SP Angel – Morning View – Friday 26 10 18
Gold prices rise on equity selloff
MiFID II exempt information – see disclaimer below
Bacanora Lithium (LON:BCN) – Project updates
Glencore (LON:GLEN) – Katanga restart lifts copper and cobalt output
Hummingbird Resources (LON:HUM) – Q3 update: annual guidance to be revised lower
Petropavlovsk (LON:POG) – Q3 operations update
Metals slip on stronger US dollar and trade concerns
- Weaker US equity markets led lower by cautious statements on US Tariff impact and trade war with China
- Slowing auto sales in the US (-6% in Sept yoy), China and Europe indicate problems ahead for manufacturers as consumers adopt a cautious approach ahead of switching to new generation EVs.
- Other manufacturers warn of falling profits directly related to new US and Chinese tariffs.
- Import costs in the US should be partially offset by US dollar strength. US inflation rose to 2.9% in June and July but recently slipped back to 2.3% in September
Electrolux – estimate $10m cost of Trade Tariffs - US charges 25% tariff on steel and 10% on aluminum
China total duty on US autos is 40%
- Electrolux, the Swedish appliance maker, estimates the cost of US Trade Tariffs in the importation of components from China to be $10m.
- It would be more interesting to know the cost of the components being imported from China and what the cost of these components would be if sourced in Europe or the US.
- Electrolux also comment they are putting a US factory expansion on hold due to partly due to US tariffs on steel and aluminium. They also see higher
- BASF recently blamed higher raw materials costs and a slowdown in automotive sales (BASF make autocatalysis) for missing analyst estimates.
- Whirlpool also expect an extra $300m impact in costs related to higher raw materials expenses and tariffs.
- CAT, 3M and Ford have all commented on the impact of rising raw material costs, particularly steel.
- Ford reckons tariffs have cost the company some US$1bn in profit and have hit sales in China despite sourcing most of their steel and aluminium domestically
- Much of the impact on raw material costs is down to the strength of the US dollar. While base metals prices are not high in US terms the cost to non-US manufacturers has gone up.
European equities resume selloff on softer risk sentiment following downbeat results from major technology companies weighing on growth outlook.
- Amazon and Alphabet while beating earnings estimates both reported lower than forecast revenues; Amazon also provided a disappointing rvenue and profit forecast for the busy holiday period.
- At the same time demand for deemed safe heaven assets climbed with Japanese yen, Treasuries and gold prices trading higher.
- Oil and base metals are trading in the red this morning with the US$ hovering close to the highest 2018 level recorded earlier in August.
- Emerging markets headed for the lowest close in 19 months expanding the losing streak to a fifth straight week.
- The euro is little changed today after sliding against the US$ yesterday as weaker economic data from the single currency region overshadowed the ECB conviction to stick with earlier announced plans to withdraw the QE programme by the end of the year.
- The focus is on US GDP data today with estimates for a pull back in growth rates during Q3; although the pace of expansion is expected to remain near its best since mid-2015 (Q3/18e GDP 3.3% v 4.2% in Q2/18).
121 Mining Investment conference with SP Angel in London
- 20-21 November - See: https://www.weare121.com/121mininginvestment-london/
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US$1.1378/eur vs 1.1401/eur yesterday. Yen 112.07/$ vs 112.31/$. SAr 14.610/$ vs 14.601/$. $1.282/gbp vs $1.291/gbp. 0.703/aud vs 0.706/aud. CNY 6.956/$ vs 6.945/$.
Gold US$1,234/oz vs US$1,230/oz yesterday
Gold ETFs 68.1moz vs US$68.1moz yesterday
Platinum US$827/oz vs US$830/oz yesterday
Palladium US$1,107/oz vs US$1,139/oz yesterday
Silver US$14.64/oz vs US$14.75/oz yesterday
Copper US$ 6,129/t vs US$6,209/t yesterday – Grupo Mexico, the world’s 5th largest copper producer, plans to raise copper production by 80% to 1.8mtpa by 20205.
Aluminium US$ 1,985/t vs US$2,003/t yesterday
Nickel US$ 11,915/t vs US$12,395/t yesterday – ramp-up at Glencor’s Koniambo in New Caledonia. Koniambo nickel production rose to 7,800t in Q3 from 7,100t in Q2 and 6,600t in Q1.
