SP Angel . Morning View .Friday 21 08 20
Water levels threaten to top Three Gorges Dam as flood destroys crops
UK PMIs show recovery while poor Eurozone PMIs highlight risk to V-shaped recovery
Gold Fields (JSE:GFI) – R21,519, Mkt cap R190bn – Profits rise as gold prices lift margins
Power Metal Resources* (LON:POW) 1.35p Mkt Cap £9.6m – Increased ownership in Haneti project
Shanta Gold (LON:SHG) 17p, Mkt Cap £143m – Barrick becomes a 6.4% investor following the sale of the West Kenya project
Chinese domestic stainless steel prices rose for eighth straight week – indicating strength of demand for stainless products
Stainless steel prices in China continued to rise this week to their highest since February, as a weak US dollar drove up prices for key steelmaking ingredients such as nickel.
Three-month nickel on the LME is up over $500/t compared to last week, an additional cost which steelmakers have to factor in.
Stainless steel cold-rolled 2mm prices stood at 14,500-14,900 yuan ($2,095-2,153)/t – up by 400 yuan compared to a week earlier.
China - Three Gorges Dam flooding close to maximum level after worst flooding on record
Ongoing and torrential rain in China is flooding large parts of the 6,300km long Yangtze River and its many tributaries.
Sichuan hit by worst flood in 70 years. Chongqing suffers worst flood in 40 years. Authorities have been forced to blow up at least one dam.
The Three Gorges Dam reservoir was 165.6m deep this morning, not far off its 175m maximum level according to Reuters
The dam is discharging some 48,800m3/s to lower water levels and may need to increase the discharge rate adding to flooding downstream
Overtopping of the dam would cause significant damage with potential for outright collapse.
Economic damages are estimated between $9-26bn depending on who economic loss or the cost of repairs plus the economic loss.
China claims the dam has cut downstream floodwaters by 34%.
The flooding has decimated crops and destroyed fields raising food prices and causing the government to release food stocks
The Yangtze River basin accounts for around 70% of China’s rice production with estimates suggesting that china could lose 11.2mt of food compared with last year (Shenwan Hongyuan).
We also believe the flooding is affecting the logistics for a number of smelting companies.
Rare Earth production is reported to be affected while China’s refined copper output remained stable in July.
Zinc and lead production may also be hit as transport and the delivery of supplies may be impacted by the flooding.
China – Report shows how firms linked to members of China’s Politburo gained 55-60% discounts on land with party secretaries promoted to the Politburo
President Xi’s anti-corruption drive has led to the a significant fall in the discounts on municipal land given to ‘princeling’ companies in China.
Discounts of 55-60% were applied on average to companies connected to members of China’s Politburo with firms connected to members of the Politburo Standing Committee obtained an additional discount of 17-20 per cent over discounts obtained by those connected to a Politburo member according to a report in the South China Morning Post.
Xi’s anticorruption campaign has led to a significant fall in the discounts to Princeling firms with discounts falling ot just 7.5% lower than that paid by unconnected companies.
The reward for giving discounts to Princeling companies is a 23% chance of promotion to higher positions with 52% of provincial party secretaries promoted to the Politburo at the end of their term in office.
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Dow Jones Industrials +0.17% at 27,740
Nikkei 225 +0.17% at 22,920
HK Hang Seng +1.31% at 25,116
Shanghai Composite +0.40% at 3,377
Economics
US – Weekly jobless claims surprisingly picked up and climbed back above 1m mark in a sign that a recovery in the labour market paused.
Equities pulled back and Treasuries climbed on the back of the data.
Weekly Jobless Claims (‘000): 1,106 v 963 in the previous week and 920k est.
Continuing Claims (‘000): 14,844 v 15,486 in the previous week and 15,000 est.
Japan – Core inflation (excl fresh food and energy) held unchanged at 0.4%yoy in July as the economy battles with a series of headwinds in the form of coronavirus pandemic, trade rows and post sales tax hike drop in consumer spending.
Meanwhile, a recent resurgence in new coronavirus cases may delay an economic recovery.
Eurozone – Economic activity growth unexpectedly slowed down in August with companies reported to continue shedding staff numbers.
The Eurozone missed expectations for PMIs today as the economic block struggles to recover from lockdown
Services sector is responsible for most of the slow down, although, manufacturing growth also dropped but only marginally.
New orders increased for the second consecutive month, although, growth slowed down on the back of lower new business from abroad at service providers as travel restrictions were reimposed.
Employment dropped for the sixth successive month, although the rate of job cuts softened further form April’s survey record.
“The eurozone’s rebound lost momentum in August, highlighting the inherent demand weakness caused by the COVID-19 pandemic… the recovery was undermined by signs of rising virus cases in various parts of the euro area, with renewed restrictions impacting the service sector in particular,” Markit commented on numbers.
Eurozone Markit Manufacturing PMI 51.7 for August vs 52.7 expectations
Markit Services PMI 50.1 for August vs 54.5 – a big miss by any standards
Markit Composite PMI 51.6 August vs 55.0 expected
Fitch Ratings – does not see the rise in ECB balance sheet as inflationary
Germany – Economic growth slowed down in August predominantly led by the services sector, Markit survey shows.
Services sector showed steeper declines in new business from abroad; this compares to a marked increase in export sales in the manufacturing sector with several businesses highlighting stronger demand from China and Turkey.
Employment levels continue to drop, although, at a reduced pace with most of job losses recorded in the manufacturing that posted the steepest drop in the number of jobs; services firms noted a fractional rise in staffing levels.
““Following the rapid gains in the German PMI in each of the previous three months that coincided with the initial reopening of the economy, August’s flash results show the recovery having lost some momentum… the slowdown was centred on the service sector, where growth was close to stalling amid renewed travel restrictions and a sustained decline in overall employment that continues to undermine domestic demand,” Markit said.
Markit Manufacturing PMI: 53.0 v 51.0 in July and 52.3 est.
Markit Services PMI: 50.8 v 55.6 in July and 55.2 est.
Markit Composite PMI: 53.7 v 55.3 in July and 55.0 est.
France – Economic momentum slowed considerably in August with manufacturing sector reported back in contraction.
New orders climbed at a slower pace with growth driven by local businesses as new export business fell for the eighth month in a row; although, the pace of declines eased from April’s series record.
Employment contraction extended to six months with the pace of layoffs reported to have accelerated slightly from July.
“Overall, the results highlight the fragility of demand conditions faced by French businesses and cast further doubt over the V-shaped recovery that many had hoped for,” Markit wrote.
French Markit Manufacturing PMI 49.0 in August vs expectations for 53
The figures highlights how slow France / Europe is to recover from the lockdown
Markit Services PMI 51.9 in August vs expectations for 56.3
Markit Composite PMI 51.7 in August vs expectations for 57.0
France also saw a sharp rise in Coronavirus cases at 4,771 new infections in a day
UK – PMIs better than expected as economy rebounds after lockdown indicating second half recovery is well set
Flash UK PMI 60.3 in August – a massive recovery by any standards
Markit Manufacturing PMI 55.3 in August vs expectation of 54.0
Markit Services PMI 60.1 in August vs 57.0 expected
Markit Composite PMI 60.3 in August vs 56.9 expected
Public debt climbed past the £2tn mark for the first time in July amid expanded stimulus measures and a contraction in the economic activity.
Separately, retail sales climbed more than forecast in July as consumers emerged from lockdown restrictions.
“Retail sales have now regained all the ground lost during the height of the coronavirus restrictions as more stores open for trade,” the Office for National Statistics said.
Outlook remains uncertain as to the effect of the planned to wind down furlough programme on consumer spending in the second half of the year.
Retail Sales (%mom): 3.6 v 13.9 in June and 2.0 est.
