SP Angel . Morning View . Monday 20 06 22
Copper prices pull back as China pauses monetary easing
MiFID II exempt information – see disclaimer below
Bluerock Diamonds PLC (AIM:BRD)* – Bluerock update
Cobra Resources PLC (LSE:COBR) – Multiple rare earths targets at Wudinna, South Australia
Empire Metals Ltd (AIM:EEE)* – Regional exploration commences at Pitfield Copper-Gold Project
Gemfields PLC (JSE:GML) – First ruby auction of 2022 sets records
Rio Tinto PLC (LSE:RIO) – Simandou iron ore developers given 14-day deadline to finalise JV
China steel raw materials prices highlight stop / start situation where policymakers struggle to balance Covid with economic growth
- China kept its one-year prime rate LPR and five year LPR unchanged at 3.7% and 4.45% today.
- Cuts in the LPR rates are still seen as likely to restore economic activity.
- Premier Li is pushing local authorities to implement a 33-point rescue package to avert economic contraction.
- China will need to add more traditional construction stimulus if it is to meet its 5.5% GDP target for the year.
Colombia – Left wing Gustavo Petro wins presidency. Policy threatens potential ban on open-pit mining
- Gustavo Petro, a former urban guerrilla who once spent time in jail, won Colombia’s presidential election on Sunday.
- Petro earned 50.5% of the vote and is expected to bring in the most left wing government in the country’s history.
- Petro’s policy proposals include a ban on oil exploration, open-pit mining and fracking in a nation that relies on fossil fuels for about half its export revenue.
Iron ore prices pull back as steel inventories rise
- Iron ore 62% Fe spot (cfr Tianjin) has fell to $121.0/t this morning from $127.1/t on Friday and $126.4/t a month ago
- Blast furnace rate in the steelmaking province of Tangshan fell last week to 75%, the first weekly drop since mid-May.
- Iron ore prices in Singapore are now down 20% in an eight-day decline, and metallurgical coal prices have also fallen – down 9% to the lowest level since late Feb.
- Consumption of iron ore and sentiment around the steelmaking ingredient has fallen following China’s slumping property market and its zero-covid policy.
- Mysteel reports that Chinese mills are cutting output to do maintenance due to weak margins
- An index of Chinese steel profits has plunged by almost 90% so far this month.
- Steel producers have been running ahead of economic growth and development in China leading to overproduction and high inventory levels.
- Ongoing growth in the steel sector combined with a produce while you can mentality has led to the buildup.
- Recent lockdowns have probably delayed some key, flagship, infrastructure projects while logistics issues may have also stalled projects and trapped metal in warehouses.
Steel prices in China continue to fall as inventories build
- Steel rebar (25mm) collapsed 6% to $648.3/t today vs US$688.8/t on Friday
- Steel prices have fallen 10% from $721.1/t a month ago and $741.6/t at the beginning of the year
Coking coal prices also fall as steel mills cut production on high inventory levels
- DCE Coking coal is reported to have fallen 6.5% tp CNY2430/t with DCE Coke collapsing 9% to CNY3003/t.
Dow Jones Industrials -0.13% at 29,889
Nikkei 225 -0.74% at 25,771
HK Hang Seng +0.29% at 21,137
Shanghai Composite -0.04% at 3,315
Economics
China – Lenders decided to keep main borrowing interest rates unchanged suggesting authorities ruled to pause monetary stimulus for now.
- One and five year loan prime rates were left unchanged at 3.7% and 4.45%, in line with expectations.
- The announcement follows the PBOC decision to leave one year medium term lending facility rate put at 2.85% last week.
- The central bank refrained from reducing the rate to avoid further divergence with a tightening cycle launched in the US, Bloomberg writes.
- The PBOC is in the wait and see mode evaluating effects from Covid lockdowns and the implications from tighter monetary policy elsewhere.
Macau reports its largest covid outbreak ordering all businesses except Casinos, supermarkets and grocery stores to close down.
- The city launched a mass testing programme on Sunday just after easing some of social restrictions and cutting hotel quarantine from 14 to 10 days.
- The city reported 31 cases on Sunday and ordered testing of all 650k residents on Sunday.
