SP Angel . Morning View . Thursday 06 05 21
Global recovery gains pace fuelling inflation
MiFID II exempt information – see disclaimer below – FCA looks to scrap MiFID research rules on small-caps in UK competitiveness drive (Investment Week)
Lucara Diamonds (CVE:LUC) – Project finance approved for Karowe mine underground development
Rockfire Resources (LON:ROCK) – Raising GBP850,000 to fund drilling at the Plateau project
Savannah Resources* (LON:SAV) – New Corporate Environmental and Social Management System
Britain set to stockpile metals for EVs to beat Chinese threat
Britain is looking to create a national stockpile of metals vital to the transition to electric vehicles including rare earths, lithium and cobalt, the Telegraph reports.
Britain could build a national stockpile to avoid shortages, support attempts to create domestic sources, or use its diplomatic network to secure supplies from abroad in partnership with private businesses, according to government sources.
Full story here (Telegraph subscription required): https://www.telegraph.co.uk/business/2021/05/05/stockpile-metals-needed-electric-cars-governments-urged/
Shipping – Maersk – say there are not enough ships in the world to meet container shipping demand
Maersk handles around 20% of global container traffic.
The shortage of suitable container ships and problems with the location of many containers has more than trebled container rates over the past 12 months
Zambia – Tighter mineral tax rules introduced to increase revenues
Zambia is introducing new rules governing the mineral sector, including disallowing the deduction of minerals royalty.
Zambia is also introducing a sliding-scale tax rate linked to international commodity prices.
Copper is taxed at 5.5% when prices are below $4,500/t, and taxes rise to a high of 10% when prices hit $9,000/t.
The government has also introduced a 5% import duty on copper and cobalt concentrates to encourage local partnerships, as some processors are currently using imports from the DRC.
Dow Jones Industrials +0.29% at 34,230
Nikkei 225 +1.80% at 29,331
HK Hang Seng +0.70% at 28,616
Shanghai Composite -0.16% at 3,441
JP Morgan Global PMI Composite Output Index climbed to 11-year high with new orders and international trade increasing at stronger rates.
The index climbed to a 132-month high 56.3 in April ,up from 54.8 in March.
Of note, the rate of increase in services industry outpaced that of manufacturing production for the first time since the current recovery in global activity started last July.
Expansion was led by strong gains in the US (survey-record increase) and the UK, while growth was weak In Japan and Brazil was the only nation to register a drop.
Employment wise, the labour market increased for the eighth month running in April with the pace of job creation accelerating to a 160-month high.
Headcounts increased at anear-record rate in the US, strong growth was registered in Germany, the UK and Australia; whereas, Brazil, India and Italy were the only nations covered to see employment pull back.
Inflation continued to strengthen with input costs climbing at the quickest pace since mid-2008 while output prices saw the strongest increase since data was first collected in Oct/09.
China – Beijing to indefinitely suspend all activities” under the China-Australia Strategic Economic Dialogue
China has suspended an economic dialogue with Australia, after accusing Australia of taking steps “to disrupt normal exchanges” due to a “Cold War mindset and ideological discrimination.”
Australia has upset China after pressing for an enquiry into the origins of coronavirus.
Ties were strained back in 2018 when Australia became the first country to ban Huawei’s 5G network, and relations worsened which led to China blocking imports of various goods including coal, barley and wine.
China has not yet imposed any restrictions on Australian iron ore, the country’s most valuable export.
The total value of Australia’s exports to China in Jan-Feb rose 8.2% YoY to $26.6bn, of which iron ore was the main contributing commodity.
Australian thermal coal exports dropped to an eight-year low in March, due to there being no shipments to China for a third consecutive month (Argus Media).
The Australian dollar fell sharply on the news, and was as low as 0.7701 to the U.S. dollar from Wednesday’s $0.7747 (Reuters).
US – Janet Yellen, Treasury Secretary and former Chair of the Fed spooked markets by indicating that the Fed may one day need to raise interest rates.
The comment states the obvious inevitability that interest rates will one day have to rise
Yellen also indicated that she does not see inflation in the short term but is concerned that Joe Biden’s $4tn stimulus may create inflation leading at some stage to higher interest rates.
We believe there is substantially more inflation in the West than is reflected in current inflation reports and we see the easing of lockdown restrictions combined with shortages of building projects along with the rising costs of transporting containers, fuel costs etc… as feeding through into higher real inflation relatively quickly.
The challenge for policy makers is how to keep the wheels on the economic recovery while limiting price inflation in a low interest rate environment.
US Final PMI numbers for April showed a record pace of expansion in business activity across the US service sector.
The final gauge came in at 64.7 v 60.4 in March and 63.1 flash reading.
New business orders climbed at the strongest pace on record growing for the fourth month running.
The increase was driven “a successful vaccine roll-out, the reopening of the economy, ultra-accommodative monetary policy and injection of fresh fiscal stimulus”.
Along with strong production and stronger hiring, inflation is reported to have picked up as well with charged prices increasing at the steepest rate since data collection for the series began in October 2009.
Composite 63.5 in April vs 59.7 in March
ISM nonmanufacturing 62.7 (63.7 )
US factory orders rose 6% yoy
US Trade deficit rose 5.6% in March on a 6.3% rise in imports and a 6.6% rise in exports
The US government backed a temporary suspension of IP rights for Covid-19 vaccines allowing pharmaceutical manufacturers to produce any vaccine without a risk of being sued for IP infringement.
“This is a global health crisis, and the extraordinary circumstances of the Covid-19 pandemic call for extraordinary measures, President Trump trade adviser Katherine Tai said defending the decision.
Shares in major developers of the coronavirus vaccines dropped on the back of the announcement.
A proposal to temporarily override patent rights for pandemic-related products was suggested at the WTO by India and South Africa in October and has since been backed by almost 60 countries.
Pharmaceutical industry opposed the proposal arguing that manufacturing bottlenecks rather than IP rules are the primary bottleneck in delivering enough number of vaccines.
The European Commission said the U was ready to discuss a US proposal but offered no assurances that it will support it.
Japan – Tokyo is set to extend its Covid-19 state of emergency as new cases remain high with the Olympics that are due in less than three months now in question.
Under the state of emergency, people are asked to work from home where possible and restaurants have been told not to serve alcohol and to close at 8pm, FT writes.
New infections are currently running at around 600 a day in Tokyo and 4,000 nationwide.
Germany – Factory orders came in strong March data showed beating market estimates.
The increase was largely driven by local demand with domestic orders up 4.9%mom and export order up 1.6%mom.
Sector wise, the rise in the headline figure was mainly driven by strong demand for consumer goods.
Factory Orders (%mom): 3.0 v 1.4 in February and 1.5 est.
UK – The BoE to hold its monetary policy meeting with a potential announcement of changes to its asset buying programme amid upgraded economic outlook.
India – The pandemic is gaining pace with the nation recording new all-time high of more than 412k daily new cases and around 4,000 deaths on Wednesday.
Many suggest that official numbers are underreporting true scale of the outbreak.
Meanwhile, daily vaccinations dropped to a two-month low of just 1.5m jabs on Tuesday highlighting a deficit of supplies.
India has now had over 21m cases in total, the second highest after the US, with more than 230k people reported to have died from Covid.
Nonmanufacturing PMI 54.0 in April vs 54.6 in March
Composite PMI 55.4 in April vs 56.0 in March
China – Nonmanufacturing PMI 54.9 in April vs 56.3 in March
composite 53.8 in April vs 55.3 in March
Germany – Nonmanufacturing PMI 49.9 in April vs 51.5 in March
Composite 55.8 in April vs 57.3 in March,
France – Nonmanufacturing PMI 50.3 in April vs 48.2)
Composite 51.6 in April vs 50.0 in March
EU – Nonmanufacturing PMI 50.5 in April vs 49.6
Composite PMI 53.8 in April vs 53.2 in March
Brazil – Nonmanufacturing PMI 42.9 (44.1 in March
Composite PMI 44.5 in April vs 45.1 in March
ASEAN – Manufacturing PMI 51.9 in April vs 50.8 in March
EU – PPI rose 1.1% in March 0.5% in February and 4.3% yoy on last March vs 1.5% yoy in February
Brazil – Industrial production fell 2.4% in March vs -1.0% in February and rose 10.5% yoy in March vs a 0.3% rise yoy on February
US$1.2025/eur vs 1.1988/eur yesterday. Yen 109.32/$ vs 109.42/$. SAr 14.322/$ vs 14.474/$. $1.391/gbp vs $1.389/gbp. 0.774/aud vs 0.771/aud. CNY 6.478/$ vs 6.475/$.
Gold US$1,793/oz vs US$1,777/oz yesterday
Gold ETFs 98.3moz vs US$98.3moz yesterday
Platinum US$1,239/oz vs US$1,230/oz yesterday
Palladium US$2,980/oz vs US$3,001/oz yesterday
Silver US$26.76/oz vs US$26.37/oz yesterday
Copper US$ 9,997/t vs US$9,977/t yesterday
Aluminium US$ 2,470/t vs US$2,439/t yesterday
Nickel US$ 17,825/t vs US$17,820/t yesterday
Zinc US$ 2,922/t vs US$2,975/t yesterday
Lead US$ 2,166/t vs US$2,192/t yesterday
Tin US$ 29,860/t vs US$29,465/t yesterday
Oil US$69.3/bbl vs US$69.3/bbl yesterday
Oil prices ticked up further yesterday following the latest EIA report of a crude oil inventory draw of 8MMbbls for the week to 30 April, however in fuels, the inventory moves were mixed
The oil inventory figure compared with a weekly draw of 7.688MMbbls estimated by the American Petroleum Institute a day earlier, and with a moderate build of 100,000bbls that the EIA reported for the previous week
Analyst consensus had expected the EIA to report a crude oil inventory decline of 2.19MMbbls
In gasoline, the authority estimated a minor stock build of 700,000bbls for the last week of April
This compared with another modest build of 100,000bbls for the previous week
Production last week averaged 9.1MMBopd, which compared with 9.6MMbopd during the previous week
In middle distillates, the EIA reported an inventory decline of 2.9MMbbls for the week to 30 April
This compares with a draw of 3.3MMbbls for the previous week
Production of middle distillates stood at 4.5MMbpd last week, compared with 4.6MMbpd in the previous week
Refineries processed 15.2MMbopd of crude last week, operating at 86.5% of capacity as the economy rebounds and boosts oil demand
Oil prices are reflecting this trend, as well as expectations that travel will soon pick up thanks to mass vaccinations
The EU said this week it will seek to start allowing foreign tourists into the block beginning from June in an attempt to avoid a second ruined summer tourist season
In the US, states began to relax movement restrictions as the rates of vaccinated people continued to ramp up
Natural Gas US$2.944/mmbtu vs US$2.971/mmbtu yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$186.9/t vs US$186.0/t
Chinese steel rebar 25mm US$837.9/t vs US$805.1/t – China crude steel exports surge 61% in March compared to month prior
China crude steel exports surged to 7.0mt in March, despite regulators rolling back rebates for steel exports in order to try and discourage outflows.
Total Q1 exports were 42% higher than last quarter, and were up 30% YoY.
China’s steel industry PMI continued to decline in April, falling to 45.4 from 47.9 in March.
