SP Angel . Morning View . Friday 07 05 21

Copper prices make new high

Good Chinese PMI data point to strengthening growth momentum 

MiFID II exempt information – see disclaimer below – FCA looks to scrap MiFID research rules on small-caps in UK competitiveness drive (Investment Week)

 

Bacanora Lithium (LON:BCN) – Potential offer from Ganfeng

Lucara Diamonds (CVE:LUC) – Reports healthiest diamond market for 5 years

Pasofino Gold (CVE:VEIN) – C$9m equity raise

Power Metal Resources* (LON:POW) – New corporate presentation

Rambler Metals and Mining* (LON:RMM) – 2021 Q1 results and progress of recovery plan

Rio Tinto (LON:RIO) – Battery-grade lithium produced at California plant

 

Copper – prices have broken through a key technical level to 10,236/t

The positive move in copper overnight suggests the metal may now rise towards $15,000/t according to one Commodity Trading Advisor

Copper prices must rally 50% for supply to meet demand according to Ivan Glasenberg, ceo at Glencore according to a report in the FT today.

Prices had been held back by comments from a Chinese official indicating that China might move to limit commodity prices if they raise inflation.

We suspect if China was to impose such draconian price limits it would have already done so in iron ore which we feel is more critical to the Chinese economy than any single base metal.

China is also seen as well prepared with substantial State Reserve Bureau reserves which can be made available to local manufacturers in the event of shortages.

The IEA warned earlier this week that high prices and availability could delay the transition to clean energy given the demands for batteries, wind turbines and solar panels.

Rising costs at the more marginal copper producers will require higher prices to meet rising demand for the new energy revolution as inflation eats into margins.

Copper prices were also helped higher by issues in Chile and Peru which might serve to reduce new investment into copper mining in these regions.

Demand is being driven by Stimulus measures encouraging the development of new wind and solar farms in the US, UK and China

Global copper demand from wind, solar, EVs and battery technology alone is expected to grow by nearly 600% by 2030 to 5.4mt per year.

Standard EVs contain approx. 1km of copper wiring- translating to 60-83kg of copper per car. ICE vehicle requires 15-20kg.

Level 1&2 EV AC charging points will contain 1-7kg of copper, while fast DC chargers contain up to 25kg.

Offshore wind requires 13.5t of copper per MW vs 4t of copper per MW for onshore turbines.

Solar capacity requires an estimated 4.6t of copper per MW.

China unwrought copper imports rose 9.9% YTD by the end of April to 1.92mt.

China copper ore and concentrate imports rose 4.4% YTD by the end of April to 7.88mt.

 

Zambia has denied that it has closed the Konkola copper mines at KCM denying a Bloomberg report on the closure of the Konkola Deep mine.

The mine is being run by the Zambian government Provisional Liquidator following an ongoing legal despite with its former owner, Vedanta over tax issues.

KCM is looking to restore the Kongola Deep copper mine to a production rate of 400,000tpa and to extend the mine life to >30 years

 

Apologies – Zambia taxes

Yesterday we reported on tighter mineral tax rules introduced to increase government revenues in Zambia as reported by Bloomberg Law

The Zambian government had introducing new rules governing the mineral sector in 2019,  including disallowing the deduction of minerals royalty.

We also reported on Zambia’s sliding-scale tax rate linked to international commodity prices of 5.5% when prices are below $4,500/t rising to 10% at >$9,000/t copper.

These royalty rates have been in place for some years.

The government has also introduced a 5% import duty on copper and cobalt concentrates to encourage local partnerships, as some processors are currently using imports from the DRC.

The sliding scale is designed to help Zambia share in the profits generated by higher copper prices and helps to support a stable and beneficial environment for mining in the country.

The Zambian government appears  hugely supportive of mining in a region where most workers value the jobs available in the mining industry.

One observation from our last road-trip round Zambia was that many workers will go for a night out in their high-viz jackets highlighting the status of their jobs in the mining industry.

 

Dow Jones Industrials +0.93% at 34,549

Nikkei 225 +0.09% at 29,358

HK Hang Seng -0.23% at 28,572

Shanghai Composite -0.65% at 3,419

 

Economics

 

JP Morgan global services PMI 56.6 in April vs 54.7 in March

Composite PMI 56.3 (54.8)

 

EU – Construction PMI remained unchanged 50.1 in April

Retail sales rose 2.7% in March vs 4.2% in February and 12% yoy in March vs -1.5% yoy in February

 

US – Preliminary US unit labour costs fell 0.3% in Q1 vs 5.6% in Q4

Nonfarm productivity rose 5.4% in Q1 vs -3.8% in Q4

 

 US – Jobless claims dropped below 500,000 to a fresh pandemic-era low last week as the economy gradually gains pace.

