SP Angel – Morning View – Wednesday 24 10 18

 

Palladium shortage pushes metal to record highs

MiFID II exempt information – see disclaimer below 

121 Mining Investment conference with SP Angel in London

 

Antofagasta (ANTO LN) – 2018 production guidance tightened as Q3 copper output increases

Rambler Metals (RMM LN) – Q3 production

Talga Resources (TGL AU) – Talga graphene silicon extends capacity of Li-ion battery anode

 

Dow Jones Industrials

 

-0.50%

at

  25,191

Nikkei 225

 

+0.37%

at

  22,091

HK Hang Seng

 

-0.55%

at

  25,208

Shanghai Composite

 

+0.33%

at

   2,603

FTSE 350 Mining

 

-0.15%

at

  16,526

AIM Basic Resources

 

-0.36%

at

   2,134

 

Economics

US – Equity futures are trading slightly lower this morning amid increased volatility in the marketplace.

  • Contracts on the S&P 500 pointed to a sixth day of losses with both Dow and Nasdaq futures trading in red.
  • Oil producers have posted the heaviest losses during the Tuesday session as oil  prices touched the lowest level in almost two-months on a pledge by Saudis to meet any shortfall related to Iranian sanctions.
  • The MSCI Asia Pacific Index is down 0.2% today marking the lowest level in more than 17 months.
  • The euro is sliding against the US$ this morning as the European Commission rejected Italian budget in an unprecedented move after the plan breached prior spending promises while regional PMI data pointed to a drop in growth momentum to the slowest since the end of 2016.
  • Quarterly corporate earnings continued to grow at strong double digit pace, although the rate has slowed through the year with major corporates referring to challenges brought by slowdown in China and rising tariff costs.
  • Q3 is currently on pace for a 22.1%yoy growth in earnings coming off 26.6% recorded in Q1 and on course for a forecast 9.0% in Q2/19 as the boost from a $1.5tn tax cut passed in December 2017 fades away, according to Refinitiv.
  • Caterpillar, the world’s biggest construction equipment maker, said before the US market opened on Tuesday that Trump’s steel import tariffs, along with higher freight charges, cost it around $40m in its most recent quarter.
  • Ford that is due to announce earnings today said in late September that steel tariffs have already cost it $1bn in profits.
  • 3M, a diversified conglomerate operating in manufacturing, healthcare and consumer goods sectors, reported sales that fell below forecasts by the most in two years while cutting its earnings estimates citing weak global growth outlook and adverse effect of protectionist policies.

 

Germany – Private sector activity slowed to the weakest since 2015 in October with both manufacturing and services sectors showing losses of momentum, according to the latest Markit PMI data.

  • “Unpleasant reading, slowdowns in rates of growth across all the main measures of business performance: output, new orders and employment,” Markit commented on numbers.
  • Trade war related worries, uncertainty over Brexit final terms and wider geopolitical concerns have all weighed on German sentiment pushing corporate expectations for the next 12 months to the lowest level in four years.
  • New orders posted the weakest monthly rise since June 2015.
  • An increase in input costs led by fuel prices have led companies to raise prices charged in an effort to protect margins.
  • Manufacturing PMI: 52.3 v 53.7 in September and 53.4 forecast.
  • Services PMI: 53.6 v 55.9 in September and 55.5 forecast.
  • Composite PMI: 52.7 v 55.0 in September and 54.8 forecast.

 

France – Growth in the private sector accelerated marginally in October as strong performance in the services sector outweighed a contraction in manufacturing sector, the first one since July 2016.

  • New orders climbed the most among service providers while manufacturing sector posted the slowest pace of growth in four months reflecting weak foreign demand for French-produced goods.
  • While cost inflation slowed slightly since September, the general increase in price pressures was above the long-run average on the back of higher fuel and labour costs.
  • Although, final goods and services inflation was relatively benign reflecting strong competition within the industry.
  • Business confidence remained strongly optimistic while job creation accelerated to a six-month high.
  • Manufacturing PMI: 51.2 v 52.5 in September and 52.4 forecast.
  • Services PMI: 55.6 v 54.8 in September and 54.7 forecast.
  • Composite PMI: 54.3 v 54.0 in September and 53.9 forecast.

 

Italy – Brussels rejected Italy’s budget draft saying higher deficit targets would challendge EU fiscal rules yesterday.

  • This is the first time the EC has refused to approve an EU member state’s draft budget.
  • The equity benchmark is little changed this morning but is down 0.7% from Monday close while 10y sovereign bond yield spread over German debt is up 12bp over the last two days trading at 316bp.
  • Rome has now three weeks to submit a fresh plan.
  • Italian leaders said the government would “not give up” on its plan.
  • Should Italy fail to comply it could ultimately face fines under the EU’s excessive deficit rules.

 

Currencies

US$1.1430/eur vs 1.1465/eur yesterday  Yen 112.53/$ vs 112.42/$  SAr 14.239/$ vs 14.366/$  $1.295/gbp vs $1.299/gbp  0.709/aud vs 0.708/aud  CNY 6.939/$ vs 6.939/$

 

Commodity News

Precious metals:         

Gold US$1,231/oz vs US$1,231/oz yesterday

   Gold ETFs 67.9moz vs US$68.0moz yesterday

Platinum US$830/oz vs US$827/oz yesterday

Palladium US$1,143/oz vs US$1,131/oz yesterday

  • Palladium holds nears its record level after touching $1,152.54/oz, as the metal used in catalytic converters in gasoline automobiles gets a strong boost from concerns over shortages as speculators pile in. In a year that’s seen losses for most other commodities, the rally in palladium has been exceptional. It’s the one major metal that’s at an all-time high and prices have almost doubled in the past two years.
  • The rally has accelerated in recent days due to growing geopolitical tensions between the US and Russia, one of the top producers, and stimulus measures in China, a key consumer. “Suppliers were already predicted to be in deficit this year”, and any future supply issue with Russia may exacerbate the problem, according to head of precious metals at Marex Spectron Group Ltd. “Forward rates are tightening and there is good physical offtake from the market”.
  • The plunge in palladium holdings of exchange-traded funds in the biggest indicator there’s a scramble for supply. Holdings have dwindled in recent years, but has signaled there’s a lucrative business of lending palladium, where borrowers pay ETF holders a premium to use the metal.
  • The market has remained in deficit as consumers turn toward gasoline cars, which tend to use more palladium in autocatalysts, instead of diesel. Shortages will probably persist through 2020, leading to the “tightest” market in two decades, according to Citigroup Inc.
  • Higher prices are good news for miners. Sibanye Gold Ltd. rallied as much as 14% in Johannesburg on Tuesday. Last year, the company completed the takeover of palladium giant Stillwater. Anglo American Platinum Ltd. gained as much as 3.5%.
  • The rally raises the risk that the auto industry, the biggest user of palladium, will look to reduce consumption and instead use more platinum in catalytic converters. It’s been 17 years since palladium was last this expensive relative to platinum. Both metals are used in varying amounts in different engine types, depending on efficiency and price. While it can take years to design autocatalysts, sizable switching has happened before. The car industry cut palladium usage by almost 50% in two years through 2002 after prices spiked, and increased platinum purchases by 37%.
  • Prices appear to have moved ahead of fundamentals in the short term, according to Georgette Boele, an analyst at ABN Amro Bank NV. The metal’s 14-day relative-strength index is at about 77, above the level of 70 that suggests to some chart watchers that palladium may have become overbought.

Silver US$14.75/oz vs US$14.69/oz yesterday

           

Base metals:   

Copper US$ 6,222/t vs US$6,209/t yesterday

Aluminium US$ 2,010/t vs US$2,011/t yesterday

Nickel US$ 12,420/t vs US$12,425/t yesterday

Zinc US$ 2,712/t vs US$2,654/t yesterday

Lead US$ 2,020/t vs US$2,010/t yesterday

Tin US$ 19,335/t vs US$19,290/t yesterday

           

Energy:           

Oil US$76.3/bbl vs US$79.2/bbl yesterday

  • Oil prices plunged about 5% on Tuesday to two-month lows as a sell-off in global equity markets raised worries about demand growth and after Saudi Arabia said it could supply more crude quickly if needed, easing concerns ahead of U.S. sanctions on Iran.
  • Brent crude futures fell 4.3%, or $3.39, to settle at $76.44 a barrel after plunging 5% to $75.88, the lowest since Sept. 7.
  • U.S. crude ended the session at $66.43 a barrel, down $2.93, after falling 5.2% to a session low of $65.74, the lowest level since Aug. 20.

Schlumberger chief warns on US shale oil production

  • US shale oil production could fall short of its most optimistic projections because of emerging problems in the industry, the chief executive of Schlumberger has warned.
  • Paal Kibsgaard said that in addition to a shortage of pipeline capacity that was slowing growth in the Permian Basin of Texas and New Mexico, it was becoming more difficult to increase production as shale oilfields mature and new wells are being sunk in areas that have already been drilled.
  • “The well-established market consensus that the Permian can continue to provide 1.5m barrels per day of annual production growth for the foreseeable future is starting to be called into question,” he said.

