SP Angel . Morning View . Thursday 14 10 21
US and China inflation data help gold and copper higher despite SRB sales
Pre-IPO financing opportunity for new gold mine development in Ghana
We are raising funds for an advanced gold project in Ghana with good upside exploration potential
The project offers potential to fast-track gold production using a low-cost heap leach.
Management are experienced and are looking to IPO within 18 months.
Please contact us if you are interested in pre-IPO funding of the opportunity
IGTV: 08/10/21: How high energy prices are pushing up metals: https://youtu.be/em4zwo2i4Cs
VOX Markets: 07/10/21: https://audioboom.com/posts/7956216-john-meyer-on-chinese-energy-issues-and-news-from-altus-strategies-bushveld-minerals-scotsgold
Ariana Resources (LON:AAU) – Approval of Tavsan EIA
Aura Energy* (LON:AURA) – Chairman’s letter in Annual Report highlights potential for uranium
Cornish Metals* (LON:CUSN) – Appointment of a non-executive director
Rambler Metals and Mining* (LON:RMM) – Conversion of loan note
Tertiary Minerals* (LON:TYM) – Second phase of trenching expands the Pyramid Project
Biden administration pledges to build 30GW of offshore wind by 2030 with wind farms along entire US coastline
On Wednesday, the Biden administration announced plans to develop large-scale offshore wind farms along nearly the entire coastline of the US
– the first long-term strategy from the US government to produce electricity from offshore turbines.
Interior Secretary Deb Haaland announced that her agency will formally begin the process of identifying federal waters to lease to wind developers by 2025.
Biden has pledged to cut the nation’s fossil fuel emissions by 50% from 2005 levels by 2030 by designing policies to promote the use of EVs and clean energy such as wind and solar.
Based on current research from the IEA, we estimate that wind turbines use an average 240kg of Rare Earth Elements per MW (Neodymium – 180kg/MW, Praseodymium – 34kg/MW, Dysprosium – 18kg/MW, Terbium – 8kg/MW)
The target of 30GW by 2030 would see the US use an estimated; 5400mt of neodymium, 1020mt of praseodymium, 540mt of dysprosium and 240mt of terbium.
Copper – Metal exits LME warehouses as demand continues to outstrip supply into LME and SHFE warehouse locations
The LME saw an outflow of 4,550t of copper reducing available stocks to 187,050 representing just three days of global demand
Worse still Shanghai copper stocks are down to just one day of global demand.
While the ICSG International Copper Study Group saw a relatively balanced market in H1 for global refined copper we suspect logistics issues will continue to drive up prices and local premiums.
Gold – ($1,797/oz) prices to rise as inflation looms – Intense global competition interrupted by high freight rates allowing local prices to rise
Stuff and food produce is and has been too cheap
We agree with the ‘Chicken King’ quoted in The Times today, who is warning that food prices could hit double digit inflation.
So many industries have been working on wafer thin margins and virtually unsustainable economics, in our view, forcing input prices to their lowest denominator.
We have seen this in mining for many years where metals prices are often below the longer-term cost of their replacement.
Ranjit Boparan the UK’s largest chicken producer says ‘food is too cheap, there’s no point avoiding the issue’ and he is a man who knows how to count his chickens.
Input costs: Prices for gas, electricity, transport, labour are all rising and its not just chicken feed!
In our view, many input costs were simply too low, partly due to strong competition and low margins and partly due to sluggish global growth post the Global Financial Crisis.
Restocking: The sudden restocking of low inventories around the world caused by cautious purchasing and the cancellation of contracts early in 2020 has caused a massive logjam in logistics chains. Not just from China to the West where container rates have risen six-fold but in logistics chains across the western world.
China is suffering along with the West as it struggles to restock coal inventories at power stations, though this is largely due to government imposed price caps on power prices to industry causing generators to run down coal stocks and reduce power output at a time of rising demand.
Covid-19, as predicted by certain historians, is causing a shift in worker expectations towards better quality and conditions eg. not HGV truck driving.
We note there is a shortfall of 400,000 HGV drivers in France, Germany and Spain as drivers leave the profession while few new recruits have come in.
Conclusion: Inflation is likely to jump in the short term as prices leap higher to account for higher input costs, but we do not expect to see persistent higher inflation rates.
