SP Angel . Morning View . Tuesday 22 03 22
Gold pulls back on stronger US$ and Fed comments of a 0.5pp hike
MiFID II exempt information – see disclaimer below
Evraz PLC (LSE:EVR) Suspended - Bond coupon payment blocked by compliance
Gemfields Group Limited (AIM:GEM) – Trading statement
Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) – EPCM contract awarded for the Araguia Project
Posco Holdings (PKX US) - Steelmaker Posco plans $4bn investment in Argentinian lithium project
Red Rock Resources PLC (AIM:RRR) – Drilling results from Mikei, Kenya
Sovereign Metals Ltd (ASX:SVM, AIM:SVML) – Assessment of the carbon footprint of Kasiya rutile production
Cyberattack – Deliberate cyberattack against Ukraine and Europe coincided with invasion of Ukraine
- A deliberate cyberattack with hit Viasat internet services in the Ukraine did not affect US government contractors. (C4ISRNET)
- The deliberate cyberattack was one of several incidents observed as Russia began its invasion of Ukraine.
- Anonymous, the internet hacking group appears to have had more success in hacking into Russian TV networks to spread information on the invasion of Ukraine
Gold steadies despite ETF holdings climbing for 8th consecutive day
- Gold has held around the $1,925/oz mark as traders continue to weigh economic risks from the Russia-Ukraine war and a more aggressive Fed rate hike cycle.
- ETFs added 376,640oz of gold over the past 24 hours, with net ETF purchases hitting 6.85moz ytd. (Bloomberg)
- Gold has held firm despite 10-year US Treasury yields climbing 59 basis points this month, reducing gold’s appeal to investors.
- Powell’s statement yesterday pointed to the Fed’s preparedness to hike rates by 0.50% in May vs the previously expected 0.25%.
- Russian traders will be looking to unload gold to pay for goods and services potentially depressing prices further.
LME nickel slides 10% as prices close in on Shanghai levels in sign of abating short squeeze
- Nickel has fallen 10% this morning to $28,280/t, with the 15% trading limit remaining in place.
- The LME price is now within 10% of the of the Shanghai price, suggesting the short squeeze triggered earlier this month has cooled.
- Nickel prices remain 51% higher ytd on supply concerns from the Russia-Ukraine war.
Global supply chains remain disrupted as port congestion returns to 2021’s elevated levels
- The Ukraine-Russia conflict and mass lockdowns across China are hitting congestion across global maritime trade.
- Charter rates are 3% below their 12-year high hit last October, with elevated shipping costs expected to continue to contribute to inflationary pressures. (ClarkSea Index)
- Congestion levels at US East Coast ports are up 24% ytd and up 18% at Chinese ports this month.
- Further disruption is expected to stem from continued sanctions, stockpiling and shifting chartering policies and trading patterns as the war continues to intensify.
Dow Jones Industrials -0.58% at 34,553
Nikkei 225 +1.48% at 27,224
HK Hang Seng +3.12% at 21,883
Shanghai Composite +0.19% at 3,260
Economics
US – Jerome Powell said the central bank may back a 0.5pp move in rates at the next meeting to bring down inflation expectations.
- "There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability,” Powell said.
- This comes only a week after the policy announcement that guided for six 0.25pp hikes this year
- Markets upped their estimates for expected rate increases for this year and currently expect nearly eight hikes.
- Powell said that Russia’s invasion of Ukraine is aggravating inflation pressures by boosting prices on food, energy, and other commodities “at a time of already too high inflation”.
- Comments led to a sell off in sovereign bonds with 10y yield climbing past 2.3% mark in a >10bp move on the day.
- The US$ index followed yields higher while equity indices closed lower on the day.
China - Banks seize $2bn from Evergrande unit as developer delays results release
- Banks have seized $2bn from Evergrande Property Services ‘as security for third party pledge guarantees.’
