SP Angel . Morning View . Tuesday 08 09 20
SP Angel
SP Angel . Morning View
10:21, 8th September 2020

SP Angel . Morning View . Tuesday 08 09 20

Copper prices continue to rise on falling inventories and mine supply

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MiFID II exempt information – see disclaimer below  

Bluejay Mining (JAY LN) – BUY, Valuation 24.7p – Artic sea ice set to reach lowest ever on record this month

Kavango Resources (KAV LN) – Further data on similarities between the Kahalari Suture Zone and the Norilsk nickel system in Russia

Metals Exploration (MTL LN) Suspended – Proposed debt restructuring

Panthera Resources (PAT LN) – Pre-feasibility study and mining licence at Tellerhauser project

Shanta Gold (SHG LN) – West Kenya Project historical exploration drilling summary

 

Copper prices set to rise further as stock levels fall and on prospects for much higher future demand rise

  • News that the proportion of EV to conventional auto sales is rising is good news for copper
  • Government stimulus plans rolling out EV charging points and wind farms around the world also indicate strong future demand
  • Global passenger vehicle sales rut at around 80m vehicles accounting for just under 2mtpa of copper, ~10% of total demand.
  • If all vehicle sales were electric we would expect demand from EV passenger vehicles to rise to around 6mtpa
  • Copper is difficult to substitute without a loss of performance and sales of larger trucks using more copper could drive demand further.
  • More copper will be required for wind farms with some 76GW of new wind capacity planned for 2020 possibly consuming a significant tonnage of copper in terms of generator windings, cabling and transformers. We assume a greater proportion of instillations are for offshore wind farms which use larger turbines and greater lengths of heavier subsea cable.
  • Worldwide copper usage jumped 38% over the last decade, from 17.8mt in 2009 to 24.5mt in 2019 and could rise to over 80mt by 2050.
  • Shanghai inventories have fallen to a ten-year low with LME stocks also continuing to fall to just 76,550t.
  • But the world’s miners are struggling to replace depleted copper mines as the world’s major copper mines deplete their resources.
  • There are so few new copper discoveries it is hard to see how the world will replace depleted production let alone meet anticipated demand.

Chilean central bank reports 11% copper export drop in August

  • Chilean copper shipments fell 11% to $2.76bn in August

 

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Dow Jones Industrials

 

-0.00%

at

28,133

Nikkei 225

 

+0.80%

at

23,274

HK Hang Seng

 

+0.26%

at

24,653

Shanghai Composite

 

+0.68%

at

3,315

 

Economics

China - Ministry of Commerce to boost consumption as part of Dual Circulation strategy

  • Consumption is to be supported with ongoing low interest rates, rebates and subsidies
  • Problem is that many Chinese people don’t have easily accessible savings
  • China’s housing market said to be overheating in many cities due to speculation and lower deposits for second homes.
  • Lower numbers of migrant workers since the pandemic may reduce rental income for the new property speculators
  • Second home buying absorbs huge capital and around a dozen cities are now tightening the rules to slow the market.
  • So much of the economic recovery is driven by parastatal companies that private sector wealth is struggling to catch up

Yangtze flooding causes evacuation of 100,000 and destroys >13m acres of farm land much of which can not be replanted this year due to the flood waters

  • China quietly buying food from US despite giving appearances of now wishing to support the US-China Phase 1 trade agreement signed in January

 

US - Trump weighs ban on Xinjiang cotton

  • The Trump administration is weighing a ban on products made with cotton from Xinjiang as it looks to punish Beijing over alleged human rights violations, according to the New York Times.

 

Japan – GDP drop was revised to -7.9%qoq, down from -7.8%qoq estimated previously.

  • The revision was driven by a larger than previously estimated contraction in business investment (-4.7%qoq v -1.5%qoq) slightly compensated by a small upwards review in consumption (-7.9%qoq v -8.2%qoq).

 

Germany – Exports climbed for the third consecutive month in July supported by growth in trade with countries outside Europe and China, in particular.

  • Overall outbound shipment remained 11% lower than the same period last year.
  • Only shipments to China were relatively unchanged yoy (-0.1%yoy) in a marked contrast to the US (-17%yoy), the UK (-12.6%yoy) and other EU countries (-9.6%yoy).
  • Separately, new Covid-19 infections increased at the highest rate since April with 1,898 new cases recorded in 24 hours through Tuesday morning; although, it is so far significantly below the daily rate of almost 7,000 seen at the height of the pandemic.
  • Reproduction factor climbed to 1.12 on Monday from 1.10 the day before.
  • Angela Merkel is prepared to consider taking action against the Nord Stream 2 pipeline in retaliation to the poisoning of Russian opposition leader Alexey Navalny, according to Bloomberg.
  • Exports (%mom): 4.7 v 14.9 in June and 5.0 est.
  • Imports (%mom): 1.1 v 7.0 in June and 3.5 est.

 

UK - BREXIT – The government is reported to have accelerated preparations to leave the EU without an agreement.

  • The pound continued to slide against the US$ and the € this morning.
  • UK equity funds reported record outflows of £1.2bn over the past three months on no-deal Brexit concerns, data from fund network Calastone showed today.
  • Outflows included £667m in June, £368m in July and £195m in August, while non-UK funds collectively saw a total of £1.6bn in inflows over the same period.
  • Calastone network is reported to cover more than two thirds of UK-based fund flows by value each month.

 

UK – 3.3 earthquake rocks Leighton Buzzard

  • Probably the most exciting thing to happen in Leighton Buzzard for years

 

COVID-19 second wave fears likely to cut gatherings to less 30 people indoors in UK

 

Hong Kong – Self distancing rules will be relaxed allowing four people to dine together in restaurants and reopen some sports venues from Friday as the number of new infections slows down.

  • Under current regulations, public gatherings are limited to two people.
  • Pubs and swimming pools will remain closed but could be permitted to reopen in the next round of relaxations, FT reports.

 

Kenya – Merger of Lake Baringo and alkaline Lake Bogoria may cause ecological disaster

  • Heavy rain is threatening to overflow Lake Bogoria, an alkali lake, into Lake Baringo.
  • Ecologists are blaming deforestation for the silting up and expansion of the lakes.
  • The likely merger of the lakes threatens wildlife at Lake Baringo.

 

Currencies

US$1.1806/eur vs 1.1831/eur yesterday.  Yen 106.24/$ vs 106.24/$.  SAr 16.742/$ vs 16.645/$.  $1.321/gbp vs $1.314/gbp.  0.729/aud vs 0.728/aud.  CNY 6.833/$ vs 6.831/$.

 

Commodity News

Precious metals:         

Gold US$1,930/oz vs US$1,929/oz yesterday - Gold prices rangebound as stronger dollar offsets virus fears

  • Gold prices were largely unmoved on Tuesday morning, as concerns over a global economic recovery were supportive of bullion, however a strengthening US dollar made gold more expensive to holders of other currencies.
  • Investors are eyeing the ECB meeting on Thursday, with policymakers expressing concern over the Euro’s strength holding back the bloc’s economy and dragging down prices (FT).
  • This morning saw the US dollar index advance for a sixth consecutive session, extending its recovery further north of the 93.00 level (FX Street).

   Gold ETFs 109.5moz vs US$109.4moz yesterday

Platinum US$917/oz vs US$904/oz yesterday

Palladium US$2,318/oz vs US$2,311/oz yesterday

Silver US$26.93/oz vs US$26.79/oz yesterday

           

Base metals:  

Copper US$ 6,769/t vs US$6,745/t yesterday -

Aluminium US$ 1,794/t vs US$1,792/t yesterday - Trafigura launches $500m finance platform for low-carbon aluminium

  • The commodity trader has launched the platform which will enable the trading house to finance at a preferential interest rate and pay a premium to low-carbon producers.
  • The move is a trend towards sustainable metal production, with other commodity traders such as Vitol also adapting their business models to the energy transition.
  • Another body encouraging sustainable aluminium is the LME, which has plans for a spot trading platform for low-carbon aluminium (Reuters).
  • The aluminium sector is one of the metal’s sectors largest emitters of greenhouse gas, and the sector lacks an official market definition of low-carbon aluminium.

