SP Angel . Morning View . Friday 10 12 21
Tin and lithium prices rise as markets grapple with Omicron
Anglo American (Anglo American PLC (LSE:AAL)) – Woodsmith mine development review
Gemfields (Gemfields Group PLC (AIM:GEM)) –Record ruby auction
Tertiary Minerals* (Tertiary Minerals PLC (AIM:TYM)) – Chairman highlights strategic focus on copper and precious metals exploration
VOX Markets: 08/12/21: https://audioboom.com/posts/7993202- china-economy-plus-bluejay-centamin-cornish-metals
IGTV: China slows down but invests heavily in renewable capacity: https://youtu.be/d6PtLxNgtPc
*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.
Omicron – Increasing reports from South African doctors suggest milder disease
Western governments have to be cautious when faced with a new variant, but we are seeing increasing reports from doctors indicating lower severity of disease.
While the average age of the South African population is younger than many western nations the reports appear extremely hopeful.
If verified we expect the UK and other governments to reopen boarders and to allow the virus to ‘let rip’ through their populations.
A complete relaxation of the covid rules will likely cause some logistical challenges as workers take time off to recover from the virus and to look after their families.
Christmas might be the ideal time from a governmental perspective to allow the spread of the disease through this would be very tough on health services.
One government advisor reckons Omicron is spreading faster in the UK than in South Africa.
Conclusion: we expect governments and central banks to continue to maintain lower interest rates for longer till they see lower risk of economic contraction due to supply chain issues
China to support financing for property developers to complete unfinished projects
A Chinese state regulatory body, working alongside the banking sector, will aim to support debt issuance for developers to boost acquisitions and complete projects. (Securities Times)
The NAFMII does not believe individual cases will affect market financing functions. (Reuters)
Analysts see the move as further evidence of China’s strategy to relax financing regulations for developers.
Developers who toe the line of Beijing’s new ‘3 red lines’ policy will gain priority support.
European power shortages see zinc supplies shrink
LME zinc premiums have doubled since October to $400-450/t.
LME European zinc inventories at 50t in Bilbao from a capacity of 3,200t.
LME inventories at 150,675t at their lowest since July 2020.
Supplies have been limited by production suspensions by Glencore and Nyrstar owing to power shortages.
Glencore plans to further limit output at other smelters and analysts expect Nyrstar to follow suit. (Reuters)
European zinc smelters account for 16% of world refined zinc production.
The International Lead and Zinc Study Group indicates a supply deficit of 93kt Jan. – Oct. 21.
Dow Jones Industrials +0.00% at 35,755
Nikkei 225 -1.00% at 28,725
HK Hang Seng -1.20% at 23,964
Shanghai Composite -0.18% at 3,666
Economics
China – PBoC raises foreign exchange RRR ‘Reserve Requirement Ratio for financial institutions by 2% to 9% from 15 December.
Total Social Financing rose to CNY 2,610bn in November vs CNY 1,590bn in October
US - Jobless claims fall to a new low level at 189k from 222k. This is the lowest level since 1969
Its good to see jobless claims fall. Fuller employment reduces the social cost of helping jobless people while contributing ore in taxes. It should be a win-win situation for the US.
Russia - Inflation held steady at 1% in November vs 1.1% in October but this was still 8.4% ypy in November vs 8.1% yoy in October
Mexico - Inflation rose to 1.1% in November vs 0.8% in October. Inflation rose to 7.4% yoy in November vs 6.4% in October
South Africa - Manufacturing production fell 8.9% yoy in October vs -0.8% in September
Mine production rose 2.1% inOctober vs -0.8% in September
Currencies
US$1.1292/eur vs 1.1324/eur yesterday. Yen 113.60/$ vs 113.42/$. SAr 16.042/$ vs 15.708/$. $1.321/gbp vs $1.320/gbp. 0.715/aud vs 0.717/aud. CNY 6.368/$ vs 6.3444/$.
Commodity News
Precious metals:
Gold US$1,773/oz vs US$1,786/oz yesterday
Gold ETFs 98.3moz vs US$98.2moz yesterday
Platinum US$945/oz vs US$957/oz yesterday
Palladium US$1,811/oz vs US$1,859/oz yesterday
Silver US$21.85/oz vs US$22.34/oz yesterday
Rhodium US$14,000/oz vs US$14,000/oz yesterday
Base metals:
Copper US$ 9,562/t vs US$9,604/t yesterday
Aluminium US$ 2,635/t vs US$2,620/t yesterday
Nickel US$ 19,810/t vs US$19,825/t yesterday
Zinc US$ 3,319/t vs US$3,309/t yesterday
Lead US$ 2,264/t vs US$2,274/t yesterday
Tin US$ 39,685/t vs US$39,215/t yesterday
Energy:
Oil US$74.1/bbl vs US$75.9/bbl yesterday
Oil prices are on track for their biggest weekly gain since late August, with market sentiment buoyed by easing concerns over the Omicron coronavirus variant's impact on global economic growth and fuel demand
Reports in South Africa said Omicron cases there had only shown mild symptoms and the infectious disease official, Anthony Fauci, confirmed "it does not look like there's a great degree of severity"
Global benchmark Brent has risen 38% this year, supported by output curbs led by OPEC+, though it has fallen from a three-year high above US$86/bbl in October
Iraq's Oil Minister confirmed he expects oil prices to reach over US$75/bbl, according to state news agency INA
He added that OPEC is trying to "positively contain" the energy market
On Sunday, Saudi Arabia raised January official selling prices for all crude grades sold to Asia and the US by up to 80 cents from the previous month
Last week OPEC+ decided to continue increasing monthly supply by 400,000bopd in January, even after a slide in prices driven by Omicron concerns
Oil was also buoyed by diminishing prospects of a rise in Iranian oil exports after indirect US/Iranian talks on saving the 2015 Iran nuclear deal broke off last week
Meanwhile, the World Petroleum Conference devoted to future technologies and low-carbon strategies commenced in Houston yesterday with top executives from energy companies affirming the need for more oil for decades to come
Natural Gas US$3.864/mmbtu vs US$3.806/mmbtu yesterday
US futures continue to drift as mild weather predictions take hold
The contract for January delivery traded at US$3.68/mmbtu
Outside of modest increases in LNG feed gas demand, the sharp move higher Friday occurred despite notable further deterioration in the fundamental picture for natural gas
European prices continue to hold up on last week’s news that Germany's energy regulator has suspended the approval process for the Nord Stream 2 pipeline last week
Uranium UXC US$45.85/lb vs $46.85/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$110.6/t vs US$112.4/t
Chinese steel rebar 25mm US$754.3/t vs US$759.3/t - India sees 26% steel production increase in 2021
India has recorded a 25.6% growth in crude steel production Jan-Aug. 21.
The period saw 77.74mt production over the period. (Infomerics)
Analysts expect imports to continue to decline.
India has been pushing for ‘atmanirbhar’/self-sufficiency in its economy as border tensions with China intensify and supply chain disruptions continue to impact manufacturing.
Thermal coal (1st year forward cif ARA) US$106.5/t vs US$106.5/t
Thermal coal swap Australia FOB US$160.0/t vs US$154.5/t
Coking coal swap Australia FOB US$322.0/t vs US$322.0/t
Other:
Cobalt LME 3m US$69,815/t vs US$69,815/t
NdPr Rare Earth Oxide (China) US$134,668/t vs US$135,171/t
Lithium carbonate 99% (China) US$31,802/t vs US$30,606/t
China Spodumene Li2O 5%min CIF US$2,310/t vs US$2,310/t
Ferro-Manganese European Mn78% min US$1,891/t vs US$1,897/t
China Tungsten APT 88.5% FOB US$310/t vs US$313/t
China Graphite Flake -194 FOB US$715/t vs US$695/t
Europe Vanadium Pentoxide 98% 8.4/lb vs US$8.4/lb
Europe Ferro-Vanadium 80% 32.55/kg vs US$32.55/kg
China Ilmenite Concentrate TiO2 US$382/t vs US$382/t
Spot CO2 Emissions EUA Price US$98.9/t vs US$98.9/t
Battery News
Volkswagen plans $100bn investment on future technology over next 5 years
VW have plotted a $100bn investment program on future technology including digitization and electric mobility.
56% of capex will be dedicated to the ‘future technologies.’
$52bn will be committed to advancing VW’s battery-electric vehicle range.
The Company is also looking to build gigafactories and establish ‘vertical integration in the battery value chain.’
Volvo and Northvolt plan research and development centre in $3.3bn investment push
Volvo and Northvolt have closed a $3.3bn deal that Volvo says will secure its supply of sustainable battery cells for its future generations of fully electric vehicles.
The two companies will build the R&D centre in Sweden following their June announcement of a JV for developing EV batteries to start next year.
Volvo’s Geely hopes to sell 50% pure EVs by 2025 and 100% by 2030.
A new Gigafactory with annual capacity of 50 GWh is expected in 2022 to produce cells for Volvo and its subsidiary, Polestar.
Northvolt is planning to rival other lithium-ion battery makers with plans to take a 20% market share in Europe by 2030. (Reuters)
The firm has secured $27bn worth of contracts with automakers.
The two Swedish companies are in the final phase of selecting a location in Europe for the factory, which will have annual capacity of up to 50GWh and the ability to supply batteries to half a million cars a year by 2026.
Volvo is heavily investing in becoming an electric-only brand by 2030 and a European battery supply will be key to that.
Company News
Anglo American (Anglo American PLC (LSE:AAL)) 2,979.5p, Mkt Cap £40bn – Woodsmith polyhalite mine development review
Anglo American reports that it has now almost completed its detailed technical review of the Woodsmith polyhalite project in Yorkshire which it acquired from Sirius Minerals in 2020.
The review identifies several “elements of the project's design would benefit from modification to bring it up to Anglo American's safety and operating integrity standards and to optimise the value of the asset for the long term”.
These include:
“the sinking of the two main shafts, the development of the underground mining”; and
Changes “to accommodate both increased production capacity”; and
The adoption of a “more efficient and scalable mining method of using only continuous miners”;
Anglo American says that these “improvements will also require the installation of additional ventilation earlier in the development of the underground mining area … [and says that] … these changes to the design of the mine infrastructure - which will result in a different, enhanced configuration and therefore a different construction and production ramp-up schedule - will ensure that its exacting standards are met and the full commercial value of the asset is realised”.
Anglo confirms that “construction of the major critical path elements of the project, principally the two main shafts and the mineral transport tunnel, is progressing, with approximately $0.7 billion of capital expected to be invested in 2022”.
CEO, Mark Cutifani, confirmed that Anglo American is “very happy with the high quality and exciting potential of Woodsmith … [which he described as] … a very long-life asset”. He said that “We expect to have completed our design engineering, capital budget and schedule at the end of 2022, with a fully optimised value case that recognises the upside potential we see in Woodsmith, and we will then submit the full project to the Board”.
In addition, Anglo American is strengthening the project’s senior management team with the appointment of Tom McCulley, the current CEO of its Peruvian operations responsible for the commissioning of the Quellaveco copper project on time and on budget as CEO to lead the Woodsmith project.
The current incumbent, Chis Fraser, is to “take on a strategic projects role for Anglo American”.
In a separate announcement today, Anglo American confirms that it expects to meet current 2021 guidance and that it expects “further improvement in 2022 … [and] … value accretive 35% growth over next decade”. Details are expected later today.
Conclusion: When it acquired the Woodsmith project in 2020, Anglo American indicated its intention to review the project in detail. Today’s announcement confirms that it has identified major areas of improvement and development is progressing with approximately $700m to be spent next year ahead of a detailed engineering plan, budget and schedule to be submitted to the Board in late 2022.
