SP Angel – Morning View – Tuesday 08 01 19
China accelerates rare earth sector crackdown
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Landore Resources (LON:LND) – Updated resources estimate for BAM East Gold deposit at Junior Lake
China accelerates rare earth sector crackdown
- China has reported plans to step up efforts to eliminate illegal mining, production and smuggling of rare earth metals, while at the same time promoting more high-end processing, according to the industry ministry.
- The Asian nation is responsible for more than 90% of the global supply of rare earth elements, which feed crucial metal into high-tech and strategic sectors such as renewable energy, EV motors and defence.
- The country is trying to consolidate legitimate domestic production and bring back control by closing down illegal mines, restricting exports and domestic production. Small private firms have been gradually shut down and control over the industry has been put into the hands of six state-owned mining groups.
- Regulation and supervision in the industry had improved, but illegal mining and production continued to disrupt “market order” and damage the interests of legitimate enterprises, said the Ministry of Industry and Information Technology (MIIT).
- In addition to prohibiting illegal mining and recycling, plans target a ‘traceability system’ to stop buyers from using illegal materials while ensuring that producers do not exceed the output target.
- The rare earth industry has contaminated large amounts of land and water in major producing regions such as Inner Mongolia and Jiangxi, and the ministry vowed to provide more support to clean up the industry and reduce waste discharges. It is estimated the cost of rehabilitation across South China alone could be US$10-20bn.
- China launched the crackdown on the rare earth sector in 2009, with authorities claiming that illegal activities drove down global prices and made it impossible to cover the huge environmental costs of production.
- China’s annual quota for rare earth mining stood at 120,000 tonnes in 2018, with smelting and separation capped at 115,000 tonnes.
- With global supply controlled by China, long-term availability may suffer as a result of tightening regulations. This only serves to highlight the importance of establishing a more broad global rare earth industry, with ex-China projects including Mkango Resources’ advanced-stage Songwe Hill asset in Malawi becoming a focus for future supply.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – A US delegation is visiting Beijing for the first face-to-face round of trade talks with Chinese officials since Trump and Xi agreed to a temporary truce on December 1.
- Equities are stronger this morning as investors are looking forward to results of talks.
- President Trump is set to address the nation this evening to persuade Americans that a “humanitarian and security crisis” on the southern border must be addressed before government shutdown may end.
- The shutdown is currently heading into day 19 marking the second longest breakdown in government funding in the nation’s history and affecting around 800,000 federal employees.
Germany – Industrial production posted a third consecutive monthly decline in November reflecting waning growth momentum in the largest European economy.
- Declines were broad based from consumer goods to energy sparking worries the economy may end up in a recession in Q4.
- “The latest data, even assuming a bounce back in December, mean industrial output probably contracted in Q4… the decline is big enough to have a meaningful impact on GDP growth, and creates a risk that the economy shrank again,” Bloomberg commented on the news.
- Industrial Production (%mom/yoy): -1.9/-4.7 v -0.8/+0.5 in October and 0.3/-0.8 forecast.
UK – Brexit Secretary Stephen Barclay denied the news that the government together with European officials are planning to extend the Article 50 exit date reported by The Daily Telegraph citing unidentified source.
- “The government’s policy is clear on this, the prime minister has said it on many occasions: We are leaving the European Union on the 29th of March,” Barclay said.
- The pound is little changed this morning hovering around the 1.278 level.
- Property prices are up 1.3%yoy in the three months through December, up from 0.3%yoy in November, on Halifax numbers.
- The lender expects prices to post 2-4% increase in 2019 highlighting the estimate is “dependent on the Brexit outcome, with risks to both sides of our forecast”.
Italy – The coalition government approved state guarantees for any future bond issues by a troubled Banca Carige SpA and signalled its support for a possible recapitalisation.
- The decision comes in contrast to populists’ leaders criticising previous government help from the banking sector.
- The bank has around €25bn euros in assets with the ECB placing it in a temporary administration in December after one of its major investors pulled out of a capital increase deal.
- Special administrators were given a three-month mandate to reduce balance sheet risks and find a possible partner for the bank, Bloomberg reports.
- Previously, the plan was for the Italy’s deposit guarantee fund to buy €320m worth of bonds from the troubled lender to meet ECB capital requirements.
North Korea – Kim Jong Un is meeting with Xi Jinping in a fourth summit with the Chinese leader.
