SP Angel . Morning View . Wednesday 21 04 21
Gold prices gain on inflation rising Covid cases and falling US bond yields
Anglo Asian Mining* (LON:AAZ) – BUY – Anglo Asian extends the Gedabek contract area PSA for another five years
Mkango Resources* (LON:MKA) – Mkango appoints US advisory firm to help connect with US government strategy
BHP (LON:BHP) – Record year-to-date iron ore production from W Australia
Hummingbird Resources (LON:HUM) – Q1 production results
Savannah Resources* (LON:SAV) – Proposed placing to raise up to £10.3m
Shanta Gold (LON:SHG) – Quarterly production results
Vast Resources (LON:VAST) – Proposed share consolidation & director purchase
Tirupati Graphite (LON:TGR) – Vatomina Mine opens
Gold prices rise towards $1,800/oz as Treasury yields steady at five-week low
Gold prices continued to build on Tuesday’s gains this morning, as bond yields stabilized after trending downwards.
Rates on 10-year notes dove to 1.53% on Thursday, amid indications that short-covering was causing yields to decline (Bloomberg).
Rising yields have hampered non-yielding bullion so far this year- outcompeting the metal somewhat as a safe haven asset.
Renewed uncertainty regarding global Covid cases is also providing underlying support for gold, with cases surging to a global weekly record despite vaccinations.
Global Covid cases hit weekly record despite vaccinations
More people were diagnosed with Covid-19 during the past seven days than any other week since the start of the pandemic – topping 5.2m globally.
The news comes after the world surpassed 3 million covid-related deaths.
Infection rates have largely slowed in countries which have had swift vaccine rollouts including the US, UK and Israel.
Developing countries including Brazil and India are currently shouldering surging caseloads- with hosiptals in both countries coming under increasing pressure as admissions rise.
India and Brazil have so far administered doses to 4.5% and 8.3% of their populations respectively, with the US and UK at 33% and 32%.
Xi Jinping calls for a new world order at the Boao Forum for Asia
In a thinly veiled attack at the US, President Xi said rules set by one or several countries should not be imposed on others.
Inflation – prospects rise as manufacturers and service providers pass cost increase on to customers
Container shipping and other transport costs have risen as the surge of imports to the West rises partly driven by so many containers held up in unhelpful locations
Prices for services are also likely to rise substantially this year as consumers accept higher prices in gratitude for restaurants and bars reopening..
Late frosts in Western Europe are likely to raise prices for food produce with the French government already announcing emergency payments for Farmers – is there an election coming?
The attitude and treatment of truckers by European Customs officials across the UK/European boarder continues to disrupt trade with some UK producers now willing to risk sending goods across the Channel.
Higher commodity prices are always a good starting point and reason to raise prices .
The Times reported 46% of all manufacturers expecting to raise prices this quarter
Inflation which has remained stubbornly low due to the deflationary impact of cheap Chinese goods on the market and competition for jobs from elevated immigration into key Western economies looks likely to rise.
The question is how far and fast this inflation will rise and what policymakers will do to limit its impact.
Given that policymakers are keen to see inflation and they are also cognisant of high levels of government debt we suspect the normal policy response to raise interest rates will be subdued.
Higher wage and product inflation should start to erode the relative level and cost of supporting government debt.
But, if China’s new Dual-Circulation policy causes the cost of cheap Chinese products to the West to rise then inflation might become more of an issue.
Aluminum – Chinese primary al output rose 8.5% yoy to 3.28mt in March, a new high level (Chinese National Bureau of Statistics)
The IAI reckon China produced 3.31mt in March vs 5.725mt globally (5.187mt in February)
This is despite China cutting back on aluminium production in Mongolia and areas suffering heavy smog as often occurs through the winter and spring months
The rise in aluminium production likely reflects strong demand for consumer products and for transport projects driven by stimulus funds in China.
We expect Biden’s infrastructure stimulus to also raise aluminium demand due to its likely focus on new rail projects.
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
VOX Markets: 14/04/20: https://audioboom.com/posts/7844265-john-meyer-talks-about-china-afritin-kefi-minerals-strategic-minerals
*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.
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The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Dow Jones Industrials -0.75% at 33,821
Nikkei 225 -2.03% at 28,509
HK Hang Seng -1.67% at 28,649
Shanghai Composite +0.04% at 3,474
UK – Inflation rate rose to 0.7% in March vs 0.4% in Feb, below forecasts
The UK inflation rate rose to 0.7% in the 12 months to March, pushed up by the increased cost of fuel, transport and clothes.
