SP Angel . Morning View . Friday 03 09 21
Lithium prices continue to rise as megafactories ramp up demand
Pre-IPO financing opportunity for new gold mine development in Ghana
We are raising funds for an advanced gold project in Ghana with good upside exploration potential
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Management are experienced and are looking to IPO within 18 months.
Please contact us if you are interested in pre-IPO funding of the opportunity
Altus Strategies* (LON:ALS) – BUY, Target 125p (from 118p) – Royalty acquisition completed
Base Resources* (LON:BSE) – Bumamani PFS offers to extend Kwale mine life to mid-2024
Scotgold Resources* (LON:SGZ) – Scottish jewellers hungry for hallmarked Scottish gold
RCC Group ‘Russian Copper Company’ (private) – $2.7bn loan from Sber and Gazprombank for 8.32Mt copper project
Udokan Copper (private) – $4bn investment planned for Phase-2 development
Copper edges higher on sliding dollar as US jobs report due today
The dollar has hit its lowest in close to a month, whilst copper is closing in on a second straight weekly gain.
The US jobs report expected today is anticipated to offer a clue as to when the Fed may taper its asset purchasing programme.
3M LME copper was up 0.1% to $9,386/t whilst the Shanghai October contract closed 0.4% higher.
US non-farm payrolls are due at 12:30GMT with data yesterday showing a fall in Americans filing new unemployment benefit claims.
Layoffs seemingly hit their lowest level in over 24 years, giving reason for optimism.
strikes at El Teniente and Andina complexes have been settled settling the market to some extent
Dow Jones Industrials -+0.37% at 35,444
Nikkei 225 +2.05% at 29,128
HK Hang Seng -0.92% at 25,851
Shanghai Composite -0.67% at 3,573
Final Composite PMI figures for August
Eurozone – 59.0 vs 59.5 in July
Germany – 60.0 vs 60.6
France – 55.9 vs 55.9
Italy – 59.1 vs 58.6
Spain – 60.6 vs 61.2
Sweden – 63.4 vs 68.0
Ireland – 62.6 vs 66.6
China – Authorities may continue to push property developers into deleveraging property portfolios
China touched the breaks earlier this year as it moved to reduce its dangerously high debt to GDP level to 265% at end June.
The key debt ratio fell from 271% at end September largely due to a recovery in GDP growth following its fast acting stimulus earlier in 2020.
The authorities look likely to continue to push property developers to continue to deleverage as part of a strategy to hold back property prices enabling more citizens to acquire new homes.
The strategy is likely to fit with Bejing’s new ‘Common Prosperity’ plan which aims to regulate everything from time spent online gaming to just three hours a week for minors to reducing the cost of healthcare and banning celebrities who venture to disagree with Communist party policies.
A policy to deleverage property companies risks the collapse of Evergrande, China’s second largest and highly indebted property company.
If Evergrande collapses this might cause other property companies to also fail.
China to introduce yuan-denominated commodities futures trading in bid to attract foreign investors
China’s State Council announced this morning its plans to offer more commodities futures including shipping contracts.
The statement came in a speech dedicated to promoting trade and foreign investment in China’s free-trade zones.
An international, yuan-denominated commodity futures market will be offered to overseas capital allocators.
China has been gradually opening up futures trading on its commodities derivate contracts, with ultimate plans to gain an upper hand in commodity pricing globally.
Foreign investors currently have access to futures including crude oil, iron ore, rubber, low-sulphur fuel oil and bonded copper alongside a few others.
The official statement announced plans to ‘accelerate the introduction of overseas traders’ by building an ‘international commodity futures market priced and settled in renminbi’.
The ultimate aim, according to the cabinet, is to ‘develop widely representative futures prices that domestic and foreign traders will recognize and participate in’.
USD/CNY traded up 0.06% on the news, however, the Yuan is currently being held back by China’s contracting manufacturing and services sectors.
China’s SMIC to invest $8.9bn in Shanghai chip plant
China’s Semiconductor Manufacturing International Corp will invest $8.87bn to build a chip factory in Shanghai, the company reported this morning.
SMIC said it agreed to build a production line with monthly capacity of 100,000 12-inch wafers in the Lingang Free Trade Zone.
China is ramping up its chip output amid shortages that have rattled the global automotive sector, while also trying to reduce its reliance on Taiwanese manufacturers.