Thermal coal (1st year forward cif ARA) US$77.7/t vs US$76.4/t
Coking coal swap Australia FOB US$121.5/t vs US$121.0/t
Cobalt LME 3m US$45,165/t vs US$45,165/t
NdPr Rare Earth Oxide (China) US$83,206/t vs US$83,245/t
Lithium carbonate 99% (China) US$12,658/t vs US$12,664/t
China Spodumene Li2O 5%min CIF US$630/t vs US$630/t
Ferro-Manganese European Mn78% min US$1,665/t vs US$1,660/t
China Tungsten APT 88.5% FOB US$272/t vs US$272/t
China Graphite Flake -194 FOB US$505/t vs US$505/t
UK wind power breaks record on Bank Holiday
Wind farms in the UK generated a new high of 17.6GW on Monday 3rd May.
The new record wind power accounted for 48.4% of the country’s electricity consumption.
BASF aiming to change the way batteries are produced
The world’s largest chemicals producer, BASF, has outlined its long-term battery materials strategy, focused on cathode active materials.
The plans incorporate the goal of reducing CO2 emissions by 25% by 2030 and to net-zero by 2050.
BASF see manganese-rich products playing a key role in reaching this environmental goal as manganese is available more abundantly and at a much lower cost than nickel or cobalt.
“Our goal is to become a market-leading CAM supplier with best-in-class sustainability and CO2 footprint.” Peter Schumacher, President of BASF’s Catalysts division.
New recycling process for lithium batteries
Researchers in Finland have discovered a way of reusing electrodes in lithium batteries.
The process resaturates the electrode with lithium saving valuable materials.
Traditional recycling of batteries involves crushing and melting the batteries to extract the material which often leads to loss of raw materials.
The research team are looking to replicate the process on an industrial level and whether or not the same process can be used with nickel-based batteries.
Magnis boosts NY battery plant capacity to 1.8GWh
The company has announced that recently purchased equipment has boosted its annual production capacity to 1.8GWh.
The ASX-listed company purchased approx. 60% of one production line from Chinese manufacturer A123 Systems.
The additional purchase expands the production capacity by 0.6GWh.
Lucara Diamonds (CVE:LUC) C$0.85, Mkt Cap C$338m – Project finance approved for Karowe mine underground development
Lucara Diamonds reports that a previously announced project finance package of US$220m to fund the underground expansion of its wholly-owned Karowe diamond mine in Botswana from a consortium of five international banks has now been approved.
The funds will be available in two tranches comprising a “project finance facility of US$170 million to fund the development of the underground project, and a working capital facility of US$50 million to support the on-going operation of the Karowe open pit mine”.
President and CEO, Eira Thomas said that the approval of the financing “is an important achievement for Lucara and a strong endorsement of our underground expansion plans”.
Ms Thomas described Karowe as “one of the world’s highest margin diamond mines … [which] … in just over eight years of production, has yielded 4 of the 10 largest diamonds in recorded history, including the 1,758 carat Sewelo, the largest diamond recovered from Botswana, and the 1,109 Lesedi La Rona which sold for US$53 million. This debt package will supplement cash flows from continued operations of the open pit over the next 5 years, extending Karowe’s mine-life out from 2025 until at least 2040.”
Previous announcements envisaged completion of the financing by the middle of this year and announcement of the approval in May meets the expectation.
In addition, Lucara has announced “an extension of its current working capital facility of US$50 million (the “Current Facility”) with Rand Merchant Bank, a division of FirstRand Bank Limited, London Branch. The Current Facility is expected to be eLucara Dxtinguished when the project financing debt package achieves financial close.”
Power Metal Resources* (LON:POW) 2.45p, Mkt cap GBP29.15m – Production license granted at Kisinka
Power Metal reports that has been successful in converting its exploration permit to a 25 year production license at its 70% owned Kisinka Copper-Cobalt Project.
Assay results at Kisinka have confirmed high copper and cobalt values from pitting and mapping exploration programme completed in 2020, following on from a termite mound sampling program conducted in 2019 which successfully identified a roughly 6.8km long copper and cobalt anomaly.
Power Metal recently completed a high-resolution 276 line-kilometre ground-based magnetic survey which highlighted a prominent magnetic high anomaly coincident with a regionally important northwest trending diamictite unit. A northwest trending hematitic iron formation unit was also defined within the survey results as a linear magnetic feature, which is broadly coincident with elevated copper and cobalt geochemical results.
Future exploration at Kisinka includes an IP survey which will provide coverage over several of the new magnetic anomalies recently identified with the objective of identifying possible supergene and/or disseminated copper-cobalt mineralisation.
Following the completion of the IP survey, the Company intends to follow up with an immediate drilling program.
Paul Johnson Chief Executive Officer of Power Metal Resources plc commented: “The size of the mineralised area identified by the work to date makes Kisinka an important potential copper-cobalt project in the Company’s base metal portfolio, in what we believe is one of the world’s best copper-cobalt districts.”
*SP Angel act as Nomad and Broker to Power Metal Resources
Rockfire Resources (LON:ROCK) 0.73p, Mkt Cap GBP7.3m – Raising GBP850,000 to fund drilling at the Plateau project
Rockfire Resources has raised GBP850,000 to fund an initial reverse-circulation drilling programme at the Copperhead and Copper Dome prospects and some diamond drilling at Copperhead which both lie within the company’s Plateau project in northern Queensland.
The funds were raised by placing approximately 121.4m new shares at a price of 0.7p/share and represent approximately 12,7% of the company’s enlarged capital.
Currently, the company has budgeted drilling expenditure of GBP650,000
David Price, Chief Executive, explained that “The Copper Dome and Copperhead porphyry projects have not been drilled for almost 50 years. When drilled in 1972, significant copper (and gold) was encountered in each drill hole. At Copper Dome, seven (7) holes were drilled in 1972, and five (5) holes were drilled at Copperhead. With new data from the very high-resolution magnetic surveys recently flown by Rockfire, specific targets have been identified which we expect will vector towards the central parts of the porphyries”.
The company says that a non-executive director, Nicholas Walley, “subscribed for 6,000,000 Placing Shares, at the issue price of 0.7 pence per ordinary share. Following this subscription, Nicholas Walley will hold 59,000,000 ordinary shares in the Company, equivalent to 6.18 per cent. of the Company’s issued share capital as enlarged by the Placing”.
Savannah Resources* (LON:SAV) 3.9p, Mkt Cap GBP65m – New Corporate Environmental and Social Management System
The Company is developing a New Corporate Environmental and Social Management System to support the delivery of its Corporate Sustainability Policy and help implementing its Environmental, Social and Governance commitments across its current and future projects.
“The Corporate ESMS is a management system framework that defines our systematic approach to managing the ESG related risks, impacts and opportunities derived from our activities… It is being designed to ensure that we systematically plan and schedule our ESG related activities in accordance with our policies and the standards we adhere to, and meet our compliance obligations,” the Company commented on the announcement.
The ESMS will be aligned with internationally recognised ESG standards including the requirements of the International Finance Corporation’s Performance Standards on Environmental and Social Sustainability, as well as the World Bank Group’s Environmental Health & Safety, Mining and General Guidelines.
Savannah mandated Baobab Advisory Ltd (‘Baobab’) and its Director, Jose Sa Pereira, to help create the CSP and the Corporate ESMS.
*SP Angel act as Nomad to Savannah Resources
VOX Markets: 28/04/20: https://www.voxmarkets.co.uk/media/60896b3f017903524c8e0936/?context=/listings/LON/BMN/multimedia/
IGTV: Improved global economic forecasts from the IMF provides trading opportunities: https://www.youtube.com/watch?v=_GXKPqzuCG0
VW expansion driving battery metals prices: https://youtu.be/7vqSrONBaWw
*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts.
We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.
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
John Meyer – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy [email protected] – 0203 470 0474
Joe Rowbottom – [email protected] – 0203 470 0486
Richard Parlons [email protected] – 0203 470 0472
Abigail Wayne – [email protected] – 0203 470 0534
Rob Rees – [email protected] – 0203 470 0535
Grant Barker – [email protected] – 0203 470 0471
Prince Frederick House
35-39 Maddox Street London
*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
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite