SP Angel . Morning View . Tuesday 12 01 21
Metal prices recover as US dollar pulls back from short term strength
MiFID II exempt information – see disclaimer below
Arc Minerals* (AIM:ARCM) – Placing raises £2m at 3.5p
Ariana Resources (AIM:AAU) – Kiziltepe exceeds 2020 production guidance
BlueRock Diamonds (AIM:BRD) – Kareevlei production shows significant improvement as diamond sales rise
Orosur Mining* (AIM:OMI) – Nick von Schirnding joins board of Orosur
Copper – prices fell overnight falling 3% at one stage before recovering to US$7,970/t this morning from US$8,008/t yesterday
Chinese traders were reported to have bought the dip on the close and as the stronger US dollar weakened again.
The US dollar had strengthened as the Fed appeared to be tolerating the return of a stronger dollar and may also start tapering its bond buying later this year
The Fed is also seen as potentially tolerating an increase in long-term interest rates.
Sterling rose overnight against the US dollar as the BoE Governor downplayed the use of negative interest rates.
Disruption at ports due to freezing weather in China and Covid regulations in other parts of the world is disrupting trade causing delays to shipments.
The situation is likely to slow global trade and potentially economic recovery.
Freight companies are having a tough time in the current environment.
Delays in shipments is raising prices for ferrochrome and other industrial minerals and is likely to cause significant delays for consumers awaiting shipments of other metals
Two cities are already under lockdown in Hubei province in China
Coronavirus protection measures are holding up containers coming out of South Africa
Chinese ports suffering disruption in freezing weather
Dalian port in China also recently issued a notice for Frozen Reefer cargos to divert to other ports
Containers are increasingly hard to source in China
European customs officials continue to hold up shipments claiming incorrect paperwork locking up yet more containers
The Baltic Dry Index has put on another 10% rising to a new three-month high
Dutch confiscate UK lorry drivers ham sandwich at border
Dutch Media has filmed border officials confiscating ham sandwiches from lorry drivers arriving in the Netherlands from the UK, due to post-Brexit rules.
Under EU rules, travellers from outside the bloc are banned from bringing in meat and dairy products.
Lorry drivers must feel like they are playing “piggy in the middle” between the UK and EU.
Chinese cities blackout amid coal shortages
Several Chinese cities have reportedly gone dark as authorities limit power usage, as a result of China’s unofficial ban on Australian coal.
Power rationing has commenced in Hunan and Zhejiang provinces due to the shortages, while officials insist that the restrictions on power use is due to exceptionally high demand (CNBC).
China has imposed limits on off-peak electricity usage for factories in southern China since mid-December (South China Morning Post).
Some might say China’s ban on Australian coal has been badly timed, as the country is currently experiencing its coldest winter in decades- upending energy markets and sending prices for electricity, fuel and vessels to record highs (Bloomberg).
Beijing last week recorded its lowest temperature since 1966, while Seoul had its coldest day since 1986.
China’s ban on imports of Australian coal has forced the realignment of flows between the world’s two biggest importers and two largest exporters, the National Post Reports.
Indonesia has seen its demand surge as Australian imports to China drop to nearly zero, while India’s imports of Australian coal have skyrocketed- with the last three months breaking all previous records sequentially.
US – House Democrats introduced an article of impeachment against Donald Trump for the second time.
Since Republicans opposed the text, it did not secure unanimous support and will be debated today before a vote that might come tomorrow.
The Trump administration included Cuba on the list of state sponsors of terrorism on Monday.
Cuba was originally place on the list in 1982 and was removed by President Barack Obama in 2015 in an attempt to improve economic and diplomatic relation with the Caribbean nation.
Secretary of State Michael Pompeo said the designation reflects the situation whereby the country continues to harbour American fugitives including Joanne Chesimard, convicted of killing a New Jersey sate trooper in 1973, and refuses a Colombian extradition request for National Liberation Army members linked to a 2019 bombing that killed 22.
Hot news – Ivanka Trump wants to attend the Joe Biden party / Inauguration but Donald won’t allow it
Reports suggest the Democrats may have already issued articles to impeach Trump charging him with ‘incitement of insurrection’ though the White House denies the story.
