SP Angel – Morning View – Friday 26 04 19

Explosive lithium batteries creates demand for flow technologies

MiFID II exempt information – see disclaimer below  

Armadale Capital (ACP LN) – Mahenge Liandu graphite project DFS update

Glencore (GLEN LN) – Commodities Futures Trading Commission investigation

Ferrexpo (FXPO LN) – Deloitte resigns as auditor

Lonmin (LMI LN) – Sibanye-Stillwater increases all share offer to 1:1

Lucara Diamonds (LUC CN) – 1758 carat diamond recovered at Karowe

 

Explosive lithium-ion storage has heads turning for safer vanadium technologies

  • Building on 21 fires already occurred across battery projects in South Korea, a major lithium-ion fire and exploration erupted at a facility owned by a Pinnacle West Capital Corp. utility in Surprise, Arizona – marking the first time in America since battery storage technology expanded.
  • The fire only serves the highlight the stability of nascent technology, potentially disrupting short-term adoption and offers market opportunities as other technologies mature and costs fall.
  • The electrolyte consumed today are flammable in the presence of oxygen. While sealed from external sources, some cathodes can release oxygen within the cell under high temperatures.
  • Safety concerns are arising at an inopportune time for the fledgling industry, with falling costs finally competing against conventional power plants.
  • Pinnacle West’s Arizona Public Service alone targeted 850MW storage by 2025, however with enough storage to supply 600,000 homes, the system has been shut down and investigated. The system was installed by Fluence, a joint venture of AES Corp. and Siemens.
  • While the cause remains unclear, in Korea, defective battery models, external shock during construction and faulty battery-management systems have contributed to recent fires.
  • As adoption rises, lithium-ion fires are recognised in mainstream media as a growing concern, with Tesla under scrutiny following another sedan fire in China.
  • Safety issues are becoming a selling point for rivals of lithium-ion, with CEO of Primus Power Corp, Tom Stepien, noting Li-ion’s “inherent fire risks” following the accident.
  • There is a “wide opening – a pantheon of new technologies that are aiming to beat lithium-ion from both a performance and cost perspective”, said Jeff Chamberlain, CEO of Volta Energy Technologies.
  • Lithium-ion will be a powerful incumbent to beat. The technology has made up more than 85% of the world’s annual energy-storage deployments since 2016, according to BloombergNEF.
  • Energy Storage Association CEO Kelly Speakes-Backman identifies “the US energy storage market nearly doubled in 2018 and is expected to double again in 2019”.
  • This clearly creates a growth opportunity for both lithium-ion and alternative solutions. Flow batteries, including vanadium redox flow batteries under development at Bushveld Energy, offer long-term, scalable energy storage solutions without the flammable risks.

 

Mozambique – Tropical Cyclone Kenneth, strongest storm ever to hit Mozambique

  • Wind speeds of >140mph. Rainfall of >1m is expected
  • Path looks to be to the north of Mozambique around 200km away from the Moma mine.
  • Hopefully Kenmare Kenmare Resources Moma ilmenite mining and ship loading operations will be spared.
  • The cyclone could end up in Southern Malawi close to Makango’s proposed Songwe Hill Rare Earth Element project.

 

Dow Jones Industrials

 

-0.51%

at

  26,462

Nikkei 225

 

-0.22%

at

  22,259

HK Hang Seng

 

-0.01%

at

  29,546

Shanghai Composite

 

-1.20%

at

   3,086

FTSE 350 Mining

 

-1.30%

at

  19,754

AIM Basic Resources

 

-1.18%

at

   2,022

 

Economics

US – Equities closed mixed yesterday as technology names rallied while industrial shares fell on earnings numbers.

  • Amazon reported stronger than expected earnings while matching revenue estimates with share up 0.6% in after hours trading. Despite a significant earnings beat, Q2 operating profit guidance came below street estimates.
  • Facebook had a good run (+5.9%) as the Company beat market estimates while Microsoft hit $1tn market capitalisation for the first time early on Thursday after reporting good results.
  • A 13% drop in 3M shares weighed on the Dow index as an industrial conglomerate reported lower than expected quarterly earnings, cut its 2019 profit guidance and said it would cut 2,000 workers globally.
  • US$ is heading for its best week in more than two months on the back of a rally in US stocks and Treasuries while markest await GDP data.
  • First take on Q1 GDP is due later today with estimates for the economy to post a 2.3%qoq (annualised) reading, up on 2.2% in Q4/18.