US – New Yorkers and other flood affected residents will be taking the day off to dry out following flooding from storm Ida
Labor Day holiday on Monday
US employment / Non-farm payrolls due today
Former Fed official sees likelihood of November taper announcement
Ex-Federal Reserve official Dennis Lockhart sees a potential Fed announcement in November, with tapering beginning in December.
Lockhart believes the Fed will want to wait until November to acquire more labor market and economic growth data.
Lockhart was president of the Atlanta Fed from 2007-2017.
He believes a ‘particularly bad next two months’ could delay this anticipated timeline.
J Powell’s Jackson Hole speech offered ‘this year’ as a date when tapering might begin.
The Fed’s September meeting is expected to give more clarification, with Lockhart predicting the release of their economic projections.
Lockhart believes these projections ‘could present a picture not entirely consistent with the tapering decision’.
The former Fed official does, however, see current inflation as ‘transitory’ with price pressures expected to last into 2022.
US weekly jobless claims fell to 340,000 from 353,000
Challenger job cuts fell to 15.72k in August from 18.9k in July
Factory orders rose 0.4% in July from 1.5% in June
Factory orders, ex transportation rose 0.8% in July vs 1.5% in June
Trade deficit US$70bn in July from US$73.2bn – probably more due to logistics issues
Unit labour costs rose 2.1% in Q2 vs -2.8%
Non-farm productivity rose 1.3% in Q2 vs 4.3% in Q1
ADP report causes further fall in dollar as hopes rest on official US jobs data
The DXY is in its fifth consecutive day of decline, marking the longest downward streak since April.
A combination of unexpectedly poor ADP employment figures and a hawkish shift from the ECB encouraged sales of the greenback.
Concerns over the ADP report have encouraged scepticism over the current strength of the US economy, despite inaccuracies in previous ADP estimates.
Figures from the ADP of US jobs growing by only 374k compared to widespread estimates of between 600-750k were exacerbated by an ISM manufacturing report below 50.
Japan – Prime Minister Suga announces plans to resign after failing to control coronavirus
Suga told reporters this morning that he will not run for office in the upcoming general election.
He said he couldn’t campaign for re-election as leader of the Liberal Democratic Party this month while battling the virus.
Suga commented: “Dealing with the virus campaigning for the election would take a huge amount of energy. I realised I couldn’t do both and I should choose one”
Suga’s approval ratings plummeted over his handling of Japan’s worst-yet wave of virus cases.
Afghanistan – Taliban say China investments ‘essential’ to rebuild Afghanistan, declaring the country their closest ally
The Taliban’s main spokesman Zabihullah Mujahed said in an interview that investments from China will be essential to help rebuild the country and bolster its economy.
Mujahed commented “many countries including China have shown an interest in investing in Afghanistan. Its economically essential for Afghanistan to have Chinese investments in large projects to build our country”
The Taliban is set to announce its new government soon, with the new leaders having to control soaring inflation and a battered economy after 20 years of war.
China has invested in the Mes Aynak copper mine in Afghanistan’s eastern Logar province and is reportedly looking for new projects.
Beijing has embraced the Taliban’s return to rule, with many believing that the diplomatic approach is in order to tap into the vast mineral resources in the country.
This morning the telegraph report that the Taliban have named China their “principal partner” in the international community.
Mujahed said the Chinese would revive Afghan copper mining and production, while expressing admiration for the belt and road initiative.
US$1.1876/eur vs 1.1842/eur yesterday. Yen 110.02/$ vs 110.03/$. SAr 14.475/$ vs 14.377/$. $1.383/gbp vs $1.378/gbp. 0.742/aud vs 0.738/aud. CNY 6.458/$ vs 6.461/$.
Gold US$1,813/oz vs US$1,814/oz yesterday
Gold ETFs 99.7moz vs US$99.8moz yesterday
Platinum US$1,005/oz vs US$1,002/oz yesterday
Palladium US$2,420/oz vs US$2,443/oz yesterday
Silver US$23.99/oz vs US$24.17/oz yesterday
Copper US$ 9,394/t vs US$9,389/t yesterday
Aluminium US$ 2,691/t vs US$2,732/t yesterday
Nickel US$ 19,370/t vs US$19,390/t yesterday
Zinc US$ 2,998/t vs US$2,995/t yesterday
Lead US$ 2,296/t vs US$2,275/t yesterday
Tin US$ 33,280/t vs US$33,700/t yesterday
Oil US$73.1/bbl vs US$71.5/bbl yesterday
Following a challenging month for oil prices in August, recording the worst monthly loss this year, the oil markets have kicked off trading in September on a much brighter note
Prices have been inching up after OPEC+ agreed to keep its production agreement in place effectively maintaining the 400,000bopd hike scheduled for October, thus signalling that the markets are healthier than earlier feared
Reuters has also reported that OPEC+ will raise is 2022 demand outlook to 4.2MMbopd from its previous outlook of 3.3MMbopd
Meanwhile, the latest data by the Energy Information Administration (EIA) shows that US crude oil inventories fell more than anticipated last week despite domestic production climbing to a 15-month-high
US crude stockpiles fell by 7.2MMbbls to 425.4MMbbls, 6% below the five-year average
In addition, crude demand in China has started showing signs of a strong recovery after the country reopened its economy and Beijing moves closer to finalising a probe into its independent refiners, thus allowing them to resume importing crude
After nearly five months of slower purchases due to a shortage of import quotas, COVID-19 lockdowns that muted fuel consumption and drawdowns from high inventories, demand for spot crude by the world’s biggest importer of the commodity is now on a recovery path
Since April, weak consumption in China as well as a sharp drop in China’s refining output to 14-month lows have depressed the prices of staple crude grades from West Africa and Brazil to multi-month lows
However Chinese crude importers are now ramping up purchases and even paying higher premiums to secure supplies from November onwards thanks to lockdown restrictions easing
Natural Gas US$4.641/mmbtu vs US$4.597/mmbtu yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$140.6/t vs US$142.4/t
Chinese steel rebar 25mm US$818.0/t vs US$812.8/t
Thermal coal (1st year forward cif ARA) US$117.0/t vs US$116.3/t
Coking coal swap Australia FOB US$259.0/t vs US$254.5/t
China Ilmenite Concentrate TiO2 US$372.39/t vs US$372.2/t
Cobalt LME 3m US$50,840/t vs US$50,840/t
NdPr Rare Earth Oxide (China) US$92,749/t vs US$93,091/t – DOE awards $30m to secure domestic supply chain of critical minerals
The US Department of Energy announced $30m of funding for 13 national projects to develop new technologies that will help the US secure the supply of critical minerals needed to build clean energy technology.
The selected projects will specifically look to diversify the supply of, develop substitutes for and improve the reuse and recycling of rare earth and platinum group elements.
“Expanding electric vehicle infrastructure, hardening our nation’s electrical grid, and powering our economy with millions of clean energy jobs all rely on securing supply chains of critical materials like cobalt and platinum,” said Secretary of Energy Jennifer M. Granholm.
Research funded in this announcement will advance understanding of how REE and PGE give materials and molecules the unique properties that are valuable for modern technologies.
Lithium carbonate 99% (China) US$18,581/t vs US$18,262/t
China Spodumene Li2O 5%min CIF US$940/t vs US$930/t
Ferro-Manganese European Mn78% min US$1,764/t vs US$1,759/t
China Tungsten APT 88.5% FOB US$305/t vs US$305/t
China Graphite Flake -194 FOB US$535/t vs US$535/t
Europe Vanadium Pentoxide 98% 9.1/lb vs US$9.2/lb
Europe Ferro-Vanadium 80% 38.25/kg vs US$38.75/kg
Spot CO2 Emissions EUA Price US$72.1/t vs US$71.9/t
Chinese EV start-up Iconiq plans US listing via SPAC
Chinese electric vehicle startup Iconiq Motors is reportedly looking into potential options for a US listing via a special purpose acquisition company.
Bloomberg report the value of the potential deal at c. $4bn.
Iconiq currently have supply deals with Magna Steyr and Microsoft Corp and was founded in 2016.
The company would follow in the path of previous SPAC listings by automakers Lucid, Fisker and Nikola.
The South Korean battery producer has been selected to deliver battery energy storage systems for two solar storage systems owned by RWE Renewables.
The supply contract will see LG Energy provide over 800MWh of storage capacity to be deployed over 200MW of energy storage facilities.
Each unit for the modular type batteries will be capable of storing 2.8MWh of electricity and will be delivered in pre-assembled enclosures.
According to reports RWE are working on over 1GWh of battery storage projects globally.
Altus Strategies* (LON:ALS) 79.5p, Mkt Cap GBP64m – Royalty acquisition completed
BUY – 125p (from 118p)
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Altus Strategies has confirmed the final closing of its previously announced agreement to acquire a 0.418% net smelter return royalty on production from the operating Caserones Copper-Molybdenum Mine is located at the southern end of the well-known Maricunga belt in Chile.
The mine is operated by Minera Lumina Copper a subsidiary of the Japanese company, JX Nippon Mining & Metals and is reported to have produced “104,917 tonnes of copper and 2,452 tonnes of fine molybdenum in concentrates, as well as 22,056 tonnes of fine copper in cathodes” during 2020.
The mine has been operating for “five years, following a capital investment of approximately US$4.2 billion … [and] … has 17 years of operation remaining under its current mine plan, along with excellent exploration potential”.
The US$34.1m cash acquisition cost of the royalty is being funded from a US$29m loan facility from Altus Strategies’ largest shareholder, La Mancha, in conjunction with existing cash resources.
Chief Executive, Steven Poulton, explained that “The NSR interest is expected to generate approximately US$3.2 million (post-tax) per year attributable to Altus … [and that] … Following this Acquisition, Altus will receive significant quarterly royalty income and will have long-term exposure to copper.”
He also confirmed that “Altus is currently assessing a number of other potential royalty acquisitions globally, alongside our on-going royalty generation programmes in Africa”.
*SP Angel acts as Nomad and Broker to Altus Strategies
Anglo American Platinum (JSE:AMS) – ZAR152,618 Mkt cap ZAR405bn – Unlikely rhodium becomes No.1 revenue stream for Amplats
Anglo American Platinum reports that rhodium accounted for 45% of the miners first half revenues, more than any other precious metal.
The miner’s revenue from rhodium was just below 50bn ZAR over the Jan-june period, vs 19bn ZAR from platinum revenues.
Similarly, Sibanye Stillwater and Impala Platinum also reported that rhodium was the biggest revenue generator for the companies compared to other PGMs.
In March 2021, rhodium prices climbed to a record $29,800/oz, making it 17 times more valuable than gold.
Rhodium has always been associated with being a by-product of platinum and palladium mining, and the metal is used to curb nitrogen oxides from car exhaust fumes.
Base Resources* (LON:BSE) 17.5p, Mkt Cap GBP195m – Bumamani PFS offers to extend Kwale mine life to mid-2024
Base Resources have published details of their PFS on the Bumamani project next to the Kwale mine in Kenya.
The PFS now includes a significantly larger portion of the North Dune deposits extending the planned mine life at higher product prices.
The Bumamani resource consists of 5.9mt grading 1.9% contained Heavy Minerals for 115,000t of contained heavy minerals eg ilmenite, rutile and zircon.
“The subsets of these Mineral Resource estimates considered for the Bumamani PFS totalled 11.4 Mt of material at an average HM grade of 2.3% for 0.26Mt of contained HM. Of this 11.4 Mt of material, 60% is categorised as Measured and 40% as Indicated.”
Capital costs are estimated at US$13.6m for the acquisition of land, additional mine services and infrastructure.
Existing hydraulic mining units will be relocated from the South Dune for mining with processing through the existing Kwale concentrator and mineral separation plants.
Upfront capital $13.6m
Total rutile prod’n 34,000t
Total ilmenite prod’n 113,000t
Total zircon prod’ n 13,000t
Mining – Op costs inc. 5% royalty $4.83/t* mined
Production – Op costs inc. 5% royalty $261/t*
Rutile price – av. over 2023/2024 FOB $1,400/t
Ilmenite price – av. over 2023/2024 FOB $183/t
Zircon price – av. over 2023/2024 FOB $1,775/t
Bumamani PFS forecasts net post-tax cash flows of US$16.5m
Assumed prices are similar to guidance from TZMI, the major industry consultants
Key risks include the ability to secure mining tenure for the Bumamani and P199 deposits by mid-2022 and to complete the necessary land acquisitions at reasonable prices.
