SP Angel . Morning View . Tuesday 11 08 20
Copper gains as gold slips as US dollar regains favour on stimulus expectations
Europa Metals Limited (LON:EUZ) 18 pence, Mkt Cap £1.7m – Marketing arrangements for Toral zinc, lead, silver project in Spain
Lucara Diamonds (CVE:LUC) C$0.59, Mkt Cap C$234m – Maintaining operations through Covid19
Panther Metals (LON:PALM) 11.25p, Mkt Cap £6.5m – Progress report on Big Bear gold exploration project
Petropavlovsk (LON:POG) 33p, Mkt Cap £1,299m – Board changes announced
Power Metal Resources* (LON:POW) 1.25p, mkt cap £8.9m - Drilling plans finalised for Botswana Molopo Farms Complex
Versarien* (LON:VRS) 39.5p, Mkt cap £67m – Results statement highlights underlying growth of new graphene products
Risk of Trade War with the US recedes as China flooding and COVID-19 disruption forces government to buy more food produce from the US
China flooding forces government to release stocks and buy US food produce as food price inflation raises
Flooding has destroyed significant crops in China just as rice was coming ready to harvest in China (CNN)
The crisis for thousands of Chinese farmers is raising raise domestic rise food prices and draw in significant imports.
Estimates suggest that some 13m acres of crops have been flooded destroying some $1.7bn in crops and another 19bn in other infrastructure affecting around 55m people.
China has already released >60mt of rice, ~50mt of corn and >760,000t of soybeans keeping prices stable
Grain imports rose 21% to ~61mt in H1.
Food prices rose by 13.2% yoy despite the authorities releasing food stocks into the market
Pork prices rose 10.3% mom and 86% yoy
Fresh vegetables rose 6.3% but fresh fruit fell 4.4%,
Food prices rose by 2.8% mom and 13.2% yoy
Core CPI rose 0.5% in July vs -0.1% in June excluding food and energy
CPI yoy rose 2.7% in July while non-food inflation hit a multiyear low
PPI fell 2.4%yoy in July vs -3% in June
Beijing is buying produce from the US and is reported by Bloomberg to be ditching expensive soy bean from Brazil
CNN speculates that Beijing may have to buy in as much food as it can before it allows the Trade War to escalate.
China may not wish to be seen to support Trump’s Trade deal through buying rice from American farmers but may be forced to comply to find sufficient produce to feed its population plus seed for next year’s crops.
If the US was to raise tariffs on food then
The US exported more than 9mt of soybeans, ~100,000t of wheat, and close to 65,000t of corn to China in H1 according to Tianfeng Securities and Chinese customs data.
COVID-19 has caused some countries to suspend food exports to China preserving supplies in case families are not able to plant crops.
When it comes to flooding a very wise and learned agronomist recently said to me. ‘flooding is caused by man and not by nature’.
Tesla continues to make gains in Asia
Tesla sold 11,041 electric vehicles in China in July maintaining it #1 position in the country. NEVs and Tesla have continued to see strong sales despite the wider auto market continuing to suffer. China passenger car sales fell 5.3% YoY in July.
Model 3 sales have recovered since the reintroduction of EV subsidies in May with 11,095 vehicles sold in that month and a further 14,954 sold in June.
Tesla has seen similarly strong sales in South Korea where it has been a major beneficiary of the country’s subsidies scheme. 43% of the 209.2bn won of subsidies has gone to Tesla models while EV sales fell 14% in the country.
The Californian EV makers market share has increased to 43% in H1 while local EV maker have seen their market share reduce to 70%.
This has prompted a review of policy with the focus set to shift to maximising particle reduction which could see subsidies for Tesla Models reduced or repealed. Whether this will have a negative effect on vehicle sales is yet to be seen.
Value of mining M&A deals 31% down in Q2
Mining M&A values dropped by 30.5% or $2.9bn in Q2, whilst the amount of capital raised by mining companies fell by 24.8% or $3.7bn- according to GlobalData.
The total value of mining deals including M&A, capital raising, and asset transactions declined by $5.3bn to $20.6bn qoq.
However, the number of asset transactions rose by 85% amounting to a $1.3bn increase, as the total volume of deals increased from 860 in Q1 to 1,411 in Q2.
Canada, Australia, the US and the UK accounted for more than 90% of the total deal volume and more than 50% of the total deal value (Mining Weekly).
Dow Jones Industrials +1.30% at 27,791
Nikkei 225 +1.88% at 22,750
HK Hang Seng +1.83% at 24,825
Shanghai Composite -1.15% at 3,340
Economics
US – President Trump is considering a capital gains tax cut after announcing a delay to payroll tax until the end of the year while also offering extra $400 a week in jobless benefits.
Lawmakers remain in stalemate over a stimulus plan.
EU - Sentix investor confidence was -13.4 for August back below levels before the pandemic -18.2 in July
Germany – The rate of new daily COVID-19 cases jumped back above 1k yesterday marking a third >1k reading in less than a week.
The infection rate eased to 1.09 on Monday, from 1.26 the previous day.
UK – The number of UK payroll employees was 730k lower in July than in March.
Numbers do not account for around 9.6m people that were under the government supported furlough programme since it was launched in March and were classified as employed.
Labour earnings dropped 1.2%yoy in Q2 while pay excluding bonuses was down 0.2%yoy, marking the first negative reading since records began in 2001.
Unemployment rate held at 3.9% in three months to June, unchanged from 3m to May, as more people gave up looking for work.
The worst is yet to come in terms of employment numbers with the BoE forecasting jobless rate to peak at 7.5% towards the end of the year.
GDP data is out tomorrow with estimates for a -20.7%qoq contraction in Q2.
7.7m people were still classed as temporarily away from work in the UK at end June
39% of these people have been away for three months or more.
While non-essential retail is now allowed to reopen many stores and restaurants are working on much reduced staff numbers.
We easily can see another 2-3m added to unemployment if the economy is forced to maintain strict social distancing and mask rules and if the economy does not return to near normal levels of activity soon.
Beirut – Lloyds insurance claims <$250m
Overall insured losses including property damage may reach around $3bn (Reuters)
10 vessels were within 1.6km of the blast (gCaptain)
DRC – The DRC central bank has cleared $500m in jv cash to Barrick Gold and Anglogold Ashanti
The funds are from sales at the Kibali gold mine in the DRC.
The money is for internal dividends and to pay creditors.
Currencies
US$1.1736/eur vs 1.1766/eur yesterday. Yen 106.20/$ vs 105.98/$. SAr 17.678/$ vs 17.743/$. $1.307/gbp vs $1.306/gbp. 0.717/aud vs 0.715/aud. CNY 6.957/$ vs 6.968/$.
Commodity News
Precious metals:
Gold US$1,984/oz vs US$2,032/oz yesterday - Gold extends retreat on strengthening US dollar
Gold extended Monday's losses this morning, as the US dollar recovered somewhat leading to some investors locking in bullion gains and making gold more expensive to holders of other currency.
The dollar held on to overnight gains on hopes of a stimulus deal, although the dollar index is still 9% lower than the year's high in March (FX Street).
Gold's losses were limited by lingering fears of the economic fallout due to Coronavirus, and escalating tensions between the US and China as the two countries engage in tit-for-tat sanctions on key figures from both administrations.
Spot gold was down 0.5% to $2,018/oz earlier this morning, whilst US gold futures fell 0.6% to $2,027/oz (Reuters).
Gold ETFs 108.8moz vs US$108.8moz yesterday
Platinum US$973/oz vs US$978/oz yesterday
Palladium US$2,219/oz vs US$2,192/oz yesterday
Silver US$28.22/oz vs US$28.42/oz yesterday
Base metals:
Copper US$ 6,371/t vs US$6,304/t yesterday – Copper prices recover after a brief fall on higher SHFE stocks due to rising metal imports into China.
Chinese imports rose 12% on June and 81% yoy to 21.7mt to end July.
Aluminium US$ 1,782/t vs US$1,766/t yesterday
Nickel US$ 14,170/t vs US$14,285/t yesterday - SK Innovation manufacture 90% nickel NCM batteries for Ford-150 pickup.
SK is to commercialize the world’s first Li-ion, nickel cobalt manganese ‘NCM’ batteries with 90% nickel.
The batteries will be 90% Ni, 5% Co and 5% Mn
The higher nickel content enables greater energy density, eg more power and greater range at around 700km
Shorter charging times may also be possible
LG Chem is to also manufacturer a 90% nickel NCM battery for
Samsung SDI is also expected to mass-produce Gen5 batteries with >80% Ni and > 600km range next year.
Zinc US$ 2,387/t vs US$2,381/t yesterday
Lead US$ 1,914/t vs US$1,900/t yesterday
Tin US$ 17,700/t vs US$17,705/t yesterday
Energy:
Oil US$45.1/bbl vs US$44.8/bbl yesterday
Oil prices climbed again yesterday, supported by Saudi optimism on Asian demand and an Iraqi pledge to deepen supply cuts
WTI crude futures were 1.4% higher at US$41.80/bbl in early trading today, while Brent crude futures were up 1%, at US$44.86
Saudi Aramco reported on Sunday its profits fell 73% in the second quarter of the year, as a slump in energy demand and prices due to the coronavirus crisis hit sales at the world's biggest crude exporter
But the company stuck with plans to pay US$75bn in dividends this year and CEO Amin Nasser said global oil demand was recovering as economies gradually open up after the easing of coronavirus lockdowns
On the supply side, Iraq said on Friday it would cut its oil output by a further 400,000bopd in August and September to compensate for its over-production in the past three months
The move would help it comply with its share of cuts by OPEC+
The sharper cut will take Iraq's total reduction to 1.25MMbopd this month and next
The Saudi and Iraqi energy ministers said in a joint statement that OPEC+ efforts would improve the stability of global oil markets, accelerate its balancing between supply and demand and send positive signals to the markets
Natural Gas US$2.153/mmbtu vs US$2.274/mmbtu yesterday
Natural gas prices moved lower yesterday falling nearly 4%
The decline comes as the weather is expected to moderate from much warmer than normal temperatures, especially in the US mid-west
There is one disturbance in the Atlantic that has a 60% chance of becoming a tropical cyclone according to the NOAA hurricane centre
Hedge funds significantly reduced short-positions in futures and options in the latest week which likely led to the short-squeeze in prices
Uranium US$32.25/lb vs US$32.25/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$115.3/t vs US$111.7/t - Chinese iron ore arrivals fell 15% last week as prices rise
Chinese iron ore arrivals at major ports totalled 12.65mt last week, down 2.31mt from the week before but up 3.22mt from the same period last year.
Iron ore leaving Australian ports fell 540,000t to 14.92mt, whilst Brazilian shipments jumped 840,000t from the prior week to 7.22mt (SMM News).
Prices of seaborne iron ore concentrate, and pellets rose last week amid an uptrend in the futures market despite demand weakening, Fastmarkets MB reports.
The most-traded September iron ore futures contract on the Dalian Commodity Exchange closed at 896 yuan/t on Friday - up 5.5% compared to a week earlier.
Chinese steel rebar 25mm US$543.8/t vs US$543.3/t - Turkey's H1 steel production falls 4.1% YoY
Turkey's crude steel production hit 16.3mt in the first half of this year, down 4.1% compared to the same period last year according to the Turkish Steel Producers Association.
The volume of Turkey's steel product exports dropped 11.3% to 9.9mt over the same period, whilst steel imports rose 10.5% to 6.1mt.
Earnings from steel exports slid 17% to $6.8bn from January to June, whilst the value of crude steel imports dropped 2.8% to $4.8bn (Anadolu Agency).
Thermal coal (1st year forward cif ARA) US$58.9/t vs US$59.5/t
Coking coal swap Australia FOB US$119.0/t vs US$119.0/t
Other:
Cobalt LME 3m US$33,200/t vs US$33,200/t
NdPr Rare Earth Oxide (China) US$45,997/t vs US$45,707/t
Lithium carbonate 99% (China) US$4,988/t vs US$4,980/t
Ferro Vanadium 80% FOB (China) US$30.2/kg vs US$30.0/kg
Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg
Tungsten APT European US$205-210/mtu vs US$205-210/mtu
Graphite flake 94% C, -100 mesh, fob China US$430/t vs US$430/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,275/t vs US$2,275/t
Battery News
Amara Raja Batteries reports fall in net profits and revenue
Indian battery major Amara Raja Batteries reported a fall in net profit and revenue for the quarter ending June 30.
Net profit fell 56% whilst consolidated revenue dropped to Rs 1,151.22 crore vs Rs 1,814.95 the same time last year.
India has been heavily impacted by the COVID-19 pandemic which has caused severe disruptions to manufacturing and supply chains.
India first went into lockdown at a similar time to the UK on March 24th but has since had to put the state of Bihar containing some 375m people into lockdown due to a spike in cases. Total infected persons in the country has reached 2,271,013 with 45,383 deaths.
OEM demand has been weak with manufacturers only able to resume production in June. Demand for batteries in the after market has recovered well and suppliers ramped up to fulfil market requirements.
The EV Network receives investment to install charging hubs across UK
The EV Network, an independent charging infrastructure and development company has received £50m in funding from Sustainable Development Capital to fund 100 EV charging hubs across the UK.
The £50m is the first tranche of what could become up to £200m of investment into the developer. The money will be used to accelerate the construction of the charging sties.
The EV Network was founded in 2017 to identify, develop, construct and maintain sites for EV charging infrastructure.
The Company has also received investment from Zood Infrastructure who have similarly funded construction of EV charging sites and in partnership with the EV Network can provide a turn-key service.
Company News
Europa Metals Limited (LON:EUZ) 18 pence, Mkt Cap £1.7m – Marketing arrangements for Toral zinc, lead, silver project in Spain
Europa Metals reports that it has entered a non-exclusive agreement with Hong-Kong based metals concentrate agent, Conrad Partners, to investigate the commercial aspects of marketing future metals concentrate production from the Toral project in Castilla y Leon, Spain.
Conrad Partners is described as “a leading Hong Kong based concentrate agent within the industrial metals space, with a track record of structuring agreements and managing concentrate sales for a series of pre-production and producing companies worldwide”.
CEO, Laurence Read, explained that the agreement has been reached ahead of the results from the current phase of metallurgical testing and the updated minerals resource estimate which is expected to be released in the near future.
Mr. Read confirmed that the project “has reached the stage where operations can be advanced through the use of the potential concentrate output from the project. Accordingly, we have been engaged in a process with the Conrad Partners' team over recent months, which has included their review of our project data room. I am delighted that, following this review period, we have now executed the Marketing Agreement, which serves to appoint Conrad Partners as a marketing agent for the Toral Project”.
Conclusion: As the Toral project is progressed, Europa Metals is investigating concentrate marketing possibilities in alliance with a specialist marketing agent. We look forward to further metallurgical results and to the updated minerals resources estimate in due course.
Lucara Diamonds (CVE:LUC) C$0.59, Mkt Cap C$234m – Maintaining operations through Covid19
Lucara Diamonds reports that its wholly owned Karowe diamond mine in Botswana has continued to operate during the Covid19 pandemic and has “delivered strong production and
cost results in Q2, consistent with the original 2020 plan and below budget”.
The mine produced 101,203 carats of diamonds during the three months to 30th June including 201 diamonds larger than 10.8 carats and 9 individual diamond exceeding 100 carats of which two were over 200 carats.
Sales during the quarter generated revenues of US$7.5m (Q2 2019 - US$42.5m) equivalent to US$109/carat (Q2 2019 - 417/carat) however, “Only stones in size classes below 10.8 carats were sold during the second quarter of 2020”
The lower sales reflect the company’s response to the Coronavirus as “Lucara made a deliberate decision not to tender any of its +10.8 carat production after early March 2020 amidst the uncertainty caused by the global crisis. Subsequently, in July 2020, Lucara announced a ground breaking partnership agreement with the HB Group headquartered in Antwerp, Belgium (“HB”), entering into a definitive supply agreement for the remainder of 2020, for all of the diamonds produced in excess of +10.8 carats from our 100% owned Karowe Diamond mine in Botswana”.
The agreement with HB delivers allows production to be “sold at prices based on the estimated polished outcome of each diamond, determined through state of the art scanning and planning technology, with a true up paid on actual achieved polished sales thereafter, less a fee and the cost of manufacturing. This unique pricing mechanism is expected to deliver regular cash flow for this important segment of our production profile at superior prices”
Cash costs of US$27.14/t during the six months to 30th June (H1 2019 – US$31.16/t) are below the initial forecast range of US$32-36/t reflecting, in part, weakness of the Botswana Pula which depreciated by 7% against the US$ as well as cost containment initiatives initiated during H2 2019.
Panther Metals (LON:PALM) 11.25p, Mkt Cap £6.5m – Progress report on Big Bear gold exploration project
Panther Metals reports that high-resolution airborne electromagnetic data over its Big Bear project, located in the Schreiber-Hemlo greenstone belt of Ontario, has revealed 253 geophysical anomalies including 39 which are considered a priority for early stage follow up soil geochemical sampling, geological mapping and prospecting.
The company reports that initial results from the Phase 1 geochemical sampling “has identified new hitherto unknown gold in soil anomalies coincident with favourable structural settings interpreted from the Mag data”.
Assay results are still awaited from the “bulk of the soil and outcrop assay results ahead of commencing a programme of high priority AEM and Mag anomaly ground truthing, with follow-on stripping, mapping, ground geophysics and sampling with the objective of defining drill ready targets”.
Panther Metals is also continuing to assess the lower priority targets arising from the airborne geophysics work.
Chief Executive, Darren Hazelwood, described the airborne geophysics as “very worthwhile, focusing the groundwork efforts of the geological team in what is challenging tree covered terrain. … [and said that] … Panther will be starting an exciting new phase of work when the field team return from their scheduled break later this month.”
Conclusion: Airborne geophysics has helped identify a number of relatively early-stage targets for follow up exploration to help definition of potential drill targets at Big Bear.
Petropavlovsk (LON:POG) 33p, Mkt Cap £1,299m – Board changes announced
Shareholders voted down resolutions to return Pavel Maslovskiy and a number of former Directors to the Board at a requisitioned general meeting yesterday with the Board returning to four members confirmed at the June AGM.
Resolution 18 (proposed by Everest Alliance) that envisaged the removal of any Board appointment since 9 July was passed through in a 50.6% “in favour” v 49.4% “against” vote.
Following the passing of the resolution the Board composition reverted to four members including Mr James W. Cameron Jr, Mr Maksim Kharin, Ms Charlotte Philipps and Mrs Katia Ray.
The result also means that six Prosperity Capital Management nominations and two Everest nominations will not be making it to the Board, although, one of Prosperity nominees (Michael Kavanagh) had more “in favour” votes.
Six Prosperity Board nominations included former CEO Pavel Maslovskiy, Damien Hackett (served on the Board previously), Harry Kenyon-Slaney (served on the Board previously) and Tim McCutcheon (served on the Board previously), Michael Kavanagh (proposed new member) and Vitaliy Zarkhin (proposed new member).
Two Everest Board nominations included Paul Bushell (proposed new member) and Ivan Kulakov (proposed new member).
The resolution for an independent forensic investigation (proposed by Everest Alliance) that will cover related party transaction for the three years prior to the requisitioned meeting was also passed through.
“We are very pleased with the result of today’s meeting, not just for Everest but on behalf of all independent shareholders. The company now has a bright future under a good board,” Everest commented on results.
“We had many positive discussions with our fellow minority shareholders in the run-up to the EGM all of whom affirmed our position that Petropavlovsk deserves a strong, independent board that will help ensure that the Company’s intrinsic value is not masked by poor governance… We do not intend to stand by as control of our Company is surreptitiously transferred to Everest and UGC, the latter of which claimed that It wanted a Board comprised of truly experienced, diverse, and independent directors which we now clearly do not have,” Prosperity said.
A total of 86% of the firm’s share capital voted, up form the 73% turnout at the previous meeting.
Conclusion: The vote delivers victory to Everest with results likely to see a change in the management team as former CEO Pavel Maslovskiy has not been voted back to the Board. Changes to the Board follow a successful commissioning and complete de-risking of the Pokrovka POX plant facility that unlocks the value in the vast refractory gold reserves/resources base of the Company and amid a strong performance in gold prices paves the way for accelerated deleveraging of the business.
Power Metal Resources* (LON:POW) 1.25p, mkt cap £8.9m - Drilling plans finalised for Botswana Molopo Farms Complex
The Company continue to make progress towards the objective of drilling major nickel sulphide targets in respect of Kalahari Key Mineral Exploration (KKME) Molopo Farms Complex Project.
Power Metal has an 18.26% shareholding in KKME and has elected to earn in to a 40% direct interest in the MFC Project by spending S$500,000 on exploration expenditure in 2020. On completion of the Earn-In, Power Metal will have an effective economic interest of 50.96% in the MFC Project.
The Company is making final preparations in its drill programme planning, and further refining the drill targets through the launch of the Audio Magneto-telluric survey.
The cost of US$500,000 is fully covered by existing financial resources, and at today's date the cash and listed investments held by the company amount to circa US$2.15m.
Power Metal are also working with the Botswana authorities to secure the approval of the Environmental Management Plan, which is the final regulatory step before the launch of the drill programme.
*SP Angel act as Nomad and joint broker for Power Metal Resources
Versarien* (LON:VRS) 39.5p, Mkt cap £67m – Results statement highlights underlying growth of new graphene products
Versarien report results to the year end 31 March 2020.
Sales pulled back to £8.3m vs £9.1m for FY 2019
EBITDA fell to -£0.6m vs -£1.1m yoy excluding exceptional items and share based payment charges reducing the figure by £0.7m this year
Pre-tax Loss £4.7m vs £2.8m. The loss is after share based payments charges of £1.2m vs £0.7m in 2019
Cash: £1.7m at 31 March 2020 of vs £4.3m at end March 2019
Net assets rose to £15.7m vs £13.3m in 2019
Versarien is now moving into product development for its graphene materials:
The team is now manufacturing graphene enhanced face masks in joint venture China and is confident that its IP is protected in the Chinese market
The company has orders for its first 120,000 masks
Versarien signed a product development agreement J&P Coats to incorporate graphene nano-platelets and graphene inks into consumer textiles
A £5m Innovate UK loan was awarded to Versarien in June 2020 to scale up product development in GSCALE collaborations
Highlights for the year include:
Commercial Partnership to develop new garments utilising Versarien's graphene ink materials
€350,000 grant to participate in the Graphene Flagship project, led by Airbus for the development of graphene based thermo-electric ice protection
Partnership with Rolls Royce and the University of Manchester's Graphene Engineering Innovation Centre ‘GEIC’ using chemical vapour deposition ‘CVD’ in wiring for next generation aerospace engine systems
£104,000 from the Advanced Propulsion Centre for the development of low-carbon technologies to significantly reduce vehicle emissions
Conclusion: Versarien continues to advance the underlying value of its business though the development of a broad range of graphene products. These products are close to and are expected to rapidly move to commercial production adding to sales and profits in future years.
*SP Angel act as Nomad and broker to Versarien. The analyst has visited Versarien graphene manufacturing facilities.
Analysts
John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490
Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474
Sales
Richard Parlons –Richard.Parlons@spangel.co.uk - 0203 470 0472
Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534
Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
SP Angel
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*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
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