SP Angel . Morning View . Wednesday 26 08 20
Nickel prices rise as Chinese stocks hit two-year low
MiFID II exempt information – see disclaimer within PDF
Edenville Energy* (AIM:EDL) – Sales and Marketing Agreement signed
Hummingbird Resources (LON:HUM) – Interims highlight strong earnings reflecting better gold prices
Panther Metals (LON:PALM) – Geophysics highlights potential of Marrakai gold prospect
Polymetal (LON:POLY) – Stronger gold price lifts H1/20 earnings; $0.40 dividend declared
Equities rise on US-China trade talk optimism
- China needs to buy billions of dollars’ worth of US food stocks to replace crops destroyed along the Yangtze in flooding
- Trump wants to win the US election and will use economic recovery as a pillar of his campaign
- China will need to agree and adhere to many other elements of the Phase 1 Trade Deal but Trump will claim success
- Economic recovery in the US will likely outweigh other considerations assuming COVID-19 deaths fall
- The UK and many other economies are recovering fast
- Ongoing disruption to mine supply likely to create deficits in copper and many other metals as demand recovers
- Supply disruption, inventory restocking, recovering demand and US dollar weakness is likely to lead to rising metal prices
US July steel imports up 92% on month prior
- The US imported 2.44mt of steel last month, including 1.37mt of finished steel- which was 3.6% higher than in June.
- Steel products with large month-on-month increases include rebar (up 61%), heavy structural shapes (up 51%) and tin plate (up 43%), according to the American Iron and Steel Institute.
- The top countries supplying the US with steel last month were S. Korea with 158,000t (-15% MoM), Brazil, 88,000 tons, (286% MoM), China, 60,000 tons (53% MoM), Turkey, 52,000 tons (76% MoM) and Japan, 50,000 tons (-17% MoM).
- During the period January to July, US steel imports have fallen 19.2% to 18.09mt, including 10mt of finished steel, down 26.1% (China Coal).
China – Dual Circulation strategy to drive demand in the Yangtze River Basin
- The idea is for China to boost domestic demand and reduce the contribution of exports to less than 10% of GDP
- Exports represented 36% of GDP in 2006, 18% of GDP in 2019 and possibly <10% by=”” say=”” 2030=”” li=””>
- China needs to create a new generation of consumers to buy products made by Huawei and other state-sponsored companies, many of which are run by the enriched princelings of the Politburo.
- China may see the WTO as impotent with unilateral tariffs imposed by the US.
- Smaller and weaker nations may be denied access to Chinese manufactured technology under the new Dual Circulation Strategy.
- The strategy could lead to significant inflation as China directs trade to its preferred partners while deliberately excluding others according to political will.
- China is using the threat of the Dual Circulation Strategy to gain its way with free trade into the US while continuing to break many of the basic principles of the agreed Trade Deal. Eg the agreement to buy US products and to stop stealing US technology.
- Economists believe the imposition if a Dual Circulation Strategy will damage global economic growth and could lead to significant inflation in the West.
- China’s consideration of the strategy raises risk and could lift gold prices due to its potential to damage the US dollar and stoke inflation.
Working from home – Linklaters solicitors can work up to half their working hours from home indefinitely
- Linklaters has 5,200 partners and staff and will allow home working for 20-50% of their time due to the high quality of work seen from staff working from home.
- PWC has also said most of its 22,000 UK staff will never return to the office full time.
- JP Morgan Chase with 15,000 UK staff will also let employees to continue to work from home maybe permanently.
- Aviva, the investment company, is also planning on permanent flexible working.
- Schroders now allow permanent home working.
- The news is likely to collapse office rents in Central London.
- The good news is that trains and busses should be less crammed than they were pre-pandemic making them safer and more pleasant to travel on.
Sovereign wealth funds rethink real estate investments
- A reworking of Sovereign Wealth fund investment strategies is likely to be good for equities.
- Sovereign Wealth funds are looking for solid long-term but liquid investments which provide yield.
