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Today's Market View - $300bn investment planned in EV manufacturing

Today's Market View - $300bn investment planned in EV manufacturing

SP Angel – Morning View – Monday 15 04 19

$300bn investment planned in EV manufacturing

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Apollo Minerals (ASX:AON) – Permits to reinstall mine services at Salau

Atalaya Mining (LON:ATYM) – Strong performance at Proyecto Riotinto lifts 2018 results

Beowulf Mining* (LON:BEM) – Kallak and Vardar mine update

Lydian International (CVE:LYD) – Court rules to clear the Amulsar site off trespassers and protesters

Petra Diamonds (LON:PDL) – Q3 production results support maintained production guidance

Polymet Mining* (NYSE:PLM) BUY – Target under review (was US$1.56/s) – Polymet may now consider expansion now that permits have been issued

Savannah Resources* (LON:SAV) – Moving to secure 100% of Mina do Barroso lithium project

Serabi Gold (LON:SRB) – Q1 production on track for full year guidance

Talga Resources* (ASX:TLG) – Battery anode process and product results show positive impact on PFS

 

Mining in space

  • Last week saw the first picture of a black hole, the launch of the SpaceX heavy lift rocket and an Israeli probe crash onto the moon.
  • Spacex’s successful test of its Falcon heavy lift rocket and landing of its three booster rockets was a major step forward in the move to do more in space.
  • Stratolaunch also launched the world’s largest aircraft on its maiden flight in California. The aircraft is designed to help launch rockets from high altitude.
  • The future of mining on the moon and on asteroids is coming closer fast as nation states compete to prove their technology.

 

$300bn investment in EVs planned over next 5-10 years

Key planned EV investments:

  • $91bn VW / Audi/Porsche
  • $42bn Daimler
  • $20bn Hyundai / Kai
  • $15bn Changan
  • $13.5bn Toyota.

VW pushing its jv partners to build >1GW battery manufacturing plant on economies of scale

  • Reuters reports from Shanghai that VW CEO is pushing its battery technology jv partners, SK Innovation and others to build battery manufacturing plants of >1GW.
  • Apparently anything below that size makes little sense.
  • VW is to buy €50bn of battery cells for EVs with Amperex, SKI, LG Chem and Samsung SDI identified as strategic cell suppliers.
  • CATL is the automaker’s strategic partner for China, and will supply batteries for its electric fleet from 2019.
  • VW is reported to be retooling 16 manufacturing facilities to build EVs for 33 EV models of by mid-2023.

 

Dow Jones Industrials

 

+1.03%

at

  26,412

Nikkei 225

 

+1.37%

at

  22,169

HK Hang Seng

 

-0.21%

at

  29,846

Shanghai Composite

 

-0.34%

at

   3,178

FTSE 350 Mining

 

-0.44%

at

  20,998

AIM Basic Resources

 

-0.58%

at

   2,125

 

Economics

US reduces trade deal demands in negotiations with China

  • US negotiations have apparently ‘watered down’ conditions in its trade deal negotiations with China.
  • The $250bn tariff trade war has served to disrupt the global economy and weaken trade sentiment.
  • Major issues to overcome are intellectual property protection and the ending of enforced technology transfers.
  • Reuters reports China has already given ground on these issues though we wonder if future reality may match the agreement?

US – Treasury Secretary Mnuchin said he was hopeful trade negotiations were “close to the final round”.

  • Reuters reported today that US negotiators have tempered demands that China curb industrial subsidies as a condition for a trade deal after strong resistance from Beijing.
  • US equities closed in the black on Friday coming in closer to a record high following strong earnings released by JP Morgan and Wells Fargo.
  • On a separate note, Fed monetary policy has been criticised by President Trump over the weekend who said the stock market would have been “5,000 to 10,000” points higher had it not been for monetary authorities.

 

China – Money supply data released on Friday came in higher than forecast with aggregate credit growth in Q1 easily exceeding previous two years.

  • Aggregate social financing increased to CNY 2.86tn from 703bn in February significantly exceeding CNY 1.85tn expected.
  • M2 money supply accelerated to post a one-year high of 8.6%yoy in March.
  • GDP, industrial production and retail sales data is due this Wednesday.

 

EU – The EC prepared a list of US imports worth around €20bn that it could hit with tariffs over a transatlantic aircraft subsidy dispute, EU diplomats said on Friday.

