SP Angel . Morning View . Markets climb cautiously on Phase One deal expectations

SP Angel . Morning View . Wednesday 04 12 19

Markets climb cautiously on Phase One deal expectations

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Centamin (CEY LN) – Expands on reasons to reject the Endeavour Mining offer

 

Bluejay Mining* (JAY LN) – Rio Tinto shuts Richard’s Bay as violence escalates

 

Firestone Diamonds (FDI LN) – Restoration of grid power  at Liqhobong

 

Premier African Minerals* (PREM LN) – MNH investment

 

Rio Tinto (RIO LN) – Richards Bay suspension and investment at Kennecott

 

Sunrise Resources Plc (SRES LN) – CS Project permitting delay

 

 

 

Dow Jones Industrials		-1.01%	at	27,503
Nikkei 225		-1.05%	at	23,135
HK Hang Seng		-1.25%	at	26,063
Shanghai Composite		-0.23%	at	2,878
FTSE 350 Mining		+0.98%	at	18,186
AIM Basic Resources		-0.72%	at	2,037

 

 

 

Economics

 

US – The House of Representatives passed the bill to sanction Chinese officials involved in human rights abuses against Uighurs, a Muslim ethnic group in the Xinjiang region.

 

• Ahead of the vote Chinese state media speculated Beijing may expedite a blacklist of US companies to be sanctioned in retaliation.
• China’s foreign ministry of Wednesday urged the US to stop the bill and vowed to further respond if the legislation is passed.
• The legislation follows the bill in support of Hong Kong protesters that was signed into law by President Trump last week.
• On Monday, Trump when referring to the status of trade negotiations said that the aforementioned legislation “doesn’t make it better”.

 

 

 

China – Composite PMI picked up in November largely driven by growth in the services sector, according to Caixin data released this morning.

 

• Manufacturing remained somewhat subdued, although, the industry has recovered from sub-50 readings seen earlier int eh year.
• Overall, “economy continued to recover in November, as domestic and foreign demand both improved… but business confidence remained subdued, reflecting the impact from uncertainties generated by the China-US trade conflicts,” Caixin wrote.
• “The trade dispute is the major reason behind the slowing economic growth this year, and will become a key factor affecting the stabilisation and recovery of China’s economy next year.”
• Caixin Services PMI: 32.5 v 51.1 in October and 51.2 forecast.
• Caixin Manufacturing PMI (released on Monday): 51.8 v 51.7 in October and 51.5 forecast.
• Caixin Composite PMI: 53.2 v 52.0 in October.

 

 

 

Australia – Economic growth slowed in Q3/19 (0.4%qoq) as rate cuts and government tax rebates failed to reignite household spending (+0.1%qoq).

 

• Government spending and exports were among the largest contributors to growth.
• GPD (%qoq/yoy): 0.4/1.7 v 0.6/1.6 in Q2 and 0.5/1.7 forecast.

 

 

 

Hong Kong – November PMI points to the sharpest private sector downturn since viral epidemic SARS crisis in 2003.

 

• Sentiment is at the lowest since the data was first collected in 2012, employment is down and new orders contracted at the quickest pace since Nov/08.
• Political unrest continue to disrupt the functioning of businesses.
• Markit Composite PMI: 38.5 v 39.3 in October.

 

 

 

South Africa – The economy continues to struggle with Nov PMI data pointing to a steeper declines in business activity.

 

• Both months of Q4, PMI remained in the contraction territory weighing on growth outlook after a negative quarterly GDP reading in Q3.
• New orders came off through the period leading firms to reduce staffing numbers.
• Markit Composite PMI: 48.6 v 49.4 in October and 49.3 forecast.

 

 

 

India – Central Bank to cut interest rates on Thursday (Bloomberg Quint)

 

• India is growing at its slowest pace in 17 years, no doubt to intense competition with China
• This will be the Central Bank’s sixth rate cut this year if it enacted
• Commercial bank lending rates are said to be immune to monetary policy eg the rate cut won’t make much difference
• Indian M4 money supply has fallen to single-digit levels indicating that more cash, QE, is needed to stimulate economic growth

 

 

 

Banks’ lending cut to Indian diamantaires causing a liquidity crisis in the market (FT)

 

• Lending has been sharply cut in the industry after jeweller Nirav Modi as accused of defrauding a state bank of nearly $2bn.
• According to an FT article in March this year, Mr Modi improperly received almost $2bn worth of cash advances bypassing the Punjab National Bank.
• Over 90% of diamantaires are based in India, and this scandal is to blame for ‘bankers blacklisting the jewellers industry’, according to the president of the Indian Bullion and Jewellers Association.
• Across the sector, rough diamond prices have fallen 15 per cent since last November, according to Polished Prices, and De Beers is on course to report its worst annual sales in at least four years.
• Indian companies receive about 4/5ths of bank credit within the diamond industry, and total diamond credit has fallen 20% to $8bn this year.
• This has caused diamond cutters to work through existing stock, causing imports of rough diamonds to fall 22% y-o-y to $7.3bn between April and October.
• Large and mid-sized diamond companies have all reported lower prices, De Beers has reduced its prices by 5% and Lucara Diamonds has seen a 14% drop compared to last year.
• Retail demand for diamonds has remained strong, as spending grew 4.5% to $36bn in the diamond jewellery sector.

 

 

 

Currencies

 

US$1.1072/eur vs 1.1083/eur yesterday.  Yen 108.71/$ vs 109.08/$.  SAr 14.572/$ vs 14.564/$.  $1.305/gbp vs $1.299/gbp.  0.683/aud vs 0.686/aud.  CNY 7.054/$ vs 7.046/$.

 

 

 

Commodity News

 

Gold US$1,475/oz vs US$1,464/oz yesterday - Poland successfully returns £4bn worth of gold bars from London (City A.M)

 

• Planes, helicopters, lorries and specialist police were used to return the 8,000 bars weighing 100t.
• The gold was repatriated in eight night-time flights over several months.
• Poland’s gold reserves have been stored at the Bank of England since WW2.

 

   Gold ETFs 81.0moz vs US$81.1moz yesterday

 

Platinum US$908/oz vs US$901/oz yesterday

 

Palladium US$1,859/oz vs US$1,858/oz yesterday

 

Silver US$17.15/oz vs US$16.95/oz yesterday

 

           

 

Base metals:   

 

Copper US$ 5,854/t vs US$5,834/t yesterday

 

Aluminium US$ 1,767/t vs US$1,790/t yesterday

 

Nickel US$ 13,290/t vs US$13,690/t yesterday

 

Zinc US$ 2,242/t vs US$2,219/t yesterday

 

Lead US$ 1,913/t vs US$1,894/t yesterday

 

Tin US$ 16,750/t vs US$16,570/t yesterday

 

           

 

Energy:           

 

Oil US$61.6/bbl vs US$61.1/bbl yesterday

 

Natural Gas US$2.396/mmbtu vs US$2.384/mmbtu yesterday

 

Uranium US$25.95/lb vs US$25.95/lb yesterday

 

           

 

Bulk:   

 

Iron ore 62% Fe spot (cfr Tianjin) US$86.0/t vs US$86.4/t

 

Chinese steel rebar 25mm US$598.5/t vs US$602.0/t

 

Thermal coal (1st year forward cif ARA) US$62.0/t vs US$62.8/t

 

Coking coal futures Dalian Exchange US$187.8/t vs US$188.0/t

 

           

 

Other:  

 

Cobalt LME 3m US$35,750/t vs US$35,750/t

 

NdPr Rare Earth Oxide (China) US$40,756/t vs US$40,661/t

 

Lithium carbonate 99% (China) US$6,308/t vs US$6,387/t - Competition launched seeking novel methods to extract minerals from brine (thinkgeoenergy.com)

 

• Italian energy company Enel have launched BRINEMINE, a $30,000 competition seeking to extract lithium and other valuable minerals from brine.
• Enel is specifically looking for novel methods and technologies to economically extract lithium and other valuable minerals.
• The challenge will be run in tow phases, with the second requiring the signing of an NDA.

