SP Angel – Morning View – Thursday 06 06 19
Pentagon sets its sights on African rare earth supply
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Pentagon sets its sights on African rare earth supply
- In efforts to establish fresh supply links, the US Department of Defense has held talks with Malawi’s Mkango Resource and other rare earth miners in a bid to secure strategic minerals and diversify reserves outside of China.
- “We are looking for any source of supply outside China. We want diversity. We don’t want a single-source producer,” Jason Nie, a material engineer with the Pentagon’s Defense Logistics Agency, said on the sidelines of the Argus U.S. Specialty Metals conference in Chicago.
- While routine DLA talks with potential suppliers form part of its due diligence, the steps do not necessarily result in purchase agreements. However, the inquiries show that the Pentagon is increasingly focused on diversifying supplies of critical minerals.
- For the current 2019 fiscal year, the DLA expects to buy rare earths on the open market (up to a maximum 416t), lithium ion battery precursors (0.02t) and tin (40t), among other strategic minerals, according to a government report and Reuters.
- Potential restrictions on Chinese rare earth exports are causing US miners to stir as prices begin to rise after being burned in the 2011 price collapse.
- “Unfortunately for us, they haven’t actually followed through,” Blue Line Corp CEO Jon Blumenthal said, referencing rising prices when China limited exports. Producers were discouraged by stiff competition from China, which sells the raw material below the cost, he said. It’s only when “there’s a crisis that people really look at it. This is really when the subject matter comes up.”
- The U.S. highlighted the urgency of securing the nation’s access to rare earths, with Commerce Secretary Wilbur Ross promising “unprecedented action” at a time when China, dominates global output, is reviewing proposals for export controls amid an escalating trade war between the two biggest economies.
- Reorganising the US supply chain is reliant on coordinated investment and development of raw material metals and alloys capacity outside of China. However, the impact becomes more significant if the ban extended to value-add rare earth fabricated products such as magnets or motors.
- Blue Line has entered into a joint venture with Lynas Corp. to build a plant in Hondo, Texas, that would be the only large producer of separated medium and heavy rare earths products outside of China. The project will help “close a critical supply chain gap” for U.S. manufacturers that use the mineral, Lynas CEO Amanda Lacaze said.
- Lynas (LYC AU), the largest producer outside of China, has been in talks with Blue Line long before the Asian nation was said to be gearing up to weaponize rare earths in its trade war with the U.S. The mineral just didn’t get much attention until President Xi Jinping’s visit to a Chinese plant that fueled speculation Beijing could potentially threaten shipments to other countries again, Blumenthal said.
- The bottom line is these projects will take several years to come online, reflecting the reality that efforts to build rare earth processing plants in the United States are still in the early stages.
- A US Commerce Department report published yesterday includes 61 specific recommendations - including low-interest loans and a buy American provision for defense companies - to increase U.S. rare earths supply. It also called for closer cooperation with U.S. allies, which dovetails with DLA’s outreach to miners in Africa and elsewhere.
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Economics
IMF warned of a potential downgrade to global growth outlook amid the US/China trade conflict in the report published ahead of the weekend’s meeting of finance ministers from the Group of 20 in Japan.
- The fund estimates the recently imposed tariffs by two countries would cut global growth by 0.3pp next year.
- When earlier tariffs are counted in, the IMF estimates a total of 0.5% hit to growth.
US – A meeting between US and Mexican officials ended with little signs of progress regarding potential tariffs.
- “Immigration discussions at the White House with representatives of Mexico have ended for the day. Progress is being made, but not nearly enough!” Trump tweeted on Wednesday.
- Negotiations are expected to resume today.
ECB – European equities are trading higher this morning on expectations the ECB will announce more stimulus during the press conference today.
- The meeting comes at the time when the RBA cut rates, the US Fed indicated an openness to ease if necessary and increasing speculation that the BoJ may add stimulus.
- The euro is up slightly against the US$ this morning trading around 1.1240
Germany – Factory orders posted a marginal gain in April with an increase in overseas orders more than compensating for weaker domestic demand.
- Factory Orders (%mom/yoy): 0.3/-5.3 v 0.8/-5.9 in March and 0.0/-5.9 forecast.
India – The central bank cut the benchmark rate by 25bp to 5.75% marking a third drop since the start of the year.
- The rate cut was widely expected and came amid slowing economic growth rate.
- The economy grew 6.8% in the year ending Mar/19 which was a five-year low.
Mexico – The peso continued its descend against the US$ as major credit rating agencies cut their estimates yesterday.
- Fitch downgraded the nation’s sovereign debt rating to BBB from BBB+ citing high debt levels at state oil company Pemex and trade tensions.
- Moody’s have also lowered its outlook on the A3 rating to negative.
- The peso weakened as much as 1.3% after the news were released.
Currencies
US$1.1227/eur vs 1.1262/eur yesterday Yen 108.20/$ vs 108.11/$ SAr 14.927/$ vs 14.757/$ $1.268/gbp vs $1.270/gbp 0.697/aud vs 0.700/aud CNY 6.914/$ vs 6.908/$