Today’s Market View – Anglo American, Condor Gold, Vale and more…

Anglo American (LON:AAL) – Withdrawal of staff at Quellaveco

Atalaya Mining (LON:ATYM) –Proyecto Riotinto maintaining production and guidance

Condor Gold* (LON:CNR) – Exercise of warrants

Highland Gold (LON:HGM) – New exploration license secured

SP Angel . Morning View . Tuesday 17 03 20

Markets reverse early gains on rising recession concerns

MiFID II exempt information – see disclaimer below   

 

Anglo American () – Withdrawal of staff at Quellaveco

() –Proyecto Riotinto maintaining production and guidance

Condor Gold* () – Exercise of warrants

Highland Gold (LON:HGM) – New exploration license secured

Pensana Metals () – Pensana reports a new high-grade rare earth zone at Longonjo

Vale () – Vale says home office measures adopted globally amid coronavirus pandemic

 

Equity markets continue to unwind as policy makers consider banning of short selling

Expect equity markets to continue to selloff as Insurers, Banks, Corporates and Individuals move to cash to survive the impact of the Coronavirus.

Leveraged investors are being stopped-out if unable to meet margin calls. We expect the market to largely de-leverage in this environment.

Many investors who bought equities for yield using low-interest loans secured on their equity portfolios may need to unwind their personal arbitrage

Good quality liquid stocks tend to be sold-down more than lesser quality companies in this environment due to their greater demand with investors

Most business can not survive three-months of very low sales and will need government support to avoid bankruptcy and heavy redundancies.

Governments will need to support these businesses through the lock-down but few believe they will fully compensate while financial support.

Government financial support may be slow to arrive creating a cash flow gap that business will need to fund.

Markets tolerate short selling because they claim it creates liquidity for sellers to sell into, am not sure I share that view.

Metals and other commodities were sold off at the start of the Coronavirus crisis as traders and consumers moved to conserve cash.

While many Chinese traders and corporate will have been early movers in this, their belief in government stimulus may have limited the sell-off.

Western corporates, particularly in the US may have been slower to move to cash  .

Our advice: Don’t be spooked by share price falls in better quality companies.

Be sure the stocks you buy won’t go bust in this crisis and then enjoy the upturn in share prices when the market turns

Key resource stocks for post-Coronavirus recovery

Mining stocks: Rio Tinto (RIO LN), Bushveld Minerals* (BMN LN), Anglo Asian Mining* (AAZ LN), Arc Minerals* (ARCM LN), Bluejay Mining* (JAY LN), Scotgold Resourcess* (SGZ LN)

Oil Stocks: Union Jack Oil* (UJO LN), Rockrose Energy (RRE LN), Gulf Keystone (GKP LN), Hurricane Energy (HUR LN)

*SP Angel act as Nomad and broker

 

China is recovering with 100% of migrant workers reported to be back at work

But how is it that so many Chinese migrant workers are back at work so quickly after Wuhan was locked down?

China has very publicly declared that it has closed it’s last field hospital in Wuhan

How has China limited its spread across the rest of the nation while the rest of the world is unable to stop it?

What is China doing to contain the virus that we are unaware of?

 

Stimulus funding relating to the Coronavirus (Updates in bold, figures in US dollars)

$1,000bn – IMF

$50bn – IMF

$700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE program is to buy Treasuries and mortgage-backed securities. The program in two parts $500bn + $200bn  

$333bn (€300bn) – Loan guarantees for French business

$50bn (€45bn) – France just blew out the Fiscal discipline of the EU but their budget deficit has been over 3% GDP for sometime

$50bn – US – in the form of low-interest loans to companies in affected areas through the Small Business Administration.

$39m – UK (£30bn) stimulus – more expected today – Govt. pledged to do more if needed. (any excuse to spend money through Brexit)

$120bn – ECB increased bond purchases + ECB – targeted loans to companies at an interest rate of -0.75%

$28.3bn (€25bn) – EU

$15.4bn – Hong Kong relief package

$13.7bn – South Korea

$12bn – World Bank

$11.4bn – Australia – likely to announce more stimulus this week

$10bn – Switzerland (SFr10bn)

$8.4bn – Italy may move to $18bn

$8.3bn – US House of Representatives – (US GFC stimulus totalled $2.8tr starting with $168bn in early 2008).

$5.5bn – Bank of Japan, ETF purchases and short term liquidity to Banks

$11.9bn – BoJ triples financing for small and mid-sized firms

$7bn – New Zealand

$3.5bn – Ireland

$2.8bn – Spain coronavirus stimulus

$2bn – Taiwan stimulus

$0.75 – Indonesia

$14.2bn China, already spent. $113bn worth of bonds issued by China regional governments in January

China – more stimulus likely

ECB ready to take targeted action

Germany – no numbers yet but government is likely to relax rules if businesses start to go bust

$2,483bn – TOTAL stimulus offered to-date. GFC fiscal stimulus within the G20 was ~$2 trillion or 1.4% of global GDP (ILO, EU, IILS)

 

Vanadium prices pull back as steel mills prepare for Coronavirus impact

Vanadium pentoxide prices collapsed 20.2% $4.8-5.5/lb in Rotterdam last week.

Ferro-vanadium fell 1.9% to $25 – 26/kgV in Western Europe      last week

Ferro-vanadium fell 2% to $13.2 – 13.5/lb in the US last week       .

We expect vanadium prices to see significant recovery as steel mills ramp up production to meet demand for new infrastructure projects

 

US companies join forces to open rare earth mining and processing facilities 

Texas Mineral Resources and USA Rare Earth are to develop a rare earth mining operation in Texas and a minerals processing plant in Colorado.

The CEO of USA Rare Earth stressed the importance of securing domestic supplies of the strategically important minerals, as currently China dominate production and processing. 

This joint venture will see rare earths extracted and processed in the US, therefore alleviating the current dependence on China for both materials and processing. 

The news indicates greater demand in the West for rare earth concentrates which should be good news for:

Rainbow Rare Earths* (RBW LN) and Mkango Resources* (MKA LN)

*SP Angel act as Nomad or broker

 

Dow Jones Industrials -12.93% at 20,189

Nikkei 225 +0.06% at 17,012

HK Hang Seng +0.87% at 23,264

Shanghai Composite -0.34% at 2,780

FTSE 350 Mining +3.37% at 12,774

AIM Basic Resources -9.55% at 1,618

 

Economics

Flight to safety and an across the board reduction in risk exposure see US high grade and junk bonds’ spread widen to the highest level since 2011 and 2016, respectively.

 

Volkswagen confirms the Company is preparing to shut its European plants for at least two weeks amid supply-side disruptions caused by the coronavirus crisis.

“Production will be halted at our Spanish plants, Setubal in Portugal, Bratislava in Slovakia and the Lamborghini and Ducati plants in Italy before the end fo the this week,” CEO said.

Most of the other German and European plants will begin preparing to suspend production, probably for two weeks.

Additionally, the Company said that 31 of its 33 Chinese production sites were back online.

 

French government launched a temporary ban on short selling covering 92 stocks and last for 24 hours.

The ruling will apply to large companies such as , BNP Paribas and Renault, as well as cover many small and mid cap stocks.

The decision follows similar rulings in Spain, Italy and Belgium applying a temporary EU-wide ban if shares fall by more than 10% for the most actively-traded shares, or 20% or more for less liquid companies.

Italy and Belgium bans apply to a selected number of stocks and last for a day (Tuesday).

Spain applied the ruling to all listed companies and will last for a month.

 

US – The New York Empire State manufacturing index dropped by a record 34.4 to -21.5 in March, according to the regional Fed bank.

This is the lowest reading since the financial crisis in 2009.

New Jersey – Curfew between 8pm and 5am

Looting likely to become a feature of US strategy to manage coronavirus spread with Police focus elsewhere

 

UK – The Chancellor is expected to announce a series of measures to help UK businesses combat disruptions from the coronavirus outbreak.

The package is likely to focus initially on airlines and other travel companies, along with the hospitality and entertainment sector, that will be hit by the government advice that people social distance themselves, FT reports.

 

France – Authorities to offer €45bn in crisis measures to assist companies during the crisis, Finance Minister Bruno Le Maire said today.

The amount comes on top of €300bn in government loan guarantees that President Macron announced yesterday.

The government will prepare a new budget bill “in a matter of hours” with official estimates pointing to the economy losing 1% this year.

 

Egypt – The central bank cut its deposit and lending rates by 300bps to 9.25% and 10.25%, respectively, marking the largest drop on record.

Additionally, the central bank announced a series of measures to protect the economy including a six-month extension for individual and coporate credit repayments and cancelling ATM withdrawal fees for the same period.

The government is reported to have allocated 100bn Egyptian pounds ($6.4bn) to fight the coronavirus.

 

BREXIT – EU draft new deal envisages close ties with Brexit Britain

European Union new proposed deal with the UK envisages a tight trade and security relationship, according to a draft seen by Reuters on Friday

The draft, prepared by EU’s executive Commission includes reference to a so-called “level playing field” with provisions to ensure fair competition by keeping rules aligned.

 

Ghana – Illegal gold mines​ threaten water supplies 

Thousands of illegal gold mines are destroying farmland and leaving some communities with no drinking water. 

Gold mines are polluting rivers with dangerous chemicals such as mercury, which is raising concerns that the country may be forced to import water (Al Jazeera).

Video here: https://www.aljazeera.com/news/2020/03/ghana-illegal-gold-mining-threatens-water-supplies-200316095628384.html

 

Currencies

US$1.1125/eur vs 1.1216/eur yesterday.  Yen 106.67/$ vs 106.10/$.  SAr 16.579/$ vs 16.677/$.  $1.223/gbp vs $1.237/gbp.  0.608/aud vs 0.618/aud.  CNY 7.009/$ vs  6.999/$.

 

Commodity News

Gold US$1,484/oz vs US$1,541/oz yesterday – Gold continues to fall as mass sell-off continues 

Gold prices fell over 1% on Tuesday morning, extending losses seen in Monday’s previous session. 

Spot gold fell 1.1% to $1,497/oz early on Tuesday morning, having fallen as much as 5.1% on Monday as gold positions continued to be liquidated (Reuters). 

Traders were selling everything which is giving them profit, which saw a technical selloff triggered when gold fell below $1,500/oz (Kitco). 

Gold ETFs 86.2moz vs US$86.3moz yesterday

US$637/oz vs US$734/oz yesterday – Platinum falls nearly 27% on Monday

Platinum saw its biggest monthly drop on record yesterday as it fell to its weakest level since 2002.

The fall was attributed to the massive sell-off across financial markets that saw other precious metals continue to fall (Economic Times). 

Palladium fell as much as 18% on Monday, taking losses in the past six sessions to 36% (Bloomberg). 

Palladium US$1,590/oz vs US$1,796/oz yesterday

Silver US$12.42/oz vs US$13.89/oz yesterday

           

Base metals:   

Copper US$ 5,299/t vs US$5,344/t yesterday –

Copper prices hit three year lows on Monday

Copper prices on the LME continued to fall yesterday, on worries that as countries go into lockdown demand for copper will continue to fall. 

Three-month copper on the LME fell 3.1% to $5,291/t yesterday, the lowest since November 2016 (Reuters).

Turnover in copper contracts was especially high, as investors look to reduce exposure to riskier assets such as commodities. The LME saw some 29,200 lots of copper exchanged over the day (Fastmarkets MB).

Aluminium US$ 1,669/t vs US$1,675/t yesterday

Nickel US$ 12,080/t vs US$12,130/t yesterday

Zinc US$ 1,945/t vs US$1,956/t yesterday

Lead US$ 1,720/t vs US$1,730/t yesterday

Tin US$ 15,290/t vs US$15,750/t yesterday

           

Energy:           

Oil US$30.6/bbl vs US$31.5/bbl yesterday – According to Reuters, Saudi Arabia will continue to produce oil at increased levels through May, CEO Amin Nasser confirmed yesterday during an earnings call

The CEO also confirmed that Aramco was “very comfortable” with US$30/bbl oil

Arab Light is currently trading at US$30.24/bbl – down 5.1%

Both Saudi Arabia and Russia are adamant that they both can weather the current low-price environment. And for Saudi Arabia, who is planning on upping its oil exports in April and May, the lower oil prices will be partially offset by the increased volume.

Saudi Arabia has for more than a year shouldered the brunt of the production cut agreement with OPEC+

The Kingdom is planning on drawing an extra 300,000bopd out of its storage to meet its promised exports in April, and claims it could keep its level of 12MMbopd of output for a year without any increased in spending

 

Natural Gas US$1.795/mmbtu vs US$1.849/mmbtu yesterday – Natural gas prices held steady at the open today as oil price weakness is offset by colder projections in the US and North Europe

NatGasWeather issued colder guidance – reversing milder trends from Thursday’s data

Natural Gas Intelligence have forecast colder trends around weather systems moving into the US around the middle of next week and also March 21-24

 

Uranium US$23.90/lb vs US$24.00/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$86.6/t vs US$88.4/t – China’s iron ore price index rises in February 

The average China Iron Ore Price Index (CIOPI) gained 11.9 points, or 3.99% since the beginning of the month according to the China Iron and Steel Association. 

The price for domestically produced iron ore fell 0.17% whilst the price index for imported iron ore went up 4.85% during the period (Hellenic Shipping News). 

Prices have risen on expectation that iron ore demand should start rising again as China rebuilds production at some steelworks.

Chinese steel rebar 25mm US$536.7/t vs US$536.0/t

Thermal coal (1st year forward cif ARA) US$56.3/t vs US$55.5/t

Coking coal swap Australia FOB US$160.0/t vs US$160.0/t

           

Other:  

Cobalt LME 3m US$32,100/t vs US$32,100/t

NdPr Rare Earth Oxide (China) US$38,808/t vs US$38,579/t

Lithium carbonate 99% (China) US$5,707/t vs US$5,715/t

Ferro Vanadium 80% FOB (China) US$28.0/kg vs US$28.0/kg

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

Vanadium pentoxide prices fell by more than 20% last week 

Fastmarkets’ European V2O5 prices fell 20.2% on Friday to $4.80-$5.50/lb and the market is trading at its lowest level since January. 

According to Fastmarkets, suppliers were eager to offload material and are expecting further price drops due to the demand for Vanadium’s downstream industry plummeting as a result of the virus outbreak. 

 

US companies join forces to open rare earth mining and processing facilities 

Texas Mineral Resources and USA Rare Earth are to develop a rare earth mining operation in Texas and a minerals processing plant in Colorado.

The CEO of USA Rare Earth stressed the importance of securing domestic supplies of the strategically important minerals, as currently China dominate production and processing. 

This joint venture will see rare earths extracted and processed in the US, therefore alleviating the current dependence on China for both materials and processing. 

 

Tesla’s Fremont factory to remain open as the first deliveries of the Model Y reach customers

Tesla’s sole US factory will continue to operate as San Francisco’s bay area begins a 3-week lockdown. (Reuters)

The factory in Alameda county employs 10,000 workers with annualized production at 415,000 units by Q4.

As of Monday, Tesla is not aware of any of its employees testing positive for the virus but is now allowing those with symptoms and those concerned about the virus to remain at home. (Business Insider)

Musk has relayed a confused message to employees at his companies about the virus. The more conservative message to Alameda employees contrasts with his message to SpaceX employees on March 13 which highlighted that individuals were more likely to die in a car crash than from the virus.

Tesla’s Shanghai factory temporarily halted production following the Chinese Lunar New Year as the virus spread through China. This factory is now back online, and deliveries of the new Model Y are under way. (Yahoo Finance)

The first Model Y vehicles have been delivered ahead of schedule. This is a significant milestone for a company which has a poor record of hitting self-imposed delivery deadlines and has experienced disruption caused by the coronavirus. (Seeking Alpha)

The Model Y All-Wheel drive variant starts at $52,990. The vehicles have a range of 316 miles, has a top speed of 135mph and accelerates from 0-60mph in 4.8 seconds. (Carscoops)

 

Lithium Americas expects delays to construction of its Cauchari-Olaroz project

Lithium Americas has announced they expect construction delays of up to 90 days at their Argentinian lithium-carbonate project as a result of the impact of the coronavirus on Chinese suppliers. (Mining.com)

Construction is now expected to be completed early 2021. (Lithium Americas)

The Cauchari-Olaroz project is located in Jujuy, Argentina and is a joint venture with Ganfeng Lithium. (Market Watch)

By the end of February construction on the 40,000t/d battery quality lithium-carbonate project had reached 36% completion and $222m of the $331m committed funds had been spent.

The project uses traditional evaporation ponds to harvest the lithium carbonate.

 

Lilac Solutions announce partnership to develop a lithium extraction facility at Salton Sea

Lilac Solutions is partnering with Controlled Thermal Resources (CTR) to develop a lithium extraction facility at Salton Sea in California. (Los Angeles Times)

Australian company CTR is building the areas first new geothermal power plant in over a decade while Lilac Solutions recently completed a $20m funding round led by Breakthrough Energy Ventures.

Breakthrough, which counts Bill Gate, Jeff Bezos and Michael Bloomberg amongst its investors, funds start-ups working towards reducing planet warming emissions.

Lilacs Solutions technology uses ion-exchange heat beds that selectively remove lithium and enable lithium depleted brine to be returned underground.

Both wastewater and time for extraction are dramatically reduced. Lithium recovery is 90% compared with 50% from the traditional brine ponds. (Mining Weekly)

CTR hopes to produce 17,000 tons of lithium carbonate by 2023 and double that in 2025. It has been suggested the Salton Sea geothermal area could yield up to 200,000 tons.   

 

 

Company News

Anglo American () 1324p, Mkt Cap £16.6bn – Withdrawal of staff at Quellaveco

Anglo American reports the temporary withdrawal of ʺthe majority of employees and contractors from its Quellaveco copper project in Peru, following the Government of Peru’s announcement of a 15-day national quarantine to curb the spread of COVID-19ʺ.

The company confirms that this action will significantly slow the project development with ʺonly critical areas of the project continuing as normal, until such time as workers can return safely.ʺ

Chief Executive, Mark Cutifani, said that ʺThe safety and health of everyone must come first, ever more so at times such as these. We are in the process of safely demobilising most of the 10,000 strong construction workforce at our Quellaveco copper projectʺ.

Mr. Cutifani also confirmed that ʺOur development of this world-class project has progressed ahead of schedule and within our budget and we would expect to be able to accommodate this slowdown within our market guidance on both timing and costs at this stage.”

Conclusion: Anglo American is evacuating staff from the Quellaveco project in response to the Covid19 virus containment measures implemented by the Government. At this stage, the company expects to maintain its budget and schedule guidance however.

 

Atalaya Mining () 105 pence, Mkt Cap £144m –Proyecto Riotinto maintaining production and guidance

Atalaya Mining confirms that it is implementing all necessary measures to contain the threat of the Covid19 virus while maintaining uninterrupted production at its Proyecto Riotinto copper mine in southern Spain.

While stressing the paramount importance of the welfare of its workforce and related communities, the company explains that ʺTo date, there has been no impact on production or shipment of concentrate from Huelva. Additionally, there has been no significant disruption to the supply chain of the Company’s operation and the level of critical consumables and spare parts for production continues to be acceptableʺ.

The company also says that  ʺIt should be noted that according to the official statistics, Huelva has one of the lowest number of COVID-19 cases per capita within Spain, to date, and not a single employee or contractor has tested positive for the virus.ʺ

At this stage, the company is maintaining its 2020 production guidance saying that ʺThe recently imposed national restrictions have not impacted the Company`s operations but the potential future impact of these restrictions is unknownʺ.

Condor Gold* () 23.5p, Mkt Cap £22m – Exercise of warrants

Condor Gold reports that it has issued 300,000 new shares as a result of the exercising of warrants at a subscription price of 31p generating gross proceeds of £155,000.

The additional shares represent approximately 0.5% of the enlarged capital of the company.

*SP Angel act as sole broker to Condor Gold

 

Highland Gold (LON:HGM) 168p, Mkt Cap £610m – New exploration license secured

The Company secured an exploration license for the greenfield Krasnaya Gorka deposit located in the Nikolaevsk district of the Khabarovsk region.

The 96.7km2 licence is about halfway along the ~40km distance between Belaya Gora and Blagodatnoye deposits.

The license is valid for seven years and covers hosts polymetallic mineralisation with P2 resources on gold, silver, lead, zinc, copper and molybdenum estimated on the property.

The project is planned to supply the material for the Belaya Gora mill subject to successful exploration and development programmes.

 

Pensana Metals ()  A$0.18, Mkt cap A$28m – Pensana reports a new high-grade rare earth zone at Longonjo

Pensana Metals reported yesterday that a recent 7000m drilling programme at Longonjo in Angola has generated shallow, high grade, rare-earths results from a newly identified mineralised zone located approximately 600m west of the area proposed for open pit mining in the company’s pre-feasibility study (PFS).

The new zone, which has been identified over a 400m long strike length remains open to both the north and south

Among the results reported in the announcement are:

An intersection of 14m at an average grade of 5.85% rare-earths oxide (REO) from a depth of 4m in hole LRC197: and

An intersection of 36m at an average grade of 6.74%REO from a depth of 16m in hole LRC203, including 1,10% NdPr (Neodymium/Praseodymium): and

An intersection of 30m at an average grade of 7.72% REO from surface in hole LRC011

The company points out that the intersections in holes LRC197 and 203 are ʺwell above the average grade of the current Mineral Resource estimateʺ.

Pensana also reports that ʺDrilling also intersected higher than expected grades in the continuous zones of fresh rock hosted mineralisation which lies immediately beneath the surface blanket of weathered mineralisation with average grades above 3% REOʺ.

Commenting on new results and identification of an additional zone of mineralisation, which are expected to contribute to an upgrading of the mineral resource estimate and to an extension of mine life, Director and COO, Dave Hammond, said ʺThese high grade drill results are from well outside the limits of the current pit design and along with the upgrade of significant amounts of the existing Mineral Resource estimate we are expecting to significantly extend the mine life at Longonjo on completion of the Definitive Feasibility Study work programmesʺ.

Mr. Hammond also said that results from a further 138 drill-holes remain to be received.

Conclusion: Recent drilling has identified an additional zone of shallow, high grade rare-earths mineralisation to the west of the planned open-pit at Longonjo.

 

Vale () US$7.9, Mkt cap US$41.7bn – Vale says home office measures adopted globally amid coronavirus pandemic

Vale reports that its admin staff and contractors will working from home through the Coronavirus Pandemic including all its 1,800 staff in Rio de Janeiro HQ – (Reuters)

Staff in Vale offices in Toronto are working from home while offices in China, Japan, Singapore and Switzerland are also affected.

 

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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