SP Angel – Morning View – Monday 13 05 19
Fresh US tariffs sting metals across the board
MiFID II exempt information – see disclaimer below
Bluejay Mining* (LON:JAY) STRONG BUY - Target Price 45p – Ordering of new machinery and training of staff for new ilmenite mine at Dundas in Greenland
Bushveld Minerals* (LON:BMN) BUY – Target price 90p from 87p – Ferro-vanadium prices stabilise in Western Europe
Strategic Minerals* (LON:SML) – Contract for the consolidation of the Redmoor mine executed
Climate-action delay cost investors over $1tr
- The latest research by the United Nations could cost companies around $1.2tr worldwide over the next 15 years if climate change isn’t tackled immediately.
- The preliminary analysis of a UN Environment Finance Incentive project brought together 20 global fund managers to measure the impact of climate change on 30,000 of the largest listed companies.
- “Investors have a central role to play in moving the world to a low-carbon future,” said Maurice Tulloch, chief executive officer of Aviva Plc, one of the participants in the project. “This collaboration shows how we can all take better decisions, for our customers and for the environment.”
- Extreme weather events, including floods, tropical cyclones, and extreme hot and cold days are already hitting business operations.
- Investors are playing an increased role to protect financial stability against climate change.
- Research will enable companies to better understand climate-related risks and opportunities, in line with the recommendations of the Task Force on Climate-related Financial Disclosures.
- Alongside governments would need to place consistently higher carbon taxes, according to a University of Cambridge policy modelling expert. That means prices of $310/t of carbon dioxide, 11 times the current levels in the European Union.
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – White House is reported to have started preparing another round of tariffs on $300bn of imports with details to be provided today.
- Lighthizer said the final decision on that has not been made yet but it would come on top of the Friday tariff rate increase to 25% from 10% on $200bn worth of Chinese imports.
- President economic adviser Larry Kudlow said Chia needed to agree to “very strong” enforcement provisions for an eventual deal while the latest White House turnaround on tariffs was driven by Beijing’s reluctance to put into law changes that had been agreed upon.
- There is a strong possibility Trump will meet Chinese President Xi Jinping at a G20 summit in Japan in late June.
- S&P futures are off 1.4% this morning while equities in Asia and Europe are also trading lower on increased trade conflict concerns.
- Copper is down 1.2% while Japanese yen, Swiss franc and US Treasuries are trading higher this morning.
- Core consumer prices inflation picked up in April coming in at 2.1%yoy, in line with market estimates, as increases in services compensated for weaker readings for goods.
Japan – The index measuring current economic activity points to a good chance the nation is in recession suggesting the government may need to delay a sales tax increase scheduled for October this year.
- The coincident index dropped to 99.6 in March from a revised 100.5 the previous month implying the “worsening” view off the economy, according to the government interpretation.
- Market estimates are for stagnation to continue through Q1/19 (+0.4%yoy) v 0.1% and 0.3% recorded in Q3/18 and Q4/18, respectively.
Germany – Market forecast a redound in growth in Q1 (+0.4%qoq) ahead of the official report in Q1/19 after growth for the single currency region topped expectations at 0.4%.
- A rebound is likely to be short-lived with a number of headwinds for economic growth present including weaker Chinese demand, disruption from new emissions tests as well as a potential of US tariffs on European car imports.
- Trump is considering levying tariffs after a “Section 232” investigation report in February, widely believed to have concluded that car and auto part imports pose a risk to national security.
- The 90-day deliberation period on European auto and auto parts imports expires this week (May 18).
- Germany is strongly exposed to the sector accounting for 57% of EU auto exports to the US.
Iran – US Secretary of State Mike Pompeo cancelled the Moscow leg of his Russia trip to fly to Brussels and hold talks with European officials amid escalating rhetoric of Iran.
- On Sunday, a senior Iranian Revolutionary guards commander said the US military presence in the Gulf used to be a serious threat but now represented a target, according to the Iranian Students’ News Agency.
- Military presence in the region were in response to intelligence about potential Iranian attacks and aimed both to deter them and to be able to respond if necessary, Pompeo said.
South Africa – The ruling ANC secured the reduced majority for the next term in the National Assembly after winning 57.5% in general elections.
- The DA won 20.8% of the vote, a 2pp drop in 2014, while far-left EFF won almost 11% of the vote, 5pp above its first election in 2014.
- The rand is off this morning amid a general sell off in emerging markets currencies as investors reduced risk over UC-China trade war escalation.
US$1.1232/eur vs 1.1229/eur last week Yen 109.69/$ vs 109.80/$ SAr 14.262/$ vs 14.255/$ $1.300/gbp vs $1.302/gbp 0.697/aud vs 0.700/aud CNY 6.856/$ vs 6.804/$
Gold US$1,283/oz vs US$1,285/oz last week
- Gold continues its retreat as the dollar advances, despite investors weigh the outlook for haven demand amid the swelling US-China trade dispute, with financial markets awaiting details of Beijing’s response to the latest round of tariffs by Washington.
