Today’s Market View – Anglo American; Arkle Resources; Centamin and more…

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SP Angel . Morning View . Thursday 22 04 21


Gold, copper and most other metals rise despite dollar strength


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MiFID II exempt information – see disclaimer below


Anglo American (LON:AAL) – Production increases for copper, iron ore and PGMs in Q1


Arkle Resources* (AIM:ARK) – Imminent start of drilling on the Mine River project


Centamin (AIM:CEY) – Q1 production on track to meet 2021 guidance




Gold – $1,793/oz – prices break out as Bitcoin melts down and on prospects for further stimulus funding in India and other emerging markets


  • Rise in Indian Covid cases creates new concern for central bankers and policymakers as Delhi locksdown.
  • India is the world’s 5th largest economy and locking down large parts of the nation will have significant impact though PM Modi is urging states to avoid shutting down.
  • The UK is cutting off direct flights from India at 4:00pm on Friday, so there is still time for a few more Covid carriers to arrive for a joyous quarantine in a Travelodge of your choice.
  • India may prove to be a template for the spread of covid in other nations.


Chinese steel prices continue to break record levels as iron ore miners struggle


  • Shanghai rebar prices are at their highest level since the SHFE futures market started trading the contract in 2009.
  • The rebar price is $787.4/t in China this morning
  • Chinese crude steel output rose 19% to 94mt in March.
  • Rio Tinto, BHP and Vale are reported to be struggling to keep up with the pace of growth in Chinese demand as Chinese stimulus projects draw down steel product inventories.
  • Iron ore prices rose to >$183/t cfr Tianjin in China yesterday. .
  • Rio Tinto sounds like it is struggling to meet its 340mt guidance for this year due to Cyclone Seroja and the challenge of bringing 90mtpa of replacement mine capacity on line.


Copper – strong demand and seasonal drawdowns in copper look likely to support prices at high levels


  • We expect to see seasonal draw downs in copper reducing warehouse stock levels.
  • We suspect China’s SRB has moved copper inventories into the visible spectrum in recent months to hold prices back but that the SRB may not really want to sell these stocks.
  • Comments from a Chinese official hinted that ‘price limits’ could be imposed on copper and other commodities to hold back inflation, though we see this as a tactic of last resort.
  • Given that much of the exuberance in copper and other metals futures is driven by unfettered Chinese investor speculation the raising of margin requirements in Chinese futures markets is likely to be the easiest way to dampen speculation in metals prices. Other measures to reduce speculation in metals markets could also be brought to bear before going for the ‘nuclear’ option.
  • Most Western investment in copper and other metals is thought to be relatively passive with long-only funds recently seen booking profits in copper at high levels to fund investment in other areas.
  • The copper market should return to trading more on fundamentals than on speculation over the next few months in our view.


Palladium prices hit record highs amid supply worries at top supplier Nornickel


  • Spot palladium prices surged to a record high on Wednesday afternoon, on positive automaker demand and deepening supply shortfalls of the metal.
  • The palladium market has been in a production deficit for several years, with tighter pollution standards spurring demand from automakers.
  • Top producer Norilsk Nickel’s Oktyabrsky mine has been working at lower capacity due to flooding.
  • The mine is currently working at 60% capacity, with the company expecting to be fully operational by the end of April.
  • Palladium rose as much as 4.8% to $2,896/oz, surpassing the previous record high achieved in February 2020.


China March battery raw material imports indicate strong production recovery


  • Cobalt metal imports rose 77% on month prior to 1,360 tonnes – a historical monthly high in March.
  • Lithium carbonate imports fell 10% on the month prior to 6,480t – although demand was 60% on an annualised basis.
  • Lithium hydroxide imports rose 10,217% on the month prior to 361t – a three-year high in March driven by lower import prices compared to those of domestic materials.
  • Natural graphite flake imports rose 28% on the month prior to 7,224t – amid tightening supply from domestic producers in China.
  • China continues to power ahead in the global battery production, with 101/136 electric vehicle battery plants under production currently situated in China, according to Benchmark Mineral Intelligence.
  • China is building a battery Gigafactory at the rate of one every week, while the USA at one every four months.


US EV sales jump 81% year-on-year


  • Sale of EVs in the US experienced record growth for Q1, up 81% from Q1 2020.
  • Combined sales of EVs, HEVs/PHEVs surpassed 300,000.
  • EV sales now represent 7.8% of the US auto market.





Economics


China – Ministry of Industry and Information Technology (MIIT) looking for further supply-side reform to cut power consumption by polluting industries


  • China has already forced less efficient aluminium pot lines to close, due to winter smog. Some may never reopen.
  • The ministry is also focussing on steel, cement and glass partly to reduce pollution and emissions and partly to favour companies which we suspect have been funded by the state.
  • MIIT reported rapid growth in China’s high-tech and equipment manufacturing sectors yesterday at 31.2% and 39.9% yoy in Q1 exceeding growth in the manufacturing sector.
  • The sector saw two-year average annual growth of 12.3 and 9.7% respectively.
  • Investment in the high-tech manufacturing sector increased by 41.6% yoy with two-year average annual growth of 10.7%.
  • The ministry commented that the output of smart low-carbon products has grown rapidly.
  • EV and industrial robot production rose by 310% and 110% yoy through Q1.


Australia bites back against Chinese bullying


  • The State of Victoria, Australia has torn up a belt & road infrastructure agreement with China over the ongoing trade war between the two nations.
  • China continues to impose very specific sanctions against key states in Australia aimed at forcing politicians to vote their way.
  • The sanctions list on wine, barley, beef, lamb, cotton, lobsters, timber and coal along with a litany of official and unofficial trade sanctions appears to be growing.
  • Maybe it is time for Australia and other nations to fight back. If Australia were to ban all iron ore exports into China, their steel industry would soon grind to a near halt messing up much of their stimulus construction program. Unfortunately, this may also have a profound impact on the global economy.


India – World’s biggest one day report of new infections reported as economic recovery begins to derail


  • India reported over 314,000 new infections, pushing the total to almost 16m cases.
  • India has struggled to provide vaccines for its population despite being the world’s largest manufacturer – with only 4.8% of the country vaccinated according to Bloomberg.
  • A new virus variant with a double mutation has been detected in India, with concerns growing that it could spread to other countries.
  • The Delhi High Court has urged Modi’s government to “beg, borrow, steal” to ensure enough adequate oxygen supply for hospitals.
  • Indian stocks and the rupee are Asia’s worst performers this month as the situation spirals out of control.
  • JP Morgan projects 11% GDP growth in India revised down from 13%, while Care Ratings forecast 10.2% growth this fiscal year- its second downward revision in less than a month.


France – Manufacturing confidence jumps to near two year high in April with sentiment improving in all main sub-sectors


  • French manufacturing confidence rose to 104 vs 99 last.
  • Business confidence fell to 95 vs 97 last.
  • Retail trade confidence fell to 90 vs 95 last.
  • Employment climate remained unchanged at 92.


Germany – Negotiations progress to buy 30m doses of Sputnik V vaccine


  • Germany intends to buy up to a total of 30m doses of Russia’s Sputnik V vaccine in June, July and August- subject to approval from the European drugs regulation.


EU – Bloc to take legal against AstraZeneca over vaccine shortfall


  • The EU’s executive arm is preparing to start legal action within days against AZ after the company failed to hit vaccine targets.
  • Astra delivered just 30m doses in the first quarter vs an original target of 120m.
  • The bloc’s legal proceedings are aimed at ensuring the company delivers on commitments this quarter, with the European Commission asking governments to join the process.


Currencies


US$1.2045/eur vs 1.2025/eur yesterday. Yen 107.86/$ vs 108.02/$. SAr 14.240/$ vs 14.289/$. $1.394/gbp vs $1.393/gbp. 0.776/aud vs 0.772/aud. CNY 6.483/$ vs 6.495/$.




Commodity News


Precious metals:


Gold US$1,793/oz vs US$1,788/oz yesterday


Gold ETFs 99.2moz vs US$99.2moz yesterday


Platinum US$1,214/oz vs US$1,204/oz yesterday


Palladium US$2,864/oz vs US$2,790/oz yesterday


Silver US$26.49/oz vs US$26.12/oz yesterday




Base metals:


Copper US$ 9,430/t vs US$9,357/t yesterday


Aluminium US$ 2,359/t vs US$2,317/t yesterday


Nickel US$ 16,080/t vs US$16,170/t yesterday


Zinc US$ 2,815/t vs US$2,811/t yesterday


Lead US$ 2,041/t vs US$2,027/t yesterday


Tin US$ 26,900/t vs US$26,745/t yesterday



Energy:


Oil US$65.1/bbl vs US$66.4/bbl yesterday


Natural Gas US$2.703/mmbtu vs US$2.711/mmbtu yesterday



Bulk:


Iron ore 62% Fe spot (cfr Tianjin) US$180.4/t vs US$183.0/t


Chinese steel rebar 25mm US$787.4/t vs US$782.0/t


Thermal coal (1st year forward cif ARA) US$74.8/t vs US$74.5/t


Coking coal swap Australia FOB US$146.5/t vs US$147.5/t



Other:


Cobalt LME 3m US$49,750/t vs US$49,750/t


NdPr Rare Earth Oxide (China) US$86,067/t vs US$86,216/t


Lithium carbonate 99% (China) US$12,648/t vs US$12,625/t


China Spodumene Li2O 5%min CIF US$630/t vs US$630/t


Ferro-Manganese European Mn78% min US$1,620/t vs US$1,617/t


China Tungsten APT 88.5% FOB US$272/t vs US$270/t


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




Battery News


Millennial Lithium produces battery grade lithium at Pastos Grandes


  • Achieved battery grade lithium carbonate from the first batch of processed brine.
  • Lithium carbonate had a purity on 99.96%
  • Able to produce battery-grade lithium before the CO2 purification stage giving the potential of a premium battery-grade lithium carbonate.


Oxis Energy to produce solid-state lithium-sulfur products this year


  • Will start supplying solid-state systems for test project by autumn 2021.
  • Quasi-solid-state cells will have 450Wh/kg specific energy and 550Wh/l.
  • Targeting 550Wh/kg and 700Wh/l by autumn 2023, with a separate target of 600Wh/kg and 900Wh/l by 2026.


IKEA to invest GBP3.4bn in renewable energy by 2030


  • GBP3.4bn investment by the end of the decade to build wind and solar farms.
  • GBP2.2bn was invested by the Ingka group over the last decade.
  • The new plans will bring Ikea’s clean energy spending to GBP5.6bn.
  • Ikea are already a net exporter of renewables and the new plans are part of the plans to become a ‘carbon neutral’ company by 2030.


Company News


Anglo American (LON:AAL) 3,064.5p, Mkt Cap GBP41.8bn – Production increases for copper, iron ore and PGMs in Q1


  • Anglo American’s 1st quarter production report for 2021 shows increased output of copper, platinum group metals and iron-ore compared with Q1 2020 with reduced volumes of diamonds, thermal and metallurgical coal and nickel.
  • The company stresses its commitment to “future-enabling metals and minerals” ahead of the planned de-merger of its S African thermal coal operations which is to be considered by shareholders on 5th May.
  • Strong performances from the Los Bronces (up 15% to 78,800t) and Collahuasi (up 8% to 71,600t) mines helped increase the Group’s copper output by 9% to 160,000t (Q1 2020 – 147,000t) and Anglo American is retaining its full year 2021 guidance of 640-680,000t of copper.
  • Copper output at El Soldado fell by 17% to 9,900t as a result of a planned decline in ore grade from 1.02% to ).7%.
  • Production of platinum group metals (PGMs) rose by 7% to 1.02m0z aided by a 17% increases at Mogalakwena as a result of increases in both grade and throughput.
  • PGM output from Amandelbult “decreased by 7%, as testing increased in response to the second wave of Covid-19, delaying the return to work of employees following the Christmas holiday period”.
  • Anglo American is currently maintaining its 2021 PGM production guidance in the range 4.2-4.6moz.
  • Kumba’s iron ore production rose by 10% year-on-year to 16.2mt for the quarter and guidance for 2021 remains intact at 64.5-67.5mt of iron ore, including from Minas Rio.
  • Rough diamond output declined by 7% to 7.2m carats for the quarter “driven by operational challenges, including excessive rainfall in southern Africa and a Covid-19-related shutdown in Canada, as well as planned maintenance in Namibia”.
  • Diamond output was also hit by lower grades at Orapa in Botswana where heavy rainfall and power supply disruptions reduced the contribution from the Botswana mines by 12% to 5m carats.
  • At this stage, full year diamond production guidance is being maintained at 32-34m carats for 2021.
  • Metallurgical coal production declined by 14% to 3.3m “due to the continued suspension of operations at Grosvenor following the underground gas incident in May 2020. The re-entry process is now underway with inspections ongoing to ensure the safety and integrity of the mine before work will commence to prepare for restart later in H2 2021”.
  • Metallurgical coal production guidance for 2021 is being revised downwards to 14-16mt from the previous 18-20mt range “impacted by the suspension at Moranbah North as well as geotechnical conditions and delayed access to Grosvenor”.
  • Thermal coal output of 4.9mt for the quarter is approximately 20% below the 6.2mt reported in Q1 2020 reflecting declines of 25% in S Africa and 9% in Colombia.
  • The proposed de-merger of S African Coal operations has prompted a downward guidance revision to around 14mt from the previously indicated 24mt level.
  • Nickel output was 7% lower at 10,100t and in line with the, unchanged, 2021 guidance range of 42-44,000t.


Arkle Resources* (AIM:ARK) 1p, Mkt Cap GBP2.7m – Imminent start of drilling on the Mine River project


  • Arkle Resources has announced that it expects to start drilling at its 100% owned Mine River project in Co. Wexford and Co. Wicklow next Monday, 26th April.
  • The planned programme consists of 1,000m of diamond-drilling spread over 12 holes and follows up the recent discovery of visible gold in trenching on the property which included an assay of 6.35g/t gold over a 25cm wide vein “in a new location over 750 metres along strike from the known Tombreen gold locality”.
  • The first three holes of the programme will follow up this occurrence and the latter part will follow up “along strike from the gold veins at the Tombreen area where Arkle previously identified 8 metres at 4.5 g/t”.
  • Chairman, John Teeling, said that the discovery of visible gold had been encouraging and that the “follow up drill holes will look to expand the Tombreen gold target along strike”.

Conclusion: The imminent start of drilling on the Mine River project should provide greater insight into the significance of visible gold identified in trenching late last year and we look forward to further information from the programme as the work proceeds.


*SP Angel are Nomad and broker to Arkle Resources




Centamin (CEY LN) 116.15p, Mkt Cap GBP1,325m – Q1 production on track to meet 2021 guidance


  • Centamin reports that it produced 104,047 oz of gold from its Sukari mine during the three months to 31st March keeping it on course to meet the 2021 guidance range of 400-430,000oz.
  • Production costs were US$733/oz on a cash basis and US$1,091 on an all-in-sustaining basis beating the full year current full year guidance range of US$1,150-1,250/oz
  • The company says that its capex guidance for the year of US$225 also stands with around 45% incurred during H1 “driven by the Sukari solar project and paste-fill plant construction timelines”.
  • Total capital expenditure during the quarter amounted to US$37m “a 23% decrease QoQ”.
  • Open pit mining during the quarter was largely from the low to medium grade Stage 5 North area and the company says that “More low-grade tonnes were mined than scheduled driven by ongoing conversion of waste to ore. Total open pit ore mined for the quarter was 3.8Mt, a 6% increase QoQ, at an average mined grade of 0.77 grams of gold per tonne (“g/t Au”), a 5% improvement QoQ”.
  • “The contracted waste-stripping programme … [Capital Limited] … commenced ahead of schedule and will continue to ramp up through the year”.
  • Underground mining focused “on the Ptah zone, including some higher-grade stopes” with around 56,000t of the total 170,000t of underground ore derived from development.
  • Plant throughput increased by 4% during the quarter to 3mt “at an average feed grade of 1.16g/t Au, a 34% improvement QoQ. The metallurgical gold recovery rate was 88.6% for the quarter, consistent QoQ. During the quarter, the low-grade stockpiles increased from 17.4Mt to 18.3Mt at 0.47g/t Au”.
  • Summarising the performance, CEO, Martin Horgan, said that the results “reflect a solid quarterly operating performance and are a good start to 2021. The Company delivered production as scheduled, including record material movement and continued to progress capital projects on schedule”.

Conclusion: Sukari delivered a solid first quarter with production in line with full year guidance and costs running slightly below guidance levels.




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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