SP Angel . Morning View . Investor attention turns to start of earnings season

SP Angel . Morning View . Monday 13 01 20

Investor attention turns to start of earnings season

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MiFID II exempt information – see disclaimer below   

 

 Caledonia Mining (CMCL LN) – Record quarterly gold production at Blanket

Lydian International (LYD CN) – Lydian to delist from the TSX on 5^th February

Resolute Mining (RSG LN) – 2019 gold production and 2020 guidance

Sibanye-Stillwater – buys another 12% of DRD Gold for R1bn taking stake to >50%

 

Philippines – Taal volcano ready to blow within days as lava and ash spew from crater

• The Taal volcano is ready blow according to volcanologists.
• Surrounding towns were evacuated this morning with around 450,000 people living within 14m of the volcano.
• The Taal volcano is just 80km from Manila with the ash clouds closing flights in and out of the airport as ash rises kilometres into atmosphere.
• Volcanic ash is bad for jet engines and can make engines flameout. Ash particles have a low melting point, so they melt in the jet combustion chamber with the ceramic mass sticking to turbine blades, fuel nozzles, and combustors—which can lead to total engine failure. A long flight through a low contamination zone may do more damage to a jet engine than a short flight in a high contamination zone making ash clouds something to avoid.
• The disruption will create travel chaos in the Philippines where the airports are manically busy at the best of times. Fortunately the Taal volcano is 1,171km from Hong Kong.
• We do not yet know if the eruption will disrupt any mineral exports

 

Dow Jones Industrials		-0.46%	at	28,824
Nikkei 225		+0.47%	at	23,851
HK Hang Seng		+1.11%	at	28,955
Shanghai Composite		+0.75%	at	3,116
FTSE 350 Mining		+0.43%	at	19,201
AIM Basic Resources		-0.14%	at	2,112

 

Economics

US – Labour numbers released on Friday showed payrolls and earnings growth slowed in the final month of the year.

• Average hourly earnings climbed 2.9%yoy marking the weakest reading since July 2018.
• Unemployment remained at 50-year low of 3.5%.
• Government bond prices climbed and equities pulled back on the back of the report on Friday.
• Earnings season is kicking off this week with estimates for S&P 500 to post a 2%yoy drop in profits in the final quarter of 2019, according to FactSet.
• US and China are expected to sign the deal this Wednesday (15Jan).
• NFPs (‘000): 145k v 256k (revised from 266k) in November and 160k forecast.
• Unemployment Rate: 3.5% v 3.5% in November and 3.5% forecast.
• Av Hourly Earnings (%mom/yoy): 0.1/2.9 v 0.3/3.1 in November and 0.3/3.1 forecast.

 

China – GDP along with retail sales, industrial production and FAI investments data are due on Friday.

• Estimates are for growth to have remained at 6.0%yoy in the final quarter of 2019.
• Markets are expecting further growth deceleration through 2020.
• Chinese New Year migration expected to see 3.6bn billion trips
• China rail services are braced to carry more than 3.6bn passengers over the spring festival period with travel starting 15 days ahead of the Lunar New Year on 25 january

 

Germany – FY19 GDP data are out due this Wednesday with estimates for a 0.5% reading, which would be the worst performance since 2013.

 

UK – The pound continued to slide against the US$ slipping below the 1.30 mark as BOE member (Dr Vlieghe) said he will vote for an interest rate cut from 0.75% this month if there are no signs of the economy improving.

• Money markets are pricing in a more than 40% chance of a rate cut by the BOE during the next MPC meeting on January 30.
• Further losses are recorded on the back of weaker than expected GDP numbers for November last year.
• The economy unexpectedly contracted in November from the previous month (-0.3%mom) ahead of the general elections in late December.
• GDP (%mom): -0.3 v 0.1 (revised from 0.0) in October and 0.0 forecast.

 

Iran- More US sanctions have been announced on Iran on Friday targeting the local metal industries as well as eight senior military and national security officials.

• Meanwhile, a series of protests have been reported in Thran and in several other cities after authorities admitted a Ukrainian passenger plane was downed by mistake by the military killing 176 people onboard.
• President Trump condemned government violence against protesters saying that “thousands have already been killed or imprisoned by you, and the World is watching… more importantly, the USA is watching… stop the killing of your great Iranian people”.

 

West Africa – proposing to move to new ‘eco’ currency from ‘CFA’ by mid-2020 (CNBC Africa)

• Eight member states of the West African Economic and Monetary Union (Waemu) and France have agreed to rename the CFA franc and to implement a range of reforms to the long-standing regional currency.
• The move creates an independent monetary union with its own regional currency.
• Some members of the Economic Community of West African States (Ecowas) which include Nigeria
• Member states will be expected to maintaining budget deficits of less than 3% of GDP; public debt ratio of less than 70% of GDP; annual inflation rate of less than 10%; and, maintaining a minimum of three months of import cover.
• Ghana is strongly in favour of the eco while Nigeria appears to have a contrasting position.

Conclusion: While it is understandable for the Waemu region to wish to break its currency link with the Euro it may be a challenge for the member states to meet the criteria set down for eco adoption by mid-2020. Also, given the difficulties the Eurozone has had with Southern European states and the differing regional financial characteristics we wonder how well the eco will work in practice.

 

South Africa - ESKOM Chairman resigns, President Cyril Ramaphosa notes the resignation  

• Given ESKOM’s regular load shedding and it’s negative impact on the South African economy it is perhaps surprising that Jabu Mabuza lasted so long.
• Ramaphosa is expected to place Eskom under the control of the minister of mineral resources

 

Currencies

US$1.1120/eur vs 1.1095/eur last week.  Yen 109.83/$ vs 109.61/$.  SAr 14.366/$ vs 14.252/$.  $1.298/gbp vs            $1.307/gbp.  0.691/aud vs 0.687/aud.  CNY 6.889/$ vs 6.923/$.

 

Commodity News

Gold US$1,548/oz vs US$1,549/oz last week - Gold falls as Asian stocks touch 19-month highs (Reuters)

• The gold price fell this morning as Asian stocks touched 19-month highs ahead of the planned signing of an interim trade deal between Washington and Beijing.
• The phase one trade deal between the US and China is due to be signed on Wednesday, and its imminent signing has encouraged investors to back riskier assets.
• According to the WSJ, both countries have agreed to semi-annual talks aimed at resolving disputes between the two countries.
• Spot gold fell this morning 0.6% to $1,552/oz and US gold futures fell 0.4% to $1,553/oz.

   Gold ETFs 81.2moz vs US$81.5moz last week

Platinum US$968/oz vs US$974/oz last week

Palladium US$2,118/oz vs US$2,116/oz last week

Silver US$17.94/oz vs US$17.92/oz last week

           

Base metals:   

Copper US$ 6,205/t vs US$6,180/t last week - copper rises ahead of US-China trade deal (Reuters)

• Copper prices rose this morning ahead of the signing of the phase-2 trade deal, however gains were limited as investors remained cautious ahead of a macro-data announcement from China.
• Three month LME copper rose 0.4% to $6,222/t earlier this morning, as the metal gained for a sixth straight session.

Aluminium US$ 1,797/t vs US$1,804/t last week

Nickel US$ 14,300/t vs US$14,130/t last week

Zinc US$ 2,351/t vs US$2,363/t last week

Lead US$ 1,906/t vs US$1,934/t last week

Tin US$ 17,285/t vs US$17,280/t last week

           

Energy:           

Oil US$65.1/bbl vs US$65.1/bbl last week

Natural Gas US$2.215/mmbtu vs US$2.150/mmbtu last week

Uranium US$24.50/lb vs US$24.50/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$92.1/t vs US$92.1/t

Chinese steel rebar 25mm US$572.0/t vs US$569.1/t

Thermal coal (1st year forward cif ARA) US$65.2/t vs US$64.9/t

Coking coal futures Dalian Exchange US$179.8/t vs US$181.1/t

           

Other:  

Cobalt LME 3m US$32,750/t vs US$33,000/t

NdPr Rare Earth Oxide (China) US$40,568/t vs US$40,372/t

Lithium carbonate 99% (China) US$5,588/t vs US$5,561/t - Bolivia rejects appointment of new lithium state manager (Prensa Latina)

• The announcement on Saturday that the de facto government of Bolivia have named Juan Carlos Zuleta as the new executive manager of state-owned Bolivian Lithium Deposits received rejection in several sectors of the country.
• Inhabitants of Uyuni, where the majority of Bolivia’s lithium is situated, rejected the appointment of Zuleta and declared themselves in a state of emergency.
• Workers say that they reject Zuleta as he is pro-Chilean and the main enemy in the region of Uyuni receiving royalties from lithium sales.

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg - Ferro-vanadium prices rise by 1.6% to $22.5-24/kgV in Western Europe following 0.7% rise at end December

• Vanadium pentoxide prices also rise by 2.3% to $4.8-6.1/lb n Rotterdam following 3.8% rise at end December.
• Ferrovanadium and vanadium pentoxide prices appear to have held stable in other regions.

Vanadium can boost South African Mining Industry (Mining Weekly)

• New deposits are required to revitalise the South African mining sector, as the industry has been hampered by falling production, strikes and upheaval, according to GlobalData analyst Scarlett Evans.
• Mining production has begun to stabilise in the country, rising by 2.4% from a year ago, however this was driven mainly by a 23.7% increase in iron ore production.
• For the South African mining industry to reach its full potential, it must harness minerals that are becoming increasingly important to meet new technological demands, such as rare earths and industrial metals.
• The country has 50% of the world’s vanadium source in the Bushveld Complex alone, a metal which is used in the manufacturing of lightweight alloys and superconductive magnets, according to Bushveld Minerals* technical adviser Dr Richard Viljoen. 

*SP Angel acts as Nomad & Broker to Bushveld Minerals.

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

Tungsten APT European US$235-245/mtu vs US$235-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t

 

Battery News

Lithium ion battery sector estimated to account for as much as 60% of China’s lithium demand. (Green Car Congress)

• China accounted for 57% of global lithium demand in 2019 and was the biggest supplier of lithium converted products.
• CRU estimates that lithium ion battery related products account for 60% of Chinese lithium demand, with EV and portable electronics the biggest components.
• Lower lithium demand is driven by falling demand for battery electric vehicles in China as result of automotive sales falling 11.5% and EV subsides from the Chinese government reducing 50-55%.

 

Graphene-based lithium-air battery may facilitate longer journeys for EV (Graphene-info)

• Researchers at the Korean Daegu Gyeongbuk Institute of Science and Technology (DGIST) have produced a long-life battery with higher discharge capacity than current lithium-air batteries.
• Researchers have created an electrode using nickel cobalt sulphide nanoflakes on a sulphur-doped graphene. In tests the battery has a greater discharge capacity whilst maintaining its performance over two months.
• Irregular sizing of graphene pores create a larger surface area for chemical reactions to occur and the nickel cobalt sulphide catalyst provides lots of active sites for the reactions to occur.

 

Doshisha University to join consortium with Japanese corporates to develop a high capacity rechargeable battery (The Mainichi)

• The consortium will look to develop batteries with zinc and nickel electrodes. They aim to produce a larger capacity, lower cost rechargeable battery.
• Researchers at the University found using a processed zinc plate as the negative electrode maintained the battery’s capacity through 5,500 chargers/discharges vs an unprocessed plate which short circuited after seven charges. They noted short circuiting occurred in the unprocessed plate due to an uneven distribution of the zincate ions between the positive and negative electrodes. The processed plate stopped the ions moving.
• Professor of Electrochemistry, Masatsugu Morimitsu highlighted the increased capacity and safety of the battery. The team has filed a patent for the new technology.

