SP Angel . Morning View . Stronger China steel driving vanadium mine funding
Paul Kettle
Morning Broker Note
10:53, 2nd November 2018

SP Angel – Morning View – Friday 02 11 18

Stronger China steel driving vanadium mine funding

MiFID II exempt information – see disclaimer below  

MiFID II exempt information – see disclaimer below

 

PolyMet Mining (PLM US) – Polymet gets Permit for NorthMet copper-nickel mine in Minnesota

 

China’s stronger steel drive will bankroll more vanadium mines

  • China’s push to lift the quality of steel for the construction sector is set to bankroll the global wave of new primary vanadium production to meet the growing deficit, while the expected boom in giant batteries will only exacerbate the scramble for supply.
  • Standards in China that came into force Thursday require steel producers to increase the amount of vanadium, which hardens the alloy, added to certain classes of reinforced bar products. It’s partly a drive to make buildings more resilient to earthquakes. Since the changes were announced in February, prices of the metal in China have surged more than 150%, according to Asian Metal Inc. data.
  • Managing director of Australian Vanadium Ltd., Vincent Algar, notes “it’s almost that perfect storm for a commodity – you have a step-change in demand that’s being enforced in the biggest market in the world and a constrained supply”.
  • Changes to strength standards could add 30,000-40,000t of annual demand to about a 100,000tpa market which is currently so extremely tight that exports from the Asian nation are not being offered. That’ll underwrite new mine projects in Australia and the U.S., and boost existing producers like Glencore Plc, Largo Resources Ltd. and Bushveld Minerals Ltd. “There’s plenty of room in this market for additional vanadium.” he said.
  • China’s stricter standards are intended to limit the use of inferior steels in construction and follow previous policy changes ushered in following the 2008 Sichuan earthquake, industry consultant Roskill Information Services said in February. The quake was the strongest to hit China since 1950, with more than 87,000 people reported killed or missing.
  • Vanadium prices are likely to retreat as new supply comes into the market over the next couple of years, though they should settle above the long term average and enable project developers to make good margins, according to Algar. However, new supply from advanced-stage exploration companies will take more than three years to come online.
  • Steel accounts for more than 90% of current demand, though in the longer-term the sector is also likely to be bolstered by adoption of vanadium redox flow batteries suitable for large-scale energy storage projects, and to store renewable power, he said.

 

Zimbabwe

  • Australian listed Invictus Energy (IVZ AU) has denied rumours circulating in the press of an oil discovery on its Mzarabani prospect in Zimbabwe. The company confirmed, however, that “exploration activity being undertaken by Invictus had positive indications and that an exploration well would be drilled to confirm the potential of the Mzarabani Prospect.”
  • The prospect was investigated “by Mobil Oil in the early 1990s when extensive oil and gas geophysical work was undertaken in the greater Muzarabani area” lies in the Caborra Bassa Basin which straddles the Zimbabwe/Mozambique border. The premature reports of a discovery appear to have come after the company “attended a press conference hosted by the Zimbabwe President, His Excellency CDE E.D. Mnanagagwa and the Minister of Mines Hon. Winston Chitando in Harare” on 1st November.
  • The Government expressed support for the Invictus exploration programme  but “At no time did President Mnanagagwa state that an oil discovery had been made in Zimbabwe …”.

 

Dow Jones Industrials

 

+1.06%

at

  25,381

Nikkei 225

 

+2.56%

at

  22,244

HK Hang Seng

 

+4.21%

at

  26,486

Shanghai Composite

 

+2.70%

at

   2,676

FTSE 350 Mining

 

+2.02%

at

  17,935

AIM Basic Resources

 

+2.44%

at

   2,134

 

Economics

US – President Trump asked his aides to draft a trade agreement with China eyeing a potential deal with China during the Group of 20 nations summit in Argentina this month, Bloomberg reports.

