SP Angel . Morning View . Tuesday 31 03 20
Equities cautiously stronger on hopes for virus peak
MiFID II exempt information – see disclaimer below
Arkle Resources* (LON:ARK) – EGM arrangements
Mkango Resources* (LON:MKA) – Measures to mitigate Covid19
Savannah Resources* (LON:SAV) – Covid19 precautions
Vast Resources* (LON:VAST) – New shares issued in regards of the Atlas bond interest
Base metals prices supported by China’s unexpected PMI data
Three-month base metals prices on the LME were mainly up this morning as top consumer China surprisingly reported in its factory activity for March (Fastmarkets MB).
Three-month copper was up 1.5% this morning to $4,839/t, clawing back some of the price decline it has experienced as the coronavirus pandemic worsened.
China March PMIs indicate rebound in Chinese business, despite likely fall in Western demand for Chinese goods
52.3 vs 29.6 in February - services
52 vs 35.7– manufacturing
The figures are substantially better than expected
Reshoring, the movement of manufacturing to the West from the East is likely to accelerate once the Coronavirus Pandemic is over
Accountants forcing companies and funds to quantify risk of COVID-19 before signing off on accounts
The Accountancy profession has allot to account for (no pun intended).
The move by certain Accountants to force companies to quantify the risk of COVID-19 before signing off on their accounts will have unintended consequences and run counter to government efforts to keep many small businesses alive.
The preparation of COVID-19 risk statements by finance directors who are now forced to work from home will delay the reporting of financial results and could lead to listed company suspensions and potentially the refinancing of worthy companies in need of cash.
We suspect accountants are not trying to steer more companies into Administration but this may be the unintended consequence of their actions.
COVID-19 lung conditions may accelerate drive move for cleaner air
The recovery of significant numbers of COVID-19 Pneumonia suffers may accelerate the drive to clean up our air.
While were are mining engineers are not medics we can see a pressing need for cleaner air for people who are recovering from Pneumonia.
The need for cleaner air is likely to accelerate the drive to enforce stricter emissions levels.
This should speed up the move to cleaner Electric Vehicles and may result in the enlargement of Low Emissions Zones in cities world-wide.
Stimulus funding relating to the Coronavirus (Updates in bold, figures converted to US dollars)
G20 nations pledge to inject $5tr into global economy
$2tn US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries
$1,000bn - IMF available
$963bn (€750bn) ECB scraps limits on sovereign bond purchases. + targeted loans to companies at an interest rate of -0.75%
ECB legal decision on the Pandemic Emergency Purchase Programme ‘PEPP’. The ECB may target shorter maturities in the hope that PEPP remains temporary.
The 33% issuer limit will not apply to emergency asset purchases.
ECB PEPP buying running at around €250bn
$825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds
$700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE is to buy Treasuries and mortgage-backed securities. The program in two parts $500bn + $200bn
$344bn - China stimulus + China PBoC cut repo rates to 2.2% from 2.4%
$78bn (C$107bn) - Canada
$544bn (¥60tn) – fiscal stimulus package equiv. ~10% of GDP $17.4bn Japan + Y300bn of inflation-linked bonds,
$400bn (£330bn) UK - Government-backed loan scheme. New business interruption loan scheme up to £5m with no interest. Will add whatever is required in COVID-bill + $242bn (£200bn) UK QE from Bank of England.
$39m – UK (£30bn) stimulus + $29bn (£20bn) – UK No business rates plus £25,000 cash grants for shops, pubs, clubs in hospitality sector inc. $5bn (£3.5bn)
$387bn (€304bn) – France - loan guarantees for French business inc. $50bn (€45bn) + €4bn for startups, + France to also pay half wages for employees in affected firms
$200bn (€200bn) – Spain
$127.2bn China - China stimulus was $586bn in 2009 to rescue itself and the global economy. This time it is simply lowering lending rates slightly and made $77bn of new loan capacity at banks,
$214bn (A$320bn) Australia, a record A$130bn ($80bn) package bringing total fiscal and monetary stimulus to A$320bn or 16.4% of GDP.
$32bn - Saudi Arabia - stimulus with debt ceiling raised from 30% to 50%.
US$38.6bn - Singapore
$22.6bn - India
$15.4bn – Hong Kong relief package
$13.7bn South Korea, $12bn World Bank, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,
The world was slow to recover from the 2008 GFC due to a lack of stimulus allowing China to get ahead
This time the US and UK are likely to stimulate their economies to a far greater extent than seen in the GFC
$8.8tn – TOTAL stimulus offered to-date vs G20 GFC stimulus of ~$2 trillion or 1.4% of global GDP (ILO, EU, IILS)
>10tr expected if using the $7.4tr estimated by The Economist
Oil markets continue to collapse with Canadian oil prices collapsing to US$3.8/bbl this morning
Coffee is now twice as expensive as oil in Canada today.
Traders are speculating that Canadian oil prices could go negative to account for storage costs as producers move to suspend production.
Canadian oil prices were at US$56.3 last August
Oil tanker rates have soared as traders and producers look to store cheap oil
Brent crude prices have also tumbled to $23/bbl
Producers and consumers are running out of storage as consumption continues to collapse with demand falling by around 25% so far.
Airlines consume around 12% of global oil supply and with much of the world fleet now grounded that’s a major hit to consumption.
Travel restrictions for citizens in Europe have cut production as drivers are forced to self-isolate leaving empty streets and clearer skies.
Dow Jones Industrials +3.19% at 22,327
Nikkei 225 -0.88% at 18,917
HK Hang Seng +1.36% at 23,489
Shanghai Composite +0.11% at 2,750
The WHO is reporting there are signs of some stabilisation in Europe’s COVID-19 outbreak with Italy reporting the smallest number of new cases in almost two weeks, Bloomberg reports.
“Our fervent hope” Italy and Spain are approaching a peal and that European lockdowns which started several weeks ago will start to show result.
Volkswagen is gradually reopening production facilities in China with 22 of its 24 plants are now back online.
95% of its local dealers have now reopened with sales expected to reach 1m units per month run rate in March, up from 250k in February.
US – US Fed considering negative interest rates
Government and lawmakers are preparing for a fourth programme of fiscal support.
The package may include a $0.6t state aid for mortgage markets and travel industries.
US renters may stop paying rent on 1 April when $81bn in rent payments are due
The move could precipitate a cascade of non-payment of mortgages and utility bills
COVID-19 may kill 200,000 as US death toll passes 3,000 in the US
Trump reckons the US peak in mortality rates is likely to peak in two weeks.
While the mortality rate is significantly higher in the aged and infirm the US may also see elevated mortality rates due to relatively high levels of obesity, diabetes, drug addiction.
China – Official PMIs point to a recovery in the economic activity in March following a slump in the first two months of the year.
Growth was broadly driven by the local market as overseas nations remain several weeks behind the fight against the pandemic.
Among surveyed firms 96.6% of large and mid-size firms have restarted production by March 25.
On a separate note, the government decided to push entry college exams by a month highlighting authorities’ concern over chances of provoking a second wave of COVID-19 infections.
Manufacturing PMI: 52.0 v 35.7 in February and 44.8 estimated.
Services PMI: 52.3 v 29.6 in February and 42.0 estimated.
Composite PMI: 53.0 v 28.9 in February.
Japan – Authorities are proposing an unpresented fiscal stimulus package of ¥60t ($544bn), equivalent to ~10% of GDP.
The package comes on top of the December’s ¥26t stimulus and two round of emergency measures this year, Bloomberg reports.
UK – Business and consumer confidence dropped in March as the nation battles with the COVID-19 outbreak.
3/4s of surveyed companies said they were affected or expected to be, a level that is likely to have underestimated the scope of the fallout since the survey was carried a week before the country went into lockdown, Bloomberg reports.
Italy – The government is considering extending the quarantine through early May before starting to gradually open up from May 4.
For now expectations are Italy will extend the nationwide lockdown until “at least” mid-April.
The current lockdown that is in its fourth week was planned to expire at the end of this week.
South Africa – A loss of the investment grade status late on Friday after Moody’s cut the sovereign credit score to Ba1 will weigh on borrowing costs as passive bond funds will cut their positions in the local debt.
South African bonds are expected to be excluded from the FTSE World Government Bond Index around late April, according to Bloomberg.
The credit agency cited weak economy and an unreliable power sector for the downgrade.
South Africa - stock market set for worst quarter on record as gold miners rise
The South African stocks benchmark is down 24% so far this year, its worst performance on record.
The FTSE/JSE Africa Gold Mining Index is the only industrial sector to post gains in 2020, rising 11% as the gold price continues to increase.
Indonesia – The government cut corporate tax rate to 22% from 25% and dropped the budget deficit cap for 2020.
Brazil president denies impact of Coronavirus as he leaves self-isolation to join rally
Jair Bolsonaro is going against the advice of his own health ministry as he tells supporters there is nothing to worry about.
The move may well mark the beginning of the end of his presidency following comments that ‘it’s just a little flu or the sniffles’.
Bolsonaro is prioritising the economy over the isolationist measures adopted through much of the world.
The President may be lucky if the temperature in Brazil rises to >40C but with Rio de Janeiro at just 27C today the virus is likely to spread fast through the favelas .
In the meantime the President of Belarus claims vodka and saunas will cure the coronavirus, saying ‘It’s better to die standing that to live on your knees,’ (NY Post).
US$1.1000/eur vs 1.1067/eur yesterday. Yen 108.46/$ vs 108.80/$. SAr 18.000/$ vs 17.517/$. $1.229/gbp vs $1.218/gbp. 0.616/aud vs 0.607/aud. CNY 7.090/$ vs 7.088/$.
Gold US$1,617/oz vs US$1,620/oz yesterday - Russia - Central bank to halt buying gold
The world's biggest buyer of gold has followed a decision also made by China to stop officially buying gold for its reserves.
The central bank announced the move yesterday, however did not give a reason as to why it was no longer purchasing gold.
Demand for gold has increased vastly this month, pushing up the price which has just had its best week in eleven years, and is up 6% this quarter (Bloomberg).
Russian dealers are therefore probably eager to sell, hoping to supply to the ignited demand as global restrictions prevent the movement of gold across borders.
Fierce gold buying by Russia in recent years has been a key pillar of support for the market, and given Russia a bullion stockpile valued at roughly $120bn.
Gold price on track for sixth straight quarterly gain
Gold is up about 6.5% for this quarter and set for its sixth consecutive quarterly percentage rise.
Despite this, gold was trading lower this morning due to a rally in the US stock market and US dollar index yesterday (Kitco).
Spot gold was down 0.3% this morning at $1,616/oz, and gold futures fell 0.1% to $1,641/oz (Reuters).
The downward pressure on the gold price was mitigated by the lingering uncertainty of the affect the coronavirus will have on the global economy.
This uncertainty combined with the Fed's quantitative easing with no preset limits is supportive of the gold price, and another reason why this morning's drop was minimal.
Money going into gold ETFs hit a new record this quarter. Long-only ETFs attracted $13bn so far this year, the highest on record (Bloomberg).
Gold ETFs 90.2moz vs US$89.7moz yesterday
Platinum US$726/oz vs US$721/oz yesterday - Top PGM miners declare force majeure due to South African lockdown
Amplats, Sibanye-Stillwater and Implats have declared force majeure on contracts after a three-week national lockdown has caused operations to close.
Miners have put many of their operations on care and maintenance and have reduced metal processing, and therefore are unable to supply customers with metal (Reuters).
South Africa is the world's largest supplier of platinum, and the second largest producer of palladium behind Russia.
Amplats declared force majeure on the 6th of March, and has knocked 900,000oz off its forecast output of PMGs + gold to a range of 3.3Moz - 3m8Moz of PGMs (Business Day).
Despite PGM production dropping drastically as a result of the lockdown, auto manufacturing has also ground to a halt in Europe and the US, while China is slowly returning to making vehicles.
Palladium US$2,327/oz vs US$2,251/oz yesterday
Silver US$14.16/oz vs US$13.96/oz yesterday
Copper US$ 4,830/t vs US$4,760/t yesterday – Copper prices rising on Chinese PMI data
Aluminium US$ 1,525/t vs US$1,528/t yesterday
Nickel US$ 11,280/t vs US$11,320/t yesterday
Zinc US$ 1,872/t vs US$1,848/t yesterday
Lead US$ 1,711/t vs US$1,677/t yesterday
Tin US$ 14,155/t vs US$14,115/t yesterday – Tin prices steady despite PT Timah, Indonesia, output cut
Oil US$23.0/bbl vs US$23.3/bbl yesterday - Oil prices ticked up slightly this morning, however the overall backdrop remains dire
Plunging demand, surging supply, and strained storage capacity have put so much downward pressure that producers are now considering shutting-in oil wells
The magnitude of these en-mass shut-ins could be the largest since the mid-1980s
To highlight this, last week US producers made the biggest cut to the number of drilling rigs operating in five years according to the latest Baker Hughes figures
WTI Crude may still cling to the US$20/bbl mark, but many regional grades, including in the US and Canada are trading in the teens and even in the single digits – leading some speculators to suggest negative pricing is a realistic proposition if supply continues to significantly exceed demand next month
Natural Gas US$1.716/mmbtu vs US$1.617/mmbtu yesterday
Amid all the headlines about the plunge in oil prices, natural gas is struggling with its own set of problem
No major commodity had a worse 2019 than natural gas, registering its worst annual decline since 2014
Prices tumbled more than 25% last year over growing worries about record output, soaring flaring levels and concerns of an ongoing supply glut
So far this year the price has fallen to its lowest level in 25 years as it faces the prospect of a Coronavirus-related steep drop-off in usage.
Stockpiles held in underground storage in the US fell by 29Bcf the week ended Mar 27, above the guidance (of 27Bcf fall)
However, the decrease was lower than last year’s drop of 39Bcf and the five-year (2015-2019) average net shrinkage of 40Bcf for the reported week
Uranium US$27.20/lb vs US$27.20/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$80.8/t vs US$83.1/t
Chinese steel rebar 25mm US$523.5/t vs US$524.8/t
Thermal coal (1st year forward cif ARA) US$55.8/t vs US$57.7/t
Coking coal swap Australia FOB US$147.0/t vs US$148.0/t
Cobalt LME 3m US$30,000/t vs US$30,000/t
NdPr Rare Earth Oxide (China) US$37,939/t vs US$38,017/t - Lynas extends production halt as Malaysia extend lockdown
The Australian rare earth miner has announced that it will halt production until at least the 14th of April, in line with the Malaysian government's lockdown restrictions.
The original halt was expected to be lifted today, however Lynas did previously announce that a longer shutdown was possible.
Chinese rare earth producers saw share prices improve as a result of the shutdown, as Lynas is the largest producer of rare earths outside of China.
JL Mag Rare-Earth was +9.5% this morning, Chengdu Galaxy Magnets +6%, China Northern Rare Earth +6.8% (Bloomberg).
Lithium carbonate 99% (China) US$5,642/t vs US$5,632/t
Ferro Vanadium 80% FOB (China) US$26.5/kg vs US$27.0/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
BYD (China) releases Blade model and will offer car parts to rivals
Shenzhen based EV battery maker BYD yesterday launched their blade-shaped conventional lithium iron phosphate batteries. (Universal News)
The batteries are safer, they are highly incombustible and more flexible as a result of the battery pack structure, providing space savings.
The new product could help BYD to recover some of the ground lost to CATL in the battery market. (Technode)
BYD has said the battery has an increased energy density of 332 watt hours, 50% better than the conventional LFP battery allowing for a range up to 600km. (Asia Times)
The battery passed extreme safety testing; being crushed, bent, heated to 300 degrees Celsius, overcharged by 260% and the nail penetration test.
The first model to contain the new blade battery will be released in June this year.
The Chinese EV maker backed by Warren Buffet is to start offering a full suite of EV components to rivals and auto manufacturers under the FinDreams brand. (Bloomberg)
The move is a shift to diversify its revenue sources as auto demand weakens particularly in China as a result of subsidies being withdrawn and the coronavirus outbreak. (The Economic Times)
The Company also recently repurposed ones of its factories for the production of face masks, reaching a daily production capacity of 10 million units last week.
Tesla bids to install 244 megapacks in Hawaii (Electrek)
Tesla hopes to deploy one of the biggest battery systems in the world as it bids for an Hawaiian Electric energy storage project.
The project will be located in the Kahe Valley, O’ahu and is being built for load shifting and provision of backup power to the grid.
Tesla’s proposal consists of 244 Megapacks, the Megapack was launched last year with single unit having 3MWh of storage capacity and a 1.5MW inverter.
Hawaiian Energy expect the project to cost $200-$300m and will make a decision on the battery supplier in May. If chosen Tesla would be expected to begin construction in March 2021 to enable the system to be in operation in 2022.
Ireland unlikely to meet EV targets
Ireland remains a long way off achieving 2030 targets of 950,000 EVs on the road. (Silicon Republic)
EV sales in January increased 73.6% and a further 13.3% in February compared to the same time in 2019. The majority of EV purchases occur in January, coinciding with the release of new vehicles registration plates. (Energy Live News)
Cornwall Insight Analyst Tom Lusher explained that the majority of sales occur in January and July so the positive numbers are likely to be the majority of sales in 2020.
Ireland had 9000 EVs on its roads by the end of 2019 leaving a long way to go to reach 2030 targets.
Lithium projects push on through the storm
Mines and projects all over the world have been curtailing operations as governments enforce measures to stop the spread of COVID-19.
There are some projects which have manged to continue to push forward amidst the shut downs:
Controlled Thermal Resources continues work on it Lithium Geothermal Project in the Salton Sea, California via remote working. (Think Geoenergy)
The company has initiated on the final stage of development finance outreach with negotiations on with KPMG over equity and offtake agreements.
In addition to its power purchase agreement with Imperial Irrigation District, CTR is in advanced negotiations with various lithium and power offtake groups.
Standard Lithium Ltd. Continues testing at a pilot plant near El Dorado, applying new safety rules. (Arkansas Business)
The Company has partnered with Lanxess to test the commercial viability of its proprietary process for extracting lithium from saltwater wells at Laxness’ facilities where they extract bromine from the same water.
Minimal staff are on site and all employees and visitors are screened for symptoms on entrance and workers who report close contact with a symptomatic individual remain at home.
Standard Lithium said in a statement that work at the site continues without significant negative impacts.
Arkle Resources* (LON:ARK) 0.7p, Mkt Cap £0.927m – EGM arrangements
Arkle Resources is encouraging shareholders to either vote on-line or by proxy in the forthcoming EGM as a Covid19 mitigation measure.
The meeting, which is to be held on 22nd April, is being convened to consider the conditional share placing to raise £252,000 and associated capital reorganisation which was announced on 27th March.
Many companies are adapting what would previously have been considered normal working practices to address and help contain the spread of the Covid19 virus. Proxy and on-line voting provides a practical and sensible means to continue the required shareholder business for Arkle Resources.
*SP Angel is Nomad and Joint-Broker to Arkle Resources
Mkango Resources* (LON:MKA) 3.5p, Mkt Cap £4.55m – Measures to mitigate Covid19
Mkango Resources has provided a progress report on its feasibility study for the 51% owned Songwe Hill rare-earths project in Malawi and of the downstream rare-earths recycling development business of Maginito and its 25% subsidiary, Hypromag.
The company stresses the overriding importance of the welfare of its staff and points out that, having completed its drilling work in 2018, ʺmost of our in-country operations can be completed offsite, and all of our employees are now working from home when possibleʺ.
The company reports a resilient financial position with a cash position of approximately US$7.4m to help withstand the current disruption.
While emphasising the uncertain nature of predicted timetables in the current environment, Mkango Resources explains that ʺWhilst the Feasibility Study is continuing with work underway in Australia, South Africa and the UK, the Company believes it is inevitable that some workstreams will be impacted, however the degree of impact is currently uncertain. Following a review of the various ongoing workstreams, the Company is now targeting completion of the Feasibility Study in the second half of 2021, in line with an anticipated more stable market environment and favourable backdrop to advance project development.ʺ
Chief Executive, William Dawes pointed out the wider impact of the pandemic beyond immediate operational issues explaining that ʺThe impact of COVID-19 has focused attention on the vulnerability of supply chains globally, already a major concern in the rare earths sector prior to the pandemic, and Mkango looks forward to further engagement with Government and market participants to play a major role in future development of a robust and sustainable rare earth supply chain for global markets."
At Hypromag, operations ʺare continuing where possible, in line with current UK government guidelines.ʺ
Conclusion: Mkango Resources is able to progress the feasibility work for Songwe Hill as the major site drilling work is completed and the technical studies can progress through remote working. Acknowledging the possibility of further disruption to the timetable the company is currently aiming to complete the feasibility study during the second half of the year.
*SP Angel act as Nomad and broker to Mkango Resources
Savannah Resources* (LON:SAV) 1.2p, Mkt Cap £16m – Covid19 precautions
Savannah Resources has described the measures it is implementing to address the Covid19 virus
The company is temporarily closing its offices and implementing remote working as well as suspending all field operations and all non-essential travel. Staff levels at Mutamba in Mozambique are being reduced to essential personnel.
The company explains that despite some continuing disruption it is able to progress a number of tasks including the environmental and project optimisation work for the Mina do Barroso lithium project in Portugal and the project review of the recent pre-feasibility work from Mutamba where discussions on the required scope for further work are continuing with Rio Tinto.
At the company’s copper project in Oman, the company reports that it is ʺContinuing the strategic review and discussions with potential acquirers of the projectsʺ.
The company remains debt-free with cash of £3.5m as of 31st December 2019.
Chief Executive, David Archer, said that ʺSavannah routinely manages its operations using remote work practices, so the enforced temporary closure of our various offices has had minimal impact to date. Furthermore, only modest field-based activities were underway or scheduled for the short term, so Savannah is fortunate that many of its current critical tasks can be continued and completed whilst staff are working remotelyʺ.
Expressing caution as to the wider, longer term impacts of the Covid19 pandemic, Mr. Archer said ʺThe Coronavirus pandemic is a global health crisis which we all hope will be contained in the near future. However, the duration of its impact on all facets of society is uncertain and further Coronavirus-related market volatility must be expected, as must its potential impact on the Company achieving milestone events. Savannah will continue to closely monitor guidance on mitigating the virus' impacts and will act appropriately as guidance changes.ʺ
Conclusion: Savannah Resources is continuing with activities that are capable of being conducted remotely. While the company cautions about the impact on timetables of the spread of the virus, it reports adequate cash resources to maintain continuing activity.
*SP Angel acts as Nomad to Savannah Resources
Vast Resources* (LON:VAST) 0.19p, Mkt Cap £20m – New shares issued in regards of the Atlas bond interest
The Company issued 13.7m new shares at 0.17p to pay for the Atlas bond interest.
Total number of shares outstanding post the issue is 10,287m.
*SP Angel acts as Broker to Vast Resources
SP Angel Healthcare team - Vadim Alexandre, Liam Gascoigne-Cohen
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