SP Angel . Morning View . Friday 25 09 20
SP Angel
SP Angel . Morning View
10:10, 25th September 2020

SP Angel . Morning View . Friday 25 09 20

Gold prices look set for second upward run on lower demand for bonds

Stronger dollar weighs on metals amid a rise in new coronavirus cases

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MiFID II exempt information – see disclaimer below  

Arkle Resources* (ARK LN) – Inishowen soil sampling results

Keras Resources* (KRS LN) – Meeting with Prime Minister of Togo to advance Nayéga Manganese Project

Peak Resources (PEK AU) – Rocky Smith, Peak’s CEO leaving Peak Resources

Predictive Discovery (PDI AU) – Results of further drilling at Bankan

 

Global steel output edges higher as China’s output surges 8.4% YoY

  • Global crude steel production edged 0.6% higher to 156.2mt in August, as China’s output rose to 94.8mt
  • Declines were seen in most steelmaking countries around the world; however these were offset by China’s increase in production.
  • On a monthly basis, production in August rose 0.9% after rising 3.5% in July to 154.87mt, according to the World Steel Association.

 

Gold prices likely to rise again as debt markets struggle with new issuance

Demand for debt in Southeast Asian markets falls (Bloomberg)

  • If corporates and governments are not able to borrow then new equity will need to be raised.
  • If governments are not able to issue more debt, then more cash may be printed or interest rates raised.
  • Raising interest rates is not good for economic development and printing cash is normally viewed as inflationary.
  • Either way gold prices look likely to rise..

 

IG TV / SP Angel interview

VOX Markets / SP Angel podcast

 

Dow Jones Industrials

 

+0.20%

at

26,815

Nikkei 225

 

+0.51%

at

23,205

HK Hang Seng

 

-0.38%

at

23,223

Shanghai Composite

 

-0.12%

at

3,219

 

Economics

UK – New labour market support programme that involves financial assistance to people who worked at least a third of their usual hours would cost up to £10bn over the next six months.

  • The plan is expected to replace the expiring furlough scheme that involved £39bn.
  • Public finances are on course for a £400bn deficit in 2020-21 with the government to borrow £221bn in the first five months of the financial year.
  • This is 11 times the highest ever cash borrowing number at this point in the financial year since equivalent records began 36 years ago, FT reports.

FCA tells firms to work from home and obey local lockdowns

  • The FCA has told financial firms to work from home where possible and obey local lockdowns where they are imposed following the latest government advice. (Citywire).
  • The regulator has also told Google to crack down on advertisements that promote investment scams.
  • We have previously reported a number of google advertisements to the FCA which were clearly suspicious and have since proven to be scams
  • We warn investors to be incredibly careful of any investment advertisement posted on Google or any other platform.

 

France – New Covid-19 cases hit a new record of 16,096 while the number of people hospitalised for the disease went above 6,000 for the first time in more than two months.

  • A tally of hospitalised people is still more than five times lower than the 32,292 peak reached at the height of the first wave in April, but was up 33% since August 29 low of 4,530.
  • There are now 1,043 patients in intensive care units, levels unseen since June 8, Reuters reports.

 

Russia – Moscow reinstated a series of quarantine measures amid an increase in new Covid-19 cases around three months after the capital lifted the restrictions.

  • People over 65yo and citizens with chronic illnesses will be asked to remain at home from September 28 while companies are advised to return employees to remote working, the city’s mayor Sergei Sobyanin said.
  • “According to doctors, the superposition of two diseases – the common cold and the coronavirus – is very dangerous and can have dire consequences.”
  • Moscow reported 1,560 new cases over the last 24 hours, up on 1,050 and 970 the previous two days.

 

Turkey – In an unexpected move, the central bank raised the benchmark rate by 200bp to 10.25% despite a longstanding opposition of President Erdogan for higher rates.

  • The lira climbed more than 1% against the US$ on the news before giving up some of those gains.
  • Together with increasing the headline rate of interest, the central bank also raised the rate of interest on its late liquidity window, an additional source of funding for banks, to 13.25%, FT reports.
  • Markets expected to change.

 

Mexico – The central bank, in line with expectations, cut rates by 25bp to 4.25%, marking an 11thconsecutive drop since August last year.

  • Monetary policy authorities highlighted downside risks to inflation and economic outlook.
  • National GDP dropped 18.7%yoy in Q2 with estimates for the economy to contract 10.5% in 2020.

 

Currencies

US$1.1670/eur vs 1.1656/eur yesterday.  Yen 105.37/$ vs 105.26/$.  SAr 16.839/$ vs 17.106/$.  $1.278/gbp vs $1.273/gbp.  0.708/aud vs 0.705/aud.  CNY 6.817/$ vs  6.822/$.

 

Commodity News

Precious metals:          

Gold US$1,871/oz vs US$1,854/oz yesterday Gold set for worst week in six despite firming on Friday

  • Gold prices edged higher on Friday, though this was not enough to recover losses from the 4% drop seen this week.
  • Spot gold rose 0.3% to $1,8734/oz whilst US gold futures rose 0.1% to $1,879/oz as the US dollar ended its surge higher, which has been weighing on bullion throughout this week (Reuters).
  • The DXY reached its highest level since the 24th of July at 94.59, before closing at 94.33- resulting in an uptick in gold (FX Street)
  • Despite this weeks drop in gold, bullion has risen 20% so far this year and many of its supporting factors such as stimulus measures and Covid-uncertainty remain.

 

   Gold ETFs 110.5moz vs US$110.6moz yesterday

Platinum US$858/oz vs US$839/oz yesterday

Palladium US$2,237/oz vs US$2,211/oz yesterday

Silver US$23.17/oz vs US$22.11/oz yesterday

 

Base metals:    

Copper US$ 6,584/t vs US$6,559/t yesterday - Copper stocks fell a further 2,700t on the LME to 73,625t today. On warrant stocks are 28,825t

  • Shanghai copper stocks fell a further 22,883t or 12% to 179,464t. On warrant stocks also fell 19,130t to 55,243t
  • That’s allot of copper coming out of warehouses destined for manufacturing and EV charging stations.
  • Investors should note that a number of funds are thought to have squirreled away some copper stock.
  • The SRB ‘State Reserve Bureau’, China’s equivalent to the US DLA ‘Defence Logistics Agency’ is thought to have been buying metal in recent months.

Aluminium US$ 1,753/t vs US$1,737/t yesterday - Rio Tinto to complete $75m alumina refinery maintenance

  • Rio confirmed that it will push ahead with its planned maintenance shutdown of two alumina refineries in Gladstone, Queensland this year.
  • Shutdowns at the Queensland Alumina Limited (QAL) and Yarwun refineries has resulted in the recruitment of more than 500 additional contract workers to complete the site maintenance.
  • The QAL work, which is valued at $10.6 million, included technical upgrades to the boiler management system in one of the site’s 10 boilers (Australian Mining).

Nickel US$ 14,420/t vs US$14,325/t yesterday

Zinc US$ 2,398/t vs US$2,389/t yesterday

Lead US$ 1,848/t vs US$1,876/t yesterday

Tin US$ 17,460/t vs US$17,540/t yesterday

            

Energy:            

Oil US$42.1/bbl vs US$41.5/bbl yesterday

  • Egypt has recently announced its crude oil production has exceeded 650,000bopd for the first time since the late 1950s
  • Egypt’s General Petroleum Company will aim to boost the development of new oil wells and infrastructure
  • Most of Egypt’s crude oil production comes from the Western Desert region, 56%, followed by the Gulf of Suez with 23%, the Eastern Desert accounts for 12% of Egypt’s current oil production, and the Sinai Peninsula represents 9% of output.
  • Egypt currently produces some 1.1Bcf/d after having developed production fields in the Gulf of Suez, Atef Hassan
  • Whilst Egypt’s crude oil production numbers are modest, its waters in the Mediterranean hold the largest natural gas discovery in the Mediterranean Sea, the giant Zohr field which began production two years ago
  • Following the start-up of the Zohr field in early 2018, Egypt became an essential player in the Mediterranean
  • Zohr has played a crucial role in helping Egypt to avoid the need to import LNG
  • In recent years, Egypt has been at the centre of a ‘natural gas rush’ in the Eastern Mediterranean after Italy’s Eni discovered the Zohr field in 2015
  • Earlier this month, Eni and BP announced a new discovery in the Mediterranean, in the waters of the Nile Delta

Natural Gas US$2.217/mmbtu vs US$2.259/mmbtu yesterday

  • This week, natural gas prices have seen some extreme volatility, from a 10% plunge on Monday, to a 15% surge on Wednesday, also due to the rollover of the October futures contract expiring on 28 September, with traders rolling out of the October contract to the November contract of higher prices
  • Lower natural gas production and expectations of increased exports via pipeline to Mexico and tankers of LNG also supported natural gas prices on Wednesday and Thursday
  • In addition, the LNG gas feed is set to rise to 5.7Bcf/d on Thursday from 3.9Bcf/d on Tuesday, which was a two-week low due to Tropical storm Beta earlier this week
  • Expectations of cooler weather in some parts of the US next week also lent support to natural gas futures on Thursday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$112.8/t vs US$111.8/t Iron ore set for biggest weekly slump since Feb

  • Iron ore prices have fallen from multi-year highs this week, as investors believe that China’s relentless demand can be satisfied by a pick-up in supply.
  • Prices on the Singapore Futures Exchange have fallen almost 7% this week as miners are poised to ship 5.7% more this quarter than Q2 (Bloomberg).
  • Chinese iron stockpiles rose 1.07% this week to 116.2mt, according to Mysteel.

Chinese steel rebar 25mm US$544.7/t vs US$544.6/t

Thermal coal (1st year forward cif ARA) US$60.0/t vs US$59.5/t 

Coking coal futures Dalian Exchange US$149.0/t vs US$150.5/t

            

Other:   

Cobalt LME 3m US$34,200/t vs US$34,200/t

NdPr Rare Earth Oxide (China) US$48,408/t vs US$48,449/t

Lithium carbonate 99% (China) US$5,032/t vs US$5,028/t – IHS Markit reckon the average cost of a lithium-ion battery cell to fall below $100/kWh

  • We note the cost of the cells does not include the cost of assembly and other components in the battery pack which currently add substantially to weight, size and cost of the useable EV battery pack.
  • Reducing the overall pack cost will be targeted by Tesla and other EV manufacturers.

Ferro Vanadium 80% FOB (China) US$30.0/kg vs US$30.1/kg

Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/kg

Tungsten APT European US$220-225/mtu vs US$212-220/mtu 

Graphite flake 94% C, -100 mesh, fob China US$430/t vs US$430/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,275/t vs US$2,275/t

 

Battery News

Renewable energy uptake to reduce frequency of wildfires

  • Wildfires are getting worse due to drought and increased temperatures – both consequences of global warming.
  • Oil and fossil fuels are the most popular energy source in the U.S. and although oil prices have been fluctuating, it remains on top. This worsens climate change as burning oil and fossil fuels release carbon dioxide and damage the ozone layer.
  • Fossil fuels have a central production facility that runs for miles which means that problems arise in many locations. This means that if a fire begins, fossil fuels adds directly to the greenhouse gas affect. 
  • Solar panels use microgrids which function at a smaller scale than fossil fuel production meaning that there are fewer areas where fires can begin. 
  • Solar panels act as an island of electricity which are helpful during blackouts. Blackouts are often linked to wildfires. Solar panels function alone which is the way forward to reduce wildfires.  

