SP Angel . Morning View . Thursday 14 05 20
Gold prices continue to rise on second COVID-19 wave fears
Rare Earth Element prices rising as factories buy material to meet permanent magnet demand for EVs and windfarms
MiFID II exempt information – see disclaimer below
Atalaya Mining (ATYM LN) – Copper price weakness blunts Q1 results
Aura Energy* - (AURA LN) – Further issue of shares
KEFI Minerals* (KEFI LN) – Finalisation of the Tulu Kapi funding due in Oct/20 and Hawiah maiden resource in mid-20
Tertiary Minerals* TYM –– Pyramid project drilling results
The reopening of factories in China and in the West continues to lift Rare Earth Prices
NdPr prices rise for fifth straight day as EV and Hybrid vehicle sales rise
- Turbine manufacturing for windfarms, a major use of NdPr, is seen as a major driver for demand with NdPr permanent battery production rising in China
- Prices of light rare earths, praesodymium-neodyminum oxides are rising as producers of permanent magnet materials and other downstream plants stepped up purchases.
- Praesodymium-neodyminum (Pr-Nd oxides > 99%) spot prices rose to Rmb270,000- 272,000/t on Thursday, up Rmb1,000/t on the previous day and Rmb7,500/t on the week (SMM News).
Vanadium – Sichuan province to step up quality checks on rebar
- The move is likely to create better compliance with increased vanadium content regulations and lift prices of ferro-vanadium (FastmarketsMB)
- Sichuan is also looking to reduce water-quenching for steel hardening which is more brittle, rusts and is of greater risk of failure in earthquakes and under stress.
- Regulations now require Chinese steel mills to add 0.03-0.05% of vanadium for HRB400 rebar and 0.05-0.08% for HRB500 rebar effective November 1, 2018. High vanadium prices following the new regulations is thought to have caused widespread non-compliance with the regulations.
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Economics
US - Fed Chairman Jerome Powell urged the White House and Congress to increase stimulus with the recovery potentially taking longer than initially thought.
- “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said at an event hosted by the Peterson Institute for International Economics.
- “The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems.”
- Commenting on a potential for taking federal funds rate into the negative territory, Powell said such a move was not being considered.
- “I know that there are fans of the policy (negative rates), but for now, its not something that we’re considering… we think we have a good toolkit, and that’s the one we’ll be using.”
- US stock indices closed lower yesterday on Fed Chairman comments and concerns over resurfacing row between the US and China.
A group of companies are introducing new earnings measures called EBITDAC standing for “earnings before interest, depreciation, amortisation and coronavirus”, FT reports.
- The gauge is explained to provide the measure of earnings if the virus had never happened.
Insurance industry losses from the pandemic may come in to more than $200bn according to new estimates from Lloyd’s of London.
- Over half of the $203bn forecast losses will come from events cancellation, business interruptions and trade credit covers, FT reports.
- Another $96bn to come from investment losses.
- Payouts could be “far in excess” of those after 9/11 in 2001 and the combined impact of hurricanes Harvey, Irma and Maria in 2007.
UK – The government is examining options of decontamination and reusage of single-use medical respirator masks.
- Reusing masks is already widespread practice in the US that was faced with a shortage of N95 masks and it was recently approved in Canada and Norway.
Spain – Only 5% of Spaniards have been infected by coronavirus despite going through one of the worst outbreaks in Europe in recent months, a government-backed report said.
- This suggest “herd immunity” is a more distant prospect than many had hoped.
WHO – warns the Coronavirus may become endemic and we may have to learn to live with it
- There’s a jolly headline for us all
- What they mean is that even with a vaccine we may struggle to eradicate the virus entirely like Polio
- The statement has implications for air travel and migrant labor as nations work to eradicate the disease when a vaccine is developed
Potential rerun of negative WTI oil prices as the June futures contract closes in on expiry
- The market is reported to still have some 138m bbls due for delivery with just four trading sessions before expiry
- To lose a billion dollars on May WTI ETFs was careless of the Bank of China, to lose another billion might be considered to be criminal in the CPC
China – passenger vehicle sales fell -7% yoy to 32,006 cars in the first week of May vs +12% a week earlier – ‘CPCA’ China Passenger Car Association.
