SP Angel . Morning View . Monday 06 06 22
Improved risk sentiment lifts commodities on Chinese restrictions easing hopes
MiFID II exempt information – see disclaimer below
D-Day started on 6th June 1944
Alara Resources (ASX:AUQ) – Covid lockdowns and Ukraine conflict delay Al Wash-hi Majaza Copper-Gold project completion
Base Resources Limited (AIM:BSE, ASX:BSE) – Rain storms flood pits a Kwale ilmenite/rutile mine in Kenya
Cornish Metals Inc (AIM:CUSN, TSX-V:CUSN, OTC:SBWFF)* – Valuation 48p/s – Nomination of former Anglo American CEO, Tony Trahar to Board
Culpeo Minerals Ltd (ASX:CPO)* – Third hole at Lana Corina intersects 173m averaging over 1% copper
Empire Metals Ltd (AIM:EEE)*– New drilling campaign to commence at Eclipse-Gindalbie
GreenRoc Mining PLC (AIM:GROC) – Phase-2 drilling to commence at Amitsoq
Rainbow Rare Earths Ltd (LSE:RBW)* – MoU signed in South Africa to process Rare Earths from phosphates near Johannesburg
KEFI Gold and Copper PLC (AIM:KEFI, OTC:KFFLF)* – Annual results
Base metals rise as China lockdowns ease alongside potential for cut in US / China tariffs
- Copper led the base metals complex higher this morning as manufacturers in China return to more normal production and policymakers talk on tariff cuts.
- Almost all other industrial metals and minerals also lifted with the exception of tungsten and rhodium
- Asian equities rose as the Nikkei, HK Hang Seng and Shanghai Composite lifted despite Chinese officials warning of a new Covid resurgence on three new community infections.
- Lifting tariffs is seen as hugely significant in repairing relations between the US and China and helping to stimulate global trade
- The Russian cruise missile attack on Kyiv raised tensions and commodity prices putting back expectations of peace talks and potentially hardening sanctions against Russia
Activist fund Elliott seeks $456m from LME over nickel market chaos as funds seek compensation for cancelled trades
- Elliott is seeking compensation over the LME’s decision in March 2022 to cancel nickel trades after a massive short squeeze.
- The cancelling of trades was essentially the LME bailing out a market participant known as “Big Shot” – owner of Tsingshan Holding Group, a major nickel and stainless-steel producer.
- Some market participants reported that Tsingshan had 200,000t of futures contracts in short position, while others suggested losses could be as much as $12bn.
- In response to the claim, the LME commented: “The LME management is of the view that the claim is without merit and the LME will contest it vigorously.”
- The LME received widespread criticism for halting & cancelling trading and is currently also facing a review by the UK regulators for its decision.
- We also are aware of at least one other US fund which is preparing to sue the LME over cancelled trades.
Dow Jones Industrials -1.05% at 32,900
Nikkei 225 +0.56% at 27,916
HK Hang Seng +1.53% at 21,405
Shanghai Composite +1.28% at 3,236
Economics
US – Markets closed lower on Friday after strong labour numbers are likely to have lend more support to the Fed to continue raising rates higher.
- Employment gains were led by leisure and hospitality that made up more than a quarter of total payroll increases in May.
- NFPs (‘000): 390 v 428 in April and 318 est.
- Unemployment Rate: 3.6% v 3.6% in April and 3.5% est.
- Av Hourly Earnings (%mom): 0.3 v 0.3 in April and 0.4 est.
- Av Hourly Earnings (%yoy): 5.2 v 5.5 in April and 5.2 est.
- Labour Force Participation Rate: 62.3% v 62.2% in April and 62.3% est.
China – Services sector remained in a contraction territory in May, although the pace of declines slowed down as measures to contain the recent increase in Covid 19 cases eased, private sector survey results from Caixin show.
- Services PMI climbed to 41.4 from 36.2, a 26-month low, marking a third consecutive monthly decline in the sector.
