SP Angel . Morning View . Tuesday 14 12 21
Xi Jinping calls for consolidation of key commodity supply
Altus Strategies* (Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)) – Acquisition of revenue generating gold royalties from Newcrest and a $26m fundraise
Kodal Minerals* (Kodal Minerals PLC (AIM:KOD)) – Kodal advances Bougoumi Lithium mine planning ahead of potential development
Mkango Resources* (Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)) – Final stage of hydrometallurgy piloting for Songwe Hill commences
Trident Royalties (Trident Royalties PLC (AIM:TRR)) – Trident raises £30.2m at 36p
Zinnwald Lithium (Zinnwald Lithium PLC (LSE:znwd)) – Placing of £5.8m at 15.5p
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.
Xi Jinping calls for consolidating supply of key commodities to ensure a ‘self-sufficient’ China
Xi emphasised the importance of establishing a ‘secure supply’ of minerals as one of the 5 key ‘significant theoretical and practical issues’ facing China.
The other 4 were ‘common prosperity’, capital regulation, defusing major financial risks and carbon neutrality. (SCMP)
Xi stated China ‘should fortify the national strategic materials reserve system to secure minimum needs at critical moments.’ (People’s Daily)
We suspect the statement will lead to further M&A in the mining space as Chinese companies move to secure increasing sources of raw materials.
China reports 2nd Omicron case
A man in Guangzhou has reported positive for the Omicron variant following the first case was reported yesterday in Tianjin.
The man’s neighbourhood has been placed under quarantine to limit the spread of the virus.
China’s Zero Covid policy puts supply chains at further risk if the Omicron variant begins to spread.
Commodity trading funds pull back long positions on copper on risk reduction and potential for further China slowing
Copper has slid to $9,500/t from $10,452/t in October as commodity trading funds reduce their risk and take a more cautious stance on the potential for further slowing in China
Long positions on the CME copper market have been slashed from 82,000 contracts to around 50,000 its lowest level for around 18 months
Short positioning is also historically low at 36,100.
Cash copper premiums have fallen sharply to neutral from >$1,100/t.
LME open tonnage has rebounded from 14kt in Oct. to 80kt today.
Headline stocks bounced from lows of 74kt last week to 84kt today.
Global exchange stocks at Nov. end of 173.7kt marked the lowest end-month tally since 2008 in a sign that the market remains vulnerable to supply disruptions. (Reuters)
Dow Jones Industrials -0.89% at 35,651
Nikkei 225 -0.73% at 28,433
HK Hang Seng -1.48% at 23,601
Shanghai Composite -0.53% at 3,662
Economics
Asian stocks weaken as Chinese property developers tumble
Hang Seng Index down 1.5%. Hang Seng Properties Index down 4.5% since Dec. 9th.
Country Garden Services down 10%, China Resources Land down 5%, China Overseas Land down 4%.
The Shimao Group crashed 21% after JP Morgan slashed its rating and sold assets in the developer. Its property services unit fell 32%. (Bloomberg)
Shimao has denied claims it is in discussion to extend the payment schedule for its borrowing.
China – Influential Chinese think-tank joins call for rate cut
China should lower interest rates and boost infrastructure investment to ensure the economy grows by at least 5% next year, according to an article from research fellows at China Finance 40 Forum.
CF40 is a Beijing-based think tank whose members include PBOC Deputy Governor Chen Yulu and the head of the bank’s monetary policy department, Sun Guofeng.
Policymakers should use interest rare policy tools earlier rather than later and alleviate the private sector’s debt burdens with lower rates.
The combined debt of Chinese companies and residents has ballooned to 210 trillion yuan ($33 trillion).
A reduction in the reserve requirement ratio for banks earlier this month sparked speculation that the PBOC would start cutting interest rates.
UK – Labour market strengthens in November with record jump in employment
UK companies added to payrolls in November at a record pace while unemployment fell, according to the ONS.
