SP Angel . Morning View . Stimulus rises over $275bn as markets continue to fall

SP Angel . Morning View . Thursday 12 03 20

Stimulus rises over $275bn as markets continue to fall

CLICK FOR PDF

MiFID II exempt information – see disclaimer below   

 

Oriole Resources (ORR LN) – Iamgold to start drilling at Senala project, Senega

Rambler Metals* (RMM LN) – Agreement for possible utilisation of Nugget Pond gold circuit

Metal Tiger (MTR LN) – Metal Tiger terminates acquisition jv in Thailand

Talga Resources* (TLG AU) – Talga joint venture with Faraday may have some similarity with Samsung solid state battery development

 

PDAC attendees asked to monitor for coronavirus symptoms after man tests positive

• Anyone who attended the PRAC mining conference in Canada is being asked to monitor themselves for symptoms after someone who attended has contracted the virus (Canadian Financial Post).
• The man admitted himself to a Canadian hospital after experiencing a cough and difficulty breathing, and is now home in self-isolation.
• More than 23,000 people from around the world attended the conference including Canadian Prime Minister Justin Trudeau.

 

Italy closes all businesses as Coronavirus cases swamp hospitals

• Pharmacies and supermarkets remain open with the provision that customers must remain at a distance of 1m from staff and other people.
• All travel is also locked down unless citizens have the requisite papers.

 

Oil’s price collapse should cut mining costs by significant margin

• The recent crash in the price of oil will help many miners manage through an environment of lower metals prices
• Energy costs normally run at around 25-35% of the cost base of most miners making fuel costs a significant cost item to address

 

Coronavirus tests reveal virus lifespan in the air and on surfaces 

• The scientists used a nebuliser to put the virus into the air to replicate the cough of an infected person (TIME).
• Viable virus could be detected in the air for up to:
  • 3 hours in the air,
  • 4 hours on copper,
  • 24 hours on cardboard,
  • 2-3 days on plastic and stainless steel,

 

Stimulus funding relating to the Coronavirus (Updates in bold, figures in US dollars)

• $50bn - IMF
• $50bn – US – in the form of low-interest loans to companies in affected areas through the Small Business Administration.
• $39m – UK (£30bn) stimulus to support the economy through the coronavirus – Govt. pledged to do more if needed. (any excuse to spend money through Brexit)
• $28.3bn (€25bn) - EU
• $15.4bn – Hong Kong relief package
• $13.7bn - South Korea
• $12bn - World Bank
• $11.4bn – Australia 
• $8.4bn – Italy doubles the stimulus package to $8.4bn (€7.5bn) breaking EU budget deficit rules. Expect other states to do the same.
• Italy – looking to increase stimulus to ($18bn), not yet approved. This will be the 4^thstimulus increase in the last month
  • The Italian banking sector will surely be under severe strain
• $8.3bn – US House of Representatives – (US GFC stimulus totalled $2.8tr starting with $168bn in early 2008).
• $5.5bn – Bank of Japan, ETF purchases and short term liquidity to Banks
• $11.9bn – BoJ triples financing for small and mid-sized firms
• $3.5bn - Ireland
• $2bn – Taiwan stimulus
• $0.75 - Indonesia
• $14.2bn China, already spent. $113bn worth of bonds issued by China regional governments in January
• China – much more stimulus to come
• ECB ready to take targeted action
• US – to announce new stimulus today
• Australia – to announce new stimulus today
• UK – Government advice: ‘Keep Calm & Carry On’
• Germany – Angela Merkel’s CDU party continue to object to easing Germany’s strict fiscal deficit rules. We expect this to change as the Coronavirus spreads.
• $275bn – TOTAL stimulus offered to-date -

 

SP Angel Mining ranks first in Research Tree research rankings for the Resources Sector

• See: https://www.research-tree.com/blogs/research-tree/2019-research-tree-analyst-rankings

 

Dow Jones Industrials		-5.86%	at	23,553
Nikkei 225		-4.41%	at	18,560
HK Hang Seng		-3.66%	at	24,309
Shanghai Composite		-1.52%	at	2,923

 

Economics

US – US equity markets slide more than 20% below their recent highs in February ending a 11-year ‘bull market’ as the WHO declared coronavirus outbreak a pandemic.

