SP Angel . Morning View .Monday 24 08 20
Gold holds as flooding worsens in China and storms head to US
Adriatic Metals* (LON:ADT1) – Adriatic Metals increase loan to Tethyan Resources
Arc Minerals* (LON:ARCM) – Don Bailey resigns from board as Anglo American steps in with exclusivity agreement
Jubilee Metals (LON:JBL) – Jubilee appointed to recommission and operate chrome plant at Inyoni in South Africa
Petropavlovsk (LON:POG) – Board update
Rio Tinto (LON:RIO) – Rio Tinto executives lose bonuses over destruction of ancient caves in Australia
Shanta Gold (LON:SHG) – Interims highlight strong FCF and positive net cash status
Strategic Minerals* (LON:SML) – Redmoor project review
Sunrise Resources (LON:SRES) – GBP1m fundraising
Tertiary Minerals* TYM – Buy-back and cancellation of deferred shares
Global stocks rise as gold continues retreat from $2000/oz
Gold prices continued to fall on Monday morning, after experiencing its second straight weekly decline on Friday.
Risk sentiment has improved as investors look ahead to the Fed’s economic symposium, meaning demand for risk-adverse assets such as gold has dampened.
Europe’s Stoxx 600 rose 1.3% in early Monday trading, the DAX advanced 1.4%, the FTSE 100 +1.2% and S&P Futures +0.4% (FT).
It is also reported that the Trump administration are considering bypassing US regulatory standards to fast-track an experimental vaccine being developed by Oxford University and AstraZeneca.
A stronger US dollar has also put pressure on gold prices, as the DXY index consolidated above the 93.00 level on Monday (FX Street).
Despite the notable drop below $2,000/oz seen earlier in the month, some analysts believe that gold has entered a necessary consolidation period which is necessary for gold to maintain its long-term uptrend.
Spot gold slid 0.4% to $1,932/oz earlier this morning, whilst US gold futures fell 0.2% to $1,943/oz (Reuters).
Nuggets – Two gold nuggets worth US$250,000 were found in Australia last week near Tarnagulla, Victoria, Australia
The lucky prospectors were using metal detectors to look for gold in a TV show for the Discovery channel
The two nuggets weigh in at 3.5kg
The TV show follows follows teams of gold prospectors who dig in goldfields in remote parts of Australia.
Tarnagulla is due west of Bendigo and just north of Ballarat in the state of Victoria.
Towns grew in the region due to gold discoveries over a 100 years ago leading to the historic Ballarat and Bendigo gold mines.
A number of junior exploration companies are looking for gold resources in the region but defining resources of nuggety gold presents its challenges.
Defining gold resources in nuggety gold fields is difficult with a greater degree statistical variance applied.
While finding a few nuggets is a good starting point for the discovery of a gold resource much work and luck is required before anyone starts mine planning.
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Dow Jones Industrials +0.69% at 27,930
Nikkei 225 +0.28% at 22,986
HK Hang Seng +1.58% at 25,510
Shanghai Composite +0.15% at 3,386
Storms Marco and Laura heading for Southern US
Unusually warm water in in the Gulf of Mexico and in the Caribbean has raised the potential for the development of large storms in the region.
Hurricane Marco is heading for New Orleans and Houston while Tropical Storm Laura is heading for New Orleans and then on towards Louisiana
Storm Laura is of concern as it may pickup greater energy and wind speed as it crosses the warmer water in the Gulf of Mexico.
China promised to follow Phase One trade deal, Pompeo says
China has promised to follow the Phase One trade deal with the US according to Mike Pompeo
Flooding has required China to import far more food stocks than normal
China may still try to use its Pandemic clause, slipped into the Trade Deal document in January
Lobster tariffs – the EU is to end tariffs on US lobsters in return for the US halving tariffs on a range of EU goods
The EU cut tariffs on Canadian lobsters as part of the EU-Canada trade agreement which took around 8 years to negotiate.
In the meantime China imposed new tariffs on US lobsters.
Trump directed aid to US lobstermen to support their industry which was hit by increased competition from Canada and the new Chinese tariffs.