 

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$5.2/kg

 

Tungsten APT European US$225-245/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

 

Comparing the new Tesla Cybertruck against the Ford F-150

 

• Tesla unveiled its all-electric pickup truck on the 21^st of November and is the automakers sixth vehicle.
• The table below compares the Cybertruck with Ford’s F series, the best-selling pickup truck in the US since 1977 and the best-selling vehicle since 1986.
• Tesla plan to release three models, and the table below compares the most basic model unless specified.

 

 

 

	Ford 2020 F-150	Tesla Cybertruck
Starting Price	$28,496	$39,900
0-60mph	5.1 seconds (2019 F-150 limited)	6.5 seconds
Max payload	1483kg	1588kg
Towing Capacity	5987kg	3402kg
Exterior Storage Space	77.4 cubic feet	100 cubic feet
Range	Standard tank: 437 miles	250 miles
Weight of vehicle	1850-2589kg	Estimated - 3000kg (tri motor)
Weight of power source	228kg (3L diesel engine)	450kg (battery pack)
Seats	six	six
Body	Aluminium alloy	Steel
Off Roading Capabilities	Max front-on approach angle of 25.8° Max departure angle of 27.1°	Max front-on approach angle 35° Max departure angle 28°

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

• According to EV database, the Cybertruck battery will have 120kWh capacity. Using a quick charging point, this should take 2.8 hours to charge. Due to the variance in the power capabilities of chargers, users are expected to charge overnight.
• According to Pod Point, the average domestic electric rate is about 14p per kWh, making the cost to fully charge the Cybertruck would be £16.80. However, this doesn’t include the one-off fee for installation of a charging point at home. The fastest charger can be installed at home for £999 with the help of an OLEV grant from the government, saving you £500 and providing you with 50 miles of range per hour.
• By contrast, the F-150 diesel has a 26 gallon tank, and costing £156.72 to fill up (131.7p/litre).

 

• One factor worth noting when analysing the capabilities of the Cybertruck is the variance between the three different models:

 

• The single motor rear-wheel drive has a range of 250 miles, 7,500-pound towing capacity, and 0–60 mph capabilities in under 6.5 seconds, costing $39,900.
• The dual motor all-wheel drive has a range of 300 miles, 10,000-pound towing capacity, and 0–60 mph in under 4.5 seconds, costing $49,900.
• The Triple motor all-wheel drive has a range of 500 miles, 14,000-pound towing capacity, and 0–60 mph in under 2.9 seconds, costing $69,900 (though this version won’t start production until late 2022).

 

Conclusion: The cost of running a Cybertruck easily beats the cost any other pickup truck for regular higher-mileage drivers. It will also win in terms of emissions and reliability and with costs rising for tradesmen driving diesel trucks in city centres the Cybertruck will make great sense.

 

 

 

Company News

 

Centamin (CEY LN) FOLLOW 127.9p, Mkt Cap £1,478.5m – Expands on reasons to reject the Endeavour Mining offer

 

• Centamin’s board has provided a more detailed explanation of why it is advising shareholders to take no action in relation to a preliminary proposal from Endeavour Mining for a combination between the two companies in an offer which we estimate is worth approximately C$2.5bn.
• Explaining that “Centamin has communicated to Endeavour several times its willingness to engage … [in discussion]  … and Endeavour has repeatedly refused to engage in a proper manner and allow the sharing of non-public information in order to better assess the value to shareholders of the potential combination.”
• Based upon what it describes as a review of the publicly available information by its financial and legal advisors, Centamin highlights a number of areas in which it believes that “the Proposal is skewed in favour of Endeavour's shareholders and fundamentally undervalues Centamin”
• The proposed exchange rate of 0.0846 Endeavour shares for each Centamin share “would result in Centamin shareholders owning only 47% of the shares of the enlarged company. However, Centamin would contribute:
  • 100% of H1 2019 free cash flow^[1]
  • 100% of 2018 free cash flow¹
  • 100% of H1 2019 dividend distribution¹
  • 100% of 2018 dividend distribution¹
  • 57% of Measured and Indicated resources²
  • 69% of Inferred resources^2”
• Centamin’s rebuttal also says that while “Centamin had cash and liquid assets as at 30 September 2019 of US$289 million[2] and no debt, Endeavour had gross debt and financial obligations of US$729 million[3] and net debt of US$599 million[4] as at 30 September 2019 and financial liabilities related to hedging and streaming obligations. Therefore, a significant portion of the cash flows derived from Endeavour's assets will not accrue to shareholders”.
• While undertaking to communicate further details on its reasoning, the Board asserts that Centamin’s shares are more liquid than those of Endeavour Mining and concludes that it “believes that the quality of Centamin's asset base deserves a premium”.
• Chairman, Josef El-Raghy, confirmed that “The Board strongly believes that Endeavour's proposal significantly increases financial and operating risk without any material benefits to our shareholders. Centamin's stated strategy has always been to maximise returns for all of its shareholders, having returned approximately US$500 million to shareholders since 2014. In addition, despite numerous requests, Endeavour has refused to enter into a customary non-disclosure agreement to allow the Board to further assess the Proposal. It is the Board's belief that the Proposal made by Endeavour sits in stark contrast with Centamin's strategy and we strongly advise our shareholders to take no action."

 

Conclusion: The first exchanges between the two companies reveal that previous discussions have proved fruitless. If Endeavour Mining proceeds with a formal offer and Centamin provides an in depth response this will take some time and provide the shareholders with a wealth of information to make a considered decision on the merits or otherwise of combining the two companies. We do not expect a speedy resolution.

 

 

 

Bluejay Mining* (JAY LN) FOLLOW 8.6p, Mkt Cap £80.1m – Rio Tinto shuts Richard’s Bay as violence escalates

 

(Dundas Ilmenite project, Greenland, 100% owned)

 

• Rio Tinto has long had a love-hate relationship with South Africa with maybe less of the love and more of the other bit as the nation is not really their sort of place from an operational perspective.
• News today that Rio’s has halted its Richards Bay operation due to an escalation of violence and criminal activity in surrounding communities towards RBM employees will shock the market though close observers will note that Richard’s Bay has long struggled with violence and murder within local communities.
• Rio reports an escillation of criminal activity towards Richard’s Bay Minerals ‘RBM’ employees with an employee shot and seriously injured in the last few days.
• Rio’s has halted mining as a result and is operating it’s RBM smelters at reduced levels with a minimum number of employees now on site.
• Construction of RBM’s US$463m Zulti South project has also been paused.
• The problem for RBM is that it is the only major employer in a region of high unemployment, poverty and tribal traditions.
• The Mail & Guardian in South Africa report that funds to one of the tribal groups has been held up over succession issues relating to the Mbuyazi clan. Three other tribal clans receive funds from RBM. The negotiations may be part of the violence against RBM employees in the area.
• The move means that Rio’s taitanium dioxide slag production is now expected to be at the lower end of 2019 guidance of 1.2-1.4mt indicating that this will impact pigment and paint producers.
• The situation is somewhat ironic as RBM won the top employer award for the fourth year running with RBM, outperformed other certified average top employers.
• In the meantime Base Resource’s Tolliara project may suffer some delay in Madagascar due to government interference relating to some minor local issues.
• The situation reminds us of Jeremy Clarson’s article in in the Sunday Times this weekend commenting on the beauty of Madagascar.
• I quote: “Shortly after the 70-strong crew arrived, all of the under-25s took to their beds with upset tummies. I mocked them for their millennial fraility, but two days later I too was struck with an urgent need to visit what passed on our campsite for a lavatory. I have a cast-iron constitutio. I could lick a Turkish urinal dry and not suffer any ill effects but there I became a human hosepipe.”

 

Conclusion: Rio Tinto may look to help BlueJay accelerate the Dundas ilmenite project to help protect supplies of ilmenite feedstock in a market which is expected to become tighter in terms of mine supply.

 

*SP Angel act as nomad to Bluejay Mining. *SP Angel have visited the Dundas, Itelak ilmenite sands project in Greenland.

