SP Angel . Morning View . Gold gains on WTO approval of US Tariffs and risk of greater EU recession

SP Angel . Morning View . Thursday 03 10 19

Gold takes off on risk of greater EU recession on WTO approval of US Tariffs

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Anglo American (AAL LN) – De Beers diamond sales

Avesoro Resources (ASO LN) – Pit wall failure at New Liberty

IronRidge Resources* (IRR LN) – Positive geophysical results from Dorothe project, Chad

Kodal Minerals* (KOD LN) – ESIA addendum lodged with authorities

 

Gold breaks over $1,503/oz on risk of deeper European Recession and banking collapse as WTO approves US Tariffs on EU

• Gold prices hit $1,505/oz late yesterday on news that the WTO agreed to allow the US to impose tariffs on the EU
• New US tariffs on the EU risk plunging Europe into deeper recession than it is already heading into as Germany struggles with a collapse in diesel vehicle sales
• The Italian banking system is seen as already at risk and negative interest rates in Germany will put local banks under further stress as their balance sheets shrink.
• The ECB is already running low interest rates and is encouraging member states to create local stimulus in regional economies

 

WTO approves of US move to impose Tariffs on the EU

• The US is likely to impose some $7.5bn of tariffs on the EU following a long running battle on state sponsorship of certain key industries.
• The US demonstrated to the WTO that the EU had unfairly supported Airbus with $22bn of subsidies to the disadvantage of Boeing, an action started by the Bush Administration.
• The EU accused the US of a very similar $23bn worth of subsidies with the WTO ruling in 2011 that Boeing and Airbus had both been given unlawful assistance.
• US Tariffs of 10% on all European-made Airbus aircraft will be a major blow to Europe if imposed .
• 25% tariffs on European wine and cheese, Scotch and Irish will hit the EU where it most hurts and might even persuade the Scots and Irish that Fortress Europe was not such a great idea after all
• Airbus also manufacture planes in the US and will be hit by any tariffs on parts which have not been made in the US though this will also hit Boeing.
• The US has already imposed 25% tariffs on steel.
• The Administration may also impose a $75bn tariff on European cars.
• If the UK does manage to Brexit from Europe then it should avoid the effect of the US tariffs on the EU which may prove to be very fortunate timing from a manufacturing perspective.
• The current US Administration is very keen to form closer ties with the UK which should results in substantial new funding for science, innovation and UK companies from US institutions.
• US action against the EU is testament to its ‘anger’ against ‘Fortress Europe’ as well as US foreign policy being undermined by Angela Merkel and other EU leaders in relation to Russia and China.

 

The great Samancor ‘heist’ (The amaBhungane Centre for Investigative Journalism)

• Samancor Chrome’s previous owners are being investigated over allegations of the theft and corruption of >$500m of funds from the business.
• ‘Amcu general secretary Jeff Mphahlele claims in a separate affidavit that the damage may ultimately have been as much as $1.9bn.
• See link below for the full story which alleges how Croatian billionaire Danko Končar used Kermas, Afarak (previously Ruukki) and other companies. Sylvania Platinum also appears to have been drawn into the situation.
• This looks a first-class piece of investigative journalism and is well worth a read:
• https://www.dailymaverick.co.za/article/2019-10-02-the-great-samancor-heist/

 

Dow Jones Industrials		-1.86%	at	26,079
Nikkei 225		-2.01%	at	21,342
HK Hang Seng		+0.13%	at	26,077
Shanghai Composite		CLOSED
FTSE 350 Mining		-0.76%	at	17,217
AIM Basic Resources		-0.75%	at	2,123

 

Economics

US – Import tariffs on $7.5bn worth of European goods to be placed by Trump administration in retaliation for illegal government aid to Airbus.

• The move has been green light by the World Trade Organisation.
• The US plans to impose a 10% tariff on large civil aircraft from France, Germany, Spain and the UK.
• Additionally, the government will place 25% levies on a series of other items including whiskey, wine, olives, cheese, pork, butter and yogurt among others.
• S&P 500 futures are trading slightly higher this morning after a sell off over the last two days that saw the index shedding 3.0%.
• In Europe, the Stoxx Europe 600 recorded the worst daily decline this year yesterday (-2.5%).
• Non-farm payrolls are due on Friday with estimates for 148k v 130k in August and for earnings to grow 0.3%mom/3.2%yoy v 0.4%mom/3.2%yoy.