- The Chinese property sector is loaded with off-balance-sheet liabilities in the form of private loans and wealth-management products, with the $2bn seized expected to be provided as collateral for such products.
- These liabilities were not disclosed to credit-rating agencies or bond investors.
- The developer was expected to publish its annual audit results at the end of the month – this has been postponed.
Omicron variants causes death rate to soar in Hong Kong
- We are fortunate in the UK that the incompetence of our leaders combined with the genius of our scientists has led to a good level exposure and protection from Covid and its variants.
- The downside of China’s effective zero-Covid strategy is now being seen with very high mortality rates in Hong Kong.
- HK residents have had very little exposure to Covid but also a very low vaccination rate coupled with a vaccine which offers little effective protection.
- This combined with inadequate health care systems and the faster spread of new variants is causing mortality rates to rise beyond that seen in the West.
- Omicron BA.2 has an even shorter incubation time than BA.1 leading to explosive growth in infection and making the spread of the new variant much harder to control.
- Omicron is around 70% less virulent than the Delta which was about 50% more virulent than Alpha so we are about back where we started albeit with a milder but much faster spreading variant.
- We now expect mainland China will likely lose control of the spread of the Omicron BA.2 variant and we are concerned that a rapid wave of infection will overwhelm hospitals and lead to significant absenteeism causing logistical disruption as seen in Wuhan and Hubei province in Q1 2020.
Chinese regulators express concerns over rising battery material costs
- China's Ministry of Industry and Information Technology (MIIT) and State Administration for Market Regulation (SAMR) organised a meeting regarding the operation of the lithium industry and on price increases of upstream materials for power batteries.
- The move is to maintain the supply of lithium products as well as price stability and promote the healthy development of new energy vehicles (NEVs) and power battery industry, according to a statement from MIIT.
- The meeting called for the upstream and downstream companies to strengthen the supply and demand matching, the formation of long-term, stable strategic collaboration, and jointly guide the rational return of lithium prices.
- Regulators also asked industry participants to step up efforts to secure supply and better support the development of China's strategic emerging industries.
- The meeting comes as lithium prices continue to rise, forcing EV companies to increase prices as they face huge cost pressures.
- On March 18, lithium carbonate prices in China were quoted at ¥504,000 per ton, up 74% from the beginning of the year and 479% year-on-year.
Russia-Ukraine war causes steel prices to rally to all-time highs as European shortages loom
- Steel rebar hit record highs last week, up 150% from 2019.
- Hot-rolled coil up 250% from 2019 to all-time highs.
- Russia is the 3rd largest exporter of steel globally; Ukraine is the 8th. (Bloomberg)
- Russia and Ukraine account for c.30% of the EU’s steel imports. (Argus)
- Prices have rallied on sanctions imposed on Russia’s steel exports and industry oligarchs alongside major disruption in Ukrainian steel plants, including the major Mariupol furnace, destroyed last week.
- Soaring energy prices have also hit output, with 40% of Europe’s steel produced in electric arc furnaces.
- Analysts expect a further 40% price rally in steel prices to cause a slowdown in demand. (Bloomberg)
Japan – The yen hit a six year low on the back of a growing divergence in monetary policies between the US and Japan, Bloomberg writes.
- Unlike the Fed that is looking to accelerate the pace of monetary tightening, the Bank of Japan pledged to maintain rates at record low levels in the medium term.
- The economy is battling with pandemic related disruptions, slowing growth in China as well as high energy costs.
- The yen traded above the 120 mark this morning.
Australia – Consumer expectations dropped to the lowest since Sep/20 on the back of rising gasoline prices that pushed inflation expectations to 6%, Bloomberg reports.
- The survey contrasts with reports of a strong labour market.
- That combined with strong inflation expectations may see the central bank raising rates as early as August although traders are pricing in a June move.
Russia – S&P rating agency will withdraw ratings for all Russian companies before April 15 following parent company S&P Global suspension of its commercial operations in Russia.
