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Todays Market View - Gold rises as dollar retreats on Fed caution

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SP Angel – Morning View – Tuesday 04 01 18

Gold rises as dollar retreats on Fed caution

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MiFID II exempt information – see disclaimer below

 

Greatland Gold (LON:GGP) – Update on drilling at Havieron

Herencia Resources (LON:HER) – Raising US$120,000

Strategic Minerals* (LON:SML) – Geophysical survey underway at Hanns Camp

 

Vanadium prices fall in China but rise in Western Europe

  • Ferro-vanadium prices fell 7% last week in China to US$119-129.5/kg according to the Metal Bulletin .
  • Prices rose in Western Europe by 7.9% to US$122.08-125.22/kg indicating potential for a shortage to develop in Europe as Chinese traders keep material at home.
  • Ferro-vanadium prices fell $1/kg overnight in China to 124.5/kg according to AsiaMetals.com.
  • Energy Fuels which aims to be the world’s newest vanadium producer is looking to produce some 91-102t per month of vanadium by starting in Q4 from the White Mesa Mill in the US.
  • The production, from recoverable dissolved V2O5 in pond solution, is reported to run for 16-20 months which will help to ease developing shortages of the metal.

 

Glencore – Telis resigns as regulators line up investigations against Glencore’s DRC and other trading activities

  • Glencore report, Telis Mistakidis, head of copper trading, amid investigations into Glencore’s move into the DRC and its dealings with Dan Gertler.
  • Nico Paraskevas, former CFO at Katanga Mining is reported to be taking over as head of copper trading.
  • The US DoJ is investigating Glencore activities in Venezuela, Nigeria and the DRC.
  • The Ontario Securities Commission is also investigating Katanga Mining and its accounting practices.
  • The UK SFO says it is preparing a formal bribery probe into Glencore’s dealings with Dan Gertler.
  • The DRC is investigating how radioactive cobalt produced at Katanga Mining was exported to South Africa. Katanga Mining is to install a process plant to remove uranium from the cobalt before export.
  • Glencore has also cut its earnings forecast from its marketing division to US$2.7bn from US$3.2bn partly due to cancelled contracts for cobalt. Other reasons are basic risks from alumina contracts and accounting treatment applied to agriculture sales.

Glencore ramp up capital expenditure as commodity inventory levels fall

  • Glencore is ramping up its capital expenditure program with an extra $300mpa over the next three years.
  • The group will focus on the expansion of existing operations – a strategy which worked well for Xstrata under the stewardship of Mick Davis.

 

Dow Jones Industrials

 

+1.13%

at

  25,826

Nikkei 225

 

-2.39%

at

  22,036

HK Hang Seng

 

+0.09%

at

  27,206

Shanghai Composite

 

+0.42%

at

   2,666

FTSE 350 Mining

 

+0.28%

at

  16,958

AIM Basic Resources

 

+1.02%

at

   2,137

 

Economics

US – Yields on 10y Treasuries dropped to 2.9353% this morning, the lowest level since mid-September, as investors are dialling back expectations for a potentially faster pace of interest rate rises from the Fed.

  • Forecasts that the Fed will raise rates by another quarter percentage point later this month drove up yields on short term debt with the spread between two and 10y Treausry yields narrowing to 18bp yesterday, the lowest level since Jul/07.
  • The flattening of the yield curve is watched closely by many market participants as its inversion is widely regarded as an indicator of a potential future economic recession.

 

Japan – Equities slide and the yen climbs against the US$ as investors take profits following a seven-day rally in the local market.

  • The Topix index is down 2.4% today, the most in about six weeks, with electronics makers and banks being the biggest drags.
  • The drop comes after a 4.5% gain over seven consecutive sessions.
  • The yen strengthened to a two-week high against the US$.

 

France – The government is considering a moratorium on planned tax increases in response to the latest series of protests.

  • Macron presidency approval ratings hit 23% marking the lowest level of his term.

 

Australia – The RBA kept the cash rate at 1.5%, in line with expectations, while maintaining economic growth rate forecasts for 2018 and 2019 at an average of around 3.5%.

