SP Angel . Morning View . Friday 09 10 20

SP Angel . Morning View . Friday 09 10 20

US fiscal stimulus and positive Chinese PMI lift metal prices 

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MiFID II exempt information – see disclaimer below  

Alien Metals (UFO LN) – Hammersley iron project with BHP 19 and BHP 20 prospect names, who are they kidding?

Antofagasta (ANTO LN) – Inaugural bond issued

Castillo Copper (CCZ LN) – Mt Oxide drilling to start in mid-October

Petropavlovsk (POG LN) – Production guidance downgrade

 

US Fiscal stimulus deal discussions are back on the table with the White House reported to be open to ideas over a large-scale stimulus after House Speaker Nancy Pelosi pushed back on proposals for individual measures for parts of the economy.

 

Gold - $1,914/oz - prices rise on renewed US stimulus hopes

• Gold prices rose on Friday, as US Treasury Secretary Mnuchin told House Speaker Nancy Pelosi that President Trump is willing to agree to a comprehensive stimulus package.
• Spot gold was up 0.7% earlier this morning to $1,907/oz, and up 0.4% for the week- whilst US gold futures rose 1% to $1,912/oz (Reuters).
• Both Republicans and Democrats agreed upon the urgent need for stimulus, although the two groups clashed on whether or not to fund states, with Republicans claiming that they have squandered their tax dollars ineffectively.
• The US dollar declined for the third straight session this morning on the increasing likelihood of stimulus, with the dollar index declining 0.11% at 93,47 this morning (FX Street).

 

Global stimulus and recovery programs seen drawing metals inventories 

Tata Steel reports highest-ever quarterly deliveries

• Tata Steel broke its record for steel deliveries in in Q2 as the company ramped up steelmaking back to a pre-Covid level with all major sites operating at around full capacity.
• Tata delivered 5.05mt in the quarter, up 72% compared to Q1 and 22% YoY.
• Exports were reduced to 24% of the company’s total deliveries, while domestic deliveries were ramped up to 3.86mt a 164% increase vs Q1 and 10% higher YoY.

 

IG TV / SP Angel interview

• Metals Markets: Are they totally dependent on stimulus:? https://youtu.be/TOiSwRpgfKM

• Tesla Battery Day: https://youtu.be/8su0PtyZLIM           
• Mining Sector: https://youtu.be/1YVne_cOtbE

VOX Markets / SP Angel podcast

• https://www.voxmarkets.co.uk/media/5f7ed24c428be456473f299e/?context=/listings/LON/AMC/multimedia/
• https://audioboom.com/posts/7689312-john-meyer-discusses-battery-day-carbon-zero-targets-and-resource-companies

 

Dow Jones Industrials		+0.43%	at	28,426
Nikkei 225		-0.12%	at	23,620
HK Hang Seng		-0.39%	at	24,099
Shanghai Composite		+1.68%	at	3,272

 

Economics

US – Jobless claims dropped to 840k in the week ended October 3 and continuing claims posted a drop of ~1m to ~11m people.

• Although the headline metric is somewhat distorted as California paused reporting its numbers for two weeks amid problems with a backlog of filings and indications of fraud.
• Expectations are a slowdown in hiring through the rest of 2020 and 2021 should authorities not approve another federal pandemic assistance package with September payrolls data showing the least mount of added jobs since the recovery began May, Reuters repots.
• Weekly Jobless Claims (‘000): 840 v 849 in the previous week and 820 est.
• Continuing Claims (‘000): 10,976 v 11,979 in the previous week and 11,400 est.

 

China – Private business activity maintained growth momentum in September with the services sector beating estimates and the composite PMI showing a 5^th consecutive month of expansion.

• Caixin Manufacturing PMI (released Wednesday last week): 51.5 v 51.0 in August and 51.3 est.
• Caixin Services PMI (released today): 54.8 v 54.0 in July and 54.3 est.
• Caixin Composite PMI (released today): 54.5 v 55.1 in July.

• New auto sales rise 24% in Beijing
• Business confidence is rising in china as the recovery continues
• China continues to demonstrate it is the master of the recovery with the fast deployment of capital into ready-to-go construction projects

China potentially looking to raise $6bn via offshore bond offerings next week with bonds of varying maturities

• The offering may serve to suck capital and liquidity out of markets outside China

 

UK – GDP climbed less than expected in August adding to concerns the bounce back is losing momentum and a full recovery remains a distant prospect.

• The economy was still 9.2% smaller compared to its pre-pandemic levels despite growth in four consecutive months.
• The food and beverages service sector was up 69.7%mom on the back of government support schemes.
• The accommodation sector climbed by 76%mom as limitations to the international travel boosted domestic “staycations”, FT reports.
• Two sectors combined contributed 1.25pp to the 2.1% growth.
• GDP (%mom): 2.1 v 6.6 in July and 4.6 est.

• New Furlough scheme to come today

Kaspi.kz – to IPO in London

• Kaspi.kz, the Kazak banking, technology and online shopping group is to list in London (FT)
• The price range is reported to be $28.50 and $33.75 valuing the group at $6.5bn
• The group is active in Central Asia and the Caucasus regions

 

Iran – The government guided to suspend all hospitals from admitting non-urgent cases amid an increase in new COVID-19 infections.

• Military hospitals were also ordered to be converted for COVID-19 patients.
• “Considering the large number of visits by coronavirus outpatients and those in need of hospitalisation, admitting non-urgent cases will stop until later notice,” Iran’s deputy health minister said today.
• Iran is the worst hit Middle Eastern country in terms of virus-related deaths reporting ~28k casualties of ~488k infected.

 

South Africa – 17 arrests for corruption including one former ANC MP

• Seven arrested in relation to the Free State asbestos project

 

Currencies

US$1.1775/eur vs 1.1773/eur yesterday.  Yen 105.94/$ vs 105.99/$.  SAr 16.467/$ vs 16.594/$.  $1.297/gbp vs $1.295/gbp.  0.719/aud vs 0.716/aud.  CNY 6.714/$ vs 6.791/$.

 

Commodity News

Precious metals:          

Gold US$1,909/oz vs US$1,893/oz yesterday

   Gold ETFs 111.0moz vs US$111.0moz yesterday

Platinum US$879/oz vs US$868/oz yesterday

Palladium US$2,403/oz vs US$2,359/oz yesterday

Silver US$24.27/oz vs US$24.06/oz yesterday

            

Base metals:   

Copper US$ 6,743/t vs US$6,641/t yesterday – Peru copper output falls 10% in August

• Copper production volumes declined in August, although the country continued to produce more zinc and tin, according to the Ministry of Energy and Mines.
• Peru produced 194,000t of copper in August, a 10% decrease compared to the same period last year, while also falling 2.5% compared to a month prior.
• Production fell as Southern Peru Copper Corp saw declines of 6.5% on an annual basis, while Antamina’s production fell by 8.2% (Fastmarkets MB).

Chile - potential for significant supply disruption re: labour talks in Chile over close to 3mtpa of copper

• Aurubis sees the 2021 concentrate supply outlook as stable – we see substantial risk to supply with mines already working at are working at capacity.

Aluminium US$ 1,813/t vs US$1,791/t yesterday

Nickel US$ 15,040/t vs US$14,625/t yesterday

Zinc US$ 2,433/t vs US$2,368/t yesterday - China struggling to supply zinc concentrates internally with zinc concentrate imports rising 38% to 2.7mt from January- August.

• Shanghai zinc stocks continue to fall sharply with LME zinc stocks also starting to decline.
• China has been sweating its lead / zinc mines for decades and we suspect declining resources combined with China’s Green Shield policies has accelerated a decline in domestic production.

Lead US$ 1,799/t vs US$1,789/t yesterday – If Chinese zinc mine supply has fallen then domestic lead concentrate production is also likely to be down

• Shanghai lead stocks have fallen off a cliff despite the reduction in car sales through the first half. Rising automotive sales will be causing manufacturers to buy in more lead stock particularly with new vehicle sales rising dramatically in cities in China.

Tin US$ 18,175/t vs US$18,085/t yesterday

 

Energy:            

Oil US$43.4/bbl vs US$42.3/bbl yesterday

• Brent gained 3% on by close yesterday, finishing above US$43/bbl, remaining on track to book gains for the week
• It is expected Non-OPEC supply could fall in the coming weeks as Norwegian output remains at risk as a result of the oil worker strikes and the US braces for the arrival of Hurricane Delta
• It is reported that up to 25% of Norwegian supply could be affected as the dispute between the Lederne Union and the oil companies remains unresolved
• Informal talks have taken place and a state mediator is expected to be appointed today
• Six oil and gas fields have been shut down since Monday, cutting production by 330,000boepd, whilst up to 966,000boepd is expected to go offline
• The US is bracing for the impact of Hurricane Delta with nearly 1.5MMbbls of daily output pulled so far, whilst up to 5MMbbls of crude oil could be lost as a result of the storm
• A U-turn on stimulus talk by President Trump could see prices push further today
• The President described talks a very productive as he asks lawmakers to focus on measures which could benefit the public immediately

Natural Gas US$2.661/mmbtu vs US$2.590/mmbtu yesterday

• Natural gas prices pushed higher in early trading today following yesterday’s inventory report
• Natural gas in storage was 3,831Bcf as of 2 October according to the EIA
• This represents a net increase of 75Bcf from the previous week
• Expectations were for a 76Bcf build according to survey provider Estimize
• Stocks were 444Bcf higher than last year at this time and 394Bcf above the five-year average of 3,437Bcf
• At 3,831Bcf, total working gas is above the five-year historical range

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$117.9/t vs US$117.3/t

Chinese steel rebar 25mm US$553.1/t vs US$546.9/t 

 

Thermal coal (1st year forward cif ARA) US$59.9/t vs US$59.6/t - Blackrock backs bid to close AGL coal-fired plants  

• Blackrock goes against Australian investors and supports a call for AGL Energy to hasten the closure of two coal fired power stations. About a fifth of votes from shareholders supported the proposal and urged the closure of dates of two AGL coal fired power stations to be brought forward.  
• BlackRock has been under scrutiny about how it uses its influence to persuade corporate boards to react to climate change.    
• In January, the CEO, Mr Fink, stated that in 2020 Blackrock would take tough measures to tackle global warming such as dumping some coal stocks and voting against directors when they disliked how companies respond to climate change.  
• Blackrock has said that AGL itself had said that it was possible to close the Yang plant 12 years early. They added that if the plant remained in operation until 2048, it would increase reliability and safety risks as it would be over 60 years old.  
• AGL refused to comment on the matter.  

Coking coal futures Dalian Exchange US$154.0/t vs US$154.0/t

            

Other:  

Cobalt LME 3m US$33,780/t vs US$33,780/t

NdPr Rare Earth Oxide (China) US$48,546/t vs US$48,005/t

Lithium carbonate 99% (China) US$5,138/t vs US$5,080/t - SQM to significantly reduce water usage at Atacama on environmental concerns

• The lithium miner announced yesterday that it would immediately slash its use of both fresh water and brine at the Atacama salt flat, in a push to reduce the overall impact of its operations.
• The company has announced its Sustainable Development Plan, which says that SQM will voluntary reduce its use of brine by 20% from November this year, with a goal of reducing it by 50% by 2030.
• Despite the drop in water usage, the company do not believe that this brine extraction reduction will have an impact on near- or long-term lithium production.
• The announcement comes two months after SQM lost a legal battle which forced the company to start its planning process again as a result of over-pumping brine from the Atacama.

Ferro Vanadium 80% FOB (China) US$30.0/kg vs US$30.0/kg

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

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

 Gallium - Multilayer solar panels to draw more energy from sunlight 

• Researchers have discovered that by using a precisely controlled fabrication process, they can create multi-layered solar panels which could potentially be 1.5 times more efficient than traditional silicon panels. 
• This research was led by Minjoo Larry Lee, University of Illinois Urbana Champaign. He has said that silicon solar panels are widespread because they are affordable and can convert slightly over 20% of the sun’s light into electricity. However, they are reaching their limit.  
• The researchers have been layering the semiconductor material gallium arsenide phosphide onto silicon as these two materials complement each other. They both absorb light well however gallium arsenide phosphide does so whilst generating less waste heat. In comparison to this, silicon excels at converting energy from the infrared section of the solar spectrum. 
• Gallium arsenide phosphide and other semiconductor materials are expensive so mass production of panels composed of them is not possible at the moment.  
• Scientists have been working on this since 1985 when cost was also the major impediment to commercialisation.

 

Battery News

Hyundai recalls vehicles due to fires likely caused by battery malfunction  

• Hyundai will recall 25,564 Kona EVs in Korea after 13 separate incidents of battery fires in the model. The recalled vehicles are those built between Sept 2017 and March 2020.
• The Kona EV is equipped with a battery pack manufactured by HL Green Power, a JV between Hyundai and LG Chem and the cells are assembled using Hyundai Mobis battery management system.
• The National Forensic Service in Korea has concluded on investigation that “electrical problems in the battery pack assembly” are the likely cause of the fires.
• LG Chem has refuted claims that the batteries it supplies for the Kona vehicle are the issue. It has been suggested the recall could be the end of the relationship between LG and Hyundai which has grown thin as the latter has diversified its battery supply network.
• If it is found that LG Chem’s battery are found to have glitches it is anticipated Hyundai will expect LG chem to indemnify losses suffered as a result of the recall.  
• The Hyundai Kona is equipped with NCM 811 batteries produced by LG Chem. High nickel batteries are prone to thermal runway which increases the risk of the battery catching fire.

 

EV leasing surges since the introduction of tax break

• EV leasing sales have increased 91% in the last 6 months since the introduction of the 0% Benefit-in-kind (BIK) tax reports Octopus Electric Vehicles.
• In April 2020 the government eliminated the BIK tax for EV purchases making leasing an EV through a workplace salary tax-free. Previously a 16% tax was applied. There is a 27% tax on combustion engine vehicles when purchased through a salary sacrifice scheme.
• Octopus has launched a 100% electric salary sacrifice scheme which handles the administration of the scheme on behalf of participating companies and provides ongoing after care.
• Under the scheme a higher rate tax payer can lease a Tesla Model 3 Standard Range Plus for 48 months for ~£342/month including insurance, service and maintenance and tire replacement with the no up-front costs.
• Combining salary sacrifice and a 0% BIK typically reduces leasing payments by 30-40% according to Octopus.
• The BIK tax is set to increase to 1% in 2021 and 2% in 2022.

 

Carbon nanotube electrode unveiled 

• NAWA Technologies, a French energy storage specialist has unveiled an ultra-fast carbon electrode. The technology is based on a patented Vertically Aligned Carbon Nanotube design.
• The electrode has a 3D nanostructure, with high electrical and thermal conductivity.
• The Company announcement suggests the technology can increase power 3x, energy storage 10x and life cycle by 5x whilst also reducing the charge time to minutes.
• The vertically aligned carbon tubes results in a significant reduction in the mean free path of the ions during a charge cycle.
• NAWA say the design can lead to considerable cost savings and importantly can be used with both existing and new battery chemistries. Given the build out of manufacturing facilities today is centred on lithium-ion batteries, any technological developments will need to be able to drop in to these production lines.
• The technology is also flexible, the nanotubes more compatible with a variety of active materials. Referring to the electrode technology as agnostic, the Company suggest the nanotubes work equally well across a range of chemistries.
• The Company is already supplying vertically aligned carbon nanotube for the ultracapacitor devices it producers. The Company expects that part of the technology in the product could hit the market by 2022.
• As always it will be interesting to see if NAWA can keep to their 2022/23 timetable but a technology compatible with a variety of battery chemistries that positively impacts power, density, life cycle and charge time as NAWA suggest could be an important milestone.

 

UK government looking into regulating EV charge points 

– eg how best to tax the electricity going into EVs and replace lost fuel tax revenues (cynical aren’t we!)

• The UK government is to investigate how best to regulate the EV charge point space. The investigation will be carried out by a consultancy.
• The government is looking at how best to regulate how much drivers pay for a charge and how the providers use customer data.
• The Transport secretary did not mention if charge point reliability would be under scrutiny. The reliability of charge points is a key issue for prospective EV drivers.
• Joint Head of the Office of Low Emissions Vehicles has said the first round of regulation will focus on making price more transparent for users.

 

Company News

Alien Metals (UFO LN) – 0.7p, Mkt cap £20m – Hammersley iron project with BHP 19 and BHP 20 prospect names, who are they kidding?

• Alien Metals report the completion of mapping and sampling at their Hamersley Iron Ore projects
• There is no data given on the project other than the prospect names of BHP 19 and BHP 20.

Conclusion:  Investors should be wary of a company which promotes is projects through names such as Hammersley, and BHP.

There are vast tonnages of iron ore in the Pilbara in Australia but there are very few companies which are able to exploit and transport this iron ore to port.

Rio Tinto, BHP and Fortescue are the dominant players with all important access to transport and port access. They also have the skills and funding to drill and fully assess the merit of these projects.

We view Alien’s press releases as somewhat over promotional in their nature such as the suggest the management focus on the working up of real value.

But then what else would you expect from a company which uses the ticker ‘UFO’?

 

Antofagasta (ANTO LN) 1,003p, Mkt Cap £9.89bn – Inaugural bond issued

• Antofagasta announced on Friday that it has priced its $500m 2.375% notes due 2030, the proceeds of which will be used for general corporate purposes.
• Monday saw Fitch Ratings assign a BBB+ rating to the company, which Fitch said  reflect an extremely strong capital structure and competitive business position due to its low cost and high quality mines.”
• The sale has been led by Citi and JP Morgan, with the participation of BNP Paribas, Scotiabank and SMBC banks.

 

Castillo Copper (CCZ LN) 2.45p, Mkt Cap £23.8m – Mt Oxide drilling to start in mid-October

• Castillo Copper reports that drilling at its Mt Oxide project in Queensland (around 150km north of Mt Isa) is due to start in mid-October.
• A recent site visit has confirmed that “the drilling programme for the Arya Prospect comprises 3,432m over 14 drill-holes, within an area 1,500m by 1,000m that targets near surface and deeper geophysical anomalies”.
• These are to include three deep, vertical, drill holes to investigate a bedrock geophysical conductor which is interpreted as massive sulphide mineralisation around 130m thick “with dimensions ~1,500m by ~450m and ~426m deep”.
• The balance of the drilling will test what is interpreted from the geophysics as two shallow zones of supergene mineralisation approximately 25m thick located around 25m below surface and covering areas of around 160m x 50m and 270m x 280m respectively.
• The company explains that “As there is a probable link between supergene copper mineralisation at surface and massive sulphides at depth, the primary objective of Castillo's upcoming campaign at the Arya prospect is to secure demonstrable proof” of this association.

Conclusion: Drilling to test the geophysical signatures currently believed to represent both relatively shallow supergene mineralisation and deeper massive sulphides is the next logical step for the Mt Oxide project. We await results once the drilling programme is underway.

 

Petropavlovsk (POG LN) 31.76p, Mkt Cap £51m – Production guidance downgrade

• The Company downgraded 2020 production guidance on the back of lower processed grades as well as delays to deliveries of 3^rd party refractory concentrate due to COVID-19.
• 2020 production is forecast at 560-600koz (including 3^rd party refractory concentrate), down from 620-720koz previously.
• Own mines production is expected at 395-415koz, down from 430-460koz, due to lower grades at Malomir underground and slower development at Pioneer underground.
• TCC are expected at $800-850/oz, up from $700-800/oz, reflecting weaker production and lower POX plant utilisation.
• Capital expenditure revised upwards to $90-100m from $70-80m on reclassification of a share of Pioneer underground workings as capex, accelerated expenditure on the Malomir flotation plant expansion and POX related upgrade works.
• Full commissioning of the Pioneer flotation plant has been moved to Q2/21 from previously targeted Q4/20 reflecting delays to the commissioning of some equipment items as well as a desire to avoid full commissioning during the winter months.
• In the meantime, Pioneer will continue to process a blend of lower grade non-refractory ore from stockpiles and higher grade material from the underground at the RIP facility.
• Interim results are expected to be released in the second half of October 2020 following the recent appointment of new auditors.

Conclusion: A disappointing production guidance downgrade reflects logistical issues in deliveries of the 3^rd party refractory concentrate to the site that is expected to account for ~30% of total production as well as lower own mines’ production on the back of weaker processed grades.

 

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

Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486

 

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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