SP Angel – Morning View – Friday 07 12 18
Lower China auto tariffs boost US automakers
Bushveld Minerals* (LON:BMN) BUY - Target Price 87p – AIM fine for disclosure delay on exclusivity fee for material transaction relating to Vametco stake acquisition
Condor Gold (LON:CNR) – Increasing land holding by 45% at La India
Eurasia Mining (LON:EUA) – Monchetundra licence payment terms
American automakers boosted as China agrees to lower tariffs on US cars
- As Tesla expands EV production capacity in China in a bid to reduce transport costs and tariffs, President Donald Trump announces “China has agreed to reduce and remove tariffs on cars coming into China from the US. Currently the tariff is 40%” via Twitter.
- Earlier in the year, Tesla CEO Elon Musk went directly to Donald Trump to address issues of the US-China car trade, succeeding to draw automotive products into the discussion.
- While the automaker initially made preparation for a planned reduction in import duties from 25% to 15% in May, reducing the sales price in China, Tesla instead was stung by the escalating trade war as import duties surged to 40%. The rise in tariffs was reflected in a sales premium of over $20,000 for the Model S and Model X in July.
- While Trump tweets remain ambiguous, the announcement could lead to falling tariffs which helped drive US automaker stocks higher during Monday trading.
- Higher tariffs force Tesla to ‘accelerate’ the construction of their upcoming Shanghai factory, citing cost disadvantages of 55-60% compared to similar EVs produced in China. While import duties represent a significant cost, US automakers continue to lack access to cash incentives available to locally produced electric vehicles in China which are typically around 15% of MSRP.
- Tesla’s expansion of global capacity is expected to support sales growth in the world’s largest electric vehicle market. “We are accelerating construction of our Shanghai factory, which we expect to be a capital efficient and rapid buildout, using many lessons learned from the Model 3 ramp in North America.” Initial forecasts announced suggested first production “will take roughly two years” and then “another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers”.
- The growth of capacity in China follows a wave of expansion, both from domestic and international companies. BYD, China’s largest EV manufacturer, is seeing demand increase for its electric vehicles with plans to open a new battery factory in Qinghai, dubbed the ‘largest in the world’.
- South Korean refiner, SK Innovation, and Lithium Werks BV, a Dutch start-up signing a $1.85bn battery storage plant deal, both look to capitalise on the trend to offer more cost competitive battery capacity in the rising EV market.
Congo coltan-levy jeopardizing industry clean-up
- The move to triple royalty payments on DRC coltan exports risks fuelling smuggling and reversing initiatives to clean up the trade, according to industry participants.
- Congo produces more than a quarter of the world’s tantalum, a scarce commodity that’s extracted from coltan ore and consumed across broad electrical and technology industries. It’s mainly sourced in the country’s east, a region riven by warring militias, and since 2010 has been subjected to an international tracking and due diligence system intended to prevent the mineral from funding conflict.
- The government’s declaration of coltan as a strategic mineral, which raises the levy on exports to 10% from 3.5%, may encourage an increase in its illegal transportation across borders to be marketed as if it had originated outside Congo, said John Kanyoni, who owns one of the country’s biggest coltan-trading businesses.
- During 2017, the Congo supplied more than 2,000t of coltan, almost all of which was dug via artisanal projects. “Increasing the levy to 10% will return the sector to informality and is a good incentive for smuggling”.
- Neighbouring countries including Rwanda, Uganda and Burundi have much lower levies on exports, which may attract traders seeking to bypass official Congolese shipment routes, said Gregory Mthembu-Salter, a former United Nations expert who has studied the industry.
- The world’s largest source of cobalt, the fundamental battery metal, has also been declared strategic. While the large-scale, fully mechanised nature of cobalt production will have less significant impact on project viability, the extra burden could encourage investors to hunt down alternative sources of cobalt in the long-term.
Dow Jones Industrials
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FTSE 350 Mining
AIM Basic Resources
US – Powell provides a bullish comment on the state of the US economy and the labour market ahead of the jobs data due later today.
- Fed Chairman highlighted that the “economy is currently performing very well overall, with srong job creation and gradually rising wages” while delivering a speech at a housing conference in Washington on Thursday.
- NFPs are due this afternoon with estimates for 198k jobs created in November and growth in labour earnings coming in at 3.1%yoy, matching the fastest pace since 2009.
- The FOMC is expected to hike rates this month by a quarter percentage point for the fourth time this year.
- On a separate note, a series of economic data released yesterday painted a mixed picture.
- Durable goods orders came in weaker than expected in October in a sign of cooling investment as stimulative effect of tax cuts fades and interest rates increase.
- On the other hand, both manufacturing and services PMIs for November month reflected resilient growth momentum.
- New business orders climbed at the quickest pace since May in the manufacturing sector while services industry continued at a strong growth rate overall, although the pace slowed to a 13 month low.
Strong dollar and rush to beat trade tariffs cause US trade deficit to hit 10-year high in October
- The law of unintended consequences has struck again with Trump tariff negotiations causing the US trade deficit to hit a 10-year high in October as importers rushed to beat potential Tariff introductions.
- Auto imports hit an all-time-high partly due to strong US demand for foreign cars and the strength of the dollar.
- The longer term trend to base manufacturing outside the US coupled with the ease of imports and strong US domestic demand is likely to continue to drive the deficit despite some reshoring since Trump came to power.
EU – European stocks rebound following heavy losses recorded through the week and hitting the lowest level in two years on Thursday.
- Technology and mining share s are leading gains.
- The Stoxx Europe 600 is up 1.2% this morning and is on its way for a 2.8% weekly decline.
- Thursday sell off marked the worst daily move since the Brexit vote aftermath with trade and growth concerns making investors re-adjusting risk exposures.
Germany – Industrial production unexpectedly fell in October setting weak background for the final quarter.
- Energy and consumer goods led the decline in the latest German production numbers with construction also being a drag.
- The report comes on top of weak Markit Manufacturing PMI data released earlier this wekk showing a loss of momentum in November as new orders contracts at the fastest pace in four years.
- Industrial Production (%mom/yoy): -0.5/1.6 v 0.1/0.7 in September and 0.3/2.1 forecast.
France – In contrast to Germany, France reported an increase in industrial production in October halting a recent disappointing trend as equipment manufacturing picked up.
- Mixed economic data from the eurozone members come less than a week ahead of the ECB next policy meeting where the central bank is due to provide guidance on the end of QE programme and future rate changes.
- Industrial Production (%mom/yoy): 1.2/-0.7 v -1.6/-1.0 in September and 0.7/-1.4 forecast.
OPEC – Brent prices are off $0.8/bbl trading sub $60/bbl as OPEC meeting finished without a deal on oil-production cuts.
- OPEC ministers will be meeting again today.
US$1.1372/eur vs 1.1333/eur yesterday Yen 112.84/$ vs 112.98/$ SAr 14.069/$ vs 13.873/$ $1.275/gbp vs $1.272/gbp 0.722/aud vs 0.723/aud CNY 6.879/$ vs 6.885/$
Gold US$1,241/oz vs US$1,236/oz yesterday
Gold ETFs 68.8moz vs US$68.8moz yesterday
Platinum US$790/oz vs US$794/oz yesterday
Palladium US$1,207/oz vs US$1,208/oz yesterday
Silver US$14.51/oz vs US$14.39/oz yesterday
Copper US$ 6,155/t vs US$6,107/t yesterday
- London copper climbed +1% on Friday as signals the US Federal Reserve could pause from raising interest rates, supporting metal recovery from its steepest slide in five weeks during the prior session. Growth went against the previous downward slide as the market contemplated the negative impact of the arrest of a top Chinese executive in China on hopes of a resolution to the US-China trade conflict.
- Investors await U.S. payrolls report due later Friday that will feed debate about the path of U.S. monetary tightening next year. The report comes after Fed Chair Jerome Powell delivered a bullish assessment of U.S. economy.
- While a pause in rising rates will support dollar-denominated commodities, the US-China trade dispute remains the most significant downside risk for the global and Chinese economic outlook. U.S. President Donald Trump said in a tweet that he agreed with a statement from China that suggested two countries have established “smooth communications and good cooperation.”
Aluminium US$ 1,952/t vs US$1,951/t yesterday
Nickel US$ 10,950/t vs US$11,035/t yesterday
Zinc US$ 2,638/t vs US$2,585/t yesterday
Lead US$ 1,993/t vs US$1,976/t yesterday
Tin US$ 18,990/t vs US$19,000/t yesterday
Oil US$59.9/bbl vs US$60.9/bbl yesterday - US becomes net oil exporter for first time in decades
- The US became a net exporter of oil for the first time in over 75 years last week.
- Net exports of crude oil and petroleum products from the country totalled 211,000 bpd in the week ended November 30, the Energy Information Administration said in a report on Thursday.
- As recently as 2005, US net oil imports averaged more than 12.5m b/d.
- Last week the US imported 7.2m bpd of crude oil and 1.6m bpd of refined products, the EIA said. It exported a record 3.2m bpd of crude and more than 5.8m bpd of products.
Natural Gas US$4.263/mmbtu vs US$4.443/mmbtu yesterday
Uranium US$28.95/lb vs US$28.95/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$63.9/t vs US$65.9/t
Chinese steel rebar 25mm US$605.2/t vs US$604.7/t
- Chinese steel futures continue tracking lower for the second day, trimming the biggest weekly gain since October, as harsh weather conditions in northern China curb industrial activity. Weakening property demand and easing supply disruptions as China’s environmental policy is expected to be more relaxed this winter are creating weak fundamentals for the steel market.
- “The bitter cold in northern China has resulted in a shutdown of construction activity in large areas, causing a gap in steel prices in northern and southern China,” Huatai Futures report.
- Market expectations of tighter steel supply have also changes as chatter emerges that Tangshan authorities are focused on managing the economy of mining waste, instead of curbing total output, according to Huatai Futures.
Thermal coal (1st year forward cif ARA) US$86.0/t vs US$85.5/t
Coking coal futures Dalian Exchange US$200.6/t vs US$200.4/t
Cobalt LME 3m US$55,000/t vs US$55,000/t
China NdPr Rare Earth Oxide US$46,520/t vs US$46,479/t
China Lithium carbonate 99% US$10,176/t vs US$10,167/t
Tungsten APT European US$275-295/mtu vs US$275-295/mtu
Strong growth in global CO2 emissions expected for 2018
- Global carbon emissions are set to hit an all-time high in 2018—according to researchers at the University of East Anglia and the Global Carbon Project.
- A projected rise of more than 2% has been driven by a solid growth in coal use for the second year in a row, and sustained growth in oil and gas use.
- The new data for 2018 reveals that global emissions from burning fossil fuels are expected to reach 37.1bn t of CO2 in 2018.
- The 10 biggest emitters in 2018 are China, the US, India, Russia, Japan, Germany, Iran, Saudi Arabia, South Korea, and Canada. The EU as a whole region of countries ranks third.
Fluoride-based battery challenges lithium for stability and stamina
- Scientists from Honda Research, along with researchers from the California Institute of Technology and NASA's Jet Propulsion Lab, announced on Thursday that they've developed a more temperature-stable fluoride-ion battery technology.
- The breakthrough could create batteries that are 10 times more energy dense than today's lithium-ion batteries.
- The batteries Honda showed today are able to operate efficiently at room temperature, whereas previous designs have required temperatures in excess of 300 degrees.
“Sun in a box” would store renewable energy for the grid
- A new conceptual design by researchers at MIT stores heat generated by excess electricity from solar or wind power in large tanks of white-hot molten silicon, and then converts the light from the glowing metal back into electricity when it’s needed.
- The researchers estimate that such a system would be vastly more affordable than lithium-ion batteries. They also estimate that the system would cost about half as much as pumped hydroelectric storage.
- This concept is a long way from any form of commercial production
Bushveld Minerals* (LON:BMN) 41.5p, Mkt Cap £467m – AIM fine for disclosure delay on exclusivity fee for material transaction relating to Vametco stake acquisition
BUY - Target Price 87p
(Bushveld Minerals now hold 74% of Vametco and 84% of Bushveld Energy it’s vanadium redox battery unit)
- Bushveld Minerals have been fined by The London Stock Exchange for a technical breach of the AIM rules.
- The fine for £700,000 is discounted to £490,000 in the event of early settlement.
- The Nomad at the time of the breach was Strand Hanson and the broker was Beaufort Securities who are now in Administration due to action by the SEC.
- The statement from the London Stock Exchange describes the rule breach in some detail.
- Bushveld Minerals shares have continued to gain value since its effective acquisition of the Vametco vanadium assets in South Africa.
- Bushveld Minerals is the second most successful share in the FTSE AIM All Share Index this year at 394% uplift and a market cap of £470m just behind Tern a cloud computing business at 622% performance and a market cap of just £35m.
- This means that Bushveld has, in all probability, made more money for investors than any other stock on the AIM market this year in terms of value creation with exceptional strong earnings and cash flow growth.
Ferro-vanadium – prices slip in China due to profit taking by traders as buyers hold back
- Ferro-vanadium prices slipped $14.4% in China to $103-108/kg yesterday on Fastmarkets MB.
- “There is still no deals done this week though we have lowered our offer prices to $121-122 per kg,” a ferro-alloy smelter, who offered at a price above $140 per kg in the previous week, told Fastmarkets.
- The price also pulled back another US$2/kg to US$120.5/kg on Asiametals.com.
- Vanadium pentoxide prices also pulled back 22.8% to 20-24/lb FOB China though the pentoxide price does move differently to ferro-vanadium.
- Fastmarkets’ price assessment for vanadium pentoxide, fob China, was assessed at $27-30 per lb on Thursday, down 8.1% from $30-32 per lb a week earlier.
- The move is not unexpected as vanadium prices have been running at extraordinarily high levels
- The ferro-vanadium market is also adjusting to higher demand for Grade 3 rebar as traders and construction companies are not able to get away with using ‘Quench & Tempered’ steel anymore due to tightened regulations and new testing procedures.
- China’s Green Shield policies have also cut out vanadium from stone coal production as well as redirected vanadium slag processing to plants outside China disrupting this source of vanadium production in the process.
Conclusion: We expect Bushveld’s earnings to continue to grow on our ferro-vanadium price assumptions. The estimates below speak for themselves.
*SP Angel act as Nomad and broker to Bushveld Minerals. *An SP Angel mining analyst and nomad have visited the Vametco in South Africa.
Condor Gold (LON:CNR) 29.5p, Mkt Cap £19.8m – Increasing land holding by 45% at La India
- Condor Gold reports that it has been granted a 45% increase in its land holdings at La India following Nicaragua’s Ministry of Energy and Mines granting a 25 year exploration and mining concession covering the 142.6km2 Las Cruces area located to the south-east of the existing La India concession.
- The newly granted area includes the Guisisil caldera, a collapsed volcanic crater, thought to overlie a porphyry intrusion which “is potentially the ‘heat engine’ and metal source that caused gold mineralisation across the entire La India Gold District”.
- “The caldera lies directly along strike from the La India Corridor, a proposed basement fracture that controls high grade epithermal veins”
- The company is planning to apply for environmental approval to undertake “low impact activities such as geological mapping, prospecting and limited trenching and drilling.” Condor Gold also plans to meet local communities and obtain access permission from local landowners.
- Welcoming the approval of the additional concession, Mark Child, Chairman and CEO of Condor Gold confirmed that “Condor's geologists have identified a major north-northeast-striking basement feeder zone through the Project (the "La India Corridor") which hosts 90% of Condor's 2.4 Moz gold resource. The feeder zone can be projected south-east into Las Cruces”.
Conclusion: The additional land is a major extension of the company’s position in the La India project which may, subject to exploration, include the source of the mineralisation which already amounts to a resource of 2.4m oz of gold. The company has previously indicated that it is aiming to increase the resource base in the area to 5m oz.
Cora Gold* (LON:CORA) 5.7p, Mkt Cap £3.1m - £550,000 equity raise
- The Company closed a £549,245 (before expenses) equity placing yesterday issuing 10,984,900 new ordinary shares at 5p.
- The proceeds will be directed towards a focused drilling programme at Sanankoro Gold Discovery targeting high grade areas of close to surface oxide mineralisation testing “starter pits” potential.
- The geological team is being re-mobilised to the site for the 2018/19 dry season (typically running from November to June).
- At Sanankoro in Southern Mali the Company has recently delineated an Exploration Target of between 30-50mt at an average grade of 1.0-1.3g/t for 1.0-2.0moz gold.
- The mineralisation has been traced to a depth of 100m most of which is hosted within easy to mine soft weathered material.
- Additionally, the Company will continue surface works at other permits in the Yanfolila and Diangounte areas to identify future drilling targets.
- Nearly a third of the placing (3,184,900 shares) has been taken up by related parties including Jonathan Foster, Paul Quirk, Lord Farmer and Geoffrey McNamara.
Conclusion: Secured funding will help the team to advance the Sanankoro Gold Discovery testing the size of high grade zones that may potentially form starter mining operations pits. It is welcome to see most of major shareholders expressing their support for the Company and taking part in the placing. The Company runs a tight budget allowing to maximise spend on exploration works including drilling and assays. We look forward to future exploration results at Sanankoro as well as other targets in the portfolio.
Cradle Arc Plc* (LON:CRA) SUSP - $4m working capital facility not completed
- Cradle Arc’s previously announced conditional agreement of a US$4m working capital facility to its 60% owned subsidiary, Leboam Holdings,which operates the Mowana mine in Botswana, has not been completed by Fujax Minerals and Energy and as a result, trading of the company’s shares has been suspended.
- “Whilst Fujax advanced the sum of US$1m to Leboam pending completion of the extended facility, it has now informed the Company that it will not permit any further drawdowns unless Leboam agrees to vary the previously agreed, but not legally binding, terms and grant security over its interest in the Mowana Copper Mine in Botswana ("Mowana" or the Mine") in respect of both the WCFE and all other indebtedness due to it by Leboam”.
- Negotiations between the company and the holders of its US$10m secured loan notes “to seek their consent to share their security over Mowana with Fujax. However, to date, such negotiations have not been progressing in a positive direction.”
- Cradle Arc’s Board is therefore “is seeking insolvency advice and, accordingly, pending clarification of the financial position, the Company has requested that the trading of its ordinary shares on AIM be suspended as soon as practicable”.
Conclusion: Cradle Arc has been bringing the Mowana mine back into production and the working capital facility was intended to help local management address operating issues and spares shortages and bring the mine up to nameplate capacity of 155tph of ore treatment. Progress towards this objective is setback by the failure to complete the working capital facility.
*SP Angel acts as Joint Broker to Cradle Arc plc
Eurasia Mining (LON:EUA) 0.64p, mkt cap £15.2m – Monchetundra licence payment terms
- Eurasia Mining reports that the Russian Federal agency, Rosnedra, has determined the one-time licence for the recently approved Monchetundra mine permit at 20.84m roubles.
- An initial 20% of the fee, 4.17m roubles, or £48,853, is payable within 30calendar days with the 80% balance “payable within 5 years of the date of the licence’s registration”.
- Eurasia Mining confirms that “is the Company's intention to the pay the initial 20% of the license payment from available funds on registration of the license. The balance is expected to be met as part of the capital development of the project.”
- The company has an Engineering Procurement, Construction and Financing (EPCF) agreement in place with Sinosteel for 85% (US$149.6m) of the expected US$176m required to develop the 1.9m oz palladium equivalent hard-rock resource in the Kola Peninsula of north-west Russia.
- Planned production rate is expected to be 130,000oz pa on a project believed, by the Directors “to be unique globally in being led by high palladium grades”
Conclusion: The award of the licence for the palladium rich Monchetundra project is a testament to Eurasia Mining’s persistence and comes at a time of buoyant palladium prices.