China’s alumina exports rise 1,000% to make up Russian shortages
- China’s alumina exports rose to 190,000t in May, with the year-to-date export figures to 360,000t.
- Russian exports have collapsed as a result of the war in Ukraine as well as sanctions.
- While the rerouting of Russian bulk alumina by traders might be difficult with sanctions we suspect many Russian commodities will flow into China and India and simply displace other feedstock sources.
UK – Property prices posted a fifth consecutive all time high reaching ~£369k in June although there is mounting evidence that the market is on course to slowdown, Rightmove reports.
- Prices climbed 0.3%mom marking the slowest increase this year while buyer demand fell from May.
- Asking prices were up 9.3%yoy compared to a 10.2%yoy increase in May.
- “Affordability constraints, a better balance between supply and demand, and usual seasonal price drops will contribute to further slowing of price growth in coming months, with annual growth still on track to be 5% by the end of the year,” Rightmove said.
- Rail strike due on Tuesday, Thursday and Saturday this week. The strike will mainly hit low paid and essential services in UK causing more problems for the NHS.
Jobs - some 6.5m people are looking to change jobs next year
- The CIPD Good Work Index survey saw 20% of the 6,000 surveyed wanted to move on in the next 12 months.
- The survey uses seven different indicators to assess job satisfaction with many potential quitters looking for a better work-life-balance.
- Only 40% with earning <£20,000 reckoned their job offered good development opportunities and just 25% saw career advancement.
Heathrow asks airlines to cut 10% of flights due to shortage of approved baggage handlers
- Hundreds of passengers had to wait over three hours this weekend as baggage handlers worked to clear the backlog.
France – President Macron’s Ensemble! failed to secure an absolute majority in parliament falling short of the 289-seat threshold.
- The party won 245 seats with the second largest group in parliament, a leftist coalition Nupes led by Jean Luc Melenchon, securing 131 seats.
- The far right National Rally performed better than expected with 89 seats.
- The result means Ensemble! will need to form a coalition that in turn raises questions over Macron’s ability to deliver on his second-term agenda, including tax cuts, welfare reform and raising the retirement age.
Russia – The nation replaced Saudi Arabia as China’s largest crude oil supplier in May as trade flows adjust amid enacted sanctions.
- China imported ~8.4m tons of crude from Russia last month, up 28.5%mom.
Kazakhstan – Putin hints that other FSU nations could meet same fate as Ukraine if they turn away from Russia
- President Putin made a veiled threat to ex-Soviet states stating ‘you’re part of historic Russia’ and could meet Ukraine’s fate if they turn on him.
- Manu FSU states are ill prepared for a conflict and unable to protect their boarders if Russia decides to roll in what remains of their armed forces.
South Korea – Truck drivers reach tentative agreement to end eight-day strike
- The strike has disrupted haulage of materials into semiconductor factories and delayed export shipments.
- The strike is said to have cost South Korea >1.2bn
Austria - Austra is returning to coal for power as Russia reduces natural gas flows into Europe
Currencies
US$1.0521/eur vs 1.0509/eur last week. Yen 134.79/$ vs 134.38/$. SAr 16.014/$ vs 15.998/$. $1.223/gbp vs $1.228/gbp. 0.697/aud vs 0.698/aud. CNY 6.683/$ vs 6.702/$.
Commodity News
LME – to introduce weekly OTC position reporting for all its physically delivered metals 18 July 2022...
Precious metals:
Gold US$1,842/oz vs US$1,844/oz last week
Gold ETFs 105.1moz vs US$104.8moz last week
Platinum US$942/oz vs US$948/oz last week
Palladium US$1,853/oz vs US$1,902/oz last week
Silver US$21.66/oz vs US$21.82/oz last week
Rhodium US$13,450/oz vs US$13,450/oz last week
Base metals:
Copper US$ 8,962/t vs US$9,075/t last week
Aluminium US$ 2,498/t vs US$2,505/t last week
Nickel US$ 25,669/t vs US$25,259/t last week
Zinc US$ 3,524/t vs US$3,578/t last week
Lead US$ 2,062/t vs US$2,101/t last week
Tin US$ 31,184/t vs US$32,000/t last week
Energy:
Oil US$113.3/bbl vs US$119.7/bbl last week
Crude oil prices fell going into the weekend as inflation fears took centre stage and stoked market concern for lower demand growth.