Fuel prices in March showed their biggest annual increase since January 2020.
The Bank of England forecast inflation could reach 1.9% by the end of 2021, will some economists forecast predict it could exceed 2% before the end of the year.
The ONS commented that inflation would have been higher without a fall in food prices.
EU – Construction output collapsed -5.8% yoy in February vs -2.6% yoy in January
Germany – Green party surge in polls to take lead over Merkel’s CDU
Germany’s green party opened up a seven-point lead over Merkel’s conservative bloc with five months to go before the national election.
The Greens have named Annalena Baerbock as candidate for chancellor, while Merkel’s bloc squabbles over its own choice to succeed her.
PPI rose 0.9% in March vs 0.7% in February and was also up 3.7% yoy vs 1.9% yoy on last February
Hong Kong – UK exodus expected to push vacant homes to 18-year high
The number of vacant homes is expected to surge as families head to the UK under BN(O) visa scheme, Bloomberg reports.
The exodus would take the number of empty homes to over 66,000.
Rents are forecast to slide as much as 10% in 2021.
Japan – exports rose 16.1% in March vs -4.5% in February
Imports rose 5.7%,
Industrial production fell 1.3% in February vs +3.1% in January
Industrial production fell -2% yoy in February and -5.3% yoy in January
Capacity utlisation pulled back 2.8% in February vs +3.1% in January
US$1.2025/eur vs 1.2068/eur yesterday. Yen 108.02/$ vs 108.45/$. SAr 14.289/$ vs 14.213/$. $1.393/gbp vs $1.400/gbp. 0.772/aud vs 0.781/aud. CNY 6.495/$ vs 6.498/$.
Gold US$1,788/oz vs US$1,769/oz yesterday
Gold ETFs 99.2moz vs US$99.1moz yesterday
Platinum US$1,204/oz vs US$1,208/oz yesterday
Palladium US$2,790/oz vs US$2,791/oz yesterday
Silver US$26.12/oz vs US$25.90/oz yesterday
Copper US$ 9,357/t vs US$9,423/t yesterday
Aluminium US$ 2,317/t vs US$2,334/t yesterday
Nickel US$ 16,170/t vs US$16,220/t yesterday
Zinc US$ 2,811/t vs US$2,850/t yesterday
Lead US$ 2,027/t vs US$2,056/t yesterday
Tin US$ 26,745/t vs US$26,600/t yesterday
Oil US$66.4/bbl vs US$67.8/bbl yesterday
Oil prices are currently trading down on the day prior to the data release on demand fears, sparked by a rise in the number of Covid-19 infections in one of the world’s largest oil importer, India.
This is coupled with a surprise build in US inventories with the API confirming a rise of 436kbbls for the week ending 16 April 16
This is well above analyst forecasts of a draw of 2.86MMbbls for the week
US oil production rebounded to 11MMbopd during the week ending 9 April, according to the latest data from the Energy Information Administration
Even though the EIA’s prognosis is for a modest increase in US production in May, oil production has hovered in a rather tight band since October of last year
The API reported a draw in gasoline inventories of 1.617MMbbls for the week ending 16 April, after the previous week’s 5.565MMbbl build
Analysts had expected a 650kbbl build for the week
Distillate stocks saw an increase in inventories this week of 655kbbls for the week, after last week’s 3.006MMbbl decrease
Cushing inventory figures fell by 1.286MMbbls
Natural Gas US$2.711/mmbtu vs US$2.745/mmbtu yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$183.0/t vs US$172.3/t
Chinese steel rebar 25mm US$782.0/t vs US$781.4/t
Thermal coal (1st year forward cif ARA) US$74.5/t vs US$75.0/t – Largest US coal miners’ union to back Biden’s energy transition in exchange for jobs
The United Mine Workers of America announced this week that it would accept President Biden’s plan to move away from coal and other fossil fuels in exchange for a “true energy transition”.
The transition would have to include thousands of jobs in renewable energy and spending on technology to make coal cleaner, the union say.
It is estimated that 7,000 coal workers lost their jobs last year, and the unions wants to ensure jobs for displaced miners are taken into account by the infrastructure bill taken up by congress.
