SP Angel – Morning View – Tuesday 30 10 18
Fear of more US tariffs drive metal prices lower
MiFID II exempt information – see disclaimer below
Arc Minerals* (LON:ARCM) – Director takes Option award in lieu of pay
KEFI Minerals (LON:KEFI) – Secured convertible loan facility
Lithium Power International* (ASX:LPI) – Quarterly update for Chilean lithium project
Phoenix Global Mining* (LON:PGM) – Exploration suggests potential for more extensive mineralisation linking Empire, Red Star and the Horseshoe Block
Serabi Gold (LON:SRB) – Mine continues to perform well despite milling constraints
Sunrise Resources Plc (LON:SRES) – Bulk sampling results from the CS project in Nevada
World’s top diamond miners trial blockchain pilot
- World’s No. 1 diamond producer Alrosa has joined rival De Beers’ end-to-end diamond blockchain programme, aimed at removing imposters and conflict precious rocks from the supply chain.
- Anglo American’s De Beers, the largest diamond miner by value, began developing its ‘Tracr’ tracking platform, with official launch of the program in Jan. The program draws majors’ attention to provide enhanced assurance for consumers and trade participants about the authenticity of their gemstones.
- De Beers’ chief executive Bruce Cleaver adds “the collective efforts of the two world’s leading diamond producers will enable more of the world’s diamonds to be tracked from their journey from mine to retail.”
- The blockchain platform yields a shared database of transaction maintained by a network of computers, with each diamond assigned a unique ID that stores stones characteristics such as weight, colour and clarity.
- “Traceability is the key to further development of our market. It helps to ensure consumer confidence and fill information gaps, enabling people to enjoy the product without any doubts about ethical issues or undisclosed synthetics”, according to Alrosa’s chief executive Sergey Ivanov.
Dow Jones Industrials
-0.99%
at
24,443
Nikkei 225
+1.45%
at
21,457
HK Hang Seng
-0.91%
at
24,586
Shanghai Composite
+1.02%
at
2,568
FTSE 350 Mining
+0.10%
at
16,803
AIM Basic Resources
-0.26%
at
2,072
Economics
US – The US is considering to expand the list of Chinese goods to be affected by US import tariffs to all remaining Chinese imports if negotiations between Trump and Xi Jinping fail next month, Bloomberg reported citing three people familiar with the matter.
- New additions may cover $257bn worth of new goods which following a 60-day public comment period may come into affect as early as next February.
- US officials are preparing for such a scenario in case a planned Trump-Xi meeting yields no progress on the sidelines of a Group of 20 summit in Buenos Aires in November.
- Equities spooked by the escalation in US-China trade row closed in the red yesterday with the S&P 500 Index posting a 2.1% decline before narrowing losses to end the day down 0.7%.
- MSCI Asia Pacific Index was down 0.6% this morning.
China – The government is proposing to cut taxes on small engine autos (<1.6lt) from 10% to 5% in a bid to support the faltering growth in the market.
- Chinese car market is expected to post the first decline since 1990 amid weakening consumer confidence hurt by the global trade war.
- The government previously stepped in to stimulate demand in September 2015, cutting taxes after sales fell between June and August.
UK – Philip Hammond delivered the last Budget before Brexit claiming the “era of austerity is finally coming to an end”.
- The government pledged to increase in NHS spending to £27.6bn by 2023/24 while balancing some personal tax cuts with increases in business and other taxes.
- On personal taxes front, the chancellor raised the income tax-free personal allowance up to $12,500 and the higher rate threshold up to £50,000 from April next year.
- The government will introduce a UK digital services tax of 2% to be levied on a turnover earned from UK users.
- Soft Brexit deal may see improvements on growth numbers as well as the release of a £15bn fiscal “buffer” which can be directed to further tax cuts and funding for other public services.
- On the other hand, no deal Brexit may bring a revision to current estimates with a whole new budget to be prepared in the spring.
- UK growth forecasts have been upgraded with latest estimates for 1.6% in 2019 (up from 1.3%), 1.4% in 2020 (up from 1.3%), 1.4% in 2021 (unchanged) and 1.5% in 2022 (unchanged).
- Stronger growth led to an improvement in tax receipts allowing to reduce the amount of borrowing forecast by £19bn by 2022-23 versus previous estimates.
- Budget deficit is expected to come down to 1.3% in 2021 while total outstanding debt to come down to 75.0% by 2022-23, down on 83.7% forecast in 2018-19.
Italy – Weak GDP growth numbers come at the time when government is trying to push through the budget with higher than initially expected deficit levels.
- Q3 GDP slowed to 0% underperforming estimates for a 0.1%qoq increase.
- The economy was up 0.8%yoy marking the weakest reading in more than three years.
- “The stagnation of Italy’s economy in Q3 makes it even more likely that the EU will reject Italy’s re-drafted budget unless it includes significantly weaker assumptions for economic growth,” Capital Economics commented on the news.
- Latest government economic growth projections guided for GDP to expand 1.5%, 1.6% and 1.4% in 2019, 2020 and 2021, respectively.
- That compares Bloomberg market median estimates for 1.1%, 1.1% and 1.0%.
- Italy 10y bond spread over Bunds climbed 6bp this morning and is trading at 302bp.
Currencies
US$1.1370/eur vs 1.1388/eur yesterday. Yen 112.84/$ vs 111.96/$. SAr 14.624/$ vs 14.559/$. $1.278/gbp vs $1.282/gbp. 0.710/aud vs 0.710/aud. CNY 6.961/$ vs 6.956/$.
Commodity News
Precious metals:
Gold US$1,230/oz vs US$1,230/oz yesterday
Gold ETFs 68.3moz vs US$68.0moz yesterday
Platinum US$838/oz vs US$832/oz yesterday
Palladium US$1,112/oz vs US$1,103/oz yesterday
Silver US$14.44/oz vs US$14.61/oz yesterday
Base metals:
Copper US$ 6,134/t vs US$6,168/t yesterday
Aluminium US$ 1,983/t vs US$1,995/t yesterday
Nickel US$ 11,750/t vs US$11,780/t yesterday
Zinc US$ 2,597/t vs US$2,642/t yesterday
Lead US$ 1,956/t vs US$1,987/t yesterday - Lead – Bullish lead fundamentals ignored by investors
- Despite all the hallmarks of a classic bull commodity story, lead has been one of the worst performing metals among the core base metals traded on the London Metal Exchange. LME three-month lead is currently trading around the $2,000/t level, having fallen almost 23% since the start of 2018, and struggling to recover from the two-year low of $1,876 recorded earlier this month.
- Lead’s demand fortunes are inextricably tied to batteries use in conventional internal combustion vehicles, with the metal a likely casualty of the electric vehicle revolution.
- Fund managers are shying away from the metal with it toxic past, with the lack of investment ‘sex appeal’ leaving the price beholden to gyrations of zinc; the second-worst performing LME metal this year.
- Despite demand performance, lead’s supply problems are more structurally severe, and the divergence in supply performance is only going to grow.
- The International Lead and Zinc Study Group (ILZSG) has just dramatically revised estimates of supply-demand balance in the lead market. At its October meeting the group lifted its assessment of the supply deficit this year to 123,000t from its April forecast of 17,000t.
- While forecast demand growth has been slashed to just 0.2% from 2.7%, the supply side of the equation has come under more radical revision.
- Mine supply, which was revised from 4.2% growth to -0.2% contraction is in turn expected to drag refined metal production growth down to just 0.4% from 3.8%.
- The current deficit in the lead market mirrors that of the zinc market; highlighting the closure of major mines over the last few years which produced both ‘sister’ metals.
- Environmental crackdowns across China have hollowed the country’s traditional role as swing producer of both metals during periods of tightness.
- Mine supply constraints have stalled the supply chain, with LME stocks falling to their lowest level since 2009 at 111,500t. In China, the amount of lead registered with the Shanghai Futures Exchange has slumped by 35,869t in Jan. to just 6,139t.
- Investors remain uninterested, with speculators holding a larger short position on LME lead than any other metal at 22% open interest, according to LME broker Marex Spectron.
- While a medium-term surge of new zinc mines is expected to boost by-product supply to shift the market into a modest 50,000t surplus next year, lead is facing more supply-chain disruption from US trade policy than its sister metal.
- Following sanctions by the US administration on key supplies from North Korea, the United States, the second-largest supplier to China, represents a more significant source of lead. With imports totalling 212,000t, a large amount of supply is likely to be hit hard by the 10% tariffs imposed by China in the latest round of tit-for-tat trade measures.
- Arguably a considerable bull market, investors remain loathe to commit to the lead market as they are transfixed by the bear narrative of a sunset industry that has already seen e-bike usage peak. While the prospect of lead-acrid battery technology succumbing to the electric vehicle revolution, usage will persist for years to come.
Tin US$ 19,100/t vs US$19,295/t yesterday
Energy:
Oil US$77.1/bbl vs US$77.2/bbl yesterday - Brent oil prices dips
- Brent oil prices dipped on Tuesday, weighed down by ongoing weakness in global stock markets and by signs of rising global supply despite looming sanctions on Iran's crude exports.
- Front-month Brent Crude Oil futures were at $77.05 a barrel at 0428 GMT, down 29 cents, or 0.4%, from their last close.
- U.S. West Texas Intermediate crude futures were firmer, however, at $67.16 a barrel, up 12 from their last settlement.
Natural Gas US$3.183/mmbtu vs US$3.127/mmbtu yesterday - China to switch more households in central provinces to gas heating
- China on Monday ordered 1.18m residential households in 11 cities located in three central provinces to switch to natural gas heating this winter as part of the country's anti-air pollution campaign.
- The 11 cities are located in the Fenwei Plain which is comprised of the provinces of Shanxi and Shaanxi, as well as Henan. The area was included by Beijing as a "key battlefield" in the war against air pollution in July on top of 28 other cities in northern China.
- The households in the cities must make the switch from coal to natural gas by the end of October, the Ministry of Ecology and Environment said on Monday.
Uranium US$27.95/lb vs US$27.85/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$74.6/t vs US$75.1/t -- China iron ore futures hit near eight-month high
- Chinese iron ore futures climbed to their highest in almost eight months on Monday as stockpiles at its ports dropped last week.
- Inventories of iron ore at China’s major ports fell 150,000t from the previous week to 143.85 mt on Friday
- The port stocks have dropped 11% since hitting a record-high of 161.98mt in June.
- The most-traded January iron ore on the Dalian Commodity Exchange rose as far as 546.50 yuan/t, its highest since March 5. It closed up 0.7% at 538 yuan/t.
Chinese steel rebar 25mm US$700.4/t vs US$700.5/t
Thermal coal (1st year forward cif ARA) US$95.7/t vs US$94.8/t
Coking coal futures Dalian Exchange US$206.2/t vs US$206.4/t
Other:
Cobalt LME 3m US$59,250/t vs US$60,000/t
China NdPr Rare Earth Oxide US$45,537/t vs US$45,571/t
China Lithium carbonate 99% US$9,912/t vs US$9,775/t
Tungsten APT European US$275-295/mtu vs US$275-295/mtu
Battery New
Easyjet’s electric plane
- A prototype of Easyjet’s new battery-powered aircraft will take to the skies next year amid plans for all-electric flights between London and the European mainland.
- The nine-seat hybrid plane will be propelled by a combination of electric power and a jet engine and is being built by Wright Electric
- Easyjet said that a full-size all-electric aircraft, eventually capable of carrying about 120 passengers, would have a target range of 310 miles when it enters full service towards the end of the next decade.
GM pushes for national electric vehicle program
- General Motors on Friday called for a national US electric vehicle program modelled on California's zero-emission vehicle sales mandate.
- The proposal includes, among other elements, the extension of a federal tax credit for electric vehicle purchases that otherwise expires soon, plus a requirement that at least 25% of automakers' fleets be electric or hybrid vehicles.
- The percentage would be adjusted using a credit swap system, in which companies that do not meet the quota can buy credits from those exceeding it.
- "A single, 50-state solution will help move the U.S. to a leadership position in electrification," said GM CEO Mary Barra.
Austria announces higher speed limit for electric vehicles
- The Austrian government has announced three new EV incentives.
- It is opening bus lanes to electric vehicles, it will start promoting free parking for electric cars, and is increasing the speed limit for EVs on motorways and expressways.
- They are creating a legal exception to increase the speed limit to 130 km/h on about 440 km of highway from the 100 km/h limit during IG-L air pollution warning.
Company News
Arc Minerals* (LON:ARCM) 3.8p, Mkt Cap £24m – Director takes Option award in lieu of pay
ARC Minerals owns Casa Gold 99.4% of Casa Minerals and holds an effective 73% stake in Casa Mining’s Akayanga project
(ARC Minerals currently owns 66% of Zamsort which holds 100% of the Kalaba copper/cobalt mine and associated mineral licenses)
STRONG BUY
- Arc Minerals reports that Mike Foster had agreed to take 1.2m options in Arc Minerals in lieu of fees for work done with Casa Minerals on the Misisi gold project in the DRC.
- The options have a strike price of some 4.5 pence per share representing a 34% premium to the closing mid-market share price.
- Foster has been with the Casa gold project for many years and has worked to develop the project to a 3moz gold resource assuming a gold price of .
- Arc upgraded the gold resource at Akayanga (Missi) to 3moz grading 2.16g/t assuming a $1,500/oz gold price reflect a longer-term view of the market.
- Casa is now working on a scoping study for a 150-200,000ozpa mine..
Conclusion: Mike Foster is a talented, measured and hugely experienced geologist. His agreement to take options at a 34% premium is a good indication of the potential for better news and value to come.
*SP Angel acts as nomad and broker to Arc Minerals.