SP Angel . Morning View . Monday 18 10 21
Base metals prices continue to rise on China power shortage
MiFID II exempt information – see disclaimer below
AngloGold Ashanti (ASX:AGG) (ASX:ANG) – Proposed $750m note offering
Aura Energy* (LON:AURA) – A$421,108 raised from options exercise
Bradda Head Lithium* (LON:BHL) – Proposed listing on OTC Market
KEFI Gold and Copper* (LON:KEFI) – Security concerns likely to delay launch of Tulu Kapi gold mine in Ethiopia
Rainbow Rare Earths* (LON:RBW) – BUY – Valuation 43p – Expect strong downstream support for REE product prices next year
Vulcan Energy (ASX:VUL) – Binding offtake agreement signed with Umicore
Recent interviews
IGTV: 08/10/21: How high energy prices are pushing up metals: https://youtu.be/em4zwo2i4Cs
VOX Markets: 07/10/21: https://audioboom.com/posts/7956216-john-meyer-on-chinese-energy-issues-and-news-from-altus-strategies-bushveld-minerals-scotsgold
Copper – 30GW of wind turbines should use 240,000t of copper assuming 8,000kg / MW of capacity
IRENA, the International Renewable Energy Agency forecasts installed wind turbine capacity should increase to 1,787GW by 2030 and 5,044GW by 2050.
GWEC estimates there is 743GW of wind power capacity worldwide implying the world will add a further 1,044GW by 2030.
1,044GW x8t of copper per MW = 8.35mt of copper assuming all new wind farms are offshore and use 8t/MW of copper.
Furthermore, increasing wind capacity to 5,044 by 2050 could require a further 26mt of copper
One way or another, the industry is going to have to ramp up copper exploration to find allot more copper production over the next 30 years
South Africa – Richards Bay coal terminal placed under force majeure by operator
South African port operator Transnet has declared force majeure on its Richards Bay bulk terminal following a fire.
The port is Africa’s largest coal export facility.
The company stated that the terminal is ‘in the process of putting the necessary contingencies in place’.
It is unclear whether exports of coal, steel and other minerals will be impacted or not.
China aluminium company Zhongwang highlights ‘severe difficulties’ at subsidiaries
Zhongwang subsidiaries Superior Aluminium Fabrication and Liaoning Zhongwang Group are facing ‘major losses and business hardship’.
Zhongwang is the second-largest manufacturer of aluminium extrusions used for transport, construction and electronics industries.
Aluminium ingot prices have hit May 2006 highs of GBP3,834/t, increasing costs for Zhongwang.
Industrial output is also limited by power shortages in the province of their major production base in Liaoning.
Shanghai zinc and aluminium prices rise on power restrictions
Shanghai zinc prices soared 8% this morning as supply shortages exacerbate electricity price hikes.
Nyrstar announced plans to cut production by 50% last week, with Glencore announcing plans to adjust production in response to high electricity prices.
Aluminium prices on LME rose 0.5% to GBP3,186/t, hitting their highest since July 2008.
Chinese aluminium output has fallen for a 5th consecutive month.
Dow Jones Industrials +1.09% at 35,295
Nikkei 225 -0.15% at 29,025
HK Hang Seng -0.45% at 25,217
Shanghai Composite -0.12% at 3,568
Economics
UK – BoE chief Bailey wants it will ‘have to act’ to curb inflation
The governor of the Bank of England Andrew Bailey announced on Sunday that it will have to act to curb inflationary pressure.
Bailey commented in a meeting with the G30 group of central bankers that inflation in the UK had already risen and would rise further in ways that would warrant action to tame medium-term inflation.
Whilst the governor said he still believes that the rise in inflation would be temporary, he noted that large price increases would last well into next year.
Money markets now see 36 basis point of rate increases in December and are pricing 15 basis points of tightening next month. Traders are also now betting the BoE’s key rate will hit 1% by August, Bloomberg reports
China – Q3 GDP slows to 4.9% YoY, lower than expectations
China’s economy recorded its slowest pace of growth in a year in Q3, hurt by power shortages and supply chain bottlenecks.