- Unemployment continued to increase as orders and output fell.
- Although, 12-monht outlook for production improved in May to the highest in three months, with a number of firms hoping for a strong recovery once the virus is contained and restrictions are lifted.
- Overall “the damage from the latest wave of domestic outbreaks may surpass that of 2020”, Markit concluded.
- Caixin Services PMI: 41.4 v 36.2 in April and 46.0 est.
- Caixin Composite PMI: 42.2 v 37.2 in April.
ECB – The central bank is holding a monetary policy meeting later this week with expectations for authorities to signal a 25bp rate hike on July 21, up from current -0.5%.
- Markets will be also watching closely on the proposed timing to end bond purchases under the Asset Purchase Programme (APP) that was launched in 2014 with the value of assets currently standing at €3.2tn.
- Some plan to call for purchases to be stopped as soon as Thursday, several weeks ahead of schedule.
- Separately, the governing council is expected to offer support to more leveraged member countries such as Italy to counter borrowing costs spiralling out of control, FT reports.
- The support is likely to come in the for of a new bond buying programme.
- News of accelerating inflation in the Eurozone and tighter monetary outlook saw Italy-Germany yield spread on two year sovereign bonds hitting >80bp, the highest level since the start of the pandemic in 2020, in May this year.
- The spread is currently trading at <50bp.
UK – PM Johnson is facing a confidence vote in his leadership this evening after at least 54 fellow MPs (15% of Tory MPs) supported the motion.
- For the PM to be ousted, half of Tory MPs plus one (180) will need to vote against PM.
- The vote is expected to take place between 6pm and 8pm with an announcement of results about an hour after the vote.
- "Tonight is a chance to end months of speculation and allow the government to draw a line and move on, delivering on the people's priorities,” Downing Street commented on the news.
Currencies
US$1.0728/eur vs 1.0725/eur last week. Yen 130.64/$ vs 129.49/$. SAr 15.441/$ vs 15.594/$. $1.252/gbp vs $1.260/gbp. 0.721/aud vs 0.718/aud. CNY 6.653/$ vs 6.684/$.
Commodity News
Precious metals:
Gold US$1,854/oz vs US$1,836/oz last week
Gold ETFs 105.1moz vs US$105.2moz last week
Platinum US$1,029/oz vs US$979/oz last week
Palladium US$2,019/oz vs US$2,018/oz last week
Silver US$22.16/oz vs US$21.61/oz last week
Rhodium US$15,000/oz vs US$15,250/oz last week
Base metals:
Copper US$ 9,727/t vs US$9,446/t last week
Aluminium US$ 2,792/t vs US$2,786/t last week
Nickel US$ 29,705/t vs US$28,325/t last week
Zinc US$ 3,909/t vs US$3,870/t last week
Lead US$ 2,211/t vs US$2,168/t last week
Tin US$ 34,500/t vs US$34,505/t last week
Energy:
Oil US$120.0/bbl vs US$117.2/bbl last week
Crude oil prices finished the week higher despite the OPEC+ agreement to accelerate its planned production increase in 3Q22 from 432kb/d per month to 648kb/d in July and August.
Prices also lifted further as Saudi Arabia raised crude prices
Despite the embargo by Western nations, there is growing evidence of international buyers who have not signed up to boycott Russian oil (including China and India) taking advantage of the current c.30% discount for Urals Oil and switch their buying to this cheaper oil in lieu of other more expensive sources.
European energy prices were stable as Russia's Gazprom said its supply of gas to Europe through Ukraine via the Sudzha entry point was unchanged d/d at 40.1mcm.
Natural Gas US$8.814/mmbtu vs US$8.388/mmbtu last week
Uranium UXC US$50.70/lb vs $48.45/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$143.3/t vs US$134.2/t
Chinese steel rebar 25mm US$725.8/t vs US$712.6/t
Thermal coal (1st year forward cif ARA) US$229.0/t vs US$244.0/t
Thermal coal swap Australia FOB US$391.0/t vs US$400.0/t
Coking coal swap Australia FOB US$385.0/t vs US$455.0/t
Other:
Cobalt LME 3m US$74,000/t vs US$74,000/t
NdPr Rare Earth Oxide (China) US$143,164/t vs US$142,509/t
Lithium carbonate 99% (China) US$67,261/t vs US$65,756/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,861/t vs US$1,861/t
China Tungsten APT 88.5% FOB US$335/t vs US$336/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 9.6/lb vs US$9.6/lb
Europe Ferro-Vanadium 80% 37.25/kg vs US$38.25/kg
China Ilmenite Concentrate TiO2 US$372/t vs US$370/t
Spot CO2 Emissions EUA Price US$90.1/t vs US$90.0/kg
Brazil Potash CFR Granular Spot US$1,200.0/t vs US$1,200.0/kg
Battery News
Tesla to cut staff by 10%
- Elon Musk has a “super bad feeling” about the economy and needs to cut about 10% of salaried staff at Tesla according to emails seen by Reuters.
- Tesla employed around 100,000 staff at the end of 2021.
- The message sent to executives last Thursday laid out his concerns and told them to “pause all hiring worldwide.”
- In another email Musk said Tesla will be reducing salaried headcount by 10%, as it has become "overstaffed in many areas."
- The planned global layoffs do not seem to apply to China – Tesla posted more than 100 job openings in China late last month, and local media are reporting that the company is still short on talent in the country.
Ford to invest $3.7bn for EV production in Midwest US
- Ford will invest $3.7bn to add more than 6,200 United Auto Workers union manufacturing jobs throughout the US Midwest as the company pushes to expand its EV production capacity.
- The automaker will invest $2bn across three plants in Michigan, $1.5bn in three plants in Ohio and a further $95m in Missouri.
- Ford will also receive over $350m in government incentives across Ohio and Michigan.
- US states and municipalities have granted upwards of $5.1bn in subsidies to Tesla, Ford and GM, since 2002, for the construction and transformation of EV and battery plants.
Company News
Alara Resources (ASX:AUQ) A$0.057/s, mkt cap A$44m – Covid lockdowns and Ukraine conflict delay Al Wash-hi Majaza Copper-Gold project completion
- Alara Resources (ASX:AUQ) reports that, a review of the logistical challenges posed by the Ukraine conflict and pressures on international shipping resulting from additional Covid-related lockdowns has concluded that completion of the Al Wash-hi Majaza Copper-Gold project in Oman will be delayed until April 2023.
- The original completion date had been November 2022.
- Alara Resource owns 51% of the project developer, Al Hadeetha Resources – a joint venture developing the 1mtpa copper concentration plant.
- The company confirms that “deterioration in the shipping market due to a new Covid lockdown and the Ukraine war, causing low availability of containers and sea transport from all world ports … [as well as the] … Ukraine war impacting availability and prices of key project components, prolonging order placement negotiations” have prompted its reassessment of the project completion date.
- The company also confirms, however, that it is making substantial progress with the preparation of earthworks and initial construction as well as equipment procurement and pre-stripping of the mining areas.
- Managing Director, Atmavireshwar Sthapak, said that “Bulk earth works central to the Project’s initial plant and infrastructure construction activities are now well underway and on schedule, while key pieces of equipment critical to the operation of the mine have begun to arrive this month. The mine pit itself is also taking shape, with pre-stripping now significantly advanced”.
Base Resources Limited (AIM:BSE, ASX:BSE) 17.19p, Mkt cap £201m – Rain storms flood pits a Kwale ilmenite/rutile mine in Kenya
- Base Resources report local rainstorms have hit production at the Kwale mineral sands mine in Kenya.
- A series of abnormal rainstorms have caused flash flooding overwhelming dewatering systems for the three operating hydraulic mining units.
- The hydraulic mining units are designed to work in wet conditions with one unit already back in action running at ~45% of normal mining volumes.
- The two others sites are being drained with their pump motors being replaced.
- Base uses high-pressure water jets to break up and wash down the mineral sands at Kwale in a process known as hydraulic monitoring.
- The mining is low cost and efficient and is helped by the presence of a clay/silt fraction of around 25-30% which helps to wash the mineral into the processing plant where the products are separated into saleable, ilmenite, rutile and zircon.
- It will be interesting to see if the heavy rains have impacted the resource though we would only expect a relatively minor tonnage to have been washed out to lower ground.
- Management do not currently expect to revise guidance for FY22.
Cornish Metals Inc (AIM:CUSN, TSX-V:CUSN, OTC:SBWFF)* – 26.25p, Mkt cap £86m – Nomination of former Anglo American CEO, Tony Trahar to Board
Valuation 48p/s
- Cornish Metals reports that Vision Blue Resources has nominated former Anglo American CEO, Tony Trahar to its Board.
- The move follows Vision Blue Resources’ investment in Cornish Metals which helps finance efforts to reopen the South Crofty mine in Cornwall and leaves Vision Blue holding around 27% of Cornish Metals.
- Mr. Trahar served as CEO of Anglo American between 2000 and 2007 and also on the boards of its associated companies, Anglo Gold, Anglo Platinum and De Beers and as Chief Executive and later Chairman of the forestry, paper and packaging company Mondi from 1985-2000.
- Welcoming the nomination, Cornish Metals’ CEO, Richard Williams, said that Mr. Trahar’s “experience in all aspects of the mining industry will be a tremendous asset to Cornish Metals as we advance South Crofty and assess additional value adding opportunities that may be presented to us”.
- Mr. Trahar expressed his pleasure at being “part of the project to bring South Crofty back into production”.
- He also said that South Crofty “is financially and environmentally sound, will add a new secure source of supply to the western world's needs of energy metals and will also provide significant employment and economic growth in the Camborne - Pool - Redruth area of Cornwall.”
*SP Angel acts as Nomad and Broker to Cornish Metals.
Culpeo Minerals Ltd (ASX:CPO)* A$0.42, Mkt cap A$8.8m – Third hole at Lana Corina intersects 173m averaging over 1% copper
- Culpeo Minerals reports that diamond drillhole CMLCD003 at its Lana Corina Copper Project in Chile has intersected 173m at an average grade of 1.05% copper and 50ppm molybdenum from a depth of 313m.
- The result follows intersections of 104m averaging 0.74% copper and 73ppm molybdenum from 155m depth in hole CMCLD001 and of 257m averaging 0.95% copper and 81ppm molybdenum from 170m depth in hole CMCLD002.
- The Lana Corina Copper Project in Chile is located north of Santiago in the Coquimbo region of Chile and the “mineralisation encountered to date is associated with outcropping breccia hosted mineralisation and deeper high-grade porphyry hosted mineralisation”.
- The company says that recent drilling confirms “Continuity of … [the] … mineralised system … at depth and remains open”. A vertical-section shown in the announcement Culpeo_Minerals_intersects_173m_105_copper.pdf (mcusercontent.com) illustrates the intersections of Culpeo Minerals’ three holes plus results from other drilling intersecting 3 vertical mineralised structures, the Laura, Corina and Lana structures.
- The long intersection in hole 003 announced today could possibly indicate coalescence of the Corina and Lana structures at depth, however, detailed geological interpretation and additional drilling will undoubtedly be necessary to unravel the structural complexities of the mineralisation.
- Culpeo Minerals also says that intersecting molybdenum “mineralisation is particularly important as this style of mineralisation has not previously been intercepted at the Project and highlights the potential for additional mineralisation to be located southwest of the main Lana-Corina-Laura ore zone”.
- The company is progressing an initial 4,000m drilling programme following its acquisition of an 80% interest in the project in March. The programme envisages “9 holes targeting breccia and porphyry hosted high-grade copper mineralised zones” and, to date, “the company has completed 5 holes for 2,300m”.
