SP Angel . Morning View . Monday 07 02 22
Gold prices gain despite ETF sales as Covid threatens HK
MiFID II exempt information – see disclaimer below
Beowulf Mining* (Beowulf Mining PLC (AIM:BEM)) – Beowulf provides comprehensive update at crucial time for Kallak project
Fortuna Silver Mines (NYSE:FSM) – Mexican Mining agency claims typo was made in extension of EIA for San Jose Mine
Oriole Resources (Oriole Resources PLC (LSE:ORR)) – Appointment of non-executive Chair
Savannah Resources* (Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)) – BUY, Target 17.9p – Barroso Lithium Project Update
Thor Explorations (Thor Explorations Ltd (TSX-V:THX, AIM:THX, OTC:THXPF)) – Drilling underway at Douta, Senegal
BE Metals – exploration project seminar - Tuesday, February 8th 2022 at 15:00 GMT
John Wilton and team will present details on BE Metals’ projects in Japan, Zambia and Idaho, USA
SP Angel analysts will be on hand for supporting technical commentary.
IGTV: Are commodities becoming weaponised? https://www.youtube.com/watch?v=jCoPpdNPMpQ
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
*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.
Gold - $1,815/oz - regains strength as US jobs data sees major beat and inflation concerns persist
Continuing inflation concerns exacerbated by rising oil and gas prices are encouraging investors to store funds in gold
US 10-year treasury yields hit their highest levels since Dec. 2019 on a strong US jobs report, limiting gold’s upwards trajectory.
The dollar also rose on nonfarm payrolls jumping by 467,000 jobs vs expectations of 150,000 jobs in January.
Previous payrolls were revised up to 709,000 jobs in further evidence of a stronger than expected US economy.
The encouraging data may enable a more aggressive rate hike plan by the Federal Reserve this year to cool inflation.
Market expects to see >$2.2tn worth of fiscal support withdrawn by central bankers
The withdrawal of so much liquidity from the market may cause some serious issues
By comparison just $500bn was withdraw in 2018 slowing markets over the following year.
The Fed, ECB, BoE and BoJ have all committed to ending quantitative brough in to maintain stability through the Covid pandemic.
The ECB is planning its first rate hike in a decade and the Fed is expected to kick of 5 rate hikes starting next month.
Aluminium prices rose 3% to $3,508/t in China as traders returned from the Spring Festival break and Russia threatens Ukraine
Prices followed on the LME rising 1.7% to $3,126/t with LME stocks are at their lowest level since Feb. 2007 at 775kt.
Shanghai stocks are at their lowest level since October at 267kt.
US sanctions against Russia on Putin’s Ukraine encroachments have triggered supply concerns.
Copper - MMG to halt production at Las Bambas Mine in two weeks’ time amid local fallout
Chinese mining firm MMG said it expects to half production on the 20th of February after new roadblocks set up by a local community forced the company to curtail operations.
Since opening in 2016, the project has faced repeated protests from the Chumbivilcas communities, the poorest in Peru, accusing the Chinese mining group of failing to provide jobs and money to the region.
Protestors were blocking the road to Las Bambas from as recent as December, forcing MMG to suspend operations for over a month, until an agreement was reached between the government and the protestors.
The community leaders later rejected the proposal and erected new blockades again, which led MMG to make its announcement this morning.
Las Bambas is one of the world’s largest copper mines, has an annual throughput capacity of 51.1mt and annual production of around 300,000t of copper concentrate.
Dow Jones Industrials -0.06% at 35,090
Nikkei 225 -0.70% at 27,249
HK Hang Seng -0.15% at 24,537
Shanghai Composite +2.03% at 3,430
Economics
China – Growth slows down on an increase in Covid-19 cases and following measures to stop the spread of the virus.
The headline Composite PMI measuring performance of private businesses registered only a fractional increase in activity marking the slowest growth pace in five months.
A modest increase in services output helped to offset a renewed drop in manufacturing production.
New export orders are reported to have dropped at the quickest pace in 20 months with weaker foreign demand registered across both sectors.
Employment also fell at the fastest pace since Feb/21 and inflation picked accelerating to a three month high.
Caixin Services PMI: 51.4 v 53.1 in December and 50.5 est.
Caixin Composite PMI: 50.1 v 53.0 in December.
Hong Kong Covid cases rise to >600
HK may see >10,000 cases a day after 15 days assuming the current Covid infection rate (Bloomberg)
City of Baise, population 3.6m, locked down on Covid outbreak
A city on China’s southwestern border with Vietnam was closed on Monday after mass testing identified 100 cases of covid.