- Chinese cities easing automotive license restrictions to encourage buying of EVs and hybrids
- China reported a possible new wave of COVID-19 cases a few days ago with at least one city halting bus and rail services
- The city has also closed residential compounds following further new COVID-19 cases. School have also been closed.
US/China – possible sanctions against individuals in China by US Senate over Uyghur Human Rights Policies
- The President may Veto this legislation but Trump may use this in his trade war
- Proposed US COVID-19 Accountability Act will require Trump to prove to Congress that China is accountable for the Coronavirus and its spread
- Republicans are looking for reasons to restrict Chinese imports and promote ‘made in America’
- Washington is also accusing China of trying to steal research into a COVID-19 vaccine and intellectual property related to treatments (FBI & CISA).
- China is seen as still far off in its commitment to buy $200bn worth of imports from the US. Missing this target will not help the situation.
- More extreme speculation focusses on the potential to brand China as a rogue state with far reaching financial and political consequences
UK - Record inflows into Hargreaves Lansdown in the UK as investors pile cash into equities
- Hargreaves Lansdown report a record £4bn of inflows of funds in the first four months of the year
- Investors are taking advance of lower equity prices following substantial sales by Oil-rich Sovereign Wealth funds following the collapse of oil prices
- Investors need to be careful of the sectors and companies they buy into as certain sectors may struggle to recovery when the lockdown ends
- A difficult corporate earnings season is likely to create more trade and volatility as investors are faced with the reality of the cost of the lockdown
- Government debt levels and the need to pay for furlough and other economic support combined with markedly lower tax receipts have hit bond yields as investors await a wave of new UK government bond issuance.
Ford to resume engine production in UK factories
- Ford intend to resume output at its two British engine factories from next week, located in Dagenham and Bridgend- which built 1.1m engines last year.
- The restart would mean all of the US carmakers European manufacturing sites would now be in operation (City A.M).
COVID-19 – kidney injury seen in 36.6% of hospitalised COVID-19 patients in US Northwell Health study
- Of those diagnosed with kidney injury nearly 15% required dialysis (Reuters)
Currencies
US$1.0808/eur vs 1.0849/eur yesterday. Yen 106.84/$ vs 107.10/$. SAr 18.520/$ vs 18.427/$. $1.220/gbp vs $1.229/gbp. 0.644/aud vs 0.648/aud. CNY 7.098/$ vs 7.093/$.
Commodity News
Precious metals:
Gold US$1,717/oz vs US$1,703/oz yesterday - Zambia to begin processing artisanal gold
- Zambia has built 10 milling plants to process gold produced by informal miners, in attempt to diversify from copper mining- according to the state mining investment company ZCCM-IH.
- The project is being undertaken by Consolidated Gold Company and ZCCM-IH, and is part of a continent-wide push to tackle informal mining of gold which deprives African states of revenue.
- Zambia aims to produce 40,000kg of gold in 2020 from primary and secondary sources, and intend to complete a gold leaching plant with a targeted gold production of 17.5kg per month by June (Reuters).
- The ten milling plants will have a combined processing capacity of 30 tonnes of ore per day and a targeted average of 7.5kg gold production per month (Zambia Daily Mail).
Gold ETFs 97.7moz vs US$97.4moz yesterday
Platinum US$768/oz vs US$763/oz yesterday – Reports indicate that China is looking to develop hydrogen fuel cell driven vehicles.
- While many fuel cell systems can work without platinum they all appear to work better with platinum such that the addition of platinum make a significant difference to performance.
- The downside to this performance is normally heat as Ballard Power found out in the 1990s with fuel cells running at >400oC
- Recent developments in electrolysis to make hydrogen are bringing commercial fuel cells closer to reality with the potential to convert acid waste into hydrogen being tested.
- Hydrogen storage remains a major issue for vehicle use as hydrogen cylinders are heavy, bulky and dangerous in a crash but fuel cells do appear to make better sense for stationary combined heat and power systems.
Palladium US$1,837/oz vs US$1,859/oz yesterday
Silver US$15.57/oz vs US$15.50/oz yesterday
Base metals:
Copper US$ 5,211/t vs US$5,230/t yesterday - China's Jiangxi province offer fiscal support to copper industry
- Jianxi province have unveiled measures to help copper producers after the coronavirus pandemic hit demand for the industrial metal.
- The Jianxi government intends to support producers by allowing firms that sell copper products made from "renewable resources" to pay income tax on only 90% of their earnings and reclaim 30% of VAT paid.
- The province also intends to expand copper consumption by broadening sales channels and encouraging businesses to give priority to local producers (Reuters).
- The support comes after Yunnan province announced support measures for metal producers, and Gansu province are thought to be considering schemes (SMM News).
Aluminium US$ 1,477/t vs US$1,475/t yesterday
Nickel US$ 12,235/t vs US$12,280/t yesterday
Zinc US$ 1,946/t vs US$1,979/t yesterday
Lead US$ 1,601/t vs US$1,628/t yesterday
Tin US$ 15,135/t vs US$15,280/t yesterday
Energy:
Oil US$29.7/bbl vs US$29.6/bbl yesterday
- Despite subsequently recovering, oil prices fell more than 1% yesterday despite the first decline in US crude inventories since January, as markets were affected by a downbeat address from US Federal Reserve chairman warning that economic recovery from COVID-19 “would take many months”
- The markets have rallied in the last several days on optimism that fuel demand destruction has bottomed out and producers have aggressively cut production to deal with the supply glut due to the pandemic
- According to the EIA, US crude stockpiles fell by 745kbbls, compared with analysts' expectations in a Reuters poll for a 4.1MMbbls rise
- The EIA also reported that stocks in the Cushing, Oklahoma, storage hub fell by 3MMbbls last week filling the delivery point for WTI to more than 80% of capacity, as producers find themselves with fewer places to store oil
- However, fears of a slow recovery are overhanging the market, with the UK chancellor also forecasting a deep recession in a speech yesterday
Natural Gas US$1.628/mmbtu vs US$1.682/mmbtu yesterday
- Natural gas prices moved lower yesterday ahead of today’s inventory report from the Department of Energy
- Expectations are for a 103Bcf build according to survey provider Estimize
- Prices fell by nearly 5%, making a fresh low for the June contract
- The weather is expected to be warmer than normal throughout the east coast for the next 6-10 and 8-14 days according to the most recent report from the National Oceanic Atmospheric Administration
- This would likely decrease heating demand on the east coast during a shoulder month
Uranium US$33.45/lb vs US$33.65/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$88.1/t vs US$87.3/t -
Chinese iron ore futures hit nine-month high
- Benchmark iron ore futures in China jumped to levels which were above pre-coronavirus prices, and the highest in over nine and a half months on Wednesday, driven by higher demand from steel mills.
- The most active iron ore futures on the Dalian Commodity Exchange for September delivery climbed as much as 2.4% to 647 yuan ($91.22)/t - the highest since August 2019.
- Spot prices of 62% iron ore for delivery to China have jumped 5% so far in May, to $88.20 on Tuesday (Reuters).