Nickel US$ 15,220/t vs US$15,225/t yesterday

Zinc US$ 2,483/t vs US$2,487/t yesterday

Lead US$ 1,958/t vs US$1,979/t yesterday

Tin US$ 18,300/t vs US$18,160/t yesterday

 

Energy:           

Oil US$41.9/bbl vs US$42.1/bbl yesterday

  • Crude oil prices still look vulnerable despite a significant one day fall last week
  • The bulk of the drop came in the wake of August’s US jobs report
  • The headline payrolls rise registered broadly in line with expectations, but the private sector share in job creation underwhelmed forecasts by nearly 300k
  • Indeed, the public sector accounted for the biggest share of payrolls growth since March 2019
  • That seems to paint a grim picture for recovery in an economy where the private side of the equation accounts for close to 70% of overall growth.
  • Furthermore, the report showed wage inflation appearing to stabilise at an elevated 4.7% yoy
  • That is nearly double the 2.5% average prevailing between the 2008 recession a decade ago and the Covid-19 outbreak this year
  • Further compounding the weakness, Saudi Arabia has cut pricing for oil sales in October, a sign the world’s biggest exporter sees fuel demand wavering amid more coronavirus flare-ups around the globe
  • Aramco cut Arab Light to Asia to a discount against the benchmark oil price used by the Saudis for the first time since June
  • It’s the second consecutive month of reductions for barrels to the region and the first month in six that US refiners will see a cut
  • Aramco will trim pricing, too, for lighter barrels to northwest Europe and the Mediterranean region
  • Pricing is being reduced for Light exports to Asia in October by US$1.40/bbl to 50 cents below the regional benchmark
  • It was expected to pare pricing by $1/bbl a barrel to a 10-cent discount

 

Natural Gas US$2.550/mmbtu vs US$2.547/mmbtu yesterday

  • As expected, given it was Labour Day yesterday, Natural gas prices remained steady
  • This follows a rise on Friday, supported by expectations of an increase in LNG exports after they dropped the week before as Hurricane Laura shut facilities and export plants
  • Cheniere Energy, the country’s top LNG exporter, and Sempra LNG are expected to resume operations after no major damage was found following Hurricane Laura
  • Laura knocked out power to thousands of homes and businesses in Louisiana, Texas and Arkansas after slamming into the Gulf Coast near the Texas-Louisiana border last week as a major Category 4 storm
  • In the US, demand in the Lower 48 states is expected to decline slightly, falling from 83.9Bcf/d this week to 83.6Bcf/d in the next, according to Refinitiv.

          

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$122.9/t vs US$122.9/t

Chinese steel rebar 25mm US$555.6/t vs US$556.7/t

Thermal coal (1st year forward cif ARA) US$55.5/t vs US$56.1/t

Coking coal futures Dalian Exchange US$136.0/t vs US$136.0/t

           

Other: 

Cobalt LME 3m US$33,200/t vs US$33,200/t

NdPr Rare Earth Oxide (China) US$49,761/t vs US$49,773/t

Lithium carbonate 99% (China) US$4,976/t vs US$4,977/t

Ferro Vanadium 80% FOB (China) US$30.5/kg vs US$30.3/kg

Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.1/kg

Tungsten APT European US$212-220/mtu vs US$210-215/mtu

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

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

 

Battery News

LG Chem leading the battery market in 2020

  • South Korea’s big 3; LG Chem Samsung SDI and SK Innovation have increased their market share as the global battery sales were lower for Jan-July 2020 compared to the same time last year.
  • Total battery capacity was 53.3GWh for Jan-July, 16.8% lower than for the same period last year.
  • LG Chem leads the market, deploying 13.4GWh of capacity, up 97.4% on last year. The Company saw its market share more than double from 10.6% to 25.1%.  
  • The #2 and #3 players CATL and Panasonic have seen their market shares fall as their deployed battery capacity has been lower than last year. Samsung SDI deployed capacity us up 52.6% to 3.4GWh with their market share similarly improving substantially up 82% to 6.4%.
  • The majority of the remaining market participants have seen their capacity deployed and market shares fall as the market was hit hard in the first half by the pandemic related shut downs which curtailed manufacturing and reduced demand for battery EVs.
  • CATL announced last week that sales had fallen for the first half with revenues down 20% for batteries compared to the same time last year. Net profits were down 7.86%.
  • CATL recently completed a deal with Tesla to supply batteries to the Californian EV maker from last month out to 2022. This deal along with the Company’s supply partnership with Mercedes should see them improve their deployed capacity. CATL is investing $3.7bn into increasing it production capacity for lithium ion batteries. Moneyball report that CATL batteries are in 51% of NEVs in China.  
  • LG Chem reported quarterly sales and profit records in Q2. The Company achieved 2.82trn won in sales and 155.5bn won in profit. LG Chem supply Tesla, Hyundai Motor, Kia Motors, GM, Ford, VW, Renault, Volvo, Audi, Daimler, Jaguar and Porsche.
  • Recent battery fires in NCM 811 vehicles produced by both CATL and LG Chem have raised concerns about the viability of the high nickel batteries. It will be interesting to see has an affect on sales in the short term.

 

Denmark’s transition to EV leaving a gap in the finances

  • Denmark’s rapid switch to EVs is reported to leave a 5.7bn crown hole in the country’s bank account according to Reuters. The country relies heavily on car and road taxes worth 50bn crowns to fund its welfare system.
  • Today the country has less than 20,000 EV vehicles on its roads but the Danish Council on Climate Change (DCCC) has suggested that number should rise to at least one million by 2030 for the country to reach its climate goals.
  • Under the current system it is estimated car and road tax proceeds will fall 10bn crowns each year.
  • The DCCC an independent advisor to the government has estimated higher subsidies and higher taxes on fossil fuelled cars as the number of EVS rises would results in a 5.7bn crown net loss to Denmark.
  • EV take up has been slow in the country, Denmark recorded just 700 sales in 2017, which at the time was the same number Tesla delivered by itself in 2015. The government was forced to backtrack on subsidies which were phased out previously in order to stimulate growth of the market.
  • The government introduced a deduction in registration tax based on battery capacity in 2017 and from this year is introducing a new scheme where EVs on sale for less than DKK 400,000 (€54,000) will receive tax deductions, 20% of full tax this year, 65% in 2021, 90% in 2022 and 100% in 2023.

 

 Company News

Bluejay Mining (JAY LN) - 8.07p, Mkt cap £78m - Artic sea ice set to reach lowest ever on record this month

Valuation 24.7p

  • Ice free Artic summers are an inevitability and could be gone by 2035 according to scientists at NASA’s Goddard Space Flight Center.
  • Deep heat in the Arctic Ocean has risen and is now melting the ice from below combining with currents and global warming.
  • The Arctic gets warmer as it gets deeper with a warm blob of salty Atlantic water at depth which has been separated from the sea ice.
  • As the reflective ice melts, it is replaced by darker water, which absorbs more of the Sun’s energy and warms.
  • Robotic temperature probes, moorings, and oceanographic surveys show the blob of warm water is steadily warming and growing and already contains  enough heat to melt the Arctic’s ice three to four times over.
  • This growing blob of warm, trapped water melt all the sea ice from below if the barrier of the cold surface layers ever dissipates.
  • The warm water blob is normally seen from 150m depth but has recently moved up to within 80m of the surface
  • Increased turbulence at the shallower depth means some of that heat is now melting ice according to an oceanographer at the University of Alaska.
  • The process is called ‘Atlantification’ where fingers of warm Atlantic water have spread north and risen, melting sea ice even in winter months.
  • Satellites show that over the past 20 years, ice has been drifting faster, potentially sweeping it into warmer waters where it will melt faster.

Conclusion: Extended shipping seasons may not make a big difference to Bluejay Mining* though extending the shipping season should do not harm.

Bluejay is looking to ramp up operations at its Dundas ilmenite mine next year which will ship ilmenite concentrate once completed.

Management are waiting on the Greenland government for a mining permit which is due this year following completion of the public consultation process.

The team are currently negotiating offtake agreements to take the remaining planned concentrate production. The team currently have offtake orders for 70% of its planned 390-490,000tpa of ilmenite concentrate.

*SP Angel act as nomad and broker. The analyst has visited the Dundas ilmenite project in Greenland. The analyst holds shares in Bluejay Mining. Dundas  is well worth the visit as Greenland is awe inspiring

 

Kavango Resources (KAV LN) 2.85p, Mkt cap £4.5m – Further data on similarities between the Kahalari Suture Zone and the Norilsk nickel system in Russia

  • Kavango Resources has released further details of its 3D modelling showing geological similarities between the northern, Hukuntsi, zone of its Kalahari Suture Zone (KSZ) project in Botswana and the Norilsk region of Siberia which accounts for 90% of Russia's nickel reserves, 55% of its copper and virtually all of its' platinum group metals”.
  • The company’s modelling which incorporates airborne magnetic and electromagnetic geophysical data as well as drill hole and resistivity information, “depict flat lying Karoo gabbro sills in 3D, which bear a remarkable resemblance to those containing large deposits of copper, nickel and platinum group metal (Cu/Ni/PGM) rich massive sulphides in the Norilsk mining centre in Siberia”.
  • In particular, the modelling identifies 10 large scale geological sills (“Relatively thin, planar, horizontal bodies of solidified gabbroic magma that intruded into layers of sedimentary rock whilst still molten”) covering some 300km2 “within 400m of the surface, making them viable exploration targets”.
  • “Kavango's geologists will now work to select up to six of the most prospective targets for follow up exploration and drilling”.
  • CEO, Michael Foster, explained that the imagery was a major step forward in the company’s exploration of the KSZ which allowed them “to view the gabbroic intrusions in 3D. We can see their shape, size thickness and their depth from surface. We can clearly identify and locate the thicker parts of the sills for follow up EM surveying … which should culminate in an extensive drilling programme in the KSZ."
  • The company includes a link to a more detailed presentation describing the similarities with Norilsk at https://www.kavangoresources.com/media/attachments/2020/04/29/mineral-systems-review-of-the-ksz-botswana.pdf as well as a number of detailed vertical sections.

Conclusion: Kavango Resources is building a compelling technical case for the geological similarities between its KSZ project and the well-known Noriilsk deposits. Ultimately however the challenge will be to build on the impressive technical work to identify and prove up a commercial body of mineralisation.

 

Metals Exploration (MTL LN) Suspended – Proposed debt restructuring

  • Metals Exploration reports that it has conditionally agreed a restructuring of its US$68.5m senior debt and also the restructuring its mezzanine debt which, in aggregate amounts to approximately US$137m.
  • Term-sheets have been agreed with the Guernsey companies, Runruno Holdings (RHL) and MTL (Guernsey) which, subject to shareholder approval, Metal Exploration expects will lead to the restoration of trading of its ordinary shares on AIM.
  • The agreed transaction requires the company to make a quarterly payment to the Lenders … within 5 business days of each quarter end, being an amount equal to the Group's net working capital …  subject to first establishing and maintaining a US$5 million cash buffer”.
  • Also, “In contrast to what the Company had communicated in prior announcements, there will not be any debt swapped for new equity as part of the Proposed Restructuring”.
  • Interest will be charged at 7%pa on the senior debt and at 15%pa on the mezzanine debt.
  • Explaining that “The end result places the Company in a financial position where its debt burden does not jeopardise its future solvency”, CEO, Darren Bowden, said that he was “disappointed that the final outcome is not in line with the general terms discussed with the Lenders prior to the purchase of the senior debt, it is pleasing to have concluded this drawn-out debt restructuring process which provides the Company with more flexible and commercially attractive debt terms that allows for the shares to re-commence trading on AIM in the near term”.

Conclusion: Metals Exploration has conditionally agreed a debt restructuring which it expects to lead to the company’s readmission to trading on the AIM Market. The terms remain subject to shareholder approval.

 

Panthera Resources (PAT LN) 5p, Mkt Cap £4m – Pre-feasibility study and mining licence at Tellerhauser project

  • Panthera Resources reports the recent completion of a pre-feasibility study on the  Tellerhauser polymetallic project of its 14.2% owned Anglo Saxony Mining located approximately 230km from Berlin and 115km NNW of Prague. At this stage the announcement does not provide further details on the conclusions of the study.
  • The company also reports that the project has been granted a 50 years mining licence.
  • Tellerhauser is reported to be principally a tin project with associated zinc, indium and magnetite.
  • Anglo Saxony Mining is described as having an overarching strategy of becoming a significant European focussed tin and associated metals mining company” and the company says that “There is currently an absence of any significant tin production in Europe with tin considered to be Critical Raw Material (CRM) in Germany.”

 

Shanta Gold (SHG LN) 17p, Mkt Cap £144m – West Kenya Project historical exploration drilling summary

  • The Company released a summary of historical exploration drilling at the recently acquired West Kenya Project in Western Kenya.
  • The West Kenya Project covers most of the Archaean Busia-Kakamega Belt, the northern most greenstone belt in Lake Victoria Goldfield.
  • The Busia-Kakamega Greenstone Belt located on the northern edge of Lake Victoria and extending northwest from Kakamega in Kenya into Uganda is of analogous size to other well known greenstone gold mineralised belts including the Val d'Or District-Abitibi, Canada and the Kalgoorlie District-WA in Australia.
  • Historical drilling includes 220,000m completed across the Project Area leading to a number of discoveries.
  • The principal prospects within the project are two orebodies (Isulu and Bushiangala) with estimated NI 43-101 Inferred Mineral Resource Estimate of 1,182koz at 12.6g/t that is believed to be one fo the highest grading +1Moz gold deposits in Africa.
  • A total of 96,390m of exploration drilling in 190 holes has been completed across these deposits that produced a number of high grade and good width intersections including:
  • Isulu Prospect:
    • Hole ABKD0018 intersected 10.0 m grading 17.44 g/t Au from 18 m;
    • Hole ABKD0048 intersected 6.0 m grading 63.08 g/t Au from 35 m;
    • Hole ABKD0092 intersected 7.8 m grading 18.68 g/t Au from 334 m;
    • Hole ABKD0105 intersected 4.0 m grading 34.00 g/t Au from 302 m;
    • Hole ABKD0083 intersected 6.4 m grading 31.60 g/t Au from 670 m;
    • Hole ABKD0117 intersected 3.0 m grading 92.38 g/t Au from 537 m;
  • Bushiangala Prospect:
    • Hole ABSD004 intersected 19.8 m grading 9.26 g/t Au from 29 m;
    • Hole ABSD019 intersected 11.2 m grading 9.20 g/t Au from 56 m;
    • Hole ABKD0061 intersected 7.8 m grading 23.75 g/t Au from 274 m;
    • Hole ABKD0060 intersected 8.0 m grading 15.49 g/t Au from 366 m;
  • Shanta is planning to start infill drilling across the oxide and hard rock targets over Isulu and Bushiangala deposits in Q4/20.

Conclusion: Shanta released a summary of historical exploration drilling at the recently acquired West Kenya Project highlighting a significant amount of work completed on the project already and high grade nature of delineated deposits with a large land package in the Archaean Busia-Kakamega Greenstone Belt in the Lake Victoria Goldfield pointing to a strong exploration upside potential.

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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