It’s the third city to be isolated in the past two months amid China’s zero-covid policy.
251m journeys were made through the 7-day Spring Festival break
This is ~74% of the number of journeys seen in 2019 and 2% lower than 2020 according to the Ministry of Culture and Tourism.
Domestic tourism revenues are 3.9% lower at CNY289bn yoy.
However, looking at the year as a whole, cereal prices averaged 27.2% higher than in 2020, reaching their highest annual level since 2012.11 Jan 2022.
Property sales contracted 6% yoy to CNY8.88tn (US$140bn) last year – it’s first fall in >10 years (CRIC)
Evergrande saw a 38% fall in sales to 418bn from CNY669bn last year.
US – The labour market shrugs of Omicron concerns amid strong hiring momentum.
January payrolls outperformed estimates by a wide margin while revisions to previous months show that labour market improvements were in fact running much stronger than the data suggested at the time.
Wages climbed at the quickest rate since May/20 that together with high headline inflation numbers bumped up bets that the Fed would hike 50bp in March.
10y yields climbed above 1.9% to hit pandemic-era highs while the US$ snapped a four day slide, Bloomberg reports.
NFPs: 467k v 510k (revised from 199k) in December and 125k est.
Av Hourly Earnings (%yoy): 5.7 v 4.9 (revised from 4.7) in December and 5.2 est.
Unemployment Rate: 4.0% v 3.9% in December and 3.9% est.
Labour Force Participation Rate: 62.2% v 61.9% in December and 61.9% est.
Housing market sold >6m homes last year as prices rose
Germany – Industrial production ended last year on a weak footing posting a 0.3%mom drop in December and reversing a 0.3%mom gain the previous month.
Industrial production in the final month of 2021 was 6.9% lower than pre-pandemic levels in Feb/20.
Although the momentum is expected to improve with less manufacturers reporting supply chain disruptions.
Ifo Institute survey showed that two-thirds of German producers were experiencing supply bottlenecks in January compared to more than 80% in December.
Industrial Production (%mom): -0.3 v -0.3 (revised from -0.2) in November and 0.5 est.
Industrial Production (%yoy): -4.1 v -2.2 (revised from -2.4) in November and -3.6 est.
Argentina – China and Argentina are set to increase cooperation as the former agreed to provide its partner with more than ~$24bn in funding.
The cooperation agreement is expected to involve investment in trade, industry, infrastructure, nuclear energy, investment and anti-epidemic efforts.
~$14bn of the total were already approved for infrastructure projects with the rest to be decided for the Belt and Road initiative.
Zijin to invest $380m in the Tres Quebradas (3Q) lithium brines project in Argentina for production of 20kt LCE.
The Company bought the project through an acquisition of Neo Lithium for ~C$900m in October last year.
The plant is expected to start construction this year and commence production by the end of 2023.
Germany - Factory orders 2.8% in December vs 3.6% in November
Construction PMI rose to 54.4 in January vs 48.2 in December
EU - Construction PMI rose to 56.6 in January vs 52.9 in December
Retail sales fell 3% in December vs 1% in November , yoy 2% (8.2%).
UK - Construction PMI was 56.3 in January vs 54.3 in December
New car sales rose 27.5% yoy in January vs a fall of -18.2% in December
South Korea - CPI rose 0.6% in January vs 0.2% in December and gained 3.6% yoy in January vs 3.7% yoy in December
Currencies
US$1.1432/eur vs 1.1444/eur last week. Yen 115.21/$ vs 115.11/$. SAr 15.480/$ vs 15.263/$. $1.354/gbp vs $1.358/gbp. 0.709/aud vs 0.711/aud. CNY 6.358/$ vs 6.361/$.
