SP Angel . Morning View . Tuesday 25 02 20
Gold to rise on further QE and Inflation on Coronavirus disruption
MiFID II exempt information – see disclaimer below
Cora Gold* (LON:CORA) – Sanankoro drilling extends mineralised envelope
Rainbow Rare Earths* (LON:RBW) – US$1m loan from Pipestone Capital
Coronavirus Disruption hits commodity producers in differing ways
Disruption to logistics due to boarder restrictions and the availability of truck and train drivers are causing problems
FastmarketsMB, which has a network of correspondents in China has published a select list of companies which have been affected by the Coronavirus related disruption.
Graphite in Heilongjiang, production may restart and end March. Transport restrictions due to closed boarder with Russia.
Graphite production in Qingdao restarting as close to local ports
Tianjin port open but low volumes as lorries unable to cross regional boarders to reach terminals.
Zinc: Hanzhong Smelter cut >120,000tpa capacity as sulfuric acid now selling below cost as Shaanxi borders Hubei province.
Ilmenite, vanadium and titanium dioxide disrupted in Sichuan due to disruption to lorries which cannot get to port.
Lithium production restarted on 10 February 10 in Sichuan due to lack of freight cars and drivers.
Hubei province which is a major producer of ilmenite producer is the epicentre of the Coronavirus outbreak with businesses still in Lock-down.
The state also hosts much fertilizer and chemical production consuming sulphuric acid causing acid prices to fall in China.
High-carbon ferro-chrome production is hit by transport disruption between ports.
Tungsten concentrate and APT plants in Jiangxi have restarted in Jiangxi though production rates are reported to be below normal.
Antimony production remains closed in Lengshuijiang, Hunan
Germanium supply is resuming in Yunnan despite a lack of available workers and ongoing logistical issues.
Cobalt refineries have restarted in Zhejiang under eased transportation restrictions.
Copper smelter Guangxi Nanguo declared force majeure on shipments of copper concentrates due to logistics difficulties.
Base metal stocks building up at Shanghai port as no trucks available to take them to bonded zone.
Coronavirus – gold price pulls back as investors take profits despite economic disruption
Gold is likely to rise higher on further Quantitative Easing and Inflation as a direct result of Coronavirus disruption
While China is restarting manufacturing in its major manufacturing hubs news of Coronavirus cases elsewhere in the world is causing concern.
China now has >80,000 confirmed Coronavirus though we reckon the real number of ‘mild’ infections is very much higher than this indicating to us that the mortality rate is very much lower than reported.
Eg fewer people are symptomatic than previously assumed.
More than 1,200 cases have been confirmed in 30 countries outside China.
China has 508 new cases today and 71 deaths. China may postpone its annual National Peoples Congress in March
South Kore people asking for a ban on Chinese tourists following 84 new cases and nine deaths so far. A crew member of Korean Air has tested positive for the Coronavirus causing further concern.
Northern Italy: 12 towns in lock-down after 229 cases confirmed with seven deaths from the Coronavirus so far. The virus has halted filming of Mission Impossible 7 in Italy.
Turkish Airlines A330 from Iran diverts for emergency landing in Ankara due to suspected case of Coronavirus.
Japan has 160 Coronavirus cases.
Tenerife has locked down a hotel after an Italian man tested positive for Coronavirus.
British citizens returning from northern Italy have been told to self-isolate.
Screening tests may miss more than half those infected according to a report in the Independent.
The World Health Organisation ‘WHO’ says it is too early to call the outbreak a pandemic though the World must prepare.
See link for the map: https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6
See Centres for Disease Control and Prevention advice:
David Murangari, Chairman of ASA and a internationally respected geologist has died
Asa UK Plc chairman, David Murangari, has passed away in Harare following a short illness at the age of 79.
Murangari, known as the Big Man was seen as a leading figure in the Zimbabwean mining industry
He served as the Mines permanent secretary from 1988 to 1997 and was Chamber of Mines chief executive officer from 1999 to 2007.
Murangari also worked in Zambia and in the US pre-Zimbabwean independence and worked on the giant Danakali potash discovery in Eritrea .
He was on the board of ZMDC, the Zimbabwe Mining Development Corporation as well as Bindura Nickel Corporation and the Mineral and Marketing Corporation of Zimbabwe.
