SP Angel . Morning View . Friday 18 10 19
Miners pull back on weak Chinese GDP data
MiFID II exempt information – see disclaimer below
Evraz* (LON:EVR) – EVRAZ see Vanadium demand rising by 2.5% CAGR from 2019 – 2024 with prices supporting VRFB battery useage
Bushveld Minerals* (LON:BMN) 22.85p, Mkt Cap £256m –
Peak Resources (ASX:PEK) – Annual report highlights progress towards Ngualla development and Tees Valley rare earth refinery
Shefa Gems (LON:SEFA) – Grade report looks virtually meaningless
BHP will decide the fate of Canadian potash mine by early 2021 (FT.com)
BHP will decide by February 2021 whether or not it will go ahead with its long delayed $17bn Jansen potash project.
CEO Andrew Mackenzie signed off on $2.7bn of spending for the construction of 1km deep shafts at the site in August 2013.
BHP will have to invest another $5.3–$5.7bn to finish phase one construction of the mine (mining.com).
The global miner believes that potash prices will be much higher than present once Jansen enters the market after 2025.
Potash offers diversification for BHP, as fertilizer prices are generally not correlated with other commodities it produces like iron ore and copper.
World Poverty Day or International Day for the Eradication of Poverty yesterday
We celebrate the great men that bought poverty to the masses:
Hugo Chavez, Robert Mugabe, Chairman Mao, Joseph Stalin, Pol Pot
Reminds us of the lyrics “Well, you'll work harder, With a gun in your back, For a bowl of rice a day, Slave for soldiers, Till you starve, Then your head is skewered on a stake” Dead Kennedys, ‘Holiday in Cambiodia’.
Dow Jones Industrials +0.09% at 27,026
Nikkei 225 +0.18% at 22,493
HK Hang Seng -0.48% at 26,720
Shanghai Composite -1.32% at 2,938
FTSE 350 Mining -0.75% at 17,100
AIM Basic Resources +0.11% at 2,109
BREXIT – UK Government to vote on new EU agreed deal to leave the EU tomorrow
- The new deal followed agreement with the Irish PM, Leo Varadkar over the Irish Backstop, eg boarder arrangements which have frustrated negotiations for an acceptable deal.
- Rebel MPs are faced with the hard choice of towing the party line or being expelled from the Conservative party.
- We wonder if the 21 previously expelled Conservative MPs may be persuaded to back Johnson’s deal. A number of Labour MPs may also back the deal for the sake of a resolution.
- If the British Parliament votes down this deal then UK voters, who are extremely tired of the Brexit negotiations, will undoubtedly take their revenge on many non-supportive MPs at the next election.
- Sadly, the negotiations through the transition phase of the UK exit from Europe may be even more tortious as the Withdrawal Agreement. We can only hope the media will spare us from ongoing daily updates.
US - Expectations are for earnings to register the first decline since mid-2016, according to Refinitiv data.
- Although, earnings have been coming in better than forecast with ~83% of 63 companies in the S&P 500 that already reported their quarterlies beat estimates.
- The NY Fed ramped up auctions for short term funds in the repo market this week bringing rates down towards 1.85% levels.
- The Fed took $75bn of securities in its overnight system repo operation this Wednesday maxing out on its limits for the first time since late September.
- Overnight repo rates climbed to 2.28% on Tuesday afternoon as the additional collateral in the market generated by settlements of recent Treasury auctions increased pressure as well as unwinding of trading positions in the wake of a three-day weekend for the US bond market may also have had an impact, Bloomberg reports.
- The central bank has been watching the situation in money markets carefully following a recent liquidity squeeze recorded in September when overnight repos jumped to around 10% before the Fed stepping in and moving those back to normal level below 2%.
China – Growth slowed to the weakest since the early 1990s and lower than expected in Q3/19.
- YTD growth averaged 6.2% v 6.3% in Q2 YTD suggesting the government remains on track for the 6.0-6.5% target for 2019.
- Equities pared earlier gains after the release of the data with Hong Kong’s Hang Seng off 0.5% and mainland’s CSI 300 down 1.4%.