Chinese steel rebar 25mm US$532.6/t vs US$532.9/t
Thermal coal (1st year forward cif ARA) US$52.7/t vs US$52.8/t
Coking coal swap Australia FOB US$117.0/t vs US$117.0/t
Other:
Cobalt LME 3m US$30,000/t vs US$30,000/t
NdPr Rare Earth Oxide (China) US$38,042/t vs US$37,854/t - NdPr prices rise for fifth straight day
Lithium carbonate 99% (China) US$5,213/t vs US$5,216/t
Ferro Vanadium 80% FOB (China) US$27.5/kg vs US$27.5/kg
Antimony Trioxide 99.5% EU (China) US$4.9/kg vs US$4.9/kg
Tungsten APT European US$215-225/mtu vs US$215-225/mtu – Tungsten APT concentrate prices expected to rise on tight China supply (FastmarketsMB)
Graphite flake 94% C, -100 mesh, fob China US$510/t vs US$520/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,350/t vs US$2,425/t
Battery News
Kia’s first next generation EV model to offer 400- and 800-volt charging options
- Kia announced Plan S in January, the introduction of 11 electric vehicle models by 2026 with a sales target of 500,000 vehicles. (Electrek)
- The first vehicle in the range is to be released in 2021 and Kia have announced a cheaper 400-volt model and an 800 volt, 500km range model. (The Driven)
- The codenamed Ki CV will have an optional 800-volt architecture enabling sub 20-minute charging times.
- It is hoped the more expensive 800 volt will provide enhanced usability for customers who drive more regularly or longer distances.
- To date only the Porsche Taycan, available from $105,000 has an 800-volt charging system but Kia hope to bring it to the masses. (Autoblog)
Blade technology increase range of BYD’s Han EV to 376 miles (605km)
- Unveiled in March, BYD will deploy the Blade battery technology in its Han vehicle, priced at €45,000 to €55,000. (Autoevolution)
- The Blade technology is a lithium iron phosphate battery shaped to be safer, smaller, and denser that other systems.
- The battery is capable of a stable 800 amps of high current a silicon carbide motor control module enables 0-100kmph in 3 seconds by increasing overcurrent capacity. (CNTechpost)
- The battery passed extreme safety testing, being crushed, bent, heated to 300 degrees Celsius, overcharged by 260% and the nail penetration test. (Asia Times)
- The Han EV will be released in June.
VW reveal intentions in battery cell market
- VW announce plans to produce lithium ion batteries with €450m investment in a battery cell factory in Salzgitter, Germany. (Yahoo)
- VW will enter the venture alongside Northvolt AB who will handle production while VW builds the site and infrastructure.
- The Northvolt Zwei factory is expected to be operational by 2024 with an initial capacity of 16GWh. (Renewable Energy Magazine)
- The move is part of VW’s long-term electrification effort which includes the January announcement that the German car maker is developing a power and charging company.
- The rest remainder of VW’s estimated 150GWh demand by 2025 will be provided by external suppliers including LG Chem, Samsung SDI, SK Innovation and CATL. (Inside EVs)
Company News
Atalaya Mining (ATYM LN) 108p, Mkt Cap £151.8m – Copper price weakness blunts Q1 results
- Atalaya Mining reports that weaker copper prices (8% lower at US$2.58/lb) and the increased costs arising from the successful expansion to a throughput of 15mtpa at Proyecto Riotinto resulted in lower profits in Q1 2020 of €2.9m (Q1 2019 - €14.2m).
- Although increased production rates lifted revenues by 18% to €61.2m (Q1 2019 - €51.7m) operating costs increased by over 60% to €49.2m (Q1 2019 - €30.0m).
- Unit costs increased by 5% on a cash costs basis to US$1.99/lb while all-in-sustaining costs rose 4% to US$2.27/lb.
- The Proyecto Riotinto operation remains strongly cash generative, however, with operating cash flows increasing by over 90% to €15.5m and with lower capital expenditure following the completion of the expansion project, Atalaya Mining generated free cash flow before financing of €9.9m (Q1 2019 – cash shortfall of €9.0m).
- Although Atalaya cautions that it is monitoring the impact of the Covid19 pandemic on its expectations, the company is currently maintain its annual production guidance for 2020 at 55-58,000t of copper and cost guidance in the range US$1.95-US$2.05/lb for cash costs and for all-in-sustaining costs between US$2.20-2.30/lb.
- CEO, Alberto Lavandeira said that ʺWe remain confident that our guidance numbers on production and costs for the remainder of the year will be achievable. However, the Company is aware that the COVID-19 pandemic may still further impact how the Company manages its operations and is accordingly keeping its guidance under regular review.ʺ
- Mr. Lavandeira welcomed the previously announced resolution of the ʺthe legal process in relation to the AAU of Proyecto Riotinto, which has been resolved with no impact to our operationʺ.
Conclusion: Atalaya Mining has successfully completed the expansion of its Proyecto Riotinto operation to 15mtpa and now it is relieved of the capital expenditure for the expansion is strongly cash generative even at the current weaker copper price.
Aura Energy* - (AURA LN) 0.21p, Mkt cap £4.4m – Further issue of shares
- Aura Energy reports the issue of a further 63.3m shares ʺas payment for outstanding obligations to various individuals including a number of consultants and a drilling contractorʺ.
- Included within these shares are approximately 25.1m shares issued to ʺMr. John Madden, Company Secretary as payment in lieu for services between August 2019 and April 2020.ʺ
- We estimate that the new shares represent approximately 3% of the enlarged capital of Aura Energy.
*SP Angel are Nomad and Joint-Broker to Aura Energy
KEFI Minerals* (KEFI LN) 0.76p, Mkt Cap £11m – Finalisation of the Tulu Kapi funding due in Oct/20 and Hawiah maiden resource in mid-20
- The Company highlighted progress at the construction ready Tulu Kapi gold project in Ethiopia and greenfield Hawiah polymetallic prospect in Saudi Arabia.
- The team remains focused on securing Tulu Kapi development funding paving the way for the start of development works and eventual commissioning in 2022.
- The government has recently offered its support to “look to arrange either direct or indirect funding into TKGM from its investment institutions for the required amounts if there is any further delay in investment via ANS Mining”.
- The Company raised £3.7m in new equity in May securing funding to close the $260m Tulu Kapi project financing including targeted project level equity funding completion in Q2/20 as well as the identified debt funding in Oct/20.
- Additionally, the placing attracted an institutional shareholder, RAB Capital, that subscribed for 236m shares representing 12.6% of the enlarged share capital.
- Previously, the team highlighted benefits that high gold prices yield for Tulu Kapi economics.
- Combined Tulu Kapi open pit (DFS-based) and underground (PEA-based) operations are valued at £161m, £307m and £450m using $1,300/oz, $1,600/oz and $1,900/oz gold prices as per after tax NPV8% (100% based).
- At current gold prices ($1,700/oz), KEFI estimates its 45% interest in the project is valued at £163m.
- In Saudi Arabia, stage 2 drilling is continuing at the Hawiah polymetallic prospect and is due to be completed this month with a view to deliver a maiden Mineral Resource in mid-2020 and launching a PEA.
- Results so far identified three distict massive sulphide lodes underlying the 4km+ long surface gossanous ridgeline with the system remaining open at depth and along strike.
- Copper-zinc-gold-silver sulphide mineralisation has been intersected in drilling over more than 4km with separate intervals returning up to 5% CuEq intersections.
- Local JV partner is funding the drilling programme allowing KEFI to reduce short term expenditures in return for seeing its interest in the project coming down to 34% from 38%.
- The Company indicated that it expects to fund its pro rata share moving forwards given encouraging results from the current drilling programme.
Conclusion: Tulu Kapi project level funding is expected to be closed in Q2/20 allowing the team to start the relocation programme and preparing the site for construction works in anticipation of the debt facility finalisation in October. Favourable gold price environment further improves economics of the project helping the Company to arrange debt funding. In Saudi Arabia, the second round of drilling is on course to deliver a maiden resource at an exciting Hawiah VMS type discovery.
*SP Angel act as Nomad and Broker to KEFI Minerals
Tertiary Minerals* TYM – 0.23p, Mkt cap £2.3m – Pyramid project drilling results
- Tertiary Minerals has reported what it describes as ʺprovisionalʺ drilling results from its recently completed cored drill-hole TPYR1 at its Pyramid gold project in Nevada.
- The hole was drilled to confirm the results of an historic percussion drill-hole, PYR9, which was drilled by Battle Mountain Gold in 1989 with reported results of a 1.52m long intersection averaging 17.8 g/t gold from a depth of 94.5m. The historic drill hole reportedly contained visible gold and ended in mineralisation.
- The provisional results of the new hole drilled by Tertiary Minerals reported today from what is described as ʺfirst pass sampling … show a best intersection of 0.55m grading 2.01 g/t Au from 82.6m down holeʺ.
- The company acknowledges that these results ʺare lower than those from the historic drill hole (PYR9), … [but points out that] … the results do confirm that the target zone is gold-mineralisedʺ. Tertiary Minerals also says that ʺThere is also a poor correlation between holes in the position of the better assay results and so a second programme of core sampling will now be carried out to ensure that no significant gold bearing sections were missed in first pass samplingʺ.
- Offering possible explanations for the discrepancy between their findings and the historic information the company says that they ʺcould be a result of natural geological variation, which can be significant over short distances in high grade gold deposits, or due to the different drilling methods employed. Battle Mountain's percussion drilling method gives a larger and arguably more representative sample, but percussion drill samples can also be compromised by ground conditions, sample recovery and down-hole contamination issues. Percussion drilling does not deliver the same level of geological information as core holes which is why core drilling was chosen by the Company for this important first hole.ʺ
- Tertiary Minerals explains that Battle Mountain Gold’s original drilling was testing a ʺstrong gold, silver and multi-element soil geochemical anomaly that remains open to both the north and south. Now that the underlying alteration zone is confirmed as gold-bearing, the Company intends to carry out further soil sampling to fully delineate the anomaly and to define further drill targets.ʺ
- The reported visible gold encountered in the earlier drilling indicates potentially high grades associated with the mineralisation at the Pyramid project however such mineralisation can typically be erratic and this may, in part, offer an explanation for the discrepancy with the earlier drilling. The application of a different drilling method may, as the company indicates, also be a contributory factor.
- Managing Director, Richard Clemmey, confirmed that ʺPyramid remains an attractive exploration project due to the extensive gold-in-soil anomaly and the widespread gold bearing surface samples we described in our May 2019 announcement. We look forward to continuing work on the Pyramid Gold project and on our growing portfolio of precious and base metal projects in Nevada where further news is expected soon."
- The full sample results may shed further light on the issue and the company’s intended soil sampling programme may also assist in a better understanding of the target mineralisation.
- The company also announces that it has applied for the admission to AIM of 25m new shares issued to the Precious Metal Capital Group which is financing the drilling at the Pyramid gold project. The additional shares represent approximately 3% of the enlarged capital.
Conclusion: The first drill-hole at the Pyramid gold project has not replicated the reported results of historic drilling but has confirmed the system is mineralised. A comprehensive assaying of the recent drill-core and planned additional geochemical sampling may assist in target definition for future follow-up drilling.
*SP Angel act as Nomad and Broker to Tertiary 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
SP Angel
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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.
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Sources of commodity prices |
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Gold, Platinum, Palladium, Silver |
BGNL (Bloomberg Generic Composite rate, London) |
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Gold ETFs, Steel |
Bloomberg |
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Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt |
LME |
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Oil Brent |
ICE |
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Natural Gas, Uranium, Iron Ore |
NYMEX |
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Thermal Coal |
Bloomberg OTC Composite |
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Coking Coal |
SSY |
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RRE |
Steelhome |
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Lithium Carbonate, Ferro Vanadium, Antimony |
Asian Metal |
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Tungsten |
Metal Bulletin |
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