China – CPI rose 0.7% in December vs a fall of 0.6% in November
CPI rose rose 0.2% yoy in December and -0.5% yoy in November
PPI fell 0.4% yoy in December and fell -1.5% in November
Mexico – industrial output rose 1.1% in November vs 1.8% in October
industrial output fell 3.7% yoy in November vs a fall of -3.4% yoy in October
The EU is writing to member states to ensure fair play over vaccine buying
The EU is to write to member states to ask them to provide ‘all the necessary transparency’ over dealings with drug companies as concerns grow that governments will seek their own Covid-19 vaccine deals (FT).
The letters highlight the mistrust within the EU and the EU’s determination to control the distribution of vaccines through the economic bloc.
The situation has potential to further divide a union which has already been weakened by Brexit.
France – PM said it is not possible to rule out a third lockdown for the country if new more contagious variant of the virus spreads widely.
Portugal – President Marcelo Rebelo de Sousa has been diagnosed with a coronavirus and started self-isolating two weeks ahead of a presidential election.
Sousa is aiming to secure a second five-year term in coming elections.
Japan – Japan will widen its state of emergency beyond Tokyo including three western prefectures of Osaka, Kyoto and Hyogo to limit the spread of the virus.
The government is also considering adding the central prefectures of Aichi and Gifu.
Adding those five prefectures would mean a state of emergency for about half of Japan’s population of 126m people, Reuters reports.
Currently the state of emergency covers Tokyo and three neighbouring eastern prefectures wit restrictions expected to remain in place to at least February 7.
UK – The BOE needs to maintain the option of taking interest rates into negative territory amid weakening outlook, according one of the MPC members Silvana Tenreyro.
Tenreyro noted the near-term outlook is now worse than when BOE last assessed it in November given two new lockdowns announced by the government since then.
South Africa – extends level 3 restrictions as the number of new cases, deaths and hospital admissions reach the highest point since the pandemic started in March 2020.
The nation will be closing its land borders until 15 February to reduce crowding although it does not affect transportation of fuel, cargo and goods.
Platinum prices are up 2.4% this morning as a surge in new cases in a major supplier of the metal increase.
Chile – government plans to more than double the number of municipalities under strict lockdown with ~3.9m people of a total population of 18m will now be subject to those restrictions, Bloomberg reports.
CurrenciesUS$1.2159/eur vs 1.2198eur yesterday. Yen 104.22/$ vs 104.07/$. SAr 15.472/$ vs 14.450/$. $1.354/gbp vs $1.350/gbp. 0.772/aud vs 0.772/aud. CNY 6.467/$ vs 6.474/$.
Gold US$1,858/oz vs US$1,854/oz yesterday
Gold ETFs 107.4moz vs US$107.4moz yesterday
Platinum US$1,061/oz vs US$1,052/oz yesterday
Palladium US$2,374/oz vs US$2,368/oz yesterday
Silver US$25.37/oz vs US$25.16/oz yesterday
Copper US$ 7,970/t vs US$8,008/t yesterday – Glencore reported to be close to agreeing the sale of its 73.1% in the Mopani Copper Mine complex (Mufulira) to the Zambian government.
Glencore has used Mopani as a swing producer, cutting production and laying off thousands of staff whenever copper prices saw a sustained low.
While the mines at Mufulira are high-cost the Zambian government is quite understandably upset at having to look after staff who are hired and laid off in this way. The production cuts also reduced royalty tax payments to Zambia.
Now that copper prices have recovered Glencore and First Quantum may wish they had not cut production and laid off the workers.
Mopani produced 51,275t of copper in 2019 down from 119,000t in 2018
Glencore announced a sudden halt to production in April 2020 but was persuaded to reopen production by the government for 90 days ahead of the planned closure of the operations.
Last year the Zambian Supreme Court of Zambia upheld the tax authority’s US$13m transfer pricing assessment in a transfer pricing dispute involving Zambia’s Mopani copper mines.
ZCCM-IH the Zambian government fund already owns 10% with First Quantum holding 16.9%.
Aluminium US$ 2,013/t vs US$2,008/t yesterday
Nickel US$ 17,645/t vs US$17,370/t yesterday
Zinc US$ 2,785/t vs US$2,797/t yesterday
Lead US$ 1,985/t vs US$1,991/t yesterday
Tin US$ 20,790/t vs US$20,750/t yesterday
Oil US$56.0/bbl vs US$55.5/bbl yesterday – Brent continues to rally, now over US$55/bbl with WTI comfortably over US$50/bbl
Clearly, US shale drillers will be more optimistic on the outlook of 2021 after an unprecedented year in 2020
Over the past six months, excess US crude oil and product inventories have declined from their surplus at the start of the summer of 2020
Petroleum inventories have been slowly falling and are now at just single-digit-percent surpluses over five-year averages, compared to 20-30% excess over five-year seasonal averages last summer
Demand for gasoline and other petroleum products in the US has recovered from multi-year lows in April and May, but the last leg of the recovery to pre-pandemic levels proves to be the most difficult and seems to have stalled at the end of 2020.
Elsewhere, we are now in the third day of the annual five-day rebalancing of portfolios which could attract as much as US$9bn buying into crude oil contracts, putting upward pressure on oil prices
The rebalancing of indices to adjust the weighting of assets in portfolios is being done every year so that target allocations or risk levels are restored
However, the rebalancing this year could attract more than usual buyers into crude oil contracts because of the 20-percent decline of oil prices during 2020
The next five days could see a buying spree in oil futures that could be as high as US$9bn to adjust the weighting of the major commodity-linked indices
The market will likely see long positions into another 80 to 100MMbbls oil futures contracts, which could drive oil prices by US$2-US$3/bbl
It’s not a given that the market will see US$9bn of new buying into oil futures because some investors and traders may have already done it ahead of the rebalancing period
Even if the buying spree is not so high, the rebalancing will likely to continue to support oil prices
Natural Gas US$2.824/mmbtu vs US$2.661/mmbtu yesterday
News yesterday confirmed that Shell has restarted production of liquefied natural gas at its Prelude offshore project in Australia after almost a year’s suspension
The restart of the 3.6m ton comes at the best possible time – a cold spell in China has pushed LNG prices to the highest in years, erasing worry about an oversupplied market as Chinese buyers struggle to stock up on the fuel
Prelude was planned as a flagship floating LNG project for the supermajor
Like most other large-scale offshore LNG projects, however, it ran into delays and cost overruns
Shell and its peers have recently been forced to cancel other LNG projects as the competition is fierce
When Prelude stopped pumping gas last February, there was concern that the project, estimated to have cost anywhere between US$9.25bn and US$13.1bn to build, with a its breakeven price of US$20 per 1,000cu ft of natural gas, versus prices of US$2-3 per 1,000cu
Gas demand for the week 6-12 January is expected to be low, according to NatGasWeather, with demand seen rising over the weekend, but lighter again around the middle of next week as much of the US warms back above normal
The US benchmark prices, however, are much lower than the price of LNG in Asia, which has recently jumped to a six-year high
The high LNG prices are expected to incentivise increased US LNG exports in the coming weeks and months
Natural gas prices moved lower at the back end of last week, reversing a four-day rally
This came despite a larger than expected draw in natural gas inventories released yesterday by the Department of Energy
Natural gas in storage was 3,330Bcf as of 1 January according to EIA estimates
This represents a net decrease of 130Bcf from the previous week
Expectations were for a 110Bcf draw
Stocks were 138Bcf higher than last year at this time and 201Bcf above the five-year average of 3,129Bcf
At 3,330Bcf, total working gas is within the five-year historical range
The weather is expected to be cooler than normal in the south of the US and warmer than normal in the north
Iron ore 62% Fe spot (cfr Tianjin) US$167.5/t vs US$167.5/t
Chinese steel rebar 25mm US$670.3/t vs US$674.2/t – US steel groups urge Biden to keep Trump’s tariffs in place
The American Iron and Steel Institute, the Steel Manufacturers Association, the United Steelworkers union and the American Institute of Steel Construction have all signed a letter urging President-elect Biden to keep in place the 25% tariff on steel imports imposed in 2018.
While the industry is starting to recover from Covid-19 shutdowns, the groups stress that the US steel industry remains “very vulnerable” to new surges in imports.
The groups said that excess global steelmaking capacity is already 700mt above demand, and expected to grow further as countries add production (National Post).
Thermal coal (1st year forward cif ARA) US$71.8/t vs US$71.0/t
Coking coal swap Australia FOB US$132.0/t vs US$132.0/t
Cobalt LME 3m US$37,010/t vs US$36,500/t
NdPr Rare Earth Oxide (China) US$65,331/t vs US$64,720/t
Lithium carbonate 99% (China) US$8,505/t vs US$8,341/t – Albemarle submits lithium reserves data as requested by Chilean regulator
Yesterday various news outlets reported that Chilean regulators threatened Albemarle with legal action, demanding that the miner present a plan for turning over data on its lithium reserves by week’s end.
Chile gave Albemarle approval to hike production from the Atacama salt flat on condition that the miner prove that its reserve could sustain increased output.
This morning, Fastmarkets MB report that Albemarle has submitted the relevant information to Chilean authorities.
Ferro Vanadium 80% FOB (China) US$30.0/kg vs US$30.0/kg
Ferro-Manganese high carbon 78% Mn US$1,380/t vs US$1,370/t
Tungsten APT European US$235-240/mtu vs US$230-235/mtu
Graphite flake 94% C, -100 mesh, fob China US$520/t vs US$520/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,475/t vs US$2,475/t
Spodumene 6% Li2O min, cif (China) US$395/t vs US$380/t
Africa unlikely to transition to green energy this decade
A new study found that fossil fuels will remain the dominant source of electricity across Africa over the next decade.
Researchers found that 2,500 power plants are planned, enough to double electricity production by 2030.
However less than 10% of the new power generated will come from wind or solar.
By 2030, just 9.6% coming from renewable sources, excluding hydrogen. South Africa is predicted to add almost 40% of Africa’s total predicted new solar capacity.
Investor group files climate resolution at HSBC
HSBC has been criticised for financing the fossil fuel industry. A group of investors have filed a climate resolution ahead of the annual meeting in April.
HSBC said in October it would become a “net zero” carbon emissions bank by 2050 however these investors say it is not taking it seriously.
The resolution called on HSBC to publish a strategy and targets to reduce its exposure to fossil fuel assets.
Share action, a responsible investment charity, said HSBC was Europe’s second-largest financier of fossil fuels after Barclays.
Arc Minerals* (AIM:ARCM) – 3.88p, Mkt cap £38m – Placing raises £2m at 3.5p
(Arc holds 72.5% of Zaco and 66% of Zamsort in Zambia. Zamsort has a portfolio of copper-cobalt prospects close to FQM’s new Trident mine on the Copperbelt in Zambia. The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort.)
Arc Minerals has raised £2m at 3.5p with the discounted stock placed with Hargreave Hale. The stock was placed at 13.6% discount to the share price of 4.05p on 11th January.
*SP Angel acts as Nomad and broker. Our intrepid mining analyst and co-driver drove to Arc’s license and pilot process plant at Kalaba from Lusaka and back again.
Ariana Resources (AIM:AAU) 5.25p, Mkt Cap £56m – Kiziltepe exceeds 2020 production guidance
Ariana Resources has announced that its 50% owned Kiziltepe mine in Turkey produced a total of 18,645oz of gold and over 244,000oz of silver during 2020 exceeding the previously published production guidance, of 18,000oz, by 3.5%.
Ariana is diluting its interest in Kiziltepe to 23.5% as a new joint-venture including the Turkish conglomerate, Ozaltin Holdings was approved by shareholders in December.
The company reports that it is continuing mining operations in the Arzu North and Derya pits and that it “plans to expand these open-pit operations currently under permitting review”.
Expansion of the processing plant at Kiziltepe is currently underway increasing capacity to 500,000tpa during H1 2021.
The company has also started a 4-5,000m drilling programme at Kiziltepe to test the extent of the Arzu South, Arzu North, Derya and Banu vein systems with a view to expanding the resources at Kiziltepe. Drilling “may continue at the Karakavak prospect once drilling at Kiziltepe concludes”.
Drilling is also planned at the Tavsan prospect in the spring and Ariana Resources says that “Environmental, community and permitting activities have continued for the Tavsan and Salinbas projects through the winter”.
Elsewhere, the company reports that is evaluating copper/ gold targets in Eastern Europe and that “Percussion drilling by Venus Minerals in Cyprus for 1,705m (comprising 15 holes) on a conceptual structural target, has discovered an up to 12m thick, 50 x 300m silica-pyrite-chlorite alteration zone containing anomalous gold geochemistry at a depth of 50 to 80m below surface; planning is being finalised for a diamond drilling programme to commence on the Magellan Project in the coming months”.
Conclusion: Kiziltepe exceeded its 2020 production guidance and is expanding its production capacity and is also drilling to increase the resource base. Ariana Resources is also expanding its exploration portfolio in Cyprus and Eastern Europe as it dilutes its interest in Kiziltepe to 23.5% as the Turkish conglomerate, Ozaltin Holdings takes an interest.
BlueRock Diamonds (AIM:BRD) 60.5p, Mkt cap £5.5m – Kareevlei production shows significant improvement as diamond sales rise
BlueRock Diamonds report progress through 2020 despite the impact of COVID-19.
The mine processed 25% more tons than in 2019 despite closing for 50 days and has made significant operational improvements which should enable a significant increase in production through 2021.
The new diamond recovery plant should further improve throughput and increase diamond recoveries once fully commissioned.
The plant at Kareevlei recovered 10% more diamonds 15,371cts despite the lockdown and despite work to improve throughput capacity.
The per-carat sales price fell 29% to $295/ct due to the impact of Coronavirus restrictions on diamond sales and end-user diamond demand.
Diamond sales rose by 29% principally due to the sale of diamonds in December 2020. There was no December sale in 2019.
The company sale diamonds in December reflects ongoing strong demand for Kareevlei’s diamonds which we believe are sold into the Asian market.
Grades also fell to 3.8cpht from 4.3cpht a year earlier due to added dilution from joining two of the operational pits and also from working through near-edge ore and a low grade phase of the pipe.
Outlook: BlueRock now appears well set for a much better year with rising throughput, grades and per-carat values.
The effect of the improvements should be to nearly double diamond production in 2021 generating significant a significant uplift in profit for the group.
Management are seeing a recovery in diamond prices indicating a general improvement in market conditions.
*SP Angel act as nomad and broker to BlueRock Diamonds
Orosur Mining* (AIM:OMI) 23.22p, Mkt Cap £40m – Nick von Schirnding joins board of Orosur
Orosur Mining announce the addition of Nick von Schirnding to the board as an Independent Non-Executive Director.
Nick was formerly at Anglo American working alongside a number of CEOs.
Nick then joined Asia Resource Minerals (formerly Bumi) where he restructured the Indonesian coal business.
Orosur also reports results from drilling which started on 15th November at it’s Anzá gold project in Colombia.
Drilling is slow with just three holes completed and another two holes in progress.
Drilling is being undertaken under the new Monte Aguila joint venture between Newmont and Agnico Eagle and Orosur Mining.
The Monte Aguila joint venture must spend $10m over 4 years and make cash payments equalling $2m in the first two years in order to earn a 51% interest in the Anzá project.
COVID-19 related staff shortages are holding up assay at the ALS laboratory in Lima, Peru mean that fire-assays used for gold are taking well over a month to turnaround.
Louis Castro is moving to an Executive role as Executive Chairman now that Nick von Schirnding is in place as an Independent non-executive director.
A second drill rig has arrived at site and is preparing to start drilling this week.
*SP Angel act as Nomad and Broker to Orosur Mining
Power Metal Resources* (AIM:POW) 2.75p, Mkt cap £27.6m – Exploration at Haneti continues as nickel prices continue to rally
(Katoro Gold holds 65% of the Haneti nickel project alongside Power Metal Resources which holds 35%)
Power Metal and Katoro continue to progress their maiden drill programme at Haneti in Tanzania, targeting the discovery of nickel and platinum group metals.
By the end of drilling on 6 January 2021 a total of 22 holes and 863 metres had been drilled at the Mwaka Hill target out of the planned 2,000m of Rotary Air Blast (RAB) drilling. Drilling has since moved to the Mihanza Hill target.
RAB drill holes are being drilled on profiles across three target areas, with the subsequent results allowing for the optimisation of a planned follow-on diamond drill programme.
The JV partners have prepared the first two batches of drilling at Mwaka Hill, with the first batch ready to be dispatched to an accredited lab for assay testing.
Drilling is progressing at an average rate of 96m/ day, and the current rainy season has not impacted the overall programme, while the potential impact of Covid-19 on-site has not been encountered at this time.
Geological fieldwork is also progressing at Haneti, with geological mapping underway and a geophysics programme comprising of three ground magnetic survey lines and one radiometric survey line completed over the Mwaka Hill drill fence profile with the same work due to be started at Mihanza Hill.
Power Metal’s pro-rata costs contribution in respect of the programme is approximately US$110,000 (circa £81,100) and of this 50% has been paid in advance and 50% remains to be paid later. The cost of Power Metal’s contribution is fully covered from existing cash resources.
Paul Johnson, Chief Executive Officer of Power Metal Resources, commented: “The Haneti drill programme is progressing well with approaching 50% of the planned 2,000 metres of Rotary Air Blast drilling now complete. Parallel field mapping and ground geophysics has also proceeded well as we seek to build data on the anomalies to drill with follow up diamond drill holes. This drilling on the Haneti Project is a highly exciting venture for both Power Metal and Katoro and we look forward to reporting the technical results from this programme over the coming weeks and months.”
*SP Angel acts as Nomad and Broker for Power Metal Resources
Savannah Resources* (AIM:SAV) 5.4p, Mkt Cap £64.4m – Strategic alliance with a major Portuguese energy company
Savannah Resources reports that it has signed a Heads of Agreement with a major Portuguese energy group, Galp Energia, “regarding a proposed strategic investment and alliance in the lithium field around the Mina do Barroso Lithium Project in northern Portugal”.
Galp Energia is described as “one of Portugal’s largest companies and the largest producer of solar energy in Iberia” with a market value of €7.5bn, with a staff of over 6,000 operating in 11 countries.
Under the agreement, “Galp intends to secure a 10% shareholding in Savannah’s Portuguese subsidiaries which own Mina do Barroso for US$6.4m cash to be used to further Savannah’s progress towards its Definitive Feasibility Study”.
The two companies have also agreed to “evaluate, under exclusive terms, an offtake agreement for up to 100,000tpa of lithium concentrate from Mina do Barroso equating to approximately 50% of annual production”.
CEO, David Archer, explained that having Galp Energia as a “potential investor and future strategic partner … will be invaluable to Savannah as we further progress the Project forward in a responsible and sustainable way into development”
Mr. Archer described Galp Energia’s “outstanding” credentials “as one of the energy companies that most effectively enacts climate change-related best practices …[and Mr. Archer said that] …we are pleased that they have recognised Savannah as a partner with similar objectives”.
Conclusion: An alliance with a large, specialist Portuguese company in the sustainable energy field strengthens the development credentials of Mina do Barroso and Galp Energia’s initial US$6.4m investment is an important contribution to funding a Definitive Feasibility Study for Mina do Barroso.
John Meyer – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy –[email protected] – 0203 470 0474
Joe Rowbottom – [email protected] – 0203 470 0486
Richard Parlons –[email protected] – 0203 470 0472
Abigail Wayne – [email protected] – 0203 470 0534
Rob Rees – [email protected] – 0203 470 0535
Grant Barker – [email protected] – 0203 470 0471
Prince Frederick House
35-39 Maddox Street London
*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
– BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
– Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony
– Asian Metal
– Metal Bulletin
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