Today’s Market View – Phoenix Copper, Nordgold, Castillo Copper and more…

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SP Angel . Morning View . Friday 04 06 21

Gold prices tick lower on expectations for strong US jobs data

 

We are raising funds for a private Graphene producer – EIS scheme approval applied for

The company is selling a number of graphene products to industrial and retail customers.

Sales of certain products have sold out unexpectedly quickly.

The company wishes to fund a ramp up in production to get ahead of demand and to develop markets for a number of new, graphene products

The business is also able to upgrade graphite to a higher grade/specifications using its process – rolling out this process also requires funding

The company has also applied for EIS scheme approval from HMRC

Please let me know if you wish to invest in the company

*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.

 

Castillo Copper (LON:CCZ) – A$11.7m raised to advance the Mt Oxide and Zambian projects

Cornish Metals* (LON:CUSN) – Options exercised

KEFI Gold and Copper* (LON:KEFI) – Tulu Kapi operational update

Nordgold – Plans $5bn London IPO

Petropavlovsk (LON:POG) – Authorities file an administrative offence case against IRC

Phoenix Copper* (LON:PXC) – Award of Options

W Resources (LON:WRES) – After a challenging 2020, improvements at La Parilla still have a way to go

 

Gold (US$1,873/oz) – prices tick lower on US dollar strength

– we expect gold to push through $2,000/oz this year with $2,200/oz potential in 2022

Gold prices fell to the lowest level in more than two weeks on Tuesday, weighed down by a strong dollar ahead of key US data.

The US dollar jumped to a three-week high against its rivals, making gold more expensive to holders of other currencies.

Investors awaited US non-farms payroll data which could lead to tapering of stimulus measures by the Federal Reserve.

Huge levels of stimulus post-pandemic have driven inflation concerns which has given gold a renewed sense of appeal to protect against currency debasement.

The US 10 year has railed 1% to 1.6233% since Wednesday, further weighing on gold.

 

US – Joe Biden’s $1.7tn stimulus plan includes $1tn for new infrastructure

The proposal will initially raise demand for excavators and concrete pumps

Commodity demand will rise initially for concrete, steel, vanadium and other steel alloys.

Biden’s focus and stimulus funding on renewable energy is inspiring the construction of new solar and offshore windfarms around the US

Once the foundations are set, demand will rise for copper, nickel, tin, aluminum and zinc along with rare earth metals Neodymium and Praseodymium.

Biden’s stimulus plans have galvanized US industry to restock inventories tightening already taught supply chains

This is serving to accelerate the effect of the stimulus proposals as manufacturers ramp up production in anticipation of the new demand

 

Russia threatens dominance of US dollar as sovereign wealth fund cut dollar holdings to zero

Russia’s National Wellbeing Fund currently holds 35% of its liquid assets in dollars, worth around $41.5bn and will sell dollars for euros, gold and Chinese yuan.

Russia and China have been conspiring to break the dominance of the US dollar as the world’s foremost reserve and trading currency.

Yesterday’s statement on reducing its US dollar holdings may be part of a strategy to erode confidence in the US dollar and reduce its dominance in global trade.

For now, China appears to be limiting the rise of the yuan against the US dollar by raising quotas for foreign investment and allowing ‘more investment abroad under QDII programme’ (SCMP).

SAFE, the nation’s foreign exchange regulator also approved US$10.3bn worth of QDII quotas for 17 financial institutions

Quotas and permission for foreign investment are closely controlled by committees regulating acquisitions particularly in the commodity space.

China is also and raising reserve requirements for US dollar foreign exchange holdings by banks and traders making the holding of US dollars more expensive and onerous.

Biden’s trillion-dollar stimulus programs are weakened the US dollar which combined with rising imports are exacerbating the US balance of payments deficit.

But, we are definitely not writing off the US dollar as Biden’s ‘Go Big’ stimulus is also focussed on supporting the redevelopment of US domestic industry to replace the need for Chinese imports. If this strategy is effective then China will have to work hard to develop new markets to sell its surplus products into.

The ramping up the US economy is seen by many as ultimately helping the US dollar higher as US automakers adjust to EV production and the US economy reopens faster most other economies. We suspect betting against the US dollar is a dangerous move on a longer term basis.

