SP Angel . Morning View. A surge in new cases of coronavirus leads risk off sentiment

SP Angel . Morning View . Monday 27 01 20

A surge in new cases of coronavirus leads risk off sentiment

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MiFID II exempt information – see disclaimer below   

Altus Strategies* (ALS LN) – £2.4m equity raise completed

Bluejay Mining* (JAY LN) – Bluejay awarded new mineral exploration license around Kangerluarsuk in Greenland. Survey to define drill targets

Kodal Minerals* (KOD LN) – Bougouni Lithium Feasibility Study shows interesting economics

Petra Diamonds (PDL LN) – Emerging signs of modest recovery in rough diamond prices

 

Coronavirus ‘2019-nCoV’ hits metals prices as Lock Down of Chinese cities threatens to knock percentage points of Chinese and global GDP

• Health officials rush to contain China’s new novel coronavirus as the death toll rises to 81 with >2,740 known to be infected.
• 30,453 people under medical observation in China.
• Coronavirus infection appears to spread before symptoms appear. While most recover
• The virus is likely to already be in the UK according to the director for health protection.
• Experts expect the number infected to be very much higher. US evacuating citizens from Wuhan. Virus now in 10 countries.
• Hubei province has 60m people. Wuhan city has 11m population.
• China has extended its new year holiday by three days to Sunday as it moves to contain the spread of the coronavirus.
• Companies are banned from returning to work till 10^th February
• While many Chinese workers will take advantage of the extra holiday many may still travel while they can if not subject to the lock down.
• China has banned live animal markets.
• The negatives:
• The Nikkei share index fell 2% overnight as investors sold assets on expectations for slower growth
• Consumers and traders may move to dump metal if they see the lock down .
• Copper consumption may fall by around 120,000t for every 1% decline in China GDP. China consumed around 12.53mt of copper in 2018.
• While this does not sound like a huge tonnage in a market of 18mtpa prices are extremely sensitive to the supply demand balance
• The positives:
• Copper like silver has anti-viral properties and is well suited for handrails in public places in preference to stainless steel.
• This antiviral property may serve to raise demand for copper pipes and handrails in China and elsewhere.

Conclusion: The rapid spread of the virus risks overwhelming medical facilities while travel restrictions will hit economic activity potentially leading to recession.

 

Dow Jones Industrials		-0.58%	at	28,990
Nikkei 225		-2.03%	at	23,344
HK Hang Seng		CLOSED	at	27,950
Shanghai Composite		CLOSED	at	2,977
FTSE 350 Mining		-4.33%	at	18,010
AIM Basic Resources		-0.23%	at	2,142

 

Economics

US – The US embassy located in the Baghdad’s fortified Green Zone is reported to have been hit by at least one of five rockets wounding three people, according to security sources.

• Separately, the US Joint Operations Command said five rockets crashed into a riverbank near the embassy without causing any injuries.
• “We call on the Government of Iraqi to fulfil its obligations to protect our diplomatic facilities,” a State Department spokesperson said in a statement.
• The attack came amid ongoing anti-government protests that erupted on October 1 with nearly 500 people killed in the unrest across the country.
• On a separate note, President Trump impeachment trial is continuing this week with the defence team speaking in the Senate after House Democrats presented their case for three days last week.
• The FOMC will be holding a monetary policy meeting on Wednesday with estimates for the central bank to hold rates unchanged this week.
• 145 companies included in the S&P 500 index are scheduled to release quarterly earnings with the majority of announcements coming out on Wednesday and Thursday.

 

China – The number of confirmed infected with coronavirus cases climbed to 2,744 in China , up 30% on the previous day, with authorities extending the week-long Lunar New Year by three days to slowdown the spread of the virus.