  • Economy has been doing well lately with economic growth running at +3% while unemployment contracted to the lowest level since early 2010s.
  • However, consumer prices growth continued to hover below the 2-3% RBA target range suggesting little urgency for the central bank to tighten rates.
  • The RBA highlighted slowing housing market risks especially in places with most expensive properties like Sydney and Melbourne as high prices and credit tightening weighs on house affordability.
  • Nationwide home values dropped 0.7%mom in November led by a 1.4%mom decline in Sydney and a 1.0%mom fall in Melbourne, based on CoreLogic data.
  • Sydney property prices declined 9.5% since their July 2017 peak and were on track to overtake the 9.6% top-to-bottom decline drop recorded during the last recession 27 years ago.
  • Markets are not fully pricing in a rate rise until well into 2020.
  • Stocks traded lower this morning (S&P/ASX 200 -1.0%) pulling back following a strong rebound recorded on Monday (+1.8%).

 

OPEC – Prices are extending gains this morning as markets expect OPEC and Russia to commit to a cut in output by at least 1.3mmbbl per day on Thursday/Friday.

  • Additionally, Canada, one fo the world’s largest oil producers supplying more than 4.2mmbbl per day, is forcing producers to cut output by 8.7% or 325,000bpd until excess crude in storage is reduced.
  • Discounts for Canadian grades hit as high as $52/bbl to the WTI price in October on the back of transportation constraints and storage glut.
  • The discount narrowed to $25/bbl on Monday following the government announcement down from $32 discount on Friday.
  • OPEC will meeting on Thursday in Vienna, followed by talks with allies such as Russia on Friday.
  • Two OPEC sources said talks are focusing on a pro-rata cut of 3-3.5% from October output levels, with not exemptions for any member.
  • Russia has previously indicated the country could cut some 140,000bpd while OPEC insisted Moscow reduces production by 250,000-300,000bpd.

 

Ecuador – Loma Larga set to become Ecuador’s next major development project

  • INV Metals report publication of a Feasibility study done by a consortium of independent experts led by DRA Americas
  • Pre-production capex of US$279m for its Loma Laga project in Ecuador.
  • The project could produce some 2.6mlbs of gold equivalent over 12 years.
  • Production is set at 223,000oz of gold over the first four years
  • AISC Costs are US$768/oz
  • NPV US$356m after tax at a rather low 5% discount rate
  • IRR24.7% after tax
  • The project is reported to have a 2.6 year payback..
  • The project is one of five strategic projects being considered by the government of Ecuador.

 

Currencies

US$1.1395/eur vs 1.1362/eur yesterday  Yen 113.03/$ vs 113.50/$  SAr 13.633/$ vs 13.589/$  $1.277/gbp vs $1.280/gbp  0.739/aud vs 0.738/aud  CNY 6.842/$ vs 6.888/$

 

Commodity News

Precious metals:         

Gold US$1,239/oz vs US$1,231/oz yesterday

  • Gold’s outlook improves as investors place bets on whether the Federal Reserve’s hiking cycle is close to played out as 2019 looms, and as portions of the Treasuries market may be flashing warning signs about the near-term stance.
  • Bullion stands to benefit because of the slower pace of increases from the Fed, and any indications of a recession in the world’s top economy will revive haven appeal, according to Harish Galipelli, head of commodity and currencies at Inditrade Derivatives & Commodities Ltd. The advance came as investors have been bulking up their bullion holdings in exchange-traded funds.
  • Gold’s rise follows advances in October and November -- the first sequential monthly gain since January. On Monday, a section of the U.S. Treasuries yield curve inverted for the first time in more than a decade, signaling some investors may be anticipating the imminent end of the Fed’s tightening cycle.
  • It’s “difficult” to see gold going any lower, and the commodity should rebound as soon as “strong-dollar trend begins to fade,” Goldman analysts including Jeffrey Currie report. The bank maintained its three, six and 12-month forecasts at $1,250, $1,300 and $1,350.

   Gold ETFs 68.7moz vs US$68.9moz yesterday

Platinum US$806/oz vs US$813/oz yesterday

  • While platinum has racked up the worst performing precious metal this year, traders are sensing a buy opportunity. Hedge funds and other large speculators raised long bets on the metal, used in vehicle smog-control devices, to the highest since March, according to US government data.
  • Optimism was fueled by speculation that recent strikes at Sibanye Gold Ltd. mines in South Africa could “leak over” into platinum production, said Ryan McKay, a strategist at TD Securities.

