SP Angel . Morning View . Tuesday 07 07 20

SP Angel . Morning View . Tuesday 07 07 20

Metals to rise further on USD weakness, supply issues and stimulus

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Aura Energy* - (AURA LN) – Term sheet on Mauritanian gold, base and battery metals projects

Pure Gold Mining (PUR LN) – Positive initial results from drilling at Red Lake mine

 

Metals prices continue to rise on US dollar weakness, mines and smelter disruption and stimulus demand

Copper prices rising as mine disruption causes concentrate charges to tighten

• LME and SHFE copper stocks remain at low levels with Shanghai stocks close to Pre-GFC levels due to tight metal concentrate supplies
• Buying to restock inventory in China in case of further disruption and for stimulus projects likely in China

• Production of copper, aluminium, lead and zinc could be affected due to refineries in the flood zone along Yangtze river
• Construction of new flood defences and the repair of buildings in flooded areas will provide further economic stimulus
• Repair and replacement of homes and vehicles caught in the flood on insurance likely to boost demand

 

US dollar falls as Chinese currency climbs on China economic recovery

• Chinese yuan may fall below 7 / USD following significant fall to 7.018 / USD from 7.066 / USD yesterday
• The Yuan strengthened on the back of a strong recovery in Chinese PMI numbers, steading at 7.024 this morning.
• China foreign exchange reserves rose $10.6bn in on month to $3.1tr at end-June
• Flooding along the Yangtze may dent demand in the short term but increase stimulus construction through the second half

 

China – Yellow alert for flooding along the Yangtze River building up at the Three Gorges Dam 

• Internationally-recognised hydrologist warns of possible collapse of the Three Gorges Dam citing serious cracks in substandard concrete  
• Wuhan and Chongqing cities are at risk of major flooding. Disasters declared in 24 provinces affecting some 85m people with 40,000 evacuated
• ‘Wang Weiluo warns that concrete construction blocks have not been adequately secured to the foundation bedrock. Following a serious 1998 flood, an inspection by independent engineers revealed sub-standard steel bar welding. Google images from 2019 seem to show some bulging or warping of the dam. Wang claims the movement is due to poor design.’
• https://www.ooskanews.com/story/2020/07/china-releases-water-three-gorges-dam-alleviate-flooding-torrential-rains-persist
• The heaviest rainfall for 70-80 years is causing officials to releasing water from the Three Gorges Dam to alleviate flooding which is 6ft above its warning level
• 100-200mm of rainfall expected in the middle to lower reaches of the Yangtze (Xinhuanet)  
• Some areas could see up to 400mm in the next three days CMA ‘China Meteorological Administration’
• Wuhan raised its flood response level to Level II from level II after four days of heavy rain due to flooding of many roads
• Anhui province upgraded its flooding response to 3^rd level from 4^th level causing the evacuation of residents as smaller rivers and lakes swell

 

Has the Coronavirus swept through nations and societies on airborne microparticles

• Have we seen the worst of the mortality rate due to the greater vulnerability of the old and the sick?
• Is a lack of COVID-19 antibodies representative in the bloodstream evidence of no coronavirus exposure or are T cells able to bat the virus away?
• Will the West see a resurgence of Coronavirus infection in the winter when the population suffers weakened immune response?
• Does the BCG vaccine given to so many give a stronger immune response, helping to protect so may in the West?
• Do people carry the coronavirus long after they recover from its symptoms?
• How long will it take to be sure of a ‘safe’ vaccine and how long will it protect the population?
• So many questions to still answer
• Equity markets are predicting a relatively strong economic recovery boosted by spending on new infrastructure, construction and stimulus spending.

 

IG TV interview on gold and gold companies

•    https://youtu.be/lszustZe7_U

VOX Markets podcast on mining

• https://www.voxmarkets.co.uk/media/5ed0fab0243d7b001b3e0381/?context=/series/daily-podcast/

 

 

Dow Jones Industrials		+1.78%	at	26,287
Nikkei 225		-0.44%	at	22,615
HK Hang Seng		-1.22%	at	26,018
Shanghai Composite		+0.37%	at	3,345

 

Economics

US – Final PMI data pointed to a slowdown in the pace of contraction in economic activity in June.