Base Resources has net cash of US$64.9m at the 30-June year-end and is paying out $34.2m in dividends post the record date of 13th September.
Conclusion: The extension of the mining operations at Kwale / Bumamani should hopefully cover the company while it works through delays to the Toliara project in Madagascar. Management continue to appeal the suspension of the Toliara project and to secure acceptable fiscal terms with the government of Madagascar.
*An SP Angel analyst has visited Base’s operations in Madagascar
Russian Copper Company (private) – $2.7bn loan from Sber and Gazprombank for 8.32Mt copper project
Russian news agency TASS has reported the signing of an agreement by Sber, Gazprombank and the Russian Copper Company.
The agreement is a syndicated loan agreement valued at $2.7bn (195bn rubles).
The loan is intended to fund the development of a considerable copper resource in the Khabarovsk Region, the Malmyzhskoe deposit.
A statement from Sherbank president described the loan as intended to ‘ramp up Russian copper export’ alongside creating ‘several thousand jobs.’
The designed mining and concentration plant has potential to be the ‘strongest in the country’.
Appraisal findings point to Malmyzhskoe’s reserves estimated at 8.32m t of copper and 347m t of gold.
Exploitation of the reserve is expected to increase Russian copper concentrate production by c. 30%.
Russia in 2019 was the world’s 9th largest copper producer with 750,000t, and a 3.75% share of global production.
Scotgold Resources* (LON:SGZ) 66.5p, Mkt Cap GBP38m – Scottish jewellers hungry for hallmarked Scottish gold
Scottish jewellers are reported to be hungry for Scotgold gold which will be hallmarked by the Edinburgh Assay Office (FT).
The Cononish gold mine in the Trossachs, Scotland has attracted the attention of local jewellers ‘Hamilton & Inches’ and Orkney-based Sheila Fleet Jewellery.
The mine is to start producing gold dore bars through gravity separation which will be directly traceable to the Cononish mine in the next few months.
Hamilton & Inches’ chief executive, Victoria Houghton, foresees ‘demand continuing’ for Scottish gold, ‘not just from a jewellery point of view’ but also ‘as a corporate opportunity’.
The Scottish retailer recently sold a decanter with Glenrothes single malt and Scottish gold decoration for GBP39,000 at auction.
Scotgold’s first sale of 10z rounds in 2016 saw sales at a premium of c. 380% on the bullion price.
The mine can be seen in the BBC Gold Town series BBC2: https://www.bbc.co.uk/iplayer/episode/m000tkv3/gold-town-series-1-episode-3
Conclusion: Scotgold will benefit substantially from premiums on the sale of its gold dore bars to local jewellers and the value gained from hallmarking by the Edinburgh Assay Office.
*SP Angel act as Nomad and broker to Scotgold Resources. A number of SP Angel analysts have visited the Cononish gold mine
Udokan Copper (private) – $4bn investment planned for Phase-2 development
Alisher Usmanov-backed Udokan Copper has signed an agreement for a phase-2 development of its considerable Udokan copper deposit.
The agreement has backing by both federal and regional government officials and enables the further exploitation of Russia’s largest untapped copper deposit.
Phase-2 will enable Udokan’s plant to increase processing capacity from 15m t to 40m t of ore pa.
Total investment raised for phase-2 stands at $3.97bn (289n rubles).
Phase-1 development is expected to be completed in 4Q22, with annual output of 135,000t of copper projected. This initial phase is anticipated to cost $2.8bn
IGTV: Stock picks in the small-cap mining space:
Evolution of Chinese construction and implications for commodity demand: https://youtu.be/jB2nURL8uPw
VOX Markets: 10/06/21: https://audioboom.com/posts/7884446-john-meyer-talks-about-cornish-metals-empire-metals-anglo-american-ncondezi-energy-mkango-r
BBC: Catalytic converters https://www.bbc.co.uk/sounds/play/p09jl6c9
*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts.
We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
John Meyer – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy [email protected] – 0203 470 0474
Joe Rowbottom – [email protected] – 0203 470 0486
Richard Parlons [email protected] – 0203 470 0472
Abigail Wayne – [email protected] – 0203 470 0534
Rob Rees – [email protected] – 0203 470 0535
Grant Barker – [email protected] – 0203 470 0471
Prince Frederick House
35-39 Maddox Street London
*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite