone.

 

 

 

Nano One Materials* (NNO CN) FOLLOW - C$1.2, mkt cap C$81m - report progress with Pulead in the evaluation of production for lithium-iron-phosphate cathode material

 

  • Nano One Materials Corp., reports significant progress in ongoing joint development work with Pulead to develop, evaluate and optimize scaled production of lithium iron phosphate (LFP) cathode material.
  • Pulead is one of China’s leading Li-ion battery cathode producers developed by Oriental Investment Co. Ltd and Peking University and is becoming a key player in the Li-ion battery supply chain,
  • ‘Nano One, working with a raw material sourcing expert in China, has identified raw material supply sources that meet both Nano One’s performance targets and Pulead’s specifications for impurities and cost’”
  • Nano One is also expected to complete an engineering report detailing an LFP production line for review by Pulead early in 2020.
  • LFP is said to be the safest, lowest cost and longest lasting lithium ion cathode material making it ideal for use in electric buses, energy storage systems and other industrial applications.
  • Nano One’s proprietary process is reported to have appreciable cost advantages over traditional methods of producing LFP.
  • Pulead produced 15,000 tons of LFP in 2018 and has ambitious growth plans based on their forecast for global demand to reach 200,000tpa by 2025. T
  • his coupled with their manufacturing and supply chain expertise should make them a good partner for Nano One’s patented technology.

 

*SP angel acts for Talga Resources which has developed a number of graphite anode materials for enhancing the performance of lithium batteries using graphite from it’s mine in Sweden and facilities in the UK and Germany.

 

 

 

NOVONIX Limited* (NVX AU) A$0.6, mkt cap A$76m - conditional agreement to supply lithium-ion battery anode material to Samsung SDI

 

  • NOVONIX Limited reports it has reached conditional agreement to supply lithium-ion battery anode material to Samsung SDI.
  • The agreement follows more than six months of technical evaluation of PUREgraphite Anode material.
  • NOVONIX will supply an initial 500t next year starting next October from its plant in the US.
  • Samsung SDI has been selected as a core battery supplier for over 30 vehicle electrification projects. Samsung SDI batteries are used in the Fiat 500e (EV), BMW i3 (EV), BMW i8  (PHEV).

 

*SP angel acts for Talga Resources which has developed a number of graphite anode materials for enhancing the performance of lithium batteries using graphite from it’s mine in Sweden and facilities in the UK and Germany.

 

 

 

Resolute Mining (RSG LN) FOLLOW 60p, Mkt Cap £542m– Completion of roaster repairs at Syama

 

  • Resolute Mining reports the completion, on schedule and within budget, of repairs to the shell of the roaster at its Syama gold mine in Mali.
  • The damage to the roaster was originally reported in October and the repair ʺconsisted of completely replating the crack on the main roaster body by cutting and welding new 10mm plate steel. An additional crack in the primary cyclone and two minor cracks on the main roaster body were also replated during the repair programʺ.
  • ʺ…completion of the roaster repairs, create an opportunity for Resolute to reschedule the major biennial roaster shutdown previously scheduled for May 2020. Following reheating of the roaster, operational performance will be monitored to determine if the roaster shutdown can be deferred until January 2021ʺ.

 

 

 

 

 

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.

 

 

 

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

 

 

 

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.

 

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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.

 

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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%

Disclaimer & Declaration of Interest

The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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