SP Angel . Morning View . Thursday 21 05 20

SP Angel . Morning View . Thursday 21 05 20

Base metals and miners rise as China and Western economies emerge from lockdown

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MiFID II exempt information – see disclaimer below

 

Anglo Asian Mining* (AAZ LN) - BUY – Strategy update

Aura Energy* (AURA LN) – General meeting rejects proposed new directors

Bluejay Mining plc (JAY LN) – Chairman’s statement highlights work with Rio Tinto and near-term ilmenite (titanium) production 

Chaarat Gold* (CGH LN) - BUY – Quarterly production increases, costs come down, FY20 target reiterated at 55koz

Strategic Minerals* (SML LN) – Draft environmental programme submitted for Leigh Creek

 

Base metals and Miners rise as lockdown eases in Western Economies

• Construction machinery index tracking downtime shows strong recovery in machine utilisation
• Expect stimulus measures from China’s National Peoples Congress
• Major London hospital reported no new COVID-19 fatalities in past 48 hours.
• London also reported no new cases of COVID-19 following tests though this is though to be due to a technical error in the notification system
• Bright sunshine and clear air may be a strong contributory factor. Will be interesting to see if cases rise when weather turns

 

Brazil - explosion in COVID-19 cases may lead to significant disruption to mine operations and logistics

• The sickness may cause widespread disruption and hitting iron ore exports which are likely to account for >10% of GDP this year
• The disruption may also hit vanadium shipments from Largo
• Over 80% of the world’s niobium comes from the Araxá and Catalão, Goiás niobium mines.
• Niobium is often used as a substitute for vanadium in the hardening of steel particularly when vanadium prices rise  
• The loss of vanadium production combined with disruption of niobium could impact production of structural steel which requires vanadium or niobium for hardening. This could cause widespread disruption.

 

China - Expect more stimulus from the National People’s Congress this week

• China State Council announced national level planning to support development in Western China

• $2tn US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries
  • 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.
  • US Fed may soon start buying in up to $750 billion of corporate debt and ETFs
• $543bn EU Crisis Recovery fund backed France and Germany + $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.
  • The pandemic emergency purchase programme (PEPP) and asset purchase programme (APP) have been reiterated with a cap of €750bn and €120bn, respectively.
  • The bank is reported to have used €100bn of the PEPP so far.
• $825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds
• $909m $344bn of China stimulus + $565bn in special bonds for infrastructure by local authorities
• $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 Australia - RBA ready to buy bonds again.

• US$260bn - India representing 10% of GDP. 

• $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 not affect the $70bn that Argentina is currently in talks to restructure.
• $1,000bn - IMF available + $12bn World Bank, 

>13.2tn Total

 

Dow Jones Industrials		+1.52%	at	24,576
Nikkei 225		-0.21%	at	20,552
HK Hang Seng		-0.36%	at	24,313
Shanghai Composite		-0.51%	at	2,869

 

Economics

China - National People’s Congress starts in Beijing tomorrow

• President Xi is expected to announce a revised GDP target for the year

• New economic stimulus for housing, transport and other infrastructure is likely
• Ministry of Transportation to invest RMB800bn in new transport projects
• Environmental regulations are likely to be tightened
• Anti Corruption and increases compliance may also be on the agenda

• Major China banks announced Rmb10bn of zero-interest loans to support small business
• China retail car sales fell 3% yoy at end May to just over 39k vehicles from -7% yyo in the first week of May

 

EU - new car registrations fell 76.3% yoy vs a 55.1% fall in march

• ZEW economic sentiment index rose to 46 vs 25.2 previously
• German sentiment index bounced to 51 vs 28.2

 

Spain – proposal to introduce Universal Basic Income as previously proposed by Spain’s socialist coalition 

• While this looks like a hard Socialist policy it looks more like More like Universal Credit in the UK which is designed to support to the most vulnerable in society. In reality it’s a safety net to catch unemployed people
• As always there will be unintended consequences such as lower salaries for lowest paid and more people on benefits working for cash
• Spain may raise taxes to fund the €3bn cost of the scheme and this may potentially inflame separatist regions.
• On the plus side previous studies have shown significant benefits to regions where this have been trialled and the scheme may benefit a million households throughout Spain.
• Spain remains in a state of alarm until June 7

 

Singapore - man sentenced to death via Zoom

• A 37-year-old man received a death sentence via a Zoom video call in Singapore, for his role in a drug deal that took place in 2011. 