- Credit rating agencies Moody’s and Fitch also suspended its operations in Russia earlier in the month.
Ukraine – President Zelensky said he is ready to meet President Putin any time while the latter suggested there is little to discuss at this point.
- Zelensky said that any demands with regards to the territorial integrity of Ukraine by Russia would need to be put to a referendum.
Currencies
US$1.0994/eur vs 1.1054/eur yesterday. Yen 120.42/$ vs 119.22/$. SAr 14.903/$ vs 14.968/$. $1.316/gbp vs $1.316/gbp. 0.740/aud vs 0.740/aud. CNY 6.359/$ vs 6.363/$.
Commodity News
Precious metals:
Gold US$1,928/oz vs US$1,924/oz yesterday
Gold ETFs 104.7moz vs US$104.4moz yesterday
Platinum US$1,034/oz vs US$1,031/oz yesterday
Palladium US$2,531/oz vs US$2,555/oz yesterday
Silver US$25.13/oz vs US$24.99/oz yesterday
Rhodium US$18,800/oz vs US$19,000/oz yesterday
Base metals:
Copper US$ 10,245/t vs US$10,246/t yesterday
Aluminium US$ 3,510/t vs US$3,506/t yesterday
Nickel US$ 28,570/t vs US$31,380/t yesterday
Zinc US$ 3,890/t vs US$3,892/t yesterday
Lead US$ 2,262/t vs US$2,255/t yesterday
Tin US$ 42,050/t vs US$42,445/t yesterday
Energy:
Oil US$117.0/bbl vs US$111.9/bbl yesterday
Natural Gas US$4.926/mmbtu vs US$4.914/mmbtu yesterday
Uranium UXC US$57.70/lb vs $57.25/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$150.4/t vs US$151.6/t
Chinese steel rebar 25mm US$778.2/t vs US$777.8/t
Thermal coal (1st year forward cif ARA) US$187.0/t vs US$187.0/t
Thermal coal swap Australia FOB US$228.0/t vs US$240.0/t
Coking coal swap Australia FOB US$600.0/t vs US$600.0/t
Other:
Cobalt LME 3m US$82,000/t vs US$82,000/t
NdPr Rare Earth Oxide (China) US$159,609/t vs US$160,299/t
Lithium carbonate 99% (China) US$74,301/t vs US$74,256/t
China Spodumene Li2O 5%min CIF US$2,790/t vs US$2,790/t
Ferro-Manganese European Mn78% min US$2,270/t vs US$2,283/t
China Tungsten APT 88.5% FOB US$340/t vs US$340/t
China Graphite Flake -194 FOB US$805/t vs US$805/t
Europe Vanadium Pentoxide 98% 12.4/lb vs US$12.4/lb
Europe Ferro-Vanadium 80% 62.75/kg vs US$62.75/kg
China Ilmenite Concentrate TiO2 US$397/t vs US$397/t
Spot CO2 Emissions EUA Price US$83.8/t vs US$84.2/t
Brazil Potash CFR Granular Spot US$1100/t vs US$1100/t
Battery News
Shell unveils 17GW offshore wind plans for Brazil
- Shell has applied for environmental investigation licences for six offshore wind projects in Brazil with the country’s Institute for the Environment and Natural Resources (IBAMA)
- The six projects have a total installed capacity of 17GW.
- The company said it applied for the licences as a first step in ensuring the best study of the areas and sustainable and responsible development of the investments necessary for licensing, while awaiting the definition of the rest of the regulations that will guide the development of offshore wind projects in Brazil.
- Brazil has long been seen as one of the world’s most promising new markets for offshore wind – the country’s energy planning agency, EPE, as part of its Offshore Wind Roadmap in 2020, estimated the country had potential offshore wind capacity as high as 700GW off the 8,000km coastline.
