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Today's Market View - Weak US economic data raises chances of a July rate cut

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SP Angel – Morning View – Thursday 04 07 19

Weak US economic data raises chances of a July rate cut

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MiFID II exempt information – see disclaimer below

Apollo Minerals (ASX:AON) – Permitting perils in the Pyrenees

Bluebird Merchant Ventures* (LON:BMV) – Permitting update on Gubong

ARC Minerals* (LON:ARCM) – New priority target identified at West Lunga

Mkango Resources* (LON:MKA) – Exploration commencement on Thambani uranium licence

 

Dow Jones Industrials

 

+0.67%

at

  26,966

Nikkei 225

 

+0.30%

at

  21,702

HK Hang Seng

 

-0.09%

at

  28,831

Shanghai Composite

 

-0.33%

at

   3,005

FTSE 350 Mining

 

-1.05%

at

  20,685

AIM Basic Resources

 

+0.97%

at

   2,067

 

Economics

US – Markets are closed as the nation celebrates the Independence Day.

  • Services sector growth climbed in June from the three year low seen in May, although the pace of expansion remained modest.
  • Domestic and external demand conditions improved slightly in June while business confidence weakened in June with the level of positive sentiment down at the lowest since Jun/16.
  • “An improvement in service sector growth provides little cause for cheer, as the survey data still indicate a sharp slowing in the pace of economic growth in the second quarter… (to) an annualised rate of 1.5% (3.1% in Q1),” Markit said.
  • “Trade wars and geopolitical concerns topped the list of companies’ worries about the year ahead alongside forecasts of slower economic growth… progress in US-China trade talks could therefore be key to helping lift confidence in coming months.”
  • On a separate note, factory orders fell more than expected in May and the April reading has been revised down with a 28.2%mom (-39.3%mom) drop in civilian aircraft amid a reduction in the production of Boeing’s 737 MAX.
  • Jobs report is due this Friday with estimates for a 160k reading in June, rebounding from 75k in May.
  • Trump accused the EU and China of currency manipulation on Wednesday leaving many questioning how lasting the latest truce between major trading partners would last.
  • “China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA… we should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games,” President Trump tweeted on Wednesday.
  • Markit Services PMI: 51.5 v 50.7 flash and 50.9 in May.
  • Factory Orders (%mom): -0.7 v -1.2 (down from -0.8) in May and -0.6 forecast.

 

UK – Car registrations are down 4.9%%yoy in June, marking the fourth consecutive decline, and off 3.4% in H1/19.

  • The decline is led by “ongoing confusion over low emission zones and diesel, the removal of key ultra low emission vehicle incentives and an overall decline in buyer confidence,” the Society of Motor Manufacturers and Traders said.
  • Diesel engines sales dropped 20.5%yoy in June and 19.4% YTD.
  • Plug in hybrid sales were down by a massive 50.4% last month with YTD sales off 29.6% on the back of Government’s removal of the grant for such vehicles.
  • On a positive side, EV registrations climbed 61.7% in June and 60.3% YTD.

 

Italy – Italy avoided a disciplinary process from the EU overrising debt levels as the government promises to cut the budget deficit over the next two years.

  • The European Commission said Rome committed to achieving another structural deficit reduction in 2020, as it had done for 2019 amid its latest measures ensuring lower spending and higher revenues.
  • Italy cut its 2019 budget deficit estimates by €7bn versus its April target releasing an updated figure on Monday.
  • The headline deficit is forecast at 2.04% this year.
  • The spread over 10y Bunds narrowed to 201bp, the lowest level in a year, on the back of the news.

 

Turkey – The US remains determined to impose sanctions on Turkey and remove it from the fighter jet programme should the NATO ally receive Russian air defence systems.

  • Turkey is set to accept a delivery of Russian S-400 air defence system in the coming days.
  • While it appeared that Trump and Erdogan managed to reach an agreement during the G20 summit that would allow Ankara to dodge sanctions, the Pentagon spokesperson said that the US stance has not changed.
  • “Turkey’s purchase of the Russia S-400 air and missile defence system is incompatible with the F-35 programme… Turkey will not be permitted to have both systems,” Pentagon representative said.
  • Erdogan called the suggested withdrawal “robbery” as Turkey has already paid $1.4bn for F-35s.
  • Despite the news, the lira is up this morning on the back of earlier reports of slowing inflation.

 

South Africa – Business confidence climbed in June, but remained below levels from a year ago on the back of weak economic data and power blackouts in H1/19, the African Chamber of Commerce and Industry said yesterday.

  • The index came in at 93.3 v 93.0 in May and not far off the three decade low 89.6 recorded in Aug/17.

 

Zimbabwe – Mineral production is set to drop on power cuts this year, Bloomberg quotes IH Securities’ report.

  • Since April, Zimbabwe has introduced rolling black outs lasting around 18h per da.
  • The nation has an installed capacity of 2.1GW but is generating an average of 1GW.
  • Further pressure on the currency is expected to remain with the country’s mineral exports accounting for more than half of FX earnings.

 

Currencies

US$1.1283/eur vs 1.1272/eur yesterday.  Yen 107.82/$ vs 107.66/$.  SAr 14.039/$ vs 14.131/$.  $1.258/gbp vs $1.257/gbp.  0.703/aud vs 0.699/aud.  CNY 6.873/$ vs  6.892/$.

 

Commodity News

Precious metals:         

Gold US$1,414/oz vs S$1,403/oz yesterday

   Gold ETFs 74.2moz vs US$74.3moz yesterday

Platinum US$838/oz vs US$833/oz yesterday

Palladium US$1,563/oz vs US$1,559/oz yesterday

Silver US$15.24/oz vs US$15.24/oz yesterday

           

Base metals:   

Copper US$ 5,913/t vs US$5,896/t yesterday

Aluminium US$ 1,791/t vs US$1,776/t yesterday

Nickel US$ 12,335/t vs US$12,090/t yesterday

Zinc US$ 2,450/t vs US$2,469/t yesterday

Lead US$ 1,890/t vs US$1,891/t yesterday

Tin US$ 18,215/t vs US$17,665/t yesterday

           

Energy:           

Oil US$63.1/bbl vs US$62.8/bbl yesterday

Natural Gas US$2.277/mmbtu vs US$2.250/mmbtu yesterday

Uranium US$24.50/lb vs US$24.55/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$116.0/t vs US$117.4/t

Chinese steel rebar 25mm US$620.9/t vs US$625.6/t

Thermal coal (1st year forward cif ARA) US$64.6/t vs US$63.9/t

Coking coal futures Dalian Exchange US$207.8/t vs US$205.7/t

           

Other:  

Cobalt LME 3m US$29,000/t vs US$29,000/t

NdPr Rare Earth Oxide (China) US$50,166/t vs US$50,207/t

Lithium carbonate 99% (China) US$9,306/t vs US$9,314/t

Ferro Vanadium 80% FOB (China) US$37.1/kg vs US$37.5/kg

Antimony Trioxide 99.5% EU (China) US$5.6/kg vs US$5.6/kg

Tungsten APT European US$250-255/mtu vs US$250-255/mtu

*Pricing sourced from Bloomberg

 

Battery News

 

Company News

Apollo Minerals (ASX:AON) A$0.076, Mkt Cap A$12.8m – Permitting perils in the Pyrenees

  • Apollo Minerals has released an announcement to the Australian Stock Exchange confirming that the French State intends to appeal the decision of an Administrative Court to cancel the company’s Couflens exploration licence which includes the historic Salau tungsten mine located in the French Pyrenees.
  • The company’s announcement provides the following background to the legal exchange and explains the involvement of the French State; “The court case was lodged by a group of opposition parties against the French State (specifically the Ministry of Economy and Finance which is responsible for the mining sector). As the legal challenge was against the French State, the Company was an interested party and not directly involved in the proceedings although it did provide supporting arguments for the French State in defence of the case.”
  • Appollo Minerals goes on to express its extreme disappointment at the outcome ”despite the strong evidence in favour of maintaining the validity of the Couflens PER which was presented by the Head of the Mining Department of the French State during the Court hearing”.
  • The company’s announcement also quotes the French State itself saying “Given the importance of this project for the vitality of the Salat valley in Ariege and the security of tungsten supplies, a stay of execution of the cancellation decision will also be requested.”
  • The company reports its intention to defend its position in relation to the decision and confirms that it has met the “French State to determine the appropriate next steps to defend its position”.

Conclusion: Whatever the ultimate outcome, the decision of the Administrative Court in opposition to the French State can only slow the permitting process for the Couflens tungsten project. Tungsten remains on the European Commission’s list of critical raw materials.

 

Bluebird Merchant Ventures* (LON:BMV) 1.9p, Mkt Cap £7.0m – Permitting update on Gubong

(Bluebird hold 50% of the Gubong and Kochang licenses in jv with Southern Gold Ltd)

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  • Bluebird Merchant Ventures has provided a progress report on its Gubong permit application where it is working to reopen an historic mine credited as being “the second largest producing gold mine in South Korea until its closure in 1971”.
  • The company had expected the relevant permits to be granted by the end of June, however, the timetable has slipped slightly “due to a change in the Counter Measure Against Natural Disasters Act, which had a section pertaining to mining which potentially allowed for multiple interpretations.  The Company has since lobbied the Ministry Interior and Safety for an official favourable interpretation to be given”.
  • The company reports today that, with the support of a number of official bodies, including “the Ministry of Trade, Industry and Energy (MOTIE), Korea Resource Corporation (KORES) and Korea Institute of Geoscience and Mineral Resources (KIGAM) as well as related law reform think tanks …  This [lobbying] action was successful and the proclamation is in the process of being distributed to all government departments”.
  • The approval process now requires consideration by a one-day long central government administrative panel which is “currently scheduled to take place in August 2019”.
  • Commenting on the permitting process and the slight procedural delay in the Gubong application, CEO, Colin Patterson, said “I am pleased the authorities in South Korea continue to be supportive of reviving the mining industry and that our projects are central to that objective … [and he also said that] … The process we have experienced thus far has been so much faster than I have ever seen in four decades in the mining industry”.
  • Today’s announcement also refers to the working capital implications of the slower than expected permitting process, saying that “Management have consistently been the largest investor to date in Bluebird.  As such, the Company expects to put in place sufficient debt funding provided by management, alongside several significant shareholders, in order to bridge the gap until permits are issued”.

Conclusion: Changes to South Korean legislation have resulted in a slight delay to the permitting required for the re-opening of the Gubong gold mine, however, with the support of government and other agencies the next stage of the process is expected in August. In the meantime, any additional working capital requirement arising from the changed permitting timetable are expected to be funded by management loans.

*SP Angel act as broker to Bluebird Merchant Ventures

 

ARC Minerals* (LON:ARCM) 3.625p, Mkt Cap £25.6m – New priority target identified at West Lunga

  • Arc Minerals reports that it has identified a 6km long exploration target “defined by anomalous copper” at its West Lunga project in Zambia.
  • The potential of the area has been identified as a result of regional soil sampling of eight “high priority areas identified within the licences”.
  • Bedrock in the West Lunga area is poorly exposed but the combination of aeromagnetic data showing “a fault bound basin within the lower parts of the Nguba Group, with the inferred prospective unit being fault bound on its southeast and southwest margins” and the fact that the Nguba Group rocks form the host to other copper deposits within the Central African Copper Belt, including the large Kamoa deposit in the DRC, highlights the exploration potential of West Lunga.
  • Executive Chairman, Nick von Schirnding, commented that “This development means we are going to review the ranking of our 14 priority drill targets and it is likely that we will prioritise West Lunga as one of our highest priority targets.”

Conclusion:  The identification of a large geochemical copper anomaly in conjunction with airborne geophysical data, a favourable structural geological and lithological setting analogous to known discoveries within the wider Central African Copper Belt is prompting Arc Minerals to reassess its exploration priorities with West Lunga likely to assume considerably greater prominence. We await the outcome of the review of priority targets with interest.

*SP Angel acts as nomad and broker to Arc Minerals.

 

Mkango Resources* (LON:MKA) 8.6p, Mkt Cap £9.9m – Exploration commencement on Thambani uranium licence

  • Mkango Resource has announced that it has been granted a 869km2 prospecting licence in the Mchinji district located close to the Zambian border and east of Lilongwe in Malawi. The licence is awarded for an initial three-years term and is eligible for two further renewals, each of two years, “with a 50% reduction in the licence size required with each renewal”.
  • The company comments that the new licence “is adjacent to licences with known mineral potential including the Company's Chimimbe Hill nickel-cobalt licence to the south”.
  • The company’s initial exploration work on the new licence will reassess historical data on the area “the context of geophysical data produced by a countrywide airborne survey completed by the World Bank in 2016” with a focus on the potential for “nickel-cobalt, gold, base metals and graphite”.
  • Alexander Lemon, President of Mkango Resources welcomed the award of the new licence  which he said “strengthens the Company's strategic licence position in Malawi”.
  • The company confirms that the “feasibility study for the Songwe Hill Rare Earths project continues in parallel, fully funded by strategic partner, Talaxis Limited, a subsidiary of Noble Group”.

Conclusion: The award of a new exploration licence underlines Mkango Resources’ credentials in Malawi where it has been working for a number of years. With the feasibility study on  its flagship Songwe Hill rare earths project fully funded by Talaxis, Mkango appears to be expanding its efforts to other projects harnessing its know-how as an explorer in Malawi.

*SP Angel act as Nomad and broker to Mkango Resources. The analyst has visited the Songwe Hill exploration site.

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

James Mills -0203 470 0486

 

Sales

Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

 

Sources of commodity prices

 

Gold, Platinum, Palladium, Silver

BGNL (Bloomberg Generic Composite rate, London)

Gold ETFs, Steel

Bloomberg

Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt

LME

Oil Brent

ICE

Natural Gas, Uranium, Iron Ore

NYMEX

Thermal Coal

Bloomberg OTC Composite

Coking Coal

DCE

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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