 

Company News

Caledonia Mining (CMCL LN)  645, Mkt Cap £69.3m – Record quarterly gold production at Blanket

• Caledonia Mining reports that record quarterly gold output of 16,876oz during the three months ending 31^st December 2019 brought full-year 2019 production to 55,182oz exceeding the revised production guidance of 50-53,000oz.
• Production during the quarter “was 24 per cent higher than the previous quarter and 13 per cent higher than the corresponding final quarter of 2018”.
• Guidance for 2020 production from Blanket is in the range 53-56,000oz.
• Chief Executive, Steve Curtis, explained that “An improvement in the electricity supply and vigilant focus on grade control and production tonnage have resulted in an excellent production result for the final quarter of which our entire operational staff can be justifiably proud.”
• Mr. Curtis also said that “I am also pleased to see that we have not lost this momentum as we start 2020 with the mine continuing to perform very well into the new year”.
• Commissioning of the new Central Shaft, which is a key element of the company’s plans to increase gold production to around 80,000oz pa by 2022, during 2020 should secure access to deeper level ore at Blanket and underpin the long term future of the mine into the mid-2030s.
• Explaining the context, Mr. Curtis said that he expected “2020 to be a landmark year for our business: we look forward to commissioning the Central Shaft later in 2020 which we anticipate will then deliver increased operating cash flows and reduced capital expenditure will follow.”
• The provision of reliable power supply and access to foreign exchange are among the considerable operating challenges to mining in Zimbabwe. The delivery of record quarterly production and the completion of a major mine development project in these circumstances reflects on the determination and professional expertise of the team and suggests that the long-term performance awards for senior management also announced today have been hard earned. Although the awards announced today are for some executive board members and senior staff we hope that the company is able to recognise the contribution of the entire team.

Conclusion: Caledonia Mining has, safely, achieved record quarterly gold production at the Blanket mine in the face of difficult operating conditions and alongside the delivery of a major development project which should secure the long term future of the mine.

 

Lydian International (LYD CN) suspended – Lydian to delist from the TSX on 5^th February

• Lydian International are to delist from the Toronto Stock Exchange on 5^th February (Mining Journal).
• The company has been hit by an ‘illegal’ blockade to it’s Amulsar gold project since June 2018.
• The project has also been denied access to water permits.
• The mine was projected to produce some 204,000oz of gold over a 12-year mine life.
• The Armenian government has failed to remove the blockade and Lydian’s shares were suspended by the TSX in December.
• Lydian has extended its CCAA Protection till 23 January giving the company protection from creditors.

 

Resolute Mining (RSG LN)  60.2p, Mkt Cap £543.7m – 2019 gold production and 2020 guidance

• Resolute Mining reports gold production of 384,731oz during 2019 at an all-in-sustaining cost (AISC) of US$1,090/oz. The result narrowly misses the guidance target of 400,000oz at an AISC of US$1,020/oz.
• In the light of the unforeseen issues with the roaster at Syama, now rectified, a 4% shortfall in guided production and a 7% increase in the indicated costs reflects well on management to deal with non-availability of the roaster for much of the final quarter of 2019.
• Guidance for 2020 envisages production of 500,000oz of gold at an AISC of US$980/oz. Syama is expected to generate the bulk of production at 260,000oz at US$960/oz with Mako producing a further 160,000oz at US$800/oz. The Ravenswood operation in Australia is expected to produce the balance of 80,000oz at US$1,200/oz.
• The company is expecting to spend US$15m on non-sustaining capital expenditure during 2019. This includes “Resolute’s total contribution to the new Syama solar hybrid power plant”. In addition, the company expects to spend a further US$25m on exploration and other development capital expenditure”.
• Managing Director, John Welborn, commented that “Production guidance for 2020 of 500,000 ounces is a significant milestone for Resolute. Following completion of the repairs at Syama in late 2019, we have started 2020 with all our operations operating at nameplate capacity and generating positive cashflows”.

 

Sibanye-Stillwater (SSW SJ) R35.38c, Mkt cap R95bn – Sibanye-Stillwater buys another 12% of DRD Gold for R1bn taking stake to >50%

• Sibanye-Stillwater has exercised its option to acquire an additional 12% of DRD Gold for R1bn. The move takes its stake in DRD to >50%.
• The acquisition looks to be a logical move given the higher gold price.

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

 

Sales

Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

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

 

Sources of commodity prices
Gold, Platinum, Palladium, Silver	BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel	Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt	LME
Oil Brent	ICE
Natural Gas, Uranium, Iron Ore	NYMEX
Thermal Coal	Bloomberg OTC Composite
Coking Coal	DCE
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

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