SP Angel – Morning View – Friday 12 10 18
Commodity rout caught up in trade war sentiment
MiFID II exempt information – see disclaimer below
Keras Resources* (KRS LN) 0.4p, mkt cap £8.6m – New high-grade gold results from Calidus Resources add further value to Keras
Calidus Resources (CAI AU) A$0.03, mkt cap A$33.6m
Red Rock Resources (RRR LN) 0.6p, mkt cap £3.4m – Receipt of dividend from Jupiter Mines’ Tshipi manganese mine
Strategic Minerals* (SML LN) BUY - Target Price 2p – Drilling at Leigh Creek, Mountain of Light and Lyndhurst to expand copper resources
Haydale Graphene (HAYD LN) – Funding to develop graphene composite tooling and automotive body panels
Talga Resources (TLG ASX)
Commodity rout caught up in trade war sentiment
- Coincident concerns over global growth triggered by the ongoing trade war and Federal Reserve interest rate hikes has soured financial markets and dragged commodities lower. As the biggest US stock sell-off in months spread across Asia and Europe, raw materials have also been stung.
- The Bloomberg Commodity Index has its first back-to-back drop in three weeks as oil and aluminium prices tumbled.
- Oil had its biggest decline in eight weeks with West Texas Intermediate futures slumping as much as 3.6% Thursday. The turmoil in equities comes as Hurricane Michael, the strongest storm to hit the U.S. mainland since 1992, is threatening to slash fuel demand. The natural disaster has threatened to cause consumption in the US southeastern markets to fall by 1 million barrels per day, according to Mizuho Securities.
- Base metals broadly fell before making early recovery as the dollar weakened. Aluminium dropped as much as -1.4% in London with copper following as much as -2.4%. The red metal has subsequently risen as union officials at top producer Codelco announce smelter operations at it Chuquicamata mine will be halted for 60 days in mid-December due to upgrade delays.
- Growing tensions are raising concerns over global economic growth, spurring the IMF to lower growth forecast by -0.2% to 3.7%, which is expected to impact commodity markets.
- The rout in equities and weaker metals prices are also hurting mining companies, with the Bloomberg World Mining Index closing at a three-week low.
Oil price looks set to rise to $80-90/bbl next year as supply tightens towards critical levels
- Rising oil prices will have a naturally and surprisingly negative impact on the global economy and on the margins for business in the US and particularly in weaker currencies which could end up paying significantly elevated oil prices in local currencies.
- Higher oil prices may act as a further catalyst for inflation prompting holding back potential for policy makers to cut interest rates to maintain growth.
- Many mining companies are particularly sensitive to higher oil and oil-based reagent prices. Some will move to alternative energy sources will others will suffer as costs rise.
- We advise companies with high fuel-oil costs to consider hedging or other measures to reduce the impact of likely higher oil prices.
- We forecast the Brent crude oil price to average $83/bbl next year starting at $80/bbl and finishing at $90/bbl.
- Oil prices should rise to $120/bbl in 2021 on our forecasts.
- Prices should average $70/bbl this year, the YTD average so far is $72/bbl.
- We see oil prices rising coincidentally with the three-year investment cycle in Oil & Gas as production naturally declines by around 10%pa.
US reaches 1m electric vehicle sales
- The U.S. electric vehicle market will reach a major milestone this month as automakers reach 1,000,000 EV sales.
- Cumulatively, over 992,000 EVs have been sold since January 2011, according to a SAFE analysis of data from Hybridcars, InsideEVs, and automotive industry press releases, with 110,000 EVs sold in Q3 2018 alone.
Feasibility study to investigate bio fuels for London Black Cabs
- The UK Government Innovate team have awarded funding to undertake a feasibility study on remanufacturing existing London Black Cabs powered by Direct Ethanol Fuel Cells (DEFC) to replace diesel engines.
- The study represents the first time the UK government has acknowledged the value of DEFC’s to facilitate the rapid transition of London Black Cabs to zero emission vehicles operating on sustainable bio fuel. Following the study, to be conducted by Cygnus Atratus, further funding could be allocated to build a production prototype Black Cab prior to remanufacture.
- There are 22,000 London Black Cabs representing more than 2MW’s of fuel cells and considerable maintenance value. The vehicles will be funded by energy use and service fees, requiring little capital expenditure by taxi owners.
- The remanufacture of Black Cabs is the first step to rolling out programs for remanufacturing existing commercial and municipal vehicles. The technology will also be exported to developing economies unable to sustain the large scale electricity production necessary to operate battery powered vehicles. Such an ability to manufacture the technology locally along with the provision of fuel distilled in the community, will greatly reduce the costs of transport and accelerate the economies of such nations.