Cecil Roberts, President of the union, commented: “I think we need to provide a future for those people, a future for anybody that loses their job because of a transition in this country, regardless if it’s coal, oil, gas or any other industry for that matter,″
A plan put forward by the union calls for significant expansion of tax incentives for renewable energy and preference in hiring for dislocated miners, along with full funding for programs to plug old oil and gas wells and clean up abandoned mines.
Coking coal swap Australia FOB US$147.5/t vs US$147.5/t
Cobalt LME 3m US$49,750/t vs US$49,750/t
NdPr Rare Earth Oxide (China) US$86,216/t vs US$86,569/t
Lithium carbonate 99% (China) US$12,625/t vs US$12,620/t – New lithium refinery will support UK’s growing EV market
Green Lithium has secured funding to become Europe’s first large-scale lithium refinery.
Projected that the UK and European EV will need 1.4m tonnes of refined lithium by 2030, a 400% increase in supply needed.
The project aims to be the missing link in the EV supply chain for Europe, as a local source of refined lithium for the EV market.
Secured a £630k grant from the APC’s Automotive Transformation Fund.
China Spodumene Li2O 5%min CIF US$630/t vs US$630/t
Ferro-Manganese European Mn78% min US$1,617/t vs US$1,623/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
Battery storage firms raised nearly $5bn corporate funds in Q1 2021
Corporate funding totalled $4.7bn across 17 deals.
Strong growth through 2020, despite a drop in funding in Q1 ($244m)
Q4 2020 saw 19 deals closed worth $3.1bn.
Nickel Mines takes 50% stake in Angel Nickel project
Nickel Mines has completed the acquisition of a further 20% in the Angel Nickel project, Indonesia.
$137.6m paid for the 20% interest.
The project would have an annual capacity of 36,000t of nickel.
Plans also include a 380MW coal-fired power plant.
Anglo Asian Mining* (LON:AAZ) 133.5p, Mkt Cap £151m – Anglo Asian extends the Gedabek contract area PSA for another five years
Anglo Asian Mining has announced that it has been granted the first of two permitted extensions to its Production Sharing Agreement at Gedabek.
The extension is for a five year period and is the first of two permitted under the permitting process Would “Production Sharing Agreement” read better than “permitting process” in Azerbaijan.
In addition, Anglo Asian Mining reports that it is “currently in negotiations with the Government of Azerbaijan to obtain an extension of the territory of its existing contract areas and for new contract areas in Azerbaijan”.
Welcoming the extension, CEO, Reza Vaziri confirmed that the company is continuing “our exploration program which has already identified a number of new mineral occurrences including Zafer and Avshancli”.
Mr. Vaziri also confirmed continuing negotiations with the Government “to increase its land under concession in Azerbaijan both through enlargement of its existing contract areas and the licencing of new areas”.
Conclusion: The licence extension at Gedabek and continuing discussions on adding new concession areas provides continuity to the existing operations and opens up new potential for future expansion. Management have proven themselves to be good miners and excellent corporate citizens in Azerbaijan. Their work at Gedabek has transformed the town and surrounding community with substantial increases to the living standards of very many families in the area.. Anglo Asian Mining has also proven itself as a technically good gold and copper miner in Azerbaijan and is likely to continue to receive exploration permits and future extensions for its mining areas.
*SP Angel act as Nomad and broker to Anglo Asian Mining
Mkango Resources* (LON:MKA) 20.75p, Mkt cap £27.3m – Mkango appoints US advisory firm to help connect with US government strategy
(Mkango’s 75.5% subsidiary, Maginto Ltd holds a 25% stake in HyProMag which is a partner in the ‘Rare–Earth Recycling for E-Machines’ RaRE project)
Mkango Resources has announced the appointment of a Washington based advisory firm, Jones Group International, headed by the former National Security Advisor to President Obama, General James Jones, to advise the company on its strategy in the US.
Jones Group will provide guidance to Mkango Resources on “US critical materials security, energy security, market access and trade promotion”.
Mkango’s President, Alexander Lemon, explained that as part of the Biden Administration’s US$2 trillion infrastructure programme, the United States is expected to increase its stockpiles of rare-earths elements as part of its programme to “achieve a carbon free power sector by 2035 and a net zero economy by 2050”.
Mr. Lemon pointed out that Mkango Resources’ Songwe Hill deposit in Malawi and its planned UK rare-earths separation plant put the company in a strong position “to play a strategic role in supplying the US critical minerals supply chain as well as other key markets”.
General Jones welcomed the partnership with Mkango in sourcing rare earth “elements and metals essential to the advanced technologies of today and tomorrow” and said that “”Mkango’s Songwe Hill Rare Earths project in Malawi, its plans for a rare-earths separation plant and related projects portend to expand and reinforce the supply chain of critical elements essential to the economic and national security wellbeing of the transatlantic community”.
Conclusion: Mkango Resources has appointed a well-connected advisor to guide its approach to supplying the US market with rare earths products and participating in the United States’ drive for achieving carbon-free power by 2035 and a net-zero economy by 2050.
BHP (LON:BHP) 2,195.5p, £45.8bn – Record year-to-date iron ore production from W Australia
BHP reports record year-to date production Western Australian iron-ore production with a 4% increase to 188mt after three quarters of the financial year. Guidance for the full year remains unchanged in the range 245-255mt.
The company attributes the improvement to “record production at Jimblebar and strong performance across the supply chain, with improved train cycle times and car dumper performance and reliability” and says that it was achieved “despite significant weather impacts in December 2020, January 2021 and February 2021, and the planned Mining Area C and South Flank major tie-in activity.”
The company says that its Chilean copper assets “continued to operate with a substantial reduction in their operational workforces as a result of COVID-19 restrictions” and that overall group copper output of 391,400t for the quarter brought the year to date total to over 1.23mt representing a 6% decline relative to 2020.
Stronger than expected performance at Escondida, however, prompts an upward revision to copper production guidance to the 1.535-1.660mt from 1.510-1.645mt, with guidance for Escondida increased to the range 1.01-1.06mt.
The Olympic Dam mine “copper production increased by 25 per cent to 155 kt, reflecting improved smelter performance and stability. Production for the March 2021 quarter was 55 kt, the highest quarterly production rate in five years”.
Metallurgical coal output edged 2% lower to 29mt (YTD) and FY21 guidance has been reduced to the range 39-41mt from the previous guidance of 40-44mt “as a result of significant wet weather impacts during the December 2020 and March 2021 quarters”.
“Energy coal production decreased by 26 per cent to 13 Mt. Following a strike at Cerrejón and prolonged wet weather impacts at NSWEC, guidance for the 2021 financial year has been reduced to between 18 and 20 Mt from between 21 and 23 Mt”.
BHP says that it has “four major projects under development in petroleum, iron ore and potash, with a combined budget of US$8.5 billion over the life of the projects. Our major projects under development are tracking to plan.”
BHP reports that it spent US$126m on mineral exploration during the nine months, implying US$40m during the 3rd quarter, with efforts “predominantly focused on advancing copper targets within Chile, Ecuador, Mexico, Peru, Canada, Australia and the south-west United States”.
Resource definition drilling at Oak Dam in South Australia is expected to start around mid-2021.
Conclusion: BHP has reported record year to date iron-ore production from Western Australia despite the impact of bad weather. Strong performance from Escondida and Olympic Dam has prompted an upward revision of copper production guidance while expectations for both metallurgical and thermal coal have been slightly reduced reflecting the impact of adverse weather.
Hummingbird Resources (LON:HUM) 20.6p, Mkt Cap £71m – Q1 production results
Hummingbird Resources reports that during the quarter to 31st March 2021, it produced a total of 22,781oz of gold at an all-in-sustaining cost (AISC) of US$1,494/oz (Q4 2020 – 22,012oz at an AISC of US$1,496/oz).
The company confirms its 2021 production guidance of 100-110,000oz at an AISC in the range US$1,250-1,350/oz).
The relatively high unit cost per oz during Q1 compared to the full year guidance is reported to result from a combination of relatively low “planned quarterly production and mill grades … [and a] … High strip ratio as the Company accesses the Komana West (‘KW’) ore body”.
Average grades improved during the quarter to 2.16g/t (Q4 2020 – 2.03g/t) and the company expects “incremental grade profile improvements from Q2 2021 onwards as it access’s deeper parts of the ore body which have incrementally higher gold grades, particularly at the Komana West (‘KW’) deposit”.
CEO, Dan Betts, said that “Although Q1 was a slow quarter in terms of production, this is in-line with forecast projections that the 2021 production profile would be weighted to the second half of the year. We expect production numbers to improve during Q2. Also, we expect our AISC profile to improve from current levels, in line with improving production levels”.
The company also explains that it expects sustaining capital expenditure, including the dam lift on the tailings storage facility, to be incurred predominantly during the first half of the year.
The Company also reports “material progress in delivering a definitive feasibility study” at the Dugbe Gold Project in Liberia where its earn-in partner, Pasofino Gold, has released selected intersections from the first drill holes of the planned 5,500m programme.
Conclusion: The company is maintaining its 2021 production and cost guidance with gold production levels and grades expected to improve though the year as higher grades are accessed at depth. Costs are expected to decline towards the published US$1,250-1,350/oz guidance range through the year.
Savannah Resources* (LON:SAV) 4.075p, Mkt Cap £58m – Proposed placing to raise up to £10.3m
Savannah Resources reports that it intends to undertake a placing of up to 257,968,785 new ordinary shares in the capital of the Company at a price of 4p per Placing Share.
The placing will be effected by way of an accelerated bookbuild open with immediate effect.
*SP Angel act as Nomad to Savannah Resources
Shanta Gold (LON:SHG) 14.5p, Mkt Cap £155m – Quarterly production results
During the three months to 31st March 2021, Shanta Gold produced 14,641oz of gold (Q4 2020 – 20,622oz) at an average cash cost of US$829/oz and all-in-sustaining cost (AISC) of US$1,307/oz.
The company confirms its guidance for the full year, 2021, is for gold production of approximately 80,000oz of gold at an AISC in the range US$1,050-1,100/oz.
Production resulted from the processing of approximately 192,000t of ore at an average grade of 2.67g/t gold at a recovery rate of 89.1% (Q4-2020 – 181,000t at a grade of 3.91g/t and 90.4% recovery). The company says that the lower grades reflect lower than expected values in January from the Bauhinia Creek and Ilunga sections of the mine.
Shanta Gold also reiterates that it expects gold production to increase through the year with 45% of the total expected during the first half.
The continuing “ramp-up of the new third mill at New Luika …[is] … targeting monthly throughput of 2,300 tonnes per day during Q3 2021, an increase of 18% compared with daily throughput in 2020”.
At Singida, work is continuing with site clearance, geotechnical drilling and with recruitment of local staff. The company also says that “Exploration drilling yielded promising grades some of which significantly exceed the current reserve grade; results are being modelled to estimate the impact on reserves”.
Shanta Gold reports a quarter end cash balance of US$41.9m and net cash of US$31.0m. “Gross debt of US$11.1 million (“m”) reduced to US$1.4 m post Period following the repurchase of all outstanding convertible loan notes and early repayment of Exim loan facility”.
Chief Executive, Eric Zurrin confirmed that debt reduction is a key component of the company’s strategy and that “.early repayment of the Exim loan facility and the repurchasing of all outstanding convertible loan notes demonstrates our financial discipline and further strengthens our balance sheet”.
Conclusion: Shanta Gold has reaffirmed its 2021 guidance and confirms that production is expected to increase through the year as the third mill increases treatment capacity at New Luika by 18%.
Vast Resources (LON:VAST) 0.0825p, Mkt Cap £17.6m – Proposed share consolidation & director purchase
Vast has announced its intentions to effect a reorganisation of the Company’s share capital, providing notice of a General Meeting at 11am on the 5th of May 2021.
The company intends to reduce the number of ordinary shares in issue by factor of 100.
Separately, Vast report that Mr Andrew Prelea, Chief Executive Director of the Company, purchased 25,000,000 ordinary shares of 0.1 pence each in the share capital of the Company at a price of 0.837 pence per Ordinary Share on the Secondary Market.
Mr Prelea’s investment amounted to £209,250, taking his total beneficial ownership in the Company to 1,606,514,739 Ordinary Shares, which represents approximately 7.54% of the Company’s issued share capital.
Tirupati Graphite (LON:TGR) 95.5p Mkt Cap £82.1m – Vatomina Mine opens
Tirupati reports the opening of its second mine In Madagascar at the Vatomina Project, where it remains on track to start commissioning the first 9,000 tpa processing plant in Q2 2021.
The company have also completed building a new 12km interconnecting road between Vatomina and Sahamamy, which will save circa 5% in current OPEX towards logistics costs.
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