SP Angel . Morning View . Tuesday 14 06 22
Markets start to price 75bp Fed hike rise as inflation expectations build
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AEX Gold Inc (AIM:AEXG, TSX-V:AEX) – Results from initial Nanoq exploration campaign and commencement of 2022 field program
Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)*- BUY – Recommended offer from Elemental Royalties in all share merger of equals
Anglesey Mining PLC (AIM:AYM) – Drilling results from Parys Mountain
Antofagasta PLC (LSE:ANTO) – Mineral resources at the Encierro and Cachorro deposits
Condor Gold PLC (AIM:CNR, TSX:COG, OTC:CNDGF)* – Raising £3.25m to complete the La India feasibility study
Lynas Rare Earths (ASX: LYC) – $120m Pentagon contract for US REE project
Sibanye-Stillwater* (JSE: SSW) – US palladium mines suspended after flooding
Talga Group (ASX: TLG) – Talga received LoI from Nordic Investment Bank for Vittangi anode project funding
Gold – US$1,823/oz - prices pull back as wider market pull back triggers margin calls
- In times of crisis gold prices nearly always fall but also recover more quickly than most other asset classes
Argentina - planning to stimulate copper exploration and production through the implementation of an ‘optional’ tax
- Argentina is planning to stimulate the country’s copper industry through the implementation of an ‘optional’ tax regime for copper producers which “will permit the substitution of the current 4.5% export duty for new copper investments by a variable rate with a range between 0% and 8% based on the copper price”. (Mining.com)
- The proposal was “announced by Economy Minister Martin Guzman at a mining forum” following consultations between central and provincial governments and mining companies.
- The ministry is reported to have said that “Argentina has a high potential to produce and export copper, there are several projects in advanced stages that will place our country again as one of the leading producers in the world”.
Dow Jones Industrials -2.79% at 30,517
Nikkei 225 -1.32% at 26,630
HK Hang Seng -0.21% at 21,022
Shanghai Composite +1.02%at 3,289
Economics
US – A jump in inflation in May inflation and a hike in sovereign bond yields suggest the Fed may consider a 75bp at this week’s meeting.
- The central bank previously suggested the consensus is now two 50bp hikes at June and July assuming incoming economic data does not change its view.
- May CPI data released on Friday topped market expectations coming in at 8.6%yoy, a new 40 year high.
- Separately, University of Michigan consumer sentiment gauge reported last week fell to the lowest on record while inflation expectations over the next five to 10 years climbed to 3.3%, the highest since 2008.
- A New York Fed report released on Monday showed that median one year out inflation expectations climbed in May to 6.6% marking the highest reading since the survey began in June 2013.
- The US$ is pulling back slightly this morning after having climbed ~0.9% on Monday with two year US bond yields off ~13bp after reporting a ~25bp increase yesterday.
Logistics – Biden looks to break pricing of nine-carriers though they share immunity from US antitrust legislation
- Shippers have raised prices by up to 1,000% as Covid lockdowns, restrictions and other disruption (Bloomberg)
- Biden is looking to pass the bipartisan Ocean Shipping Reform Act, passed unanimously in the Senate in March and to allow the Federal Maritime Commission to crack down on shipping fees charged by international carriers.
- ‘The rip-off is over’: Biden urges shipping reform during Port of Los Angeles visit
Inflation – The West can cut inflation through reducing fuel, VAT and other energy duties
- There is a line between threatening inflation (stagflation) and beneficial inflation and we can only assume policymakers don’t feel overly threatened just yet.
- Maybe government’s don’t like cutting tax and working out how to rebalance the books in other ways?
- Gasoline and diesel duties in the UK are ~53p/ltr and 31-33c/ltr in the US and cutting these taxes to zero would solve much of the inflation crisis.
- Higher fuel prices are the major driver of inflation with four out of five of the leading components of inflation driven by energy and fuel prices.
- Currently, the next biggest drivers are used cars and trucks where prices have risen as consumers wait for new electric models or can’t wait for long lead times.
- US CPI breakdown (Bloomberg)
- Airfares 37.8%, yoy – highest since 1980,
- Energy 34.6%, yoy – highest since 2005,
- Delivery Services 16.4%, yoy – highest since 2010,
- Vehicle parts 15.3%, yoy – highest ever
- Food at home 11.9%, yoy – highest since 1979,
- Movies, theatres, concerts 6.4%, yoy – highest since 2003,
- Rent of primary residence 5.2%, yoy – highest since 1987.
- Many price increases feel like they were long overdue with prices effectively depressed by strong global competition and super efficient supply chains.
- Competition for cheaper Airfares was super intense beating airline margins down through budget pricing.
- We believe policymakers will tread lightly with raising interest rates and inflation should self-limit as consumers forgo flights, movies etc.. and our post-Covid western world returns to a more normalised state.
China – News of new Covid lockdowns in Shanghai and Beijing with hotspots focussing on hairdressers and bars.
HK - Nearly 1 in 4 young Hongkongers from low-income families ‘lying flat’ indicating they have rejected a career and are simply earning just enough for their basic needs.
- ‘Lying-flat’ in the west may also be part of the reason for labour shortages in the west as disaffected young people shun careers.
- Long Covid is also part of the cause with young people with less hardened immune systems potentially suffering more long-covid symptoms.
- The proportion of long covid sufferers is difficult to know but the ONS estimates that some 1.3m people in UK private households representing ~2% of the population are experiencing self-reporting long covid symptoms. These are not clinically diagnosed and the proportion should fall away as symptoms ease, but some will suffer long-covid symptoms longer term and may struggle to return to the work place.
France – Parliamentary elections see Macron’s centrist alliance and the NUPES coalition led by the hardleft veteran Jean-Luc Melenchon each winning 26% of the vote.
- The vote is going into the second round this Sunday with polls suggesting Macron’s Ensemble! May struggle to protect its outright with estimates ranging for 260-295 National Assembly seats.
- The left are expected to win 160-210 seats, a significant increase on 2017.
- Failing to secure the majority (at least 289 seats) will force President into making pacts with factions of the centre right and centre left, Reuters reports.
- That may also mean a cabinet reshuffle.
UK – Employment continued to improve with 177k jobs added in three months into April, beating estimates for a 106k reading, and jobless rate coming at 3.8%, 0.2pp below pre-pandemic levels.
- The economy added further 90k new jobs in May, exceeding expectations for a 70k increase.
- Although, real earnings (ex bonuses) fell 3.4%yoy marking the sharpest drop since modern records began in 2001 and reflecting soaring consumer prices inflation.
- Unemployment Rate (3m): 3.8% v 3.7% in March and 3.6% est.
- Employment Change (3m): 177k v 83k in March and 106k est.
- Weekly Earnings ex Bonus (3m yoy): 4.2% v 4.2% in March and 4.0% est.
Russia - Putin likens himself to empire-expanding czar celebrating his years of conquests
- Putin sees his Ukrainian Special Operation as simply restoring and returning Russian assets to the motherland.
- The president appears to be following in the path of Peter the Great.
- Putin also keeps a bronze statue of Peter the Great over his ceremonial desk in the Kremlin cabinet room.
South Korea – Road haulage strike threatens global supply chain if it impacts feedstock and supplies into major semiconductor foundries
Currencies
US$1.0464/eur vs 1.0467/eur yesterday. Yen 134.28/$ vs 134.70/$. SAr 16.000/$ vs 16.073/$. $1.220/gbp vs $1.255/gbp. 0.696/aud vs 0.700/aud. CNY 6.726/$ vs 6.733/$.
Commodity News
Precious metals:
Gold US$1,823/oz vs US$1,856/oz yesterday
Gold ETFs 104.9moz vs US$105.1moz yesterday
Platinum US$946/oz vs US$954/oz yesterday
Palladium US$1,848/oz vs US$1,912/oz yesterday
Silver US$21.34/oz vs US$21.54/oz yesterday
Rhodium US$13,650/oz vs US$13,800/oz yesterday
Base metals:
Copper US$ 9,354/t vs US$9,322/t yesterday
Aluminium US$ 2,632/t vs US$2,620/t yesterday
Nickel US$ 25,905/t vs US$26,635/t yesterday
Zinc US$ 3,647/t vs US$3,605/t yesterday
Lead US$ 2,104/t vs US$2,112/t yesterday
Tin US$ 32,525/t vs US$34,250/t yesterday
Energy:
Oil US$123.5/bbl vs US$119.8/bbl yesterday
Crude oil prices gained on growing market concerns that dwindling inventories would be unable to shield consumers from a supply crunch in the latter half of the year.
European energy prices were flat on steady gas flows through the Nord Stream pipeline to Germany, which is scheduled to shut down July 11-21 for seasonal maintenance.
Natural Gas US$8.600/mmbtu vs US$8.521/mmbtu yesterday
Uranium UXC US$50.90/lb vs $52.40/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$134.3/t vs US$138.2/t
Chinese steel rebar 25mm US$699.6/t vs US$705.5/t - European steel prices fall as uncertain outlook holds back housing and other projects
Weakening demand from more cautious manufacturers and high stock levels at warehouses have hit new orders for steel rebar and other products.
Thermal coal (1st year forward cif ARA) US$218.3/t vs US$218.3/t
Thermal coal swap Australia FOB US$336.0/t vs US$349.0/t
Coking coal swap Australia FOB US$385.0/t vs US$385.0/t
Other:
Cobalt LME 3m US$72,415/t vs US$72,900/t
NdPr Rare Earth Oxide (China) US$143,093/t vs US$142,936/t
Lithium carbonate 99% (China) US$68,016/t vs US$67,644/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,815/t vs US$1,816/t
China Tungsten APT 88.5% FOB US$332/t vs US$332/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 9.8/lb vs US$9.6/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
China Ilmenite Concentrate TiO2 US$365/t vs US$365/t
Spot CO2 Emissions EUA Price US$84.5/t vs US$85.2/kg
Brazil Potash CFR Granular Spot US$1,150/t vs US$1,150/kg
Battery News
BMW to test ONE’s advanced battery in iX SUV
- BMW will install and test US-based start up Our Next Energy’s (ONE) new Gemini battery in its iX electric SUV.
- ONE’s Gemini battery incorporates two types of battery cells, including one with advanced chemistry that can store more energy and will hopefully enable a vehicle range of 600+ miles between charges.
- The test vehicle is expected to be complete by the end of the year.
- ONE has been developing the battery to reduce dependence on traditional EV battery materials like cobalt, nickel, graphite and lithium.
- The start up is currently testing different chemistries in the Gemini battery to evaluate potential trade-offs in cost, energy and sustainability.
Kibo Energy to co-develop energy storage projects in South Africa
- Renewable energy developer Kibo Energy has an exclusive agreement with Hasta Trust to assess and develop long-duration storage projects in South Africa.
- The project will be exclusively held by a subsidiary of Hasta, National Broadband Solutions, and will target an initial capacity of 36,320MWh.
- Last month, Kibo announced an agreement with vanadium redox flow battery (VRFB) manufacturer Enerox, known under its trademark Cellcube, to develop and deploy the latter’s technology.
- The rolling five-year Framework Agreement is expected to develop and deploy up to 1GWh of CellCube-based long-duration energy storage sytems in selected target sectors in southern Africa.
- Austria-based Enerox is a subsidiary Bushveld Minerals.
Company News
AEX Gold Inc (AIM:AEXG, TSX-V:AEX) 45p, Mkt Cap £78m – Results from initial Nanoq exploration campaign and commencement of 2022 field program
- AEX reports results of its 2021 exploration campaign at its Nanoq gold project, South Greenland, which focused on regional exploration and surface sampling.
- The company conducted geological mapping and drone imagery alongside SRK which highlighted the presence of a total of three key altered mineralised shear zones each over 20m wide.
- The three zones, (SZ1, SZ2, SZ3), vary in dip direction with a shallower dipping shear zone (SZ2) remaining significantly untested.
- Sampling of 26 rock chip samples retuned up to 16.95 g/t Au in one of the newly identified zones and infill sampling returned up to 5.65 g/t Au.
- Historic channel sampling of the previously recognised mineralised zone returned high grade results with highlights of 175.1 g/t gold over 0.8 metres and 35.4 g/t gold over 0.95 metres, and with grab samples up to 118 g/t gold.
- Mineralisation appears to be open along strike to the SW, potentially connecting Nanoq to the Jokum's Shear gold/copper occurrence along a 25km structure, which AEX believe could be capable of hosting numerous deposits.
- 2022 field campaign: AEX intends to run a high resolution geophysical survey across Nanoq and along the 25km long structure to Jokum's Shear thereby testing the geological potential ahead of drilling.
- At Nanulaq, infill core drilling has commenced on the Valley Block and road preparation ahead of extension core drilling at site.
- Drilling at the Sava IOCG target has also commenced on Target West.
Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)* 43p, Mkt Cap £50m – Recommended offer from Elemental Royalties in all share merger of equals
BUY
- The Company and Elemental Royalties are proposing a recommended all share merger.
- Elemental is offering 0.594 new shares for each Altus share or 0.51p per share using Monday close price of C$1.35.
- Following completion of the Merger, Elemental shareholders will hold 52.9% and Altus shareholders will own 47.1% in Elemental Altus Royalties, a new combined entity.
- Among strategic benefits of the deal are:
- Increased scale and diversification with a combined portfolio of 69 assets across 13 jurisdictions of which 11 in production and primarily focused on gold;
- An estimated combined adjusted revenue of ~$20m in 2022 with maiden revenue streams from Ming, Bonikro and Mercedes and climbing to ~$25m in 2023.
- Enhanced capital markets profile with increased scale and liquidity potentially translating into a lower cost of capital with wider investor base.
- Complementary management teams and skills with a track record of closing accretive royalty acquisitions as well as organic royalty generation capabilities;
- Potential for cost synergies with an opportunity to streamline corporate level expenses and listings;
- Strong shareholder support with strategic backers in both Companies expressing their intention to vote in favour of the deal including La Mancha and Condire Resource at Altus and South 32 and La Mancha at Elemental.
- Following the merger, Elemental will continue to be listed on TSX-V and headquartered in Vancouver with teams located in Canada, the UK and Australia.
- Both Boards are recommending the deal with Directors and major shareholders representing ~58% at Altus and ~51% at Elemental intending to vote in favour.
- At Altus, all Directors holding ~13% as well as La Mancha (35%) and Condire Resource (10%) are supporting the deal.
- At Elemental, all Directors along with other management team members (~14%) as well as other major shareholders including La Mancha (9%), South 32 (17%), EuroPacific (8%) and Adrian Day (2%) are supporting the deal.
- Upon merger, Steven Poulton (Altus CEO) will be appointed as Executive Chair and Frederick Bell (Elemental CEO) to be appointed as CEO of Elemental Altus Royalties.
- The deal is conditional on it being voted through at respective general meetings with 75% of voting shareholders supporting the merger in case of Altus and a simple majority of votes cast in case of Elemental (51% of shareholders have already indicated they will vote in favour).
- The deal is expected to close in Q3/22 should all conditions be met.
Conclusion: Elemental Royalties (£67m Mkt Cap and ~£73m EV) and Altus Strategies (£60m Mkt Cap (at offer price) and ~£72m TEV) announced a recommended all share merger of equals with shareholders holding 53%/47% interest in the combined Company. The deal aims to capitalise on a diversified portfolio of assets, complementary management teams with a track record of delivering value accretive royalty deals and organic royalty generation opportunities, a potential to realise some of cost synergies and grow the scale of the business in the sector where larger royalty companies attract a valuation premium. Both Boards and major shareholders are backing the deal with the transaction expected to be closed in Q3/22.
*SP Angel acts as Nomad and Broker to Altus Strategies
Anglesey Mining PLC (AIM:AYM) 3.35p, Mkt Cap £9m – Drilling results from Parys Mountain
- Anglesey Mining has announced the results from the first four holes of a 10-hole infill drilling programme at its historic Parys Mountain site in Anglesey.
- Among the results highlighted in today’s announcement are:
- An intersection of 12.36m at an average grade of 4.8% zinc, 3.3% lead, 0.5% copper 20g/t silver and 0.3g/t gold from a depth of 140m in hole WD-19 which included higher grade sections of 3.72m averaging 8.5% Zn, 6.3% Pb, 1.0% Cu, 38g/t Ag & 0.3g/t Au from 142m and of 2.76m averaging 7.2% Zn, 4.2% Pb, 0.6% Cu, 23g/t Ag & 0.3g/t Au from 150m: and
- A second intersection from 170.5m depth also in hole WD-19 of 21.53m at an average grade of 4.0% Zn, 2.0% Pb, 0.3% Cu, 26g/t Ag and 1.0g/t Au including 6.0m averaging 7.1% Zn, 3.7% Pb, 0.4% Cu, 37g/t Ag and 2.0g/t Au from 172m depth: and
- A 3m wide intersection from a depth of 60m in hole AMC-26 which averaged 5.9% Zn, 2.3% Pb, 0.5% Cu, 43g/t Ag and 0.7g/t Au which also intersected 3.75m averaging 3.4% Zn, 2.0% Pb, 0.3% Cu, 13g/t Ag and 0.1g/t Au from 93m and 3.7m at an average grade of 5.8% Zn, 4.6% Pb, 0.6% Cu, 46g/t Ag and 0.2g/t Au from 149m.
- Samples from the next four holes of the programme have been sent for assay with results expected in mid-July with the final 2 holes of the programme currently “being logged for additional data to assist with geotechnical domain modelling, which will be utilised in the underground mine design optimisation. Once logged, they will be sampled and dispatched for assaying”.
- Chief Executive, Jo Battershill, explained that “It is very encouraging to see the White Rock resource model confirmed with the recent infill drilling … [and that] … On the Northern Copper Zone, the team is currently planning the next round of infill drilling, which we hope to start in the September quarter. This will be the first infill programme into this deposit for almost 20 years and will provide important data for metallurgical testwork and the optimal mine design”.
Antofagasta PLC (LSE:ANTO) 1,400p, Mkt Cap £14bn – Mineral resources at the Encierro and Cachorro deposits
- Antofagasta reports an initial, inferred, mineral resource estimate for its Encierro deposit located in “the Chilean High Andes, 100 km east of the city of Vallenar and 600km north of Santiago”.
- The deposit, which is held in joint-venture with Barrick Gold, hosts 522mt at an average grade of 0.65% copper, 0.22g/t gold and 74ppm molybdenum (reported as 0.79% copper equivalent) based on drilling completed between 2016 and 2021.
- At the Cachorro deposit, which lies between the company’s existing operations at Centinela and Antucoya in the Atacama Desert approximately 1,000km north of Santiago, “further in-fill drilling has increased the deposit size to 155Mt Inferred Resources of 1.20% copper from 142 Mt of 1.21% copper reported as at the 31 December 2021”.
- Antofagasta confirms that “Cachorro remains open laterally and additional drilling will be carried out during the rest of this year”.
Condor Gold PLC (AIM:CNR, TSX:COG, OTC:CNDGF)* 26.75p, Mkt Cap £44.8m – Raising £3.25m to complete the La India feasibility study
- Condor Gold reports that it has raised £3.25m through the issue of approximately 11.6m units at a price of 28p each.
- The units comprise shares representing “approximately 7.9% of the Company's existing issued share capital” plus a half share purchase warrant attached to each share entitling the holder to purchase further shares at a price of 35p for a period of 36 months.
- Condor Gold confirms that the “placement proceeds will be primarily used to complete a Feasibility Study at the La India Project” and says that the study will incorporate “a Feasibility Level engineering design, and +/- 15% capital and operating costs”.
- “The Feasibility Study will be a key document as the Company seeks to secure Project financing ahead of Project construction”.
- Today’s announcement confirms that Condor Gold’s directors subscribed for approximately 1.8m units representing approximately 15.8% and that “Mark Child, Andrew Cheatle and Jim Mellon, have subscribed for 30,000, 17,858 and 1,785,715 Units, respectively, for a total of 1,833,573 Units”.
- As a result, after the placing, Mr. Mellon will own 18.7% of the company with Mr. Child and Mr. Cheatle owning 2.7% and 0.1% respectively.
- Condor Gold has previously announced elements of its feasibility study work including the discovery of mineralisation in its geotechnical drilling which were released last month and results from its infill drilling programme at the Mestiza pit and a possible continuation of mineralisation into an area, previously interpreted “as a low-grade zone between two high-grade shoots that host the planned starter pits.”
Conclusion: Condor Gold has secured additional finance for its feasibility study work at La India. We look forward to the release of the feasibility study and gaining further insight into the significance of the recent drilling.
*SP Angel act as a broker to Condor Gold
Lynas Rare Earths (ASX: LYC) A$8.5, Mkt cap A$7.7bn – $120m Pentagon contract for US REE project
- Lynas has signed a $120m follow-on contract with the U.S. Department of Defense to build a commercial heavy rare earths separation facility in Texas.
- The project already received Pentagon funding in July 2020, with the facility now expected to be operational in 2025.
- Lynas intends to combine the heavy rare earth separation plant with a light rare earth separation facility, which is half-funded by the US Dept. of Defense.
- The plant would be the first outside China that is able to separate heavy rare earths.
- Lynas currently mines rare earths in Western Australia and ships the material to Malaysia in southeast Asia, where it produces rare earth oxides.
Sibanye-Stillwater* (JSE: SSW) SAR4,098, Mkt cap SAR116bn – US palladium mines suspended after flooding
- Sibanye-Stillwater had suspended its operations at its Montana-based platinum and palladium mines following flooding.
- The state suffered widespread flooding following a warm spell that led to a rapid melt of snow, exacerbated by heavy rainfall.
- A spokesman for the company commented that workers were evacuated from the Stillwater and East Boulder mines, with flood water expected to subside in a couple of days.
*An incoming SP Angel mining analyst was due to visit Sibanye’s Montana operations this week
Talga Group (ASX: TLG) A$1.15, Mkt Cap A$352m – Talga received LoI from Nordic Investment Bank for Vittangi anode project funding
- Talga and ABB report the receipt of a Letter of Interest from Nordic Investment Bank for the Vittangi anode project.
- Worley is nearing completion on the project optimisation and formal value engineering
- Talga is also talking to a number of export credit agencies, multilateral agencies, and international banks.
- The Nordic Investment Bank is an international financial institution of the Nordic and Baltic countries.
- Talga and ABB, Talga’s project technology partner have also received a Letter of Support from Swiss Export Risk Insurance for ABB’s delivery of production and process control solutions. These solutions form a significant portion of total Project scope and capital expenditure.
- Vittangi anode project DFS (July 2021): Capex US$484m + $44m contingency, NPV $1,0543m, IRR 30%, payback 2.5 years
- Niska expansion: Capital costs were estimated at US$1,246m for the Niska expansion in a 2020 scoping study giving a 47% IRR and a pre-tax NPV of $3,540m.
- While we see capex costs rising by >20% since then
Conclusion: It is our view that Talga’s Vittangi project offers substantial upside to the economics previously presented by the company – we don’t often say things like this. We also see future value gains not just through the expansion of the Vittangi project but through potential increases in pricing and sales in Talga’s proprietary Talnode-C, Talphene and other products. If the majors are serious about getting into the battery materials space they should develop some cojones and take this one out.
*SP Angel used to act as UK broker to Talga Resources. SP Angel analysts have formerly visited the leading battery R&D institution WMG partnering with Talga.
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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
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Coking Coal - SSY
RRE - Steelhome
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