 

UK – Workforce cuts are raising unemployment with Rolls Royce chopping 9,000 staff (17% of its workforce)

 

Hong Kong - unemployment rose to 5.2% in April vs 4.2% in March

 

Russia – Q1 GDP 1.6% vs 2.1% in Q4

 

Kazakhstan - Jan-April copper output rises 10.4% 

• Copper production in the first four months of 2020 stood at over 165,000t - a 10.4% increase compared to the same period in 2019. 
• Refined zinc production stood at over 107,000t - a decrease of 0.9%. 
• Bauxite production stood at 1.04mt - a decrease of 18.4%. 
• Crude steel production stood at over 1.2mt - a decrease of 20.4%. 
• Refined gold production stood at 20,424kg - an increase of 16.6%. 
• Refined silver production stood at 302,211kg - a decrease of 3.6%. 

 

Currencies

US$1.0970/eur vs 1.0953/eur yesterday.  Yen 107.85/$ vs 107.68/$.  SAr 17.989/$ vs 18.265/$.  $1.220/gbp vs $1.224/gbp.  0.656/aud vs 0.654/aud.  CNY 7.102/$ vs 7.105/$.

 

Commodity News

Precious metals:          

Gold US$1,737/oz vs US$1,749/oz yesterday

   Gold ETFs 99.1moz vs US$99.0moz yesterday

Platinum US$846/oz vs US$846/oz yesterday

Palladium US$2,081/oz vs US$2,042/oz yesterday - Metals Focus trims forecast for palladium supply deficit due to Covid-19

• Precious metals consultancy Metals Focus has lowered its forecast for the supply/demand deficit in the palladium market for 2020 due to the Covid-19 pandemic. 
• Pre-coronavirus, Metals Focus forecast a physical deficit of 899,000oz in 2020, however this has now been revised to a deficit of 124,000oz. 
• According to the report, the pandemic's impact will likely be greatest for palladium, which is used in automotive catalysts for gasoline-powered cars- popular in the No.1 and 2 auto markets of China and the US. 
• For 2020, palladium demand is forecast to decline to 9.68Moz from 10.88Moz the year before. Demand for palladium from autocatalysts is expected to decline to 7.89Moz from 8.88Moz in 2019. Supply is seen falling to 9.55Moz this year from 10.29Moz. 
• Palladium prices are seen averaging $2,275/oz this year compared to $1,537/oz last year- as physical demand improves, Metal Focus expected the price to return to the mid-$2,000s in the second half of 2020 (Kitco).

Silver US$17.21/oz vs US$17.52/oz yesterday

            

Base metals:   

Copper US$ 5,430/t vs US$5,346/t yesterday - LME copper touches over two month high

• Copper on the LME advanced to its highest price in over two months, as hopes of a swift global economic recovery encouraged risk sentiment in metals.
• The impending meeting of the Chinese government this week is also expected to boost demand with pledges of higher spending on infrastructure, which is also supporting current prices. 
• Three-month copper on the LME hit $5,464/t early on Thursday morning - its highest since the 13th of March (Reuters). 

Aluminium US$ 1,514/t vs US$1,491/t yesterday

Nickel US$ 12,750/t vs US$12,445/t yesterday - China's nickel ore imports dropped 70% yoy in April 

• China imported 1.36mt of nickel ore and concentrate last month, down 6% from March and 70.2% lower than April 2019. 
• The decline was due to the biggest nickel exporter to China, the Philippines, suspending mining operations and shipments in an attempt to slow the spread of coronavirus (SMM News). 

Zinc US$ 2,015/t vs US$2,014/t yesterday

Lead US$ 1,697/t vs US$1,678/t yesterday

Tin US$ 15,710/t vs US$15,465/t yesterday - Roskill estimate a 14,000t surplus this year as mine supply falls 8% to 270,000t and refinery supply falls 6% at 355,000t.

• The automotive sector accounts for 50% of global tin demand, after solder with chemicals at 18%, tinplate 13%, lead-acid batteries 6%, copper alloy 6% and other 10%.

