SP Angel . Morning View - Eurozone economic growth at the weakest level 7 years
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SP Angel . Morning View
12:04, 14th February 2020

SP Angel . Morning View . Friday 14 02 20

Eurozone economic growth at the weakest level 7 years

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MiFID II exempt information – see disclaimer below   

Ariana Resources  FOLLOW– Due diligence progress update

Gemfields FOLLOW listed on AIM today

Power Metal Resources* FOLLOW – Katoro update on gold and polymetallic projects in Tanzania

Solgold  FOLLOW Financial and operations update; Newcrest Mining expresses continuing support

 

Coronavirus round-up – More than 1,700 doctors infected in China

  • Almost 65,000 people have been diagnosed with the virus, as China’s total cases rise above 60,000.
  • The outbreak has resulted in two-thirds of Chinese airlines grounded, which could leave smaller indebted airlines in severe financial difficulty.
  • China’s slowdown in response to the coronavirus has caused a slowdown in the global shipping industry, with transit rates falling to record lows as ships are turned away from ports.
  • The Capesize Index, which tracks freight costs for the largest carriers of dry bulk commodities such as iron ore, coal and grain fell into negative territory last week for the first time since its creation in 1999 (FT).
  • Closer to home, fears over the virus spread as it emerged that a tourist in London became the ninth person in the country to be confirmed as having the illness.
  • The tourist took an Uber to Lewisham Hospital, despite public advice stating that one should stay at home in self-isolation and call 111. This resulted in 763 people being tested yesterday in the UK (Guardian).
  • The price of gold rose to its highest in over a week yesterday in late trading, as spot gold rose 0.7% to $1,576/oz after a sharp increase in the number of new cases renewed fears over the effect on the global economy (Reuters).
  • The annual LME Week Asia 2020 seminar has been postponed and the LME Asia Dinner has been cancelled due to the outbreak.

 

Dow Jones Industrials

 

-0.43%

at

29,423

Nikkei 225

 

-0.59%

at

23,688

HK Hang Seng

 

+0.31%

at

27,816

Shanghai Composite

 

+0.38%

at

2,917

FTSE 350 Mining

 

-0.23%

at

18,381

AIM Basic Resources

 

-0.85%

at

2,273

 

Economics

UK – Sajid Javid resigns as chancellor of the exchequer

  • Javid abruptly quit as UK chancellor on Thursday after he refused to sack his own team of advisers, bringing to an end the reported power struggle between the Chancellor and the Prime minister’s chief advisor Dominic Cummings.
  • Mr Javid was immediately replaced by Rishi Sunak, a close ally of the prime minister who accepted Mr Johnson’s proposal to take control of the chancellor’s office.
  • Sterling rose on the news of Javid’s departure, climbing 0.45% to a one week high of $1.3020 against the dollar. According to the FT, this is presumably the market interpreting the announcement as Boris Johnson wanting advisors who are more willing to back aggressive stimulus.

 

Germany – Economy stagnates with no growth in last quarter

  • German GDP was unchanged in Q4 2019 as economists expected a rise of 0.1%.
  • Annually, the German economy only grew by 0.6% during 2019.
  • Analysts at ING believe that the German economy is at risk of recession, as the latest soft indicators and industrial data for December do not bode well for the short term outlook.
  • Also, the impact of the coronavirus on the Chinese economy is likely to delay any rebound in the manufacturing sector.
  • The Eurozone only grew by 0.1% in the last quarter, dragged down by weakness in its three largest economies.

 

South Africa – Ramaphosa announces plan to boost power generation ‘outside of Eskom’

  • The president of South Africa announced plans in a speech to address the country’s electricity crisis, including several steps to ‘significantly increase generation capacity outside of Eskom’
  • To increase non-Eskom generation capacity, he announced several initiatives including:
    • The initiation of the procurement of emergency power from projects that can deliver electricity into the grid within three to 12 months.
    • The continued registration by the National Energy Regulator of South Africa (Nersa) of small-scale distributed generation for own use of under 1 MW. Such facilities would require no licence.
    • The negotiation of supplementary power purchase agreements to acquire additional capacity from existing wind and solar plants.
  • Some concern was raised following the speech that no explicit statement was made on the wheeling of power generated by large plants developed to support mines and factories.
  • Despite these measures, President Ramaphosa warned that load-shedding would remain a ‘possibility for the immediate future’ according to Mining Weekly.

 

Currencies

US$1.0850/eur vs 1.0885/eur yesterday.  Yen 109.80/$ vs 109.78/$.  SAr 14.850/$ vs 14.923/$.  $1.303/gbp vs $1.297/gbp.  0.673/aud vs 0.673/aud.  CNY 6.985/$ vs  6.981/$.

 

Commodity News

Gold US$1,577/oz vs US$1,574/oz yesterday

   Gold ETFs 83.4moz vs US$83.4moz yesterday

Platinum US$974/oz vs US$966/oz yesterday

Palladium US$2,446/oz vs US$2,390/oz yesterday

Silver US$17.72/oz vs US$17.66/oz yesterday

           

Base metals:   

Copper US$ 5,772/t vs US$5,746/t yesterday

Aluminium US$ 1,737/t vs US$1,732/t yesterday

Nickel US$ 13,150/t vs US$13,150/t yesterday

Zinc US$ 2,152/t vs US$2,155/t yesterday

Lead US$ 1,869/t vs US$1,850/t yesterday

Tin US$ 16,530/t vs US$16,550/t yesterday

           

Energy:           

Oil US$56.4/bbl vs US$55.4/bbl yesterday

Natural Gas US$1.799/mmbtu vs US$1.843/mmbtu yesterday

Uranium US$24.50/lb vs US$24.45/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$85.7/t vs US$86.1/t - Chinese iron ore sees biggest weekly rise in five months (Reuters)

  • China’s iron ore futures gained the most this week since September amid renewed concerns over seaborne supply.
  • Iron ore on China’s Dalian Commodity Exchange rose 1% to 628 yuan ($90).
  • Iron ore hit three-week highs on Thursday, despite weak demand for the raw material in China.

Chinese steel rebar 25mm US$546.2/t vs US$548.3/t

Thermal coal (1st year forward cif ARA) US$60.7/t vs US$59.7/t

Coking coal swap Australia FOB US$161.0/t vs US$155.0/t

         

Other:  

Cobalt LME 3m US$33,750/t vs US$33,750/t - Trafigura in talks with the DRC over financing cobalt company (Mining Weekly)

  • The trading house is in talks with the DRC to finance a new state-controlled company that will buy all of the country’s hand-mined cobalt.
  • The company known as Entreprise Generale du Cobalt will need $80m-$100m to begin buying cobalt from the artisanal miners.
  • Congo’s mining minister said last week that hand-dug cobalt accounts for a fifth of cobalt output in Congo, and the country supplies more than 60% of world cobalt production (Bloomberg).

NdPr Rare Earth Oxide (China) US$40,663/t vs US$40,467/t

Lithium carbonate 99% (China) US$5,512/t vs US$5,515/t - Ganfeng Lithium the latest company to be affected by Corvid-19

  • The Company announced that the virus has disrupted operations in China. An unspecified number of subsidiaries have halted production.
  • Not all operations have been affected: Yichun Ganfeng and Lithium Co Ltd have been unaffected while Fengxin Lithium Co, the Ganfeng Recycling Technology unit and the lithium salt plant remained open until February 3.
  • The stock price has continued to rise despite the news hitting 12 month highs. The share price has risen from RMB39.03 to RMB63.89 since February 3.

Ferro Vanadium 80% FOB (China) US$30.5/kg vs US$30.0/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

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

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

 

Battery News

Tesla offers stock at $767 despite Elon Musk just days earlier suggesting it didn’t make sense to do so

  • The Californian EV maker announced the sale of $2bn of common stock in a new public offering. Use of proceeds is further strengthening the balance sheet and general corporate purposes. The price is a 4.6% discount to the close on Thursday. (Bloomberg)
  • Musk will purchase $10m of stock in the offering, while Larry Ellison, on the board of Directors will buy up to $1m.
  • On the January 29th earnings call Musk said that Tesla expected positive cash flow to continue moving forward and that given this “It doesn’t make sense to raise money because we expect to generate cash despite this growth level”.
  • Tesla stock seen an 83% increase in value YTD, following a positive earnings announcement for Q4’19. The Corvid-19 virus has been a bump in the road, forcing Tesla’s Shanghai Gigafactory to shut on government orders and subsequently delaying the delivery of model 3 vehicles.

 

KORE power to ship lithium batteries after receiving UL certification (Solar Power World)

  • The Washington State based energy storage company Mark 1 battery cells have received UN, UL and IEC certification after passing the required tests and factory audit.
  • Acquiring these certifications means the Company remains on track to fulfil global customer orders for the Mark 1 battery cells this quarter.
  • The focus for the Company will now shift to testing the Mark 1 module and rack with testing for the UL 1973, UL 1998, UL 991, UN 38.3 and IEC 62619 certification in February.
  • KORE power expects to ramp up the Mark 1 Energy Storage System for production following completion of further certifications in order for it to participate in large installations in this year.

 

Company News

Ariana Resources  FOLLOW 3p, Mkt Cap £31.0m – Due diligence progress update

  • The Company reports on the progress with regards to the previously proposed deal with a major Turkish construction and engineering company over its Turkish assets.
  • Results from 600m in RC twin drill holes at Salinbas have been received and showed good correlations with historical Ariana’s drilling results.
  • Independent due diligence is now focused on the Kiziltepe mining operations.
  • Due diligence period has been extended to 31 Mar/20.

 

 Gemfields FOLLOW, Mkt Cap £133m – Gemfields listed on AIM today

  • Many will remember the company from its previous listing with the same emerald, ruby and Faberge assets under the leadership of Ian Harebottle.
  • Gemfields also lists with a number of new exploration assets and projects ranging from Ethiopia to Sri Lanka.
  • The company is now being run by Sean Gilbertson who is also involved with the Pallinghurst fund with Brian Gilbertson, formerly CEO at Billiton and latterly at BHP Billiton.
  • Rather unfortunately the company reports 11 fatalities at Montepuez in Mozambique following a number of incursions into Gemfields licenses by artisanal miners.

*An SP Angel mining analyst has previously visited the Kagem emerald mine and Montepuez ruby mine

 

Power Metal Resources  FOLLOW Mkt Cap £2.1m – Katoro update on gold and polymetallic projects in Tanzania

POW owns 5.6% in Katoro Gold and holds a 25% interest in Katoro’s Haneti polymetallic project in Tanzania

  • Good progress is reported over the potential deal with Lake Victoria Goldfields to sell 100% interest in Imweru and Lubando gold projects in northern Tanzania.
  • Katoro continues to work closely with LVG and is hoping to complete the transaction.
  • Katoro is also evaluating funding options for the exploration programme at the Haneti polymetallic project focusing on two priority targets, namely Mihanza Hill and Mwaka Hill.
  • The Company highlighted the feedback received at the Mining Indaba conference in Cape Town in early Feb/20 suggesting considerable interest in large scale nickel exploration projects from mid-tier and Tier 1 mining companies and supporting the strategic value of the Haneti project.

*SP Angel act as broker to Power Metals Resources (formerly African Battery Metals)

 

Solgold  FOLLOW, Mkt Cap £369m – Financial and operations update; Newcrest Mining expresses continuing support

  • Development works at Alpala were focused on collection of data for the mineral resource update aiming to convert most of MRE#2 Inferred mineral resources into the Indicated category to be used in the Pre-Feasibility Study.
  • Additionally, metallurgical, geotechnical, hydrological, and hydrogeological data is being collected for the Alpala PFS.
  • Work on 3D modelling of key geological parameters at Alpala saw completion of dynamic models for geology, veining, alteration and copper and gold grades that are being updated with as new drilling results become available.
  • The team has temporarily suspended drilling operations in September amid drought conditions and impacts on local waterways as well as in consideration of cash management measures.
  • A study on stratigraphic and post mineral structural architecture and geometry of the Alpala deposit and greater Alpala district was completed that supports ongoing exploration and drill targeting in the project area as well as over other targets within the Cascabel concession.
  • Adjustments to the geological model and the orientation of B-veins that help to identify the geometry of the porphyry indicated potential mineralisation toward the north of the Alpala system which is interpreted as another porphyry body.
  • The Company carried a nation-wide desktop study identifying 13 priority targets warranting follow up exploration works including geological mapping, geophysical surveys and detailed soli geochemistry before carrying a drilling programme once permits are in place.
  • Financially, Solgold recorded a $5.0m loss in six months to Dec/19 (H1/FY18: -$27.5m) with $31.0 in capitalised exploration costs (H1/FY18: $37.6M), $22.9m of which attributed to the Cascabel project.
  • The Company had $23.1m in cash as of Dec/19 versus $41.7m as of Jun/19.
  • On a separate note, a report in the Australian Financial Review newspaper indicates that Newcrest Mining, which owns 14.62% of Solgold, is encouraging the company to think long-term for its future funding requirements.
  • Stressing Newcrest’s continuing support for the Cascabel development in Ecuador, Chief Executive Sandeep Biswas is quoted saying 'It is an investment we are happy to be part of, it is a good long-term prospect, it has quite a way to go yet before it realises what may be its future potential. We are supportive and intend to remain that way”.
  • The newspaper also quotes Mr. Biswas saying “The more focus on the exploration, the drill out and the economic studies to prove the viability of Cascabel in particular, I think that is where the focus should be."
  • As well as Newcrest Mining, BHP is also quoted in Solgold’s January 2020 presentationhttp://www.solgold.com.au/wp-content/uploads/2020/01/SolGold_Corporate_PPT_2020-Jan-22_FINAL.pdf with a 14.7% interest in Solgold having increased its interest by 3.6% in November 2019.

Conclusion: Financial and operations update highlights the development progress at the Alpala project with the team assembling data for the mineral resource update and a PFS while continuing to expand its portfolio of prospective exploration projects in Ecuador.

Separately, Newcrest Mining, one of Solgold’s major shareholders, has been quoted in the Australian Financial Review expressing its continuing support and urging further exploration and long term financing solutions at Cascabel while its other major shareholder, BHP increased its interest to 14.7% in November 2019.

The report reiterates Newcrest’s view on the long-term value of the project and its commitment to the Alpala (Cascabel) project.

Solgold are clearly keen to maximise the value and opportunity of their extensive exploration portfolio. It is possible that this could lead to further corporate action in relation to Solgold, Newcrest and BHP.

*SP Angel act as Financial Advisor and broker to Solgold

 

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

 

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

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SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%

Disclaimer & Declaration of Interest

The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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