The number of employees on payroll rose 257,278 in November.
The unemployment rate fell to 4.2% in the three months through October.
Vacancies rose to a record 1.22m between September and November.
The latest figures are likely to fuel concerns over inflation, which are looking increasingly less ‘transitory’, and policymakers looking unlikely to dial back support for economies given the perceived threat posed by the Omicron variant.
Japan – Q4 Tankan activity index large manufacturer steady at 18
Machinery orders rose 3.8% in October vs 0% in September and rose 2.9% yoy October vs 12.5 yoy in September
Germany - Wholesale prices rose 1.3% in November vs 1.6% in October and 16.6% yoy in November vs 15.2% yoy in October
India - CPI rose 0.7% in November vs 1.4% in October and 4.9% yoy in November vs 4.5% yoy in October
Turkey – Economy grew 7.4% YoY in Q3
GDP expanded 2.7% QoQ on a seasonally adjusted basis.
President Erdogan has said Turkey will prioritise growth, employment and investments.
The lira has weakened 43% against the US dollar so far this year.
Industrial production rose 8.5% yoy in October vs 9.0% yoy in September
Retail sales rose 15.2% yoy in October vs 17.2% yoy in September
Sweden – Inflation accelerates to 28-year high as central bank maintains transitory view
Swedish inflation accelerated more than expected in November to 3.6% vs 3.2% expected.
The number was the highest since December 1993, just over a tear before the inflation target was formally introduced.
The central bank is among the most dovish n the rich work, and still believes the surge in inflation will prove to be transitory.
Peru mining chamber warns of $50bn threat tax hike proposal poses
The Peruvian government is looking to hike mining taxes by 3-4% following an IMF study.
Castillo’s leftist government has vowed to redistribute mineral wealth to fund social programs.
The government is looking to legislate tax reforms through Congress by year-end.
The National Society of Mining, Oil and Energy has warned of the ‘irreparable’ damage the tax hikes would cause, stating ‘future investments of more than $50bn are at risk.’
South Africa - President Cyril Ramaphosa has tested positive for Covid-19 preseumably the Omricon variant.
Over 24 national ministers and heads of state have died of Covid-19 with 17 deaths of African leaders as of 6 February 2021
Insurance claims from 2021 natural catastrophes to hit $105bn
This year’s insurance bill from natural catastrophes has been estimated at $105bn, the fourth highest figure on record and up 17% on 2020.
The preliminary estimates came from reinsurance group Swiss Re, which said the costliest event in the period was Hurricane Ida – causing $30-32bn of insured losses.
Currencies
US$1.1270/eur vs 1.1289/eur yesterday. Yen 113.72/$ vs 113.62/$. SAr 16.013/$ vs 15.929/$. $1.321/gbp vs $1.324/gbp. 0.713/aud vs 0.715/aud. CNY 6.363/$ vs 6.365/$.