Commodity News
Precious metals:
Gold US$1,811/oz vs US$1,809/oz last week
Gold ETFs 99.1moz vs US$99.3moz last week
Platinum US$1,024/oz vs US$1,037/oz last week
Palladium US$2,306/oz vs US$2,360/oz last week
Silver US$22.75/oz vs US$22.55/oz last week
Rhodium US$16,850/oz vs US$16,850/oz last week
Base metals:
Copper US$ 9,830/t vs US$9,879/t last week
Aluminium US$ 3,108/t vs US$3,063/t last week
Nickel US$ 23,130/t vs US$22,805/t last week
Zinc US$ 3,613/t vs US$3,619/t last week
Lead US$ 2,205/t vs US$2,217/t last week
Tin US$ 42,895/t vs US$43,010/t last week
Energy:
Oil US$92.8/bbl vs US$91.6/bbl last week
Oil prices remain robust after signs of progress in the US/Iran nuclear talks in addition to bullish sentiment bolstered by rising consumption amid ongoing supply constraints
The US have restored sanctions waivers to Iran to allow international nuclear cooperation projects, as the talks on the 2015 international nuclear deal enter the final stretch
If the US lifts sanctions on Iran, the country could boost oil shipments, adding to global supply
Oil prices are up 20% YTD, and are likely to surpass US$100/bbl in the first half of this year
OPEC+ is struggling to meet targets despite pressure from top consumers to raise production more quickly
In the US, even though the rig count has climbed for a record 18 months in a row, oil production is still far from pre-pandemic record levels
US demand for distillates has been running ahead of pre-pandemic levels for months on strong manufacturing and trucking activity
Fuelling supply concerns, tensions remain high in Eastern Europe, with concerns that Russia could invade Ukraine in the near term
Natural Gas US$4.435/mmbtu vs US$4.940/mmbtu last week
US natural gas futures remain strong as demand is expected to be high and very high through the weekend due to a winter storm with below-freezing temperatures that is spreading out of the US Midwest south to north Texas
Freezing temperatures and snow and sleet are expected to hit north Texas this week and test the electric grid following last year’s deadly deep freeze that left millions of Texans without electricity for days and led to the largest ever decline in oil production as wells froze
Uranium UXC US$43.95/lb vs $43.80/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$145.0/t vs US$144.0/t - China plans ‘significant increase’ in domestic iron ore output and ramp up in scrap steel recycling in bid to decarbonise ferrous industry
China’s Ministry of Industry and Information Technology plans to ramp up domestic iron ore mine output and boost scrap steel use.
The ministry is looking for 80% of steel capacity to qualify as ultra-low emissions reform by 2025.
Carbon emissions from the ferrous sector should therefore peak before 2030 according to the plan.
China hopes to be recycling some 300mt pa of steel scrap by 2025.
Beijing plans to use lower-emission intensive electric arc furnaces for >15% of China’s crude steel output by 2025 vs today’s 10%.
The updated targets show less ambitious hopes for 2025’s decarbonisation plans for the ferrous sector vs the 2020 update.
Chinese steel rebar 25mm US$760.8/t vs US$751.3/t
Thermal coal (1st year forward cif ARA) US$117.0/t vs US$113.5/t
Thermal coal swap Australia FOB US$205.0/t vs US$195.0/t
Coking coal swap Australia FOB US$408.0/t vs US$410.0/t
Other:
Cobalt LME 3m US$71,000/t vs US$71,000/t
NdPr Rare Earth Oxide (China) US$150,214/t vs US$150,129/t
Lithium carbonate 99% (China) US$57,805/t vs US$56,986/t
China Spodumene Li2O 5%min CIF US$2,710/t vs US$2,710/t
Ferro-Manganese European Mn78% min US$1,824/t vs US$1,825/t
China Tungsten APT 88.5% FOB US$320/t vs US$320/t
China Graphite Flake -194 FOB US$805/t vs US$805/t
Europe Vanadium Pentoxide 98% 9.8/lb vs US$9.7/lb
Europe Ferro-Vanadium 80% 39.25/kg vs US$39.25/kg
China Ilmenite Concentrate TiO2 US$391/t vs US$391/t
Spot CO2 Emissions EUA Price US$104.3/t vs US$104.3/t
Brazil Potash CFR Granular Spot US$805/t vs US$805/t
Europe carbon prices near record high €100/t as EU meets to discuss climate policy
CO2 permit prices are nearing a milestone of €100/t on the EU carbon market, having touched €96/t last Friday.
The EU emissions trading system forces power plants, airlines, factories etc to pay per tonne of CO2 emitted.
Policymakers hope high permit prices will reduce emissions.
Permit prices are up over 200% since Jan. 2021, primarily on soaring gas prices forcing a rotation to coal.
The EU is looking to reduce emissions by 55% by 2030 vs 1990 levels.
Battery News
Northvolt and Volvo battery factory JV to go ahead in Gothenburg
Volvo, and battery manufacturer Northvolt, will build their joint battery plant in Gothenburg, the two companies said in an announcement on Friday.
The 50GWh battery plant will develop battery cells specifically for fully electric Volvo and Polestar vehicles.
The two companies announced plans to form a JV to develop batteries last year – including setting up a gigafactory for production as well as a research and development centre, a total investment of around $3.3bn.
Northvolt and Volvo have appointed former Tesla executive Adrian Clarke to lead the production company.
NSW state government reveal 34GW of proposed projects for South-West Renewable Energy Zone
The New South Wales state government has revealed that more than 34GW of new solar PV, wind and energy storage projects have been proposed for the South-West Renewable Energy Zone (REZ).
The 34GW of projects are in response to the registration of interest (ROI) for the REZ – more than 10 times the initial proposed capacity for the zone.
The South-West REZ is one of five REZs planned to help replace the state’s aging coal-fired power stations – the five zones are expected to bring 12GW of power and 2GW of battery storage to the state.
The other REZs that have opened the ROI process have also seen a huge interest in projects – the Central-West REZ received 27GW of proposals for the 3GW of sought capacity and the New England Rez received 34GW of interest for around 8GW of capacity.
Big batteries reaping benefits as Australia switches to five-minute settlements
Australia’s switch to five-minute settlements (5MS) that was introduce in 2021 has already delivered dividends to the operators of some of the big batteries in on the main grid.
The switch was pushed for by big industrial users who believed a 30-minute settlement period was being gamed – this saw thermal generators flood the market after what were often seen as artificially high price spikes.
RenewEconomy reported just over a week ago, the switch to 5MS has seen some big changes in bidding patterns:
Thermal generators are no longer bidding to the market floor (except $1,000/MWh) in the hope of cashing in on a price spike, and many wind and solar farms have also altered their bidding strategies.
The Australian Energy Market Operator noted that big batteries were benefitting from their ability to respond quickly to price spikes under 5MS.
Net revenue rose by around AU$0.4m – more than what would have been received under 30-minute settlement, assuming the same five-minute price and dispatch outcome.
“Batteries have the biggest opportunity to earn high arbitrage revenues when there is a large spread in wholesale energy prices,” said Marija Petkovic from analyst firm Energy Synapse.
Company News
Beowulf Mining* (Beowulf Mining PLC (AIM:BEM)) 15.25p, Mkt Cap £160m – Beowulf provides comprehensive update at crucial time for Kallak project
Beowulf has been given the opportunity to comment on statements received by the Government in respect to the Company's application for an Exploration Concession for the Kallak North Iron Ore project.
Beowulf has been given until the 14th of February to comment on statements received by the government.
The update is a comprehensive one by Beowulf and sets out key facts in an attempt to clarify reports and challenge certain misinformation that has been published by certain parties.
We recommend reading the announcement in full, here: https://polaris.brighterir.com/public/beowulf_mining_plc/news/rns/story/w3kkyyr/export
Beowulf’s Kallak project could contribute greatly, and we strongly suspect even enhance, the fossil-free steel making revolution in Sweden, given the project’s 71.5% Fe magnetite market-leading concentrate.
Mines in Sweden can be effectively plugged into the renewable electricity grid, and use hydrogen also produced from renewables to power mobile equipment.
Given that iron ore is already produced in Sweden by LKAB to highly stringent levels of environmental protection, Beowulf effectively has a blueprint in order to achieve its sustainability-goals, while the presence of the mines sets precedent and shows that mining and other activities can co-exist.
Kurt Budge, ceo of Beowulf, commented: "The future conditions for mining and reindeer husbandry to coexist at Kallak are possible, learning from local sameby, their knowledge, and from the many examples across Sweden where coexistence is a reality. The Company is committed to doing all it can to achieve this, through preventative and precautionary action and compensation deemed necessary.”
"The 2013 Area of National Interest designation by the Swedish Geological Survey confirmed the importance of the Kallak deposits as a valuable source of materials, both nationally and for the EU. I am genuinely excited that Beowulf now has the opportunity to be part of a fossil-free steelmaking supply chain in Norrbotten.”
"To date, iron mineralisation of up to 389 million tonnes has been defined in the Kallak area, which could significantly extend Kallak North's production life and give Norrbotten's fossil-free steel producers an alternative source of high-quality iron ore for decades to come.”
"With Kallak, we have the opportunity to build the most sustainable mine possible. I firmly believe that there is no better country than Sweden in which to make this vision a reality, and where mining can take place in balance with the environment and stakeholder interests for the benefit of wider society.”
