SP Angel . Morning View - China offers subsidies to buy metal inventories

SP Angel . Morning View . Tuesday 28 04 20

China offers subsidies to buy metal inventories

 

MiFID II exempt information – see disclaimer below

         

Nokia joins partnership to improve mining communications in underground mining operations

Aura Energy* - (AURA LN) – Further issue of shares

Erris Resources (ERIS LN) –Targets identified at Scottish gold project

European Metal Holdings (EMH LN) – CEZ investment completed

Metals Exploration (MTL LN) SUSPENDED – Updated mineral reserve

Phoenix Copper* (PXC LN) – Second phase of drilling at Red Star

Sunstone Metals (STM AU) – Placing for A$1.73m

 

Chinese subsidise buying of substantial metal inventories

• Local governments across China are offering incentives to companies purchasing base metals, in a move to avoid inventory pile ups. 
• China's Yunnan province said this week that it would set aside 1 billion yuan to help businesses stockpile 800,000 tonnes of nonferrous metals to boost the economy. 
• State funds will be used to cover interest on bank loans taken out for the one-year stockpiling drive, which will include copper, aluminium, lead, zinc, tin, as well as minor metals germanium and indium and other nonferrous metals (Reuters).
• The money pledged will cover 80% of the interest on loans taken out to stockpile tin, germanium and indium, and 60% of the interest on loans to buy copper, aluminium, lead and zinc, the statement said.
• The Northwest Gansu province is mulling a plan to encourage local companies to stockpile up to 436,000 tonnes of nonferrous metal through the use of subsidies for interests and warehousing fees (SMM). 
• According to Fastmarkets MB, more local governments such as Hunan and Sichuan are coming under pressure to introduce incentives to support base metal purchases. 
• This move by provincial governments could support base metals prices, however this morning nonferrous metals traded mostly lower in Shanghai as traders weighed the news.

 

Bank of China clients lose >$1bn in WTI oil futures 

• The Industrial and Commercial Bank of China ‘ICBC’ has subsequently suspend all open positions for trading products linked to commodities futures. South China Morning Post
• The bank has also warned investors of a possible loss of all investments or cash deposits in those products due to commodities market volatility.
• The BoC report that some 46% of investors had liquidated their positions on 20 April. Over 600,000 clients are said to have invested in BoC products with Caixin reporting investors losing margins of Rmb4.2bn and owing the bank another Rmb5.8bn. Good luck in collecting that lot!

 

WTI oil market in turmoil as WTI June futures trade negative  

• Oil producers are turning off the taps as storage starts to run out
• WTI June put contracts traded at negative prices yesterday
• While the volumes traded are small the price printed may set the mark for a much, much larger volume of related ETFs indicating that the total value of these ETFs could be wiped out
• Commodity trading indices are also looking to roll out contracts which may see negative pricing so as to provide greater stability for the instruments which trade on the back of these indices.
• The US Oil ETF is rolling over all its WTI June contracts to July 2020 to June 2021

 

Jean Boulle company Medtech is testing a unique strategy for treating Acute Respiratory Distress Syndrome1 ‘ARDS’,

• The new strategy could prove to be highly effective in saving the lives of COVID–19 patients.

• Medtech is an  immunotherapy biotech company founded by Jean Boulle who is best known for his discovery of the giant Voisey’s Bay nickel project in Canada and his work at Sierra Rutile which provided employment and a safe working environment through the Ebola epidemic in Sierra Leone while continuing to produce Rutile for export.