- On a positive note, industrial production and retail sales posted better than forecast readings in September.
- GDP (%yoy): 6.0 v 6.2 in Q2/19 and 6.1 forecast.
- GDP (YTD): 6.2 v 6.3 in Q2/19 and 6.2 forecast.
- Industrial Production (YTD): 5.6 v 5.6 in August and 5.5 forecast.
- Retail Sales (YTD): 8.2 v 8.2 in August and 8.1 forecast.
- FAI (YTD): 5.4 v 5.5 in August and 5.5 forecast.
Japan – Inflation slows in September matching lows recorded in January and February earlier this year.
- Prices fail to pick up despite the massive stimulus the central bank embarked over the years expanding the asset base by more than 4x times over 2010s.
- While weaker oil prices weighed on headline inflation last month, core inflation that excludes volatile food and oil components has also slowed in September.
- CPI (%yoy): 0.2 v 0.3 in August and 0.2 forecast.
- Core CPI (%yoy): 0.3 v 0.5 in August and 0.3 forecast.
UK/EU – PM Johnson secured the blessing from its EU partners for the deal is facing a crucial Parliament vote on Saturday.
- Should PM fail to convince lawmakers to support the current deal, the nation will be heading towards a no deal Brexit on October 31 or a third deadline extension.
- The Democratic unionist Party has already said it will not support the deal in its current form opposing to Northern Ireland being treated any differently to the rest of the UK.
Turkey/US – Erdogan announces a 120h cease fire to allow Kurdish military forces to leave the border region.
- Turkish Foreign Minister said they agreed with the US that its armed forces will control a 20m “safe zone” inside Syria.
- As part of the agreement, the US will not be enacting any additional sanctions Turkey and will lift existing ones after the 120-hour period.
- The lira surged to a one-month high on the news.
US$1.1128/eur vs 1.1087/eur yesterday. Yen 108.67/$ vs 108.83/$. SAr 14.767/$ vs 14.837/$. $1.288/gbp vs $1.282/gbp. 0.684/aud vs 0.680/aud. CNY 7.081/$ vs 7.078/$.
Gold US$1,488/oz vs US$1,489/oz yesterday – In Venezuela, Maduro says he will assign a gold mine to each state government to finance their budgets
- We are not sure who is the legitimate president of Venezuela at present but Nicolas Maduro has said he will assign a gold mine to each state government to finance their budgets.
- "I am going to proceed to deliver a gold mine … in full productive capacity, to each government, for the production of resources in convertible currency, for our people," according to Maduro
- ‘The four states which elected opposition candidates—Nueva Esparta, Mérida, Táchira and Anzoátegui—will not be assigned mines.’ (Mining Journal)
- While this might look like a green light for gold miners to rush into Venezuela we see this as a poison chalice of some toxicity.
- The last Western listed mining company that ventured into Venezuela that we know of was Rusoro Mining, a Russian led gold miner with some expertise.
- Rusoro invested >$750m into 24 Venezuelan gold mining companies between 2006-2008 but soon found itself in court with the government over Venezuela’s effective expropriation of its investments.
- The US District Court for the District of Columbia ordered the Government of Venezuela to pay ~$1bn to Rusoro.
- The Paris Court of Appeals confirmed Venezuela’s obligation to pay Rusoro at least $100m as a partial payment for its expropriated investments
Conclusion: Given the lack of confidence in anything in Venezuela and uncertainty over who is the legitimate President we would advise gold miners to avoid the region till a more legitimate and stable regime is in charge.
Gold ETFs 81.9moz vs US$81.8moz yesterday
Platinum US$887/oz vs US$883/oz yesterday
Palladium US$1,758/oz vs US$1,773/oz yesterday
Silver US$17.48/oz vs US$17.46/oz yesterday
Copper US$ 5,752/t vs US$5,737/t yesterday
Aluminium US$ 1,729/t vs US$1,725/t yesterday - Chinese aluminium production fell 1.6% in September y-o-y (Reuters)
- Ongoing outages at two key smelters are being blamed for the decline in output from the world’s top aluminium producer.
- China’s production was also down compared to a month prior, falling 2.5% from nearly 3mt in August.
- In the first nine months of 2019, China produced 26.3mt of aluminium, up 1.1% from a year earlier.
Nickel US$ 16,260/t vs US$16,255/t yesterday
Zinc US$ 2,454/t vs US$2,431/t yesterday
Lead US$ 2,200/t vs US$2,168/t yesterday
Tin US$ 17,105/t vs US$17,020/t yesterday
Oil Sector: Despite a tough capital market environment, UK equities in the Oil & Gas sector remained flat YTD (2018: -16%) wiping out September’s 8% gains
- AIM Oil & Gas indices were also flat YTD despite some volatility, yet stabilising 2018’s 13% decline
- These indices have largely tracked the oil price, and with the futures market also remaining steady
- The small/mid cap constituents of the sector are due to engage in an active year of operational activity in 2020, with a number of high impact drilling catalysts
Oil US$59.9/bbl vs US$59.2/bbl yesterday - Oil prices remained steady yesterday following a volatile week with gloomy economic data, and a reported 9.3MMbbo increase in crude oil inventories for the week to October 11.
- OPEC’s Secretary General confirmed that the OPEC+ coalition is open to discussing and possibly doing ‘whatever it takes’ to rebalance the market, following Putin’s visit to Saudi Arabia,
- U.S. crude futures were off 0.3% at $54.1/bbl on the New York Mercantile Exchange, underlining uncertainties in the global economy
- Longer term, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view
Natural Gas US$2.336/mmbtu vs US$2.304/mmbtu yesterday - A strong week for natural gas prices, reversing much of the losses in October following a less than expected build in natural gas stockpiles.
- There is one disturbance in the Gulf of Mexico with Tropical depression 16 now swirling in the Gulf and is expected to turn eastward making landfall in Louisiana and then Florida.
- The more west the storm goes the more likely it is to disrupt some natural gas installations.
Uranium US$24.90/lb vs US$24.90/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$82.5/t vs US$82.7/t
Chinese steel rebar 25mm US$555.9/t vs US$557.8/t
Thermal coal (1st year forward cif ARA) US$68.4/t vs US$68.3/t - US coal production at the lowest level per miner in eight years (Mining.com)
- Competition from lower cost natural gas and renewables has led top bankruptcies and layoffs as coal production declines.
- In the past five years, output is down 27% as power companies drastically reduce their coal use (CNBC).
- US production is expected to slide a further 10% this year.
- Wyoming is hit the hardest by this slump, accounting for 40% of the nations coal output- and coal mining employment is down 13% in the state this year.
Coking coal futures Dalian Exchange US$183.5/t vs US$183.6/t
Cobalt LME 3m US$36,000/t vs US$36,000/t
NdPr Rare Earth Oxide (China) US$44,418/t vs US$44,431/t
Lithium carbonate 99% (China) US$6,991/t vs US$6,993/t
Ferro Vanadium 80% FOB (China) US$36.7/kg vs US$36.7/kg - Ferro-vanadium prices fall 4.8% yesterday to $33.5-36.5/kgV in China (FastmarketsMB)
- Ferro-vanadium prices fell 7.1% in Pitsburg, USA, to $13-13.25/lb.
Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/kg - Antimony prices edged 0.5% higher to $6,100-6,400/t this week in Roterdam (FastmarketsMB)
Tungsten APT European US$225-245/mtu vs US$205-215/mtu
Evraz* (LON:EVR) 383p, Mkt cap £5.7bn – EVRAZ see Vanadium demand rising by 2.5% CAGR from 2019 – 2024 with prices supporting VRFB battery useage
Bushveld Minerals* (LON:BMN) 22.85p, Mkt Cap £256m –
- New corporate presentation highlights 2.4% yoy growth in steel demand in 2019 due to economic stimulus in China and strong growth in India and Vietnam.
