SP Angel . Morning View . Tuesday 05 05 20

Metals and markets rise as lockdowns start to lift

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MiFID II exempt information – see disclaimer below

  

Anglo American (AAL LN) – ACP plant ramping back up

AfriTin (ATM LN) –  Signs £2.05 million Unsecured Loan Note Facility with high-net-worth investor in South Africa

Erris Resources (ERIS LN) – Raised £0.33m to advance Scottish exploration

Kazatomprom (KAP LI) – Uranium concentrate supply agreement signed with Dioxitek in Argentina

Power Metals* (POW LN) – Expansion of Australian gold exploration area

Vast Resources* (VAST LN) – Baita Plai polymetallic project update

 

Mining stocks rise as multiple countries ease lockdown restrictions 

  • The Stoxx Europe 600 Basic Resources Index was up as much as 3.6% this morning, as many countries began easing restrictions which boosted risk appetite (Bloomberg). 
  • Large-cap mining companies up this morning include: Rio Tinto +2.4%, BHP +3.9%, Glencore +5.5%, Anglo American +4.3%. 
  • Steelmakers also rose this morning, including: ArcelorMittal +6.1%, Evraz +3.5%, Kloeckner +7.2%. 
  • Mines are reported to be going back to work in South Africa, Peru and Bolivia and in probably many more regions as government’s relax lockdown rules to allow businesses to restart where social distancing rules may be more easily applied.

 

COVID-19 study in Gangelt, Heinsberg, Germany shows infection rate of 5x greater than shows by conventional tests

  • The implication is that the asymptomatic mortality rate from COVID-19 is 0.364% at Gangelt in the Heinsberg study.

 

Aurubis get approval from EU for $417m Metallo Group acquisition 

  • The European Commission has granted Europe's largest copper smelter for the acquisition of Belgian-Spanish recycler Metallo Group (Fastmarkets MB). 
  • Aurubis produced more than one million tonnes per year of copper products, and is reportedly attracted to Metallo's recycling expertise to implement in other areas of its business. 
  • Metallo processes about 220,000 tonnes of scrap and recycling materials a year at its plant in Belgium and another 95,000 tonnes at its Spanish plant (Reuters). 

 

Stimulus funding continues to rise as nations start to ease lockdowns

  • $2tn US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries
    • The House passed a $484bn aid package to rescue small small businesses, hospitals ($75bn) and coronavirus testing ($25bn).
    • $2tn US – Trump looking at $2tn infrastructure fund
    • $700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE to buy Treasuries and mortgage-backed securities.
    • US Fed may soon start buying in up to $750 billion of corporate debt and ETFs
  • $963bn (€750bn) ECB scraps limits on sovereign bond purchases. ECB PEPP buying running at around €250bn
  • EU Finance Ministers have so far failed to agree on a strategy to mitigate the economic impact of the pandemic.
    • The pandemic emergency purchase programme (PEPP) and asset purchase programme (APP) have been reiterated with a cap of €750bn and €120bn, respectively.
    • The bank is reported to have used €100bn of the PEPP so far.
  • $825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds
  • $909m $344bn of China stimulus + $565bn in special bonds for infrastructure by local authorities
  • $996bn (108.2tn yen) – Japan +  BoJ pledge for unlimited quantitative easing
  • 400bn (£330bn) UK + $242bn (£200bn) UK QE from BoE & no business rates plus £25,000 cash grants for hospitality sector
  • $387bn (€304bn) France, $200bn (€200bn) Spain, $214bn (A$320bn) Australia Australia - RBA ready to buy bonds again.
  • $78bn (C$107bn) Canada, $32bn Saudi Arabia, US$43.7bn Singapore, $22.6bn India, $19.3bn HK, $13.7bn South Korea, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,
  • Argentina to default on $10bn of dollar debt issued til the end of the year. Does not affect the $70bn that Argentina is currently in talks to restructure.
  • $1,000bn - IMF available + $12bn World Bank,

>12.4tn Total

 

Dow Jones Industrials

 

+0.11%

at

23,750

Nikkei 225

 

-2.84%

at

19,619

HK Hang Seng

 

+0.95%

at

23,838

Shanghai Composite

 

closed

 

 

 

Economics

President Trump promised a “conclusive” report on origins of the coronavirus outbreak that will be announced this Sunday.

