SP Angel . Morning View . Monday 17 01 22
US bill to restrict contractors from buying Chinese rare earths
Altus Strategies* (Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)) - BUY – 111p – VP Corporate Development appointment
GoldStone Resources (AIM:GRL)* (GoldStone Resources (AIM:GRL)) – latest gold pour yields 97% increase on maiden pour at Homase
Oriole Resources (Oriole Resources PLC (LSE:ORR)) – Recent drilling confirms Faré Far South mineralisation over 500m strike length
Syrah Resources (Syrah Resources Ltd (ASX:SYR)) – Tesla sign new graphite deal to source direct to US
IGTV: IG Outlook 2022, China new year, winter Olympics may see metals prices soften: (12/01/2022): https://youtu.be/vNqDh74zW5I
VOX Markets: 12/01/22: https://audioboom.com/posts/8011559-john-meyer-on-china-s-factory-shut-downs-plus-news-from-bluejay-beowulf-atlantic-lithium
interactive Investors: FTSE 100 favourite stock: https://youtu.be/BomNRQJt-YA. 2022 outlook: https://youtu.be/SxMPiPEc_Rg
Three small-cap mining share tips for 2022: https://www.youtube.com/watch?v=9xvA_3UXXYQ&ab_channel=interactiveinvestor
*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.
Rare Earths - US bipartisan bill to restrict defence contractors from buying Chinese rare earths
Lawmakers introduced a bill to the Senate to limit the reliance of Chinese rare earths by US defence contractors.
Concerns are rising over the amount of Chinese-mined/produced rare earths in the Pentagon’s purchases of military equipment such as jets and missiles.
The US has just one rare earth mine and no processing capacity for the 17 critical REE metals it uses in defence and other military equipment.
The bill pushes the Pentagon to ramp up rare earth stockpiles and increase its domestic processing ability.
The Pentagon has given grants to domestic rare earth processing companies including MP Materials alongside Australian producer Lynas.
The bill also introduces the potential for trade sanctions against China’s rare earth sector.
Funds are also available to investment vehicles for the development of REE supply outside China.
Mkango Resources*, Rainbow Rare Earths* and Pensana PLC (LSE:PRE) should become beneficiaries of this legislation as non-Chinese suppliers of rare earth concentrates and rare earth oxides.
Mkango Resources* (Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)) in currently in the final stages of hydrometallurgical piloting for the production of REE carbonate at its Songwe Hill project in Malawi
Rainbow Rare Earths* (Rainbow Rare Earths Ltd (LSE:RBW)) are currently optimising their process flowsheets for the production of REE carbonates and REE oxides at Phalaborwa in South Africa.
Rainbow is also looking to resume REE concentrate exports from its Gakara mine in Burundi along with restarting the Gakara mine when the government allows exports to resume.
Penasan plc is looking to break China’s REE stranglehold through the development of a £125m refinery at Saltend in the UK.
*SP Angel act as Nomad and broker to Mkango Resources and as advisor and broker to Rainbow Rare Earths
Copper pulls back to $9,741/t despite low inventories and supply disruptions as dollar strengthens
LME inventories remain 67% down from their August highs at 78,375t.
Shanghai inventories added 3.9% to 30,300t last week but remain near low levels.
The US dollar strengthen following as investors look forward to an interest rate hike in mid-March.
Gold holds strength as yields climb to 2-year peak and dollar rises on cooling Omicron concerns
Gold has held its higher range at $1,822/oz as it continues its slow upwards momentum following the US CPI data hitting its highest yoy rise since 1982.
Prices have shrugged off rising US Treasury 10-year yields for now with the market now looking for a 1% Fed rate in mid-March
Tensions in the Ukraine over the Russian troop build-up raise the risk of military escalation.
Nickel hits its 2011 high on diminished stockpiles
Nickel hit $22,935/t on Friday, up 7% that week and opens strong this morning at $22,665/t.
Nickel prices have doubled since March 2020 and have some way to go to hit 2007 highs of $51,800/t.
Nickel inventories on LME are at their lowest since 2019 at 45kt having hit 200kt in April 21.
Shanghai warehouses are nearing record lows of 4,711t.
Nickel’s strong price is a contradiction to the INSG’s prediction of a 2022 surplus following 2021’s nickel deficit.
A potential Indonesian nickel export ban has aided the metal’s rally.