 

Eurozone – Following weak manufacturing data, final services PMIs for major Eurozone economies have been revised down suggesting the downturn may be spreading across sectors.

• Previously manufacturing PMIs showed the sector posted the sharpest decline in output in nearly seven years.
• While services recorded marginal growth, the pace of expansion was modest and the weakest since the start of the year.
• On country level, Germany slipped into a contraction in September marking the first sub-50 Composite PMI reading (48.5) since Apr/13; it is also the only country to record a drop in activity versus August.
• Italy (50.6, 2-month low) and France (50.8, 5-month low) recorded only marginal increases while growth weakened in Spain (51.7, 2-month low).
• New orders recorded the first drop since January driven by a continuing weakness in export trade.
• Business sentiment improved but only slightly from August’s 75-month low weighed down by trade-confrontation between China and the US as well as political uncertainty around Brexit.
• “The eurozone economy ground to a halt in September, the PMI surveys painting the darkest picture since the current period of expansion began in mid-2013,” Markit wrote.
• “…the risk of recession is now very real.”
• Eurozone Manufacturing PMI: 45.7 v 47.0 in August.
• Eurozone Services PMI: 51.6 v 53.5 in August.
• Eurozone Composite PMI: 50.1 v 51.9 in August.

 

UK – “There is progress… lots of work still needs to be done,” Michel Barnier commented on presented updated proposal from PM Johnson on the future EU-UK relationship.

• Barnier is set to brief the European parliament in Brussels this afternoon, while PM Johnson will present this plant to his cabinet before taking questions on it in Parliament.
• Boris Johnson held talks with Angela Merkel, Leo Varadkar and Jean-Claude Juncker yesterday night after promising to “get Brexit done” and “send Jeremy Corbyn into orbit where he belongs”.
• On a separate note, Services PMI released this morning showed the sector is now also in a contraction, as well as manufacturing.
• “At current levels the surveys point to GDP falling by 0.1% in the third quarter which, coming on the heels of a decline in the second quarter, would mean the UK is facing a heightened risk of recession.”
• Composite PMI: 49.3 v 50.2 in August.

 

Hong Kong – Retail sales post a record fall in August amid continuing protests and demonstrations.

• Sales were down 23%yoy as protests drag on and tourists and shoppers stay at home.
• Purchases of luxury goods including jewellery and watches have slid by almost half as a flow of tourists dried up.
• Visits from mainland China declined by 42%yoy in August.
• Meanwhile, the standoff between protesters and the administration gathers pace.
• The government is looking to enact an emergency ordinance for the first time in more than a half a century to ban face masks at public gatherings, according to local news agency.

 

Brazil - tailings dam bursts injuring two people (MiningJournal)

• A 15m dam ruptured at a gold mine in western Brazil on Tuesday, leaving a 2km trail of waste.
• Although two people were injured, nobody was killed according to a statement from the country’s National Mining Agency (ANM).
• The dam is registered under the name of an individual wildcat miner (an informal way of mining operated by small crews of men), rather than the name of a mining company.
• The dam had been declared stable on the 25^th of September, bringing the agency under even more scrutiny (Reuters).
• January this year saw tailings burst at Vale's Brumadinho mine, killing 250 people.

 

DRC - Illegal mine collapse kills 16 in Congo (Reuters)

• The accident occurred on Wednesday due to a landslide at a gold mine in the Kampene region of Congo.
• Illegal mining is a huge problem in the DRC, with the army often guarding mines to prevent locals trespassing (Bloomberg).
• At least 43 illegal miners died in June in a landslide at a copper and cobalt mine run by Glencore in southern Congo.

 

Currencies

US$1.0945/eur vs 1.0908/eur yesterday.  Yen 107.28/$ vs 107.64/$.  SAr 15.165/$ vs 15.399/$.  $1.229/gbp vs $1.224/gbp.  0.671/aud vs 0.668/aud.  CNY 7.148/$ vs  7.148/$.

 

Commodity News

Gold US$1,503/oz vs US$1,482/oz yesterday

   Gold ETFs 81.3moz vs US$81.1moz yesterday

Platinum US$889/oz vs US$875/oz yesterday

Palladium US$1,691/oz vs US$1,645/oz yesterday

Silver US$17.56/oz vs US$17.26/oz yesterday

           

Base metals:   

Copper US$ 5,699/t vs US$5,681/t yesterday

Aluminium US$ 1,708/t vs US$1,730/t yesterday

Nickel US$ 17,570/t vs US$17,465/t yesterday

Zinc US$ 2,292/t vs US$2,284/t yesterday

Lead US$ 2,103/t vs US$2,085/t yesterday

Tin US$ 16,550/t vs US$16,255/t yesterday

           

Energy:           

Oil US$57.5/bbl vs US$58.7/bbl yesterday - Last week saw a surprise build in crude oil inventories of 1.38MMbbls according to API data. The EIA estimated that week that there was larger inventory build of 2.4MMbbls

• US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view.

Natural Gas US$2.268/mmbtu vs US$2.278/mmbtu yesterday

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

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$88.7/t vs US$88.6/t - Delays of iron ore leases could see Indian imports rise (Bloomberg)

• India embraced competitive auctions in 2015 to clamp down on previous alleged corruption regarding the allocation of mines.
• However, 31 leases are due to expire in March and delays in auctioning mines could disrupt India’s iron ore production.
• The ministry has recently amended legislation to avoid this occurring, by allowing leases to be extended before they are due to expire (S&P Global).
• India was a net importer of iron ore in 2015 when the country imported 10.6mt of iron compared with 4.3mt of exports.
•  Last year, it exported 18.3mt and imported 15.89mt.

 

Chinese steel rebar 25mm US$559.4/t vs US$559.4/t

Thermal coal (1st year forward cif ARA) US$65.1/t vs US$66.0/t

Coking coal futures Dalian Exchange US$181.8/t vs US$181.8/t

           

Other:  

Cobalt LME 3m US$36,000/t vs US$36,000/t

NdPr Rare Earth Oxide (China) US$44,416/t vs US$44,416/t

Lithium carbonate 99% (China) US$6,925/t vs US$6,925/t

Ferro Vanadium 80% FOB (China) US$38.3/kg vs US$38.3/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.0/kg

Tungsten APT European US$205-215/mtu vs US$195-205/mtu

 

Battery & Renewable News

World’s largest wind turbines to be built off Yorkshire coast (Guardian)

• Each turbine has a rotor diameter of 220m and will generate enough electricity for 16,000 homes.
• The windfarm is 130km off the Yorkshire coast and will b capable of powering 4.5m homes- or 5% of the UK’s total power supply.
• The project is a joint venture between SSE and Equinor, built by GE Renewable Energy.
• This project is a new wave of offshore wind projects which will not receive subsidies, and power will be sold to the grid at £40 per Megawatt hour, below the typical market price for electricity in the wholesale market.

 

Tesla confirms new delivery record of 97,000 vehicles in Q3 (Electrek)

• This is a new record for the company, who previously delivered 92,500 vehicles globally in Q2 2019- also a record for the company at the time.
• Despite being the highest order in a quarter, the number still fell short of investor expectations as Musk previously predicted Tesla would deliver between 360,000 and 400,000 vehicles this year (CNBC)
• The bulk of Tesla’s deliveries was its Model 3s- up to 79,600 cars which accounted for 83% of the companies production.
• Deliveries increased 16.2% compared with a year ago and 1.9% over the second quarter.  

 

Space Mining News

SpaceX to launch a private vehicle to land on the Moon

• SpaceX is planning to launch Nova-C, built by Intuitive Machines to soft land on the Moon.
• The plan is part of a NASA initiative to build lunar landers to place NASA payloads on the surface of the Moon.
• The Nova-C is designed to land a 100kg cargo at any spot on the Moon’s surface. And is scheduled to takeoff in July 2021.
• Mining of Helium 3 and other valuable materials on the moon is coming closer

 

Company News

Anglo American (AAL LN)  1759.6 pence, Mkt Cap £22.3bn – De Beers diamond sales

• Anglo American reports that De Beers sold US$295m of diamonds in its 8^th sales cycle of the year. This is US$8m higher than the revised US$287m  sales for the preceding  7^th sales cycle which has been revised upwards from the previously reported  as US$280m but almost 40% lower than the US$482m of the eight cycle last year.
• On a year to date basis using the company’s previous sales announcements, we calculate that sales of approximately $3.2bn are approximately 27% or US$1.2bn  below the US$4.4bn at the end of sales cycle 8 in 2018.
• De Beers CEO, Bruce Cleaver explained that “As we approach what is traditionally a quieter time of year for the diamond industry during the Diwali holiday, we have again offered our customers flexibility during this sales cycle”.

Conclusion: De Beers diamond sales continue to remain well below the levels seen at this time last year in the face of lower spending on luxury goods, continuing macroeconomic uncertainty and a slowdown in jewelry manufacturing.

 

Avesoro Resources (ASO LN)  87.5p, Mkt Cap £71.4m – Pit wall failure at New Liberty

• Avesoro Resources has announced a pit-wall and ramp failure at the Kinjor East pit of its New Liberty gold mine in Liberia.
• Happily, there were no injuries or damage to mining equipment as a result of the incident, however, mining has been suspended and although the Marvoe and Kinjor South pits remain in operation “ore production volumes will be reduced for some time as a result”.
• The company had previously announced that its gold production and cost guidance had been placed under review and in the circumstances this remains the case.

 

IronRidge Resources* (IRR LN)  14.5p, Mkt cap £45.1m – Positive geophysical results from Dorothe project, Chad

SEE LINK FOR IRONRIDGE RESOURCES PDF NOTE

• IronRidge reports that ground based induced polarisation geophysics conducted over its 200km² Dorothe gold target in Chad has yielded positive results with geophysical anomalies coinciding with high-grade gold trenching results  “interpreted to be associated with quartz veining or silica alteration … [which is a] … typical host for gold mineralisation and possibly disseminated sulphides respectively.”
• The results ”have defined a high-priority 1km long low resistivity with coincident chargeability anomaly over the Main Vein target zone. The geophysical anomaly is coincident with the Main Vein zone where previous high-grade gold trenching results including 4m @ 14.2g/t Au, 2m @ 34.1g/t Au, 2m @ 31.1g/t Au, 1m @ 63.2 g/t Au, 10m @ 2.98g/t Au and 4m @ 4.61g/t Au have been reported”.
• Interpretation of the results indicates a steeply east dipping target zone which is 100m wide and remains open at depth along the contact of a “circular coarse-grained gneiss body”.
• As well as the Main Vein the geophysics has also “coincident but weaker chargeability and resistivity targets that dip shallowly to the west and are coincident with reported gold in trenching intervals including 32m @ 2.02g/t Au (including 18m @ 3.22g/t Au), 4m @ 5.27g/t  Au (including 2m @ 9.02g/t Au), 6m @ 3.34g/t Au (including 2m @ 7.77g/t Au) and 4m @ 4.93g/t Au, … [which are] … broadly coincident with the Sheeted Vein targets show down dip continuity and provide confidence in depth continuity of the reported gold in trenching results.”
• IronRidge Resources also reports positive meetings with the new Finance Minister and Mining Minister of Chad; CEO, Vincent Mascolo, explained that “We continue to have a solid working relationship with the Chadian government and are working closely with them to progress the project and future work programmes”.

Conclusion: The identification of geophysical anomalies which coincide with high grade gold results from trenches at the Dorothe project provides the data to refine continuing exploration strategy of a 100m wide zone covering around 1km of strike length. We look forward to results from future exploration.

*SP Angel act as Nomad and broker to IronRidge Resources

 

Kodal Minerals* (KOD LN)  0.055p, Mkt cap £4.9m - ESIA addendum lodged with authorities

• Kodal Minerals reports that it has lodged an addendum to its Environmental and Social Impact Assessment (ESIA) for the Bougouni lithium project in southern Mali with the authorities at the Direction Nationale De L'Assainissement et du Controle des Pollutions et des Nuisances (DNACPN).
• The additional information addresses “minor matters raised by the DNACPN” following the previously reported meeting held on 18^th September.
• “Following this formal submission of the addendum, the DNACPN statutory approval period of 45 days will commence”.
• The company reports that it “maintained close communication with the DNACPN and all project stakeholders throughout the period of ESIA report preparation and anticipates no significant issues with the submission”.

Conclusion: Now that the ESIA and the additional data requested by the authorities has been submitted, Kodal Minerals should receive the relevant approvals within the prescribed 45 day period.

*SP Angel act as Nomad and broker to Kodal Minerals

 

 

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

 

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*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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