GDP expanded 4.9% from a year earlier, down from 7.9% in Q2.
The slowdown was also in part caused by Beijing attempting to reduce financial risks by slowing the pace of lending in the retail estate sector, which accounts for up to 25% of GDP.
China’s economy rebounded strongly following the pandemic, with Q1 growth at 18.3%, although recent factors including the Evergrande debt crisis, ongoing supply chain delays and power shortages have caused a slowdown.
China’s industrial output rose 3.1% YoY vs 3.8% expected.
China’s central bank comments the Evergrande Group debt crisis and risks to the financial system are controllable.
Not everybody agrees with this calming statement.
Contractors have been part paid with cash and Evergrande stock and are likely to have borrowed heavily against the value of Evergrande shares
China has ordered banks and regional authorities to support lending into the property market to support prices.
But there are many apartments that are held by speculators and remain unoccupied.
The scale of the problem potentially dwarfs the collapse of Lehman Bros and the situation is a first major test of a collapsing major Chinese corporate borrower.
Europe – ECB considers raising its limit on purchases of EU-issued bonds
The European Central Bank is exploring raising its limit on purchases of EU-issued bonds, providing more flexibility in asset-buying schemes, the FT reports.
Four ECB governing council members told the FT they would support increasing the share of public sector bond purchases from the current cap of 10%, although the plan would need majority support from the ECB council’s 25 members.
The news comes as the European Commission plans to expand the amount of bonds it issues under its EUR800bn NextGenerationEU recovery fund.
Brussels aims to issue EUR80bn of bonds for the fund this year and almost double that amount next year, transforming the Eu into one of Europe’s biggest bond issuers.
The ECB is expected to announce in December that its pandemic emergency purchase programme will end in March
Mongolia – Government raises concerns over Rio Tinto’s copper mine management
A Mongolian government official has raised ‘concerns about the transparency’ of Rio’s Oyu Tolgoi copper and gold mine in the Gobi Desert.
The official also questioned ‘whether this mine is being operated efficiently’.
Rio was forced to push the timeline back from 2021 to 2023 for initial copper production.
The company warned of Mongolia’s additional Covid restrictions adding $140mn to the mine budget.
An Independent Consulting Group report concluded that the time delays and $1.45bn in additional costs were a result of poor management.
Mongolia’s justice minister Bayarsaikhan stated that the government wants to find a ‘mutually beneficial solution’.
Currencies
US$1.1587/eur vs 1.1614/eur last week. Yen 114.26/$ vs 114.15/$. SAr 14.684/$ vs 14.707/$. $1.374/gbp vs $1.372/gbp. 0.740/aud vs 0.744/aud. CNY 6.433/$ vs 6.429/$.
Commodity News
Precious metals:
Gold US$1,766/oz vs US$1,792/oz last week
Gold ETFs 98.6moz vs US$98.7moz last week
Platinum US$1,053/oz vs US$1,059/oz last week
Palladium US$2,067/oz vs US$2,138/oz last week
Silver US$23.34/oz vs US$23.48/oz last week
Rhodium US$14,200/oz vs US$14,000/oz last week
Base metals:
Copper US$ 10,312/t vs US$10,048/t last week
Aluminium US$ 3,184/t vs US$3,170/t last week
Nickel US$ 20,035/t vs US$19,635/t last week
Zinc US$ 3,778/t vs US$3,543/t last week
Lead US$ 2,356/t vs US$2,306/t last week
Tin US$ 37,730/t vs US$37,150/t last week
Energy:
Oil US$85.4/bbl vs US$84.8/bbl last week
Oil prices have hit their highest level in 9 years in early trading today as demand recovers from the COVID-19 pandemic, boosted by more custom from power generators turning away from expensive gas and coal to fuel oil and diesel
Both Brent and WTI contracts rose by at least 3% last week
Market consensus suggests that gas-to-oil switching for power generation alone could boost demand by as much as 450,000bopd in Q4 2021
Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit
The oil market deficit therefore seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder
As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears it will not be accompanied by significantly extra barrels from OPEC+ or the US
Japanese Prime Minister Fumio Kishida has stated that the country will urge oil producers to increase output and take steps to cushion the blow to industries hit by the recent spike in energy costs
Still, supply could increase from the US, where energy firms last week added oil and natural gas rigs for a sixth week in a row as soaring crude prices prompted drillers to return to the wellpad
The US oil and gas rig count, an early indicator of future output, rose 10 to 543 in the week to 15 October, its highest since April 2020, according to Baker Hughes
China’s economy, meanwhile, likely grew at the slowest pace in a year in the third quarter, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks
Daily crude processing rate fell to the lowest since May 2020 in September in the world’s second-largest oil consumer, as feedstock shortage and environmental inspection crippled operations at refineries, while independent refiners faced tightening import quotas for crude oil
Natural Gas US$5.150/mmbtu vs US$5.687/mmbtu last week
Natural gas prices are trading at their highest prices since February 2014 as shortages in Europe and Asia have pushed the price to record levels
Meanwhile, the US has been shipping LNG abroad in increasing quantities, which siphons off the amounts going into storage for the upcoming winter season, the peak time of the year for natural gas demand
Natural gas futures prices tend to rise from November through February during the uncertainty of the winter temperatures
A cold start to the winter season tends to push natural gas prices higher
Winter came very early this year as the price moved to the US$6.466/mmbtu
A cold winter may cause even more explosive action in the natural gas futures arena as we move into the peak season with lower supplies than in the past years
Several European countries including France and Spain have called on the EU to take urgent action to cushion the blow of sky-high gas prices
The bloc’s energy chief, Kadri Simson, has pledged a revision to market rules by the end of the year to prevent surging costs from stifling the economic recovery
The natural gas crisis is set to intensify as winter heating season approaches, with supplies insufficient to keep up with current demand, let alone build stockpiles for what will be increased demand in the cold season
Europe’s natural gas crisis has prompted European fertilizer producers to curb output, which could send food prices soaring along with the natural gas prices
Uranium UXC US$47.2/lb vs $47.5/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$120.6/t vs US$121.3/t
Chinese steel rebar 25mm US$899.7/t vs US$905.8/t
Thermal coal (1st year forward cif ARA) US$159.0/t vs US$155.0/t –
Coal India suspends supplies to non-power customers in hit to industry
India’s state-run coal miner has limited auctioning coal to non-power customers.
India has the 4th largest coal reserves in the world and is the 2nd largest coal producer but a rapid surge in demand has seen supplies diminish.
Aluminium smelters, cement manufacturers and steel plants are all set to be hit.
The Aluminium Association of India stated that contracted supplies of coal have been stopped, noting that ‘the entire industry has been brought to a standstill’.
Imports are unviable owing to soaring global prices.
Thermal coal swap Australia FOB US$245.0/t vs US$252.5/t
Coking coal swap Australia FOB US$371.0/t vs US$370.0/t – China coking coal hits record highs as supply limitations continue and Chinese crude steel output tumbles
Chinese coking coal and coke futures soared 9% this morning despite Beijing’s attempts to boost output.
Dalian 3-month coking coal futures hit $599.23/t.
The supply constraints have been added to as winter heating demand has started to increase.
Coke output in September fell 9.6% year on year to 37.18mt.
Iron ore futures fell 1.2%.
Steel rebar prices have risen 0.4% to 5,490 CNY/t.
Shanghai stainless steel futures rose 1.1% to 20,735 CNY/t.
Crude steel production in China fell 20% in September, its lowest since December 2018.
Other:
Cobalt LME 3m US$56,500/t vs US$56,300/t
NdPr Rare Earth Oxide (China) US$94,900/t vs US$94,968/t
Lithium carbonate 99% (China) US$26,892/t vs US$26,911/t
China Spodumene Li2O 5%min CIF US$1,190/t vs US$1,170/t
Ferro-Manganese European Mn78% min US$1,999/t vs US$1,945/t
China Tungsten APT 88.5% FOB US$310/t vs US$310/t
China Graphite Flake -194 FOB US$555/t vs US$555/t
Europe Vanadium Pentoxide 98% 7.9/lb vs US$7.9/lb
Europe Ferro-Vanadium 80% 31.25/kg vs US$31.25/kg
China Ilmenite Concentrate TiO2 US$382/t vs US$382/t
Spot CO2 Emissions EUA Price US$68.4/t vs US$68.5/t
Battery News
Ford to invest GBP230m building EV parts at UK plant
Ford have announced that it will invest up to GBP230m to build EV components at the Halewood factory in the north of England.
The Halewood plant will produce around 250,000 power units a year when production begins in 2024.
The plant will be the first European in-house location to manufacture EV parts for Ford.
Ford has pledged to make its European line-up all-electric by 2030.
Other automakers, Nissan and Stellantis, had earlier this year committed investment to producing EVs and EV parts in the UK.
BMW backs EV battery startup ONE
Michigan-based startup, Our Next Energy (ONE), which is developing advanced batteries for EVs has raised $25m from investors.
ONE, is working on a dual battery that combines a structural cell-to-pack design that uses cobalt- and nickel-free cathodes, with a second, high-energy pack that can recharge the first, potentially doubling vehicle range to 750 miles.
Financial backers in ONE’s Series A round include BMW iVentures and Breakthrough Energy Ventures, the Bill Gates founded company that supports and funds innovations countering climate change.
Commercial EV startup signs battery supply deal with CATL
U.S. commercial electric vehicle maker Electric Last Mile Solutions Inc (ELMS) has signed a battery supply deal with CATL.
The deal will run to 2025, with CATL’s batteries powering the Class 1 small delivery vehicle that ELMS began manufacturing last month – CATL will provide lithium-iron phosphate (LFP) batteries using a simpler cell-to-pack technology.
The companies are also exploring setting up a CATL battery cell manufacturing plant in the US – CATL has previously declined to comment on plans for the American market.
Financial details of the deal have not been disclosed.
Company News
AngloGold Ashanti (ASX:ANG) ZAR26,971, Mkt cap ZAR113bn – Proposed $750m note offering
AngloGold Ashanti reports the proposed offering of $750m principal amounts of unsecured notes due 2028.
AngloGold intends to use the net proceeds from the offering of the new notes to fund the purchase price of the issuers 5.125% notes due 2022.
Aura Energy* (LON:AURA) 16.5p, Mkt Cap GBP67m – A$421,108 raised from options exercise
Aura reports this morning, through two separate announcements, that it has raised a total of A$421,108 arising through the exercise of options.
Aura raised A$270,308 through issuing 5,384,614 ordinary shares at a price of A$0.0502 each.
Additionally, Aura raised $150,800 through issuing 1,538,461 at a price of A$0.09802 each.
*SP Angel acts as Nomad and Broker to Aura Energy
Bradda Head Lithium* (LON:BHL) 70625p, Mkt Cap GBP22.3m – Proposed listing on OTC Market
Bradda Head reports that it has started the process to list on the US OTC Markets platform, with the Company’s ordinary shares to be cross-traded on the OTCQB Board of the OTC Markets.
This listing will be in addition to the existing quoting on the AIM of the Stock Exchange in London.
Bradda’s objective in applying to the OTCQB in New York is to provide efficient access to U.S. investors, enhance liquidity and facilitate a fair valuation for the Company going forward.
No ordinary shares will be issued as part of the cross-trade, an instead the cross-trading facility will provide rovide U.S. based investors with the ability to access Bradda Head’s shares in U.S. dollars during U.S market hours.
KEFI Gold and Copper* (LON:KEFI) 1.2p, Mkt Cap GBP25m – Security concerns likely to delay launch of Tulu Kapi gold mine in Ethiopia
Kefi gold and copper reports this morning on the security situation ongoing in Ethiopia.
The company has temporarily suspended site visits and inspections to the mining project which had been scheduled for recent weeks.