- Cygnus Atratus maintain their fuel cells can be manufactured at cost competitive prices with solar, while being less than wind, nuclear and other conventional power production.
The most expensive liquid in the world is scorpion venom according to the Daily Maverick in South Africa at $39,000,000
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
Global markets are bouncing back as the sentiment recovers following a sharp sell off recorded earlier in the week (S&P500 -5.5% since Monday).
- Asian and European equities climbed off their lows while US futures point to gains on Wall Street.
- The FTSE All-World Index fell for a sixth day running yesterday wiping all of this year’s gains in one of the worst weeks of the year before recovering 0.5% this morning as European markets opened.
- The sell off is reported to have been driven by expectations for a more aggressive US monetary tightening policy and downgraded global growth rates.
- President Trump blamed an “out of control” US Fed for the downturn.
US – Weaker than forecast US inflation numbers released yesterday is a welcome news for those concerned over the strong pace of US rates increases.
- Core inflation pointed to a slight loss of momentum in recent months with the strong US dollar helping to contain increases in goods prices.
- Although, trade tariffs and higher oil prices would likely to continue to exert inflationary pressure on inflation in the near term.
- Additionally, wages have been on the rise lately on the back of strong employment driving the cost of labour for businesses higher.
- “If equity prices continue to tumble over the coming weeks, the Fed will not be hiking rates… but as long as markets stabilise, solid activity growth and higher services inflation will be enough to keep the Fed on track to raise interest rates again in December,” Capital Economics commented on CPI numbers data.
- CPI (%mom/yoy): 0.1/2.3 v 0.2/2.7 in August and 0.2/2.4 forecast.
- Core CPI (%mom/yoy): 0.1/2.2 v 0.1/2.2 in August and 0.2/2.3 forecast.
China – Trade war bears little impact on Chinese exports the latest trade data shows.
- Exports accelerated in September which is believed to be helped by depreciating renminbi.
- Among few negligible signs of any effect of trade dispute between China and the US, exports to the US are reported to have climbed slower than shipments to the rest of the world.
- On the less positive side, imports growth slowed pointing to cooling domestic demand.
- “With global growth likely to cool further in the coming quarters and US tariffs set to become more punishing, the recent resilience of exports is unlikely to be sustained… meanwhile, with policy easing unlikely to put floor beneath domestic economic activity until the middle of next year, import growth is set to slow further,” Capital Economics said.
- Exports (US$ terms): 14.5 v 9.1 (revised from 9.8) in August and 8.2 forecast.
- Imports (US$ terms): 14.3 v 19.9 (revised from 20.0) in August and 15.3 forecast.
UK – The pound continues to trade above the 1.32 mark as PM May briefed her inner Cabinet on Thursday evening that a Brexit deal is close to being settled.
- FT reported yesterday that MP rarely brings the Cabinet together to comment on recent developments suggesting the latest move might mean ”the deal is practically done”.
Italy – Both chambers of parliament backed populist fiscal budget targets approving higher deficit levels for 2019.
- The deficit will be targeted at 2.4% in 2019 before it is brought down to 2.1% in 2020 and 1.8% in 2021.
- Finance and Economy Minister Tria said the extra deficit will help fund planned measures including a new income-support programme, a lower retirement age and corporate tax cuts.
- The 10y yield spread between Italy and Germany widened to a five-year high of 305 points on Thursday and was only slightly lower this morning (301bp).
- Stocks are stronger today showing 0.7% increase in the benchmark FTSE MIB index broadly in line with the rest of the Europe.
Turkey – The lira climbed 3% on Thursday on speculation the US pastor detained by Turkish authorities might be returned to the US after a court hearing due today.
- NBC News reported that the White House expected Andrew Brunson to be released and returned to the US in the coming days.
- The case of Brunson has led to an escalated diplomatic row between two countries which later resulted in sanctions placed on Turkish officials and threats from the US of more restrictions to be potentially applied.
- The lira has given up its gains this morning trading 1.5% down as markets await further news on the case.
US$1.1601/eur vs 1.1549/eur yesterday Yen 112.36/$ vs 112.30/nbsp; SAr 14.460/$ vs 14.608/nbsp; $1.325/gbp vs $1.320/gbp 0.713/aud vs 0.709/aud CNY 6.911/$ vs 6.926/$
Gold US$1,219/oz vs US$1,197/oz yesterday
- Safe-haven demand finally drew gold out from its trading range, climbing to a 10-week high of $1,226.42/oz yesterday as traders weighed geopolitical risks. Prices have held the biggest gain since June 2016, climbing as much as when the UK voted to exit the European Union, after a slump in global equity markets stoked demand for the metal and a store of value.
