SP Angel . Morning View . Monday 05 09 22
Copper, nickel and tin recover despite ongoing dollar strength
MiFID II exempt information – see disclaimer below
Bluebird Merchant Ventures Ltd (LSE:BMV) – Batangas discussions run concurrent with expenditure to qualify for Kochang gold mining license
Botswana Diamonds PLC (AIM:BOD) – Additional exploration licence awarded in South Africa
Europa Metals Limited (LON: EUZ) –Toral drilling results
Power Metal Resources PLC (AIM:POW)* – £800k equity raise
Red Rock Resources PLC (AIM:RRR) – Drilling at Bilbale, Burkina Faso
Shanta Gold Limited (AIM:SHG, OTC:SAAGF)– Interim earnings slide on weaker production ahead of an expected recovery in H2/22
Syrah Resources Ltd (ASX:SYR) – Interims highlight strong growth in graphite production and Active Anode Material project
US dollar strength helps metals prices lower a major consumers suffer currency depreciation
- Weakness in the Yuan, Yen and Euro is importing inflation into these nations
- Better than expected jobs numbers in the US raised the prospect of a bigger rise in interest rates than previously anticipated
- The Fed appears to be aggressively chasing inflation lower as it tightens monetary policy and liquidity in the economy
- Consumers and business are being forced and cajoled into cutting back to reign in inflation
- Re-shoring of manufacturing and services our of China and back into the US is thought to be lifting the jobs market despite rising interest rates
- China’s zero-covid policies, ongoing lockdowns, energy restrictions and general treatment of foreign manufacturers is persuading companies to move manufacturing out of China and into the US or other parts of Asia where low-cost labour is available.
- Shenzhen announced it would adopt tiered anti-virus restrictions from today while Chengdu is extending lockdown-related restrictions
- The PBoC is setting firmer than expected official guidance in support of the Yuan as it moves to slow the pace of Yuan / USD depreciation.
- The Yuan is close to the psychological CNY7/USD level at 6.9333 this morning
Chile rejects new constitution in positive move and support for copper miners
- Chileans have rejected a new constitution today, a vote which was supposed to satisfy those involved in the mass protests on inequality that begun in late 2019.
- With 99% of the ballots counted, 62% voted against the charter drawn up by President Gabriel Boric.
- The charter would have helped reform the tax, pension and labour systems in Chile, while boosting social services and cutting inequality.
- The rejection comes following a vote in 2020 that showed 80% of Chileans were in favour of writing the constitution.
- The proposal was expected to weigh on economic growth and deter investment, something which probably worried Chileans given we are already in the midst of a slowdown driven by inflation and high energy prices.
- Markets in Chile are expected to rally today as the rejection removes a lot of uncertainty currently clouding equity markets in the country.
- The rejection also offers some relief to the mining sector given previous worries over taxes on copper.
Aluminium – Lockdown ‘closed-loop management’ locking workers into smelters and factories to keep industry rolling.
- Shandong Xinfa Aluminium Co are in a 20-day closed loop as is Tianshan Aluminium Group in Xinjiang province
- Qinghai-based Huanghe Hydropower Development Co has also entered closed-loop management, it said on August 29.
- We wonder if the announcement of the date for the 20th CPC Congress has spurred local communist party leaders to show renewed vigour in locking down their districts while vying for promotion within the CPC.
Dow Jones Industrials -1.07% at 31,318
Nikkei 225 -0.11% at 27,620
HK Hang Seng -0.95% at 19,267
Shanghai Composite +0.42% at 3,200
Economics
US – Nonfarm payrolls at 315,000 in August vs 300,000 expected - the 20th straight month of job growth.
Markets are closed in the US today as the nation celebrates Labor Day.
- US employers continued to add workers last month, albeit at a slower pace than the 526,000 increase in July.
- Unemployment increased to 3.7% from a pre-pandemic low of 3.5% in July.
- Average hourly earnings rose 0.3% vs 0.4% expected.
- The data raises the risk of a stronger than anticipated rate rise to 3:00-3.25% or to 3.25-3.5% at the next Fed meeting
- private jobs 308k in August vs 477k in July
- manufacturing 22k in August vs 36k in July
- government 7k in August vs 49k in July
- participation rate 62.4% in August vs 62.1% in July
- Factory orders fell -1% in July vs 2% in June
- Factory orders ex transport fell -1.1% in July vs 1.4% in June
- US authority’s instructions to restrict chip sales and activity in and around China by Nvidia and AMD has been lifted.