- Commercial property suddenly looks allot less appealing in a Coronavirus world where the longer term trend may see less demand for offices.
- Schroders was reported not to require staff to attend the office on a longer term basis. Others are considering following this move.
- Retail premises which were already under pressure from online shopping are likely to suffer further loss of income raising the risk of retail investment.
- Many more high-street retailers are likely to rationalise as old format department stores disappear in favour of much smaller specialist formats.
- The Coronavirus is also accelerating the move of residents out of town to suburbs and the countryside as workers ditch packed trains and busses.
- Commuting had become virtually unbearable for many workers and the Coronavirus provides the perfect reason to reform and reassess working practices.
- High-speed fibre optic directly into the home now gives faster internet speeds in the countryside than seen in many London offices.
- Zoom, Teams and other systems bring people together on a virtual basis recreating the contact lost from the office but at a fraction of the cost.
- Almost every UK company has put plans on hold for new office space with many now considering how to reduce the cost of offices.
- The sector is likely to remain ex-growth on a longer term structural basis leading to a potential collapse in values and movement of funds into equities.
COVID-19 – UK estimates some 500,000 recovering COVID-19 Long haulers
- Long-haul symptoms range from hair loss to vomiting, chest pains, exhaustion, breathing issues, high heart rate, arrhythmia, temperatures, hallucinations and Covid toes.
Dow Jones Industrials -0.21% at 28,248
Nikkei 225 -0.03% at 23,291
HK Hang Seng -0.17% at 25,473
Shanghai Composite -1.25% at 3,330
US – Storm Laura likely to become a major Hurricane by the time its hits the northern coast of the Gulf of Mexico
US Secretary if state holds China accountable for covering up the Coronavirus
- Is this rhetoric or does he have hard evidence?
US economic recovery may help lift Trump to second term of office
- Trump is being hailed as the ‘bodyguard of western civilisation’ protecting American from the socialist alternative (The Times).
- Joe Biden has a nine point lead in the polls but Trump has 48% backing on his economic policies.
- The creation of 9m new jobs in May, June and July following 20m of job losses in March and April is helping Trump close Bidens lead.
UK – Japan and the UK could agree on a trade deal this week (Nikkei)
China – President Xi to resurrect the title of Chairman created by Chairman Mao
- The proposal indicates that President Xi is looking to hold onto power after his second term expires.
- Why stop at Chairman, Xi could go straight to His Imperial Highness, Emperor of China.
Japan – PPI Services rose 1.2% tot in July above expectations
Europe – ECB’s Kazimir suggests that a wait and see approach is the most reasonable action for the ECB based on Q2 data
- This view may well ensure Europe continues to recover more slowly than other nations from COVID-19.
Hong Kong – Exports fell -3.0% yoy in July
- Imports fell -3.4% yoy in July
COVID-19 – Japanese scientists say low concentrations of ozone 1-6ppm is effective at neutralising the coronavirus
- Ozone is found to be particularly effective in high humidity conditions (Reuters).
- Problem is that Ozone is potentially toxic to humans at higher concentrations
US$1.1809/eur vs 1.1807/eur yesterday. Yen 106.28/$ vs 106.11/$. SAr 16.830/$ vs 16.893/$. $1.315/gbp vs $1.310/gbp. 0.720/aud vs 0.717/aud. CNY 6.896/$ vs 6.912/$.
- PBoC Fixes US dollar / Yuan exchange reference rate At 6.9079 vs the previous fix at 6.9183 and previous close of 6.9110
- The move may indicate that China is looking to further weaken the US dollar
Gold US$1,918/oz vs US$1,931/oz yesterday – Gold retreats ahead of Fed meeting on Thursday
- The price of gold continued to fall on Wednesday, as Fed chairman Jerome Powell is expected to outline what the Fed’s plan is to target ‘Average inflation’.
- Inflation worries have been one of the main drivers in the gold price this year, due to the vast amounts of stimulus implemented by central banks around the world.
