SP Angel . Morning View . Tuesday 23 11 21
Powell nomination prompts gold sell off as battery metals rise
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AEX Gold (AEXG:LN) – Geophysical programme completed at Tartoq license
BlueRock Diamonds* (BRD:LN) – Mining restarts at Kareevlei diamond mine following repeal of section 54 notice
Hochschild (HOC:LN) – Company vows to fight ‘illegal’ plans to close mines over environmental impact
Kavango Resources (KAV:LN) – Survey identifies distinctly magnetised 30km target
Power Metal Resources* (POW:LN) – Test pitting commences at Alamo project
SolGold* (SOLG:LN) – Progress of the Cascabel PFS and Investment Protection Agreement
Iron ore rallies on expectation of China steel production resumption
- Chinese iron ore futures hit their 10% daily limit this morning, hitting $96.5/t.
- Steelmakers have been limited to 2020 levels of output by Beijing to reduce emissions.
- Traders expect rising steel production in December. (Reuters)
- Stainless steel futures up 1.6%.
- Coking coal up 2.8%.
- HRC down 0.6%.
Gold slides as Powell renomination supports dollar
- Gold fell to a 2-week low of $1,806/oz yesterday on Biden’s backing of J Powell.
- Powell is considered more hawkish than the alternative Lael Brainard.
- The renomination sent the dollar index to a 16-month peak.
- Analysts see rising cases in Europe and a potential winter resurgence in the US as a potentially bullish catalyst for gold, with central banks unlikely to raise rates in a lock-down environment.
Zinc prices rises on Glencore maintenance plans over high Italian gas prices triggering supply concerns.
- The Italian plant has 100kt capacity pa and will be closed until ‘a meaningful change in power market prices.’
Dow Jones Industrials -0.17% at 35,871
Nikkei 225 +0.50% at 29,746
HK Hang Seng -1.17% at 25,024
Shanghai Composite +1.13% at 3,560
Economics
China – The government is stepping up support to small and medium sized businesses amid slowing growth momentum, Bloomberg writes.
“SMEs face many problems and difficulties due to the complicated domestic and overseas situation,” Xu Xiaolan, vice minister of Industry and Information Technology, said.
Among challenges named by the minister are elevated raw material costs, lack of orders, high wages and difficulty in hiring, problems in getting financing and payments, high transportation costs, sporadic virus outbreaks and electricity shortages.
Small businesses contribute over 60% of China’s GDP and provide more than 80% of jobs.
PBoC one year interest rate remains unchanged at 3.85%.
Xi’s property tax poses threat to China’s ailing real-estate sector
Beijing planning nationwide property tax as part of Xi’s ‘common prosperity’ drive to reduce inequality.
Residential and non-residential properties will be taxed, although Beijing will test the plan over a 5-year pilot period.
Analysts fear tax concerns will exacerbate the China property sector’s decline.
The property sector’s debt crisis has caused China’s GDP growth to slow to just 4.9% in 3Q21.
Property starts and completions fell 33% and 21% respectively in October.
Property investment fell 5.4% last month. (SCMP)
A further decline in property sales and growth will intensify the ripple effect on steel, iron ore, cement demand to name a few.
US – S&P 500 and Nasdaq closed lower on Monday on the news Jay Powell has been nominated for his second term as Fed head.
His contender, Lael Brainard, was considered to be a more dovish candidate than Powell.
Chicago Fed national activity index rose to 0.76 in October vs -0.13 in September
Existing home sales rose 0.7% to 6.34m units in October vs 7% or 6.29m units in September
Eurozone – Preliminary PMIs posted a surprising increase in the pace of growth in both manufacturing and services sectors.
While growth picked from a six month low in October, outlook fell to a ten-month low on renewed Covid-19 worries and lingering supply constraints.
Labour market is strong with hiring growing across both manufacturing and services resulting in the second largest gain in employment recorded over the past 21 years.
Inflation pressures remained driven by higher shipping costs, rising energy prices and stronger staff costs.
Input costs climbed at a record pace for a second successive month while final goods prices climbed at the strongest rate in almost two decades.
Markit Manufacturing PMI (Prelim): 58.6 v 58.3 Oct and 57.4 est.
Markit Services PMI (Prelim): 56.6 v 54.6 Oct and 53.5 est.
Markit Composite PMI (Prelim): 55.8 v 54.2 Oct and 53.0 est.
EU Preliminary consumer confidence fell further to -6.8% in November vs -4.8% in October
Germany
Markit Manufacturing PMI (Prelim): 57.6 v 57.8 Oct and 56.9 est.
Markit Services PMI (Prelim): 53.4 v 52.4 Oct and 51.5 est.
Markit Composite PMI (Prelim): 52.8 v 52.0 Oct and 51.0 est.
France
Markit Manufacturing PMI (Prelim): 54.6 v 53.6 Oct and 53.1 est.
Markit Services PMI (Prelim): 58.2 v 56.6 Oct and 55.5 est.
Markit Composite PMI (Prelim): 56.3 v 54.7 Oct and 53.9 est.
UK – Growth ticked lower but only marginally in November coming in comfortably above the average seen in Q3/21 with respondents highlighting rising client demand on improved economic conditions and a continued boost from the roll back of pandemic restrictions, Markit PMIs showed.
New orders climbed at the strongest pace since June.
Strong customer demand led to a marked rise in private sector employment during November.
Input costs climbed at the steepest rate since the series began in Jan/98.
Manufacturing sector was more successful in transferring input costs inflation onto consumers compared to service providers.
“An acceleration in growth of new business hints that December should bring a strong end to the year, meaning the fourth quarter should see a welcome pick up in GDP growth after the slowdown seen in the third quarter… for policymakers concerned about the health of the labour market after the end of the furlough scheme, the buoyant jobs growth signalled should bring some reassuring comfort… a combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rates to rise in December,” Markit commented on the data.
Markit Manufacturing PMI (Prelim): 58.2 v 57.8 Oct and 57.3 est.
Markit Services PMI (Prelim): 58.6 v 59.1 Oct and 58.5 est.
Markit Composite PMI (Prelim): 57.7 v 57.8 Oct and 57.5 est.
Russia – The rouble dropped to the weakest level since April this year as investors cut the jurisdiction exposure on fears over possible Russian military intervention in Ukraine, Reuters writes.
Rouble fell ~1.8% yesterday and is currently trading around the 75.0 level.
Concerns are being driven by a build up of Russian military troops and equipment near its border with Ukraine.
Additionally, a comparison between current tensions over Ukraine with a build-up to a 2008 war with Georgia drawn by Russia’s foreign intelligence agency yesterday did not help the sentiment.
Russia defeated Georgia in their five-day war back in 2008 with around 1/5th of Georgia’s territory remaining outside its control defended by Russian troops.
Chile – Election sees first round lead for right-wing candidate Jose Kanst with 28% of the vote vs left wing candidate, Gabriel Boric at 26%.
Turkey – The lira continued to slide lower after President Erdogan praised a recent interest rate cut, FT writes.
The currency reached 12.0 against the US$ for the first time losing more than a fifth in November month alone.
Consumer confidence fell to 71.1 in November vs 76.8 in October
Mongolia – Rio Tinto CEO is visiting PM L.Oyun-Erdene in an effort to resolve the dispute over development of the Oyu Tolgoi underground mine development.
The position of the government is that Rio should cover cost overruns while debts accrued on the Mongolian share of 34% should be fully nullified, Montsame, a Mongolian news agency, reports.
Earlier, Rio estimated that underground mine development cost will come in at $1.4bn more than originally planned after stability risks identified underground.
In October the Company said due to Covid-19 related issues first commercial production will be no earlier than January 2023, around three months’ later than the previous target for Oct/22 start.
Currencies
US$1.1244/eur vs 1.1277/eur yesterday. Yen 114.83/$ vs 114.15/$. SAr 15.844/$ vs 15.731/$. $1.338/gbp vs $1.343/gbp. 0.722/aud vs 0.725/aud. CNY 6.386/$ vs 6.380/$.
