SP Angel – Morning View – Friday 01 03 19 Radioactive waste hits non China rare earth supply US State equity funding coming to Junior mining stocks
Paul Kettle
SP Angel Research Note -4 min read
10:36, 1st March 2019

SP Angel – Morning View – Friday 01 03 19

Radioactive waste hits non China rare earth supply

US State equity funding coming to Junior mining stocks

MiFID II exempt information – see disclaimer below

Anglo Asian Mining* (AAZ LN) BUY – Target Price 96p – Presentation at Proactive Investors

Patagonia Gold PGD LN Price & MV - Major shareholder provides US$15m loan facility

 

US State equity funding coming to Junior mining stocks

  • We have received confirmation from a number of sources of companies being approached by US state officials.
  • The approaches appear to be preparing the way for US state funding to support smaller companies and their mining projects in Africa.
  • The US Senate doubled funding into OPIC the US ‘Overseas Private Investment Corporation’ to $60bn last year matching Chinese funding which was also doubled to $60bn into African markets.
  • The biggest change apart from the doubling in funding is the ability for OPIC to place equity funds as well as debt funding.
  • Reports indicate the US is also focusing the funding on resources projects to counter the threat of increasing Chinese control over new mines and mineral projects.

 

Radioactive waste hits major ex-China rare earth supply

  • Australian rare earths miner Lynas Corp’s operation could be struck after the company revealed it would not be able to comply with tough conditions imposed by the Malaysian government on its licence last year.
  • The primary source of rare earths outside of China could be halted on reports it could not meet the timeline to export radioactive waste imposed by the country’s Atomic Energy Licencing Board before September.
  • Lynas have appealing the “unachievable” decision to remove 450,000t of radioactive waste stockpiled at its processing plant by Sept. 2, when the company’s licence it up for renewal.
  • These conditions indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as an ongoing concern”, auditors Ernst & Young reported.
  • Government decision follows relentless attacks from environmental groups and local residents while the Lynas Advance Material Plant was under construction in 2012 on fears low-level radioactive waste could have on the health.
  • Ex-review committee minister Fuziah Salleh applauds the decision, adding “I am especially relieved that Lynas will have to remove its hazardous waste from Malaysia. A responsible corporation would have made sure that its wastes have a realistic and safe disposal mechanism before commencing its operations to generate them”.
  • The tough operating conditions and fractious relationship with the government only serves to highlight the fragility of ex-China supply, with global investors and consumers looking to more reliable production from the likes of Mkango Resources’ advanced-stage rare earth project in Malawi.

 

Vanadium - StorEn Technologies aims to take on Tesla Powerwall with modified Vanadium-flow battery

  • StorEn Technologies from Italy is looking to rival Tesla’s Powerwall.
  • The New York State Pollution Prevention Institute at the Rochester Institute of Technology are testing a StorEn battery to validate the technology, the testing programme could help StorEn raised funds for additional development.

Vanadium prices show some volatility

  • Ferro-vanadium prices rose in Western Europe yesterday by 0.8% to $76.2-78.03/kgV.
  • Vanadium pentoxide prices rose by 5.7% to $16.88-17.56/lb in Rotterdam
  • But ferro-vanadium prices fell in the US by 5.5% to $37.5-40/kgV highlighting differences between the two markets and some uncertainty over US construction.
  • Ferro-vanadium prices in China remain unchanged at $74-76kgV.
  • On balance vanadium prices appear to feeling their way higher again with European prices heading higher probably on a lack of available supply out of China

 

Dow Jones Industrials

 

-0.27%

at

  25,916

Nikkei 225

 

+1.02%

at

  21,603

HK Hang Seng

 

+0.59%

at

  28,802

Shanghai Composite

 

+1.80%

at

   2,994

FTSE 350 Mining

 

-2.04%

at

  19,010

AIM Basic Resources

 

-0.08%

at

   2,165

 

Economics

US – Moderation in economic growth pace proved to be less severe than markets forecast; although, that had little effect on US equities with major indices closing slightly lower.

  • Looking at the composition of growth, consumer spending slowed slightly more than anticipated (2.8% v 3.5% in Q3 and 3.0% forecast), although labour market strength and increasing wages should provide support for demand in the medium term, Bloomberg reports.
  • Business investment growth rebounded to 6.2% from 2.5% before, its weakest quarter since the end of 2016.
  • On a less positive side of things, a large increase in inventories over H2/18 may weigh on growth rates in H1/19 as those are unwound in coming months.
  • US officials are preparing a final trade deal that Trump and Xi could sign in weeks, people familiar with the matter said. The US is looking at a summit between the two presidents as soon as mid-March said one of the people, who spoke on condition of anonymity because preparations are confidential.
  • Hopes of the potential deal subsided slightly yesterday as Trump suggested he will not support the arrangement he doesn’t like saying he is “never afraid to walk from the deal, and I would do that with China, too, if it didn’t work out”.
  • GDP: 2.6 v 3.4 in Q3/18 and 2.2 forecast.

 

China – Chinese manufacturing sentiment posted another weak month in February amid softening global demand.

  • The Caixin PMI measuring business activity among smaller businesses showed a pick up in local demand amid a dip in export orders.
  • The report follows on official PMI data released yesterday showing manufacturing activity declined for the third straight month falling to 49.2 in February, the lowest in three years, from 49.5 in January.
  • Chinese shares edged higher after the index producer MSCI announced it would increase the weight of local mainland shares in its global benchmarks.
  • Caixin Manufacturing PMI: 49.9 v 48.3 in January and 48.5 forecast.

 

Japan – The manufacturing sector feels the brunt of slowing global growth outlook as the PMI gauge dipped into a contractionary territory for the first time in nearly three years in February.

  • Earlier data showed Japanese exports fell 8.4%yoy in January marking the steepest decline since October 2016 with China being the biggest contributor.
  • Growth outlook for the Japanese economy remains subdued, especially, in the light of a potential sales tax hike later this year which risks to further weaken domestic demand.
  • Nikkei Japan PMI Manufacturing: 48.9 v 48.5 in January.

 

Germany – A welcome set of news from Germany with retail sales rebounding stronger than expected in January improving on a weak December.

  • Inflation held steady at 1.7% in February, at the lowest level since H1/18, which combined with subdued readings for other major Eurozone economies offer room for manoeuvre for the ECB to delay monetary tightening amid weakening growth outlook.
  • CPI (EU Harmonised, %yoy): 1.7 v 1.7 in January and 1.7 forecast.
  • Retail Sales (%mom/yoy): 3.3/2.6 v -3.1/-1.6 in December and 2.0/1.2 forecast.

 

Tuna Bond Scandal comes to London as Mozambique files papers in the High Court

  • Something fishy has been going on at Credit Suisse.
  • Papers filed in the High Court in London refer to ‘commercial contracts’ and name a number of Credit Suisse bankers who have already been indicted in the US.
  • The bankers are reportedly accused of conspiring to violate US anti-bribery law, as well as money-laundering and securities fraud, in an indictment issued by a US District Court in New York. (BBC)
  • Credit Suisse was one of the lenders that helped to arrange $2bn (£1.5bn) of government-backed loans that pushed Mozambique into a debt crisis. (BBC)

 

Currencies

US$1.1369/eur vs 1.1389/eur yesterday  Yen 111.83/$ vs 110.74/

nbsp; SAr 14.091/$ vs 13.938/
nbsp; $1.326/gbp vs $1.329/gbp  0.710/aud vs 0.714/aud  CNY 6.701/$ vs 6.687/$

 

Commodity News

Precious metals:         

Gold US$1,308/oz vs US$1,323/oz yesterday

   Gold ETFs 72.4moz vs US$72.5moz yesterday

Platinum US$869/oz vs US$870/oz yesterday

Palladium US$1,546/oz vs US$1,535/oz yesterday

  • Despite recent contractions in car sales in Europe and China, palladium consumption across the auto sector is expected to grow +1.1% to 8.8m oz in 2019 on the back of stricter environmental laws which require higher usage in catalytic converters, according to Australia & New Zealand Banking Group Ltd.
  • Palladium scrap supply seen rising 10% to 2.8m oz in 2019, while platinum will increase 3% to 1.4m oz due to higher loading in recent years and better recycling infrastructure.
  • Market has to resolve the situation of palladium’s structural deficit either by increasing supply or reducing demand, although the higher price should ultimately rationalize demand

Base metals:   

Copper US$ 6,513/t vs US$6,489/t yesterday

Aluminium US$ 1,910/t vs US$1,919/t yesterday

Nickel US$ 13,245/t vs US$13,110/t yesterday

Zinc US$ 2,792/t vs US$2,734/t yesterday

Lead US$ 2,155/t vs US$2,142/t yesterday

Tin US$ 21,600/t vs US$21,510/t yesterday

           

Energy:           

Oil US$66.8/bbl vs US$65.9/bbl yesterday

Natural Gas US$2.788/mmbtu vs US$2.801/mmbtu yesterday

Uranium US$27.75/lb vs US$27.85/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$81.7/t vs US$82.2/t

Chinese steel rebar 25mm US$610.4/t vs US$609.0/t

Thermal coal (1st year forward cif ARA) US$80.7/t vs US$80.0/t

Coking coal futures Dalian Exchange US$197.1/t vs US$197.6/t

           

Other:  

Cobalt LME 3m US$33,000/t vs US$32,000/t

  • Cobalt’s fall from heights has been dramatic with prices falling more than 60% from a peak in April 2018 $94,300/t, with the battery metal falling victim to the massive hype surrounding the electric economy.
  • It was the vision of electric car mass appeal, driving largely by the success of Elon Musk’s Tesla, and a rush of money to bet that the world needed a lot more cobalt.
  • Adding to the allure was restricted global supply from the Democratic Republic of Congo, almost exclusively as a by-product of nickel and copper but famed as an unethical metal.
  • The bubble began to burst as Glencore Plc, the world’s top producer of cobalt, extended the output lead in 2018 with a major expansion at its mines in Congo. This pace was also matched by ramped production from Chinese miners.
  • The sudden attraction to cobalt created a major modern-day gold rush in Congo with thousands of artisanal miners scrambling to extract the metal from illegal and dangerous mines. Supply from the small-scale operations more than doubled between 2016 and 2018, according to trading house Darton Commodities.
  • Battery makers have also signalled a reduction in the cobalt concentrations within Li-ion chemistries, with Nickel-Manganese-Cobalt makers moving from ratios 1:1:1 to 8:1:1 in favour of nickel-bias batteries.
  • The sector could see a revival as Glencore suspended sales following the discovery of radioactive ore, tipping the market back into deficit. Glencore chief Ivan Glasenberg described cobalt’s weak performance in 2018 as a ‘blip’ and said prices are probably approaching their low point.

China NdPr Rare Earth Oxide US$45,742/t vs US$45,852/t

China Lithium carbonate 99% US$10,074/t vs US$10,248/t

  • Lithium giant SQM recorded the largest decline in more than a year after reporting falling earnings, while projecting slower-than-expected sales volumes.
  • American depositary receipts of SQM, the world’s second-largest lithium producer, fell 8.4% to $41.22. That was the biggest drop since November 2017 for the Santiago-based company, formally known as Soc. Quimica y Minera de Chile SA.
  • SQM gave a “cautious” 2019 lithium-sales outlook despite projecting global demand growth of at least 20%, analysts at BMO Capital Markets.
  • This could be taken as a signal that concerns surrounding oversupply are over-hyped, with even major, established lithium producers struggling to increase output to matching the accelerating battery industry.
  • Lithium prices continued to slip last quarter, but may be at an ‘inflection point’ according to Morgan Stanley.

China Ferro Vanadium 80% FOB US$72.3/kg vs US$72.0/kg

China Antimony Trioxide 99.5% EU US$6.9/kg vs US$6.9/kg

Tungsten APT European US$260-270/mtu unchanged from previous week

 

Battery News

Tesla borrows $2bn to fund Chinese Gigafactory 3

  • Several Chinese banks and funds have loaned $2bn to accelerate construction of Gigafactory 3 in Shanghai, including deals reached with Shanghai Pudong Development Bank, Industrial and Commercial Bank of China, China Construction Bank & Agricultural Bank of China.
  • JL Warren Capital research have noted “Chinese companies listed in the US, about $500m (3.3bn RMB) of Tesla’s new financing should apply to the first stage of the Shanghai Gigafactory build, with the total project loan amounting to about $2bn”.
  • During Tesla’s last earnings call, Musk reported the company could get to a production rate of 3,000 cars per week with just $500m. Musk adds “it’s very competitive debt financing in China, really extremely compelling interest rates, and we do not expect that to be a capital drain on the company”.
  • Tesla’s drone video update (https://electrek.co/2019/02/25/tesla-gigafactory-3-drone-update/) shows preparations for the foundation to start building the plant.
  • Musk previously said that the actual Gigafactory 3 building could be ready this summer and they would start production of “some parts of Model 3 production” by the end of 2019.
  • Automakers based in China have benefited from $60bn worth of subsidies and incentives since 2012, designed to make new energy vehicles affordable for Chinese drivers, according to ZoZo Go, an auto-tech advisory firm.
  • The incentive for Musk is to improve the attractiveness of Tesla models – with the Model S with a manufacturing base in China costing around $80,000 compared to $140,000 after taxes.

 

New emissions regulations in 2020 to lead fuel cell development for Cruise ships

  • New emissions regulations for ports and shipping in 2020 are likely to prompt further investment into fuel cells for the shipping.
  • Modern ships are mainly diesel electric with massive diesel power plants generating electricity for electric drive chains.
  • Replacing diesel generators with fuel cells will be relatively simple but the type of fuel cell to be used and storage of suitable fuels will be interesting.
  • LNG into alkaline fuel cells and hybrid solutions are likely to be top of the agenda

 

Are semi-solid state batteries a gamechanger?

  • 24M, backed by the US Department of Energy have come up with a Li-Ion battery with and energy density of 280Wh over the 250Wh industry benchmark.
  • Furthermore the battery is targeting 350Wh capacity by the year end.
  • The new battery is being shipped to business partners and may lead to the faster development of the EV market.

 

Company News

Anglo Asian Mining* (AAZ LN)FOLLOW 71p, mkt cap £79m – Presentation at Proactive Investors

BUY – Target Price 96p

  • Anglo Asian Mining presented to a full room at Proactive Investors last night at the Chesterfield Hotel in London.
  • The good attendance highlights new popularity of Anglo Asian mining since it started paying dividends and new interest in gold stocks as a whole.
  • Management highlighted their robust cash flow generating production base and reiterated their commitment to a minimum of 6 USc dividend for 2019.
  • The company is growing its resource base in Azerbaijan producing gold, copper and silver in dore and concentrate from a suite of deposits at the Gedabek Contract Area.
  • Substantial investment in recent years in new mines and process plant has created increased flexibility and the potential to define further reserves and resources at relatively low cost.
  • The Company is advancing an extensive exploration programme testing the ground in vicinity to existing processing facilities at Gedabek as well as looking for greenfield prospects at Ordubad for a potential porphyry style alteration zones with copper/gold mineralisation. Maiden airborne geophysics study has been completed across the Gedabek Contract Area and results are due this month to help identify targets for follow up drilling. Exploration work at Ordubad is ongoing with 5,000 samples collected for geochemical analysis and drilling currently in progress. Additionally, the team is testing down dip and lateral extensions at producing Gadir and Gedabek mines.

(Dec year end)

 

2014

2015

2016

2017

2018E

2019E

2020E

Gold price

US$/oz

1,267

1,161

1,253

1,261

1,271

1,313

1,350

Copper price

$/t

6,828

5,505

4,872

6,196

6,554

6,313

7,000

Gold production

koz

60.3

72.0

65.4

59.6

72.8

67.6

65.7

Copper production

kt

0.8

1.0

1.9

2.0

1.6

3.3

3.6

GE production

koz

65.0

77.0

75.2

71.6

83.8

86.3

86.9

AISC (incl PSA, reported)

US$/oz

1,050

858

616

604

612

603

594

Revenue

US$m

68.0

78.1

79.2

71.8

90.8

95.8

99.1

EBITDA

US$m

10.1

18.7

33.7

32.0

39.8

35.8

38.2

FCF

US$m

-6.9

3.4

14.6

16.3

27.6

19.8

22.0

EV/EBITDA

x

7.7

3.1

1.7

1.7

1.9

2.8

2.6

PER

x

-

-

5.5

13.9

8.9

16.0

12.0

DY

%

-

-

-

-

8.7%

6.5%

6.5%

Net Debt

US$m

52.4

49.0

34.6

18.1

-6.1

-19.1

-34.2

* SP Angel acts as Nomad & Broker to Anglo Asian Mining

 

Patagonia Gold PGD LN FOLLOWPrice & MV - Major shareholder provides US$15m loan facility

  • Patagonia Gold reports that it has agreed a US$15m loan facility with Cantomi Uruguay, a company associated with its non-executive Chairman and principal shareholder, Carlos Miguens. Cantomi controls 53% of the company.
  • The loan, which matures in March 2021 carries interest at a rate of 5%.
  • The company describes the loan as "for general working capital purposes, refinancing of local debt in Argentina, as well as updating the mineral resource estimate for Calcatreu and commencing a Feasibility Study for the project."
  • Commenting on the loan in the context of the recent closures of the Cap Oeste and Lomada mines, , Christopher van Tienhoven, CEO of Patagonia Gold, said that the Company retains an important asset base, comprising the over one million ounce standalone Calcatreu project in Rio Negro, the Cap Oeste underground resource and prospective exploration ground in Santa Cruz, Rio Negro and Chubut."
  • Mr. van Tienhoven went on to comment "The Loan Facility will allow the Company to commence work on the Calcatreu Feasibility Study and advance this project to the next level."

 

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

 

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.

 

DISCLAIMER

This note has been issued by SP Angel Corporate Finance LLP (“SP Angel”) in order to promote its investment services.

This information is a marketing communication for the purpose of the European Markets in Financial Instruments Directive (MiFID) and FCA’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.

This document is not based upon detailed analysis by SP Angel of any market; issuer or security named herein and does not constitute a formal research recommendation, either expressly or otherwise.

The value of investments contained herein may go up or down. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

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It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. This document should not to be relied upon as authoritative or taken in substitution for the exercise of you own commercial judgment. SP Angel is not responsible for any errors, omissions or for the results obtained from the use of the information in this document.

This document has been prepared on the basis of economic data, trading patterns, actual market news and events, and is only valid on the date of publication. SP Angel does not make any guarantee, representation or warranty, (either expressly or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein. This document has been prepared by the author based upon information sources believed to be reliable and prepared in good faith.

SP Angel, its partners, officers and or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SP Angel Corporate Finance LLP is a company registered in England and Wales with company number OC317049 and whose registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SP Angel Corporate Finance LLP  is authorised and regulated by the Financial Conduct Authority whose address is 25, The North Colonnade, Canary Wharf, London E14 5HS and is a Member of the London Stock Exchange plc. 

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