- Glencore own source nickel production fell to 28,700t in Q3 from 32,100t in Q2 and 30,100t in Q1
- Glencore nickel production rose to 90,900t YTD from 80,700t a year earlier
Zinc US$ 2,611/t vs US$2,703/t yesterday
Lead US$ 1,996/t vs US$2,023/t yesterday
Tin US$ 19,310/t vs US$19,375/t yesterday
Oil US$76.1/bbl vs US$75.6/bbl yesterday – Oil prices fall as focus shifts to oversupply
- Oil prices fell this morning and were heading for a third weekly loss, pulled down as Saudi Arabia's OPEC governor said the market may become oversupplied soon and after a slump in global equities clouded the outlook for demand.
- Brent crude futures were down 51 cents, or 0.7%, at $76.38 a barrel by 0331 GMT - it is on course for a weekly loss of over 4%.
- U.S. crude was down 64 cents, or 1%, at $66.68 a barrel - it is set for a 3.5% loss this week.
- Saudi Arabia's OPEC governor said on Thursday that the oil market could face oversupply in the current quarter.
Natural Gas US$3.138/mmbtu vs US$3.184/mmbtu yesterday
Uranium US$27.80/lb vs US$27.80/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$74.4/t vs US$74.2/t – Iron ore prices are reported to be trading US$1.31/t higher at over US$76/t for Australian iron ore cfr China (Fastmarkets MB).
Chinese steel rebar 25mm US$699.7/t vs US$695.2/t
Thermal coal (1st year forward cif ARA) US$96.8/t vs US$97.3/t
Coking coal futures Dalian Exchange US$206.8/t vs US$206.8/t
Cobalt LME 3m US$60,000/t vs US$60,000/t
China NdPr Rare Earth Oxide US$45,665/t vs US$45,665/t
China Lithium carbonate 99% US$9,796/t vs US$9,796/t – prices in China rose to CNY 74,000-83,000/t (US$11,291-12,583/t) this week from 72,000-80,000/t a week earlier according to the Fastmarkets MB today
Tungsten APT European US$275-295/mtu vs US$275-290/mtu
Ferro-Vanadium prices are sharply unchanged this week in China at US$130-140/kg. Prices edged very slightly higher in Europe at US$113.5-118.5/kg (Fastmarkets MB)
Infrastructure roadblock fears grow as electric vehicle sales soar
- Electric vehicle owners who fear the handful of chargers available at their local supermarket or dedicated Parking bay could soon be inundated may be justified according a PwC report.
- The report confirms the number of EVs on UK roads is growing fast but is also showing signs of outstripping infrastructure.
- The number of EVs in the UK rose by 54% cent in 2017, to almost 134,000 from just over 86,000 vehicles.
- Quarterly sales suggest the trend is continuing, with EV sales outperforming conventional vehicles albeit at much lower level.
- EV demand is fast approaching a ‘tipping point’ where urgent action will be required to ensure the availability of charge points.
Nanotubes in batteries
- Rice University scientists are counting on films of carbon nanotubes to make high-powered, fast-charging lithium metal batteries to replace common lithium-ion batteries.
- The team used thin nanotube films to effectively stop dendrites from growing naturally from unprotected lithium metal anodes in batteries.
- The scientists simply coat a lithium metal foil with a multiwalled carbon nanotube film in a simple, inexpensive and highly effective process.
- The lithium dopes the nanotube film, which turns from black to red, and the film in turn diffuses the lithium ions.
VW to build own Gigafactory as step toward 3 million Electric Vehicle target by 2025
- VW like other large auto manufacturers are trying to figure out how to secure the battery packs to drive their next generation Electric Vehicles.
- Earlier this year we heard VW were tendering for miners to sign up to long term cobalt supply agreements, we suspect VW were shocked to receive little interest.
- Now the car giant appears to be accelerating their plans with the help of SK Innovation a South Korean energy company which is partnering with has been building Li-ion batteries for automotive use for 12 years and has a 200MW battery manufacturing plant in South Korea. SK Innovation already supply Daimler, Hyundai and BAIC.
- Let’s hope they will be more honest about the performance of their batteries than their alleged diesel emissions.
Uniti to open Electric Vehicle production plant in UK
- Uniti, the Swedish EV firm has announced plans to establish a pilot production plant at Silverstone Park in the UK
- The company said that the facility, which it expects to be up and running by 2020, will be used to produce the Uniti One electric car and will serve as a blueprint for globally licensed ‘digital’ assembly plants throughout the world.
- ‘The UK’s approach to vehicle production, with its focus on light-weighting and innovation in advanced materials, is an ideal model for electric car production globally’, ‘It’s no secret that some of the world’s best vehicle engineers are clustered around Silverstone. When coupled with a government receptive to our ambition and goals, we couldn’t find a better home to establish our pilot production facility.’ According to the Uniti ceo.
Tesla Model 3 Mid-Range battery pack energy capacity revealed
- Last week, Tesla surprised many with the launch of a new ‘Mid-Range’ battery pack for the Model 3.
- The battery pack is the same as the Long Range pack, which was the only one in production for the Model 3, but it is equipped with fewer cells.
- It results in a shorter range of 260 miles EPA estimated and a lower price of $46,000, with a capacity of 62 kWh.
- Tesla also surprised the market with its Q3 profit and significant free cash flow.
Bacanora Lithium (LON:BCN) 34.8p, Mkt Cap £46.7m – Project updates
- Bacanora Lithium has provided project updates on its lithium projects at Sonora in Mexico and at Zinnwald in Germany.
- At the Sonora project, where the Front End Engineering Design (FEED) is on course for completion by the end of 2018, the completion of preliminary earthworks has resulted “in downward revisions to expected overall bulk earthworks costs - due to the recently acquired plant location at Las Perdices being considerably flatter than original proposed site”.
- The completion of the mass balances and engineering designs for the kilns and crystallisers clear the way for “the final quotes for EPC design and agreement to be actioned” while site visits by potential energy suppliers should enable final supply proposals to be submitted and assessed.
- The company also advises that it has hosted site visits to Sonora by potential strategic investors. Currently, 52% of the US$460m capital requirement for the phase 1 of the 17,500tpa of lithium carbonate production has been “conditionally committed” including US$150m of senior debt and US$65m of equity conditionally from the State General Fund of Oman and an additional US$25m of equity conditionally available from “Bacanora's off-take partner, Hanwa Co., LTD ("Hanwa")”.
- The company states that “Subject to completion of funding discussions and FEED, the Stage 1 project commissioning target at Sonora expected to be in H2 2020”.
- At Zinnwald, the feasibility study remains on course for completion in Q2 2019. The company advises that initial samples of high purity lithium fluoride of potential battery grade quality produced from concentrate samples provides “proof of concept of strategy to produce high value lithium products at Zinnwald”.
- Mineral resource and reserve estimation, detailed mine design and production scheduling and preliminary process design work is well underway and the “EIA [was] approved in 2018”
- Bacanora’s CEO, Peter Secker, highlighted “Zinnwald's potential to play a strategically important role in Europe's rapidly emerging battery technology sector” and its strategic location “in the heart of Germany's industrial region”.
- The company reports a 30th September cash balance of US$24.7m.
Conclusion: Technical work on Bacanaora’s lithium projects in Mexico and Germany are advancing. In Mexico, where the company has conditional funding for 52% (US$240m) of the US$460m capital required for the phase 1 lithium carbonate project, site visits by potential strategic investors have been taking place.
Glencore (LON:GLEN) 297p, Mkt Cap £42bn – Katanga restart lifts copper and cobalt output
- The resumption of processing operations at Katanga has lifted Glencore’s year-to-date copper output from its own operations by 12% to 1,063,100t compared to the first nine months of 2017. The impact on Glencore’s cobalt output was even more pronounced with a 44% increase to 28,500t.
- In its reporting, Glencore includes Katanga’s production within the African operations, including Mutanda and Mopani, where copper output rose 78% to 297,900t and cobalt increased by 49% to 25,700t.
- Elsewhere, Collahausi’s copper output rose by 6% to 176,800t, by 3% at Antamina to 110,700t while the aggregate copper production of the other South American operations at Alumbrera, Lomas Bayas, Antapaccay and Punitaquil declined by 13% to 53,000t. Australian copper output from metal and concentrate production at Mt Isa, Ernest Henry, Townsville and Cobar declined by around 8% to 149,900t comprising 107,500t of metal and 42,400 of copper in concentrates.
- Glencore’s 2018 production guidance is unchanged for the production of between 1,445 to 1,485kt of copper which with 1,063kt produced during the first 9 months looks achievable as does the cobalt guidance of 37-41kt.
