SP Angel . Morning View . Friday 04 10 19
Gold rising as market looks for Fed rate cut. US Non-Farm Payrolls in focus
Aura Energy Limited* (LON:AURA) – “Mining Journal” highlights Tiris uranium project
Beowulf Mining* (LON:BEM) – Swedish government refuses to meet Beowulf due to ongoing government review
Gem Diamonds (LON:GEMD) – Letšeng licence renewal
Gold (US$1,509/oz) prices continue to rise on fears of recession in Europe and slower growth in China
Gold prices continue to gain on the impact of the trade war with China and new US tariffs against Europe.
Many investors have liquidated their more speculative holdings, adopting a risk-off approach to financial markets while the US toughs it out with China and the EU.
The inevitable slowdown in business confidence as the US hikes tariffs has led to destocking of industrial commodities by traders and manufacturers in China.
A weaker Chinese Renminbi has also made the import of raw materials rather more expensive for Chinese buyers who have lowered offer prices.
The Administrator for the Fanya commodities exchange has also been selling off, what we hope to be, the last of the failed exchanges metals holdings with recent sales in Antimony and Tungsten.
While it may take some time for this ‘discounted’ metal to work its way through the markets its sale should stop depressing prices in these specific metals from here.
Gold, which behaves more like a currency than an industrial metal, has a new found importance in a world where major currencies are expected to see greater volatility and unpredictability..
While President Trump is the face of the Trade War, this is a Republican policy which has significant support from their Democrat rivals, eg this is a policy that is not quickly going away till China and now the EU make significant concessions.
The whole situation has drained liquidity out of financial markets which added to the withdrawal of Deutsche Bank from equities and some other areas has left a significant hole in financial markets.
This new lack of liquidity is a further threat to a financial system where Deutsche Bank had developed a reputation for often being on the other side of derivative transactions.
Gold looks set to make further gains till the US settles the Trade war with China and the EU but base metals and other industrial minerals will likely remain under pressure.
Gold - £100,000 reward offered for Blenheim Palace gold toilet
The insurers for Blenheim Palace have offered a £100,000 reward for information leading to the safe return of a solid gold lavatory stolen from the palace.
The thieves are said to be looking somewhat Flushed but the reward should ensure the investigation is not bogged down!
Dow Jones Industrials +0.47% at 26,201
Nikkei 225 +0.32% at 21,410
HK Hang Seng -1.11% at 25,821
Shanghai Composite CLOSED
FTSE 350 Mining -0.28% at 17,140
AIM Basic Resources -0.22% at 2,118
Economics
US – Lacklustre services PMI reading fuel concerns over the US economic outlook and drive speculation the Fed likely to announce another round of rate cuts this month.
Q3 average for services PMI pointed to the weakest business activity performance across the sector since the same period three years ago.
Companies highlighted less robust client demand with new business orders pulling back to the weakest reading in the near-decade long series history.
On the back of slower demand, firms reported the first contraction in employment since February 2010 marking the sharpest decline in workforce numbers since the end of 2009.
Business confidence picked up slightly since August but remained muted around the weakest level in the series history.
On balance, the Composite PMI (51.0)registered an increase in business activity, although, it was among the weakest for over three years coupled with only marginal increase in new business orders and slight drop in employment.
“”A disappointing service sector PMI follows news of lacklustre manufacturing and means the past two months have seen one of the weakest back-to-back months expansions of business activity since 2009, sending a signal of slower GDP growth in Q3 (~1.5%),” Markit wrote.
“In this environment, companies are taking on increasingly cost-conscious approach to payrolls, with September consequently seeing surveyed firms report a net drop in headcounts for the first time since 2010… non-farm payrolls trending below 100k.”
NFPs are due later today with estimates for 145k in September, up from 130k in August, with unemployment remaining at 3.7%.
Labour earnings are expected to average 0.2/3.2% (mom/yoy) increase v 0.4/3.2 in August.
Manufacturing PMI: 51.1 v 50.3 in August.
Services PMI: 50.9 v 50.7 in August
Composite PMI: 51.0 v 50.7 in August.
UK – PM Johnson was given a week by the EU to change terms of the deal or risk another revision to Brexit.
European Council President Donald Tusk speaking by telephone to Johnson and Irish PM Leo Varadkar, said he was “unconvinced” by revised terms.
EC President Jean-Claude Juncker described them as “problematic”, and the European Parliament that has a veto over the final deal said it had “grave concerns”, Bloomberg reports.
The pound is off slightly this morning against the €.
Meanhwile, bets on stronger pound over a two-week horizon increased with some £18.3bn of vanilla options traded since Monday and option calls outweighing puts by a 1.5:1 ration, Bloomberg reports.
India – The central bank announced a fifth rate cut this year in an effort to revive economic growth and inflation expectations.
The benchmark rate is at its lowest in almost a decade now.
