SP Angel . Morning View . Wednesday 22 04 20

Risk of Asian Contagion on WTI Oil ETF losses


  • Antofagasta (LON:ANTO) – 2020 Production expected to be at lower end of published guidance
  • Central Asia Metals (AIM:CAML) – 2019 Sustainability report
  • Gemfields (AIM:GEM) – Suspension of all non-critical operations at Montepuez
  • Highland Gold (AIM:HGM) – 63.5koz delivered in Q1 with operations continuing uninterrupted on course for 290-300koz FY20 target


Major contagion in Asian financial markets possible on huge losses in Oil ETF funds

Stress in financial markets is increasingly likely to spark a significant collapse in Asian financial markets.

Falling Western demand for Chinese and other Asian goods will add further to Asian company woes.

China may restore economic activity through infrastructure expenditure but may also need to stimulate domestic consumption to make up for falling Western demand.

If Asia is unable to take up the slack, and it probably won’t then this combined with the economic hardships of the past few months of lockdowns is likely to collapse many vulnerable companies.

Combine this with multi-billion dollar losses from the WTI Oil ETFs and you have a recipe for a significant Asian Crisis.


Copper – May / July spreads widen dramatically as traders are instructed to take off-risk approach following WTI Oil contract collapse

Traders moving to longer-dated futures and instructed to take a risk-off approach by risk and compliance officers.

The market is also worried about a further weakening of demand for copper

Traders are also concerned that mines may also come back on stream faster than anticipated to create a significant surplus this year.

The move to ‘risk-off’ may reduce trading in other metals but looks less likely to have so much impact.

Tin, zinc, lead and nickel are much smaller markets and are less well traded.

The market appears less concerned about significant surpluses in these metals as the impact of cuts in mine supply may offset demand weakness.


WTI Oil ETF collapse to create multi-billion losses for Asian investors

Monday’s collapse in the WTI May oil contract was highly technical and due to the inability of oil ETF funds to roll over or store physical oil.

Anyone left in the WTI May oil contract is now unable to roll their positions without suffering huge losses which will wipe out their positions.

Reports indicate that ETFs linked to the May WTI oil contract will suffer substantial or total losses.

Most of these are held by South Korean and other Asian investors who are reported to have lost billions in the WTI Oil price collapse through ETFs.

Back in the real world, OPEC decided to cut production too late as so much oil was already on the sea with not enough demand and possibly not enough storage either.

Every bit of oil storage is thought to booked and close to full. Note, oil needs certified storage to maintain its value.

The FT asks if the $4.2bn United States Oil Fund ‘UFO’ ETF fund which investors in short-dated oil futures could also collapse in this environment.

We do not expect this to spill over into more sophisticated Hedge funds which have moved onto longer-dated contracts.

Dramatic fall in the WTI May contract is also expected to potentially collapse a number of smaller Asian oil traders

Hin Leong Trading has already collapsed under $800m of undisclosed losses in its accounts (see below)



US – The Senate passed a $484bn pandemic relief package with the House to vote on it as soon as Thursday.

China – The PBoC is expected to lower the rate on its emergency funding facility, an equivalent to the Fed’s discount window lending tool, Bloomberg reports.

UK – Inflation slowed in March coming in at 1.5%, 0.2pp lower than in the previous month, amid the launch of the self-isolation and staying at home policies.

Downward pressure came from fuel and clothing prices, Bloomberg reports.

Inflation is likely to drift lower in coming months reaching sub-1% levels, one of BoE policymakers Silvana Tenreyro said.

Turkey – The central bank is expected to announce an eighth rate cut in less than a year in an effort to stimulate growth and despite a sell off in the currency.

The lira is down nearly 15% against the US$ since the start of the year.

Expectations are for the policy rate (1w repo rate) to be cut by 50bp to 9.25%.

South Africa – The government announced a ZAR 500bn ($26bn) aid package to shore up the economy during the pandemic.

200bn will be directed to guarantees for banks to encourage lending, 100bn will be allocated to protect and create jobs and 50bn to be used for the poor and unemployed.

70bn is offered in temporary tax relief programme.

The package amounts to roughly 7% of the national GDP.

The lockdown has been extended to the end of the month while President Ramaphosa is expected to announce plan aiming at gradual phasing out of the lockdown on April 23.

France – French court ruling on Lockdown for Amazon distribution centres

A French court ruled the company must cease delivery of non-essential goods after a union filed complaints about worker safety measures (Supply Chain Drive).