Conclusion: The direction of the US dollar is as significant as demand when it comes to the pricing of commodities. While China and Russia might want to break the dominance of the US dollar and its weaponization by the US authorities, they also fear the impact of a weaker dollar on their trade with the US. We expect the US dollar to continue to weaken due to stimulus but to eventually regain strength as US industry takes sales from Chinese imports.

 

China’s building projects moving to next phase of development driving new demand for metals

We are a nearly 16 months on from the first lockdown in Wuhan and many Chinese construction projects started with Chinese stimulus will be moving into above ground construction and fitting.

We expect to see stronger demand for base metals for plumbing, electrical wiring, fixtures and fittings, air conditioning, appliances etc… as thousands of new apartments are prepared for sale.

High yoy retail sales highlight the evolution of these projects accentuated by the fall off in demand a year ago as China moved to control the pandemic restricting movement and closing stores.

 

Dow Jones Industrials -0.07% at 34,577

Nikkei 225 -0.40% at 28,942

HK Hang Seng -0.24% at 28,896

Shanghai Composite +0.18% at 3,591

 

Economics

Global food prices posted the steepest annual increase in a decade reflecting logistical bottlenecks as economies reopen among other things, the UN Food and Agriculture Organization shows.

China’s growing appetite for grain and soybeans, a severe drought in Brazil and the demand for vegetable oil for biodiesel have driven the global food price index up 40%yoy.

 

US – Non farm payrolls are due later today with expectations for a marked pick up in hiring in May.

Data released yesterday showed weekly jobless claims continued to go down in the final week of May while private payrolls showed the largest gain since last June as the economy continued to recover from the early pandemic lockdowns.

ADP private payrolls measured climbed to nearly 1,000k (978k) beating market estimates for a 650k reading.

NFPs (‘000): 674 est. v 266 in April.

Unemployment (%): 5.9 est. v 6.1 in April.

 

Olympics sponsors call for organisers to delay the Games by several months so more spectators can attend, FT reports.

The proposal is voiced by a number of big Japanese sponsors that collectively paid more than $3bn to back the Games.

“I do not think that this proposal will strongly influence the organisers because they seem completely determined to start on July 24… but it just makes much, much more sense from our perspective to hold the Games when there are more vaccinated people, the weather is cooler and may public opposition is lower,” FT cited one of a senior executives.

 

UK – Shoppers return to high streets, although, number remain well below pre-pandemic levels.

Total UK footfall increased 12%mom in May, but lagged 28% behind 2019 numbers.

“Retailers still face significant and mounting debts, and with £2.9bn in unpaid rents built up over the pandemic… the government should ringfence these lockdown rent debts to provide the breathing space for footfall and cash flows to recover,” the British Retail Consortium said.

Separately, a pick up in new infelctions among under-40s pushed the nation’s R value back above 1.0.

The Zoe symptom-tracking project estimated that R stood at 1.1 as of last week.

 

Car registrations in the UK reached ~157k in the first full month of showroom openings in May.

This marks a nearly 8x increase on the same month in 2020 but is down 14.7% on pre-pandemic May/19 and 13.2% on the 10-year May average, the Society of Motor Manufacturers and Traders data shows.

YTD registrations stand at ~296k, down 29.1% on average recorded across January and Mary during the last decade.

Of that Battery Electric Vehicles accounted for 54k (7.5% of the total), PHEV for 46k (6.4%) and HEV for 56k (7.8%).

 

India – The central bank is stepping up its bond purchases in an effort to keep rates low as the government plans a near-record borrowing to help the economic recovery, Bloomberg reports.

The Reserve Bank of India will buy an additional 1.2tn rupees ($16.4bn) of bonds in Q3.

 

US – FBI identifies JBS Ransomware attack as coming from Revil and Sodinokibi in Russia

JBS confirms that its paralysed meat processing plants are making significant progress.

Colonial Popeline Co was brought to a halt by ‘DarkSide’ another ransomware hacking group.

 

Services PMI data shows recovery in countries which are emerging or better managing the pandemic

US – ISM nonmanufacturing services PMI 64.0 in May vs 62.7 in April

Markit US 70.4 in May vs 64.7 in April

JP Morgan global services – 59.4 in May vs 57.0 in April

global composite strong 58.4 in May vs 56.7 in April

China – Nonmanufacturing services PMI 55.2 in May vs 54.9 in April

Caixin 55.1 in May vs 56.3 in April

Japan – Services PMI 46.5 in May vs 49.5, Jne’20 45) and 48.8 (51.0) respectively,

EU – Services PMI 55.2 in May vs 50.5 in April

Germany – Services PMI 52.8 in May vs 49.9 in April

France – Services PMI 56.6 in May vs 50.3 in April

UK – Services PMI 62.9 in May vs 61.0 in April

India – Services PMI 46.4 in May vs 54.0 in April

Composite PMI 48.1 in May vs 55.4 in April

Russia – Services PMI 57.5 in May vs 56.2 in April

Australia – Services PMI 58.0 in May vs 58.8 in April

Composite PMI 58.0 in May vs 58.9 in April

 

Mexico – Consumer confidence 42.7 in May vs 42.4 in April

Government drops plans to nationalise lithium production

The Mexican government is reported to have changed tack and is said to be encouraging investors into developing new production.

The report is good news for Bacanora Lithium which is waiting for Genfeng to confirm its offer to acquire the company.

The government is due to introduce a market-friendly lithium bill in September following mid-term elections on 6th June

The government had been looking to take 51% stakes in lithium production in public-private partnership with miners

 

Currencies

US$1.2112/eur vs 1.2186/eur yesterday.  Yen 110.19/$ vs 109.79/$.  SAr 13.628/$ vs 13.560/$.  $1.411/gbp vs $1.415/gbp.  0.767/aud vs 0.772/aud.  CNY 6.406/$ vs  6.392/$.

 

Commodity News

Precious metals:  

Gold US$1,873/oz vs US$1,897/oz yesterday

Gold ETFs 101.0moz vs US$101.0moz yesterday

Platinum US$1,159/oz vs US$1,188/oz yesterday

Palladium US$2,833/oz vs US$2,850/oz yesterday

Silver US$27.41/oz vs US$27.91/oz yesterday

           

Base metals:  

Copper US$ 9,826/t vs US$10,146/t yesterday

Aluminium US$ 2,405/t vs US$2,435/t yesterday

Nickel US$ 17,945/t vs US$18,230/t yesterday

Zinc US$ 2,994/t vs US$3,056/t yesterday

Lead US$ 2,154/t vs US$2,209/t yesterday

Tin US$ 30,360/t vs US$30,660/t yesterday

           

Energy:           

Oil US$71.5/bbl vs US$71.7/bbl yesterday

Natural Gas US$3.069/mmbtu vs US$3.085/mmbtu yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$197.9/t vs US$196.9/t

Chinese steel rebar 25mm US$807.7/t vs US$807.6/t

Thermal coal (1st year forward cif ARA) US$81.6/t vs US$80.8/t

Coking coal swap Australia FOB US$152.0/t vs US$151.5/t

           

Other: 

Cobalt LME 3m US$42,535/t vs US$43,650/t

NdPr Rare Earth Oxide (China) US$75,010/t vs US$75,327/t

Lithium carbonate 99% (China) US$12,645/t vs US$12,672/t

China Spodumene Li2O 5%min CIF US$640/t vs US$640/t

Ferro-Manganese European Mn78% min US$1,787/t vs US$1,797/t

China Tungsten APT 88.5% FOB US$270/t vs US$270/t

China Graphite Flake -194 FOB US$515/t vs US$515/t

Europe Vanadium Pentoxide 98% $8.3/lb vs US$8.3/lb

Europe Ferro-Vanadium 80% $39.55/kg vs US$39.55/kg

 

Battery News

CATL signs 10-year NEV deal with Great Wall automaker

Chinese battery manufacturer CATL has signed a 10-year cooperation agreement with domestic automaker Great Wall Auto, Argus Media reports.

The two firms say they will leverage their expertise and market advantage to enhance the linkage between supply and demand and promote the technological progress of NEVs in line with China’s carbon-peak and carbon-neutral targets.

Great Wall sold 1.1m pick-up trucks and SUVs in 2002, up 4.7% YoY.

CATL’s battery production totalled 51.71GWh in 2020, up 9.4% YoY while sales increased by 14.4% to 46.84GWh over the same period.

China’s NEV output rose 163% YoY in April to 216k units while sales increased 180% to 206,000, according to CAAM.

 

Company News

Castillo Copper (LON:CCZ) 2.4p, Mkt Cap £25.5m – A$11.7m raised to advance the Mt Oxide and Zambian projects

Castillo Copper has announced that it has raised A$11.7m (£6.4m) in order to progress its continuing exploration of the Mt Oxide project in the Mt Isa Belt of north west Queensland and its Luanshya and Mkushi projects in Zambia.

The company says that the fund-raising was “was well supported by current and new institutional and sophisticated investors in Australia and the UK”.

The company is issuing an additional 278.4m shares at a price of A$0.042/share (2.3p/share) and, subject to shareholder approval, is also issuing approximately 157m options valid until 12th July 2024.

Based on the 1,014m shares in issue at 31st December, 2020, we estimate that the fundraising represents approximately 21.5% of the enlarged capital of the company.

Managing Director, Simon Paull explained that as a result of the support the fundraising had received, “we now have ample funds to ramp up our exploration efforts. Over the next few months, we will test-drill multiple copper targets across the Big One Deposit, Arya and Sansa Prospects within our core Mt Oxide Project. Concurrently, we intend to expedite exploration programmes at the Luanshya and Mkushi Projects in Zambia”.

 

Cornish Metals* (LON:CUSN) – 14.5p, Mkt cap £39m – Options exercised

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Cornish Metals has announced that 50,000 options have been exercised at a price of C$0.15/share raising C$7,500 (£4,392).

Cornish Metals is currently drilling to confirm the discovery of high-grade copper and tin at United Downs in Cornwall.

We are hopeful that a new resource at United Downs may prove to be economic and easily accessible from a decline at the Wheal Maid mine which we believe to run close to the original discovery drill hole at United Downs.

The company also owns the historic South Crofty tin mine near to the United Downs site.

Lower levels of the South Crofty mine are currently flooded and may be dewatered in future years to further expand production.

* SP Angel acts as broker and financial advisor to Cornish Metals.

 

KEFI Gold and Copper* (LON:KEFI) 2.0p, Mkt Cap £43m – Tulu Kapi operational update

The team provided an updated on the construction ready flagship Tulu Kapi Gold Project in Ethiopia.

The Company submitted an updated detailed project development and production plan to the Ethiopian regulatory authority.

Final approval of the updated plan will be required for the project funding to proceed.

Additionally, the team signed a new mining contractor, Corica Group, the largest in Arica, on better terms with a letter of intent envisaging the start of development activities any time from July 2021.

Lycopodium , the principal process design and construction contractor, is also ready to start major works at any time from July 2021.

Project equity and subordinated debt are expected to be completed post AGM scheduled for 30 June 2021 followed by debt drawdowns in Q4/21.

First production reiterated for Q4/22 with a ramp up to full capacity by mid-2023.

*SP Angel act as Nomad and Broker to KEFI Gold and Copper

 

Nordgold plans $5bn London IPO

Russian gold miner Nordgold plans to list in London, intending to sell a 25% stake to investors, including via a secondary listing in Moscow.

Recent additions to the London market include Canada’s Yamana Gold, while Endeavor Mining is set to join the market this month.

Nordgold is developing two new gold mines in the far east of Russia, which will help it boost production by an expected 20% over the next five years.

 

Petropavlovsk (LON:POG) 25p, Mkt Cap £1,000m – Authorities file an administrative offence case against IRC

Russian authorities initiated an administrative offence proceeding against K&S in the Obluchensky district Court of the Jewish Autonomous Region.

The case is brought by the Russian Federal Service for Environmental, Technological, and Nuclear Supervision (RTN) on charges that the K&S iron ore project was operated without the necessary approvals.

IRC explains that in the construction process some equipment and machinery were changed deviating from the approved project design with deviations found non-compliant during RTN inspection of K&S in Feb/20.

K&S tried to obtain relevant approvals by the set deadline of Nov/20 but due to Covid-19 pandemic and asked for an extension of the deadline to 31 Dec/21 to complete the works and formalities.

The extension was granted, although, RTN carried an unscheduled inspection at the K&S project site in Apr/21 and issued a notice informing K&S of its decision to commence an administrative offence proceedings at the local court.

The case was registered at the local court on 2 Jun/21 with the dated of the court hearing yet to be fixed.

The potential outcome of the administrative offence proceeding is unclear.

The Company understands that if K&S is found to have committed an offence a fine may be imposed by the court and/or K&S may be required to suspend its operations until the required formalities are completed and necessary approvals are received.

Petropavlovsk is a major shareholder with a 31.1% interest in the Company and also acts as a guarantor under two loan facility agreements with Gazprombank ($204m loan outstanding as of FY20).

 

Phoenix Copper* (LON:PXC) 47p, Mkt Cap £54.7m – Award of Options

(Phoenix holds 80% of the Empire mining property in Idaho)

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Phoenix Copper has announced the granting of a total of 2.35m options to directors and staff in accordance with the company’s Staff Incentive Scheme..

The new options bring “the total number of ordinary shares under option … [to]… 6,025,000, representing 5.18 per cent. of the Company’s issued share capital”.

The options “have an exercise price of £0.50, vest 50% after six months and 50% after twelve months, and expire three years from the date of grant”.

Executive and non-executive Directors receive 1.5m of the new options, including 300,000 options to each of Messrs. Edwards-Jones, McDermott and Wilkins, 200,000 to Mr. Turner, 150,000 to Mr. Cohen and to Ms Catherine Evans and 100,000 to Mr. Riley.

In addition, members of the recently constituted Advisory Board receive 250,000 options  in the case of Mr. Kenyon-Slaney and 200,000 for Mr. Dennis Thomas.

Staff of the company’s Idaho registered operating subsidiary, Konnex Resources receive a total of 400,000 options.

*SP Angel act as Nomad for Phoenix Copper

 

W Resources (LON:WRES) 7.9p, Mkt Cap £8.6m – After a challenging 2020, improvements at La Parilla still have a way to go

Reporting on what its Chairman, Michael Masterman describes as “a very challenging year” W Resources has announced a loss for 2020 of €3.5m (2019 – loss €2.9m).

The company reports increased levels of debt with 31st December net debt of €56.6m (2019 €45.9m) and net debt:net debt + equity of 76% (2019 71%).

Investor, Black Rock, continued its support “with an additional US$7m loan to support the continued development of La Parrilla and increase working capital”.

Mr. Masterman said that “We appreciate the continued support of shareholders and are fully committed to reaching our production targets at La Parrilla, which will then transform the business to a profitable mining company with positive cashflow and deliver a turnaround in shareholder value”. 

He explained that “progress was made and there was a clear improvement in H2 with greater plant availability and an increase in recoveries which lead to an increase in production. Benefits of the Plant Improvement Programme are being demonstrated throughout the mine at La Parrilla and are set to continue to improve”.

Quarterly production statistics published in today’s announcement show improving recovery rates for tungsten from 17% in Q1, 16% in Q2, 30% in Q3 and 31% in Q4 which although improving are still below the levels of other producers which no doubt the company would aim to match or exceed.

Despite a dip in mined throughput and output of concentrate during Q3 2020, tungsten concentrate tonnages and grades have generally improved on a quarterly basis from 58.9t at a grade of 56.1%tungsten trioxide during Q1 to 100.t at a grade of 67.0% in Q4.

Previously, In March, the company reported that it had experienced exceptionally heavy rainfall that “This came at a time when the water level of the historic mine pit adjacent to the mine was already unseasonably high and as a result it became unsafe for the team to access the higher-grade ore … [and said that it was] … taking steps to lower the water level and regain access to the higher-grade ore”.

Previous indications were that access to high-grade ore was expected to re-commence in Q3 2021.

Today’s announcement acknowledges that “Clearly production levels throughout 2020 were not at the level we or our stakeholders expected them to be. The rigorous plant improvement programme, implemented to mitigate against the challenges the plant was experiencing, took longer than we had originally anticipated, however this was completed in Q1 2021 and the Company now looks forward to reaping the benefits of this detailed process”.

Conclusion: The Chairman’s description of 2020 as a challenging year sums up the difficulties experienced at La Parilla. Plant modifications are showing benefits to concentrate volumes and grades but with access to higher grade ore limited until later this year as a result of high water levels in the historic pit, W Resources still has a way to go to achieve its goals.

 

Recent Interviews:

BBC:  Catalytic converters  https://www.bbc.co.uk/sounds/play/p09jl6c9

IGTV:  Evolution of Chinese construction and implications for commodity demand: https://youtu.be/jB2nURL8uPw

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

VOX Markets:  28/04/20: https://www.voxmarkets.co.uk/media/60896b3f017903524c8e0936/?context=/listings/LON/BMN/multimedia/

21/04/20: https://www.voxmarkets.co.uk/listings/LON/BMN

*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

 

Analysts

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

 

Sales

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

 

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*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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