- Commenting on the results, Managing Director, Max Tuesley, said that the third hole of the programme “confirms that the high-grade copper and molybdenum mineralisation which occurs within the near surface breccia hosted mineralisation at Lana Corina extends to depth”.
- He also explained that “Additionally, adjacent to this high-grade copper mineralisation we are seeing significantly elevated molybdenum that likely indicates the presence of a deeper mineralised source”.
Conclusion: Initial results from the first three-hole of the drilling programme at the Lana Corina project show long intersections of copper mineralisation. We await the results of the balance of the programme and further information of the company’s plans to advance the project.
*An analyst at SP Angel holds shares in Culpeo Minerals
Empire Metals Ltd (AIM:EEE)* 1.3p, Mkt Cap £5.6m – New drilling campaign to commence at Eclipse-Gindalbie
- Empire reports that its next campaign of RC drilling will commence in mid-June for 3,290m across 26 holes across the Eclipse-Gindalbie Gold Project.
- A large proportion of the drilling will target high-grade shoots associated with multiple structures around Homeward Bound.
- Previous high-grade intercepts at Homeward bound include:
- 5m @ 8.99 g/t Au from 31m downhole, including 1m at 40.90 g/t Au
- 3m @ 8.96 g/t Au from 98m downhole, including 2m at 13.28 g/t Au
- 3m @ 9.88 g/t Au from 46m downhole, including 1m at 26.20 g/t Au
- Drilling at Eclipse will follow on from the February 2022 campaign which demonstrated that gold associated with the NW-striking and steeply SW-dipping Eclipse shear tat extends through the Jack’s Dream area and is now recognised over a strike length of more than 500m
- At Eclipse, drilling will also target mineralisation at depth, below the old Eclipse mine shaft itself as well as pursuing an extension of the Eclipse shear northwest of Jack's Dream.
*SP Angel acts as nomad and broker to Empire Metals
GreenRoc Mining PLC (AIM:GROC) 6p, Mkt Cap £6.7m – Phase-2 drilling to commence at Amitsoq
- GreenRoc reports that it intends to drill up to 27 holes for a total of up to ~3,200m at Amitsoq with the aim of increasing and upgrading the current Maiden JORC Resource of 8.28Mt at 19.75% Graphitic Carbon C(g).
- Drilling will test the revised Exploration Target announced for the Amitsoq Island deposit being 5-15 Mt at a grade range of 18-22% C(g).
- The Phase-1 programme completed in August 2021 saw graphite intercepted in both the Upper Graphite Layer ("UGL") and Lower Graphite Layer ("LGL") horizons.
- GreenRoc previously commented that the results confirm the high-grade nature of the Amitsoq Island deposit as well as showing the graphite layers to be both thicker, and more consistent, than previously thought.
- Seven drill pads have been prepared to infill between the Phase 1 holes in order to upgrade the current JORC Resource, with holes designed to target the more prospective and thicker LGL at a 50m spacing.
Rainbow Rare Earths Ltd (LSE:RBW)* 15.9p, Mkt cap £84m – MoU signed in South Africa to process Rare Earths from phosphates near Johannesburg
BUY – 46p
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(Rainbow hold 70% of Phalaborwa with 30% to be held by Bosveld Phosphates)
(Neodymium Nd, Praesidium Pr, Terbium Tb, Dysprosium Dy. Rainbow holds 100% of the Gakara mine and associated licenses in Burundi)
- Rainbow Rare Earths report the signing of a Memorandum of Understanding with a diversified chemicals group for the processing of rare earths in South Africa.
- Under the agreement Rainbow will use its processing technology including its licensed K-Tech separation technology to extract rare earths from a nitro phosphate process stream at a phosphoric acid production plant near Johannesburg, South Africa.
- Rainbow will run a pilot study with test work on processing the material in the plant followed by a technical programme to confirm the flowsheet.