Conclusion: Beowulf’s presents a compelling case for the granting of an exploitation license for Kallak which we expect has been welcomed by various stakeholders this morning, given the extent of misinformation on the project. The project represents a fantastic opportunity – having a domestic, untapped, market-leading resource of iron ore which can be constructed to operate under a stringent environmental remit would ensure that the carbon footprint of Swedish-made steel is kept to a minimum. We look forward with great optimism watching this dialogue between all stakeholders and government unfold, given that all parties have access to this high-level update from Beowulf.
Fortuna Silver Mines (NYSE:FSM) US$3.2, Mkt Cap US$944m – Mexican Mining agency claims typo was made in extension of EIA for San Jose Mine
Fortuna Silver Mines claims that it has received a notice from the Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT) which advised that SEMARNAT has made a typographical error in the extension to the term of the environmental impact authorization (EIA) for the San Jose Mine.
On December 17, 2021, SEMARNAT granted the Company a 12-year extension to the EIA, however the notice states that SEMARNAT has made a typographical error and that the correct term is two years.
Fortuna is of the view that the Notice issued by the local office of SEMARNAT last week is in fact the error.
Fortuna has initiated legal proceedings in the Federal Court to challenge and revoke said typographical error and to reconfirm the 12-year extension period granted by SEMARNAT in December 2021.
Oriole Resources (Oriole Resources PLC (LSE:ORR)) – 0.34p, Mkt cap £6.8m – Appointment of non-executive Chair
Oriole Resources reports the appointment of Eileen Carr to chair the company following the decision of the exiting incumbent, John McGloin, to relinquish the role in order to focus on the CEO role at Canadian listed Diamond Fields Resources.
Ms Carr is an accountant and former finance director of Cluff Resources and has, more recently, “held several executive directorships in the resources sector, including CFO for Monterrico Metals plc, the AIM-quoted copper exploration company developing the Rio Blanco project in Peru” and currently serves in a non-executive capacity on the board of Sylvania Platinum (AIM:SLP).
Welcoming Ms Carr, CEO, Tim Livesey, said that “We look forward to working with her and, with Eileen's extensive experience of the mining industry and previous board positions, she will help us to continue the successful development of the Company's portfolio”.
He also acknowledged the progress that Oriole Resources has achieved “under John's stewardship and guidance, and I would like to thank him personally, and on behalf of the Company, for his help in steering the Company during this period. We wish him well with his future endeavours”.
Savannah Resources* (Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)) 4.7p, Mkt Cap £79m – Barroso Lithium Project Update
BUY – 17.9p
The Company has been added as the counter-interested party in litigation brought by the Parish of Covas do Barroso against the Republic of Portugal and Ministry of Economy.
The litigation aims to cancel a number of decisions from mid-2016 including the addition of lithium to and the expansion in the area of the C-100 Mining Lease.
The lease that was fully granted has a term of 30 years contains the Barroso Lithium Project.
The litigation does not impact the Barroso Lithium Project’s activities as well as the ongoing environmental impact assessment process.
The lease is reported to be in good standing with no issues having been raised over it since it was granted five years ago.
The Company advises that the claim is without foundation and will be challenged by Savannah.
*SP Angel act as Nomad to Savannah Resources
Thor Explorations (Thor Explorations Ltd (TSX-V:THX, AIM:THX, OTC:THXPF)) 13p, Mkt Cap £85m – Drilling underway at Douta, Senegal.
Thor Explorations reports the start of its 2022 exploration programme at its 70%-owned Douta gold project in Senegal where it has an initial phase of 5,000m of reverse-circulation (RC) drilling.
The initial RC work which aims “to extend the strike extensions of the resource which remains open-ended along strike to the north” forms part of a planned 2022 programme of “25,000 metres of RC and diamond drilling” some of which is intended to upgrade “the existing resource at Makosa and … [to test] … three priority targets within the licence”.
The Makosa deposit currently has an inferred mineral resource estimate of 15.3mt at an average grade of 1.53g/t gold (730,000oz).
CEO, Segun Lawson explained that “exploration efforts are now focussed on expanding the resource along the prospective corridor that runs along the full 30km length of our exploration licence. Priority during the first phase of drilling will be given to extensional drilling at Makosa North where the mineralisation remains open-ended towards the north-east.”
He also said that “We are equally excited with the greenfield discovery Mansa, which is located on the same structure as Makosa”.
Thor Explorations also takes the opportunity “to report that operations at its 100% owned Segilola Gold Mine in Nigeria continued to perform at budget and design capacity without any unplanned stoppages during January. Total gold production for the month, was 7,041 ounces with regular gold exports occurring without any issues”.
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