SP Angel . Morning View . Friday 16 10 20
Copper prices level ahead of Chinese Q3 GDP out early next week
Rio Tinto (LON:RIO) – Maintaining production and capex guidance across key products after solid Q3
URU Metals* (LON:URU) – EIA progress update
Dow Jones Industrials -0.07% at 28,494
Nikkei 225 -0.41% at 23,411
HK Hang Seng +1.00% at 24,400
Shanghai Composite +0.15% at 3,337
European auto sales climbed 1.1%yoy in September in a surprise first increase this year.
New car registrations were up in Italy and Germany offsetting declines in Spain and France.
Although growth momentum is under risk as government in the UK, German, Italy and France are struggling to control record new COVID-19 cases.
Sales are still down 29%yoy in the first nine months of 2020 with strongest declines coming in March to June months.
US – Weekly jobless claims unexpectedly climbed in the week to October 10 to the highest since August pointing to a slowing recovery to the pandemic and highlighting the need for new fiscal stimulus package.
Continuing claims continued to come down with ~10m people receiving jobless benefits as of September end, compared to a high of 25m in May and <2m before="" the="" pandemic="" li="">
The US reported 63,172 new infections on Thursday, marking the largest daily reading since July, with half the states reporting at least 1,000 new cases.
President Tump suggested he was ready to boost the size of the proposed $1.8tn fiscal package, although, the idea was quickly rejected by Senate Majority Leader Mitch McConnell.
“He’s talking about a much larger amount that I can sell to my members,” McConnell said.
Separately, Trump he will accept coming election results and pledged to a peaceful transfer of power if he loses the vote.
Jobless Claims (‘000): 898 v 845 in the previous week and 825 est.
China – Q3 GDP numbers are due Monday with Bloomberg estimates for growth momentum to gain pace and economy expanding 5.5%yoy, up on 3.2%yoy in Q2/20.
ECB officials seem reluctant to add to imminently add to stimulus despite a new resurgence in COVID-19 cases with December seen as the most likely month for a decision, Bloomberg reports.
Securing unanimous support for a stimulus is expected to be easier in December with US elections out of the way with uncertainty over Europe’s fiscal stimulus package and Brexit may also having resolved by that time.
UK – PM Johnson will decide today whether to abandon Brexit talks after this week’s summit of EU leaders failed to yield the clear signal he wants in order to remain at the table, Bloomberg writes.
South Korea – Unemployment rate climbed 0.7pp to 3.9% in September reflecting business struggles hit by social distancing and other restrictions amid an increase in virus cases.
Estimates for a 3.7% reading.
The hotels and restaurant sector was hit worst as the nation shed 392k jobs for a seventh consecutive month.
Fiscal support programmes saw a 9.8%yoy increase in public service, defence and social security sector.
EU leaders to make deal on climate change target in December
European countries came closer to an agreement on a new climate target at a summit on Thursday, however delayed a deal on the emissions cutting goal to a December meeting.
The meeting was the first one about upgrading the current EU target of a 40% cut in greenhouse gas emissions by 2030. The European Commission has said the bloc has to have a cut of at least 55% by. 2030, against 1990 levels, to reach the goal of net zero emissions by 2050 that every country, except Poland, have committed to.
Instead of agreeing on a goal on Thursday, the leaders decided to return to the issue in December, with the aim of finalising the goal by the year end.
Once the EU come to. a decision on the 2030 target, they have to make a deal with the European Parliament which wants to. cut 60% of emissions.
The Council of EU leaders “invites the Commission to conduct in depth consultations. With member states to assess the specific situations and to provide more information about the impact at member states’ level”.
About half of EU countries have said that they support the “at least 55%” target. This would cause big changes in EU policies such as tighter car emission standards and higher carbon costs for industry and airlines.
US$1.1708/eur vs 1.1736/eur yesterday. Yen 105.32/$ vs 105.25/$. SAr 16.594/$ vs 16.635/$. $1.291/gbp vs $1.299/gbp. 0.709/aud vs 0.710/aud. CNY 6.713/$ vs 6.725/$.
Liberty Steel expected to make offer for Thyssenkrupp steel unit
Liberty is expected to make an offer for all of Thyssenkrupp’s massive steel unit, according to industry insiders.
Thyssenkrupp is seeking buyers for its steel unit as the company races to streamline its business and ensure its survival, with Tata Group and Sweden’s SSAB also said to be interested.
The company agreed earlier this year to sell its elevator division for €17.2bn to buy time for a broader restructuring.
Thyssenkrupp’s shares were up as much as 23%, and were up 15% as of 8.47am this morning on the news (Bloomberg).
Gold US$1,906/oz vs US$1,898/oz yesterday - Metal Focus – Gold mine output to fall 4.6% this year
The world’s mines will produce 3,368t of gold this year, the lowest in five years- according to consultancy Metals Focus.
Despite the drop in 2020, output is expected to increase by 8.8% to a record 3,664t in 2021 as a result of higher bullion prices.
The consultancy’s head of mine supply, Adam Webb, expects gold demand to fall 25% this year to about 3,000t before recovering 17% in 2021.
Mining companies’ earnings/oz in Q2 were on average $739 higher than their costs, compared to just $350 in mid-2019.
Gold ETFs 111.2moz vs US$111.2moz yesterday
Platinum US$866/oz vs US$860/oz yesterday
Palladium US$2,360/oz vs US$2,362/oz yesterday
Silver US$24.27/oz vs US$24.09/oz yesterday
Copper US$ 6,779/t vs US$6,709/t yesterday
Aluminium US$ 1,858/t vs US$1,843/t yesterday
Nickel US$ 15,545/t vs US$15,385/t yesterday - Nickel is all class but not enough supply
Elon Musk’s call to arms to the nickel mining industry is just the most high profile example of the EV battery market yearning for greater and more secure supply of the metal which is an important component in the EV revolution.
Today stainless steel makes up the majority of demand for nickel, constituting 74% of the market while batteries only make up 5-8% of demand. Batteries however can only be produced using higher purity Class 1 which accounts for only around 46% of the nickel supply market.
As the demand for EVs rises with government policy support and improved battery economics Class 1 demand is set to outstrip supply by 2029 and likely even earlier, perhaps 2024 according to McKinsey. McKinsey forecast EV battery demand for nickel will increase from 33Kt to 570Kt by 2025.
This could lead to a divergence in pricing for the different classes of nickel with class 2 trading at a significant discount to class 1. This bifurcation and the associated environmental problems associated with mining nickel provides an opportunity for certain producers differentiate themselves reports Metal Miner.
Nickel has become a popular component in EV batteries with the proportion of the metal ever increasing, most recent iterations including the NCM 811 with 80% nickel content. Nickel helps deliver high energy density and greater storage capacity at lower cost, often filling in for cobalt which battery producers are seeking to move away from.
Russia, Canada and Australia are the primary sources of nickel with Canadian miners marketing themselves as a green source of nickel to acquire supply contracts with automakers.
With lead times on projects up to 10yrs which coincides with the moment at which demand will outstrip supply, investment is required now and so might be some blue skies for nickel.
Zinc US$ 2,433/t vs US$2,438/t yesterday
Lead US$ 1,781/t vs US$1,784/t yesterday
Tin US$ 18,340/t vs US$18,300/t yesterday
Oil US$42.7/bbl vs US$43.3/bbl yesterday
Natural Gas US$2.801/mmbtu vs US$2.678/mmbtu yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$114.2/t vs US$115.2/t - Iron ore futures fall on Chinese inventory inflows
Iron ore futures have fallen over the last three days, as Australia and Brazil continue to ramp up shipments causing stocks to pile up (Hellenic Shipping News).
Portside iron ore stocks are now at seven-month highs of 123.6m tonnes as of last week, according to SteelHome.
Iron ore futures have continued to decline from the two-week low on Wednesday, when iron ore futures slumped more than 3% to 792 yuan ($117.50)/t on the Dalian Commodity Exchange (Reuters).
Chinese steel rebar 25mm US$561.0/t vs US$560.8/t
Thermal coal (1st year forward cif ARA) US$59.1/t vs US$58.7/t
Coking coal futures Dalian Exchange US$137.5/t vs US$137.0/t - Australian coal redirected to India and Southeast Asia after China import ban
Steel mills in India and southeast Asia are seeing more spot cargoes of Australian coking coal after China halted Australian shipments, according to Fastmarkets MB.
Two steel mills in China sold its cargo of Australian coking coal to a steel mill in Indonesia, while another in southeast China was seeking to divert its cargoes to South-eastern Asian countries.
Chinese buyers are also making enquiries about coking coal from Canada and the US< a trader told Fastmarkets.
Cobalt LME 3m US$33,305/t vs US$33,305/t
NdPr Rare Earth Oxide (China) US$47,964/t vs US$47,882/t - Apple’s iPhone 12 to use 100% recycled rare earth elements
Apple announced this week that its newest iPhones would be produced using recycled rare earth materials, as the company aims to keep its 2030 net zero pledge.
The Company’s policy chief Lisa Jackson said during an online event: “for the first time, we are using 100% recycled rare earth elements in all magnets including the camera, haptics and MagSafe (connectors)."
Activists have expressed concerns over the environmental and social impact of rare earth mining, especially out of China which is the dominant producer in the REE space- and something which a company with such a high profile as Apple would want to distance themselves from.
Lithium carbonate 99% (China) US$5,214/t vs US$5,205/t
Ferro Vanadium 80% FOB (China) US$29.3/kg vs US$29.3/kg
Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/kg
Tungsten APT European US$212-220/mtu vs US$220-225/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
Rural charging network gets go ahead
The Highlands and Island Transport Partnership (Hitrans) has received £1.5m in funding to deliver 24 rapid charging points at locations including, Locahber, Skye, Lichalsh, Argyll, Bute and the Western Isles.
There are currently 140 EV charging point in the region.
This news is a good example of not only the density of the EV charging network increasing but it is also spreading. An important part of influencing public opinion in favour of EVs is easing fears about access to charging while on the road and charging times.
Funding for such a project shows a willingness to address these concerns and delivery shows the capability to install such sites in more rural areas provided users greater choice of destination.
The additions will be [art of the ChargePlace Scotland network which has over 1000 public charge points across Scotland.
EU to reject special allowances for UK EVs
A draft addition of the post-Brexit trade deal seen by the BBC says electric and hybrid cars will only receive zero tariffs if the maximum content of non-originating (non EU and UK) materials is 45% of the ex-works price of the vehicle.
Those vehicles with greater than 45% of the ex-works price originating from outside the EU and UK would be subject to a 10% tariff.
The UK has been pushing for a much greater percentage of parts being sourced from non-originating locations, around 70% of the ex-works price.
This t has been requested by vehicle exporters who source batteries and hybrid system from Japan.
The draft annex shows even more stringent regulations from 2027 with only car batteries manufactured either in the EU or UK being tariff free in trade between the block and the UK.
Power Metal Resources (LON:POW) 1.53p, mkt cap £12.5m – Drilling commences in Botswana
Power Metal has announced that drilling has commenced at its Molopo Farms Complex Project, which is targeting prospective massive nickel sulphide and PGM mineralisation in Botswana.
The project in question relates to the Kalahari Key Mineral Exploration Ltd, of which Power Metal has an 18.26% shareholding and elected to earn in to a 40% interest in the project by funding US$500,000 of exploration in 2020.
The exploration expenditure relates to diamond drilling at selected targets, and drilling has commenced for the first of four planned holes constituting the Phase 1 Drilling Programme amounting to 2,505m at the Molopo Farms Complex.
Planned target hole depths vary from 525m to 710m, and Hole 1 has been designed to intersect the first of an initial four high priority targets, indicated by electromagnetic and geophysics surveys.
On completion of the earn-in, Power Metal will have an effective economic interest of 50.96% in the project, and the $500k cost is fully funded by the company’s existing cash resources.
CEO Paul Johnson commented: "We are very pleased to report the commencement of drilling at the Molopo Farms Complex where high-resolution geophysics has identified a series of exciting high conductivity bodies which could be related to massive sulphide mineralisation.”
*SP Angel act as Nomad and Broker to Power Metal Resources
Rio Tinto (LON:RIO) 4691p, Mkt cap £77.8bn - Maintaining production and capex guidance across key products after solid Q3
Rio Tinto reports that it has successfully adapted its operating procedures to the constraints of Covid19 containment measures and, with the exception of an 18% declined in mined copper production which was adversely affected by lower grades at Kennecott, and IOC’s iron ore pellets business, output of most major products was broadly consistent with both the preceding quarter and with the equivalent Q3 2019 performance.
Rio Tinto’s share of Pilbara iron ore production amounted to 71.4mt during the quarter bringing year-to-date output to 204.5mt. Quarterly output is just 1% below that of Q3 2019 and 4% above that of the preceding quarter.
Iron ore shipments during the quarter were “82.1 million tonnes (Rio Tinto share 67.6 million tonnes) were 5% lower than the third quarter of 2019 with significant planned maintenance activity affecting the port during the period”.
The company reports unchanged 2020 iron-ore production cost guidance of $14-15/t and is maintaining full year production guidance in the range 324-334mt. The former Koodaideri iron ore project, now known as Gudai Darri, remains on course to start its production ramp-up in early 2022 while initial ore production from the Robe River joint-venture projects at West Angelas (B & C) and at Mesa B, C and H at Robe Valley is still on course for 2021.
Rio Tinto confirms that “Chinese iron ore demand is at record levels against a backdrop of recovering seaborne supply that was disrupted earlier in the year. However, with the major producers expected to deliver strong volumes in the fourth quarter, iron ore inventories are expected to grow modestly as China's steel consumption eases from record highs and scrap consumption increases. Japan, South Korea, Taiwan and Europe continue to show signs of recovery: however, ex-China steel production remains down significantly year on year”.
Bauxite output grew by 5% compared to Q3 2019 to 14.46mt bringing year-to-date production to 42.8mt while alumina production grew by 7% to 1.95mt bringing the year-to-date production to 5.95mt.
The “aluminium business continues to demonstrate operational stability and performance across the supply chain, despite the continued impact of COVID-19. Production of 0.8 million tonnes in the third quarter was 1% higher than the third quarter of 2019. The Becancour smelter in Quebec, Canada is operating close to full capacity and good progress has been made on the pot relining at the Kitimat smelter in British Columbia, Canada”.
Compared to Q3 2019, mined copper production increased by 28% at Oyu Tolgoi to 12,200t offset by declines of 40% (to 34,700t) at Kennecott where mining of lower grades “as a result of sequencing to optimise molybdenum ore production during the extended smelter shutdown. Grades will continue to be lower through 2020 before increasing in 2021, with the transition in east to south wall mining” and by 9% at Escondida (to 82,800t) where workforce reductions were implemented to help contain Covid19.
The improved performance of Oyu Tolgoi is attributed to “the move to higher grade areas of the open pit in 2020, primarily due to accelerated mine development and production phasing. Access to higher copper and gold grades is expected to continue for the remainder of 2020, which was originally planned for the first half of 2021.”
Production of iron-ore pellets at IOC was “21% lower than the third quarter of 2019 due to an annual planned maintenance shutdown deferred from June to September as a result of COVID-19 travel restrictions. A weather related power failure and mechanical issues also impacted production in the third quarter”.
Reporting year-to-date exploration expenditure of $450m Rio Tinto highlights its broad spread of activity across 16 countries and eight commodities. Among base metals projects, the copper/gold project at Winu in W Australia where studies are continuing and “drilling has focused on resource definition and brownfield exploration”. Advanced projects continue at La Granja and Pribrezhniy, Kazakhstan while earlier stage copper exploration is underway in Australia, Chile, Kazakhstan, Nicaragua, Peru, Serbia, Zambia, Brazil Colombia, Finland and Kosovo.
Iron ore exploration from early stage projects through to detailed studies is in place across the Pilbara.
The company also describes the measures it is implementing to protect cultural sites following the destruction at Juukan Gorge. Outgoing Chief Executive, JS Jacques, confirmed that Rio Tinto is “focused on regaining the trust of the Puutu Kunti Kurrama and Pinikura people (PKKP) with a focus on remedy. On Tuesday 13 October we wrote a letter to Traditional Owners in the Pilbara detailing that we will review all heritage disturbance in consultation with them; and shared our intention to modernise our agreements which includes modifying clauses to ensure respect, transparency and mutual benefit.”
Apart from the well publicised departures arising from the Juukan Gorge incident, Rio Tinto has “instituted an enhanced level of governance over the impact on sites of heritage significance. All approvals to disturb sites directly or indirectly are being made on a risk-managed basis at Rio Tinto Iron Ore Chief Executive level; referrals of decisions as appropriate will be directed to the recently established Heritage Sub-Committee of the Rio Tinto Executive Committee, and if necessary, to the Board … [and has] … appointed a Chief Advisor - Indigenous Affairs who has a direct reporting line to the Chief Executive”.
The Chief Executive summarised the quarter’s production performance as showing “great resilience through challenging conditions” and said that “The quality of our assets, coupled with our strong focus on capital discipline and value over volume approach, mean we can continue to invest in our business, support our communities, pay taxes and royalties to host governments and continue to generate superior returns to shareholders in the short, medium and long term”.
Conclusion: Rio Tinto has delivered another solid production performance in spite of the impact of Covid19. The operational achievements are perhaps somewhat overshadowed by the continuing fallout from Juukan Gorge though measures are being implemented to safeguard against any similar event in the future.
URU Metals* (LON:URU) 305p, Mkt Cap £4.5m – EIA progress update
URU have today provided an update on the environmental impact assessment required as part of the application for a mining right for the Zebediela Nickel Project in South Africa.
The company was required to conduct an EIA after it submitted an application to convert its existing Prospecting Rights to a Mining Right to the South African Department of Mineral Resources (DMRE) as announced on the 30th of August 2019, in order to understand the impact of an open pit operation to mine the nickel resource.
The EIA consists of various studies which are currently underway, including but not limited to: Ecological Impact Assessment, Wetland Impact Assessment, Soils Agricultural Potential and Land Capability Assessment, Socio-Economic Impact Assessment and geohydrological assessment.
A surface geophysical resistivity survey consisting of six lines totalling 6,500m was completed using an BEM LUND Resistivity Imaging System and seven drill targets were identified. URU intend to undertake percussion drilling at four of these targets to assess the hydrogeological characteristics as part of the geohydrological assessment. Drilling is currently underway and expected to be completed by the end of October 2020.
Further progress includes 20 geotechnical test pits to understand the surface geotechnical characteristics of the mining right area, with each pit logged and soil samples taken for further analysis.
The rest of the specialist studies are scheduled for completion in December 2020, which should allow for the submission of the final EIA report 15 January 2021.
John Zorbas, CEO of URU Metals, commented: The Company believes that nickel demand will outstrip supply, and the timing is right for the Zebediela nickel project to come online to meet the increasing demand for sulphide nickel (…) The Company is currently investigating the potential use of technologies which could allow for the construction of a nickel mine with a much reduced environmental impact in comparison to operational peers. These technologies include renewable energy sources, hydrogen fuel cells and carbon sequestration. The Zebediela Project has the potential to supply high volumes of sulphide nickel and due to the proposed open pit mining method.”.
*SP Angel act as Nomad and Broker to URU Metals
John Meyer – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy –[email protected] - 0203 470 0474
Joe Rowbottom – [email protected] - 0203 470 0486
Richard Parlons –[email protected] - 0203 470 0472
Abigail Wayne – [email protected] - 0203 470 0534
Rob Rees – [email protected] - 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