Natural Gas US$3.219/mmbtu vs US$3.114/mmbtu yesterday

Uranium US$27.80/lb vs US$27.70/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.3/t vs US$72.9/t

Chinese steel rebar 25mm US$695.1/t vs US$693.0/t

  • Steel futures in Shanghai continue to rise as investor weigh the production impact of a slew of environmental measures, and after China announces moves to stabilize its financial markets and the economy. China’s Henan province began the first round of environmental inspections across nine cities beginning 23 Oct., with the next phase due to begin in early November, according to a government statement.
  • Inspections are expected to last half a month, with all visits due to finish by the close of November. First round of checks will be in cities of Kaifeng, Luohe, Zhumadian, Zhoukou, Xinyang, Nanyang, Luoyang, Sanmenxia, Jiaozuo. Second round of checks will be in cities of Pingdingshan, Xuchang, Zhengzhou, Shangqiu, Anyang, Puyang, Xinxiang, Hebi, Jiyuan.
  • Winter curbs are expected to last from Nov. 15 to March 15, with cities releasing output curbs for individual companies. In Tangshan, of 36 steel mills only one, Shougang Group Co., are exempted from production restrictions according to Shanghai Metals Market report. The majority face 24-46% cuts.
  • “We expect some companies to stop production because of checks in Henan province,” Hongyuan Futures says in note. “Spot rebar transactions on Tuesday averaged 7 yuan higher than a day earlier” Huatai Futures add expectations that steel will be “well supported” due to low inventory. “Still, production curbs due to the Shanghai Import Expo are underway, and construction will also need to stop in the area, which could impact short-term demand”
  • Central bank is said to plan giving 10bn yuan to China Bond Insurance Co. to provide support for debt sales by private enterprises.
  • Chinese steel consumption to stay flat on trade dispute with the U.S., absence of stimulus, says South Korea’s Posco.

Thermal coal (1st year forward cif ARA) US$98.0/t vs US$97.2/t

Coking coal futures Dalian Exchange US$206.9/t vs US$206.9/t

           

Other:  

Cobalt LME 3m US$60,000/t vs US$60,000/t

China NdPr Rare Earth Oxide US$45,901/t vs US$45,899/t

China Lithium carbonate 99% US$9,800/t vs US$9,800/t

Tungsten APT European US$275-295/mtu vs US$275-290/mtu

 

Battery Trends

Uber to go all-electric in London

  • Uber aims for London to be the first city where all its taxis will be electric in 2025, with a clean air fee added to rides to help drivers go green, as part of efforts to cut pollution in the British capital, its chief executive said on Tuesday.
  • The company will increase the cost of taking a ride in London by 15p per mile to create a £200m fund to help drivers switch to all-electric vehicles – the fee will be introduced “early” in 2019
  • Dara Khosrowshahi also said Uber was awaiting the full facts on the murder of journalist Jamal Khashoggi in the Saudi consulate in Istanbul before deciding whether that would affect the Saudi involvement in the ride-hailing service.
  • “The Mayor of London has set out a bold vision to tackle air pollution in the capital and we’re determined to do everything we can to back it,” Khosrowshahi said in a statement.

 

Dyson chooses Singapore for new electric car plant

  • Dyson has chosen to build its new electric car in Singapore and will break ground on its new factory later this year, with the first car scheduled to roll off the production line in 2021.
  • Dyson said the decision was based on the availability of engineering talent, regional supply chains and proximity to some key target markets.
  • The company has previously said it will commit £2bn to the project, including £200m to be spent in the UK on research and development and test track facilities.
  • Dyson insisted the decision to locate production in Asia had nothing to do with Brexit.

 

Company News

Antofagasta (ANTO LN)  756p, Mkt Cap £7,453m – 2018 production guidance tightened as Q3 copper output increases

  • Antofagasta reports a 15.4% increase in copper production during Q3 2018 to 188.3kt bringing YTD output to 505.5kt at a net cash cost of US$1.42/lb with higher by-product credits offsetting cost increases.
  • As a results, Antofagasta reports that its previous production guidance “has been narrowed to 705-725,000 tonnes, with a strong increase in production expected in Q4, particularly at Centinela as grades continue to rise.” Net cost guidance is maintained at US$1.35/lb “as unit costs improve in Q4 on increased production.”
  • The revised guidance implies a minimum of almost 200,000t of production at a cash cost of US$1.18/lb during the final quarter of 2018
  • The previous guidance range was 705-740,000 tonnes and the company expects 2019 output “to increase to 750-790,000tonnes of copper with higher average grades, particularly at Centinela Concentrates and Zaldivar”.
  • Production on a year to date basis has increased by 2.7% at Los Pelambres to 257.8kt with net cash costs of US$0.96/lb 9.4% lower than at the equivalent stage in 2017 as by-product credits increased as a result of higher production levels “and realised molybdenum prices”
  • At Centinela, where the first by-product molybdenum was produced in July, year to date total copper production of 161.6kt comprised 95.3kt from concentrates and an additional 66.4 kt as cathodes at an overall net cash cost of US$1.84/lb. Grades to the concentrates plant “continued to improve” during the quarter although for the year to date both sulphide and oxide grades were lower than during 2017.
  • Production from Antucoya during the nine months to 30th December declined by 12.3% compared to 2017 52,100t as throughput, grades and recoveries declined. As a result, cash costs on a year-to-date bvasis are 22.9% higher at US$2.09/lb.
  • Lower throughput on a year to date basis also contributed to a decline in output from Zaldivar where copper production fell from 38,800t during the first three quarters in 2017 to 34,000t. Cash costs increased by 23% to US$1.96/lb.
  • Commenting on the current copper market, CEO, Ivan Arriagada, noted that “The physical copper market continues to look tight and the outlook for next year remains positive despite ongoing fears about disruption to global trade”.

Conclusion: Antofagasta expects to increase copper output in Q4 and on into 2019 when it expects market tightness in the physical copper market

 

Rambler Metals (RMM LN)  3.15p, Mkt Cap £20.8m – Q3 production

  • Rambler Metals has announced that a 30% increase in copper grades during Q3 to 1.46% at its Ming mine has resulted in a 29” increase in production of copper in concentrate to 1,266t bringing year-to-date production to 3,067t. Gold in concentrate production for the year to date amounted to 3,067oz (2017 ytd of 2,910oz).
  • The company highlights that in addition to improved underground mine productivity and development rates, improved gold and copper recovery rates were achieved in the plant.
  • Rambler Metals has previously highlighted its target of “mining and hauling 1,250 dry tonnes per day at a minimum of 1.4% copper grade” and notes that “During week 19 and 20 of the 24 week project (October 5-19 2018) … “ it achieved an “average of 1,221 tonnes per day was hauled to the surface grading 1.23% copper”.
  • Chief Executive, Norman Williams underlined that "Sustaining these production levels over the long term requires increasing the development rate from the current level to an average of 30-35 rounds per week.  This uplift will be realized by a combination of increasing the number of development headings available each week, reducing the cycle time of the drill-blast-load-haul cycle, and cross training critical mining skills among the staff to allow key positions to be manned each day.  

Conclusion: The Ming mine is nearing the achievement of its long term operating targets and the challenge will now be to maintain and improve current levels of performance.

 

Talga Resources (TGL AU) A$0.51, Mkt Cap A$110.9m – Talga graphene silicon extends capacity of Li-ion battery anode

  • Australia advanced materials technology company, Talga Resources, announce positive initial test results under the company’s UK government funded “safevolt” project – a Talga-led program run in conjunction with consortia partners Johnson Matthey, the University of Cambridge and manufacturing research group, TWI.
  • Under Safevolt Talga is developing a high energy graphene silicon anode product, termed Talnode™-Si, targeting significantly higher capacity than state of the art commercial graphite anodes.
  • Highlights of initial test results include:
    • ~50% higher reversible capacity (~550mAh/g) than commercial graphite (~350mAh/g)
    • Coloumbic efficiency of 99.3% - 99.8%
    • 95% reversible capacity (after 45 cycles - tests ongoing)
  • Most importantly, the addition of graphene is effective in stabilising the silicon as it expands, maintaining battery life when enabling much higher energy density. In theory, a silicon anode is capable of providing approximately 10x the gravimetric (3x volumetric) energy of the standard graphite anode Li-ion battery. However, silicon experiences drastic volume change during charge and discharge cycles, causing sharply shorter battery life and/or failure.
  • The development arrives as automotive manufacturers have stated their intent to move to higher energy-to-weight ratios in their next generation battery packs, communicating the use of silicon oxide-based graphite:
    • Volkswagen - Estimates that cell energy density will increase by 25% from 2018 to 2025 and are targeting 20% silicon anodes from 2020.
    • Hitachi - Piloting a Si-graphite anode to form higher energy density batteries.
    • BTR -  The world’s largest anode manufacturer has a silicon-graphite anode in production and is looking to increase silicon loadings.
    • Samsung - Has patented and begun marketing graphene coated silicon anode materials.
  • Higher capacity batteries can also lead to reduced costs, as the increased energy density decreases the cost per unit of energy (Kw/h) for the total battery pack.  This increased capacity is a critical metric for customers, and particularly China where lucrative new energy vehicle subsidies are tied to energy density.
  • Interim samples are being prepared for delivery to end users in Asia under confidentiality and material transfer agreements.

Conclusion – Initial test results are extremely promising in delivering enhanced energy products for Li-ion batteries, at a critical time when automotive and battery makers are targeting silicon-based anode materials. We look forward to the results of additional cycling and optimization work in the Maxwell Centre at Cambridge University and also progress on the other Faraday projects including “scale-up” and “sodium”.

 

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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