Dow Jones Industrials -0.56% at 35,912
Nikkei 225 +0.74% at 28,334
HK Hang Seng -0.71% at 24,209
Shanghai Composite +0.58% at 3,542
Economics
World - Global electricity demand rose by 6% or 1,500TWh in 2021 with China accounting for around half the increase with a 10% rise in electricity demand
US – The nation celebrates Martin Luther King Jr. Day with markets closed on Monday.
Fed member, Lael Brainard, reckons the next US rate rise will be at their mid-March meeting
China – Economy expanded at the weakest pace in 18 months as the nation battles with rolling restrictions under the zero covid cases government policy, Bloomberg writes.
Falling property sales and prices amid debt challenges faced by large developers in the country also add growth risks.
For the full year, China grew 8.1%, above the government’s target of “over 6%” due in part to the low base of 2020.
Consumption returned to growth after a historic decline in 2020 accounting for most of last year’s economic expansion, although the pace of consumer spending growth was below pre-pandemic levels.
Property market continued to struggled by the end of the year with December figures showing a 19.6%yoy in home sales, a 14% drop in property investment and a 19.3%yoy decline in real estate sector funding.
Separately, the central bank announced a benchmark interest rate for the first time since the peak of the pandemic in 2020,although, it was only a 10bp reduction to 2.85%.
Additionally, the PBOC reduced its seven day reverse repo rate to 2.1% from 2.2%.
Policy support news were well received with Chinese stocks climbing as much as 1% after dropping in the previous two days.
GDP (%yoy): 4.0 v 4.9 in Q3/21 and 3.3 est.
Retail Sales (%yoy): 1.7 v 3.9 in Q3/21 and 3.8 est.
Retail Sales (YTD %yoy): 12.5 v 13.7 in Q3/21 and 12.7 est.
Industrial Production (%yoy): 4.3 v 3.8 in Q3/21 and 3.7 est.
Industrial Production (YTD %yoy): 9.6 v 10.1 in Q3/21 and 9.7 est.
FAI (YTD %yoy): 4.9 v 5.2 in Q3/21 and 4.8 est.
Trade surplus hit record US$94.4bn in December vs 71.72bn in November
China’s annual trade surplus came to US$676.43bn for the year - the highest since records began in 1950
Chin’s trade surplus with the US was US$39.33bn in December just below the high of US$42bn in September
Exports rose 20.9% yoy in December vs 22% in November - exports rose 29.9% in 2021 and 20.3% in 2020
Imports up 19.5% yoy in December vs 31.7% in November - imports rose 30% in 2021 but fell 1.1% on last year.
Crude oil imports into China fell 5.4% last year representing the first fall in 20 years as China shifts its energy mix and utilises greater rail capacity.
China crude steel output falls 3% in 2021 on stringent production curbs
Annual crude steel output fell 3% in 2021 to 1.03bn tonnes, its first decline since 2015.
It is important to note 2021 followed a record high year of crude steel output in 2020 of 1.065bn tonnes.
Beijing began to impose emissions controls on China’s ferrous sector as it steps up efforts to hit its carbon peak by 2030.
Steel output has also been hit by demand issues, with China’s ailing construction sector hit by Beijing’s controls on property developers’ debts, resulting in widespread defaults and credit issues.
Consumption and production are expected to pick up following the Winter Olympics and the Lunar New Year.
The government expects crude steel production at 0.7% lower than 2021 levels this year.
Germany – Economy may have contracted 0.5-1.0%qoq in Q4 with growth for the year coming in at ~2.7%, the Federal Statistical Office said on Friday.
That would mean a rebound from a pandemic hit 2020 reading of -4.6%.
Although, the economy is still 2% smaller than in pre-pandemic 2019 with estimates for output to contract again in the three months through March.
Q4 GDP numbers are due at the end of the month.
UK – Rightmove report U.K. January house prices +0.3% m/m, +7.6% y/y to GBP341,019.
Self isolation period for positive Covid-19 cases will be reduced from seven to five days from today.
One will need to test negative on day five and day six before leaving isolation.
UK power prices spike amid ‘extreme wind lull’
Power prices for Monday evening surged to the highest in a month, jumping to £1,161/MWh amid lower wind speeds.
Wind output is forecast below 1.5GW compared with a 10=-day average of 6.3GW.
The spike reflects the increasing fragility of the UK energy market, given the fleet of nuclear reactor closures.