Shipping – Container prices collapse from China to US West Coast as rates nearly halve in two months to <$4,000
- SE Asia to US West Coast container rates have collapsed to US$3,886 per 40ft container from $$7,446 on 5th July (FBX).
- Container rates from Europe to the US East Coast have risen to $8,426 from $8,164 through the same period
China – New high-speed rail line to connect Shanghai and Yangtze River Delta
- The 350 mile railway will run at up to 218mph and stop at 16 stations in Shanghai, Jiangsu and Anhui.
- Total investment of CNY180bn ($26bn ) according to the National Development and Reform Commission.
- The nation is to add a further 12,000km of high-speed railway by 2025
- The Shanghai-Nanjing-Hefei high-speed railway has been in planning for nearly 10 years and will run along the north Yangtze River.
- The region 24% of China GDP and 37% of China trade volume from 17% of the population
- New Chinese infrastructure investment has grew 10% in H1 and should grow further in H2 particularly after the CPC conference
- Composite PMI pulled back in August as a contraction in the manufacturing sector was reported along a waning growth in the services industry.
- Caixin Composite PMI: 53.0 v 54.0 in July.
- Caixin Services PMI: 55.0 v 55.5 in July.
- Caixin Manufacturing PMI (released last week): 49.5 v 50.4 in July.
European equities are down this morning with the Stoxx Europe 600 Index off 1.5% after Russia’s Gazprom said it will not be restarting its Nordstream 1 gas pipeline following a three day maintenance stoppage.
- The move followed the agreement between G7 members to implement a price cap on Russian oil exports.
Eurozone – Composite PMI was revised lower suggesting a deeper contraction in the region’s economic output in August.
- The measure came in sub 50 for a second consecutive month hitting the lowest level in 18 months.
- Both manufacturing and services are now contracting with a particularly strong decline in the Eurozone’s largest economy, Germany (Composite PMI 46.9).
- Output continued to expand in France (50.4), although, at the weakest pace in more than a year.
- Major drag on growth is a weakening demand environment with steep inflationary pressures and associated cost of living leading clients to hold off on buying decisions.
- “A second month of deteriorating business conditions in the euro area adds to the likelihood of GDP contracting in the third quarter,” S&P Global commented on the data.
- “Looking ahead, an increased rate of loss of orders in August suggest that the downturn in business activity could gather pace in September, and firms are already cutting back on their hiring in the face of weaker than expected sales, surging costs and concerns about future growth prospects.”
Europe – Russia says it will not reopen the Nordstream pipeline as planned
- So what does ‘as planned’ mean? We suspect they will be desperate to reopen the pipeline just as soon as Putin allows it
- Putin is upset over the G7 move to ban transport of Russian oil traded over a certain price level.
- Somehow we feel sure there are traders who will work around this, but the G7 move should frustrate cash flows into Russia for a week or two.
Germany – The government is planning a $65bn package to help households struggling amid rising energy costs and general inflation.
- The administration also activated the second stage of a thee-level gas emergency plan and is considering relaxing several of its core energy and environmental policies, Bloomberg writes.
- Among steps involved is a potential extension of the operation of nuclear and coal power plants the government planned to close.
- Additionally, it is looking at capping energy companies’ profits with a potential redistribution of excess profits as well as price caps on power generated from renewables, coal and nuclear.
- Finland and Sweden offered liquidity guarantees to keep power companies open.
- The money might be better spent making factories, homes, and offices more energy efficient
- Co-ordinated use of less gas and electricity is the only way out of this crisis and throwing money at the problem won’t make it go away.
- German Trade surplus €4.9bn in July vs €7.7bn June – we suspect this will continue to fall as the energy crisis hits.
Turkey – Inflation inched higher in August coming in at 80.2%yoy with energy costs up >120%yoy and food prices up >90%yoy.
- The government is expecting inflation to average 65% this year and come down to 25% in 2023.
- Inflation is not expected to be below 10% until 2025.
South Korea - CPI fell 0.1% in August vs 0.5% in July), yoy 5.7% (6.3%).
Czech Republic - 70,000 people demonstrate in Prague Czech Republic against government and soaring energy prices
Australia - Proposals to revive a MRRT ‘Minerals Resource Rent Tax‘ proposed at Canberra jobs and skills summit
- Ross Garnaut, an economist and former Hawke government adviser sees the MRRT as a way to help support the economy through higher coal and gas prices.
- The proposal is being robustly countered by The Minerals Council of Australia.
