SP Angel . Morning View . Thursday 11 03 21
Miners rise as metals regain firm footing in developing Supercycle
Gem Diamonds (LON:GEMD) – US2.5cents/share dividend proposed
Greatland Gold (LON:GGP) – Further drilling encouragements from Havieron
Oriole Resources (LON:ORR) – Aircore drilling results from Faré, Senegal
Miners rise again on consolidation of metals prices at higher levels
Copper prices rise back over $9,000/t as smelters scramble for concentrates in China and miners struggle to meet new demand
Interruption to deliveries from Chile into China has caused Tc/Rcs ‘Treatment and Refining charges to fall in China to a 10-year low.
The situation is exacerbated by likely stronger than usual demand over the Chinese New Year as many factories reduced time out to meet new consumer and construction demand.
Workers were encouraged not to travel and we suspect many took shorter breaks than normal.
Restrictions on scrap availability and imports into China may also be an issue.
A weaker US dollar is also helping metals higher despite reports on the Fed and China starting to withdraw emergency liquidity funding and other stimulus.
Joe Biden’s ‘Go Big’ stimulus is seen as raising consumer demand in the US and for this to ramp up demand for goods which are made in China.
Electric Vehicle sales and forecasts continue to drive demand and prices for Nickel and lithium with Cobalt and rare earth prices jumping higher recently.
The ongoing electrification of transport will not be without its hiccups and interruptions, but the trend is set and many manufacturers are now focussed in this direction.
We see positive news flow on commodities continuing to outweigh negative events but remain wary of the potential for negative news flow as the US Fed and China start to withdraw elements of their emergency stimulus programs.
China is setting its new GDP growth targets lower, but we suspect this is to bring reality back into the numbers and not a slowdown in real growth.
The US has woken up to the threat of being overtaken by China and appears set on a path of extended stimulus to ensure it stays one step ahead.
Recent Interviews:
IGTV: Are we in a new commodity supercycle, or is one coming? https://youtu.be/sw6gLNnM1s0
Is this a new Supercycle for commodities: https://youtu.be/BIWb-wqoLpM
Metals expected to continue the last-year gains into 2021 https://youtu.be/afrB9cJe8L0
Is 2021 the start of the new COVID-Supercycle or will Lockdowns delay the recovery? https://youtu.be/7LO0tDc-pNc
VOX Markets: 03/03/20: https://www.voxmarkets.co.uk/media/603f8a764ed39457176158df/?context=/listings/LON/BMN/multimedia/
24/02/20: https://www.voxmarkets.co.uk/articles/john-meyer-mining-talks-about-copper-bluejay-empire-metals-phoenix-copper-rainbow-rare-earths-rambler-metals-mins-tirupati-graphite-feb-24-1-18-pm-3b5e4d3
*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts.
We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Dow Jones Industrials +1.46% at 32,297
Nikkei 225 +0.60% at 29,212
HK Hang Seng +1.65% at 29,386
Shanghai Composite +2.36% at 3,437
Economics
US – Americans are set to start receiving $1,400 stimulus checks by the end of the month after the Congress approved the $1.9tn bill and President Biden set to sign it into law on Friday.
Headline inflation picked, in line with expectations, although changes in core consumer prices ticked down in February.
Headline figures were mainly driven be energy inflation driven by increases of prices at the pump as well as natural gas prices in part due to the surge in demand and supply constraints resulting from the cold snap in Texas.
CPI (%yoy): 1.7 v 1.4 in January and 1.7 est.
Core CPU (%yoy): 1.3 v 1.4 in January and 1.4 est.
The Fed will allow three emergency liquidity provision facilities to expire as scheduled at the end of the month,
Commercial Paper Funding Facility,
Money Market Mutual Fund Liquidity Facility
Primary Dealer Credit Facility
UK - Rolls Royce posted a 24% revenue drop with a pre-tax loss of £4bn in the year to Dec/20, worse that market estimates for £3.1bn.
John Lewis will be not be reopening all stores after the current lockdown ends on April 12 after reporting £517m annual loss.
China – looking to reset relationship with Joe Biden - but on its terms
China and the US are preparing for fresh talks in Alaska to reset US China relations after the combative Trump presidency.
China is likely to offer its two most senior diplomats in Anchorage which is geographically half way between the two sides.
Topics to address: Access to Chinese markets, Technology theft and Copyright, Hacking attacks, Tariffs and trade restrictions imposed by China as well as the US, Pollution and Climate Change and Huawei 5G sales. Not to mention issues around Iran, Myanmar, North Korea, India and the new islands in the South China Seas.
