SP Angel . Morning View . Thursday 27 05 21
China ban on derivative sales to retail hits iron ore
Gold rangebound ahead of US economic data
We are raising funds for a private Graphene producer – EIS scheme approval applied for
The company is selling a number of graphene products to industrial and retail customers.
Sales of certain products have sold out unexpectedly quickly.
The company wishes to fund a ramp up in production to get ahead of demand and to develop markets for a number of new, graphene products
The business is also able to upgrade graphite to a higher grade/specifications using its process – rolling out this process also requires funding
The company has also applied for EIS scheme approval from HMRC
Please let me know if you wish to invest in the company
*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.
AEX Gold (LON:AEXG) – Q1 Results
Centamin (LON:CEY) – Review of west African exploration projects
Cora Gold (LON:CORA) – JV signed over Farani Permit area in southern Mali
Hummingbird Resources (LON:HUM) – FY20 reflect strong gold prices helping to significantly reduce net debt
SolGold* (LON:SOLG) – Community initiative at Alpala
Recent Interviews:
BBC: Catalytic converters https://www.bbc.co.uk/sounds/play/p09jl6c9
IGTV: Evolution of Chinese construction and implications for commodity demand: https://youtu.be/jB2nURL8uPw
Improved global economic forecasts from the IMF provides trading opportunities: https://www.youtube.com/watch?v=_GXKPqzuCG0
VW expansion driving battery metals prices: https://youtu.be/7vqSrONBaWw
VOX Markets: 28/04/20: https://www.voxmarkets.co.uk/media/60896b3f017903524c8e0936/?context=/listings/LON/BMN/multimedia/
21/04/20: https://www.voxmarkets.co.uk/listings/LON/BMN
*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.
China bans brokers and banks from selling commodity futures to retail customers
The Chinese banking regulator the CBIRC has asked lenders to report on their cleaning up of retail investment in commodity linked products.
The CBIRC say they want to prevent losses but their other agenda is to reduce the speculation which has driven iron ore and other metals prices higher.
They also say they want to avoid any big losses by high-profile customers which have bought derivative products (futures)
When Chinese regulators ask, what they mean is you stop or you might win a holiday to a government-sponsored correctional facility for unpatriotic communists, though there is a saying in China that ‘Beijing is a long way away’, highlighting a tendency for disobedience.
Tin - prices rise as drought in China cuts hydropower to tin and other smelters.
While rain is due in June, it will take time for reservoirs to replenish.
DRC - Earthquake in Goma adds to disruption to eruption from volcano.
Volcanic activity is reported to be delaying tin and other exports from North Kivu.
Copper – BHP workers renew their threat to strike and disrupt the Escondida and Spence copper mines which account for over 2mtpa of copper.
Workers at BHP’s Cerro Colorado mine have agreed a three year wage deal.
Mali – President and Prime Minister resign in military detention
Mali’s interim President and Prime Minister have resigned while being held by the military, in the West African nation’s second coup in less than a year.
Military Vice President Assimi Goita dismissed the civilian leaders on Tuesday for appointing a new government without consulting him.
The UN security council commented: “a change of transitional leadership, including by forced resignations, is unacceptable”, and called for an immediate release of the President and Prime Minister.
Dow Jones Industrials +0.03% at 34,323
Nikkei 225 -0.33% at 28,549
HK Hang Seng -0.25% at 29,092
Shanghai Composite +0.43% at 3,609
Economics
China – Industrial profits rose 57%yoy in April vs 92.3% recorded in the previous month with upstream producers benefiting from higher commodity prices.
Although increasing input costs are putting pressure on the production and operation of mid- and downstream industries.
This brings YTD growth rate to 106.1% reflecting low base from 2020.
US - Biden Administration presses for a definitive answer as to where the Coronavirus originated
Maybe they should also ask if China deliberately allowed the virus to spread outside China when it closed Wuhan and Hubei province to the rest of China but allowed flights to continue out of Wuhan.
We hope the communist party has not purged all the communications from this period.
Germany – Consumer confidence picked up in June on expectations for easing of Covid-19 related restrictions.
GfK Consumer Confidence: -7.0 v -8.6 in March and -5.2 est.
Australia – The state of Victoria ordered a seven day lockdown in an attempt to avoid the spread of Covid-19 cases from a cluster of 26 people infectd in Melbourne.
