SP Angel . Morning View . Wednesday 18 12 19
Inflation threatens through 2020 as policymakers extend QE
MiFID II exempt information – see disclaimer below
Anglo American (LON:AAL) – De Beers diamond sales
Centamin (LON:CEY) – Limited progress on the Endeavour Mining offer
Cora Gold* (LON:CORA) – Sanankoro Scoping Study update
Europa Metals Limited (LON:EUZ) – Metallurgical results from Toral zinc, lead, silver project in Spain
Rainbow Rare Earths (LON:RBW) – Drilling highlights high-grade Rare Earth from surface
Renascor Resources Ltd (ASX:RNU) – BUY, Valuation A$0.09/s – Joint Development Agreement with Battery Anode Company
Vast Resources* (LON:VAST) – Atlas convertible facility update
Copper and palladium to lead commodities as markets get ready for risk-on in new year
Normally ‘hedgies’, CTAs and other fund managers go ‘Risk-off’ in the run-up to Christmas as they lock in profits and bank their bonuses.
This year feels very different. Many hedgies and CTAs made their money in the first half, banked the profit and sat on their hands as Trump tweets on the Trade War unsettled markets.
While many have gone on vacation, commodity markets continue to march forward with ‘Risk-on’ attitude
Copper is driven by ongoing falls in warehouse inventories while buyers of palladium are hit by supply tightness caused by ESKOM Load-shedding hitting the big PGM mines in South Africa.
Forbes magazine declares ‘Lock up your Prius’ as the hybrid with the thickest coating of palladium in its catalytic converter to reduce emissions and help preserve the Prius’ green credentials.
Automakers have been thrifting on Platinum and palladium for years almost daring each other to try the thinnest coating they could get away with before they failed the emissions tests.
Now automakers should be chucking more platinum and palladium in to make sure their catalysts really do perform as they should in the real world where your granny is a bit slow with the gear change and your kids are revving the pistons out of their cylinders..
Car consumers are faced with a difficult choice:
Petrol – improvements in emissions will give newer engines a longer lease of life but more tax is likely to come
Hybrid – you are carrying two sets of everything creating more problems to fix, greater weight and lower fuel economy. Works well for Uber drivers.
Fuel cells – new developments in fuel cell technology are making fuel cells a more realistic option but you need live near a hydrogen network which is ok in parts of Japan and the US
Battery – probably the only real long-term choice as battery technology improves. The best reasons to by a Battery EV is its lower running costs, reliability and near-zero emissions
We see sales of differing types of vehicles as directing metals demand and prices through 2020 with the market closely watching auto stats from China, the US and Europe.
Improvements in the quality of materials being input into battery anodes and other components along with better quality mass production should give Battery EVs an increasing advantage.
We therefore see significant potential for copper, graphite, nickel and lithium prices to go better based on rising sales for electric vehicles in future years.
Mining is messy – or is it?
Maclean’s the Canadian publication report:
“Lithium could help us ditch fossil fuels, But mining is messy.”
They have a point when it comes to the development of hundreds of hectares evaporation ponds though these are located far away in the high desert of the Atacama in Chile, Bolivia and Argentina.
Canada is no stranger to messy mining with the mining of Tar Sands for oil extraction ranking as one of the worst abusers of the environment since Saddam Hussein deliberately set fire to Iraq’s oil fields.
But in reality most lithium is now mined from hard-rock spodumene and the mine sites should rehabilitate relatively easily with many becoming useful sites from a recreational and social perspective if rehabilitated.
We once visited an old tin mine where the flooded pit had become a centre for water skiing and the mountain of tailings supported trails for mountain biking, trail biking, hiking and viewing of the local scenery and was probably the most popular recreational site in the region.
So when people say ‘mining is messy’ what they should say is, some mining is messy while other mining is often socially and sometimes even environmentally beneficial.
Electric Vehicles really are cleaner
The Guardian newspaper, that bastion of Socialist journalism which has a remarkably good business section recently said “Yes, electric vehicles really are better than fossil fuel burners”
https://www.theguardian.com/environment/2019/nov/26/yes-electric-vehicles-really-are-better-than-fossil-fuel-burners
Even VW’s own lifecycle analysis based on company-specific data shows that VW EVs are better than diesels.
William Todts, a director of Transport & Environment, makes the point that ‘thanks to the rise of unconventional oil, it is getting dirtier’.
He also states ‘we know how to make power clean and we’re making rapid progress towards exactly that.’
As the Nobel prize committee said “Lithium-ion batteries have revolutionised our lives since they first entered the market in 1991. They have laid the foundation of a wireless, fossil fuel-free society, and are of the greatest benefit to humankind.”.
Fiat Chrysler and Peugeot to merge in US$46bn deal
The merger of Fiat Chrysler appears symptomatic of the desire to get stronger and larger ahead of the move to Electric Vehicles.
While shepherds watch’d their stocks by night,
All seated on the ground,
The angel of Syrah came down,
And graphite reigned all around.
“Fear not,” said Syrah, for mighty dread
Had seized the graphite market;
“Glad tidings of great supply I bring
To you and all mankind.”
“To you, in Chinese towns this day,
Is graphite from Syrah’s production line
The Offtaker said ‘Christ the Lord’,
And this shall be our last signing
The heav’nly spherical graphite we do not find
To human view displayed,
All meanly wrapped in one tonne bags,
And at an offtaker laid.”
Thus spake the Syrah ceo, and forthwith
Appeared a shining throng
Of Aussie brokers praising their God, who thus
Addressed their joyful song:
“All glory be to Syrah on high
And on the earth be peace.
Goodwill henceforth from China to men
Begin and never cease.”
Alas the story does not here end as Syrah sells it stock
With poor investors buying in
Their brokers on the hock
As production slows in poor demand
and cash flow falls all around
And so the Chairman of the Board came down and sacked those on the ground.
Dow Jones Industrials +0.11% at 28,267
Nikkei 225 -0.55% at 23,934
HK Hang Seng +0.15% at 27,884
Shanghai Composite -0.18% at 3,017
FTSE 350 Mining +0.05% at 18,999
AIM Basic Resources +0.14% at 2,033
Economics
US - Inflation threat looms next year as fiscal and monetary stimulus ramped up
Fed Chairman Jerome Powell has said that he won’t hike rates again until inflation moves significantly, as the Fed left its benchmark interest rate unchanged last week.
Powell said he would be anticipating “a significant move up in inflation that’s also persistent before raising rates to address inflation concerns.”
Monetary and fiscal policy, and an encouraging economic outlook for next year increases the likelihood of inflation rates rising.
CPI is running at 2.1% annually according to the latest data reported by the Bureau of Labor Statistics on Wednesday.
Monthly liquidity injections are a similar magnitude to previous rounds of quantitative easing, and the Fed’s balance sheet has been growing at a 28% rate, which although may lead to higher stock prices, could lead to higher commodity and consumer prices as well.
US – housing market regains steam as future home construction surges to 12 year high
Housing starts rose 3.2% to a seasonally adjusted annual rate of 1.365 million units last month.
The continued strength of the in housing activity suggested that the economy remains on a moderate growth path despite slowing consumer spending and a weak manufacturing sector.
Overall housing starts jumped 13.6% on a year-on-year basis in November. Building permits increased 1.4% to a rate of 1.482 million units in November, the highest level since May 2007.
Single-family homebuilding accounts for the largest share of housing market, and grew 2.4% to a rate of 938,000 units in November, whilst multi-family homebuilding was up 4.9%.
The housing market is gaining momentum as the Fed cut interest rates three times this year, pushing down mortgage rates from last year's multi-year highs.
A survey on Monday showed confidence among homebuilders jumped in December to the highest level since June 1999.
The 30-year fixed mortgage rate has risen to 3.73% from a year-low of 3.49% in early September, but is still below its peak of 4.94% in November 2018.
US – Equities closed higher yesterday amid positive US/China trade talks momentum as well as stronger than expected industrial production and housing data.
President Trump impeachment inquiry will be up for a vote in the house of representatives today involving two articles that would likely set up a January trial in Senate.
With the Senate controlled by Republicans and for the impeachment vote needing 2/3s of members to support the motion, expectations are for Trump to be acquitted once the vote goes to the Senate in January.
House votes are expected in the late afternoon, most likely between 4pm and 6pm (ET), according to the New York Times.
Two Fed policymakers on Tuesday supported the FOMC decision to leave rates on hold while suggesting that the bar to cutting or raising them would be high.
Industrial Production (%mom): 1.1 v -0.9 (revised from -0.8) in October and 0.9 forecast.
Housing Starts (%mom): 3.2 v 4.5 (revised from 3.8) in October and 2.4 forecast.
Building Permits (%mom): 1.4 v 5.0 in October and -3.5 forecast.
Japan – Trade, a major contributor to the national GDP, remains weak with November data showing further declines in both export and imports.
Imports were particularly hit hard as local consumer slowed purchases amid a hike in sales tax in October.
Weak consumer demand in durable goods such as autos and mobile phones weighed on imports.
As an indication of slowing global growth, imports of semiconductor parts that went down may reflect weaker demand for materials used for exports, Bloomberg reports.
Exports (%yoy): -7.9 v -9.2 in October and -8.9 forecast.
Imports (%yoy): -15.7 v -14.8 in October and -12.8 forecast.
Germany – Business confidence posted another increase in the sentiment gauge recovering from slowly recovering from multi year lows recorded in Q3/19.
Stabilisation and slight improvement in sentiment suggests the nation’s economic outlook is gradually getting brighter.
IFO Business Climate: 96.3 v 95.1 (revised from 95.0) in November and 95.5 forecast.
UK – Brexit withdrawal legislation due to be presented later this week is widely expected to rule out any extension of Brexit transition from the end of 2020.
The pound is flat this morning against the US$ after giving up most of its Thursday Parliamentary elections related gains.
Employment data released yesterday showed the labour market is in good shape with unemployment rate at a multi-decade low of 3.8% with earnings rising at healthy 3.2%yoy in three months through October, down on 3.4%yoy forecast.
CPI numbers out this morning showed inflation is well contained at 1.5% and 1.7% for headline and core measures, respectively.
This in turn suggests the BoE is likely to stay put tomorrow leaving benchmark rates unchanged.
Currencies
US$1.1137/eur vs 1.1137/eur yesterday. Yen 109.43/$ vs 109.61/$. SAr 14.385/$ vs 14.399/$. $1.312/gbp vs $1.322/gbp. 0.685/aud vs 0.685/aud. CNY 6.997/$ vs 6.999/$.
Commodity News
Gold US$1,479/oz vs US$1,478/oz yesterday
Gold ETFs 80.9moz vs US$80.9moz yesterday
Platinum US$931/oz vs US$930/oz yesterday
Palladium US$1,939/oz vs US$1,994/oz yesterday - Palladium hits $2,000/oz for the first time (mining.com)
Spot palladium hit $2,000.35/oz, before dropping to $1,947.07/oz yesterday.
The autocatalyst metal has gained nearly 60% this year, and risen recently due to power outages in Southern Africa slowing down PGM mining operations.
The price increase has been driven by a sustained supply deficit, however the price is thought to have pulled back as ‘profit taking’ emerged.
Silver US$17.05/oz vs US$17.07/oz yesterday
Base metals:
Copper US$ 6,157/t vs US$6,207/t yesterday – another 1,400t leaves LME warehouses with a further 5,125t of cancelled warrants.
While we have to be careful with the cancelled warrant data it does indicate potential for this material to also leave the LME in short order, though sometimes warrant stock cancellations can relate to changes in the financing of copper stock.
Aluminium US$ 1,770/t vs US$1,771/t yesterday - Shanghai aluminium hits three month high on Wednesday (Reuters)
Global investor confidence has improved since the US and China said they reached a ‘phase one’ trade deal.
This led to an increase in global demand for most base metals, including aluminium, which ahs been hit with US tariffs in the 17-month trade war.
The most traded contract on the ShFE climbed 1.2% to US$2,007.42/t, a level not seen since the 18th of September.
Benchmark 3m aluminium on the LME rose 0.5% at $1,772.50/t earlier this morning.
Nickel US$ 13,860/t vs US$14,190/t yesterday
Zinc US$ 2,307/t vs US$2,307/t yesterday
Lead US$ 1,888/t vs US$1,900/t yesterday
Tin US$ 17,270/t vs US$17,250/t yesterday
Energy:
Oil US$65.7/bbl vs US$65.4/bbl yesterday
Natural Gas US$2.298/mmbtu vs US$2.321/mmbtu yesterday
Uranium US$25.45/lb vs US$25.55/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$91.9/t vs US$92.5/t
Chinese steel rebar 25mm US$573.6/t vs US$575.6/t - Nippon Steel and ArcelorMittal complete US$7bn Indian steel firm purchase (Japan Times)
Japan’s biggest steelmaker and multinational ArcelorMittal have purchased Essar Steel India for 500 billion rupees.
ArcelorMittal now owns 60% of the company which was in insolvency proceedings, while Nippon Steel holds the remaining 40%.
The two companies plan to ramp up capacity from 9.6mtpa to 12-15mtpa (livemint.com).
Thermal coal (1st year forward cif ARA) US$59.3/t vs US$59.1/t
Coking coal futures Dalian Exchange US$177.7/t vs US$177.8/t
Other:
Cobalt LME 3m US$32,750/t vs US$34,750/t
NdPr Rare Earth Oxide (China) US$41,378/t vs US$41,362/t
Lithium carbonate 99% (China) US$5,932/t vs US$5,929/t
Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg
Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg
Tungsten APT European US$235-245/mtu vs US$235-245/mtu
Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,550/t vs US$2,550/t
Battery News
Audi and Umicore complete test phase for battery recycling (Automotive World)
The two companies have successfully completed the test phase of their strategic research cooperation.
The results show that over 90% of the cobalt and nickel in the batteries of the Audi e-tron can be recovered.
As of January, the partners will cooperate on a closed loop for cobalt and nickel, with the recycled materials being used in new battery cells.
The project will see Umicore removing cobalt and nickel from Audi e-tron cells, and then processing them into precursor and cathode materials.
Company News
Anglo American (LON:AAL) 2178.5 pence, Mkt Cap £27.5bn – De Beers diamond sales
Diamond sales at De Beers for the 10th sales cycle of the year amounted to a provisional US$425m bringing total sales for the year to US$4bn.
The sales are US$ 25m higher than the revisedUS$400m sales of the preceding sales cycle, previously reported at US$390m, but still approximately 22% below the US$540m reported for the equivalent period in 2018.
Year to date sales are down 25% or US$1.36bn on the results for 2018, however, the 10th cycle sales themselves are some 70% above the low point of US$250m reported for the 6th sales cycle.
The improving sales climate was confirmed by De Beers’ CEO, Bruce Cleaver who said that “Following continued polished diamond price stability in the lead up to the final sales cycle of the year, we saw further signs of steady demand for rough diamonds during Sight 10."
Conclusion: Although sales of rough diamonds remain below the levels achieved last year, there are signs that the worst may be past and De Beers reports signs of steady demand at its latest sight.
Centamin (LON:CEY) 117.6p, Mkt Cap £1,359.4m – Limited progress on the Endeavour Mining offer
Centamin reports that its Chairman and the CEO of Endeavour Mining agreed to conduct reciprocal due diligence “in order to better assess the value to shareholders of the potential combination”.
Centamin proposed a non-disclosure agreement (NDA) in order to facilitate an exchange of information and now reports that although Endeavour initially declined to enter into an NDA it was finally executed on 10th December.
In the interim, Endeavour Mining “made a voluntary announcement which, under the City Code on Takeovers and Mergers (the "Code"), triggered an automatic and mandatory deadline of 31 December (the "PUSU Deadline") for Endeavour to either announce a firm intention to make an offer for Centamin under Rule 2.7 of the Code or announce that it does not intend to make an offer for Centamin”.
Centamin now state that “Endeavour has now indicated that it will not provide the information that Centamin has requested unless and until Centamin agrees to an extension of the PUSU Deadline. Without Endeavour providing information that is core to the assessment of value, such as its financial model, Centamin cannot properly assess the proposed combination.”
Centamin now expresses disappointment that “despite its efforts at constructive engagement, Endeavour has repeatedly refused to engage in a proper manner. The unsolicited approach from Endeavour has created an intense period of uncertainty for all of the Company's stakeholders. Therefore, the Board of Centamin believes that Endeavour should, without further delay, enter into substantive reciprocal due diligence”.
Saying that it will decide whether to “seek an extension of the PUSU Deadline following its review of any information forthcoming from Endeavour” Centamin’s Board continues to recommend its shareholders to take no action on Endeavour’s proposal.
Endeavour Mining has pointed out that some of the time allowed before the 31st December deadline has been absorbed by these preliminary exchanges and “In order to allow sufficient time for both parties to conduct proper due diligence and subsequently discuss terms, Endeavour has asked Centamin to request that the Takeover Panel consent to an extension of the PUSU period. Centamin has however not yet done this and there can be no certainty that they will”.
“Endeavour has confirmed to Centamin that it is prepared, subject to agreement on mutual due diligence scope, to execute a standstill undertaking that would preclude Endeavour from announcing a firm intention to make an offer to the shareholders of Centamin, unless the offer is recommended by the Centamin Board at the time of announcement.”
Centamin has previously contrasted its lack of debt with Endeavour Mining’s “gross debt and financial obligations of US$729 million[3] and net debt of US$599 million[4] as at 30 September 2019 and financial liabilities related to hedging and streaming obligations. Therefore, a significant portion of the cash flows derived from Endeavour's assets will not accrue to shareholders”.
Conclusion: The initial exchanges between Centamin and Endeavour Mining appear to have been strained and somewhat ill-tempered reinforcing our impression that a resolution may take some time.
Cora Gold* (LON:CORA) 5.5p, Mkt Cap £7.1m – Sanankoro Scoping Study update
The team is finalising the Sanankoro Scoping Study that is being overseen by Wardell Armstrong International.
The final document envisaging a potential for a standalone oxide mining operation is expected to be released in early January 2020, a slight revision on YE19 targeted previously.
*SP Angel acts as Nomad and Broker to Cora Gold
Europa Metals Limited (LON:EUZ) 0.0225 pence, Mkt Cap £2.7m – Metallurgical results from Toral zinc, lead, silver project in Spain
Europa Metals reports the results of metallurgical tests on a 61.6kg sample of material derived from its 2019 drilling programme at the Toral lead/zinc/silver project in Castilla y Leon
The results demonstrate the suitability of the sample material to produce a concentrate of saleable quality with locked-cycle tests producing a concentrate containing 57.5% lead, 55.8% zinc and 1457g/t silver.
Although the announcement does not mention the grades of the original sample material, it reports that recoveries of 84.3% for lead, 70.7% for zinc and 90.3% for silver were achieved.
The company’s most recent mineral resource estimate shows indicated resources of 2.7mt at an average grade of 5% zinc,4.2% lead and 32g/t silver with an additional inferred resource of 16mt at an average grade of 4.5% zinc, 2.9% lead and 22g/t silver..
“Based on the preliminary findings … the Company will now proceed with the next phase of preliminary metallurgical work, adopting the recommendations made by Wardell Armstrong”. This additional test work “is expected to be completed during Q1 2020”.
Conclusion: Early stage metallurgical testing on a single sample from Toral is encouraging; additional testing is underway and we look forward to the results which are expected in Q1 next year.
Rainbow Rare Earths (RBW LN) 2.95p, Mkt Cap £11m – Drilling highlights high-grade Rare Earth from surface
Rainbow Rare Earths report Total Rare Earth Oxide grades from a further six new drill holes at their Kiyenzi project in Burundi.
The total mineralisation encountered in the drilling of the first seven holes amounts to:
42.5m grading 6.06% TREO on average
All the mineralisation encountered is relatively close to surface with the deepest mineralised section starting at 42.65m down the hole, eg at around 24.5m depth from surface.
Mineralisation is from surface in holes 19 and 20 and from just 1.5m depth in hole 19.
Some of the individual grades are spectacular as shown in the first %TREO column but even when these grades are aggregated into longer sections in the right-hand column they are also right up there in terms of mineable intersections.
While it is early days for the drilling campaign the data already indicates very good potential for a larger-scale mineable resource at world-class grade.
Conclusion: The figures above speak for themselves and offer outstanding TREO grades for easy open-cast mining.
We expect management to work up a new, more conventional and economic mine plan through the use of a larger-scale mine design.
The team have completed some 30 holes which should be sufficient when combined with current production and other data to outline a meaningful Rare Earth resource
*SP Angel act as financial advisor and broker to Rainbow Rare Earths
Renascor Resources Ltd (ASX:RNU) A$0.012, Mkt cap A$15m - Joint Development Agreement with Battery Anode Company
BUY - Valuation A$0.09/s
Click for initiation note PDF
Renascor report they have entered into non-binding MOU with Sicona Battery Technologies to jointly develop battery anode material.
Sicona is looking to commercialise a next-generation silicon-composite battery anode that combines silicon with graphite to improve both capacity and cell density.
Renascor and Sicona will collaborate in the production of next-generation anode material using Renascor’s expertise in the production of purified spherical graphite and Sicona’s expertise in the development of silicon-based anodes.
The work move to development of a pilotscale production trial and potentially production of commercial quantities of battery anode material
Renascor are looking to develop the Siviour graphite project in South Australia
Key stats:
Production: Stage 1: 80,000tpa. Stage 2: 144,000tpa
Capex: Stage 1 US$82m first 4 years. Stage 2 Expansion US$54m
Reserve: 45.2Mt grading 7.9% Total Graphitic Content. Resource: 87.4Mt of 7.5%
Vast Resources* (LON:VAST) 0.27p, Mkt Cap £27.1m – Atlas convertible facility update
The Company continues to work with Atlas Capital Markets in regards to a drawdown of Tranche 1 of the convertible facility.
Vast is targeting to complete the drawdown before the end of the year.
Tranche 1 is for $7.1m gross ($6.4m net).
*SP Angel acts as Broker to Vast Resources
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.
Sources of commodity prices
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LME
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