China continues to push for self-sufficiency but as it grows it finds this long-held mantra increasingly difficult to hold onto, particularly with increasing globalisation.
The US-China relationship is arguably the most important of issues for either nation but China is likely to have to give further ground before the US agrees to remove Trump-era tariffs and import restrictions.
China is aware that Democrat policy towards China is not much different to Republican policy though Biden’s experienced diplomacy might elicit a better outcome following Trump’s softening up of the opposition.
As always we advise to watch closely to see what China does and not to attach too much value to what it says.
Expect China to continue to talk about tightening its emergency stimulus monetary policy - but not too much
Total Social Financing Rmb1,710bn in February vs Rmb5,170bn in January
CPI 0.6% in February vs 1% in January pulled back by lower pork prices which fell 14.9%
PPI 1.7%yoy in February vs 0.3% in January
ECB – The policy announcement is due later today with investors to be watching to what extent the ECB is concerned with increasing market rates and hints to potential adjustments to the current QE programme.
Bloomberg surveyed economists expect the central bank to eventually extend its €1.85tn bond buying programme beyond the current March 2022 deadline; although, not necessarily at this meeting.
No change in benchmark rates is expected.
Germany – New cases climb to 21,163 with the incidence rate up at 69.1, the highest since February 9 and up on 65.4 the previous day.
The nation started gradually reopening the economy with schools partially reopening and hairdressers allowed to resume work.
Australia – The government announced a A$1.2bn support package for the aviation and tourism sectors in an effort to cushion the impact of the withdrawal of the nation’s A$90bn wage subsidy later this month, FT reports.
The programme would include a mix of subsidised airline tickets, cheap loans for businesses and direct support to domestic airlines to support the sector as international borders remain closed.
Brazil – Lower house of congress approved a $7.5bn COVID aid bill after having been passed through by the senate last week as the nation struggles to control the pandemic with the death rate hitting new record high.
The bill will need to go through a second round of voting, scheduled for Thursday morning, with at least 11 proposals to change the legislation.
The nation reported 2,286 new deaths over he last 24 hours taking the total cumulative to more than 270,000 people and new cases coming in at 79,876
South Africa – The nation reported the first current account surplus in nearly two decades in 2020 as import demand collapsed amid local recession and the value of gold exports increased due to higher prices for the precious metal.
Currencies US$1.1966/eur vs 1.1878eur yesterday. Yen 108.46/$ vs 108.81/$. SAr 14.918/$ vs 15.263/$. $1.395/gbp vs $1.388/gbp. 0.788/aud vs 0.769/aud. CNY 6.495/$ vs 6.510/$.
Commodity News
Precious metals:
Gold US$1,740/oz vs US$1,712/oz yesterday - Gold prices rise for third straight day as Biden’s relief bill clears final congressional hurdle
Gold prices continued to rise on Thursday, as Biden’s $1.9tn relief bill was passed in the House, with the President planning to sign it on Friday.
US inflation data came in lower than expected on Wednesday which halted the recent advance in treasury yields, with gov debt recently outcompeting gold as a hedge against inflation.
Spot gold gained 0.5% this morning, rising to $1,735/oz – its highest level since the 3rd of March (Reuters).
Gold ETFs 101.9moz vs US$102.1moz yesterday
Platinum US$1,223/oz vs US$1,163/oz yesterday
Palladium US$2,323oz vs US$2,309/oz yesterday
Silver US$26.44/oz vs US$25.73/oz yesterday
Base metals:
Copper US$ 9,066/t vs US$8,820/t yesterday – Spot Chinese Tc/Rcs fall to US$38.5/t, a new 10-year low.
workers at Antofagasta’s Los Pelambres mine rejected the latest 36 month wage offer and talks go to government sponsored mediation.
Aluminium US$ 2,181/t vs US$2,170/t yesterday
Nickel US$ 16,355/t vs US$16,040/t yesterday
Zinc US$ 2,809/t vs US$2,759/t yesterday
Lead US$ 1,969/t vs US$1,961/t yesterday
Tin US$ 25,630/t vs US$24,815/t yesterday
Energy:
Oil US$68.6/bbl vs US$66.7/bbl yesterday
The rising premium of North Sea’s benchmark Brent over Dubai crude is making shipment of Brent-linked oil to Asia more expensive and likely to reduce in the coming months
The Brent premium over Dubai jumped to the highest since December 2019 at over US$3/bbl according to data from PVM Oil Associates and Bloomberg
The key reason for this is the upcoming heavy maintenance on a number of oilfields in the North Sea, which will reduce the availability of North Sea oil to the market
Dated Brent is also much higher than Dubai crude in recent months because of the lower production of US light sweet oil out of the American shale patch that would have otherwise competed with the North Sea oil
Therefore, the highest premium of Brent over Dubai in nearly 15 months will likely be closing the arbitrage for some Atlantic basin crudes to be shipped to Asia, the region which is showing relative resilience in crude oil demand these days
Other crudes priced off Brent, such as Russia’s Urals and crudes from West Africa, could also find it more difficult to attract buyers in Asia, in view of the rising premium of Brent over Dubai, off which the Middle Eastern oil producers price their oil to Asia
Sales of Russia’s Urals are currently slow, while Nigeria struggles to place its barrels that would typically sell in Europe given the still low European demand due to the COVID-19 lockdowns
The current struggles of North Sea oil finding buyers in Asia are in stark contrast with the market situation just two months ago, when Saudi Arabia’s surprise announcement in January that it would cut 1MMbopd beyond its share of OPEC+ cuts had Asian refiners seeking additional supplies from Europe, with record purchases of North Sea cargoes in one day
Natural Gas US$2.697/mmbtu vs US$2.626mmbtu yesterday
Gas prices have ahead of the EIA’s inventory report later today
Expectations are for an 85Bcf draw according to survey provider Estimize
US natural gas consumption was lower in 2020 in all sectors except electric power
The EIA forecasts that US production of natural gas declined in February as a result of the freeze-off in the southern US
Perhaps underpinning prices, at least over the short-term, was optimism over export demand
The calendar is now moving into the end of the withdrawal season, and prices will likely remain rangebound unless there is another disruption or a cold spell
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$158.7/t vs US$157.5/t
Chinese steel rebar 25mm US$718.1/t vs US$720.5/t - UK government urged to take ‘active role’ in protecting Liberty Steel jobs
Jobs at UK steelmaker Liberty Steel have been cast into doubt after a major provider of finance to the company, Greensill Capital, has collapsed.
Liberty Steel boss Sanjeev Gupta admitted that the collapse of Greensill has created a “challenging situation” for the company.
Liberty employs 3,000 people directly at 11 sites including Rotherham and Stocksbridge in south Yorkshire, Newport in South Wales and Hartlepool.
Three workers unions in the UK have issued a joint statement commenting: "Given the strategic importance of Liberty's steel operations, and their fundamental importance to delivering the UK's climate objectives, we believe government must take an active role to facilitate a comprehensive solution that safeguards the future and protect jobs."
The prime minister’s official spokesman said “we continue to follow developments closely” (Sky News).
Thermal coal (1st year forward cif ARA) US$69.1/t vs US$68.4/t - China to limit coal production to 4.1btpa by the end of 2025
China will limit coal production to around 4.1 billion tonnes per annum by the end of 2025 as part of its 14th Five-Year-Plan, the China Coal Industry Association (CCIA) has reported.
This is an increase of 5% from the cap set out in the previous five-year plan for 2016-2020.
The number of coal mines will be limited to 4,000, with the government aiming to consolidate operations in the industry.
According to the CCIA, domestic coal production grew 1.4% YoY to 3.9bt last year, due to the increase in the number of large coal mines.
Total domestic coal consumption in 2020 increased by about 0.6% on the year, with the steel industry accounting for the largest growth rate of 3.3% for coal consumption (Fastmarkets MB).
Coking coal swap Australia FOB US$132.0/t vs US$131.0/t
Other:
Cobalt LME 3m US$52,610/t vs US$52,610/t
NdPr Rare Earth Oxide (China) US$88,536/t vs US$90,619/t
Lithium carbonate 99% (China) US$12,318/t vs US$12,287/t
Spodumene 6% Li2O min, cif (China) US$510/t vs US$455/t
Ferro Vanadium 80% FOB (China) US$34.5/kg vs US$34.5/kg
Ferro-Manganese high carbon 78% Mn US$1,625/t vs US$1,625/t
Tungsten APT European US$263-268/mtu vs US$260-265/mtu
Graphite flake 94% C, -100 mesh, fob China US$560/t vs US$560/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,625/t vs US$2,625/t
Battery News
Northvolt acquires US lithium battery start up Cuberg
Swedish battery manufacturer Northvolt has acquired US lithium-metal battery start-up Cuberg, and plans to open a R&D centre in Silicon Valley.
Cuberg currently looks to supply the electric aviation sector, and claims that its batteries deliver 70% more range and capacity than other lithium-ion devices developed for electric aviation.
The startup aims to work with Northvolt to develop its technology sufficiently to offer cells with an energy density exceeding 1 kWh/l by 2025.
Cuberg was spun out of Stanford University in 2015 and has already attracted high-level customers such as Boeing and BETA Technologies.
Investors in Cuberg include Boeing’s venture capital arm HorizonX Ventures, the California Energy Commission and the U.S. Department of Energy.
Northvolt recently announced a $200m expansion of its production site at Gdansk to raise annual production capacity from 5 to 12GWh, with the factory on track to become Europe’s largest (pv-magazine).
Tsingshan to build 2,000MW clean energy facility in Indonesia
Chinese steel and nickel producer Tsingshan has announced its intention to build a clean energy facility in Indonesia in the next 3-5 years.
The firm will build solar and wind power stations and supporting facilities at its Tsingshan and Weda Bay industrial parks in Indonesia (Argus Media)
Tees and Humber wind farm ports
Up to 6,000 jobs could be created by two new river ports to support offshore wind farms, the government has said.
About £75m has been pledged for Able Marine Energy Park on the Humber and £20m to the Teesworks Offshore Manufacturing Centre on the Tees.
The two ports will house seven firms, the first of which is GE Renewable Energy at Teesworks, which will build 350ft long turbine blades.
GE Renewable Energy aims to start producing blades at Teesworks by 2023. These will be made for the Dogger Bank Project off the Yorkshire coast.
Company News
Gem Diamonds (LON:GEMD) 60p, Mkt Cap £82.5m – US2.5cents/share dividend proposed
Gem Diamonds reports 2020 attributable profit from its continuing operations at Letšeng of US$16.9m (2019 – US$7.1m).
The results are based on the production of 100,780 carats of diamonds (2019 – 113,974), including 16 individual stone larger that 100 carats (2019 – 11 diamonds larger than 100 carats).
A total of 34 individual diamonds realised in excess of US$1m each “contributing US$77.6m to revenue”.
The company is proposing a dividend of 2.5US cents/share from the 12.1US cents/share earnings.
Cash on hand on 31st December amounted to US$49.8m.
During 2020, the Letšeng mine treated a total of 5.4mt of ore (2019 – 6.7mt) and removed 15.6mt of waste to recover 100,780 carats of diamonds (2019 – 113,974 carats) at an average grade of 1.85carats per hundred tonnes (2019 – 1.7cpht), delivering a 9% improvement in recovered grade.
Gem Diamonds’ long term cost reduction plans aimed at delivering US$100m of sustainable cost savings over the three years to the end of 2021 “remain on track”.
Plans to sell the Ghaghoo mine “lapsed due to certain suspensive conditions not being met, however the process was again opened to other prospective buyers during the year and … [Gem Diamonds] … has entered into an exclusivity agreement with an interested party with whom potential sale discussions are continuing”.
Looking towards the future, Chairman, Harry Kenyon-Slaney, commented that “although the supply/demand dynamics of the diamond market remain positive, particularly for the unique high-value diamonds produced at Letseng, our immediate concern remains the ongoing protection of our people from the Covid19 pandemic, which continues to cast a shadow over southern Africa.”
The Chairman went on to recognise “The Group's management and employees … [who] … deserve a special note of appreciation for their commitment and tenacity during 2020. The Group moved swiftly and resolutely during extremely challenging and uncertain circumstances to contain the spread and impact of a devastating pandemic that could have had an equally devastating impact on our business. I have been tremendously impressed by the resilience and capability of management and employees throughout the organisation to run a technically, commercially and physically complex business, often with remote leadership”.
Conclusion: The Letšeng mine has weathered the challenges of 2020 and is recommending a dividend of US2.5cents/share. The mine continues to deliver large, high-value diamonds on a consistent basis and Gem Diamonds reports improving market conditions at least for higher value diamonds.
Greatland Gold (LON:GGP) 23.38p, Mkt Cap £917m – Further drilling encouragements from Havieron
Greatland Gold draws attention to Newcrest Mining’s Exploration Update released to the ASX which includes recent drilling results from the company’s Havieron project in Western Australia where Newcrest is earning an interest of up to 70% by spending up to US$65m on exploration.
The drilling since the previous update, utilised up to eight drilling rigs aimed at both infill drilling within the existing resources shell centred on the South East Crescent and adacent Breccia Zones as well as drilling to extend into the North West Crescent, Northern Breccia, Eastern Breccia and also to extend the mineralised envelope of the South East Crescent and Breccia Zones.
