Todays Market View - Metals tumble on fresh Trump trade tariff threats

SP Angel – Morning View – Tuesday 27 11 18

Metals tumble on fresh Trump trade tariff threats

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BHP (LON:BHP) – Copper exploration success in South Australia

Phoenix Global Mining* (LON:PGM) – Exploration suggests potential for more extensive mineralisation linking Empire, Red Star and the Horseshoe Block

See attached link

Anglo Asian Mining* (LON:AAZ) BUY – TP under review (from 84p) – Stephen Westhead acquire 60,000 shares in the market

Petropavlovsk (POG) – POX on target for first production in Q1/19; IRC debt refinancing in final stages of completion

Strategic Minerals* (LON:SML) – Redmoor returns its best drilling results so far

International Court involvement in Chile – Albemarle spat over lithium prices

• Corfo, Chile’s state development agency, plans to file an arbitration suit against US lithium miner Albemarle on claims the world’s No. 1 lithium producer has failed to adhere to terms of a 2016 contract . In an effort to spur a value-added local lithium industry, Albemarle must provide as much as 25% of its annual production at a discount (‘preferential price’) to companies seeking to produce battery metals within Chile.
• Corfo Vice President has reported that the miner’s initial price offer was too high with violations on the terms of its contract with the miner, prompting the agency to push forward with a previously announced suit to be presented to the International Chamber of Commerce.
• The issue reflects one of a number against Albemarle, with the miner backburning plans to increase output capacity in it operations in Chile beyond 2021. Chile hosts the world’s largest reserves of lithium, found in brines, beneath vast salt flats located in the north. Chilean environmental regulators rejected expansion plans according to filings with Chile’s Environmental Assessment Service, with the application lacking key information on the adverse impacts on the quality of soil, water, air and threats in the endangered Peruvian tern bird species.
• Instead, the company is reflecting the market trend towards nickel-dense Li-ion rechargeable batteries and expanding its Kemerton plant in Western Australia, which processes hard rock from the Greenbushes mine to produce lithium hydroxide.

Arsenal leads use Pivot Power to install 2-3MW Li-ion battery storage at Emirates stadium

• Arsenal has become the UK’s first football club to install large-scale battery energy storage, in a bid to cut electricity costs and support green energy.
• Tucked in the basement of the Emirates, the system is capable of powering the 60,000-seat stadium for an entire match, or the equivalent of 2,700 homes for two hours.
• The system is not designed to stop the need for diesel generators for back-up power - instead, it will be used to buy power from Octopus Energy at cheap times and sell it during more expensive peak periods, as well as providing services to National Grid. Pivot Power is to install and operate the battery system for 15 years.
• An initial 2MW of capacity will be expanded to a total of 3MW next summer.
• The system should avoid peak charging ‘triad’ rates during winter periods for power to the Emirates stadium.
• The battery storage system automatically trades and optimises costs by Open Energi in response to market signals and has already secured a frequency response contract from National Grid.
• Pivot Power is also developing a nationwide network of 50MW grid-scale batteries and rapid electric vehicle charging SuperHubs.

Dow Jones Industrials

+1.46%

at

24,640

Nikkei 225

+0.64%

at

21,952

HK Hang Seng

-0.25%

at

26,309

Shanghai Composite

-0.04%

at

2,575

FTSE 350 Mining

-0.55%

at

16,217

AIM Basic Resources

-0.83%

at

2,136

Economics

US – On Monday, Trump reiterated threats to impose new series of import tariffs on the remaining $267bn should no deal with China be reached

• Trump dismissed the impact on US consumers of imposing tariffs on a new slate of Chinese products, which could lead to accelerated inflation, FT wrote.
• “I can make it 10%, and people could stand that very easily,” Trump told the WSJ.
• Asia-Pacific equities shrugged off another round of tariff related threats with the CSI 300 little changed (-0.13%) and Australia S&P/ASX 200 up (+1.00%).
• US equities closed higher yesterday (S&P 500 +1.55%, Dow +1.46%)as oil producers recorded the largest gains on the back of a rebound in oil prices.

Mexico – The stock market dropped to the weakest level in three years with the peso down at June lows as markets grow wary of interventionist and populist proposals of the administration.

• Financial sector companies recorded heavy losses after Mexico’s antitrust agency, Cofece, asked the Senate to consider a proposal put forward by President-elect Lopez Obrador’s party to eliminate bank fees.
• Earlier this month, the administration decided to scrap plans to build a new $13bn airport in Mexico City which has already been a third complete raising questions over government’s commitment to long term contracts.