US – suspends all travel from Europe

• The US government banned flights from Europe (except for Ireland, the UK and other countries outside the 26-nation Schengen zone) effective this Friday.
• The administration instructed the US Treasury to defer tax payments (originally due April 15) without interest or penalties for certain individuals and businesses negatively affected by three months suggesting it would provide more than US$200bn in additional liquidity to the economy.
• Additionally, Trump will order the Small Business Administration, a government agency, to provide companies in affected areas US$50bn in low-interest loans.
• Earlier President signed a US$8.3bn emergency spending bill to help fight the spread of the virus and develop vaccines for the highly contagious disease.
• NBA suspends the current season after Rudy Gobert of Utah Jazz reportedly tested positive for the coronavirus.

 

Japan – The government introduced a second stimulus package for ~US$4bn in spending to cope with the outbreak focusing on support to small and mid-sized businesses.

• Separately, the BoJ pledged to pump more liquidity into markets and increase asset buying.

 

Germany – Centre-left coalition agreed to increase public spending by €12.4bn by 2024 and provide access to companies to claim subsidies to support workers on reduced working hours, Reuters reports.

• Earlier, Chancellor Merkel said up to 70% of the population was likely to be infected by the virus.

 

UK – The government launched a £30bn economic stimulus plan following the BoE decision to cut rates by 50bp.

• The cabinet will hold an emergency meeting today at around 1315 GMT and is expected to implement more stringent measures to tackle the coronavirus crisis.

PM, Boris Johnson to chair emergency meeting 

• UK to bring in new emergency measures as it moves to ‘delay phase’ to restrict Coronavirus spread.

Coronavirus loan scheme to be introduced

• Mr Sunak announces that a coronavirus loan scheme is to be introduced to cover the cost of salaries and bills will offer loans of up to £1.2m to support small and medium sized businesses.
• "The government will offer a generous guarantee on those loans, covering up to 80% of losses, with no fees, so that banks can lend with confidence,".
• "This will unlock up to £1bn of attractive working capital loans to support small businesses, with more as needed.".

 

France – The government is allowing companies to suspend taxes and social security payments and orders the Bpifrance state investment bank to guarantee loans needed to overcome short-term cashflow problems.

• Paris allowed companies to declare force majeure due to the outbreak if they cannot meet obligations with the public sector and encouraged larger companies to do the same with their subcontractors.

 

Italy – Restrictions are stepped up with most shops and restaurants closed as death toll increased over 30% on Wednesday to more than 800 people.

• PM Conte said supermarkets and pharmacies will be the only retailers to remain open it Italy.

 

India – The central bank is looking to inject as much as 1tn rupees (US$13.6bn) using the second round of long-term repo operations (LTRO) into the financial system to support the liquidity in markets.

• The measure is expected to come into effect as early as April.

 

Denmark – The country shuts all its schools and universities after a 10-fold jump in cases since the start of the week.

 

Iran – The nation asked the IMF for emergency funding of $5bn to help fight the virus.

 

LME may switch to electronic trade if necessary during coronavirus

• The exchange may switch from open outcry to electronic price discovery if the coronavirus makes it impossible for ring-trading to continue safely.

 

Currencies

US$1.1262/eur vs 1.1323/eur yesterday.  Yen 103.60/$ vs 104.97/$.  SAr 16.449/$ vs 16.079/$.  $1.279/gbp vs $1.294/gbp.  0.645/aud vs 0.653/aud.  CNY 6.987/$ vs  6.949/$.

 

Commodity News

Gold US$1,643/oz vs US$1,662/oz yesterday

   Gold ETFs 86.9moz vs US$86.9moz yesterday

Platinum US$858/oz vs US$879/oz yesterday

Palladium US$2,242/oz vs US$2,371/oz yesterday

Silver US$16.69/oz vs US$17.02/oz yesterday

            

Base metals:    

Copper US$ 5,440/t vs US$5,575/t yesterday

Aluminium US$ 1,671/t vs US$1,694/t yesterday

Nickel US$ 12,255/t vs US$12,660/t yesterday - LME Nickel orders post biggest ever drop

• Cancelled warrants for LME nickel dropped 17,100 tonnes to 73,500 tonnes, the biggest daily drop in data going back to 1997 (Bloomberg).
• According to data provided by the LME, this was due to declining orders in Singapore and Malaysia.

Zinc US$ 1,974/t vs US$2,013/t yesterday

Lead US$ 1,753/t vs US$1,806/t yesterday

Tin US$ 16,585/t vs US$16,845/t yesterday

            

Energy:            

Oil US$34.0/bbl vs US$36.8/bbl yesterday – 

• OPEC’s third biggest producer, the UAE, is entering the oil price war announcing that it was positioned to boost its supply to the market to over 4MMbopd in April, 1MMbopd higher than current production
• The UAE has been producing c.3MMbopd, in line with its commitment to stick to and even over comply with the OPEC+ production cut deal, which fell apart last Friday.
• Whilst both Saudi and Russia can operationally produce oil at very low breakeven prices, the key issue is the country’s fiscal breakeven given the overreliance on energy production on their respective economies
• The IMF estimated that in 2020 oil would need to be priced at US$78.30/bbl for Saudi Arabia to balance its budget. Russia’s breakeven budget point is said to be in the US$40/bbl range.
• However, the countries seem willing to absorb the short-to-medium term pain to regain market share from the US shale producers
• By lowering oil prices, Russia and Saudi Arabia will disrupt the US industry and likely force some companies into bankruptcy
• Brent futures are down 1.6% to $34.8/bbl, whilst WTI futures are down 1.3% at US$32.1/bbl

 

Natural Gas US$1.805/mmbtu vs US$1.940/mmbtu yesterday - Natural gas prices ticked up yesterday ahead of today’s inventory report

• Expectations are for stockpiles to decline by 60Bcf according to survey provider Estimize
• This compares to a 109Bcf draw in stocks last week
• The weather on the east coast of the US is expected to remain warmer than normal while temperatures out west are expected to remain cool
• Support fell in the latest week driven by a decline in imports from Canada

 

Uranium US$24.25/lb vs US$24.25/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$86.8/t vs US$88.8/t

Chinese steel rebar 25mm US$527.7/t vs US$528.8/t

Thermal coal (1st year forward cif ARA) US$54.8/t vs US$55.9/t

Coking coal swap Australia FOB US$151.5/t vs US$152.8/t

            

Other:   

Cobalt LME 3m US$33,500/t vs US$33,500/t

NdPr Rare Earth Oxide (China) US$38,787/t vs US$39,142/t

Lithium carbonate 99% (China) US$5,725/t vs US$5,756/t

Ferro Vanadium 80% FOB (China) US$28.0/kg vs US$28.0/kg

Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.3/kg

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

Graphene - Graphene-based stress sensor could help NASA in testing anxiety levels of Astronauts

• A graphene based sensor has been developed that measured stress via cortisol in sweat by Caletch assistant professor of medical engineering, Wei Gao.
• The device features a plastic sheet etched with a laser to generate a 3D graphene structure with tiny pores which sweat can collect.
• NASA announced in October that Gao is one of six researchers to receive funding for studies of the health of humans on deep-space missions.

 