- We would expect this to be similar to Rainbow’s Phalaborwa flow sheet which is being optimised and refined and uses the K-Tech separation technology.
- The new project will also use material from the same ore originally mined by Foskor which generated the gypsum stacks at Phalaborwa.
- ‘Rainbow has already completed preliminary sampling of the processing stream, with initial results indicating a Total Rare Earth Oxide grade of 0.81% total rare earths oxides, with ~27% weighting to high-value Nd / Pr alongside economic levels of terbium and dysprosium, similar to Phalaborwa.’
- The cost of the pilot study will be financed by the chemicals group with the two parties negotiating terms for a potential jv subject to test work results.
- The project also gives access to REE material in a an acid solution in a 'cracked form' making the separation of the rare earths simpler and cheaper to process with significantly fewer extraction and separation steps than for many other rare earth mining projects.
- Rainbow’s REE processing Intellectual Property combined with their licensed K-Tech separation technology should enable the production of significant critical magnet REEs in the near-term.
- We note; the K-Tech process uses continuous ion exchange and continuous ion chromatography, for purification and separation of REEs
- This is of huge significance to the West which is already struggling to source Nd, Pr, Dy, Tb and other critical rare earths as seen in the very high prices for these metals.
- Most of these metals are mined and processed in China and we expect the recent consolidation of state-run rare earth miners in China to lead to an increasing focus on supplying local permanent manufacturers in preference to new and growing Western companies.
- Greater buying power within China is likely to command an increasing proportion of domestic REE production rendering the West almost totally dependent on Chinese production of value-added components for wind farms, electric vehicles and many other products which gain materially from rare earth alloys.
Conclusion: While we do not yet know the scale of the flow to be processed, the capital cost or the terms of the joint venture we can see significant opportunity to add to Rainbow’s production of Nd, Pr, Dy and Tb along with a meaningful uplift in future profit assuming the process works well when up-scaled.
*SP Angel acts as financial advisor and broker to Rainbow Rare Earths
KEFI Gold and Copper PLC (AIM:KEFI, OTC:KFFLF)* 0.7p, Mkt Cap £29m – Annual results
- The Company released annual results highlighting progress over its portfolio of gold/copper properties in Ethiopia and Saudi Arabia.
- At Tulu Kapi, the team restarted project development preparations in early 2022 as security situation in the country returned to normal.
- The civil war in the northern parts of the country ended in Dec/21, the national state of emergency was lifted in Feb/22 and the ceasefire was agreed in Mar/22.
- The Company is expecting to close project funding by the end of Q2/22 granted security situation remains satisfactory with all parties expected to sign binding commitments for the $356m project funding.
- At Hawiah, the Company released an updated MRE in early January delivering ~30% increase in tonnage on the previous 2020 estimate.
- Updated Hawiah MRE currently stands at 24.9mt at 0.90% Cu, 0.85% Zn, 0.62g/t Au and 9.81g/t Ag, up from 19.3mt at 0.87% Cu, 0.81% Zn, 0.56g/t Au and 10.25g/t Ag.
- The team is planning to prepare a PFS and an updated MRE in late 2022.
- Financially, the Company reported a £4.1m operating loss (FY20: -£4.4m) comprised of ~£3.0m in administrative costs and £1.5m in Saudi Arabia related expenditures.
- Loss for the period amounted to £4.9m (FY20: -£3.7m) that includes ~£1.1m in finance costs.
- Cash balance stood at £0.4m with £1.2m in borrowings as of Dec/21, although, the company completed two equity placings with the latter being a £8.0m raise to fund Tulu Kapi development works, exploration at Hawiah and in Ethiopia as well as general working capital purposes.
- The Company has also issued ~890m of 1.6p warrants in the last two placings offering a separate source of funding for development activities once Tulu Kapi funding is finalised that is expected to be one of the major catalysts to rerating of the Company.
*SP Angel act as Nomad and Broker to KEFI Gold and Copper
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Analysts
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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
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