Currencies

US$1.1310/eur vs 1.1368/eur yesterday Yen 113.56/$ vs 113.33/$ SAr 13.897/$ vs 13.741/$ $1.274/gbp vs $1.283/gbp 0.723/aud vs 0.727/aud CNY 6.949/$ vs 6.937/$

Commodity News

Precious metals:

Gold US$1,220/oz vs US$1,226/oz yesterday

Gold ETFs 68.9moz vs US$68.9moz yesterday

Platinum US$841/oz vs US$847/oz yesterday

Palladium US$1,142/oz vs US$1,137/oz yesterday

Silver US$14.19/oz vs US$14.39/oz yesterday

Base metals:

Copper US$ 6,111/t vs US$6,200/t yesterday

Aluminium US$ 1,938/t vs US$1,944/t yesterday

Nickel US$ 10,735/t vs US$10,850/t yesterday

Zinc US$ 2,427/t vs US$2,511/t yesterday

• Zinc prices continue to tumble as expectations of weaker demand from Chinese steel mills overpowered signals of market tightness, while the US signed its likely to go ahead with plans to raise tariffs on Chinese products which fueled concerns of global growth.
• LME zinc lost as much as -2.6%, leading the retreat of the LMEX Metals Index. The index which tracks six base metals is down 15% this year as the US-China trade stand-off exacerbates with President Donald Trump saying he’ll likely push forward with plans to increase tariffs on $200bn of Chinese goods, and indicating he would also slap duties on all remaining imports from the Asian nation if negotiations with China’s leader Xi Jinping fail to produce a trade deal.
• In September, the Trump administration plunged deeper into a trade war with China by imposing a 10% tariff on $200bn of Chinese goods, and said the rate will rise to 25% on Jan.1. The US has already imposed tariffs on $50bn of Chinese products earlier this year, which Beijing retaliated against on a dollar-for-dollar basis.
• Trump has indicated he’s prepared to impose tariffs on a final batch of $267bn of Chinese shipments if he can’t make a deal with Xi when they meet at the G-20 meeting in Argentina.
• The metal used to galvenise steel has constructive fundamentals, with prices getting some support from 10-year lows and shortages of immediate available metal. Stocks of zinc in LME-registered warehouses have halved to 121,550t since August to ten-year lows, while inventories in ShFE warehouses at around 35,000t are down almost 160,000t in March.
• The International Lead and Zinc Group recognise a 305,000t deficit over Jan-Aug in a market of roughly 13.5Mtpa. While the market anticipated a surge in refined zinc output after a clutch of new mine openings, bottlenecks at smelters across Asia have put a floor under prices, helping a recovery from an August low of $2,283/t.

Lead US$ 1,922/t vs US$1,960/t yesterday

Tin US$ 18,705/t vs US$18,845/t yesterday

Energy:

Oil US$60.1/bbl vs US$60.1/bbl yesterday

Natural Gas US$4.161/mmbtu vs US$4.091/mmbtu yesterday

Uranium US$29.10/lb vs US$29.00/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$64.2/t vs US$67.5/t

• Despite robust global steel output, iron ore prices drastically tumbled on Monday, with the seaborne benchmark cratering amid growing fears about an economic slowdown in China and the impact of a trade war between the world’s two largest economies. Benchmark prices at the Chinese port of Qingdao of 62%-Fe fell -8% to trade at $64.25/t, according to data supplied by Fastmarkets MB.
• The pullback in seaborne iron ore and met coal follows a broad sell-off of steel futures in China, with Shanghai rebar entering a bear market – having fallen more than 20% from seven-year highs in August.
• According to data released by the World Steel Association on Friday, Chinese output, which exceeds that of the rest of the world combined, in October rose 9% from the year before to a record 82.5mt for the month. For the first 10 months Chinese furnaces pumped out 7.6% more steel.
• The iron ore industry is being stung by rising supply, sluggish demand from the property sector and a broad shift to electric arc furnaces as scrap availability inside China continues to expand, according to Capital Economics. Recent growth appears unsustainable under market fundamentals, with $55/t level forecast for end-2019.
• Short-term outlook for iron ore prices is being clouded by several factors, including how widespread and effective the Chinese steel mill winter closures will be and the rising hopes of a resolution of the trade dispute with the US.
• The one bright spot in the market has been the sizeable premium on high-grade ore from top producers Brazil and Australia as Chinese steelmakers continue to fight against rising pollution. However, diminishing margins from falling steel prices may encourage mills to refocus on cost savings with a favour toward lower-quality ore.

