SP Angel . Morning View . Copper structural deficit to widen as Chuqui strike imminent
Paul Kettle
SP Angel Research Note -4 min read
10:06, 13th June 2019

SP Angel – Morning View – Thursday 13 06 19

Copper structural deficit to widen as Chuqui strike imminent

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MiFID II exempt information – see disclaimer below 

 

Solgold* (SOLG LN) - Copper/Gold//Molybdenum target identified in central Ecuador

 

Iron Ore – prices set a new five-year high on expected tight demand on disrupted imports from Brazil

  • Iron ore prices hit a $113/t last night for the September 2019 contract in the Dalian Commodity Exchange.
  • Prices peaked in 2013 at $150.6/t for 62% spot fines CFR Qingdao.
  • ‘Spot iron ore for delivery to China were priced at $72.5 a tonne for the 52% grade and $92.0 for the 58% grade, compared with $120.5 for the 65% grade and $104.5 a tonne for the 62% grade, based on SteelHome data as of Wednesday.’ (Reuters)
  • Prices are being driven by rising Chinese demand to feed China’s renewed drive for new infrastructure spending in the Belt & Road initiative and to support Chinese industry through the US Trade War negotiations.
  • China has a firm policy to maintain growth, almost at any cost, and is ramping up its effective stimulus through renewed infrastructure spending to support industry which has been hit by US anti-dumping action and higher Tariffs.

 

Vanadium Redox Battery systems likely to see strong surge in demand as Norwegian oil fund invests $20bn in renewables

  • The oil fund to also divest $12bn from 150 oil & gas companies (energylivenews.com)
  • The Norwegian government is expected to order the sale of $12bn worth of holdings in Oil & gas companies and to invest $20bn in solar, wind and other renewables.
  • The fund is managed by Norges Bank Investment Management on behalf of the Ministry of Finance.
  • The situation reminds us a little of the Brown Bottom in the gold market created by Gordon Brown’s auctioning of UK gold reserves, though we suspect the Norwegian oil company sales will be better managed on behalf of Norwegian citizens.
  • The fund currently owns an average of 1.3% of every listed company in the world spread across around 9,000 companies.
  • Coal mining companies will also be excluded if they mine >20mtpa or use
  • Also excluded are companies which use 10GW of coal, though it is not clear if this would include 10GW of coal-fired power production.
  • The fund is also expected to withdraw some $8bn from upstream oil & gas and $4.2bn from coal companies
  • Around $32bn remains in oil majors for now.
  • The fund is looking to diversify its risk away from oil & gas in case of a longer term fall in oil & gas prices.
  • Get ready for a steady wave of selling in the world’s major oil companies

 

Vanadium prices - Ferro-vanadium prices picked up 2.1% last week in China at $35-36.5/kg in China, which is where much of the new demand should be

  • European ferro-vanadium prices are stable this week while US prices fell by a further 5%. The US price seems to lag Europe and China.
  • China is stimulating infrastructure spending again to offset the slowdown in manufacturing ‘growth’ caused by US Tariffs
  • The good bit about China infrastructure growth is that it uses lots of hardened steel containing vanadium
  • China’s Belt & Road program should be a particularly strong consumer of steel
  • Trump now appears to be indicating that he wants to see a weaker US dollar and stronger Yuan, if China agrees then markets could take off again
  • Bushveld remain hugely upbeat on vanadium pricing and reckon China will become more compliant from a vanadium perspective going forward.

 

Oil tanker reported to be struck by a suspected torpedo in Gulf of Oman (TradeWinds)

  • A second oil tanker is also reported to have been targeted by a magnetic mine.
  • The torpedoed tanker is hull was said to have been breached above the water line, which not how torpedoes normally work to our minds!
  • Both tankers are carrying crude and have sent distress signals
  • The incident marks an escalation of tension in the region and is the latest in a series of incidents which have damaged four oil tankers in the Straits of Hormuz and another ten en-route to Venezuela.

 

Dow Jones Industrials

 

-0.17%

at

  26,005

Nikkei 225

 

-0.46%

at

  21,032

HK Hang Seng

 

-0.81%

at

  27,087

Shanghai Composite

 

+0.06%

at

   2,911

FTSE 350 Mining

 

+0.36%

at

  19,762

AIM Basic Resources

 

+1.05%

at

   1,989

 

Economics

US – imports into Los Angeles and Long Beach port complex fall

  • Imports into Los Angeles and Long Beach fall in May.
  • Exports from the port complex also fell by 7.4% yoy.
  • The figures are distorted by the bringing forward of shipments ahead of Trump’s tariff introductions and by the use of stockpiles since then.

Trade deal could see US as largest supplier of LNG to China

  • China needs LNG and the US could raise LNG sales into China to >20% from 5% seen without a trade deal.
  • This could reduce the US trade deficit by some $15-20bnpa while saving China nearly $2bn in energy costs.
  • Rising imports of LNG should also serve to reduce pollution by replacing power generation from coal-fired power stations.

