SP Angel . Morning View . Friday 01 05 20
Markets pull back on negative data and news
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Ferro Alloy Resources ()– Vanadium pentoxide production rises in Q1 despite COVID-19 shutdown
Metals Exploration () – Quarterly update
Orosur Mining ()– Orosur appoints mining analyst as new non-executive director
Rainbow Rare Earths* (LON:RBW) – Work continues at the Gakara mine in Burundi with maiden JORC Resource due within weeks
() – Partial reopening of S African operations and update on financial restructuring
* () – New funds raised £925,000 (US$1.15m) at 10p/s
Coronavirus – three-fifths of new cases in China show no symptoms on diagnosis
Analysis by the Financial Times into data on COVID-19 shows that some 60% of confirmed COVID-19 cases were non-symptomatic
We have known for some time that many cases are non-symptomatic and anecdotal evidence suggests that the number of non-tested, non-symptomatic cases may be significantly higher.
The Pandemic may last two years till herd immunity is formed according to a group of experts in a CIDRAP report (Bloomberg)
A report by the University of Minnesota reckons people may be at their most infectious before symptoms appear.
US Steel’s first quarter sales and profit plummet
US Steel’s Q1 sales fell 21% to $2.74bn compared to last year, and the company posted losses of $391m compared to $54m last year.
Sales of flat-rolled steel dropped 18% due to the widespread shutdown of US Manufacturing caused by the coronavirus pandemic (Market Watch).
The company expects to lay off about 2,700 employees and has idled most of its blast furnaces (Bloomberg).
Thyssenkrupp secure over $1bn in state aid
The German industrial giant has secured €1bn of state aid to keep the company running until it receives the money from the sale of its elevator division.
The company agreed to sell its elevators division to a consortium of firms for €17.2bn and is expecting the money in June.
The loan is from the state development bank KfW, and expires at the end of September (SteelOrbis).
$2tn US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries
US – The House passed a $484bn aid package to rescue small small businesses, hospitals ($75bn) and coronavirus testing ($25bn).
$2tn US – Trump looking at $2tn infrastructure fund
$700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE to buy Treasuries and mortgage-backed securities.
$963bn (€750bn) ECB scraps limits on sovereign bond purchases. ECB PEPP buying running at around €250bn
EU Finance Ministers have so far failed to agree on a strategy to mitigate the economic impact of the pandemic.
$825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds
$909m $344bn of China stimulus + $565bn in special bonds for infrastructure by local authorities
$996bn (108.2tn yen) – Japan + BoJ pledge for unlimited quantitative easing
400bn (£330bn) UK + $242bn (£200bn) UK QE from BoE & no business rates plus £25,000 cash grants for hospitality sector
$387bn (€304bn) France, $200bn (€200bn) Spain, $214bn (A$320bn) Australia, $78bn (C$107bn) Canada, $32bn Saudi Arabia, US$43.7bn Singapore, $22.6bn India, $19.3bn HK, $13.7bn South Korea, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,
Argentina to default on $10bn of dollar debt issued til the end of the year. Does no affect the $70bn that Argentina is currently in talks to restructure.
$1,000bn – IMF available + $12bn World Bank,
Dow Jones Industrials
HK Hang Seng
US – Jobless claims hit 3.8m last week extending the series of unprecedented declines in employment levels and coming ahead of the labour report due next Friday.
The economy is estimated to have lost some 22m jobs as a number of states went into a lockdown and as global business activity collapsed.
Unemployment rate is forecast to have soared to 16.0% last month, up from 4.4% recorded in March.
A separate report showed personal spending fell 7.5%mom in March, marking the largest decline on record.
Chicago April PMI 35.4 (47.8).
The Fed expanded the scope of its $600bn “Main Street Lending Facility” to include companies with up to 15,000 people and $5bn in sales compared to former thresholds of 10,000 staff and $2.5bn in revenues.
The programme will allow more companies to participate in the programme that are otherwise not large enough to access public bond and capital markets, the Fed said.
India – India’s largest carmaker sold no cars in April
Trump threatens new tariffs on China
Trump claims evidence links the Coronavirus to the Wuhan lab
Trump also contradicted US Intelligence suggesting that China may have let the virus spread (The Telegraph).
ECB – The ECB left the scale of its asset and pandemic emergency purchase programme unchanged while cut rates on loans to local banks to support the liquidity in the euro area financial system.
The so-called non-targeted pandemic emergency longer-term refinancing operations (PETLRO) will commence in May and run through the end of the year lending funds to banks at 25bp discount to the main refinancing rate.
The pandemic emergency purchase programme (PEPP) and asset purchase programme (APP) have been reiterated with a cap of €750bn and €120bn, respectively.
The bank is reported to have used €100bn of the PEPP so far.
Europe – Eurozone GDP is expected to drop 5-12% this year depending on the success of virus containment measures, the ECB estimated.
Economic growth dropped at 3.8%qoq in Q1, in line with market estimates, with a more severe drop forecast this quarter as nations remain in a lockdown.
Q1 EU GDP, released by Eurostat covering the 19 countries of the € area, declined 3.8% annualised vs Q4 at -0.1%
Preliminary April CPI at 0.4% yoy, as energy prices fell 9.6% yoy (March 0.7%)
EU Unemployment hit 7.4% in March (7.3%).
South Korea – Exports dropped the most last month since the global financial crisis.
Declines were led by poor shipments of cars and auto parts, semiconductor, ships and oil products.
Shipments to the US, EU and China all recorded declines.
Separately, South Korea’s parliament approved a 12.2tn won ($10bn) second extra budget in the early hours of Thursday.
The package is an expanded facility from the initially proposed 7.6tn and comes on top of a first extra budget worth 11.7tn approved in March and more than a hundred trillion won the government has pledged to spend, lend or offer in guarantees, Bloomberg reports.
Exports (%yoy): -24.3 v -0.7 in March and -23.0 est.
Imports (%yoy): -15.9 v 0.3 in March and -14.0 est.
China – Caixin manufacturing index at 49.4 in April (50.1, Feb 40.3),
Japan – March consumer confidence 21.6 (30.9).
Housing starts -7.6% (-12.3%).
Singapore – Q1 business confidence minus 56 (Q4 -12).
PNG – National Court of New Guinea orders government to start substantive discussions with Barrick over Porgera mine
The court has also ordered that the current status of the mine should remain in place with the operator, eg Barrick and Zijin Mining maintaining mine infrastructure and assets to ensure “the environment, the integrity of the mine and the rights and interests of the landowners are not compromised”..
US$1.0960/eur vs 1.0888/eur yesterday. Yen 107.11/$ vs 106.59/$. SAr 18.668/$ vs 18.128/$. $1.256/gbp vs $1.248/gbp. 0.645/aud vs 0.656/aud. CNY 7.063/$ vs 7.048/$.
US dollar weakens as Fed broadens lending program to larger companies to assist with the economy
Gold US$1,676/oz vs US$1,720/oz yesterday – Gold set to fall this week as Europe readies to ease lockdowns
The UK along with Italy, France and Germany have outlined proposals to gradually ease restrictions, denting gold’s safe haven demand which has fuelled its price rise in recent weeks.
Along with Europe, half of US states have made strategies for easing restrictions in the hope of reviving the economy which has been badly hit by the virus.
Spot gold fell 0.6% to $1,671/oz this morning and was down about 3.3% for the week- its biggest drop since mid-march (Reuters).
The gold price has dropped markedly compared to Thursday morning, when the price was up 0.2% to $1,714/oz on expectations of more fiscal stimulus from central banks and of a global recession.
Profit taking by traders from yesterday afternoon onward is also a reason for the falling gold price at the end of this week (Kitco).
Gold ETFs 95.7moz vs US$95.6moz yesterday
US$764/oz vs US$788/oz yesterday
Palladium US$1,939/oz vs US$1,972/oz yesterday
Silver US$14.87/oz vs US$15.46/oz yesterday
Copper US$ 5,091/t vs US$5,293/t yesterday – Chinese copper inventories fall most in over two years last month
Copper inventories in SHFE approved warehouses saw their biggest monthly decline since September 2017, as demand in China improved and copper-producing countries struggled with Covid-19.
Stockpiles fell 36.6% to 231,000 tonnes in April compared to the month prior according to exchange data (Reuters).
Stocks have decreased for the sixth straight week, as demand from downstream industrials held strong with support from China’s accelerated in infrastructure (SMM).
Exchange data released this morning shows that base metal inventories fell across the board in China last month, with lead stocks falling over 50% to 6,658 tonnes.
Aluminium stocks fell 10.4% to 410,513 tonnes while tin stocks fell 4.4% to 27,421 tonnes.
Nickel stocks fell 19.5% to 3,572 tonnes while Zinc stocks fell nearly 25% to 120,881 tonnes.
Aluminium US$ 1,488/t vs US$1,503/t yesterday
Nickel US$ 11,875/t vs US$12,275/t yesterday
Zinc US$ 1,916/t vs US$1,954/t yesterday
Lead US$ 1,614/t vs US$1,650/t yesterday
Tin US$ 14,830/t vs US$15,300/t yesterday
Oil US$26.6/bbl vs US$24.1/bbl yesterday
Natural Gas US$1.941/mmbtu vs US$1.856/mmbtu yesterday
Uranium US$32.35/lb vs US$32.35/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$80.4/t vs US$80.8/t
Chinese steel rebar 25mm US$525.3/t vs US$525.3/t –
Thermal coal (1st year forward cif ARA) US$53.0/t vs US$52.7/t
Coking coal swap Australia FOB US$107.0/t vs US$109.0/t
Cobalt LME 3m US$30,000/t vs US$30,000/t
NdPr Rare Earth Oxide (China) US$37,191/t vs US$37,191/t – Lynas looks to open Malaysian plant next week
The rare earth miner announced on Friday that it plans to reopen its rare earth processing plant in Malaysia next week, as the country eases restrictions imposed since March.
Lithium carbonate 99% (China) US$5,293/t vs US$5,293/t
Ferro Vanadium 80% FOB (China) US$27.5/kg vs US$27.5/kg
Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg
Tungsten APT European US$215-225/mtu vs US$240-245/mtu
Graphite flake 94% C, -100 mesh, fob China US$530/t vs US$540/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,450/t vs US$2,550/t
Could peer to peer EV charging be the future?
A team at the University of Florida (UoF) certainly think so as they propose a mobile EV charging concept. (Electrek)
The core of the idea is a scalable peer-to-peer charging technique which will allow EVs to share charge between vehicles based on instructions from a cloud control system.
Vehicles share charge and sustain each other with cloud-based schedulers determining charge providers and receivers.
Charge is transferred between vehicles using a telescopic arm. Vehicles lock speed and the charging booms which contain charging points with lock together using magnetic pads or other means. (New Atlas)
Additionally, the team has proposed Mobile Charging Stations (MoCS), high battery capacity vehicles which can replenish the overall charge in the vehicle network on the move.
Using SUMO, a traffic simulator the team found the system showed a 65% reduction in the number of EV stoppages and a 24.4% reduction in required battery capacity.
The system could be particularly useful in fleets of vehicles.
The system would require a redesign of battery systems to include a separate battery for exchange of energy while in transit. (The Driven)
The paper is yet to be peer-reviewed.
Lake Resources PFS demonstrates potential to produce sustainable high purity lithium
A Pre-feasibility Study into the technical and economic viability of the Kachi Lithium Brine Project has shown its capability to produce high-purity lithium required by battery that is cost competitive and scalable. (Bloomberg)
The Company has described the study as ‘compelling and robust’ and a ‘major milestone’ in ramping up the project. (Pro Active Investors)
The PFR outline a long life, low cost operation with annual production of 25,500 tonnes of battery grade lithium carbonate.
The lithium carbonate is acquired using direct extraction via Lilac Solutions technology.
The PFS estimates capex for the project to be US$544m with US$155m earnings in the first full year of operations.
Post tax net present value of the project is estimated to US$748. (Small Caps)
Site indicative resource potential is 1m tonnes of contained lithium carbonate equivalent at 290mg per litre.
Ferro Alloy Resources (FAR LN) 10p, Mkt cap £31m – Vanadium pentoxide production rises in Q1 despite COVID-19 shutdown
Ferro Alloy Resources report they are deferring their full year results due to disruption caused by the COVID-19 pandemic.
Production has been suspended due to the unavailability of staff through the lockdown in Kazakhstan.
Management plan to restart operations this month.
Feasibility study work has slowed due to travel restrictions.
The company report that the first stage of their planned expansion is now complete.
Q1 production rose to 49.1t of vanadium pentoxide vs 43.1t in Q4
Q1 shipments rose to 61t vs 35.7t in Q4
A second new roasting oven was brought on line in February effectively doubling capacity of high-grade concentrates.
