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SP Angel . Morning View . Wednesday 20 05 20 Gold prices rise as Brazil COVID-19 cases threaten commodity exports

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SP Angel . Morning View . Wednesday 20 05 20

Gold prices rise as Brazil COVID-19 cases threaten commodity exports

MiFID II exempt information – see disclaimer below

 

Amur Minerals* (LON:AMC) 1.20p, Mkt Cap £11m – Board change

Element25 (ASX:E25) A$0.35c, Mkt Cap £32m – Prefeasibility on Butcherbird project sends shares to new level

 

Tesla and Panasonic to expand battery production

Strong battery demand from partner Tesla has led Panasonic to enter talks to expand the joint plant in Nevada. (Business Insider)

Panasonic is no longer Tesla’s sole battery supplier but CFO Hirokazu Umeda has hinted the company may be developing new batteries alongside Tesla.

Tesla’s battery business was a bright spot in poor earnings for Panasonic, the Group’s operating profit fell 29% to 294bn yen for year end March.

Panasonic has declined to provide a forecast for 2021 but expectations are for the Company to make 225.46b yen profit.

Umeda pointed to demand exceeding current factory capacity of 35GWh/yr. (Road Show)

 

Miners in Brazil likely to see production and logistical disruption as COVID-19 sweeps through communities

Government inaction has allowed the Coronavirus to spread through Brazil though provincial governors have worked to slow the spread

The sickness is likely to impact production and logistical supply chains and will disrupt commodity exports for:

Iron ore

Niobium

Vanadium

Copper

Gold

The US is considering banning travel from Brazil due to the rapid rise in infections

While the majority of workers should not develop pneumonia from COVID-19 many will have to take time out to look after family members who are struck down by the disease.

Expect news on significant numbers of deaths in the coming weeks and on Brazil’s struggle to bury its dead

While the pandemic should not stop the loading of iron ore onto vessels some ports may restrict movement and access disrupting loading.

Crews on some vessels may also contract COVID-19 causing further issues

 

Diamond exchanges, cutters, polishers and shops start to reopen

Israel Bourse Trading Floor to Reopen May 24 (Rapport)

The Gemological Institute of America (GIA) has reopened laboratories in five locations following COVID-19 shutdowns.

Cancelled JA New York summer show rescheduled in October

Diamond manufacturer Asian Star received special permission to resume partial operations in Mumbai’s Special Economic Zone and will observe guidelines on social distancing etc….

California jeweller Tacori restarts shops as does Henne Jewellers in Pitsburgh.

Antwerp offers €50m in grants to help companies survive the crisis.

Alrosa may sell rough diamonds to the Russian state Gokhran.

BlueRock restarts Kareevlei diamond mine in South Africa and shifts sales of rough to Antwerp.

India allows Mumbai diamond-and-jewellery cutters and polishers to reopen for export but with 10% of workforce.

Antwerp World Diamond Centre ‘AWDC’ reports shipping is operational between Antwerp and all destinations.

 

Stimulus funding rises again as China hits at more stimulus and France and Germany agree to new recovery fund

China - Expect more stimulus from the National Peoples Congress this week

China State Council announced national level planning to support development in Western China

$2tn US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries

The House passed a $484bn aid package to rescue small small businesses, hospitals ($75bn) and coronavirus testing ($25bn).

$2tn US – Trump looking at $2tn infrastructure fund

$700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE to buy Treasuries and mortgage-backed securities.

US Fed may soon start buying in up to $750 billion of corporate debt and ETFs

$543bn EU Crisis Recovery fund backed France and Germany + $963bn (€750bn) ECB scraps limits on sovereign bond purchases. ECB PEPP buying running at around €250bn

EU Finance Ministers have so far failed to agree on a strategy to mitigate the economic impact of the pandemic.

The pandemic emergency purchase programme (PEPP) and asset purchase programme (APP) have been reiterated with a cap of €750bn and €120bn, respectively.

The bank is reported to have used €100bn of the PEPP so far.

$825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds

$909m $344bn of China stimulus + $565bn in special bonds for infrastructure by local authorities

$996bn (108.2tn yen) – Japan +  BoJ pledge for unlimited quantitative easing

400bn (£330bn) UK + $242bn (£200bn) UK QE from BoE & no business rates plus £25,000 cash grants for hospitality sector

$387bn (€304bn) France, $200bn (€200bn) Spain, $214bn (A$320bn) Australia Australia - RBA ready to buy bonds again.

US$260bn - India representing 10% of GDP.

$78bn (C$107bn) Canada, $32bn Saudi Arabia, US$43.7bn Singapore, $22.6bn India, $19.3bn HK, $13.7bn South Korea, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,

Argentina to default on $10bn of dollar debt issued til the end of the year. Does not affect the $70bn that Argentina is currently in talks to restructure.

$1,000bn - IMF available + $12bn World Bank,

>13.2tn Total

 

Dow Jones Industrials

-1.59%

at

24,207

Nikkei 225

+0.79%

at

20,595

HK Hang Seng

-0.15%

at

24,352

Shanghai Composite

-0.51%

at

2,884

 

Economics

Lufthansa urges the government to support the airline as the business burns through 800m euros per month after the pandemic grounded most of its fleet.

The company is negotiating the €9bn rescue plan with authorities.

 

Rolls Royce will be cutting 17% if its workforce laying off 9,000 people amid a travel slump leading to weak orders for jet engines, the company said.

 

US – Housing data highlights the slump in the sector brought by strict virus containment measures with new housing starts down by 30%mom and building permits off 21%mom in April.

The data points to an acceleration of declines marking a rapid turnaround from strong to the year driven by robust demand amid steady job market and cheap borrowing costs.

Hopes are April will mark the lowest point with builder sentiment up in May.

Housing Starts (%mom): -30.2 v -18.6 in March and -26.0 est.

Building Permits (%mom): -20.8 v -5.7 n March and -25.9 est.

 

China – The loan prime rate (LPR) that is used as the reference in new loans and outstanding floating rate ones as left unchanged.

The move was broadly expected as the PBOC has previously decided to leave the medium-term lending facility rate unchanged with the LPR set as a spread over the MLF.

1y and 5y LPRs were left at 3.85% and 4.65%, respectively, with authorities seen reluctant to offer more monetary stimulus for now.

“Nonetheless, the latest monetary policy report does suggest that the lack of a rate cut reflects a pause in, rather than an end to, the current easing cycle,” Capital Economics commented on the news.

 

Japan – Poor machine orders data saw a fourth consecutive yoy drop in March as businesses delay capital investment decisions.

April  is likely to see sharper declines after the government announced the state of emergency nationwide.

Separately, the central bank will hold an unscheduled policy meeting on Friday potentially to sign off on a scheme aimed at boosting lending to small businesses.

The BOJ is widely expected to keep other monetary setting unchanged including its interest rates, Reuters reports.

Core Machine Orders (%mom/yoy): -0.4/-0.7 v 2.3/-2.4 in February and -6.7/-8.6 est.

 

UK – Inflation rate halved from the previous year and hit a negative reading on the previous month in April.

The weakest reading since 2016 was driven by low energy prices (core CPI is down 0.2pp at 1.4% from March) and a drop in economic activity amid lockdowns.

The pound is off against the US$ this morning trading around the 1.22 mark.

CPI (%mom/yoy): -0.2/0.8 v 0.0/1.5 in March and -0.1/0.9 est.

Core CPI (%yoy): 1.4 v 1.6 in March and 1.4 est.

UK – McDonald’s reopens 40 drive thru restaurants in the UK today.

 

South Africa Mine production rises 7% YoY in February as open cast mines reopen

According to Statistics South Africa (Stats SA), mining production in the country increased by 7% in February.

The largest positive contribution was from the coal sector, which contributed 13.7% followed by gold with 11.5% and PGMs with 8.7%. 

The statistics do not reflect the impact that Covid-19 restrictions had on South Africa, which were implemented at the end of March. 

 

Thailand - April domestic car sales fall 65% 

Domestic car sales in Thailand fell for the eleventh straight month, falling 65% compared to a year earlier to 30,109 vehicles. 

 

Brazil – The nation reported daily record for COVID-19 cases and deaths turning it into the world’s fastest growing hot spot, Bloomberg reports.

 

Turkey – The government secured an expansion of its currency swap agreement with Qatar by $10bn amid depleting FX reserves.

The agreement triples the maximum limit on currency swap lines.

Qatari real is pegged to the US$.

The lira is up 0.15% against the US$ this morning and more than 1% since the start of the week.

 

Ecuador likely to reopen international airport in June following Coronavirus lockdown

The country closed all boarders including to citizens and residents, for 21 days from 16 March.

 

Currencies

US$1.0953/eur vs 1.0940/eur yesterday.  Yen 107.68/$ vs 107.42/$.  SAr 18.265/$ vs 18.240/$.  $1.224/gbp vs $1.226/gbp.  0.654/aud vs 0.655/aud.  CNY 7.105/$ vs 7.107/$.

 

Commodity News

Precious metals:         

Gold US$1,749/oz vs US$1,731/oz yesterday

   Gold ETFs 99.0moz vs US$98.9moz yesterday

Platinum US$846/oz vs US$817/oz yesterday

Palladium US$2,042/oz vs US$2,034/oz yesterday

Silver US$17.52/oz vs US$17.03/oz yesterday

           

Base metals:  

Copper US$ 5,346/t vs US$5,368/t yesterday

Aluminium US$ 1,491/t vs US$1,500/t yesterday

Nickel US$ 12,445/t vs US$12,350/t yesterday

Zinc US$ 2,014/t vs US$2,018/t yesterday

Lead US$ 1,678/t vs US$1,667/t yesterday

Tin US$ 15,465/t vs US$15,250/t yesterday - Shanghai tin prices hit three-month high 

Reduced global tin production caused by lockdowns is likely to result in supplies falling short of demand, meaning tin is likely to outperform other base metals this year. 

The market is still in a huge backwardation, indicating a tightness of short-term supplies, due to robust demand for the metal used in electronics. 

The most traded contract on the Shanghai Futures Exchange climbed as much as 3.5% yesterday to 135,390 yuan ($19,058)/t - the highest since January. 

Three-month tin on the LME rose 0.7% to $15,470/t this morning - the highest level since the 28th of April (Reuters). 

           

Energy:           

Oil US$34.8/bbl vs US$35.3/bbl yesterday - WTI futures dropped below US$32/bbl, down 1.0% at the time of writing, amid the early morning trading in Asia.

In doing so, the WTI trading ignores a draw in the weekly inventory data from the API

As per the latest API figures for the week ended 15 May, the US Weekly Crude Oil Stock fell by 4.8MMbbls vs a 7.6MMbbls build the week before

Yesterday oil prices rose to their highest levels since March 16 but have taken a small hit today due to fears of a fully-fledged trade war

Not only the US-China tussle but the recent Aussie-Sino tension also suggests further hardships for the dragon nation

Reports suggests the recent hit is stemming from Donald Trump’s push for an investigation into China’s role in global COVID-19 outbreak

Energy demand is down as industrial usage declined sharply during the recent quarantines

Natural Gas US$1.822/mmbtu vs US$1.805/mmbtu yesterday - prices rose yesterday, rebounding from 15% from May lows, and closing at the session highs

This comes ahead of tomorrow’s inventory report from the Department of Energy

Expectations are for a 99Bcf build, which follows last week’s 103Bcf build

The weather is expected to be warmer than normal over the next 2 weeks, which is likely to weigh on energy demand

 

Uranium US$33.70/lb vs US$33.65/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$95.0/t vs US$94.1/t - South Africa - Chinese iron ore futures rise for sixth straight session on Wednesday 

Iron ore futures on the Dalian Commodity Exchange hit $100/t on Wednesday, as supply concerns and China's strong appetite pushed spot prices to an eight-month high. 

China's parliament begins its annual session this week and is expected to unveil stimulus measures which is likely to further increase demand for the steelmaking ingredient (Hellenic Shipping News). 

Iron ore arrivals at major Chinese ports stood at 13.51mt last week, down 540,000t compared to the week before. Shipments that departed Brazilian ports were estimated to fall 560,000t to 4.71mt last week (SMM News). 

Brazil has the third-highest number of Covid-19 cases globally, which is causing disruptions to the country's mining operations. 

This morning, the Dalian's most-traded September iron ore contract rose 2.3% to 714 yuan ($100.56)/t (Reuters). 

Chinese steel rebar 25mm US$549.4/t vs US$548.0/t

Thermal coal (1st year forward cif ARA) US$52.3/t vs US$52.8/t

Coking coal swap Australia FOB US$120.0/t vs US$123.0/t

           

Other: 

Cobalt LME 3m US$30,000/t vs US$30,000/t

NdPr Rare Earth Oxide (China) US$37,933/t vs US$37,918/t

Lithium carbonate 99% (China) US$5,137/t vs US$5,135/t

Ferro Vanadium 80% FOB (China) US$27.0/kg vs US$27.0/kg

Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg

Tungsten APT European US$210-220/mtu vs US$215-225/mtu

Graphite flake 94% C, -100 mesh, fob China US$500/t vs US$500/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,350/t vs US$2,425/t

 

Battery News

Tesla prepares vehicles for bi-directional charging (Electrek)

Tesla has been preparing the Model 3 and Model Y for bi-directional charging. Conversion from DC to AC.

Presence of an inverter enabling power to flow from the battery to the AC side in a vehicle is referred to as vehicle to grid technology. Reverse engineering of the Tesla Model 3 battery has shown it has this capability.

The concerns about the technology have been accelerated battery degradation and the only moderate benefit at small scale.

Tesla’s view is vehicle to grid technology is more efficient at scale and as with other technologies requires customer willingness to participate.

The Californian EV maker has been making the onboard vehicle charger of several models ready for bi-directional charging.

 

Spreadable interlayer moves solid state batteries closer to commercial application at scale

Scientists at Chalmers University of Technology, Sweden and Xi’an Jiaotong University, China has an interlayer of spreadable material improving current density, performance, and safety. (Phys.org)

The soft mass is easily applied to the lithium metal anode to stabilise the interface of solid-state batteries.

Researchers have been trying to develop a solution to difficult to keep together layers of solid-state batteries and issues of compatibility and chemical instability between layers. (New Atlas)

The new material is composed of ceramic electrolyte LAGP nanoparticles and an ionic liquid which surrounds the LAGP particles creating a soft protective interface.

The results are published in Advanced Functional Materials.

 

Company News

Amur Minerals* (LON:AMC) 1.20p, Mkt Cap £11m – Board change

Mr Ljupco Naumovski is stepping down as a Non-Executive Director of the Company with immediate effect to concentrate on his other business interests.

Mr Naumovski will continue to support the Company as an advisor to the Board.

*SP Angel act as Nomad and Broker to Amur Minerals

 

Element25 (ASX:E25and ) A$0.35c, Mkt Cap £32m – Prefeasibility on Butcherbird project sends shares to new level

Element 25 released a new Pre-Feasibility Study for the Butcherbird manganese project, in Western Australia, yesterday

The company report a maiden Proved and Probable Ore Reserve of 50.55mt grading 10.3% manganese containing 4.28mt of recoverable manganese.

The study estimates:

NPV of A$441m nominal and A$283n real at an 8% discount rate

IRR 255% nominal and 223% real

CAPEX is just A$14.5m + A$9.2m for working capital.

Payback is just 6 months

Average annual operating cashflow of $32.1m in the first five years with a 42 year mine life

The project plans to produce medium grade manganese which is the fastest growing section of the manganese market.

Production and sale of 312,000tpa of medium grade lump manganese concentrate grading 30-35% Mn.

Management also plan to develop a plant to produce electrolytic manganese metal ‘EMM’.

Prices: Chinese manganese ore prices have risen to a new 2020 high of Rmb6,400-6,500/t, while this is still below the Rmb6,900/t seen last summer it is still a good price and reflects rising steel production in China

Conclusion:  These are compelling pre feasibility study estimates and appear to support the development of the Butcherbird project.

 

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

 

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II - Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins ([email protected]).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%

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