- In other commodity sectors zinc output fell by 5% or 41,400t to 786,000t compared to the first nine months of 2017 largely as a result of the sale of African assets “partly offset by a strong mining performance at McArthur River and the restart of mining at Lady Loretta (Mt Isa). Adjusting for the disposal, zinc production was up 50,700 tonnes (7%).”
- Zinc production guidance is maintained in the range 1.07-1.11m tonnes
- The ramp-up of production from line 2 at Koniambo is credited with the 13% increase in nickel production to 90,900t. Production from the Integrated Nickel Operations centred around Sudbury, Raglan and Nikkeverk “was in line with the comparable 2017 period” at 43,700t while production at Murrin Murrin rose by 1,00t (4%) to 25,700 tonnes compared to 2017 “which was impacted by a periodic statutory maintenance shutdown”.
- Nickel production guidance for 2018 is unchanged in the range 128-136kt.
- Coal production rose by 5.7mt or 6% to 96.7mt “reflecting the acquisition of interests in the HVO and Hail Creek mines in Australia … and the recovery in Australia from weather-related disruption and industrial action in 2017”.
Conclusion: The resumption of copper and cobalt processing at Katanga has driven increases of 12% in year to date copper production and of 44% in cobalt output compared to the first three quarters of 2019. Production ramp-up at line 2 at Koniambo is credited with a 13% increase in nickel production.
Hummingbird Resources (LON:HUM) 18p, Mkt Cap £64m – Q3 update: annual guidance to be revised lower
- Q3 production dropped to 22.2koz (Q2/18: 33.1koz) on the back of weaker processing rates and fed gold grades.
- The plant operated at a 75% of the full capacity (Q2/18: 93%) affected by heavy rainfall which constrained both mining and processing rates at Yanfolila.
- Additionally, the Company reported yesterday that operations at the Komana East pit recorded pit stability issues presenting a risk to the continued mining below the western wall.
- As such, the Company suspended mining operations at the western wall, although operations continued at other unaffected parts of the Komana Est pit and the Komana West pit.
- Rehabilitation works have been delayed due to problems of mobilising additional heavy equipment to the site as heavy rains and flooding impacted the public bridge located on the way to the only road access to the site.
- The Company guided that previous 105-115koz annual production guidance will be revised lower.
- Regarding the mill capacity expansion, the Company secured to approval to build a second ball mill taking plant throughput to 1.4mtpa from current 1.24mtpa.
- Additionally, court approved the cancellation of the Company’s share premium allowing Hummingbird to pay dividend and buy-back its shares.
Conclusion: Pit stability issues led by unusually heavy rainfall this year led the management to downgrade production guidance with total impact remaining to be seen.
Petropavlovsk (LON:POG) 6.4p, Mkt Cap £211m – Q3 operations update
- Q3 production amounted to 102koz (Q2/18: 88.8koz) including Malomir gold concentrate output with operations on course for the 420-450koz annual target.
- Weaker production at Pioneer on the back of weaker mined grades have been more than compensated for by ramping up Malomir flotation circuit contribution as well as better processed grades at Albyn.
- Concentrate production totalled 19.7koz with the second flotation line now commissioned and in production at full capacity at Malomir.
- The concentrate is stockpiled on site ahead of POX plant commissioning at Pokrovka.
- POX dry commissioning is 80% complete with wet commissioning having been launched this month.
- Oxygen plant is ready for first production of oxygen by the end of this month.
- Civil, mechanical and electrical construction works are essentially complete with POX plant hot commissioning scheduled for Q4/18 and maiden production by the end of Q1/19, in line with latest guidance.
- The Company secured mining permit for the Elginskoye deposit (2.8moz at 1.1g/t in MRE), with mining operations expected to be started in 2020 supplying the feed to the Albyn plant.
- Finance documentation regarding the IRC debt refinancing is expected to be completed before the end of November following which POG shareholders will vote on the proposed transaction at a general meeting.
- A Russian bank has offered to lend $240m to LLC K&S GOK, a wholly owned subsidiary of IRC, to refinance outstanding ICBC loan and bridge loan outstanding to POG.
- 2018 production guidance reiterated at 420-450koz including 50koz gold in concentrate.
- 2018 TCC and AISC are guided at $750-800/oz and $1,050-1,100/oz, respectively, no change from previous guidance.
Conclusion: Q3 production of 102koz took YTD output to 303koz on course for the 420-450koz annual target as Malomir flotation plant ramps up. POX development works are progressing well with budgeted first production due in Q1/19, in line with the latest guidance.