Demonstrations in the US and Brazil, Riots in Chile, Lockdown pressure builds

Pressure is building in emerging markets as demonstrators vent their frustration on the political establishment

Protests are reported in Chile over low wages and inequality. Chile has banned gatherings of >50 people.

 Netflix added record 15.8m of paid subscribers, nearly double the forecast number, in Q1/20 as people stayed at home due to lockdowns.

Explosive growth is expected to come at a price of slower increase in new subscriptions in Q3/Q4.



US$1.0860/eur vs 1.0840/eur yesterday.  Yen 107.58/$ vs 107.42/$. SAr 18.912/$ vs 18.858/$.  $1.231/gbp vs $1.242/gbp.  0.633/aud vs 0.632/aud.  CNY 7.084/$ vs 7.083/$.


Commodity News

Precious metals:         

  • Gold US$1,687/oz vs US$1,696/oz yesterday
  •    Gold ETFs 94.6moz vs US$94.5moz yesterday
  • Platinum US$742/oz vs US$774/oz yesterday
  • Palladium US$1,969/oz vs US$2,150/oz yesterday
  • Silver US$14.77/oz vs US$15.31/oz yesterday          

Base metals:   

  • Copper US$ 5,038/t vs US$5,103/t yesterday
  • Aluminium US$ 1,491/t vs US$1,492/t yesterday
  • Nickel US$ 11,865/t vs US$12,260/t yesterday – Chinese ferronickel and NPI imports up 243% YoY in March

China imported 333,000t of ferronickel and nickel pig iron (NPI) in March, up 243% compared to March 2019 and up 41% compared to February 2020 according to Chinese customs data.

Last month’s imports contained about 53,000t of nickel, with NPI therefore accounting for 70% of imports.

Imports from Indonesia accounted for 85% of total imports, and imports from this country are expected to rise in Q2 2020 as smelters in the country ramp up the commissioning of new capacity (SMM).

  • Zinc US$ 1,908/t vs US$1,906/t yesterday
  • Lead US$ 1,657/t vs US$1,673/t yesterday
  • Tin US$ 14,700/t vs US$15,015/t yesterday



  • Oil US$16.8/bbl vs US$24.1/bbl yesterday
  • Natural Gas US$1.812/mmbtu vs US$1.903/mmbtu yesterday
  • Uranium US$32.55/lb vs US$32.55/lb yesterday



Iron ore 62% Fe spot (cfr Tianjin) US$81.0/t vs US$84.0/t – Iron ore futures rise on Chinese demand hopes

Futures in China recovered all losses seen in earlier sessions on Wednesday, fuelled by hopes that demand from steelmakers will increase in the coming months.

Prices fell early on Wednesday as traders were spooked by a potential supply glut, as shipments from Australia and Brazil rose by 3.5mt last week to 23.28mt (Mysteel).

Iron ore futures on the Dalian Commodity Exchange closed 1.2% higher at 613 yuan ($86.56)/t and steel futures in Shanghai rose 1.5% to 3,375 yuan/t (Reuters).

Iron Ore – Expect Chinese consumption of iron ore to rise through Q2 following fall in Q1

Iron ore production and sales by BHP and Rio Tinto indicate that Chinese steel producers carried on production albeit at lower levels through Q1.

Disruption caused by the coronavirus drove Rio Tinto iron ore sales down by 16% on the previous quarter.

Rio Tinto’s iron ore sales might have been lower if Vale had not cut iron ore exports out of Brazil.

BHP also reported a 1% fall in iron ore production

China seems to have kept its furnaces going through they were running into difficulties with scrap collection due to logistical restrictions

Iron ore prices held up better than Coking coal suggesting that Blast furnaces took some pain

We expect European steel mills to be quick to cutback as they don’t trust the EU to stimulate construction in the same way as the Chinese Communist Party

Most private housebuilding has slowed significantly or stopped entirely while major public project like HS2 continue in the UK. Housebuilders can not get steel out of steel mills and warehouses due to lock down restrictions which will inevitably feed back into slower production..

  • Chinese steel rebar 25mm US$526.5/t vs US$527.9/t
  • Thermal coal (1st year forward cif ARA) US$53.9/t vs US$55.0/t
  • Coking coal swap Australia FOB US$130.5/t vs US$130.5/t



Cobalt LME 3m US$30,000/t vs US$30,000/t – Disruption over cobalt supplies from the DRC cause cobalt export to fall 15% in Q1

China is almost totally reliant on the DRC for its cobalt. Supply chain and mine disruption pose a major threat to Chinese supply

NdPr Rare Earth Oxide (China) US$36,769/t vs US$36,777/t – US Department of Defence to offer Lynas with a Phase-1 contract

The US DoD has told the Australia-based rare earth miner that it intends to offer the company a Phase-1 contract for a US-based heavy rare earths separation facility.