The company also says that “New targets outside of the immediate vicinity of the Havieron deposit, but within the Havieron Joint Venture area, have been identified with the potential to conduct drill testing of these targets in the future.”
Among the results from a further 26 drillholes not previously released, Greatland Gold highlights:
An intersection of 196.1m at an average grade of 1.7g/t gold and 0.28% copper within the South East Crescent/Breccia Zone from a depth of 545.9m in hole HAD112. An 18.5m long higher grade portion averaging 4.9g/t gold and and 0.6% copper extends from a depth of 595m; and
An intersection of 97m at an average grade of 3.9g/t gold and 0.5% copper from 500m depth in hole HAD122 and including a 15m wide section in the upper part of the mineralised section averaging 9.7g/t gold and 1.8% copper from 500m; and
An intersection of 169.5m averaging 3.4g/t gold and 0.33% copper from 711.5m in hole HAD123 which includes 2 higher grade section of 58.9m averaging 6.2 g/t gold and 0.23% copper from 736.1m with a higher grade core of 3.1m averaging 95g/t gold and 0.5% copper from 781.8m; and
An intersection averaging 4.5g/t gold and 1.4% copper over a length of 79.3m from 537m depth in hole HAD127 with 41.7m averaging 8.4g/t gold and 2.6% copper from 549m; and
109.4m averaging 5.9g/t gold and 0.63% copper from 622m depth in hole HAD130, including 24m averaging 17g/t gold and 1.4% copper from 630m depth.
The 26 holes completed within the South East Crescent and Breccia Zones complete a planned 43 holes programme of infill drilling at “a nominal 50m by 50m drill spacing … designed to support the delivery of an Indicated Mineral Resource estimate in the upper 320m (vertical) of the initial Inferred Mineral Resource estimate defined over the South East Crescent Zone and adjacent Breccia Zone”.
The current inferred resource estimate comprises 18mt at an average grade of 3.8g/t gold and 0.61% copper within the South East Crescent Zone, which remains open both laterally and at depth and a further 34mt at an average grade of 1.1g/t gold and 0.15% copper within the Breccia Zone.
Commenting on the results which he said would “layer onto existing data to further increase our confidence in the continuity of higher-grade mineralisation and support the delivery of an Indicated Mineral Resource estimate” CEO, Shaun Day, explained that “Newcrest is on track to push forward with an exciting 2021 growth drilling programme. We are yet to define the full size of Havieron and, subject to further exploration success, this programme has the potential to significantly expand the mineralised footprint”.
Newcrest Mining started the initial box-cut for an underground exploration decline in February and “studies continue to investigate the potential to achieve commercial production within three years”.
Conclusion: Drilling at Havieron continues to deliver long mineralised intersections which include higher grade gold and copper. Much of the mineralisation remains open at depth and laterally so that its full extent has yet to be determined. The mineralisation is, however beneath substantial depths of cover and Newcrest started initial work on an underground exploration decline in February as part of its strategy to accelerate towards commercial production within three years.
Oriole Resources (LON:ORR) – 0.98p, Mkt cap £19.5m – Aircore drilling results from Faré, Senegal
Oriole Resources reports results of its recently completed aircore drilling programme at the Faré prospect within its Senala project area in Senegal where Oriole Resources’ joint-venture partner, IAMGOLD, can earn up to 70% of the project by spending US$8m on exploration.
The programme was aimed at determining the sub-surface geochemistry beneath laterite and transported cover and the company says that the results “have reaffirmed the overall orientation of the mineralisation and tenor of the anomalism previously defined along the strike length which remains open to the northeast and southwest”.
The company confirms that the survey has shown an association between anomalous levels of gold and of tungsten, arsenic and bismuth “typical of orogenic gold systems”.
Oriole Resources says that “IAMGOLD has indicated its intention to proceed with a follow-up exploration programme comprising 5,000m RC and 1,000m diamond drilling”.
“Subject to the results of the RC drilling, c.400m diamond drilling is planned to test the best new target. Two further holes of 200m and 400m, respectively, are also planned to test the depth extension of the main mineralised zone at Faré South as defined by the historic drilling”.
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
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486
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
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
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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.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
LME
Oil Brent
ICE
Natural Gas, Uranium, Iron Ore
NYMEX
Thermal Coal
Bloomberg OTC Composite
Coking Coal
SSY
RRE
Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony
Asian Metal
Tungsten
Metal Bulletin