SP Angel . Morning View . Friday 25 03 22
Growth outlook weakens on inflation shock concerns
MiFID II exempt information – see disclaimer below
GoldStone Resources (AIM:GRL)* (GRL LN) – Homase gold mine costs fall as gold recoveries rise
Nexa Resources (NEXA US) - Nexa Resources restarts production at Peruvian zinc mine following protests
Petropavlovsk (POG LN) – Gazprombank added to the UK sanctions list
Rambler Metals & Mining* (RMM LN) – Celeste van Tonder appointed as interim CFO as Eason Chen steps down
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Shanghai nickel jumps to record high as LME rises 8.5% and Big Shot trims short positions
- LME nickel up 8.5% to $40,415/t
- SHFE nickel jumped 14.5% to $44,206/t, its largest intraday jump on record.
- Analysts suggest the move was triggered by Tsingshan’s ‘Big Shot’ covering some of his sizeable short positions.
- Mysteel reports stainless steel mills are limiting nickel purchases on soaring prices.
- Bloomberg reports Chinese traders have started paying for nickel trades in yuan rather than dollars and analysts expect a ramp up in Russian nickel exports to China.
Gold extends gains as investors continue to hedge and US Treasury intervenes in Russian gold transactions
- Gold is up 2% this week at $1,955/oz having touched $1,964/oz in trading yesterday.
- The metal has enjoyed 3 successive weeks of gains as investors seek haven assets following Putin’s invasion of Ukraine.
- The US Treasury made its first intervention in the gold market by prohibiting Russian gold transactions, signed by President Biden.
- Analysts expect soaring commodity prices in energy, food, and metals to exacerbate inflationary pressures, alongside disrupted supply chains and shipping rates.
- Gold has shown strength despite major headwinds from the Fed as Powell looks to cool inflation with more hawkish fiscal policy.
Chinese traders agree deal with Rusal on alumina supply to circumvent Australian alumina ban
- Rusal is set to receive 30,000t of alumina, a key aluminium making ingredient, from 2 Chinese vessels. (Bloomberg)
- The small cargoes are reportedly a test to gauge the implications of Western sanctions on Russia-China trade.
- If successful, the traders will ramp up supplies to Rusal.
- The move marks a rare example of Chinese alumina exports; however the parties are private firms and not state-backed.
- Aluminium prices have rallied 38% ytd, with Rusal’s limited access to alumina and bauxite stimulating the move.
- 45% of Rusal’s sales go to Europe for primarily packaging, construction, and transport firms.
IAI ‘International Aluminium Institute’ forecasts global demand will rise 40% by 2030 equating to an extra 33.3mt to 119.5mt from 86.2mt
- China is estimated to rise to 33% of new demand with NA at 22% and Europe 19%.
- Power generation is estimated to take up 15.6mt from 10.4mt by 2030 in solar, wind power generation alongside battery storage capacity.
- Much of the new metal will go into renewable power generation with solar requiring 25 times the aluminium of an equivalent coal powered plant
Dow Jones Industrials -0.98% at 34,466
Nikkei 225 +3.00% at 28,040
HK Hang Seng +1.21% at 22,154
Shanghai Composite +0.34% at 3,271
Economics
US – Durable goods orders drop more than forecast on transportation and concerns over inflation pressures weighing on growth outlook.
- Durable Goods (%mom): -2.2 v 1.6 in January and -0.6 est.
- Capital Goods Orders ex Defence and Air (%mom): -0.3 v 1.3 in January and 0.5 est.
China – Covid outbreak in China is placing increasing strain on the economy
- 21 provinces reported as high or medium risk regions accounting for ~78% of GDP and up from 17 provinces last week, Bloomberg estimates.
China steel output slides as Covid restrictions come into effect
- 19 steelmaking blast furnaces were forced to suspend production yesterday on Covid restrictions. (Mysteel)
- Tangshan, the country’s main steelmaking hub, is suffering from a combination of Covid curbs and raw material shortages.
- Tangshan produced 131,11mt of crude steel in 2021, more than India’s total 118mt.
- Bloomberg reports tight supplies of ferro-alloys and limestone, with inventories shrinking to less than a week’s supply.
- Some mills in Tangshan continue to operate.
- Steel rebar and HRC prices have both risen.
- Iron ore has strengthened to near $150/t as traders bet on long-term demand trends over short term consumption concerns.
Ukraine – NATO estimates 15,000 Russian troops killed and 30,000 wounded
- This estimate if correct would mean Russia has lost around a quarter of its ‘Special Operations’ invasion force.
- If Ukrainian troops are able to continue to inflict these sorts of casualties they may turn the war against the Russians
- Russia is moving to encircle Ukranian fighters in the Donbas, ‘rubblising’ cities along the way to prevent other Ukranian units from supporting their fellow Ukranian’s in the Donbas.
- This may allow Putin to claim some sort of victory but may also lead Russian forces to Kiev.