The lockdown follows the discovery of 12new infections over the past 24 hours and reported dozens of exposures across Australia’s second largest city.
The lockdown will come in to force from this midnight with residents allowed to leave homes only if they are essential workers, shopping for essential items or undertaking two hours of exercise, FT reports.
South Korea - Business confidence held steady at 96 in May
France - Business confidence rose to 107 in May vs 104 in April
Consumer confidence also rose to 97 in May vs 95 in April
Mexico - Q1 GDP rose 0.8% qoq vs 3.3% in Q4
Q1 GDP fell -3.% yoy vs -4.5% yoy in Q4
Currencies
US$1.2206/eur vs 1.2240/eur yesterday. Yen 109.09/$ vs 108.85/$. SAr 13.96/$ vs 13.852/$. $1.413/gbp vs $1.414/gbp. 0.775/aud vs 0.778/aud. CNY 6.377/$ vs 6.394/$.
Commodity News
Precious metals:
Gold US$1,900/oz vs US$1,906/oz yesterday
Gold ETFs 101.0moz vs US$101.0moz yesterday
Platinum US$1,198/oz vs US$1,205/oz yesterday
Palladium US$2,761/oz vs US$2,791/oz yesterday
Silver US$27.74/oz vs US$28.13/oz yesterday
Base metals:
Copper US$ 10,033/t vs US$9,990/t yesterday
Aluminium US$ 2,431/t vs US$2,388/t yesterday
Nickel US$ 17,415/t vs US$17,210/t yesterday
Zinc US$ 3,025/t vs US$2,998/t yesterday
Lead US$ 2,192/t vs US$2,176/t yesterday
Tin US$ 29,705/t vs US$29,750/t yesterday
Energy:
Oil US$68.5/bbl vs US$69.0/bbl yesterday
Natural Gas US$3.013/mmbtu vs US$2.953/mmbtu yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$172.4/t vs US$183.0/t
Chinese steel rebar 25mm US$776.3/t vs US$789.6/t
Thermal coal (1st year forward cif ARA) US$81.3/t vs US$82.3/t
Coking coal swap Australia FOB US$153.0/t vs US$150.0/t
Other:
Cobalt LME 3m US$43,650/t vs US$43,650/t
NdPr Rare Earth Oxide (China) US$76,442/t vs US$75,630/t
Lithium carbonate 99% (China) US$12,701/t vs US$12,670/t
China Spodumene Li2O 5%min CIF US$640/t vs US$640/t
Ferro-Manganese European Mn78% min US$1,788/t vs US$1,793/t
China Tungsten APT 88.5% FOB US$270/t vs US$270/t
China Graphite Flake -194 FOB US$515/t vs US$510/t
Europe Vanadium Pentoxide 98% $8.1/lb vs $8.1/lb
Europe Ferro-Vanadium 80% $36.75/kg vs $36.75/kg
Battery News
Cobalt market to return to surplus by 2022 (Bloomberg)
BNEF report that Glencore’s decision to re-open the Mutanda cobalt mine in the DRC could lead to a surplus in the cobalt market.
Glencore halted production at Mutanda for two years in 2019 due to falling cobalt prices, rising costs and depletion of high-grade ore.
Prices have jumped 89% since then, and Mutanda accounted for about 20% of global supply in 2019.
Mutanda will only be able to produce about half of its capacity if it restarts in 2022, as the ramp up of its new concentrator and other investments need to transition so they can process sulfide deposits.
BNEF also report that artisanal production could also return to pre-pandemic levels in 2022 due to high prices.
Nissan in advanced talks to build UK battery Gigafactory
Nissan is in advanced talks with the UK government to build a battery Gigafactory at the company’s existing site in Sunderland, the FT reports.
The site would be run by Nissan’s Chinese battery supplier Envision AESC, and support the production of 200,000 battery cars a year as well as thousands of jobs.
Nissan expects significant financial support worth at least tens of millions of pounds from the government for the project.
Securing Gigafactory investment is crucial to support the future of Britain’s car plants as automakers ramp up EV production, while European governments compete to lure battery makers.
Rio Tinto looking at lithium recycling in Serbia
Rio Tinto have signed a memorandum of understanding with European battery technology and manufacturer InoBat to collaborate on a ‘cradle-to-cradle’ battery manufacturing and recycling chain in Serbia.
Rio MD for borates and lithium, Marnie Finlayson has said “the collaboration will enable an important exchange of knowledge and information on lithium processing, recycling and technologies for the next generation of batteries.”
Rio’s Jadar project, in Serbia, is one of the largest greenfield lithium projects in development and has the potential to produce approx. 55000t of battery grade lithium carbonate.
It is envisaged that the collaboration will encourage the development of a complete lithium and EV battery value chain in Europe.
Norway’s first offshore tender attracting interest from wide range of companies
Norway is holding its first tender for offshore wind licences, with the government earmarking two areas in the North Sea to accommodate 4.5GW of floating and bottom-fixed turbine capacity.
Utsira Nord covers an area of 1000sq. km an is seen as being suitable for floating turbines and the larger Soerlige Nordsjoe II is suitable for bottom-fixed turbines.
Equinor, EnBW, Aker Offshore, Eni, Magnora, Deep Wind Offshore and Shell are all believed to have interest in the tenders and likely to try to launch joint ventures in the two sites.
Company News
AEX Gold (LON:AEXG) 30p, Mkt Cap £52.4m – Q1 Results
AEX reports its unaudited condensed interim consolidated financial statements for the first quarter ended March 31, 2021.
AEX reports a loss of C$3.29m for the three months ending 30th September 2020 (2019 – C$0.97m loss).
The Company held a strong cash balance of $55.0m vs $61.9m at December 31 2020, had no debt, and total working capital of $54.3 million ($61.4 million at December 31, 2020).
Capital asset purchase commitments, net of deposits on order as at March 31, 2021 was $6.6m.
These commitments relate to the purchase of components of process plant equipment, infrastructure and vehicles. Available liquidity, net of commitments as at March 31, 2021 was $47.7m.
Exploration and evaluation expenses during the period were $1.3 million (Q1 2020: $0.6 million), predominantly on the Nalunaq Property.
General and administrative expenses during the period rose to $1.6m vs $0.4m in Q1 20 as a result of higher management, consulting and professional fees.
AEX also report that the tender process for the Internal 3rd party engineering study is well under way with most interested parties having access to the Nalunaq Project data room.
The internal 3rd party engineering study will advance the process plant cost, supporting infrastructure cost and schedule to a AACE International Recommended Practice No. 18R-97 (2005) Class I estimate, with planned completion later this year.
Critical exploration and early works infrastructure contracts have been signed to advance the project, with work set to commence in early June.
The Terms of Reference for the Environmental Impact Assessment and Social Impact Assessment were approved for public consultation with various Greenlandic Stakeholders.
Eldur Olafsson, CEO of AEX, commented: "With strong liquidity and improved access to Greenland we are looking forward to the commencement of the exploration program this year while also setting ourselves up for the revised development plan for Nalunaq."
Centamin (LON:CEY) 113.9p, Mkt Cap £1,400m – Review of west African exploration projects
Centamin has announced the findings of an internal review of its west African exploration projects and the subsequent Board decision to move to a pre-feasibility study of its Doropo project in Cote d’Ivoire, to progress exploration at the ABC project, also in Cote d’ivoire and to review options for third-party development of the Batie West project in Burkina Faso.
At Doropo, a preliminary economic assessment (PEA) indicated that capital expenditure of US$275m was required to develop a mine producing an average of around 150,000oz of gold at an average AISC of US$904/oz over a 13 years mine life generating an after-tax NPV5% of US$234m and IRR of 21% using gold price of US$1,450/oz.
Following the review, Centamin is spending a further US$14m over the next year to produce a pre-feasibility study. Work is expected to include a further 70,000m of drilling as well as pit optimization and metallurgical work and environmental and social impact studies.
Chief Executive, Martin Horgan, described Doropo as very exciting and said it “is our priority growth target outside of Egypt, showing excellent potential to become Centamin's second mine. Our highly experienced team has proven expertise at delivering successful gold projects in West Africa and will now commence the PFS, the results of which we look forward to announcing in mid-2022”.
At the ABC project, which currently has an indicated resource of 0.65m oz (and 0.5m oz classified as inferred), a further US$3m has been approved for the exploration of the Kona and FarakoNafana permits over the next year. The company says that geochemical exploration is already underway and that close-spaced drilling “will be undertaken to better define the continuity of gold mineralisation at Kona South and Kona Central prospects and exploration drilling is also planned for the Kona North prospect and at FarakoNafana”.
A PEA for Batie West showed that the capital expenditure of US$265m was required to develop a mine producing around 140,000ozpa of gold over an 8½ year mine life and to generate an NPV5% of US$63m and IRR of 11% at a gold price of US$1,450/oz. Sensitivity work shows that at “consensus” gold prices NPV improves to US$282m and IRR increases to 26%.
The company says that Batie West “does not currently meet Centamin’s investment criteria” and that the “Board has approved the assessment of third-party development options”.
Conclusion: Centamin is flagging the Doropo gold project in Cote d’Ivoire as its most important development project outside Egypt and that it is likely to become the company’s next mine. A US$14m budget for further work is expected to deliver a pre-feasibility study by mid-2022.
Cora Gold (LON:CORA) 8.3p, Mkt Cap £17m – JV signed over Farani Permit area in southern Mali
The team signed a JV agreement over the Farani Permit with the Company earning up to 95% in the project through staged payments to the JV Parnetr toalling $80k over the next three years.
The 62km2 area is adjacent to the wholly owned Tagan Permit that is located midway between Cora’s flagship Sanankoro Gold Project and the Yanfolila Gold Mine operated by Hummingbird Resources.
Exploration license was secured in May/21 and is valid for a tern of nine years.
Historical RAB drilling intersections include 30m at 2.8g/t gold, 9m at 1.17g/t and 6m at 2.1g/t.
Operations are reported to continue unaffected by latest development in the country.
The military have recently removed newly appointed interim President and Prime Minister.
Hummingbird Resources (LON:HUM) 22.6p, Mkt Cap £89m – FY20 reflect strong gold prices helping to significantly reduce net debt
Sales climbed to $185m (FY19: $157m) as stronger realised gold price compensated for weaker gold sales.
Gold sold amounted to 104koz at $1,745/oz (FY19: 113koz at $1,377/oz).
AISC averaged $1,147/oz for 101koz in gold production (FY19: $986/oz for 116koz).
EBITDA came in at $75.2m (FY19: 54.5m).
Pre-Tax Profit of US$26 million (FY19: US$9 million).
After-Tax Profit of US$25 million (FY19: US$8 million)
FCF (ex interest) amounted to $46m (FY19: $25m) and used to cover debt related and lease repayments.
Bank borrowings reduced to $13m from $40m with net debt position that includes capital leases down to $8m (FY19: $38m).
FY21 guidance reiterated at 100-110koz and $1,250/1,350/oz AISC.
The Company doubled its exploration budget for the year to $10m focusing on a discovery of new ounces at Yanfolila to extend the life of the operation.
Having secured mining license for the Kouroussa Gold Project in Guinea, the team is planning to approve, finance and commence construction in H2/21.
SolGold* (LON:SOLG) 30.3p, Mkt Cap £701m – Community initiative at Alpala
SolGold has announced information on community work it is doing, in conjunction with Franco Nevada, to support the Lita and Carolina communities representing around 7,000 inhabitants close to its Alpala development project in Ecuador.
Solgold describes the background to the initiative by explaining that “As part of the Franco-Nevada Net Smelter Returns Financing Agreement ("NSR Financing"), Franco-Nevada has agreed to contribute a total of US$150,000 per calendar year for three years investing in one or more distinct ESG projects jointly with SolGold. SolGold will match or exceed Franco-Nevada's contribution towards these projects”.
Franco Nevada is joining Solgold in supporting a recycling and waste management programme aimed at “reducing pollution, including plastic waste, in the local environment” though training on recycling and composting, education to increase awareness of waste management and environmental issues and the implementation of a waste management and collection centre which is expected to catalyse the creation of local small businesses.
Local mayoress, Andrea Scacco, said that the scheme “will undoubtedly optimise the quality of life of the surrounding communities. Alternatives for solid waste management will be implemented and education will be given on effective recycling and composting methods, to minimize waste and to form, with civic and ecological awareness, a recycling business that will be independently managed by the communities, providing them not only income, but a substantial improvement of its environment and its wonderful natural surroundings, which is our primary pride”.
Conclusion: Solgold is supporting practical measures to improve the quality of life of local host communities at Alpala helping to confirm its credentials as a positive influence in the development of the area.
*SP Angel act as Financial Advisor to SolGold.
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
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
SP Angel
Prince Frederick House
35-39 Maddox Street London
W1S 2PP
*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, Tungsten, Spodumene, Ferro-Manganese, Graphite
Asian Metal