 

Energy:            

Oil US$36.3/bbl vs US$34.8/bbl yesterday

Natural Gas US$1.762/mmbtu vs US$1.822/mmbtu yesterday

Uranium US$33.85/lb vs US$33.70/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$93.4/t vs US$95.0/t

Chinese steel rebar 25mm US$548.9/t vs US$549.4/t

Thermal coal (1st year forward cif ARA) US$53.0/t vs US$52.3/t

Coking coal swap Australia FOB US$113.0/t vs US$120.0/t

            

Other:  

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

NdPr Rare Earth Oxide (China) US$37,947/t vs US$37,933/t

Lithium carbonate 99% (China) US$5,139/t vs US$5,137/t

Ferro Vanadium 80% FOB (China) US$27.0/kg vs US$27.0/kg

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

Tungsten APT European US$210-220/mtu vs US$215-225/mtu 

Graphite flake 94% C, -100 mesh, fob China US$500/t vs US$500/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,350/t vs US$2,425/t

Potash - ICL signs potash supply contract with Indian Potash Ltd

• ICL group has signed a contract with Indian Potash (IPL), the country's largest importer, to supply 410,000 tonnes of potash to be supplied through December 2020. 
• The contract is part of a five-year supply agreement between ICL and IPL signed in 2018, and the selling price in the contract is $50/t below the previous contract between the two companies (World Fertilizer). 

 

Battery News

S-Volt developing 1.2 million km cobalt free li-ion battery

• Great Wall Motors spin off S-Volt have revealed a battery with similar characteristics to the one-million-mile battery promised by Tesla. (Inside EVs)
• S-Volt is providing a warranty of 15yrs or 1.2m km on the battery and is making use of a single crystal in its cobalt free battery.
• A single crystal facilitates a stronger particle strength and more stable structure, improving safety.
• Further developments in cation doping and a nano-network coating increase the energy density by more than 40% compared to LFP equivalents.
• The battery pack is stacked, making use of layered lithium nickel manganese oxide, folded back and forth.
• Precise temperature control reduces the risk of failure and the cobalt free battery is claimed to have resisted heat tests with no fires.
• S-Volt plan to make two battery packs available for sale in 2021, a 115Ah 600km range option and a 226Ah vehicle capable of 547mi per charge.  

 

Technology Metal signs MoU for production of vanadium electrolyte and VRFB manufacture

• Technology Metals has signed a memorandum of understanding (MoU) with Chinese Big Pawer Electrical Technology Xiangyang Inc (BPETX) on the set up of a vanadium offtake agreement. (Proactive Investors)
• BPETX has VRFB R&D and manufacturing capabilities and has a history of successfully deploying VRFB systems.
• The MoU establishes an offtake agreement for up to 5000 tonnes of TMT’s vanadium pentoxide V205 annual production of 12,800 tonnes at its Gabanintha project, WA.
• Minimum term for the offtake agreement is 5yrs, renewable for an additional 5. (Mingin Weekly)
• The MoU includes a JV on production of vanadium electrolyte and establishing a manufacturing base in Australia.
• The agreement is on a take-or-pay basis with pricing negotiated based on the average European free-on-board price.
• A feasibility study of the Gabanintha project found it could produce 27.9m pounds of vanadium pentoxide annually over its 16-year life. Project costs are estimated at $318m.

 

SQM Q1 profits plunge but 2020 output could beat expectations

• Chilean miner SQM announced this week that profits fell close to 50% in Q1 as battery metal prices remained in free fall. (Nasdaq)
• The Company does however plan to dramatically reduce its capex from $450m to $350m and expects EV battery metal output to be above budget despite the pandemic. (Reuters)
• SQM posted a 44% drop in net income for Q1 to $45m as lithium prices were 50% lower than the average over the same period last year.
• Lithium revenue fell 58% and profits from SQMs high profile lithium business accounted for 12% of gross profits, down from 50% last year.
• The Company cited difficulties in Asian markets but expects to increase market share and sales volumes as the year progresses.

 

Company News

Anglo Asian Mining* (AAZ LN) 140p, Mkt Cap £159m – Strategy update

BUY

• The Company laid out a strategic update focusing on extending the life of mine at existing operations as well as highlighting further exploration and growth potential.
• The plan is comprised of three parts including:

1. 1.     ‘Prioritising discoveries identified by current exploration to increase production and mine life’