Management had informed the Ethiopian Ministry of Mines and project financing syndicate of the potential impact on the project timetable
The Ministry of Mines has written to Tulu Kapi Gold Mines questioning whether security was an issue impacting the project.
The letter demands that TKGM respect its obligations under the regulations as reported in local media.
TKGM has replied to the Ministry on the security situation and has confirmed that it continues to comply and fulfil its licence obligations.
These compliance requirements are set out as conditions of the Project mining licence and the consequential detailed work plans.
Conclusion: Kefi remaisn confident of TKGM’s licence tenure with respect to licencee obligations in relation to the security situation in accordance with the mining licence requirements. Ongoing support from the Project finance syndicate offers potential for the Tulu Kapi gold mine to become a showcase Ethiopian 21st century mine development.
*SP Angel act as Nomad and Broker to KEFI Gold and Copper
Rainbow Rare Earths* (LON:RBW) 15.67p, Mkt Cap GBP80m – Expect strong downstream support for REE product prices next year
BUY – Valuation 43p
Click link for full research note: CLICK FOR PDF
(Rainbow hold 70% of Phalaborwa with 30% to be held by Bosveld Phosphates)
(Neodymium Nd, Praesidium Pr, Terbium Tb, Dysprosium Dy. Rainbow holds 100% of the Gakara mine and associated licenses in Burundi)
Shanghai Metals Market (SMM) expect the prices of mainstream rare earth products are expected to be strongly supported by the downstream demand in 2022.
Prices for the key rare earth oxides of praseodymium, terbium and dysprosium are expected to rise.
The market is being driven by China’s new energy vehicle production which is expected to reach 2.78m vehicles this year and 14.22m vehicles by 2030.
Strengthening demand for permanent magnets for air conditioners, industrial robots, consumer electronics, home appliances, lifts and wind power generation are also expected to drive demand higher
China continues to raise quotas for rare earth mines, smelters and separators with recent increases in light rare earth quotas to meet strong demand.
Quotas have risen 27% so far this year to 84,000mt with quotas for mining of medium and heavy rare earth ore rising by just 20%.
SMM expect domestic quotas for rare earth ore mining will rise just 20% this year to 168,000mt.
Imports of rare earth concentrates into China for processing are expected to rise 11% to 125,000t this year with 99% imported from the US last year.
However, REE ore imports fell 6% to 35,708t in the first half probably due to lower imports from Myanmar due to Covid-19 and other disruption with Myanmar imports of mixed rare earth carbonates falling 77.5% with a 93% fall in August tightening available ore supply, though we don’t know about unofficial imports from the region.
Domestic Chinese rare earth separation plants slowed production due to power rationing, environmental compliance and maintenance causing neodymium/praseodymium alloy prices also rise to >124/kg pulling back to $115/kg more recently in China. we have used $94/kg in our Rainbow model.
China’s permanent magnet output is expected to increase 7% to 210,000t this year
Larger permanent magnet producers have absorbed recent REE oxide proce increases but the market is concerned that small and medium sized enterprises are sensitive to this inflation being passed on. .
Permanent magnet exports account for 88% of the total last year and are expected to rise by a further 11% to 40,000t
Conclusion: Rare earth ores and concentrate imports into China are increasingly important from a total production perspective. New projects like Phalaborwa need to come on line soon to meet the anticipated supply/demand gap while the suspension of Rainbow’s Gakara mine in Burundi is serving to tighten an already strained market.
*SP Angel act as broker and financial advisor to Rainbow Rare Earths
Vulcan Energy (ASX:VUL) A$12.6, Mkt cap A$1.56bn – Binding offtake agreement signed with Umicore
Vulcan Energy Resources (ASX:VUL) has signed a binding lithium hydroxide offtake agreement with Umicore, a Belgian materials technology and recycling group.
Umicore is to purchase a minimum of 28,000t and a maximum of 42,000t of battery grade lithium hydroxide, with pricing based on market prices on a take-or-pay basis.
The agreement is for an initial five-year term and the start of commercial delivery is set for 2025.
Recent Interviews:
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
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
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*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