European energy prices rose going into the weekend on the back of a heatwave on the continent, with several Governments also announcing steps to potentially increase reliance on coal-fired power plants this Winter.
The US rig count climbed by 7 to 740 rigs last week, split between 3 units targeting gas and 4 units for oil, as data showed US oil production at 12mbp/d for the first time since April 2020.
Natural Gas US$6.823/mmbtu vs US$7.370/mmbtu last week
Uranium UXC US$47.85/lb vs $48.95/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$121.0/t vs US$127.1/t
Chinese steel rebar 25mm US$648.3/t vs US$688.8/t
Thermal coal (1st year forward cif ARA) US$235.0/t vs US$230.0/t
Thermal coal swap Australia FOB US$346.0/t vs US$346.0/t
Coking coal swap Australia FOB US$385.0/t vs US$385.0/t
Other:
Cobalt LME 3m US$72,400/t vs US$72,415/t
NdPr Rare Earth Oxide (China) US$141,831/t vs US$142,128/t
Lithium carbonate 99% (China) US$68,483/t vs US$68,226/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,773/t vs US$1,771/t
China Tungsten APT 88.5% FOB US$327/t vs US$327/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 9.9/lb vs US$9.8/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
China Ilmenite Concentrate TiO2 US$367/t vs US$366/t
Spot CO2 Emissions EUA Price US$88.9/t vs US$88.8/kg
Brazil Potash CFR Granular Spot US$1,150/t vs US$1,150/kg
Battery News
VW US chief warns of industry challenges with EV battery shift
- Scott Keogh, chief executive of Volkswagen Group (XETRA:VOW) of America, believes that the move to EVs will be the single biggest "industrial transformation in America."
- Speaking to an Automotive News forum, Keogh said that the US will face problems ramping up battery production for the shift to EVs including attracting skilled workers, mining for key metals and supply chain issues.
- Keogh estimated that the US is making 150,000-200,000 batteries a year and that seven years from now "we need to be making 8.5 million batteries" annually.
- Keogh also said the US needs to do more to boost manufacturing capacity - the US manufacturing sector has fallen from than 17m jobs in 2000 to 12.8m today, which has rebounded to about pre-COVID-19 pandemic levels.
Toyota to launch home BESS based on its EV battery technology
- Toyota Motor (NYSE:TM) Corporation will launch a residential lithium-ion battery energy storage system (BESS) in Japan.
- The O-Uchi Kyuden System uses EV battery technology such as Toyota's battery control to provide a rated capacity of 8.7kWh and a rated output of 5.5kWh.
- The BESS can be linked with a photovoltaic system to supply appropriate power based on usage throughout day and night.
- The O-Uchi Kyuden System will also support back charging from EVs, using the power stored in an EV as a backup power source in emergencies.
- Pre-orders for the system start today, and sales in Japan will begin in August through home builders and general construction companies.
EnerVenue to deploy nickel-hydrogen battery to aid Puerto Rico energy recovery
- Metal-hydrogen battery firm EnerVenue is set to deploy up to 420MWh of its technology following a Memorandum of Understanding with Sonnell Power Solution, a subsidiary of Puerto Rico’s Grupo Sonnell.
- Under the terms of the deal, Sonnell will deploy 40MWh of the EnerVenue’s EnerStation nickel-hydrogen battery systems in 2023, with volume increasing to 420MWh in 2024 and 2025.
- The urgency for battery energy storage systems (BESS) in Puerto Rico has been particularly pertinent following Hurricane Maria in 2017 which has left continuing power deficiencies in its aftermath.
- Earlier this year, EnerVenue announced a multi-year agreement with solar and energy storage developer Pine Gate Renewables to deploy 2.4GWh of ESS in the US.
Sony and Honda JV to sell EVs by 2025
- Electronics giant Sony and Honda have officially agreed to an equally owned joint venture (JV) that will start selling electric cars in 2025.
- Honda has been slower to shift to EVs than global automakers and is under pressure from investors to make cars that are carbon-free and equipped with newer technology such as self-driving features.
- The automaker, which currently offers only one EV, the Honda e, has said it plans to roll out 30 EV models and make some 2m EVs annually by 2030.
- The JV first discussed in March will be named Sony Honda Mobility – Honda will provide its expertise in building and selling cars and Sony will add its software and technology know-how.
Company News
Bluerock Diamonds PLC (AIM:BRD)* – 17.7p, Mkt cap £4m – Bluerock update
- Life has not been easy for BlueRock.
- In the first few years, mining through calcrete, nature’s concrete, made the going tough combined with low diamond sales.
- Management went through a couple of changes till Mike Houston took the helm and rebuilt the mine and process plant.
- Heavy rain also hampered mining and processing through the winter months requiring work to ensure fresh ore does not get too wet and the trucks can drive in and out of the mine.
- BlueRock now appears to have earned its stripes but is still suffering the hangover of an extended wet season necessitating the processing of lower-grade stockpiles.
- The company states, Teichmann, its major shareholder and mining contractor is holding off from calling £600,000 of contractual costs.
- The good news is that processing of higher-grade fresh kimberlite ores should be producing more diamonds, though we have not seen news on the recovery of any larger stones since March, partly down to the processing of lower grade material.
- We reckon the mine should be back up to a decent run rate and producing > 2,630cts a month worth around $0.9m/month on a relatively conservative grade of 3.8cpht and a diamond price of $350/ct excluding the sale of any larger stones.
- Inflation: BlueRock have worked to reduce ‘unit’ costs through rising throughput though rising fuel and the more variable costs by 20% could add ~$2m a year to the cost base and cut operating margins.
- The good news is that BlueRock’s diamonds are of great quality and are prized by their buyers, offering the prospect of forward financing.
Conclusion: BlueRock has worked hard to ramp up production, develop stockpiles and protect against the elements. The mine should be well placed to demonstrate value assuming no further biblical events through the second half.
*SP Angel act as Nomad and broker to Bluerock Diamonds. The analyst subscribed to BlueRock shares in the last placing but feels confident that the company will perform better going forward.
Cobra Resources PLC (LSE:COBR) 2p, Mkt Cap £8m – Multiple rare earths targets at Wudinna, South Australia
- Cobra Resources reports that re-analysis of historic drill samples has identified saprolite hosted rare-earths mineralisation “along a 47-kilometre structural trend across the project’s 1,832 km2 , demonstrating the scale potential of REE” at its Wudinna exploration project in South Australia.
- The work follows from identification of a “a 4 km2 Rare Earth Element (“REE”) mineralisation footprint above Clarke and Baggy Green gold mineralisation” and has now identified additional targets at the Anderson prospect where “the average significant intersection is 18.3m at 844 ppm TREO from 16m with neodymium and praseodymium equating to 23.1% and dysprosium 1.5% of the TREO” [Total Rare Earth Oxide] as well as at “the Thompson prospect, the average significant intersection is 15.6m at 832 ppm TREO from 16m with neodymium and praseodymium equating to 23.8% and dysprosium 1.6% of the TREO” and the Hadlee and Botham prospects.
- The company says that “Preliminary metallurgical test work completed by the Australian Nuclear Science and Technology Organisation (“ANSTO”) on samples from two drillholes at Clarke confirm the presence of leachable REE mineralisation, with leach recoveries of up to 34.1% TREE (+Y)”.
- CEO, Rupert Verco, explained that “Preliminary metallurgical test work confirms leachable rare earth mineralisation, with recoveries being in line with other rare earth projects”.
- Test recovery rates using sulphuric acid reached up to 34.1% total rare-earth elements plus Yttrium “over a 6-hour duration - comparable to preliminary metallurgical results of other clay hosted rare earth projects in South Australia”.
- “Cobra now intends to conduct follow-up validation metallurgical optimisation test work and to evaluate recovery potential over broader areas of mineralisation. Cobra also intends to trial rare earth extraction techniques”
- The company says that it aims to “Expand the saprolite hosted rare earth mineralisation footprint beyond the reported re[1]analysis footprint with the aim defining a maiden REE resource”.
- Cobra Resources is progressing the exploration of its gold and and iron-oxide-copper-gold targets (IOCG) in the area and “The current aircore drilling programme and the planned RC programme … [will also test]… rare earth targets where REE mineralisation will be tested from the clay component of the Saprolite horizon”.
- Mr. Vertco said that the “results validate our belief that targeting large structures that enhance REE mobility and granite weathering can produce higher grade rare earth occurrences over incredibly large areas. The reported rare earth grades and widths to date demonstrate that the Wudinna Project is potentially a world class rare earth province.”
Empire Metals Ltd (AIM:EEE)* 1.3p, Mkt Cap £5.4m – Regional exploration commences at Pitfield Copper-Gold Project
- Empire reports that it has commenced exploration at the Pitfield project, following a 200m line-spaced airborne magnetic survey which indicated a strong magnetic stratigraphy alteration within the project area.
- Empire will now complete a more detailed survey flown on a 50m line spacing at a height of some 30m and comprising some 3470-line km.
- The survey will give an enhanced magnetic and radiometric resolution over the main areas of interest, while also providing structural/stratigraphic details which will help provide context to geochemical exploration data and generate ground sampling targets.
- Pitfield lies along the boundary of Western Yilgarn province, where a major craton-scale structure internal to Southwest Gneiss province intersects and offsets the Yilgarn margin and controls the position of the Neoproterozoic Yandanooka basin.
- The Neoproterozoic is a globally important copper mineralisation era, which includes the copper belt of southern Africa (DRC, Zambia and Namibia), and the highly mineralised Paterson province in the north of Western Australia.
- Empire picked this license up in April alongside the Stavely Project and Walton Project, both also located in Australia.
- The Stavely Project lies upon the highly prospective but poorly explored Cambrian Stavely Arc, 280km north-west of Melbourne.
- The Walton project is located in the under-explored Yerilgee greenstone belt comprised of a sequence of high-magnesium basalts, ultramafic volcanic rocks, sedimentary rocks and granites including iron formations.
*SP Angel acts as nomad and broker to Empire Metals
Gemfields PLC (JSE:GML) 18.25p, Mkt Cap £216m – First ruby auction of 2022 sets records
- Gemfields reports that its first ruby auction of 2022, held in Bangkok recently, achieved both record total sales revenues and record average prices per carat sold.
- The auction, of stones from the 75%-owned Montepuez mine in Mozambique, realised a total of US$95.6m from the 387,681 carats sold realising an average of US$246.69/carat.
- The preceding auction, held in November/December 2021, sold 667,589 carats at an average price of US$132.47/carat.
- The auction, which was held between 30th May and 17th June, sold 112 of the 119 lots offered representing 63.5% of the 610,135 carats available for sale.
- The company clarifies that “one lot of 29,523.82 grams (representing some 24% of the total weight offered) remained unsold and, as a result, the average price per carat realised at the most recent auction is considerably higher than it would have been had this lot also been sold”.
- Adrian Banks, Managing Director of Product and Sales, cautioned that “second-half revenues are unlikely to match the remarkable first half, today's auction results again underscore the extent of the step-change being experienced in the market”.
Conclusion: Record sales of rubies at a recent auction may not be matched later in the year and we infer that the failure to sell parcels of lower value stones indicates that buyers are currently making selective choices to purchase higher quality rubies with, presumably, inventories of unsold, lower value, material building up.
Rio Tinto PLC (LSE:RIO) 5,030p, Mkt cap £65bn - Simandou iron ore developers given 14-day deadline to finalise JV
- Partners developing Guinea's Simandou iron ore mine have been given two weeks to create the joint venture, the country’s interim president Mamady Doumbouya said in a meeting on Friday.
- The project is currently owned by Rio Tinto and Chinese-backed Winning Consortium Simandou (WCS).
- The government signed an agreement in March with terms for development including a 670km railway and a port to get Simandou's high-grade ore to market.
- The government has previously warned companies will lose licenses unless they meet tight construction deadlines.
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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
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Sales
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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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