- Vaccination hopes have improved market sentiment this week which has seen money flow into equities and out of gold, although gold’s overall trajectory remains positive amid the high underlying level of market uncertainty and unprecedented money printing.
- Furthermore, the dollar index rose 0.2% earlier this morning, making gold more expensive for holders of other currencies.
- Spot gold fell 0.5% to $1,919/oz earlier this morning, although US gold futures edged 0.1% higher to $1,925/oz (Reuters).
- July marked the fifth month in a row that Swiss gold bullion exports were dominated by Western markets, with the US accounting for 60% of total Swiss exports compared to a 1% from 2014-2019 (Metals Focus).
Gold ETFs 108.6moz vs US$108.6moz yesterday
Platinum US$924/oz vs US$926/oz yesterday
Palladium US$2,177/oz vs US$2,171/oz yesterday
Silver US$26.32/oz vs US$26.57/oz yesterday
Copper US$ 6,525/t vs US$6,512/t yesterday – Refined copper saw a 60,000t deficit in June vs a 96,000t deficit in May (ICSG)
- Preliminary data indicates that world copper mine production declined by 2.2% in the first five months of 2020.
- World mine production is estimated to have decreased by 4.5% in April and 5.8% in May as these two months were the most affected by COVID-19.
- Preliminary world refined copper balance in the first five months of 2020 indicates a balanced market:
- The world refined copper balance adjusted for changes in Chinese bonded stocks indicated a market deficit of about 30,000 t.
- The ICSG now see a 1,000t surplus in the year to May vs a deficit of 270,000t yoy
- Protests outside Freeport’s Grasberg mine in Indonesia have the potential to cut copper production.
Aluminium US$ 1,780/t vs US$1,774/t yesterday
Nickel US$ 15,140/t vs US$14,895/t yesterday – Nickel prices rise as Chinese stocks hit two-year low
- The price of nickel rose for a fourth straight day this morning to its highest level in nine months as the pandemic tightened ore supply (Bloomberg).
- Chinese inventories have hit a two-year low, as ore output from top supplier the Philippines fell 28% YoY in January-June (Reuters).
Zinc US$ 2,481/t vs US$2,471/t yesterday – San Cristobal suspends operations due to cases of COVID-19
- The mine produces: 450,000tpa of zn concentrates and 110,000t of pb cons plus allot of silver.
Lead US$ 2,000/t vs US$1,989/t yesterday
Tin US$ 17,420/t vs US$17,395/t yesterday
Oil US$46.1/bbl vs US$45.3/bbl yesterday
- Oil prices continue to hold well on reports that the API confirmed another draw in crude oil inventories of 4.524MMbbls for the week ending 21 August
- This came in higher than a consensus draw of 3.694MMbbls
- In the previous week, the API reported a draw in crude oil inventories of 4.264MMbbls, after analysts had predicted a draw of 2.670Mbbls
- Oil prices have failed to gain any real traction over the past month, even with OPEC’s historic production cut and production declines in the US, on the back of grim forecasts of subdued future oil demand in the coming months
- Oil production declines in the US held steady this week, still down from a high of 13.1MMbopd in March US oil production currently sits at 10.7MMbopd as of 14 August according to the EIA
- This represents a 2.4MMbopd loss that lends aid to OPEC’s efforts to curb production to regain market balance
Natural Gas US$2.495/mmbtu vs US$2.523/mmbtu yesterday
- Gas prices remain strong as tropical storm Marco and tropical storm Laura baring down on Loiusinana’s Port Author, approximately 45% of the natural gas in the Gulf of Mexico could be taken offline
- Tropical Storm Laura is expected to be a Hurricane category 2, by the time it makes landfall during the middle of the week, which could create a significant impact
- The weather is expected to be warmer than normal throughout west and southwest over the next two weeks which could generate additional cooling demand
Uranium US$30.80/lb vs US$30.85/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$117.4/t vs US$119.9/t
Chinese steel rebar 25mm US$545.6/t vs US$545.6/t
Thermal coal (1st year forward cif ARA) US$51.0/t vs US$53.9/t – Indonesian coal production falls 8.3% January-July
Indonesia produced 324.4mt of coal over the period, a drop of 8.3%- equating to 4.2mt less output per month on average.
