SP Angel . Morning View . US-Iran de-escalation leads to a relief rally in equity markets

SP Angel . Morning View . Thursday 09 01 20

US-Iran de-escalation leads to a relief rally in equity markets

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MiFID II exempt information – see disclaimer below   

 

Central Asia Metals (CAML LN) – 2019 operations report

Ormonde Mining* (ORM LN) – Proposed disposal of residual interest in Barruecopardo

Tri-Star Resources* (TSTR LN) – SPMP financing update

Sirius Minerals (SXX LN) - Anglo American (AAL LN) – Sirius in discussions with Anglo American over potential £386m offer

 

Tesla becomes the highest valued automaker in US history (Market Insider)

• Recent stocks rallies edged Tesla past Ford’s 1999 value of $80.8bn to $85bn at the close on Tuesday, as the company’s share price was up 12% YTD.
• The latest move skywards is triggered by Tesla beating its low end guidance forecasts, delivering 367,500 vehicle in 2019.
• For context Toyota in Japan is worth $232bn while Volkswagen in Germany is valued at $98bn.

 

Dow Jones Industrials		+0.56%	at	28,745
Nikkei 225		+2.31%	at	23,740
HK Hang Seng		+1.68%	at	28,561
Shanghai Composite		+0.91%	at	3,095
FTSE 350 Mining		-0.24%	at	19,108
AIM Basic Resources		-0.92%	at	2,121

 

Economics

US – President Trump said the US will not respond military to Iran’s attacks on American forces in Iraq in an attempt to de-escalate the crisis in the Middle East.

• No American or Iraqi casualties have been recorded as a result of a dozen of ballistic missiles fired at two bases in Iraq on Tuesday night.
• The US promised more “punishing economic sanctions” on Iran as a result.
• The US and Iran had exchanged de-escalatory messages overnight through a Swiss back channel, a person familiar with the matter told the Financial Times.
• The news was welcomed by market with a relief rally as gold and oil prices pulled back and equities climbed.
• Oil prices are lower than they were before the killing of Qassem Soleimani while gold is trading sub $1,550/oz this morning.

 

China – VP Liu to travel to the US and sign the Phase One agreement in Washington next week, the commerce ministry said.

• Inflation steadied at 4.5%yoy as pork prices that climbed 97%yoy recorded a 5.6%mom drop.
• Food prices may pick up during the Lunar New Year holidays, but inflation pressures beyond that is likely to be limited.
• Core inflation that excludes food and energy prices stayed largely subdued.
• “The PBOC is likely to continue to use interest rate and liquidity tools to loosen monetary conditions in 2020… we expect the PBOC to stick to a stance of measured easing to counter the economic slowdown,” Bloomberg Economics commented on the data.
• On a less positive side, producer prices continued to drop putting pressure on industrial profits.
• CPI (%yoy): 4.5 v 4.5 in November and 4.7 forecast.
• PPI (%yoy): -0.5 v -1.4 in November and -0.4 forecast.

 

Germany – Poor November trade data highlighted the growth momentum remained weak in the largest Eurozone economy.

• Exports dropped 2.3%mom while imports were down 0.5%mom.
• Industrial production came in higher than expected in November climbing 1.1%mom v 0.8%mom forecast.
• This suggested the annual decline slowed towards the end of last year, although, the sector continued to weigh on economy-wide growth rates.
• Weak factory orders released yesterday are a reminder that any rebound is likely to be modest in the near term, Bloomberg reports.

 

Iran – Ukraine’s embassy in Iran on Wednesday dropped an initial reference to engine failure as the cause of a plane crash that killed 176 citizens.

• The cause of the disaster is still unknown as investigators do not rule out a possible accident involving a military missile.

 

South Africa – The World Bank cut forecast 2020 growth rate to below 1% due to electricity supply risks.

• The economy is expected to grow 0.9%yoy, a revision of 0.1pp from 1.0% estimated in October.
• This compares to 0.4% forecast by markets for 2019.

 

Currencies

US$1.1103/eur vs 1.1131/eur yesterday.  Yen 109.37/$ vs 108.46/$.  SAr 14.132/$ vs 14.238/$.  $1.304/gbp vs $1.315/gbp.  0.686/aud vs 0.687/aud.  CNY 6.934/$ vs  6.943/$.

 

Commodity News

Gold US$1,548/oz vs US$1,580/oz yesterday - World Gold Council – Global Gold-backed ETF holdings grew 14% in 2019 reaching all-time highs

• Gold-backed ETFs and similar products had US$19.2bn, or 400t of net inflows in 2019.
• Global gold-backed assets under management grew 37% in US dollars as a result of positive demand with an 18.4% increase in the gold price.
• North American funds led regional inflows in 2019, adding 206t (US$10.1bn), driven by growing geopolitical tensions and the first Fed rate cuts in a decade.
• European funds experienced inflows of 188t (US$8.8bn) driven primarily by UK-based funds.
• Gold saw its strongest price increase in ten years in 2019, and the WGC believe that many of gold’s geopolitical, market and economic drivers could continue into 2020.

Gold falls as Iran fears subside (mining.com)

• Gold plummeted on Wednesday after spiking to a near seven-year high as a result of tension in the Middle East.
• Yesterday saw gold drop to $1,553/oz, down 3.7% and the largest fall in nearly seven years.
• Tensions between the US and Iran were calmed  somewhat when Trump said that Iran ‘appeared to be standing down’.
• The latest development led to a turnaround in the global risk sentiment, a positive move across equity markets, however one which weighed heavily on traditional safe-haven assets (FX Street).

   Gold ETFs 81.6moz vs US$81.8moz yesterday

Platinum US$956/oz vs US$964/oz yesterday

Palladium US$2,122/oz vs US$2,079/oz yesterday

Silver US$17.94/oz vs US$18.39/oz yesterday

           

Base metals:   

Copper US$ 6,183/t vs US$6,168/t yesterday

Aluminium US$ 1,799/t vs US$1,804/t yesterday

Nickel US$ 14,190/t vs US$13,850/t yesterday - Indonesia approves environmental study for battery-grade nickel plants (Reuters)

• Indonesia has approved impact studies for factories to produce battery-grade nickel chemicals in Morowali.
• There are at least five plants being built currently as the government seeks to create an integrated nickel industry, one of which is a high-pressure acid leaching plant being built by China’s stainless steel giant Tsingshan Group.
• Two plants represent a combined investment of $2.3bn are expected to be built in Morowali, both by a consortium of Chinese companies.
• In December, Reuters reported that Indonesia are aiming to be operational in producing lithium-ion batteries for EV use by 2023.

Zinc US$ 2,392/t vs US$2,366/t yesterday

Lead US$ 1,917/t vs US$1,912/t yesterday

Tin US$ 17,250/t vs US$16,955/t yesterday

           

Energy:           

Oil US$65.9/bbl vs US$68.6/bbl yesterday - Oil prices have retreated following due to an apparent ease of tensions between the US and Iran

• An upbeat Trump tweet served to defuse tension on the oil market, at least temporarily, with prices falling back from their initial highs that followed the Friday assassination
• Oil prices gained over 4% in the past week as the market priced in the potential of further attacks which may disrupt global energy supplies
• 20% of global oil supply flows through the Strait of Hormuz, a narrow shipping route between Oman and Iran.
• It was targeted last year by Iran, which seized two oil tankers in the strait and is an area of clear focus
• Heightened geopolitical risk is also underpinning fundamental support for oil prices
• The global inventory indicator reported a build of 50MMbbls of oil for Q418, while the last quarter came it at only 9MMbbls, indicating that the market is in an already tighter situation with regards to the supply demand dynamic
• Brent futures were down 0.8% to $67.3/bbl, whilst WTI futures were down 1.1% to US$60.7/bbl

Natural Gas US$2.127/mmbtu vs US$2.171/mmbtu yesterday - Natural gas prices traded flat yesterday and are attempting to stabilise after falling 1.7% last week  

• Demand rose last week despite mixed weather as it was driven by power generation and buildings sectors
• The weather over the next 6-10 and 8-14 days is expected to be colder than normal in the west and much warmer than normal in then east of the US, which is keeping prices capped 

Uranium US$24.65/lb vs US$24.70/lb yesterday – Uzbekistan to export >$1bn worth of uranium to Japan from 2023-2030 according to new presidential decree

• The contract was signed during the president’s trip to Japan in December between Navoi Mining and Metallurgical Combine of Uzbekistan and Itochu and Marubeni.
• Uzbekistan is the world's 7^th largest uranium producer
• The nation which hosts US and Russian airbases signed a 7-year uranium supply contract with the US for $300m 201 with a similar long-term contract was signed with India last year.
• Uzbekistan’s new president is keen to restore international trust and relations and is looking to IPO a number of state companies in an effort to reconnect with the world and bring in new investment.
• Uzbekistan seized the principal assets of Oxus Gold iun 2011 forcing management to flee the country. A member of Oxus staff was said to have been interned with hard labour.  
• Oxus has been in litigation with the government of Uzbekistan since winning a US$13m arbitral award but losing an appeal to revive a US$1.2bn claim for the seizure of its gold assets. The Uzbek government has yet to pay the arbitration award despite Oxus previously investing substantially more than this in the seized assets.

 

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$93.7/t vs US$93.3/t

Chinese steel rebar 25mm US$568.3/t vs US$567.4/t

Thermal coal (1st year forward cif ARA) US$64.5/t vs US$64.7/t - India to open up coal sector for commercial mining (Economic Times India)

• India has opened up the coal sector completely for commercial mining for all local and global firms, in a move which is hoped will open up new areas of growth in the sector.
• The government has proposed to reform the coal mining auction process this month and release new regulations after consultations with stakeholders.
• Despite having the world’s fourth largest coal reserves, India imported 235mt of coal last year.
• Mining minister Pralhad Joshi said India is looking to replace up to 135mt of coal imports with domestic output (S&P Global).

Coking coal futures Dalian Exchange US$178.7/t vs US$178.5/t

           

Other:  

Cobalt LME 3m US$31,750/t vs US$32,000/t

NdPr Rare Earth Oxide (China) US$40,306/t vs US$40,330/t

Lithium carbonate 99% (China) US$5,696/t vs US$5,689/t

Ferro Vanadium 80% FOB (China) US$28.5/kg vs US$28.5/kg

Antimony Trioxide 99.5% EU (China) US$5.1/kg vs US$5.1/kg

Tungsten APT European US$235-245/mtu vs US$235-245/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

Sony unveils electric car prototype at CES 2020 (Proactive)

• Sony, the tech giant famous for the PlayStation consoles showed off its first offering in the EV space: Vision-S.
• Vision-S is a prototype, 4 seat all-wheel drive saloon vehicle
• Speaking at the event CEO, Kenichiro Yoshida explained that Sony believe the next mega-trend will be in mobility.
• The car showed off Sony’s technology offering in safety, entertainment and adaptability (Motoring Research).

 

Company News

Central Asia Metals (CAML LN)  221 pence, Mkt Cap £388.9m – 2019 operations report

• Central Asia Metals reports that it produced 13,771t of copper from its Kounrad operation during 2019, exceeding its previously published guidance range of between 12,500-13,500 tonnes.
• At the Sasa mine in North Macedonia, production of 23,369t of zinc in concentrates and 29,201 of lead in concentrate brought 2019 production in at close to the upper end of the published guidance range of 22-24,000t of zinc in concentrate and 28-30,000t of lead in concentrate.
• The company’s guidance for 2020 is for copper production in the range 12,500-13,500t of copper, in line with 2019 and slightly increased to 23-25,000t of zinc in concentrate and 30-32,000t of lead in concentrate.
• Following a strategic view conducted with the assistance of the company’s operational management and appropriate external consultants of the mining methods employed at Sasa, “the CAML Board has decided in principle to transition to cut and fill stoping at Svinja Reka” from the current sub-level caving. The change to a more flexible, safer mining method is expected to improve recovery rates and reduce mining dilution leading to improvements in reserve grades for both lead and zinc and to “increased metal production over the life of the mine”.
• As part of the change to cut-and-fill mining it is estimated that “over 60% of Sasa tailings production would be placed underground as this forms part of the 'paste' fill of the mined voids” offering an environmentally preferable method of disposal to the “traditional surface tailings dams”.
• The company explains that “While detailed capital and operating cost expectations have yet to be finalised, the capital expenditure required to construct a paste plant should be spread over two years from 2021 onwards and is expected to be more than offset by the savings in not constructing further downstream tailings facilities over the life of the mine. CAML does not expect to incur any material capital expenditure for this transition during 2020.”
• The company reports that “As of 31 December 2019, CAML had cash in the bank of $32.4 million and gross debt of $108.8 million”.

 

Ormonde Mining* (ORM LN)  0.7p, Mkt Cap £3.3m – Proposed disposal of residual interest in Barruecopardo

• Ormonde Mining reported yesterday that it “has agreed to sell its 30% interest in Barr BV [the joint venture holding company for the Barruecopardo Tungsten Mine in Salamanca, Spain] to Oaktree, the 70% majority owner and 100% debt provider” for €6m in cash.

• Despite the sale, in November 2019, of initial tungsten concentrate production from the mine, the company has previously reported that it was experiencing lower grades and a slower than expected build up in production volumes requiring accelerated waste removal and increased costs.
• Current prices for the benchmark ammonium paratungstate product at US$235-245/metric tonne unit (mtu) remain significantly below the US$350/mtu price used in the project feasibility study and as a result, 30^th November debt levels in Barr BV stood at €58.8m and are expected “to increase to over €70 million within the next 12 months (due to draws of the remaining undrawn debt, together with capitalisation of interest on cumulative debt)”.
• The company and its advisors considered that raising additional capital to  address Ormonde Mining’s share of the shortfall “would be highly uncertain given the current performance of the Mine and market conditions, and likely highly dilutive to existing Shareholders.”
• Ormonde Mining also considered the possibility of Oaktree providing the full additional funding and swapping its debt for additional equity “would have inevitably resulted in a large dilution of Ormonde’s interest, substantially reducing any future upside to Ormonde from the Barr BV group, whilst leaving Ormonde exposed to the operating company and project risks”.
• On balance, the Ormonde Mining management have concluded that “taking account of the ore losses to date, high and rising debt levels, the tungsten price environment, accelerated mining rates to deal with these impacts, together with the potential risk and returns from the other scenarios” the proposed disposal of its minority stake in Barruecopardo for a guaranteed cash sum represents the best option for its shareholders.
• The company also cautions that “Should the Disposal not take place, Shareholders should be aware of the possibility that Saloro SLU (“Saloro”) could become in default under the terms of its debt financing by Oaktree (and require a waiver from Oaktree), and the security given by Ormonde over its shares in Barr BV, as part of the 2015 financing, could be enforced. In such event, the Board believes that it would be unlikely that any value would be retained by Shareholders.”
• The proposed disposal is conditional on shareholder approval which is to be considered by members at an EGM on 12^th February.

Conclusion: In the face of weak tungsten prices, lower mine grades, a slower than expected build up in production and rising debt, Ormonde Mining is proposing to sell its remaining 30% interest in the Barruecopardo tungsten mine to the majority shareholder, Oaktree Capital, for €6m.

*SP Angel acts as Broker to Ormonde Mining

 

Tri-Star Resources* (TSTR LN)  15.5p, Mkt Cap £14.8m – SPMP financing update

(Tri-Star holds 40% in ‘SPMP’(Strategic & Precious Metals Processing LLC) which owns the antimony-gold processing facility in the Port of Sohar Free Zone, Oman)

World’s first Clean Plant designed to EU Environmental standards.

Target gold capacity 50,000ozpa, antimony 20,000tpa

• Tri-Star resources reports further developments in the financing of its 40% owned SPMP, the developer of an antimony and gold treatment plant in Oman.
• The company has announced that “Following a USD 16 million cash injection by OIF into SPMP and consequent payments made by SPMP to its bankers, the Board of Tri-Star has been informed that SPMP is no longer in technical default on its loans to Bank Nizwa SAOG and Alizz Islamic Bank SAOG”. The technical default at SPMP was announced by the company in a release on 3^rd January.
• As one the guarantors of the loans, we assume that the lifting of the default will be welcomed by Tri-Star Resources and will allow longer term plans for addressing the technical, operational and financing aspects of the project to be implemented.
• Tri-Star confirms that “Negotiations between the shareholders of SPMP continue as to how the short term financing (including the USD 16 million referred to above) to SPMP will be structured and on what terms”.
• The SPMP facility in Oman is an environmentally advanced plant for the production of antimony and additionally its ability to recover gold from complex ores and concentrates opens up treatment possibilities not currently available for a number of gold deposits. The plant has, however, experienced a number of technical and financial setbacks which have resulted in deferments of expected steady-state production

Conclusion:  Addressing the technical default at SPMP should give a little more room to manoeuvre while short term financing structures are put in place and the technical and operating issues are addressed.

*SP Angel acts as Nomad to Tri-Star Resources. David Facey, a former partner at SP Angel is the CEO & CFO at Tri-Star Resources.

 

Sirius Minerals (SXX LN)  5.5p, Mkt cap £386m – Sirius in discussions with Anglo American over potential £386m offer

Anglo American (AAL LN)  2138 pence, Mkt Cap £26.9bn  

• The good news is that Anglo American appear keen to press on with the development of the Woodsmith mine, near Whitby in North Yorkshire.
• The bad news is that Anglo American’s potential offer, if it comes through, may be for just 5.5p/s leaving many of the 85,000 retail investors facing substantial losses.
• Investors facing losses may have an issue with the salaries and bonuses of the CEO and FD which amounted to 824,320 last year.
• In 2018 the two executive directors earned £805,000 with the ceo taking a 100% bonus and the fd taking a 92.25% bonus. We wonder how that was passed by the renumeration committee and it will be interesting to see if they seek to extract similar bonuses for 2019?
• While we like the idea of Anglo diversifying its portfolio we are wary of the dynamics of the fertiliser markets which are difficult to predict and where there is said to be much readily available potash in Canadian brines ready to meet a rally in the market and to dissuade new entrants.
• Interview link on Sirus: https://youtu.be/XbwcUUBrCjg

Conclusion:  Certain experts see Polyhalite as complex with high capital and high operating costs with the Boulby operation nearby not thought to be particularly cash generative.

 

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	DCE
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

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