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Today's Market View - Global battery arms race declared in Congress hearing

Published: 10:25 15 Feb 2019 GMT

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SP Angel – Morning View – Friday 15 02 19

Global battery arms race declared in Congress hearing

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MiFID II exempt information – see disclaimer below

  

Centamin (LON:CEY) – Cote d’Ivoire resource increase

Lithium Australia (ASX:LIT) – lithium ion battery components from European project

Petropavlovsk (LON:POG) – Details on the proposed $240m Gazprombank facility

 

‘Global battery arms race’ declared in Congress hearing

  • The US has been declared as a by-stander in the global battery arms race by Benchmark Mineral Intelligence MD Simon Moore during the US 116th Congress hearing which examines the outlook for energy mineral markets.

  • Since the last testimony 14 months prior, global lithium-ion battery Megafactories have grown from 17 to 70. In terms of GWh’s capacity has exploded from 289GWh to 1,549GWh – the equivalent of  22m pure EVs.

  • The scale of growth is recognised as ‘unprecedented’, and will have a structural impact on the raw material markets which feed the growth.

  • For lithium alone, consumption specific to the battery industry is set to rise by a factor of 9. Cobalt, Nickel and graphite anodes are expected to climb 6x, 5x and 9x respectively.

  • Critical minerals have been recognised as a risk to national security with non-US nations controlling long-term, reliable supply.

  • At the mine level the US produces equivalent – nickel 0%, cobalt 0%, graphite 0% and lithium 1%

  • At the chemical level the US produces equivalent – nickel 0%, cobalt 0%, graphite 0% and lithium 7%

  • Global battery capacity currently sits at 9%.

  • However, capacity continues to be swamped by China who are expected to control 65% battery manufacturing capacity by 2028.

  • Key statistics only serve to highlight the significant control China has on the industrial power for the 21st Century auto and energy industries. Sustained and major investment is required to balance the supply chain for battery metals.

 

Analysts down after Base Resource trip to Madagascar

  • We understand the entire troop of analysts on the Base Resources Toliara site visit have succumbed to some form of severe Gastroenteritis.

  • Analysis of the condition at a leading London pathology department has yet to reveal if the condition is parasitic, bacterial or viral.

  • The infection of all 12 visitors exposes the risks taken by mining companies and their analysts and has removed much of the analytical talent out of the market this week.

  • We advise caution when approaching any of these mining analysts in case this proves to be a highly virulent viral infection.

  • The conditions has been more effective than MiFID II at taking research out of the market this week - let’s hope this does not give the MiFID authorities any ideas!

  • Fingers crossed that the illness is parasitic or bacterial otherwise much of the City may be about to go down with it.

  • Pathology results coming soon.

Conclusion: We recommend catching this bug even less than buying shares in Crusader Resources, though it’s a close thing. Fortunately our view of Base Resources and their brave management team is all together more positive.

 

Dow Jones Industrials

 

-0.41%

at

  25,439

Nikkei 225

 

-1.13%

at

  20,901

HK Hang Seng

 

-2.00%

at

  27,863

Shanghai Composite

 

-1.37%

at

   2,682

FTSE 350 Mining

 

-0.51%

at

  18,818

AIM Basic Resources

 

-0.33%

at

   2,195

 

Economics

US – Retail sales post an unexpected drop in December strengthening the case for the Fed to slowdown the pace of rate increases this year.

  • December FOMC meeting median rate projections guided for two hikes for 2019 with markets currently assuming no increases for this year.

  • “The unexpected plunge in control group retail sales in December means that Q4 GDP growth was probably nearer 2.5% annualised than the 3.1% we had pencilled in and, more worryingly, it also suggest the economy entered 2019 with less momentum than anticipated,” Capital Economics commented on the news.

  • US equity indices dipped on the news yesterday before recovering some of losses to close 0.3% down (S&P 500).

  • On a different note, President Trump agreed to support a government-funding bill that lacked money for his wall averting another damaging government shutdown.

  • However, Trump vowed to use national emergency clause to fund the $5.7bn US/Mexico border project which does not require congressional approval.

 

China – Bank lending posts a seasonal increase in January coming ahead of market expectations.

  • Broad measure of provided credit climbed CNY 4.6tn last month, up from CNY 1.6tn in December and CNY 3.3tn forecast.

  • “While we wouldn’t pin too much on a single month’s data, the latest pick-up in credit could be a sign that credit growth is starting to bottom out in response to monetary policy easing… but a recovery in lending, if sustained in the coming months, would be consistent with our expectation for growth to stabilise in the second half of this year,” Capital Economics wrote in the note today.

  • Separately, China released inflation numbers today showing consumer price growth slowed in January as lower energy prices offset a seasonal pick-up in core inflation driven by an increase in travel costs ahead of the Chinese New Year holiday.

