SP Angel . Morning View . Thursday 11 08 22
Weaker than expected US CPI lifts market sentiment
MiFID II exempt information – see disclaimer below
Antofagasta PLC (LSE:ANTO) – Drought and pipeline rupture hit first half sales
Artemis Resources Ltd (ASX:ARV, OTCQB:ARTTF, AIM:ARV) – Drilling results from Carlow Castle Project, WA
Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL) – H1 results highlight the recent acquisition of the Bilboes gold project and appetite for further expansion in Zimbabwe
Evraz PLC (LSE:EVR) – Suspended – Intention to sell North American assets
Great Western Mining Corporation PLC (AIM:GWMO) – Drill programme completed at Mineral Jackpot Project
Lucara Diamonds (TSE: LUC) – Diamond market outlook remains strong despite concerns of global economic slowdown
SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)* – Management changes
Dow Jones Industrials +1.63% at 33,310
Nikkei 225 closed at 27,819
HK Hang Seng +2.12% at 20,026
Shanghai Composite +1.60% at 3,282
Copper hits six-week high on slowing US inflation
- Base metals advanced across the board on Wednesday afternoon and into Thursday, as slower Us inflation fuelled expectations of shallower interest rate hikes.
- Copper prices saw sharp declines in the second quarter as investors viewed the Fed’s rate hike policy as one which could tip the US economy into a recession by stifling investment.
- Bets on smaller interest rate hikes by the Fed caused the US Dollar to weaken, lending support to industrial metals prices.
- On the supply side, various news outlets reported that one of China’s top copper producer, Tongling Nonferrous, has cut output amid scare electricity supplies.
- Plants with a combined annual capacity of about 650,000tpa of refined copper have been affected for two days, with more cuts expected to follow.
- With copper prices low in May and June, China continued raise imports with some 373,000t of refined copper in June.
- Copper imports for the year have risen 4.4% yoy to 1.87mt up by 4.4% on the first half of 2021.
- We expect Chinese manufacturers were taking advantage of temporarily low copper prices to build up stocks for when the world looks a more positive place and brings with it the inevitable rebound in copper.
Economics
US – Slower than expected inflation released yesterday saw yields and US$ index pulling helping equities and commodities higher.
- The CPI surprise was driven by a few categories including used cars, hotels, airfares and care rentals, Bloomberg writes.
- It is possible headline inflation to subside further given the recent drop in gasoline prices.
- US average retail gasoline prices fell below $4 a gallon o the lowest level since early March on the back of weaker oil prices and demand.
- Prices hit a record of $5.0 a gallon mid June.
- S&P 500 and Nasdaq closed 2.1% and 2.9% higher while shorter term sovereign bond yields (2y) fell 20bp at some point yesterday following the inflation report.
- CPI (%yoy): 8.5 v 9.1 in June and 8.7 est.
- Core CPI (%yoy): 5.9 v 5.9 in June and 6.1 est.
Minneapolis Fed President Neel Kashkari is arguing for rates to be lifted towards 3.9% by the end of the year and to 4.4% by the end of 2023.
- That makes him the most hawkish member of the FOMC (non-voting this year).
- Current dots median estimate is for 3.4% by the end of 2022 and 3.8% in 2023.
- Responding to the latest weaker than forecast inflation print, Kashkari said that the report did not change his position on the pace of further monetary tightening.
- Minneapolis President will become a voting FOMC member next year.
UK – Property sales expectations over the next 12 months are at the lowest levels since Mar/20, the latest Royal Institution Chartered Surveyors survey showed.
- Number of new buyer enquiries dropped for a third month marking the longest streak since the early days of the pandemic.
- The report is the latest to suggest that higher mortgage rates and strong inflation are taking a toll on the property market, Bloomberg writes.
- Nevertheless, weak outlook is still to filter into falling property prices with a “severe” lack of stock said to be responsible for a well bid market.
- The survey was carried before the last BOE decision to hike rates by 50bp to 1.75% in early August.
Turkey – Current account deficit nearly tripled in June on the back of rising cost of imported food and energy.
- The gap widened 191%yoy to $3.5bn with trade of goods deficit widening to $6.4bn, from $1.6bn last year.
- The central bank kept policy rate at 14% for the past seven months despite inflation nearing 80%.
- Next rate setting meeting is due Thursday next week.
Russia – National oil production is expected to fall ~20% or 2mmbbl/day by the start of next year as EU import ban comes into force in early December, IEA estimates.
- We understand logistical issues will be behind difficulties to substitute EU exports with other destinations like Turkey, India and China among others.
- Furthermore, the EU will ban Russian oil product shipments from February 5 next year.
Ukraine / Crimea – explosions in Crimea damage Russian airbase
- Ukraine claims special forces carried out the raid 200km behind enemy lines (Sky News).
- Ukraine has also hit one of two bridges across the Dnipro River in the south further disrupting Russian logistics.
- Tactically Ukraine appears to be cutting off supply routes and destroying Russian ammunition dumps.
- Russia appears to have responded with 80 rockets fired into residential areas.
- Defence experts reckon Moscow has ‘almost certainly’ established a major new ground forces formation
- Grain: A second commercial grain ship has docked at a Ukrainian port for loading
- We look forward to the day when Ukraine surrounds Russian troops in the south and forces their mass surrender
Currencies
US$1.0326/eur vs 1.0211/eur yesterday. Yen 132.49/$ vs 135.05/$. SAr 16.160/$ vs 16.580/$. $1.223/gbp vs $1.208/gbp. 0.710/aud vs 0.696/aud. CNY 6.739/$ vs 6.758/$.
US Dollar index – 105.06 / -0.13% on week
Commodity News
Precious metals:
Gold US$1,787/oz vs US$1,790/oz yesterday
Gold ETFs 100.8moz vs US$100.9moz yesterday
Platinum US$959/oz vs US$931/oz yesterday
Palladium US$2,244/oz vs US$2,194/oz yesterday
Silver US$20.51/oz vs US$20.40/oz yesterday
Rhodium US$14,800/oz vs US$14,800/oz yesterday
Base metals:
Copper US$ 8,140/t vs US$7,925/t yesterday
Aluminium US$ 2,509/t vs US$2,474/t yesterday
Nickel US$ 23,055/t vs US$21,561/t yesterday
Zinc US$ 3,616/t vs US$3,528/t yesterday
Lead US$ 2,193/t vs US$2,166/t yesterday
Tin US$ 24,960/t vs US$24,060/t yesterday
Energy:
Oil US$97.3/bbl vs US$95.7/bbl yesterday
Crude oil prices edged higher despite the EIA reporting a 5.5mb build in US crude stockpiles last week, driven largely by a 5.3mb SPR draw.
Notwithstanding a 5mb product draw in motor gasoline and 3.3% increase in U.S. refinery utilisation to 94.3%, the EIA also reported US gasoline demand is about 5% lower y/y on a four-week average.
European energy prices continue to be driven higher this week by a regional heatwave, with German natural gas storage reportedly 74% full, compared with the 5-year average of 73% for this time of year.
Natural Gas US$8.278/mmbtu vs US$7.860/mmbtu yesterday
Uranium UXC US$48.70/lb vs US$48.70/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$110.2/t vs US$110.9/t
Chinese steel rebar 25mm US$624.3/t vs US$624.6/t
Thermal coal (1st year forward cif ARA) US$235.0/t vs US$235.0/t
Coking coal swap Australia FOB US$225.0/t vs US$225.0/t
Other:
Cobalt LME 3m US$47,455/t vs US$49,445/t
NdPr Rare Earth Oxide (China) US$111,673/t vs US$111,343/t
Lithium carbonate 99% (China) US$68,043/t vs US$67,842/t
China Spodumene Li2O 5%min CIF US$4,720/t vs US$4,720/t
Ferro-Manganese European Mn78% min US$1,265/t vs US$1,251/t
China Tungsten APT 88.5% FOB US$333/t vs US$333/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 7.4/lb vs US$7.4/lb
Europe Ferro-Vanadium 80% 33.25/kg vs US$33.25/kg
China Ilmenite Concentrate TiO2 US$352/t vs US$351/t
Spot CO2 Emissions EUA Price US$87.8/t vs US$85.8/t
Brazil Potash CFR Granular Spot US$950.0/t vs US$950.0/t
Battery News
Are BYD supplying Tesla with Blade LFP batteries?
- According to sources familiar with the matter, BYD has begun supplying Tesla’s Giga Berlin with its Blade LFP batteries.
- Since August last year, there have been several rumours of the Chinese battery maker supplying Tesla with its new Blade battery.
- If the reports are true, it would mean Tesla are looking to launch an entry-level Model Y in Europe using LFP batteries – the current LFP batteries for models manufactured in California and China are supplied by CATL.
- Currently, at the Berlin plant, Tesla only produces vehicles equipped with 2170-type cylindrical battery cells from LG Energy Solution but has been touted to locally produce and use 4680-type cylindrical batteries in the future.
- There has been no comment on the validity of the reports from either Tesla or BYD yet.
California to target 25GW floating wind by 2045
- The California Energy Commission (CEC) has approved the state’s objective to deploy up to 25GW of floating offshore wind power capacity by 2045, with an interim target of 5GW by 2030.
- California Governor, Gavin Newsom had called for the state to target at least 20GW by 2045, accelerating that goal by 5 years.
- Before the announcement, the state’s offshore wind targets were 15GW of installed capacity by 2045 and 20GW by 2050.
- Achieving these goals would help power 3.75m homes initially and up to 25m homes by 2045.
Ørsted want 100% renewable supply chain by 2025
- Energy company Ørsted will want all its suppliers to use 100% renewable power by 2025, it has said in a statement.
- As part of its supply chain decarbonisation programme, created in 2020, it has been working with its strategic suppliers to decarbonise its offshore wind supply chain, asking them to use 100% renewable electricity in the production of wind turbines, foundations, cables, substations, and other components and services by 2025.
- The new target will support its 2040 net-zero target, with Ørsted also saying it is well on its way to reach carbon neutrality in its own energy generation and operations by 2025.
Company News
Antofagasta PLC (LSE:ANTO) 1,177p, Mkt cap £11.6bn – Drought and pipeline rupture hit first half sales
- Antofagasta’s first half report highlights a 30% fall in sales to $2,528m due to lower production and falling copper prices.
- Copper production fell 25.7% yoy to 268,600t as water restrictions caused by a drought in Chile combined with a break in a concentrate pipeline from Los Pleambres to reduce production.
- Concentrate grades at the Centinela mine were also some 25.4% lower than a year earlier.
- Net cash costs rose 37% to $1.82/lb due to the fall in production but should pull back in H2 assuming an easing of the drought in Chile and no further major mishaps.
- Profit before tax fell 62% to $680m from $1,784m despite an average copper price of 9,105t in the first half
- Guidance: Antofagasta expect to produce some 640-660,000t of copper this year indicating production will rise to around 381,400t through the second half.
- Copper prices are at $8,140/t today, indicating group sales could rise by 23% in the second half assuming today’s copper price is maintained.
- Group net cash costs are expected to rise to $1.65/lb in H2 due to higher fuel and other input costs and lower by-product prices.
- Net debt rose to $491m from $701m of net cash a year earlier due to heavy ongoing capital investment of $831m in the first half. Capex is estimated at ~$1.9bn for the full year.
- Drought: Chile is gripped in an unprecedented 13-year megadrought with more than half the 19 million population now living in areas of severe water scarcity. (The Guardian)
- Hundreds of rural communities in the centre and north of Chile are are forced to rely on emergency tankers to deliver drinking water.
- Water rights are highly prized in Chile with Antofagasta having secured valuable rights in the Atacama and around its other mines many years ago.
- The new Chilean Constitution may force a reorganization of the Chilean Water Code set up by Pinochet in 1981 which allowed the government to issue water rights to private companies.
- Mining companies are extremely conscious of the impact of taking water from boreholes and rivers and are generally careful to use non-potable water and to conserve supplies used in processing.
- The Los Pelambres was originally discovered by its blue water in the river which ran through the copper porphyry deposit. The area has been in drought for around 10 years and the mine has accelerated plans to move to use desalinated seawater to Q4 2022 from its original 2025 target.
Conclusion: Antofagasta are investing heavily to increase group production to 900,000tpa by 2026 with the new Centinela copper concentrator due in 2025 following the further expansion of Los Pelambres. Higher expected production in the second half should recover much lost ground though higher input costs will serve to temper the full year profit. Acceleration of the desalinated water supply for Los Pelambres looks well timed given the severity of the ongoing drought in the region.
*The SP Angel mining analyst has previously visited a number of Antofagasta’s copper mines
Artemis Resources Ltd (ASX:ARV, OTCQB:ARTTF, AIM:ARV) 3.4p, Mkt Cap £41m – Drilling results from Carlow Castle Project, WA
- Artemis Resources has released drilling results from its drilling at the Carlow Castle copper/gold project located around 45km east of Karratha, WA, where inferred resources identified to date amount to 8mt at an average grade of 0.51% copper, 1.6g/t gold and 0.08% cobalt.
- Among the results highlighted today are:
- An 8m wide intersection of the ‘Crosscut Zone’ at an average grade of 2.44% copper, 0.24g/t gold and 0.868% cobalt from a depth of 97m in hole ARC403, including a 3m wide section averaging 3.41% copper, 0.29g/t gold and 1.257% cobalt from100m depth; and
- A 2m wide intersection, also of the ‘Crosscut Zone’ averaging 4.71% copper, 1.01g/t gold and 0.008% cobalt from 108m in hole ARC404 with the deeper of the 2m averaging 8.78% copper, 1.91g/t gold and 0.011% cobalt; and
- A 9m wide intersection of the ‘Carlow West Zone’ at an average grade of 1.22% copper, 2.07g/t gold and 0.05% cobalt from 95m depth in Hole ARC398; and
- A 12m intersection at an average grade of 0.53% copper, 2.43g/t gold and 0.117% cobalt from a depth of 137m in hole ARC 399; and
- An 8m wide intersection at an average grade of 0.24% copper, 2.44g/t gold and 0.868% cobalt from 97m depth in hole ARC403.
- The company confirms that the results are “in line with management expectations and are expected to contribute to the upcoming new Carlow mineral resource estimate”.
- Artemis Resources also confirms that “Assay results for holes ARC 395 and 396 are yet to be received and will therefore not be included in the upcoming new Carlow Project mineral resource calculation”.
- The company describes the ‘Crosscut Zone’ as “a series of north-south striking, high-grade repeating en echelon structures constrained by northwest striking bounding structures. These northwest structures appear to be penetrative structures that cut through the Carlow East Zone”.
- It also says that holes “ARC401 and ARC402 …[at the Carlow West Zone] …have identified a second new mineralised northwest trending structure, that parallels the Crosscut Zone and cuts through the Carlow West Zone”. Further drilling “is warranted to test this structure”.
Conclusion: Resource definition drilling at the Carlow Castle project has identified an additional structure for further drilling. In the meantime, we await the new resource estimate.
Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL) 945p, Mkt Cap £119m – H1 results highlight the recent acquisition of the Bilboes gold project and appetite for further expansion in Zimbabwe
- Caledonia Mining reports a profit of US$13.4m for the 3 months ending 30th June bringing H1 profit to US$21.0m (H1 2021 – US$9.2m).
- Revenues of US$37.0m for the quarter bring the total for the half to US£72.1m (H1 2021 -US$37.0m) driving gross profit to US$34.9m for the half (H1 20201 – 24.3m).
- The results reflect record Q2 production of 20,091oz of gold at an on-mine cost of US$692/oz and all-in-sustaining cost of US$925/oz bringing H1 gold production to 38,605oz.
- CEO, Mark Learmonth, confirmed that the Blanket mine is “on track to meet our target production of between 73-80,000 ounces of gold for this year … [and he also said that Blanket] … will also continue to reduce our operating costs and increase the flexibility to undertake further development and exploration, thereby safeguarding and enhancing Blanket's long-term future”.
- In addition to the operational contribution from the Blanket mine, Caledonia Mining highlights the announcement last month of its agreement to purchase the Bilboes gold project, located approximately 75km north of Bulawayo for shares “representing approximately 28.5 per cent of Caledonia's fully diluted equity, and a 1 per cent net smelter royalty ("NSR") on the Project's revenues”.
- The project hosts an “NI 43-101 compliant proven and probable mineral reserves of 1.96 million ounces of gold in 26.6 million tonnes at a grade of 2.29 g/t, measured and indicated mineral resources of 2.56 million ounces of gold in 35.2 million tonnes at a grade of 2.26 g/t and inferred mineral resources of 577,000 ounces of gold in 9.5 million tonnes at a grade of 1.89 g/t”.
- A feasibility study prepared by the vendors of the project “indicates the potential for an open-pit gold mine producing an average of 168,000 ounces per year over a 10-year life of mine”.
- Mr. Learmonth said that Caledonia Mining has “followed the progress of the project for several years and believe that Bilboes is the premier gold development project in Zimbabwe, and indeed one of the best gold development projects in Africa”.
- He said that once conditions attached to the acquisition have been met, Caledonia Mining will undertake its own feasibility work “to identify the most judicious way to commercialise the Project”.
- In the meantime, “Caledonia also intends to re-start the oxides operation at Bilboes under a tribute arrangement before completion of the transaction with a view to creating a cash-generative operation within approximately six months”.
- Commenting further on the Bilboes acquisition and that of the Maligreen project, also in Zimbabwe, he confirmed that “Caledonia will also consider other investment opportunities in the Zimbabwe gold sector within the constraints of its financing and management capacity”.
Conclusion: Caledonia Mining has been clear for some time that it was seeking to diversify beyond a single mine production base following the successful completion of the Central Shaft Project at its Blanket mine which secures expanded production levels into the 2030s. The acquisition of Bilboes builds on the company’s Zimbabwean know-how and offers potential to quadruple attributable gold production while the company remains alert to other opportunities for further expansion in Zimbabwe.
*SP Angel mining analysts have visited Caledonia’s mining operations in Zimbabwe
Evraz PLC (LSE:EVR) - Suspended – Intention to sell North American assets
- Evraz reports it has begun soliciting proposals for the possible sale of its North American subsidies, as sanctions continue to bite the company.
- Evraz North America (ENA) has a steelmaking capacity of 2.3mt and a finished steel capacity of 3.5mt.
- The company currently operates two Electric Arc Furnaces, four rolling mills and eight tubular mills along with 17 scrap recycling facilities.
- Evraz does not expect to receive any income from activities of Evraz North America in 2022 as a result of sanctions.
Great Western Mining Corporation PLC (AIM:GWMO) 0.1475p, Mkt Cap £5.3m – Drill programme completed at Mineral Jackpot Project
- Great Western reports that its inaugural at Mineral Jackpot is now complete, totalling 536m over four holes.
- The holes were drilled in close proximity to historic gold and silver mines which are found on GWM’s license area.
- The location of drill holes was influenced by previous surface sampling campaigns undertaken by the company.
- Geology: Mineral Jackpot consists of a series of quartz veins and associated alteration zones, hosted in granite striking to the northwest and dip at 40-50° to the southwest.
- Each of the holes intersected at least three zones containing alteration of target type, some of which also exhibited significant amounts of chips interpreted to be derived from quartz veins.
- This latest programme at Mineral Jackpot follows programmes at the Southern Alteration Zone (Rock House Group), Trafalgar Hill (Olympic Gold) and OMCO Mine area (Olympic Gold) for a total 2,800m over 24 holes.
- We look forward to the release of assay results from this summer’s drill campaign.
Lucara Diamonds (TSE: LUC) C$0.65, Mkt Cap C$295m – Diamond market outlook remains strong despite concerns of global economic slowdown
- Lucara has released its results for the quarter ended June 30, 2022.
- Revenue for the three and six months to June 30th totalled $52.3m and $120.5m.
- Pricing: Average $/carat sold was $557/ct in Q2 2022, vs $552/ct in Q2 2021
- For the six months to June 30th, prices rose $631/ct vs $510/ct in 2021.
- Lucara remain upbeat on the diamond market, commenting “Solid market fundamentals supported diamond prices despite growing concerns of a global economic slowdown as high levels of reported inflation persisted and governments respond with increasingly forceful measures in attempts to reduce it to sustainable levels.”
- Cost inflation: The Karowe Underground Expansion estimated capital cost for the Karowe UGP has increased from $534m (including contingency) to $547m.
SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)* 22.75p, Mkt Cap £534m – Management changes
- SolGold reports the resignation of non-executive director and former interim CEO, Keith Marshall who will continue as an advisor to the technical committee for the Cacabel Project which he formerly chaired during the preparation of the pre-feasibility study which was released in April.
- Mr. Marshall expressed his confidence in the project and thanked “the people of SolGold for a fascinating, if somewhat challenging 18 months … [saying that he had no doubt] …. that the Alpala deposit in the Cascabel Project will make a Tier 1 mine. The challenge, as with all similar projects, is turning an exploration dream into a mining reality”.
- The company has also announced that its Head of Exploration, Jason Ward, who “has been with SolGold since its inception in 2006 and has played an instrumental role in developing the Company's outstanding presence in Ecuador” is to relinquish the role though he will “remain as an advisor to the Company to continue to help drive SolGold's exploration strategy”.
- Commenting on his decision to hand-over the reins of day-to-day exploration management in order to help guide exploration strategy, Mr. Ward said that “It is any geologist's dream to have access to an unchartered territory such as Ecuador and make the kind of exciting discoveries we have made together as a team”.
- As well as these technical personnel, Solgold confirms that “Ayten Saridas, Group Chief Financial Officer ("CFO"), has resigned effective immediately” and will be replaced as interim CFO by Keith Pollocks who “holds a Bachelor of Business, Master of Commerce and is a Chartered Corporate Treasurer and Certified Practising Accountant”.
*SP Angel acts as Financial Advisor to SolGold
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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
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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