Today’s Market View – Europa Metals Limited; Kavango Resources and more…

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SP Angel . Morning View . Tuesday 22 06 21

Metals prices rebound as markets shake off China SRB sale threat

Equity markets rangebound ahead of the Fed congressional address

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MiFID II exempt information – see disclaimer below – FCA looks to scrap MiFID research rules on small-caps in UK competitiveness drive (Investment Week)

Graphene producer funding – EIS scheme approval applied for 

The company wishes to fund a ramp up in graphene 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

Please email 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.

 

Europa Metals Limited (AIM:EUZ) – Appointment of PFS manager for the Toral zinc, lead, silver project in Spain

Glencore (LON:GLEN) – to restart Mutanda mine towards end of 2021

Kavango Resources (LON:KAV) – Ben Turney appointed CEO 

Talga Group* (ASX:TLG) – Talga signs deal with FREYR for battery anode materials

 

Iron ore – prices pull back to $198.1/t from $206.6/t yesterday as China probes malicious speculation 

Chinese authorities are looking into the causes of ultra high prices for iron ore in China.

China imported 102mt of iron ore in March worth around $20bn in theory though the actual cost of the iron ore units landed is less due to quality.

Actual imports of Iron Ores & Concentrate in China fell to $15.6bn THO in May from $16.2bn in April according to the National Bureau of Statistics of China

Q1 iron ore imports rose 8% to 283mt ($56bn) indicating a potential cost to the nation of $224bn for the year for imported iron ore which comes mainly from Australia and Brazil.

Australia supplies around 60% of Chinese iron ore ~$235bn pa at today’s prices another 20% comes from Brazil worth ~$45bn

Given that the average cost of producing a tonne of iron ore in Australia is around $30/t that’s an unusually large margin for any mining business.

Chinese iron ore prices have been driven higher in recent years by speculative futures trading in Shanghai, Dalian and other and other Chinese exchanges.

We understand these markets are driven by Chinese speculative investment with Western investors are not thought to be active

Conclusion: We are surprised it has taken so long for the Chinese authorities to act on speculation in iron ore prices given the tremendous cost to the nation of substantially higher iron ore prices and the rise in demand from stimulus-driven projects.

We suspect heads will roll as an example to others given the huge cost to the nation if any significant wrongdoing is found.

Remember the jailing of Stern Hu, Rio Tinto’s top iron ore negotiator along with three other Chinese based staff. Hu was released from jail after 9 years in 2018.

 

ICSG – Apparent refined copper usage outpaced supply in Q1 2021

The International Copper Study Group released its preliminary data for Q1, which indicates that world refined copper production increased 4% compared to apparent refined copper usage which rose 4.5%.

The ICSG estimates an apparent surplus of 129,000t when calculating its global market balance vs 154,000t in Q1 20.

When adjusting the balance based on estimates of bonded inventories, the ICSG reaches a surplus of 149,000t vs 244,000t in Q1 20. 

World refined copper production rose to 6.09mt in Q1 21 vs 5.86mt in Q1 20. 

Preliminary official Chinese refined production data indicates growth of 8%, while total Chilean refined production declined 6%. 

Secondary refined production from scrap increased by 2.3% almost entirely driven by China. 

World ex-China refined copper usage has been significantly impacted by the pandemic and is estimated to have declined by about 9% in 2020, declining by a further 4% in Q1 21.

Chinese apparent usage increased by around 13% supported by a 5.8% increase in net refined imports.

Preliminary data indicates that world copper mine production over the period rose 3.7%, with output ion Peru rising 3% and Indonesian production rising 91% due to a ramp up at Grasberg. 

Top producer Chile saw total mine output fall 2% over the period. 

Strong increases were also seen in the DRC, Mongolia, Panama and Russia due to additional output from new or expanded operations.

 

Diamond prices rise as demand returns for engagement rings

Rapaport, the diamond news service, report the sale of a 50.03ct diamond for $2.7m at a digital auction setting a new record for the highest online price paid for a jewel.

The round, G-color, VVS2-clarity stone was just one of only five round diamonds over 50cts to be auctioned in the past 15 years giving it some rarity value.

The previous online record was $2.1m for an emerald-cut, 28.86ct D-color, VVS1-clarity, type IIa diamond ring offered last July.

Diamond prices are showing strong recovery as western economies reopen and buyers return to jewellery stores.

Supply chain issues may well extend lead times and potentially create shortages with Indian cutting centres affected by teh Delta variant. 

DeBeers raised diamond prices by 5% for >2ct goods in June by 5% for >1ct stones in January as shortages of rough stones coincided with strong polished demand.

‘Rough >1ct are been especially sought-after, with premiums on the secondary market rising while manufacturers look to fill inventory gaps.’ Rapaport

 

Dow Jones Industrials +1.76% at 33,877

Nikkei 225 +3.12% at 28,884

HK Hang Seng -0.22% at 28,427

Shanghai Composite +0.84% at 3,559

 

Economics

US – Markets welcomed Jay Powell remarks ahead of congressional testimony today that the Fed “will do everything [it] can to support the economy for as long as it takes to complete the recovery”.

The chairman recognised increased inflationary risks but continued to stress that those are largely temporary in nature and “inflation is expected to drop back toward… longer-run goal”.

Testimony remarks follow comments from his colleagues on both sides of the debate earlier on Monday.

John Williamns, President of the New York Fed and a voting member of the FOMC, supported the idea that inflation will likely rise to 3% this year before pulling back to ~2% next year and in 2023 and sees US GDP Expanding By 7% In 2021 yoy.

Robert Kaplan, Dallas Fed President (non-voting), said he favours starting the process of tapering the central bank’s ongoing bond purchases “sooner rather than later”.

James Bullard, St Louis Fed President (non-voting), called it “appropriate” that policy makers last week opened the taper debate.

Steven Mnuchin sees the Fed as needing to go into a period of normalizing rates and normalizing the portfolio of bond holdings. He views the market as underestimating this risk.

The US Treasury drew in $756bn in their reverse repurchase facility at a 0.05% interest rate which offers investors the chance to double their money in 1,387 years. Beam me up Scottie!. 

 

Cryptocurrency markets pulled back yesterday on the news that the Chinese central bank called its largest state-owned banks as well as other payment platforms like Alipay to discuss the problem of “providing services for cryptocurrency transaction speculation”.

The regulator called on banks and financial firms to identify and block all transfers to accounts held by cryptocurrency exchanges and other offshore intermediaries, FT writes.

Bitcoin dropped to $31,170 or ~14% through the day on the news.

 

Eurozone is returning to pre-pandemic norms with the use of public transport and journeys to workplaces hitting their highest level since early last year in many countries, FT reports citing high frequency data.

 

UK – Government borrowing came in below market estimates in May as economy rebounds.

Net borrowing amounted to £24.3bn last month compared to £43.8bn in the same month last year and £25.5bn forecast.

The amount is also below the £28.5bn predicted by the OBR.

 

India – The country administered record number of doses over the last 24 hours (8.6m) with new cases dropping to the lowest since March.

 

Philippines – Philippine President threatens to jail those refusing to vaccinate as the country is battling with surging new cases and low turnouts in some vaccine sites.

“You can choose: you get the vaccine or I will send you to jail,” President Duterte said.

“There is a crisis being faced in this country… there is a national emergency.”

The nation is struggling with low vaccination rates with the nation reportedly having administered 8.4m doses and 2.15m people of 110m population fully inoculated.

 

EU – Ambassadors aim to lift US metal-duties by the end of the year

The EU is working towards having the US lift its national-security tariffs on metal imports, according to the EU ambassador to Washington Stavros Lambrinidis.

In 2018, the Trump administration imposed a 25% levy on steel imports and a 10% duty on aluminium shipments from regions including the EU, citing national security reasons. 

Lambrinidis commented: “We’re going to be sitting down in the next five months until the end of the year — we’re going to try to address the fundamental issue of overcapacity and the absolute goal for us is that those tariffs have to be lifted,”

The US steel industry has called on the Biden administration to works with trade allies and force countries like China to cut down on overcapacity that is depressing global prices

Lambrinidis Comments come as the EU and US try and improve trade relations that deteriorated under President Trump.

Last week, the two parties agreed to extend the truce over aircraft subsidies for five years.

 

Ethiopia – National and regional elections were carried yesterday with votes being counted following a number of pandemic related delays.

Closing times for a number of polling stations in the Ethiopian capital Addis Ababa were reported to have been extended for hours due to better than expected turnout as well as logistical problems.

Acting PM Abiy Ahmed’s Prosperity Party is widely expected to with the election.

 

Armenia – Civil Contract political party headed by the current PM Nikol Pashinyan won ~54% of votes in snap elections.

The party is expected to have a constitutional majority (71 MPs out of 105) with Pashinyan to remain as acting PM.

Snap general elections were called after months of political crisis following the 44-day war with Azerbaijan that killed thousands of soldiers, Bloomberg writes.

Ex-President Robert Kocharyan bloc got just over 21% of the vote with no other groups able to clear the minimum barrier to enter the parliament.

 

Currencies 

US$1.1897/eur vs 1.1867/eur yesterday.  Yen 110.38/$ vs 109.99/$.  SAr 14.286/$ vs 14.386/$.  $1.389/gbp vs $1.381/gbp.  0.751/aud vs 0.749/aud.  CNY 6.473/$ vs 6.470/$.

 

Commodity News

Precious metals:  

Gold US$1,780/oz vs US$1,776/oz yesterday

   Gold ETFs 101.1moz vs US$101.3moz yesterday

Platinum US$1,064/oz vs US$1,036/oz yesterday

Palladium US$2,601/oz vs US$2,497/oz yesterday

Silver US$25.85/oz vs US$25.94/oz yesterday

            

Base metals:   

Copper US$ 9,188/t vs US$9,045/t yesterday

Aluminium US$ 2,409/t vs US$2,362/t yesterday

Nickel US$ 17,735/t vs US$17,270/t yesterday

Zinc US$ 2,837/t vs US$2,818/t yesterday

Lead US$ 2,161/t vs US$2,143/t yesterday

Tin US$ 30,150/t vs US$29,700/t yesterday

            

Energy:            

Oil US$75.2/bbl vs US$73.4/bbl yesterday 

In a surprising update, China’s state energy company CNPC has confirmed an oil and gas discovery with reserves estimated at 900m tons

The discovery was made after six years of exploration work in the Tarim Basin in the Xinjiang Uygur Autonomous Region, north western China

The geology of the formation is challenging, requiring ultra-deep drilling, at a record 8,470m

The Tarim Basin is the largest oil and gas deposit in China, with discovered oil and gas reserves reaching 16bn tons

Production of hydrocarbons from the basin is seen at 22mtons this year, up from 1.52m tons last year

China has abundant oil and gas reserves but tapping them is often challenging due to geological reasons, which has so far prevented the country from shrinking its overwhelming dependence on imported oil and gas

The country depends on imports for about 70% of its oil needs and is on track to overtake Japan as the world’s largest importer of LNG this year

China produced an estimated 3.87MMBopd of crude oil last year, according to a Reuters report from December

That was a 1.6% increase in 2019 despite the pandemic and despite China’s crude buying spree fuelled by historically low oil prices

This made the country one of the top ten oil producers globally, but with demand much higher than that, it also solidified its dependence on imported oil and gas

 

Natural Gas US$3.200/mmbtu vs US$3.186/mmbtu yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$198.1/t vs US$206.6/t

Chinese steel rebar 25mm US$763.5/t vs US$778.0/t

Thermal coal (1st year forward cif ARA) US$82.9/t vs US$83.0/t

Coking coal swap Australia FOB US$151.0/t vs US$151.0/t

            

Other:  

Cobalt LME 3m US$44,540/t vs US$44,540/t

NdPr Rare Earth Oxide (China) US$72,459/t vs US$72,494/t

Lithium carbonate 99% (China) US$12,514/t vs US$12,520/t

China Spodumene Li2O 5%min CIF US$680/t vs US$680/t

Ferro-Manganese European Mn78% min US$1,814/t vs US$1,786/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% 8.9/lb vs US$8.8/lb

Europe Ferro-Vanadium 80% 42.75/kg vs US$42.75/kg 

 

Battery News

Porsche establish joint venture with CUSTOMCELLS

Porsche have an 83.75% in the venture, called Cellforce, which will see the two firms co-develop high-performance batteries for future Porsche models.

The venture is investigating the use of silicon anodes, rather than graphite, for the Li-ion batteries to improve energy density over current batteries.

The batteries will also gain more charge back through regenerative braking, be able to withstand higher temperatures and be capable of faster charging, all factors that will make the batteries suitable for high-performance motorsport usage, said Porsche.

The initial targeted annual capacity is for 100MWh – enough for 1000 EVs, primarily for use in motorsport applications and some high-end versions of existing cars.

CUSTOMCELLS specialise in developing application-specific Li-ion cells from prototype to small and medium production volumes.

R&D Executive, Michael Steiner, has also hinted that other performance brands in the VW Group – Bentley, Bugatti and Lamborghini – could also benefit from the technology later on.

 

Tawazun-Saab partnership to boost high-tech jobs in UAE

The partnership between Abu Dhabi’s Tawazun Economic Council and Swedish defence company Saab will see the company grow its local operations and create more high-tech jobs in the UAE.

The strategy will cultivate key technologies in the UAE through the development of local skills and capabilities to advance the defence and security industry.

Saab is also working with local academia to invest in research and development, as well as the Sustain & Enhance Emiratisation in Defence & Security program which provides opportunities for students studying engineering or computer science.

 

Australia rejects plans for $36bn renewables hub

The Australian government has rejected plans for a $36bn wind, solar and hydrogen project in Western Australia less than a year after giving the project fast-track status.

The decision ruled that the Asian Renewable Energy Hub “will have clearly unacceptable impacts” on wetlands and migratory species at the planned 6500sqkm site.

The project was designed for an initial 15GW of capacity, expanding to 26GW and producing green hydrogen and ammonia for export.

The consortium behind the project are now revising the proposal in the hope of having the proposal accepted.

This is the second renewables project that has been vetoed by the government in the last month, after the refusal of a A$280m loan to co-found a renewables project in Queensland. The decisions have frustrated groups who want the government to commit to a national target of net zero emissions by 2050.

 

Company News

Europa Metals Limited (AIM:EUZ) 10.25p, Mkt Cap £4.9m – Appointment of PFS manager for the Toral zinc, lead, silver project in Spain

(Europa holds 100% of the Toral project)

Europa Metals has announced the appointment of the consultants, Wardell Armstrong International (WAI), as the manager for the pre-feasibility study for its Toral lead/zinc/silver project in Spain.

The company has been working with WAI on metallurgical aspects of the project and “the assessment of the potential zinc and lead/silver concentrate products at Toral” which should already have given WAI a thorough understanding of the overall project.

CEO, Laurence Read, explained that WAI’s background knowledge of the project “enable us to seamlessly progress to the next stages of the planned PFS with a leading, global mining consultant. WAI will work alongside our Europa Iberia team and Spanish contracting groups who will contribute to the completion of various technical workstreams”.

Mr. Read confirmed that the “work achieved so far in 2021 on certain of the requisite PFS workstreams has been to schedule and the results extremely encouraging.”

Welcoming the appointment to manage the PFS, WAI’s Managing Director, Phil Newall, said that “Europa Metals has engaged a group of professional and reputable sub-contractors and WAI looks forward to working with all parties concerned to deliver a successful PFS on the way towards the project’s potential future development”.

 

Glencore (LON:GLEN) 304p, Mkt cap £40bn – to restart Mutanda mine towards end of 2021

Glencore announced this morning that it intends to restart operations at the world’s largest cobalt mine, Mutanda, towards the end of this year. 

The mine was placed on care and maintenance in November 2019 due to falling cobalt prices, increased costs and higher taxes. 

Mutanda produced 103,200t of copper and 25,100t of cobalt hydroxide in 2019 (Reuters).

 

Kavango Resources (LON:KAV) 6.10p, Mkt cap £21.4m – Ben Turney appointed CEO 

Kavango reports a restructuring of the Board of Directors, with CEO Michael Foster deciding to step down as CEO however remaining on the Board as a Non-executive Director.

Ben Turney, who was appointed as an executive director at the start of the year, is to become CEO.

Subject to the approval of shareholders at this week’s AGM, Hillary Gumbo, Managing Director of the Company’s subsidiary in Botswana and responsible for exploration activities in the country, will also join the Board.

Mr Gumbo is an experienced geophysicist with a degree in Geology and an MSc in Geophysics.

 

Talga Group* (ASX:TLG) A$1.42, Mkt Cap A$429m – Talga signs deal with FREYR for battery anode materials

Talga has announced a deal to supply its Swedish active anode material (Talnode) for FREYR’s battery cell production in Norway.

Talga and FREYR will work towards the commercial supply of Talga’s Talnode material including the customer qualification plant, 5-11GWh production ramp up and then 32GWh Giga-factory in Norway.

The deal implies that Talga will be allowed to either ramp up production under its current trial mining permit in Sweden or that the Swedish government may issue a new mining permit to allow Talga to increase graphite production at its trial mine in Sweden.

Given that the Swedish government has not issued a single mining permit to any mine for many years we view this as a risk to investors.

*SP Angel acted as UK broker to Talga Resources. SP Angel also act for Oxis Energy a leading Lithium metal battery development company.

 

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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