- While no details were released about an agenda in China, the North Korean leader has been seeking relief from sanctions, a peace declaration to formally end the 1950-1953 Korean War and more investment, Reuters reports.
US$1.1443/eur vs 1.1435/eur yesterday Yen 108.96/$ vs 108.11/$ SAr 13.976/$ vs 13.929/$ $1.277/gbp vs $1.275/gbp 0.712/aud vs 0.714/aud CNY 6.857/$ vs 6.851/$
Gold US$1,283/oz vs US$1,294/oz yesterday
- Gold withdraws as investors await the outcome of trade talks between the US and China, compounded by a steep drop in Indian imports.
- The Trump administration has expressed optimism it can reach a deal with China as President Xi Jinping dispatched one of his top aides to negotiations, giving a robust boost to global growth potential. “One would not be too surprised should we have a quick turn in the current volatile climate, with the short-term price action hinging on” the outcome of the discussions, according to IG Asia market strategist.
- Gold hit a six-month high last week, propelled by speculation the Federal Reserve may pause in raising interest rates. After the rally, it may be due for a pullback as its 14-day relative strength index was above 70 most of last week and again on Monday.
- Physical demand for the precious metal took a hit as imports by India tumbled for a fifth year as high domestic prices deterred buyers in the second-biggest consuming nation.
Gold ETFs 71.7moz vs US$71.7moz yesterday
Platinum US$822/oz vs US$827/oz yesterday
Palladium US$1,306/oz vs US$1,308/oz yesterday
Silver US$15.57/oz vs US$15.78/oz yesterday
China-fueled rally eases, pressuring base metals
- Industrial metals declined, halting a two-day rally following China’s monetary easing, as concerns over the slowing economy from the top metals user remain.
- Zinc lead the fall on expectations of rising supply as mines resume operations. Zinc treatment fees at Chinese smelters have surged after mine supply resumes gradually, which is expected to lead to increased ingot output
- Metals rose in the previous two sessions as China cut banks’ reserve ratios in a further step to secure liquidity for the slowing economy, while the U.S. Federal Reserve signaled more flexibility on rates.
- Near-term movement will be strongly influenced by the outcome of fresh talks on trade. The Trump administration expressed optimism it can reach a “reasonable” trade deal with China as President Xi Jinping dispatched one of his top aides to negotiations in Beijing.
Copper US$ 5,904/t vs US$5,942/t yesterday
- News reports citing a recent report by Fitch Solutions point to a deficit in copper supply through to 2021 as a result of consumption growth responding to increased demand from the power industry and the rise in electric vehicle production as well as expanding demand from China.
- Smelter closures by Vedanta in India at its Tamil Nadu plant, where the Indian Supreme Court is, today, reported to have upheld Vedanta’s appeal to allow the plant to re-open, and a temporary suspension at its Nchanga smelter in Zambia are adding to supply side pressure and may, in the short-term, restrict the availability of sulphuric acid to hydro-metallurgical copper producers using the SX/EW process to produce cathode copper directly.
- Overall, however, against a backdrop of supply deficits, the outlook for emerging copper producers appears to be improving.
Aluminium US$ 1,857/t vs US$1,878/t yesterday
Nickel US$ 11,120/t vs US$11,165/t yesterday
Zinc US$ 2,491/t vs US$2,466/t yesterday
Lead US$ 1,949/t vs US$1,955/t yesterday
Tin US$ 19,730/t vs US$19,700/t yesterday
Oil US$57.4/bbl vs US$58.1/bbl yesterday
Natural Gas US$3.009/mmbtu vs US$2.957/mmbtu yesterday
Uranium US$28.90/lb vs US$28.80/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$73.0/t vs US$70.6/t
Chinese steel rebar 25mm US$584.0/t vs US$584.6/t
Thermal coal (1st year forward cif ARA) US$79.8/t vs US$79.9/t
Coking coal futures Dalian Exchange US$208.5/t vs US$209.1/t
Cobalt LME 3m US$44,000/t vs US$47,000/t
China NdPr Rare Earth Oxide US$46,233/t vs US$46,268/t
China Lithium carbonate 99% US$9,990/t vs US$9,998/t
China Ferro Vanadium 80% FOB US$70.5/kg vs US$71./kg
China Antimony Trioxide 99.5% EU US$7./kg vs US$7./kg
Chinese car giant Geely powers up new UK electric car site
- UK electric vehicle industry is getting a boost from plans by the Chinese car giant Geely to electrify Lotus sports cars with a new technology and design centre in the Midlands with a focus on batteries and electric power trains.