Gemfields (Gemfields Group PLC (AIM:GEM)) 14.5p, Mkt Cap £167m –Record ruby auction
Following the announcement of a record sale of emeralds from its Kagem mine in Zambia earlier this week, the company has announced that it has also achieved a record US$88.4m sale of rubies from its 75% owned Montepuez mine in Mozambique.
The company says that it achieved an average US$132.7/carat from the auction and that, of “the 107 lots offered, 104 were sold”.
In total, “the 15 auctions of MRM gemstones held since June 2014 have generated USD 731.5 million in total revenues”.
Managing Director, Adrian Banks, said that “This has been the strongest ruby auction in Gemfields' history and we're very pleased with the trajectory and growth of the downstream ruby sector”.
He also commented that “The strength of the results we've seen this week for both emeralds and rubies means that Gemfields has achieved a new record for annual gemstone auction revenues of USD 239 million, a very pleasing result for 2021”.
Tertiary Minerals* (Tertiary Minerals PLC (AIM:TYM)) – 0.16p, Mkt cap £2.0m – Chairman highlights strategic focus on copper and precious metals exploration
In its results announcement for the year to 30th September 2021, Tertiary Minerals reports a pre and post-tax loss of £0.41m (2020 – loss of £2.50m).
The previous year’s results include a £2.0m impairment charge attributable to the exploration of the Pegleg project in the US.
In his Chairman’s Statement, Patrick Cheetham explained that Tertiary Minerals’ “strategic focus is now firmly on copper and precious metals” with a geographic emphasis of Nevada and on Zambia.
Mr Cheetham explains that in Zambia the principal exploration targets are “in the Zambian portion of the Central African Copperbelt which hosts multiple world-class copper deposits” and he emphasises the mining-friendly regime of Zambia under the regime of President Hakainde Hichilema.
Mr. Cheetham comments on the appointment of Patrick Cullen as Managing Director whose extensive experience in “Southern Africa, and in Zambia in particular, … will be a valuable addition to the team”.
He also highlights that the company is “developing a copper exploration project in Nevada at the Brunton Pass Project where a number of prospecting, mapping and soil sampling programmes have identified widespread copper mineralisation and targets for copper skarn and epithermal gold mineralisation over a 1km x 0.6km area”.
Elsewhere in Nevada, he says that Tertiary Minerals is “particularly pleased with the latest results from our Pyramid Project in Nevada, where recent trenching across a silver-gold soil anomaly has intersected a network of high-grade silver-gold veins at surface, within a wider zone of lower grade silver mineralisation at the North Ruth Prospect”.
Veins at North Ruth extend “over a strike length of at least 530m at surface and presents an immediate drill target. Drill planning and permitting is underway for the first quarter of 2022. Reported trench intersections and follow up sampling highlight the potential for both underground minable widths of high-grade silver mineralisation as well as wider zones of lower grade mineralisation potentially amenable to open-pit mining”.
Commenting on the Storuman Fluorspar Project in Sweden, the Chairman says that there has been no news to report and that “we have had no response yet to our appeal against the decision by the Swedish Mining Inspectorate to reject Tertiary's Exploitation (Mine) Permit in its current form having previously granted this permit. Many projects in Sweden are in the same unfortunate situation and there is no legislated timeframe for a response”.
Referring to the appointment of “Dr Mike Armitage in January as a new non-executive director … [Mr. Cheetham explained that the former geological and mining consultant from SRK]… corrects an imbalance on the Board that has persisted since the passing of non-executive director David Whitehead”.
Conclusion: Tertiary Minerals confirms its focus on exploration for copper and precious metals in Zambia and Nevada and highlights key executive and non-executive director appointments which enhance the company’s capacity in these areas.
*SP Angel act as Nomad and Broker to Tertiary Minerals
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
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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, Tungsten, Spodumene, Ferro-Manganese, Graphite
Asian Metal