SP Angel . Morning View . Friday 14 04 22
Expectations for more monetary stimulus in China grow as economic outlook falters
MiFID II exempt information – see disclaimer below
Anglo Asian Mining* (AAZ LN) – 14koz GEO produced in Q1/22 with FY22 guidance due later in H1/22
Kenmare Resources (KMR LN) – Ilmenite prices continue to rise reflecting supply shortages
Petropavlovsk (POG LN) – Debt refinancing risks flagged with restructuring options considered including potential disposal of Russian assets
Tertiary Minerals* (TYM LN) – Drilling results from the North Ruth target at Pyramid the project
Zinc of Ireland (ZMI AU) – Drilling commences at Rapla project
Graphene / high-grade graphite purification – private financing opportunity
- We are inviting investors to finance a private company which produces high-grade graphite and graphene from low grade graphitic material. The company also sells:
- Paints: The company already sells a range of graphene paint products and is working on concrete modifiers.
- Concrete modifier: developing distribution network.
- Li-ion battery anodes: project in development in Warwick
- Machinery uses cavitation waves mixture of water and graphite making the process environmentally friendly along with no detrimental grinding impact on graphite particles.
*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.
Dow Jones Industrials +1.01% at 34,565
Nikkei 225 +1.22% at 27,172
HK Hang Seng +0.63% at 21,509
Shanghai Composite +1.22% at 3,226
Economics
China – Central bank looks set to cut rates and reduce RRR in order to boost economy
- Markets are braced for a lowering of interest rates from the People’s Bank of China, with 16 out of 22 economists surveyed by Bloomberg predicting a lowering of rates.
- The move is intended to free up more liquidity in the banking sector to help bolster the economy which has been hit by a particularly bad wave of covid.
- Growth projections for China are being steadily downgraded as many major cities remain in strict lockdowns, with the country’s 5.5% annual growth target looking more and more unlikely.
- On Wednesday, China’s cabinet said there will be timely reductions in reserve requirement ratios (RRR) and other policy tools to support the economy.
- The RRR sets the minimum amount of reserves that must be held by banks and cannot be loaned out.
Hong Kong – Phased easing of Covid measures to begin next week
- Hong Kong will begin easing restrictions, with restaurants able to open until 10pm and four people per table.
- A ban on private gatherings of more than two households will remain in place for now.
Europe – ECB to announce latest monetary policy decision at 12.45pm London time
- The European Central Bank are to meet today, although markets are not expecting a change in interest rate.
- The ECB may outline a schedule for unwinding its stimulus programme in an attempt to quell inflationary worries.
- The ECB has been reducing the pace of its money-printing programme for months but it has so far avoided committing to an end date for the scheme.
- Under current plans the ECB plan to end bond purchasing at some point in Q3, with interest rates going up some time after that
Currencies
US$1.0915/eur vs 1.0818/eur yesterday. Yen 125.31/$ vs 126.22/$. SAr 14.612/$ vs 14.4180/$. $1.314/gbp vs $1.298/gbp. 0.745/aud vs 0.743/aud. CNY 6.367/$ vs 6.367/$.
Commodity News
ArcelorMittal buys $1bn Texas HBI plant
- ArcelorMittal has agreed to buy 80% of Voestalpine AG’s hot briquetted iron plant in Corpus Christi, valuing the operations at $1bn.
- The deal helps the steelmaker produce feedstock for electric arc furnaces, helping the company lower its carbon emissions.
- ArcelorMittal will continue to deliver to Voestalpine 420,000t each year of briquettes that are used as a base material for finished steel products.
China banks ramp up financing for coal projects
- Chinese banks have been ramping up financing of new coal projects amid the sky-high energy prices hampering industry.
- Chinese lenders have helped coal companies raise about $10bn selling bonds so far this year, vs $3.8bn over the same period last year.
- The country currently has 260GW of coal power planned or under construction, more than the rest of the G20 combined, according to Bloomberg.
Precious metals:
Gold US$1,973/oz vs US$1,966/oz yesterday
Gold ETFs 106.7moz vs US$106.2moz yesterday
Platinum US$988/oz vs US$977/oz yesterday
Palladium US$2,362/oz vs US$2,394/oz yesterday
Silver US$25.68/oz vs US$25.42/oz yesterday
Rhodium US$19,200/oz vs US$19,200/oz yesterday
Base metals:
Copper US$ 10,338/t vs US$10,337/t yesterday
Aluminium US$ 3,249/t vs US$3,268/t yesterday
Nickel US$ 32,895/t vs US$32,550/t yesterday
Zinc US$ 4,407/t vs US$4,478/t yesterday
Lead US$ 2,411/t vs US$2,422/t yesterday
Tin US$ 43,100/t vs US$42,900/t yesterday
Energy:
Oil US$107.4/bbl vs US$104.5/bbl yesterday
Natural Gas US$6.991/mmbtu vs US$6.721/mmbtu yesterday
Uranium UXC US$64.50/lb vs $64.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$152.8/t vs US$154.5/t
Chinese steel rebar 25mm US$797.6/t vs US$797.6/t
Thermal coal (1st year forward cif ARA) US$236.0/t vs US$236.0/t
Thermal coal swap Australia FOB US$322.0/t vs US$297.0/t
Coking coal swap Australia FOB US$510.0/t vs US$415.0/t
Other:
Cobalt LME 3m US$82,000/t vs US$82,000/t
NdPr Rare Earth Oxide (China) US$129,184/t vs US$132,329/t
Lithium carbonate 99% (China) US$71,071/t vs US$71,0733/t
China Spodumene Li2O 5%min CIF US$2,870/t vs US$2,870/t
Ferro-Manganese European Mn78%$2,166/t vs US$2,147/t
China Tungsten APT 88.5% FOB US$343/t vs US$343/t
China Graphite Flake -194 FOB US$825/t vs US$825/t
Europe Vanadium Pentoxide 98% 11.6/lb vs US$11.6/lb
Europe Ferro-Vanadium 80% 55.25/kg vs US$55.25/kg
China Ilmenite Concentrate TiO2 US$398/t vs US$398/t
Spot CO2 Emissions EUA Price US$85.1/t vs US$84.8/t
Brazil Potash CFR Granular Spot US$1,250/t vs US$1,250/t
Battery News
ScotWind bid winners sign agreements to move into development stage
- Crown Estate Scotland (CES) has confirmed that all 17 successful ScotWind applicants now have option agreements in place meaning that their projects can move into the development stage.
- In January, CES confirmed the winning bids for the leasing process, totalling 24.8GW of offshore wind capacity.
- The projects include 3GW MarramWind and 2GW CampionWind, which will be among the first commercial scale floating offshore wind farms globally.
Envision AESC to invest $2bn for US battery manufacturing plant
- Japanese battery specialist, Envision AESC, will invest $2bn to build a new battery gigafactory in Kentucky.
- The facility will have an annual production capacity of 30GWh and produce battery cells and modules for next generation EVs.
- According to the company, the new plant will produce new battery cells with 30% more energy density than the current generation, reduced charging time and increased range and efficiency, powering up to 300,000 vehicles annually by 2027.
- This brings Envision AESC’s total battery manufacturing capacity to approx. 150GWh worldwide and is aligned with plans to reach 300GWh by 2026.
Company News
Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)* 95p, Mkt Cap £109m – 14koz GEO produced in Q1/22 with FY22 guidance due later in H1/22
BUY
- Production amounted to 13.7koz GEO (Q1/21: 15.8koz) comprised of:
- 10.0koz gold (Q1/21: 11.9koz) including 9.0koz within gold dore from the agitation and heap leaching operations and 1.0koz from the flotation plant;
- 0.6kt copper (Q1/21: 0.6kt) with 0.2kt from SART processing plant and 0.4kt from the flotation circuit;
- 51koz silver (Q1/21: 35koz) most of which came from SART and flotation plants.
- A drop in production from last year is largely attributed processed grades in both agitation leaching feed (1.63g/t v 1.84g/t in Q1/21).
- Lower feed grades reflect lower mined grades with average grades across Gedabek open pit and underground operations as well as Gadir underground mine coming in at 0.7g/t (Q1/21: 1.0g/t).
- On a positive note, mining rates in the Gedabek underground mine maintained at nearly double those recorded Q1/21 with an improved grades as well.
- Gold bullion sales (post PSA) amounted to 7.5koz at an average realised of $1,904/oz (Q1/21: 5.6koz and $1,697/oz).
- Concentrate sales (post PSA) totalled 1.5kt generating $3.2m in sales proceeds (Q1/21: -).
- Closing cash balance stood at $29.4m with a further $8.0m in gold dore and copper concentrate unsold inventories (Dec/21: cash of $37.5m).
- The cash balance accounts for a $2.8m investment in Libero as well as a $3m tax payment during the quarter.
- The team reiterated its commitment to start production at Vejnaly and Gosha later in the year.
- FY22 production guidance will be provided later in H1/22.
Conclusion: The Company reported 14koz GEO in production in Q1/22 with lower output attributed to weaker mined and processed feed grades in the agitation leaching plant. The team will release FY22 production guidance later in H1/22 that should include contribution from Vejnaly and Gosha. The Company earlier projected 54-58koz GEO to be produced from Gedabek with FY22 total production guidance to be released later in H1/22 that would also include contributions from Vejnaly and Gosha. The Company produced 64.6koz GEO in FY21.
*SP Angel acts as nomad and broker to Anglo Asian Mining
Kenmare Resources plc (LSE:KMR) 513p, Mkt Cap £487m – Ilmenite prices continue to rise reflecting supply shortages
- Kenmare Resources reports a sixth consecutive quarterly rise in ilmenite prices realised by its Moma mine in Mozambique during the three months to 31st March 2022.
- Ilmenite output of 256,800t during the quarter was 7% lower than the 275,100t produced during Q1 2021 but 4% above the 246,000t achieved in the preceding quarter ending 31st December 2021.
- The company clarifies that the production reflects “a 5% decrease in HMC … [Heavy Mineral Concentrate] … processed” and that “HMC production was 384,700 tonnes in Q1 2022, representing a 6% increase compared to Q1 2021 (361,900 tonnes), benefitting from a 5% increase in excavated ore tonnes to 9,391,000 tonnes compared to Q1 2021 (8,995,000 tonnes). Mining operations were impacted by poor weather conditions in Q1 2022, which resulted in lower HMC production than expected. However, in Q1 2021, mining operations were more affected by personnel shortages due to COVID-19, which led to a year-on-year increase in HMC production”.
- The company advises that one of its “two transshipment vessels, the Bronagh J, is due to begin its five-yearly dry dock in early May 2022 for a period of 10 weeks. During this time, Kenmare’s shipping capacity will be significantly reduced. However, there is sufficient capacity to catch up this shortfall when both vessels are operating together again” and Kenmare Resources confirms that its “Full year guidance is maintained on all stated metrics”.
- Kenmare Resources also says that “Shipments decreased by 33% in Q1 2022 to 231,500 tonnes (Q1 2021: 344,400 tonnes), primarily due to poor weather conditions and the arrival of some customer-chartered vessels being delayed. Shipments in Q1 2022 were comprised of 203,000 tonnes of ilmenite, 11,800 tonnes of primary zircon, 12,000 tonnes of concentrates and 4,800 tonnes of rutile.”
- Commissioning of the Rotary Uninterruptible Power Supply (“RUPS”) project started during the quarter and is “anticipated to deliver benefits in terms of both power stability and operating costs, through reduced usage of diesel generators. It is the primary contributor to Kenmare’s short-term target to reduce greenhouse gas emissions by 12% by 2024”.
- The company also confirms that it expects to complete a “Pre-Feasibility Study … for mining the Nataka ore zone … later in 2022” and that “Wet Concentrator Plant A is expected to commence mining in Nataka in 2025”.
- Kenmare Resources reports a continuation of strong demand for its products during Q1 2022 and says that “Demand continues to be greater than supply and consequently, ilmenite prices increased for the sixth consecutive quarter, while inventories remain low throughout the value chain for all products”.
- The quarter saw record choride pigment production in China which “intensified demand for imported feedstocks as domestic ilmenite is unsuitable for the chloride production process”.
- “Outside China, pigment demand is robust and a lack of titanium feedstock availability remains a bottleneck to pigment production volumes. Although additional ilmenite supply is entering the market, it is mostly in the form of concentrates from countries including Mozambique, the United States and Indonesia, but remains insufficient to meet demand”.
- The company says that 4.5% of global titanium feedstock comes from Ukraine “and disruption to this supply has exacerbated tight market conditions” and that “the war has the potential to impact global growth, which could dampen demand for Kenmare’s products”.
- Kenmare confirms that demand for its “zircon products was robust in Q1 2022, supported by low global zircon inventories. However, in Europe the increase in energy prices is presenting a headwind in the ceramics industry and could lead to lower tile production. Kenmare does not expect this to impact demand for its zircon, with strong zircon market conditions in China following Lunar New Year. Prices for zircon increased in Q1 2022 and the favourable market conditions for zircon are expected to continue in Q2 2022”.
Conclusion: Although uncertainty surrounds the events unfolding in Ukraine, demand for Kenmare Resources’ ilmenite and zircon products remains strong amid supply shortages for the downstream pigment industry and record pigment production in China.