 

 

 

Firestone Diamonds (FDI LN) FOLLOW 0.475 pence, Mkt Cap £3.1m –Restoration of grid power  at Liqhobong

 

• Firestone Diamonds reports that grid power has been restored at its Liqhobong diamond mine in Lesotho production has resumed at its 75% owned Liqhobong mine in Lesotho following disruption as a result of the start of a two-month long shutdown of power from the Muela hydropower dam for maintenance which required the installation of diesel generating capacity.
• The company reports that the processing plant is now able to operate at full capacity.
• “The power interruption occurred from 1 October and the processing plant resumed production on 26 October when diesel generators were commissioned, which provided sufficient power for the plant to operate at between 80% and 90% capacity. Additional costs associated with operating the rented diesel generators during this period were approximately US$1.1 million and an insurance claim in respect of the loss of profit and the additional operating costs is in the process of being compiled.”

 

 

 

Premier African Minerals* (PREM LN) FOLLOW 0.117p, Mkt Cap £12.9m – MNH investment

 

• Premier African Minerals reports that it has agreed to amend the terms of its loan agreement with MN Holdings (MNH) in order to convert its loan into a 10% equity interest.
• MNH operates the Otjozondu manganese mine in Namibia and the investment appears consistent with the company’s strategy to diversify into cash generating assets in preference to development projects.
• Commenting on what he described as a potentially “transformational” development, Chief Executive, George Roach, said that “We believe that Otjozondu is a standout asset in a manganese district. Not only that, there are significant potential synergies and other benefits in this association.”
• He went on to describe Otjozondu as “a very well equipped owner-operator open pit mining contractor and this expertise has the potential to complement and reduce operating costs at  RHA as soon as RHA is back in production, and Zulu both during exploration and mining phases”.

 

Conclusion: The association with MNH strengthens the management expertise available to Premier African Minerals which the company sees benefitting both its restart of the RHA tungsten operation in Zimbabwe and its Zulu lithium exploration efforts.

 

*SP Angel have an agreement with Premier African Minerals as a result of the acquisition of Northland Capital Partners

 

 

 

Rio Tinto (RIO LN) FOLLOW 4206, Mkt cap £71.1bn – Richards Bay suspension and investment at Kennecott

 

• Rio Tinto reports that it is suspending operations at Richards Bay Minerals in South Africa in response to rising levels of criminality and violence in surrounding communities which has seen one of its employees “shot and seriously injured in the last few days”.
• Stressing that the safety of its employees was paramount, chief executive of Energy and Minerals, Bold Baatar, said that “we have taken decisive action to stop operations to reduce the risk of serious harm to our team members.”
• He went on to explain that “We are in discussions with the local communities, regional and national governments, and the police in order to find a way to address the safety and security issues. Our goal is to return RBM to normal operations in a safe and sustainable way. We would like to acknowledge and thank the police and authorities for their support”.
• In a separate announcement yesterday, Rio Tinto also announced plans to invest US$1.5bn to expand Kennecott’s Bingham Canyon copper mine in Utah.
• According to Rio, this investment will extend the mine life from 2026 to 2032, with the potential to keep it operational thereafter.
• Rio Tinto expects to produce 1 million mt of refined copper at Kennecott between 2026 and 2032 as a result of the investment (S&P).
• The Kennecott mine produces nearly 20% of the US copper production, and Rio operates one of three US copper smelters at the site.

 

 

 

Sunrise Resources Plc (SRES LN) FOLLOW 0.105 pence, Mkt Cap £3.3m – CS Project permitting delay

 

• Sunrise Resources reports a delay in permitting its proposed CS Pozzolan-Perlite Project in Nevada which is now expected to be completed in early 2020.
• The delay is attributed to the Bureau of Land Management introducing “additional information reporting requirements for one of the Company’s Supplemental Environmental Reports”.
• Commenting on the slower than expected progress, Executive Chairman, Patrick Cheetham, said “Whilst any delay outside of our control is frustrating, all other aspects of the BLM permitting are now at an advanced stage and this delay is not expected to materially impact the Company's production planning.”
• Mr. Cheetham went on to explain that “In the meantime, the Company continues to progress discussions with likely offtake customers and continues to be encouraged by the growing interest in our pozzolan and perlite products.”

 

 

 

 

 

 

 

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

 

 

 

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