- Regulations to govern growth of the sector have moved incredibly slowly compared to its onshore wind sector where Brazil is the regional leader.
- The Brazilian government in January issued a decree assigning planning and permitting competencies for offshore wind development, in what was seen as an important step ahead of possible first auctions in 2023 – industry officials said the decree was a good start but still left many details unresolved and retained too much complexity.
CATL considering sites across North America for new battery gigafactory
- Battery giant, CATL, is considering sites across North America for a massive $5bn gigafactory to supply customers including Tesla. (Bloomberg)
- The Tesla and NIO supplier aims to build a plant capable of producing as much as 80GWh of batteries a year.
- CATL's new North American plant will produce nickel-manganese-cobalt and lithium iron phosphate batteries and supply Tesla and other automakers, the report said.
First cars out of Tesla’s German gigafactory as it goes live
- Tesla will hand the first Model Y cars made at its €5bn Gruenheide plant to clients today, launching its first European production hub with the biggest investment in a German car factory in recent history.
- The facility plans to hire 12,000 workers, the German gigafactory and adjacent battery plant will become the biggest employer in the German state of Brandenburg, where it is based.
- At full capacity, the gigafactory will produce 500,000 cars annually – more than the 450,000 battery-electric vehicles that main rival Volkswagen sold globally in 2021.
- The attached battery production facility will generate 50GWh of battery power.
- VW currently leads Europe's EV market, with a 25% market share to Tesla's 13% - Musk has warned that ramping up production will take longer than the two years it took to build the plant.
Company News
Evraz PLC (LSE:EVR)Suspended - Mkt cap £1.1bn – Bond coupon payment blocked by compliance
- EVRAZ has not been able to pay the ~$19m due on the payment of the coupon on its bonds.
- Problem is the funds remain blocked for compliance and probably due to sanctions on Abramovich who is a major shareholder of EVRAZ.
- EVRAZ is a major producer of steel, ferro-vanadium and other alloys with processing and raw material supply based in the Ukraine and Russia.
- Ferro-vanadium prices which had risen as a result of the Ukraine conflict fell 4.7% in China last week but remain 12.7% up on the start of the year.
- The company makes 66% of sales are from Steel, 15% from coal and 15% from steel and other operations in North America.
- Evraz sold 13,288t of vanadium in final products last year representing around 11.5% of the total vanadium market.
Conclusion: We are surprised to see vanadium prices pulling back in China. This may reflect lockdown in the major steel producing regions of Tangshan (Hebei) and Jilin. Tangshan represents 31% of all Chinese steel production at ~150mtpa of crude steel. Jilin produces 3.3mtpa.
Gemfields Group Limited (AIM:GEM) 16.75p, Mkt Cap £185m – Trading statement
- Gemfields has published an announcement in fulfilment of its Johannesburg listing obligations in which it says that “Gemfields is reasonably certain that its net profit after tax will be USD 65.0 million for the year ended 31 December 2021 (2020: USD 93.2 million net loss after tax; 2019: USD 39.1 million net profit after tax). In ZAR terms, the net profit after tax is expected to be ZAR 961 million (2020: ZAR 1,535 million net loss after tax; 2019: ZAR 565 million net profit after tax)”.
- The company confirms that its “two key operating assets, Montepuez Ruby Mining Limitada ("MRM") and Kagem Mining Limited ("Kagem") saw record-breaking auction results during 2021, generating revenues of USD 147.4 million and USD 91.8 million respectively during the year”.
- Setting the context, Gemfields says that its “2020 auction schedule was severely hampered by the many travel, quarantine and congregating restrictions put in place internationally to mitigate Covid-19 contagion. Gemfields, therefore, had to adapt and find alternative ways of hosting gemstone auctions. After the success of Gemfields' inaugural series of smaller, multi-city, online-based auctions for high-quality emeralds in November and December 2020, Gemfields continued with the same format for its auctions of emeralds and rubies during 2021”.
Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) 7.05p, Mkt Cap £260m – EPCM contract awarded for the Araguia Project
- Horizonte Minerals has announced that it has awarded the EPCM (Engineering, Procurement & Construction Management) contract for its Araguaia ferronickel project in Brazil to the Brazilian subsidiary of global engineering services firm AFRY.
- The company explains that the contract “involves the provision of a comprehensive range of services across engineering, procurement, construction management, project management and commissioning” for the project which will produce approximately 14,500tpa of nickel contained in 52,000tpa of ferronickel by treating 900,000tpa of ore during Phase 1.
- A subsequent, second phase of the project includes the flexibility to double production to 29,000tpa of contained nickel by the addition of a second rotary kiln electric furnace in the third year of the project.
- AFRY is described as “a global leader in engineering, design and advisory services with specialist expertise and a strong track record in delivering pyrometallurgical projects for the metals and mining industry”.
- The award of the EPCM contract follows “a comprehensive and competitive global tender process” and comes after last week’s announcement of the signing of the formal agreements for its previously announced US$346.2m senior debt facility for the development of the Araguia.
- Horizonte Minerals also reports that it is strengthening its in-house owner’s team “to work alongside AFRY”.
- Appointments include that of an experienced engineer with over 24 years global experience of project management, Mr. Leonardo Vianna, as Project Director as well as senior supporting technical, construction engineering and commissioning appointments with experience in the development of similar furnaces in S America and around the world.
- Commenting on the appointment of AFRY and its local subsidiary, Pöyry Tecnologia Ltda, CEO, Jeremy Martin, described AFRY as “a leader in its field … [which] … has a strong track record of successfully delivering metals and mining projects”.
- He confirmed that “We have been working with the local Pöyry team for several months in our project execution planning phase to ensure a smooth transfer to the construction phase of Araguaia. Araguaia will be delivered according to an EPCM strategy, in partnership with AFRY. The Horizonte owner's team will be integrated into the AFRY team with clear roles and responsibilities which is standard practice in Brazil”.
Conclusion: The recently completed funding for Araguaia has cleared the way for project development and today’s announcement of the appointment of the principal EPCM contractor. The strengthening of the Horizonte Minerals team should reinforce the contract supervision and help to ensure the project is conducted in a timely and financially prudent manner and we look forward to progress reports as the work proceeds.
Posco Holdings (NYSE:PKX) $60.08, Mkt cap $17.84bn - Steelmaker Posco plans $4bn investment in Argentinian lithium project
- South Korean steelmaker Posco has met with local government officials and announced plans for a new $4bn lithium mining project in Argentina.
- The project is located at the Salar de Hombre salt flat on the Salta-Catamarca border with Chile.
- The Salar de Hombre del Muerto (Lake of the Dead Man) salt flat is at 4,100-4,300m altitude and is south-east of Antofagasta on the Argentinian side of the border.
- The location is important as it allows for solar evaporation ponds though we would expect more rainfall on the Argentine side of the Andes mountains.
- ‘During the rainy season large parts of the Salar de Hombre can flood’ according to (Conicet Digital)
- Initial production is expected at 25,000t of lithium hydroxide per year.
- This is then expected to ramp up to 100,000t on project completion.
- Argentina’s President Fernandez announced he expects the project to yield $260m pa in export value for 30 years, confirmed by Posco. (Reuters)
Red Rock Resources PLC (AIM:RRR) 0.48p, Mkt cap £5.5m – Drilling results from Mikei, Kenya
- Red Rock Resources has released results from the final 11 reverse-circulation (RC) drill-holes from 20-hole, 2,093m, programme at its wholly-owned Mikei gold project in Kenya.
- The drilling of the KKM prospect, described as “the Mid Prospect of the five main MGP Prospects and has an Indicated and Inferred (JORC 2012) Resource of 371.3 Koz Au” and the company says that mineralisation is “both structurally and chemically controlled through a regional NW-SE trending shear zone and its rich quartz porphyry intrusions and graphitic shale envelopes respectively”.
- Among the results reported in today’s announcement are:
- A 37m wide intersection averaging 0.73g/t gold from a depth of 120m in hole KKRC-095 including higher grade sections of 5m at an average grade of 2.05g/t from 145m depth and 2m averaging 2.18g/t from 150m depth; and
- An intersection of 19m at an average grade of 0.54g/t gold from 81m depth in hole KKRC-087; and
- An intersection of 12m averaging 0.65g/t gold from 79m depth in hole KKRC-091; and
- 10m at an average grade of 1.5g/t gold from a depth of 61m in hole KKRC-103 which included 3m averaging 1.02g/t from 61m and 5m averaging 2.23g/t from 67m depth; and
- An intersection averaging 1.23g/t gold over 8m from 87m depth in hole KKRC-089 with 4m averaging 1.81g/t gold from 87m.
- The results complement earlier results from the first 9 holes of the programme which include:
- A 17m wide intersection at an average grade of 1.02g/t from 116m depth in hole KKRC-102; and
- A 6m wide intersection, from a depth of 8m depth in hole KKRC-082 which averaged 1.17g/t gold; and
- A 4m wide intersection at an average grade of 1.37g/t gold from a depth of 83m in hole KKRC-101.
- Describing the drilling results as a good result which showed “very solid progress”, Chairman, Andrew Bell, said that the “objects of this first programme were to guide us as to where we might increase the Resource size, improve the reported grade, or upgrade the categorisation. Of these 11 holes, some of which were testing for extensions of known mineralisation, 9 intersected gold above our cut-off grade, and we assess that 4 provide additional grade information, 4 might have bearing on the size of the mineralised envelope, and 1 might provide information relevant for both grade and category estimates”.
- He described the objective of the next phase of exploration work as leading “up to a new MRE” (Mineral Resource Estimate) with the next phase expected to include diamond drilling “deeper but still within the pit shell and down dip, where we hypothesise the existence of higher grades, or from the bringing to Resource of new areas where mineralisation has been encountered but few holes have been drilled”.
Sovereign Metals Ltd (ASX:SVM, AIM:SVML) 29p, Mkt Cap £120m – Assessment of the carbon footprint of Kasiya rutile production
- Sovereign Metals reports that an expanded independent study (the ‘Life Cycle Assessment Study’), by Minviro, has investigated the “Global Warming Potential (GWP) of natural rutile produced at the Company's Kasiya Rutile Project (Kasiya) in Malawi”.
- The study concluded that the production of natural rutile has the potential to “significantly reduce the carbon footprint of the titanium pigment industry”.
- “Each tonne of natural rutile produced at Kasiya is expected to have a Global Warming Potential of only 0.1 tonnes CO2 eq., which equates to a 95% to 97% reduction in total greenhouse gas emissions (20 to 33 times less) compared to production of titania slag and synthetic rutile respectively”.
- The study identified that “producing titanium dioxide pigment in the EU from Sovereign's natural rutile has the lowest global warming potential versus ilmenite-upgraded alternative feedstocks … [and that] … Paint produced from Sovereign's natural rutile is estimated to have up to 35% lower carbon footprint than that produced from ilmenite-upgraded alternatives”.
- Managing Director, Julian Stephens, explained that the new study “highlights the significant reduction in greenhouse gas emissions the titanium pigment industry could achieve by utilising natural rutile produced at Kasiya. This has direct economic benefits to end users in jurisdictions such as the EU, where industry pays for carbon dioxide emissions via the EU's Emissions Trading System and the proposed Carbon Border Adjustment Mechanism”.
Conclusion: Sovereign Metals’ study indicates that there are potentially important emissions savings and reductions in carbon footprint available from the use of natural rutile in comparison to slag or upgraded ilmenite for pigment production.
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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
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