Battery News

Coronavirus threatens to derail EV momentum 

• Leading industry experts point to a 3^rd year of falling auto sales in China, with EV’s suffering more than their fossil fuel counterparts. The damage could be greater as any measures taken by China to arrest the situation will likely benefit petrol and diesel. (Financial Times)
• Policy support from the central government remains key to the survival of EV players. Last year the government reduced subsidies for EVs in an attempt to thin the market and in a bid to halt a recession in the sector could favour traditional fuel burning vehicles as they constitute an important part of the Chinese economy.
• Although industry consolidation will benefit players like Nio, Xpeng and WM Motor, funding has become more difficult to secure and only Guangzhou has explicitly supported EV sales.  
• Outside of China, General Motors (GM) announced the cancellation of their EV crossover launch. The Lyriq model is the first of a suite of vehicles to be produced as part of the Company’s $20bn investment into EV.  (Yahoo Finance)
• The global pandemic has impacted operations as employees have limited travel outside of the Detroit headquarters and meetings with dealers and suppliers are conducted remotely.
• Shares in GM have declined 26.6% in the past year whilst Groupe PSA, Ford ,Fiat Chrysler, FCAU, Honda, Nissan and Renault have all suffered as operations at their Chinese plants have been curtailed.
• The crisis extends beyond the car makers with 3 major lithium mining firms issuing profit warnings in 2020, with SQM explicitly citing coronavirus-driven logistical issues. (Quartz)
• China is the single largest consumer of lithium (39%), the country is integral in the industry’s supply chain and 25% of lithium is produced by 2 Chinese companies (Tianqi and Ganfeng).

 

Tesla to begin delivery of the Model Y ahead of schedule

• Customers confirm Tesla scheduling delivery dates of the new Model Y from March 13^th, 2 days ahead of the original date, March 15^th.  (Electrek)
• Tesla has been texting customers inviting them to confirm their delivery dates through their account. The majority of customers have been provided with a delivery window between March 15^th and March 30^th.   
• The Californian automaker has also added a further configuration to the offering, a white interior.
• Tesla is also looking to expand its US operations, scouting locations for a further Gigafactory in to produce the Cybertruck and Model Y crossover. Nashville is believed to have made the shortlist. (TechCrunch)

 

Company News

Oriole Resources (ORR LN) 0.271p, Mkt cap £1.9m – Iamgold to start drilling at Senala project, Senegal

• Oriole Resources reports that Iamgold is to commence a programme of approximately 10,000m of aircore drilling at the Fare project area within its Senala project in Senegal where Iamgold has the option to earn a 70% interest from the expenditure of US$8m.
• Iamgold’s earlier work has concentrated on the Madina Bafe prospect area in the southern part of the Senala project which lies some 10km from Iamgold’s 2.5moz Boto gold deposit.
• Following the securing of a new licence over the Fare area, ʺIAMGOLD has confirmed that it will now move northwards to commence drilling at the Faré prospectʺ where earlier work by Oriole Resources, including some 10,000m of reverse-circulation drilling and an extensive soil sampling programme has ʺidentified a south-westward extension of the Faré South Au anomaly (>30 ppb Au) by at least 750m and up to 600m in widthʺ.
• Subject to the aircore results, Iamgold may move to a further phase of reverse-circulation drilling.
• Oriole Resources says that ʺSince signing the agreement in March 2018, IAMGOLD has spent a total of c.US$1.5 million. As per the terms of the option agreement, IAMGOLD must spend a further US$1 million during Year 3 to keep the option in good standing.ʺ

 

Rambler Metals* (RMM LN) 1.4p, Mkt Cap £18m – Agreement for possible utilisation of Nugget Pond gold circuit

Click here for full research note PDF

• Rambler Metals has announced the signing of a non-binding letter of intent with Maritime Resources which gives Maritime an exclusive 12 months period to assess the possibility of treating ore from its Hammerdown gold project through the currently unused gold plant at Rambler’s Nugget Pond processing facility.
• Maritime Resources has made an advance to Rambler of $200,000. Maritime Resources CEO, Garett Macdonald, explained that ʺThe gold circuit is currently idle and was operated in the past by Richmont Mines, processing feed from the former Nugget Pond and Hammerdown gold mines with gold recoveries of over 95%ʺ.
• Mr. Macdonald also outlined that the recent Preliminary Economic Assessment (PEA) on the Hammerdown project showed that re-opening the operation gould generate an average 69,500 oz pa of gold production over the initial five years generating an after tax NPV5% of $111.3m and IRR of 50.5% at a gold price of US$1,375/oz.
• Rambler Metals & Mining President and CEO, Andre Booyzen, welcomed the potential development of a new mining project in the area and explained that while the gold circuit had remained unused for a prolonged period ʺapart from the addition of a grinding circuit, [it] will not require significant further investmentʺ.
• Mr. Booyzen went on to confirm that ʺOur agreement with Maritime will not distract us from our focus on continuing to develop our operations to 1,500 tpd of ore processed at >2%Cuʺ.
• Our recent research on Rambler Metals highlighted the potential benefits of an increase in throughput from the current 1,250tpd base case to 1,500 tpd which at current copper prices of around $5,500/t would increase our estimated NPV_7.5% by around 40%.

Conclusion: The use of a currently unused asset at the Nugget Pond Plant to facilitate Maritime Resources’ reopening of the Hammerdown gold project makes practical sense for both parties reducing the re-opening capital required for Hammerdown while, presumably, generating an additional income for Rambler. The fact that the gold circuit at Nugget Pond was previously used to process ore from Hammerdown provides reassurance that the proposal is unlikely to be thwarted on technical grounds.

*SP Angel act as Nomad and broker to Rambler Metals & Mining

 

Metal Tiger (MTR LN) 1.2p, Mkt Cap £18m – Metal Tiger terminates acquisition jv in Thailand

• Metal Tiger report the termination of their acquisition joint venture with Mr Klipbua in relation to the Boh Yai lead-zinc-silver mine in Thailand.
• The drilling and geological analysis required would have required a substantial commitment by Metal Tiger.
• The agreement also required a viable and compliant framework for permitting under Thai law. Metal Tiger was to take a 49% stake in the jv.
• Unfortunately, despite all the work done Meta Tiger was not able to reach agreement with Mr Klipbua without an upfront payment.
• Metal Tiger has done a shed load of work on the project and is “open to approaches from third parties, particularly those that would be willing to explore a joint approach to help capture the project’s potential value. The Board believes the relationship with Mr Klipbua remains a very positive one.”

Conclusion:  Many individuals and introducers look for upfront cash payments in relation to the acquisition of rights to mineral assets in the emerging markets.

We would caution any mining company from making any sizeable up-front cash payments to individuals as this is seen by investors as dead money unless the asset can demonstrate significant tangible value.

Up-front payments to introducers are particularly controversial as with the recent fraud perpetrated on Lekoil by an introducer who offered to arrange a $184m loan from a fake sheikh. Lekoil is blaming its advisers.

Earn-in options, royalties and other similar schemes are generally more acceptable.

 

Talga Resources* (TLG AU) A$0.315, Mkt Cap A$77m – Talga joint venture with Faraday may have some similarity with Samsung solid state battery development

Valuation: A$1.80

CLICK FOR PDF

• Talga resources has a joint venture battery development with Faraday with a silver-carbon anode which sounds similar to the Samsung solid state battery
• While Faraday battery does not use metallic lithium Talga’s solid state anode is a carbon-metal hybrid which looks similar to Samsung’s approach.

Samsung – claims 900Wh/l solid state lithium ‘metal’ battery in new study

• Samsung report the development of a new generation solid state lithium battery with 900Wh/l power density. (we estimate ~300Wh/kg)
• The density of lithium batteries varies but appears to run at close to 3 litres per Kg.

• Samsung’s Advanced Institute of technology (SAIT) and R&D Institute Japan (SRJ) have published a study on their next generation lithium metal solid state battery. (Cleantechnica)
• The new lithium ‘metal’ formulation does not include liquid electrolytes, preventing chemical degradation and improving the safety of the battery.
• The battery includes a 5 micrometre silver-carbon (Ag-C) coating on the anode which both halts the build-up of dendrites, increasing battery longevity and improving energy density up to 900Wh/L. (TechXplore)
• We expect development to continue for some years.
  • Tesla 2179 cells run at 711Wh/l (246Wh/kg) 
  • Tesla P11D 18650 cells run at 721Wh/l (250Wh/kg)
  • Chevy Bolt cells run at 444Wh/l (237Wh/kg)

*SP Angel acts as UK broker to Talga Resources. SP Angel also act for Oxis Energy a leading Lithium metal battery development company.

 

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.

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.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. 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. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, 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).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II - Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

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%