- Beijing is still working on its own retaliations to last week’s move by Trump to impose a 25% tariff on more than 5,700 products.
- The latest breakdown has prompted an escalation in the standoff that looks increasingly like the International Monetary Fund and others’ worst-case scenario for a global economy already forecast to grow this year at its slowest rate since the immediate aftermath of the 2008 financial crisis.
Gold ETFs 70.3moz vs US$70.4moz last week
Platinum US$852/oz vs US$859/oz last week
- The world’s largest platinum producer is “very bullish” on both platinum and palladium, with prices moving higher because of underlying fundamentals, according to CEO Chris Griffith.
- The Company are expecting to see more substitution into platinum in the next 18 months to 2 years, driven by the large premium of palladium prices.
- The nervousness around trade wars means Chinese buyers are stepping back and waiting to see how it plays out.
- Flattening auto markets are also creating cause for concern, but increased PGM loadings per vehicle will result in higher demand.
Palladium US$1,343/oz vs US$1,309/oz last week
Silver US$14.68/oz vs US$14.79/oz last week
Copper US$ 6,086/t vs US$6,171/t last week
- Base metals broadly decline as the US-China trade standoff worsens, hurting the outlook for economic growth and raw material consumption.
- Copper and nickel led the retreat, with copper sinking towards the $6,000/t level, as the US plans to release details Monday of additional tariffs on roughly $300bn in Chinese imports, following its decision to raise levies on $200bn of goods on Friday. While China has threatened to retaliate, no details have been released.
- The LMEX Index, which tracks the six main metals, capped a fourth weekly loss last week, longest losing run in more than four months.
- Escalating trade war woes come on top of signs of a slowdown in manufacturing after a string of disappointing reports in the US, Europe and Asia, adding to demand concerns for the metals.
Aluminium US$ 1,802/t vs US$1,814/t last week
Nickel US$ 11,865/t vs US$12,015/t last week
Zinc US$ 2,617/t vs US$2,649/t last week
Lead US$ 1,810/t vs US$1,850/t last week
Tin US$ 19,380/t vs US$19,365/t last week
Oil US$71.2/bbl vs US$70.6/bbl last week
Natural Gas US$2.615/mmbtu vs US$2.589/mmbtu last week
Uranium US$24.75/lb vs US$24.95/lb last week
Iron ore 62% Fe spot (cfr Tianjin) US$92.5/t vs US$91.8/t
Chinese steel rebar 25mm US$629.4/t vs US$635.7/t
Thermal coal (1st year forward cif ARA) US$70.0/t vs US$70.5/t
Coking coal futures Dalian Exchange US$173.3/t vs US$169.0/t
Cobalt LME 3m US$34,500/t vs US$34,500/t
NdPr Rare Earth Oxide (China) US$39,164/t vs US$39,465/t
Lithium carbonate 99% (China) US$9,627/t vs US$9,701/t
Ferro Vanadium 80% FOB (China) US$48./kg vs US$49./kg
Antimony Trioxide 99.5% EU (China) US$6./kg vs US$6./kg
Tungsten APT European US$270-280/mtu vs US$270-280/mtu
New York state on track to be coal-free by 2020
- New York state is on track to close its last remaining coal-fired power plants by the end of 2020 after adopting final regulations that require state power plants to meet new, stricter CO2 emissions limits.
- The newly adopted requirements will go into effect on June 8. The stringent limits on CO2 emissions will make it virtually impossible for coal plants to continue running within the state after 2020.
- Coal is almost dead in New York as it is, currently making up less than 1% of energy production in the state, according to the New York Independent System Operator.
- There are only two remaining coal plants left in the state, and both are owned by Riesling Power. Those plants are managed by Beowulf Energy, which plans to turn the facilities into data centres, Bloomberg reports.
- Beowulf Energy’s managing director Michael Enright said in a statement that a proposed transition plan would retire the plants before the emissions deadline “while creating a viable new business and jobs in their place, using renewable energy.”
- New York first set the goal in 2016 to close its coal plants by 2020, and it now appears the state will get the job done. The state is enacting a number of measures to reach its goal of reducing greenhouse gas emissions 40% state-wide by 2030.
- New York City recently passed a bill requiring the city’s largest buildings to cut greenhouse gas emissions 40% by 2030, and 80% by 2050, believed to be the first bill of its kind in the world.
- Additionally, a group of state legislators is looking to spur EV sales in New York with a new bill designed to exempt EVs from a portion of state sales tax and registration fees.
African Battery Metals (LON:ABM) 0.48p, Mkt Cap £1.7m – Acquisition and earn-in agreement – Botswana project
- African Battery Metal enters into a Share Acquisition and Earn-in Agreement in respect of a nickel – platinum group metal opportunity in Botswana. The Company have acquired an 18.26% stake in Kalahari Key Mineral Exploration ltd, who are exploring the 100% interest Molopo Farms Complex (“MFC”) Project in south west Botswana for a total consideration of US$194,810.
- In addition, ABM has the option to earn-in a 40% direct project interest in the MFC project, by expending US$500,000 by 31 December 2020 on ground exploration, expected to include drilling of high priority targets. Upon completion, ABM will hold a total economic interest of 50.96% in the MFC project.
- Project target mineralization is Ni-PGM in the shear/feeder zone. Re-processing and re-interpretation of existing high-resolution airborne magnetic data and regional gravity data was initially used to identify target areas.
- Subsequent high-resolution airborne magnetic and electro-magnetic surveying was completed towards the end of 2018 by NRG using their Xcite methodology. Preliminary analysis of the new geophysical data has to date identified 17 conductor targets within the feeder/shear zone.
- ABM Chairman, Andrew Bell, adds “this investment is consistent with its stated policy of seeking battery metal exposure in Africa and believes that further exploration success at the MFC Project would by virtue of the potential scale have a transformative impact on the prospects of ABM”.
Bluejay Mining* (LON:JAY) 11.4p, Mkt Cap £97m – Ordering of new machinery and training of staff for new ilmenite mine at Dundas in Greenland
STRONG BUY - included in MSCI index
Target Price 45p
- Bluejay Mining report the ordering of new machinery and the training of 30 potential participants for the Dundas mine in Greenland.
- The team are working with the Greenland School of Minerals and Petroleum in the training focussing on the development of skills in the local community for operating mining machinery and the provision of local services.
- The local community are based in Qaanaaq, which is located 81km north of the Dundas project which is also close to the US Airbase at Thule.
- Feasibility Study: we are waiting on news of the Dundas Pre-Feasibility Study. We are looking for the study to confirm costs and other key metrics for the project along with a better indication of value.
- The project appears to have an amazingly consistent ilmenite resource of the world’s highest grade ilmenite.
- The resource grade upgrades further on simple screening. Further processing is shows to create a relatively pure ilmenite concentrate for processing into pigments and other titanium mineral sands products.
- The concentrate may either be sold into North America, Europe, The Middle East or to China, possibly by shipment through the much shorter North West Passage.
- Ilmenite concentrate prices remain remarkably steady at $170-189/t CIF China.
Conclusion: Bluejay continue to advance the Dundas project in Grenland with progress on the longer term training and the buying of new equipment for the project.
*The SP Angel mining analyst has visited the Dundas, Itelak ilmenite sands project in Greenland.
*SP Angel act as nomad and broker to BlueJay Mining.
Bushveld Minerals* (LON:BMN) 29p, Mkt Cap £325m – Ferro-vanadium prices stabilise in Western Europe
BUY – Target price 90p from 87p
- Vanadium prices stabilised in Western Europe late last week following recent falls.
- Ferro-vanadium prices held at $36.4-38.75/kgV in Western Europe according to FastmarketsMB.
- Despite this Ferro-Vanadium prices in China fell 12.5% to $44-47/kgV, though this is still stronger than the European price where there is relatively little buying activity.
- The lack of buying in ferro-vanadium in Europe reflects a significant downturn in economic activity caused by recession in Italy and potential recession in Germany which has been slowing in recent months.
- Despite this we are looking for Chinese prices to lead Europe higher as China better implements new regulations over the use of vanadium in new steel production.
- Last week we reported on the expansion of Bushveld Energy through its acquisition of Vanchem which combined with Bushveld’s new Mokopane mine should add significant value to the group.
Medusa Mining (ASX:MML) A$0.38, Mkt Cap A$79.0m – Production guidance upgrade
- The Company upgraded production guidance for FY19 (Jun YE) on the back of stronger mill throughput rates and better than expected feed grades.
- The forecast production range has been increased and tightened to 98-105koz, up from 90-100koz guided previously, implying a 7% increase based on the range average.
- On the back of stronger production, AISC are expected to come in at a lower end of the $1,050-1,150/oz guidance.
Strategic Minerals* (LON:SML) 1.6p, Mkt Cap £23m – Contract for the consolidation of the Redmoor mine executed
- Strategic Minerals report the execution of a binding contract for the acquisition of the balance of Cornwall Resources.
SML are paying A$5m to New Age Exploration ‘NAE’ for its 50% share of the project through a series of staged payments.
- A$2m on settlement scheduled for 30 May 2019
- A$1m on 29 November 2019
- A$1m on Net Smelter Sales arising from Redmoor production reaching A$50m
- A further A$1m on Net Smelter Sales arising from Redmoor production reaching A$100m..
- While NAE will hold charge over the company’s stake in Cornwall Resources Limited till 29th November we will consider SML to have effectively consolidated the project in full
Conclusion: The consolidation of the Redmoor project in full is a good move for SML and will better enable the project to move forward to potential development. The resource at Redmoor gives an early indication of the value of the project and we look forward to Redmoor being Cornwall’s next new tin / tungsten mine.
*SP Angel act as Nomad and broker to Strategic Minerals