  • “We’re going to be giving a very strong report as to exactly what we think happened… my opinion is they (Chinese authorities) made a mistake… they tried to cover it… they tried to put I t out, just like a fire,” Trump said.

 

Germany – The Constitutional Court ruled on the legality of the ECB purchases today in a case raised by a group of academics in Germany who argue the central bank is overstepping its mandate.

  • Purchases directed at pumping liquidity in capital markets and keeping borrowing rates low with official monetary policy rates already at record are argued to have been used to directly financing government, a contravention of the central bank’s obligations under the European Treaty, Reuters reports.
  • The court decided that the Bundesbank must stop its participation in the bond buying programme within the next three months unless the ECB can show those purchases are needed.
  • “The Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue, unless the ECB Governing Council adopts a new decision that demonstrates...the PSPP (Public Sector Purchase Programme) are not disproportionate to the economic and fiscal policy effects,” the judges said.
  • The decision does not apply to the pandemic related programme, a €75bn PEPP approved last month.
  • The ECB has recently announced a series of measures to support the single currency zone in the face of the pandemic including the €750 PEPP programme as well as separate lending programmes like TLTROs and PELTROs.

 

Italy, Spain, Greece, Portugal and Germany are slowly reopening economies.

  • Germany recorded the fifth straight decline in new cases through Tuesday morning.
  • In Spain the number of new cases and daily fatalities were the lowest since the introduction of restrictions.
  • Italy also recorded the number of new infections that were around initial lockdown lows.
  • France will begin loosening restriction on May 11 after having seen a number of consecutive days with less than a thousand of new cases reported.

 

ASEAN manufacturing PMI plummeted to a new low of 30.7 in April with output, new orders and exports contracting at unprecedented rates.

  • Outlook over the next 12 months’ weakened further.

 

Australia – The central bank left rates unchanged at 0.25% while expanded the list of securities eligible for its daily liquidity operations.

  • The latter would include making corporate debt with an investment grade credit rating eligible for collateral allowing to lower borrowing rates and improve liquidity in capital markets.
  • Since launching bond buying programme in March the central bank bought A$50.7bn (US$32.7bn) of bonds bringing short term yields down.
  • The central bank estimates output to drop 10% in H1/20 and 6% over the full year before bouncing back by 6% in 2021.
  • Unemployment is expected to peak around 10% “over the coming months” and “still above 7% at the end of the year”.
  • Inflation is forecast to turn “negative temporarily” in the current quarter reflecting weak economic conditions and low oil prices.
  • The bank highlighted risks of a potential delay to lifting of travel restrictions or a potential re-introduction of the lockdown in case of a second wave of the virus.

 

UK – state now paying wages of >50% of UK adult population

  • The Telegraph reports that the UK government is supporting more than half of Britain's adult population’s wages through government run activities such as the NHS and the furlough scheme. Unemployment, furlough, the NHS and other government departments are now bankrolling some 27m people
  • UK coronavirus App rolls out across the Isle of Wight today as the Lockdown rules for healthy over-70s are set to be relaxed

Prime Minister to revise Lockdown restrictions on Sunday

The PM may move to allow 

  • Golf, a natural for social distancing may see lockdown ban
  • Fishing – likely to also see end to lockdown ban within days

 

China – An internal Chinese report warns that Beijing faces a rising wave of worldwide hostility

  • This could tip relations with the United States into confrontation (Reuters)

 

Manufacturing PMIs for April vs March

  • China April manufacturing PMI came in at 50.8 vs 52.0 in March
  • Caixin manufacturing index at 49.4 (50.1, Feb 40.3).
  • Today,
  • Japan 41.9 (44.8),
  • Australia 35.8 (49.7),
  • Russia 31.0 (47.5),
  • UK 32.6 (47.8),
  • Canada 33.0 (46.1),
  • US ISM 41.5 (49.1) and
  • US Markit 36.1 (48.5).
  • Today’s update,
  • Taiwan 42.2 (50.4),
  • South Korea 31.3 (48.4),
  • India 27.4 (51.8)
  • Turkey 33.4 (48.1),
  • Poland 31.9 (42.4),
  • France 31.5 (48.5),
  • Germany 34.5 (45.4),
  • EU 33.4 (44.5), eg the 19 coutries using the Euro
  • Brazil 36.0 (48.4), Mexico 35.0 (47.9),
  • JP Morgan global composite manufacturing index 39.8 (47.3) – ex China (mainland) 35.8 (46.2).