• The team shortlisted five discoveries that can be fast tracked into production using existing leaching and flotation capacities at Gedabek.
• Avshancli 1 and Avshanli 3, both located 6.5km NE of Gedabek processing plant, host gold and copper mineralisation at and close to surface with exploration work ongoing. Construction can be started next year for first ore delivered to the plant in Q2/Q3 2022 if prospects to be proven economic.
• Gilar, located next to Avshancli 1, has been identified to host gold in quarts veins at surface with exploration to continue through to the end of 2021 leading potentially to the start of construction in 2022 and commencement of production in 2023.
• Ugur Deeps, located few hundred metres from the SE flans of the open pit, offering a potential rich in copper underground operation with recent drilling returning grades up to 2.5% Cu over up to 25m from 350m. The topography of the area allows for a low cost access to the mineralisation using an adit and a ramp while existing mine infrastructure including the haul road to offer further development expenses savings. Exploration is currently planned for 2020-21 with a potential underground mine construction start in 2022 followed by production in 2023.
• Zefer Cell 9 (Zefer), located 600m west of leach pads and on the Gedabek mineralisation trend, offers a medium term potential feed source with exploration planned to take longer due to the depth of mineralisation. Production may potentially start in 2025.
• Additionally, underground extensions at Gedabek and Gadir as well as at Gosha “Zone 5” will remain part of the exploration programme through 2021 with a potential to source new ore from Q1/23.

1. 2.     ‘Long term upside potential of existing concessions’

• Porphyry type mineralisation potential at Gedabek will be assessed during a three year programme from 2021 that may considerably extend the life of mine into mid-2030s if not longer.
• Regional exploration targets at Gosha are being evaluated including Asrikchay hosting a high grade polymetallic mineralisation.
• A targeted exploration programme to test the highest priority targets at Ordubad will be carried with the area reported to be favourable for hosting porphyry formations.

1. 3.     ‘Evaluating other opportunities, both within and outside Azerbaijan’

• The Company is considering projects outside its portfolio of assets both in Azerbaijan and other countries on an ongoing basis.
• Separately, the Company will release updated mineral resources/reserves statement for Gedabek, Gadir and Ugur in Q3/20.

Conclusion: The strategic update offers the plan to extend the life of mine at operating sites with five discoveries identified as potential feed source in proximity to Gedabek leaching and flotation processing capacities in addition to underground extensions at Gedabek, Gadir and Gosha. Priority is given to mineralisation found at or near surface that can be quickly brought into production as was the case with Ugur in 2017. Regarding a more medium to long term development pipeline, the team highlighted both organic growth opportunities within its contract areas as well as potential M&A both within and outside Azerbaijan.

*SP Angel acts as nomad and broker to Anglo Asian Mining

 

Aura Energy* - (AURA LN) 0.2p, Mkt Cap £5.2m – General meeting rejects proposed new directors

• Aura Energy reports that its shareholders have turned down resolutions for the election of a further six directors at the General Meeting held in Melbourne.
• Votes against the nominees ranged from 50.05% of those cast in the case of Mr. O’Neil  to as high as 59.28% in the case of Mr. Gin with most of the individual votes attracting sizeable abstentions. (Although the abstentions are not included in the reported percentages for and against each nomination).

Conclusion: The meeting had been postponed from 14^th April as a result of restrictions to assist in the containment of the Covid19 virus and we hope that now that shareholders have delivered a decision, Aura Energy should be in a position to concentrate on the advancements of its Tiris uranium project in Mauritania and the Haggan vanadium project in Sweden.

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

 

Bluejay Mining plc (JAY LN) – 6.5p, Mkt cap £63m – Chairman’s statement highlights work with Rio Tinto and near-term ilmenite (titanium) production 

• Bluejay Mining report on their financials for 2019 and on their focus for near-term production from Dundas in Greenland.
• The company has signed an MOU with a signed with trader for offtake potential for up to 200tkpa ilmenite and possible project financing.
• Management continue to engage with other leading industry players for further offtake
• Mining license: we expect Bluejay to receive approval for their mining license sometime soon following compliance with the EIA and SIA.
• There is little doubt the Greenland government want and in many respects need new economic development and the Dundas project which is relatively accessible on the coast between Thule and the town of Qaanaaq offers significant benefit and diversification to the nation and local community.
• Management are also advancing focussing on their other exploration properties in Greenland leading with the recently expanded Disko-Nuussuaq nickel-copper-platinum-cobalt project.
• Management are confident of some form of discovery here led by past discovery of high-grade samples at surface and geophysical results indication the presence of a nickel-copper style mineralisation.
• The team have also increased the scale of their Kangerluarsuk zinc project area where work indicated 40m thick structures.
• Drill programs have been postponed at Disko and Kangerluarsuk due to COVID-19 but desktop work is being done to refine drill targets.
• Two new exploration projects were also taken in the south making Bluejay the largest operational landowner in Greenland.
• Costs: management have cut management and other costs while Greenland has also waived exploration commitments this year to help..
• Rio Tinto Iron and Titanium ‘RTIT’ bulk sample produced at pilot plant in Quebec. The pilot plant will restart shortly with RTIT moving their smelter test into 2021 due to COVID-19.
• Cash and cash equivalents were £10.3 at the year end, up from £8.8m a year earlier.