So while the prices of products may rise 10-30% in the short term we see prices settling into new levels and for the rate of inflation to pull back to longer term averages later next year.
That is, till one day, workers in China rise up demanding better pay and conditions. If China goes through a form of global ‘levelling-up’ with Western / Japanese rates of pay then the deflationary effect of importing cheap Chinese goods will be replaced by a new cycle of inflation.
Dow Jones Industrials 0.00% at 34,378
Nikkei 225 +1.46% at 28,551
HK Hang Seng closed at 24,963
Shanghai Composite -0.10% at 3,558
Economics
US – Consumer inflation came in stronger than expected in September posting a fifth consecutive +5% reading.
Stronger inflation was driven by higher food and shelter costs.
Despite stronger inflationary pressures and prospects for tighter monetary policy, long term government yields pulled back while S&P 500 closed higher on the day.
Minutes from the September FOMC meeting showed its members were ready to slowdown monthly bond purchases as early as next month.
Should tapering start next month complete winding down of purchases may come in by the middle of next year, minutes suggested.
CPI (%yoy): 5.4 v 5.3 in August and 5.3 est.
Core CPI (%yoy): 4.0 v 4.0 in August and 4.0 est.
China – Factory gate inflation climbed to the strongest in decades in September driven by high commodity prices.
Higher producer costs are being absorbed by manufacturers with consumer price inflation remaining limited so far.
PPI (%yoy): 10.7 v 9.5 in August and 10.5 est.
CPI (%yoy): 0.7 v 0.8 in August and 0.8 est.
China September export growth stronger than expected
China exports grew 28.1% in Sept. vs Sept. 2020 and up 25.6% vs Aug. 2021.
China imports rose 17.6% y-o-y but down 33.1% vs Aug. 2021.
The growth in exports, was higher than a Bloomberg poll predicting 21.5% growth.
China’s trade surplus with Asean countries rose to 17.7% in September.
China’s total trade surplus rose to $66.76bn in Sept. vs $58.33bn in Aug.
Analysts believe the increase reflects ‘the continuing recovery of the domestic economy’.
A rise in the value of imports is thought to reflect rising commodity prices to an extent.
The data has been pointed to by economists as showing ‘that power rationing has been due to power companies being unable to meet rising demand rather than a pullback in overall electricity supply.’
Germany – 2021 growth forecasts are being pared back reflecting a shortage of components, a lack of shipping capacity and a spike in energy costs, according to the nation’s leading research institutes.
GDP growth is expected to come in at 2.4% this year, down from 3.7% before.
2022 GDP growth was upgraded to 4.8% from 3.9% leaving combined growth over the 2021-22 period ~0.4pp lower than forecast previously.
UK – Property prices are expected to be supported by a shortage of supply despite the withdrawal of the stamp duty holiday and expectations for higher interest rates, the Royal Institution of Chartered Surveyors said.
“The imbalance between demand and supply remains the most striking theme, and feedback from members provides little reason to believe this issue will be resolved anytime soon,” according to RICS.
September recorded another month on a drop in new listings while agents are reported to have carried fewer appraisals than they did 12 months earlier.
Australia – Employment dipped in September back below pre-pandemic levels on the back of lockdowns in the two largest states.
The curbs are expected to be gradually lifted through October.
A pullback in the participation rate avoided even larger increase in the unemployment rate.
Employment Change (‘000): -138 v 146 in August and -110 est.
Unemployment Rate (%): 4.6 v 4.5 in August and 4.8 est.
Participation Rate (%): 64.5 v 65.2 in August and 64.7 est.
Turkey – The lira hit new lows after President Recep Tayyip Erdogan pressured the head of the central bank to carry a round of dismissals.
Two deputy governors were sacked including Ugur Namik Kucuk, the only member of the bank’s eight-member monetary policy committee to oppose an interest rate cut, and Abdullah Yavas, who faced criticism in Turkish media for the fact that he lives in the US.
The lira nearly reached 9.2 this morning, down more than 20% since the start of the year.
Congo and Zambia regain appeal to major miners amid surging copper prices
Major miners are reconsidering their investment strategy in typically risky jurisdictions such as the DRC and Zambia.
A lack of major copper projects elsewhere combined with supposed geopolitical conditions are tempting miners to the region.
