SP Angel . Morning View . Gold climbs to $1678oz as investors cut risk positions


SP Angel . Morning View . Friday 06 03 20

Gold climbs to $1678oz as investors cut risk positions

 

MiFID II exempt information – see disclaimer below   

 Aura Energy* (AURA LN) – Shares issued to advisors

Rambler Metals & Mining* (RMM LN) – Increased mineral resource at the Ming copper/gold mine

 

UN reports shortage of parts from China cuts global exports by $50bn

  • China’s extended shutdown and disruption of logistics chains crashed global exports by around $50bn according to the UN.
  • Shortages of critical and often minor components out of China caused unexpected problems for automotive and machinery manufacturers particularly with smaller items such as LEDs.
  • Assemblers which thought they could simply switch to local manufacturers discovered that their local manufacturers are also reliant on smaller components from China highlighting further problems with the supply chain.
  • In many cases critical components may rely on small amounts of rare earth elements which are often difficult to source, reliably, outside China highlighting how China controls certain markets through its dominance of raw materials.
  • The US estimates China accounts for around a fifth of global trade in ‘intermediate’ products making manufacturers in most other nations reliant on China in some way.
  • UN disruption estimates (UNCTAD):
    • EU – $15.6bn followed
    • US – $5.8bn,
    • Japan $5.2bn,
    • S Korea – $3.8bn
    • Taiwan – $2.7bn
    • Vietnam – $2.3bn
  • The report states that precision instruments, machinery, automotive and communication equipment are the hardest-hit sectors with assembly plants closing in Japan due to shortages of Chinese components.
  • Some UK plants have moved to 4-day week working. We expect the impact on Germany automotive manufacturers to be severe in the short term with an estimated $2.5bn hit to EU auto manufactures according to UNCTAD.
  • Losses in China and the rest of the world may be contained with many factories restarting in China, though the hit to February auto sales in China will be tough to recover.
  • Reshoring of manufacturing started in the US some years ago but has been slow to repatriate component manufacturing as China had effectively restricted critical raw materials through the use of export quotas and tariffs.
  • We now expect reshoring of critical components to accelerate to ensure manufacturers are not so vulnerable to future supply shocks in China.
  • It remains difficult to compete with China due to low labour costs on many more basic components meaning that manufacturers will tend to gravitate towards Chinese manufacturing in an effort to drive down costs.

Conclusion: We expect to see substantial restocking of raw materials as manufacturers move to reshore more component manufacturing and better diversify supply chains as a result of the current crisis.

Supply chain issues are also creating a need to hold greater stocks of critical parts and materials.

 

Expect metals prices to sharply recover this year as Coronavirus Stimulus creates V, U or W shaped economy recovery

  • Policymakers are preparing for economic turbulence with high
  • The Global Financial Crisis prepared policymakers well for the new economic crisis caused by the Coronavirus outbreak speeding up the economic response to the Coronavirus crisis

Stimulus funding relating to the Coronavirus (Updated)

  • $50bn – IMF
  • $15.4bn – Hong Kong relief package
  • $13.7bn – South Korea
  • $12bn – World Bank
  • $8.4bn – Italy doubles the stimulus package to $8.4bn (€7.5bn) breaking EU budget deficit rules. Expect other states to do the same.
  • $8.3bn – US House of Representatives
  • $5.5bn – Bank of Japan, ETF purchases and short term liquidity to Banks
  • $2bn – Taiwan stimulus
  • $0.75 – Indonesia
  • $14.2bn China, already spent. $113bn worth of bonds issued by China regional governments in January
  • China – much more stimulus to come
  • ECB ready to take targeted action
  • UK – Government advice: ‘Keep Calm & Carry On’
  • Germany – Angela Merkel’s CDU party continue to object to easing Germany’s strict fiscal deficit rules. We expect this to change as the Coronavirus spreads.
  • $121.85bn – TOTAL stimulus offered to-date

 

Bond markets – UK government bonds ‘gilts’ rose strongly as yields tumbled along with equity markets globally, alongside a spiking US Treasury market.

  • The US 10yr long-bond is yielding an all-time low of 0.335%, as Coronavirus drives transport, logistics, and leisure sectors off a cliff, supply chains, business investment and consumer spending into a brick wall.
  • Disinflationary risks mount, and recession  looks an increasingly safe bet (it’s simply a question of where, how deep and how long).
  • Even Gold, normally an inflation hedge, is soaring on the basis of naked fear.
  • Despite calming words about how this is just the flu and all will be well in a few months when the summer comes, nobody knows where we are heading with Covid-19.
  • One thing seems pretty clear…if the market has priced Coronavirus in correctly, it is by sheer blind luck; probably it has not..

 

Dow Jones Industrials

 

-3.58%

at

26,121

Nikkei 225

 

-2.72%

at

20,750

HK Hang Seng

 

-2.32%

at

26,147

Shanghai Composite

 

-1.21%

at

3,035

 

Economics

S&P Global estimates the coronavirus may cost $211bn to Asia-Pacific economies in 2020 as the growth is expected to slowdown to the weakest since the global financial crisis in 2008.

  • Economic growth is forecast at 4%, down from 4.9% in 2019, while a number of regional economies risk a recession, S&P said.
  • GDP growth in China is estimated at 4.8% in 2020 before rebounding to 6.6% in 2021.
  • Hong Kong, Singapore and Thailand would be among the hardest-hit regional economies on the back of disruptions in tourism, business travel and supply chains.

 

US – Bond yields continued to slide as investors reassess long term growth outlook amid the global spread of the coronavirus.

  • 10y Treasury yields dropped 13bp on Friday morning hitting a new record low of 0.79% while 30y yields were down 17bp at an all-time low of 1.40%.
  • 10y Bund yields are grinding lower in the negative territory shedding 6bp this morning and currently trading at -0.73%.
  • The yen is stronger trading at 105.8 (-0.35%) while gold is up ~$9/oz at $1,676/oz.
  • Separately, Elizabeth Warren ended the US presidential campaign leaving Joe Biden and Bernie Sanders as only contestants.
  • Factory orders contracted more than forecast in January led by a decline in transportation equipment.
  • Transportation orders dropped 2.1% after posting a 8.8% increase in the previous month.
  • With the virus outbreak disrupting manufacturers’ supply chains, production and bookings are expected to further drop in coming months.
  • Factory Orders (%mom): -0.5 v 1.9 in December and -0.1 forecast.

 

Japan – Household spending continued to slide before the onset of the virus reflecting challenging economic conditions in Japan including the weather related disruptions and sales tax hike in 2019.

  • Sales fell 3.9%yoy in a fourth consecutive month since the October sales tax increase.
  • More economists are expecting the nation to slide into a recession this quarter.
  • Household Spending (%yoy): -3.9 v -4.8 in December and -4.0 forecast.

 

Germany – Factory orders surged in January in the strongest move since Jul/14.

  • An increase has been driven by good aerospace and mechanical engineering bookings.
  • The data marks a turnaround in the momentum after orders recorded the weakest annual performance in over a decade in 2019 with bookings shrinking by 8.7%.
  • Nevertheless, the data does not fully incorporate disruptions from the coronavirus which is likely to be featured in the coming reports.
  • Factory Orders (%mom/yoy): 5.5/-1.4 v -2.1/-8.9 in December and 1.3/-5.2 forecast.

 

Italy – Retail sales stalled in January while outlook remains challenging amid the outbreak of the virus.

  • Retail Sales (%mom/yoy): 0.0/1.4 v 0.5/0.8 in December.

 

Afghanistan – government claims the nation has lost >$2bn due to inactivity at copper mine

  • The government of Afghanistan estimates it has lost $2bn due to inactivity at the Mes Aynak Copper Mine in Logar, the nation’s largest copper mine.
  • The Afghan government is in joint venture with China Metallurgical Group Corporation (MCC) over the development of the Mes Aynak Copper Mine in Logar
  • Development has been held up Taliban attacks with the Taliban killing five Afghan policemen at a checkpoint to the mine this week and the discovery ancient heritage site as well as.

 

Canada – Mining M&A activity picks up pace 

  • According to Global Data’s deals database, M&A deals in the Canadian mining sector were worth $6.81bn in Q4 2019.
  • This was a 964% increase compared to Q3 2019 and a rise of 70.4% compared to the last four-quarter average of $4bn.
  • Canada recorded 80 deals in the quarter, a drop of 7% compared to Q3 2019.
  • The top deals included Kirkland Lake Gold’s $3.8bn acquisition of Detour Gold, and the $1bn acquisition of Continental Gold by Gold Mountains (Mining Weekly).

 

Currencies

US$1.1274/eur vs 1.1130/eur yesterday.  Yen 105.70/$ vs 107.29/$.  SAr 15.605/$ vs 15.310/$.  $1.298/gbp vs $1.290/gbp.  0.664/aud vs 0.663/aud.  CNY 6.934/$ vs  6.942/$.

 

Commodity News

Gold US$1,678/oz vs US$1,640/oz yesterday – Gold set for biggest weekly gain since October 2011

  • Gold continued to rise this morning over fears that the coronavirus outbreak could cause further slowing to the global economy as further people become infected outside of China.
  • Spot gold increased 0.2% to $1,674/oz this morning, rising 2% in the previous session and gaining as much as 5.5% this week (Reuters).
  • Gold prices rose sharply on Thursday in the US as the US stock market was sharply down on the day – exhibiting the metals safe haven appeal (Kitco).
  • Speaking at the PDAC conference, Paul Robinson, managing director at CRU said that gold has room to move higher as fear sentiment surrounding the spread of the coronavirus has yet to reach its peak in Europe and North America.

   Gold ETFs 85.2moz vs US$85.1moz yesterday

Platinum US$866/oz vs US$867/oz yesterday

Palladium US$2,485/oz vs US$2,512/oz yesterday

Silver US$17.37/oz vs US$17.18/oz yesterday

            

Base metals:    

Copper US$ 5,664/t vs US$5,712/t yesterday

Aluminium US$ 1,714/t vs US$1,732/t yesterday

Nickel US$ 12,855/t vs US$12,850/t yesterday

Zinc US$ 2,014/t vs US$2,027/t yesterday

Lead US$ 1,832/t vs US$1,845/t yesterday

Tin US$ 16,970/t vs US$16,970/t yesterday

            

Energy:            

Oil US$49.0/bbl vs US$51.3/bbl yesterday

Natural Gas US$1.748/mmbtu vs US$1.831/mmbtu yesterday

Uranium US$24.45/lb vs US$24.60/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$88.3/t vs US$88.2/t

Chinese steel rebar 25mm US$531.5/t vs US$531.2/t

Thermal coal (1st year forward cif ARA) US$56.9/t vs US$57.3/t – Chinese coal prices rise this week as usage increases

  • Thermal coal for May delivery rose 0.3% to 546 yuan per tonne, the highest close in a week and a half.
  • According to the China Coal Transportation and Distribution Association (CCID), daily coal use at coastal power plants rose to 493,000t yesterday, the highest level since the 22nd of January.
  • Some ports in southern China are cutting coal import quotas due to prior factory shutdowns caused by the virus outbreak (Bloomberg).

Coking coal swap Australia FOB US$156.0/t vs US$155.0/t

            

Other:   

Cobalt LME 3m US$33,500/t vs US$33,500/t

NdPr Rare Earth Oxide (China) US$39,656/t vs US$39,757/t

Lithium carbonate 99% (China) US$5,768/t vs US$5,762/t

Ferro Vanadium 80% FOB (China) US$28.0/kg vs US$28.0/kg – Ferro-vanadium prices soften in China and the US despite news of new stimulus packages to boost regional economies

  • Steel producers are preparing for the worst while hoping for the best as the Chinese Coronovirus spreads
  • Construction sites shut down in Wuhan, Hubei and probably other parts of China as the Coronavirus kept workers away from building sites.
  • We could see a similar dip in construction activity in Europe and the US with the UK government estimating up to 20% of workers to be off work at any point in time as the virus spreads
  • Ferro-vanadium prices fell -1.3% to $13.5-13.75/lb in the US yesterday (FastmarketsMB)
  • Ferro-vanadium also fell -3.4% to $27-29/kgV in China yesterday (FastmarketsMB).
  • The FastmarketsMB trade log reports good trading activity in Europe following the 7% fall in prices earlier this week to
  •  Chinese exports of vanadium fell >20% last year due to ‘favorable’ domestic prices with a 20% fall to 4,902t of ferro-vanadium exported vs 6,142t in 2018.

Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/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$2,550/t vs US$2,550/t

 

Battery News

General Motors claims battery breakthrough will give cars up to 400 mile range at <$100/kWh

  • GM report a breakthrough in their battery technology to be used with GM’s new Ultium EV platform.
  • The auto manufacturer reckons the cars will be profitable within the first range of vehicles to using the system.
  • GM are using pouch cells with the GMC Hummer SUV to use a double-stacked battery array of 24 modules.
  • The new 400 volts Ultima Li-ion batteries use NMCA chemistry with nickel, manganese, cobalt and aluminium not forgetting graphite and lithium
  • Cobalt content has been reduced by some 70% through its substitution with aluminium, which is a third of the weight and is much cheaper.
  • Ultima battery packs will be offered in packs ranging from 50-200kWh. This should give a 400 mile range depending on how you drive.
  • The batteries are being designed to support level II and DC fast-charging.

 

Will GM’s Ultium batteries be a match for Tesla?

  • The new battery will be used in several of the new models to be released by GM. The first of which is the recently unveiled Cruise Origin, a Cadillac luxury SUV. CEO Mary Barra announced at the presentation that the Company would be investing more than $3bn annually, $20bn over the next 5yrs into EV R&D. (CNBC)
  • The Ultium batteries are flat pouches with a polymer shell, Tesla batteries by comparison are hard cylinders. The pouch design allow greater flexibility as the battery pack can take on a variety of shapes depending on how the pouches are lined up, either vertically or horizontally. The polymer casing makes them more resilient and weigh as much as 40% less but are more expensive than metal counterparts.(Yahoo News)
  • The minimal amount of cobalt used in the batteries significantly brings down the price, GM promising below $100kWh. (CNN Business)
  • The performance comparison with Tesla is close;
    • GM Ultium batteries: 400 miles range , 100 miles from 10 minutes charging time and 0-60mph in 3 seconds
    • Tesla Model 3: 322 miles range, 172 miles from 15 minutes charge time, 0-60mph in 3.2 seconds
  • GM plans to license the new battery technology to other automakers.

 

Nornickel sign cooperation agreement with Finnish battery industry 

  • Nornickel have signed a letter of intent to build a battery recycling plant in Harjavalta, western Finland.
  • The agreement involves the Finnish state owned energy company Fortum, and German chemical company BASF.
  • The consortium plan to recycle batteries for the EV market, and say that the plant would enable a successful ‘closed loop’ cycle to reuse the metals present in batteries.
  • Fortum recently acquired a company called Cristolteg, an expert in low CO2 hydrometallurgical processing, which enabled Fortum to increase the recovery rate of valuable metals in lithium-ion batteries from 50% to 80%.
  • The company plan to implement these expertise at the recycling plant which they say offers significant CO2 reduction in the production of electric vehicles.

 

UK car industry calls for more support from the government 

  • The Society of Motor Manufacturers and Traders (SMMT) in the UK has called for a tax break on EVs to encourage take up as sales fall. (City AM)
  • The average price of a new EV has risen 13% since 2013, according to a study conducted by Cap HPI reviewing models that fitted into the ‘relatively affordable’ price range of £18,000-£35,000.
  • The SMMT has advocated cutting VAT on BEV, PIHV and hydrogen fluke cell cars. They suggest such as move would cut the average price of these vehicles by £5600 and could push sales to close to a million out to 2024.
  • The Society reported that the UK car market declined 2.9% last month to 79,594 registrations, driven by weak consumer confidence and uncertainty over which technology to buy. Market share of EVs did rise to 5.8% however as new registrations of petrol and diesel vehicle also fell.
  • The government will announce the budget on March 11th and the SMMT sees it as a good opportunity for the government to show their commitment to delivering on their environmental ambitions.

 

Company News

Aura Energy* (AURA LN) 0.25p, Mkt Cap £4.0m – Shares issued to advisors

  • Aura Energy has issued approximately 4.2m shares to advisors assisting the company on initiatives to fund both the Tiris uranium project in Mauritania and the Häggån vanadium project in Sweden”.
  • The issue of shares referred to above represents a retainer payable for January 2020 and February 2020 at a share price of 0.605 cents per share.”
  • We estimate that the new shares represent approximately 0.3% of the enlarged capital of the company.

*SP Angel act as Nomad & Broker to Aura Energy

 

Rambler Metals & Mining* (RMM LN) 1.6p, Mkt Cap £20.7m – Increased mineral resource at the Ming copper/gold mine

  • Rambler Metals & Mining announced yesterday afternoon that as a result of recent drilling it has increased the mineral resource estimate at its underground Ming copper/gold mine in Newfoundland.
  • The new estimate, which incorporates the results of around 5,400m of recent exploration and delineation drilling completed during 2019, particularly directed at the Ming North and Lower Footwall Zones where underground development has opened up sites to test down-plunge targets, reports a Measured and Indicated resource of 24.5mt at an average grade of 1.7% copper, 0.34g/t gold and 2.69g/t silver.
  • In addition, the company reports an Inferred resource estimate of 5.0mt at a slightly higher average grade of 1.89% copper, 0.39g/t gold and 3.2g/t silver. The result is reported at a 1% copper cut-off grade.
  • Referring to the Lower Footwall Zone, which contains approximately 21mt (86%) of the new resource estimate, the company explains that it “has been re-interpreted and re-modelled to more accurately reflect the ongoing results from mining the zone over the last 3 years.  This re-modelling has resulted in improved copper grade continuity throughout the zone with a 10% improvement in contained copper over the previous estimate under the 1.5% copper cut-off”.
  • The new estimate represents a 5% increase in reported measured and indicated tonnage compared with the previous, September 2017, estimate and shows improvements in grades for all the metals with copper 4% higher than the earlier estimate with copper and silver 6% and 7% higher respectively.
  • Our analysis of published quarterly production reports suggests that since the previous resource estimate, the mine has treated approximately 870,000t of ore at an average grade of 1.3% copper implying that the exploration has added some 1.9mt of resources containing almost 100m lbs (45,000t) of additional copper.
  • The company says that “At a 1.5% copper cut-off, the entire measured and indicated mineral resource estimate consists of 11.779 million tonnes of material grading 2.22% copper and 0.49 grammes per tonne gold, containing 541 million pounds of copper and 182 thousand ounces of gold. This material will form the basis of a new NI43-101 life of mine (LOM) plan for the Ming Mine that will be forthcoming in the second half of 2020.”
  • Remarking that “the Upper Footwall zone has been distinguished as a particularly high-grade zone of Measured and Indicated Resources”, President and CEO, Andre Booyzen, explained that “the new drilling has delineated within the new volumes a higher grade 11.8 million tonnes of Measured and Indicated Resources at 1.5% cut-off grade averaging 2.22% copper and 0.49 grammes per tonne gold.  The size, continuity, and near-mine location of these resources is a compelling focus for revised life of mine planning; we plan to develop and release a new mining reserve later in the fiscal year.”

Conclusion: The new mineral resource estimate reflects an improving understanding of the mineralisation at the Ming mine. The identification of a high grade portion of mineralisation averaging over 2% copper is expected to lead to an updated mining reserve estimate and life-of mine plan later this year.

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

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474 

 

Sales

Richard Parlons – 0203 470 0472 

Abigail Wayne – 0203 470 0534 

Rob Rees – 0203 470 0535 

 

SP Angel                                                             

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

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

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

 

Sources of commodity prices

 

Gold, Platinum, Palladium, Silver

BGNL (Bloomberg Generic Composite rate, London)

Gold ETFs, Steel

Bloomberg

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

LME

Oil Brent

ICE

Natural Gas, Uranium, Iron Ore

NYMEX

Thermal Coal

Bloomberg OTC Composite

Coking Coal

SSY

RRE

Steelhome

Lithium Carbonate, Ferro Vanadium, Antimony

Asian Metal

Tungsten

Metal Bulletin

 

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