April NFPs are to be released later today with estimates for a 1,000k reading, up from 916k in March.

Weekly Jobless Claims (‘000): 498 v 590 (revised from 553) in the previous week and 538 est.

 

China – Services sector reported a welcome acceleration in growth through April with the rate reaching a four-month high.

The faster upturn in business activity was linked to the successful containment of COVID-19 and a further improvement in demand conditions.

New business orders climbed at the strongest pace in five months with export orders also posting an increase after a two-month period of decline.

Companies hired more, while increasing input costs led firms to increase their prices.

Caixin Markit Services PMI: 56.3 v 54.3 in March and 54.2 est.

Caixin Markit Composite PMI: 54.7 v 53.1 in March.

 

Germany – Angela Merkel opposed US plans to remove IP rights for developed Covid-19 vaccines.

“The protection of intellectual property is a source of innovation and it must remain so in the future,” Chancellor said.

 

UK – The BOE will adjust its weekly bond purchases lower on improved growth outlook.

The BOE will reduce the amount of bonds it buys each week to £3.4bn, down from £4.4bn.

The central bank left rates unchanged at 0.1%.

The BOE now expects the economy to have recovered from the pandemic by the end of the year, three months earlier than previously envisaged.

2021 GDP growth estimates were revised up to 7.25% from February’s estimate 5.0%.

 

UK plans to offer an alternative to the AstraZeneca vaccine for under -40s on concerns over blood clots.

The decision following a recommendation by the Joint Committee on Vaccination and Immunisation may be announced as soon as later today.

This means the -40s will be offered vaccines by Pfizer/BioNtech or Moderna, the only other shots currently approved for use in the UK.

 

France – President Macron offered his support for temporarily suspending patent protections for Covid-19 jabs.

“I am totally favourable to opening up this intellectual property… I called for it a year ago,” Macron said.

 

Currencies

US$1.2073/eur vs 1.2025/eur yesterday.  Yen 109.177/$ vs 109.32/$.  SAr 14.247/$ vs 14.322/$.  $1.392/gbp vs $1.391/gbp.  0.777/aud vs 0.774/aud.  CNY 6.461/$ vs 6.478/$.

 

Commodity News

Precious metals:  

Gold US$1,819/oz vs US$1,793/oz yesterday

Gold ETFs 98.3moz vs US$98.3moz yesterday

Platinum US$1,246/oz vs US$1,239/oz yesterday

Palladium US$2,955/oz vs US$2,980/oz yesterday

Silver US$27.31/oz vs US$26.76/oz yesterday

           

Base metals:  

Copper US$ 10,236/t vs US$9,997/t yesterday

Aluminium US$ 2,534/t vs US$2,470/t yesterday

Nickel US$ 17,975/t vs US$17,825/t yesterday

Zinc US$ 2,968/t vs US$2,922/t yesterday

Lead US$ 2,222/t vs US$2,166/t yesterday

Tin US$ 29,825/t vs US$29,860/t yesterday

           

Energy:           

Oil US$68.3/bbl vs US$69.3/bbl yesterday

Oil prices have slightly pulled back from their fresh monthly highs in early trading today despite a larger than expected contraction in US inventories, but signs of subdued supply may keep crude prices afloat as US output remains at its lowest level since 2018

The EIA reported an inventory draw of 8MMbbls for the week to 30 April, however in fuels, the inventory moves were mixed

The oil inventory figure compared with a weekly draw of 7.688MMbbls estimated by the American Petroleum Institute a day earlier, and with a moderate build of 100,000bbls that the EIA reported for the previous week

Analyst consensus had expected the EIA to report a crude oil inventory decline of 2.19MMbbls

The recent rally appears to be stalling ahead of the March high as it fails to extend the series of higher highs and lows from the start of the week, and crude prices may trade within a defined range with OPEC on track to gradually restore production over the coming months

Fresh data prints coming out of the US may encourage OPEC and its allies to uphold the production timetable at the next Joint Ministerial Monitoring Committee (JMMC) meeting on 1 June as crude inventories contract

At the same time, a deeper look at the figures coming out of the EIA showed US field production holding steady at 10.9MMbopd for the second week, and expectations for stronger consumption along with signs of subdued supply instils a bullish outlook for the price of oil as OPEC’s most recent MOMR emphasises that “oil demand in the 2H21 is projected to be positively impacted by a stronger economic rebound than assumed last month”

With that said, the underlying fundamentals may keep the price of oil afloat as US output remains at its lowest level since 2018, but lack of momentum to test the March high may keep crude prices within a defined range as it fails to extend the series of higher highs and lows from the start of the week

 

Natural Gas US$2.937/mmbtu vs US$2.944/mmbtu yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$194.4/t vs US$186.9/t

Chinese steel rebar 25mm US$840.1/t vs US$837.9/t

Thermal coal (1st year forward cif ARA) US$78.0/t vs US$77.7/t

Coking coal swap Australia FOB US$124.0/t vs US$121.5/t – Coal – Citigroup and Trafigura have hatched a plan to buy up the world’s unwanted coal mines and are pitching it to investors (Bloomberg)

While investors are voicing their opposition to coal causing the major miners to offload their coal mines the unintended consequence may be for less well respected and trusted companies to takeover and run these businesses away from the influence of more environmentally conscious investment.

China has built substantial coal fired generation capacity in recent years driving demand for thermal coal, lifting prices and raising emissions levels.

It would be better for the coal for these power stations to be produced by companies which are more accountable to the investment community.  

 

Other: 

Cobalt LME 3m US$45,165/t vs US$45,165/t

NdPr Rare Earth Oxide (China) US$82,412/t vs US$83,206/t

Lithium carbonate 99% (China) US$12,691/t vs US$12,658/t

China Spodumene Li2O 5%min CIF US$630/t vs US$630/t

Ferro-Manganese European Mn78% min US$1,684/t vs US$1,665/t

China Tungsten APT 88.5% FOB US$272/t vs US$272/t

China Graphite Flake -194 FOB US$505/t vs US$505/t 

 

Battery News

Department of Energy awards $19m in funding for rare earth metals

The DOE has awarded up to $19m for 13 initiatives geared toward rare earth metals and critical mineral production to keep on top of predicted demand. 

The projects cover 12 areas of interest in “selected US basins that have the potential to produce REMs and critical minerals.” 

‘The Role of Critical Minerals in Clean Energy Transitions’ published earlier this year highlighted the supply challenges for minerals such as lithium, cobalt and REMs 

The funding is hoped to put the US at the forefront of the clean energy economy and provide the critical minerals for the transition to renewable energy. 

 

Company News

Bacanora Lithium (LON:BCN) 58p, Mkt Cap £190m – Potential offer from Ganfeng

The Company entered into an agreement yesterday regarding the terms of a possible cash offer by Ganfeng for Bacanora at 67.5p, valuing the Company at £260m.

Ganfeng has agreed with the Company that it will announce a firm intention to make an offer subject to a number of pre-conditions being met or waived before 31 Dec/21.

The offer price represents a 50% premium to the closing price of 45.0p before the announcement.

Conditions to the deal include respective approvals from the Chinese government of the deal (so-called Outbound Direct Investment), successful Ganfeng due diligence of the flagship Sonora Lithium Project in Mexico as well as a support of deal terms by both Boards.

Bacanora Independent Directors see the deal as an attractive proposal and are expected to recommend the offer.

It may take up to eight months to secure government approvals for the Outbound Direct Investment.

Bacanora holds a 50% interest in Sonora Lithium Limited, the operational holding company for the Sonora Lithium Project, in a 50/50 JV with Ganfeng.

Bacanora also owns 44.3% of Zinnwald Lithium PLC (AIM: ZNWD), which in turn owns a 50% interest in the Zinnwald Lithium Project and the Falkenhain and Altenberg Licences in southern Saxony, Germany.

Separately, Ganfeng is reported to have secured Chinese government approvals to exercise its pre-emptive right to increase its shareholding in the Company following Bacanora’s placing on 3 Feb/21.

Ganfeng will subscribe for a total of ~53m new shares at 45p equivalent to US$31m, taking its interest in Bacanora to 28.88%.

 

Lucara Diamonds (CVE:LUC) C$0.82, Mkt Cap C$326m – Reports healthiest diamond market for 5 years

In its Q1 report released this morning, Lucara Diamonds reports that “The diamond market began 2021 in a healthier position than it has at any stage over the past five years”.

Lucara says that the diamond market was “buoyant” during the 3 months to 31st March “following a strong holiday sales period, particularly in China and the United States”.

The company explains that “Careful rough diamond supply management by the producers has also helped to re-balance polished diamond inventories and stabilize the market overall … [although it cautions that] … India, a major manufacturing centre for diamonds, is of particular concern heading into the second quarter as infection rates have increased dramatically, resulting in new lock-down measures”.

The Karowe mine in Botswana was able to “remain fully operational throughout the pandemic as mining has been designated an essential service in Botswana”.

During the quarter, Karowe mined 1.1mt of ore and 0.8mt of waste and treated 670,000t of ore to produce 80,014 carats of diamonds including 188 stones larger than 10.8 carats in size.

Production also included 2 diamonds larger than 300 carats and 2 which exceeded 200 carats.

Sales of 91,760 carats during the quarter generated US$53.1m in revenue representing an average price of $579/carat (Q 2020 sales of US$33.8m at an average of US$393/carat).

The company has provided guidance for the full year 2021 indicating that it expects Karowe to produce between 340-370,000 carats of diamonds from 2.8-3.2mt of ore during 2021.

 

Pasofino Gold (CVE:VEIN) C$0.09, Mkt Cap C$23m – C$9m equity raise

The Company raised C$9m in new shares at C$0.07 to fund exploration and development work at the Dugbe Gold Project in Liberia.

Under the agreement with Hummingbird Resources, Pasofino is to earn a 49% economic interest in the Dugbe Gold Project through exploration and delivering a DFS.

Pasofino is targeting updated PEA in H1/21 and DFS by end of 2021.

The project hosts 2.3moz at 1.51g/t in the Indicated Resource and 1.3moz at 1.47g/t in the Inferred category.

 

Power Metal Resources* (LON:POW) 2.35p, Mkt cap £27.3m – New corporate presentation

Power Metals reports that it has released a new corporate presentation, detailing the company’s active portfolio of nine projects spanning multiple commodities in multiple jurisdictions.

The presentation can be viewed here: https://www.powermetalresources.com/Uploads/1400-POW_Presentation_2021-05-06.pdf

*SP Angel act as Nomad and broker to Power Metal Resources

 

Rambler Metals and Mining* (LON:RMM) 0.54p, Mkt Cap £59m – 2021 Q1 results and progress of recovery plan

(Rambler owns 100% of the Ming Copper-Gold Mine)

CLICK FOR PDF

The company reports that during the three months to 31st March 2021, its Ming mine / Nugget Pond plant in Newfoundland produced 3,323t of copper/gold concentrate at an average grade of 27.4% copper and 6.3g/t gold compared with Q4 2020 output of 3,666t of concentrate at an average grade of 25.9% copper and 7.0g/t gold.

The production comes from the treatment of approximately 57,000t of ore at an average grade of 1.64% copper and 0.55g/t gold (Q4 2020 – approximately 61,000t at an average grade of 1.63% copper and 0.62g/t gold).

The company comments that the quarter “reflected the start of the rebuilding of production capacity following the financing events that occurred in December 2020 and February 2021. Significant progress has been made in returning the condition of the mining fleet and the processing plant to good working order and work continues in these areas”.

We also observe that it appears that the copper grades over the last two quarters are running at the highest levels since mid-2016.

Rambler Metals reports continued progress on debt reduction reported in its 2020 financial results with further repayments during the quarter of $1.29m leaving net debt at 31st March at $3.46m (31st December 2020 – $3.53m).

Rambler Metals & Mining’s Q1 2021 results also contain details of a solid start to a number of key elements of the mine’s recovery plan aimed at restoring mine production and plant throughput to the 1,350 tpd rate, and positioning the operation for subsequent expansion as described in the company’s recently released Annual Report.

Among these advances are:

The completion of dewatering the lower levels of the mine which was achieved in February; and

Progress on developing the ventilation system in order to support increased mine development rates and multiple working areas in the lower parts of the mine; and

Upgrading of the mine’s power supply “with modifications to infrastructure and transformers to support the planned increase in underground activity. This work is expected to be completed in Q3 2021”; and

The completion of metallurgical test-work on ore-sorting which supports “the target estimate of 30% removal of ROM Feed as waste rock”. The company confirms that “ore sorting plant design work has been initiated with independent engineers with a view to start plant construction in 2021”; and

Increased underground mine development rates including a 56% increase in capital development to 579m during the quarter.

