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SP Angel . Morning View . Demand for Rare Earths to take off as Germany quits coal

10:19, 24th May 2019
Paul Kettle Kettle
SP Angel
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SP Angel – Morning View – Friday 24 05 19

Demand for Rare Earths to take off as Germany quits coal

Brazil sends agents to minimise damage from future Gongo Soco mine tailings collapse

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MiFID II exempt information – see disclaimer below  

Aura Energy* (AURA LN) – Appointment of SP Angel joint broker

Strategic Minerals* (SML LN) – Over US$4m expected shortly from client at Cobre

 

Iron ore - US$99.9/t – Brazil sends agents to minimise damage from future Gongo Soco mine tailings collapse

  • The Brazilian government dispatches agents to avoid humanitarian and environmental losses, and discuss actions when an internal slope of Vale’s inactive Gongo Soco mine collapses, according to the Energy Ministry’s mining secretary Alexandre Vidigal de Oliveira.
  • We can’t avoid it from breaking, what we can avoid are the damages”.
  • Mining regulator known as ANM has given companies until 2021 to stop production from mines that rely on upstream dams used to store the tailings

 

Germany to quit coal – Demand for Rare Earths to take off as Germany quits coal

  • One of the world’s largest consumers of coal will begin shutting down all 84 of its coal-fired power plants over the next 19 years to meet its international commitment in the fight against climate change.
  • The government commission announcement marked a significant shift in policy for Europe’s largest country, with the nation relying on coal plants for 40% of electricity.
  • This is an historic accomplishment,” said Ronald Pofalla, chairman of the 28-member government commission, after seven months of negotiations - “There won’t be any more coal-burning plants in Germany by 2038.”
  • Claudia Kemfert, professor for energy economics at the DIW Berlin, the German Institute for Economic Research adds “It’s also an important signal for the world that Germany is again getting serious about climate change: a very big industrial nation that depends so much on coal is switching it off.”
  • The plan includes some $45bn in spending to mitigate the pain in coal regions.
  • The plan to eliminate coal-burning plants as well as nuclear means that Germany will be counting on renewable energy to provide 65% to 80% of the country’s power by 2040.
  • Last year, renewables overtook coal as the leading source and now account for 41% of the country’s electricity.
  • Initial targets are considerable, calling for a quarter of the country’s coal-burning plans to shut by 2022 with a capacity of 12.5GW. By 2030, Germany should have only eight plants remaining.
  • The transition signals a major shift in energy generation, and represents a significant demand development for renewable energy capacity and supporting metals.
  • Germany’s move from coal to renewables indicates a significant expansion of wind and solar farms implying additional demand for rare earth elements in the permanent magnets and other components used in their power generation. See our recent publication on Magnet metals for Drones, Turbines and Automobiles Neodymium and Praseodymium ‘NdPr’ CLICK FOR PDF
  • Mkango ResourcesFOLLOW has a significant rare earth mine and project in Malawi. It is one of very few rare earth projects being planned in the world and offers investors future exposure to potential rare earth production when the mine and process plant is built.

*SP Angel act as nomad and broker to Mkango

 

Dow Jones Industrials

 

-1.11%

at

  25,490

Nikkei 225

 

-0.16%

at

  21,117

HK Hang Seng

 

+0.40%

at

  27,375

Shanghai Composite

 

+0.03%

at

   2,853

FTSE 350 Mining

 

+0.00%

at

  18,705

AIM Basic Resources

 

-1.84%

at

   1,975

 

Economics

US – Equity index futures are pointing to a slight rebound following a sharp sell off yesterday amid deepening trade row between the US and China.

  • The S&P 500 and tech-heavy Nasdaq dropped 1.2% and 1.6% yesterday, respectively.
  • Trade conflict related fears were exacerbated by a pull back of oil price yesterday on the back of higher US inventories as well as concerns over global demand projections.
  • President Trump suggested that Huawei Technologies may be included in a trade deal as US administration blacklisted the Company when trade negotiations with China fell through last week.
  • The Commerce Department now requires American suppliers of Huawei first seek US government permission to do business with the Company.

 

China – The Commerce Ministry said that the trade environment is growing more uncertain and challenging.

  • The domestic economy still faces downward pressure and some structural issues remain to be resolved, the commentary read.

 

Japan – Inflation accelerated in April but remained a far cry from targeted levels.

  • Core inflation stripping out energy and food prices climbed 0.6%yoy, up from 0.5%yoy.
  • Headline inflation came in at 0.9%yoy, in line with a median forecast and up on 0.8%yoy, led by gains in energy and utilities components.
  • Poor numbers come amid record high monetary stimulus pursued by monetary authorities.

 

India – The BJP party led by Narenda Modi secured second back-to-back majority in parliament.

  • Preliminary results showed around 300 of the 543 seats to be won by the Bharatiya Janata Party.
  • This marks an improvement on the 2014 result when the BJP won 282 seats and 336 when all allies are counted in.
  • The main opposition Congress party is expected to win less than 60 votes.
  • The stock market welcome the news with the BSE Sensex index up 1.5% today and nearly 5% over the course of this week.

 

UK – PM is expected to set out plans on her departure as prime minister today.

  • Tory MPs anticipate PM  to set out the week of June 10as the most likely time for her formal departure as party leader, FT reports.
  • The pound is trading close to its weakest level since the start of the year.

 

Currencies

US$1.1199/eur vs 1.1138/eur yesterday  Yen 109.47/$ vs 110.21/$  SAr 14.425/$ vs 14.440/$  $1.267/gbp vs $1.261/gbp  0.690/aud vs 0.687/aud  CNY 6.904/$ vs 6.915/$

 

Commodity News

Precious metals:         

Gold US$1,284/oz vs US$1,276/oz yesterday

   Gold ETFs 70.6moz vs US$70.6moz yesterday

Platinum US$805/oz vs US$801/oz yesterday

  • Platinum tracks towards a three-month low as deteriorating global economic outlook and the growing transition to electric vehicles erodes demand prospects.
  • Among strong competition, Audi offer more than 30 electrified car models in 2025, signaling less demand for catalytic converters using platinum in cars powered by diesel.
  • The metal has seen a sharp turnaround in sentiment in the last month with holdings of exchange-traded funds backed by platinum slipping and the net-long position falling, according to latest Commodity Futures Trading Commission data.
  • The platinum market is already in surplus, with global car sales struggling, especially in Europe.

Palladium US$1,326/oz vs US$1,314/oz yesterday

Silver US$14.59/oz vs US$14.47/oz yesterday

           

Base metals:   

Copper US$ 5,981/t vs US$5,910/t yesterday

Aluminium US$ 1,807/t vs US$1,775/t yesterday

Nickel US$ 12,320/t vs US$11,910/t yesterday

Zinc US$ 2,565/t vs US$2,519/t yesterday

Lead US$ 1,823/t vs US$1,802/t yesterday

Tin US$ 19,300/t vs US$19,290/t yesterday

           

Energy:           

Oil US$68.4/bbl vs US$70.5/bbl yesterday

Natural Gas US$2.581/mmbtu vs US$2.551/mmbtu yesterday

Uranium US$24.30/lb vs US$24.60/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$99.9/t vs US$101.4/t

Chinese steel rebar 25mm US$623.6/t vs US$623.6/t

Thermal coal (1st year forward cif ARA) US$66.7/t vs US$68.1/t

Coking coal futures Dalian Exchange US$196.3/t vs US$196.0/t

           

Other:  

Cobalt LME 3m US$34,250/t vs US$34,250/t

NdPr Rare Earth Oxide (China) US$48,524/t vs US$44,108/t

Lithium carbonate 99% (China) US$9,632/t vs US$9,617/t

  • The world’s second-largest lithium producer, Soc. Quimica y Minera de Chile SA, reports the painful price decline could continue as miners racing to boost output is creating major oversupply this year. Prices, which fell 8% last quarter, could drop as much as 25% over the coming months.
  • The company sold lithium at an average of $14,600/t during the first quarter, and is now closing contracts for the rest of the year. Talks with lithium buyers indicate $11,000-12,000/t for the second half, closer to the average for the rest of the market, Ramos said.
  • In a market that’s growing as fast as lithium, having an additional supply is not a big issue one year, unless you have oversupply every single year," CEO Ricardo Ramos said.
  • Demand driven by electric-car manufacturers such as Tesla Inc. will soar by about 20% annually through at least 2021, SQM said.
  • The company is expanding operations in northern Chile as fast as it can and aims to almost double its production capacity to 120,000tpa by 2021, according to Ramos.

Ferro Vanadium 80% FOB (China) US$39.0/kg vs US$40.0/kg

Antimony Trioxide 99.5% EU (China) US$5.9/kg vs US$5.8/kg

Tungsten APT European US$270-280/mtu vs US$270-280/mtu

 

Battery News

India may electrify all two- and three-wheelers by 2025 to reduce pollution

  • India is looking to make an extremely ambitious move in electrifying vehicles in the country, with new reports suggesting required electrification of two- and three-wheeled vehicles sold in the coming years.
  • The committee may mandate the sale of electric three-wheeled vehicles from April 2023 onward, The Times of India reports. Additionally, all two-wheeled vehicles up to 150cc would be have to be electric by April 2025.
  • These bold moves would make a huge impact on both the electric bike and scooter industry, as well as India’s emissions and pollution. More than three-quarters of vehicles on India’s roads now fall under the two- or three-wheeler category.
  • An increase in the amount of subsidies for electric three-wheelers is being considered, as are more stringent fuel economy regulations.
  • Further illustrating the dominance of such vehicles in India, more than 21m motorbikes and scooters were sold prior to March 31, compared to just 3.3m cars and utility vehicles.

 

Company News

Aura Energy* (AURA LN) FOLLOW A$0.01, Mkt Cap A$13.3m – Appointment of SP Angel joint broker

  • Aura Energy announce the appointment of SP Angel as joint broker to support its UK AIM listing alongside the company’s existing brokers.
  • The Australian based minerals exploration and development company, listed on both the Australian Securities Exchange (ASX) and AIM, is developing:
    • A fully permitted Uranium project in Mauritania
    • An advanced Vanadium project in Sweden
    • Prospective Gold, Base and Battery Metal tenement's in Mauritania
  • Executive Chairman, Peter Reeve, adds “there are very few uranium companies that can claim to have a fully permitted mining project as Aura has with Tiris Uranium Project. This aspect combined with the ongoing scoping study of the Häggån Vanadium Project and the newly granted gold, base and battery metal exploration tenements in Mauritania provides Aura with a strong outlook for years to come.”

*SP Angel act as joint broker to Aura Energy

 

Strategic Minerals* (SML LN) FOLLOW 1.75p, Mkt Cap £24.6m – Over US$4m expected shortly from client at Cobre

  • Strategic Minerals reports that its Southern Minerals (SMG) subsidiary, which operates the Cobre magnetite tailings operation in New Mexico, has reached agreement with its major client in respect of payment arrears and future payments.
  • This client “has informed SMG that it anticipates having significant funds very shortly and has asked SMG to refrain from progressing legal action for two weeks. During this two week period, the major client has agreed to pay arrears of US $375,000 and top up the existing deposit, held by SMG, by US $3,690,000”.
  • We interpret the increase of the deposit held against future sales as a gesture of good faith in advance of negotiations over the future contract which are expected to be conducted during June.
  • Commenting on the developments at Cobre, Strategic Minerals’ Managing Director, John Peters, confirmed that “SMG has now received written confirmation of the major client's intent to make payment of over US $4m in the next two weeks which would place the SML group in an attractive position to advance its various projects.”
  • Strategic Minerals is advancing its Leigh Creek copper project where it reported initial sales of 5 tonnes of copper cement product earlier this month and where “Full production is scheduled for commencement late 2019 / early in 2020”.
  • Also this month, the company announced the highlights of its scoping study to develop the Redmoor tin/tungsten project in Cornwall outlining the possible development of a 600,000tpa mine at a pre-production capital cost of US$89m which is expected to generate an NPV8% of US$94m and IRR of 19.4% over a ten years mine life at a price of US$22,000/tonne for tin, US$330/mtu for tungsten trioxide and US$3.18/lb for copper.
  • Redmoor’s mineral resource estimate was substantially increased in February, with a 160%increase in resource tonnage to 11.7mt at an average grade of 0.17% tin, 0.56% tungsten trioxide and 0.50% copper. However the resource, which remains open both laterally and at depth, is still classified at the inferred level and, as the project firms up, additional drilling will be required to both upgrade and possibly to further extend the resource to facilitate more detailed mine-planning and assessment.
  • We note that, the company’s 31st December 2018 balance sheet reports a cash balance of $1.8m so that the receipt of over $4m in cash should provide a substantial boost to the interim balance sheet.

Conclusion: Additional funds from the principal customer at Cobre and indications that there is a constructive atmosphere ahead of June’s negotiations on the future contracts set a positive backdrop and will reinforce the company’s cash resources while it progresses the re-opening of Leigh Creek as a second source of cash generation to supplement the contribution from Cobre and advances the Redmoor project in Cornwall.

*SP Angel act as Nomad and broker to Strategic Minerals

 

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                                                            

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.

 

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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.

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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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