Core Retail Sales (%mom): 2.0 v 13.5 in June and 0.2 est.
Hurricane Genevieve reduced to tropical storm from Category 4 hurricane
This is hurricane season in the Gulf of Mexico where seawater temperatures are higher this year than normal
Warm seawater feeds energy into hurricanes indicating that the warmer the temperature the stronger the hurricane
Hurricane Genevieve is heading for the Baja Coast in Mexico.
Currencies
US$1.1873/eur vs 1.1855/eur yesterday. Yen 105.56/$ vs 105.98/$. SAr 17.246/$ vs 17.229/$. $1.324/gbp vs $1.308/gbp. 0.720/aud vs 0.718/aud. CNY 6.906/$ vs 6.920/$.
Australian dollar set for ninth straight weekly gain on robust iron ore market
The Australian dollar has had a solid run since mid-March, as Australia’s economy opened earlier than expected and iron ore prices hit multi-year highs.
The Aussie dollar hit one-and-a-half yeah high against the USD on Wednesday at $0.7275, up from US$0.5510 in March.
Commodity News
Precious metals:
Gold US$1,946/oz vs US$1,945/oz yesterday - Columbia – Central bank sells two-thirds of gold in June
The nation sold $475m worth of bullion in June, equivalent to 67% of its holdings at the end of May.
Gold ETFs 108.5moz vs US$108.5moz yesterday
Platinum US$924/oz vs US$938/oz yesterday
Palladium US$2,177/oz vs US$2,170/oz yesterday
Silver US$27.23/oz vs US$27.09/oz yesterday
Base metals:
Copper US$ 6,616/t vs US$6,599/t yesterday – Shanghai copper stocks rise a further 215t (1%) to 172,266
Aluminium US$ 1,797/t vs US$1,789/t yesterday
Nickel US$ 14,705/t vs US$14,680/t yesterday – Shanghai nickel stocks fall 358t (1%) to 32860t
Zinc US$ 2,491/t vs US$2,486/t yesterday – Shanghai zinc stocks rose 1.5% to 77,629t
Lead US$ 2,004/t vs US$1,985/t yesterday – Shanghai lead stocks fell 1,522t (4.5%)
Tin US$ 17,685/t vs US$17,450/t yesterday – Shanghai tin stocks fell 0.4% to 3,584t
Energy:
Oil US$45.0/bbl vs US$45.0/bbl yesterday
Oil prices remain steady on latest OPEC+ compliance reports that Iraq and Nigeria are showing further willingness to comply with production quotas
Instead of Saudi Arabia taking on the additional burden with the production cuts as it did in the past, the Kingdom is now insisting that those countries that have pumped above their quotas between May and July should make up for their own poor compliance in August and September
This new strategy seems to be working, at least partially, as Iraq and Nigeria – although not complying fully with their quotas – are making efforts and promise extra cuts on top of their share of the reduction.
According to Bloomberg estimates, Iraq and Nigeria both showed compliance rates of 85% with their quotas, which is as high as they have ever shown in the past, and in contrast with previous deals when Iraq didn’t comply at all
Earlier this month, OPEC’s second-largest producer, Iraq, promised additional cuts of around 400,000bopd this month in order to compensate for the lack of compliance with the OPEC+ agreement in the previous months
The OPEC+ panel, the Joint Ministerial Monitoring Committee, reported after its meeting on Wednesday that the overall OPEC+ compliance with the cuts was 97% in July
The underperforming Members of the Committee reaffirmed their commitment to compensate for the shortfalls in May, June, and July 2020 by the end of September 2020
The Committee highlighted that achieving 100% conformity from all participating countries in the DoC and compensating for the shortfalls in May, June and July 2020 is not only fair, but vital for the ongoing rebalancing efforts and to help deliver long-term oil market stability
Natural Gas US$2.433/mmbtu vs US$2.433/mmbtu yesterday
Natural gas prices fell yesterday afternoon following the Energy Department’s report on inventories
Despite a report that was in line with expectations, traders took profits after the recent rally
Natural gas in storage was 3,375Bcf as of 14 August, according to the EIA
This represents a net increase of 43Bcf from the previous week, whilst expectations were for a 45Bcf draw
Stocks were 595Bcf higher than this time last year and 442Bcf above the five-year average of 2,933Bcf
At 3,375Bcf, total working gas is above the five-year historical range
There are now two tropical storms in the Atlantic, one is headed right for the Gulf of Mexico and is likely to hit natural gas infrastructures
The other appears to be headed for the eastern Gulf of Mexico and could hit the west coast of Florida
The weather is expected to remain warmer than normal in the US southwest generating additional cooling demand
Uranium US$31.00/lb vs US$31.00/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$123.8/t vs US$124.6/t
Chinese steel rebar 25mm US$545.6/t vs US$545.8/t
Thermal coal (1st year forward cif ARA) US$54.4/t vs US$54.4/t - EU coal imports fall for 16th consecutive month
The total amount of coal imported stood at 3.3mt in June, a 41% drop compared to the same period last year.
June’s figure brought first-half coal imports to the EU and UK to 23.1mt- 51% lower YoY and the lowest Jan-June total since 1988 (Argus Media).
EU import demand has fallen as a result of a sustained drop in coal-fired power generation amid rising use of renewables and an uptick in gas usage.
Coking coal futures Dalian Exchange US$117.5/t vs US$117.5/t
Other:
Cobalt LME 3m US$33,200/t vs US$33,200/t - China to stockpile 2,000 tonnes of cobalt
China’s state stockpiling agency has drawn up plans to buy 2,000 tonnes of cobalt, after the coronavirus pandemic highlighted the fragility of supplies.
Cobalt prices have climbed 10% in the past month amid supply disruptions in Africa, mainly the DRC (Bloomberg).
Supply had already tightened this year following the closure of Glencore’s 25,000tpa Mutanda mine, although much of the cobalt coming out of the DRC is mined informally.
China imported 435 tonnes of cobalt in May, up 107% YoY and 151% higher than April 2020, according to Chinese customs data (Fastmarkets MB).
NdPr Rare Earth Oxide (China) US$50,610/t vs US$49,784/t
Lithium carbonate 99% (China) US$4,923/t vs US$4,913/t
Ferro Vanadium 80% FOB (China) US$30.3/kg vs US$30.3/kg
Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/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
Nio launches battery leasing service
Chinese EV maker Nio is set to offer a batteries as a service (BaaS) in order to make ownership of its vehicles more affordable. Offering batteries via leasing lowers the upfront cost of the vehicle as the battery is often the most expensive part.
Nio’s least expensive model, the ES6 is available at 273,600 yuan without the battery and 343,600 including the battery pack. The battery can be leased for ~1036 yuan ($150) per month.
The batteries used across Nio’s range are standardized and supplied by CATL. The Company has built 143 battery-swapping stations in China to date and is looking to add 300 more stations in 2021. The density of these stations could prove crucial in the take up of BaaS.
Drivers pay a monthly rental fee for use of the battery. For prospective owners the advantages of battery leasing include lower upfront costs, reduce risk of technological redundancy and improved prospective resale value. The major downside is the lower running costs associated with owning an EV are increased by having to pay a monthly rental fee.
Renault ran a BaaS scheme in 2017, leasing 100,000 batteries. Since Renault has stopped leasing the ‘Zoe’ model in the UK and Spain due to increases in the residual value of the battery.
Earlier this month Octillion launched a demonstrator program for battery leasing for fleet customers. The scheme enabled participating fleet operators to source batteries through a 5yr lease to own program.
It will be interesting to see if Octillion and Nio’s schemes gain popularity following Renault’s stop start attempts at leasing.
Tesla increases charging rate for Model S and X owners in China
Californian EV giant Tesla has rolled out a new peak charge for its Model S and X vehicles in China. Both vehicles are now capable of 250kW, a charge rate of 1000mph.
Tesla has upgraded the supercharging rate from 200kW to 225kW. US and Canadian owners received the update in June and it has now been extended to China. The vehicle will need to be plugged into a V3 supercharger to make use of the improved charge rate.
Lucid Air announced yesterday their ‘Air’ vehicle will be capable of a 300kW charge on a 350kW CCS DC fast charger which would make it the fastest EV charger.
GAC’s Aion S is capable of 100kW fast charging, with a 6.6kW on board fast charger.
Company News
Gold Fields (JSE:GFI) – R21,519, Mkt cap R190bn – Profits rise as gold prices lift margins
Gold Fields operates the South Deep mine in South Africa as well as Cerro Corona in Peru, Tarkwa, Damang and Asanko in West Africa and St Ives, Granny Smith, Agnew and Gruyere in Australia.
Gold Fields report normalised earnings more than doubled to US$323m for the first half of 2020
The group reported 1.087moz of attributable gold production.
All-in sustaining costs came in at US$987/oz vs $891/oz a year ago
All in cash costs fell to US$1,065/oz vs $1,106/oz yoy
Attributable profit rise to $155.5m from $70.5m yoy due principally to higher gold prices but also to weaker currencies in Peru, South Africa and Australia as well as lower oil prices.
Production outlook 2.0-2.5moz over the next 8-10 years reflects ongoing project growth within the group
Reserves outside South Africa now exceed 20moz offering a 10-year mine life
Net debt fell to US$876m at end June vs $1,331m at end December highlighting the strong cash flow generation as well as a $250m equity raise.
Conclusion: Gold Fields is more highly leveraged to the gold price than many gold miners but is well diversified and paying down debt fast.
The Team have managed the impact of the coronavirus and should see a significant rise in profit through the second half.
Power Metal Resources* (LON:POW) 1.35p Mkt Cap £9.6m – Increased ownership in Haneti project
The company previously held a 25% ownership in the Haneti project, in Tanzania, with 75% held by Katoro Gold.
On Thursday, Power Metal announced that it has exercised an option, paying £25,000 to Katoro in order to increase its holding to 35%.
The JV plans to focus on the drill-ready targets at Mihanza Hill and Mwaka Hill, which has been a source of interest for the companies due to the areas considerable nickel sulphide potential.
Alongside the drill-ready targets, the JV will also look at other areas within the extensive license area, with Paul Johnson Chief Executive Officer of Power Metal Resources plc commenting: “the full impact of the 80km potential strike length and the polymetallic opportunities across a 5,000 sq km strategic project footprint, mean that Haneti is a project capable of delivering discoveries in nickel sulphide (and laterite), copper, platinum group metals, gold, lithium and rare earths”.
Conclusion: Power Metals continues to build a portfolio of exploration projects across base and precious metals in Australia, Africa and N America
*SP Angel acts as Nomad and broker to Power Metals Resources
Shanta Gold (LON:SHG) 17p, Mkt Cap £143m – Barrick becomes a 6.4% investor following the sale of the West Kenya project
Barrick has been issued 54.7m shares in the Company and becomes a 6.4% investor following a completion of the West Kenya asset.
Shanta has previously announced the receipt of all regulatory approvals to acquire 100% of the shares of Barrick’s Acacia Exploration (Kenya) Ltd (AEKL).
The consideration paid for the project included $7.0m cash, $7.5m worth of Shanta shares (54.7m) and a 2% NSR over the project.
The project includes $55m worth of exploration works and drilling completed since 2010 and a delineated high grade NI 43-101 inferred resource of 1.18moz at 12.6g/t within two prospects (Isulu and Bsuhangala).
The project features 1,161km2 within the highly prospective Lake Victoria greenstone gold fields.
The plan is to launch an infill drilling programme and collect data for the Scoping Study to estimate the project’s economic potential.
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
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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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