The US continues to impose punitive tariffs steel and aluminium from the EU in relation to subsidies over Airbus and Boeing.
Germany – Crude steel output falls 24.7% YoY
July Crude steel output fell to 2.42mt, whilst pig iron production fell 28.8% over the same period to 1.54mt.
Brexit – EU lead negotiator says a deal between the UK and EU seems unlikely
We understand this is typical of EU negotiating style to leave everything to the last minute.
The UK is recovering well from the lockdown
Europe can ill afford a further shock to industry and economic recovery and is lagging much of the rest of the world in its effective response to the Coronavirus.
Germany appears to be lagging China in terms of its transition to Electric Vehicles and risks losing market share to new competitors.
UK – COVID-19 – The UK reported just 1033 Coronavirus cases on Friday down significantly on last Friday’s 1441.
Just 2 fatalities and the number of Coronavirus patients fell to 480 in English hospitals.
A new strain of the COVID-19 in Singapore appears to be causing milder infections and fewer hospitalisations.
This means that normal flu and influenzas may have overtaken COVID-19 in terms of fatalities
Statisticians at a Government-run agency say upward trajectory in cases since July had now been halted.
Brazil – 20% of the workforce in the nation’s meat facilities have been infected with the coronavirus.
PNG – PNG turns away flight of ‘vaccinated’ Chinese workers on route to China Metallurgical Corp ‘MMC’
PNG has called for immediate clarification in relation to 48 staff who returned from China and may test positive for the Coronavirus due to vaccination.
The staff were destine for MMC’s Ramu NiCo mine
China had previously reported that it would only test vaccines on military personnel as staff at state-backed companies but had not said if this would apply to workers heading overseas.
The PNG government is keen to check to see if China has been vaccinating staff in PNG and if the flight was evading quarantine procedures.
PNG does not currently acknowledge a vaccine for coronavirus and will not till the WHO gives approval.
US$1.1808/eur vs 1.1873/eur last week. Yen 105.87/$ vs 105.56/$. SAr 17.043/$ vs 17.246/$. $1.310/gbp vs $1.324/gbp. 0.718/aud vs 0.720/aud. CNY 6.916/$ vs 6.906/$.
Gold US$1,942/oz vs US$1,946/oz last week
Gold ETFs 108.6moz vs US$108.5moz last week
Platinum US$925/oz vs US$924/oz last week
Palladium US$2,171/oz vs US$2,177/oz last week
Silver US$26.63/oz vs US$27.23/oz last week
Copper US$ 6,554/t vs US$6,616/t last week
Aluminium US$ 1,781/t vs US$1,797/t last week
Nickel US$ 14,890/t vs US$14,705/t last week – LME nickel prices hit nine-month high on Chinese steel growth
Nickel prices on the LME hit their highest level since November on rising demand from China’s stainless steel sector.
Stocks at Chinese ports fell to a two-year low last week, as steel mills rushed to buy up material to feed rising steel production.
Nickel ore stocks across seven major Chinese ports shrank 200,000 tonnes last week to 6.59mt (SMM News).
Crude steel output rose 9% to reach 93.36mt in July, whilst pig iron gained 8.8% YoY to 78.18mt (China Daily).
The price of nickel advanced 1.2% to $14,4680/t earlier this morning (Bloomberg).
Zinc US$ 2,462/t vs US$2,491/t last week
Lead US$ 1,988/t vs US$2,004/t last week
Tin US$ 17,565/t vs US$17,685/t last week
Oil US$44.7/bbl vs US$45.0/bbl last week
Oil prices have started to drift despite a strong month of bullish data
Although US oil inventories have been declining over the past couple of weeks, the margin of drawdown has shrunk considerably
According to EIA data, US oil inventories fell by 10.6MMbbls during the week ending 24 July and then dropped by 7.4MMbbls, 4.5MMbbls, and just 1.6MMbbls in the three subsequent weeks
There is therefore an increasing danger that this trend could soon flip, and inventories could start rising again – a negative development for oil prices
These inventory worries are not helped by coming at a time when OPEC+ has eased its deep production cuts
Starting this month, OPEC trimmed its historic production curbs by 2MMbopd to 7.7MMbopd
As such, rising OPEC+ production could coincide with an uneven recovery in oil demand
. OPEC’s experiment to increase production from August could therefore backfire given the current fragility in oil demand
The overall liquids market could flip back into a mini-supply glut and a swing into deficit will not happen again until December 202, according to Rysted Energy
Natural Gas US$2.426/mmbtu vs US$2.433/mmbtu last week
. Natural gas prices continue their upward trajectories, but drillers not coming back yet
US prices have shot up to above US$2.42/mmbtu, as a heatwave, supply shut-ins, and LNG cancellations have quickly tightened up the market
Hedge funds and other money managers have stepped up bullish bets, predicting that prices will continue to rise
However Appalachian gas drillers are not returning to drilling new wells, instead preferring a cautious approach
There are now two tropical storms in the Atlantic, one is headed right for the Gulf of Mexico and is likely to hit natural gas infrastructures
The other appears to be headed for the eastern Gulf of Mexico and could hit the west coast of Florida
The weather is expected to remain warmer than normal in the US southwest generating additional cooling demand
Uranium US$30.80/lb vs US$31.00/lb last week
Iron ore 62% Fe spot (cfr Tianjin) US$121.8/t vs US$123.8/t
Chinese steel rebar 25mm US$545./t vs US$545.6/t
Thermal coal (1st year forward cif ARA) US$53.4/t vs US$54.4/t – Chinese thermal coal prices fall on weak demand
Thermal coal prices fell 1.4% to 556.2 yuan/t this morning on the Zhengzhou Commodity Exchange, as power plants are mainly consuming stockpiles built up over the last few weeks (Bloomberg).
Coking coal futures Dalian Exchange US$117.5/t vs US$117.5/t
Cobalt LME 3m US$33,200/t vs US$33,200/t
NdPr Rare Earth Oxide (China) US$50,534/t vs US$50,610/t
Lithium carbonate 99% (China) US$4,916/t vs US$4,923/t
Ferro Vanadium 80% FOB (China) US$30.3/kg vs US$30.3/kg
Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.2/kg
Tungsten APT European US$205-210/mtu vs US$205-210/mtu
Graphite flake 94% C, -100 mesh, fob China US$430/t vs US$430/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,275/t vs US$2,275/t
DRC – German turbine makers and gas companies looking at hydrogen generation in the DRC
The idea is to convert hydropower into hydrogen which can then be used locally or exported (Bloomberg).
Tesla leads the way in the US
Tesla vehicles made up 81% of US EV sales in Q1. The Model 3 sold 38,314 vehicles, 44% of the 87,398 EVs sold in the US during the period.
The Model Y and Model X followed the Model 3 as the next most popular vehicles, with the Model S in 5th place providing Tesla with complete dominance of US sales.
The Company’s share price pushed past $2000 last week, having reached as low as $350 in March. Leading vehicles sales in China and the US and anticipation about announcement at the upcoming battery day is maintaining investor demand.
The closest challengers in the US market are the Chevy Bolt which was the 4th most popular EV with 8370 sales and the Nissan LEAF with 3006 sales. The Audi e-Tron, Porsche Taycan, VW e-Golf and BMW i3 made up the rest of the top 10.
Tesla has an extensive charging network in the US, claiming that every US citizen is with 150 miles of a Tesla supercharger in 2018. This network may be a driving force behind the vehicle sales with charging network density a key concern for prospective EV buyers.
Xpeng hopes to raise $1.11bn in US IPO
Chinese EV maker hopes to raise $1.11bn in its New York IPO, Reuters reports.
The Company plans to sell 85 million ADS, each representing two class A ordinary shares priced between $11 and $13.
Xpeng have suggested existing investors Alibaba, Coatue and Qatar Investment Authority plan to invest $200m. $100m, $50m respectively.
The IPO follows a spate Ev makers which have gone public in 2020 with Canoo, Li Auto, Fisker, Lordstown Motors, Nikola Hyliion all coming to the market as momentum behind EVs begins to pick up.
Xpeng has 2 EV models the G3 a compact SUV with a range of 520km and a faster charging time of 30 mins and the P7, a longr nagged sedan with a range of 562km to 670km depending on version.
The Company sold 16,608 G3 vehicles in China in 2019 and to up to July his has sold 6972 G3 vehicles in China this year. (Car sales base)
Adriatic Metals* (LON:ADT1) 128p, Mkt cap GBP233.1m – Adriatic Metals increase loan to Tethyan Resources
Adriatic and Tethyan Resources (TSX-V: TETH) and pone of its subsidiaries announce this morning that the companies have entered into an amendment to the secured convertible loan agreement signed on the 10th of May earlier this year.
In accordance with the amendment, Adriatic agreed to advance to Tethyan an additional EUR500,000, bringing the total principal amount of the Loan from Adriatic to EUR1,800,000. Tethyan has submitted a borrowing request for the full amount of the advance, and it is expected to be made on or before the 28th of August 2020.
Process from the additional advance will be primarily used for exploration and drilling expenses on Tethyan’s Kizevak and Sastavci properties, along with reasonable expenses incurred in the ordinary course of business, and expenses in connection with the plan of arrangement with Adriatic.
Key terms of the loan are as follows:
Interest rate of 10% per annum, compounding monthly
Repayment due on the earliest of May 10, 2021, the termination of the Arrangement and the completion of the arrangement between Adriatic and Tethyan
Security over Tethyan’s Serbian assets
Prior to the Amendment, Adriatic was deemed to have control and direction and beneficial ownership of 13,086,666 common shares of Tethyan, representing 14.1% of the then issued and outstanding common shares of Tethyan.
As a result of the Amendment and on advance of an additional EUR500,000 to Tethyan, Adriatic’s conversion rights would entitle it to acquire control of additional shares representing a further 2% of the outstanding common shares on Tethyan.
*An SP Angel mining analyst has visited Adriatic Metals operations in Bosnia
Arc Minerals* (LON:ARCM) 3.99p, Mkt cap GBP39m – Don Bailey resigns from board as Anglo American steps in with exclusivity agreement
Arc Minerals reports the resignation of Don Bailey from the board.
Don commented: “I have thoroughly enjoyed my time with Arc and working with Nick and the board in transforming the fortunes of the Company. The announcement of an exclusivity agreement with Anglo American is a major step forward and for me personally a good time to move on with some of my other projects. I will follow with great interest the next steps for Arc and wish them well going forward.”
Don was a former head of mining operations for Rio Tinto in Africa, South America and Europe and spent 30 years with Rio Tinto where as Joint Global Head of Mining Operations he was responsible for the development of numerous major international projects including Escondida in Chile, Moro d’Oro mine in Brazil and Neves Corvo in Portugal.
Don was also a director of a number of Rio Tinto international companies including Palabora Mining and Rossing Uranium in Africa.
Bailey was also founder, CEO and Chairman of LionOre Mining which was acquired by Norilsk for $6.8bn in 2007.
Conclusion: Don will be missed on the board but his departure may make more room for another major mining company to potentially step in.
*SP Angel act as nomad and broker to Arc Minerals. The analyst holds shares in Arc Minerals.
Jubilee Metals (LON:JBL) – 5.23p, Mkt cap GBP110m – Jubilee appointed to recommission and operate chrome plant at Inyoni in South Africa
Jubilee Metals has been appointed as operator to recommission and operate a run of mine chrome plant at Inyoni in South Africa.
The agreement guarantees 40,000t per month for the plant of chrome and PGM ore.
Throughput may later rise to 80,000tpm.
The PGM rich tailings will be further enriched at Jubliee’s Inyoni plant.
Jubilee is also reviewing potential to expand it’s Inyoni to reach 3,500oz of PGMs a month.
Petropavlovsk (LON:POG) 31.6p, Mkt Cap GBP1,235m – Board update
Mr Malay Mukherjee has been appointed as a new independent non-executive director.
Mr Mukherjee brings 40 years of experience in the mining and steel industry to the Board.
He previously served 16 years with Arcelor Mittal where he served on the Group Management Board and Board of Directors.
He was in charge of mines and operations in Africa, Asia, southern Europe (Bosnia, Macedonia), CIS, Ukraine, Kazakhstan, and also responsible for Stainless Steel, Pipes and Tubes and Technology.
Malay is currently the lead independent non-executive director of JSW Steel, one of India’s leading steel companies, and an independent director of VA Tech Wabag Ltd.
Separately, Katia Ray, another independent non-executive director, announced she will be stepping down from the Board for personal reasons.
The Company is working with external search consultants to further strengthen the Board and make new appointments of independent non-executive directors.
Following latest changes, the Board now comprises four people including James Cameron (Chairman, Independent NED), Charlotte Philipps (Independent NED), Maxim Kharin (NED) and Malay Mukherjee (Independent NED).
Rio Tinto (LON:RIO) 4788p, Mkt cap GBP60bn – Rio Tinto executives lose bonuses over destruction of ancient caves in Australia
Rio Tinto destroyed the sacred Aboriginal Juukan George rock shelters in the Pilbara, Western Australia in May.
The rock shelters were among the oldest historic sites in Australia and their destruction was opposed by Aboriginal traditional owners.
The shelters showed evidence of continuous human habitation dating back 46,000 years.
The executives failed to uphold a core Rio Tinto value to respect local communities and their heritage..
Conclusion: Investors will need to consider if the culture and processes within Rio Tinto are sufficient to avoid this sort of action again in future years.
Shanta Gold (LON:SHG) 17.3p, Mkt Cap GBP146m – Interims highlight strong FCF and positive net cash status
Sales were up at $73.0m (H1/19: $53.6m) reflecting stronger gold sales (44.0koz, +7%yoy) and higher realised gold price of $1,533/oz (H1/19: $1,306/oz, +17%) including realised losses on forward sales.
Spot gold prices averaged $1,649/oz during the period.
Outstanding forward gold sales stood at 27koz at ana average price of $1,251/oz for the Jun/20-Jan/21 period.
Adjusted EBITDA climbed to $34.4m (H1/19: $22.6m).
AISC amounted to $817m (H1/19: $730/oz) on track for the FY20 guidance of $830-880/oz.
PBT and PAT came in at $15.3m and $1.0m, respectively (H1/19: -$4.1m and -$5.7m).
FCF (pre interest) was $19.4m (H1/19: $6.6m) after accounting for $7.4m in capital expenditures reflecting mainly capitalised underground development costs.
Outstanding VAT receivables climbed to $23.2m during the period, up from $21.8m at the end of last year.
Net cash stood at $2.1m (FY19: net debt of $14.3m) after including 1.4koz in transit to the refinery as of Jun/20.
FY20 production guidance reiterated at 80-85koz with operations reported to remain unaffected by the latest COVID-19 pandemic.
Separately, the Company is progressing Singida funding discussions with an announcement expected in Q3/20.
Exploration works at the New Luika Gold Mine is focused on BC and Ilunga orebodies’ extensions as well as regional exploration in the Lupa Goldfields; the Company ramped up exploration spend during the period to $1.4m (H1/19: $0.8m) and FY20 budget set at $5.0m, up 65% on 2019.
The Company has also completed acquisition of the high grade West Kenya Project in August following regulatory approvals with Barrick becoming a 6% shareholder in the Company.
Conclusion: The Company announced strong interim results as strong gold prices and higher gold sales delivered good FCF generation and deleveraging of the balance sheet. The Company reported net cash position as of H1/20 and reiterated FY20 annual guidance for 80-85koz. The team is advancing its exploration programme at New Luika to extend the NLGM life of mine, progressing with Singida funding discussions as well as planning to launch an infill drilling programme to collect data for the Scoping Study at its newly acquired West Kenya project.
Strategic Minerals* (LON:SML) 0.45p, Mkt Cap GBP6.9m – Redmoor project review
Strategic Minerals reports that it is undertaking a review of its wholly owned Redmoor tin and tungsten project in Cornwall using external consultants NRG “to provide strategic and financial advice regarding advancing” the project.
Mining consultants, Wardell Armstrong, who provided the company’s underground scoping study announced in May 2019, have also been tasked with optimising that study, reviewing costs and focusing on developing early access to the “higher-grade material identified in the latest drilling programme, … [which] … may offer the potential for a superior IRR, enhancing project economics and improving the attractiveness of the project to potential investors”.
The company confirms that this work “is expected to complete at the end of September”.
Executive Director, Peter Wale explained that “As international emphasis continues to shift towards securing critical minerals supply, having a source of tin and tungsten in Cornwall is expected to prove of even greater strategic importance in the future. As a result, we continue to see interest in Redmoor from investors who understand the globally significant potential of the project”.
Conclusion: Optimisation of the Redmoor scoping study is expected to be completed during September. Attention to developing early access to the higher grade mineralisation identified during the most recent drilling is expected to deliver a beneficial effect on the overall project IRR and to enhance the attraction of Redmoor to potential investors. We await the conclusions of the project review with interest.
*SP Angel acts as Nomad and Broker to Strategic Minerals
Sunrise Resources (LON:SRES) 0.31p Mkt Cap GBP12.8m – GBP1m fundraising
The Company has announced that it has raised GBP1m through a conditional placing of 267.9m new shares at a price of 0.28p/share to raise GBP750,000 and a further GBP250,000 through a conditional broker option of 89.3m shares at the same price.
The broker option includes warrants entitling the holder to purchase approximately 17.9m additional shares at the same issue price within the next 12 months.
Proceeds of the fundraising are to be “applied primarily to the further development of the Company’s CS Pozzolan-Perlite Project in Nevada, USA, initial drill testing of certain of the Company’s gold and silver projects, and general working capital”.
We estimate that, including shares issued to holders of the warrants, the new shares, which are to be issued at “a 24% discount to the closing bid price of the Company’s shares on AIM on 21st August 2020” represent approximately 10% of the enlarged capital of Sunrise Resources.
Executive Chairman, Patrick Cheetham, confirmed that this “fundraising will allow the Company to continue the development of its priority CS Project in Nevada following the recent grant of the mine and reclamation permits. It will also allow the Company to carry out some initial drill testing on its precious metal projects in Nevada as the Board is keen to ensure that it’s gold and silver project portfolio delivers value for shareholders in the current strong market conditions for precious metals”.
Tertiary Minerals* TYM – 0.26p, Mkt cap GBP2.2m – Buy-back and cancellation of deferred shares
Tertiary Minerals has proposed that approximately 267m unlisted deferred shares issued as part of a capital reorganisation in 2017 which are considered “economically valueless”, are bought-back for GBP1 in the form of 1,000 new shares to be issued to Chairman, Patrick Cheetham, and subsequently cancelled.
The company explains that as it “has no distributable reserves to finance the buy-back of the Deferred Shares … this will be financed by a fresh issue of new Ordinary Shares … to the Chairman, Patrick Cheetham, at a price of 0.25 pence per New Share.”
“Part of the proceeds of the issue of the New Shares will be used to fund the purchase of the Deferred Shares for an aggregate consideration of GBP1.00. The Board considers this to be the best way of funding the buy-back of the Deferred Shares given the Company currently has no distributable reserves.”
Mr. Cheetham’s holding following this transaction is reported to be 1.52% of Tertiary Minerals.
A General Meeting to consider the proposal is to be held on 10th September. In view of measures to contain the spread of Covid19 “physical attendance in person at the GM will not be permitted”.
*SP Angel act as nomad and broker to Tertiary Minerals
John Meyer – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy –[email protected] – 0203 470 0474
Richard Parlons –[email protected] – 0203 470 0472
Abigail Wayne – [email protected] – 0203 470 0534
Rob Rees – [email protected] – 0203 470 0535
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, Antimony