*SP Angel act as Nomad to Bluejay Mining. The analyst holds shares in Bluejay Mining

 

Chaarat Gold* (CGH LN) 31p, Mkt Cap £162m – Quarterly production increases, costs come down, FY20 target reiterated at 55koz

BUY

• At Kapan, GE production amounted to 13.0koz (Q4/19: 11.4koz) reflecting better processed grades (2.86g/t GE v 2.61g/t in Q4/19).
• Production breakdown included 6.7koz gold, 130koz silver, 455t of copper and 1,886t of zinc.
• AISC totalled $1,0.74/oz (Q4/19: $1,242/oz).
• Better metallurgical recoveries have also helped production climbing to 79.5% from 78.6% in Q4/19 despite processing more oxidised material.
• Two new cyclones clusters are being installed to help grin optimisation and ultimately improve recoveries replacing old inefficient units.
• Two new loaders and haul trucks have been ordered with a delivery expected later in Q2 improving equipment availability as well as reducing maintenance costs and AISCs.
• Underground development was relatively flat at 5,623m (Q4/19: 5,732m) opening up new mining areas and improving operating flexibility.
• The Company reiterated production guidance for 55koz GE for FY20.
• At Tulkubash, the Company is working on detailed engineering studies while progressing project funding discussions targeted for completion by end of 2020.
• The Company highlighted border crossing restrictions and equipment delivery delays due to pandemic related containment measures in the Kyrgyz Republic.
• The team worked closely with and provided assistance to local communities both in Armenia and Kyrgyzstan offering medical supplies and other equipment to help with social distancing.

Conclusion: Production update highlights stronger output and lower unit costs with Kapan operations largely continuing unaffected by the pandemic. At Tulkubash the Company is targeting to close debt funding by the end of the year with higher gold prices improving economics of the project and attracting new interest as the team is reviewing additional proposals to optimise the financing structure.

*SP Angel acts as Broker to Chaarat Gold

 

Strategic Minerals* (SML LN) 0.55p, Mkt Cap £8.1m – Draft environmental programme submitted for Leigh Creek

• Strategic Minerals reports that it has now lodged a draft programme for environmental protection and rehabilitation at its Leigh Creek (LCCM) copper project site with the South Australian regulators.

• Strategic Minerals is working to re-start copper production at Leigh Creek and the company explains that the procedure for ʺa licence to operate is for companies to lodge a draft proposal which is circulated to relevant departments within the South Australian state government. This process normally takes around two months and feedback is then addressed/incorporated into a final PEPR lodgement.  Generally, the process takes around three to four months from lodgement of the draft PEPR to the granting of the approval.ʺ
• The production of a copper cement product at Leigh Creek has been identified as a second revenue stream for the company which currently operates a magnetite tailings business at Cobre in New Mexico.
• The company cautions that it is uncertain about the impact of restrictions relating to the containment of Covid19 on the timing of the environmental approval for Leigh Creek but Managing Director, John Peters, explained that ʺWhilst the Leigh Creek project is taking longer to progress than anticipated, the Board considers that LCCM … is a key asset within its portfolio. The continued strength of the Cobre operation, which the board expects to produce circa US$3m in sales and US$1.5m in after tax cash in 2020, provides the Company adequate scope to locate and execute with a joint venture partner.   Again, this emphasises that, subject to financing, a second income stream for the Group is relatively at hand."

 Conclusion: The permitting of Leigh Creek is an important element in Strategic Minerals’ plan to develop a second source of income and although Covid19 control measures introduce uncertainty over timing, the submission of the draft environmental plan moves the process ahead by providing the regulatory authorities in South Australia the opportunity to consider the merits of the development plan.

*SP Angel acts as Nomad and Broker to Strategic Minerals

 

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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