BHP’s Mike Henry believes the company has these ‘tougher jurisdictions’ provide opportunities but these ‘need to be commensurate with the increase in management effort that is going to be required.’
The Transparency International Index ranks the Congo as one of the worst countries globally for ‘corruption perceptions.’
The Katangan copper belt, offering the potential for 3%-4% grades, is proving attractive to miners looking to position themselves for copper’s role in the global energy transition.
Currencies
US$1.1611/eur vs 1.1548/eur yesterday. Yen 113.43/$ vs 113.59/$. SAr 14.722/$ vs 14.954/$. $1.370/gbp vs $1.361/gbp. 0.741/aud vs 0.734/aud. CNY 6.435/$ vs 6.451/$.
Commodity News
Banks look to scrap LME gold and silver contracts
Reuters has reported that a number of LME’s banking partners are considering abandoning the gold and silver futures contracts launched in 2017.
They have cited a lack of anticipated volume according to sources.
The London Metal Exchange had hoped to profit from London’s bullion market which saw $17tn worth of transactions last year.
Goldman and Morgan Stanley (NYSE:MS) had agreed to promote the trading functions for 50% of the revenues.
Precious metals:
Gold US$1,793/oz vs US$1,763/oz yesterday
Gold ETFs 98.7moz vs US$98.8moz yesterday
Platinum US$1,028/oz vs US$1,009/oz yesterday
Palladium US$2,137/oz vs US$2,052/oz yesterday
Silver US$23.15/oz vs US$22.73/oz yesterday
Rhodium US$13,800/oz vs US$13,800/oz yesterday
Base metals:
Copper US$ 9,830/t vs US$9,487/t yesterday
Aluminium US$ 3,092/t vs US$3,061/t yesterday
Nickel US$ 19,265/t vs US$19,055/t yesterday
Zinc US$ 3,514/t vs US$3,276/t yesterday
Lead US$ 2,276/t vs US$2,204/t yesterday
Tin US$ 36,495/t vs US$36,370/t yesterday
Energy:
Oil US$83.9/bbl vs US$83.2/bbl yesterday
Natural Gas US$5.668/mmbtu vs US$5.453/mmbtu yesterday
Uranium UXC US$48.3/lb vs US$39.7/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$120.6/t vs US$130.1/t
Chinese steel rebar 25mm US$903.8/t vs US$903.8/t – Rio Tinto to trial low-carbon steel production using biomass
Rio is planning to trial technology using biomass to replace coking coal when making steel.
The technology uses biomass from plants or animals with microwave technology to convert iron ore to metallic iron.
The technology could offer a potential alternative to the currently cost-inefficient hydrogen steelmaking process.
70% of Rio’s Scope 3 emissions stem from conversion of iron ore into steel.
Thermal coal (1st year forward cif ARA) US$146.0/t vs US$152.0/t – China turns to Russia for coal and electricity as power crisis continues
China’s overall coal purchases rose 17% in September to 32.9mt.
Coal shipments from Russia have increased since maintenance on the Suifenhe railway port in Heilongjiang.
Over 5,000t of coal per day were delivered in the first week of October from Russia via the port.
50,000t of coal were delivered to China’s eastern Zhejiang province on Sunday.
Electricity from Russia via the Amurskaya-Heihe transmission line, has jumped from 5 to 16 hours a day since last week.
China’s coal prices have been surging whilst regulated electricity prices have disincentivized companies from producing unprofitable power.
Thermal coal swap Australia FOB US$245.5/t vs US$251.0/t
Coking coal swap Australia FOB US$377.0/t vs US$372.0/t
Uranium -$37.25/lb UxC 11/10/2021,
Uranium – $41.25/lb TradeTech US$/lb 01/10/2021 – France’s EDF power offers to build 4 to 6 nuclear power units in Poland
French state controlled EDF has submitted a non-binding offer to the Polish government to build four to six nuclear power units in Poland.
The proposal overs the engineering, procurement and construction of four to six EPRs (European Pressurized Reactor) with a total installed capacity of 6.6-9.9GW.
EDF comment that the offer supports the implementation of the objectives of the Polish Nuclear Power Program (PPEJ) adopted by the Polish government in October 2020
According to EDF, the construction of each unit could create up to 25,000 jobs.