The central bank also lowered its GDP growth forecasts for 2019 to 6.1% from 6.9% marking a fourth downgrade this year.
GDP climbed 5% last quarter, the weakest pace in six years.
The 25bp cut to 5.15% was largely expected by markets with rupee trading (-0.2%) and the benchmark stock index trading lower (-0.7%) following the announcement.
Hong Kong – The government approved the face mask ban invoking emergency rule with violators facing up to one year of imprisonment or a maximum fine of $3,190.
The Chief Executive Carrie Lam argued the unpopular measure is meant to “end violent and restore order” in Hong Kong that was now in a very “very critical state of public danger” after four months of anti-government protests.
Ethiopia – 22 killed in clashes between regional special forces and a minority ethnic group over the last five years in the northern region of Amhara, Reuters cites a local political official.
Amhara, Ethiopia’s second-most populous province, has been a flashpoint for tensions with dozens killed, including the region’s president, in June.
Killings were linked to the Kimant Committee, a group of locally elected leaders campaigning for self-determination for the Kimant people, an ethnic sub-group in Amhara region, the representative of the new National Movement of Amhara party said.
In turn, the chairman of the committee disputed accusations saying individual members of the community were fighting back in self-defence after being targeted by the militia.
Ethnicity related violence has spiked since PM Abiy Ahmed came to power in 2018 who liberalising the political scene and releasing political prisoners.
Ethiopia is the second most populous nation in the Sub Saharan region with more than 80 ethnic groups present.
Australian drop in monthly trade surplus attributed to falling iron ore prices (AustralianMining)
Australia has experienced a drop in its monthly trade surplus to AUS$5.9bn in August, down from $7.2bn in July.
Export numbers fell $1.4bn, a 3% drop. Imports fell $137m throughout the same period.
Despite iron ore volumes increasing 15%, the value dropped 12% as the price of iron ore fell, following the price surge seen earlier in the year leading to record highs.
In July, iron ore was trading at US$123 and is now down at $92 (markets.businessinsider.com).
Currencies
US$1.0974/eur vs 1.0945/eur yesterday. Yen 106.78/$ vs 107.28/$. SAr 15.164/$ vs 15.165/$. $1.234/gbp vs $1.229/gbp. 0.676/aud vs 0.671/aud. CNY 7.148/$ vs 7.148/$.
Commodity News
Gold US$1,509/oz vs US$1,497/oz yesterday
Gold ETFs 81.3moz vs US$81.3moz yesterday
Platinum US$886/oz vs US$889/oz yesterday
Palladium US$1,663/oz vs US$1,691/oz yesterday
Silver US$17.60/oz vs US$17.56/oz yesterday
Base metals:
Copper US$ 5,625/t vs US$5,699/t yesterday
Aluminium US$ 1,722/t vs US$1,708/t yesterday
Nickel US$ 17,550/t vs US$17,570/t yesterday - Nickel stocks fall to seven year low in LME warehouses (Reuters)
Inventories fell to nearly a seven year low ahead of Indonesian export ban.
Nickel headline inventories in LME-approved warehouses dropped to 141,000t, their lowest since December 2012.
According to the International Nickel Study Group, the Indonesian export ban will remove as much as 350,000t from global supply (investingnews.com).
According to MarketsInsider, this time last year, nickel was trading at $9782/t, compared to $17,780/t today.
Zinc US$ 2,302/t vs US$2,292/t yesterday
Lead US$ 2,142/t vs US$2,103t yesterday
Tin US$ 16,420/t vs US$16,550/t yesterday
Energy:
Oil US$58.2/bbl vs US$57.5/bbl yesterday
Natural Gas US$2.341/mmbtu vs US$2.268/mmbtu yesterday
Uranium US$25.35/lb vs US$25.40/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$88.5/t vs US$88.7/t
Chinese steel rebar 25mm US$559.4/t vs US$559.4/t
Thermal coal (1st year forward cif ARA) US$65.5/t vs US$65.1/t
Coking coal futures Dalian Exchange US$181.8/t vs US$181.8/t
Other:
Cobalt LME 3m US$36,000/t vs US$36,000/t
NdPr Rare Earth Oxide (China) US$44,416/t vs US$44,416/t
Lithium carbonate 99% (China) US$6,925/t vs US$6,925/t
Ferro Vanadium 80% FOB (China) US$38.3/kg vs US$38.3/kg
Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg
Tungsten APT European US$205-215/mtu vs US$195-205/mtu
Battery News
Lithium Australia produces cathode from recycled batteries (The West Australian)
Lithium Australia revealed yesterday that its subsidiary VSPC has successfully made a “high quality cathode material” and tested it in new coin cell lithium-ion batteries.
Last month, Lithium Australia reported it generated a 99% pure lithium phosphate from spent batteries that its partner Envirostream Australia Pty Ltd had collected (smallcaps.com).
Lithium Australia’s next step will be blend the cathode material made from recycled batteries with a newly created lithium-ferro-phosphate.