 

Currencies

US$1.1296/eur vs 1.1335/eur yesterday  Yen 108.28/$ vs 108.33/

nbsp; SAr 14.889/$ vs 14.690/
nbsp; $1.267/gbp vs $1.273/gbp  0.691/aud vs 0.695/aud  CNY 6.917/$ vs 6.913/$

 

Commodity News

Precious metals:         

Gold US$1,338/oz vs US$1,335/oz yesterday

   Gold ETFs 72.3moz vs US$72.0moz yesterday

Platinum US$814/oz vs US$819/oz yesterday

  • South African platinum producers are bracing for significant wage demands as workers eye windfall earnings from a rally in prices, as the Association of Mineworkers and Construction Union is meeting this week across the Platinum Belt.
  • The largest and most militant labor organization in the industry is aware that higher palladium and rhodium prices, plus a weaker rand, have boosted miners’ profits and will make “substantial” demands in the coming weeks.
  • In 2016, the union accepted a 12.5% wage increase after initially demanding 47%. Two years before that AMCU led the industry’s longest-ever strike, costing billions of dollars of revenue and wages.

Palladium US$1,417/oz vs US$1,390/oz yesterday

Silver US$14.83/oz vs US$14.85/oz yesterday

           

Base metals:   

Copper US$ 5,841/t vs US$5,863/t yesterday

  • Striking action threatens supply from Codelco’s third-largest mine, with workers planning to down tools on Friday as unions failed to reach an agreement with the world’s top producer. A majority of members of Chuquicamata mine Union No.’s 1, 2 and 3 rejected Codelco’s offer for a collective contract at a meeting on Wednesday.
  • A stoppage at the mine risks tightening global supply, potentially widening an expected deficit and offsetting some of the impact on prices from the U.S.-China trade war. The market faces a 189,000t deficit this year, according to the International Copper Study Group.
  • Chuquicamata produced 321,000 t of copper in 2018, but a strike at the site could have a wider effect because the complex processes ore from all of Codelco’s northern division, which accounted for half of the state-owned company’s 1.68Mt of output last year, unions have said.

Aluminium US$ 1,785/t vs US$1,777/t yesterday

Nickel US$ 11,995/t vs US$11,835/t yesterday

Zinc US$ 2,512/t vs US$2,499/t yesterday

Lead US$ 1,891/t vs US$1,895/t yesterday

Tin US$ 19,325/t vs US$19,180/t yesterday

           

Energy:           

Oil US$61.7/bbl vs US$61.2/bbl yesterday

Natural Gas US$2.370/mmbtu vs US$2.390/mmbtu yesterday

Uranium US$24.95/lb vs US$24.90/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$102.5/t vs US$102.5/t

Chinese steel rebar 25mm US$600.8/t vs US$602.6/t

Thermal coal (1st year forward cif ARA) US$63.7/t vs US$64.8/t

Coking coal futures Dalian Exchange US$197.1/t vs US$197.2/t

           

Other:  

Cobalt LME 3m US$28,000/t vs US$28,000/t

NdPr Rare Earth Oxide (China) US$51,690/t vs US$51,714/t

  • Chinese rare earth exports begin to tumble, falling 16% in May from a month earlier amid an increased focus on the raw materials due to the Sino-US trade war.
  • May’s exports fell to 3,640 t from 4,329 t in April, but were not far off the 4,264-t monthly average since January 2018, according to data published on Monday by China’s General Administration of Customs.
  • Falling exports could signal the beginning of Chinese control over supply, with the Asian nation suppling over 80% rare earth imports to the US.
  • A visit by Chinese President Xi Jinping in May to a rare earths plant fuelled the speculation that China would use its dominant position in rare earths as leverage in the trade war.
  • There has been a recent flurry in the industry as consumers seek fresh, diversified supply including Mkango Resources’ Songwe Hill, with Bloomberg and United States Geological Survey highlighting global projects.  (See map below, pdf version only)

 

 

US State officials have been running round enlisting new supplied of Rare Earth Element materials

  • The Australian Financial Review now reports ‘US defence chiefs have enlisted Australian help to secure the supply of critical minerals for batteries and weapons systems, to reduce China’s dominance of the sector.’
  • The US effort which includes Canada is seen as a top-line national security issue, including rare earths, lithium, copper and cobalt which are seen as critical to the defence supply chain as well as for wind turbines and electric vehicles.
  • For example new US F-35 Joint Strike Fighters are reported to contain around 500kg of REEs where China controls ~80% of global trade.
  • The US imports some 85% of its REEs from China making the nation and buyers of its military products vulnerable to supply shortages.

