SP Angel – Morning View – Thursday 29 11 18

Robust Chinese trade figures marred by Trump tariffs

MiFID II exempt information – see disclaimer below

Birimian Limited (BGS AU) – Suspension continues on ASX

Kodal Minerals* (KOD LN)

Pan African (PAF LN, PAN JSE) – Barberton Mines update halves grade in near-surface resource

Vast Resources (VAST LN) 0.42p, Mkt Cap £24m – Q3 update

 

Robust Chinese trade figures marred by trade war

  • China’s imports of refined base metals continue to shrug off trade war sentiment, with flows of copper, zinc and nickel up compared to last year and the country remaining on track to be a net importer of lead for a second year running. The flow of data returns with the new customs department database painting a picture of robust import appetite for refined metals but significant changes in flows of raw materials.
  • Refined copper imports rose by +20% for the first 10 months of the year, climbing to 3.1mt. Imports of concentrate reflect the rising interest, climbing by +19% to 16.6mt bulk weight. The combination of increased supply and smelter outages in India, the Philippines and Europe has allowed Chinese concentrate buyers to step up purchases from the international market.
  • Environmental legislation impacting waste imports has significantly hit copper scrap imports, falling -36% as the nation cracks down on imports of lower-quality material and the retaliatory duties the country slapped on US scrap in August. The relative fall in scrap import volumes has been partially offset by a sharp rise in copper content leading to a cumulative -6% fall on contained copper scrap imports.
  • Concerns that the US-China trade fracas will erode economic growth and dent demand have triggered a sell off across base metals, with copper prices down ~15% this year, even amid declining inventories and mine disruptions. Chile’s major Codelco are forecasting prices at $2.80-2.90/lb in the coming months, rising to $3.50/lb into 2021.
  • Similarly, imports of refined zinc have also cumulatively risen +13% from last year’s record flow of 508,000t. Mined concentrate imports are also running at higher levels, climbing +19% to 2.4mt. The removal of domestic concentrate availability, as smaller operations have been forced out the market by Beijing’s environmental crackdown, is the root cause of both higher raw material and metal imports.
  • Refined net nickel imports are also +14% higher at 177,000t, while raw and intermediate flows have surged +37% to 40.2mt – almost at levels before Indonesia banned exports of unprocessed nickel ore in 2014. The resumed flow of ore in such quantities reflects strength in China’s nickel pig iron sector; signalling robust good health.
  • Market eyes are all on the outcome of the weekend G-20 summit meeting with President Donald Trump and Xi Jinping, which may provide some indication on the severity of trade war impacts moving forward. Despite elevated tariffs, imports of valuable base metals remains robust into the Asian nation.

 

Steel company redirects molten waste into Ocean saving resource

  • Deforestation is a more serious cause of climate change than the world’s vehicle emissions combined, with widespread losses to kelp and seaweed forests exacerbating the issue. Nippon Steel & Sumitomo Metal Corp.’s waste residue collected by one plant’s smoke-scrubbers become an ingredient for construction materials aims to stop underwater erosion and become a useful fertiliser that rejuvenates dying seaweed.
  • Nippon Steel’s furnaces generate 17mt of molten iron-rich slag each year, which can be utilised to reverse Japan’s trend of losing kelp and eelgrass along its coastline, due in part to coastal nutrition starvation from river dams, according to Shinji Sato, a coastal engineering expert at the University of Tokyo.
  • A small test in 2004 off the coat of Hokkaido confirmed spectacular growth of kelp, growing 220x compared to the untreated baseline.
  • Eiji Kiso, the Nippon Steel staffer who oversees marketing for the project, says the company hopes eventually to sell 1mt of slag each year to fisheries and local governments.
  • Ecologist Tomohiro Kuwae is a fan of these experiments. A scientist at the Port and Airport Research Institute, a government-funded think tank near Tokyo, he says as much of 20% of the slag generated by Japanese metal producers could be used to restore ocean ecosystems. Healthier plant life along Japan’s coastline could also help absorb an extra 9mt of carbon-dioxide annually over the next decade, acting as a major carbon sink.