Palladium US$1,217/oz vs US$1,196/oz yesterday

Silver US$14.55/oz vs US$14.41/oz yesterday

           

Base metals:   

Copper US$ 6,292/t vs US$6,325/t yesterday

Aluminium US$ 1,982/t vs US$1,986/t yesterday

Nickel US$ 11,340/t vs US$11,300/t yesterday

Zinc US$ 2,597/t vs US$2,604/t yesterday

Lead US$ 1,977/t vs US$2,004/t yesterday

Tin US$ 18,940/t vs US$18,710/t yesterday

           

Energy:           

Oil US$62.5/bbl vs US$62.4/bbl yesterday

Natural Gas US$4.390/mmbtu vs US$4.516/mmbtu yesterday

Uranium US$29.00/lb vs US$28.90/lb yesterday – uranium volumes rise 40% as >62mlbs of U3O8 trade in the spot market

  • Three contracts traded in the spot market for 4mlbs of uranium last month with around 1mlbs traded last week.
  • New speculative activity on the back of new uranium investment funds is thought to be responsible for part of the increase in spot trading activity

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$64.2/t vs US$62.9/t

Chinese steel rebar 25mm US$610.2/t vs US$610.6/t

  • Chinese rebar steel futures ease to their weakest in more than seven months, resuming their downturn as the market refocuses on oversupplies in the world’s top producer. A 90-day ceasefire between the US and China buoyed steel and raw material iron ore and coking coal prices, as risk appetite recovered.
  • The most-traded May rebar contract on the Shanghai Futures Exchange fell to its lowest since April as demand for long steel products used in construction in places such as southern China remains firm, however supply is far too high, according to CRU consultancy analysts. "Because of overproduction, traders don't want to stock up on steel and that's undermining market sentiment," said Lu.
  • Stocks of rebar at Chinese traders fell to 2.94mt as of Nov. 30, the smallest since December 2017, according to data tracked by Chinese firm SteelHome.
  • Supply of flat products like hot rolled coil also remains high while demand from the manufacturing sector, including autos, is weak, said Lu.
  • Benchmark rebar prices have now fallen by a quarter since hitting a seven-year peak of 4,418/yuan in late August. Profit margins at Chinese steel mills shrunk sharply last month, spurring them to curb costs.

China crude and finished steel production rises through November

  • Members of the China Iron & Steel Association ‘Cisa’ report crude steel production of 1.95mt per day in the second 10 days of last month, up 1.6% from 1.92mt per day on the previous 10 days.

Thermal coal (1st year forward cif ARA) US$84.9/t vs US$86.3/t

Coking coal futures Dalian Exchange US$201.7/t vs US$200.3/t

           

Other:  

Cobalt LME 3m US$55,000/t vs US$55,000/t - Lithium and Cobalt Costs to hinder battery-powered car sales

  • High prices for lithium and cobalt will hinder sales growth in battery-powered vehicles the next few years, according to a report out of HSBC.
  • The study claimed global market share by 2025 for fully electric vehicles will be lower than previously projected -- 9.4%, compared with an earlier estimate of 10.5%.
  • At the same time, forecasts for plug-in hybrid EVs were doubled to 5.5% of the market by 2025, from 2.4%. 

China NdPr Rare Earth Oxide US$46,915/t vs US$46,600/t

China Lithium carbonate 99% US$10,231/t vs US$10,162/t

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

 

Battery News

Lithium and cobalt costs hinder battery EV sales

  • Elevated prices for lithium and cobalt continue to hinder sales growth in battery-powered vehicles over the next few years.
  • The Global market share by 2025 for fully electric vehicles will be lower than previously projected - 9.4%, compared with an earlier estimate of 10.5% according to a report by HSBC which also doubles estimates for plug-in hybrid EVs to 5.5% of the market by 2025, from 2.4%.
  • Lithium supply will remain “reasonably tight” amid new-output delays, cancelled and shelved projects, robust battery demand globally and a continued push by China’s government for electric vehicles, according to the report. HSBC raised its 2025 lithium-demand forecast by 88% from its last estimate more than a year ago, to 776,000t.
  • The inflection point for EV adoption will be around 2020, when battery costs should have fallen “significantly” and major auto companies will start selling their new EV models.
  • Costs of cobalt will not be helped as dominant supply from the DRC is struck with a near tripling of royalty rates miners will pay on the ‘strategic’ mineral to 10%.
  • Prime Minister Bruno Tshibala signed the decree, which is dated Nov. 24, despite fierce opposition from leading investors including Glencore and China Molybdenum, who have lobbied against tax hikes under a new mining code adopted earlier this year. Before they were designated "strategic", the minerals were all subject to a royalty rate of 3.5%.
  • The country supplies more than 60% of global cobalt, with the new code potentially deterring investment and threaten availability of the stabilising battery metal.

 

Electric car sales hit by high prices and bad batteries

  • There has been a dramatic slowdown in the switchover to pure electric cars in the past 12 months because of concerns about high prices and a lack of roadside chargers, according to a study published yesterday.
  • Figures show that sales of electric cars increased by 7% in 2017-18 compared with a year earlier, with 878 more cars being sold.
  • The rate of growth dropped from 21% the year before, when an additional 2,238 vehicles were sold.
  • In all, electric car sales were 13,586 in the year to the end of June, representing 0.6% of all new vehicles on British roads.
  • The study by UHY Hacker Young warned that the automotive industry was making slow progress in the introduction of affordable electric vehicles. It also cited concerns over relatively low battery range and a lack of public charge points.

 

Spain unveils ambitious green energy plan

  • The Spanish government has outlined proposals, set to be adopted by the cabinet in coming weeks, which spell out an ambitious target to draw 100% of the country’s electricity from renewables by 2050.
  • The plan also aims to cut emissions by more than 90% over the same period.
  • Under the government proposal, no more new licences for oil and gas exploration in Spanish waters will be issued and the country will stop all drilling completely by 2040.
  • Cars fuelled by petrol or diesel will be phased out, and after 2040 only electric and other “zero emission” vehicles will be sold in Spain.

 

Trump aide Larry Kudlow calls for end of electric vehicle subsidies

  • President Trump’s top economic adviser on Monday said the White House wants to end subsidies for electric vehicle purchases, without saying how it would eliminate the incentives that were created by Congress.
  • Larry Kudlow, director of the White House National Economic Council, told reporters that electric car subsidies “will all end in the near future,” adding 2020 or 2021 when asked for a timeline.
  • Kudlow didn’t provide details on what the White House would to do eliminate or change the electric car tax credits, and the administration’s ability to execute the changes by executive order remains in doubt.

 

Company News

Greatland Gold (LON:GGP) 1.76 pence, Mkt Cap £56.8m – Update on drilling at Havieron

  • Greatland Gold reports that recent of drilling at its Havieron prospect in the Paterson area of Western Australia continues to intersect mineralisation and that having completed an additional 4 holes of the programme “significant visible mineralisation …[has been observed] … in every hole of the Company’s current drilling campaign at its 100% owned Havieron licence.”
  • Although assay results from holes HAD006-009 have yet to be released, all intersected visible mineralisation with “holes HAD006 and HAD009 both ending in mineralisation at 838m and 932m respectively.”
  • The geological details of the drilling include:
    • Hole HAD006 intersected mineralisation over the 363m from 475m to the end of the hole
    • Hole HAD007 intersected two zones of mineralisation with an upper zone of 83m between 467-550m depth where the “concentration of visible mineralisation …[increases] …with depth” and a second zone beneath a barren zone of mafic intrusive rocks which extended from “601m to end of hole at 755m silica altered calcareous sandstones were intersected with visible laminated mineralisation interspersed”
    • Hole HAD008 intersected mineralisation between 426m to 516m again with the intensity of mineralisation observed to increase with depth before entering a barren mafic intrusion which continued to the end of the hole at 772m
    • A similar sequence was encountered in Hole HAB009 where visible mineralisation increased with depth between 667m and 750m depth and with a second mineralised zone observed between 944m and the end of the hole at 932m
  • The company cautions that “there can be no guarantee that laboratory assay results will be similar to those of HAD001 or HAD005, the observation of mineralisation in the four additional holes (HAD006 through HAD009) is considered material because it demonstrates the presence of a significant mineralised system at Havieron.” The company does, however recap on previously reported results from earlier in the current programme, including:
    • A 121m long section in Hole HAD001 which averaged 2.93g/t gold and 0.23% copper from 497m depth; and
    • A 21m long zone from 418m depth in Hole HAD003 with an average grade of 3.79g/t gold and 0.44% copper; and
    • A “combined intercept of 275m at 4.77g/t gold and 0.61% copper, including an upper zone of 118m at 3.08g/t gold and 0.84% copper from 459m and a lower zone of 157m at 6.04g/t gold and 0.44% copper from 660m (HAD005).”
  • Commenting on the results, Chief Executive, Gervaise Heddle said that “We are very pleased to see significant visible mineralisation in all holes of the current drilling campaign. We believe that these observations, when combined with recently reported assay results and the results from new geophysical modelling, provide further evidence to support our view that Havieron has the potential to represent a very large mineralised system.”

Conclusion: The continuing exploration at Havieron seems to be showing some consistency in the geological setting of the mineralisation, however, many of the intersections reported are relatively deep and we look forward to the pending assay results for reassurance that grades are adequate to support a possible future programme.

 

Herencia Resources (LON:HER) 0.03p, mkt cap £3m – Raising US$120,000

  • Herencia Resources has announced that it has reached agreement with two investors, the Australian Special Opportunity Fund (Lind Partners) and Oriental Darius Co Ltd to raise US$120,000 as a 24 month convertible loan facility with a face value of US$144,000.
  • Each of the investors will contribute US$60,000 and the conversion will lead to the issue of a further 400.45m new shares representing, we estimate, around 3.5% of the enlarged company.
  • On conversion, Lind Partners will hold an estimated 23.12% of the company although “if Lind Partners was to convert all its convertible interests in the Company, then in addition to its current shareholding it will hold 4,972,322,689 Ordinary Shares representing 30.43% of the total issued share capital of the Company”.
  • Oriental’s holding will be 21.74% though with all of its existing convertible interests “If Oriental convert  to New Ordinary Shares under the current conditions, Oriental will hold 2,371,298,341 Ordinary Shares, representing approximately 21.74% of the Company's enlarged issue share capital.”

 

Strategic Minerals* (LON:SML) 1.28p, Mkt Cap £17.6m – Geophysical survey underway at Hanns Camp

  • Strategic Minerals reports that it has started a ground-based electromagnetic geophysical survey aimed at the identification of nickel sulphide conductors for follow-up drilling at its wholly owned Hanns Camp project area located south-east of Laverton, Western Australia.
  • The survey implements recommendations made by the company’s expert consultant, Dr. Martin Gole following a geological review of the historic data and the results of the aircore drilling programme conducted early in 2018 by the company’s wholly owned subsidiary, Central Australian Rare Earths (CARE).
  • The geological review identified a number of previously unrecognised and untested targets thought likely to host “komatiite lava channel facies rocks which … [are] … one of the key requirements for the potential accumulation of nickel sulphides”.
  • The survey will test the “Hanns Camp South, Royal North and Royal Central prospects as potentially hosting [the geologically favourable] komatiite lave channel facies rocks”. Dr. Gole’s work strongly recommended this type of survey “along the eastern basal contacts, particularly the Hanns Camp South prospect”.
  • The current survey is testing a fundamental geological appreciation of the likely genesis of nickel sulphide mineralisation within the Hanns Camp area. In our view, systematic, science-based exploration of this nature should prove cost effective in identifying whether there are suitable targets for future drilling.

Conclusion: The results of the ground-based electromagnetic survey are expected to inform a decision on possible follow-up drilling of potential nickel sulphide targets within the CARE licences at Hanns Camp. We look forward to news on the progress of the geophysical survey and on whether the anticipated drill targets have been identified

 

*SP Angel act as Nomad and broker to Strategic Minerals

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