- Mr Garnaut might want to calculate the huge tax benefits to the Australian government from its very substantial coal and gas production.
- In 2020 Australia exported some 15,421 Peta Joules of energy while importing just 2,114 Peta Joules (energy.gov.au)
- 67% of Australia's exported energy was black coal and 28% natural gas.
- Nearly 90% of energy imports were refined petroleum products and crude oil.
UK - Met officer behind anti-drugs strategy ‘smoked cannabis every day’
- The Commander was also accused of using LSD and magic mushrooms.
- I guess at least he knew what he was working with.
Currencies
US$0.9908/eur vs 0.9985/eur last week. Yen 140.46/$ vs 140.21/$. SAr 17.321/$ vs 17.286/$. $1.147/gbp vs $1.156/gbp. 0.678/aud vs 0.680/aud. CNY 6.934/$ vs 6.901/$.
US Dollar index – 110.09 / -0.51% on week
Russia and China might like to break the use of the dollar as the world’s reserve and trading currency but they can’t break its strength.
Commodity News
Precious metals:
Gold US$1,709/oz vs US$1,702/oz last week
Gold ETFs 99.8moz vs US$99.8moz last week
Platinum US$843/oz vs US$836/oz last week
Palladium US$2,042/oz vs US$2,046/oz last week
Silver US$18.10/oz vs US$17.93/oz last week
Rhodium US$13,800/oz vs US$13,800/oz last week
Base metals:
Copper US$7,640/t vs US$7,560/t last week
Aluminium US$ 2,307/t vs US$2,310 last week
Nickel US$ 20,529/t vs US$20,311/t last week
Zinc US$ 3,191/t vs US$3,232/t last week
Lead US$ 1,889/t vs US$1,923/t last week
Tin US$ 21,410/t vs US$20,670/t last week
Energy:
Oil US$95.1/bbl vs US$94.1/bbl last week
Natural Gas US$8.851/mmbtu vs US$9.196/mmbtu last week
Uranium UXC US$52.40/lb vs US$53.50/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$94.8/t vs US$95.4/t
Chinese steel rebar 25mm US$582.5/t vs US$584.9/t
Thermal coal (1st year forward cif A RA) US$312.0/t vs US$312.0/t
Coking coal swap Australia FOB US$273.0/t vs US$285.0/t
Other:
Cobalt LME 3m US$51,955/t vs US$51,955/t
NdPr Rare Earth Oxide (China) US$86,167/t vs US$89,397/t
Lithium carbonate 99% (China) US$69,006/t vs US$69,040/t
China Spodumene Li2O 5%min CIF US$5,010/t vs US$5,010/t
Ferro-Manganese European Mn78% min US$1,214/t vs US$1,223/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% 7.3/lb vs US$7.3/lb
Europe Ferro-Vanadium 80% 31.75/kg vs US$31.75/kg
China Ilmenite Concentrate TiO2 US$332/t vs US$334/t
Spot CO2 Emissions EUA Price US$76.8/t vs US$78.5/t
Brazil Potash CFR Granular Spot US$860.0/t vs US$860.0/t
Battery News
Taiwanese battery maker reportedly mulling $8bn UK factory
- ProLogium Technology is considering the UK for a $8bn factory to build cells for EVs, Bloomberg reports.
- A final decision is expected to be made early next year, with sites in the US and France also under evaluation.
- The facility wil;l be built in three phases with a final capacity of 120GWh.
Company News
Bluebird Merchant Ventures Ltd (LSE:BMV) – 1.08p, Mkt cap £13.3m – Batangas discussions run concurrent with expenditure to qualify for Kochang gold mining license
- Bluebird is in discussions with potential partners for the development of the Batangas gold project in the Philippines
- The company has a 25-year mineral production sharing agreement for the Lobo area of Batangas where there is significant potential for underground mining according to today’s statement.
- Batangas initial Probable JORC ore reserve shows 171,000t grading 6.6g/t for 36,000oz of gold as defined by a previous partner.
- The area hosts multiple epithermal and high grade targets which show high grade gold veins for resource extension.
- South Korea: Bluebird are finalising plans to fulfil the qualifying expenditure of US$160,000 in accordance with the terms of the 20-year mining license at Kochang.
- The funds will mainly be used to buy equipment for underground development and exploration
Conclusion: The Bluebird team are experienced in the reopening of historic goldmines. Progress in South Korea has been slow and steady but appears to be moving in the right direction. The potential development of the reserves at Batangas could help with future cash flow.
Botswana Diamonds PLC (AIM:BOD) 0.93p, Mkt Cap £8.2m – Additional exploration licence awarded in South Africa
- Botswana Diamonds reports that it has been awarded a five-year prospecting licence over ground containing the Reivilo cluster of kimberlite pipes in the Barkley West area of S Africa.
- The prospecting licence is located approximately 110km northeast of the operating Finsch mine of Petra Diamonds.
- The company says that diamond exploration “by the previous licence-holder was reported to have delineated a cluster of three kimberlite pipes, with sizes of 3.1 hectares, 1.7 hectares and 0.9 hectares all within a 250-metre radius”.
- Chairman, John Teeling, said that “Botswana Diamonds management have long been aware of the diamond potential of this ground, and so we are delighted to have finally been awarded this high-profile exploration ground".
Europa Metals Limited (LON: EUZ) 3.13p, Mkt Cap £2.5m –Toral drilling results
- Europa Metals reports what it describes as a ‘significant intersection’ in hole TOD-041 which forms part of its continuing programme of resource expansion drilling at the Toral lead/zinc/silver project in Castilla y Leon, Spain.
- Hole TOD-041 intersected 3.20m of mineralisation at an average grade of 9.41% zinc, 5.14% lead 48.1g/t silver and 0.11% copper (reported as 15.16% on a zinc equivalent basis – ZnEq(PbAg) from a depth of 799.40m.
- The intersection includes a higher-grade section of 1.1m at an average grade of 19.76% zinc, 10.79% lead, 107.9g/t silver and 0.26% copper (reported as 32.03% ZnEq) from a depth of 801.0m implying that the balance of the intersection averages approximately 4% zinc, 2% lead and 17g/t silver with minimal copper over a total of 2.1m.
- The significance of the intersection in TOD-041 may lie in the company’s comment that it “could link together the current indicated resource estimate … [currently reported as 5.9mt at an average grade of 7.1% ZnEq plus 27g/t silver within an overall resource of 20mt at an average grade of 6.3% ZnEq] … to a part of the inferred resource at depth which demonstrates continuity”.
- Drilling is continuing with hole TOD-042 currently targeting a depth of approximately 900m.
- Acting CEO and Executive Chairman, Myles Campion, commented that the intersection in TOD-041 “gives the team confidence in the deposit's tenor and continuity at depth. We believe that this hole in combination with hole TOD-042 will enable Europa Metals to incrementally add to the existing indicated resource portion of the deposit, thereby giving additional scope for utilisation in further studies”.
Conclusion: The most recent results from the resource expansion drilling at Toral may indicate continuity between the existing indicated resources and deeper inferred mineralisation. Drilling is continuing and we await further results, including a possible revision of mineral resources estimates, with interest.
Power Metal Resources PLC (AIM:POW)* 1.375p, Mkt Cap £21m – £800k equity raise
- Power Metal reports that it has raised £800k in order to advance its exploration assets and for working capital.
- The raise was completed at 1.4p per share – the closing market bid price on the 2nd of September.
*SP Angel acts as nomad and broker to Power Metal
Red Rock Resources PLC (AIM:RRR) 0.53p, Mkt cap £6.6m – Drilling at Bilbale, Burkina Faso
- Red Rock Resources reports the completion of a seven-hole, 778m reverse-circulation (RC) drilling programme at its 184km2 Bilbale licence in the Boromo greenstone belt of south-west Burkina Faso.
- Assay results have been received for 447m (4 holes) drilled at the Djikologo target with results awaited from a further 378 samples recovered from drilling at an artisanal mining area within the licence still awaited.
- Describing “an extensive presence of artisanal gold working sites on the permit area” the company explains that explains that, following initial geochemical sampling and mapping, its scout drilling was “guided by the pattern of previous artisanal activity and by the limited and large scale airborne geophysics in selecting the location of our drill holes” without the benefit of ground geophysical work “in order to meet the licence's spending obligations as renewal was approaching”.
- Among the results highlighted in today’s announcement are:
- A 20m intersection averaging 3.19g/t gold from a depth of 22m in hole Bil-R22-03 which also included deeper intersections of 8m at an average grade of 2.28g/t gold from 61m and 2m averaging 1.25g/t gold from 118m depth to the end of the hole which ended within the mineralisation; and
- A 9m wide intersection at an average grade of 0.37g/t gold from a depth of 6m in hole Bil-R22-01
- Both holes are reported to contain higher grade sections within the reported intersections. We speculate that the decision to terminate hole Bil-R22-03 in mineralisation may be the result of capacity constraints on the drilling equipment.
- The company confirms that there are a “further ten to twelve targets at Bilbale … [which] … are not yet tested by drilling, including three or four identified, through our surface sampling and from some limited rock exposure, as very prospective, especially some in the south of the licence. Highly prospective targets at our other licence, Boulon, also remain untested by drilling … [and that] … Ground geophysics will now be carried out” prior to additional drilling.
- The 164km2 Boulon licence is described as hosting a “large and consistent soil geochemical anomaly of Arsenic … [defined by previous explorers] … measuring 16 x 3 km, oriented NE-SW which crosses the western part of the project” and as hosting “a number of artisanal gold working sites”.
- Chairman, Andrew Bell, confirmed that Red Rock Resources plans “to raise external capital for our subsidiary Faso Minerals Ltd to accelerate the progress of the Burkina Faso assets towards a planned independent listing”.
Shanta Gold Limited (AIM:SHG, OTC:SAAGF) 8.8p, Mkt Cap £92m – Interim earnings slide on weaker production ahead of an expected recovery in H2/22
- Revenue totalled $51.9m (H1/21: $57.8m) reflecting weaker gold sales in Q1/22.
- Gold sales amounted to 27.8koz at an average realised price of $1,872/oz (H1/21: 32.0koz at $1,807/oz).
- AISC averaged $1,292/oz (H1/21: $1,338/oz) with unit costs coming down through Q2/22 on higher processed grades driving stronger production ($1,142/oz in Q2/22 vs $1,521/oz Q1/22).
- Group wide EBITDA amounted to $7.9m (H1/21: $17.4m).
- EBITDA excluding West Kenya and Singida related expenditures of $3.6m amounted to $11.9m.
- PAT came in at -$3.1m (H1/21: $3.1m).
- Capex increased to $16.5m (H1/21: $11.5m) with Singida development spend accounting for ~2/3s of that ($10.9m v $3.8m in H1/21).
- FCF amounted to -$8.7m (H1/21: -$3.4m) reflecting capital spending on growth projects.
- VAT receivable outstanding balance increased to $27.7m (FY21: $26.9m) after $3m used to offset H2/20 corporation tax and $1.4m received in cash.
- 2022 production guidance reiterated at 68-76koz with production seen ramping up.
- Production in July and August average ~7.0kozpm, up on 6kozpm in Q2/22 and 4kozpm in Q1/22.
- Singida development was 63% complete at the end of Q2/22 and on track for first gold production in Mar/23 taking Group wide production to +100kozpa.
- Infill and expansion drilling programme at the West Kenya Project in Kenya is ongoing with three drilling rigs operating on site.
- Closing cash and available liquidity stood at $14.3m with outstanding debt of $9.1m and a further $20m drawn under new borrowing facility of which funds were disbursed post reporting period in July.
- The Company declared an interim dividend of 0.10p payable on 24 November.
Syrah Resources Ltd (ASX:SYR) A$1.64, Mkt cap A$1.1bn – Interims highlight strong growth in graphite production and Active Anode Material project
- Syrah Resources report higher production and strong global demand for graphite products from the Balama graphite mine in Mozambique.
- Balama produced 89,800t of graphite in H1 vs 33,500t a year earlier
- The mine shipped some 79,300t vs 17,000t in H1 2001
- Power: Construction has started on the instillation of 11.25MWp of solar combined with an 8.5MW/MWh battery energy storage system.
- AAM ‘Active Anode Material’ project at Vidalia (Louisiana, USA): Initial expansion to 11,250tpa funded through A$250m placement.
- Tesla offtake agreement agreed in December 2021. A trade-off study has been done ahead of a DFS to raise AMM production to 45,000tpa
- US DOE loan of up to US$102m agreed.
- Financials:
- H1 loss of A$9.9m vs loss of A$25m in H1 2021.
- Sales rose to $49.7m vs $8.9m yoy
- Cost of sales rose to A$40.6 vs $22.4m yoy. Mining and production costs were $34.8m vs $18.2m yoy, logistics costs $9.0m vs $5.5m yoy.
Conclusion: After a difficult start, Syrah is now ramping up production of basic graphite anode material. The group is also preparing to add substantial value to its graphite products through its Active Anode Material plant in the US. The AAM plant in the US combined with the construction of the solar plant in Mozambique will keep management busy and should lead to material benefits to shareholders.
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
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
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486
Sales
Richard Parlons –Richard.Parlons@spangel.co.uk - 0203 470 0472
Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534
Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
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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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