- Ukranian forces are reported to be taking back towns around Kyiv
- Russia is telling its armed forced the war must end by 9th May. So is Putin planning a ‘Special Operation’ into a weaker, nation on that date.
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Russia announced unfriendly states will have to pay for its gas exports in Russian roubles
- You have to hand it to them, that would be quite funny if it wasn’t so serious for distressed customers and the reasons for Russian sanctions
- European wholesale gas prices rose 20% though Nymex fell 1% as nobody knows where to get their Roubles from.
- Fortunately, Joe Biden is working on how to supply Europe with US LPG. Problem is adapting increasing infrastructure to offload that much gas into Europe.
Germany – Business outlook deteriorates in March to the lowest level since the early months of the pandemic reflecting the ongoing war in Eastern Europe.
- “Sentiment in the German economy has collapsed… Companies in Germany are expecting tough times,” Ifo said commenting on the data.
- Climbing prices are weighing on activity with the government yesterday announcing extra measures to support consumers and businesses to the tune of €15bn, Bloomberg reports.
- The package includes a temporary cut in fuel prices, oneoff payments to households and subsidised public transport.
- Ifo Current Assessment: 97.0 v 98.6 in February and 96.6 est.
- Ifo Expectations: 85.1 v 98.4 in February and 92.0 est.
UK – Weak retail sales and consumer sentiment reports released this morning amid rapidly surging cost of living.
- Inflation hit 6.2%, the highest in nealy 30 years, driving up the cost of food and fuel seeing declines in real income.
- “Consumers are being forced to take steps to balance their budget, with eating out, clothing, takeaways, and the weekly shop the main targets for spending reduction,” KPMG said.
- GfK Consumer Sentiment: -31 v -26 in February and -30 est.
- Retail Sales (%mom): -0.3 v 1.9 in January and 0.7 est.
- Retail Sales ex Auto Fuel (%mom): -0.7 v 1.7 in January and 0.5 est.
Mexico – Mexico raised its benchmark rate by 50bp to 6.5% as the central bank raised concerns over inflationary shock from higher energy and food costs from the Russia/Ukraine war.
- Inflation hit 7.3% in the first two weeks of March with analysts also recently revising down their growth estimates, FT reports.
Currencies
US$1.1024/eur vs 1.0985/eur yesterday. Yen 121.79/$ vs 121.52/$. SAr 14.549/$ vs 14.770/$. $1.319/gbp vs $1.318/gbp. 0.751/aud vs 0.748/aud. CNY 6.364/$ vs 6.369/$.
Commodity News
Precious metals:
Gold US$1,955/oz vs US$1,944/oz yesterday
Gold ETFs 105.4moz vs US$105.4moz yesterday
Platinum US$1,027/oz vs US$1,019/oz yesterday
Palladium US$2,531/oz vs US$2,533/oz yesterday
Silver US$25.53/oz vs US$25.10/oz yesterday
Rhodium US$18,500/oz vs US$18,600/oz yesterday
Base metals:
Copper US$ 10,412/t vs US$10,496/t yesterday
Aluminium US$ 3,617/t vs US$3,695/t yesterday
Nickel US$ 40,415/t vs US$37,235/t yesterday
Zinc US$ 4,063/t vs US$4,169/t yesterday
Lead US$ 2,333/t vs US$2,370/t yesterday
Tin US$ 42,525/t vs US$42,785/t yesterday
Energy:
Oil US$117.9/bbl vs US$121.9/bbl yesterday
- Oil prices fell as concerns over a European embargo of Russian crude diminished and exports from the storm-damaged CPC terminal on Russia’s Black Sea coast were expected to resume on Friday.
- As the Russian invasion of Ukraine enters its second month, U.S. President Joe Biden agreed to supply at least 15bcm of additional LNG volumes to the EU market 15bcm in 2022 (~10% of Russia’s exports).
- The US natural gas storage report was down 51bcf to 1,389bcf, according to EIA estimates, with deliveries to LNG export facilities remaining at 12.9bcf/d.
Natural Gas US$5.410/mmbtu vs US$5.212/mmbtu yesterday
Uranium UXC US$59.10/lb vs $59.20/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$149.1/t vs US$146.3/t
Chinese steel rebar 25mm US$779.9/t vs US$779.3/t
Thermal coal (1st year forward cif ARA) US$187.0/t vs US$187.0/t
Thermal coal swap Australia FOB US$277.5/t vs US$271.0/t
Coking coal swap Australia FOB US$505.0/t vs US$549.0/t
Other:
Cobalt LME 3m US$82,000/t vs US$82,000/t
NdPr Rare Earth Oxide (China) US$155,575/t vs US$155,443/t
Lithium carbonate 99% (China) US$74,252/t vs US$74,189/t
China Spodumene Li2O 5%min CIF US$2,810/t vs US$2,810/t
Ferro-Manganese European Mn78% min US$2,188/t vs US$2,214/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% 12.3/lb vs US$12.4/lb
Europe Ferro-Vanadium 80% 62.25/kg vs US$62.75/kg
China Ilmenite Concentrate TiO2 US$398/t vs US$396/t
Spot CO2 Emissions EUA Price US$84.0/t vs US$83.7/t
Brazil Potash CFR Granular Spot US$1100/t vs US$1100/t
Company News
GoldStone Resources (AIM:GRL)* 10.5p, Mkt Cap £46m – Homase gold mine costs fall as gold recoveries rise
- Homase gold mine: Goldstone report sales of 1,717oz of gold at US$1,907/oz from the Homase mine in Ghana for revenue of $3.3m.
