SP Angel . Morning View . Monday 11 07 22
Metals pull back on new Covid Shanghai subvariant and further flareups in China
MiFID II exempt information – see disclaimer below
AEX Gold Inc (AIM:AEXG, TSX-V:AEX) – Name change to Amaroq Minerals (AMRQ)
Cornish Metals Inc (AIM:CUSN, TSX-V:CUSN, OTC:SBWFF)* – Valuation 48p/s – Metallurgical drilling at the South Crofty mine
Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTC:GALKF)* – SP Angel named Joint Broker
Kavango Resources PLC (LSE:KAV, OTC:KVGOF) – Acquisition of 50% of Kanye Resources
Tirupati Graphite PLC (LSE:TGR, OTCQX:TGRHF) – Acquisition of TSG remains pending
US Dollar – Carry Trade back with a vengeance as US interest rates rise ahead of other major liquid currencies
- The Carry Trade whereby funds take advantage of the differential between interest rates in major liquid currencies is back.
- US interest rates are rising much faster and further than previously expected driving the carry trade to lift the US dollar
- US Treasury yields rose 10 bp with the 10-year treasury at 3.06%.
- China is likely to show Q2 contraction in data due on Friday due to Covid lockdowns which will exacerbate fund flows into the US dollar.
China – New Covid variant discovered in Shanghai create concern over ability to contain new infection rate
- Cities are imposing new restrictions after the discovery of the new BA. 5 Omicron variant in Shanghai and new infections across a range of cities in South East China.
- Vaccination is reported to be less effective against the new Omicron variants making it tougher for authorities to contain outbreaks and requiring tougher restrictions if ‘Zero Covid’ is to be maintained.
- China’s leadership may be severely tested over protecting the economy vs Zero Covid.
- US companies have been moving manufacturing out of China and into other low-cost countries according to the Kearney reshoring index with the US manufacturing import ratio holding increasing slightly last year though anecdotal evidence suggests greater reshoring into the US in recent months due to the risk of further Covid lockdowns in major Chinese manufacturing areas.
Copper prices pull back after last week’s recovery as Shanghai discovers new Omicron BA.5.2.1 subvariant
- Further gains in the US dollar also helped metals lower in US dollar terms
- Las Bambas copper mine production is reported to have returned to normal, though the mine is likely to be subject to ongoing disruption from community groups.
Dow Jones Industrials -0.15% at 31,338
Nikkei 225 +1.11% at 26,812
HK Hang Seng -3.09% at 21,054
Shanghai Composite -1.27% at 3,314
Economics
US – Sovereign bond yields climbed on Friday on the back of strong labour numbers that came ahead of expectations.
- The gain in payrolls was broad-based, led by business services, leisure and hospitality, and health care, Bloomberg reported.
- Inflation is out later this week with expectations for a further acceleration in CPI growth (8.8%yoy v 8.6%yoy in May) strengthening the case for a 75bp hike this month.
- NFPs (‘000): 372 v 384 (revised from 390) in May and 265 est.
- Unemployment Rate: 3.6% v 3.6% in May and 3.6% est.
- Av Hourly Earnings (%mom): 0.3 v 0.4 (revised from 0.3) in May and 0.3 est.
- Av Hourly Earnings (%yoy): 5.1 v 5.3 (revised from 5.2) in May and 5.0 est.
- US Pilots looking for substantial pay rises and report feeling overworked by the recovery in airline travel.
China – Macau closes down all its non-essential business from today for a week and orders its residents to stay home on the back of the latest outbreak in the city.
- The city of 650k reported 59 new cases on Monday.
- Stocks of city’s biggest casino operators posted 7-10% losses this morning.
- Shanghai reported the first case of the BA.5 Omicron sub-variant raising concerns of further restrictions weeks after it emerged from a two-month lockdown.
- The city will launch two further rounds of mass testing in nine of Shanghai’s 16 districts between Tuesday and Thursday.
- Hang Seng and mainland China CSI 300 indices are trading ~3.0% and 1.7% down this morning.
- GDP numbers are out this Friday with estimates for growth to have slowed down to 1.2%yoy in Q2/22 compared to 4.8% in the previous quarter.
- More than 90% of holders of an Evergrande yuan denominated bond rejected a plan to further extend payment past a July 8 by six months.
- The note is a 4.5bn yuan ($671m) security due in 2023 with the payment having already been granted a six month postponement in January.
- The Company has so far avoided missing payments on its local bonds by securing delays on its deadlines.
- Should the Company fail to reach an agreement with its bondholders it would mark the first official default on a domestic note, after it defaulted on dollar bond payments in December.