Earlier this year, the country’s coal authority set out a production plan of 550mt, with 400mt planned for export and 150mt planned for the country’s domestic consumption.
Latest data shows that the domestic market is only forecast to consume 100mt to 110mt of coal this year amid the COVID-19 pandemic, compared to 138mt last year (sxcoal.com).
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$50,696/t vs US$50,566/t
Lithium carbonate 99% (China) US$4,931/t vs US$4,919/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$5.1/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
Xpeng Inc announces intention to raise $1bn in US IPO
Xpeng Inc (Xpeng) is a smart EV company founded in 2015, headquartered in Guangzhou, China. The Company recently announced their intention to raise $1.1bn via an offering of 85 million ADSs representing Class A shares at a midpoint price of $12.
Xpeng will list in New York with a top end valuation of $9.2bn. (CNN)
The Company could raise as much as $1.275bn as the indicative price is closer to $15. The price will be formally set today in the US. Primary use of funds expected to be R&D, sales and marketing and working capital needs.
The Company’s current range includes the G3 and P7 vehicles.
Xpeng plans to bring 3 new vehicles to market based on their smart EV platforms; David and Edward, built for wheel bases of 2600-2800mm and 2800-3100mm respectively. The next vehicle in the range is slated to be a sedan based on the David platform to be released in 2021.
Xpeng uses Lithium NCM batteries supplied by CATL in their G3 models and a lithium NCM prismatic battery in the P7. The G3 vehicles has a range of 460-520km, and a faster charge time of 30-40 mins depending on the model, while the P7 charges to 80% in 28 minutes.
All models in the range are equipped with permanent magnet synchronous motors.
Xpeng’s target market is the Chinese middle class, their vehicles are priced in the mid-high end segment which represented 30.6% of the Chinese market in 2019. The G3 costs ¥149,800-162,000 after incentives and the P7 is available for ~¥349,000.
The Company has a manufacturing facility in Zhaoqing where the P7 model is built, capable of producing 100,000 units per annum. Xpeng also produces the G3 through a contract with Haima at their Zhendong facility which has a production capacity of 150,000 units.
Since production of the G3 started in November 2018 vehicles deliveries have remained consistent despite disruption caused by the global pandemic but growth has been hampered. The Company has delivered 18,741 G3 vehicles (up to July 31, 2020) and 1,966 units of the P7 which only began production in May 2020.
Xpeng develops its software and core vehicle systems including E/E architecture and powertrain in-house. The Company has an autonomous driving system called XPILOT. XPILOT 2.5 is deployed in G3 and P7 vehicles enabling adaptive cruise control and lane centering, automated lane changing , automated parking and safety features. The next iteration XPILOT 3.0 is expected to be rolled out in early 2021.
In 2019 revenue from vehicle sales was US$367.3m in 2019 while revenue from services was US$21.2m. As of June 30, 2020 the Company holds $299.9m in cash and FCF for the 12 months ending June 30,2020 was negative ($582.5m). (IPOs on the Street)
US team demonstrate self-assembling protective layer for lithium metal batteries
Pennsylvania State University team have been testing a new protecting layer designed to prevent the build up of dendrites in lithium ion batteries.
Dendrites are a build-up of electrodes which form tentacle like strands which can pierce the membrane between electrodes and cause the battery to short-out of in a worse case cause a fire.
The Penn State team has developed a layer of self-assembling electrochemically active molecules deposited on a thin film of copper.
When the battery is charged lithium comes into contact with the layer and decomposes to form a stable interface. The decomposed portions reform on top of the lithium protecting it against dendrite formation.
The researchers demonstrated the battery could maintain its function over a few hundred charging cycles. The work is being supported by the US department of Energy.
The research is published in the journal Nature Energy.