- The production allowed Goldstone to repay $1.1m worth of its gold loan with AIMS through the delivery of 610oz of gold lifting the default interest rate applied.
- Capex: Stage 1 construction cost $15m including overheads marking a magnificent achievement for any gold miner let alone a company in Ghana which is seen as a slightly higher cost jurisdiction these days.
- Commissioning and teething issues are reported to be resolved with gold recoveries from the heap leach operation rising to >65% with indications of a potential 82% recovery over 12-months.
- Problems with recoveries on the initial heap led to slow gold recovery and a reworking of the agglomeration to enable better percolation and faster gold recovery.
- Production: Management are sticking to their production target of 20,000oz for this year. Guidance is for 18,500-23,500oz of gold.
- Cash costs are expected to come in at around $840/oz for the ‘remainder of 2022 indicating a higher overall cost for this year.
- AISC – All in Sustaining costs are estimated at $970/oz
- Exploration: ‘Exploration is being ramped up within the Homase and Akrokeri Licences.’ with grade control drilling at the third pit along from the Homase gold mine.
- Drilling underground at the Akrokeri gold mine is expected to add to resources and provide for future expansion potential.
- Resources: Higher gold prices will allow existing resource to expand further with the pits now expected to mine down to 80m adding a further 585,700t grading 1.7g/t and 1.26mt grading 1.1g/t of fresh ore.
- Previously Homase Mine was just 304,000t grading 1.7g/t oxide of which 210,000t has been recently mined and 640,000t grading 1.25g/t oxide within the confines of the 602,000oz JORC (2012) resource.
Conclusion: Goldstone has built the Homase gold mine on a $15m shoestring battling covid, inflation and local bureaucracy all the way. While the first phase of the Homase gold mine is in place, there is much more to be done. The confirmation of new gold reserves and resources is good news and we expect further releases to lift the stock on this front.
*SP Angel acts as broker to GoldStone Resources
Nexa Resources (NYSE:NEXA) US$9.2, Mkt Cap US$1.22bn - Nexa Resources restarts production at Peruvian zinc mine following protests
- Nexa Resources announced earlier this week that operations at its Atacocha San Gerardo open pit mine will resume this week.
- Protestors had blocked access to the zinc mine via a road blockade, which has now been lifted.
- Production loss from the blockade is forecast at 300t of zinc which Nexa expects to recover over the next few months.
- Nexa does not forecast any production loss in its 2022 guidance as a result.
Petropavlovsk PLC (LSE:POG) 1.6p, Mkt Cap £63m – Gazprombank added to the UK sanctions list
- The Company reports that Gazprombank has been added to the UK sanctions list yesterday.
- Sanctions involve asset freezes held in the UK and prevent British firms from doing business with them.
- The Company highlighted that it currentle has a $200m committed term loan with Gazprombank as well as a ~$87m revolving credit facility.
- Under loan agreements, the bank acts as an off-taker of 100% of the Group’s gold production.
- Following Gazprombank designation under the sanction list the Company is unable to carry gold sales to the bank while restriction on purchasing and selling gold in Russia may make it challenging to an alternative buyer of the Group’s production.
- Additionally, the designation prohibits the Company from servicing its debt facilities with Gazprombank.
- The Company is currently working with advisers on implications for its operations and financing arrangements.
- Under current regulations, local exporters need to sell 80% of its foreign currency proceeds to the central bank within three days while central bank gold purchases are also being paid in roubles.
Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)* – 29.27p, Mkt cap £47m – Celeste van Tonder appointed as interim CFO as Eason Chen steps down
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NPV Valuation: 168p/s
- Eason Chen has stepped down for personal reasons having supported the company through its transition to profitability and difficult financial restructuring.
- Celeste van Tonder, a Chartered Accountant, formerly at Anglo American and African Rainbow Minerals steps into the role as interim CFO.
- Ms Tonder was formerly CFO at TerraCom (ASX:TER) Resources Limited and has experience working with AIM listed junior companies particularly in the establishment of financial processes, reporting systems and implementation of risk and governance.
*SP Angel act as Nomad and Broker to Rambler Metals & Mining. The analysts holds shares in Rambler Metals & Mining.
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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
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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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