Gas was meeting 39% of energy demand on Monday morning, wind 26% and coal 4% - according to the National Grid.
South Korea - South Korea raised official interest rates last week 0.25 to 1.25%,
South Africa - Eskom to suspend operations at nuclear power plant for refuelling
Eskom will begin a ‘staggered shutdown’ of its Koeberg nuclear power station to refuel from today. (Reuters)
Unit 2 will be suspended for 5-months from today and Unit 1 will follow.
Each unit provides 920MW in power generation.
South Africa is already under intense energy pressure, with the country’s coal producing plants struggling to meet demand.
Currencies
US$1.1424/eur vs 1.1470/eur last week. Yen 114.33/$ vs 113.78/$. SAr 15.376/$ vs 15.318/$. $1.368/gbp vs $1.374/gbp. 0.721/aud vs 0.729/aud. CNY 6.348/$ vs 6.343/$.
Commodity News
Precious metals:
Gold US$1,822/oz vs US$1,827/oz last week
Gold ETFs 97.9moz vs US$97.9moz last week
Platinum US$974/oz vs US$984/oz last week
Palladium US$1,894/oz vs US$1,872/oz last week
Silver US$23.05/oz vs US$23.25/oz last week
Rhodium US$16,400/oz vs US$16,400/oz last week
Base metals:
Copper US$ 9,741/t vs US$9,975/t last week
Aluminium US$ 2,987/t vs US$2,969/t last week
Nickel US$ 21,960/t vs US$22,665/t last week
Zinc US$ 3,529/t vs US$3,594/t last week
Lead US$ 2,364/t vs US$2,375/t last week
Tin US$ 40,650/t vs US$40,750/t last week
Energy:
Oil US$86.2/bbl vs US$84.9/bbl last week
Oil prices rose again in early trading today, with Brent futures touching their highest in more than three years, as the market estimates that supply will remain tight amid restrained output by major producers with global demand unperturbed by the Omicron coronavirus variant
A rapid increase in oil purchases, driven by supply outages and signs the Omicron variant will not be as disruptive as feared for fuel demand, has pushed some crude grades to multi-year highs, suggesting the rally in Brent futures could be sustained a while longer
China plans to release oil reserves around the Lunar New Year holidays as part of a plan coordinated by the US with other major consumers to reduce global prices
China agreed in late 2021 to release an unspecified amount of oil depending on price levels
The US Energy Department confirmed last week that it had sold 18MMbbls of strategic crude oil reserves to six companies, including Exxon and a unit of refiner Valero Energy (NYSE:VLO)
China has also posted in 2021 its first annual decline in crude oil shipments in two decades as Beijing clamped down on the refining sector and drew down massive inventories
There were also concerns about fuel demand at the world's second-biggest oil consumer as the highly transmissible Omicron coronavirus variant has spread to the northeastern city of Dalian
China has suspended some international flights and stepped-up efforts to rein in a virus outbreak at Tianjin
Many cities, including Beijing, have also urged people not to travel during the Lunar New Year holiday, which could cool demand for transport fuel during a peak travel season
Natural Gas US$4.312/mmbtu vs US$4.126/mmbtu last week
US natural gas futures jumped 14% last week, with February futures up 30% since the start of the year as cold weather hit the East Coast and forecasters predict that the colder weather is here to stay.
The contract for February delivery advanced 14.3% last Wednesday to settle at US$4.857/mmbtu, hitting the highest level since November
The European weather model has also shifted “decidedly colder”, a development that was “clearly capturing market sentiment” in early trading today, according to Bespoke Weather Services
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$46.50/lb vs $46.50/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$126.4/t vs US$129.6/t
Chinese steel rebar 25mm US$748.4/t vs US$747.7/t
Thermal coal (1st year forward cif ARA) US$93.0/t vs US$93.0/t
Thermal coal swap Australia FOB US$201.0/t vs US$178.0/t
Coking coal swap Australia FOB US$415.0/t vs US$410.0/t - Coking coal futures hit record high on North American supply disruptions
Singapore coking coal futures at all-time highs of $416/t. (S&P Global Platts)
Coking coal supplies have been hit by major flooding in British Columbia and heavy rainfall in Queensland, Aus.
Miners in the Appalachians have also been impacted by winter storms.
Supply disruptions parallel strong Chinese steel demand as manufacturers take stock before the Lunar New Year.