- The centre will be close to its electric taxi factory in Coventry. It is expected to collaborate with Warwick Manufacturing Group, the engineering and technology campus founded by industrialist Lord Bhattacharyya.
- The research hub is a rare sliver of good news for Britain’s automotive industry, which has been battered by factors including fears of a no-deal Brexit, falling diesel sales and waning consumer confidence.
- With China attempting to dominate the electric vehicle market, Geely has been investing heavily in the technology, and in 2017, opened its £300m London Electric Vehicle Company, which makes black cabs.
- Geely is thought to be seeking government funds to expand the centre. Ministers are keen to lure car makers to Britain to develop electric and driverless vehicles to reduce the UK’s reliance on diesel and petrol engine manufacturing.
SK Innovation increasing investment by $5bn to compete with Tesla Gigafactory
- South Korean battery manufacturer announce plans to expand on the new $1.67bn investment to build an EV battery Gigafactory near Atlanta, Georgia. The latest report from CEO Jun Kim adds “the company is considering plowing up to $5bn more into the project”, with aims to compete with Tesla and Panasonic.
- It’s the biggest investment in battery cell manufacturing in the US since Tesla and Panasonic launched their efforts to build Gigafactory 1.
- When first announcing the project, SK Innovation said that some of its customers, namely Mercedes-Benz and Hyundai-Kia Motors, are going to need battery cells in the US and therefore, it is investing in local battery cell production.
- Not long after first announcing the plan, Daimler said it was buying over $20bn in battery cells to support electric vehicle plans and that SK Innovation is amongst the suppliers.
- Aside from Tesla’s Gigafactory 1 in Nevada, most of the new battery cell manufacturing capacity is going to Asia and Europe, where automakers are more aggressively electrifying their lineups.
- Last year, SK Innovation said that it is doubling its battery production for electric vehicles to 4GWh/year at its South Korean factories to support demand from Mercedes and others. The company is also building another electric car battery gigafactory in Hungary to support European automakers.
Landore Resources (LON:LND) 1.075 pence, Mkt Cap £11.2m – Updated resources estimate for BAM East Gold deposit at Junior Lake
- Landore Resources reports a 53% increase in the gold contained mineral resource estimate for its BAM gold deposit which lies within a 31km long mineralised greenstone belt located approximately 235km north-northeast of Thunder Bay, Ontario.
- Based on 169 drill-holes totalling 31,594m, the new estimate reports 28.8mt at an average grade of 1.03g/t gold (951,000oz) of indicated and inferred resources at a cut-off grade of 0.3g/t gold.
- Approximately 74% of the contained gold is classed as “indicated” and is reported, slightly unusually for a Canadian project, under the Australian JORC code.
- The new estimate, in conjunction with continuing geotechnical and metallurgical test-work, will form the basis of a “Preliminary Economic Assessment (PEA) scheduled for completion in February 2019”.
- The estimate was prepared by Cube Consulting which comments that the BAM deposit, which is located “within the south-central area of [Landore’s] Junior Lake property“ forms part of a mineralised belt ranging from 0.5 to 1.5km wide over an east/west strike length of approximately 31km. Cube Consulting comments further that “the greater proportion of this belt remains unexplored”.
- In addition to the formal resource estimate, the company also reports that it has identified “potential mineralised material in target areas adjacent to the current delineated deposits for a possible 14,761,000t at 0.93 g/t … gold for a further 441,000 ounces of gold, in the “Unclassified” material category”.
- Commenting on the updated estimate, CEO, Bill Humphries, said that “The continued rapid growth of the BAM Gold Deposit together with the possible future development of the other known gold prospects such as Lamaune plus the likelihood of new discoveries along this highly prospective 31 kilometre long Archean greenstone belt bodes well for the future of the Junior Lake Property hosting a multi-million ounce gold deposit.”
Conclusion: Landore’s 2018 drilling has delivered substantial increases to the mineral resources estimate and identified additional exploration potential which may lead to further increases in the future. We look forward to the results of the PEA which is currently expected in February.
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