SP Angel . Morning View . Friday 25 02 22
Markets bounce on less severe Russian sanctions that expected
MiFID II exempt information – see disclaimer below
Arc Minerals* (Arc Minerals Limited (AIM:ARCM)) – Conference call highlights interest from major companies now legal impediments have been cleared
Bluejay Mining* (BlueJay Mining PLC (AIM:JAY, OTCQB:BLLYF)) – Titanium consumers may look for alternative sources of supply following Russian invasion of Ukraine
Beowulf Mining* (Beowulf Mining PLC (AIM:BEM)) – Ukrainian Russian conflict brings fragility of European iron ore pellet supply to forefront
Lucara Diamonds (CVE:LUC) – Annual report shows revenues increase 84% on strong diamond market fundamentals
IGTV: Will Rio Tinto’s monster dividend be repeated at other miners? https://youtu.be/UUshn22tyaA
Are commodities becoming weaponised? https://www.youtube.com/watch?v=jCoPpdNPMpQ
VOX Markets: 23/02/22: https://audioboom.com/posts/8036602-john-meyer-discusses-how-russia-s-invasion-results-in-higher-commodity-prices
*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 pares gains as investors mull over implications of Biden’s sanctions
Gold has steadied at $1,915/oz having fallen to $1,888/oz.
The fall from gold’s 17-month high was a potential result from weaker-than-expected sanctions on Russia, with Biden refusing to exclude the country from the Swift payment mechanism.
Traders fear that Putin may have to sell gold reserves to support the Ruble.
Biden has also avoided placing sanctions on Russian oil whilst vowing to release US strategic oil reserves, boosting market optimism.
ETF gold inflows continue to rise, as investors rotate into safe-haven assets amid the geopolitical uncertainty.
Gold ETFs have seen $4.7bn worth of inflows ytd vs $7.8bn worth of outflows last year. (Refinitiv)
Ukraine stats:
Ukraine is Europe’s second largest country by area with a population of >40m
Uranium - Europe’s largest recoverable reserves
Titanium / ilmenite – World’s 4th largest exporter with 10th largest ore reserves globally
Manganese ores – 2nd largest explored reserves at 2.3bn tons (12% of the global reserves)
Iron ore reserves – 2nd largest iron ore reserves at 30bnt
Mercury – 2nd largest ore reserves.
Shale gas - 3rd place in Europe (13th place in the world) reserves at 22tnm3
4th in the world by the total value of natural resources.
7th place in the world in coal reserves (33.9 billion tons)
Agriculture:
Sunflower and sunflower oil – world’s largest exporter
Barley – world’s second largest producer and fourth largest exporter
Corn – 3rd largest producer and 4th largest exporter
Potatoes - 4th largest producer of potatoes
Rye grain - 5th largest producer in the world;
Bees - yes, we said Bees – Ukraine is the world’s 5th largest producer with over 75,000t of bees
Wheat – world’s 8th largest producer
Chicken eggs – world’s 9th largest producer
Cheese exports – world’s 16th largest producer
Industrials:
Ammonia – largest in Europe and 2nd largest in the world
Nuclear power - 8th largest in the world
Rocket launchers - 4th world's largest manufacturer
Ores and concentrates - 8th largest exporter
9th place in the world in exports of defence industry products;
10th largest steel producer in the world (32.4 million tons).
Neon – the Ukraine provides 90% of US semiconductor grade neon as used by most semiconductor
Further disruption to semiconductor supply chain expected following Russian invasion of Ukraine
Additional pressures on the strained semiconductor supply chain are expected as Russia occupies Ukraine.
Ukraine produces 90% of US semiconductor-grade neon, crucial for lasers used in the chipmaking process. (Techcet)
Supply of neon is already stretched, with prices tripling since August, as Chinese steel mills, which produce neon as a by-product, were forced to slash output for the Winter Olympics.
Palladium, which Russia produces 35-40% of global supply, is also used in semiconductor production.
Car prices have been a major source of inflationary pressure on consumer prices, with the conflict expected to add to this.
Ukraine – Reports of Russian military equipment entering northern parts of Kyiv.
The Us intelligence suggest the capital may last up to four days before Russian troops succeed in taking over.
The Hostomel airport, a strategic facility about 10km northwest of Kyiv, was the site of an overnight battle as the site may be used for more Russian troops to land in the outskirts of Kyiv, FT writes.
People continued to leave the capital that had a population of ~3m people before the invasion.
Ukrainian authorities said 137 Ukrainian armed forces personnel died after the first day of Russian invasion.
President Zelensky ordered a “general mobilisation” of men in the country.
Russia – The US announced a new set of sanctions targeting all 10 of Russia’s largest financial institutions and impose export control measures to limit its access to high tech imports.
The sanctions on Russia’s top financial entities include the imposition of “full blocking and correspondent and payable-through account sanctions, and debt and equity restrictions, on institutions holding nearly 80 percent of Russian banking sector assets”, the White House said.
Among banks featured are Sberbank, VTB, Bank Otkritie, Sovkombank and Novikombank as well as dozens of its subsidiaries.
Transactions in new debt (maturities greater than 14 days) and equity of 13 Russian companies will be restricted including Sberbank, AlfaBank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Gazprom, Gazprom Neft, Transneft, Rostelecom, RusHydro, Alrosa, Sovcomflot, and Russian Railways.
The EU will implement a second package of restrictions in financial, energy and technology sectors stopping short of a ban of Russia’s use of Swift.
Countries including Germany, Italy, Cyprus and Hungary argued that the latter may be used at a later stage.
The EU agreed to enact restrictions on a number of Russian banks, bar state owned companies from listing new chares on the bloc’s exchanges, limit access of Russians to some EU financial services, prohibit the sale of certain equipment to the country’s oil refiners, bar sales of aircraft to Russian carriers and suspend visa-free travel for Russian diplomats, according to FT.
The UK singled out eight people and 11 businesses, including VTB, the second largest bank in Russia, that will face assets freezes and travel bans.
The UK has also suspended dual-use export licenses to Russia while Russia’ national airliner, Aeroflot, will now be banned from UK airspace.
The legislation will also prevent key Russian state-owned and private companies from borrowing or raising capital on the UK markets or processing any payments through the UK.
Putin threatens the world with retaliation with immediate and such consequences that ‘you have never encountered’ in video broadcast.
President Putin then goes on to remind viewers that ‘Modern Russia possesses the most modern nuclear weapons and any a direct attack on Russia will lead to ‘terrible consequences for any aggressor’.
“There are decades where nothing happens; and there are weeks where decades happen” Vladimir Lenin
Some will say that it is too risky to challenge Vladimir Putin with sanctions, NATO deployments, or by bolstering Ukraine’s defences. That would be a miscalculation (The Economist)
The Economist has long been a left of centre journal promoting the semi and not so semi-socialist ideas of its contributing economists so we are unsurprised to see this view.
Russia takes control of Chernobyl plant and area due to easy access to parts of other parts of the Ukraine
A Ukrainian Interior Ministry adviser, Anton Gerashchenko, said Russian forces invading from Belarus battled Ukrainian national guardsmen, who were “fighting hard” to protect storage facilities for “unsafe nuclear radioactive waste.” His account could not immediately be confirmed.
If artillery hits the facilities, “radioactive nuclear dust can be spread over the territory of Ukraine, Belarus” and European Union countries, he warned..
Taliban expresses concerns about the “real possibility of civilian casualties”, the statement by the Ministry of Foreign Affairs of the Islamic Emirate of Afghanistan released today read.
“The Islamic Emirates calls for restraint by both parties… All sides need to desist from taking positions that could intensify violence,” the announcement said calling on both sides to resolve the conflict through dialogue.
Sanctions imposed on Russia omit energy sector (at least directly) with gas prices reversing a record-breaking rally with the benchmark Dutch Natural Gas Futures down nearly 30%, Bloomberg reports.
Dow Jones Industrials +0.28% at 33,224
Nikkei 225 +1.95% at 26,477
HK Hang Seng -0.49% at 22,790
Shanghai Composite +0.63% at 3,451
Economics
US - Biden to avoid imposing sanctions on Russian aluminium
Biden’s administration is hoping to avoid implementing sanctions on Russia that disrupt global aluminium supplies. (Bloomberg)
Russia supplies 10% of US aluminium imports.
The sharp surge in prices caused by US sanctions on Rusal in 2018 remains fresh in the memory.
The metal’s price has already risen 55% this year, with policymakers concerned of the potential further impact on consumer price inflation.
The global market is currently in a 1.9mt deficit. (WBMS)
Soaring energy prices have hit aluminium mills and China’s pollution curbs have also slashed supply.