Other:
Cobalt LME 3m US$70,500/t vs US$70,500/t
NdPr Rare Earth Oxide (China) US$142,162/t vs US$142,276/t
Lithium carbonate 99% (China) US$49,225/t vs US$49,265/t
China Spodumene Li2O 5%min CIF US$2,690/t vs US$2,690/t
Ferro-Manganese European Mn78% min US$1,822/t vs US$1,830/t
China Tungsten APT 88.5% FOB US$317/t vs US$315/t
China Graphite Flake -194 FOB US$805/t vs US$805/t
Europe Vanadium Pentoxide 98% 8.8/lb vs US$8.8/lb
Europe Ferro-Vanadium 80% 33.25/kg vs US$33.25/kg
China Ilmenite Concentrate TiO2 US$390/t vs US$390/t
Spot CO2 Emissions EUA Price US$91.5/t vs US$91.3/t
Brazil Potash CFR Granular Spot US$800.0/t vs US$810/t
Battery News
ScotWind successful bids announced today
Scotland’s largest-ever auction of permits to construct offshore windfarms ScotWind, run by Crown Estate Scotland (CES), have announced successful bids today.
Almost 25GW (equal to all the current offshore wind in Europe) of planned offshore wind has been accepted through the ScotWind lease, with 14.5GW being assigned to floating wind projects.
17 projects have been selected out of a total of 74 applications and have now been offered option agreements which reserve the rights to specific areas of seabed.
Of the 17 project accepted, 10 will be floating wind farms, the most of any country globally.
Just under £700m will be paid by the successful applicants in option fees and passed to the Scottish Government for public spending, but initial indications suggest there will be a multi-billion-pound supply chain investment in Scotland.
The area of seabed covered by the 17 projects is just over 7,000km2 – a maximum of 8,600km2 was made available through the Scottish Government’s Sectoral Marine Plan.
Full announcement can be found here: ScotWind offshore wind leasing delivers major boost to Scotland’s net zero aspirations - News - Crown Estate Scotland
BHP to add four battery-electric locomotives to Western Australian rail network
BHP has announced its intentions to add four battery electric locomotives, two of which two will be provided by BHP’s current manufacturer and Caterpillar company, Progress Rail, while American equipment provider Wabtec (NYSE:WAB) will also provide two.
Each locomotive with be eight axle, 14.5-megawatt-hour units and BHP will investigate energy recapture technology on downhill slopes, taking advantage of the Pilbara’s topography.
BHP is targeting total electrification of its iron ore rail fleet between its Pilbara mines and port Hedland, which once complete, should reduce BHP’s WA iron ore diesel-related carbon emissions by about 30% according to the company.
All four units will be delivered by 2023, while BHP group procurement officer James Agar said this was only the beginning of the company’s efforts to remove diesel from its rail fleet.
Japanese consortium builds lithium-air battery with energy density of 500Wh/kg
Scientists from Japan’s National Institute for Materials Science and Softbank have developed a rechargeable lithium-air battery – with claims it has an energy density that greatly exceeds that of conventional lithium-ion batteries.
Metal-air batteries are favoured in research for their potential for high energy densities, but low efficiency and poor cycle lifetimes have proven to be difficult to overcome in developing the technology.
When operated at room temperature, the battery exhibited a weight energy density of 500Wh/kg, which is about twice that of current lithium-ion batteries.
The performance has been described as the highest in the world in terms of energy density and number of cycles.
Fires are more common in combustion engine vehicles than Electric Vehicles
A recent study, in the US, has found that hybrid vehicles are the most likely to experience vehicle fires.
This is followed by ICE vehicles, with EVs the third most likely to experience a vehicle fire, using data from the Bureau of Transportation Statistics (BTS), the National Transportation Safety Board (NTSB), and government recall data from recalls.gov.
The data showed that EVs have around 25 fires per 100,000 EV sales.
ICE vehicles have 1,530 fires per 100,000 sales and hybrid vehicles experience 3,475 fires per 100,000 sales.
Company News
Altus Strategies* (Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)) 60p, Mkt Cap £70m – VP Corporate Development appointment
BUY – 111p
Michael Starke joins Altus as VP Corporate Development with immediate effect.
Michael has over 14 years of experience in corporate finance within the mining sector.
He previously worked as Corporate Finance Manager for SolGolf and before that spent eight years with Standard Bank (London) in investment banking and mining equity research with a primary focus on Africa.
Michael holds a BSc in Geology and an MSc in Environmental Geochemistry from the University of Cape Town.
*SP Angel acts as nomad and broker to Altus Strategies
GoldStone Resources* (GoldStone Resources (AIM:GRL)) 10.6p, Mkt Cap £45m – latest gold pour yields 97% increase on maiden pour at Homase
GoldStone reports that it has completed its second gold pour at the Homase mine, yielding 28.5kg of gold dore vs 14.46kg on November 30th.
These first two pours have been exported to the Company's off-taker in Switzerland, resulting in refined gold bullion of 40.67kg and 1.71kg of refined silver bullion.
The latest gold pour and subsequent gold pour means that GoldStone has satisfied its scheduled Gold Loan repayments to AIMS for October, November and December 2021.
GoldStone also comments that it has agreed a more flexible arrangement with AIMS which will enable the company to efficiently manage shipments of gold, where the company shall not be deemed an event of default if the monthly payments set out in the Company's announcement of 20 September 2021 are not made at the end of each month.
With effect from 1 January 2022, interest on the outstanding balance of the Gold Loan shall accrue at a rate of 14% per annum and Company shall be required to repay the Gold Loan and accrued interest in full on or before 30 September 2022.
Conclusion: GoldStone’s second gold pour has yielded almost twice as much gold dore compared to the maiden gold pour, meaning that despite agglomeration issues, the company has the means and expertise to produce gold in excess of the level required for the Gold Loan repayments. The first two gold pours have yielded 40.66kg of refined bullion, which is just under 50% of the principal owed to AIMS by September 2022. We look forward in anticipation to the updated production schedule currently being formulated by the company, which is expected in due course.
*SP Angel acts as broker to GoldStone Resources
Oriole Resources (Oriole Resources PLC (LSE:ORR)) – 0.41p, Mkt cap £7.7m – Recent drilling confirms Faré Far South mineralisation over 500m strike length
Oriole Resources reports that recent reverse circulation drilling at Faré within its Senala gold project in Senegal has now extended “mineralisation along strike at all three main anomalies” and demonstrated a strike extent of at least 500m at the Faré Far South prospect.
The latest drilling, comprising 2,148m in 18 holes tested the extent of mineralisation towards the northeast where all three anomalies at Faré North, Faré South and Faré Far South remain open.
The drilling was completed during Q4 2021 as part of the 4th year of IAMGOLD’s earn-in programme to acquire a 70% interest in the project via the expenditure of US$8m and the company says that “Subject to completion of the Year 4 expenditure plan, IAMGOLD will have the right to acquire a 51% interest in the Project”.
Among the results highlighted in today’s announcement are intersections of:
1m at an average grade of 5.90g/t gold from a depth of 84m in hole FARC21-0128 and also of 1m at an average grade of 2.29g/t gold from 57m depth in hole FARC21-0129 at the Faré South prospect; and
1m averaging 6.08g/t gold from 12m depth in hole FARC21-0135, 5m averaging 12.45g/t gold from 92m depth in hole FARC21-0136 and 12m averaging 0.67g/t gold from 104m in hole FARC21-0137 at Faré Far South.
Oriole Resources confirms that “The anomalism at Faré Far South is now confirmed to extend over a strike length of at least 500m and the system remains open along strike and at depth … [and the results] … suggest a high probability for further resource definition on the property, being located just 800m from the Company's maiden Faré South Mineral Resource Estimate ('Maiden MRE') of 155,000 oz Au grading 1.26 g/t Au in the Inferred category”.
CEO, Tim Livesey, said that the extension of the mineralised envelope “confirms our belief that this prospect has the potential for significant resource growth, with the possibility of becoming a stand-alone mine target of significant size”.
Mr. Livesey also said that “We look forward to discussing the next steps for the area with our partner, IAMGOLD”.
Syrah Resources (Syrah Resources Ltd (ASX:SYR)) A$1.97, Mkt cap A$983m - Tesla sign new graphite deal to source direct to US
Tesla has signed a deal with Australia’s Syrah Resources, which operates a graphite mine in Balama, Mozambique.
The automaker company will buy up to 80% of the graphite Syrah Resources produces – around 8,000t of graphite.
The move comes as Tesla look to start manufacturing their own batteries in the US, and the new deal will allow the company to source graphite independent from China.
The automaker company will buy up to 80% of the graphite Syrah Resources produces – around 8,000t of natural graphite active anode material.
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