SP Angel . Morning View . Wednesday 26 02 20
Coronavirus earnings impact at Rio Tinto and Bluescope Steel
MiFID II exempt information – see disclaimer below
Bluejay Mining* (LON:JAY) – Presentation at PDAC Greenland Day
Rio Tinto (LON:RIO) – Rio Tinto reports strong underlying earnings driven by iron ore but Coronavirus likely to impact H1 2020
Bluescope Steel (ASX:BSL) – Coronavirus disruption hits Bluescope operations in china ‘heavily impacted’ in February and March
Versarien* (LON:VRS) – Update on collaboration work highlights ongoing progress towards commercialisation
Premiums for lead rise on the LME as market starts to run short of stock for physical metal delivery
While the lead price is lower than it was in January inventory levels are close to all-time low levels.
The majority of the world’s lead is produced in China which is suffering substantial disruption due to the Coronavirus lock-down and massive disruption to output and transport logistics.
Smelters are suffering with staff shortages, raw material and reagent shortage and an inability to truck stocks to rail and ports.
Coronavirus disruptions boost bulk scrap demand in Asia (Fastmarkets MB)
Bulk cargoes are being increasingly favoured by Asian ferrous scrap buyers due to rising container freight costs caused by the virus outbreak.
Buyers in Taiwan and Vietnam are focusing on Japanese scrap instead of ferrous scrap cargoes from the US West Coast.
The large quantities of Japanese scrap on offer has seen demand for US scrap ease, as prices for containerized cargoes are expected to remain unfavourable for buyers in the near term.
According to Reuters, Maersk said last week that the virus has limited workers at Chinese ports, and limited ship crews who can transport goods long distances.
Dow Jones Industrials -3.15% at 27,081
Nikkei 225 -0.79% at 22,426
HK Hang Seng -0.73% at 26,696
Shanghai Composite -0.83% at 2,988
FTSE 350 Mining -0.97% at 16,740
AIM Basic Resources -1.46% at 2,322
Europe – Stocks suffer longest drop since July
European stocks dropped for a fifth day in a row as worries mounted over the coronavirus outbreak.
The Stoxx Europe 600 Index sank 2.4% to its lowest level since July last year and is down 9% from its February peak.
The start of this week saw European equities experiencing their worst two day drop since the Brexit aftermath in June 2016 due to increasing concerns of the coronavirus spreading through Europe.
UK – FTSE hits 12-month low
The FTSE fell 1.5% to a one-year low this morning as the coronavirus continues to unsettle investors.
The index is down 7.1% in the past five days, and has fallen 8.7% in the past 30 days.
Diageo PLC contributed the most to the index decline – decreasing 2.4%.
In early trading this morning, 97 out of 101 shares fell, while 4 rose.
Yesterday, The Independent reported that almost £100bn has been wiped off the FTSE in just two days due to growing fears of a coronavirus pandemic.
China – Car sales continue to fall
Chinese car sales fell 83% last week from a year earlier due to the virus outbreak.
The drop follows a 92% decline in the two weeks prior due to the same concerns.
The virus has worsened a two year slump for China’s auto industry, with carmakers’ deliveries to dealers set to fall 75% this month.
According to China’s Passenger Car Association, only those in ‘urgent need’ are shopping for cars.
Australia – Western Australia becomes top mining jurisdiction for investment
The state leads the way for the first time since 2015 according to the Fraser Institute.
WA’s standing comes after Australia reported a record $290bn in resource exports in 2019, and a record number of workers employed in the minerals sector last year of over 124,000.
Europe has become the most attractive region, surpassing Canada which dropped two places down to 3rd, and Australia is now 2nd.
US trade panel rejects import duties on fabricated steel
The US International Trade Commission on Tuesday threw out the US anti-dumping and anti-subsidy duties on fabricated structural steel from Canada and Mexico, ruling that the imports do not affect US producers.
The decision by the panel was split 3-2 in favour of rejecting US duties. The commission does not rule whether products were dumped below cost or unfairly subsidised, but only on whether domestic producers suffered.
The ruling eliminates US anti-dumping and anti-subsidy duties on imports of steel structures such as beams and girders, and US imports of such products in 2018 were valued at $722.5m from Canada, $897.5m from China and $622,4m from Mexico (Reuters).
Commerce previously found that Chinese fabricators were both dumping and subsidising at rates of up to 360%, Mexico up to 99% and Canada up to 6.7%.
US$1.0893/eur vs 1.0866/eur last yesterday. Yen 110.25/$ vs 110.55/$. SAr 15.286/$ vs 15.144/$. $1.298/gbp vs $1.298/gbp. 0.658/aud vs 0.661/aud. CNY 7.018/$ vs 7.018/$.
Gold US$1,652/oz vs US$1,651/oz yesterday
Gold ETFs 84.4moz vs US$84.0moz yesterday
Platinum US$935/oz vs US$970/oz yesterday
Palladium US$2,733/oz vs US$2,703/oz yesterday
Silver US$18.13/oz vs US$18.44/oz yesterday
Copper US$ 5,667/t vs US$5,711/t yesterday - LME copper inventories jump 38% this morning
Copper inventories tracked by the LME rose 61,000t to 221,000t this morning according to the exchange.
The increase came after deliveries into warehouses in South Korea, Taiwan, the Netherlands and the US.
Aluminium US$ 1,702/t vs US$1,706/t yesterday
Nickel US$ 12,425/t vs US$12,685/t yesterday
Zinc US$ 2,044/t vs US$2,050/t yesterday
Lead US$ 1,837/t vs US$1,838/t yesterday
Tin US$ 16,650/t vs US$16,685/t yesterday
Oil US$54.3/bbl vs US$56.5/bbl yesterday
Natural Gas US$1.849/mmbtu vs US$1.825/mmbtu yesterday
Uranium US$24.80/lb vs US$24.60/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$88.3/t vs US$88.0/t
Chinese steel rebar 25mm US$535.6/t vs US$536.8/t
Thermal coal (1st year forward cif ARA) US$56.8/t vs US$57.3/t - JP Morgan to stop lending to coal companies
The lender announced at its annual investor day on Tuesday that it will no longer lend to coal companies, and will limit financing companies drilling in the arctic.
The bank has faced years of criticism from environmentalists, as it has remained the largest funder of fossil fuels despite climate protests.
This news follow commitments form some European banks and Goldman Sachs, who announced plans to limit fossil fuel funding.
JP Morgan said it will facilitate $200bn of transactions in 2020 that “support climate action”.
Coking coal swap Australia FOB US$160.0/t vs US$160.0/t
Cobalt LME 3m US$33,750/t vs US$33,750/t
NdPr Rare Earth Oxide (China) US$40,253/t vs US$40,255/t
Lithium carbonate 99% (China) US$5,628/t vs US$5,629/t - Short term pain for long term gain with lithium
Lux Research forecasts a $546bn energy storage market in 2035, with electric mobility a sizable portion of this growth. In deployed battery power per year the report expects EV to make up 91% of the market. (Mining.com)
A market of this size driven by EVs will be very positive for lithium which today is dominant in the battery space, despite research into alternative materials. Morningstar forecasts lithium demand will grow from 295,000 metric tons today to 1.9m metric tons in 2030, a 19% annual growth rate. (Morningstar)
In the short term lithium remains under pressure. Livent fell more than 15% on comments that the Company expects lithium prices to remain depressed in 2020 which will impact profits. Albemarle reiterated this view, posting weaker than expected quarterly profit on Wednesday and talked of declining earnings as a result of weak pricing. (Lithium investing news)
The coronavirus outbreak and subsequent global disruption has also impacted lithium producers, Ganfeng Lithium and Albemarle have seen their operations in China directly affected. (PV Magazine)
A price recovery is expected, in an S&P Global Platts survey 75% of respondents expected demand to increase this year despite a soft Q1. There is optimism about China’s New Energy Vehicle Market, 59% of respondents expect NEV output and sales to increase. Respondents don’t however foresee China reintroducing subsidies. (S&P Global Platts)
A supply glut, a result of reduced demand in China and opening of new mines in Australia should be worked out by 2021, earlier than previously forecast and demand growth should see prices stabilize in 2020. (Morningstar)
Ferro Vanadium 80% FOB (China) US$29.0/kg vs US$29.0/kg
Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/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
Tesla begin Model Y deliveries ahead of schedule
Tesla has begun sending confirmation emails to Model Y customers, notifying them their new vehicles will be available for delivery soon. (Teslarati)
Guidance provided by Tesla suggested deliveries for the high end version would begin in H2’20 but it appears things are moving ahead of schedule. Tesla expects to begin deliveries in March. (Cleantechnica)
The Company had originally guided to a fall 2020 release, before bringing this forward to summer 2020, acknowledging in Q1 reporting that limited production had begun in January at the Freemont California factory. Elon Musk had also been quoted as saying production preparation was ahead of schedule in October last year.
This is seemingly a break with tradition for Tesla and Musk, repeated delays to timelines have been a common theme for the company.
The Model Y is an all-electric crossover, sharing many parts with the Model 3. The vehicle has a range of up to 300 miles. The performance configuration will be delivered first, the 15th of March the earliest delivery date available to those customers that received the confirmation email. (Electrek)
EU proposal to bring back replaceable mobile phone batteries and reduce e-waste in the works
A leaked document from the EU Commission suggests they have been working on a proposal that will force companies to make devices for which the batteries are easily accessible and can be replaced. They are also pushing for longer guarantee period and repair information to be provided. (Android Authority)
Parts would have to be made easily accessible to help 3rd party service centres and further down the line a collection to make retrieval of old devices and chargers easier is planned. (Gizmo China)
Bluejay Mining* (LON:JAY) 7.8p, Mkt Cap £75m – Presentation at PDAC Greenland Day
(Dundas Ilmenite project, Greenland, 100% owned)
Bluejay Mining report it is to present at the Greenland Day at the 2020 PDAC conference in Toronto, Canada.
The Greenland Government is keen to showcase its best mining companies so as to attract investors and companies into the region.
The government appears highly supportive of mining of most materials with the exception of uranium in Greenland.
All known mining projects are either on or very close to the Greenland coast making logistics relatively simple in terms of importing machinery and materials and for exports.
Bluejay built a jetty structure for the loading of some 42,000t of ilmenite concentrate last summer demonstrating how easy it is to load bulk materials into container ships in Greenland
The company recently received confirmation from the Greenland Ministry of Mineral Resources that its SIA ‘Social Impact Assessment’ for the Dundas ilmenite project is compliant with guidelines for the purposes of public consultation related to an Exploitation Licence.
Bluejay is also looking at the potential to simultaneously apply for a Large-Scale Project Permit with its application for an Exploitation Licence depending on amendments to the ‘Large-Scale Project Act’.
*SP Angel act as nomad to Bluejay Mining. *SP Angel have visited the Dundas, Itelak ilmenite sands project in Greenland.
Rio Tinto (LON:RIO) 3917p, Mkt cap £66bn – Rio Tinto reports strong underlying earnings driven by iron ore but Coronavirus likely to impact H1 2020
Rio Tinto report a strong 18% rise in underlying earnings to $10,373m from $8,808m in 2018.
The results are tempered with a -41% fall in Net earnings to 8,010m from $13,638m a year earlier.
Rios took $1.7bn of impairments mainly due to the Oyu Tolgoi and Yarwun alumina refinery projects.
Dividends were cut by 19% to 443c/s from 550c/s yoy highlighting a more cautious view of the markets Rio Tinto are operating in and .
Net debt rose to $3.9bn reflects the $11.9bn of cash returned to shareholders in 2019 in dividends and share buybacks and free cash flow of $9.2bn.
Sales rose 7% to 43.2bn on the back of higher iron ore prices despite lower prices for copper and aluminium.
Rio Tinto forecasts iron ore costs in the Pilbara at $14-15/t giving strong margins vs iron ore prices at $88/t for 62% iron ore and significant premiums for better quality Australian ore.
Rio Tinto earned some 73% of its EBITDA from iron ore last year highlighting the significance of iron ore to the group.
Iron ore prices have held relatively well this year due to problems with supply from Vale in Brazil and a cyclone over Western Australia.
COVID-19 – Coronavirus: While the Coronavirus may not directly impact production in Australia it is disrupting supply chains in China. We are aware that unloading of ships is affected at ports in China.
We believe that goods travelling by rail is less affected but that a lack of train drivers is causing issues in the short term.
Longer term we expect steel producers to be busy manufacturing steel for government-sponsored infrastructure projects as China Inc. makes up for lost economic growth through new public projects.
We suspect the Communist party will fund numerous new hospitals and health facilities as a direct result of the Coronavirus outbreak as well as other permanent initiatives to ensure better control next time a new virus is detected in China.
In short, we expect some impact to H1 earnings from the Coronavirus though it is too early to quantify as yet.
We are concerned that sizeable shipments may be significantly delayed or turned away at Chinese ports. Rios guided to 324-334mt of iron ore shipments out of the Pilbara, most of which is destined for China on 17 February. Previous guidance was for 330-343mt.
Bluescope Steel (ASX:BSL) A$0.124c, Mkt Cap A$6.3bn – Coronavirus disruption hits Bluescope operations in china ‘heavily impacted’ in February and March
Bluescope, the Australian steel producer with four operations in China reports a 70% fall in H1 post tax profit due to lower steel prices and higher raw material costs.
H1 2020 EBIT fell 64% to $302.4m on H2 2019
The company has warned that that its second half earnings will be hit by the Coronavirus disruption in China
Versarien* (LON:VRS) 39.5p, Mkt Cap £61m – Update on collaboration work highlights ongoing progress towards commercialisation
Versarien continue to pursue its strategy to acquire stakes in companies that are able to commercialise graphene applications.
Versarien report ongoing collaboration with the BIGT ‘Beijing Institute of Graphene Technology Co. Ltd’ and CIGIU ‘China International Graphene Industry Union’.
The idea was for BIGT to provide funding to the equivalent of up to 15% of Versarien equity.
This funding should now come from other parties in collaboration with BIGT and CIGIU to enable the transfer of cash out of China.
Gnanomat (62% owned) is showing significant performance from its graphene-enhanced energy storage devices and is in discussions with two supercapacitor manufacturers for “collaborations to introduce the company’s materials into the electrodes of the manufacturer’s devices.”
Graphene is also being shown to produce encouraging results in metal-air batteries, where we believe graphene helps with thermal and electrical conductivity as well as physical and anti-corrosion strength.
‘Versarien now expects to provide a loan of €300,000 this month to Gnanomat and continue to fund the working capital of Gnanomat, as it does in the normal course of business for all its subsidiaries’
Further work includes:
Agreement with MAS Innovation (Private) Limited - global apparel manufacturer which is almost certainly looking at graphene from a wearable technology perspective.
Graphene appears suitable for inks, coatings and flexible conductive pathways in clothing. It should be effective in thermal and wicking (moisture) management and impact protection.
Versarien signed a Commercial Partnership Agreement with MAS on 27 November leading to further discussions with international brands for the use of graphene enhanced textiles.
The company is also collaborating on the use of graphene in consumer goods for polymer structures in plastics.
The team will now move to a field test a pilot run of up to 20,000 bottles following laboratory testing and optimisation of the parameters for graphene in the polymer.
Versarien is also working in collaboration with AECOM on the use of graphene in construction materials.
AECOM has finished testing of its CNCT Arch with Network Rail and Versarien has recruited the AECOM project lead to spearhead commercial progress on the Company's behalf in the UK and other regions.
We expect AECOM to start instillation of its new CNCT arches on rail lines relatively soon to enable better and more reliable signalling and safety on rail lines. This should be of significant benefit to long-suffering commuters.
See SP Angel Graphite report for further details
Versarien holds majority stakes in a number of businesses related to the advance and development of graphene materials with activities in Manchester, Cambridge, Cheltenham and the US.
Conclusion: Versarien is collaborating on many fronts to rollout graphene into commercial products with a number of UK-based and international companies. We expect to see Versarien graphene in consumer products within a few years and for graphene to enable significant enhancement and innovation in battery and other high and low-tech products after that.
The large number of collaborations looks like a text-book strategy for the monetisation of Versarien’s knowhow and technology for the benefit of its partners and shareholders while giving management better feedback and influence on the use of its material. The nature of these collaborative joint ventures is that much of the work remains confidential through the development phase.
*SP Angel act as nomad and broker to Versarien. An SP Angel analyst recently visited Versarien’s Cheltenham graphene manufacturing facilities
*SP Angel acts as UK broker to Talga Resources. An SP Angel analyst has visited the leading battery R&D institution WMG partnering with Talga.
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.
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