Petropavlovsk PLC (LSE:POG) 2.4p, Mkt Cap £95m – Debt refinancing risks flagged with restructuring options considered including potential disposal of Russian assets
- The Company reiterated that it remains constrained from servicing its debt obligations with Gazprombank that was included in the UK sanctions list.
- The Company was unable to complete $560k interest payment due 25 march on the term loan as well as missed the rouble equivalent of ~$9.5m due under the revolving credit facility.
- Since the Company is prohibited from dealing with sanctioned entities, the Company could not sell its gold to Gazprombank under the existing offtake for 100% of its output.
- There is an option to sell gold to the Russian central bank, although, the Company highlighted that the central bank sets daily price levels at a discount to market prices (~$1,660/oz as at 13 April).
- The Company reports that it currently has limited cash reserves outside Russia with gold sales proceeds held locally on subsidiary level highlighting risks to servicing its outstanding convertible bond notes.
- Refinancing outstanding loans and notes may also prove to be challenging.
- The team is working with its advisers to explore the best course of action including an option to sell its operating subsidiaries.
- Separately, the Company mentioned that there are reports of a potential Russian legislation that would make it a criminal offence for persons/companies in Russia to follow UK sanctions regulations and refuse to deal with its counterparties.
Tertiary Minerals PLC (AIM:TYM)* (TYM LN) – 0.19p, Mkt cap £2.7m – Drilling results from the North Ruth target at Pyramid the project
- Yesterday afternoon, Tertiary Minerals announced results from a 6 holes, 1,050m, programme of reverse-circulation drilling at its Pyramid silver/gold exploration project in Nevada.
- Drilling, which aimed to follow-up surface sampling results over the 500m strike length of the North Ruth zone was unable to demonstrate “significant mineralisation at depth” despite the “surface sampling and trenching completed throughout 2021 and early 2022, as well as the presence of extensive historic underground workings in the area”.
- Managing Director, Patrick Cullen, explained that “Indications are that localised supergene enrichment of silver has resulted in the grades observed at surface … [and that] … A detailed analysis of the results will be needed before any further exploration is undertaken”.
- He added that “In the meantime, progress has been made with permitting at our Brunton Pass Copper Project, also in Nevada, and we will recommence activities there soon. In addition, we have already begun field work on the Jacks Copper Project in Zambia and expect to commence drilling in late April or early May 2022”.
Conclusion: Results from the North Ruth drilling were unable to establish mineralisation at depth beneath the surface trenching and sampling. Results will be analysed carefully before any further exploration there. Further exploration of the company’s Brunton Pass copper project, also in Nevada, is expected to restart shortly and drilling of the Jack’s Copper project in Zambia is scheduled in late April or early May
*SP Angel act as Nomad and Broker to Tertiary Minerals
Zinc of Ireland NL (ASX:ZMI) A$0.054p, Mkt Cap A$9m – Drilling commences at Rapla project
- Zinc of Ireland reports that drilling at its Rapla project is due to commence next week, where a total of 14 holes have been successfully permitted.
- The immediate high priority drilling will consist of 3 holes targeting similar geology to the neighbouring Lisheen Mine (~10km away and 22.6mt @ 15.3% Zn+Pb).
- The company will assess the potential for higher grade mineralisation of greater thickness to increase approaching the feeder structure, or fault, at Rapla.
- The closest historical drill hole, which is located ~600m away from the potential feeder fault, hit high grade mineralisation of 7.4m @ 14.59% Zn+Pb.
- In addition to drilling at Rapla, Zinc or Ireland is also currently step out drilling at its Kildare Project in order to grow project scale and add to the current JORC resource of 11.3mt @ 9.0% Zn+Pb.
- ZMI currently holds a 2,500km2 land package along the Rathdowney Trend which hosts the previously worked Lisheen and Galmoy mines.
- Zinc prices are currently hovering at levels last seen since 2006, amid plunging inventories and lower refining due to surging power prices.
- Zinc holdings in LME-tracked warehouses have fallen from ~300,000t this time last year to ~120,000t at current levels.
- While this looks a fairly healthy number to deal with short-term supply issues, the amount of zinc available for the physical reconciliation of contracts, known as on-warrant holdings, has slumped to 45,925t.
- Traders are currently shipping the metal to Europe, where smelting capacity has been cut amid record energy prices.
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
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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, Asian Metal
Tungsten, Spodumene, Ferro-Manganese, Graphite
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