SP Angel . Morning View . Gold pulls back after Fed cuts by 25bp but split on more easing

SP Angel – Morning View – Thursday 19 09 19

Gold pulls back after Fed cuts by 25bp but split on more easing

CLICK FOR PDF

MiFID II exempt information – see disclaimer below

 

Asiamet Resources (ARS LN) - Logistics enhancements

Bushveld Minerals* (BMN LN) BUY – Valuation 92p – Conference presentation in South Africa highlights forecast growth of vanadium electrolyte demand

Kodal Minerals* (KOD LN) - ESIA Progress Report

IronRidge Resources* (IRR LN) - Aircore results from Cote d'Ivoire

Ironveld (IRON LN) – NED director resignation

Solgold* (SOLG LN) - Constitutional Court ruling in Ecuador

 

Dow Jones Industrials		+0.13%	at	27,147
Nikkei 225		+0.38%	at	22,044
HK Hang Seng		-1.07%	at	26,469
Shanghai Composite		+0.46%	at	2,999
FTSE 350 Mining		-0.51%	at	18,497
AIM Basic Resources		-0.28%	at	2,161

Economics

US – The Fed cut the benchmark rate by 25bp (7-3) for a second time this year with the FOMC divided on further policy easing.

• “If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate… we are going to be highly data-dependent… we are not on a pre-set course, we are going to be making decisions meeting by meeting,” Powell said.
• The FOMC split on appropriate path of future interest rates with five expecting no change in interest rates 2.1% (mid-range) as of YE19, five seeing one cut at 1.9% (delivered yesterday) and seven calling for two cuts to 1.6% (although, at least two of the seven are non-voters in 2019).
• Markets still largely expect another cut before year end.
• Not impressed with the decision, President Trump criticised the reserved FOMC approach saying the central bank chief had “no ‘guts’, no sense, no vision!”.
• Powell played down funding pressures reported in the overnight repo market in the US highlighting no implications on stance of the monetary policy.
• Earlier on Tuesday money market rates surged to 10%, four times where they were last week, which is believed to be driven by sudden drop in market liquidity.
• The latter is attributed to the settlement of US Treasury notes and bills purchases as well as the inflow of quarterly corporate tax payments.
• The central bank injected $53bn of liquidity on Tuesday followed by another $75bn on Wednesday that served to bring rates down towards normal levels.
• On economic projections, the Fed slightly upgraded GDP growth forecasts for 2019 to 2.2% (up from 2.1%) while leaving 2020’s 2.0% estimate unchanged.

 

Japan – The BoJ held its benchmark policy rate at -0.1% and 10y bond yield target at 0.0% but hinted at potential action in October.

• The central bank said it will review its assessment of the economy and inflation prospects at the October meeting fuelling speculation that may lead to further easing.
• The yen appreciated against the US$ in the strongest move in three weeks on the news.
• Falling exports, weak inflation and looming sales tax hike that is scheduled for next month and expected to the hit domestic demand, are among challenges faced by policymakers.

 

UK – The pound is little changed against the US$ this morning ahead of the BoE monetary policy meeting due later today.

• Expectations are for the central bank to keep rates unchanged at 0.75% as well as the balance of purchased assets (£435bn).
• The policy is highly contiguous on results of Brexit negotiations.

 

UK manufacturers concerned over supply of specialist processed raw materials from the European Union post Brexit

Miners offer protection against further weakness in sterling

• The UK Parliamentary Office of Science and Technology has recognised the vulnerability of restricted access to certain raw materials to UK manufacturing.
• https://researchbriefings.parliament.uk/ResearchBriefing/Summary/POST-PN-0609
• Brexit will not impact the supply of mine-gate raw materials as so little is mined in Europe but may impact the supply of specialist alloys and materials from the EU.
• Fortunately, manufacturers and traders have little regard for political impediments and will simply work with the new trade rules to ensure the continuation of materials.
• New tariffs may also serve to restrict the supply of certain critical materials in the way that China manipulates the supply of Rare Earth Elements, but companies which process materials are often global in their nature and may move production to sites where there is lower financial impact.
• Increasing co-operation with the US, China, India and other non-EU nations will also serve to replace trade with Europe in most areas where the EU tries to restrict trade.
• We note: in the Global Financial Crisis (2008) EU manufacturers were the first to turn away shipments of commodities like ferrochrome while their Chinese rivals continued to honour their commitments.
• Germany appears to be heading into recession partly due to the nation’s reliance on auto and particularly diesel manufacturing.
• ECB rate cuts may serve to further stimulate consumer demand for vehicles in Europe, particularly with German manufacturers able to offer 0% finance deals.
• Problem with negative interest rates in Europe is that it erodes the balance sheets of banks and could fundamentally weaken the financial base of the European Union.
• While we do not wish to offer any opinion on the Brexit debate the economic but political uncertainty caused does not look good for economic growth.
• Investors may wish to buy more mining stocks as a protection against further weakness in sterling.
• We recommend investors consider buying gold miners for maximum protection against further currency and economic weakness.
• Investors, who do not think the sky is going to fall on our heads, and are looking for a rebound in economic growth may prefer copper and other metal stocks.
• Scotgold* which is developing the Cononish Gold mine in Scotland should benefit from lower costs in US$ terms as it goes into production next year.
• We currently recommend Arc Minerals* for its new copper discovery in Zambia.

*SP Angel act as nomad and broker to Scotgold and Arc Minerals

 

Brazil – The central bank cut the benchmark Sllic rate by 50bps to 5.5%, in line with expectations, while hinting at more easing moving forwards.

• “The consolidation of the benign scenario for prospective inflation should permit additional adjustment of the degree of stimulus,” the central bank board members wrote.
• Inflation came in at 3.4% in August versus Brazil’s targeted level of 4.25% for this year and 4.0% for 2020.

 

Hong Kong – The central bank also brought down its benchmark interest rate in line with the US Fed by 25bp to 2.25%.

 

Malawi economy set to grow 4.5% in 2019 – IMF (reuters)

• According to the IMF, Malawi’s economy is likely to expand by 4.5% this year, boosted by improved agricultural production and infrastructure rebuilding damaged by Cyclone Idai.
• Despite the forecast being revised down by the IMF, it is only a slight adjustment from March’s 5% expansion forecast.
• The IMF predict Malawi’s economy growth will accelerate in the medium term at 6-7%, backed by greater access to finance, crop diversification, an improved business climate and more resilient infrastructure, including improved electricity generation.
• In April last year the IMF granted Malawi a $112 million credit facility to help the country to stabilise debt and fight poverty. 

 

Currencies

US$1.1058/eur vs 1.1053/eur yesterday.  Yen 108.01/$ vs 108.20/$.  SAr 14.661/$ vs 14.632/$.  $1.250/gbp vs $1.247/gbp.  0.679/aud vs 0.684/aud.  CNY 7.096/$ vs 7.090/$.

 

Precious metals:

Gold US$1,498/oz vs US$1,501/oz yesterday - Newmont Goldcorp offer $25m to end mine conflict in Mexico (reuters)

• The world’s top gold producer have offered $25m in community investments and  land rental fees to resolve a conflict at its Penasquito gold mine in Mexico, but activists said they are unsatisfied.
• Operations are currently at the mine which produced 272,000/oz of gold last year because of a blockade by protesters.
• According to the director of external relations for the company, the blockade leaders are demanding hundreds of millions of dollars in cash for themselves- a claim denied by protest organisers.
• A proposal by the company included a 30-year pledge to operate a water treatment plant, a 12-year deal to lease local land and the promise to invest in a production or infrastructure project. The mine also directly employs more than 6,500 people, including 315 local residents.

   Gold ETFs 79.2moz vs US$79.1moz yesterday

Platinum US$929/oz vs US$939/oz yesterday

Palladium US$1,594/oz vs US$1,599/oz yesterday

Silver US$17.72/oz vs US$17.82/oz yesterday

           

Base metals:   

Copper US$ 5,817/t vs US$5,805/t yesterday

Aluminium US$ 1,797/t vs US$1,787/t yesterday

Nickel US$ 17,265/t vs US$17,150/t yesterday

Zinc US$ 2,312/t vs US$2,324/t yesterday

Lead US$ 2,089/t vs US$2,053/t yesterday

Tin US$ 16,740/t vs US$16,800/t yesterday

           

Energy:           

Oil US$64.1/bbl vs US$64.3/bbl yesterday

Natural Gas US$2.625/mmbtu vs US$2.672/mmbtu yesterday

Uranium US$25.65/lb vs US$25.50/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$90.7/t vs US$93.1/t

Chinese steel rebar 25mm US$561.0/t vs US$563.8/t - US Steel stock falls after company lowers outlook for the second half of the year (CNN business)

• United States Steel Corporation’s stock dropped almost 9% on Wednesday after the company lowered its outlook for the second half of the year, blaming falling steel prices and a lack of demand.
• The share price has seen steady decline this year, and is down 60% from a year ago.  US Steel now projects a $0.35 loss per share for the three months ending in September, after taking a $53 million hit from a fire at one of its facilities and restructuring costs. 
• The company is also experiencing issues in Europe, and recently announced to reduce its headcount in Europe by 2,500 positions by the end of 2021.
• President Trump promised to revive the US steel industry, a policy which won him a large amount of support. However, it is becoming more evident that President Trump’s promises to revive the industry have failed to materialize.  

Thermal coal (1st year forward cif ARA) US$69.8/t vs US$68.6/t

Coking coal futures Dalian Exchange US$195.5/t vs US$195.6/t

           

Other:  

Cobalt LME 3m US$36,500/t vs US$36,500/t - LME will postpone plans to ban metal tainted by human rights abuses until 2025 (reuters)

• An initial plan announced in April saw the LME set 2022 as the deadline to ban metal from the LME’s list of approved brands whose extraction involved abuses such as child labour or corruption.
• This new announcement will give producers three more years to comply with guidelines set out by the LME.
• The LME have vowed to take action due to media outcry about irresponsible mining practices, such as the use of children to mine cobalt in the DRC. However, sources say that the deadline has been pushed back because some major producers would not go along with the LME’s original plan.
• Producers such as Codelco consider their own rules more rigorous than ones proposed by the LME, and according to an industry source “Codelco would let the LME delist its brands if the costs in time and money of implementing the LME guidelines are unreasonable”.

 

NdPr Rare Earth Oxide (China) US$45,447/t vs US$46,617/t - Apple to use 100% recycled rare earth metals in a key component of new iPhone (mining.com)

• The Taptic Engine represents 25% of the total rare earth elements used in an iPhone, and the rare earths used in this component will be 100% recycled, according to Apple.
• This move will bring with it supply chain benefits as well as environmental benefits if trade issues escalate and China restricts the supply of rare earths.
• Apple’s robot names ‘Daisy’ has the ability to recover 32kg of rare earths from every iPhone it recycles, including neodymium, praseodymium and dysprosium.

Lithium carbonate 99% (China) US$6,976/t vs US$6,982/t

Ferro Vanadium 80% FOB (China) US$38.4/kg vs US$38.5/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$195-205/mtu vs US$195-205/mtu

 

Battery News

 

Company News

Asiamet Resources (ARS LN) FOLLOW 3.2p, mkt cap £25m - Logistics enhancements

• Asiamet Resources reports that recent government infrastructure improvements may provide opportunities to enhance its BKM copper project in Kalimantan through changes to the transport and shipping facilities available for the import of supplies and export of copper cathode from the site.
• One opportunity identified is the "use of the Bagendang Port (Sampi Port) compared with the Banjarmasin Port used in the BKM Feasibility Study" where "Recent infrastructure initiatives and planned upgrades to government bridges and roads have now allowed the study team to review this alternative route as a preferred logistical hub".
• The company identifies that this alternative reduces the one way transport to the port by 140km providing more efficient and lower cost transport.
• Commenting on the wider value optimisation opportunities for the project, Peter Bird, CEO, said that "The refinement of the logistics route to Sampit Port and the associated reduction in operating costs over the life of mine is an excellent example of the value to be delivered … Our team along with our technical servisec providers are systematically working through the 15 identified opportunities and expect to report further positive results".

 

Bushveld Minerals* (BMN LN)  FOLLOW21.3p, Mkt Cap £238m – Conference presentation in South Africa highlights forecast growth of vanadium electrolyte demand

(Bushveld Minerals owns 74% of Vametco, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)

BUY – Valuation 92p

CLICK FOR PDF

• Bushveld Minerals presented at the RMB / Morgan Stanley Big Five Investor Conference in South Africa yesterday.
• The presentation highlighted the future forecast growth for vanadium in vanadium electrolyte in Vanadium Redox Flow Batteries ‘VRFBs’.
• Management see a ‘sustained structural deficit’ in ferrovanadium driven by constrained supply, limited new supply prospects and robust demand from the steel sector with significant upside from energy storage, eg VRFBs..
• The team reckon vanadium demand should rise by 10-15% once China’s new high-strength rebar standards take full effect.
• This demand driver should drive the market into deficit on its own in our view though any pullback in economic growth may offset some increase in demand.
• Further Chinese stimulus in the form of new infrastructure projects such as Belt & Road type initiatives should be good for vanadium demand as these types of projects should normally require a greater proportion of high-strength rebar for longer-term longevity.
• ‘Greater enforcement of rebar standards is expected to drive up specific vanadium consumption rates in China, bringing it closer to the levels of developed economies
• China Rebar Standard requirements: Grade 3 (400MPa), Grade 4 (500MPa), and Grade 5 (600MPa), require 0.03% V, 0.06% V, and more than 0.1% V respectively.
• Steel production in China was 928mt in 2018 indicating that if China improves its vanadium consumption from 0,048 to 0,077 => 0,03kgV/t that this should lead to additional vanadium demand of 27,840 mtV representing around 30% of total 2018 vanadium supply.
• VRFB energy storage: According to Navigant, the two largest market segments in utility energy storage for the next 10 years will require long duration energy storage.
• Stationary energy storage demand is growing at a rate of around 58%pa and should exceed 100GWh by 2027
• Flow batteries expected to capture around 18% of the market, according to Navigant equating to some 20GWh of demand and nearly US$10bn in revenue by 2027 with similar growth rates to solar as seen over the past 10 years.
• Supply: is not as elastic in vanadium as it is in some other metals with three out of the world’s four primary vanadium processing facilities based in South Africa.

Conclusion: Bushveld owns two out of three of these facilities and therefore may potentially control much of the future market for primary vanadium supply. The company is well placed to command and to benefit from ongoing strong demand for vanadium and from higher prices to come from what looks like a developing deficit in the vanadium market.

*SP Angel acts as Nomad & Broker to Bushveld Minerals.

 

Kodal Minerals* (KOD LN) FOLLOW 0.16p, Mkt cap £5.2m - ESIA Progress Report

• Kodal Minerals has provided a progress report on the submission of its Environmental and Social Impact Assessment (ESIA) for the Bougouni lithium project in southern Mali.
• Company management, technical staff and specialist consultants met officials and members of the Direction Nationale De L'Assainissement et du Controle des Pollutions et des Nuisances (DNACPN) yesterday to address questions arising from the company's application.  These issues are t be addressed in an addendum to the submission.
• In today's announcement the company explains that "The matters arising from the DNACPN were minor in nature and Kodal anticipates the addendum will be completed within a short period. Following formal submission of the addendum, the DNACPN statutory approval period of 45 days commences".
• "The Company expects formal approval of the ESIA within the legislated timeframe".
• Commenting on the progress, Bernard Aylward, CEO, said that the team "received positive feedback to the Project and our approach to working with the community and the Mali Government in finalising our application".
• He also confirmed that responses to the comments of the DNACPN would be incorporated "into a final submission that will be presented to the Mali Government as soon as practicable to continue to progress our application".

Conclusion: Kodal Minerals reports a positive response to its ESIA and expects that once its submission has been updated to address the issues raised it expects the relevant approvals within the prescribed 45 day period.

*SP Angel acts as Financial Advisor & Broker to Bushveld Minerals.

 

IronRidge Resources* (IRR LN) FOLLOW 15.1p, Mkt cap £47 - Aircore results from Cote d'Ivoire

• IronRdge Resources reports on results from 28 shallow aircore holes (1,415m) recently completed at its Bianouan prospect and from 37 aircore holes (2,488m) at the Bodite prospect both in Cote d'Ivoire.
• The drilling at Bianouan, which is located along strike from operating gold mines at Chirano, Bibiani and Ahafo, tested "coincident soils, auger and trenching cold geochemical anomalies at depth". Among the results highlighted in the announcement are:
  • A 12m wide intersection averaging 5.87g/t gold from a depth of 10m, including a 2m wide section at an average grade of 33.8g/t; and
  • An 8m wide intersection averaging 1.29g/t gold from a depth of 8m, including a 2m wide section at an average grade of 3.17g/t; and
  • A 1m wide intersection averaging 3.13g/t gold from a depth of 32m  at the end of a hole
• Results from Bodite "returned broad, low level anomalism with best results including 10m @ 0.3g/t (including 10m@0.59g/t gold) from 12m and 22m @ 0.21g/t gold from surface. Results also returned narrow intervals including 2m @9.01g/t gold from 32m, 2m @ 2.74g/t gold from 14m".
• The company reports that it is reviewing the results from the Bianoun and Bodite aircore work "to determine the next steps".
• Commenting on other activities, IronRidge Resources says that a programme of auger drilling has started at the Vavoua prospect to follow up coincident geophysical and geochemical anomalies with 90 holes completed to date.

Conclusion: Results from relatively early stage aircore drilling to follow up geochemical anomalies at Bianouan and Bodite is currently under review and we look forward to the company's plan for the next phase of exploration.

*SP Angel act as Nomad and broker to IronRidge Resources

 

Ironveld (IRON LN) FOLLOW 0.68p, Mkt Cap £4.4m – NED director resignation

• Ironveld PLC report the resignation of Rupert Fraser, an NED of the company with immediate effect.
• The company announced on 12 August it had entered into confidentiality agreements with several parties interested in potentially making an offer to purchase all or part of the Company's assets.
• This was following a strategic review of the company’s mining assets announced on 2^nd July at which time Giles Clarke, Chairman of Ironveld, said: "We believe that we have one of the premier in situ HPI, vanadium and titanium deposits in the world and we believe that the potential of the Project is best recognised by third parties.”
• The company raised £1.1m on 19^th February at 1.75p. The share price is 0.68p today.
• Ironveld reported a cash balance of £322,000 at end December 2018 following the raising of £400,000 in November 2018.
• A Definitive Feasibility Study published in April 2014 was reported to confirm “Ironveld’s project viability to deliver an exceptionally high-grade iron product (99.5% Fe) called High Purity Iron which commands a premium in the market place. Vanadium and Titanium slag containing commercial grades of vanadium and titanium will also be produced and sold.”

 

Solgold* (SOLG LN) FOLLOW 23.2p, Mkt cap £429m - Constitutional Court ruling in Ecuador

• Solgold reports a unanimous ruling by Ecuador's Constitutional Court against the proposed petition to "seek local consultation to consider the prohibition of mining activities" in the southern province of Azuay which hosts the company's wholly owned Sharug project.
• Solgold describes the Sharug project as a high priority project which "has considerable potential for the discovery of a world class orebody with commensurate benefits for Ecuador and Solgold".
• The decision, which follows a decision by the Court on a similar proposal in the Imbabura province in northern Ecuador, found that "referendums implying constitutional reforms are incompatible with the Ecuadorean constitution" and also that "any referendum which may if successful, result in other nationally enjoyed constitutional rights being restricted are inadmissable".

Conclusion: The Court ruling appears to leave Solgold free to continue its exploration of the Sharug project and follows a similar recent ruling for northern Ecuador.  It is unclear to us whether the opposition which prompted the calls for a referendum is promoted by a special interest group or has any wider form of support.

*SP Angel act as Financial Advisor and broker to Solgold

 

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.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

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.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, 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).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

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.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

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%