 

Australia - NASA Mars Rover Detects Ancient Life... in Australia

  • In order to make sure it was ready to hunt for extraterrestrial life on Mars, scientists put NASA’s new Perseverance rover through its paces in Australia’s deserts. (Futurism.com)
  • The rover is reported to have detected ancient Australian life forms. We believe they are still to be found round BBQs and carrying tinnies.

 

Russia -  reports more than 30,000 new Covid-19 cases in 72 hours (FT)

 

Currencies

US$1.0890/eur vs 1.0933/eur yesterday.  Yen 106.77/$ vs 106.77/$.  SAr 18.369/$ vs 18.879/$.  $1.246/gbp vs $1.244/gbp.  0.645/aud vs 0.639/aud.  CNY 7.063/$ vs  7.063/$.

 

Commodity News

Precious metals:          

Gold US$1,695/oz vs US$1,705/oz yesterday - Switzerland - Gold refineries reopen as country relaxes lockdown measures 

  • Two of the world's biggest gold refiners- Valcambi and Argor-Heraeus are restoring almost all of their operations as Switzerland relaxes coronavirus lockdown measures.
  • The two refiners along with PAMP process about 1,500 tonnes of gold per year near to the Italian border, equivalent to a third of global supply. 
  • The decision to end six weeks of closure is likely to alleviate much of the supply crisis in the physical gold market.
  • Valcambi and Argor expect to operating at 85% and 90% of capacity respectively, and PAMP have said that it "continues to progressively increase its processing capacity".

India's April gold imports fall 99.9% YoY

  • Gold imports fell to their lowest in nearly thirty years as air travel was banned and jewellery shops were closed amid the nationwide lockdown. 
  • According to a government source, Indian gold imports stood at 50kg in April, down from 110 tonnes in April 2019 (Reuters). 

   Gold ETFs 96.4moz vs US$96.1moz yesterday

Platinum US$766/oz vs US$769/oz yesterday

Palladium US$1,863/oz vs US$1,921/oz yesterday

Silver US$14.78/oz vs US$14.98/oz yesterday

            

Base metals:    

Copper US$ 5,146/t vs US$5,072/t yesterday

Aluminium US$ 1,483/t vs US$1,477/t yesterday

Nickel US$ 11,845/t vs US$11,900/t yesterday

Zinc US$ 1,912/t vs US$1,897/t yesterday

Lead US$ 1,642/t vs US$1,614/t yesterday

Tin US$ 15,150/t vs US$14,950/t yesterday

            

Energy:            

Oil US$29.2/bbl vs US$26.0/bbl yesterday

  • Oil prices continue to gain on reports that inventories at Cushing rose only 1.8MMbbls last week, which if confirmed, would represent the smallest increase since mid-March, and would indicate that the supply glut is starting to ease
  • It also demonstrates just how sensitive the market has become to any changes from the prevailing narrative in which global storage space could potentially fill as soon as late May, early June
  • Today's rally also comes following a Friday report from Morgan Stanley that there are now more than 350 tankers currently being used for floating oil (crude and product) storage globally  This would infer that floating storage has increased significantly to 375MMbbls, up 220MMbbls from mid-March and 230MMbbl from the start of the year, a significant ease on available storage capacity

Natural Gas US$2.121/mmbtu vs US$1.967/mmbtu yesterday – 

  • Natural gas prices broke through the US$2/mmbtu level for the first time this year as Baker Hughes reported that the number of active natural gas rigs in the US fell to 85 last month
  • This is the lowest number of active natural gas rigs since August 2016 • As such, there were 38 fewer active natural gas rigs than at the beginning of 2020 and 101 fewer than last year
  • The US EIA reported that domestic supplies of natural gas rose by 70Bcf for the week-ended 24 April in line with average expectations

Total stocks now stand at 2.21Tcf, up 783Bcf from a year ago, and 360Bcf above the five-year average

 

Uranium US$34.05/lb vs US$34.05/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$80.1/t vs US$80.4/t

Chinese steel rebar 25mm US$527.0/t vs US$527.0/t

Thermal coal (1st year forward cif ARA) US$51.9/t vs US$52.2/t  - China's weak thermal coal prices may result in government intervention 

  • The recent collapse in the price of thermal coal has raised alarm bells within the Chinese government, which may result in stricter port policies to curb oversupply in the market (S&P). 
  • The government has signalled its intention to intervene in the market if 5,500 kcal/kg NAP spot prices trade lower than Yuan 470/mt FOB- something which occurred late last week. 
  • Policy intervention could come in the form of restricting coal imports, such as introducing monthly quotas at key ports or slowing down customs declarations.
  • Global coal demand is expected to fall about 8% in 2020, the largest drop since World War II, with coal use declining in virtually every sector of every region in the world (IEA). 

Coking coal swap Australia FOB US$106.0/t vs US$106.0/t

            

Other:   

Cobalt LME 3m US$30,000/t vs US$30,000/t - First Cobalt to lead the way on cobalt sulphate

  • First Cobalt set out their intentions to restart production at their Ontario refinery and adapting it to produce enough cobalt sulphate for 335,000 EV’s by the end of 2021. (Electrek)
  • Cobalt hydroxide feedstock sourced by Glencore from the DRC will be used by the project.
  • Glencore has already committed $5m of funding to the project and is set to invest a further $40m into recommissioning the refinery. (Mining.com)
  • Feasibility study shows the project could produce up to 25,000 tonnes of cobalt sulphate (5000 tonnes cobalt) by the end of 2021. (The Globe and Mail)  
  • Cobalt hydroxide will be delivered to the refinery by rail where it will be leached with sulphuric acid and processed to produce cobalt sulphate. Waste will be stored onsite using a tailings dam.
  • The Ontario facility is part of an effort to reduce reliance on Chinese refiners and shorten the supply chain. The Pentagon is preparing to contribute funding to two US facilities for processing rare earth metals. (Financial Times)
  • It is estimated that $56m of capital will be required to launch the project and operating costs will be $2.72 a pound, competitive with Chinese refiners. (Cobalt Investing News)
  • Several EV manufacturers have expressed interest in purchasing a cobalt sulphate alternative to China. (CNW Group)

NdPr Rare Earth Oxide (China) US$37,306/t vs US$37,306/t

Lithium carbonate 99% (China) US$5,309/t vs US$5,309/t

Ferro Vanadium 80% FOB (China) US$27.5/kg vs US$27.5/kg

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

Tungsten APT European US$215-225/mtu vs US$240-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$520/t vs US$530/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,425/t vs US$2,450/t

 

Battery News

American Manganese recovering and recycling scrap cathode material

  • American Manganese plans to recycle lithium-ion batteries from EVs and then sell the materials back to the EV firms. (Proactive Investors)
  • Recoverable value of used battery metals is estimated to be US$75.8m per gigawatt of lithium cobalt batteries.
  • American Manganese was awarded a patent for RecycLiCo, their recycling technology in early 2019. The technology provides high extraction rates of cathode materials at a high grade and low cost.
  • The Company expects annual profit of US$8.4m at a 47% margin once the process is commercialized. The technology is currently at the pilot stage.

 

Company News

Anglo American (AAL LN) 1,413.8 pence, Mkt Cap £18.46bn – ACP plant ramping back up

  • Anglo American reports that Anglo American Platinum has successfully completed repairs to its Anglo Converter Plant (ACP) Unit B in Waterval ahead of schedule and is now in the process of ramping up production and expects the plant to be fully operational and to be in apposition to lift the force-majeure imposed on the treatment of third party concentrates from 12th May 2020.
  • The repairs were required following an explosion at the plant on 10th February and although, fortunately, no injuries resulted the company had to declare force-majeure on the processing of third-party concentrates.
  • ʺDue to the time taken to refine the respective platinum group and base metals, the force majeure notice remains in effect for our refined metal customers. Force majeure arrangements with these customers will be lifted in the future and in line with the provisions of our agreementsʺ.
  • The company reports that ʺThe estimated final cost of repairs for ACP Phase B is c.R150 million, in line with the lower end of guidance provided. Repair work on the ACP Phase A unit continues and is progressing in line with the project plan. All orders for long lead items have been placed and the dismantling work started on siteʺ.
  • The repairs were completed during the Covid19 lock-down restrictions in South Africa and in accordance with their constraints and the company comments that ʺAll materials required for repairs were ordered and available on site ahead of the lockdown, and there were no supply chain disruptions that impacted the ability to complete the repairs. Safety protocols were implemented on site in line with Government approvals and regulationsʺ.

 

AfriTin (ATM LN) – 160p, Mkt cap £10.5m – Signs £2.05 million Unsecured Loan Note Facility with high-net-worth investor in South Africa

  • AfriTin has secured a £2.05m loan note facility with Yellow Dragon, a high-net-worth investor based in South Africa who has previously backed Bushveld Minerals.
  • The funds are to support AfriTin as production ramps up at its Uis Tin Mine in Namibia and to help if the Coronavirus Lockdown disrupts the supply chain.
  • The loan note facility is with Yellow Dragon Holdings Limited and are issued in £50,000 tranches with a 10% interest rate payable in full on redemption with a 12-month term.
  • The Notes are unsecured and rank in subordination to AfriTin's existing working capital facility with Nedbank in Namibia.
  • AfriTin’s executive team are also donating a portion of their salary to a number of local community initiatives at Uis and the surrounding area though there have been no confirmed cases of COVID-19 across the Company's operations.

 

Erris Resources (ERIS LN) 4.8p, Mkt Cap £1.5m – Raised £0.33m to advance Scottish exploration

  • Erris Resources has announced that it has raised £0.33m in order to progress the exploration of its Loch Tay gold project in Scotland.
  • The funds are raised as a result of the placing of approximately 7.8m new shares at a price of 4.25p each representing some 17.6% of the enlarged capital of the company.
  • The exploration programme is expected to commence when the restrictions imposed to curtail the spread of the Covid19 virus are lifted and are planned to include an initial ʺmajor soil sampling campaign over the Lead Trial - Dunan and Glen Almond target areas with ongoing licence wide sampling and geological mappingʺ in order to assist in the identification of drilling targets,
  • Erris Resources also explains that ʺErris and its Loch Tay option agreement partner, GreenOre, have agreed to temporarily halt the earn-in period so no time will be lost as a result of the lockdown measures. From recommencement of work, Erris will have three years and eight months remaining on the earn-in period.ʺ
  • Expressing appreciation for the support of both existing and incoming shareholders, CEO, David Hall said that ʺThe Project area is highly prospective and lies within the Grampian Gold Belt, which hosts significant gold deposits such as Curraghinalt and Cononish. We are delighted to have the opportunity to rapidly develop the Project with this additional funding that will allow us to define drill targets for early testing.ʺ

 

Kazatomprom (KAP LI) $15, Mkt Cap $3.9bn – Uranium concentrate supply agreement signed with Dioxitek in Argentina

  • The Company won a public tender organised by a state-owned Dioxitek to supply natural uranium concentrate to the nuclear power industry in Argentina.
  • The agreement further diversifies the client base of the Company and strengthens its presence in South America.

 

Power Metals* POW LN 0.28p, Mkt cap £1.66m – Expansion of Australian gold exploration area

  • Power Metals has announced that following the recent application by its 49.9% joint-venture company, Red Rock Australia, for gold exploration licences in the Victoria goldfield in Australian it has now lodged a further three licence applications for an area totalling 581km2 bringing the total to 714km2 ʺwhich represents one of the largest license footprints in the Ballarat goldbeltʺ.
  • The company explains that all ʺlicense application areas have extensive evidence of gold mineralisation and in most cases recorded production from historic alluvial workings, leads, shafts or drilling, with certain workings extending to a depth of 100m, or greaterʺ.
  • The company is analysing detailed and extensive historical records of exploration in the area which was host to one of Australia’s 19th century gold rushes.
  • CEO, Paul Johnson, explained that ʺOur strategic move into Australian gold exploration is building momentum very rapidly and with the focus on the Victoria Goldfields we are targeting one of the gold districts most sought after by exploration companiesʺ.

Conclusion: The Victoria goldfields around Ballarat have a long pedigree of gold production and though the geology can be complex in detail, the possibility of rejuvenating gold exploration in the area is interesting. We look forward to further news as the exploration develops.

*SP Angel act as nomad and broker to Power Metals

 

Vast Resources* (VAST LN) 0.16p, Mkt Cap £17m – Baita Plai polymetallic project update

  • Long lead time items including railway tracks and locomotives arrived at the Baita Plai.
  • Remaining equipment is in transit with the shipping schedule remaining on track.
  • Additionally, drilling with positive results at the mine continues while the metallurgical testwork is being undertaken.
  • Initial results come in line with historical data and match the team’s internal forecasts.

*SP Angel acts as Broker to Vast 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

SSY

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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