SP Angel . Morning View . Gold prices climb on weak US economic data

SP Angel . Morning View . Friday 25 10 19

Gold prices climb on weak US economic data

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MiFID II exempt information – see disclaimer below   

 

Aura Energy Limited* (AURA LN) – Update on shareholder meeting

Tri-Star Resources* (TSTR LN) – Tri-Star raises £316,000

Teck Resources (TECK CN) to start cost-cutting program as global uncertainty weighs on profit

 

China’s Henan province anticipating smog alerts this winter (Xinhua News)

• According to an official at the environment bureau, China’s Henan province may experience several orange or red-level smog alerts.
• Chinese cities with high levels of industrial activity frequently experience severe air pollution in winter, when thermal-fired heating systems are turned on.
• Industrial output was restricted in Henan in December due to high levels of are pollution and unfavourable weather (South China Morning Post).
• Analysis by Reuters in December highlighted how industrial pollution is exacerbated by the weather- especially high humidity and low wind.
• Cities in Henan have been ordered by the environment ministry to cut the lung-damaging small particles, known as PM2.5, by an average of 3-6.5% in this winter season from a year ago.

 

Dow Jones Industrials		-0.11%	at	26,806
Nikkei 225		+0.22%	at	22,800
HK Hang Seng		-0.49%	at	26,667
Shanghai Composite		+0.48%	at	2,955
FTSE 350 Mining		-0.18%	at	17,686
AIM Basic Resources		+1.49%	at	2,169

 

Economics

US – Top US and Chinese negotiators are to meet today to continue with discussions on the potential trade deal.

• US will push Chinese to increase purchases of its agricultural products and offer to remove some of existing and planned tariffs in return, Reuters reports.
• As part of “Phase 1” deal, China is hoping to avoid tariffs on $156bn worth of exports that are due in December as well as seeking removal of 1% tariffs imposed on September 1 on $125bn of goods.
• In exchange, China will remove tariffs on US farm products and increase its annual purchases starting at around $20bn rate, however, details of that are currently uncertain.
• Durable goods report came in weak yesterday missing estimates on both headline and core figures in September.
• Looks like weak business spending in Q3 driven by trade uncertainty will weigh on growth during the quarter
• PMI data released yesterday showed the Composite Index picking up in October to reach the highest level in three months (51.2 v 51.0 in September).
• Although, levels of business activity remain subdued as “survey data point to annualised GDP growth of just under 1.5% at the start of the fourth quarter”.
• “A near-stalling of new order growth to the lowest for a decade suggests that risks are tilted toward growth remaining below trend in coming months,” Markit commented on numbers.
• Earnings results have been broadly positive so far with separate names underperforming expectations and trimming outlooks.
• Of the 124 S&P 500 companies that reported up to Wednesday, more than 82% topped earnings estimates, according to Refinitv data.

 

ECB – The central bank left monetary policy unchanged yesterday reiterating its guidance that rates will remain at their current or lower levels until inflation picks up.

• “Incoming economic data continue to point to moderate, but positive growth in the second half of this year… (although) an ample degree of monetary accommodation is still necessary” Draghi said.
• As announced in September, bond purchases as part of another round of Quantitative Easing will restart at a monthly pace of €20bn from 1 November.
• “The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.”
• Weakness in international trade weighed on manufacturing activity in the euro area, as well as business investment.
• Draghi has once again urged governments to consider boosting budget spending to help the economic growth (although, the room may be limited for some countries with large outstanding debt levels).
• “Regarding fiscal policies, the mildly expansionary euro area fiscal stance is currently providing some support to economic activity… in view of the weakening economic outlook and the continued prominence of downside risks, government with fiscal space should act in an effective and timely manner.”
• The euro was largely rangebound during the press conference and is little changed today trading at 1.11 against the US$.

 

Germany – Business outlook stabilised in October with expectations picking up slightly, although, from a low base (a decade low).

• Ifo Institute expectations measure came in at 91.5 v 90.9 in September and 91.0 forecast.
• The report comes in contrast to PMI data that showed the pessimism in the manufacturing sector now spreads to service providers with the composite measure at the lowest since November 2012.
• In fact, the number of firms expecting a downturn in the services sector exceeded those that forecast growth for the first in almost seven years.

 

UK – EU members will be discussing the length of delay to Brexit at a meeting on Friday as UK PM admitted it is unlikely to meet the 31 Oct deadline and called for snap elections.

• PM relies on Labour to support his call for early elections on December 12 with the proposal to be put to vote on Monday next week.
• General elections and start of campaigning mean parliament may need to approve/vote down the Brexit deal before November 6.
• Labour Leader Jeremy Corbyn said that his decision on backing the bid for an election is contingent on the EU granting an extension and avoiding the no-deal Brexit.
• Take no deal off the table and we will absolutely support an election,” Corbyn said.
• The pound is off slightly against the US$ (-0.07%) and € (-0.13%) this morning.

 

Currencies

US$1.1122/eur vs 1.1130/eur yesterday.  Yen 108.60/$ vs 108.69/$.  SAr 14.636/$ vs 14.624/$.  $1.284/gbp vs $1.289/gbp.  0.683/aud vs 0.683/aud.  CNY 7.070/$ vs  7.071/$.

 

Commodity News

Gold US$1,504/oz vs US$1,490/oz yesterday

   Gold ETFs 82.0moz vs US$82.0moz yesterday

Platinum US$928/oz vs US$920/oz yesterday

Palladium US$1,773/oz vs US$1,743/oz yesterday

Silver US$18.04/oz vs US$17.51/oz yesterday

           

Base metals:   

Copper US$ 5,871/t vs US$5,895/t yesterday - International Copper Study Group revise down demand and supply forecasts (Reuters)

• The intergovernmental organisation has revised down is demand forecast to just 0.3% this year, down from 2.0% in May.  
• The group also forecast a widening of the supply deficit to 320,000t compared to 190,000t estimated in May.
• The ICSG recognises the statistical problems of calculating the supply-demand balance of a 25mt market, and findings should therefore be interpreted cautiously.
• Supply shortage fears are being driven by production disruption in Chile, the world’s largest supplier.

Aluminium US$ 1,720/t vs US$1,727/t yesterday

Nickel US$ 16,840/t vs US$16,790/t yesterday - Papua New Guinea closes Chinese nickel operation (Reuters)

• The country’s mineral resources authority ordered a plant owned by Metallurgical Corporation of China to close.
• According to the authority, the plant was ordered to shut “for not adhering to remedial measures issued six weeks ago”.
• This was due to a slurry spill which occurred in August , covering the shoreline in 200,000 litres of red mud and causing local health problems (RNZ).
•  Samples taken from Basamuk Bay revealed heavy metal contamination in areas surrounding the mine.
• The authority said that the processing facility will not reopen until six key issues were fixed (ABC).

Zinc US$ 2,507/t vs US$2,496/t yesterday

Lead US$ 2,232/t vs US$2,218/t yesterday

Tin US$ 16,775/t vs US$16,650/t yesterday

           

Energy:           

Oil & Gas M&A activity builds momentum across the sector

• Given the depressed economic environment, we are seeing a number of listed companies coming to the conclusion that it is cheaper to purchase reserves through the stock market rather than adding through the drill-bit.
• The past 12 months has seen the acquisition of Faroe Petroleum (FPM.L) by DNO (DNO ASA); a £380m bid for Eland Oil & Gas (ELA.L) by Seplat Petroleum (SEPL.L); and Amerisur Resources (AMER.L) currently engaged in a competitive bid.
• Aramco’s proposed IPO is another good barometer for sector sentiment in our view. Days before a widely expected official approval for what would be the world’s largest IPO ever, Saudi Arabia has yet again delayed the much-hyped listing by at least several weeks, with international investors seemingly not buying the Saudi insistence that the biggest oil company in the world is worth US$2tn. 

Oil US$61.4/bbl vs US$60.7/bbl yesterday -

• Oil prices received a welcome boost this week on rumours that OPEC+ might impose further cuts and because of a surprise drawdown in EIA inventory data.
• Nevertheless, economic cracks continue to dominate the narrative.
• The latest string of downbeat economic data came from Germany, where its manufacturing sector seems to be stuck in negative territory.
• U.S. crude futures were also up 0.7% at $54.1/bbl on the New York Mercantile Exchange, with the longer-term view suggesting a squeeze in the supply dynamic
• US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

Natural Gas US$2.319/mmbtu vs US$2.280/mmbtu yesterday

• Overall, natural gas prices rebounded rising 1.75% this week following a smaller than expected build in natural gas inventories
• Expectations are for natural gas inventories to increase by 93Bcf this week when official data is released
• This compares to a 104Bcf build in natural gas inventories reported by the Energy Information Administration last week
• There is a disturbance in the Gulf of Mexico which now has approximately a 60% chance of beginning a tropical cyclone according to the National Oceanic Atmospheric Administration

Uranium US$24.30/lb vs US$24.40/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$84.6/t vs US$84.1/t

Chinese steel rebar 25mm US$555.2/t vs US$555.2/t

Thermal coal (1st year forward cif ARA) US$65.8/t vs US$66.3/t

Coking coal futures Dalian Exchange US$183.3/t vs US$183.3/t

           

Other:  

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

NdPr Rare Earth Oxide (China) US$42,082/t vs US$42,780/t

Lithium carbonate 99% (China) US$7,002/t vs US$7,000/t

Ferro Vanadium 80% FOB (China) US$35.8/kg vs US$36.0/kg

Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.4/kg

Tungsten APT European US$225-245/mtu vs US$225-245/mtu

 

Renewable & Battery News

Tesla -  Q3 profit causes short sellers to scramble to close positions in estimated $1bn short burn

• Well done to Elon Musk for turning a profit at Tesla in this Q3 results.
• Deliveries of the Model 3 are rising and Musk has been effective in driving down costs.
• Tesla made $1.86/s, better than analysts’ forecasts of between -$1.25/s and $0.34/s.
• Tesla’s Q3 profit was $143m- following a cumulative loss of $1.1bn in the first half of the year.
• The company’s shares rose by 20% on Wednesday morning as a result of the news.
• Tesla now expects to launch is electric SUV, the Model Y, by summer 2020- months earlier than planned (Independent).
• The companies Shanghai Gigafactory was built in ten months, and is ready for production at a cost 65% less expensive than its US production system, according to Musk.

 

Honda to be fully electrified in Europe by 2022 (Autocar)

• Honda has brought forward its goal to make all its models electrified by 2025 by three years.
• Earlier this week, Honda announced a partnership with battery firm Vattenfall, which aims to improve EV charging infrastructure across the UK and Germany.

 

Clean energy transition saving billions of gallons of water (phys.org)

• The transition from coal to gas and renewables is dramatically reducing the industry’s water use in the US, according to Duke University.
• This report highlights how the switch to ‘cleaner’ energy has benefits beyond climate change and air quality.
• For every MW of electricity produced using natural gas instead of coal, 10,500 gallons of water is saved (Science Daily)
• Switching to solar or wind could boost these savings even more.

 

Company News

Aura Energy Limited* (AURA LN)  0.4p, Mkt Cap £5.2m – Update on shareholder meeting

• In an update to the previously announced call for a shareholder meeting, Aura Energy reports that it will call a general meeting to be held by 18^th December in order to consider the immediate appointment of Mr. John Bennett as a non-executive director.

*SP Angel act as Nomad & Broker to Aura Energy

 

Tri-Star Resources* (TSTR LN)  33p, Mkt Cap £31.1m – Tri-Star raises £316,000

(Tri-Star holds 40% in ‘SPMP’(Strategic & Precious Metals Processing LLC) which owns the antimony-gold processing facility in the Port of Sohar Free Zone, Oman)

World’s first Clean Plant designed to EU Environmental standards.

Target gold capacity 50,000ozpa, antimony 20,000tpa

• Tri-Star resources reports that it has raised £316,000 from the issue of an additional 987,500 shares at 32p/share.
• The company’s principal shareholder, Odey Asset Management, has subscribed for 625,000 of the new shares bringing its holding to approximately 68.9m shares representing some 72.38% of the company.
• The funds are to be used for “general working capital requirements”.

Conclusion:  Earlier this month, Tri-Star Resources announced that its 40% owned SPMP which operates the environmentally advanced antimony roaster in Oman had produced 99.54% pure antimony metal which is close to the 99.65% level required for sales to the acid battery market. The additional working capital should assist in the final adjustments needed to reach battery grade antimony production.

*SP Angel acts as Nomad to Tri-Star Resources. David Facey, a former partner at SP Angel is the CEO & CFO at Tri-Star Resources.

 

Teck Resources (TECK US) US$16/s, Mkt cap US$8.9bn - to start a cost-cutting program as global uncertainty weighs on profit

• Canada’s largest diversified miner has begun a cost cutting programme which will also see a reduction of around 500 staff.
• The company cited global uncertainty, namely the US-China trade war as the reason for low Q3 profits.
• Teck is aiming to reduce around $500 million from its spending plan through the end of 2020 (Financial Post).
• The company’s profit stood at $369m for the last quarter compared to $1.28bn for the same period last year.
• One project Teck are expected to go ahead with is the Quebrada Blanca Phase 2 project in Chile- one of the world’s largest undeveloped copper resources.

 

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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