• Composite PMI came in at 47.9 in June, up significantly from 37.0 in May and higher than the earlier released ‘flash’ figure of 46.8.
• Companies point to stronger demand conditions relative to the those recorded earlier in the pandemic.
• The pace of load shedding has also slowed.
• Businesses expressed optimism towards the outlook over the coming years for the first time since March.
• “With business confidence in the outlook picking up again in June, a return to growth for the economy in the third quarter looks likely, though this will very much depend on the extent to which demand continues to strengthen… the need to reintroduce lockdowns to fight off second waves of coronavirus infections will pose a particular threat to recovery momentum, and could drive a return of the recession,” Markit said.

US Services sector PMIs virtually returned to pre-pandemic levels

• Chamber of Commerce and trade associations pushing US and Chinese officials to stick to Phase 1 trade deal agreed in January
• US Navy running drills in South China seas watched by Chinese navy providing potential for further tension in the region

• US government, Mike Pompeo says the US is looking at banning TikTok and other Chinese social media apps (Fox News)

US new Coronavirus cases rising following the reopening of many states though with fewer fatalities

• Dr Fauci warns that the US is ‘knee deep’ in the first wave of  the Coronavirus with new cases close to 50,000pd
• It remains to be see if the number of fatalities will rise to follow the number of new cases of COVID-19
• Once the disease has been through the nursing homes, hospitals and more vulnerable in society its mortality is likely to decline
• Countries like Sweden which have worked hard to protect the elderly are likely to see a steadier mortality rate as they struggle to hold accidental infections.

 

Global Composite PMI increased to 47.7 in June with the rate of contraction easing sharply in both manufacturing and service sectors.

• The index reached a five month high and up by a record 11.4 points from 36.3 in May.
• Sub-industry showed financial services posted growth for the first time in five months, making it the first sector to return to growth with downturns continuing in the other  five sectors (*business services, consumer goods, consumer services, intermediate goods and investment goods).

 

China - Core Car and commercial vehicles rose 11% to 2.28m in June (Chinese Assoc of Automobile)

• Rmb1.26tr of government bonds issued to local government using up almost all some RMB3.55tr out of the RMB3.75tr quota
• Hong Kong – June PMI 49.6 (43.9)

China State media call for retail investors to be rational striking a more measured tone today after fuelling a rally the previous day (Bloomberg)

• The Shanghai Composite Index climbed 5.7% on Monday marking the largest single-day gain in five years.
• Stocks of brokerages surged as daily turnover exceeded 1.5tn yuan for the first time since 2015.
• The market posted further gains this morning with the SCI up 0.4%.

 

EU - European Commission revised economic growth forecasts expecting a full percentage deeper contraction in the Eurozone this year and saying that risks remain “exceptionally high and mainly to the downside”.

• Eurozone GDP is forecast to post a -8.7% growth this year.

• EU retail sales rose 15% mom in May vs a fall of 11.7% in April
• EU interim economic forecasts: https://ec.europa.eu/info/sites/info/files/economy-finance/ip132_en.pdf

 

Africa - Economic activity recovering

• June PMIs vs May 
  • South Africa 42.5 (32.5),
  • Mozambique 41.7 (38.0),
  • Zambia 42.3 (34.8),
  • Uganda 46.5 (41.9),
  • Kenya 46.6 (36.7),
  • Ghana 49.7 (46.7),
  • Nigeria 46.4 (40.7)
  • Egypt 44.6 (40.7).

 

UK – £27.4bn claimed with 9.4m workers furloughed 

• Total Coronavirus Large Business Interruption Loan Scheme lending £2.58bn vs £2.33Bn on June 28
• Total Coronavirus Business Interruption Loan Scheme lending £11.49Bn vs £11.07Bn on June 28

UK – Visits to pubs and restaurants reached only sub-20% of pre-pandemic levels after reopening on Saturday, according to Huq Industries that uses high frequency mobile phone location data.

• Spending in pubs and bars across England increased to nearly 3x the level recorded in the previous weekend, although, the value of transactions remained down 45% compared to the same weekend last year.

 

India – threatening to reject around 50 Chinese investment proposals following military clash in Ladakah, Kashmir.

• China has accused India as being discriminatory but India has always sought to protect its markets from outside interference

 

Germany – Industrial production posted the first MoM increase in May in three months as the economy eased lockdown measures.

• Record rebound in output has nevertheless come below market estimates.
• On the previous year, output was down nearly 20% in May.
• Production is set to recover further with Ifo Institute reporting German manufacturers are expecting an increase for the second month in a row as more companies plan to expand output than not for the first time since the pandemic started in March.
• Industrial Production (%mom/yoy): +7.8/-19.3 v -17.5/-25.0 in April and +11.1/-16.9 est.