- The precious metal received another boost as data indicated weaker-than-expected US inflation, which raised speculation that the Federal Reserve may slow the pace of interest rate increases.
- Most Asian stocks recovered after the biggest sell-off in equities since February, as US stock futures extended gains and Treasury yields ticked higher, causing gold to pull back from highs -0.4% lower in early trading in London.
- “Gold markets finally showed some life, but it took an absolute pummeling on equity markets to trigger demand”, according to head of Asia Pacific trading at Oanda Corp. Softer-than-expected CPI print and risk aversion during last stage bull market could test the significant resistance at $1,225.
- Gold traders and analysts hold bullish outlooks for an 8th consecutive week. Survey results: Bullish: 9 Bearish: 3 Neutral: 4
- A gauge of gold-mining equities tracked by Bloomberg Intelligence also had the biggest increase since 2016 on Thursday. On Friday, as shares in Asia steadied, Newcrest Mining Ltd., Australia’s largest producer, rose 3.3% and Zijin Mining Group Co. climbed 4.7% in Hong Kong.
Gold ETFs 67.4moz vs US$67.4moz yesterday
Platinum US$841/oz vs US$823/oz yesterday
Palladium US$1,090/oz vs US$1,072/oz yesterday
Silver US$14.58/oz vs US$14.38/oz yesterday
Copper US$ 6,307/t vs US$6,172/t yesterday
Aluminium US$ 2,037/t vs US$2,026/t yesterday
Nickel US$ 12,855/t vs US$12,500/t yesterday
Zinc US$ 2,665/t vs US$2,612/t yesterday
Lead US$ 2,014/t vs US$1,890/t yesterday
Tin US$ 19,170/t vs US$19,015/t yesterday
Oil US$81.2/bbl vs US$82.4/bbl yesterday - OPEC Continues To Cut Oil Demand Growth Forecasts
- OPEC has revised down its oil demand growth estimates for this year and next—a third downward revision in as many months
- In its closely watched Monthly Oil Market Report published on Thursday, OPEC revised down its global oil demand growth to 1.54m bpd this year, down by 80,000 bpd from the estimate in the September report.
- In last month’s report, the downward revisions from August were much smaller—by 20,000 bpd for global oil demand growth in both 2018 and 2019.
- In its latest estimate, OPEC now sees global oil demand growth next year at 1.36m bpd, down by around 50,000 bpd from last month’s assessment, to reflect expectations for lower economic growth for Turkey, Brazil, and Argentina
Oil prices hold ground, but set for 4% weekly fall
- Oil prices steadied this morning after a market rout driven by sharp falls in equity markets and indications that supply concerns have been overblown, but were still on track for a fall or more than 4 percent for the week.
- Brent crude futures edged up 13 cents to $80.39 a barrel by 0042 GMT. The contract fell 3.4% on Thursday, after hitting a low of $79.80, its weakest since September 24.
- US West Texas Intermediate (WTI) crude futures were up 11 cents at $71.08 a barrel, after falling 3 percent in the previous session to the lowest since September 21.
Natural Gas US$3.253/mmbtu vs US$3.251/mmbtu yesterday
Uranium US$27.50/lb vs US$27.55/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$69.6/t vs US$69.8/t
- Iron ore futures in Dalian are poised for the largest weekly advance in two weeks as investors weigh the prospects for demand amid speculation over the widespread scope of winter curbs across China beginning next month. The world’s largest steel producer, which accounts for half of global supply, has been curtailing industrial production from mills and sintering plants to curb emissions, while policy makers are signaling that while there will be less central government control, they’ve also broadened the areas subject to controls.
- According to Barclays Plc, China’s upcoming winter curbs on steel output aimed at combatting pollution will have a bigger impact on demand and clean air than last year’s restrictions.
- Iron ore for January climbed to 519 yuan/ton on Dalian Commodity Exchange during yesterdays trading, the highest intraday level since Aug. 14, rising +3.4% this week.
- The world’s biggest iron ore miner is ramping up production to capitalize on demand, and is expected to report historic output for a second straight quarter. Vale SA are forecast to have produced 102mt in the third quarter, including third-party purchases and feed for pelletizing plants, according to the average estimate of four analysts surveyed by Bloomberg. That compares with 95.1mt a year earlier and a record of 96.8mt last quarter.