Metals Exploration (MTL LN) – Suspended – Quarterly update
Production totalled 16.8koz (Q1/19: 14.9koz) in the first quarter of the year.
Throughput totalled 495kt, below budget levels on the back of unplanned downtime at the BIOX plant.
Maintenance issues were reported with BIOX agitator shaft failures/repairs, a failed attempt to install a variable speed control to the SAG mill, tails line failures and a significant power outage.
Key mobile fleet equipment maintenance that started in Q3/19 continued through the quarter, but are being delayed into Q2/20 due to logistics disruptions led by the COVID-19 containment measures.
Interruptions to supply chains saw disruptions to the deliver of key consumables to the site including new BIOX bacteria.
Due to a power outage at the end of Q1, operations reported a 12 hour loss of air to the BIO system which led to the collapse of the BIOX bacteria culture, the BIOX oxidation process and as a consequence gold recoveries.
This will impact production (Q2/20) until sufficient bacteria is re-introduced into the process while it can take up to six weeks before BIOX performance reaches its previous oxidation levels.
Sales amounted to 17.2koz (Q1/19: 15.3koz) translating into $27.2m in revenues thanks to an increase in realised gold prices to $1,581/oz (Q1/19: $20.0m and $1,309/oz).
FCF came in positive at $5.2m (Q1/19: $3.5m) despite an increase in AISCs that averaged $1,323/oz (Q1/19: $1,125/oz).
The Company continues negotiations with its lenders on restructuring the outstanding debt of $129.8m including $69.3 in senior debt that was acquired by its major shareholders from and BNP Paribas in Jan/20 and $60.5m in mezzanine debt.
Cash balance stood at $5.2m as of March 2020.
Any restructuring is expected to involve a debt to equity swap with the current level of debt being unsustainable.
Shares remain suspended since March this year as the Company was unable to reach a standstill agreement with its lenders.
Conclusion: The virus related containment measures and interruptions to supply chains are likely to lead to a challenging Q2 with operations struggling to source key parts and consumables to run operations efficiently. This comes at a time when the team is in the middle of restructuring discussions with its major lenders.
Orosur Mining (OMI LN) 1.72p, Mkt cap £2.88m– Orosur appoints mining analyst as new non-executive director
Orosur Mining has appointed Brad George as a new Non executive director
George formerly worked as a mining analyst for Matrix Group in London.
He is a geologist with a long history in Latin America and is based in Perth, Australia.
Conclusion: Analysts make good non-executive directors because they are well used to questioning companies and have good, broad awareness of the sector around them.
*SP Angel acts as Nomad and Broker to Orosur Mining
Rainbow Rare Earths* (RBW LN) 2.08p, Mkt cap £7.9m – Work continues at the Gakara mine in Burundi with maiden JORC Resource due within weeks
Rainbow Rare Earths continues to work at the Gakara mine in Burundi largely unhampered by COVID-19 restrictions.
Goods are moving in and out of the country with 100t of REE concentrate not at port in Dar-es-Salaam. (just getting through the traffic in Dar is an achievement)
Work also continues on developing a maiden JORC resource on which to base a new, and larger-scale mine plan.
COVID-19: Management have implemented additional measures of sanitation and are complying with local COVID-19 rules in Burundi.
Workers are reminded daily of WHO protection instructions, eg masks, hand washing and social distancing.
Buckets, clean water and soap are placed at the entrance to mining sites, the plant and administrative offices.
All categories of people at Rainbow have health insurance and travel is restricted to the city and the entry of foreigners to Rainbow’s offices and sites.
Travel into Burundi is restricted with quarantine measures in place.
New CFO: Pete Gardner has been appointed Chief Financial Officer replacing Jim Wynn who is moving to take up another position.
Gardner was formerly on the boards at Amara Mining and at Cluff Gold. Pete was more recently at Piran Resources in Rwanda and was also CFO at Chaarat Gold.
*SP Angel act as broker and financial advisor to Rainbow Rare Earths
Petra Diamonds (PDL LN) 2.2p, Mkt Cap £18.6m – Partial reopening of S African operations and update on financial restructuring
Petra Diamonds has provided a review of its operations and the impact of the measures it is taking to assist in the control of the Covid19 virus.
The company stresses the overriding importance of ensuring the welfare of its employees and host communities and supporting the virus-containment efforts of the countries in which it operates.
In South Africa, the company’s operations have all ramped up to 50% labour capacity in line with the easing of restrictions announced by President Ramaphosa on 23rd April. Petra Diamonds is in full compliance with the South African guidelines relating to the implementation of operating procedures which minimise risk as the operations build up to this 50% level. Health screening, quarantine capacity and ʺarrangements for transporting employees from their homes to their respective areas of operationsʺ are in place in accordance with the official advice.
The Williamson mine in Tanzania remains on care and maintenance with ʺessential services being carried out in order to protect the mine’s assets and resources.ʺ
The company’s production guidance of 3.8m carats of diamond production remains suspended ʺuntil the Company is in a better position to quantify the full impact of this ongoing period of reduced production capacityʺ.
The company has also discussed the progress of its previously announced discussions with its South African lenders and confirmed that they remain supportive. Confirming that ʺin principle and subject to certain conditions … up to ZAR400 million … will remain available for these purposes … [management of liquidity during the Covid19 pandemic] … on a committed basisʺ.
Among the conditions of the continuing support are ʺa restriction on the Group making interest payments on the Company’s outstanding US$650 million 7.25% Senior Secured Second Lien Notes due 2022 (the “Notes”) and the deferral of the May 2020 and November 2020 capital repayments on the outstanding bank financing of its Black Economic Empowerment partners (the “BEE Facilities”). The maturity of the RCF and the BEE Facilities is also likely to be reset to 31 July 2021 (from 20 October 2021 and 20 November 2021 respectively).ʺ
Although Petra Diamonds confirms that it has been ʺinformed that an ad-hoc group of holders of the Notes, who together hold more than 50% of the outstanding aggregate principal amount of the Notes, has retained ʺ financial and legal advisors it asserts that ʺDiscussions with the South African lender group and the Holder Advisers are progressing well and the Board is confident that, subject to the agreement of definitive legal documents, the Company will be able to manage its near-term liquidity risks while continuing discussions with various stakeholders regarding strategic alternatives to improve the Company’s long-term capital structureʺ.
Commenting on the discussions, Chief Executive, Richard Duffy, explained that building the appropriate capital structure ʺis necessary in order to provide a stable long-term foundation for the business, and are pleased to be having constructive discussions with both our South African lender group and the advisers to the ad-hoc group of bondholders, who represent over 50% of the Company’s US$650 million Notes by valueʺ.
Senior management, directors and other members of the company’s Executive Committee have agreed to forego part of their salaries for the next three months in order to assist in contributions to the Petra Hardship Fund ʺwhich has been newly established to provide targeted assistance to distressed communities and qualifying employees to mitigate the impact of COVID-19. A committee has been established to oversee the management and disbursement of these funds, which will be awarded on the basis of greatest needʺ.
Conclusion: Petra Diamonds has successfully restored its South African operations to 50% labour capacity in line with easing of Government restrictions, however production guidance remains suspended until the situation clarifies. Discussions with lenders and Note holders on capital restructuring are reported to be progressing well with the lenders said to remain supportive and discussions described as constructive.
Tekcapital Plc* (TEK LN) 12.8p, Mkt cap £10m – New funds raised £925,000 (US$1.15m) at 10p/s
Tekcapital the UK intellectual property ‘IP’ investment group focused on creating marketplace value from investing in university technology has announced the conditional raise of GBP925,000 (US$1.15m) at 10p/shr, subject to shareholder approval at a general meeting to be held on 19 May, 2020. SP Angel is please to have been the placing agent in this transaction.
Funds raised will be used to accelerate the development of TEK’s portfolio companies, including an investment in Belluscura Plc, which anticipates clearance from the US FDA for the X-PLO2R(TM) portable oxygen concentrator in H1 2020; and Salarius Ltd. which is commercializing its patented MicroSalt(R) product (reduces salt consumption by 50% without impacting flavour) and SaltMe!(R) natural potato crisps flavoured with MicroSalt!(R), addressing salt consumption problems in North America.
TEK expects to release its audited results for the year ended 30 November 2019 during May, followed by additional milestone updates later in the year from TEK’s portfolio companies.
SP Angel acted as placing agent in this transaction.
*SP Angel acts as Nomad and broker
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
Prince Frederick House
35-39 Maddox Street London
*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony