SP Angel . Morning View . Science collaborations promote independence in research in W. Australia

SP Angel – Morning View – Friday 19 10 18

 

Science collaborations promote independence in research in Western Australia

MiFID II exempt information – see disclaimer below 

 

Scotgold Resources* (SGZ LN) – Cononish update

 

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Science collaborations promote independence in research in Western Australia

• The isolation of Australia’s largest of six states, Western Australia, is promoting deep local collaborations and research to boost advances in one of the world’s most remote scientific communities. Across the vastness, Western Australia’s outback is studded with plentiful reserves of precious metals and minerals. When gold was discovered in the 1890s in Kalgoorlie, the resulting economic boom transformed Perth from a small provincial town into Australia’s fourth most-populated city.
• Much of the state’s economy — and science — is dominated by the resources sector, which covers the exploration, extraction and processing of minerals and hydrocarbons. Curtin University is one of five universities in Western Australia, four of which are in Perth. It is a world leader in mining technology and research.
• Collaborative efforts become essential to attract the attention of funding agencies and federal government in Canberra, who appear to favour the nearer and larger cities and research hubs of the east coast. Data support this perspective. A 2016 report by Nature Index, which tracks scientific-article author affiliations, found that Curtin University and the University of Western Australia (UWA) formed Australia’s strongest collaboration between two research institutes, coming 73rd globally.
• Ambitions to merge Western Australia’s universities into a single, larger, more prestigious university would help to draw more international students to the state – international education is Australia’s third-largest export, in terms of dollars, with Western Australia providing only 8% total.
• Mining directly accounted for 29% of the state’s gross product last year, with some 85% of the state’s merchandise exports in 2017 were in minerals and petroleum.
• As founding geologist of Element 25, Justin Brown, notes the reliance on the resource sector means “Perth suffers from a cyclical boom-and-bust existence. The heartbeat of Perth rises and falls on the health of the resource industry”. The manganese miner are trying to break the cycle with partnerships to research organisation to process ore from deposits discovered in 2010, about 1,000km north of Perth. The discovery is the largest onshore manganese resource in Australia: enough, if it was all converted into metal, to meet the world’s total demand for the resource for an entire year.
• Instead of opting to ship ore to China to support the growing steel industry, Element 25 partnered with the Mineral Resource unit at Australia’s national Commonwealth Scientific and Industrial Research Organisation to develop a process that can leach 95% of manganese without the harmful processing associated with the steel industry. The partnership was made possible by a grant from the federal government, designed to link industry and research, of Aus$100,000. This was matched and then added to by the company. “We have a much cleaner, cheaper leaching step,” Brown says. “It’s really fun science.”
• Signs that Western Australia’s economy is diversifying is evident in growing production of lithium to support Li-ion battery developments. Instead of selling the ore, Western Australian policymakers are hoping to position the state as a battery manufacturer.
• Peter Klinken, the state’s chief scientist, adds that renewable energy offers the state an opportunity. “We’ve got great sunlight here – more than anywhere else in the world. It’s [got] the second windiest capital in the world, after Wellington. We have an opportunity to make a transition away from coal”.
• Fundamental to the growth of Li-ion batteries are supportive high-purity metals. Manganese is a crucial raw material, creating a significant growth opportunity for Element 25 in both domestic and international markets.

 

U.K. Lawmakers Call for Ban on Traditional Cars in 14 Years

• A ban on new petrol and diesel cars should be brought forward by eight years because the government’s current target is “unambitious and vague”, according to a committee of MPs.
• The cross-party Commons business select committee said today that the sale of traditional combustion engine models should be phased out by 2032 rather than 2040 as part of a strategy to cut roadside emissions.
• In a report, MPs warned that ministers were failing to promote electric vehicles despite government rhetoric about the UK being a world leader in the technology.
• The business, energy and industrial strategy committee criticised the lack of action on the roll-out of roadside chargers, saying that the lack of charge points was one of the “greatest barriers” to growth of the market.

 

Tesla launches new $45,000 Model 3

• Tesla Inc on Thursday introduced a new $45,000 version of its Model 3 sedan on its website, launching the car as U.S. tax breaks for Tesla cars are about to decrease.
• Although Tesla has promised a base-level version of the Model 3 priced at $35,000, so far it has only produced higher-cost versions starting at about $49,000.
• Tesla has said that it would not manufacture the base-level version of the Model 3 this year, nor is it clear how many of the more than 400,000 reservations for the Model 3 are for the base models.

 

Bill Gates-led Breakthrough Energy

• The European Commission and Bill Gates-led Breakthrough Energy Ventures launched a €100m clean energy investment fund Wednesday. Entitled ‘Breakthrough Energy Europe’, the pilot fund is designed to help companies there develop clean energy technologies and bring them to market.
• Half of the committed €100m will come from the European Commission and the other half from Breakthrough Energy Ventures.
• Breakthrough Energy Ventures has already contributed more than $1bn toward companies working to eliminate emissions in electricity, agriculture, manufacturing, transportation and buildings.

 

50-megawatt battery will help power electric vehicle revolution

• The EV revolution is picking up the pace after UK company Pivot Power unveiled plans to invest £25m in a massive 50MW battery which will power a charging "superhub" near Carlisle, as part of a £1.6bn investment to create a UK network of EV charging stations.
• The site, on the M6, is the second of 45 throughout the UK to win planning permission after a similar scheme in Southampton got the go-ahead in July.
• When operational, it will be one of the UK’s biggest grid-scale batteries, storing enough electricity to supply almost 6,000 average homes for a day from a single charge.

 

Dow Jones Industrials		-1.27%	at	25,379
Nikkei 225		-0.56%	at	22,532
HK Hang Seng		+0.58%	at	25,601
Shanghai Composite		+2.58%	at	2,550
FTSE 350 Mining		+0.72%	at	17,008
AIM Basic Resources		-0.42%	at	2,159

 

Economics

US – US equities index futures pared early gains as European stocks drop amid worries over Italy and slowing growth in China.

Dow, S&P 500 and Nasdaq all closed in red on Thursday on the back of worries over waning global growth and hawkish US Fed meeting minutes.

• Fed minutes released on Wednesday suggest the FOMC is prepared to continue with the tightening cycle potentially looking to increase rates beyond the neutral interest rate.
• 11 of 16 participants expected the actual fed funds rate to be at or above 3.0% by end of 2021.
• Additionally, the notes show that members were not particularly worried over putting out a more hawkish statement.
• “Almost all” participants agreed to drop the language that “the stance of monetary policy remains accommodative”.

 

China – Latest GDP growth numbers point to slowing growth momentum amid the drive to reduce debt risks and escalating trade conflict with the US.

• The economy climbed 6.5%yoy in Q3/18, down from 6.7% recorded in Q2/18 and 6.6% forecast.
• In the wake of slowing growth as well as generally increased volatility in financial markets, Chinese authorities sought to improve the sentiment and pledged targeted measures to help ease firms’ financing problems and encourage commercial banks to boost lending to private firms, Reuters reports.
• The Shanghai Composite Index slumped nearly 1.5% in early trade on the back of a sell off on Wall Street as well as weaker than expected GDP numbers, but has recovered following the authorities’ comments to end 2.6% up on the day.
• China’s banking and insurance regulators has also suggested that it may allow bank wealth management subsidiaries to invest directly in stocks.
• The data highlighted weakening domestic demand with softness across factory activity to infrastructure investment and consumer spending.
• GDP(%yoy): 6.5 v 6.7 in Q2/18 and 6.6 forecast.
• Retail Sales (%YTD): 9.3 v 9.3 in August and 9.3 forecast.
• Industrial Production (%YTD): 6.4 v 6.5 in August and 6.4 forecast.
• FAI (%YTD): 5.4 v 5.3 in August and 5.3 forecast.

 

Japan – Inflation struggled to accelerate in September despite a pick up in energy costs.

• Excluding volatile fresh food and energy items, prices were up 0.4%yoy, in line with consensus.
• Since inflationary sources remain limited outside energy and import prices… the BoJ needs to maintain its stimulus, Bloomberg Economics commented on the news.
• CPI (%yoy): 1.2 v 1.3 in August and 1.3 forecast.
• Core CPI (%yoy): 0.4 v 0.4 in August and 0.4 forecast.

 

Italy – Sovereign bonds continued to slide as the European Commission criticised the latest nation’s budget proposal.

• Yields on 10y debt returned to levels not seen since 2014, hitting 3.73% amid the dispute with Brussels.
• The EC argued Italian authorities should be more prudent in dealing with outstanding debt levels which are the second largest in the euro zone.
• The Italian government has until Monday to reply to the EC’s criticisms and if the EC continues to deem the proposal as non-compliant, the commission will have two weeks to adopt an opinion and request a new draft budget within three weeks.
• Benchmark Italian Index is down 1.6% this morning compared to the region wide Stoxx Europe 600 that is off 0.5%.

 

Saudi Arabia – President Trump said on Thursday he presumes missing Saudi journalist Jamal Khashoggi dead with the US response to Saudi Arabia likely to be “very severe”, but he was still willing to get results of the investigation.