 

Japan – Industrial production slumps at the fastest pace in four years in March and more than markets forecast.

  • Industrial output was down 4.6%yoy v a 3.8%yoy drop expected with weak production of motor vehicles, machinery and fabricated metals contributing to the decline.
  • The data comes on top of weak GDP numbers released earlier that showed a drop in trade and business investment.
  • On a more positive note, retail sales growth picked up in March posting a1.0%yoy, up on 0.4%yoy recorded in February and 0.8%yoy forecast.

 

Argentine – The peso is off 7.4% this week with short term sovereign bond yields hitting 20% on concerns President Macri will be unable to win re-election due in October.

  • With the economy in recession, inflation above 50% and interest rates at 68% polls are showing former president and populist Christina Fernandez de Kirchner is gaining more support.
  • Macri’s approval rating is currently standing around 30%, while Kirchner has risen to 36% in recent weeks.

 

Turkey – The lira inched up this morning following a sell off on Thursday when it hit the lowest level since October after the central bank removed a pledge to raise interest rates if needed.

  • Turkish Monetary Policy Committee’s statement on Thursday dropped its previous pledge that “if needed, further monetary tightening will be delivered”, the move that was widely interpreted as dovish.
  • The bank’s benchmark rate is currently at 24%.
  • The lira lost 11% since the start of the year as investors grew nervous over the decline in central bank FX reserves and reports that it was using short term borrowing to bolster them.
  • Additionally, markets are worried over mounting tensions between the US over weapons purchase deal with Russia.

 

Currencies

US$1.1143/eur vs 1.1150/eur yesterday  Yen 111.62/$ vs 111.79/$  SAr 14.422/$ vs 14.469/$  $1.291/gbp vs $1.290/gbp  0.703/aud vs 0.701/aud  CNY 6.738/$ vs 6.736/$

 

Commodity News

Precious metals:         

Gold US$1,282/oz vs US$1,278/oz yesterday

  • Gold remains on target for the first weekly advance in five as investors await data on US gross domestic product for guidance on the strength of the economy.
  • A Commerce Department report Friday is expected to show GDP expanded at a 2.3% annualized pace -- up slightly from the fourth quarter -- and compared with the 1.5% seen in early March, according to Bloomberg’s surveys of economists.
  • Gold is also expected to move up in the short term, largely backed by higher crude prices encouraging higher inflation and positive inflows into gold.

   Gold ETFs 71.1moz vs US$71.2moz yesterday

Platinum US$890/oz vs US$887/oz yesterday

Palladium US$1,422/oz vs US$1,419/oz yesterday

Silver US$15.03/oz vs US$14.95/oz yesterday

           

Base metals:   

Copper US$ 6,365/t vs US$6,448/t yesterday

Aluminium US$ 1,857/t vs US$1,872/t yesterday

Nickel US$ 12,325/t vs US$12,407/t yesterday

Zinc US$ 2,741/t vs US$2,742/t yesterday

Lead US$ 1,932/t vs US$1,925/t yesterday

Tin US$ 19,820/t vs US$19,700/t yesterday - Corporación Minera de Bolivia has signed a contract for the construction of a second ore processing plant. The plant is expected to double capacity to 2,000t of tin ore per day.

           

Energy:           

Oil US$74.1/bbl vs US$74.9/bbl yesterday

Natural Gas US$2.503/mmbtu vs US$2.467/mmbtu yesterday

Uranium US$25.40/lb vs US$25.70/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$90.5/t vs US$90.4/t

Chinese steel rebar 25mm US$643.1/t vs US$644.2/t

Thermal coal (1st year forward cif ARA) US$71.1/t vs US$72.0/t

Coking coal futures Dalian Exchange US$177.1/t vs US$179.6/t

           

Other:  

Cobalt LME 3m US$34,500/t vs US$34,500/t

NdPr Rare Earth Oxide (China) US$39,702/t vs US$39,713/t

Lithium carbonate 99% (China) US$9,647/t vs US$9,650/t

Ferro Vanadium 80% FOB (China) US$52.0/kg vs US$51.5/kg

Antimony Trioxide 99.5% EU (China) US$6.1/kg vs US$6.2/kg

Tungsten APT European US$270-282/mtu vs US$270-282/mtu - Tungsten – is tungsten heading for a deficit in 2019 (Roskill)

  • Roskill, the mineral consultancy, ask the question is tungsten heading for a deficit in 2019.
  • The retooling of factories is helping to drive demand with a 5% yoy increase seen last year.
  • Chinese supply was hit by new regulations saw environmental restrictions in Jiangxi, Hunan and Fujian.
  • Ormonde Mining* are commissioning the ‘world class’ Barruecopardo’ at present with commercial production expected shortly

*SP Angel act as broker to Ormonde Mining

 

Battery News

Panasonic drives higher energy density 2170 battery production

  • Tesla’s battery supplier is investigating a switch to 2170 cell production from 18650 cell production lines which currently feed the Model S and Model X.
  • After pioneering the use of cylindrical cells in EVs, Panasonic began producing a new, bigger 2170 battery cell format in 2017 for Tesla’s new Model 3 at Gigafactory 1 in Nevada.
  • The bigger cell design enables higher energy density and Tesla’s battery packs made of 2170 cells are able of a higher charge rate.
  • The Japanese electronics giant also continued to supply Tesla with 18650 cells from Japan for the Model S and Model X programs.
  • The report that Panasonic could upgrade its 18650 cell production line follows announcements Tesla are refreshing the Model S and Model X, which could include a move to the new battery pack architecture.
  • Recently, Tesla CEO Elon Musk said that Tesla Gigafactory 1 battery cell production is still limited to about 23 GWh despite investment in 35 GWh of capacity.

 

Volkswagen Chinese joint venture to build new electric car factory in China

  • Volkswagen’s joint venture with JAC Motors is planning to invest $750.8m in a new electric car factory in Hefei, China.
  • JAC VW received approval to build a plant that can produce 100,000 all-electric cars annually, Reuters reports. A spokesperson confirmed those plans, saying the environmental approval signified an “orderly advancement of the project.”
  • The Company will launch its first electric car, the E20X SUV, later this year. The vehicle is expected to cost around $19,000 after incentives.
  • The Volkswagen Group’s big plans for EVs include big ambitions in China. The company recently announced that it plans on producing 22m EVs by 2028, with more than half of those vehicles (11.6m) to be made in China.
  • It will rely on its three Chinese joint ventures, FAW-Volkswagen, SAIC VOLKSWAGEN and JAC Volkswagen, to hit those targets. Volkswagen Group China plans to offer 14 electric vehicles in the country by the end of this year.
  • FAW-Volkswagen said last year that it would expand its Foshan “mega-factory” to build more electric vehicles. VW said that factory would electrify vehicles on a current platform, but it would also add its MEB electric platform to the production line there by 2020 as it plans to make EVs more affordable.

 

Company News

Armadale Capital (ACP LN)  1.2p, Mkt Cap £4.4m – Mahenge Liandu graphite project DFS update

  • Forming part of the Definitive Feasibility Study (announced 16 April 2019), the Mahenge Liandu graphite project has received a final ESIA Report from its external consultants, which concludes that the potential impacts associated with the proposed graphite mine and processing site are of a nature and extent that can be reduced, limited and eliminated by the application of appropriate mitigation measures.
  • A decommission implementation plan considered options on how to utilise the site after mining is completed and how to reduce the long-term impact of the mining operation after the mine closes.
  • Armadale has also received the Relocation Action Plan, covering the 9.0km² Mining Licence from its Tanzanian based consultants. The area affected by the Project has limited areas of development and a low population density and the Company anticipates a low compensation cost relative to the overall capital requirement of the Project.
  • The Company is also finalising its comments to the ESIA Report and RAP and expects to submit both documents to the NEMC by the end of April 2019 as expected.

 

Glencore (GLEN LN)  310.25p, Mkt cap £42.9bn – Commodities Futures Trading Commission investigation

  • Glencore confirms that it “has been informed by the United States Commodity Futures Trading Commission (“CFTC”) that the CFTC is investigating whether Glencore and its subsidiaries may have violated certain provisions of the Commodity Exchange Act and/or CFTC Regulations through corrupt practices in connection with commodities.”
  • The company “understands that the CFTC’s investigations are at an early stage and have a similar scope in terms of subject matter as the current ongoing investigation by the US Department of Justice (“DOJ”).”
  • Glencore has confirmed that it will cooperate with the investigation and that “Glencore’s response will be managed by its Investigations Committee, which was set up in July 2018 to oversee Glencore’s response to the investigation by the DOJ.”

 

Ferrexpo (FXPO LN)  214p, Mkt Cap £1,266m – Deloitte resigns as auditor

  • The Company announced this morning that Deloitte has resigned from its office as statutory auditor with immediate effect.
  • The stock was off 20% at some point this morning on the news.
  • The resignation follows on the difference in conclusions of an auditor and the Board as part of an independent review committee set up by the Company to investigate “discrepancies” in payments to a charity fund.
  • The committee that was set up in February to study “irregularities” in financial statements of Blooming Land, a charitable foundation.
  • The difference of opinion relates to the amount of the influence and control CEO is believed to exert over the charitable foundation, Bloomberg reports.
  • While the auditor was “unable to conclude as to whether the CEO does or does not have significant influence or control over Blooming Land”, the Board held a “unanimous view” that Kostyantin Zhevago does not have such influence or control given lack of clear evidence of the contrary.
  • The Company is reported to have donated $110m to the charity over the course of the 2013-2018 period as part of its corporate social responsibility programme.

 

Lonmin (LMI LN)  73.7p £208m – Sibanye-Stillwater increases all share offer to 1:1

  • Lonmin and Sibanye have agreed improved terms for the recommended all-share offer by Sibanye-Stillwater for Lonmin.
  • Under the revised terms, which “represents an increase of 3.4 per cent”, on the 0.967 Sibanye Stillwater share for each Lonmin share agreed in December 2017, Sibanye-Stillwater will now offer one of its shares for each Lonmin share.
  • “The boards of Sibanye-Stillwater and Lonmin consider that the Increased Offer for Lonmin reflects the recent recovery in the PGM pricing environment, balanced against the fact that Lonmin continues to be financially constrained and unable to fund the significant investment required to sustain its business and associated employment”.
  • Lonmin shareholders are to meet on 28th May to consider the offer following a Court Meeting. If approved, “Lonmin Shareholders will hold approximately 10.9 per cent. of the Enlarged Sibanye-Stillwater Group and Sibanye-Stillwater Shareholders will hold approximately 89.1 per cent. of the Enlarged Sibanye-Stillwater Group.”
  • Although the timing suggests that the two issues are not linked, we consider that yesterday’s report that South Africa’s Registrar of Labour Relations was planning to deregister the AMCU trade union for its failure to “…function in terms of its constitution and is not a genuine trade union as envisaged in the Act” will be good news for Lonmin which has been a focus of AMCU action.

 

Lucara Diamonds (LUC CN) C$0.1, Mkt Cap C$666.5m – 1758 carat diamond recovered at Karowe

  • Lucara Diamonds has announced the recovery of a 1758 carat diamond from its Karowe mine in Botswana. The stone, which was unbroken, is even larger than the 1109 carat Lesedi La Rona diamond also recovered, in November 2015, from Karowe.
  • The new large stone “has been characterised as near gem of variable quality, including domains of high-quality white gem” suggesting that it may not be of the same quality as the $53m Lesedi la Rona which was recently cut by Graff into a 302 carat emerald-cut jewel plus 66 other cut diamonds.
  • Since 2015, the Karowe mine has produced “a total of 12 diamonds in excess of 300 carats … [in size] … including 2 greater than 1,000 carats, from a total production of approximately 1.4 million carats”.
  • Commenting on the discovery, Lucara’s CEO, Eira Thomas, said that “Karowe has now produced two diamonds greater than 1,000 carats in just four years, affirming the coarse nature of the resource and the likelihood of recovering additional, large, high quality diamonds in the future, particularly as we mine deeper in the orebody and gain access to the geologically favourable EM/PK(S) unit, the source of both of our record breaking, +1,000 carat diamonds.”

Conclusion: Very large rough diamonds are not always easy to sell and indeed the Lesedi la Rona stone initially failed to meet its reserve at auction,  but the Karowe mine is proving to be a fruitful source of these very unusual diamonds.

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0496

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

Abagail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

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