South Korea - $625m of new spending announced to combat emergency economic conditions.
Ukraine – Russia is reported to be using stealth mobilization to find more soldiers for its war in Ukraine
- Russia is struggling to find recruits to fight in Ukraine with Putin being careful not to call up civilians
- The Russian government is now promising cash incentives to mercenaries and guardsmen from separatist territories.
- We wonder if it is possible for Russia to simply run out of men who are willing to fight in Ukraine.
Eurozone - Economists see chances of the Eurozone going into a recession rising to 45%, up from 30% estimated in June and 20% before the start of the war.
- The rising cost of living putting pressure on consumers while tightening monetary policy is also expected to add to economic growth headwinds (Bloomberg).
- Germany is now expected to fall into a recession with a 55% chance amid increasing risks of lower shipments of gas from Russia.
Heathrow airport reported a 6x increase in passenger numbers in June in the first restrictions free post pandemic summer.
- Almost 6m passengers travelled through the airport last month, up on 957k last year.
- This brings total for the first six months to 26m, an almost 7x increase on the 3.8m recorded in 2021.
- Nevertheless, June numbers come short of pre pandemic levels with 7.3m having travelled in Jun/19.
UK – A total of 11 candidates have formally declared their intention to stand to be the next PM, FT reports.
- Rishi Sunak, a former Chancellor, is currently the odds-on favourite at the bookmakers at 15/8 followed by Penny Mordaunt with 7/2 and Liz Tuss 27/5.
- Unexpectedly, defence secretary Ben Wallace who was the favourite in several bookmakers’ odds ruled himself out of the contest.
- The 1922 Committee is expected to announce the threshold of support that the candidate needs to secure with fellow MPs to make it to the ballot paper.
- FT reports that the Committee may ask for the candidate to have backing of 20-36 MPs compared to just eight required in the contest held in 2019 that in turn would immediately exclude lesser-known candidates and accelerate the process.
Japan – Liberal Democrat party wins two-thirds supermajority after assignation of former president Shinzo Abe
- The murder of Shinzo Abe appears to be an exceptionally rare lone wolf attack in a country with few guns and normally under a dozen shootings a year
Australia – Value of coal exports beats iron ore as coal prices rise and iron ore pulls back
- Many Australia’s might not like their carbon-rich coal mining industry but we suspect the nation’s treasury enjoyed tax revenues from the A$14.7bn of export sales in May.
- Thermal coal swap prices have risen to US$415.0/t FOB in Australia marking a significant backwardation on the US$251.0/t for the 1st year forward cif ARA
- While Metallurgical coal prices are also over $400/t
- Extreme flooding in South East Australia has disrupted production and shipments creating greater uncertainty for Asian utilities looking to source more coal to replace high natural gas prices.
Currencies
US$1.0122/eur vs 1.0087/eur last week. Yen 136.79/$ vs 135.85/$. SAr 16.962/$ vs 16.886/$. $1.196/gbp vs $1.193/gbp. 0.681/aud vs 0.680/aud. CNY 6.712/$ vs 6.707/$.
Commodity News
Precious metals:
Gold US$1,738/oz vs US$1,734oz last week
Gold ETFs 103.1moz vs US$103.2moz last week
Platinum US$886/oz vs US$873/oz last week
Palladium US$2,128/oz vs US$1,985/oz last week
Silver US$19.03/oz vs US$19.03/oz last week
Rhodium US$13,900/oz vs US$13,900/oz last week
Base metals:
Copper US$ 7,702/t vs US$7,683/t last week
Aluminium US$ 2,428/t vs US$2,400/t last week
Nickel US$ 21,615/t vs US$20,880/t last week
Zinc US$ 3,091/t vs US$3,051/t last week
Lead US$ 1,948/t vs US$1,938/t last week
Tin US$ 25,285/t vs US$25,000/t last week
Energy:
Oil US$105.7/bbl vs US$104.7/bbl last week
Crude oil prices pared Friday gains in early trading on concerns from the discovery of the new subvariant and the highest number of daily new cases in Shanghai since May could impact demand growth.
European energy prices fell back as the Nord Stream pipeline commenced its planned 10-day maintenance shutdown and Canada signalled it would return a repaired turbine that had recently restricted gas flows.
The US rig count rose by 2 to 752 rigs last week, with oil rigs adding 2 units to 597 rigs and gas staying the same at 153 rigs, as data showed US oil production at 12.1mb/d, still a 1mb/d shy of pre-pandemic levels.
A decision is expected this week from the UK Government on whether the Energy Levy will be extended to electricity generators.
