SP Angel . Morning View . Thursday 11 02 21
Base Metals, Rare Earth and iron ore prices continue to rise
Alba Mineral Resources (LON:ALBA) – Licence extension
Chaarat Gold* (LON:CGH) – BUY – 62p (from 65p) – Earnings Update
Kodal Minerals* (LON:KOD) – Geochemical sampling at Dabakala
JP Morgan does embarrassing U-turn on bearish report on copper and commodities as it says a New Supercycle may have just begun
The JP Morgan team must have woken up and had a coffee after defending their bear call on base metals on the 3rd of February on CNBC
JP Morgan’s U-turn on their bear call on copper down to $7,700/t for 2021 and $6,500/t Q4 average must look particularly embarrassing against the firms new call for a ‘Supercycle of years-long gains’, though there is still plenty of time for JPM’s analysts to come right. (Bloomberg)
So what where they thinking?
Last week JP Morgan cited ‘an early peak and expected subsequent slowdown in Chinese credit, and a delayed spike in new sources of demand from global de-carbonization initiatives.’ (CNBC)
They also cited a “long-held view is based on our assessment that the current China-driven supercycle has peaked and is unwinding as Chinese investment growth and exports as share of the country’s GDP are set to decline,”
And “that around 1.7mt of additional copper will be mined in 2021-25, adjusted for disruptions, meaning supply will be ample.”
These “Supply additions are a result of large capital investments that were made in 2017-18, as producers approved projects on the back of the last price upswing in 2016-17. Expansion capex (capital expenditure) is projected to increase 150% over the next five years from its 2020 base,” she said.
JPMorgan also estimates China’s SRB currently holds around 2.7mt copper stockpiles, around 3x the maximum stockpiled by the US.
“While there is both motivation and precedent for the SRB to expand its holdings over the next 5-10 years, we believe it will be strategically timed during periods of price weakness.”
BUT; the world is changing fast:
Economists who were looking for a Covid-19 recession are now generally looking for a strong recovery later this year in the US, next year in Europe with the UK set to be one of the last to recover to its pre-pandemic size with GDP growth of just 4.5% this year down 1.4% from the 5.9% IMF forecast last October.
The IMF reckon the global economy, helped in part by improved outlooks in the US and Japan, will recover from a 3.5% fall in GDP in 2020 with growth of 5.5% in 2021, up 0.3% on their October.
Yes, there are sectors in the economy which are in major pain and this will impact demand and economic growth as a result.
But; growth is often best driven by construction stimulus as effectively demonstrated by China on so many occasions over the past 20 years.
The US and UK need new and renewed infrastructure in many areas to support the expansion of activity and population.
Stimulus is being focussed on Renewable Energy (Offshore wind farms), Electric Vehicle infrastructure, Rail and other environmentally-friendly initiatives. Even new housing developments have a strong element of energy efficiency though hopefully no more flammable cladding.
Risks: There are always risks to growth:
1. Opposition to infrastructure projects often slows project construction particularly in the US and UK
2. China may decide to hold back strategic minerals for its own manufacturers and could hit the brakes on internal credit supply
3. Logistics delays may slow recovery in some areas as container shortages and slowing transport links may hamper growth
4. Credit; access to credit by suppliers which are recovering from the 2020 Covid crisis might disrupt supply chains.
5, There is not enough mine capacity in the world to supply all the nickel, copper, tin, zinc, graphite, NdPr etc. required to feed likely demand growth in battery and electric vehicles not to mention the new Offshore wind farms and electrical infrastructure required to feed power into the new Electric economy.
Conclusion: We see metals prices rising further this year with the potential for shortages of critical metals to cause prices to spike higher, though this in itself may serve to slow overall GDP growth in the West while increasing potential for inflation.
Li-ion batteries – Fogstar Batteries reports currently a severe international battery shortage and reserve stocks are quickly becoming depleted
Fogstar, a UK consumer battery seller, go on to say; “Most manufacturers have had to cease production of their cells as a result of the Coronavirus pandemic.”
They go on to say they have seen footage of several Chinese factories on fire, as they rush to create fake/rewrapped batteries due to the current demand.
They have also seen evidence of several large ‘re-wrapping’ companies ordering Samsung ‘top caps’ to be placed on top of cheaper Chinese batteries.
We checked the report with Rhomotion who are experts in battery technology and manufacturing. They reckon it is plausible for tier 3 suppliers, but wouldn’t be true of tier 1’s, as anyone with an automotive contract has too much to lose.
We therefore urge extreme caution when buying 18650 batteries for consumer electronics but feel this should not be an issue for EV batteries sold by respectable suppliers.
IGTV: Is this a new Supercycle for commodities: https://youtu.be/BIWb-wqoLpM
Metals expected to continue the last-year gains into 2021 https://youtu.be/afrB9cJe8L0
Is 2021 the start of the new COVID-Supercycle or will Lockdowns delay the recovery? https://youtu.be/7LO0tDc-pNc
VOX: 03/02/20 https://www.voxmarkets.co.uk/media/601c12cc40dc224b8b88a9ec/?context=/listings/LON/IKA/multimedia/
121 Africa Mining Conference panel: Investment Leader’s Discussion: Van Eck, Qora Capital, Nedbank, SP Angel
Africa set to gain from Covid stimulus as East and West compete for metals in the new COVID-Supercycle: https://www.theassay.com/the-assay-africa-edition-2021/
iiTV: Mining stock to own 2021: https://www.youtube.com/watch?v=4x7SuSLQwCI&t=11s. Mining share tips for 2021 – https://www.youtube.com/watch?v=G_6RKAp91k4
*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.
Metals price forecasting through 2020 – 2020 was probably the most difficult year for forecasting anything
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
Dow Jones Industrials +0.20% at 31,438
Nikkei 225 Closed at 29,563
HK Hang Seng +0.45% at 30,174
Shanghai Composite Closed at 3,655
Eurozone – The economy is set to grow 3.8% this year and next after posting a record-breaking 6.8% in 2020, according to European Commission estimates.
While the 2021 forecast marks a downgrade on previous estimates, the 2022 forecast is stronger, FT reports.
Eurozone economy is expected to fully recover from the pandemic by the middle of 2022.
China – CPI rose 1% in January vs 0.7% in December)
CPI rose -0.3% yoy in January vs 0.2% yoy in December
FY PPI rose 0.3% yoy vs -0.4% yoy
Chinese foreign direct investment rose 4.6% in January vs 6.2% in December
US – CPI rose 0.3% in January holding steady at 1.4% yoy vs 0.4% in December
Wholesale inventories rose 0.3% in January vs 0% in December.
German – The government extends the lockdown to March 7.
Under the new rules schools and day-care centres will be able to restart in coming days while shops to resume sales from March.
Previously, most measures were planned to expire on February 14.
Angela Merkel plans to gradually reopen Germany despite the slow vaccine rollout and some misinformation on vaccines in the German press
Germany is reported to have a number of specific secrecy laws which may hamper the vaccine rollout.
UK – Property prices continued to climb in January as buyers aimed to beat the March 31 expiry stamp duty holiday deadline, the RICS data showed.
In general, however, buyers and sellers were reluctant to carry in-person viewings on the back of high infection rates and homeschooling.
Brexit – the EU is looking to postpone ratification of the agreed Brexit trade deal as they scrutinise the agreement.
Any suggestion the EU might try to alter the deal could hit Sterling.
EU politicians are already sore at the UK’s speedboat approach to vaccine procurement and rollout, versus the EU’s struggling supertanker process.
The situation perfectly highlights how a smaller and more focussed bureaucracy can react much faster in crisis situations.
Israel’s speedy response has seen over half the population already vaccinated with a 53% fall in new cases among the fully-vaccinated group (Reuters).
Vaccine nationalism is heating up as nation’s choose which vaccine to give to their citizens
The Oxford AstraZeneca vaccine is a clear winner for emerging and developing nations now that a WHO panel has recommended the vaccine for all adult over the age of 18.
The Oxford vaccine may be less effective against the South African mutation but appears to prevent severe illness and hospitalisation, though testing is still at an early stage.
Giving a second dose 8-12 weeks after the first also appears to give greater immunity.
The Oxford team reckon they will have new vaccines ready by the Autumn to combat the Kent, South African and maybe Brazalian virus variants.
An AstraZeneca asthma treatment also reduces the need for urgent care of COVID-19 patients helping healthcare services.
Vaccination may become an annual event as is done with flu vaccinations for the elderly.
We suspect a Covid-19 passport will be required for air travel globally and these passports will date stamped to ensure carriers are fortified against recent strains.
We will have to ask our specialist healthcare team if there might be any impact from vaccination upon vaccination though the elderly appear to survive years of annual flu vaccines.
Currencies US$1.2119/eur vs 1.2129eur yesterday. Yen 104.68/$ vs 104.57/$. SAr 14.697/$ vs 14.715/$. $1.382/gbp vs $1.383/gbp. 0.774/aud vs 0.774/aud. CNY 6.458/$ vs 6.438/$.
Gold US$1,844/oz vs US$1,844/oz yesterday
Gold ETFs 106.3moz vs US$106.5moz yesterday
Platinum US$1,264/oz vs US$1,208/oz yesterday
Palladium US$2,372/oz vs US$2,339/oz yesterday
Silver US$27.19/oz vs US$27.33/oz yesterday
Copper US$ 8,287/t vs US$8,249/t yesterday – China’s refined copper imports rose 32% in 2020
Refined copper imports rose to 4.67mt last year, with two record-breaking months in June (656kt) and July (762kt) after a rush of buying in April and May.
Copper concentrate imports fell 1% to 21.77mt (Fastmarkets MB).
Unrefined copper exports rose 36% to 1.03mt.
Copper scrap imports fell 37% to 0.94mt.
Aluminium US$ 2,075/t vs US$2,069/t yesterday
Nickel US$ 18,620/t vs US$18,475/t yesterday – refined nickel production falls 7.8% yoy to 12,981t in January (Antaike)
Maintenance and suspensions meant only Jinchuan and one other smelter were producing (Reuters).
Jien Nickel is restarting production till April.
Chinaese NPI ‘nickel pig iron’ is rising with a 4.8% gain in January to 39,300t of contained nickel down 12.7% yoy
Stainless steel production in China rose 3% to 30.43mt in 2020 but should rise 4.5% in 2021 to 31.8mt according to Anitake.
Philippines nickel ore output fell 14% in 2020
Production fell 14% to 18.5m dry tonnes in 2020 as lockdowns limited the movement of mineral products, according to the Philippine Nickel Industry Association.
Zinc US$ 2,744/t vs US$2,714/t yesterday
Lead US$ 2,087/t vs US$2,093/t yesterday
Tin US$ 23,230/t vs US$23,210/t yesterday – Tin – Social distancing measures will limit Indonesian output in 2021
Top tin exporter Indonesia will struggle raise exports this year due to anti-virus rules at mining and smelting operations in the country, according to the vice chairman of the Association of Indonesian Tin Exporters.
Social distancing measures at operations mean that currently only 50% of workers are allowed at smelters.
Refined tin shipments from Indonesia are expected to total between 66,000-67,000 tonnes this year, similar to shipments over the last two years but lower than shipments in 2017.
Three-month tin prices on the LME have risen 14% YTD, with prices at their highest level since 2013.
Oil US$61.1/bbl vs US$61.1/bbl yesterday – Oil prices have rallied back to match pre-Covid levels
Aside from US and OPEC+ production cuts, another key driver for the current push higher in oil prices is the expectation for continued stimulus for the US economy
So far, this expectation has buoyed prices over the concerns raised by Friday’s Labour Report, suggesting that employment levels continue to cast a pall on the overall recovery
One aspect of the speed at which this recovery has taken place is the meteoric rise of the share of many energy companies, with ExxonMobil, (NYSE: XOM), and ConocoPhillips, NYSE: COP) outperforming the rest of the market in the last couple of months
Shares of each are up 10% since late January 2021
One other key to the support for crude, is the drawing down of inventories, both in the US and globally
This week, the EIA reported that in the week ended 29 January, inventories fell comfortably into the 5-year average for this time of year
This represents a decline of a significant 50MMbbls in storage over this time
Natural Gas US$2.976/mmbtu vs US$2.756/mmbtu yesterday
Natural gas prices moved higher yesterday ahead of today’s inventory report from the Department of Energy
Expectations are for a 184Bcf draw, according to survey provider Estimize
The weather is expected to be much colder than normal throughout most of the US mid-west for the next 6-10 days and then moderating slightly during the 8-14 day forecast
Natural gas production fell in the latest week
The front-month Henry Hub contract for natural gas topped US$3 last week on very cold weather in the US
Indeed, most parts of the UK awoke to a blanket of snow this morning
According to the EIA, natural gas in storage was 2,689Bcf as of 29 January 2021
This represents a net decrease of 192Bcf from the previous week
Expectations were for a 172 Bcf draw in stockpiles according to survey provider Estimize Stocks were 41Bcf higher than last year at this time and 198Bcf above the five-year average of 2,491Bcf
At 2,689Bcf, total working gas is within the five-year historical range
Iron ore 62% Fe spot (cfr Tianjin) US$161.3/t vs US$158.6/t
Chinese steel rebar 25mm US$668.0/t vs US$670.1/t
Thermal coal (1st year forward cif ARA) US$66.8/t vs US$68.0/t
Coking coal swap Australia FOB US$157.5/t vs US$156.5/t
Cobalt LME 3m US$45,700/t vs US$45,700/t
NdPr Rare Earth Oxide (China) US$72,543/t vs US$72,770/t
Lithium carbonate 99% (China) US$10,607/t vs US$10,640/t
Spodumene 6% Li2O min, cif (China) US$455/t vs US$395/t
Ferro Vanadium 80% FOB (China) US$30.5/kg vs US$30.5/kg
Ferro-Manganese high carbon 78% Mn US$1,575/t vs US$1,560/t
Tungsten APT European US$250-255/mtu vs US$244-250/mtu
Graphite flake 94% C, -100 mesh, fob China US$560/t vs US$560/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,625/t vs US$2,625/t
Rivian set to build European EV factory to service Amazon’s European operations
Amazon-backed Rivian is reportedly scouting locations in Europe to build a new EV factory, with locations in the UK, Germany and Hungary reportedly being considered.
The site is expected to produce a delivery van for Amazon, who have already placed an order of 100,000 units.
Rivian has raised more than $8bn to date, and is looking to go public as soon as September with a $50bn valuation (Bloomberg).
Apple and Hyandai-Kia close to finalising deal on autonomous electric car
Apple plans to produce a self-driving electric car.
They are close to finalising a deal with Huyundai-Kia to manufacture an Apple car at the Huyundai-Kia plant in Georgia.
Sources say production is scheduled to start as soon as 2024.
It would have Apple hardware and software.
Hyundai believe that this deal could help them build their own autonomous and electric vehicles in the future.
Shell accelerates emissions targets
Royal Dutch Shell said its oil production and emissions related to its business had peaked as the energy major laid out more ambitious climate targets in a bid to become net zero by 2050.
In a strategy update, Shell said that its oil output will fall by up to 2% a year, with its petrol and diesel production to fall by 55% by 2030.
The net emissions intensity of its business will fall between 6% and 8% from 2016 levels by 2023. This increases to 20% by 2030, 45% by 2035, and 100% by 2050
It also wants to increase the number of EV charging points from 60,000 to about 500,000 by 2025. Its transition plan will be put to a shareholder vote.
Alba Mineral Resources (LON:ALBA) 0.4p, Mkt cap £23.0m – Licence extension
Alba Minerals reports that the Crown Estate has granted a 4-year extension to its exploration licence over a 107km2 area including the historic Clogau St David’s gold mine in North Wales.
The licence will now run until 9th February 2025 and the company comments that “As and when … [its operating subsidiary] … GMOW is ready to proceed to commercial production, it will apply to convert the Exploration Licence into a formal, long-term Lease”.
Executive Chairman, George Frangeskides, said that “We are delighted to have secured the maximum possible extension to our exclusive exploration licence over the Clogau-St David’s Gold Mine. We can now continue our progress towards reopening the mine, secure in the knowledge that our rights are protected into the future”.
Altus Strategies* (LON:ALS) 89p, Mkt Cap £62m – New gold discovery at Diba NW
Latest drilling results return intersections of a series of shallow-dipping near-surface gold mineralisation at Diba NW, a satellite target located just 1.5km northwest of the Diba Deposit in western Mali.
Diba NW is currently 550m long, 150m wide and open along strike as well as down dip with drilling not going further then 70m from surface.
Weathering profile is reported to be shallow (commonly less than 20m) with the next phase of exploration to include a ground magnetic survey to guide a follow up drilling programme.
The announcement includes results from the last 33 holes of the 10,308m RC drilling programme at Diba and satellite targets.
Drilling at Diba NW, a satellite target within 1.5km trucking distance from Diba
1.45 g/t Au over 22m from 55m downhole including 8.54 g/t Au over 2m from 74m
1.87 g/t Au over 10m from 8m downhole including 3.45 g/t Au over 4m from 14m
Step out drilling around Diba MRE
8.50 g/t Au over 8m from 107m downhole including 31.20g/t Au over 2m from 107m
Infill drilling of the Diba MRE
2.30 g/t Au over 11m from 7m downhole including 6.48 g/t Au over 3m from 7m
1.67 g/t Au over 12m from 10m downhole including 3.40 g/t Au over 3m from 11m
1.34 g/t Au over 10m from 29m including 5.18 g/t Au over 2m from 35m.
2.06 g/t Au over 5m from 47m downhole
The data will be used to update the current Mineral Resource Estimate along with PEA on Diba.
Jul/20 MRE estimated Diba to host 4.8mt at 1.39g/t for 217koz in the Indicated category and 5.5mt at 1.06g/t for 187koz in the Inferred resource.
Conclusion: The team reports a new gold discovery at Diba NW that is located next to main Diba deposit offering potential to grow the existing resource and improve on current PEA. The mineralisation remains open along strike and down dip with the Company is planning to carry follow up drilling shortly.
*SP Angel acts as Nomad and Broker to Altus Strategies plc
Chaarat Gold* (LON:CGH) 27p, Mkt Cap £188m – Earnings Update
BUY – 62p (from 65p)
CLICK FOR PDF
The update follows on the announcement yesterday that the Company closed the $52m funding though an expanded $30m equity raise and $22m debt for equity conversion.
As previously highlighted, the funding reduces outstanding debt to $46.5m with net debt position coming down to $12.5m from $64.5m as of Dec/20.
An equity raise has been expanded to $30.0m from previously targeted $25.0m on the back of strong demand from existing and new shareholders.
Debt for equity conversion related to a swap of outstanding $22m term loan facility held by Labro Investments into Company’s new shares.
Martin Andersson, the executive Chairman of the Company, will now hold ~43% of the Group.
Both parts of the funding package were completed at 26p with ~147m new shares issued bringing the total number of outstanding shares to ~689m.
The equity raise and debt-for-equity conversion fulfils one of key requirements for future Tulkubash debt financing with the team expecting to close $80m project loan facility in H1/21 allowing to accelerate development works and meet reiterated target of first gold in Q4/22.
In addition to funding equity contribution for Tulkubash project development, fundraising proceeds will be used for metallurgical testwork at bigger and higher grade Kyzyltash gold project (5.4moz at 3.6g/t), initial development of the East Flank extension at the Kapan polymetallic mine in Armenia as well as assessment of potential M&A opportunities.
Conclusion: The fundraise significantly deleverages the balance sheet and allows the Company to move ahead with Tulkubash $80m bank loan facility that is expected to close in H1/21. The $110m gold heap leach project in Kyrgyzstan is targeted to come online in Q4/22 adding ~110kozpa at $1,080/oz AISC to group production and generating nearly $100m in EBITDA per year (at our $1,925/oz gold price). The development funding would include $80m bank lending facility and $30m equity contribution covered by the Group as well as Ciftay under the existing $31.5m earn in agreement. Most of the Ciftay project level equity is ready to be deployed once full project financing is completed with ~only $3-4m spent to date.
On assumed 10 year mine life (up from 5 years in Reserves) reflecting upside potential with 50% of the on strike structure remaining undrilled, we estimate the project to deliver NPV10% (after tax) of $335m (100% basis) and $294m (accounting for the Ciftay 12.5% minority interest) accounting for ~50% of the Group NPV.
The $52m financing brings the Group closer to securing the bank lending facility and delivering on near term growth targets capitalising on favourable gold price environment.
We have revised our price target 62p (from 65p) reflecting dilution from the latest financing package as well as bringing our discount rate lower for Tulkubash (10% from 12%) accounting for lower financing risks with the start of project construction in sight.
Kodal Minerals* (LON:KOD) – 0.09p, Mkt cap £10.5m – Geochemical sampling at Dabakala
Kodal reports that infill soil geochemical sampling over its Dabakala concession in Cote d’Ivoire, which was completed during December 2020, has extended a soil anomaly in the eastern part of the property to a strike length of over 10km.
The programme has outlined:
A “North trending zone extending for over 9km in strike and up to 1km wide” as well as
A “North-east trending zone extending for over 11km in strike and up to 1km in width” and
“A conjugate structural zone trending to the northwest is interpreted, extending for over 6km strike and is a joining structure between the two main orientations”
With preparations for its 2021 field exploration season underway, the company plans to undertake “Field inspection of … [the] … Dabakala anomalism … [during] … February 2021”
CEO, Bernard Aylward welcomed the “very exciting” results and confirmed that “The exploration is currently at an early stage with sampling completed on a wide spacing in an under-explored region of Cote d’Ivoire. The consistency of the gold anomalism, the geological setting and the presence of artisanal workings highlight the potential of this project for Kodal as we continue to develop our gold portfolio”.
Confirming a busy forthcoming field exploration season, Mr. Aylward said that “our priorities remain to define JORC Compliant Mineral Resources at the Fatou Project, undertake drilling at the Nielle Project, and undertake field review and reconnaissance drilling at Dabakala to provide further geological information on the extensive gold anomalous zone that we have identified”.
Mr. Aylward also confirmed that Kodal Minerals continues to maintain “regular communications with the Mali Transition Government to monitor the progress of the Bougouni Project Mining Licence application and … We continue to regard our Bougouni Lithium Project as our key focus and believe it will be the Company’s first opportunity to develop a mining operation in Mali.”.
The company also advises that field reconnaissance is “underway at the Fatou Project to review historical drilling and proposed drill hole sites”.
Conclusion: Kodal Minerals’ early stage geochemical exploration programme at Dabakala has revealed several extensive mineralised trends for follow-up exploration during the forthcoming exploration season. We await further news as the programme proceeds.
*SP Angel acts as Financial Advisor and Broker to Kodal Minerals