Germany - Factory orders rose 10.4% in May vs a fall of 26.2% in April - this is almost a third less than forecast (Reuters)

 

Spain – Only 5% of the nation is estimated to have developed COVID-19 antibodies suggesting it is still long way off “herd immunity”, according to the nationwide study.

• The study was based on 61,000 participants with samples collected between April 27 and May 11.
• “At present, herd immunity is difficult to achieve without accepting the collateral damage of many deaths in the susceptible population and overburdening of health systems, the scientists wrote in the paper published on Monday in The Lancet medical journal.

 

Australia – Authorities will isolate 6.6m people in the state of Victoria from the rest of the country on the back of an increasing number of new coronavirus cases in the city of Melbourne.

• Melbourne going back into stage 3 Lockdown following the identification of 191 coronavirus cases

• The border between Victoria and New South Wales will be closed for the first time since the pandemic started.

 

Italy - Retail Sales rose 24.3% mom in May but remain 10.5% lower yoy

 

Sweden - government warns authorities to prepare for a coronavirus SECOND WAVE this Autumn

 

Brazil – car production falls 58% in June as nation struggles to safely reopen factories

• Workers are often required to help as family members struggle with COVID-19.

 

Russia – Authorities issued a record $2.1bn fine to Norilsk Nickel over a 21kt fuel spill in the Taimyr region in May.

• The fine is comprised of RUB147bn to repair damage to Arctic waterways and a further RUB0.7bn for damage to the nearby soil.
• The spill resulted from an accidental damage to a diesel fuel storage tank a Heat and Power Plant No3 (HPP-3) in the Kayeran neighbourhood of the city of Norilsk.
• The accident was caused by a sudden sinking of supporting posts in the basement of the storage tank following thawing of permafrost.

 

Ecuador - Ecuador reaches provisional debt deal with bondholders (FT)

• Ecuador said the agreement would give debt relief over the next four years on >$10bn of outstanding and $17.4bn of sovereign bonds, and on a further $6bn between 2025 and 2030.
• The deal would involve a 42% in Ecuador’s average coupon to 5.3%, longer payment terms and a 9% nominal haircut for bondholders.

 

Harvard – all courses to be online for 2020-21 academic year

 

Currencies

US$1.1285/eur vs 1.1292/eur yesterday.  Yen 107.57/$ vs 107.60/$.  SAr 17.140/$ vs 16.918/$.  $1.247/gbp vs $1.249/gbp.  0.694/aud vs 0.697/aud.  CNY 7.024/$ vs 7.032/$.

 

Commodity News

Precious metals:          

Gold US$1,782/oz vs US$1,776/oz yesterday

   Gold ETFs 103.6moz vs US$103.5moz yesterday

Platinum US$821/oz vs US$820/oz yesterday

Palladium US$1,933/oz vs US$1,931/oz yesterday

Silver US$18.12/oz vs US$18.10/oz yesterday

            

Base metals:   

Copper US$ 6,110/t vs US$6,088/t yesterday - Copper treatment charges hit 7-year low with Tcs set at ~$53/t for the third quarter (SMM)

• Smelters compete for reduced concentrate supplies out of Latin America due to Coronavirus

• Jiangxi Copper and Tongling Nonferrous agreed $60.80/t for H1 2021 with Antofagasta

Aluminium US$ 1,631/t vs US$1,620/t yesterday

Nickel US$ 13,310/t vs US$13,250/t yesterday - Norilsk Nickel fined record $2.1bn over fuel spill

• Russia has fined the world’s largest producer of palladium and nickel over a fuel spill on a Siberian river in late May.
• The country’s environmental watchdog expect Norilsk to make a voluntary contribution of Rbs147bn to repair damage to Arctic waterways and a further Rbs738m for damage to the nearby soil (FT).
• More than 21,000 tonnes of diesel leaked into two Siberian rivers in May, when an ageing fuel tank collapsed.
• The fine is equivalent to about a third of Norilsk’s net profit for 2019, and the company may struggle to meet its generous dividend policy.

Zinc US$ 2,046/t vs US$2,047/t yesterday

Lead US$ 1,787/t vs US$1,798/t yesterday

Tin US$ 17,100/t vs US$17,020/t yesterday

            

Energy:            

Oil US$42.6/bbl vs US$43.7/bbl yesterday - 

Natural Gas US$1.854/mmbtu vs US$1.812/mmbtu yesterday

Uranium US$33.00/lb vs US$32.90/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$97.7/t vs US$95.4/t - China iron ore imports fall 400,000t from week prior

• A total of 15.79mt of iron ore arrived at eight major Chinese ports last week, down 400,000t from the prior week but up 1.95mt from the previous year.
• Iron ore deliveries leaving Australia fell 860,000t to 17.56mt- although this was 46% higher compared to the same period last year.
• Shipments departing Brazil also fell last week, down 970,000t to 6.9mt- although this was still 830,000t higher than last year (SMM News).

Chinese steel rebar 25mm US$525.2/t vs US$524.3/t

Thermal coal (1st year forward cif ARA) US$58.9/t vs US$57.3/t

Coking coal swap Australia FOB US$123.0/t vs US$123.0/t

            

Other:  

Cobalt LME 3m US$28,500/t vs US$28,500/t

NdPr Rare Earth Oxide (China) US$41,098/t vs US$41,241/t - Australian defence minister says country needs to step up rare earths supply

• Defence Minister Linda Reynolds says that there are still too few sources of rare earths in the country, and raised the prospect of increased government support for strategically important minerals.
• ASX-listed Lynas remains the biggest and only significant supplier of rare earth materials outside of China.
• Ms Reynolds said that the supply of rare earths was too concentrated, and Australia needs to do more to utilise its significant geological reserves.
• The Australian government is reportedly considering backing Arafura Resources and its $1.1bn rare earths project in the3 Northern Territory (Australian Financial Review).  

Lithium carbonate 99% (China) US$4,764/t vs US$4,764/t

Ferro Vanadium 80% FOB (China) US$29.5/kg vs US$29.5/kg

Antimony Trioxide 99.5% EU (China) US$4.9/kg vs US$4.9/kg

Tungsten APT European US$205-215/mtu vs US$215-225/mtu 

Graphite flake 94% C, -100 mesh, fob China US$460/t vs US$460/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,275/t vs US$2,350/t

 

Battery News

Tesla – Strong quarterly deliveries lift shares as consumers take delivery of EVs

• NIO shares also performing well rising 48% since Friday and 209% so far this year
• NIO more than doubled sales in May yoy
• Plug-in vehicle sales have risen to 5.1% of the total market in China vs 3% in Europe and 1.9% in the US
• Some 191,000 EVs were sold in China in the first four months of the year

 

Volkswagen continues to expand its EV capabilities 

• German auto maker Volkswagen is investing €1bn into its Emden plant as it converts the facility to produce electric cars. (Teslarati)
• The investment follows VWs recent moves to similarly convert their Zwickau factory and a €2.1bn investment into 2 Chinese EV firms.
• The work will include a new 50,000sq.m factory hall and additional body shops. The factory hall is expected to be completed in Summer 2021.
• Production of the ID.4 compact SUV will begin at the factory in 2022.
• Volkswagen has invested €30bn into EV technology in Europe to date, much of that investment in Germany.
• The Company aims to have 20 all-electric models available by 2025.

 

Daimler takes stake in Farasis Energy

• Daimler has announced a multimillion-euro investment in Farasis Energy, through Daimler greater China, subject to regulatory approval. (Financial Times)
• The German carmaker will take a 3% stake in the Chinese battery cell maker as part of a move to deepen its strategic partnership with the company. 
• Daimler announced in 2018 its intention to invest €20bn into battery cells over the next decade. The Company currently sources batteries from CATL.
• The Company has an existing supply agreement with Farasis which specializes in lithium-ion batteries. 
• The partnership is working towards developing cell technologies to increase vehicle range and reduce charging times. (Reuters)
• The stake will give Daimler the option of nominating a representative for a seat on the supervisory board of Farasis.
• The German carmaker will support construction of a new battery cell manufacturing plant by Farasis, the plant will be located in Bitterfeld-Wolfen, Germany.

 

Nevada to offer incentives to boost EV adoption 

• Nevada has launched new incentives to encourage EV take up in the state via the Electric Vehicle Infrastructure Demonstration program (EVID). (Electrek) 
• EVID is funded by Nevada Energy’s (NVE) customers via a small charge per kWh.
• Developers of lower-income multifamily dwellings and government programs will receive the lesser of $10,000 per level 2 charging port or 100% of costs for 2-4 ports. The maximum incentive will be $40,000.
• NVE has also allocated funds for charging points along route 95, to be the Nevada Electric Highway, $500,000 per site.
• A further $3m is available for each school district to apply for up to 7% of the purchase of two electric school buses and charging facilities.