- Vale has benefited from stable pricing, its ability to ramp up production at its low-cost reserves and growing premiums for its higher-grade iron ore. Those premiums are largely a result of Chinese demand. Steelmakers in the Asian nation relish Vale’s top-grade ore because it has higher iron content and fewer impurities, helping them improve margins and efficiency while meeting the government’s goal of reducing air pollution.
- Vale said in July nearly 80% of its iron ore sales are considered superior to benchmark products, giving the company pole position in demand for cleaner materials.
- Vale’s head of ferrous metals, Peter Poppinga, said the company is evaluating the possibility of expanding production at its $14bn S11D mine, located in the Amazon rainforest, Reuters reported last month. The mine is Vale’s crown jewel and is expected to produce close to its 90mt capacity in 2019. Although the company has said it plans to produce 390mt this year, Vale could increase capacity to 450mt by 2020 if it chose to.
Chinese steel rebar 25mm US$683.4/t vs US$677.6/t
- Despite an ongoing trade war, China’s steel shipments edged higher into September according to General Administration of Customs data. Steel product exports came in at 5.95mt in September, with the figure rising +1.4% from a revised figure of 5.87mt in August and up 15.8% from 5.14mt in September last year.
- China is the world's top producer of steel and aluminium. The United States has imposed tariffs of 25% on Chinese steel imports and 10% on aluminium imports since March 23 in one of the opening moves of the trade war between the countries. However, lower yuan has helped Chinese metal exports.
- Steel shipments remained buoyant due to high production levels in China and an arbitrage of as much as $30 a tonne between steel prices in Southeast Asia and China last month, as assessed by consultancy Mysteel, encouraging exports.
Thermal coal (1st year forward cif ARA) US$94.7/t vs US$94.0/t
Coking coal futures Dalian Exchange US$191.9/t vs US$191.5/t
Moixa debuts 'family-sized' battery that promises to turn homes into power stations
- UK energy storage and smart home specialist Moixa has this week unveiled a new 'family-sized' battery designed to help households take advantage of the growing number of time-of-use energy tariffs.
- The company said the new 4.8kWh 'smart battery' would help turn homes into 'mini power stations' capable of maximising revenue from the power they generate.
- Simon Daniel, CEO of Moixa, said "we want to help customers take part in the smart power revolution and share its rewards. Our smart batteries know when it makes sense to buy energy and when to export it. They will soon know whether it's better to charge your car battery or use it to power your home."
UK Government slashes grants for new hybrid and electric cars angering motoring groups
- Grants for new hybrid and electric cars will be slashed in a move which has angered motoring groups.
- Fewer models will be eligible for the scheme and the money available to motorists will be reduced from 12 November, the Department for Transport announced.
- Cash incentives have been offered since 2011 to encourage more people to buy electric and plug-in hybrid cars. Vehicles currently included in the scheme are divided into three categories based on their CO2 emissions and their zero-emission range.
- Jack Cousens, head of roads policy for the AA, said: "The Government wants to end the sale of petrol and diesel cars, but scrapping grants for low emission cars may well stall their progress. Seven out of 10 drivers say grants are necessary to buy an ultra-low emission vehicle until such time that the price compared to a conventional petrol or diesel car is the same.
Cobalt LME 3m US$61,750/t vs US$61,750/t
China NdPr Rare Earth Oxide US$46,303/t vs US$46,346/t
China Lithium carbonate 99% US$9,839/t vs US$9,818/t
Tungsten APT European US$275-290/mtu vs US$275-290/mtu
0.4p, mkt cap £8.6m – New high-grade gold results from Calidus Resources add further value to Keras
Calidus Resources (CAI AU) A$0.03, mkt cap A$33.6m
(Keras currently hold 458m shares in Calidus Resources with an additional 265m new shares due to be granted by Calidus when the gold project PFS is published.
All Keras’ shares in Calidus are in escrow for two years with the lock up expiring on 23 June 2019.)
BUY, Target price 1.04p
- Calidus Resources report further high-grade gold results from their Coronation Prospect, which forms part of its wider Warrawoona Gold Project, located in the Pilbara of Western Australia.
- The drill results show multiple high-grade intercepts including 10m @ 4.69g/t Au from 57m and are part of a resource infill and extension program aimed at increasing the current JORC compliant to >1Moz Au from 712,000 oz currently.
- Significant results include:
- 10m @ 4.69g/t Au from 57m in 18CRRC020
- 5m @ 4.48g/t Au from 35m in 18CRRC022
- 4m @ 5.30 g/t Au from 26m in 18CRRC014
- 2m @ 9.30g/t Au from 80m in 18CRRC013
- 3m @ 6.01g/t Au from 10m in 18CRRC018
- 7m @ 2.54g/t Au from 21m in 18CRRC012
- 3m @ 4.69g/t Au from 29m in 18CRRC022
- 2m @ 6.61g/t Au from 25m in 18CRRC016
*SP Angel act as Nomad and broker to Keras Resources
0.6p, mkt cap £3.4m – Receipt of dividend from Jupiter Mines’ Tshipi manganese mine
- Red Rock Resources report this morning the receipt of US$658,545 by way of a dividend from Jupiter Mines.
- Jupiter Mines (JMS AU) runs the Tshipi manganese mine in South Africa.
- Manganese prices are ip 4c to US$6.90/dmtu for 37% grade according to Fastmarkets (formerly Metal Bulletin)
- Red Rock reports manganese prices at US$6.22/dmtu FOB Port Elizabeth in SA
- Investors might like to ask Red Rock to pass the dividend on.
1.4p, Mkt Cap £18.7m – Drilling at Leigh Creek, Mountain of Light and Lyndhurst to expand copper resources
BUY - Target Price 2p
- Strategic Minerals are to start a new 10 hole Reverse Circulation drilling program at Leigh Creek.
- Reverse Circulation is quick and cheap and appropriate for the testing of near surface copper oxide deposits.
- A further two RC holes will be drilled to see if there is more copper mineralisation next to the East Pit at the Mountain of Light copper process plant.
- Another 250 quick air core drill holes will be used to test the old heap leach pads at the Mountain of Light site to see if sufficient copper is left in the heaps for another round of acid leaching.
- Work continues at Leigh Creek to plan the optimal process flow sheet and to work out how to turn Leigh Creek into a longer term copper facility. Eg through the identification of further resources to feed the plant.
- Leigh Creek will focus on the simple leaching of copper oxide to start but could expand to process sulphide copper in the region if sufficient tonnages of copper sulphide mineralisation are found.
- The team have identified two further copper oxide deposits at Lynda and Lorna Doone at the Lyndhurst project with potential for copper sulphide mineralisation below.
- Historic mining which stopped at the water table at Roseann East indicates the presence of further copper oxide mineralisation with historic drilling ending in 1.5% copper indicating the presence of economically mineable copper oxides.
Conclusion: Drilling is sure to extend the known copper resources and reserves for Leigh Creek and its near neighbours. We expect the strategy to expand the life of the operations at Leigh Creek and to lead to the expansion of the copper oxide production and probable development of a copper sulphide process plant. Indications of meaningful new resource discovery should be a game changer for Strategic Minerals.
*SP Angel act as Nomad and broker to Strategic Minerals
27.5p, Mkt Cap £7.5m – Funding to develop graphene composite tooling and automotive body panels
Talga Resources (TLG ASX) A$0.4, Mkt Cap A$96.4m
- The global advanced materials group have been awarded a research and development grant from the Niche Vehicle Network to develop graphene enhanced composite tooling and graphene enhanced automotive body panels.
- The £249,600 grant, of which Haydale will receive £120,000, has been awarded to the consortium that Haydale leads, joined by Briggs Automotive Company (BAC) and Pentaxia. BAC is a British manufacturer of the Mono, the world's only road-legal, single seat super car. Pentaxia is specialist in tooling design, machining (jigs & fixtures), and composite production.
- Funding provides the company a wider opportunity to investigate tooling materials, reducing the cycle times while reducing weight and increasing the performance of component materials.
- The global tooling market for composites industry is expected to advance at +7.1% CAGR over the next five years to reach US$1.457bn by 2022. This rapidly expanding market is ripe for disruptive materials, and represents a growing number of end-use markets to be targeted by advanced graphene manufacturers including Talga Resources.
- Talga are currently advancing manufacture of graphene using their unique exfoliation process at the Advanced Materials GmbH in Rudolstadt, Germany. Further to composite markets, the company are expanding research and industrial partnerships in enhanced coatings, construction materials and batteries and energy storage.
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
Richard Parlons – 0203 470 0472
Jonathan Williams – 0203 470 0471
Prince Frederick House
35-39 Maddox Street London
*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.
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.
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. This information is for the sole use of Eligible Counterparties and Professional Customers only and is not intended for Retail Clients, as defined by the rules of the Financial Conduct Authority (“FCA”) and subject to SP Angel’s Terms of Business as published or communicated to clients from time to time.
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.