- World steel consumption is forecasted to increase by 1.1% in 2020 over 2019, led by slower economic growth in China and at the same time robust steel demand growth in India.
- Evraz see steel demand in North America as stable.
- Coal market to remain balanced despite new capacity.
- Vanadium market returning to equilibrium with consumption rising by 10% in 2019, though production also rose by 12% in the same period according to Evraz.
- EVRAZ see demand rising by 2.5% CAGR through 2019 - 2024 due to continued rebar standard implementation in China and moderate steel consumption growth
- They also see vanadium prices supporting VRFB (vanadium-redox flow battery) usage
*SP Angel act for Bushveld Minerals, which is a major vanadium producer
Peak Resources (ASX:PEK) A$0.036, Mkt Cap A$33.0m – Annual report highlights progress towards Ngualla development and Tees Valley rare earth refinery
- Peak Resources CEO’s statement in the annual report makes interesting reading
- The report focusses on progress towards Ngualla development, securing the permits, off-take negotiations, and financing.
- Peak is also looking to develop a new Rare Earths Refinery on Teesside in the UK.
- Peak are working to secure a Special Mining License from the Government of Tanzania and have received affirmation from both the Minister of Minerals and the Mining Commission the application should
- be granted by the Cabinet in the near future.
- The company expects the Tanzanian Government to reset the framework for their mine development and operating agreements and to roll back the most difficult parts of the 2017 mining law.
- Tees Valley Refinery: Peak are investigating opportunities to enhance the refinery project including the addition of other feedstock including recycling from magnets, probably mainly wind turbine magnets which involve substantial tonnages of neodymium.
- Peak state they will be actively looking to start Front End Engineering and Design and Operations Readiness programs at the beginning of 2020 with additional support from investors or partners.
- Market Conditions: ‘all indicators suggest that critical shortages for rare earths Nd/Pr will occur in the 2022-2025 time frame’ when the Teeside plant is due to come on line.
- Rare earth supply capacity is difficult to put in place due to capital cost, technical challenges and acceptance within the market.
- Peak’s CEO expects REE pricing should exceed $100/Kg for Nd/Pr oxide with prices moving forward ahead of actual shortages as every major automotive manufacturer moves to bring in vehicles with permanent magnet (NdFeB) electric motors.
- Peak is seeking binding off-take contracts with critical rare earth consumers around the world and the contracts it secures may result in the identification of strategic partners for the Ngualla Project and Tees Valley Refinery.
Shefa Gems (LON:SEFA) – 5p, Mkt cap £8.6m - Grade report looks virtually meaningless
- Shefa Gems which is listed on the Standard List of the London Stock Exchange reported a grade estimation on its multi-gemstone projects in Northern Israel yesterday.
- Management report a first sample yielded a record Target Mineral Assemblage (‘TMA’) grade of 467 cpht (carats per hundred tonnes)
- For comparison, the aggregate results from the first five bulk samples from the northern part of Kishon Mid Reach Zone 2, as announced on 31 January 2019, was 135 cpht and the average
- TMA grade assumed in the Technical and Economic Evaluation of Zone 1 was 153 cpht.
- The second sample returned a lower grade of 39 cpht because it was taken on the upstream, less well developed, side of the main placer.
Conclusion: We find Shefa Gems RNS reports to be fascinating reading.
First, they don’t say what they are discovering other than reference to ‘multi-gemstone projects’.
We don’t know if these include diamonds but bet they would make separate announcements if anything more than a mirco diamond was discovered.
There is no reference to the potential value of the multi-gemstone mineral assemblage or the future calculation of this figure.
The company’s website presentation gives more information on the stones expected in the alluvial prospects. We note it is difficult to determine consistency of grade in alluvial deposits and are considered to be highly risky.
The presentation also shows quite a number of translucent brightly coloured gemstones, though we suspect the Mineral Assemblage is made up more of shiny pebbles than anything of serious gem-quality.
We struggle to see how this company even remotely justifies its market capitalisation.
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Richard Parlons – 0203 470 0472
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
Prince Frederick House
35-39 Maddox Street London
*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
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony