SP Angel . Morning View . Wednesday 22 01 20
Markets steady as focus turns back to corporate earnings
MiFID II exempt information – see disclaimer below
Antofagasta (LON:ANTO) 922p, Mkt Cap £9.1bn – A good year for Antofagasta
Ariana Resources (LON:AAU) 2.825p, Mkt Cap £29.9m –High-grade channel samples at Tavsan
Ceres Power (LON:CWR) 346p, Mkt cap £533m - Bosch increases holding in Ceres Power to 18% as company focusses on hydrogen electrolysis
Europa Metals Limited (LON:EUZ) 0.0195 pence, Mkt Cap £2.3m – Curtailing drilling to focus on engineering at Toral zinc, lead, silver project in Spain
Metals Exploration (LON:MTL) 1.5p, Mkt Cap £32m – Debt restructuring
Oriole Resources (LON:ORR) 0.49p, Mkt cap £3.4m – Mapping at Bibemi in Cameroon shows extension to gold mineralisation near the border with Chad
Thailand – Domestic car sales fall 21.4% YoY
Car sales in Thailand fell for a seventh straight month in December, falling 21.4% from a year earlier to 89,000 vehicles.
Sales in 2019 dropped 3.3% to one million vehicles, after a surge of 19.5% the previous year.
The decline in sales in attributed to tougher lending by banks, according to the Federation of Thai Industries.
China’s Cedar Holdings buys UK steel trader Stemcor (FT)
Cedar have bought the privately owned Stemcor, one of the world’s largest independent steel trading groups, for about $150m.
Stemcor sells raw materials and logistics services and was once one of Britain’s biggest private companies, before facing financial difficulty in 2013.
LME copper price capped by further 34kt fresh inflow (Fastmarkets MB)
Upward momentum in LME 3m copper was capped this morning, by a significant 34,350t inflow to inventories.
3m LME copper was trading around $1,634/t earlier this morning, down 0.4% from yesterday.
The price has recovered from earlier this morning which saw prices hit a two-week low of $6,128/t, due to two consecutive days of large deliveries totalling nearly 73,000t and leaving global inventories of 195,000t.
Dow Jones Industrials -0.52% at 29,196
Nikkei 225 +0.70% at 24,031
HK Hang Seng +1.27% at 28,341
Shanghai Composite +0.28% at 3,061
FTSE 350 Mining +0.32% at 19,477
AIM Basic Resources -0.57% at 2,142
Economics
US – The Senate voted early on Wednesday to approve the rules for the President Trump’s impeachment trial blocking efforts of House Democrats to subpoena more documents related to the President’s dealings with Ukraine.
The trial is set to resume this evening (1800 GMT) with 48 hours of opening arguments (24 hours for each side) over six days.
Netflix results highlight growing competition from rival streaming services.
Total number of subscriptions came in higher than guided by the Company and market expectations (+8.8m v +7.6m and +7.9m, respectively), although, the US market that attracts higher profit margins came in weaker than forecast (+0.42m v +1.5m recorded in Q4/18).
Netflix argued weaker US growth was attributed to price hikes last year and increased competition from rival platform like Disney and Apple.
The Company expects growth to further slowdown in Q1/20 with 7m new subscriptions forecast, down on 9.6m recorded in Q1/19.
Netflix shares were little changed in after-hours trading.
China – Chinese authorities step up efforts to control the outbreak of the new coronavirus with infected people reported to have doubled to at least 440 people from only a day earlier.
The outbreak comes at the time as the nation of more than 1.4bn people is planning to celebrate the lunar new year that kicks of on Friday.
The holiday over the next two weeks will involve the largest mass movement of people in the world, FT reports.
“During the spring festival travel season, there is greater movement of people, which increases the risk of spread and difficulty of prevention and control and we must not let down our guard and be highly vigilant,” vice-minister of China’s Health Commission said.
Meanwhile, the US reported the first confirmed case of the Wuhan coronavirus as a man in his 30s who travelled from Wuhan on 15 January arriving to Seattle.
Germany – ZEW economic sentiment index surged to 26.7 in January, up from 10.7 in December, on optimism over the US-China trade truce.
The latest reading marks the highest level recorded since July 2015.
France – The government seems to be pulling back from its recent proposal to tax US tech companies based on markets where they operate.
President Macron tweeted on Monday that he had a “great discussion” with Trump regarding the taxation of digital majors like Alphabet and Amazon and that they would “work together on a good agreement to avoid tariff escalation”.
Macron said the US and France agreed to suspend any tariffs until the end of the year as details of the potential deal are worked out.
Italy – Luigi di Maio is set to announce his resignation as head of 5-Star leader today amid falling poll ratings and a series of defections that threaten the government’s majority in the upper parliamentary house, Reuters reports.
The 5-Star won 33% of the vote in a national election in 2018, but since then approval ratings dropped to around 15%.
The 5-Star is currently in alliance with the left-wing Democratic Party after a coalition with the far-right League led by Matteo Salvini broke down.
10y Italian bond yields jumped 5bp on the news to 1.42% while the spread with German Bunds climbed to 167bp.
South Africa – The rand was little changed this morning with inflation reading coming in line with market estimates this morning.
Inflation accelerated to 4%yoy in December up from 3.6% in November and remaining well below the midpoint of the central bank’s target range of 3-6%.
Weak growth outlook and contained inflation pressures support the case for more easing from the central bank that unexpectedly cut rates to the lowest level in four years last week.
Currencies
US$1.1091/eur vs 1.1088/eur yesterday. Yen 109.97/$ vs 109.97/$. SAr 14.445/$ vs 14.552/$. $1.306/gbp vs $1.301/gbp. 0.684/aud vs 0.685/aud. CNY 6.903/$ vs 6.903/$.
Commodity News
Gold US$1,557/oz vs US$1,561/oz yesterday
Gold ETFs 81.7moz vs US$81.7moz yesterday
Platinum US$1,000/oz vs US$1,006/oz yesterday
Palladium US$2,412/oz vs US$2,454/oz yesterday
Silver US$17.80/oz vs US$18.02/oz yesterday
Base metals:
Copper US$ 6,143/t vs US$6,153/t yesterday
Aluminium US$ 1,828/t vs US$1,814/t yesterday
Nickel US$ 13,760/t vs US$13,830/t yesterday
Zinc US$ 2,457/t vs US$2,430/t yesterday
Lead US$ 1,976/t vs US$1,956/t yesterday
Tin US$ 17,670/t vs US$17,660/t yesterday
Energy:
Oil US$64.2/bbl vs US$64.5/bbl yesterday -
Despite an escalation in Libya's oil war, crude prices fell again yesterday morning as a bigger than expected virus in China sparked fears of an economic slowdown
It’s that time of year where many of the market agencies attempt to predict the unpredictable – the EIA forecasts Brent oil prices averaging US$65/bbl in 2020 and US$68/bbl in 2021, and WTI averaging US$59/bbl and US$62/bbl over the same timeframe
The agency says prices “could remain elevated in early 2020 because of geopolitical risk, but the premium will fade as the year wears on”
Brent futures are down 0.6% to $64.8/bbl, whilst WTI futures were down 0.4% to US$58.9/bbl
Natural Gas US$1.903/mmbtu vs US$1.914/mmbtu yesterday - Natural gas prices remain below $2/MMBtu, a level not seen in years.
Prices continued to decline in early trading yesterday, resulting in many US shale gas stocks were deep in the red as a result.
For instance, Range Resources (NYSE: RRC) was off by more than 7% yesterday and Antero Resources (NYSE: AR) was down by more than 5%
the slide below $2/MMBtu to a low of $1.83/MMbtu has come as much of the US experienced unseasonably mild temperatures, reducing demand for natural gas that is widely used in heating as well as electricity generation
In addition, warmer temperatures in parts of Europe and Asia have also cut demand for natural gas, which feeds back into the US price given its growing role as a major exporter of liquefied natural gas
Uranium US$24.55/lb vs US$24.60/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$94.4/t vs US$94.7/t
Chinese steel rebar 25mm US$571.1/t vs US$571.1/t
Thermal coal (1st year forward cif ARA) US$60.8/t vs US$60.1/t
Coking coal futures Dalian Exchange US$181.0/t vs US$181.0/t
Other:
Difficulties in extraction hamper Japan’s seabed rare earth project (The Asahi Shimbun)
In 2012, Japan identified a mud rich in REE on the seabed, 6,000m below surface off the coast of the easternmost island of Japan.
A later study suggested that the large volume of minerals could support more than 200 years’ worth of consumption, and shield against the risk of unstable supply from China.
In 2018, the government started the Innovative Technology for Exploration of Deep Sea Resources project, and developed a piston corer, capable of extracting mud from the sea floor.
Results of samples 46 samples gathered showed that rare earths account for up to 0.62% in the mud, with the highest average content per sample at 0.31%.
The current technology allows a pipe up to 30cm in diameter to be set up on the seafloor, restricting the amount of mud that can be extracted.
Estimates show 3,500t of rare earths need to be collected per day to make the business profitable, however the current pipe only allows 350t per day meaning further advances in technology are required for this project to take off.
Cobalt LME 3m US$32,500/t vs US$32,250/t
NdPr Rare Earth Oxide (China) US$40,417/t vs US$40,418/t
Lithium carbonate 99% (China) US$5,577/t vs US$5,577/t
Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg
Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/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
Total wins contract to install 20,000 EV charging points in the Netherlands. (Business Wire)
Metropolitan Region Amsterdam Electric (MRA-Electric) have awarded Europe’s largest concession contract for EV charging to Total [TTA]. Total will install and operate a network of 20,000 charging points across the provinces of North-Holland, Flevoland and Utrecht.
Total highlighted that the electricity for the charging points will be generated from renewable sources and will be produced locally (MarketScreener).
The contract is recognition of the success of the 4500 public charging points Total already operates in the MRA-Electric region.
Alliance Brands to develop vehicles using new EV architecture. (Inside EVs)
Nissan, Infiniti, Renault and Mitsubishi models will all be built using the new platform. Both the new Ariya Concept and the Infiniti QX Concept debuted at the Detroit Auto Show last year are built using the platform.
The platform is how the batteries are housed and the character of the car. (Green Car reports)
When first announced 18 months ago, Alliance Partners hoped to reduce developments costs of their EV by 20-30% by collaborating on the platform. (Electrive.com)
The new Ariya is capable of 0-60 in around 5 seconds and is likely powered by the e-4orce AD system that is also in the Nissan Leaf, an earlier EV model.
The platform allows for flexibility both in the size and style of the vehicle but also the power source as it supports hybrid powertrains as well. The partnership plan to launch more than a dozen models on the platform by the middle of the decade.
Crown Equipment Corp has launched a new line of lithium-ion powered forklifts. (Beverage Industry)
The V-Force Lithium-Ion Energy Storage System (ESS) is available in the majority of the Company’s line-up of EV forklifts.
The launch displays the viability of lithium-ion technology as a practical alternative power source for forklifts.
The lithium-ion batteries are up to 40% more energy efficient, have higher sustained voltage properties and a high rate of return during a charging event. (Crown Equipment Corp)
Company News
Antofagasta (LON:ANTO) 922p, Mkt Cap £9.1bn – A good year for Antofagasta
Last year was a good year for Antofagasta. The company reports record copper production of 770,000t at an improved cash cost of US$1.22/lb.
2020 target production is 725,000-755,000 at a cash cost of US$1.30/lb which probably includes a degree of conservatism but a year is a long time in the mining industry and meeting targets is never a certain thing.
Management remind and warn us of ‘civil unrest’ in Chile last year which disrupted supplies into their giant Los Pleambres copper mine. Antofagasta’s mines have plans to cope with such disruption but but still suffer from occasional road blockages.
Q4 copper production was 5.8% lower qoq due to lower grades and maintanence at the Centinela, disrupted fuel deliveries to Los Pelambres, a strike at Antucoya and general social unrest in Chile.
Gold production also fell quarter-on-quarter due to lower grades at Centinela though gold production was still 34% higher than last year at 282,3000oz.
Molybdenum production fell year-on-year to 2,300t due to lower grades at Los Pelambres where variable grades in the mine will always cause some variation.
Cash costs before by-product credits came in at $1.65/lb for the full year helped by the weaker peso but also reflecting tight cost control. Cash costs unsurprisingly rose to $1.70/lb in Q4.
Net cash costs were $1.22/lb for the full year and $1.37/lb for Q4.
Conclusion: Antofagasta continues to prove it’s place as an outstanding copper miner. Management appear to have contained much of the impact of strikes, blockades and civil unrest with relatively little impact from an investor perspective. 2020 will no-doubt present new issues but management appear relatively well prepared to cope with non-natural challenges.
Ariana Resources (LON:AAU) 2.825p, Mkt Cap £29.9m –High-grade channel samples at Tavsan
Ariana Resource reports results from rock-saw channel sampling at the Tavsan deposit where Ariana Resources holds a 50% interest of the Red Rabbit Joint Venture with Proccea Construction.
Among the results from the 156 lines of sampling reported today are:
18.2m at an average grade of 5.03g/t gold and 2.1g/t silver from TAV-CH010-19; and
9.9m at an average grade of 6.08g/t gold and 2.4g/t silver from TAV-CH032-19; and
31.3m at an average grade of 1.85g/t gold and 0.9g/t silver from TAV-CH016-19
At Tavsan South, described as “a JORC Exploration Target area which contains 63 historic workings” further results include:
3.5m at an average grade of 9.28g/t Au and 30.5g/t Ag in TAV-CH058-19; and
4.5m at an average grade of 4.30g/t Au and 5.3g/t Ag in TAV-CH057-19; and
5m at an average grade of 1.72g/t Au and 5.3g/t Ag in TAV-CH051-19
The programme of sampling included over 60 outcrop locations on areas of potential open pit mining and the results are to be included in “the next resource estimation for Tavsan, scheduled for completion during Q2 2020.“
Ceres Power (LON:CWR) 346p, Mkt cap £533m - Bosch increases holding in Ceres Power to 18% as company focusses on hydrogen electrolysis
Bosch is increasing its stake in Ceres to 18% from 4% at 320p/s raising £38m to determine further uses for its solid fuel cells and diversity R&D activity.
Electrolysis: Ceres is increasingly focussed on hydrogen electrolysis
The increased shareholding builds on the existing collaboration in the development of fuel-cell stacks for stationary power applications and toward future scale up and mass manufacture of the Ceres SteelCell fuel cell.
Bosch is subscribing for 11.9m shares at a 320p/s representing a 7.8% discount to Ceres’ closing price on Tuesday.
A reverse book build ‘RABB’ is also looking to buy up to 13m additional Ceres shares conditional on buying 12.3m shares. Bosch has received irrevocable commitments from certain existing shareholders for the minimum subscription.
Ceres and Bosch have been collaborating since August 2018 on fuel cell stacks and other stationary power applications enabling Bosch to start low-volume production of pilot systems late last year.
Conclusion: Bosch’s move into Ceres is a major endorsement for Ceres and we look forward to following the technological development and innovation to come. Ceres stainless steel fuel cells always used to run a bit on the hot side for domestic application so it will be interesting to see how the technology develops from here.
Europa Metals Limited (LON:EUZ) 0.0195 pence, Mkt Cap £2.3m – Curtailing drilling to focus on engineering at Toral zinc, lead, silver project in Spain
Europa Metals reports that following a review of strategy at its Toral lead/zinc/silver project in Castilla y Leon the board has decided to curtail further drilling following completion of hole TOD 025, currently underway, in order to concentrate on engineering and process optimisation.
“The Board sees limited additional incremental value from conducting further indicated resource delineation drilling at the current time, with the project’s pre-existing mineral resource estimate sufficient for economic modelling and mine development decision making”.
The mineral resource estimate released in October last year comprised 2.7mt of indicated resources at an average grade of 5% zinc, 4.2% lead and 32 32g/t silver with an additional 16mt at an average grade of 4.5% zinc, 2.9% lead and 22g/t silver.
The December 2018 scoping study envisaged an underground mining operation extracting 450,000tpa over a period of 15 years for a total of 6.54mt and we observe that if that overall mine plan remains intact, at some stage additional drilling will be necessary to upgrade a portion of the current inferred resource to a minimum level of indicated for mine planning purposes as the current indicated resources are adequate only for some 6 years of production at the previously indicated mining rate.
The company mentions that “Cost saving initiatives [are] being implemented” and no doubt the prudent deployment of limited financial resources will have been a factor in the decision to focus on the engineering and process optimisation in preference to further resource definition drilling for the time being. We expect, however, that it will be necessary to expand the indicated resource at some stage prior to mine development.
Pointing out that the work to date had generated “significant amounts of data on its Toral Project over the last two years” Executive Director, Laurence Read, explained that ” once hole TOD-025 has been completed and assay results released, we shall not commission a JORC resource update or conduct further drilling for the time being. Through completion of the second phase of metallurgical testwork and focusing on flow sheet optimisation and offtake potential, we believe that we can progress the project and advance such important workstreams whilst efficiently deploying capital and marketing the project's potential and viability to both the industry and potential partners.”
Conclusion: Europa Metals has decided to switch its resources to the engineering and process optimisation work required at its Toral project and will cease drilling on completion of the current hole although we imagine that a firming up of some of the inferred resources will be necessary at a later date.
Metals Exploration (LON:MTL) 1.5p, Mkt Cap £32m – Debt restructuring
Runruno Holdings Ltd and MTL (Guernsey), two major shareholders as well as lenders to the Company, proposed to acquire outstanding loans of $68.5m (including $5.2m of accrued interest) with HSBC and BNP Paribas.
Completion of the deal is preliminary targeted before the end of this month.
By consolidating outstanding liabilities, new lenders are expected to agree a restructured debt profile for the Company.
While there is no guarantee such a restructuring will be completed, negotiations with new lenders are well advanced with a further announcement due shortly.
The standstill agreement in regards of all debt facilities (~$122m as of Sep/19) remain in place.
Conclusion: The restructuring and consolidation of loan facilities will bring some relief to the Company, although, its highly indebted status means its future remains at mercy of its major lenders.
Oriole Resources (LON:ORR) 0.49p, Mkt cap £3.4m – Mapping at Bibemi in Cameroon shows extension to gold mineralisation near the border with Chad
Press releases are like busses with Oriole, you hear nothing from management for months and then you get two in two days.
One kind soul suggested this lack of news flow might relate to the wet season where Oriole operate, other more critical observers might suggest that management are focussed on ventures elsewhere.
To be fair Oriole’s ceo and board are earning a fraction of the salary drawn by the ceo and chairman of Sirius Minerals but investors still deserve focus and value in our view which may or may not fit with other outside business interests.
Bibemi gold (Cameroon): Oriole reports today on its Bibemi gold project in the Bakassi area of Cameroon where it is earning into a 90% interest. Mapping is reported to show continuation of mineralisation in zone 1 by 1.3km to >5km. Rock chip samples are encouraging but drilling needs to be done to assess any sort of potential value.
Oriole’s team in Cameroon have reportedly identified 14 proposed drill sites for a 1,500m drill campaign and will test the depth extension of mineralisation beneath gold intersections seen in trenching last year.
Inspection of Oriole’s website shows the Bibemi prospect to be located in the north of Cameroon close to the boarder with Chad.
The good part of Bibemi’s location is that it’s much dryer in the north of Cameroon than in the south where it rains stair-rods on a fairly regular basis and geologists get bitten by spiders not yet discovered by David Attenborough. .
The bad part is that Foreign Office advice is avoid all travel to any part of the boarder area in Chad including the section where Chad boarders with Cameroon, though this is not nearly as nasty as the Chad, Libya boarder area which is makes Glasgow on a Friday night look like a peaceful place.
Conclusion: We look forward to the start of drilling at Oriole’s Bibemi project and hope that Boko Haram who are specialists in kidnap and terrorism are not inclined to expand into the Bibemi area.
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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