SP Angel act for Mkango Resources which has a REE project at Songwe Hill in Malawi

 

Lithium carbonate 99% (China) US$9,615/t vs US$9,620/t

Ferro Vanadium 80% FOB (China) US$38.5/kg vs US$37.5/kg

Antimony Trioxide 99.5% EU (China) US$5.8/kg vs US$5.8/kg – prices continue to fall to $6,200-6,450/t

  • Antimony prices fell a further 1.9% yesterday to $6,200-6,450/t according to Fastmarkets MB.
  • Prices have fallen 26% from $8,600/t since mid-September last year..
  • New products such as graphene for intumescent, fire-proof, coatings may be having some impact on the market

Tungsten APT European US$260-270/mtu vs US$260-270/mtu

 

Battery News

UK to become first major economy with net zero emissions target, set for 2050

  • The UK is set to become the first G7 country to commit to net zero greenhouse gas emissions by 2050.
  • Outgoing Prime Minister Theresa May made the announcement yesterday, as the UK seeks to end its contribution to climate change, amending its existing Climate Change Act in the process.
  • That committee also made a recommendation that the UK stop the sale of any non-zero emission vehicles by 2035, moving up that deadline from 2040.

 

Northvolt secures $1bn from VW

  • Swedish battery start-up, Northvolt, announces a $1bn equity capital raise for its primary gigafactory in Sweden in addition to planned 50/50 joint venture with Volkswagen on a secondary facility in Germany.
  • The funding, led by Volkswagen Group and Goldman Sachs Merchant Banking Division, alongside BMW Group, AMF, Folksam Group, and IMAS Foundation, will allow Northvolt to establish manufacturing at its Swedish gigafactory; “with the European Investment Bank and additional lenders set to provide debt financing as a part of the total funding, the establishment of the initial 16 GWh of lithium-ion battery cell manufacturing capacity”.
  • The world’s largest automotive initially partnered with Northvolt in March, creating the European Battery Union consortium, to drive European capacity.
  • In a separate release, Volkswagen announced $1bn joint battery investment with Northvolt to develop a further 16GWh manufacturing in Lower Saxony, Germany.

 

Space Mining

India unveils extra-terrestrial water hunting spacecraft

  • India’s space agency unveils its plan to deliver the Chandrayaan-2 lunar explorer to the Moon by September, making the nation only the fourth to achieve a soft landing on the Earth’s natural satellite after the United States, the former Soviet Union and China.
  • It comes more than a decade after the country launched its first lunar mission, Chandrayaan-1, which was just an orbiter and never landed on the moon.
  • The mission targets more than 1Mt helium-3 on the moon, which could offer a breakthrough technology to meet current global energy demands for several centuries. Gerald Kulcinski, director of the Fusion Technology Institute at the University of Wisconsin-Madison and a former member of the NASA Advisory Council reports it could be world almost $5bn/t.
  • In the bid to support the race, governments are rushing to implement programs and legislation to control the valuable supply.
  • A 2015 law, signed by former US President Barack Obama granted US citizens rights to own resources mined in space. The ground-breaking rule was touted as a major boost to asteroid mining because it encourages the commercial exploration and utilization of resources from asteroids obtained by US firms.
  • Geologists believe asteroids have very high concentrations of metals including iron ore, nickel and precious metals, making up a trillion dollar industry.

 

Company News

Solgold* (SOLG LN) FOLLOW 27.9p, Mkt cap £516m - Copper/Gold//Molybdenum target identified in central Ecuador

  • Solgold reports that exploration towards the south-west of its previously announced Quillosisa epithermal gold prospect within its wholly-owned Sharug project area in central Ecuador has identified a "potential porphyry copper gold molybdenum system … called Santa Martha".
  • Rock-chip samples of exposed mineralised breccias and quartz stockworks with associated zones of hydrothermal alteration have yielded encouraging results which have been confirmed by a gridded programme of augur soil sampling over an area, open towards the east, approximately 1.2km x 0.5km.
  • Among the rock chip sample results highlighted in today's announcement are:
    • a sample (R03001043) assaying 2.52% copper, 0.15g/t gold and 491ppm molybdenum; and
    • R03001045 assaying 0.78% copper, 0.51g/t gold and 6 ppm molybdenum; and
    • R03001044 assaying 0.73% copper, 0.33g/t gold and 53ppm molybdenum; and
    • R03001052 assaying 0.60% copper, 0.56g/t gold and 84ppm molybdenum; and
    • R03000168 assaying 0.56% copper, 0.20g/t gold and 13ppm molybdenum.
  • The Sharug project area is one of 12 priority areas within Solgold's portfolio of wholly owned Ecuadorean exploration projects. Congratulating Solgold's exploration team for adding  Santa Martha to a growing list of discoveries announced this year, CEO, Nick Mather, said that the company's strategy was "well on the way to establishing Solgold with a unique pedigree in an integrated pipeline of projects, each with the opportunity to yield world class targets or better".
  • The company reports that "Drilling is scheduled to commence on regional projects early next year subject to government indicating a clear administrative path for obtaining the relevant environmental and water permits".

Conclusion: The identification of the Santa Martha porphyry adds to a growing list of early stage exploration successes within Solgold's portfolio of wholly-owned projects in Ecuador. We look forward to further news and of the commencement of drilling on the highest priority targets next year.

*SP Angel act as Advisor and broker to Solgold

 

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

Jonathan Williams – 0203 470 0471

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

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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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