  • While slowing inflation allows the PBoC more room for manoeuvre to ease the policy to support growth, weaker producer prices are a concern since they are highly correlated with profit growth in industry.

  • “With factory gate deflation likely to deepen in the coming months, we expect policymakers to roll out further measures to ease financial pressure on industrial firms, including cuts to benchmark lending rates,” CE wrote.

  • Aggregate Financing (bn CNY): 4,640 v 1,590 in December and 3,307 forecast.

  • CPI (%yoy): 1.7 v 1.9 in December and 1.9 forecast.

  • PPI (%yoy): 01 v 0.9 in December and 0.3 forecast.

 

Eurozone – Q4 growth came in line with estimates slowing to the weakest pace since early 2014 and half the pace recorded in 2017.

  • Q4 GDP growth rate came in at 1.2%yoy taking annual Eurozone growth to 1.8% v 2.4% posted in 2017.

  • Slowing growth momentum comes at an unfortunate moment as the ECB is considering to reduce monetary policy support for the economy.

 

UK – With a little more than 40 days left to reach an exit agreement with the EU, Theresa May suffers another parliamentary defeat (2587 v 303) over the proposed Brexit plan.

  • The vote undermines PM pledge to EU leaders to get her divorce deal approved if they grant her concessions.

  • Currently, the best case scenario looks like a delay to the scheduled March 29 deadline as opposed to a breakout without any deal.

  • The pound is rangebound this morning trading around the 1.28 level after coming off earlier in the week.

 

Currencies

US$1.1274/eur vs 1.1270/eur yesterday  Yen 110.32/$ vs 111.08/$  SAr 14.196/$ vs 14.084/$  $1.281/gbp vs $1.285/gbp  0.709/aud vs 0.712/aud  CNY 6.779/$ vs 6.769/$

 

Commodity News

Precious metals:         

Gold US$1,311/oz vs US$1,308/oz yesterday

   Gold ETFs 72.7moz vs US$72.7moz yesterday

Platinum US$784/oz vs US$787/oz yesterday

Palladium US$1,400/oz vs US$1,407/oz yesterday

Silver US$15.64/oz vs US$15.67/oz yesterday

           

Base metals:   

  • Industrial metal demand concerns continue to dominate as China’s factory-gate inflation slowed for a seventh straight month in January to its weakest pace since September 2016, raising concerns the world’s second-largest economy may see the return of deflation as domestic demand cools.

  • China's producer price index in January rose a meagre 0.1% from a year earlier, data from the National Bureau of Statistics showed, a sharp slowdown from the previous month's 0.9% increase.

  • Earnings at China's industrial firms shrank for a second straight month in December, putting pressure on policymakers to support industries hurt by slowing prices and weak factory activity.

  • Data showed prices for raw materials fell in January for the first time in over two years, swinging from an 0.8% rise in December.

  • Recent factory surveys show weakening domestic orders and shrinking business activity, with both official and private sector reports pointing to growing strains in China's manufacturing sector, a key source of growth and jobs.

  • Dampening consumption of raw materials across China will have a significant knock-on effect on metal prices, with base metals broadly falling on the data.

Copper US$ 6,135/t vs US$6,166/t yesterday

  • In a move designed to increase investment and employment in a remote area of northern Norway, the country’s Industry Ministry is reported to have granted permission for the development of a 72m tonne copper resource, reportedly the country’s largest copper ore body.

  • The development of the Nussir ASA project at Kvalsund had been opposed by reindeer herding an fishing interests.

Aluminium US$ 1,855/t vs US$1,865/t yesterday

Nickel US$ 12,150/t vs US$12,450/t yesterday

Zinc US$ 2,620/t vs US$2,614/t yesterday

Lead US$ 2,042/t vs US$2,025/t yesterday

Tin US$ 21,000/t vs US$21,050/t yesterday

           

Energy:           

Oil US$61.9/bbl vs US$61.9/bbl yesterday

Natural Gas US$2.692/mmbtu vs US$2.692/mmbtu yesterday

Uranium US$28.75/lb vs US$28.80/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$84.5/t vs US$83.9/t

Chinese steel rebar 25mm US$604.2/t vs US$607.8/t

Thermal coal (1st year forward cif ARA) US$77.3/t vs US$78.4/t

Coking coal futures Dalian Exchange US$195.1/t vs US$195.4/t

           

Other:  

Cobalt LME 3m US$31,000/t vs US$32,000/t

China NdPr Rare Earth Oxide US$45,953/t vs US$46,019/t

China Lithium carbonate 99% US$9,958/t vs US$9,972/t

China Ferro Vanadium 80% FOB US$71.0/kg vs US$70.9/kg

China Antimony Trioxide 99.5% EU US$6.9/kg vs US$6.9/kg

Tungsten APT European US$260-270/mtu unchanged from previous week

 

Battery News

Tesla launches Sentry Mode to ‘protect against break-ins and theft’

  • Following a surge of attacks targeting Tesla’s, the automaker has launched its new Sentry Mode – referring to the new 360° autopilot dashcam surveillance.

  • According to federal statistics, there was an estimated one motor vehicle theft or attempt every 40.8 seconds across the United States in 2017.

  • Today, Tesla announced that it started pushing the feature to Model 3 and Model S and Model X will follow soon.

  • The automaker explains that the system detects if someone breaks a window and activates an “alarm”, which consists of blasting the music and increasing the brightness of the screen.

  • “Sentry Mode adds a unique layer of protection to Tesla vehicles by continuously monitoring the environment around a car when it’s left unattended. When enabled, Sentry Mode enters a “Standby” state, like many home alarm systems, which uses the car’s external cameras to detect potential threats.”

  • “While no alarm system can prevent against all vehicle thefts, break-ins and threats, we hope that with Sentry Mode and our other security features, your Tesla will be even more secure.”

 

UK electric cars: Sadiq Khan and Unicef have teamed up for the LoveCleanAir summit to demand a £1.5bn fund for new electric vehicles

  • The LoveCleanAir summit, held at the Tate Modern, will bring together cabinet members, city leaders and representatives from Unicef and the NHS to discuss how to tackle air pollution.

  • UK100, a network of cities across the country, will join the mayor's calls for a £1.5bn cash injection to fund vehicle upgrades.

  • According to UK100, the fund would be used to help people and businesses make the switch from petrol and diesel to cleaner alternatives and push for a network of Low Emission Bus Zones. The network estimates the money could take nearly half a million polluting cars off the streets in the UK.

 

Better red than dread: Barrier keeps batteries safe

  • Rice University scientists have taken the next step toward the deployment of powerful, rechargeable lithium metal batteries by making them safer and simpler to manufacture.

  • The Rice lab of chemist James Tour made test cells with a coat of red phosphorus on the separator that keeps the anode and cathode electrodes apart. The phosphorus acts as a spy for management systems used to charge and monitor batteries by detecting the formation of dendrites, protrusions of lithium that can cause them to fail.

  • Lithium metal anodes charge much faster and hold about 10 times more energy by volume than common lithium-ion anodes used in just about every electronic device on the market, including cell phones and electric cars. Anodes are one of two electrodes needed for battery operation.

 

Pollutionwatch: carmakers must come clean on diesel pollution

  • European auditors have found diesel cars had been designed to pass ever tighter exhaust tests, but caused much more air pollution on our roads.

  • Some produced 50% more carbon dioxide (CO2) and more than 10 times as many nitrogen oxides (NOx). Extra CO2 affects the climate, but avoids climate taxes, and the extra NOX harms our health.

  • The EU has launched legal action against Spain, Germany, Luxembourg and the UK for not prosecuting Volkswagen for selling cars with cheat software.

 

Company News

Centamin (LON:CEY) 122.5p, Mkt Cap £1,409m – Cote d’Ivoire resource increase

  • Based on the results of its 120,000m drilling campaign in Cote d’Ivoire during 2018 Centamin has reported a doubling of its mineral resource inventory in the country.

  • At the Doropo prospect in the north-east, at a cut-off grade of 0.5g/t gold indicated resources have been increased to 50m tonnes at an average grade of 1.31g/t gold representing a 55% increase in contained gold to 2.13m oz while an inferred resource of 19mt at an average grade of 1.3g/t adds a further 0.8moz to the overall mineral endowment.

  • In terms of the total indicated and inferred resources, this represents a 30% increase in the 2.25moz reported for Doropo in 2017 as a portion of the 2017 inferred resource appears to have been upgraded to indicated level.

  • The company comments that the “Updated mineral resource sits within a 6km radius area, extends from surface to a maximum depth of 250m, suitable for open pit mining and trucking to one central processing facility”.

  • Centamin also notes the discovery of an 8km long soil geochemical anomaly, which it plans to test with drilling during 2019, at Kilosegui within the Doropo project area as well as further positive results from the Chegue, Kekeda, Hinda and Nokpa prospects. More generally, Centamin describes the Doropo licence as “largely underexplored with numerous targets identified, presenting significant resource upside potential.”

  • Commenting on the results from Doropo, where a further 55,000m of drilling is planned this year, CEO, Andrew Pardey, said that “Doropo continues to demonstrate the potential to be our next organic development project. Ongoing exploration and concurrent viability studies will further unlock the potential future scale of this project as we assess the economics against our internal project value creation criteria. The PEA is progressing well and we look forward to reporting the results to the market at the end of H2 2019”.

  • At the ABC project area in north-west Cote d’Ivoire, following 18,500m of drilling during 2018, Centamin has announced a maiden resource estimate of 20mt classed as indicated at an average grade of 1.03g/t for 0.65moz of contained gold with an additional 16mt at an average grade of 0.9g/t (0.5m contained oz) classed as inferred. The estimates use a 0.5g/t gold cut-off.

  • Activity at the ABC project concentrated on the Kona South area as well as “extending the understanding of surface geochemistry through a c.20,000 metre auger drilling programme to cover the whole of the LGC length in the Kona permit. The auger results have highlighted the strike continuity in mineralisation, plus multiple sub parallel zones along the +23km strike of the LGC [Lolosso Gold Corridor] ”.

  • Further exploration planned during 2019 includes “a 34,000 metre drill programme focussing on resource development at Kona Central and Kona South, while testing the resource extension potential between the two prospects, drill testing high priority targets along the LGC, airborne magnetic/radiometric surveying, and geochemical sampling”.

  • Mr. Pardey highlighted “The success and scale of the 2018 ABC discovery results and the reporting of the maiden Kona South resource in less than two years of active exploration, highlights the scale and quality of the Lolosso Gold Corridor and the regional generative potential of the ABC land package”. In addition to the 750km2 currently within the ABC licence area, Centamin “has an additional four permits under application”.

Conclusion: Centamin’s 2018 exploration programme in Cote d’Ivoire has resulted in a sizeable increase in its mineral resource inventory and identified the Doropo project as, potentially, a mine development opportunity. A Preliminary Economic Assessment of Doropo is expected to be available late in 2019 “ahead of a Board decision on capital allocated for development” according to the company’s CEO.

 

Lithium Australia (ASX:LIT) A$0.08, Mkt Cap A$38.0m – lithium ion battery components from European project

  • Metallurgical processing evaluation yields lithium-ion battery components from unconventional mine waste, which forms the basis of the Company’s Sadisdorf lithium/tin project in Saxony, Germany.

  • That evaluation contemplated the production of high-performance cathode powders from mica recovered from tin-mining operations. By situating a SiLeach plant the company targets local treatment of available micas, and converting the lithium chemicals produced to cathode powders.

  • The Company aim to build on the demonstration at pilot scale to combine low capital intensity with high margins to reduce European battery industry reliance on imported lithium components.

  • Through its wholly-owned subsidiary Trilithium Erzgebirge GmbH, the company will apply SiLeach technology to the project which is currently on care and maintenance. Historically, mining targeted tin veins occurring within a ‘greisen’ (altered granite), with the pervasive alteration within the graphite consisting of lithium micas.

  • The Project contains an Inferred Resource of 25 Mt @ 0.45% Li2O. Drilling completed in May 2018 highlights the potential for future resource upgrade, while indicating significant tungsten mineralisation.

  • Processing evaluation indicates the tin concentrate is considered of sufficient quality for direct sale, while the lithium concentrate is further processed hydrometallurgically using SiLeach® into lithium phosphate, with potassium sulphate as a by-product.

  • Lithium Australia are now evaluating opportunities including:

    • Value improvement via conversion to lithium-iron phosphate cathode precursor material using VSPC Ltd proprietary technology.

    • Optimisation of cassiterite (the dominant tin mineral), and zinnwaldite (lithium mica) beneficiation and recovery efficiency; and

    • Performing a SiLeach® Generation 3 pilot-plant trial on a bulk composite sample.

    • The Company consider the project warrants further investment of funds, with a preliminary feasibility study (“PFS”) now approved for implementation.

Conclusion: We remain very interest in the progress of Lithium Australia in the application of SiLeach technology to produce alternative sources of crucial battery material, and we look forward to seeing the outcome of the approved PFS.

 

Petropavlovsk (LON:POG) 8.2p, Mkt Cap £273m – Details on the proposed $240m Gazprombank facility

  • As announced in December last year, IRC signed two facility agreements with Gazprombank for a total of $240m to refinance the existing loan with ICBC as well as repay outstanding bridge loans provided by Petropavlovsk.

  • $169m will be directed towards repaying the outstanding liability under the ICBC Facility.

  • $57m to be repaid to Petropavlovsk (by 21 Mar/19) in respect of two Bridge Loans provided to IRC previously (Jun/18 and Dec/18).

  • $6m to be paid to Petropavlovsk in respect of guarantees provided under the ICBC facility.

  • Petropavlovsk is to guarantee the obligations of K&S up to an initial amount of c.$160m through a series of five guarantees over the life of the Gazprombank Facility.

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