 

Stimulus funding

• $2tn US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries
• US – The House passed a $484bn aid package to rescue small small businesses, hospitals ($75bn) and coronavirus testing ($25bn).
• $2tn US – Trump looking at $2tn infrastructure fund
• $700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE to buy Treasuries and mortgage-backed securities.
• $963bn (€750bn) ECB scraps limits on sovereign bond purchases. ECB PEPP buying running at around €250bn
  • EU Finance Ministers have so far failed to agree on a strategy to mitigate the economic impact of the pandemic.
  • $825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds
  • $344bn - China stimulus + $127.2bn. China stimulus was $586bn in 2009
  • $996bn (108.2tn yen) – Japan +  BoJ pledge for unlimited quantitative easing
  • 400bn (£330bn) UK + $242bn (£200bn) UK QE from BoE & no business rates plus £25,000 cash grants for hospitality sector
  • $387bn (€304bn) France, $200bn (€200bn) Spain, $214bn (A$320bn) Australia, $78bn (C$107bn) Canada, $32bn Saudi Arabia, US$43.7bn Singapore, $22.6bn India, $19.3bn HK, $13.7bn South Korea, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,
  • Argentina to default on $10bn of dollar debt issued til the end of the year. Does no affect the $70bn that Argentina is currently in talks to restructure.
  • $1,000bn - IMF available + $12bn World Bank,
  • >12.4tn Total

 

Fatalities year-to-date:

• 211,658 - Coronavirus
• 157,768 - Seasonal flu
• 318,050 - Malaria
• 347,709 - Suicides
• 437,705 - Road accidents
• 545,086 - HIV/AIDS
• 810,983 - Alcohol
• 1,620,945 - Smoking
• 2,663,058 - Cancer
• 4,209,353 - Communicable diseases

*Stats from Worldometers.info

 

Dow Jones Industrials		+1.51%	at	24,134
Nikkei 225		-0.06%	at	19,771
HK Hang Seng		+0.91%	at	24,502
Shanghai Composite		-0.19%	at	2,810

 

Economics

US – A 2-day FOMC meeting kicks off today with the Chairman monetary policy statement due tomorrow.

• The Fed expanded its emergency lending programme aimed at offering short-term credit to state and local governments.
• The central bank lowered the population thresholds for the programme to 500k for counties and 250k for cities, down from 2m and 1m, respectively.
• The facility that is yet to be operational is among nine other programmes announced by the Fed earlier to limit the economic fallout of the pandemic, according to Bloomberg.
• Fed stepping into the municipal bonds market helped to recover it from a record sell-off in March and lower local borrowings costs.

 

HSBC warned its bad loan charges may climb to as much as $11bn this year, the most since the subprime crisis.

 

US automakers in Detroit including GM, Ford and Fiat Chrysler pencilled in May 18 as the date to resume some production after shutting down plants in March, The Wall Street Journal reports.

• Producers are continuing to negotiate with United Auto Workers leaders and the Governor’s office.
• Last week, Governor Ms Whitmer extended an executive order closing the state’s nonessential businesses through May 15.

 

China - PBoC cut the rate charged on its targeted medium-term facility by 20bp to 2.95%.

 

Italy – The nation reported the lowest number of new COVID-19 cases since early March as authorities are on course to start gradually lifting the lockdown from May 4.

 

Spain – Unemployment climbed 0.63pp to 14.41% in Q1/20, the highest rate since Q1/19.

• With the nation remaining in lockdown through April and some part of May the number is likely to grow further in Q2.

 

 Nigeria to phase out lockdown in Abuja, Lagos & Ogun States

• The lockdown in the FCT, Lagos and Ogun States remain in place until these new ones come into effect on Monday, 4th May 2020.
• Enforcement of total lockdown in Kano which has seen a surge in COVID-19 cases for two weeks effective immediately..

 

Currencies

US$1.0820/eur vs 1.0846/eur yesterday.  Yen 107.16/$ vs 107.15/$.  SAr 18.863/$ vs 18.842/$.  $1.243/gbp vs $1.244/gbp.  0.647/aud vs 0.646/aud. CNY 7.086/$ vs 7.080/$.

 

Commodity News

Precious metals:          

Gold US$1,703/oz vs US$1,718/oz yesterday - Gold falls as economies edge towards reopening

• Demand for the safe-haven fell on Monday whilst equities gained, as data showed coronavirus deaths fell in many major European economies. 
• Gold continued its decline on Tuesday morning, as spot gold fell 0.7% to $1,702/oz earlier this morning, after falling as much as 1.4% during the session (Reuters). 
• Whilst gold is at its highest price in over seven years, investors are assessing if there is scope for further gains as economies look to restart and US equities gain for the third straight day. 
• Despite the growing positive sentiment, volatility in financial markets remains elevated and precious metals remain a good hedge, as many public health experts believe it is too early to lift restrictions. (Bloomberg). 

   Gold ETFs 95.1moz vs US$95.5moz yesterday - Gold ETF holdings pull back off Friday’s 95.5moz high on investor concerns over ETF products

Platinum US$759/oz vs US$764/oz yesterday

Palladium US$1,950/oz vs US$2,045/oz yesterday

Silver US$15.00/oz vs US$15.19/oz yesterday

            

Base metals:    

Copper US$ 5,181/t vs US$5,221/t yesterday – 

• Continued withdrawal of copper out of LME and Shanghai warehouses with another 2,325t leaving the LME today and a further 4,975 cancelled warrants making less copper available for future sale.
• The ICSG reported a January’20 global refined surplus of 5kt (Dec 54kt), that is a balanced market,

• Freeport cut 2020 copper output by 11% and Anglo’s Los Bronces mine saw Q1 copper production fall 25% to 69kt.
• March Chinese copper concentrate imports rose 1% yoy to 1.78mt, with shortfalls from Chile and Peru made up by other sources.

Aluminium US$ 1,507/t vs US$1,514/t yesterday

Nickel US$ 12,210/t vs US$12,375/t yesterday - Philippines top nickel miners to resume work this week

• The country's top two nickel miners, Nickel Asia Corp and Global Ferronickel Holdings, said on Tuesday that they expect to gradually resume activity starting on the 1st of May (Reuters).
• LME nickel fell as much as 1.3% to $12,080/t this morning due to the anticipated rise in supply (Bloomberg). 
• Nickel - INSG reported a global nickel surplus of 13,400t looking like a relatively well balanced market

Zinc US$ 1,915/t vs US$1,912/t yesterday

Lead US$ 1,639/t vs US$1,638/t yesterday

Tin US$ 15,320/t vs US$15,305/t yesterday

            

Energy:            

Oil US$18.9/bbl vs US$20.0/bbl yesterday - Just a few days ahead of the 1 May OPEC+ cuts enter into force, oil prices crashed again early yesterday

• The market continues to see the imminent storage shortage problem as a bigger factor for prices than the potential effect of the OPEC+ cuts and the potential easing of the lockdown measures
• However, OPEC retains is bullish outlook with Mohamed Arkab, Energy Minister of OPEC’s rotating president Algeria predicting US$40/bbl by 3Q/20
• Arkab told Algeria’s national radio, as quoted by Turkey’s Anadolu Agency that the global economy will not stay paralysed for too long, and together with the 9.7MMbopd cuts that OPEC and its allies pledged for May and June
• In China, which was hit first by the coronavirus, and which exited the lockdown first, the return to normalisation in the transportation sector “is driving up global demand”
• Last week, OPEC’s fourth-largest producer, Kuwait, said it had already started to reduce supply to the international markets ahead of 1 May “sensing a responsibility responding to market conditions”
• Bloomberg has also reported that Saudi Arabia, OPEC’s top producer and the world’s top oil exporter, has also begun to reduce production earlier

Natural Gas US$1.811/mmbtu vs US$1.661/mmbtu yesterday - Natural gas prices experienced a volatile session yesterday initially moving lower in early trading and then surging higher into the close

• Tomorrow is the last trading day of the May contract, whilst the June contract is trading at a 10% premium
• This came following a report from the Commodity Futures Trading Commission that showed that hedge funds increased long positions and reduce short positions
• The weather is expected to remain much colder than normal throughout the US east coast for the next 2 weeks while remaining warmer than normal throughout the US west and the south

Uranium US$32.25/lb vs US$33.30/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$81.3/t vs US$81.4/t - Chinese iron ore prices rise on falling inventories 

• Chinese iron ore futures gained as much as 0.7% to 612 yuan ($86.50)/t as port stocks fell to their lowest in over nine months (Hellenic Shipping News).
• ​According to SteelHome, port inventories of seaborne iron ore across China stood at 118mt on Friday, the lowest since July 2019. 
• Iron ore arrivals to Chinese ports stood at 11.21mt last week, down 2.47mt YoY and down 820,000 tonnes compared to the prior week (SMM). 

Chinese steel rebar 25mm US$525.8/t vs US$526.7/t

Thermal coal (1st year forward cif ARA) US$52.5/t vs US$53.3/t

Coking coal swap Australia FOB US$116.0/t vs US$116.0/t

            

Other:   

Cobalt LME 3m US$30,000/t vs US$30,000/t

NdPr Rare Earth Oxide (China) US$37,191/t vs US$36,937/t

Lithium carbonate 99% (China) US$5,293/t vs US$5,368/t

Ferro Vanadium 80% FOB (China) US$27.5/kg vs US$27.5/kg

Antimony Trioxide 99.5% EU (China) US$4.9/kg vs US$4.9/kg 

Tungsten APT European US$215-225/mtu vs US$240-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$530/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,450/t vs US$2,550/t

 

Battery & Fuel Cell News

Solaris purchases 20 additional fuel cells from Ballard

• Today Ballard Power Systems announced an additional order from Solaris Bus & Coach for 20 70kw heavy-duty FCmoveTM -HD fuel cell modules. (PR Newswire)
• Solaris is a European bus and trolleybus manufacturer headquartered in Poland.
• The 20 fuel cells will be used in Urbino 12 hydrogen (FCEB) buses to be deployed in South Holland, taking the total number of vehicles with such fuel cells to 40 in the Netherlands. (CNW Group)
• The buses are part of the Joint Initiative for Hydrogen vehicles across Europe (JIVE 2) and will be operated by Connexxion which provides transport services in the province. (Market Screener)
• FCEB buses run on two electric motors and the vehicle has a 350km range on a single refuel.

 

Xpeng to release Model 3 challenger in China

• Xpeng’s P7 sedan was made available to order yesterday with deliveries slated for the beginning of June. (South China Morning Post)
• The P7 will start at ~$36,000 making it significantly cheaper than the Model 3 which starts at $48,500.
• Xpeng also claims the car has a 440 miles range, 200 additional miles compared to the Model 3 (Xpeng use an alternative battery benchmark standard to Tesla). (Yahoo)
• The P7 is available in 3 versions: a 4WD High Performance trim, an RWD Super Long-Range vehicle and the entry level RWD Long Range. (Teslarati)
• The P7 utilizes a lithium-ion battery from CATL with a 66.5KWh capacity and a faster charge of 30 mins. (Xpeng)

 

LG Chem to triple CNT capacity but expect 2020 EV to fall further

• LG Chem will triple its carbon nanotube capacity to 1700tpa at its production facility in Yeosu. (Plastics Today)
• The CNT market is growing 30% per annum.
• The material possesses favourable characteristics including electric and heat conductivity equivalent to copper or diamond and is stronger than steel.
• CNT boosts the capacity and lifespan of lithium ion batteries by enabling anode material to be a greater percentage of the whole.
• Applications for CNT are wide ranging and include batteries, semiconductors and auto parts.
• The South Korean battery maker expects sales from EV batteries to fall a further 10-15% compared to their previous target of 15 trillion won ($12.25bn). (Reuters)

 

Company News

Nokia joins partnership to improve mining communications in underground mining operations

• Nokia has joined a global collaboration that will see the company deploy its private wireless known as Nokia Digital Automation Cloud - to improve communication in underground mining operations.
• Nokia has joined forces with two Canadian companies to install and operate an industrial-grade private wireless network in an underground test centre, to demonstrate the new technology. 

• The network will support asset tracking and remote-controlled autonomous vehicles along with secure wireless communications between miners and surface workers. 
• According to Nokia, the network supports a larger amount of active connections with far greater reliability and security compared to Wi-Fi (Australian Mining). 

 

Aura Energy* - (AURA LN) 0.17p, Mkt cap £3.2m – Further issue of shares

• Aura Energy reports the issue of a further 115m shares on the conversion of Convertible Notes issued to the Lind Global Macro Fund.
• ʺThe issue of shares referred to above relates to the twelfth Conversion Notice received from Lind to convert A$230,000 of convertible notes into fully paid ordinary sharesʺ
• We estimate that the new shares represent approximately 6% of the enlarged capital of Aura Energy.

*SP Angel are Nomad and Joint-Broker to Aura Energy

 

Erris Resources (ERIS LN) 6.35p, Mkt Cap £1.1m –Targets identified at Scottish gold project

• Following the announcement in December 2019 that it had acquired an option to acquire 80% of the Loch Tay gold and associated base metals project in Perthshire, Scotland, the company has now received assay results from 121 rock samples over the area which have expanded the area of potential interest towards the east and helped refine target definition.
• The company reports that ʺof a total of 118 samples collected, 30 had greater than 0.1g/t Au, 13 had greater than 1g/t Au and 9 samples had between 5g/t Au and a maximum of 17.15g/t Au, the highest grade result to date on the Project. The majority of samples were float or boulder samples with 19 samples taken from outcrop or subcrop including the highest-grade sample which is thought to be subcropʺ
• Erris Resources says that ʺprospecting was focused on the eastern extension of the Lead Trial prospect, the Lead Trial - Dunan valley between 1.4km and 3km southeast of the historic workings, and also on the Lead Trial-Almond valley 2-4km south from Lead Trialʺ.
• Although field work is curtailed at present in response to Covid19 containment restrictions, the exploration team has been able ʺto review all the data and that of the Grampian Gold Belt that includes the nearby Cononish mine and the Curraghinalt deposit in Northern Ireland. We clearly see common characteristics in geochemistry, structure and mineralisation style that lead us to believe that the prospects in the Loch Tay area have the potential to host significant gold mineralisation. We look forward to being able to get back to the field so we can develop these prospects further to drill stage."
• During the 1980s, the Loch Tay area was among the areas explored by the major mining companies, Consolidated Gold Fields and Rio Tinto’s Riofinex through their joint-venture companies Exven and Minven. The historic exploration  generated tantalising results but without the identification of a deposit of sufficient scale to justify the further involvement of the mining houses. Although it is not clear whether this is exactly the same area as that explored in the 1980s, the interest of Erris Resources and technical advances in exploration in the intervening years may shed further light on the long-recognised potential of the wider area, however, at this stage, with only rock samples, some of which are not in situ, the renewed exploration is at an early stage.

 

European Metal Holdings (EMH LN) 14.5p, Mkt Cap £20.9m – CEZ investment completed

• European Metals Holdings reports that it has received the €29.1m investment by one of Central and Eastern Europe’s largest power utilities, CEZ, to acquire a 51% interest in EMH’s wholly owned subsidiary, Geomet which owns the Cinovec lithium project in the Czech Republic
• As a result of the investment, which brings in a large scale investor 70% owned by the Czech Government, project work is to commence immediately.
• Expressing satisfaction at the completion of the transaction, Manging Director, Keith Coughlan, said that ʺWe have a very experienced team in place and will now commence the feasibility study and associated permitting processes. We believe that the battery and EV industries in the EU are set for significant growth."
• CEZ is described as ʺan established, integrated energy group with operations in a number of Central and Southeastern European countries and Turkey. CEZ's core business is the generation, distribution, trade in, and sales of electricity and heat, trade in and sales of natural gas, and coal extraction. CEZ Group has 33,000 employees and annual revenue of approximately EUR 7.24 billionʺ.

Conclusion: The investment by a major Czech power company with strong links to the Czech Government provides the resources to advance the feasibility work and subsequent development of Cinovec which has the benefit of a European location close to potential large scale industrial purchasers of lithium carbonate and hydroxide.

 

Metals Exploration (MTL LN) SUSPENDED – Updated mineral reserve

• The Company released an updated JORC mineral reserve on the Runruno gold mine following a review of the mining plan for the remaining life of mine.
• Updated mineral reserves are estimated at 11.7mt at 1.38g/t for 0.5moz.
• This compares to the previous estimate of 15.0mt at 1.86g/t for 0.87moz.
• Commenting on reconciliation of two estimates, consultants (Xenith Consultancy) said that tonnages were depleted at a rate consistent with the available tonnes (4.8mt of Reserves were depleted by mining), the grade in the 2011 reserve estimate has proven to eb inaccurate.
• Updated reserve grade reflects of the mining dilution recorded over the past three years with the new estimate using 25% mining grade dilution.
• Additionally, new estimate assumes around 85% of the resource estimated as recoverable, versus a previous assumption of approximately 95% recoverable.
• New estimate is largely based on the historic mineral resource since little in the form of additional resource drilling has been completed since the original estimate.
• The Inferred resource category is estimated to host 2.7mt at 1.21g/t for 0.1moz.

Conclusion;: Updated mineral reserve adjusts the geological model more in line with reported production numbers bringing a significant reduction in grades. Lower grades, weak recoveries attributed to the complex nature of processed ores and latest operational challenges brought by the COVID-19 outbreak complicates the deleveraging schedule at Runruno.

 

Phoenix Copper* (PXC LN) 14p, Mkt Cap £6.3m – Second phase of drilling at Red Star

Phoenix holds 80% of the Empire mining property in Idaho

• Phoenix Copper reports the start of its 1500m, second phase of drilling, at the Red Star silver/lead project located some 330m north-northwest of \the defined open-pit copper resource at the historic Empire mine in Idaho and within the patented claim boundary.
• As previously announced, Idaho has designated mining an essential activity and hence, with appropriate infection control measures in place, the company is able to continue its exploration work.
• Based on earlier, limited, drilling, the company’s consultants, Hard Rock Consulting, estimated an initial ʺinferred resource at Red Star of 103,000t grading  173.4g/t silver, 0.85g/t gold and 3.85% lead, with minor copper and zincʺ.
• The current programme, of 20 further holes, fully funded as a result of the recent $2m fund-raising programme, is expected to enhance the earlier resource estimate and, with initial results expected to be available from June 2020 onwards, the company is expecting to have an updated NI-43-101 resource estimate available during Q3 2020 and to be in a position to make ʺa development decision shortly thereafterʺ.
• Chief Executive, Ryan McDermott, explained that the programme would comprise both reverse-circulation and diamond drilling and that the results ʺtogether with the channel samples collected and assayed in late 2019, will add to the maiden resource reported last year. Our objective is to generate an updated resource as quickly as possible and move forward with the development of the Red Star project."

Conclusion: Step out drilling both along strike and to deeper levels of the Red Star mineralisation is now underway with an updated resources estimate expected during Q3 and a development decision shortly after that.

*SP Angel acts as Nomad to Phoenix Copper

 

Sunstone Metals (STM AU) A$0.005c, Mkt cap A$6.9m – Placing for A$1.73m

• Sunstone Metals has been exploring in Ecuador which has been hit particularly hard by the Coronavirus according to reports.
• The company has 87.5% of the Bramaderos Gold-copper project with the other 12.5% held by Cornerstone Resources.
• Sunstone also has a 27% stake in Copperstone Resources which is looking to develop the Viscaria* Copper Project in Sweden.
• Sunstone is also exploring the Satulinmäki gold prospect in Finland as part of a jv with Nortec Minerals.
• The team are also working on the Kietyönmäki lithium project in jv with Nortec Minerals. Sunstone’s drill program has delivered 24.2mt grading 1.4% Li2O in a spodumene-bearing pegmatite.

*A SP Angel analyst has formerly visited the Viscaria project in Sweden.

 

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	SSY
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

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