SP Angel . Morning View . Friday 21 02 20
Gold jumps higher on coronavirus risk off trade
MiFID II exempt information – see disclaimer below
Ariana Resources (LON:AAU) – Production exceeds 2019 guidance
China car sales fell 92% in February as Coronavirus restrictions prevented buyers from visiting dealerships
Over 21 million cars were sold in China last year making China the world’s largest auto market with many consumers buying their first proper car.
The near-total lock-down in China over the Chinese New Year prevented buyers from visiting showrooms in what is normally a very busy time for dealers.
It will be difficult for dealerships to recover lost sales now that China is returning to work in many regions.
Hubei is still in lock-down and travel restrictions particularly across regional boarders are creating significant problems.
Chinese people normally have to pay for their own healthcare and while the state is covering the cost of Coronavirus care consumers are naturally taking a more cautious approach to purchases.
The province of Hubei remains in lock-down and has pushed back the date for businesses to restart to 10 March. This may be further delayed if the Coronavirus is not contained.
Beijing recorded another 1,109 new cases with the total number of ‘official’ infections now at 75,685 though we reckon the real number may be much higher.
One Chinese diplomat said experts in China reckon the rate of new infections has peaked and the epidemic maybe over by the end of March.
South Korea reports 204 confirmed cases and has declared the southern city of Daegu as a special zone. The capital has banned all rallies in major downtown areas.
Coronavirus mortality is now >2,236 people with another 220 new infections recorded in Hubei prisons.
Vaccine: China reports that the earliest vaccine to be submitted for clinical trials around late April according to China’s Vice Science and Technology Minister.
The Minister also advised that companies which have resumed operations should ensure proper ventilation and maintain a safe distance among workers.
Copper – LME warehouses saw a 38% increase in the number of ‘Cancelled’ warrants
Cancelled warrants rose 12,775t to 46,625t driven mainly by warrant cancellations in South Korea
We suspect lower copper production in China combined with logistical supply-chain difficulties have forced South Korean manufacturers and traders to buy warehouse copper to replace regular deliveries.
Big users are copper wire and pipe manufacturers supplying into cable and air-conditioning manufacturers. Potential shortages could impact wiring looms for vehicles and windings for electric motors which go into all automotive and domestic appliances.
China considers extending subsidies as EV sales slump
Sales of EVs stalled in 2019 as the government withdrew subsidies for the vehicles in order to try and consolidate the market. In November sales of hybrid SUVs and Sedans fell 43.7% compared to the same time the previous year. 70% of the 1.2m electric or gasoline-electric hybrid models sold in the 12 months to December 2019 were to government and company fleets. (Yahoo)
The subsidies which were introduced 10yrs ago have played a key role in the country becoming the largest market for EVs globally. They had reduced the price of EVs up to 60,000 yuan ($8700) depending on the vehicles range but after the cut only provide up to 25,000 yuan. (Bloomberg)
The original plan had been to phase out subsides by the end of 2020 but the government has now sounded that they will be reviewing the policy.
Some Chinese EV related shares rose on the news, NIO (4.4%), BAIC (3%) and Shenzhen Kedali (7.8%)
Lithium battery storage facility catches fire in Coventry (Coventry Live)
18 firefighters were called to fight the blaze on Wednesday at an industrial estate in Coventry, where lithium batteries were being stored.
A spokesman for the fire service said gas inside the unit was isolated, and the building was isolated. There were no reported injuries.
Dow Jones Industrials -0.44% at 29,220
Nikkei 225 -0.39% at 23,387
HK Hang Seng -1.09% at 27,309
Shanghai Composite +0.31% at 3,040
FTSE 350 Mining -1.09% at 18,074
AIM Basic Resources +0.19% at 2,343
China – 889 new cases of Covid-19 infections were recorded as of February 20, up from 394 cases recorded the previous day.
Infections registered in two jails, in the northern province of Shandong and the eastern province of Zhejiang, made up most of the 258 newly confirmed cases outside Hubei, according to Reuters.
The death toll climbed by 118, with most registered in Wuhan.
China’s commerce ministry said it will accelerate studying new fiscal, tax, financial and insurance measures to support companies.
Standard Chartered monthly survey of more than 500 Chinese SMEs due on Monday will provide further evidence of the coronavirus fallout on the economy.
Japan – Private sector production falls at the fastest pace since Apr/14, according to flash Markit PMI February numbers.
Manufacturing activity contracted this month extending a series of sub-50 readings to ten months.
Services slipped into a sub-50 zone as new orders collapsed with tourism hit particularly bad amid a coronavirus outbreak.
“Latest PMI data dash any hopes of a first quarter recovery in Japan and significantly raise the prospect of a technical recession in the world’s third largest economy,” Markit commented on data.
Manufacturing PMI: 47.6 v 48.8 in January.
Services PMI: 46.7 v 51.0 in January.
Composite PMI: 47.0 v 50.1 in January.
Germany – Overall private business activity continued to expand in February helped by robust growth in the services sector.
While manufacturing remained in contraction, the sector moved closed to stabilisation with survey data showing slower declines in output, new orders and employment.
Nevertheless, goods producers reported declines in both exports and sentiment on the back of the virus crisis in China and the wider region.
Total new orders climbed for the second month in a row supported by stronger domestic demand, although the growth rate was only modest and slower than in January.
Business sentiment over the next 12 months pulled back on concerns over the impact of the coronavirus on supply chains and the health of the global economy; although,
“Reports from surveyed businesses indicate that, so far, disruption to manufacturing production from supply issues has been fairly limited, but these a re still early days in what could potentially be a lengthy saga,” Markit commented on survey results.
Manufacturing PMI: 47.8 v 45.3 in January and 44.8 forecast.
Services PMI: 53.3 v 54.2 in January and 53.8 forecast.
Composite PMI: 51.1 v 51.2 in January and 50.7 forecast.
France – An acceleration in the services sector growth compensates for a slight drop in manufacturing with the same dynamic recorded in new orders placed.
Manufacturers attributed the drop to softer demand for autos, the discontinuation of Boeing 737 Max production and disruptions related to coronavirus.
Composite new export orders posted a second consecutive drop weighed down by manufacturers.
Business outlook among firms remained positive on expectations for an improvement in demand.
Manufacturing PMI: 49.7 v 51.1 in January and 50.7 forecast.
Services PMI: 52.6 v 51.0 in January and 51.3 forecast.
Composite PMI: 51.9 v 51.1 in January and 51.0 forecast.
South Korea – Trade data with China highlight the virus-disruption effects on economic activity.
Exports to China, the nation’s largest trading partner, were down 3.7%yoy in the first 20 days of February after a drop of 10.7%yoy in January.
Imports from China dropped 18.9%yoy during the period following a decline of 9.6%yoy in January.
Overall exports and imports registered an increase during the period on increased trade flow with other countries as well as accounting for more working days during the period.
Australia – Business has been hit hard by adverse weather, weak demand and the Covid-19 outbreak with the activity contracting at the fastest pace since data collection began in May/16, according to Markit PMIs.
The decline was broad-based with declines recorded in both manufacturing and services sectors.
Composite new orders were down for the first time in ten months.
Sentiment was among the lowest since last October.
“Whilst this is clearly a disappointing result, it is not altogether surprising given the two exogenous shocks that have hit the Australian economy – the bushfires and the coronavirus,” Markit said.
Manufacturing PMI: 49.8 v 49.6 in January.
Services PMI: 48.4 v 50.6 in January.
Composite PMI: 48.3 v 50.2 in January.
Hong Kong – Economists forecast the first back to back annual recession in 2020 as the growth challenged by months of anti-China protests that led to a drop in tourism and retail sales is now faced with the coronavirus outbreak.
The median estimate of economists surveyed by Bloomberg project a 1.2% contraction this year following a similar decline the previous year.
The economy posted a sharp recovery during the SARS case in 2003 on the back of recovery in numbers of visiting mainland Chinese that typically account for 70-80% of total arrivals, Bloomberg reports.
This year it may be different with an almost 99% decline in average daily traffic to tourists in February to day compared to last year.
Ukraine – protestors attack bus containing evacuees from China heading for quarantine on Coronavirus fears
Ukraine has no confirmed cases of the Coronavirus.
Namibia – Controversial tax policies to be repealed
The country will repeal two tax incentive policies for exporters and manufacturers, partly to meet a 2021 deadline set by the EU to avoid being backlisted as a tax haven.
In 2018, the EU removed the country from its list of non-cooperative tax jurisdictions after commitments were made by Namibia to address concerns regarding its taxation policies.
The country’s finance minister announced plans yesterday to repeal the Export Processing Zone (EPZ) and manufacturing tax incentives, a regime which exempt companies from multiple taxes such as corporate income tax.
A copper smelter owned by Dundee Precious Metals, and a zinc refinery owned by Indian company Vedanta are operations which are expected to be affected by the decision, along with at least 19 other companies.
The policy change is creating much uncertainty in the country’s mining industry, and according to The Namibian, Diamond cutting and polishing factories could pay export levies of 1% if the EPZ regime is abolished.
The Diamond Manufacturers Association of Namibia say that the diamond polishing industry is worth N$2bn per year, however the industry will not remain in Namibia without the current VAT incentive.
US$1.0816/eur vs 1.0797/eur last yesterday. Yen 111.74/$ vs 111.74/$. SAr 15.132/$ vs 15.127/$. $1.292/gbp vs $1.290/gbp. 0.660/aud vs 0.663/aud. CNY 7.033/$ vs 7.017/$.
Gold US$1,634/oz vs US$1,609/oz yesterday - Gold set for best week in six months (Reuters)
Gold prices hit their earliest in seven years this morning, and the metals is set for its best week in over six months.
Demand for gold has increased after a spike in coronavirus cases, as South Korea reported 52 new cases and Japan reported the first deaths aboard the Diamond Princess cruise ship.
Spot gold hit $1,632/oz earlier this morning, and prices have risen 2.9% this week. U.S gold futures were up 0.9% at $1,634/oz.
Gold ETFs 83.9moz vs US$83.9moz yesterday
Platinum US$982/oz vs US$1,011/oz yesterday
Palladium US$2,706/oz vs US$2,750/oz yesterday
Silver US$18.54/oz vs US$18.35/oz yesterday
Copper US$ 5,724/t vs US$5,773/t yesterday
Aluminium US$ 1,706/t vs US$1,713/t yesterday - Chinese alumina prices continued to trend upwards this week (Fastmarkets MB)
The price has continued to improve following reports that more refineries in the country are experiencing shortages of raw materials which is hurting output.
Transportation difficulties stemming from China’s attempts to stop the spread of the virus are restricting the flow of raw materials, with both coal and bauxite said to be affected.
Fastmarkets’ weekly price for alumina metallurgical grade, China was 2,420-2,560 ($245-365) per tonne on Thursday, up 1% from 2,400-2,530 a week prior.
According to traders in Shanghai, offers in the northern regions of China are coming in at 2,600 yuan per tonne, and even higher for material in warehouses near the ports.
Nickel US$ 12,565/t vs US$12,825/t yesterday
Zinc US$ 2,104/t vs US$2,144/t yesterday
Lead US$ 1,840/t vs US$1,879/t yesterday
Tin US$ 16,500/t vs US$16,555/t yesterday
Oil US$58.6/bbl vs US$59.0/bbl yesterday
Natural Gas US$1.875/mmbtu vs US$1.958/mmbtu yesterday
Uranium US$24.60/lb vs US$24.60/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$89.2/t vs US$87.0/t
Chinese steel rebar 25mm US$534.6/t vs US$537.6/t
Thermal coal (1st year forward cif ARA) US$58.3/t vs US$59.5/t - House coal to be banned to help cut air pollution (BBC)
Sales of coal and wet wood will be banned next year, as the government is trying to encourage the public to used ‘cleaner alternatives’.
The government said wood burning stoves and coal fires are the largest source of PM2.5 – small particle air pollution which find their way into the lungs and blood.
Sales of traditional house coal and wet wood in small units will be phased out by February 2021, and makers of solid fuels will need to show they have a very low sulphur content.
Coking coal swap Australia FOB US$161.0/t vs US$161.0/t
Cobalt LME 3m US$33,750/t vs US$33,750/t
NdPr Rare Earth Oxide (China) US$40,589/t vs US$40,963/t
Lithium carbonate 99% (China) US$5,545/t vs US$5,576/t - Albemarle latest company to be affected by Corvid-19
The Charlotte, NC specialty chemicals company has said its lithium production facilities in China will operate at reduced rates for the foreseeable future. (Reuters)
Albemarle is the largest producer of lithium, a core material in EV batteries. The Company also expects the virus to reduce automotive demand.
The Company suggested at their Q4 earnings call that earnings could drop double digits thus year. The company is only using 25% of it lithium production capacity due to slack demand and logistical delays have affected shipping. (Seeking Alpha)
Albemarle had total net sales of $992.6m in Q4’19 up 7.7% YoY, with EPS up 13.% YoY. Earnings did fall 30.2%. Net sales grew 20.3% YoY in their lithium business and for FY’19 were up 11%. (Albemarle)
Ferro Vanadium 80% FOB (China) US$29.0/kg vs US$29.5/kg
Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg
Tungsten APT European US$240-245/mtu vs US$240-245/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
Tesla given the all clear to proceed with Gruenheide Gigafactory
A Berlin-Brandenburg court yesterday ruled that Tesla can resume clearing the forestry on the site of its proposed Gigafactory. (Reuters)
The ruling enables Tesla to stay on track with its plans to have the plant up and running by mid-2021. The Californian EV behemoth is hoping to produce up to 500,000 vehicles a year at the site, employing 12,000 people. (EJ Insight)
The site which Tesla has previously been given permission to begin building on having beaten off a previous lawsuit brought forward by activists, covers an area of 227 acres. The injunction has been brought against the site over fears the clearance work would pollute drinking water and damage wildlife. (Bloomberg)
The Company will have to temporarily halt building works between mid-March and August due to wildlife breeding season. The area of forestry being cleared is artificial, planted to be harvested for cardboard. Tesla has also come out and said that for every tree cut down three will be planted by the Company.
This week Tesla also lost a Senior Executive, Kevin Kassekert, Director of Infrastructure and Development and the man behind the Company’s Gigafactories. Tesla is no stranger to executives moving on, known for its high turnover the Company lost three VPs in a week last year. (Electrek)
EV start-up Electriphi raises $3.5m in seed funding
EV fleet and energy management start-up Electriphi has raised $3.5m to help the Company scale its customer base and increase its geographic reach. (Freight Waves)
The San-Francisco based company provide charging management and fleet monitoring software for EVs. The Company is looking to provide its services to a growing number of EV fleets in the US. (Tech Crunch)
The Company has a diverse customer base of transit, municipal and school schemes in what is a crowded market place. EV Connect, GreenLots, GreenFlux and AmplyPower are all present in the space and competing for orders.
A success story for Electriphi has been deployment of their software in the Twin Rivers Unified School District school bus fleet, the first zero-emissions school buses.
The sheer size of the market place should provide opportunity for multiple winners despite the competition.
Ariana Resources (LON:AAU) 3.45p, Mkt Cap £36.6m – Production exceeds 2019 guidance
Production of 7,318oz of gold from the 50% owned Kiziltepe mine in Turkey during the final quarter of 2019 brought total gold output for 2019 to 27,985oz exceeding the published guidance of 25,000oz. Silver output of 101,074oz, the highest quarterly total of the year, brought the annual total to 363,649oz.
The company estimates operating costs for the quarter ending 31st December 2019 at US$500/oz compared to US$540/oz during the preceding quarter, largely as a result of increased by-product credits for silver, but also makes the point that “Costs incurred during the ramp-up period are not reflective of estimated operating costs over the longer term” in explaining the absence of a full life-of mine to date cost estimate.
Managing Director, Dr. Kerim Sener, explained that the “The performance of the Kiziltepe Mine remains fully in line with expectations and these record-breaking results for Q4 2019 represent a fitting end to an operationally superb year”.
Dr. Sener also confirmed that “As at the end of the quarter, 87% of the JV construction capital loan of US$33 million has been repaid, with the remaining balance to be completed in April 2020.” Completion of the capital loan repayments will result in Ariana’s entitlement to a 51% share of the profits generated by the mine.
He also expressed optimism about “the resource growth opportunities we have identified recently at Kiziltepe and the progress being made at Tavsan, which represents the opportunity to deliver an additional 30,000 oz of gold per annum to the Red Rabbit Joint Venture, targeting an overall production of 50,000 oz of gold per annum”.
Additional exploration interest is provided by the wholly owned Salinbas project in north-east Turkey which currently “has a total resource inventory of c. 1 million ounces of gold equivalent” and lies within the “Hot Gold Corridor” which hosts the 4moz Hot Maden deposit and which was acquired by Sandstorm Gold for around £170m in April 2017.
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