Chinese steel rebar 25mm US$599.4/t vs US$600.4/t

Thermal coal (1st year forward cif ARA) US$85.5/t vs US$82.9/t

Coking coal futures Dalian Exchange US$192.0/t vs US$190.8/t

Other:

Cobalt LME 3m US$55,000/t vs US$55,000/t

China NdPr Rare Earth Oxide US$45,618/t vs US$45,697/t

China Lithium carbonate 99% US$10,073/t vs US$10,091/t

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

Battery News

Tesla China sales plunge

• Tesla Inc’s vehicle sales in China sank 70% last month from a year ago, the country’s passenger car association told Reuters on Tuesday.
• An official from China Passenger Car Association said data from the industry body showed Tesla sold just 211 cars in in China in October.
• Tesla has not responded to repeated calls and written requests for comment.

Reduction of resistance using crystallinity in batteries

• Scientists at the Tokyo Institute of Technology have demonstrated that using crystallinity in solid-state batteries has resulted in low interface resistance, thereby yielding a higher-performance battery.
• To prove this, they fabricated two different solid-state batteries composed of electrode and electrolyte layers using a pulsed laser deposition technique.
• Confirming this was possible by using a novel technique called X-ray crystal truncation-rod scattering analysis to analyse the buried interfaces without damaging their layers.

Ukraine exempts electric vehicles from taxes

• The government of Ukraine has extended their electric vehicle incentive in form of the VAT exemption for imported electric cars.
• The Ukrainian parliament approved a bill to prolong the tax exemption for 2018 until the end of 2022.
• Reports state that the market increased 2.3 times in 2017 YOY to 2,697 units. So far the trend continued throughout 2018 with 4,214 electric cars sold between January and October.

Innord pilot study to test recycling of electric vehicles

• Innord is collaborating with the University of Liege and Comet Traitements SA to test recycling of hybrid and electric vehicles on behalf of a major vehicle manufacturer.
• Within the scope of this collaboration, Innord will be conducting separation testing on rare earth element concentrates produced by University of Liege from magnets contained in hybrid and electric vehicles which are recovered through the pilot study.

Company News

BHP (LON:BHP) 1505p, mkt cap £88.0bn – Copper exploration success in South Australia

• BHP has announced the confirmation of “a potential new iron oxide, copper, gold (IOCG) mineralised system, located 65 kilometres to the south east of BHP’s operations at Olympic Dam in South Australia”.
• Drilling of 4 diamond-drill holes totalling 5346m targeting a long-standing geophysical anomaly and following up work conducted by Western Mining during the 1970s has intersected polymetallic mineralisation containing copper, gold, uranium and silver and although the “project is at an early stage and there is currently insufficient geological information to assess the size, quality and continuity of the mineralised intersections. BHP is evaluating and interpreting the results reported and planning a further drilling program, to commence in early 2019”.
• Among the higher grade results BHP reports today are:
• A 425.7m long intersection from a depth of 1063m in hole AD-23 which averaged 3.04% copper, 0.59g/t gold, 346ppm uranium and 6.03g/t silver which included a 180m long section from 1070m dept averaging 6.07% copper, 0.92g/t gold, 401 ppm uranium and 12.77g/t silver.
• A 77m long intersection from 1193m in hole AD-25 which averaged 2.11% copper, 0.54g/t gold, 327ppm uranium and 2.94g/t silver and
• A 124.5m long intersection from a depth of 936m in hole AD-22 which averaged 0.52% copper, 0.48g/t gold, 85ppm uranium and 3.37g/t silver
• The company points out that the project exhibits a similar geological setting to that at the Olympic Dam mine “and is located in the eastern margin of the Gawler Craton, within the Olympic IOCG (iron oxide, copper, gold) metallogenic province.”
• The company points to copper and oil as the main focus of its exploration programmes and points out that, in addition to targeting the Stuart Shelf area of South Australia which hosts this project and Olympic Dam, it is targeting “Ecuador, Canada, Peru, Chile and the south west of the United States” for copper.
• BHP recently increased its holding in Solgold* which recently updated the mineral resource estimate at its Alpala project in its Cascabel project in Ecuador to an overall total of 2.05bn indicated tonnes at ana average garde of 0.6% copper equivalent plus a further 900mt classed as inferred at an average grade of 0.35% copper equivalent. The wider resource contains a high grade core pf 420mt at ana average grade of 0.9% copper equivalent and Solgold is currently preparing a Preliminary Economic Assessment ahead of more detailed feasibility studies.

Conclusion: Major mining companies are typically quite coy about discussing early stage exploration projects and it is interesting that BHP is particularly highlighting this project in South Australia as well as its worldwide focus on copper exploration. We look forward to further news as exploration develops.

*SP Angel acts as broker and advisor to Solgold

Phoenix Global Mining* (LON:PGM) 30p, Mkt Cap £9.5m – Exploration suggests potential for more extensive mineralisation linking Empire, Red Star and the Horseshoe Block

See attached link

• We are, today, publishing an update on Phoenix Global Mining’s recent exploration progress at the Empire mine in Idaho where drilling and other geological work is starting to show the possibility of continuity of mineralisation over a 3.5km strike length from the oxide pit area through the recently discovered Red Star area to the Horseshoe claim block.
• Deeper drilling is also starting to lift the veil on the longer term potential of the underlying sulphide mineralisation which was the mainstay of the historic mining activity at Empire from the early 1900s to the late 1930s.
• An updated mineral resources estimate is expected during Q1 2019 with a bankable feasibility study on the oxide pit mine, heap leach and SXEW plant due for completion during the final quarter of 2019.
• The full update is available on the following link:

*SP Angel acts as Nomad and broker to Phoenix Global Mining

Anglo Asian Mining* (LON:AAZ) 88p, Mkt Cap £101m – Stephen Westhead acquire 60,000 shares in the market

BUY – TP under review (before 84p)

• The announcement this morning disclosed purchases of shares by Stephen Westhead, director of geology, completed over 22 and 23 November.
• Stephen Westhead bought 60,000 shares at 86.3p taking total beneficial interest to 235,000 shares.

Conclusion: Acquisition of shares in the market by Stephen Westhead is a welcome news and reflects management confidence in Company’s prospects. The Company is close to finalising the first airborne geophysical survey over the highly prospective Gedabek license area helping to identify future drilling targets with results due in Q1/19. The team highlighted that preliminary results point to a number of magnetic and electro-magnetic anomalies on the property which would be followed up on with on the ground works. The Company is targeting higher end of the 78-84koz GE guided range in 2018 and is expected to register stronger output in 2019.

The Company has performed well as strong FCF generation helped to deleverage the business, allowed it to establish a dividend policy as well as provided capital for accelerating exploration works across Gedabek and Ordubad properties. We feel a lot of upside potential in the Company remains reflecting expected busy news flow on the exploration front focused on both extending known mineralisation at producing deposits as well as an opportunity for a greenfield discovery. We will update our target price in due course.

*SP Angel act as Nomad and broker to Anglo Asian Mining

Petropavlovsk (POG) 5.8p, Mkt Cap £191m – POX on target for first production in Q1/19; IRC debt refinancing in final stages of completion

• POX facility autoclave 1 (of 4 in total) is going through hot commissioning testing different parts of the circuit including flash tanks, high pressure vessels and concentrate re-grinding and lime preparation sections.
• The process involved filling autoclave 1 with an acid solution replicating operational conditions, heating it in stages over a period of three days and letting it to cool down over a period of two days.
• Minor defects have been exposed during the process including a leak caused by a faulty seal within an agitator which have now been addressed and fixed.
• Final hot commissioning is scheduled for 28 November.
• Both cold and wet commissioning of other sections of the POX plant have been completed confirming the quality of the welding and piping work at the POX facility.
• The concentrate loading, re-grinding and lime preparation sections (formerly part of Pokrovka RIP plant) have also been commissioned.
• The oxygen plant has been successfully commissioned and is being prepared to tart oxygen supply to autoclave 1 as tests on refractory ore are to start this week.
• First POX gold production is targeted for Q1/19.
• IRC debt refinancing is expected to be completed in mid-December 2018.
• The $240m facility is reported to have secured the lender’s credit committee approval which is planned to be used to repay $214m owed under the Industrial and Commercial Bank of China loan as well as $36m outstanding to Petropavlovsk in relation to the short term loan and costs associated with the loan.
• The new facility will involve a new, reduced, guarantee from Petropavlovsk and will need to be approved by its shareholders during a general meeting.
• It is planned that the guarantee obligations will come down to zero before the end of 2020.

Conclusion: POX commissioning is reported to continue on schedule with first production reiterated for Q1/19. IRC refinancing is in final stages which would allow Petropavlovsk to gradually reduce guarantee obligations as well as get repaid $36m in loaned funds and costs.

Strategic Minerals* (LON:SML) 1.25p, Mkt Cap £17.3m – Redmoor returns its best drilling results so far

• Strategic Minerals reports results from a further four drill-holes in its 2018 campaign at Redmoor, including what the company describes as “the highest grade intercepts yet drilled” in hole CRD028 which tested potential depth extensions to the central portion of the March 2018 resource.
• Among the results highlighted today are:
• An 11m wide downhole intersection, interpreted as a true width of 5.45m from a depth of 277.15m in hole CRD025 which averaged 0.03% tin, 0.47% tungsten trioxide (WO3) and 1.01% copper equated as 1.10% tin equivalent. The wider intersection includes 2.10m from a depth of 285.05m which averaged 0.02% tin, 1.45% WO3 and 2.25% copper.
• A second intersection in hole CRD025 encountered 2m averaging 0.05% tin, 1.55% WO3 and 0.52% copper from a depth of 309.56m
• A 5m wide intersection (3.4m true width) averaging 0.06% tin, 1.99% WO3 and 0.13% copper from a depth of 537m in hole CRD026. The wider intersection includes a 2m section from a depth of 539m which averages 0.01% tin, 3.29% WO3 and 0.1% copper as well as a single metre, from 540m which averages 0.01% tin, 2.86% WO3 and 3.6% copper.
• Hole CRD026 also encountered shallower zones of mineralisation from 478.47m which averaged 0.01% tin, 1.86% WO3 and 0.93% copper over 2.2m from 478.47m and 10.31m from 518.6m which averaged 0.01% tin, 0.72% WO3 an 0.33% copper.
• Hole CRD026 is described as providing “evidence for the trend of increasing grade with depth, and for the presence of a tungsten-rich zone underlying the upper tin rich zone.”
• Hole CRD027, which tested the western part of the sheeted vein system, “adds a tin rich intercept to the western side of the deposit, as well as confirming mineralisation in a previous gap in the model.”
• Hole CRD027 intersected 9.1m of mineralisation (5.7m true width) at an average grade of 0.64% tin, 0.18% WO3 and 0.65% copper from a depth of 442.02m. The intersection included single metre long intersections of 2.65% tin (with 0.03% WO3 and 3.71% copper) and 1.37% tin (with 0.49% WO3 and 0.99% copper) from 444.02m and 449.02m respectively.
• Assay results from the first of the Phase 2 programme holes, CRD028, include 7.99m from a depth of 543.61m (5.3m true width) which averages 0.01% tin, 2.39% WO3 and 0.07% copper, with higher grade sections of 0.7m averaging 0.02% tin, 20.62% WO3 and 0.45% copper from a depth of 545.78m.
• Hole CRD028 is the first of the four holes within the Phase 2 programme to report assay results; results from the remaining Phase 2 programme holes CRD029, CRD030 and CRD031 have yet to be released.
• Based on the encouragement gained from the drilling so-far and the financial flexibility gained from prudent operational management of the programme so far, Strategic Minerals and its joint-venture partner, New Age Exploration plan to add “a further hole, CRD032” to the existing programme with the intention of “extending the Redmoor high-grade resource in the open down-dip direction”. The cost of the additional hole will be “funded from within the current budget.”
• As a result of the drilling, the company is now gaining an improved understanding of the mineral distribution within the SVS with tin now interpreted as “richer in the western parts, tungsten to the east and at depth and copper typically richer higher in the system. [Although] All metals overlap to some degree”. We observe that many of the results reported in today’s announcement reinforce the high tungsten trioxide grades as well as noting that there are a number of copper assays which exceed 1%, particularly in holes CRD027 and CRD028.
• Commenting on results which he described as surpassing the company’s expectations, Executive Director Peter Wale underlined the management’s “confidence for the potential to both increase the resource tonnage and grade at Redmoor and demonstrate the scope for it to become a notably attractive project when these results are converted into a resource estimate early in 2019.”

Conclusion: Strategic Minerals' drilling at Redmoor is yielding insights into the distribution of metals within the SVS resource envelope with an evolving understanding that the tin is more prevalent towards the west while tungsten is more developed at depth and in the east. The drilling is laying the groundwork for an update to the existing inferred mineral resource estimate, expected in early 2019, which currently stands at 4.5mt at 1% tin equivalent grade. Given that the 2018 drilling programme extends the resource envelope both laterally and at depth and fills in gaps in the drill coverage of the existing estimate, we see scope for a significant increase in tonnage while the grades being reported suggest that the overall resource grade could also improve. We look forward to the updated mineral resource estimate in early 2019.

*SP Angel act as Nomad and broker to Strategic Minerals