Audi halts production of E-Tron SUV at its factory in Brussels
The German automaker suspended production on Thursday amid production issues citing supply bottlenecks. (Bloomberg)
The plant will remain idle until Tuesday. Audi are not the first to suffer at the hands of a supply shortage from LG Chem. Jaguar announced earlier this month that they were cutting production of their I-Pace, EV SUV and Mercedes-Benz has also been forced to cut production of its EQC EV. Both are customers of LG Chem and both were forced to limit production due to supply shortages. (Yahoo Finance)
Demand for EVs has been outstripping supply. Interest in and sales of EV have sky rocketed in the last 18 months, with a particularly strong start to 2020. Italy has seen an 89% increase in demand for EVs, and sales have increased by 587% whilst Germany has seen EV market share increase from 2.5% to 6.5% of the market. (Automotive News Europe)
But delivery of vehicles has been difficult due to shortages of the key metals involved in battery production. Key strategic elements like lithium and cobalt are sourced in geo-politically unstable regions which added to the usual hurdles associated with extracting these materials has resulted in undersupply. Cobalt in particularly is very expensive at $33,000-$35,000 per tonne and 59% of the world’s supply is located in the Democratic Republic of Congo. (Wired)
Dow Jones Industrials -3.56% at 27,961
Nikkei 225 -3.34% at 22,605
HK Hang Seng +0.27% at 26,893
Shanghai Composite -0.60% at 3,013
FTSE 350 Mining +0.50% at 17,207
AIM Basic Resources -0.67% at 2,356
Indonesia – Government fears decline in investment due to coronavirus outbreak
The country’s coordinating minister overseeing maritime resources and investment affairs announced today that the virus outbreak is expected to delay $11bn worth of nickel projects in the country.
Multiple projects are expected to be affected as China who are investing heavily in the Indonesian nickel industry halt industrial activity.
According to the Jakarta post, several downstream projects which are to be halted include smelter developments by nickel miners such as PT Virtue Dragon, Tsingshan Group and PT Vale Indonesia.
Foreign direct investment from China grew to $4.7bn from $2.4bn in 2018, according to Indonesia’s Investment Coordinating Board.
Hong Kong – Exports fall most in over a decade in January
Exports fell 22.7% in January year on year, to HK$269.4bn, the most since February 2009.
Imports in January fell 16.4% to $300bn, a 14th consecutive monthly fall.
In a government press release, distortions regarding the Lunar New Year Holiday which fell in February in 2019 was partly to blame for the drop.
The government also warned of further weakness in the coming months, predominantly due to disruptions caused by the coronavirus outbreak.
Hong Kong stocks are also trading near their lowest level in 16 years relative to the rest of the world.
The Hang Seng Index is near its lowest level relative to the MSCI All Country World Index since 2004.
South Africa – Eskom plant faces closure threat due to air pollution
The state run utility is battling to keep all of the units at its biggest operational plant open after being served with a compliance notice form the country’s environmental minister.
According to Bloomberg, Eskom has failed to fully repair pollution-abatement equipment at its Kendal power plant, which has been malfunctioning since early 2018.
The electrostatic precipitators that collect particles on charged plates have been damaged along with dust-handling plants. The company says it plans to take the units out of operation one at a time to carry out repairs.
The compliance notice relates to a notice issued in December saying that Eskom would need to close two of its six generating units, and have maintenance plans for the rest.
John Deere plans $40M spend on expedited freight for supply continuity amid coronavirus
US$1.0866/eur vs 1.0836/eur last yesterday. Yen 110.55/$ vs 111.34/$. SAr 15.144/$ vs 15.134/$. $1.298/gbp vs $1.292/gbp. 0.661/aud vs 0.660/aud. CNY 7.018/$ vs 7.028/$.
Gold US$1,655/oz vs US$1,682/oz yesterday - Gold mining shares rise on weak PMI and virus concerns
Shares in many precious metals producers rose yesterday as investors look top increase exposure to safe haven assets such as gold.
Fresnillo rose 3.8% yesterday, and Barrick advanced nearly 5% in pre-market trading as gold gained 2% yesterday to over $1,680/oz (Dow Jones Newswire).
Shanta gold, Petropavlovsk, Highland Gold, Hochschild Mining and Greatland Gold were all higher yesterday. Polymetal climbed to a record high after gold extended it rally last week.
Conversely, many base metal miners saw their share price fall over concerns that coronavirus will harm global growth.
Yesterday in pre-market, Freeport fell 6.1%, Alcoa -4.7%, US Steel -4% and Vale -3.9%.
Gold ETFs 84.0moz vs US$84.0moz yesterday
Platinum US$970/oz vs US$977/oz yesterday - Platinum – Amplats reckon manufacturers could switch to platinum from palladium in the short term
Amplats will be concerned about the potential for substitution driven by very high palladium prices.
While Automotive manufacturers are unlikely to develop many new pure combustion engine models from there is ongoing development of Hybrids with smaller combustion engines.
Hybrid engines are normally light gasoline engines which tend to use greater palladium loadings though the loadings can be adjusted at the time of development.
We expect catalyst developers will err on the side of caution and increase platinum loadings to reflect the cost and availability of the metals used.
Longer-term Pure Battery Electric Vehicles are unlikely to use any PGMs
EV’s with Fuel Cell power supplies fuelled by hydrogen or methane will almost certainly require platinum as the reactive catalyst though they do not use palladium
Anglo American is trialling differing systems in their mining dump trucks using trolley assist (overhead power lines), battery and fuel cell systems.
Many modern mining dump trucks now use diesel electric systems making it possible to retrofit the trolley assist system to save on diesel costs and carbon emissions.
Battery and fuel systems to should also give greater flexibility and the potential to further reduce diesel use.
Palladium US$2,703/oz vs US$2,703/oz yesterday
Silver US$18.44/oz vs US$18.77/oz yesterday
Copper US$ 5,711/t vs US$5,697/t yesterday
Aluminium US$ 1,706/t vs US$1,699/t yesterday
Nickel US$ 12,685/t vs US$12,520/t yesterday
Zinc US$ 2,050/t vs US$2,055/t yesterday - Zinc prices fall to 3 ½ year low on high inventories (Reuters)
Three-month LME zinc prices fell as much as 2.5% yesterday to $2,062/t, the lowest level since July 2016.
In Shanghai, the most traded zinc contract fell 3% to $2,353/t, its lowest since August 2018.
Inventories in ShFE warehouses jumped to a two year high of over 153,000t and LME stocks were at their highest since August last year, raising fears of weak demand amid the rapid spread of the virus.
Lead US$ 1,838/t vs US$1,819/t yesterday
Tin US$ 16,685/t vs US$16,655/t yesterday
Oil US$56.5/bbl vs US$56.6/bbl yesterday
Natural Gas US$1.825/mmbtu vs US$1.853/mmbtu yesterday
Uranium US$24.60/lb vs US$24.60/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$88.0/t vs US$89.9/t
Chinese steel rebar 25mm US$536.8/t vs US$536.8/t
Thermal coal (1st year forward cif ARA) US$57.3/t vs US$57.8/t
Coking coal swap Australia FOB US$160.0/t vs US$159.0/t
Cobalt LME 3m US$33,750/t vs US$33,750/t
NdPr Rare Earth Oxide (China) US$40,255/t vs US$40,623/t
Lithium carbonate 99% (China) US$5,629/t vs US$5,549/t – Lithium Australia report today on the Industry’s problem of dealing with fragmentation of spodumene in processing.
Processors are not able to use fine spodumene material to make lithium chemicals meaning that up to 50% of lithium reports to tailings.
Lithium Australia claims to have a proprietary lithium-recovery process that is “ideally suited to waste streams and off-specification concentrates.”
“LieNA® tolerates lower-grade concentrates without the quality of the lithium chemical produced being compromised.”
Ferro Vanadium 80% FOB (China) US$29.0/kg vs US$29.0/kg - Queensland vanadium project receives prescribed project status
Multicom Resources have been awarded the status from the Queensland Government for its proposed $470m Saint Elmo mine in north-west Queensland.
This declaration gives the coordinator-general power to intervene in the approvals process to ensure timely decision making for the project.
Multicom expects to initially produce 10,000tpa, with production increasing to 20,000tpa.
The company estimates that there will be over 200 people directly employed during peak construction and more than 150 people employed in operational jobs (Australian Mining).
The company expects to commence construction later this year, and is targeting first production of Vanadium Pentoxide late next year.
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 suffers in the global market sell off amid coronavirus fears
The California EV maker saw its share price fall 7% on Monday as markets tumbled in response to heightened fears of a global pandemic. The 3 main US stock benchmarks fell more than 3%, erasing gains YTD. (Market Watch)
Corvid-19 has been cited as a key headwind for Tesla as the company looks to expand its presence in the Chinese market. The virus is a greater concern for Tesla vs other automakers because Tesla’s near term production and earnings growth are heavily reliant on the Shanghai Gigafactory.
The factory has already been forced to halt production under government order. The factory remained closed following the Lunar New Year holiday, recommencing production on February 10th. The shutdown resulted in delivery delays of the Model 3 vehicle, which accounted for 14% of sales in 2019.
Tesla’s share price has been on a rollercoaster ride so far this year, record gains have been tempered by production delays, the coronavirus and protests in Germany over the Grunheide Gigafactory.
The stock is up 93.7% to $833.79 YTD after the Monday sell off.
LG Chem to be the exclusive supplier to Lucid Motors
The South Korean battery producer will exclusively supply EV batteries to the US electric vehicle maker Ludic Motors. (Reuters)
LG Chem will supply cylindrical batteries for the Lucid Air models, from H2’20 through to 2023. Production on the Lucid Air sedan will begin in late 2020.
LG Chem already supplies batteries to Volkswagen, Daimler and General Motors. The company has experienced production issues this which has forced customers to cut production of their vehicles. Jaguar, Audi and Mercedes-Benz have been affected by these issues. (The Times) (Bloomberg)
The Lucid Air model will be the first vehicle released by the Lucid Motors which was founded in 2007 and is based in Newark California. The Company is constructing a factory is Arizona, US to build the vehicles. 70% of the steel structure is complete, with building advancing at a pace of 2.5% completion per day. The structure is scheduled to be completed in the second half of this yea. (Electrek)
Cora Gold* (LON:CORA) 6.375p, Mkt Cap £8.3m – Sanankoro drilling extends mineralised envelope
Cora Gold has released reconnaissance drilling results which extend the mineralised envelope at Sanankoro a further 1500m along a continuation of the Zone B North. The drilling comprised both rotary air blast (RAB) drilling and aircore holes and “In most cases, gold mineralisation was intersected between surface and about 30m vertical depth in the zone where gold mobilisation by ground waters can be prevalent”
Among the results highlighted from the North Sankoro reconnaissance drilling are:
A 2m wide intersection averaging 2.95g/t gold from a depth of 20m in aircore hole SC281, which also contained a 3m wide intersection averaging 1.57g/t from a depth of 9m; and
An 8m wide intersection averaging 1.24g/t gold from a depth of 9m in RAB hole SB096 with the hole terminating in mineralisation; and
An 18m wide intersection averaging 0.99g/t gold from a depth of 6m in RAB hole SB078; and
A 25m wide intersection averaging 0.94g/t gold from a depth of 55m in aircore hole SC282 which included 3m averaging 3.73g/t.
In addition, drilling has also extended mineralisation by “a further 500m of strike to the west of Zone C” in a previously undiscovered zone of mineralisation. Highlighted intersections include:
A 5m wide intersection averaging 2.67g/t gold from a depth of 27m in RC hole SC291; and
A 3m wide intersection averaging 2.21g/t gold from a depth of 30m in RC hole SC300; as well as
A 2m wide intersection averaging 2.38g/t gold from a depth of 51m in RC hole SC301
Chief Executive, Bert Monro, said that the results were “particularly encouraging given that the shallow drilling undertaken is only designed to provide a guide to the location of the structures. This has similarities to early results from Selin before deeper holes were drilled, and a maiden Resource was declared”
Conclusion: Latest step out drilling indicates the potential to expand the 0.3moz Sanankoro mineral resource both in the oxide and sulphide domains at shallow depths. Further drilling using more sophisticated drilling methods will be needed to fully demonstrate this potential but the establishment of extensive additional strike potential at this stage should justify the additional work.
*SP Angel acts as Nomad and Broker to Cora Gold
Firestone Diamonds (LON:FDI) 0.325 pence, Mkt Cap £2.2m – Q2 operations and proposed cancellation of AIM listing
Firestone Diamonds has reported that as a result of the month-long interruption of power supplies to its 75% owned Liqhobong diamond mine in Lesotho fewer tonnes of ore were treated during the quarter to 31st December 2019 (668,120t compared to 963,182t in the preceding quarter).
Despite a reduction in waste volumes moved from 1.4mt to 1mt, costs during the quarter rose by approximately 44% to US$14.90/t (Q1 US$10.32/t) and diamond sales of 132,885 carats were 35,727 (21%) lower that the 168,612 carats achieved during the previous quarter.
Although average realised sales prices rose from US$63/carat to US$73/carat quarter mitigating the revenue impact to an extent, revenues declined by US$US$0.9m to US$9.7m during the quarter resulting in a decline in quarter-end cash balances declined to US$17.0m from US$21.8m in the preceding quarter.
Commenting on the diamond market, Firestone Diamonds says that although “prices realised for the smaller goods that make up the bulk of our production by volume, remain subdued … indications are that the peak retail season at the end of the 2019 was satisfactory and therefore, it is anticipated that some restocking should take place during early 2020”.
The company also says that “However, due to the excess inventory held in the midstream and by the two largest producers, we expect that it will take some time for the value chain to rebalance and for there to be a sustained increase in prices. Other downside risks include ongoing US-China trade tensions and more recently the uncertain impact of the coronavirus on demand.”
In response to the market weakness and the impact of the power supply disruption, the company says that it is now not able “to meet its scheduled debt repayments in the near term and as a result, agreement was reached with ABSA Bank to defer the December capital repayment of US$2.5 million”.
As part of its remedial response to the situation, the company is to convene a general meeting on 13th March “to approve the cancellation of the admission of the Ordinary Shares to trading on AIM”. The approval will require approval of “not less than 75 per cent of votes cast by the Shareholders”.
Explaining the rationale for the proposal in terms of the cost-savings it would achieve on “broking, Nomad, legal, financial, regulatory …[costs which]… provide minimal benefit and the funds can be better utilised to extend the Company's operating window”, Firestone Diamonds says that the priority is “to preserve cash by all means possible to ensure the Company survives the current market downturn is the overriding principle for the Board and will include a review of operations, corporate structure and overheads including the composition of the Board”.
The company also says that it “suffers from a lack of liquidity in trading of its Ordinary Shares due to the Bondholders holding 65 per cent of the Company's issued ordinary share capital, and in addition, two minority Shareholders hold approximately a further 18 per cent. This, combined with the poor diamond market and general negative sentiment towards the sector, has resulted in a material share price and consequent market capitalisation decline. The poor market conditions are expected to persist for the foreseeable future and therefore the Board sees limited value in maintaining the AIM listing as it is unlikely to provide a positive platform for any further corporate opportunities”.
Conclusion: Firestone Diamonds’ proposed withdrawal from its AIM market listing as part of a cost-cutting drive underlines the financial pressures the company is experiencing as a result of the operational difficulties at the mine and the weaker rough-diamond market. Although the diamond market is showing signs of a modest recovery Firestone is making survival its priority - we wish them well in their endeavours.
Rainbow Rare Earths* (LON:RBW) 3.15p, Mkt Cap £12.0m – US$1m loan from Pipestone Capital
Rainbow Rare Earths reports that Pipestone Capital, a company of which its CEO, George Bennet “is the ultimate beneficiary” has provided an unsecured loan of US$1m to “finance ongoing exploration, operations, working capital and other general requirements”.
The loan is interest free but it “includes warrants over 2,000,000 new Ordinary Shares of no par value ("Ordinary Share"), at a strike price of 4.55 pence per Ordinary Share, and a life to expiry of 4 years. The strike price represents a premium of 30% to the 20-day volume weighted average price of the shares prior to the date of the agreement.”
The company says that the loan, which is for 12 months, is intended to “be repaid out of the proceeds of any future fundraise; however Pipestone may elect to convert a portion of the loan into equity on the same terms as those offered to investors at that time”.
Underlining Mr. Bennett’s commitment to the Gakara rare-earths project in Burundi, today’s announcement says that he “already holds an interest in 8.6% of the Company's issued share capital”.
Mr. Bennett was appointed in August 2019 and is working to expand the Gakara deposit “into a major strategic source of rare earths, with the aim of producing at least 20,000 tonnes per annum of concentrate”.
Rainbow Rare Earths was originally listed on the AIM market in January 2017 based around smaller scale operations in Burundi and recent work is directed at establishing a formal mineral resource estimate to underpin the larger scale of operations envisaged.
Conclusion: The US$1m loan by Rainbow Rare Earth’s CEO underlines his confidence in the project as work progresses to establish a large resource capable of supporting the proposed uprating of Gakara to produce 20,000tpa of rare-earths concentrate.
*SP Angel act as financial advisor and broker to Rainbow Rare Earths
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