 

Its Friday, it’s the end of Movember – the world will be a better place tomorrow

 

Dow Jones Industrials

 

-0.11%

at

  25,339

Nikkei 225

 

+0.40%

at

  22,351

HK Hang Seng

 

+0.33%

at

  26,537

Shanghai Composite

 

+0.81%

at

   2,588

FTSE 350 Mining

 

+2.09%

at

  16,475

AIM Basic Resources

 

+0.01%

at

   2,121

 

Economics

US – Chinese and US officials discussed a potential to hold a round of trade negotiations in Washington in December if Xi Jinping and Donald Trump agree to a trade war truce in Buenos Aires this weekend, FT cited people familiar with preparations.

  • Should Xi and Trump meeting go well, Beijing’s lead trade negotiator, vice-premier Lui He, would lead a delegation of 30 Chinese officials to the US capital on a mission tentatively scheduled for Dec 12-15.

 

China – Official PMIs showed a continuing slowdown in economic growth momentum with manufacturing sector growth grinding to a halt in November.

  • Composite PMI dropped to 52.8, down 0.3 points on the previous month.
  • New export orders contracted for a sixth month while the services gauge reflecting activity in the construction and services sectors expanded at a slower pace.
  • With a further downside from more potential tariffs on the horizon, growth outlook remains fragile.

 

Germany – Retail sales posted fourth consecutive monthly decline in October, although the slowdown may follow by a jump in spending this month as more consumers take advantage of the Black Friday deals.

  • Last year sales dipped ahead of a strong reading in November.
  • YoY numbers were up 5%, beating estimates for a 2.7%yoy gain which may be attributed to two more shopping days recorded in October this year.

 

UK – House prices climbed more than expected in November (+0.3%mom v +0.1%mom estimated), Nationwide data showed.

  • However, the lender reiterated weak outlook on the property market on the back of constrained household budgets and general uncertainty related to Brexit.
  • The increase remained “relatively subdued” considering low borrowing costs and unemployment rate.
  • On an annual basis, prices climbed 1.9%yoy with growth accelerating from 1.6%yoy recorded in October and ahead of market estimates for a 1.7%yoy increase.

 

France – Inflation dipped in November on the back of lower energy prices.

  • Core inflation measure is due to be published with the next release and Bloomberg expects little changed from the previous month at 0.8% as higher contribution form the price of manufactured goods is likely to be have been offset  by slightly lower inflation in services.

 

Currencies

US$1.1382/eur vs 1.1395/eur yesterday  Yen 113.47/$ vs 113.26/$  SAr 13.694/$ vs 13.642/$  $1.278/gbp vs $1.283/gbp  0.731/aud vs 0.733/aud  CNY 6.946/$ vs 6.946/$

 

Commodity News

Precious metals:         

Gold US$1,225/oz vs US$1,227/oz yesterday

  • Gold trades in a narrow range and remains on target for the first back-to-back monthly gain since January as holdings in exchange-traded funds expand and investors reappraise the metal’s prospects into 2019 amid speculation the Federal Reserve will pause its tightening cycle.
  • Changing sentiment comes as Chairman Jerome Powell’s comments this week reinforced the sense the central bank may be approaching a hiatus in raising borrowing rates, as the current level sits ‘just below’ estimates of the so-called neutral level. Minutes released yesterday from its last meeting signaled policy makers will adopt a more flexible approach after the expected December hike.
  • Gold has begun to claw its way back since hitting a 19-month low in August, and Goldman Sachs Group Inc. is among banks talking up the outlook, listing the metal among top picks for 2019 as the strong-dollar trend is seen reversing.
  • “Gold has rebounded on the back of an increasingly dovish tone on interest rates from the Fed,” Gavin Wendt, senior resource analyst at MineLife Pty. “Recent stock market volatility, trade uncertainty and a softer outlook for the U.S. dollar, all provide a fertile environment.”

   Gold ETFs 68.9moz vs US$68.9moz yesterday

Platinum US$814/oz vs US$828/oz yesterday

Palladium US$1,191/oz vs US$1,181/oz yesterday

Silver US$14.33/oz vs US$14.38/oz yesterday

           

Base metals:   

Copper US$ 6,224/t vs US$6,250/t yesterday

Aluminium US$ 1,937/t vs US$1,939/t yesterday

Nickel US$ 11,090/t vs US$10,870/t yesterday

Zinc US$ 2,494/t vs US$2,460/t yesterday

Lead US$ 1,946/t vs US$1,946/t yesterday

Tin US$ 18,595/t vs US$18,475/t yesterday

           

Energy:           

Oil US$59.6/bbl vs US$58.8/bbl yesterday - Trump Said to Advance Seismic Surveys for Oil in Atlantic

  • The Trump administration is taking a major step toward allowing a first-in-a-generation seismic search for oil and gas under Atlantic waters, despite protests that the geological tests involve loud air gun blasts that will harm whales, dolphins and other animals.
  • The National Marine Fisheries Service is set to issue “incidental harassment authorizations” allowing seismic surveys proposed by five companies in Atlantic Ocean waters along the U.S. east coast.
  • The firms, including TGS-NOPEC Geophysical Co. Asa and WesternGeco Ltd., still must win individual permits from the Interior Department’s Bureau of Ocean Energy Management before they can conduct the work, but those are widely expected under President Donald Trump

Natural Gas US$4.624/mmbtu vs US$4.616/mmbtu yesterday

Uranium US$28.80/lb vs US$28.80/lb yesterday

 

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$64.2/t vs US$64.7/t

Chinese steel rebar 25mm US$585.1/t vs US$585.1/t

  • China’s November steel industry purchasing manager’s index (PMI) reflects a contracting sectors, falling to 45.2 according to National Bureau of Statistics. The index has plunged to its lowest since June 2016 as new orders collapsed.
  • According to Citigroup Inc., the industry is facing its biggest test in years as the broader economy falters amid internal pressures and escalating risks from a trade conflict with the US. China’s property sector, which account for 40% steel demand, is slowing while auto sales are edging toward their first annual decline in over 20 years.
  • Less exacting winter production curbs, containing pollution and controlling output levels, is less supportive of prices. Margins on many products have collapsed and are expected to remain low without more spending on infrastructure, or other easing measures from policymakers. Asian steelmaker stocks have faded dramatically since the summer, overturning predictions of a sector rally on state spending and output cuts.
  • Baoshan Iron & Steel Co., the listed unit of the nation’s top steelmaker, has dropped to its lowest since the middle of last year in Shanghai, while another big producer, Angang Steel Co., is retesting its September lows. The losses come against the backdrop of declines in a broader market rattled by the trade war, with Baoshan’s price-to-earnings ratio plumbing a record low.
  • State intervention has rescued China’s steel sector from previous downturns. If this weekend’s meeting between Presidents Donald Trump and Xi Jinping fails to soften their trade conflict, the Chinese government will have more incentive to take action.

Thermal coal (1st year forward cif ARA) US$86.3/t vs US$85.6/t

Coking coal futures Dalian Exchange US$198.7/t vs US$198.7/t

           

Other:  

Cobalt LME 3m US$55,000/t vs US$55,000/t

China NdPr Rare Earth Oxide US$45,924/t vs US$45,927/t

China Lithium carbonate 99% US$10,077/t vs US$10,078/t

Tungsten APT European US$275-295/mtu vs US$275-295/mtu

 

Battery News

Oklahoma announces funding program for electric vehicle charging stations

  • The Oklahoma Department of Environmental Quality, office of the Oklahoma Secretary of Energy and Environment and the Oklahoma Department of Transportation has announced a funding program aimed at providing light-duty electric vehicle charging stations in the state.
  • The ChargeOK Grant Program, funded by the Volkswagen State Environmental Trust, is offering approximately $3.1m for the purchase, installation, and operation of publicly accessible charging stations throughout the state.

 

Leadership needed on electric vehicles, say experts

  • Wales is "crying out for leadership" from the public sector on electric vehicles, a committee of AMs has heard.
  • An expert panel said Welsh ministers should set public bodies targets to adopt electric cars to cut emissions.
  • The Welsh Government hopes to slash gas emissions by 2020 and has put £2m into developing electric car charge points.
  • The economy and infrastructure committee were told Welsh ministers had not given clear signals that they "believe in electric vehicles" and bold statements and reassurance were needed.

 

Company News

Birimian Limited (BGS AU) – Suspension continues on ASX

Kodal Minerals* (KOD LN)  0.16p, Mkt Cap 12m

  • Birimian Limited report the company continues to review their activities while the stock is suspended on the ASX.
  • The suspension which started on the 13 November is unusually long for an ASX company and coincided with the resignation of two directors.
  • The resignations followed the expression of views on the future of the company by a group of company shareholders.
  • It appears a group of shareholders were unhappy at a lack of technical progress with the project which has a large 103mt resource grading 1.34% lithium.
  • http://birimian.com/pdfs/BirimianCorporatePresentation08Oct18.pdf

Conclusion: While it is all very well for companies to sit and wait for takeover offers to roll in, it is equally important for directors to advance and add value to their operations. The de-risking of a project through its definition, construction and delivery on even a small scale is normally seen as value accretive by investors.

 

Pan African (PAF LN, PAN JSE)  8.4p, mkt cap £187m – Barberton Mines update halves grade in near-surface resource

  • Pan African Resources have updated the market on its Royal Sheba project in the Barberton mines area of South Africa.
  • The updated total resource at Royal Sheba is 800,000oz grading 2.62g/t according to SRK consultants.
  • This includes 370,000oz grading 1.96g/t near surface vs 350,000oz previously grading 3.81g/t.
  • This is lower than Pan African’s targeted 2-4g/t though future updates may potentially raise the overall scale and grade of the estimated resource.
  • A near-surface drilling program is reported to confirm 5-25m widths of mineralisation with an average grade of 3.14g/t though we suspect this will get cut back in any future resource calculation as seen above.
  • The underground mineral resource is defined at 390,000oz grading 3.87g/t .
  • ‘Cut-off values are calculated at 0.5g/t and 1.7g/t for open-pit and underground Resources, respectively, applying a gold price of ZAR 600 000/kg (USD 1 435/oz and ZAR 13.00/1 USD).
  • Mineral Resources are reported inclusive of Mineral Reserves. Open-pit Mineral Resources are reported within an optimised ZAR 600 000 per kg Au pit shell with a revenue factor of 1.5.’
  • A Definitive Feasibility Study ‘DFS’ is underway.

Conclusion:  The updated 370,000oz near-surface resource is presented as an upgrade but the halving of the average grade does not sound so appealing. It will be interesting to see what value there is in the DFS.

 

Vast Resources (VAST LN)  0.42p, Mkt Cap £24m – Q3 update

  • Pickstone Peerless produced 6.4koz (Q2/18: 7.0koz) with an increase in plant throughput slightly compensating for a drop in grades and gold recoveries.
  • Milling operations ramped up to target levels of 35ktpm.
  • Waste stripping came in at high 17.2x times (Q2/18: 15.7x) driving a 12%qoq increase in mined tonnages.
  • “The work underway at Picktsone-Peerless to expose the sulphide ore will also provide for a more consistent gold head grade which in turn will also augment the already very impressive gold production record achieved during 2018,” the Company commented on gold operations in Zimbabwe.
  • Manaila recorded a drop in copper (97t Cu v 163t Cu in Q2/18) and zinc (17t Zn v 53t Zn in Q2/18) production during the quarter reflecting lower throughput, a decline in processed grades and weaker flotation recoveries.
  • Throughput rates have been constrained by increased waste stripping in the pit.
  • Weaker concentrate production is reported to have placed Manaila behind schedule in meeting the concentrate volume requirements of the offtake agreement and $9.5m funding offer for concluded on 21 March 2018 with Mercuria.
  • The Company expects to take a delivery of new dumpers and excavators in early 2019 which will improve the availability of equipment increasing productivity as well as allowing to raise ore feed to the plant.

 

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

 

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