 

Turkey – Unemployment hits the highest level in a decade as the economy struggles after slipping into a recession last year.

  • The economy is expected to contract 1.8%yoy in Q1/19 following a 3.0%yoy drop recorded in Q4/18.
  • Jobless rate increased to 14.7% in January from 13.5% in the previous month while the youth unemployment hit a high of 26.7%.

 

Currencies

US$1.1319/eur vs 1.1283/eur yesterday. Yen 111.94/$ vs 111.85/$. SAr 13.938/$ vs 14.061/$. $1.310/gbp vs $1.306/gbp. 0.718/aud vs 0.713/aud. CNY 6.704/$ vs 6.718/$.

 

Commodity News

Precious metals:         

Gold US$1,287/oz vs US$1,293/oz yesterday

   Gold ETFs 71.9moz vs US$71.9moz yesterday

Platinum US$886/oz vs US$895/oz yesterday

Palladium US$1,368/oz vs US$1,376/oz yesterday

Silver US$14.96/oz vs US$14.98/oz yesterday

           

Base metals:   

Copper US$ 6,481/t vs US$6,440/t yesterday

Aluminium US$ 1,857/t vs US$1,859/t yesterday – Rusal is planning to invest $200m in return for a 40% stake in a Kentucky rolling mill making it the largest new aluminium plant built in the US in nearly four decades and marking Rusal’s first investment in the US since sanctions were lifted earlier this year.

  • Under a letter of intent signed between US-based Braidy Industries and Rusal, the Company will be processing 2mt of its low carbon aluminium at the plant over the next decade.
  • Although, the aluminium feedstock will still be subject to the existing 10% tariff on imports.
  • The plant will be targeting local automotive, aerospace and industrial markets for lightweight exposed aluminium sheet.

Nickel US$ 12,975/t vs US$12,935/t yesterday

Zinc US$ 2,925/t vs US$2,881/t yesterday – Trafigura, a commodity trading house, moved in to take control of Nyrstar through a debt restructuring deal.

  • “The proposed debt restructuring is, we believe, the best possible solution for all stakeholders despite significant and painful losses incurred,” Trafigura CEO Jeremy Weir said.
  • Trafigura said it had agreed to provide $250m credit line to the cash-strapped company with Nyrstar’s creditors asked to swap their debt for perpetual securities and other instruments issued by Trafigura, under the restructuring plan.

Lead US$ 1,941/t vs US$1,931/t yesterday

Tin US$ 20,775/t vs US$20,595/t yesterday

           

Energy:           

Oil US$71.4/bbl vs US$71.0/bbl yesterday - US to sanction tankers carrying Venezuelan oil

  • The move marks a major escalation of the situation in Venezuela and potential backing of opposition to President Maduro.
  • While some shipping companies may choose to ignore the sanctions, it may become difficult for their owners to operate US dollar bank accounts, trade in Western corporations or settle US dollar transactions depending on how far the US go in enforcing these sanctions.
  • Recent history suggests these sorts of sanctions can be extremely effective at disrupting
  • It will be difficult for Venezuela to make interest payments on its debts to Russia and China if it is not able to export oil.
  • Russian troops have been seen landing in Venezuela along with planes of armaments.
  • The exodus of >1m people from Venezuela mainly into Colombia is causing some tension in the region.
  • Colombian ladies are apparently upset at the massive influx of Venezuelan rivals into their territory.

Natural Gas US$2.643/mmbtu vs US$2.672/mmbtu yesterday

Uranium US$25.85/lb vs US$25.85/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$93.7/t vs US$92.1/t - prices continue to rise to $93.7/t in China on the impact of Cyclones in Australia and Vale’s dam failure

  • China’s Green Shield policies continue to drive up prices for better quality iron ore as supply shocks in Australia and Brazil restrict supply.