Greenland officials look to increase environmental standards by banning uranium mining
Greenland’s new government, elected in April, is looking to develop environmentally responsible mining practices.
The government has banned future oil and gas exploration and is looking to ban uranium mining, potentially hitting the huge Kvanefjeld rare earth deposit.
The uranium ban was lifted 8 years ago.
Greenland has commissioned work for a potential constitution if granted independence from Denmark.
Danish grants are currently a deterrent to ‘large-scale mineral extraction’ according to Greenland’s minister for business and trade.
Greenland relies on fishing alongside Danish grants; however, locals are calling for increased mining opportunities to boost the economy.
The country has a rich supply of anorthosite which an EU-funded project believes will provide a greener alternative to bauxite for aluminium production.
Other:
Cobalt LME 3m US$53,380/t vs US$53,380/t
NdPr Rare Earth Oxide (China) US$94,249/t vs US$93,021/t
Lithium carbonate 99% (China) US$26,884/t vs US$26,819/t
China Spodumene Li2O 5%min CIF US$1,170/t vs US$1,170/t
Ferro-Manganese European Mn78% min US$1,899/t v US$1,842/t
China Tungsten APT 88.5% FOB US$310/t vs US$310/t
China Graphite Flake -194 FOB US$555/t vs US$555/t
Europe Vanadium Pentoxide 98% 7.9/lb vs US$7.9/lb
Europe Ferro-Vanadium 80% 31.25/kg vs US$31.25/kg
China Ilmenite Concentrate TiO2 US$381.5/t vs US$379.0/t
Spot CO2 Emissions EUA Price US$68.5/t vs US$68.1/t
Power News
India suffers worst power shortage in 5 years
A critical lack of coal has seen India’s worst electricity shortage since March 2016.
The first 12 days of October saw a deficit of 1.6%, with power supply falling 750 million kw short of demand.
Northern states including Rajasthan and Punjab registered supply deficits of 2.3-14.7%.
The northern states have endured power cuts for up to 14 hours a day.
Coal accounts for 70% of India’s electricity generation.
This has increased in October as output from wind and hydro fell. Renewable energy output has fallen from 11.33% to 8.34% this month.
60% of India’s 135 coal-fired power plants have stocks for 3 days or less.
Company News
Ariana Resources (LON:AAU) 4.45p, Mkt Cap GBP46m – Approval of Tavsan EIA
Ariana Resources reports the approval of the Environmental Impact Assessment (EIA) for the Tavsan mine development in western Turkey.
Ariana Resources holds a 23.5% interest in Tavsan, which is expected to produce around 30,000oz gold annually for 8 years, via its holding in Zenit Madencilik.
The company says that “Discussions regarding debt financing of the required construction capital are being advanced with potential lenders”.
Additional drilling to potentially expand the resource base, currently 253,000oz of gold and 723,000oz of silver classified as measured, indicated and inferred, is expected to start during the current quarter.
Describing Tavsan as “the second successful delivery of an environmentally approved mining project in Western Turkey by the Company”, Managing Director, Dr. Kerim Sener, explained that “Zenit will now proceed through the final permitting and construction phases, while the Ariana team continues its focus on value accretive exploration”.
He also explained that “there remains the potential to substantially increase the resource base at Tavsan with further drilling and development work”.
Aura Energy* (LON:AURA) 15.5p, Mkt Cap GBP60m – Chairman’s letter in Annual Report highlights potential for uranium
In his Chairman’s letter to shareholders in Aura Energy’s Annual Report released today, Martin Rogers highlights the previously announced mineral resources upgrade to the Tiris uranium project in Mauritania.
The resources upgrade, which was first announced in August includes results from drilling at the Sadi South Zone of the deposit which were not included in the previous resource estimate and increased the resource by “10% or 5.0 million lb U3O8 … bringing the total JORC Resource to 56 Mlbs (at a 100 ppm U3O8 lower cut-off grade)”.
Mr. Rogers also comments on the recent water well drilling at Tiris which encountered “good flows of water” as well as on efforts to progress the company’s gold assets and says that, following the reinstatement of the company’s ASX listing “we are now pursuing opportunities to add further value to Tiris through an opportunity review of expanded production, potential to expand the size of the resource, further exploration discovery and drilling with the aim of expanding the existing resources, with a vanadium by-product metallurgical review also providing potential to further lower costs”.
Noting that 2021 “marks the 10 year anniversary of Fukushima nuclear accident in Japan and thus a 10 year bear market in uranium” Mr. Rogers says that “Sentiment towards uranium and nuclear power is shifting rapidly” against a background of “a potential doubling in electricity demand over the next two decades, along with pressure to decarbonise our power sector” and a decade of under-investment in uranium he expresses confidence in the outlook for uranium.
*SP Angel are Nomad and Broker to Aura Energy
Cornish Metals* (LON:CUSN) – 13.35p, Mkt cap GBP36m – Appointment of a non-executive director
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Cornish Metals reports the appointment of an experienced, Royal School of Mines trained, mining engineer, Mr. Stephen Gatley, as an independent non-executive director
Mr. Gatley has Cornish mining experience at both the Wheal Jane mine and at Cornish Metals’ South Crofty mine where he was “the General Manager at the time of its closure in 1998”.
His subsequent career covered “senior positions at underground base metal mines in both Europe and South America” for Rio Tinto and with Lundin Mining where he served as “Vice President Technical Services from 2012 to 2021” with responsibility for providing “technical oversight to Lundin’s operating mines and growth initiatives, including the acquisition and subsequent construction of the high-grade Eagle underground nickel/copper mine in Michigan, USA, the acquisition and subsequent expansion of the Candelaria copper open pit and its three underground mines in Chile and the acquisition and integration of the Chapada copper/gold mine in Brazil”.
Welcoming Mr. Gatley to Cornish Metals, CEO, Richard Williams, said that “He not only has an extensive background in mining but also is very familiar with our South Crofty tin project, which will be extremely valuable as we look to advance our Cornish assets”.
Conclusion: The appointment of a senior mining engineer with direct experience of local mining conditions to Cornish Metals board strengthens the leadership and provides mine development expertise to guide progress at United Downs and to help assess the opportunities for a re-opening of South Crofty.
* SP Angel acts as broker and financial advisor to Cornish Metals.
Rambler Metals and Mining* (LON:RMM) 20.5p, Mkt cap GBP27.7m – Conversion of loan note
(Rambler owns 100% of the Ming Copper-Gold Mine)
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Rambler Metals and Mining has confirmed that it is shortly to issue 880,928 shares at a price of 16.7142p/share on conversion of unsecured, subordinated convertible notes held by Riverfort Global Opportunities and by YA II PN, Ltd
The company says that “Riverfort and YAII have now converted a total of US$1,400,000 principal ” of the convertible loan note which was announced on 30th June.
“Following this conversion, a total of US$1,600,000 principal of the CLN remains unconverted”.
*SP Angel act as Nomad and broker to Rambler Metals & Mining
Tertiary Minerals* (LON:TYM) – 0.26p, Mkt cap GBP3.0m – Second phase of trenching expands the Pyramid Project
Tertiary Minerals has announced results from a second programme of trenching across its Pyramid gold/silver project in north-central Nevada.
The company says that the additional work has shown that gold/silver mineralisation extends “over a strike extent of at least 530m” and that “Trench 1 EXT, an extension to trench 1, revealed a zone width of up to 59 metres”.
Assay results as high as “595g/t silver (17.35 ounces/ton) and 0.66g/t gold were intersected” over a width of 2.13m in Trench 1EXT while results from Trench 8 include 6.09m at an average grade of 101.5g/t silver and 0.26g/t gold within a wider 26.8m section averaging 37.16g/t silver and 0.12g/t gold.
Managing Director, Patrick Cullen, said that “We have also delineated a zone up to 50 metres thick at surface, with some high-grade silver results and significant complementary gold” and explained that “North Ruth is an attractive drill target and we look forward to reporting further progress on this exciting discovery”.
Conclusion: Although it is still at an early stage of exploration, the latest trenching has extended the scale of the target at Pyramid and identified the North Ruth anomaly as a possible future drilling target We await further news as further exploration results become available.
*SP Angel act as Nomad and Broker to Tertiary Minerals
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 – [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, Tungsten, Spodumene, Ferro-Manganese, Graphite
Asian Metal
