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Today's Market View - Falling China auto sales offset by new energy vehicle demand

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SP Angel – Morning View – Monday 11 03 19

Falling China auto sales offset by new energy vehicle demand

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Europa Metals Limited (LON:EUZ) 0.04 pence, Mkt Cap £2.2m – Scoping study for the Toral zinc, lead, silver project in Spain

Jangada Mines (LON:JAN) 2.75 pence, Mkt Cap £6.5m – Initial drilling results from the Pitombeiras West vanadium project

Kodal Minerals* (LON:KOD) 0.16p, Mkt Cap £12.0m – Fundraise to fast track Bougouni Lithium Project development

Oriole Resources (LON:ORR) 0.375p, Mkt cap £2.6m – US$0.5m success fee from exploration success in Turkey

Polymetal International (LON:POLY) 874p, Mkt Cap £4.1bn – Annual results

Shanta Gold (LON:SHG) 5.3p, Mkt Cap £41.7m – Ilunga development ore intersected three months ahead of schedule

 

Falling China auto sales offset by new energy vehicle demand

  • China’s auto sales dropped 13.8% in February yoy, the country’s biggest auto industry association report, marking the eighth consecutive month of decline in the world's largest auto market.
  • The China Association of Automobile Manufacturers (CAAM) said sales fell to 1.48m vehicles. That followed declines of 16% in January and 13% in December.
  • By strong contrast, new energy vehicle sales climbed 53.6% yoy in February.
  • The data is backed by Chinese plans to cut billions of dollars in tax and infrastructure spending to support an economy growing at its slowest pace in almost 30 years due to softening domestic demand and a trade war with the US.
  • The government is now trying to persuade consumers to spend and has pledged subsidies to boost rural sales of some vehicles as well as the sales of new energy vehicles.
  • The dramatic growth of new energy vehicles serves to highlight the growing importance of battery metals and the requirement for sustained investment to support the growth.

 

Dow Jones Industrials

 

-0.09%

at

  25,450

Nikkei 225

 

+0.47%

at

  21,125

HK Hang Seng

 

+0.96%

at

  28,501

Shanghai Composite

 

+1.92%

at

   3,027

FTSE 350 Mining

 

-1.00%

at

  18,754

AIM Basic Resources

 

+1.11%

at

   2,148

 

Economics

US – Labour data disappointed on Friday with February NFPs underperforming even the worst of the Bloomberg estimates set leaving many questioning if it is a blip in the data series or a start of new trend.

  • The economy added 20k jobs last month coming in below estimates for a 180k reading.
  • NFP (‘000): 20 v 311 in January (revised from 304) and 180 forecast.
  • Av Hourly Earnings (%mom/yoy): 0.4/3.4 v 0.1/3.1 in January and 0.3/3.3 forecast.

 

China and US reported to agree on many critical issues

  • China and the US are reported to agree on many critical issues according to the Governor of the Peoples Bank of China ‘PBoC.
  • The US wants assurances from China that it will adhere to commitments made to the G20 not to engage in competitive currency depreciation.

China consumer price inflation slipped to the weakest in more than a year as weak price pressures point to lacklustre domestic demand.

  • Additionally, weak producer prices growth risks profits of Chinese industrial firms putting pressure on investment, employment and ultimately consumption.
  • YoY PPI change was flat at 0.1% in February but on a monthly basis prices have been falling over the past four months.
  • CPI climbed 1.5%yoy down on 1.7%yoy recorded in January and the government target of around 3.0%.

 

Germany – The government internally revised its growth outlook for 2019 (0.8% v 1.0% expected previously) for the second time in less than two months, Handelsblatt reported.

  • The revision is attributed to a weakening world growth outlook amid a continuing trade conflict between the US and China and political risks in Europe including in Brexit and Italy’s financial situation.
  • The latest forecast amounts to half the rate forecast before the January revision to 1.0% down from 1.8%.
  • New estimates also follow on heels of a downward revision in Gemany’s economy growth rates by the OECD earlier last week to 0.7% from 0.9% estimated before.

 

UK – The pound is little changed this morning as the government admits negotiations regarding changes to the latest Brexit deal are deadlocked.

  • This leaves little chance for the May deal which remains largely unchanged to succeed in a Parliament vote tomorrow.
  • While PM promised MPs a vote on the deal on Tuesday, senior Tories argued Mrs May should pull the vote to avoid another strong defeat.

EU want to charge £1bn per month for any Brexit delay

  • The move indicates that certain factions in the EU wanted the UK out of the Union all along
  • The news is also guaranteed to harden the attitude of hard-line Brexiteers to leave quickly, with or without a deal.
  • Brussels is looking for another £13.5bn if the UK seeks to extend the leaving process.

 

Turkey – The economy contracted more than forecast in Q4/18 posting the worst performance in nearly a decade in the aftermath of a severe currency crisis.

  • Turkey posts a -2.4%qoq decline in Q4 marking a second consecutive quarterly contraction which in turn means the economy is technically in a recession.
  • Consumer demand recorded a whooping 9.1%qoq drop while business investments fell 12.9%yoy during the quarter.
  • In 2018 the economy grew 2.6%yoy, broadly in line with estimates, and down on 7% recorded in 2017.

 

Venezuela – The government suspends schools and business activities while the nation’s main oil export terminal and heavy crude processing complex in Jose are shutdown amid power blackouts, Information Minister Jorge Rodriguez said on Sunday.

  • The blackout originated in the 10GW Guri hydroelectric complex and a 765kW transmission line that supplies central Venezuela. The thermoelectric plants that would have compensated for Guri’s breakdown are mostly out of service for lack of investment and maintenance.
  • While power is returning in some parts of Caracas and other areas of the country, many Venezuelans have been without power and associated water supply for more than 70 hour, Argus media reports.
  • While Maduro claimed power outages are the result of the US related cyber attacks, opposition leader Guaido called the blackout a long-foreseen “catastrophe” that will require international help to address problems across generation plants, transmission lines and substations after years of corruption.
  • Guaido convened an emergency session of the National Assembly “to take immediate actions with respect to the necessary humanitarian aid”.

 

Currencies

US$1.1247/eur vs 1.1211/eur last week  Yen 111.24/$ vs 111.07/$  SAr 14.358/$ vs 14.560/$  $1.301/gbp vs $1.310/gbp  0.705/aud vs 0.701/aud  CNY 6.725/$ vs 6.724/$

 

Commodity News

Seven new LME contracts to boost volumes

  • The London Metal Exchange launches seven new cash-settled futures contracts, including hot-rolled coil (HRC) steel, alumina and cobalt, aiming to boost volumes as profits tumbled last year.
  • The 142-year-old exchange has been losing market share to the CME Group and China’s Shanghai Futures Exchange, but aims to reverse the trend with the launch of new products which rely on recently developed new technology that makes launching new contracts easier, faster and less expensive.
  • Volumes at the LME rose 5% last year, but core profit fell by 10% in the commodities segment of its parent, Hong Kong Exchanges and Clearing Ltd, as fees were cut.
  • The LME is placing its hopes in the new HRC contract, believing it can tap into a massive global steel sector that has seen surging volumes develop in Chinese ferrous contracts.
  • The LME is launching regional HRC contracts initially covering North America and China, and later adding northern Europe.
  • The other new products are minor metal molybdenum plus two regional aluminium premium contracts for U.S. Midwest and Europe.

 

Precious metals:         

Gold US$1,297/oz vs US$1,294/oz last week

  • Gold reversed its falling trend to hold near the highest level in a week after weaker-than-expected US jobs data and Federal Jerome Powell’s comments on monetary policy.
  • While employers added 20,000 jobs in February, the fewest since September 2017, analysts said the unexpectedly low figure doesn’t mean conditions rapidly deteriorated, but pointed to the likelihood of a moderation in job gains this year as economic growth cools.
  • Federal Reserve Chairman Jerome Powell said interest rates can remain on hold as the U.S. central bank waits to see how conditions abroad evolve, signaling that there’s no clear time limit to the Fed’s current pause. “Inflation is muted and our policy rate we think is in an appropriate place,” Powell said during a CBS News interview.

   Gold ETFs 71.5moz vs US$71.7moz last week

Platinum US$815/oz vs US$817/oz last week

Palladium US$1,516/oz vs US$1,522/oz last week

Silver US$15.32/oz vs US$15.11/oz last week

           

Base metals:   

Copper US$ 6,408/t vs US$6,397/t last week

Aluminium US$ 1,872/t vs US$1,861/t last week

Nickel US$ 13,110/t vs US$13,105/t last week

Zinc US$ 2,752/t vs US$2,715/t last week

  • Zinc prices in London rebounded from the worst weekly loss in more than three months as decade-low stockpiles supported prices. LME zinc climbed as much as +1.7% as holdings in LME warehouses extended a drop to the lowest since 2007.
  • The spread between spot and future prices also widened in signal of tightening immediate supply, with the premium spot zinc contract climbing to $12.50/t against LME 3-month contract.
  • Last week, zinc fell along with most other base metals as weak Chinese trade and credit data fueled concerns about growth in the key raw material user.

Lead US$ 2,114/t vs US$2,095/t last week

Tin US$ 21,335/t vs US$21,480/t last week

           

Energy:           

Oil US$66.2/bbl vs US$65.6/bbl last week

Natural Gas US$2.805/mmbtu vs US$2.868/mmbtu last week

Uranium US$28.00/lb vs US$28.10/lb last week – US planning first new Nuclear ‘test’ reactor in the US for nearly 50 years.

  • The US Department of Energy is planning to allow construction of their first new nuclear reactor since the 1970s.
  • The project is to be managed by GE Hitachi and the Idaho National Laboratory.
  • GE Hitachi have been running a prototype of their PRISM technology which produces up to 100 times more power than current reactors per kilo of uranium fuel.
  • The reactor can also recycle spent nuclear fuel, reducing radioactive waste.
  • The reactor will be used to further advance the development of nuclear fuels and materials for the potential construction of future nuclear power stations.
  • This ‘Advanced’ reactor is seen as needing further testing from a fuel and materials perspective before licensing for utility power generation.
  • One of the processes being tested is the cooling of the reactor with other materials which can cool a reactor without the need for backup power, thus avoiding a Fukushima type or three-mile Island type accident.
  • Coolants may be molten lead, liquid sodium or certain gasses.
  • President Obama was seen as a supporter of Nuclear energy but appeared to drop the idea publicly and quite understandably after the Fukushima incident.

   

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$82.2/t vs US$84.2/t

Chinese steel rebar 25mm US$610.1/t vs US$611.8/t

Thermal coal (1st year forward cif ARA) US$76.0/t vs US$77.7/t

Coking coal futures Dalian Exchange US$196.4/t vs US$196.5/t

           

Other:  

Cobalt LME 3m US$33,000/t vs US$35,000/t

China NdPr Rare Earth Oxide US$44,835/t vs US$44,840/t

China Lithium carbonate 99% US$9,889/t vs US$9,890/t

China Ferro Vanadium 80% FOB US$74.5/kg vs US$74.5/kg

China Antimony Trioxide 99.5% EU US$6.9/kg vs US$6.8/kg

Tungsten APT European US$271-282/mtu vs US$270-280/mtu

Ferro- Vanadium prices pull back 2.3% in Western Europe to $71.5-76/kgV last week (Fastmarkets MB)

  • Ferro-vanadium prices also slipped 0.7% fob China for 78% material to $73-76/kgV.
  • Friday’s trade report indicates more material being sold at these levels in Europe than normally seen.

 

Battery News

National Grid to acquire wind and solar developer, Geronimo Energy

  • National Grid announced an agreement to acquire Geronimo Energy, a clean energy company based in Minneapolis, MN. According to the companies, National Grid has agreed to pay $100m for the transaction.
  • In addition to regulated utility operations, National Grid helps bring low carbon power to UK consumers through a portfolio of subsea interconnectors, and has a growing portfolio of renewable energy interests in the United States including battery storage, solar and offshore wind development partnerships.
  • It also plays a key role in accelerating the growth of renewables and low carbon generation across the United States and Great Britain.

 

Tesla – showrooms to show customers how to order cars online

  • Tesla is increasing prices of its electric cars after scaling back a store closure programme. The carmaker said the 3% price rise would not apply to the new mid-market Model 3.
  • Earlier this month Tesla said it would close an unspecified number of stores to fund a cut in the price of the Model 3 in the US to $35,000 (£26,400). It will now close "about half as many" stores - making half the cost savings.
  • The carmaker said that keeping more stores open would require a rise in vehicle prices by about 3% on average worldwide.
  • It has 378 stores and service locations but had not been specific about which ones would close.
  • Cars will still be available for test drives and Tesla’s returns policy of 1,000 miles or & days still applies.

 

Company News

Europa Metals Limited (LON:EUZ) 0.04 pence, Mkt Cap £2.2m – Scoping study for the Toral zinc, lead, silver project in Spain

  • Europa Metals has announced the economic results of its early stage scoping study for the possible underground development of the Toral zinc-lead-silver project in the Castilla y Leon region of Spain. The study is based on inferred resources and is described as conceptual in nature and to an accuracy of ±30%.
  • Based on an estimated capital expenditure of US$33m for “a proposed 450ktpa design capacity plant, including associated auxiliary costs, with infrastructure being situated near portal entrance on the north side of the deposit … [and an] … Estimated total CAPEX of US$110 million” the company estimates the project could deliver an NPV8% of US$110m and generate an IRR of 24.4%.
  • The scoping study envisages a 15 year production life with the possibility of further extension and estimates operating costs of US$36/t for mining and US$25/t for processing.
  • Planned work during 2019 includes further drilling to upgrade the higher grade core of the resource to indicated level, additional metallurgical testing as well as the start of environmental and hydrogeological work.

Conclusion: The Toral project scoping study is still a relatively early stage evaluation but it has identified the opportunity to move ahead, subject to financing, with further technical, hydrogeological and environmental work. We look forward to further news on the progress of the project.

 

Jangada Mines (LON:JAN) 2.75 pence, Mkt Cap £6.5m – Initial drilling results from the Pitombeiras West vanadium project

  • Jangada Mines reports results from its initial four exploration drill-holes at the Pitombeiras West vanadium project located “in close proximity to, but distinct from the PGM and nickel deposits” of its Pedra Blanca platinum project in north-eastern Brazil.
  • The drilling, totalling 300m of diamond drilling, “has confirmed the presence of a layered magnetite mineralised zone rich in vanadium, titanium and iron” and the company indicates that the geological model is “consistent with other globally significant vanadium deposits currently being exploited in the north east of Brazil”.
  • Laboratory results on further testing of the samples is expected “before the end of H1 2019.”
  • The results announced today are:
    • 9.5m averaging 0.83% vanadium pentoxide (V2O5), 10.6% titanium dioxide (TiO2) and 50% iron (Fe) from an undisclosed depth in the main mineralised zone in hole  PI07 which is included within an overall intersection of 26.5m averaging 0.5%V2O5, 6.3% TiO2 and 40% Fe; and
    • 8.25m averaging 0.83%V2O5, 12.1% TiO2 and 45% Fe in the main mineralised zone within an intersection of 46.07m averaging 0.5%V2O5, 7.6% TiO2 and 31% Fe in hole PI08; and
    • 19.0m averaging 0.81%V2O5, 11.7% TiO2 and 52% Fe within a wider intersection of 31.58m averaging 0.65%V2O5, 9.3% TiO2 and 380% Fe in hole PI09; and
    • 14.7m averaging 0.89V2O5, 12.7% TiO2 and 47% Fe contained within a 25.9m wide intersection in hole PI10 which averaged 0.63%V2O5, 9.3% TiO2 and 38% Fe
  • Executive Chairman, Brian McMaster, describing the results as “highly encouraging” pointed out that the holes drilled so far have been shallow and that the “resource potential remains open at depth and along strike”.

Conclusion: Results from the initial four holes drilled at Pitombeiras West show some encouraging grades in a promising geological environment with mineralisation remaining open both at depth and along strike although at this stage we feel that it may be premature to infer that they represent a globally significant vanadium deposit.

 

Kodal Minerals* (LON:KOD) 0.16p, Mkt Cap £12.0m – Fundraise to fast track Bougouni Lithium Project development

  • £700,000 placing (before expenses) will continue to support Kodal Minerals in its aim of rapidly advancing the Bougouni Lithium project in southern Mali, achieved via 500,000,000 new ordinary shares of 0.03125p each.
  • The fundraise will support exploration efforts at the recently upgraded JORC Mineral Resource estimate of 21.3Mt @ 1.1% Li2O, and ongoing development planning for an expected 1.5Mtpa processing plant.
  • The exploration programme will target:
    • Definition and extension drilling planned for Sogola-Baoule and Boumou with focus on extending the Mineral Resource;
    • Exploration drilling of priority targets defined by previous drilling and identification of new pegmatite veins;
    • Initial drill testing of the recently acquired Bougouni West project where initial geological reconnaissance is highlighting prospective targets.
  • Exploration efforts are expected to feed into further metallurgical test work, with an update expected by the end of Q2 2019.
  • Development plans also focus on the completion of the Environmental and Social Impact Assessment (aim lodged by end Q2 2019) and continuation of the engineering review and design working with highly experience consulting groups to complete the mining licence application by the end of Q3 2019.

Conclusion: We look forwards to the results of the exploration programme, designed to systematically test spodumene targets and maximise the JORC resource, and understanding the development work for the strategic spodumene lithium source.  

*SP Angel act as Financial Advisor and broker to Kodal Minerals. A partner at SP Angel acts as Chairman to the company.

 

Oriole Resources (LON:ORR) 0.375p, Mkt cap £2.6m – US$0.5m success fee from exploration success in Turkey

  • Oriole Resources reports that it is to receive 20 monthly instalments each of US$25,000 as a success payment from its partner, Anadolu, which has defined a JORC compliant measured, indicated and inferred resource in excess of 50,000oz of gold at the Karaagac project in Turkey thereby triggering the US$0.5m payment.
  • Anadolu has announced “a JORC-2012 compliant Indicated and Inferred resource for the Project of 348,150 oz Au and 2,832,036 oz Ag” comfortably exceeding the 50,000oz threshold required to qualify the success fee under the terms of an agreement with Anadolu announced in February 2015. That agreement committed Anadolu to spend a minimum of US$1.5m on exploration of the project over a two-years period, which was subsequently extended as a result of permitting delays.
  • Oriole Resources “has been managing the exploration and drilling programmes throughout, at Anadolu's cost”.
  • In addition, Oriole is to receive a 1.5% net-smelter return royalty on any future production from the project.
  • Oriole Resources’ CFO, Bob Smeeton, cited the agreement as “further evidence of the success of Oriole's self-funding exploration strategy that has been applied throughout our portfolio. The Company's focus on developing projects in conjunction with carefully chosen partners means that we can expose investors to significant exploration upside whilst also minimising the risk of dilution."

Conclusion: Although Oriole Resources has been shifting its emphasis to its west African projects, today’s announcement, following last week’s announcement on the royalty agreement at Muratdere, shows the company realising value from its earlier exploration projects in Turkey.

 

Polymetal International (LON:POLY) 874p, Mkt Cap £4.1bn – Annual results

  • Revenue was up 4% at $1.9bn led by stronger GE production (1,562koz GE, +9%yoy) driven by the full ramp up at Kyzyl and strong performance3 at Albazino/Amursk and Svetloye.
  • Realised gold and silver prices came off 2% and 8% during the year, respectively.
  • EBITDA climbed 5% to $780m helped by stable costs and higher production with EBITDA margin little changed at 41.4% v 41.0% in 2017.
  • TCC and AISC averaged $649/oz and $841/oz during the year (2017: $658/oz and $893/oz)
  • The Company generated $176m in FCF during the year, up on $143m delivered in FY17, after accounting for $344m in annual capex (2017: $383m).
  • Annual production guidance reiterated at 1.55mo and 1.60moz for 2019 and 2020 with output weighted towards H2 due to seasonality. TCC and AISC for 2019 are expected to come in at $600-650/oz and $800-850/oz, respectively, with the decline driven by the full ramp up of Kyzyl operations and disposal of higher cost Kapan and Okhotsk mines.
  • The Company announced a $0.31/sh final dividend representing 50% of the underlying net earnings for H2/18. This brings total FY18 dividends to $0.48/sh or $223m  equivalent to 5% yield on the last year’s average share price.

 

Shanta Gold (LON:SHG) 5.3p, Mkt Cap £41.7m – Ilunga development ore intersected three months ahead of schedule

 

  • The Company intersected Ilunga underground development ore, three months ahead of schedule, on 10th March 2019.
  • The intersect occurred as predicted in the geological model.
  • Ilunga is set to become the third underground mine supplying high grade material to the NLGM plant.
  • Ilunga is estimated to host 660kt at 5.56g/t in the underground part of mineral reserves.

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