Chinese steel rebar 25mm US$649.3/t vs US$642.7/t

Thermal coal (1st year forward cif ARA) US$74.7/t vs US$75.0/t

Coking coal futures Dalian Exchange US$187.7/t vs US$187.3/t

           

Other:  

Cobalt LME 3m US$34,500/t vs US$34,500/t

NdPr Rare Earth Oxide (China) US$39,899/t vs US$39,816/t

Lithium carbonate 99% (China) US$9,620/t vs US$9,601/t

Ferro Vanadium 80% FOB (China) US$48.5/kg vs US$48.6/kg

Antimony Trioxide 99.5% EU (China) US$6.4/kg vs US$6.4/kg

Tungsten APT European US$270-282/mtu vs US$270-282/mtu

 

Battery News

 

Company News

Apollo Minerals* (ASX:AON) A$0.13, Mkt Cap A$21.8m – Permits to reinstall mine services at Salau

  • Australian listed Apollo Minerals has confirmed that it has received permits to reinstall mine services, including ventilation, mine support and communications equipment at the historic Salau tungsten mine located in the French Pyrennes.
  • The underground mine extracted high-grade tungsten ore, grading around 1.5% tungsten trioxide “during its fifteen years of operation. The mine closed in 1986 as a result of low tungsten prices, rather than due to depletion of the deposit”.
  • The company reports that when the remedial work has been completed, it “will then undertake a program of underground drilling and channel sampling across high grade tungsten and gold targets”.
  • “The Company has now shortlisted preferred drilling contractors for the initial underground drilling program at Salau designed to confirm known zones of tungsten mineralisation and test for extensions of these zones as a precursor to estimation and reporting of a Mineral Resource Estimate in accordance with the JORC Code”.

Conclusion: Regaining access to the old workings in order to carry out detailed assessment work on the old Salau mine is an essential precursor to establishing the viability of regenerating one of Europe’s premier tungsten mines. We look forward to further news on progress.

*An SP Angel analyst has previously visited and assessed the Salau tungsten mine in France

 

Atalaya Mining (LON:ATYM) 235 pence, Mkt Cap £322.7m – Strong performance at Proyecto Riotinto lifts 2018 results

  • Increased mine production, mill throughput and copper recovery rates enabled Atalaya Mining to deliver an 8% increase in Q1 copper production of 10,219 tonnes (Q1 2018 – 9,441t).
  • Production did not match the record 11,172 tonnes achieved during the final quarter of 2018, however the performance keeps the company on track to achieve its previously announced 2019 guidance of 45-46,500 tonnes of copper.
  • “Cash operating costs for Q1 2019 are expected to be lower than the annual cost guidance ranges previously provided of $1.95-2.15/lb. Further details on costs will be provided with Q1 Financial Statements to be reported in May 2019”.
  • The company reports that its expansion plan to increase throughput at Proyecto RioTinto to 15mtpa 97% complete overall and the construction element of the project 72% finished. “The new primary crushing area is mechanically well advanced with electrical works progressing. In the new milling area, mechanical activities are progressing according to plan. New flotation and concentrate handling areas are in the final stages of commissioning”.
  • Commenting on what he described as a “strong” quarter of operational performance, CEO, Alberto Lavandeira, explained that “Simultaneously the construction activities for the modernisation and expansion of the plant are expected to meet our self-imposed tight schedule of mechanical completion by the end of the second quarter. Based on the excellent expertise of the teams on site we are confident that the project will be concluded on time and on budget and that we will achieve our full year production guidance."

Conclusion: Atalaya Mining has successfully implemented major plant expansions while maintaining production in the past and the latest expansion to 15mtpa throughput, which is now well advanced for completion by the end of the quarter, is following a similar path.

 

Beowulf Mining* (LON:BEM) 6.4p, Mkt Cap £37m – Kallak and Vardar mine update

  • Kallak (Sweden): Beowulf report that the mine exploitation concession for the Kallak North mine is being prioritised by the Swedish government.
  • Management have been working with politicians in Norrbotten, Sweden who are keen to bring investment into the region to ensure the project makes further progress.
  • Vardar (Kosovo): Beowulf has invested a further £500,000 to take its stake in Vadar to 31.3% and has committed another £250,000 to raise its stake to 37.6%.
  • Management have also negotiated an option to raise its stake further to 40.1% for a further £115,000.
  • This fully funds Vadar’s 2019 exploration program ath the Mitrovica and Viti projects in Kosovo.
  • Vadar plans to start drilling Mitrovica by end-April targeting lead and zinc mineralisation around the Wolf Mountain target.
  • Further geochemical and geophysical work is to be done to test a number of possible porphyry targets.

Conclusion: Beowulf is making progress on all fronts. We look forward to drill results from Kosovo and to further progress in the long-running permitting saga in Sweden.

*SP Angel acts as nomad and broker

 

Lydian International (CVE:LYD) 0.18c, Mkt Cap CAD136m – Court rules to clear the Amulsar site off trespassers and protesters

  • A gold developer with the flagship 100% owned gold heap leaching project Amulsar located in south-central Armenia received a court ruling in favour of the Company and instructing local police to remove trespassers and assure Lydian free passage to the site.
  • Previously the Armenian Police said there was no basis for removal of protesters, their vehicle, tents and trailers with Lydian filing an appeal with the Administrative Court of Armenia against the decision in September last year.
  • The court’s ruling is effective one month after the date of publication unless appealed prior to that date.
  • Shares jumped nearly 40% on the back of the news last Friday.
  • Lydian is currently seeking the police’s immediate enforcement of the ruling.
  • The 225kozpa project commissioning and ramp up originally scheduled for Q4/18 and 2019, respectively, have been delayed by on the ground challenges since June last year.
  • The project is currently subject to a third party environmental impact audit, despite the government having previously approving the Company’s environmental impact assessment.

 

Petra Diamonds (LON:PDL) 17.04p, Mkt Cap £147.5m – Q3 production results support maintained production guidance

  • Petra Diamonds reports production of 924,228 carats of diamonds during the quarter to 31st March 2019 lifting  total output for the first three quarters of its financial year by 4% to 2,943,374 carats and leading the company to maintain its annual guidance of 3.8-4.0m carats.
  • The company attributes increased Q3 diamond production to “increased production at Cullinan, Koffiefontein and Williamson, offset by lower production at Finsch.”. The performance at Finsch during February and March is, however “as expected”.
  • Reporting on the progress of the “C-Cut Phase 1 Block Cave” at the Cullinan mine, the company reports that it is progressing according to plan and it on course for completion “during H1 FY 2020”.
  • The C-Cut Phase 1 is showing “the incidence of larger stones is improving as demonstrated by the recovery of two +100 carats gem-quality stones during the Period”.
  • Commenting on the diamond market Petra Diamonds says that “Rough diamond prices achieved during the two tenders in Q3 up ca. 1% on a like-for-like basis compared to prices achieved in H1 FY 2019”.
  • Petra Diamonds also reports that it has reduced its net-debt to US$553.1m (31st December 2018 – US$559.3m) with incoming Chief Executive, Richard Duffy, confirming that “Our focus remains on the delivery of free cash flow to reduce our net debt and generate future options for the Company”.

Conclusion: Petra Diamonds maintains its focus on debt reduction as the large-scale capital investment phase ends. It is particularly encouraging that the Block-caving at the Cullinan mine is now contributing the recovery of large, and potentially revenue-enhancing diamonds on a relatively frequent basis.

 

PolyMet Mining* (NYSE:PLM) US$1.13, Mkt Cap US$362m – Polymet may now consider expansion now that permits have been issued

BUY – Target under review (was US$1.56/s)

  • Polymet Mining which holds license to the Northmet polymetallic mine in Minnesota, USA now has all permits needed to start mining.
  • The nickel, copper, PGM, cobalt mine and Lake Erie taconite processing plant is now good to go from a financing and construction perspective.
  • Northmet and Rosemont coincidentally both received their final permits for mining in the same week after years of working with the Environmental Protection Agency to push these projects through.
  • Polymet may further expand to process 50,000t per day or may move to a much larger 200,000t per day of ore from Northmet
  • New value may also be added through new drilling at Northmet which was previously suspended.
  • We suspect Northmet has higher grade nickel and copper in certain areas which we hope may be identified on further drilling.
  • Polymet now has a fully permitted plant and tailings disposal area which could also allow for the processing of higher-grade material from other mines in the region.

Conclusion: Polymet is a valuable and strategic asset now that it has all its required mining, processing and tailings permits. The plant may be able to help Antofagasta develop its Twin Metals project in Minessota which lies on the Mississippi side of the watershed in the Boundary waters area. The plant is also very well located along the railroad from Talon Metals’ Tamarack nickel-copper project.

