SP Angel . Morning View . Tuesday 01 12 20

Better than expected Chinese PMI pushes copper higher

 

MiFID II exempt information – see disclaimer below 

Altus Strategies* (AIM:ALS) – BUY, 132p – New 10m Canyon Resources shares to be issued to Altus

Beowulf Mining* (AIM:BEM) – New lead-zinc prospect identified at Wolf Mountain 

Corcel Plc (LON:CRCL) – Burwell Li-ion battery storage and solar power project positive review

Power Metal Resources* (AIM:POWf) – Drilling progress continues in Botswana

Scotgold Resources* (AIM:SGZ) – BUY, 182p – First gold at Cononish

SolGold* (AIM:SOLG) – Adjustments to Alpala PFS schedule

Vast Resources* (AIM:VAST) – Final approval of the lending facility targeted for 15 Dec/20

 

Copper – Set for continued strength despite potential for CTA profit taking

Expectations for ongoing strong demand for copper continue to drive prices higher.

Commodity Trading Funds, known as CTA’s might look to take profits post November year ends but strong manufacturing demand in China is likely to cause traders to buy into price dips.

Prices gained further yesterday on strong China manufacturing data and expectations for additional demand for EVs, and connecting new renewable and distributed power generation.

New infrastructure projects in China will create substantial demand such as the proposed Yarlung Zangbo River hydropower project in Tibet.

China EV charging stations: China’s State Grid Co. set out plans on 20th November for 1.03m new public and private EV charging stations to serve 5.5m EV drivers including 540,000 public charging facilities. (evspecificationsa.com)

The company estimate that some 50,000 personal charging stations will be built by the end of this year and that by the end of 2021 that >30% of ordinary personal charging stations will be upgraded to intelligent and orderly sharing charging facilities.

The State Grid Co. has already built 2003 expressway fast-charging stations, 7,027 urban public stations and 3476 dedicated charging stations and 35,000 county-level urban charging and replacement facilities.

China expects to have some 300m EVs on the road by 2030 accounting for 50-50% of vehicle sales and consuming some 17% of total electricity consumption.

Annual electricity consumption is expected to increase to 2.68tn kWh.

If all the EVs are connected to the grid then, in theory, the battery power storage capacity of 300m EVs will be >20bn kWh.

This could provide some 12bn kWh of energy storage for the grid and 400GW of power capacity to support the grid if consumers are happy for their EV batteries to be used in this way, though they may not be given much of a choice.

The US has 78,500 EV chargers as of March this year with another 192,000 chargers in Europe according to Statista.

 

US dollar hits two-and-a-half year low amid weak economic data and rising Covid-19 cases

The dollar sank to a two year low on Monday, logging its worst month since July as investor confidence in the world’s reserve currency continues to wane.

The dollar index fell 2.5% in November and 11% since March as vaccine hopes spurred inflows into riskier assets, while concerns over how the US is managing the Coronavirus pandemic has further dampened its appeal.

Weak economic data causing the dollar to fall on Monday included factory activity in the Midwest and Texas slowing, while in-store Black Friday sales fell 52% (FX Street).

Further adding to the States’ woes is the continued rise in Covid-19 cases, hitting four million monthly cases yesterday, as top US disease expert Anthony Fauci warned of a surge in cases post-Thanksgiving.

Elsewhere in the FX space, the NZ dollar hit a two-and-a-half year high yesterday, and clocked its best monthly percentage gain in seven years of 6.3% (Reuters).

The euro and the Australian dollar hit three-month peaks, up 2.8% and 5% for the month respectively – while sterling was relatively unchanged although up nearly 3% on the dollar.

 

COVID-19 – Chinese state covered up scale of coronavirus cases in February according to leaked data from Wuhan

China clamped down on all Coronavirus related news flow in February reporting only half the number of COVID-19 fatalities (dailymail.com)

The data also shows the province of Hubei was also suffering from a flu epidemic at the time of the Coronavirus reporting >20x the normal number of flu cases.

The misinformation is said to have led Western leaders to downplay the severity of the outbreak at a time when they should have been preparing for a more serious epidemic.

 

Kandi Technologies (NASDAQ:KNDI) – Kandi Technologies shares hit by short seller report as EV valuations in US hit high levels following Tesla

Kandi Technologies, a Chinese electric vehicle manufacturer listed on Nasdaq has seen its shares hit by short selling.

A short seller report from Hindenburg has alleged Kandi Technologies Group falsified revenue.

The report suggests Kandi used faked sales from an undisclosed subsidiary to inflate revenue. 

Kandi’s share price was down 19% on the news. 

Hindenburg accused Nikola Corp of misleading investors earlier this year, a charge the Company denied. The report led to the founder resigning and a Federal Investigation. 

The report alleges Kandi’s largest customer, accounting for 55% of sales in the last year address is a small building next to Kandi’s factory. 

Kandi’s Hong Kong based auditor had its registration revoked by the US Public Company Accounting Oversight Board after it was found to have overlooked signs of potential fraud in Kandi’s accounting. 

 

 

Economics

China – Private businesses survey see manufacturing sector growth accelerating to the strongest in a decade last month, according to Caxin.

Sharp increase was attributed to local demand as well as increasing orders from abroad.

Caixin Manufacturing PMI: 54.9 v 53.6 in October and 53.5 est.

China to build giant hydropower dam on Yarlung Zangbo River, nearly twice the size of the Three Gorges dam project 

China will build a hydropower project on the Yarlung Zangbo River, which passes through India and Bangladesh. 

The mainstream of the river has the richest water resources in Southwest China’s Tibet Autonomous Region, about 80kWh, while the 50km section of the Yarlung Zangbo Grand Canyon has 70 million kWh that could be developed with a 2,000-meter drop.  

Tibet has about 200m kWh of water resources, accounting for 30% of the total in China. The 60 million kWh hydropower exploitation at the downstream of the Yarlung Zangbo River could provide 300b kWh of clean, renewable and zero carbon electricity annually.  

The hydropower station could generate income of Rmb20bn pa for the Tibet Autonomous Region.

The hydropower project would have a 2,000m drop and could develop 60mkWh and is nearly twice as large as the Three Gorges Dam.

 

The pace of declines in Macau gaming revenues continued to slow down as the number of visitors to the gambling hub continued to recover, FT reports.

Visitors to Macau from mainland China increased to more than 500k in October, up from 412k in September.

While it remains a far cry from ~2m monthly visitors recorded in 2019, an improving trend is a welcome news.

Gaming revenues were down 70.5%yoy in November compared to -72.5%yoy in October and -90%yoy in September.

The measure is down 80.5% in the first 11 months of the year.

 

Italy – The manufacturing sector while avoiding an outright contraction recorded a marked slowdown in growth coming in below market estimates in November.

Although, Italy performed better than Spain and France (49.6, 6-moth low) that both posted sub 50 readings last month.

A share of that is attributed to increasing Chinese demand and resilience in German factories for which they produce parts and components.

Markit Manufacturing PMI: 51.5 v 53.8 in October and 52.0 est.

 

Spain – Manufacturing sector slips back into contraction in November with the respective PMI measure down at a five-month low on the back of new lockdown measures implemented.

Factories reported the sharpest drop in new orders since May.

Markit Manufacturing PMI: 49.8 v 52.5 in October and 50.7 est.

 

UK – House prices rise by 6.5% in November to average £229,721

Prices rose by 5.8% in October highlighting the impact higher transaction activity (The Times)

The market was helped by a stamp duty holiday which ends on 31 March 2021 for homes up to £500,000 and saving buyers up to £15,000

Transactions rose to 105,600 in October, the highest level since 2016 with mortgage approvals at their highest level since 2007 at around 97,500 according to the BoE.

Around 30% of prospective buyers were looking to access a garden or outdoor space while a quarter wanted to get out of town (Nationwide).

 

Currencies

US$1.1966/eur vs 1.1971/eur yesterday.  Yen 104.32/$ vs 104.12/$.  SAr 15.419/$ vs 15.303/$.  $1.338/gbp vs $1.334/gbp.  0.736/aud vs 0.738/aud.  CNY 6.572/$ vs 6.586/$.

 

Commodity News

Precious metals:         

Gold US$1,792/oz vs US$1,780/oz yesterday

   Gold ETFs 107.7moz vs US$108.1moz yesterday

Platinum US$988/oz vs US$960/oz yesterday

Palladium US$2,409/oz vs US$2,402/oz yesterday

Silver US$23.06/oz vs US$23.25/oz yesterday

           

Base metals:  

Copper US$ 7,611/t vs US$7,631/t yesterday – Miner’s reject wage offer at Antofagasta’s Centinela mine and threaten strike

Around 98.5% of workers at the mine have voted to strike at the mine after rejecting Antofagasta’s latest wage offer (Bloomberg).

Centinela produced 276,600 tonnes of copper last year, making it the Company’s biggest mine after Los Pelambres.

This latest dispute follows a monthlong stoppage at Lundin’s Calendaria mine, and precedes wage negotiations at BHP’s Escondida mine early next year in what is a hectic period of wage negotiations in Chile.

Aluminium US$ 2,050/t vs US$2,014/t yesterday

Nickel US$ 16,050/t vs US$16,285/t yesterday

Zinc US$ 2,793/t vs US$2,822/t yesterday

Lead US$ 2,063/t vs US$2,104/t yesterday

Tin US$ 18,650/t vs US$18,930/t yesterday

           

Energy:           

Oil US$47.7/bbl vs US$47.4/bbl yesterday

Natural Gas US$2.913/mmbtu vs US$2.916/mmbtu yesterday

   

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$126.1/t vs US$127.6/t

Chinese steel rebar 25mm US$615.9/t vs US$617.4/t – Japan ‘strongly urges’ South Korea to remove steel tariffs after WTO ruling

The tariff in question is an anti-dumping tariff on Japan-made stainless steel bars after the WTO settlement panel said that an extension of the protections would be a contravention of its rules.

The panel said that Japan-made bars are priced higher than those made by South Korean companies, siding with Japan that imported products cause no harm to the domestic industry.

S. Korea began imposing a 15.39% tariff in July 2004 and decided to extend the measure for the third time in July 2017, which resulted in Japan lodging a complaint with the WTO in June 2018.

According to Japan’s trade ministry, the anti-dumping duty totalled about $66m by the end of 2019 (Japan Times).

Thermal coal (1st year forward cif ARA) US$61.4/t vs US$60.7/t

Coking coal swap Australia FOB US$109.5/t vs US$108.5/t

           

Other: 

Cobalt LME 3m US$32,390/t vs US$32,390/t

NdPr Rare Earth Oxide (China) US$64,679/t vs US$66,048/t

Lithium carbonate 99% (China) US$6,087/t vs US$5,922/t

Ferro Vanadium 80% FOB (China) US$27.0/kg vs US$27.0/kg

Antimony Trioxide 99.5% EU (China) US$5.5/kg vs US$5.5/kg

Tungsten APT European US$220-225/mtu vs US$220-225/mtu

Graphite flake 94% C, -100 mesh, fob China US$480/t vs US$445/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,475/t vs US$2,275/t

Spodumene 6% Li2O min, cif (China) US$380/t vs US$375/t

 

Battery News

Orsted build second largest offshore wind farm 

Ninety-four Eiffel Tower-sized wind turbines are now functioning 12 miles off the coast of the Neverlands, after Danish wind giant Orsted finished installing on Friday what is now the world’s second largest offshore windfarm called Borssele 1 & 2. 

Orsted currently installs around one in three offshore wind turbines around the world and has a market value of $75 billion.  

The phalanx of 94 turbines at the newly commissioned site goes across 112 square km and has enough generating capacity – 752 megawatts – to power 1m Dutch households.  

Since going public in 206 Orsted’s share price has risen nearly 5 times, vaulting their market value to $75 billion. On Friday shares rose another 3%. 

 

Lion Electric goes public through SPAC

EV maker Lion Electric to list on the New York Stock Exchange via a merger with blank-check company Northern Genesis Acquisition Corp. 

Lion Electric expects to receive $500m of net cash proceeds from the deal which will value the Company at $1.9bn. 

The transaction includes a $200m private placement, fully committed at a subscription price of $10/share. 

The deal is expected to close in Q1’2021. Capital expected to be used to fund US manufacturing capacity expansion, development of advanced battery systems and construction of a battery system assembly factory. 

Power Sustainable Capital holds a 44.2% equity interest in Lion Electric which produces electric urban trucks and school buses. 

The SPAC trend continues, Lion Electric following Fisker, Nikola, Lordstown Motors and Canoo Electric amongst others.

 

Nikola dumps EV pickup to focus on hydrogen trucks

Nikola has decided to pull the Badger pick up from production, refunding customers.  

The Company has previously planned to release two models of the pick-up, one entirely BEV and the other a hydrogen fuel cell. 

Nikola has been dogged by controversy, following a short seller reports in September accusing founder Trevor Milton of misleading investors. 

An updated non-binding MOU with GM shows Nikola shifting its focus to its hydrogen fuel cell Class 7/8 semi-trucks, into which the pair will try to integrate the GM’s hydrotec fuel cell technology. 

GM’s Ultium battery is expected to be used in some capacity, possibly as a means of storing excess power in the semi-trucks. 

 

Company News

Altus Strategies* (AIM:ALS) 59p, Mkt Cap £41m – New 10m Canyon Resources shares to be issued to Altus

BUY – 132p

Canyon Resources shareholders approved the issuance of 10m new shares to Altus Strategies in consideration for the JV Termination Agreement covering Birsok and Mandoum bauxite licenses in Cameroon announced in early 2019.

Upon the issuance of new shares, the Company will hold ~16m shares in Canyon valued at ~C$1.8m (using current CAY CN spot price of C$0.11/sh).

New share will be subject to a 12-month voluntary escrow once issued.

Under the agreement, Canyon will issue further 5m shares on the execution of a mining convention on the Minimi Martap bauxite project by government authorities with Altus retaining a US$1.5/t sales royalty on the material mined at Birsok and Mandoum.

Separately, Marvel Gold, a JV partner over Tabakorole and Lakanfla gold projects in Mali, announced a start of a 44-hole 6,300m RC drilling programme at the Tabakorole Gold Project.

The programme will be focused on step out drilling along strike both in the NW and SE directions as well as infill drilling over the 2.9km strike length  with results expected in Q1/21.

“Tabakorole is a resource growth story and we’re excited to announce an upsized resource expansion drill program to kick off the field season… we recently announced a 54% increase in the JORC Mieral Resource to 910koz and we expect this program will continue that growth,” the Company said.

Conclusion: The deal announced in early 2019 highlighted successful execution on the project/royalty generation model with the team spending only $125k on the Project prior to the JV with Canyon. The deal allowed to monetise bauxite assets in the portfolio while retaining exposure to assets through a lifetime royalty as well as shares in CAY. We have previously included these shares in our valuation which in turn leaves our valuation and recommendation unchanged.

*SP Angel acts as Nomad and Broker to Altus Strategies plc

 

Beowulf Mining* (AIM:BEM) 5.5p, Mkt cap £33.1m – New lead-zinc prospect identified at Wolf Mountain 

(Beowulf holds 46.1% of Vadar. Beowulf also holds 100% Kallak iron ore in Sweden, 100% of Aitolampi graphite in Finland and 40% of the Mitrovica and Viti projects in Kosovo)

Results from an additional Induced Polarisation (IP) and resistivity survey (DC) undertaken by Vadar at Wolf Mountain, Mitrovica license, Kosovo show an exceptionally high chargeability anomaly identified to the east of the main Wolf mountain prospect.

Completion of the surveys revealed anomalous soil samples up to 1% Zn & 0.5% Pb, and rock samples from gossans including 3.5% Zn, 1.8% Pb and 93 g/t Ag.

The chargeability source follows a prominent north-west trending structure which correlates to the Zijaca deposit (non-JORC 5.2mt @ 2.8% Zn, 2.8% Pb, 16 g/t Ag) located 2km to the Southeast and remains open ended to the northwest, and results to date suggest that the Wolf Mountain prospect consists of several structurally controlled targets covering a larger area than previously considered.

These latest results build on progress made by the Company in October, which highlighted highly anomalous IP chargeability zones at Wolf mountain, which also followed established regional structural trends and suggesting high-grade Pb-Zn-Ag feeder structures.

Kurt Budge, CEO of Beowulf commented: “In addition to the central Wolf Mountain target, RNS dated 23 October 2020, Vardar has now delineated an exceptional chargeability anomaly and further targets for drilling to the east.

Further IP-DC data is currently being analysed to infill between the main prospect, in order to generate a holistic view of potential mineralization at Wolf Mountain.

Conclusion: Further progress at Wolf Mountain allows the Company to formulate its strategy for a drill programme planned for next year. We look forward to the company updating the market on the results from infill IP-DC surveys which will produce a continuous picture for Wolf Mountain.

*SP Angel act as nomad and broker for Power Metal Resources

 

Corcel Plc (LON:CRCL) – 1.01p, Mkt cap £3m – Burwell Li-ion battery storage and solar power project positive review

(Corcel, formerly Regency Mines was renamed on 7th August 2020)

Corcel plc, formerly Regency Mines, reports the Burwell 50MW li-ion / solar project in East Cambridgeshire has moved to shovel ready status and financial close following a positive project economic review.

Corcel are also buying out the remaining 50% interest in the Weirs Drove development to wholly own the Burwell project for £90,000.

The company are securing a 100MW 132kV grid connection .

 

Power Metal Resources* (AIM:POW) 2.03p, mkt cap £18.2m – Drilling progress continues in Botswana

Power Metal’s second exploration diamond drill hole (KKME 1-6) at the Kalahari Key Mineral Prospect commenced on the 19th of November 2020, and intersected serpentinised ultramafic rocks at about 27m immediately beneath Kalahari Group sediments.

The prospect is a part of the Molopo Farms Complex Project, which is targeting prospective massive nickel sulphide and PGM mineralisation in Botswana.

By the end of the day on the 27th of November, the drill hole had reached a depth of about 268m and has continuously intersected ultramafic rocks comprising mostly serpentinite after dunite or harzburgite. The rock is generally quite sheared and fractured throughout, however the drilling team have been able to maintain near 100% core recovery.

Preliminary inspection of the core from the lower part of the hole shows indication of possible cyclic layering within the intrusive ultramafic rocks, while core logging indicates a shear/feeder zone setting and samples from the prospective layering features will be analysed for both nickel and PGMs.

The drill programme is for an initial planned 2,505m across four diamond core drill holes with planned target hole depths varying from 525m to 710m and is designed to intersect four high priority targets prospective for massive nickel sulphide mineralisation.

*SP Angel act as nomad and broker for Power Metal Resources

 

Scotgold Resources* (AIM:SGZ) 120p, Mkt Cap £65m – First gold at Cononish

BUY – 182p

The Company announced the first gold pour at the high grade and high margin Cononish gold mine.

The team is now focused on ramping up production to design levels early in the New Year hitting 36ktpa rate and producing 9.9koz in 2021.

The Company will then be looking to double the processing capacity under the Phase 2 expansion to 72ktpa by May 2022, 17 months from the start of Phase 1 production.

Cononish is guided to run at 23.5kozpa following completion of the Phase 2 expansion.

The Company is fully funded to deliver Phase 2.

Conclusion: First gold delivered at Cononish marking the commissioning of the first commercial gold mine in Scotland. The team will focus now on ramping up operations to design Phase 1 36ktpa capacities with ~10koz production planned for 2021. Phase 2 72ktpa and 23.5kozpa is expected to be brought online in H1/21 with the Company fully funded to deliver on its expansion plans. We estimate the mine to generate ~£195 over its 8 year life of mine valuing the project at £113m post-tax NPV5% (using £1,500/oz long term gold price) and translating into 182p target NAVPS.

*SP Angel act as Nomad and broker to Scotgold Resources. A number of SP Angel analysts have visited the Cononish gold mine.

 

SolGold* (AIM:SOLG) 33.5p, Mkt Cap £721m – Adjustments to Alpala PFS schedule

Solgold has explained that restrictions to its work arising from the Covid19 pandemic, including limited site access and bottlenecks in laboratories arising from limited available staff numbers requires adjustments to its planned timetable for completion of its pre-feasibility study (PFS) on the Alpala deposit.

These limitations appear to have been particularly noticeable in the preparation, processing and interpretation of certain geotechnical  information. Solgold says that the assessment of the data has “necessitated a redesign of certain underground infrastructure to a location outside of the cave footprint, changes to the mine design and development, and mining production schedules … [although Solgold says that] … This work is nearing completion”.

Other aspects of the current optimisation work for the PFS include

“Improvements to metallurgy and the quality of metallurgical assumptions;

Seismicity studies to refine design of the tailings dam and processing plant sites; and

Sustainability improvements, including the option for hydroelectric power supply to Alpala”

Preliminary financial modelling is progressing in parallel with the technical work and under the overall scrutiny of “the recently formed Alpala Project Committee, chaired by Non-executive Director Keith Marshall”.

The Committee’s “review is expected to be completed by the end of January 2021, followed by a recommendation to the Board. The Company plans to update the market on the PFS shortly thereafter”.

Although the PFS, and subsequent definitive feasibility study work will certainly refine and improve the plans for the development of the 2.6bn tonne (Measured and Indicated) Alpala resource, the Preliminary Economic Assessment (PEA) published in June 2019 envisaged a mine life of over 50 years for Alpala. In our view, the additional few weeks in preparation of the PFS is comparatively trivial when weighed against the critical decisions and long-term implications resting on a thorough and well informed technical appreciation of the long-term project.

The role of the Project Committee will be crucial in ensuring the delivery of the relevant studies to the highest standards and ultimately to the long-term success of the project.

Conclusion: Covid19 has slowed the preparation of the Alpala PFS but may ultimately prove an unexpected benefit by allowing the Alpala Project Committee  a few additional weeks to ensure the fine-tuning and optimisation of a project expected to extend over more than 50 years. We will contain our enthusiasm to read the PFS for a few more weeks.

*SP Angel act as financial advisor and broker to SolGold

 

Vast Resources* (AIM:VAST) 0.17p, Mkt Cap £29m – Final approval of the lending facility targeted for 15 Dec/20

The Company received the detailed loan facility agreement from the lender in regards to the refinancing of the current debt.

The facility agreement will be finalised between two parties before it is presented to the lender’s credit committee for final approval in a meeting scheduled for 15 Dec/20.

“The detailed facility agreement for the asset backed debt facility is an important milestone for Vast… the recommencement of mining at Baita Plai, the completion of the first commercial sale of copper concentrate, and the recent acquisition of the remaining 20% interest in Baiti Plai to give Vast 100% ownership and control of the mine, have all paved the way for us to reach this point,” the Company commented on the announcement.

*SP Angel acts as Broker to Vast Resources

 

Analysts

John Meyer – [email protected] – 0203 470 0490

Simon Beardsmore – [email protected] – 0203 470 0484

Sergey Raevskiy –[email protected] – 0203 470 0474

Joe Rowbottom – [email protected] – 0203 470 0486

 

Sales

Richard Parlons –[email protected] – 0203 470 0472

Abigail Wayne – [email protected] – 0203 470 0534

Rob Rees – [email protected] – 0203 470 0535

Grant Barker – [email protected] – 0203 470 0471

 

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

Sources of commodity prices

 

Gold, Platinum, Palladium, Silver

BGNL (Bloomberg Generic Composite rate, London)

Gold ETFs, Steel

Bloomberg

Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt

LME

Oil Brent

ICE

Natural Gas, Uranium, Iron Ore

NYMEX

Thermal Coal

Bloomberg OTC Composite

Coking Coal

SSY

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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