SP Angel . Morning View . Wednesday 22 12 21
China rate cut lifts base metals
BlueRock Diamonds* (Bluerock Diamonds PLC (AIM:BRD)) – Private diamond sale brings in $0.55m as Omicron variant hits BlueRock workforce
Elemental Royalties (Elemental Royalties Corp (TSX-V:ELE)) – Intention to make unsolicited bid by Gold Royalties
KEFI Gold and Copper* (KEFI Gold and Copper PLC (AIM:KEFI)) – £6.4m placing, Hawiah MRE update status & Directorate change
Rio Tinto (Rio Tinto PLC (LSE:RIO)) – Rio Tinto agrees to buy the Rincon lithium project in Argentina for $825m
Scotgold Resources* (Scotgold Resources Limited (AIM:SGZ)) – FY results highlights production ramp up
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.
Critical metals prices look increasingly likely to spike next year on Chinese stimulus, US infrastructure and electric vehicle demand
Copper hits two-week high on Omicron and China optimism and tight inventories
Copper prices at 2-week high of $9,578/t – highest since Dec. 10.
Official refined copper output rose 0.3% mom in China to 877kt in November. Copper output for the year has risen 8.1% to 9.53mt to end November.
LME on-warrant stocks of 81,425t – up from Oct. lows of 14,150t but well below traditional averages.
Shanghai inventories at 34,580t – lowest since 2009.
Chinese bonded warehouse inventories at record low of 160,500t.
Further copper momentum to the upside has been limited by a strong dollar, recently bolstered by optimism over Omicron’s severity.
Comments by China’s state planning official that the country has the ‘confidence, condition and ability to keep economic growth at a reasonable level’ also aided the metal’s rally. (Xinhua News Agency)
Dow Jones Industrials +1.60% at 35,493
Nikkei 225 +0.16% at 28,562
HK Hang Seng +0.52% at 23,090
Shanghai Composite -0.07% at 3,623
Economics
China - Interest rate cut in China, one year loan rate shaved to 3.8% from 3.85%
Ratings agencies hit Chinese developers with record numbers of downgrades as concerns remain over China’s economic health
Moody’s, Fitch and S&P slashed ratings on Chinese developers 43, 54 and 30 times respectively in 2021. (FT)
This marks a major ramp up from 2020 where the agencies downgraded 6, 12 and 11 times respectively.
Lower ratings add further pressure to the swathe of ailing property developers when financing their mountainous offshore debt.
Major developers Evergrande, Kaisa, Fantasia and China Modern Land have all defaulted.
Yields on high-yield borrowers hit c.30% in November but have subsequently traded closer to 22% as panic has soothed somewhat.
Stronger companies such as Shimao have also been downgraded owing to sector-wide financing limitations as banks restrict access to much-needed funds.
Analysts expect a ‘serious easing cycle’ to unfold in the coming quarters if Beijing is looking to retain a 5% growth rate in 2022 through looser fiscal stimulus.
US - Biden’s US$1.75trillion Build Back Better social spending bill hit the buffers
6.2 magnitude earthquake strikes offshore in Northern California. No reports of major damage or injuries.
EU to target Chinese aluminium foil with extra tariffs following state subsidies
The EU will impose additional tariffs on Chinese aluminium foil ranging from 8.6%-18.2%.
The bloc currently has anti-dumping duties on Chinese aluminium foil of between 6-28.5%.
The European Commission has claimed that Chinese producers are gaining an unfair advantage through state subsidies.
China’s aluminium foil market dominance in the EU grew from 18% in 2017 to 24% in 2019. (Reuters)
UK – Q3 growth of 1.1% lower than anticipated
UK output grew 1.1% in the three months to September compared to Q2, lower than initial estimates of 1.3%.
The ONS blamed weaker consumer spending, and the impact of energy companies going out of business.
The data pre-dates the emergence of the Omicron variant of Covid, which is expected to be a further drag on growth.
Turkey – Lira holds on to gains after two days of volatile trading
The Turkish Lira has somewhat stabilised after two days of volatile trading following a savings scheme launch by President Erdogan.
The lira traded at TL12.51 to the dollar in Istanbul on Wednesday.
Tuesday saw the Lira reverse declines by rising 40% from the record low of TL18.36 the previous day, while Monday marked the most volatile day for the Turkish currency since records from Refinitiv began in the 1990s.
The moves were triggered by a plan from Erdogan to lure Turkish savers away from the dollar and gold by compensating them for exchange rate losses if they hold their money in liras.
Japan – Top government advisor recommends $88bn investment to revived domestic chipmaking industry
Japan should offer tax breaks in the next fiscal year and allow for 10 trillion yen ($88bn) in investment over the next 10 years to revive domestic chipmaking, according to the top adviser on a government semiconductor panel.
$7bn in spending approved by the government this week should be just the start of efforts to reverse decades of decline in the industry, according to Tetsuro Higashi, former CEO of Tokyo Electron.
Mr Higashi commented: “I expect this level of funding to continue at least for the next few years. Without initial investment from the government, we wont be able to reach a point where private companies will put in the money. The government will have to play a central role until things are established.”
Japan has set a target of tripling domestic chip revenues by 2030 to 13 trillion yen.
South Korea - PPI rose 0.5% in November vs 1% in October and 9.6% yoy in November and 9.1% yoy in October
France – Producer prices rise 3.5% m/m in Nov vs +2.9% in Oct
Producer prices rose 17.4% YoY vs +15.2% in Oct
Manufacturing PPI rose 0.5% m/m and 10.5% on the year.
Germany - GfK consumer confidence is forecast at -6.8 in January vs -1.8 in December
Turkey - Consumer confidence was 68.9 in December vs 71.1 in November
Kyrgyzstan seized Centerra Gold’s mine over ‘environmental and safety issues’
The Kyrgyzstani manager appointed to oversee the Kumtor mine seized by the government in May has stated Centerra was guilty of ‘systematic violations’ of environmental law. (FT)
The Kumtor asset produces 500,000oz of gold pa.
Kyrgyztan’s President Sadyr Japarov enabled the state to take control of mines it deemed to be breaking environmental laws/endangering lives.
Centerra has denied the manager’s claims.
3 dead in DRC protests as ADF situation deteriorates
Protests in Goma, DRC, have killed a police officer and 2 civilians as anger rises over regional violence.
Protestors expressed their concern over Rwandan forces joining the DRC army to defend against the ADF.
Authorities have declared North Kivu and Ituri as in a state of siege following numerous attacks by the ADF among other groups.
The ADF is a rebel group backed by the Islamic State.
The DRC situation has been intensifying in recent weeks, with China calling all nationals to return home from 3 regions after the kidnapping and murder of Chinese miners.
Currencies
US$1.1275/eur vs 1.1290/eur yesterday. Yen 114.18/$ vs 113.63/$. SAr 15.856/$ vs 15.811/$. $1.328/gbp vs $1.324/gbp 0.715/aud vs 0.712/aud. CNY 6.372/$ vs 6.370/$.
Commodity News
Precious metals:
Gold US$1,788/oz vs US$1,796/oz yesterday
Gold ETFs 98.0moz vs US$98.0moz yesterday
Platinum US$937/oz vs US$940/oz yesterday
Palladium US$1,814/oz vs US$1,802/oz yesterday
Silver US$22.50/oz vs US$22.52/oz yesterday
Rhodium US$14,100/oz vs US$14,000/oz yesterday
Base metals:
Copper US$ 9,584/t vs US$9,517/t yesterday
Aluminium US$ 2,802/t vs US$2,686/t yesterday
Nickel US$ 19,690/t vs US$19,570/t yesterday
Zinc US$ 3,469/t vs US$3,377/t yesterday
Lead US$ 2,295/t vs US$2,295/t yesterday
Tin US$ 38,600/t vs US$38,195/t yesterday
Energy:
Oil US$74.0/bbl vs US$71.8/bbl yesterday
Natural Gas US$3.887/mmbtu vs US$3.725/mmbtu yesterday
Uranium UXC US$43.95/lb vs $44.1/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$127.4/t vs US$127.6/t
Chinese steel rebar 25mm US$761.4/t vs US$761.7/t
Thermal coal (1st year forward cif ARA) US$124.3/t vs US$124.3/t
Thermal coal swap Australia FOB US$180.5/t vs US$182.0/t
Coking coal swap Australia FOB US$349.0/t vs US$336.0/t
Other:
Cobalt LME 3m US$70,500/t vs US$70,500/t
NdPr Rare Earth Oxide (China) US$132,209/t vs US$133,046/t
Lithium carbonate 99% (China) US$35,230/t vs US$35,243/t
China Spodumene Li2O 5%min CIF US$2,360/t vs US$2,360/t
Ferro-Manganese European Mn78% min US$1,798/t vs US$1,801/t
China Tungsten APT 88.5% FOB US$314/t vs US$314/t
China Graphite Flake -194 FOB US$805/t vs US$785/t
Europe Vanadium Pentoxide 98% 8.7/lb vs US$8.7/lb
Europe Ferro-Vanadium 80% 32.75/kg vs US$32.75/kg
China Ilmenite Concentrate TiO2 US$381/t vs US$381/t
Spot CO2 Emissions EUA Price US$90.2/t vs US$83.3/t
Battery News
BlueFloat Energy reveals plans for three offshore wind farms in Australia
Spanish floating wind developer, BlueFloat, have partnered with Australia’s Energy Estate to develop offshore wind projects in Australia and New Zealand.