*SP Angel were formerly retained by Polymet Mining as UK broker

 

Savannah Resources* (LON:SAV) 5.7p, Mkt Cap £50.2m – Moving to secure 100% of Mina do Barroso lithium project

  • Savannah Resources has announced its intention to increase its existing 75% ownership of the Mina do Barroso lithium project in Portugal to 100% through a share based acquisition of the remaining 25% interest.
  • The company plans to issue an additional 163m shares, representing approximately 15.6% of the enlarged share capital of Savannah Resources, to the existing owners including Slipstream Resources, which will increase its current 5.1% interest to a 16% shareholding in Savannah Resources as a result of the transaction.
  • The transaction, which will be subject to shareholder approval, and involves issuing approximately US$11.9m of Savannah Resources shares at US$0.073/share, values the entire Mina do Barroso project at approximately US$47.6m.
  • Commenting on the move towards full ownership of the project, Savannah’s CEO, David Archer, welcomed the simplification of the ownership structure and confirmed that the “Company remains focused on completing the Project's Definitive Feasibility Study and Environmental Impact Assessment and permitting process, which will allow a development decision to be made.”
  • Slipstream Resources’ CEO, Geoffrey Stewart, emphasising their support for Savannah Resources’ strategy towards the project said “It has been a truly remarkable achievement that, in under two years, Savannah has developed what was a promising exploration project into what is likely to be Europe's first significant producer of high-grade, low impurity spodumene concentrate.  We are excited and confident that the Project will become both economically and strategically important in Europe's rapidly developing EV industry."

Conclusion: Savannah Resources has advanced the Mina do Barroso lithium project quickly since it became involved and the restructuring of the ownership is a pragmatic move which appears to enjoy the support of Slipstream Resources and the other minority owners of the project. We welcome the confirmation of the priority being given to the Definitive Feasibility Study in order to reach a development decision.

*SP Angel acts as Nomad to Savannah Resources

 

Serabi Gold (LON:SRB) 39.5p Mkt value £23.2m – Q1 production on track for full year guidance

  • Serabi Gold has reported its second successive quarter of gold production in excess of 10,000 oz with Q1 2019 output of 10,164oz (Q4 2018 – 10,256 oz). The result keeps the company on course to achieve it previously announced 40-44,000oz 2019 guidance target.
  • Highlighting that this was the first time that the company has ever produced more than 10,000oz of gold in successive quarters, the company reports that “Mine output remains very steady, with performance very much in line with 2018.  The plant continued to perform very well during the quarter, processing over 43,000 tonnes of hard rock ore with mill feed grades of 7.69g/t being 8% higher than the 2018 average”.
  • The second highlight achieved during the quarter has been the, previously reported, 37% increase in the mineral resource estimate for the Coringa gold project which now contains an indicated resource of 845,000t at an average grade of 7.95g/t gold for 216,000oz of contained gold plus an additional 1.436mt classed as inferred at an average grade of 6.46g/t (298,000oz of gold).
  • The previous estimate, dated May 2017 included 195,000 indicated oz at an average grade of 8.36g/t and 181,000oz of inferred resources at a grade of 4.32g/t.
  • The company expects to announce a Preliminary Economic Assessment (PEA) on the Coringa deposit “before the end of June 2019.”
  • Commenting on the performance at Palito, CEO, Mike Hodgson, said “We remain focussed on improving efficiencies and growing production especially in light of the exciting potential that the 2018 exploration results have identified, in particular around the Sao Chico deposit”. He went on to confirm that “we are continuing to progress the permitting of the Coringa project”.

 

Talga Resources* (ASX:TLG) A$0.62, Mkt Cap A$135m – Battery anode process and product results show positive impact on PFS

  • Talga Resources which is developing improved lithium-ion battery anode material reports significant progress.
  • Management report that product and process results have positively impacted the PFS options.
  • High concentrate recoveries.
  • High yields and yields on anode material from material mined at the Vittangi graphite mine in Sweden.
  • New and improved process pathways.
  • Tests in Japan support Talnode-C commercialization of fully engineered coted anode material to maximise value.
  • Talga also has two other graphite projects to produce high-performance Li-ion anode material..
  • PFS completion due end April.

 

*SP Angel acts as UK broker to Talga Resources. SP Angel analysts have visited the leading battery R&D institution WMG partnering with Talga.  

DISCLAIMER

This note has been issued by SP Angel Corporate Finance LLP (“SP Angel”) in order to promote its investment services.

This information is a marketing communication for the purpose of the European Markets in Financial Instruments Directive (MiFID) and FCA’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.

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The value of investments contained herein may go up or down. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.

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It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. This document should not to be relied upon as authoritative or taken in substitution for the exercise of you own commercial judgment. SP Angel is not responsible for any errors, omissions or for the results obtained from the use of the information in this document.

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