  • The news saw equities and base metals picking up this morning with copper up more than $100/t and European (Stoxx Europe 600+1.00%) and Asian (Asia Pacific MSCI +0.55%) equities setting the positive tone for the trading session.
  • A gauge of emerging markets equities climbed the most since March 2016, while currencies from South Korea to Australia also joined the rally.
  • Manufacturing PMI report showed good start to Q4 with both production up amid strong growth in new orders; employment growth rate climbed to 10-month high.
  • “The increasingly bullish mood was also reflected in one of the largest monthly increases in factory payroll numbers seen over he past seven years as firms grew capacity to meet rising workloads… the key area of concern remained tariffs, which were widely reported to have contributed to another month of stalled export sales and a steep rise in prices for many inputs,” Markit wrote in the report.
  • Among less positive news, Apple guided for weaker than forecast holiday quarter which the Company blamed on softer demand in emerging markets and foreign exchange losses; the guidance saw Apple shares drop as much as 7%.
  • The Company has also said it will no longer breakdown item sales for iPhones, iPads and Mac computers leading many to believe Apple is trying to obscure outlook for a stagnant smartphone market.
  • October labour numbers are out later today with estimates for employment to have grown by 200k recovering from a weak September month (+134k) affected by hurricane season disruptions.

 

Asia – A raft of weaker manufacturing surveys are being released by Asia’s most export drive economies pointing to slowing global growth momentum.

  • PMIs of Taiwan, Thailand and Malaysia all dropped sub-50 levels marking the contractionary territory in October.
  • South Korea gauge slipped slightly in October continuing to run in the positive growth territory, but at a slow pace (Manufacturing PMI 51.0 v 51.3 in September).
  • Given the region’s key role in China’s manufacturing supply chain, Asia is particularly vulnerable to trade tensions.
  • “Downside risks to the global economic outlook for 2019 are increasing,” Markit commented on numbers.

 

UK – The pound continued extended its rally this morning having appreciated 2.5% after briefely sliding below the 1.27 mark.

  • The rebound in the British currency is being driven by optimism over soft Brexit deal outlook as well as BoE comments that the central bank might need to raise rates faster than previously thought in the event of a no-disruption deal.
  • The MPC unanimously voted to keep rates on hold at 0.75%.

 

Italy – Manufacturing sector conditions deteriorated significantly in October with the headline index now in the contractionary territory for the first time since August 2016 amid slowing domestic and overseas demand.

  • Total sales declined for the third consecutive month while export orders posted the first drop in nearly six years with some panellists highlighting softer demand from key overseas markets, especially in Asia.
  • Manufacturing PMI: 49.2 v 50.0 in September and 49.7 forecast.

 

Spain – Being one of the few bright spots in the Eurozone region, factory activity in Spain recorded an improvement in growth rates in October beating market estimates.

  • The report comes in contrast to weaker than expected surveys from France, Germany and Italy dragging the overall index for the Eurozone down.
  • Manufacturing PMI: 51.8 v 51.4 in September and 50.9 forecast.

 

Currencies

US$1.1439/eur vs 1.1356/eur yesterday  Yen 112.91/$ vs 112.91/

nbsp; SAr 14.302/$ vs 14.674/
nbsp; $1.303/gbp vs $1.288/gbp  0.724/aud vs 0.715/aud  CNY 6.892/$ vs 6.953/$

 

Commodity News

Precious metals:         

Gold US$1,235/oz vs US$1,230/oz yesterday

  • Gold continued to strengthen after posting the biggest weekly advance in three weeks as the gauge of the dollar retreated from a 17-month high, falling -0.8% during the previous session. Investors are also weighing report that President Donald Trump wants to reach an agreement on trade with Chinese President Xi Jinping at the Group of 20 nations summit in Argentina later this month and has asked key U.S. officials to begin drafting potential terms, according to four people familiar with the matter. Ten-year Treasury yields jumped.
  • Next up Friday is the key U.S. jobs report. The final payrolls data before next Tuesday’s congressional elections may show that hiring improved and that the unemployment rate held at a 48-year low. Traders and analysts in a weekly Bloomberg gold survey were split on the outlook for prices amid uncertainty of how the midterms will affect markets.
  • Goldman Sachs Group Inc. says one channel through which midterms affect the gold price is fiscal policy; in the scenario of a “mixed” Congress, the probability of passing major new legislation, including fiscal stimulus, becomes low. The U.S. midterm elections may cut short the dollar’s biggest rally in almost two years, according to growing consensus on Wall Street
  • While the precious metal has been lackluster over the quarter, Central banks demand for gold remains robust, and overall consumer market demand is up 13% according to trends within the Q3 World Gold Council report.
  • The council found that gold demand reached 964.3t in Q3, which was 6.2t higher y-o-y. Central bank buying  reached a three-year high in September, and  emerging market central banks played a key role, with Russia, Turkey and Kazakhstan accounting for 86% of central bank purchases in the first half of 2018.
  • The World Gold Council believes that many emerging market central banks are turning their attention to gold as after years of exposure to the US  dollar, and as a natural currency hedge against the reserve currency.