The first three projects, which have a total installed capacity of 4.3GW, include one bottom-fixed and two floating wind farms.
Australia currently has no operational offshore wind, but over 25GW of planned projects in the pipeline – a recent law passed by the Australian government has given a big boost to offshore wind in the country.
A study from The Blue Economy Cooperative Research Centre believes Australia has the potential for up to 2000GW of offshore wind power.
Company News
BlueRock Diamonds* (Bluerock Diamonds PLC (AIM:BRD)) – 25p, Mkt cap £3.5m – Private diamond sale brings in $0.55m as Omicron variant hits BlueRock workforce
BlueRock reports the private sale of $545,000 of diamonds in December. There is no monthly diamond tender auction in Kimberley in December.
The private sale realises an average $380/ct including a high value 11.2ct stone sold for USD97,000.
Management, today, report 24 cases of Covid-19 within its workforce at the Kareevlei Diamond Mine, near Kimberley in South Africa.
As a result ~50% of the workforce have not reported for work due to the illness or through contact with affected employees.
“In all cases reported to date, no employees have experienced serious symptoms.“
BlueRock has decided to restrict operations at Kareevlei until the 3rd of January 2022.
The mine will continue to process the stockpile of crushed ore during this period but there will be no mining or crushing with full operations restarting on 3rd of January assuming the number of Covid-19 cases is far lower than at present at the time of the restart.
Kareevlei will lose around 10 days of mine production indicating that the process plant will work its way through around 10-15% of the kimberlite ore stockpile.
This combined with the previous 8-day stoppage to mining for safety reasons will likely reduce the stockpile by around 20-25%.
The stockpile is designed to keep the process plant going when the mine is affected by bad weather in the December/January rainy season.
Conclusion: Management have taken appropriate action to ensure the safety of workers through the spread of Covid-19 via the Omicron variant. The ability of the team to continue to run the process plant is testament to precautionary forward planning and should ensure ongoing and consistent cash flow for the business. The, very well timed, tender of $0.55m worth of diamonds is significant and should help cover the cost of the newly installed plant.
While we may not have heard the last of the Omicron variant at Kareevlei we feel reassured that, so long as the plant can continue to process material, that the mine should be well prepared for significantly better performance next year.
*SP Angel act as nomad and broker to BlueRock Diamonds
Elemental Royalties (Elemental Royalties Corp (TSX-V:ELE)) C$1.67, Mkt cap C$103m – Intention to make unsolicited bid by Gold Royalties
Elemental Royalties Corp (TSX-V:ELE). reports the intention of Gold Royalties Corp to make an unsolicited bit for the company.
Shareholders are advised not to take any action at this stage.
Elemental’s management team report they have previously received unsolicited, non-binding and conditional proposals from Gold Royalty for their company.
The board does not find the Gold Royalties’ conditional proposals compelling and is not pursuing its proposals.
KEFI Gold and Copper* (KEFI Gold and Copper PLC (AIM:KEFI)) 0.8p, Mkt Cap £17m - £6.4m placing, Hawiah MRE update status & Directorate change
The Company will be issuing £6.4m worth of new shares to cover outstanding debt and liabilities as well as working capital requirements.
The placing will be undertaken in two tranches:
414.4m shares at 0.8p for £715k in gross cash proceeds and to settle outstanding debts for ~£2.6m to be issued straightaway;
71.8m shares to settle outstanding liabilities for ~£3.1m including £1.9 in payable fees and salaries to a number of directors and managers which is conditional on shareholder approval.
Additionally, the Company will be issuing 1-for-2 warrants (393.1m) with an exercise price of 1.6p and a two year exercise period.
Warrants will be exercisable only if during a two-year period the market share price breaches and remains over 2.4p level for five consecutive days, otherwise, warrants laps and will no longer be exercisable.
General Meeting for the second tranche of shares and warrants approval will be held in Jan/22.
In aggregate two tranches of shares will represent ~27% of the enlarged share capital.
£0.5m in net cash proceeds from the equity placing will be directed towards:
£0.3m for Ethiopian Tulu Kapi project expenditure, preparing community, project financing closing;
£0.15 for Saudi project expenditure:
£0.05m for corporate costs.
Project syndicate members reaffirmed their commitment to the Tulu Kapi Gold Project financing subject to compliance with standard conditions including the community and security aspects.
Earlier the Company reiterated targets to satisfy all technical conditions of the mining license by the end of Jan/22 including procurement of project funding.
Additionally, the team announced that Hawiah VMS MRE update will be released in Jan/22 with preliminary results showing a potential 30% increase in tonnage and 5% improvement in grades on current estimates.
Current Hawiah MRE stands at 19.3mt at 0.9% Cu, 0.8% Zn, 0.6g/t and 10.3g/t Ag (all Inferred; SRK Aug/20).
The Company will also provide an update on the status of the Hawiah PFS work.
Separately, Adam Taylor, a non-executive director at KEFI, advised he accepted a full time CEO role in another organisation and will need to step down from the Board at the end of the year.
“KEFI is well placed to take advantage of a number of opportunities in Ethiopia and Saudi Arabia and the company has shown great resilience on a number of occasions in the face very challenging circumstances... It is my expectation that this resilience and determination will ultimately lead to positive results for shareholders,” Adam commented on the news.
*SP Angel act as Nomad and Broker to KEFI Gold and Copper
Rio Tinto (Rio Tinto PLC (LSE:RIO)) – 4,826p, Mkt cap £80bn - Rio Tinto agrees to buy the Rincon lithium project in Argentina for $825m
Rio Tinto has signed an agreement to buy the Rincon lithium project in Argentina from Rincon Mining for $825m
The Salar del Rincón project is seen as a long life and scalable resource capable of producing battery grade lithium carbonate.
Rincon claims its proprietary process uses a simple flow sheet in its pilot plant with a resin sorption tanks to adsorb the lithium and clean water to wash off the lithium in desorption.
Adsorption and desorption are conducted with raw brine and water at ambient temperature which significantly reduces the energy consumption.
Rincon has confirmed the pumping from the Salar del Rincón aquifer performed 2.5 times better than assumed in its PEA earlier this year at 7,500m2/day.
We would be interested to see the results of how well the Rincon pilot processing plant works and on the cost of its scale up for full production
See: https://www.rinconmining.com/rincon-lithium-adsorption-technology/
Questions: Has Rincon fully solved the challenge of DLE ‘Direct Lithium Extraction’ from brines on the Argentinian side of the Atacama salt flats?
Is Rio Tinto so committed to the supply of lithium carbonate such that it now needs another project to replace the stalled Jadar lithium project in Serbia following blockades by thousands of protestors? Will the Rincon acquisition work for Rio or will it join the list of relative failures such as Riversdale and Alcan which saw off past Rio Tinto CEOs?
Scotgold Resources* (Scotgold Resources Limited (AIM:SGZ)) 64.5p, Mkt Cap £37.5m – FY results highlights production ramp up
BUY
Scotgold reported a $4.98m loss over the full year period ended 30th June 2021 vs $2.50m last year.
Scotgold’s cash position at the end of the period was $2.62m vs $1.02m last year.
Administrative expenses over the period rose to $888k vs $462k last year.
Scotgold continues to progress the Cononish Gold and Silver Project in Scotland, where gold production commenced in November 2020 and progress continued throughout 2021.
The company began ramping up gold production which has not yet been fully completed, with Scotgold targeting production of c.23,500oz p.a. run rate of gold by Q1 2023.
A redesign of the mine schedule/design was completed in May 2021 which allowed for faster access to higher grade zones within the ore body, while upgrading the processing plant featured among other operational enhancements.
Scotgold expects an AISC of £544/oz ($722/oz) once in full production and intends to increase the current life of mine of 8.5 years to a +18-year life of mine operation.
A new management team was appointed in April 2021 led by newly appointed CEO, Phil Day, who has previously held managerial and technical roles at Sierra Rutile, Nevada Copper and BHP among others.
Exploration work continues at the Grampian Gold Project, with the identification of additional targets and three prospective areas being identified as high priority target areas and data modelling is in progress to establish the best sites to test these targets in any potential future exploration drill programmes.
Scotgold Resources CEO, Phil Day said, "Considerable progress has been made during 2021 at our flagship Cononish mine in Scotland, seeing us successfully ramp up production, in line with our accelerated expansion plan to achieve production of c.23,500oz p.a. run rate of gold production by Q1 2023.
"We've concentrated on de-bottlenecking and the availability of our process plant through maintenance practises and planning and in October 2021 we successfully completed the Ball Mill reline. As I write this, we are consistently achieving production revenues that exceed operational costs. December production currently looks to be another step change higher than previous months, further demonstrating the significant strides we're making as a team.”
*SP Angel act as Nomad and broker to Scotgold Resources. A number of SP Angel analysts have visited the Cononish gold mine
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
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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