• Trump spoke hours after meeting with Secretary of State Mike Pompeo following his travels to Turkey and Saudi Arabia.
• Police is searching a forest on the outskirts of Istanbul and a city near the Sea of Marmara for the remains of Khashoggi for more than two weeks now.
• Riyadh strongly denied the allegations and said it is continuing to investigate the case.
• Pompeo advised Trump to give Saudi Arabia a few more days to complete their enquiry.

 

Currencies

US$1.1439/eur vs 1.1493/eur yesterday  Yen 112.43/$ vs 112.52/$  SAr 14.405/$ vs 14.260/$  $1.301/gbp vs $1.309/gbp  0.711/aud vs 0.712/aud  CNY 6.934/$ vs 6.940/$

 

Commodity News

Precious metals:         

Gold US$1,227/oz vs US$1,221/oz yesterday

• Gold is heading for a third straight week of gains, the longest stretch since January, amid renewed interest in the precious metal as a safe haven.
• Volatility in equity markets and tensions in the Middle East have spurred demand for bullion, with holdings in exchange-traded funds backed by the metal expanding to the highest level in more six weeks. Concerns about the economy were further fueled by a JP Morgan Chase model indicating that the chance of the U.S. tipping into a recession in the next two years is now greater than 60%.
• Bullion for immediate delivery climbed +0.2% to $1,228/oz in early trading, rising +0.9% this week. Further, ETF holdings rose 2,113.5 tonnes on Thursday, the highest since Sept. 3 according to data compiled by Bloomberg.
• President Donald Trump has said it “certainly looks” like missing journalist Jamal Khashoggi is dead, and warned of “very severe” consequences for the killing.
• Federal Reserve Governor Randal Quarles said he favors gradual interest-rate increases and voiced optimism that the U.S. economy might be able to grow faster without overheating -- potentially meriting a slower hiking path ahead.
• Strategist at IG Asia in Singapore adds “with rising inflation and slowing global growth outlook, over and above the uncertainty for equities, one should not be too surprised to find gold prices staying elevated into the year-end”.

   Gold ETFs 68.0moz vs US$67.9moz yesterday

Platinum US$832/oz vs US$831/oz yesterday

Palladium US$1,084/oz vs US$1,073/oz yesterday

Silver US$14.61/oz vs US$14.49/oz yesterday

           

Base metals:   

Copper US$ 6,169/t vs US$6,159/t yesterday

• Copper remains on track for the biggest weekly drop in two months as investor jitters surrounding China’s economic slowdown and financial-market turmoil keep pressure on industrial metals. China’s economic growth slowed more than expected in the third quarter as weak industrial output and the “severe international situation” challenged the government’s efforts to stabilize the economy and reach growth targets.
• China’s economic growth has slowed more than expected in three months to September, as GDP increases 6.5% from a year earlier, compared with 6.6% in a Bloomberg survey and 6.7% in the previous quarter.
• China’s senior financial officials move to shore up confidence with coordinated verbal support after the world’s deepest slump wiped off more than $3tr in value since January.
• Adding to the list of woes hitting copper, concerns that US home demand is slowing prompted analysts to lower estimates for builders this week – exacerbating a recent sell-off in the industry and further dimming prospects for the metal used in piping and wiring.

Aluminium US$ 2,014/t vs US$2,013/t yesterday

Nickel US$ 12,475/t vs US$12,240/t yesterday

Zinc US$ 2,672/t vs US$2,635/t yesterday

Lead US$ 1,992/t vs US$2,028/t yesterday

Tin US$ 19,155/t vs US$19,130/t yesterday

           

Energy:           

Oil US$79.5/bbl vs US$79.9/bbl yesterday

• Oil prices fell on Thursday as the fourth weekly increase in U.S. crude inventories suggested ample supply.
• U.S. West Texas Intermediate crude ended Thursday's session down $1.10, or 1.6%, at $68.65, after hitting a one-month low at $68.47 earlier in the session.
• Brent crude was down 67 cents at $79.38 a barrel at 14:30 ET. It fell as low as $78.69 earlier in the day, down $8 from a nearly four-year high reached on Oct. 3.
• On Wednesday, government data showed U.S. crude inventories rose 6.5m barrels last week, the fourth straight weekly increase and almost three times what analysts had forecast.

Natural Gas US$3.205/mmbtu vs US$3.300/mmbtu yesterday

Uranium US$27.70/lb vs US$27.65/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.1/t vs US$72.7/t

Chinese steel rebar 25mm US$690.0/t vs US$690.9/t

• China’s steelmakers pushed production rates to record levels last month, according to official data, underscoring a bullish short-term picture for the world’s biggest market even as risks of a demand slowdown rise.
• Output of crude steel rose 7.5% on year to 80.85Mt, the statistics bureau said Friday. This translates to a daily rate of 2.695Mt, beating the previous all-time high of 2.673Mt posted in June. Output for the first nine months of the year climbed 6.1% to a record 699.42Mt.
• China’s mills have boosted production to benefit from an unusually long period of high prices and healthier profits. Steel rebar, used in construction, rallied this week to the highest this year, while iron ore prices surged to a March high, ahead of winter production curbs to fight pollution that should continue to offer support to the nation’s steel markets.
• While market conditions remain strong, on the demand side there’s a prospect of s slowdown that could erode profits and impact production. Analyst at Argonaut Securities Asia added “steel profitability has been quite high, so they are racing to produce more to maximise profits before the winter”.
• China’s steel industry, which accounts for about half of world output, has recovered from a crisis that peaked in late 2015 by shutting outdated or illegal plants, and enforcing tougher environmental standards. The anti-pollution measures should bolster prices for steel and iron ore in the medium term, Citigroup Inc. said in a note Wednesday.
• Economic growth in China -- embroiled in a trade war with the U.S. – slowed more than expected in the third quarter, with the statistics bureau citing an “extremely complex and severe international situation.” Steel demand in China won’t increase next year, the World Steel Association said this week, as it reduced its forecasts for global demand growth.

Thermal coal (1st year forward cif ARA) US$97.5/t vs US$96.5/t

Coking coal futures Dalian Exchange US$191.3/t vs US$191.1/t

           

Other:  

Cobalt LME 3m US$60,750/t vs US$61,750/t

China NdPr Rare Earth Oxide US$45,930/t vs US$46,111/t

China Lithium carbonate 99% US$9,806/t vs US$9,799/t

Tungsten APT European US$275-290/mtu vs US$275-290/mtu

 

Company News

Scotgold Resources* (SGZ LN) FOLLOW 24p, Mkt Cap £11m – Cononish update

BUY – 58p

• The Company is expecting the formal Decision Notice from the Trossachs National Park Planning Authority to be awarded shortly.
• The Decision Notice will include a number of condition to be met before development works may start, but the Company has been making all necessary preparations to address those terms in a timely manner.
• Conditions will need to be addressed with the NPA, SEPA as well as transport authorities, but the Company remains committed to the November target for the start of development works.
• The Company is also in discussions to finalise the grant from the Scottish Enterprise under the Regional Selective Assistance programme including the drawdown schedule.
• The grant nominal has been marginally increased to £430k (up from previous £360k) and is subject to the project adding 36 full time jobs and incurring £8.6m in capex (in line with previous estimates) as part of the Phase I.
• The nominal may be revised further upwards once the Company embarks on Phase II at Cononish.
• Additionally, sale of the Company’s subsidiary owning the Vendrennes antimony exploration licenses in France has not come through and Scotgold decided to liquidate the subsidiary.
• Under the preliminary agreement the purchaser agreed to pay €100k in cash and further €900k contingent on completion of certain milestones (€200k following the BFS and €700k payable upon the start of profitable production); we have previously assumed €100k going through; cancelling the payment, has not materially changed our target valuation.

(Jun year end)		FY16	FY17	FY18	FY19e	FY20e	FY21e	FY22e
Gold price	US$/oz	1,168	1,258	1,298	1,268	1,325	1,350	1,350
Gold price	GBP/oz	788	992	964	905	946	964	964
AUDGBP	A$/£	2.04	1.68	1.74	1.78	1.78	1.78	1.78
Gold sales	koz	-	-	-	1.0	10.2	15.8	18.4
TCC	GBP/oz	-	-	-	484	438	321	306
Sales	A$m	0.0	0.0	0.3	1.6	17.2	27.1	31.6
EBITDA	A$m	-1.3	-1.1	-1.7	-1.1	7.5	16.8	20.2
PAT	A$m	-1.5	-1.3	-1.9	-1.5	5.0	12.2	12.0
Basic EPS	A$c	-11.8	-8.6	-7.9	-3.4	10.9	26.7	26.4
FCF	A$m	-2.7	-2.1	-2.0	-17.2	5.5	2.8	12.0
EV/EBITDA	x	-	-	-	-	3.5	1.6	1.3
PER	x	-	-	-	-	2.7	1.1	1.1
Source: SP Angel, Company

*SP Angel acts as nomad and broker to Scotgold Resources

 

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                                                            

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⁺SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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