Key management appointments including a new Chief Financial Officer, Project Director and Chief Mining Engineer.

Reflecting what we suspect, in part, may be the impact of pandemic containment measures, the company acknowledges that “The recent delays to the production ramp-up have had and are expected to have a negative impact on the Company’s cash position in the short term. To ensure the Company has adequate funds available for both development and working capital through this production ramp-up period, the Company is investigating financing options. A further update will be made to shareholders in due course.”

In addition to the operational progress, the resumption of exploration and infill drilling at the Ming mine is “increasing the confidence in our near-term production outlook and we have already identified additional areas that can lead to an expansion of the resources”.

A total of 1,991m of drilling was completed during the quarter, largely to investigate the Lower Footwall zone which “occurs approximately 100 meters stratigraphically below the Ming Massive Sulphide Zone and has been modelled with a total down-plunge length of 2150 meters … [and] … has been identified as deep as 1,500 vertical meters and remains open at depth”.

The 2020 Annual Report describes how “There is strong evidence that the deposits improve at depth in terms of scale (tonnes per vertical metre) and grade”and the drilling results released in the quarterly provide some confirmation of this assertion with intersections including:

An intersection of 23m at an average grade of 1.67% copper from a depth of 193m in underground drill-hole R21-411-04; and

An intersection of 12.7m at an average grade of 2.36% copper from a depth of 92m in underground drill-hole R21-411-05 which also contains further mineralised intersection including 4.48m at an average grade of 2.68% copper from a depth of 134.52m; and

An intersection of 30m at an average grade of 1.87% copper from a depth of 155m in underground drill-hole R21-411-09; and

Intersections of 9m at an average grade of 1.71% copper from 148m depth and of 4m averaging 2.43% copper from171m in underground hole R21-411-10

CEO, Dr. Toby Bradbury, commented that “we are busy with preparations for ore sorting at the Ming Mine which will improve margins and profitability from 2022, once the developed state of the mine has been re-established..

Conclusion: Rambler Metals & Mining has progressed the development of its mining infrastructure as part of its plans to restore processing rates to 1,350tpd during 2021 and to position the mine for an increase to 2,000tpd in 2022. The resumption of exploration and infill drilling is identifying additional areas with the potential to expand the mineral resource base of the Ming Mine and is supporting the geological interpretation of increasing mineralised widths and grades at depth.

*SP Angel act as Nomad and broker to Rambler Metals & Mining

 

Rio Tinto (LON:RIO) – 6,520p, Mkt cap £81bn – Battery-grade lithium produced at California plant

Rios have begun producing lithium from waste rock at a Boron mine in California.

The demonstration facility shows that battery grade lithium can be produced from waste piles accumulated from over 90 years of mining at the operation.

The project builds on an initial small-scale trial in 2019 that successfully proved the process of roasting and leaching waste rock to recover high grades of lithium.

Rio Tinto invested $10m to build the pilot plant that will be able to produce 10tpa of lithium-carbonate, and will decide by the end of the year whether or not to spend a further $50m in an industrial-scale plant with annual capacity of 5,000tpa.

The projected production would be roughly the same as the capacity of Albemarle ’s Silver Peak mine in Nevada, which is currently the only lithium-carbonate producing asset in the country.

 

Recent Interviews:

VOX Markets:  28/04/20: https://www.voxmarkets.co.uk/media/60896b3f017903524c8e0936/?context=/listings/LON/BMN/multimedia/

21/04/20: https://www.voxmarkets.co.uk/listings/LON/BMN

IGTV:  Improved global economic forecasts from the IMF provides trading opportunities:  https://www.youtube.com/watch?v=_GXKPqzuCG0

VW expansion driving battery metals prices: https://youtu.be/7vqSrONBaWw

*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.

 

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

 

Analysts

John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490

Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484

Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk – 0203 470 0474

Joe Rowbottom – Joe.Rowbottom@spangel.co.uk – 0203 470 0486

 

Sales

Richard Parlons –Richard.Parlons@spangel.co.uk – 0203 470 0472

Abigail Wayne – Abigail.Wayne@spangel.co.uk – 0203 470 0534

Rob Rees – Rob.Rees@spangel.co.uk – 0203 470 0535

Grant Barker – Grant.Barker@spangel.co.uk – 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, Tungsten, Spodumene, Ferro-Manganese, Graphite

Asian Metal