The blend will then be used as the cathode in larger, commercial battery cells, and the performance of these cells will be evaluated.
Lithium Australia have previously spoken about ‘closing the loop’ by producing materials suitable for manufacturing lithium-ion batteries from old recycled batteries.
Company News
Aura Energy Limited* (LON:AURA) 0.525p, Mkt Cap £6.8m – “Mining Journal” highlights Tiris uranium project
The widely regarded mining industry publication, “Mining Journal” has published an article in its 3rd October edition entitled “Uranium: so bad, it’s good” drawing attention to a recent presentation by Aura Energy’s Chief Executive, Peter Reeve. The presentation is available on the company’s website at https://www.auraenergy.com.au/investor/ASX%20Announcements/2019/RIU%20Conference%20Presentation.pdf
The “Mining Journal” article comments on the greater underperformance of the uranium developers in comparison to the already poor performance of the wider junior resources sector and highlights Aura Energy’s Tiris uranium project in Mauritania, which is fully permitted with a completed definitive feasibility study and involves shallow mining and low capital costs compares favourably with peers in the uranium sector.
Mining Journal concludes that “At the end of September, as it happens, Aura Energy was the most undervalued of the companies covered in the analysis”.
*SP Angel act as Nomad & Broker to Aura Energy
Beowulf Mining* (LON:BEM) 6.6p, Mkt Cap £39m – Swedish government refuses to meet Beowulf due to ongoing government review
(Beowulf holds some 37.55% of Vadar with an option to invest a further £115,000, which would increase its ownership to 40.1%)
Beowulf Mining report today that the government of Sweden is unable to meet with the company to discuss its application for the Exploitation Concession license on its Kallak North iron ore project.
The refusal to meet is reported to be because the meeting "concerns a forthcoming Government decision - a dossier that is currently under preparation", and that the Government is unable to meet or comment with regard to its "ongoing review".
Beowulf recently ‘engaged a highly respected Stockholm law firm to review its Kallak application. Specifically, statements by the County Administrative Board ("CAB") for the County of Norrbotten, including the CAB's statement made in November 2017, and the Company's comments to the Government criticising that statement. The legal analysis is unequivocal, that the Company has robustly argued its case for a Concession to be awarded.’
Beowulf claims it is widely recognised that the application has been completely mishandled and the case is a focus for investors considering the feasibility of Swedish mining projects.
Conclusion: Sweden, which has a heritage in mining, makes allot of mining machinery and hosts the world’s largest underground iron ore mine at Kiruna in Lapland.
Problem is the government of Sweden has refused to explain why it has so far failed to rule on Beowulf’s application for an Exploitation license.
We believe Sweden’s failure to make a decision on Kallak has directly led to the country falling lower in its ranking as an attractive location for mining. According to the Fraser Institute, Sweden now ranks 21st out of 83 countries in the survey versus 6th in 2016 and 13th in 2015.
Sweden is keen to develop electric vehicles, Gigafactories and related advanced materials businesses and we reckon the nation will find it much easier to grow these industries if it is able to develop local raw materials supply chains locally.
Mining companies are looking to develop mines covering a number of strategic materials in Sweden with A Swedish government initiative, ‘Mining for Generations’ claiming the nation will triple mine production by 2025 creating 50,000 new jobs as part of a strategy to ensure long-term sustainable growth while taking ecological, social, and cultural aspects into consideration.
*SP Angel acts as nomad and broker to Beowulf Mining
Gem Diamonds (LON:GEMD) 72p, Mkt Cap £100m –Letšeng licence renewal
Gem Diamonds reports the renewal of the mining licence at its 70% owned Letšeng diamond mine in Lesotho for a further 10 years with an exclusive right for a further 10 years renewal.
The renewal contains modifications to the terms with the royalty on diamond production increasing from 8% to 10% although “The royalty may be remitted in whole or in part in the event that Letšeng embarks upon any material capital project”.
We interpret the provision for waiving the royalty as thinly-veiled encouragement by the Government for the continuing development and possible expansion of the mine.
The announcement also says that the number of available work permits for foreign nationals will be increased “in order to fill any skills gap at the mining operations”.
CEO, Clifford Elphick welcomed the lease renewal as an opportunity which “will allow the Letšeng mine to continue to make a very significant economic and social contribution to the people of Lesotho” and looked forward to working with the Lesotho Government on “shared value creation long into the future."
Despite the widely reported current weakness in diamond prices Letšeng is somewhat insulated with a track record of producing particularly valuable diamonds. The half-year results reported in September highlighted that the mine had recovered 3 diamonds in excess of 100 carats in size during the six months ended 30th June and that the sale of a single 13.3 carat pink gem diamond realised US$8.8m achieving a record US$656,934 per carat.
Analysts
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Sales
Richard Parlons – 0203 470 0472
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
SP Angel
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*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.
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