Commodity News
Precious metals:
Gold US$1,784/oz vs US$1,787/oz yesterday
Gold ETFs 98.2moz vs US$98.3moz yesterday
Platinum US$934/oz vs US$950/oz yesterday
Palladium US$1,683/oz vs US$1,770/oz yesterday
Silver US$22.24/oz vs US$22.26/oz yesterday
Rhodium US$14,000/oz vs US$14,000/oz yesterday
Base metals:
Copper US$ 9,454/t vs US$9,511/t yesterday
Aluminium US$ 2,652/t vs US$2,640/t yesterday
Nickel US$ 19,585/t vs US$19,790/t yesterday
Zinc US$ 3,339/t vs US$3,337/t yesterday
Lead US$ 2,290/t vs US$2,303/t yesterday
Tin US$ 39,145/t vs US$39,420/t yesterday
Energy:
Oil US$74.6/bbl vs US$75.7/bbl yesterday
Oil prices are trending higher in early trading today, recouping losses from yesterday triggered by investor worries about demand after renewed restrictions were imposed in Europe and Asia amid a rise in coronavirus cases
Governments around the world, including most recently Britain and Norway, have enforced restrictions to stop the spread of the Omicron variant
At least one person has died in the UK after contracting the variant, the first publicly confirmed death globally from the swiftly spreading strain
In China, major manufacturing province Zhejiang is fighting its first COVID-19 cluster this year, with tens of thousands of citizens in quarantine and virus-hit areas suspending business operations, cutting flights and cancelling events
The Asian Development Bank trimmed its growth forecasts for developing Asia for this year and next to reflect risks and uncertainty brought on by the Omicron variant, which could also hamper oil demand
However, OPEC raised its world oil demand forecast for the first quarter of 2022 and stuck to its timeline for a return to pre-pandemic levels of oil use, estimating that the variant would have a mild and brief impact
Supply meanwhile is expected to increase with the largest US shale basin's output expected to grow to a record in January, according to a monthly forecast from the EIA
Natural Gas US$3.803/mmbtu vs US$3.995/mmbtu yesterday
A combination of Russia's inactive Nord Stream 2 pipeline and cooler weather forecast through the end of December has led to a rally in European natural gas futures
German power prices surged to a record high while French power prices jumped to a decade high
Concerns that Nord Stream 2 pipeline will not operate this winter season comes as the new German chancellor Olof Scholz said his government would do everything possible to make sure natgas flows continue through Ukraine and not the latest Russian to German undersea pipeline
Last month, German energy regulators suspended Nord Stream 2's certification process
The US has also sanctioned companies affiliated with the pipeline's construction
On top of the geopolitical uncertainties, mixed with tight natgas supplies across Europe, some of the lowest in a decade, a new 14-day weather forecast shows cooler than average weather, which will boost natgas demand
Uranium UXC US$44.95/lb vs $45.85/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$115.3/t vs US$109.6/t
Chinese steel rebar 25mm US$757.0/t vs US$755.7/t
Thermal coal (1st year forward cif ARA) US$106.5/t vs US$106.5/t
Thermal coal swap Australia FOB US$165.5/t vs US$163.5/t
Coking coal swap Australia FOB US$324.0/t vs US$324.0/t
Other:
Cobalt LME 3m US$69,815/t vs US$69,815/t
NdPr Rare Earth Oxide (China) US$133,978/t vs US$133,959/t
Lithium carbonate 99% (China) US$32,610/t vs US$32,606/t
China Spodumene Li2O 5%min CIF US$2,340/t vs US$2,340/t
Ferro-Manganese European Mn78% min US$1,865/t vs US$1,868/t
China Tungsten APT 88.5% FOB US$313/t vs US$313/t
China Graphite Flake -194 FOB US$735/t vs US$735/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$381/t vs US$381/t
Spot CO2 Emissions EUA Price US$95.4/t vs US$90.5/t
Battery and Renewable News
Toyota to invest $35bn on 30-strong EV line-up by 2030
Toyota are to invest $35bn on a line-up of 30 battery EVs by 2030.
The investment is part of a larger overall investment of around $70bn in EVs, including hybrids and hydrogen vehicles, by the end of the decade.
Toyota has also said that 100% of the vehicles in its Lexus brand would be EVs globally by 2035 – the Lexus brand aims to have battery EVs account for 100% of total sales in Europe, North America and China by 2030.
The Japanese carmaker is playing catch up in the EV market and has also announced that it plans to invest around $17.5bn on battery production by 2030.
New US offshore wind leasing could trigger $120bn in investments say ACP
The recently announced offshore wind lease auctions in the US could generate up to $4.5bn in federal revenue, as well as create up to 128,000 during construction and spark $120bn of clean energy investments according to a report from the American Clean Energy Association (ACP).
ACP conducted its analysis following the October announcement from the US Bureau of Ocean Energy Management (BOEM) to schedule seven new lease auctions by 2025.
ACP estimates that leases sold at these auctions will support between 23GW and 40GW of new offshore wind projects.
Company News
Altus Strategies* (Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)) 59p, Mkt Cap £47m – Acquisition of revenue generating gold royalties from Newcrest and a $26m fundraise
BUY – Valuation under review
Altus acquires a gold focused portfolio of cash paying royalties in Australia and Cote d’Ivoire from Newcrest Mining in a $24m cash deal.
The portfolio includes:
50.0% interest in the 4.5% net smelter return (NSR) royalty on the open pit Bonikro gold mine in Cote d’Ivoire operated by Allied Gold (capped at 560koz from the PB5 zone);
80.1% interest in the 2.5% NSR royalty on the underground Ballarat gold mine in Australia (VIC) operated by Shen Yao Holdings, a Singapore listed company;
80.1% interest in the A$10/oz gold production royalty on the underground South Kalgoorlie Operations (SKO) gold mine in Australia (WA) operated by Northern Star;
80.1% interest in up to 15 development and up to six exploration stage assets across Australia (WA, QLD, NSW, NT, SA) and owned by suite of well known operators including Northern Star, Goldfields, Zijin, Evolution, BHP, JX Nippon, and Silver Lake.
Royalties are being acquired in partnership with AlphaStream, a private mining royalty and streaming company.
At Bonikro is expected to be ramped up to nameplate capacity of 100kozpa in Q1/23 following the ongoing push back.
The royalty is expected to generate $2.4m in average annual after-tax cash flows attributable to Altus over eight years (using Company gold price assumptions).
At Ballarat, the operator is aiming to grow production rate to 50kozpa over an estimated 13 years remaining based on the current resource (558koz at 6.0g/t in the Indicated and 275koz at 5.7g/t in the Inferred categories) and Altus assumptions.
The royalty is expected to generate $1.3m in average annual after-tax cash flows attributable to Altus over 13 years as well as the Company will take ownership of $1m in accrued royalty payments.
At SKO, the underground mine comprises part of Northern Star’s Kalgoorlie operations with a targeted production of 40kozpa over 18 year mine life based on Altus assumptions.
The royalty covers ~2moz in resources (1.9moz at 3.0g/t) and provides for a discovery bonus to be paid to the tune of A$1m for each new 250koz discovered at the property.
The royalty is expected to generate $0.2m in average annual after-tax cash flows attributable to Altus over 18 years (using Company gold price assumptions).
In aggregate, the deal is estimated to generate $3.5m pa in post tax cash flows attributable to Altus over the next 10 years.
The Company also announced a £19.8m/$26.1m placing of 36.9m new shares at 53.5p to fund the acquisition.
The fundraise was supported by existing major shareholders as well as new institutional investors.
La Mancha invested £6.9m maintaining its 35% interest in the Company.
Altus directors and officers participated in the equity raise putting in ~£0.5m including £0.35m from Steven Poulton, CEO.
New shares account for ~31.5% of the Company’s enlarged share capital.
Conclusion: The Company delivers strong growth momentum adding new revenue generating royalties and expanding its portfolio of assets to 33 royalties and 27 projects interests across nine countries and nine commodities.
The portfolio is estimated to add $3.5m pa in attributable post tax cash flows to the group over the next ten years on top of $4.0m expected from the Caserones NSR royalty during the same period. The deal adds to scale of royalty revenue stream, increases exposure to gold, expands geographical reach into a tier-1 jurisdiction and offers further upside from a series of >20 development/exploration projects led by globally recognised mining groups.
*SP Angel acts as nomad and broker to Altus Strategies
Kodal Minerals* (Kodal Minerals PLC (AIM:KOD)) – 0.22p, Mkt cap £34m – Kodal advances Bougoumi Lithium mine planning ahead of potential development
(Kodal Minerals currently hold 100% of the Bougouni lithium Mine. The Mali Government requires a 10% free carry on any mining project in Mali)
Kodal Minerals has started work towards the construction of the, fully permitted, Bougouni Lithium mine in Mali.
The team have started formal social impact and land usage studies for the community inclusion package following the receipt of the mining license.
The team are also updating the proposed capital costs with a major Chinese contracting and construction firm.
Management are busy reviewing the process plant design with a major Chinese consulting and construction group,.
The team expect to update the capital estimates and improve metallurgical recoveries with results due by end January.
Fatou Gold project: 11 RC reverse circulation drill holes have been completed around an area of significant artisanal workings. The project has a previous NI43-101 resource estimate.
Initial drilling programme has not yet fully tested the extent of the gold mineralised zone with initial drilling simply confirming areas of known mineralisation with an attempt to extend the resource to north along strike.
Zones of recently identified sulphide mineralisation are expected to correlate to gold mineralisation and are expected to report new zones away from the artisanal workings.
Results are expected in January 2022.
Nielle Gold project: management have been in consultation with local farmers to access areas to start drilling in the next few weeks to infill and extend the gold intersections from previous drilling, as announced on 11 October 2021:
13m at 5.07g/t gold from 12m in drill hole NLRC035 - including 3m at 16.33g/t gold from 13m.
5m at 15.42g/t gold from 7m in drill hole NLRC032 - including 2m at 31.54g/t gold from 8m
*SP Angel acts as Financial Advisor and Broker to Kodal Minerals. The analyst holds shares in Kodal Minerals.
Mkango Resources* (Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)) 30.5p, Mkt Cap £65m – Final stage of hydrometallurgy piloting for Songwe Hill commences
Mkango reports that it has commenced the final stage of hydrometallurgy pilot plant test work for the Songwe Hill Rare Earths project in Malawi.
Design and engineering studies undertaken by lead manager SENET are nearing completion, with the Songwe Feasibility Study on track to be completed in Q1 2022.
Mkango has successfully completed flotation piloting and five out of six hydrometallurgy pilot campaigns testing all aspects of the optimised processing flow sheet.
The targeted product will be a high grade, purified mixed rare earth carbonate, which is expected to feed Mkango's Pulawy separation plant development in Poland – where feasibility studies are currently continuing in parallel.
William Dawes, Chief Executive of Mkango stated: "This is a major milestone for the development of Songwe and further cements the Company as being one of very few advanced stage rare earth project developers positioned to meet demand from accelerating growth in the electric vehicle sector, wind power generation and other industries driven by decarbonisation of the economy.”
" Mkango's integrated "mine, refine, recycle" strategy is progressing on all fronts, encompassing development of sustainably produced light (NdPr) and heavy (Dy/Tb) rare earths from Malawi, a rare earths separation and downstream hub in Poland, working with major Polish fertilizer and chemicals company, Grupa Azoty Pulawy, and rare earth magnet (NdFeB) recycling in the UK and Germany, via our interest in HyProMag."
*SP Angel acts as Nomad and Broker to Mkango Resources
Trident Royalties (Trident Royalties PLC (AIM:TRR)) 37p, Mkt cap £93m – Trident raises £30.2m at 36p
Trident Royalties report the raising of £30.2m at a price of 36 pence per share
The company holds a series of 21 royalties, including 9 production royalties, nine advanced project royalties and three exploration royalties.
Zinnwald Lithium (Zinnwald Lithium PLC (LSE:znwd)) 12p Mkt Cap £24.6m – Placing of £5.8m at 15.5p
Zinnwald Lithium report the placing of £5.8m worth of new stock including £1.8m in a retail offer at 15.5p/s.
The company has applied for 37,789,511 new shares to be admitted to trading on AIM.
Zinnwald Lithium has a DFS on the Zinnwald Lithium Project in Saxony, Germany.
The DFS is predicated on lithium carbonate production of 7,285tpa and 32,000tpa of Potassium sulphate (K2SO4).
The project DFS shows an IRR of 27.4% as of May 2019 according to the company website.
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