• The death toll from the outbreak in China increased to 81 as of Monday.
• Chinese Premier Li Keqiang visited the central city of Wuhan signalling the government is treating the health crisis seriously.
• The government ordered a ban on international group travel effective Monday which is expected to hit air traffic and neighbouring nations that expected to benefit form a surge in tourist numbers during the Chinese New Year.
• The number of mainland Chinese visitors to Macau, the gambling capital of Asia, dropped 80% on Sunday, the third day of the holiday, compared with the last year; arrivals were down 66%yoy over the first three days of the holiday.
• Apart from consumer demand, the virus risks global supply chains as Wuhan among other things is home to manufacturing plants for Nissan, Honda and Renault.
• The manufacturing hub of Suzhou that hosts production facilities for iPhone contractor Foxconn, Johnson & Johnson and Samsung, postponed the return to work of millions of migrant labourers for up to a week, according to FT.
• Chinese banking and insurance regulator promise support for business affected by the crisis including “lowering of loan interest rate, improving arrangements for loan renewal policies and increasing medium-term and credit loans”.

 

Germany – Business sentiment index pulled back slightly in January weighed down by weaker outlook sub-measure.

• While the US-China phase on deal and a progress on the Brexit front offer some relief to businesses, negotiations on the final UK-EU and US-China trade agreements remain unclear.
• An outbreak of the coronavirus in one of the world’s largest economies is not helping the outlook either.
• IFO Business Climate: 95.9 v  96.3 in December and 97.0 forecast.

 

Brazil – At least 46 people killed as storms rage in Minas Gerais

• Areas of the country have experienced their heaviest ever rainfall, leading to flooding and landslides which have caused 20,000 to be evacuated.
• The severe rainfall has caused a series of building collapses, bridge failures and has also cut off highways.
• Vale have raised the emergency level at its Gongo Soco mine in Minas Gerais, as the heavy rainfall has eroded the structures reservoir.
• The dam has been upgraded from level 1 to level 2, however the miner insist that the dam is safe and secure, and the measure has only been taken due to the dam’s proximity to the Sul Superior dam, which remains at level 3. This is the most critical level of the classification, and indicates a dam burst is imminent or underway (Mining Weekly)

 

Currencies

US$1.1018/eur vs 1.1046/eur last week.  Yen 108.88/$ vs 109.63/$.  SAr 14.560/$ vs 14.345/$.  $1.309/gbp vs $1.314/gbp.  0.678/aud vs 0.685/aud.  CNY 6.911/$ vs  6.908/$.

 

Commodity News

Gold US$1,582/oz vs US$1,559/oz last week – Gold prices hit two-week highs as equities slip on growing virus concerns (Reuters)

• Growing concerns that the virus outbreak in China could impact the nations economy has led to investors dropping riskier assets.
• Spot gold climbed 0.5% to $1,578/oz earlier this morning, and rose as much as $1,586/oz.

   Gold ETFs 82.0moz vs US$82.0moz last week

Platinum US$993/oz vs US$1,007/oz last week

Palladium US$2,374/oz vs US$2,461/oz last week

Silver US$18.22/oz vs US$17.80/oz last week

            

Base metals:    

Copper US$ 5,818/t vs US$6,008/t last week - Copper nears 8-week low over coronavirus concerns (Reuters)

• LME copper prices dropped to their lowest in nearly eight weeks as concerns over the economic impact of the virus grew, as the death toll rises to 80.
• LME 3m copper was down as much as 1.9% at $5,812/t this morning, its lowest level since early December 2019.
• Last week, the three-month copper in London posted its steepest weekly loss in five years – down 5.5%.
• In response to the virus, the Chinese government has extended the Lunar holiday by three days, reducing demand for industrial metals as another period of economic activity is shaved off this year’s GDP.

Drought in Chile sees Anglo American sign water deal with Codelco (Mining.com)

• Q4 2019 saw production at Anglo’s Los Bronces copper mine fall 28% due to water scarcity, a situation also causing a 44% decline in the plant’s processing capacity.
• According to Anglo, “Chile’s central zone continues to face unprecedented climate conditions, with 2019 being one of the driest years on record”.
• The company has signed a water deal with Codelco, which have operations near to the Los Bronces mine.
• Clean water form Codelco’s Overjeria tailings pond is to be transported 7km by truck to the Los Bronces’ tailings facility.

Aluminium US$ 1,771/t vs US$1,795/t last week

Nickel US$ 12,630/t vs US$13,310/t last week

Zinc US$ 2,285/t vs US$2,346/t last week

Lead US$ 1,914/t vs US$1,958/t last week

Tin US$ 16,670/t vs US$17,015/t last week

            

Energy:            

Oil US$58.9/bbl vs US$62.2/bbl last week

Natural Gas US$1.949/mmbtu vs US$1.908/mmbtu last week

Uranium US$24.45/lb vs US$24.45/lb last week

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$90.8/t vs US$90.8/t

Chinese steel rebar 25mm US$570.4/t vs US$570.6/t - British Steel’s Chinese buyer considers building Teesside plant (FT)

• Jingye Steel is considering building a new metals recycling furnace on Teesside, as it hopes to conclude its takeover of British Steel by the end of next month.
• If the proposal goes ahead, it would mark a return of crude metal production in an area whose iron and steelmaking heritage ended in 2015.
• This announcement was made on the same day that Turkish industrial giant Cengiz announced it is ready to make a bid for British Steel if the planned sale with Jingye falls through (BBC).

Thermal coal (1st year forward cif ARA) US$60.1/t vs US$61.0/t

Coking coal futures Dalian Exchange US$184.2/t vs US$184.3/t

            

Other:   

Cobalt LME 3m US$32,500/t vs US$32,500/t

NdPr Rare Earth Oxide (China) US$40,371/t vs US$40,387/t

Lithium carbonate 99% (China) US$5,571t vs US$5,573/t - China’s largest lithium producer struggling to pay debt (FT)

• Tianqi Lithium is struggling to repay part of its $3.5bn loan from state-owned Citic Bank this year, which it used to buy a 24% stake in Chile’s SQM in May 2018.
• The miner also owns 51% of Greenbushes, Australia’s largest mine and completed the purchase of a Perth based lithium hydroxide processing plant for $400m last year.
• The company raised Rmb 2.93bn in December on the Shenzhen stock exchange, less than half of the Rmb 7bn it targeted to pay down the Citic loan. According to the company, a total of $2.2bn is due to be repaid in November.
• Despite Tianqi’s struggles, analysts believe that the Chinese government wouldn’t let Tianqi go under due to the criticality of a lithium raw material supply and Tianqi making up half of China’s supply.

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/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

Bristol University researchers developing nuclear powered batteries. (The Independent)

• Researchers have developed a man-made diamond that when placed in a radioactive field produces a small electrical current. (University of Bristol)
• Previously the team had used Nickel 63 as a radiation source but are now looking into using Carbon-14 in the graphite of decommissioned power plants. The research team is using graphite blocks from the decommissioned Berkeley Power Station in Gloucester.
• The graphite blocks previously used in the reactor are infused with wafer thin diamonds which generates an electrical current and thus can be used as a battery. (The World News)
• A battery containing 1g of carbon-14 would deliver 15 joules of power per day which is less than an AA battery. The trade off with traditional batteries being power vs life-span. A standard AA alkaline battery weighing 20g has an energy storage rating of 700J/g and if run continuously would run for 24hrs. The 5730yr half-life of Carbon-14 means the batteries have an inexhaustible life in comparison.
• The batteries are being tested in extreme environments where traditional power sources have been unable to function.

 

Demand for MG’s ZS EV in India exceeds sales for the whole country in 2019. (Inside EVs)

• MG has received 2,800 bookings for its ZS EV. The car was the 19^th best-selling model in China in 2019, with 17,179 sales.
• The vehicle was initially offered for $27,872 before rising slightly to $29,274.
• The cars has a 44.5kWh liquid cooled battery pack with a range of 163 miles (262km) .0-80% DC fast charge occurs in 43 minutes with 0-100% using a 7kW on board charger taking 6.5hrs.
• EV uptake has been slow in India due to high upfront costs and maintenance costs. This lack of demand has affected investment into the sector, with Amara Raja Batteries suggesting they were hesitant to set up Li-ion battery manufacturing facilities due to lack of demand in 2019. (Bloomberg Quint)
• India has the potential to become one of the largest EV markets and Prime Minister Modi has made this a focus, unveiling a $1.4bn plan in 2019 to make India a hub for manufacturing EV.

 

Company News

Altus Strategies* FOLLOW (ALS LN) 6.8p, Mkt Cap £14m – £2.4m equity raise completed

• The Company closed the second and final tranche of previously announced non-brokered private placement of £2.4m.
• The second tranche included the issue of 14m new shares from a total offering of 46.3m at a price of 5.2p.
• Following the completion of the raise total number of outstanding shares is 226.2m.
• Proceeds will be used for the expansion of the portfolio of projects, exploration work on existing assets as well as general corporate purposes.
• The fundraise together with the proposed La Mancha investment of £6.5m (125m at 5.2p) puts the Company in a strong position to continue with the project generation business model.

*SP Angel acts as nomad and broker to Altus Strategies

 

Bluejay Mining* FOLLOW (JAY LN) 8.1p, Mkt Cap £79m – Bluejay awarded new mineral exploration license around Kangerluarsuk in Greenland. Survey to define drill targets

(Dundas Ilmenite project, Greenland, 100% owned)

• Bluejay have been awarded a new mineral exploration licence around their existing Kangerluarsuk zinc-lead-silver Project in central west Greenland. 
• The team will drill Kangerluarsuk this field season.
• Kangerluarsuk and surrounding ground is seen as prospective for zinc-lead-silver-copper mineralisation with sampling by ‘RTZ in the early 1990s showing 14% Zn, 9.3% Pb and 92 g/t Ag.
• An early-season ground gravity survey should further refine drill targets
• There is some correlation between formations seen at Kangerluarsuk (Qaarsukassak Formation) amd the Mârmorilik Formation to the south that hosts the former Black Angel zinc-lead-silver mine.
• Historic RTZ samples include:  
  • 41.1% Zn, 0.4m grading 45.4% Zn
  • Up to 41% Zn, 9.3% Pb, 1.2% Cu and 596 g/t Ag underpins the resource potential

Conclusion: Bluejay is working on the discovery further high-grade mineral resources in Greenland. The withdrawal of the ice sheet has left bare rock exposed for geological examination.

We await further news on progress at Bluejay’s Dundas ilmenite project which exported some 42,000t of ilmenite concentrate to Canada last year with part of this sample supplied to Rio Tinto Iron & Titanium in Canada.

*SP Angel act as nomad to Bluejay Mining. *SP Angel have visited the Dundas, Itelak ilmenite sands project in Greenland.

 

Kodal Minerals* FOLLOW 0.05p, Mkt Cap £4.4m – Bougouni Lithium Feasibility Study shows interesting economics

• Kodal Minerals reports today on its Feasibility Study for the Bougouni Lithium project in the south of Mali.
• The feasibility study is necessary for submission with the mining license application in Mali as it is in most other sophisticated mining countries.
• The proposed Bougouni currently shows a 8.5year mine life
• Production - 220,000tpa av.
• Spodumene concentrate - 6%
• Recovery rate 71%
• Concentrate freight costs $93.60/t – this is based on quotes for road haulage to the port of San Pedro in Ivory Coast which is a shorter and simpler distance that the port of Abidjan, a distance of Distance 880km by road.
• Life of Mine production 1.94mt of concentrate
• Throughput 2mtpa. - process plant uses a conventional flotation circuit to maximise spodumene recovery
• C1 cash costs est. USD$431/t conc
• Cash cost including royalties and sustaining capital USD$466/t
• CAPEX est. US$117m plus contingency
• Capital expenditure may reduce on further optimisation of the mine, plant, infrastructure and mine scheduling
• Current project design works on 16mt of ore within the reported 21mt resource
• First production of spodumene concentrate forecast for H2 2021 depending on financing, the mining license and permission to run trucks through the Ivory Coast to the port of San Pedro
• Price assumption $680/t initially increasing 2% year-on-year
• “The estimate for revenue is based on a year-on-year estimated sliding scale lithium selling price for a 6% concentrate, Free on Board at the Port of San Pedro in Côte d’Ivoire.” Eg. including the cost of delivery at the sellers expense to a specified point.
•   The current price for Spodumene concentrate is reported at $480-550/t for 5-6% Li2O min, cif in China. Spodumene prices were last at $680/t FOB over a year ago.
• If we assume a cost of around $40/t to China this indicates a price of $465/t for Kodal’s concentrate delivered in China.

Conclusion:  

While we are impressed by the detail and presentation of Kodal’s Feasibility Study but are concerned at the lack of named consultants or apparent third-party verification on the given numbers.

The study appears to have been produced for the application of the mining license in Mali and may require significant further work and verification for Western project finance approval.

We note the statement refers to a degree of conservatism in the company’s financial modelling based on assumptions that were made for the study before better results came in from laboratory testwork.

Kodal’s study may also have the benefit of following on from work done by Mali Lithium on its nearby Goulamina spodumene project.

The Kodal estimates may be subject to amendment on the development of a full Definitive Feasibility Study using firm quotes from contractors for financing purposes.

*SP Angel acts as Financial Adviser and broker to Kodal Minerals A partner at SP Angel acts as Chairman to the company.

 

Petra Diamonds FOLLOW (PDL LN) 9.7p, Mkt Cap £83.9m – Emerging signs of modest recovery in rough diamond prices

• Petra Diamonds reports that building on signs of stability returning to rough diamond prices during the 2^nd quarter of its financial year to 31^st December 2019, it is now seeing early indications “that rough pricing has improved modestly to date in Q3 FY 2020”.
• The company explains that in addition to replenishment of stocks by the mid- order elements of the diamond supply chain, markets are experiencing support from “Supply discipline by the major diamond producers in the second half of calendar 2019 [which] has played an important role in moving towards more balance between supply and demand in the midstream, and will remain a key factor in terms of the health of the market in calendar 2020.”
• Operationally, the company reports that, following a 3% increase, production of 2.07m carats of diamonds during the six months to 31^st December, has seen “strong operational performance across all sites, resulting in us achieving our highest level of ROM tonnes mined and carats recovered over the last six months, and has positioned us to meet or exceed full year guidance” which currently stands at around 3.8m carats.
• Output at Cullinan rose by 7% to approximately 890,000 carats with a 9% increase in production from run-of-mine ore more than offsetting 26% lower production from the retreatment of tailings as planned.
• The Finsch mine saw a 4% decline in production to approximately 914,000 carats with a 14% rise in the contribution from the Block 5 sub-level cave to 871,000 carats. The company comments that the “higher carat contribution from Block 5 SLC was largely driven by an increased volume treated of 1,498,811 tonnes (H1 FY 2019: 1,168,702 tonnes).  The ROM grade of 57.4 cpht (H1 FY 2019: 61.7 cpht) marginally exceeded guidance of 54 - 57 cpht”.
• Production at the Koffiefontein mine “continued its improving trend with ROM production up 76% to 44,545 carats (H1 FY 2019: 25,275 carats)”.
• At the Williamson mine production rose by 3% to approximately 215,000 carats. Discussions continue with the Tanzanian Government “in relation to various issues, including the overdue VAT receivables and the blocked parcel”.
• Petra Diamonds also reports that “Post Period end, a pit slump of approximately 1.3 million tonnes occurred at Williamson on 21 January in an area on the south western sector of the pit. Most importantly, nobody was harmed in the incident and there has also been no damage to any mining equipment. After a preliminary risk assessment, all activities in the vicinity of the slumped area have been stopped and the local mine team is developing a mitigation plan, however the situation is made more challenging by the high seasonal rainfall currently being experienced. “
• Revenue declined by 6% however “mainly due to lower diamond prices and the previously reported adverse product mix at Finsch and Williamson, partially offset by the sale of the exceptional blue diamond from Cullinan”.
• The company reports net debt at 31^st December 2019 of US$596.4m (30^th September 2019 – US$592.8m).

*SP Angel acts as Nomad & Broker to BlueRock Diamonds, operator of the Kareevlei diamond mine.

 

 

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

 

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