 

ChargePoint Inc to go public through reverse merger 

  • EV charging network developer ChargePoint Inc announced on Thursday its intention to go public. The Company will merge with Switchback Energy Acquisition Corp a publicly listed special purpose acquisition company.  
  • The deal values ChargePoint at $2.4bn and is expected to close towards the end of the year.
  • The Company will look to raise $500m, proposed use of funds is expansion across Europe and growth in North America. The transaction includes $225m from Ballie Gifford, an existing ChargePoint investor alongside Daimler, BMW and Siemens.
  • ChargePoint has installed 115,000 charging points across the US and Europe and roaming agreements enable its customers to have access to an additional 130,000 charging bays. The Company is aiming for 2.5m chare points by 2025.
  • The Company booked revenue of $147m last year but made a net loss of $133m according to the Financial Times.

 

Tennessee Valley authority to build grid-scale battery storage system

  • The Tennessee Valley Authority (TVA) revealed it will build its first owned and operated grid-scale battery storage system near Vanore, Tenn.
  • The battery will be a lithium-ion storage system capable of storing 40Mw hours of energy. The battery storage system is not expected to be operational until 2022.
  • TVA plans to add a further 200MW solar project in Lowndes County, Miss and intends to add 5GW of energy storage capacity by 2038.
  • Like the Tesla megapack TVA’s battery is a lithium ion storage product. Lithium ion NCM batteries remain the dominant chemistry but Lithium Iron Phosphate battery storage is becoming more common and slated to displace NMC as the dominant energy storage chemistry.
  • LFP batteries are cheaper, more energy dense and longer life.  

 

Company News

Arkle Resources* (ARK LN) 0.98p, mkt cap £2.7m – Inishowen soil sampling results

  • Arkle Resources reports the discovery of a northwest trending soil sampling anomaly covering a “previously unknown area to the southwest of the sampling area” at the company’s Inishowen gold property in County Donegal.
  • The soil sampling was conducted every 20 metres on 100 metre spaced lines over the area around Meeneragh, which is known to contain gold” and collected a total of 356 samples for analysis.
  • The company confirms that “Further soil sampling to pinpoint trench or drillhole locations in the newly identified area will begin immediately”.
  • A map accompanying the announcement shows an anomalous level of “gold indicators Zn and Pb” extending over a distance of approximately 0.5-1km at widths of up to an estimate 80m.
  • Chairman ,John Teeling, explained that “The sampling revealed a northwest to southeast trend and highlighted previously unknown areas toward the southwest. An immediate programme is commencing on the southwest to identify drill targets. This should be completed by year end”.

Conclusion: Arkle Resources is following up a previously unidentified geochemical anomaly at Inishowen with a view to identifying possible drill targets. We await further news as the programme is extended.

*SP Angel are Nomad and broker to Arkle Resources

 

Keras Resources* (KRS LN) 0.14p, Mkt cap £6m – Meeting with Prime Minister of Togo to advance Nayéga Manganese Project

(Keras also hold an 85% interest in Societé General des Mines which holds the Nayega manganese project license in Togo. Keras now holds 30% of Falcon with an option to raise its stake. Keras also holds a 51% stake in the Diamond Creek phosphate mine which is operating in Utah, USA)

  • Management met with the Prime Minister of Togo this week to discuss the development and expansion of the Nayéga Manganese Project.
  • Management are on site at Nayeg to ensure that he bulk sample plant is ready to start production at around 6,500t per month.
  • Keras have posted a video showing the good condition of the plant: https://twitter.com/i/status/1309389261616148481
  • The team are also siting boreholes to ensure sufficient water for the plant expansion to 25,000t per month.
  • Exploration continues at the Ogaro prospect just 5km from Nayega. Exploration results due shortly.
  • Manganese is currently in the news due to Elon Musk’s (Tesla) announcement that it will use up to 33% manganese in its new battery cells.
  • Ferro-Manganese prices recovered further yesterday rising 1.7% to $1,100-1,240/t for 78% Mn standard 7.5% C in the US.
  • Manganese prices are around 5% higher than the low seen in January this year having risen to $1,130/t in May.

Conclusion:  We expect the meeting with the Prime Minister of Togo to enable Keras to obtain the remaining licenses necessary to start production at Nayéga.

*SP Angel act as nomad and broker to Keras Resources

 

Peak Resources (PEK AU) A$0.026, Mkt Cap A$37.0m – Rocky Smith, Peak’s CEO leaving Peak Resources

  • Peak Resources has announced that Rocky Smith the company’s CEO is leaving the company.
  • The announcement leaves a major gap in Peak’s management and technical capacity with respect to the development of Rare Earth Concentrate processing.
  • Peak has been working on plan for a new rare earth separator to be based in Teesside in the UK
  • The idea is for the Teesside separator to become a rare earth separation hub with phase 1 annual production of 2,810t of NdPr oxide.
  • The refinery would also produce 7,995tpa of Lanthanum carbonate, 3,475tpa of cerium carbonate and 625tpa of SEG carbonate
  • The separator would double its capacity in Phase 2 and would also add potential for magnet recycling, and heavy rare-earth separation.
  • The planned capex for the Teesside facility has previously been reported at US$165m with annual operating costs of US$40m with an pre-tax NPV8% of US$914m and a post-tax NPV8% of 612m and IRR of 22%.

Conclusion: Rocky Smith is incredibly well respected for his in-depth knowledge and expertise on rare earths. The next man will have big shoes to step into.

 

Predictive Discovery (PDI AU) A$0.069, mkt cap A$56.8m – Results of further drilling at Bankan

  • The Company announces this morning that it has received assay results from 15 RC holes and 4 diamond drill holes at its NE Bankan project, in Guinea’s Siguiri Basin. 
  • Highlights from the latest RC results include: 
    • Hole KKORC028: 55m at 3.3g/t gold from 4m, including 5m at 5.2g/t gold from 19m, 2m at 7.9g/t gold from 37m, 2m at 6.3g/t gold from 44m, and 1m at 14.4g/t gold from 51m, and 9m at 2.8g/t gold from 81m (EOH). 
    • Hole KKORC057: 29m at 1.3g/t gold from 17m
    • Hole KKORC066: 11m at 1.1g/t gold from 79m, and 7m at 1.5g/t gold from 92m.
  • Highlights from the latest DD results include:
    • Hole KKODD013: 44m at 1.4g/t gold from 33m, including 2m at 8.5g/t gold from 70m
    • Hole KKODD014: 19m at 1.6g/t gold from 88m, including 5m at 3.7g/t gold from 96m
    • Hole KKODD015: 29m at 1.4g/t gold from 8m, including 2m at 8.5g/t gold from 10m
  • West-east directed RC drilling on the northernmost drill line intersected a west-dipping zone of gold mineralisation of 20m at 1.4g/t gold from 18m (KKORC067), which the Company believes demonstrates a continuation of gold mineralisation for at least 250m north into the Saman Permit.
  • Furthermore, ground magnetic data shows that the gold mineralisation is located within a north-south structural corridor, and as a result the Company will now focus elsewhere in its Bankan Project ground package.
  • Next steps for Predictive include commencing a second phase drill programme (Bankan-2) scheduled to begin around the 22nd of October following analysis of current results. This programme will focus on deeper drilling, with rigs used with greater capacity for deeper RC drilling than the RC rigs used to date. Furthermore, additional ground magnetics surveying will be carried out once the rains have stopped to target more NE Bankan-like structural targets between Bankan Creek and NE Bankan. An aeromagnetic survey over most of the Company’s ground position (Kaninko-Saman-Bokoro-Argo) is planned for December 2020 or early 2021.

 

Analysts

John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490

Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484

Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474

Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486

 

Sales

Richard Parlons –Richard.Parlons@spangel.co.uk - 0203 470 0472

Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534

Rob Rees – Rob.Rees@spangel.co.uk - 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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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%

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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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