Commodity News
Copper prices rise as Beijing indicates support for struggling property sector
Copper prices have steadily risen so far this week, as news out of Beijing has indicated additional support for the country’s struggling property sector.
China is looking to ease fundraising rules for developers, while several large cities are relaxing rules for land sales.
The premium for spot copper over futures jumped to 2,200 yuan ($345)/t on Friday in China, the highest since SMM began tracking the data in 2015.
The premium between spot and futures indicates immediate supply tightness in the metal, something which is unlikely to be resolved immediately given the supply chain issues gripping global markets.
The premium spike came as inventory level have sank to their lowest since 2009 this month, currently at 35,000t vs 230,000t in May 2021.
Copper prices in Shanghai closed at 70,740 yuan/t on Tuesday, after rising as much as 2.1% to 71,620 yuan/t – the highest level since October 27th (Bloomberg)
Longer term, investors will be keeping a close eye on Peru, the world’s second largest producer of copper, who have recently elected left-winger Pedro Castillo who vowed to block some projects and take a bigger windfall of mining profits.
Precious metals:
Gold US$1,807/oz vs US$1,847/oz yesterday
Gold ETFs 98.3moz vs US$98.2moz yesterday
Platinum US$1,015/oz vs US$1,043/oz yesterday
Palladium US$1,968/oz vs US$2,073/oz yesterday
Silver US$24.05/oz vs US$24.88/oz yesterday
Rhodium US$14,300/oz vs US$14,350/oz yesterday
Base metals:
Copper US$ 9,692/t vs US$9,666/t yesterday
Aluminium US$ 2,699/t vs US$2,687/t yesterday
Nickel US$ 20,420/t vs US$20,145/t yesterday
Zinc US$ 3,347/t vs US$3,245/t yesterday
Lead US$ 2,251/t vs US$2,235/t yesterday
Tin US$ 38,825/t vs US$38,400/t yesterday - China tin ore imports boosted in October by increased Myanmar supply
Tin ore and concentrate imports rose to 19.8kt in Oct – up 28% month on month and 80% on the year. (SMM)
Myanmar imports stood at 16.4kt, Congo, Australia and Nigeria also contributed.
Rising China processing fees saw a ramp up in smelter output, raising demand for ore raw materials.
November import data is expected to fall on smelter limitations following China environmental protections.
Energy:
Oil US$79.2/bbl vs US$79.1/bbl yesterday
Oil prices are seeing some support in early trading today on reports that OPEC+ could adjust plans to raise oil production if large consuming countries release crude from their reserves or if the coronavirus pandemic dampens demand
Japanese and Indian officials are working on ways to release national reserves of crude oil in tandem with the US and other major economies
Such an announcement could come as early as today
The discussions have come after the U.S. government was unable to persuade OPEC+ to produce more oil with major producers arguing the world was not short of crude
The group agreed this month to stick to plans to raise oil output by 400,000bopd from December
Oil prices rose after Bloomberg News reported that OPEC+ may alter plans to keep boosting production, citing delegates. Reuters has not verified the report.
Consensus forecasts suggest that the US could release anywhere from 45-60MMbbls from its reserves that would bring forward about 20MMbbls in already approved sales
Worries about demand have been fed by the prospect of national lockdowns in Europe, which has pressured prices
Austria entered its fourth national lockdown on Monday as Europe again becomes the epicentre of the coronavirus pandemic
Germany could also impose fresh curbs, with politicians debating a lockdown for unvaccinated people
Natural Gas US$4.919/mmbtu vs US$4.886/mmbtu yesterday
US natural gas futures were down sharply in yesterday as weather models over the weekend advertised a pattern that would deliver notably warmer-than-normal temperatures for early December
Compared to Friday’s outlook, the largest change in the temperature outlook occurred during the 11-15 day time frame, from 2-6 December, according to Maxar’s Weather Desk
NatGasWeather similarly highlighted warmer trends for the same time frame, when most of the US is expected to see temperatures well above normal
Still, liquefied natural gas demand remained near record highs in the latest estimate early Monday, while production was continuing to edge lower off early-month highs
Uranium UXC US$47.15/lb vs $47.6/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$96.5/t vs US$91.9/t
Chinese steel rebar 25mm US$740.4/t vs US$737.7/t
Thermal coal (1st year forward cif ARA) US$112.7/t vs US$113.8/t
Thermal coal swap Australia FOB US$170.0/t vs US$158.0/t
Coking coal swap Australia FOB US$290.0/t vs US$290.0/t
Other:
Cobalt LME 3m US$61,550/t vs US$61,550/t
NdPr Rare Earth Oxide (China) US$122,541/t vs US$122,659/t
Lithium carbonate 99% (China) US$29,050/t vs US$28,607/t
China Spodumene Li2O 5%min CIF US$2,210/t vs US$2,160/t
Ferro-Manganese European Mn78% min US$1,939/t vs US$1,945/t
China Tungsten APT 88.5% FOB US$313/t vs US$313/t
China Graphite Flake -194 FOB US$665/t vs US$665/t
Europe Vanadium Pentoxide 98% 7.8/lb vs US$7.6/lb
Europe Ferro-Vanadium 80% 32.15/kg vs US$31.95/kg
China Ilmenite Concentrate TiO2 US$388/t vs US$338/t
Spot CO2 Emissions EUA Price US$78.2/t vs US$74.4/t
Battery News
Vietnam planning 4GW of offshore wind by 2030=
Vietnam are hoping to increase offshore wind capacity to 4GW from 1GW by 2030.
The 4GW is still below the potential 5GW-19GW capacity by 2030, predicted in World Bank’s Offshore Wind Roadmap for Vietnam.
The latest draft of the National Power Development Plan would also see onshore wind increase from 1.26GW to 17.34GW.
The Global Wind Energy Council also believes that a capacity of 10GW would be feasible by 2030, based on current calculations.
Fords drops plans for Rivian-powered EV
Ford and Rivian have ended plans to make an EV with each other.
Ford had announced that it wanted to make a Rivian-powered EV after it made its first investment of $500m into the startup in 2019.
The two companies have already cancelled a vehicle planned for the Lincoln luxury brand in 2020.
“As Ford has scaled its own EV strategy and demand for Rivian vehicles has grown, we’ve mutually decided to focus on our own projects and deliveries,” said a spokesperson for Rivian.
New UK homes will be required to have EV chargers starting in 2022
New legislation in the UK will require every new home and business to be built with EV charging points from 2022.
The legislation should result in approx. 145,000 new charging points across the country each year.
The plans are seen as a key step in realising the UK’s ban on new combustion engine vehicles by 2030.
Company News
AEX Gold (AEXG:LN) 32p, Mkt Cap £57m – Geophysical programme completed at Tartoq license
AEX reports that it has completed its geophysical programme at its Tartoq gold exploration licences in Southern Greenland.
Airborne magnetics and radiometrics were flown over the Tartoq licences in the summer of 2021 covering an area of 84km2 of prospective Archean greenstone belt, known as the Tartoq Gold Belt.
AEX comment that the survey has identified a number of key potential Orogenic Gold hosting sites, while greatly increasing the geological understanding of the licence.
Results from the survey will be used to refine the Corporation's exploration targets at Tartoq for follow-up exploration in 2022.
BlueRock Diamonds* (BRD:LN) – 33.20p, Mkt cap £4.7m – Mining restarts at Kareevlei diamond mine following repeal of section 54 notice
BlueRock have restarted mining at the Kareevlei diamond mine near Kimberley, South Africa.
The Section 54 shutdown was over water in the pit and safety issues relating the traffic management of trucks in and out of the pit.
Stockpiles were used to feed the process plant through the lockdown and management used the opportunity to accelerate the construction of Line 2 in the plant.
Line 1 in the process plant is already working well but the plant lost around 800-900cts of diamond output in relation to the interruption.
While the interruption was short the loss of 1,000cts of production just ahead of the November/December sales is bad news from a cash flow perspective.
The November diamond auction in Kimberley is in progress with the next auction in late January. We expect the sale to offer over $400/ct as an average for Kareevlei sales.
The short 8-day duration of the lockdown used around a tenth of the stockpile which should ensure the ongoing availability of feedstock through the rainy season in December/January.
BlueRock employs 70-80 staff with another 130, mainly mining, contractors on site, around 70% of their costs are variable, mainly contractor labour and fuel.
The new process plant should run at 2,500-3,000t a day by the end of November indicating production of ~2,000-2,500cts through December worth $0.8-1m.
*SP Angel act as nomad and broker to BlueRock Diamonds
Hochschild (HOC:LN) 110p, Mkt cap £615m – Company vows to fight ‘illegal’ plans to close mines over environmental impact
Hochschild shares slumped in London on Monday morning after the company reported it has learned of a government attempt to close two of its silver mines in Peru following environmental complaints.
The company has promised to “vigorously defend its position and take all action necessary to ensure that the rights of the company and its wholly-owned subsidiaries under Peruvian and international law are respected”
Shares plunged 50% on Monday morning, wiping £400m off the value of the company, before recovering somewhat but closing down 27%.
Ignacio Bustamante, CEO, said he hopes the moves were “all a misunderstanding” on the part of Peru’s new prime minister, who appeared mistakenly to believe that the mines were due to close soon anyway.
According to a government statement, Prime Minister Vasquez's initial announcement said the mines would be closed as soon as possible on environmental concerns, with "no extensions, whether for exploitation, exploration or even shutdown."
Peru is currently in the process of proposing higher taxes on miners, and socialist President Pedro Castillo has said the additional revenue will be crucial to fund social programs.
The mining industry accounts for 60% of export revenue in Peru, while Hochschild employs 5,000 people in Peru and says that its mines support a further 40,000 jobs.
Conclusion: Our contacts within Peru indicate that moves are already underway to oust President Castillo with a more moderate candidate ready in the wings.
Kavango Resources (Kavango Resources PLC (LSE:KAV, OTC:KVGOF)) 4.8p, Mkt cap £18.7m – Survey identifies distinctly magnetised 30km target
Kavango reports that it has identified 30km strike length of distinct magnetic Proterozoic gabbro within Target Area A of the Kalahari Suture Zone, in the vicinity of Hole TA2DD002.
The target is now high-priority exploration target for the detection of possible large-scale Ni/Cu/PGE mineralisation.
According to the updated 3D magnetic susceptibility model, the magnetised zone measures 30km in length and can be intercepted as shallow as 500m.
The model Confirms that Proterozoic rocks are one set of causative bodies for the magnetic anomalies, and that Hole TA2DD002 appears to have clipped the western edge of the more magnetic Proterozoic rocks, which are hosted within the main body of Proterozoic.
The main body of the more magnetic Proterozoic rocks appears to extend approximately 350m to the east.
Ben Turney, Chief Executive Officer of Kavango Resources, commented: “The 30km-long magnetised body, within the Proterozoic gabbro, is just one possible host environment for large-scale nickel/copper/platinum group element mineralisation. Above that sits the Karoo, which still remains a core focus of ours.”
“The fact that we have at least four other sizeable target zones within 25km distance of of the 30km Strike Length (including the Great Red Spot) highlights how big this project is. The possibility of stacked plays overlying each other, simply adds to the overall promise.”
Power Metal Resources* (POW:LN) 1.7p, Mkt Cap £22.8m – Test pitting commences at Alamo project
(Power Metal has the right to earn-in up to a 75% interest in the Alamo Project)
Power Metals reports that it has commenced a test pitting programme at the Alamo Gold Project, located in west-central Arizona, USA.
Permits allow for the excavation of up to 6 test pits (3 at Breccia Hill and 3 at Big Boulder Wash), as well as 5 percussion drill holes.
The US$40k deposit for this phase of work was prepaid by Power Metal in June 2021, bringing the total spend for the year to July 2021 over the US$100k minimum as outlined in the earn-in agreement signed with Frisco Gold Corp.
At Big Boulder Wash, up to 3 test pits will be dug where previous work has identified basal conglomerates that are highly prospective for hosting palaeoplacer coarse gold deposits within the district.
At Breccia Hill, a domed shape hill which was originally identified by a bulk leach extractable gold geochemical survey. Work here will include mapping and sampling of quartz stockwork veining and sulphide mineralisation.
Paul Johnson Chief Executive Officer of Power Metal Resources PLC (AIM:POW) commented: "The Alamo Gold Project has a history of gold nugget discoveries, and coarse gold palaeoplacer mineralisation is what we are targeting in this next phase of work. With the necessary exploration permits now in place the much-anticipated test pitting programme at Alamo is finally commencing. This work is fully-funded, having been paid for by Power Metal in advance as part of the year 1 earn-in requirements ending July 2021.”
*SP angel acs as nomad and broker to Power Metal
SolGold* (SOLG:LN) 24p, Mkt Cap £573m – Progress of the Cascabel PFS and Investment Protection Agreement
Solgold has provided guidance on the progress of its pre-feasibility study (PFS) for the Cascabel project in northern Ecuador which hosts the Alpala deposit.
The company explains that following the recent appointment of its new CEO, Darryl Cuzzubbo, announced last week, it “has determined to delay the release of the PFS. This will enable confirmation of various assumptions impacting the PFS, including whether what are currently considered as upside options should in fact be further evaluated and incorporated as part of the PFS base case so as to provide a more indicative and robust value of the Cascabel project”.
Solgold clarifies that the PFS is progressing well but that it is reviewing “earlier underground access, mine and mill optimisations, extending Cascabel Resources, hydroelectric power, among others, offering further optionality and potential for improved economics”.
The company says that it will provide additional information on the expected completion date of its PFS at its AGM on 15th December.
In our view, development of a deposit of the scale of Alpala and nearby orebodies within the Cascabel licence area is a complex and multi-faceted task which requires detailed analysis in order to chart the future scale and operational profile of a mine which could well operate for over 50 years.
Careful analysis at this stage offers the best chance of delivering the optimal outcome for such a long-term project. We understand that although outside observers may find the extended PFS timetable frustrating, incoming management needs to be confident that all the development options have been considered thoroughly and optimised to deliver a robust and effective long-term project.
In a separate announcement today, Solgold reports that the President of Ecuador, Mr. Guillermo Lasso Mendoza has signed an ‘Investment Protection Agreement’ (IPA) in respect of the Cascabel project.
The agreement “includes an intention to invest a total of approximately US$430 million over the 10 years between 2013 and 2023 in minerals exploration activities in the Cascabel mining concession”.
“The US$430 million total includes both historical investments, with a total of approximately US$238 million estimated through to the end of 2021, and planned future investments through to the end of 2023 when the Exploration Phase of activities as defined under the mining law is anticipated to finish”. This appears to imply an intention to invest around a further US$190m on exploration at Cascabel over the next two years.
In October, Solgold announced an initial mineral resources estimate of 233m indicated tonnes at an average grade of 0.23% copper and 0.16g/t gold (reported as 0.33% copper equivalent CuEq) and an additional inferred tonnage of 197mt at an average grade of 0.27% copper and 0.20g/t gold (0.39% CuEq) at the Tandayama-America deposit also in the Cascabel licence area and previous announcements have discussed several additional earlier stage exploration targets at Cascabel including Trivinio, Moran, Cristal and Chinambicito which may all be candidates for further exploration.
“Once the IPA has been executed, the Ecuadorian State will grant the SolGold investor companies the applicable protections and guarantees in accordance with the law. Specific protections relate to the prohibition of all forms of confiscation, non-discriminatory treatment and equal playing field, legal security, tax stability for 15 years and international arbitration in London if there are any disputes in relation to the Cascabel Project”.
Acting CFO, Ingo Hofmaier, welcomed the agreement as an opportunity to “further deepen our relationship with the State of Ecuador … [and] … create an alliance between the private sector and the state, critical in supporting large amounts of future investments”.
Conclusion: Solgold reports further work on the PFS for Cascabel and expects to provide additional information on the timetable at its forthcoming AGM. We endorse the cautious approach and giving adequate consideration to all development options in mapping out the future of a mine which could last for over 50 years.
The IPA provides security for future exploration spending at Cascabel and builds further links between the Ecuador Government and Solgold.
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The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Analysts
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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
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