China – China advanced some $151bn of loans into Russia from 2000-2017 including $86bn from para-statal and other commercial banks (China Beige Book)
Most of their loans are collateralised against future receipts from Russian oil exports
Russia has agreed a 30-year contract to supply gas to China via a new pipeline with gas sales to be settled in euros
China sets benchmark price for thermal coal to avoid additional power crunches
China has set a range of $87-$122/5500Kcal thermal coal, describing it as ‘reasonable.’
The NDRC is aiming to stabilise supply and avoid price volatility witnessed in October.
The move follows the NDRC’s decision to allow electricity prices to rise 20% vs the previous 10% limit.
Coal miners have been encouraged to take more long-term contracts to ‘minimise volatility.’
UK - CPI inflation now likely to peak at ~8.2% in April and reduce to 6.5% by the year end assuming household spending continue at current levels.
EU - Ukraine situation may delay but not stop the ECB stimulus as ECB moves to normalise monetary policy.
UEFA moves Champions League final to Paris from Russia in response to attack on Ukraine
European soccer’s governing body announced Friday that it would relocate the May 28 final, the biggest club soccer match in the world, to Paris from Gazprom Arena in St. Petersburg. On Thursday,
UEFA released a statement saying it “strongly condemns the ongoing Russian military invasion in Ukraine."
EU leaders will call for a third package of sanctions to be prepared, this one to target Belarus for its involvement in the invasion of Ukraine, according to draft conclusions prepared for the Thursday that could still be changed.
Shipping industry warns of additional labour shortage amid Russia and Ukraine conflict
Russian and Ukrainian seafarers make up 14.5% of the global shipping workforce. (ICS)
Shipping accounts for 90% of global trade movement.
The ICS has already warned of a major shortage of seafarers following a mass exodus after gruelling work conditions during the pandemic.
Shipping traffic in the Sea of Asov is reported to have been blockaded. (Hellenic Shipping News)
Cargill has already reported a vessel being ‘hit by a projectile’ on the Black Sea.
Major shipper Maersk has halted all port calls in Ukraine. (SCMP)
Farmers brace for soaring fertilizer costs on Russia-Ukraine conflict
Food production is expected to be hit following the invasion of Ukraine by Putin.
7/8 of the major fertilizer prices are up over 5% this week. (DTN)
Brazil imports 85% of its fertilizers, with Russia its largest supplier of the nitrogen, phosphorus and potassium mix.
Fertilizer prices are already at elevated levels following the US’ imposition of sanctions on Belarus.
Farmers await clarification on US sanctions on Russia.
Russia is a major supplier of MOP (muriate of potash) fertilizer, with key potash supplier Mosaic halting offers in anticipation of supply impacts.
Russia and Ukraine also account for 29% of global wheat exports, 19% of corn exports and 80% of sunflower oil exports. (SCMP)
Food prices began the year at 10-year highs, with further rises expected on increased input costs for farmers and reduced supply from Eastern Europe.
Currencies
US$1.1186/eur vs 1.1257/eur yesterday. Yen 115.31/$ vs 114.68/$. SAr 15.357/$ vs 15.268/$. $1.339/gbp vs $1.349/gbp. 0.719/aud vs 0.718/aud. CNY 6.315/$ vs 6.322/$.
Sterling falls to 1.335 / USD from $1.359 / USD as investors move to the safety of the US dollar and Japanese Yen
Commodity News
Precious metals:
Gold US$1,912/oz vs US$1,942/oz yesterday
Gold ETFs 100.3moz vs US$100.1moz yesterday
Platinum US$1,063/oz vs US$1,114/oz yesterday
Palladium US$2,453/oz vs US$2,559/oz yesterday
Silver US$24.25/oz vs US$25.11/oz yesterday
Rhodium US$20,000/oz vs US$18,850/oz yesterday
Base metals:
Copper US$ 9,816/t vs US$9,873/t yesterday
Aluminium US$ 3,315/t vs US$3,423/t yesterday
Nickel US$ 24,240/t vs US$25,275/t yesterday
Zinc US$ 3,600/t vs US$3,622/t yesterday
Lead US$ 2,351/t vs US$2,371/t yesterday
Tin US$ 44,750/t vs US$45,300/t yesterday
Energy:
Oil US$101.8/bbl vs US$102.4/bbl yesterday
Oil prices are up c.3% in early trading today on concerns of global supply disruptions from the impact of trade sanctions on major crude and fuel exporter Russia after it invaded Ukraine
The start of the invasion in Ukraine on Thursday caused prices to trade above US$100/bbl for the first time since 2014, with Brent touching US$105/bbl, before paring gains by the close of trade
The massed Russian assault by land, sea and air was the biggest attack on a European state since World War II, prompting tens of thousands of people to flee their homes
Ministers of Arab oil-producing countries announced that OPEC+ should stick to its current agreement to add 400,000bopd each month to output, rejecting calls to pump more to ease pressure on prices
Tight supply was seen in US crude oil stockpiles which unexpectedly fell 4.8MMbbls in the week to 4 February to 410.4MMbbls as overall refined product demand reached an all-time record
This compares with a consensus forecast of a 369kbbl rise
OPEC has forecasted that world oil demand might rise even more steeply this year
The group has forecast an increase of 4.15MMbopd this year, as the global economy posts a strong recovery from the pandemic
Natural Gas US$4.599/mmbtu vs US$4.923/mmbtu yesterday
US natural gas futures prices spiked yesterday after Russian forces launched an invasion of Ukraine
Russian forces fired missiles at several cities in Ukraine and landed troops on its coast after President Vladimir Putin authorised what he called a special military operation in the east
Russia has warned European gas prices will more than double after Germany puts the Nord Stream 2 pipeline on hold
Former Russian President Dmitry Medvedev threatened a “brave new world” where Europeans would pay €2,000/Mcm
Benchmark European prices are currently trading at around €79/MwH, equal to about €830/Mcm
Germany had been reluctant to include Nord Stream 2 in sanctions as the move would hurt its own gas supplies
However, Chancellor Olaf Scholz said Russia had gone a step too far and the project should not be approved
Uranium UXC US$45.05/lb vs $44.00/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$139.1/t vs US$139.1/t
Chinese steel rebar 25mm US$764.3/t vs US$769.9/t
Thermal coal (1st year forward cif ARA) US$145.0/t vs US$128.5/t
Thermal coal swap Australia FOB US$237.0/t vs US$237.0/t
Coking coal swap Australia FOB US$419.0/t vs US$400.0/t
Other:
Cobalt LME 3m US$74,000/t vs US$73,290/t
NdPr Rare Earth Oxide (China) US$172,781/t vs US$174,359/t
Lithium carbonate 99% (China) US$71,085/t vs US$70,611/t
China Spodumene Li2O 5%min CIF US$2,710/t vs US$2,710/t
Ferro-Manganese European Mn78% min US$1,784/t vs US$1,796/t
China Tungsten APT 88.5% FOB US$335/t vs US$333/t
China Graphite Flake -194 FOB US$805/t vs US$805/t
Europe Vanadium Pentoxide 98% 10.8/lb vs US$10.6/lb
Europe Ferro-Vanadium 80% 43.75/kg vs US$42.75/kg
China Ilmenite Concentrate TiO2 US$395/t vs US$395/t
Spot CO2 Emissions EUA Price US$98.3/t vs US$102.3/t
Brazil Potash CFR Granular Spot US$815/t vs US$815/t
Battery News
Northvolt to turn paper mill into new gigafactory
Northvolt has announced that it has agreed to buy a paper mill from forestry company Stora Enso to be used as a new battery gigafactory.
The facility which is expected to start the first part of its operations in late 2024, would have potential annual production capacity of over 100GWh of cathode material, the Swedish company said.
Volvo and Northvolt last year signed a $3.16bn deal that the automaker said secures its supply of sustainable, state-of-the-art battery cells for its next-generation EVs.
Northvolt said in December it had so far secured more than $30bn worth of contracts from EV manufacturers including BMW and Volkswagen.
New York Bight lease sale reaches $3bn on day 2
The US Bureau of Ocean Energy Management (BOEM) has reached a total of $3.31bn in bids for the six sites offered in the New York Bight offshore wind auction.
Bidding will continue today with prices expected to keep rising – although bidding had begun to slow at the end of yesterday’s auction.
Company News
Arc Minerals* (ARCM LN) – 4.2p, Mkt cap £48m – Conference call highlights interest from major companies now legal impediments have been cleared
(Arc holds 72.5% of Zaco and 66% of Zamsort in Zambia. The Cheyeza license is 66% owned by Arc Minerals through its holding in Zamsort.)
BUY - CLICK FOR PDF
Arc Minerals report on a conference call this morning ongoing interest from major companies in their exploration assets in Zambia.
The ceo, Nick von Schirnding reported that he had already had a positive call from a major company following their news last Friday on the settlement of legal issues.
Legal challenges in Zambia and London are seen as having held back negotiations on a deal with at least one major company.
Arc had previously agreed a period of exclusivity with Anglo American which expired last year despite extensive technical due dilligence.
Muswema is seen as a key target and management expect to report results from a significant geophysical survey within the next two weeks
The rainy season is ongoing in the west of Zambia but certain interested parties are keen for drilling to restart sooner rather than later.
Group CFO, Rémy Welschinger, says there is no need for a placing this year on his current assumptions.
Management declined to give further details on what form a commercial transaction might take place but did comment that the deal they are currently looking at is very attractive.
“The principal discussion is with one major but there are two others which have reached out for further discussion.”
*SP Angel acts as Nomad and broker. An SP Angel analyst has driven across the Zambian copper belt, flying the British flag, to visit Arc’s licenses West of Sloweizi.
Bluejay Mining* (BlueJay Mining PLC (AIM:JAY, OTCQB:BLLYF)) 7.99p, Mkt cap £78m – Titanium consumers may look for alternative sources of supply following Russian invasion of Ukraine
(KoBold Metals can earn up to 51% in the Bluejay’s Disko project in Greenland allowing Bluejay to maintain its 49% stake through proportionate funding after Kobold have spent US$14.5m.)
Disruption to the production of titanium in Ukraine may redraw the map with regard to feedstock supply.
Ilmenite concentrate prices into China have risen to CNY2,505/t ( from CNY2,375/t
Ukraine is the world’s 4th largest exporter of titanium and with 10th largest ore reserves globally with much of the titanium comes from iron ore slag production.
Any disruption to titanium supply out of Ukraine is likely to raise already strong prices for ilmenite concentrates.
*SP Angel act Nomad and broker to Bluejay. The analyst holds shares in Bluejay Mining.
Beowulf Mining* (Beowulf Mining PLC (AIM:BEM)) 12p, Mkt Cap £127m – Ukrainian Russian conflict brings fragility of European iron ore pellet supply to forefront
Russia’s invasion of Ukraine is already severely disrupting commodity flows which is going to further constrict supply chains in Europe and further afield.
Ukraine accounts for 10% of Europe’s imported steel, so disruption at mills is going to further tighten the continent’s already strained market and keep prices high for the near future.
Key Ukrainian steel producer Metinvest hold assets in the Donestsk and Luhansk regions which have been seized by Russia-backed separatists disrupting production.
Ferrexpo is the world’s third largest producer of iron ore pellets, a high-grade product used in steelmaking, and has all its operations in Ukraine.
This morning Ferrexpo declared force majeure due to the suspension of port facilities.
Whatever outcome from this conflict, we expect commodity flows into Western Europe may be disrupted for some time, with consumers switching to alternative producers where possible.
Ukraine assets may also, potentially, come under sanction.
This situation should be a warning to European industry and governments that the supply of commodities within its borders from reputable sources is more important than ever to ensure the fallout is minimised from wider geopolitical issues.
Beowulf’s Kallak magnetite iron ore project is one of Europe’s most prominent untapped iron ore resources, well positioned to service the nascent green steel industry in Europe.
Kallak’s magnetite concentrate would shore up supply in Europe from a stable jurisdiction, while the ore itself would likely reduce the overall carbon footprint of steel producers given the ore can be subjected to magnetite beneficiation through conventional means to yield grades as high as 71.5%.
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.
Conclusion: Whilst sanctions are an important and necessary way to restrict an oppressive regime, governments in Europe must also deal with the fallout from fragile commodity flows being disrupted on a huge scale. Mitigating this by looking within ones borders for high quality assets which would service Europe’s vital steelmaking industry seems a very reasonable thing to do.
*SP Angel acts as Nomad and Broker to Beowulf Mining
Lucara Diamonds (CVE:LUC) C$0.64, Mkt Cap C$290m – Annual report shows revenues increase 84% on strong diamond market fundamentals
Lucara Diamonds provides its reports for the full year ended December 31st, 2021.
Lucara reported a net income of US$23.8m vs a loss of $26.3m in 2020.
Revenues rose to $230.1m from $125.3m last year.
Adjusted EBITDA rose more than five-fold to $102.5m vs $18.4m in 2020.
The average price per carat sold increased 80% to $603/ct
Operationally, the company processed a record 2.8mt of ore – a new annual record for the company at the Karowe Mine in Botswana.
A total of 841 diamonds in excess of 10.8 carats were recovered, representing 7.8& of the total weight of recovered stones.
A total of 369,390 carats recovered at a recovered grade of 12.93 carats per hundred tonnes of direct milled ore.
Lucara raised $250m in mid-2021 in order to support a $534m underground expansion programme at the Karowe 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
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