 

Company News

Aura Energy* - (AURA LN) 0.53p, Mkt Cap £4.4m – Term sheet on Mauritanian gold, base and battery metals projects

• Aura Energy reports that it has signed a non-binding term sheet with TSX-listed Chilean Metals for a C$4.5m funding of its gold, base and battery metals exploration tenements in Mauritania.
• The transaction, which is subject to due-diligence, covers 435km2 of licences ʺlying on two lightly explored mineralised greenstone belts … along strike from Kinross’ giant +20Moz Tasiast Gold Mine, where Kinross recently announced that it will expand gold production to 530,000 ounces per year.ʺ
• ʺAura maintains that these tenements, also with strong base and battery metal results, represent some of the best under-explored greenstone belt targets in the world.ʺ
• If the transaction proceeds as planned, Chilean Metals will invest in a jointly owned ‘Pubco’ in a series of staged payments with an initial C$1.5m due on or before 31^st August 2020. Subsequent C$1.0m tranches would be due on or before 30^th January 2021, and, at Chilean Metals’ election, on 1^st June and 1^st October 2021. In addition, Aura Energy will receive 1m shares in Chilean Metals.
• Commenting on Aura Energy’s long-standing confidence in the mineral potential of the Mauritanian greenstone belts, Executive Chairman, Peter Reeve welcomed ʺThis substantial funding package from a group of seasoned resource investors/developers will help reveal their true potential. With the Tasiast Gold Mine (+400,000 ozs pa) on the same belt just north of our project, the potential for multi-million-ounce discoveries is, in the eyes of our technical people, very conceivable".
• Mr. Reeve also stressed the nickel and cobalt potential of the area which he compared with the well-known Kalgoorlie region of Western Australia and said that ʺAura is very pleased that Chilean Metals has recognised the attributes of this geological belt and welcomes Chilean into this project. Chilean's understanding of what it takes to enable mineral discovery and their connection to important gold investment sources will be important ingredients in this transactionʺ.

Conclusion: The injection of new exploration funds into the Mauritanian gold, base and battery metals projects should accelerate exploration and provide a greater insight into their potential. We look forward to confirmation of the transaction.

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

 

Pure Gold Mining (PUR LN) – 108p, Mkt cap £389.3m – Positive initial results from drilling at Red Lake mine

• Pure Gold Mining reports results from the initial 875m of underground drilling of its previously announced major, 30,000m, drilling campaign at the Red Lake mine in Ontario.
• Among the results announced today are:
  • A 7m wide intersection averaging 46.7g/t gold from hole PGU-0118 which included a single metre averaging 193.5g/t extending ʺthe eastern margin of the MV1280-3815 stope by several metresʺ; and
  • A 1m wide intersection averaging 57.0g/t in hole PGU-0121 ʺin a significant step out, 30 metres beyond the 3815 planned mining shape highlighting significant tonnage growth potentialʺ; and
  • A 2.3m wide intersection averaging 15.8g/t gold in hole PGU-0117 which confirms mineralisation approximately 15m along strike from the planned MV1280-3825 stope ʺproviding potential for westward extension of that stopeʺ; and
  • A 5.0m wide intersection averaging 7.2g/t gold in hole PGU-0113 and including a single metre averaging 22.3g/t.
• The company explains that the drilling has both confirmed and extended mineralisation in the planned stopes ʺproviding opportunity for additional high grade tonnes from existing or planned development, and new gold mineralization that may be incorporated into future short term mine plansʺ as well as ʺnew gold mineralization that may be incorporated into future short term mine plansʺ.
• The company also confirms that it has now started its surface drilling campaign with two rigs investigating the ʺWedge zone, located three kilometres from the PureGold milling facilityʺ.
• The Wedge Zone id described as ʺone of the key growth areas outside of the phase 1 mine plan. Previous drilling in the area includes 33.3 g/t gold over 8.3 metres from hole PG17-467 and 21.3 g/t gold over 10.3 metres from drill hole PG17-486ʺ.
• The drilling programme is expected to continue into 2021 with the objective of expanding the mineral resource base within the existing planned area and of facilitating new discoveries.
• Describing the potential of the 7km long mineralised trend President and CEO, Darin Labrenz, said that the ʺNew drill results demonstrate that extensions of existing stopes and possible expansions of the mine plan occur very close to existing or planned development and as such, have the potential to impact near term mine cash flow."

Conclusion: The early results from the amjor drilling programme at Red Lake are delivering extensions to the continuity of mineralisation with the potential to add to the resource base in the short term while surface drilling recently started in the ‘Wedge Zone’ approximately 3km away from the Red Lake mill could start to reveal the potential of a 7km long mineralised trend.

 

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

 

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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