The funding will allow Lynas and its partner Blue Line to complete detailed planning and design work for the construction of the facility, which would then allow a further contract for commercial scale production (Mining Weekly).

Canadian rare earth plant now producing hand sanitiser instead

Rare earths company Geomega has begun modifying its rare earth plant in Quebec to enable it to produce hand sanitiser.

Geomega are striving to become Canada’s fist rare-earth oxide producer, using recycled magnet waste to produce Nd, Pr, Dy and Tb (Canadian Consulting Engineer).

Lithium carbonate 99% (China) US$5,434/t vs US$5,435/t

Ferro Vanadium 80% FOB (China) US$27.0/kg vs US$26.7/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$240-245/mtu vs US$240-245/mtu

Graphite flake 94% C, -100 mesh, fob China US$540/t vs US$540/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,450/t vs US$2,550/t


Battery News

BYD announces profits tumble

Chinese EV maker BYD reported a 42% drop in profits for 2019 on Tuesday. (Yahoo Finance)

Net profit totalled 1.61bn yuan ($227m) and revenue fell 1.78% to 127.74bn yuan.

BYD sold 461,399 vehicles in 2019 down 11.4% on 2018. China’s auto market fell 8.2% in 2019 whilst EV sales were down 4%.

The Chinese government cut subsidies in 2019 making production more costly for producers.

Given the current economic conditions and global pandemic the government has done a U-turn and reintroduced subsidies out to 2022.


Daimler announces Volvo partnership on hydrogen batteries

Daimler announce JV with Volvo valued at €1.2bn to develop and sell hydrogen batteries for heavy duty trucks. (Yahoo)

The hope is the JV will speed up the time to market for hydrogen fuel cells and reduce costs.

Daimler will consolidate fuel cells activities and Volvo will acquire a 50% share worth €600m. (Forbes)

The agreement announced is preliminary and non-binding. The pair expect to reach a final agreement before September and close the deal by the end of 2020.

The Companies said they were targeting the second half of the decade for roll out of their hydrogen offering. (Techexplore)


Diamond nano-threads next generation energy storage

Researchers from Queensland university of Technology have published a study on diamond nano-threads as a proposed energy storage mechanism. (New Atlas)

Diamond nano-threads are carbon thread structures which can be twisted or stretched to store mechanical energy.

The team computer modelled the energy density of a hypothetical diamond nano-thread bundle. Results showed the threads could store 1.76MJ per kg, 3x the energy density of lithium-ion batteries.

The proposed structure has been suggested to be safer as the electrochemical reactions required in a lithium-ion battery do not occur.

The study was published in Nature Communications.


Company News

Antofagasta (LON:ANTO) 745p, Mkt Cap £7.2bn – 2020 Production expected to be at lower end of published guidance

In its Q1 2020 quarterly production report Antofagasta says that ʺAssuming mining operations continue to run at or close to capacity and no shutdowns are required, Group copper production in 2020 is expected to be at the lower end of the original 725-755,000 tonnes guidance rangeʺ.

The company also says that ʺGroup net cash costs for the full year are expected to be $1.20/lb, 10c/lb lower than originally guided, assuming revised production guidance is achieved and the Chilean peso averages 800 pesos to the US dollar for the yearʺ.

Q1 production of copper at 194,000t was 2.9% higher than the equivalent period in 2019 and 4.6% above the preceding quarter ending 31st December 2019 and cash costs before by-product credits fell by 11.2% to $1.51/lb.

Gold production of 65,100oz was 4.7% above that of Q1 2019, mainly as a result of higher grades at Centinella while molybdenum output fell by 1,100t to 2,400t ʺdue to lower grades at Los Pelambres, and 100 tonnes higher production than in Q4 2019ʺ.

CEO, Iván Arriagada, said that ʺAlthough we are currently operating with about two-thirds of our workforce on-site in line with our preventative health measures, this has so far had a limited impact on production. Indeed, in Q1 2020 copper production was 194,000 tonnes, 4.6% higher than in the previous quarter, and net cash costs were $1.10/lb, some 27c/lb lower because of the weaker Chilean peso, higher production and tighter cost control.ʺ

The company has already announced the suspension of the Pelambres Expansion project and Mr. Arriagada confirmed that ʺCapital expenditure for the year is now expected to be less than $1.3 billion, that is at least $200 million lower than our original guidance of $1.5 billion due to the temporary suspension of the Los Pelambres Expansion project, the deferral of sustaining and other growth capital expenditure, lower mine development and a weaker Chilean pesoʺ.

He also confirmed that ʺWe have a solid balance sheet with $2.5 billion of cash which put us in a strong position to confront this unprecedented situation of operational uncertainty and lower copper price environmentʺ.

The company has established a US$6m fund to help support the communities close to its operations which ʺin addition to existing social investment plans, will be used to buy medical supplies and equipment for healthcare workers to fight COVID-19, create facilities for people to stay if they need to be quarantined, and to sterilise public spaces and create safe areas for neighbouring communitiesʺ.

At the individual operations, copper production of 93,300t at Los Pelambres was 4.6% was higher than in Q1 2019 and 1.1% higher than the preceding (Q4 2019) quarter. By-product gold 14,800oz) and molybdenum (2,400t) reduced pre-by-product cash costs of US$1.23/lb by $0.46 to $0.82/lb.

Copper production at Centinela declined by 3.3% year-on-year to 66,500t although cash costs before credits declined by 3.8% to $1.78/lb mainly as a result of the weaker currency.

Production at Antucoya rose, year-on-year by 12.8% to 20,200t and by 28.7% compared to the preceding quarter as a result of improved grades and recoveries. Cash costs declined by 19.8% year-on-year and by 14.8% during the quarter to $1.78/lb.

Production also increased year-on-tear at Zaldivar to 14,000t (Q1 2019 – 12,700t) although declining by 13% compared with Q4 2019. Cash costs were 13.1% lower at $1.66/lb compared to Q1 2019 and broadly in line with the $1.67/lb achieved in Q4 2019.

Conclusion: Antofagasta has proved resilient during the first quarter of 2020 and is currently expecting to achieve the lower end of its 725-755,000t copper production guidance. Cash costs for the year are expected to benefit from weakness in the Chilean Peso.


Arkle Resources* (AIM:ARK) 0.6p, Mkt Cap £0.79m – Stonepark drilling

Arkle Resources reported yesterday that its partner, Group Eleven Resources, in its 23.44% owned Stonepark zinc project in Co. Limerick has ʺindicated its intention to recommence drilling in August 2020, subject to Covid-19 restrictionsʺ.

Arkle Resources has confirmed its intention to maintain its existing interest in the project.

Stonepark ʺcontains a maiden Inferred Mineral Resource totalling 5.1 million tonnes at 8.7% zinc and 2.6% lead, occurring at depths from 190m to 395m below surfaceʺ and is located next to the Pallas Green deposit of Glencore which contains a larger and deeper but slightly lower-grade resource of 45.4 million tonnes at an average grade of 7% zinc and 1% lead, lying between 300m and 1,300m below surface.

In May 2019, the company announced that its drill hole ʺG11-450-02 (‘the Kilteely hole’) intersected a 230m thick hydrothermal system displaying abundant sulphide mineralisation with elevated zinc.  This two-by-five-kilometre swath of prime ground in the Kilteely area, represents a geological mirror image of the Pallas Green system on the opposite side of the volcanic complex that lies between.ʺ

While explaining that measures to restrict the spread of Covid19 had delayed progress at Stonepark, Chief Executive, Patrick Cullen, welcomed the commitment of Group Eleven to advance the exploration of Stonepark and confirmed that ʺplanning for drilling is underway and discussions continue with third parties regarding the future of Stonepark.ʺ

Conclusion: Additional drilling at Stonepark to follow up results obtained in May last year, although delayed by measures to contain the current pandemic is expected to start in August with Arkle Resources maintaining its existing project interest.

*SP Angel is Nomad and Joint-Broker to Arkle Resources


Central Asia Metals (AIM:CAML) 129 pence, Mkt Cap £223m – 2019 Sustainability report

Central Asia Metals has announced the publication of its first Sustainability Report covering the calendar year 2019. The report covers the Kounrad dump leach operations in Kazakhstan and the Sasa zinc/lead mine in North Macedonia.

The announcement highlights the lower lost time injury (LTI) frequency rate of 0.42 (2018 – 3.76) attributable to a single incident at Sasa and the absence of any LTI at Kounrad.

Reportable injuries (TRI) were also lower during 2019 at 0.85 (2018 – 3.76) with two injuries at Sasa while Kounrad remain injury free.

The operations remained free of air quality breaches and any significant spills of reagents during 2019

The company points out that 99% of its employees and contractors are from the countries in which it operates and also reports that its social spending of $0.6m maintans the level in 2018.

Chief Executive, Nigel Robison said that ʺI believe our first report accurately reflects the importance we place upon sustainability in every aspect of our business. While we strive for zero-harm, we are able to report a very low LTIFR by industry standards. We report zero significant spills or air quality exceedances, and we have continued to develop our employees and to look after the communities close to our operations.ʺ

He also said that ʺreporting of sustainability related matters will be an evolving process, and we have committed to providing annual sustainability reports going forward. We anticipate many areas for continued improvement in our reporting and welcome feedback from our various stakeholdersʺ.


Gemfields (GAIM:EM) 7.75p, Mkt Cap £95m – Suspension of all non-critical operations at Montepuez

Gemfields reports that, in response to the spread of the Covid19 virus it has suspended all non-critical operations at its Montepuez ruby mine (MRM) in Mozambique. The company announced a similar suspension of its Kagem operation in Zambia on 30th March.

ʺSecurity, maintenance and other essential services will continue in order to ensure that MRM is well placed to resume normal operations as soon as it is safe and practicable to do soʺ.

In relation to the security activities, the company says that ʺGiven recent episodes of illegal mining activity on the concession, attacks on MRM’s security teams and the recent release of prisoners in the town of Montepuez, including approximately 150 illegal miners, as part of the government’s COVID-19 response relating to overcrowded prisons, MRM has introduced additional security measures, increased the size of the security team and deployed patrol dogs. In addition, trained members of its security service providers have been equipped with firearms in accordance with the Voluntary Principles on Security and Human Rightsʺ.

The company outlines some of the steps it is taking to safeguard its financial position including the suspension of ʺall expansionary capital expenditure at MRM for the foreseeable future. Planned expenditure relating to the Resettlement Action Plan (RAP) village will continue in keeping with the goal of achieving occupation by July 2020.ʺ

The company also discloses that, in response to the extension of ‘lockdown’ measures in the UK ʺWith effect from 1 May 2020, and for so long as the UK lockdown measures remain in place, all UK staff members, including the Board of Directors of the Company, will switch to a four day working week and receive a 20% reduction in salary. Should the UK lockdown restrictions remain in effect after 31 May 2020, a three-day working week with a further 20% reduction in salary may become necessary.ʺ

Conclusion: Gemfields has now suspended operations at Montepuez and implemented higher levels of security at the site to safeguard its assets. In the UK, staff will move to a four-day week on 1st May and may be subject to further reductions if the UK maintains restrictions beyond the end of May.

 *An SP Angel mining analyst has previously visited the Kagem emerald mine and Montepuez ruby mine


Highland Gold (AIM:HGM) 225p, Mkt Cap £822m – 63.5koz delivered in Q1 with operations continuing uninterrupted on course for 290-300koz FY20 target

Q1 output amounted to 63.5koz (Q1/19: 72.0koz), in line with the production plans.

MNV production totalled 25.7koz (Q1/19: 30.6koz) reflecting mine sequencing with increased waste stripping and processing more of lower grade stockpiles.

Belaya Gora production totalled 9.7koz (Q1/19: 11.8koz) with throughput down 16%yoy as SAG mill maintenance was brought forward from April-May to March; plant upgrade including an installation of the CIL circuit designed to increase recoveries to 90% from current ~75% is expected to be completed in H2/20.

Novo delivered 21.1koz (Q1/19: 22.3koz) with development works for expanding the mine capacity to 1.3mtpa from 0.8mtpa ongoing and on course for completion later this year; XRT concentrator that would allow to accommodate higher mining rates without the need to expand the existing metallurgical plant were factory tested, certified in March and arrived in Russia with delivery to the site expected in May; refurbishment of the skip hoist and of the hopper station started during the quarter with works to upgrade ventilation in progress and to build a new boiler unit for heating the underground fresh air intake underway.

Valunisty output amounted to 7.0koz (Q1/19: 7.3koz).

Realised gold price averaged $1,593/oz.

Operations continued uninterrupted with the management taking precautionary measures to address the pandemic-related guidelines including extending shifts and restricting travelling.

Also no disruptions to the Company’s supply chains have been reported.

At Kekura, building materials and equipment is being delivered over winter roads ahead of the start of the summer construction season.

Michael Monaghan joined the Company as COO bringing over four decades of experience in the mining industry.

FY20 production guidance reiterated at 290-300koz GE.




John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474



Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535