Natural Gas US$6.330/mmbtu vs US$6.157/mmbtu last week
Uranium UXC US$48.50/lb vs US$48.60/lb last last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$113.3/t vs US$114.6/t - Iron ore prices continue to fall as steel mills in China tread carefully ahead of expected stimulus
Chinese steel rebar 25mm US$648.8/t vs US$649.1/t
Thermal coal (1st year forward cif ARA) US$251.0/t vs US$251.0/t
Thermal coal swap Australia FOB US$415.0/t vs US$417.0/t
Other:
Cobalt LME 3m US$60,445/t vs US$65,460/t
NdPr Rare Earth Oxide (China) US$133,369/t vs US$134,555/t
Lithium carbonate 99% (China) US$67,877/t vs US$67,911/t
China Spodumene Li2O 5%min CIF US$4,620/t vs US$4,620/t
Ferro-Manganese European Mn78% min US$1,503/t vs US$1,527/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% 9.0/lb vs US$9.1/lb
Europe Ferro-Vanadium 80% 36.25/kg vs US$36.25/kg
China Ilmenite Concentrate TiO2 US$361/t vs US$362/t
Spot CO2 Emissions EUA Price US$83.0/t vs US$83.9/t
Brazil Potash CFR Granular Spot US$1,050.0/t vs US$1,100.0/t
Battery News
BYO becomes world’s largest producer of Electric Vehicles
Mahindra aiming to lead electric SUV sales in India
- India's Mahindra and Mahindra has aims to lead sales of electric sport-utility vehicles (SUVs) in the country, its CEO said in an announcement last week.
- The announcement comes after the automaker successfully raised money for its new EV unit, valuing the company at $9.1bn.
- Mahindra and British International Investment (BII) will each invest up to $250m in the EV unit which will focus on four-wheel passenger electric cars.
- The company sells some of India's most popular combustion engine SUVs, including the Scorpio and Thar, and now plans to dominate the EV sector with similar models.
- Mahindra are the latest Indian automaker to accelerate EV plans, as companies seek to capitalise on billions of dollars of incentives offered by Prime Minister Modi’s government to build EVs.
- EVs only make up 1% of India’s annual vehicle sales of around 3m vehicles – the government wants to reach 30% by 2030.
Company News
AEX Gold Inc (AIM:AEXG, TSX-V:AEX) 40.5p, Mkt Cap £112m – Name change to Amaroq Minerals (AMRQ)
- AEX Gold is changing its name to Amaroq Minerals effective tomorrow.
- The stock ticker is also changing to AMRQ.
- The new CUSIP number is 02312A106 and the new ISIN number is CA02312A1066.
- Nothing else changes.
Cornish Metals Inc (AIM:CUSN, TSX-V:CUSN, OTC:SBWFF)* – 18.75p, Mkt cap £98m – Metallurgical drilling at the South Crofty mine
Valuation 48p/s
- Cornish Metals has started a drilling programme of at least 8,000m to recover samples for metallurgical testing at the historic South Crofty mine in Cornwall.
- The programme forms part of the feasibility study assessing the potential to reopen the mine which was “closed in 1998 following over 400 years of continuous production”.
- A rig has already started drilling to recover samples from the central part of the mine where it is focussed on the No.4 and No.8 lode structures which together contain over 1mt at an average grade of 1.85% tin or approximately 25% of the indicated and inferred resources in the, granite-hosted, Lower Mine area
- In total, the indicated and inferred resources of the Lower Mine area are approximately 4mt at an average grade of 1.6% tin.
- The programme is expected to accelerate with the deployment of a second rig intended to target the North Pool Zone in eastern part of the area “by the third week of July” while a third rig which “will drill from underground in the Tuckingmill Decline, collecting samples from Roskear and Dolcoath Lodes in the western part of the mine complex …[is expected to start work] … in late July”.
- Indicated and Inferred resources of the North Pool Zone are 528,000t at an average grade of 1.47% tin while those of the combined Roskeath and Dolcoath Lodes amount to approximately 1.4mt at approximately 1.7% tin
- Drilling will include the initial holes plus subsidiary ‘daughter’ and ‘granddaughter’ holes and the samples will provide material for test work including of “XRT ore sorting, flowsheet optimisation, and paste backfill studies, as well as collecting assay data to complement the current Mineral Resource Estimate”.
- CEO, Richard Williams explained that the drilling “allows us to accelerate the South Crofty Feasibility Study in advance of dewatering the mine and will provide key information for the mineral processing flowsheet, especially the amenability of the mineralised zones to ore sorting which, if successful, will present an opportunity to deliver higher grade feed and reduce the size of a process plant”.
- Today’s announcement also confirms that “Planning permissions for the operation of the mine and re-development of the surface facilities have been secured and construction of the water treatment plant foundations commenced. The dewatering pumps, variable speed drives and new high-voltage power supply have been delivered to site”.
Conclusion: Since securing £40.5m additional funding in May this year, Cornish Metals is pressing ahead with feasibility work to determine the viability of re-opening the South Crofty mine. The metallurgical drilling announced today forms a significant element of the assessment and we look forward to results as the programme progresses and to completion of the study itself which is expected by the end of 2024.
*SP Angel acts as Nomad and Broker to Cornish Metals.
Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTC:GALKF)* 26.2p, Mkt Cap £22.2m – SP Angel named Joint Broker
- This morning, Galantas appointed SP Angel as Joint Broker.
- Galantas is in the final stages of development at its Omagh underground project in Northern Ireland.
- The company announced last week that it has commenced longhole drilling in the first series of stopes on the Kearney vein – which has a measured and indicated endowment of over 100,000oz of gold.
- The mine has a series of five stopes which will be mined in the first block with cemented rockfill as the method of backfill.
- Whilst the management team bring the mine into production, exploration along the Kearney vein is ongoing – as Galantas complete a 4,000m drill hole with intersects so far including 2.4m at 21.4 g/t gold and 32.9 g/t silver.
Conclusion: Galantas has made strong progress on two fronts in recent months, preparing to resume production at Omagh as well as exploratory drilling that demonstrates the project’s considerable upside. We look forward to working with the experienced team at Galantas.
*SP Angel acts as broker to Galantas Gold
Kavango Resources PLC (LSE:KAV, OTC:KVGOF) 1.925p, Mkt cap £8.4m – Acquisition of 50% of Kanye Resources
- Kavango reported on Friday that it agreed terms with Power Metal Resources* to acquire Power's 50% of the Kanye Resources Joint Venture.
- Kavango now own a 100% interest in Kanye.
- Project: Kanye Resources owns two considerable land packages in Botswana, the Kalahari Copper Belt project covering 4,257km2 and the Ditau Camp project covering 1,386km2.
- Ditau: Kanye reports that four diamond drillholes have been successfully completed cross three targets (i1, i8 and i10) for a total of 1,623m.
- In parallel with drilling, additional Controlled Source Audio Magneto Telluric (CSAMT) geophysical surveys and modelling were carried out over the i1, i8 and i10 targets – used successfully in the past to provide high quality sub-surface imagery.
- Kanye is now awaiting assay results from the four drillholes at Ditau, with samples currently in transit to the lab.
- KCB: Soil sampling continues at Kanye’s licenses on the Kalahari Copper Belt, with a total of 3,478 soil samples collected from a total of approximately 5,750 soil samples planned across the KCB JV licences.
- Kanye continues to delineate targets for an RC drill programme on the KCB planned for later in 2022.
- Terms: Kavango will issue to Power Metal 60m shares at a price of 3p per share.
- Kavango will issue to Power 30m warrants at 4.25p for 30 months and 30m at 5.5p for 30 months.
- Power Metal will also receive 15m variable price warrants with a six-month life to expiry, with a minimum exercise price of 3p and an actual exercise price at a 15% discount to the volume-weighted average share price on the date of exercise.
- In a separate announcement this morning, Kavango reports progress at its Kalahari Suture Zone project, identifying three EM conductors for follow up testing.
- The three targets exhibit strong conductance readings, that the company comments could conform to an idealised Ni-Cu-PGE orebody model.
- Kavango will now delineate the targets further to define drill targets in due course.
Conclusion: Kavango taking whole ownership of Kanye allows them to progress the KCB project and Ditau, taking the company’s land package to nearly 16,000km2 in Botswana. Kavango also have also gained a strategic investor in Power Metal on their register, while the deal allows Power to focus on its other exploration projects.
*SP Angel acts as nomad and broker to Power Metal
Tirupati Graphite PLC (LSE:TGR, OTCQX:TGRHF) 24.3p Mkt Cap £21m – Acquisition of TSG remains pending
- Tirupati reports this morning that the acquisition of Tirupati Speciality Graphite Private Limited, or TSG, remains pending as it requires the approval of the regulators in India under The Foreign Exchange Management Act as it classes TG as an Overseas Direct Investment.
- TSG was established to develop downstream flake graphite projects and a research & development centre for graphene, advanced materials and mineral processing technologies.
- Indian authorities have now determined that the independent valuation report used to establish the share swap ratio is no longer valid and a new report will need to be undertaken.
- Tirupati is now evaluating a number of alternative options to complete the acquisition, while TSG has advised the Company that it needs to explore alternative sources of capital to maintain its development.
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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
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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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