   Gold ETFs 68.5moz vs US$68.3moz yesterday

Platinum US$866/oz vs US$838/oz yesterday

Palladium US$1,108/oz vs US$1,112/oz yesterday

Silver US$14.78/oz vs US$14.42/oz yesterday

           

Base metals:   

Copper US$ 6,222/t vs US$6,016/t yesterday

  • Base metals rose sharply at the end of the week, extending a rally from the previous session following optimism expressed from both presidents of the United States and China about resolving a trade row between the two countries. US President Donald Trump signaled he has had a productive conversation regarding trade and wants to reach an agreement with Chinese President Xi Jingping at the Group of 20 nations summit in Argentina later this month, reported Bloomberg.
  • The metals rally that began on Thursday was “a hint of what the markets might well do if a trade agreement is reached…but for the moment the shorts will probably keep the pressure on”, director of Kingdom Futures added.
  • Three-month copper on the London Metal Exchange climbed as much as +1.8% to top the $6,200/t level, after closing up +1.6% in the previous session. The metal, considered an economic bellwether, has been weighed down this year by fears the US-China trade row would curb demand for industrial metals.
  • The most-traded December copper contract on the Shanghai Futures Exchange SCFcv1 rose as much as 1.2% to 49,450 yuan ($7,145) a tonne, snapping a four-day losing streak and ended the morning session up 0.7%. It was still on course to drop 1.7% this week, which would be its biggest weekly drop since August.
  • Copper is benefiting from Trump’s tweets” said senior market strategist at RJO Futures, adding “it looks like negotiations have come back on the table between the US and China, which would greatly improve demand for copper”.
  • Base metals sentiment also turned positive as investors focused on the likelihood of new stimulus measures in China. Politburo, representing the nations’ leadership, signaled increasing urgency for further measures after data on Wednesday showed manufacturing growth slowed to the lowest level in more than two years. The country is likely to rely on fiscal stimulus and infrastructure spending, rather than monetary measures, according to economists. The statement from the Politburo meeting “may underpin a subtle but an important policy shift ahead”, according the analyst at Argonaut Securities.

Aluminium US$ 1,990/t vs US$1,957/t yesterday

Nickel US$ 12,035/t vs US$11,585/t yesterday

Zinc US$ 2,594/t vs US$2,514/t yesterday

Lead US$ 1,987/t vs US$1,934/t yesterday

Tin US$ 19,180/t vs US$19,050/t yesterday

           

Energy:           

Oil US$72.9/bbl vs US$74.6/bbl yesterday

U.S. to Give Eight Nations Oil Waivers Under Iran Sanctions

  • The U.S. has agreed to let 8 countries -- including Japan, India and South Korea -- keep buying Iranian oil after it reimposes sanctions on the OPEC producer on Nov. 5, a senior administration official said.
  • Waivers are being granted in exchange for continued import cuts so as not to drive up oil prices, said the official, who asked not to be identified before Secretary of State Michael Pompeo announces the number of exemptions later on Friday.
  • China is still in discussions with the U.S. on terms but is reportedly among the eight. The other four countries that will get waivers were not identified.

Russian Oil Output Nears All-Time High

  • Russian oil production moved closer to an all-time high before the nation meets with OPEC partners to discuss future supply.
  • The country’s crude and condensate output averaged 11.412m bpd last month, about 160,000 bpd more than two year ago, according to data from the Energy Ministry’s CDU-TEK unit released Friday.
  • Russia suggested last Saturday it could push output to a fresh record, just days after a committee representing the Organization of Petroleum Exporting Countries and its allies signalled the group could reduce supply in 2019.

Natural Gas US$3.188/mmbtu vs US$3.275/mmbtu yesterday

Uranium US$28.25/lb vs US$28.10/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$71.2/t vs US$72.4/t

Chinese steel rebar 25mm US$706.4/t v US$701.6/t

Thermal coal (1st year forward cif ARA) US$92.0/t vs US$93.3/t

Coking coal futures Dalian Exchange US$200.2/t vs US$206.2/t

           

Other:  

Cobalt LME 3m US$57,750/t vs US$59,500/t

China NdPr Rare Earth Oxide US$45,854/t vs US$45,304/t

China Lithium carbonate 99% US$10,157/t vs US$10,068/t

Tungsten APT European US$275-295/mtu vs US$275-295/mtu

 

Battery News

EV price parity in first half of 2020s says BHP

  • Electric vehicles may reach price parity with regular consumer automobiles in the first half of next decade, according to Eduard Haegel, asset president of BHP Billiton’s nickel unit. “When that happens, folks will go to look for a car and they will be able to get an electric, or an ICE (internal combustion engine), and I think they will get the electric one
  • Bloomberg NEF concur, adding that EVs will reach up-front cost parity around 2024, and almost all segments will have reached parity by 2030.
  • The surge in demand and mass adoption is expected to propel nickel as the raw metal winner, as the major miner target increased nickel output to meet demand for electric vehicle batteries.

 

Electric vehicle heating

  • The EU-funded MAXITHERM project has developed an alternative heating system for electric vehicles that reduces energy consumption, increases range and ensures passenger comfort.
  • EV’s inability to heat up their interiors through the generation of residual heat due to a lack of combustion engine have often been cited as a significant roadblock to their mass uptake in Europe.
  • To overcome this barrier, MAXITHERM researchers developed an alternative heating system for EVs that reduces electricity use by 30%, increases overall range during cold weather and maintains passenger comfort.
  • MaxiTex consists of a special control system and a textile capable of dissipating heat homogeneously over an entire surface. The mats are placed under a vehicle's roof and carpets, into the seats and seat backs and along the door panels.

 

Finnish battery recycling research to lead Europe

  • Inspired by Finnish battery recycling research, the European Commission has reached out to Finland to coordinate research into recycling in Europe’s battery industry.
  • The project will be led by Outotec and Aalto University’s Department of Chemical and Metallurgical Engineering with strong support from Business Finland
  • The European Commission’s Strategic Action Plan on Batteries lays out a comprehensive array of concrete measures which will ensure sustainable, circular Finnish battery recycling practices at every stage of the battery value chain.

 

Shipping regulators plan to cut greenhouse-gas emissions

  • The world’s biggest oil traders are gearing up to cash in on big disruptions that could hit the shipping fuel market in just over a year due to new U.N.-mandated environmental rules.
  • International Maritime Organization regulations will cut the limit for sulphur in marine fuels globally from 3.5% to 0.5% from the start of 2020.
  • Traders are widely expected to benefit as they thrive off efficiently moving products between regions with price dislocations, but the market currently lacks a benchmark for the new compliant fuel grade.

 

Company News

PolyMet Mining (PLM US) US$1.13, Mkt Cap US$362m – Polymet gets Permit for NorthMet copper-nickel mine in Minnesota

BUY – Target US$1.56/s

  • Congratulations are in order for Ian Forrest, Jon Cherry and the Polymet team for persevering through this permitting process..
  • This is one small step for man, one giant leap for Minnesota
  • It has only taken over 10 years and >$50m in consultant and feasibility studies and other expenses to get to the issuance of a permit to mine in Minnesota though it would be easy to underestimate the value of this permit.
  • While there has been Taconite iron ore mining and roasting/sintering on the iron range in Minnesota for many years it has proved extremely difficult to permit any form of base-metal sulphide mine in the region.
  • Antofagasta’s geologists who took the company into the Duluth (Twin Metals) project nearby were successful in their discovery though the issuance of a permit remains elusive.
  • Polymet which has a similar-ish project at NorthMet has the huge advantage in the form of a very large former iron ore processing facility along with tailings facilities, rail lines and all sorts of other infrastructure which adds very significant value to the mine.
  • The basic NorthMet project very substantial value assuming the planned production rate is increased
  • The project could also add further value if it then takes in ores or concentrates on the rail line from other deposits to the south.
  • Antofagasta are planning on putting in an application for a mining permit. Given the time taken by Polymet we might expect the Twin Metals project to receive it’s permit in another 3-5 years, though the environmental sensitivity of the region may prove to be too much.
  • Twin Metals now hosts an indicated resource of 1.065bn tonnes grading 0.59% copper, 0.19% nickel and 0.6g/t PGMs and gold. These are good, valuable grades and might be best processed in a permitted and nearby facility. They also give some indication of what might be possible at NorthMet on further drilling.

Conclusion: Polymet now has a permitted and very valuable mine. We estimate the value of the mine to be around US$687m on current metals prices though it is possible that an updated feasibility could alter this valuation.  Significant further value may well be added if the Erie process plant is able to process third party metal concentrates.

 

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.

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. 

Recent Articles