LS Power Gateway battery capable of 230 megawatt hours as California ramps battery capacity
LS Power’s Gateway battery can now charge or discharge 230 megawatts per hour and is on track to reach 250 megawatts by the end of the month. This would make it the largest battery in the world, exceeding Tesla’s Hornsdale plant capable of 150 megawatts/193.5 megawatt-hours. (Green Tech media)
The news comes as California is experiencing a record heatwave which has resulted in power cuts due to the demand from air-conditioning.
The Gateway project is a lithium-ion battery located outside of San Diego in East Otay Mesa.
California is installing 648MW of battery capacity this year to be followed by a further 1,112MW next year. The plan is to have 2,090MW of capacity by the end of 2021. (Financial Times)
The state’s 3 largest utilities have surpassed a state target to contract 1,325MW of storage capacity by 2020. It is expected 15,000MW of battery storage will be required for the state to reach its zero emissions goal for the power grid by 2045.
Edenville Energy* (AIM:EDL) 0.05p, Mkt Cap £4.1m – Sales and Marketing Agreement signed
The Company signed the Sales and Marketing Agreement with MarTek Global, a Dubai based sister company to Infrastructure and Logistics Tanzania Limited (ILTL).
The agreement is effective immediately and remains in place for a minimum of four years.
MarTek will take 3kt of washed coal per month increasing volumes to 5kt over the first 12 months.
Price paid for Rukwa coal will be the highest Edenville achieved to date.
MarTek holds exclusive rights to market Rukwa coal internationally at the pre-agreed sales price, with any transport costs to be added to the sales price.
The Company with its partners will focus on maximising production run rates at Rukwa with a near term target for 12.5kt per month.
“I am delighted to confirm this third and final contract is now in place and brings to conclusion the restructuring of our Tanzanian operations. We believe these agreements will collectively address the previous challenges, particularly in mining, processing and sales, that Edenville has experienced in recent years,” Edenville commented on the news.
The Sales and Marketing Agreement follows Coal Mining Agreement with ILTL that offered a fixed rate mining and processing contract at Rukwa and is expected to come into effect from 1 September as well as a recent $1m Loan Agreement with ILTL.
Hummingbird Resources (LON:HUM) 34p, Mkt Cap £122m – Interims highlight strong earnings reflecting better gold prices
Revenue totalled $92.0m (H1/19: $67.1m) reflecting higher realised gold prices of $1,621/oz (H1/19: $1,304/oz).
Gold sales amounted to 56.1koz (H1/19: 51.0koz) at AISCs of $936/oz (H1/19: $1,135/oz)
EBITDA came in at $38.9m (H1/19: $9.9m)
PAT was $22.8m (H1/19: -$6.5m).
FCF (post interest) amounted to $18.3m (H1/19: $3.3m) helping to continue deleveraging the balance sheet.
Net debt (including leases and investments) came down to $30.0m (FY19: $38.0m) with the Company reporting 4koz in gold inventory on hand as of 30 June worth around $8m further reducing outstanding net debt balance when accounted for.
Bank debt is on course to be fully repaid by the end of H1/21.
The Company reported it has not been yet affected by the latest political unrest in Mali. The Company’s in-country security team is monitoring the developments closely and keeping the operations, contractors and management teams well informed.
The Company reported 10 positive COVID-19 cases during the period with all individuals having now fully recovered and are back at work. The team is monitoring some new COVID-19 cases with the health and safety department continuing to implement stringent protocols to help minimise the risk of further infections.
FY20 guidance reiterated at 110-125koz at $995/oz in AISC.
Panther Metals (LON:PALM) 10p, Mkt Cap £5.3m – Geophysics highlights potential of Marrakai gold prospect
Panther Metals reports that reinterpretation of historic geophysical data covering the wholly owned Marrakai gold project, located approximately 70km southeast of Darwin in Australia’s Northern Territory, has identified a 500m-wide structural corridor extending over 3.6km which may control mineralisation within the project area.
Marrakai covers an area of 10.1km2 located within the Pine Creek Orogenic Belt “which hosts over 250 gold occurrences and several operating gold mines”.
Panther Metals says that “The ground magnetic data highlights a NE-SW magnetic anomaly which appears to control the location of the Steve’s Hill gold occurrence … . Representing magnetic stratigraphy, this feature is considered prospective for gold mineralisation and also correlates with the John’s Flat prospect. This prospective magnetic horizon likely extends further to the south west beyond the boundary of the SAM [sub-audio magnetic] survey”.
Maps accompanying today’s announcement note that “coarse and visible gold” has been located at both the John’s Reef and Chin Gully gold prospects within the Marrakai licence area and the maps also show that the Steve’s Hill prospect yielded “500ozs of gold nuggets with nuggets up to 30 oz in size”.
The company adds a comment that additional anomalies identified within the project area “may also be prospective for additional mineralisation.”
Commenting on the significance of the structural corridor identified by the review of historical information, CEO, Darren Hazelwood, explained that “The historical gold anomalism delineated by previous explorers predominately lies within this structural zone. Ground reconnaissance exploration will systematically concentrate on targeting areas in between the known gold prospects over a strike length of approximately three kilometres. Further exploration will also be undertaken to the east and west where visible gold was detected outside of the structural target area”.
Mr. Hazelwood also pointed out that “The geophysics review also highlighted magnetic anomalies in the southern part of the licence, similar to that of the Steve’s Hill gold prospect. This similarity and intensity of the magnetic response to that at Steve’s Hill, suggests an opportunity to delineate further mineralisation in this area. This will be an area in which further ground-based exploration will be undertaken as a priority”.
Conclusion: Improved interpretive power and techniques since the original geophysics was conducted in 2005 has helped to identify promising gold exploration targets within a structural corridor crossing the Marrakai prospect. We look forward to further news as follow-up exploration tests these targets in an area known for its historic gold potential.
Polymetal (LON:POLY) 1,931p, Mkt Cap £9,077m – Stronger gold price lifts H1/20 earnings; $0.40 dividend declared
Revenue was $1,135m (H1/19: $941m) with realised gold and silver prices climbing to $1,661/oz (+25%yoy) and $16.7/oz (+10%yoy), respectively (H1/19: $1,332/oz and $15.2/oz).
Gold sales totalled 695koz GE including 595koz gold and 9.9Moz silver (H1/19: 719koz GE including 602koz gold and 11.0Moz) reflecting a lag between concentrate production and sales.
TCC and AISC came down slightly to $638/oz and $880/oz (H1/19: $667/oz and $904/oz) reflecting depreciation in the Russian Rouble and the Kazakh Tenge as well as a positive impact of higher contribution from the lower cost operations (Kyzyl, in particular).
EBITDA increased 53% to $616m (H1/19: 403m).
Net earnings were up 149% at $381m (H1/19: $153m).
FCF (post interest) amounted to $53m (H1/19: -$62m) after accounting for $248m in capital costs (H1/19: $189m) with nearly half of that attributed to growth Nezhda and POX-2 projects.
The Board declared a $0.40 interim dividend, double $0.20 paid last year and representing 50% of the Group’s underlying net income for the period.
Net debt (including leases) increased to $1,727m (FY19: $1,511m) representing ~1.3x times of LTM EBITDA with the increase driven by seasonal working capital build-up and payment of special and final dividends in the amount of $291m.
No material outbreaks of COVID-19 have been recorded at operations. In both Russia and Kazakhstan, Polymetal has had no interruptions in supply chain with the vast majority of operating consumables and spares are sourced domestically and from China. Sales and refining activities remain unaffected.
Development works at Nezhda and POX-2 continued on schedule with COVID-19 related cautionary measures having no impact on delivery of projects.
The Company remains on track to reach the 1.5Moz at $650-700/oz TCC and $850-900/oz AISC FY20 target.
John Meyer – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy –Sergey.R[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