SP Angel . Morning View . Friday 31 01 20

Risk sentiment hit by WHO global health emergency declaration

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MiFID II exempt information – see disclaimer below   

Arc Minerals (ARCM LN) – Strong Buy – Long intercept of copper at Cheyeza raises prospect of much larger resource

 

Aura Energy* (AURA LN) – Quarterly Report

Metals Exploration (MTL LN) – Sale of senior loan facility completed

Vast Resources* (VAST LN) – $7.1 Atlas tranche completed 

 

Brexit Day – The UK officially leaves the European Union today 

  • Nothing much changes between the UK and Europe till after the negotiations between the two groups of politicians
  • There will now be a period of negotiation, horse trading and political posturing
  • Boris Johnson has sufficient majority in the House of Commons to force through virtually any deal the government agrees with Europe
  • Labour’s hard liners don’t much like Europe either, hence their uncommitted stance through the election campaign
  • Europe needs access to the UK with Germany suffering from falling auto sales and the need to transition from diesel to cleaner gasoline and electric vehicles
  • The Coronavirus is likely to hit disrupt trade, consumer confidence and global economic growth making life that bit tougher for everyone

 

China Coronavirus 2019-nCoV may not be much worse than a bad flu

  • The World Health Organisation ‘WHO’ has declared the Coronavirus to be a ‘public health emergency of international concern’ in a statement commending China for its response
  • There are now 213 deaths in China out of c.10,000 confirmed cases putting the mortality rate at a very preliminary 2.2% though we are sure this is an overestimation.
  • We know the virus is spread substantially through China which might normally be expected to cause several thousand deaths
  • Reality is that there are probably around 500,000 infected cases by now according to a chart of predicted cases by Imperial College and the University of Hong Konghttps://twitter.com/just_vasi/status/1222238935629402112/photo/1
  • We will not have a clear picture of the mortality rate for a few weeks but we suspect the mortality rate will be significantly under 1%
  • Slowing the infection rate down will buy time for the development of tests and vaccines with a first vaccine likely within the next two to three months
  • In a crude attempt to create some sort of perspective c.1bn people catch the flu annually causing around c.5m fatalities.
  • Globally ‘severe cases’ normally run at around 0.5% of infections on which deaths run at 13% of severe cases and 0.07% of all cases
  • If we compare this with the c.7,000 currently confirmed Coronavirus cases leading to c.200 fatalities then we could infer a mortality rate of 3% of ‘severe cases’ against the flu’s estimated 13%
  • Globally there are around 700,000 deaths from Influenza ‘flu’ annually
  • The Coronavirus would therefore be substantially less dangerous than Influenza in the US
  • China normally charges patients and their families for healthcare causing many people to stay away from hospitals and physicians which will also skew the number of presenting cases
  • The Head of the Russian Academy of Sciences ‘RAS’ reckons a global epidemic is possible by March

Conclusion: The Coronavirus is going to impact global growth due to the extension of the Chinese new year holiday and other travel restrictions.

China is likely to move to restore economic growth and confidence in the ruling Communist Party through further expenditure on infrastructure and other construction.

This is likely to stimulate further demand for base metals and other industrial commodities.

*See SP Angel Health Care team for further specialist analysis of the situation

 

Chinese rare earth exports to US rise 12% in 2019 (Reuters) 

  • Exports to the US jumped 12% in 2019, as the Pentagon bolsters its rare earth stocks amid potential supply issues if tensions between the two countries escalate.
  • Imports form China rose to 4,593t last year vs 4,103t in 2018.
  • China sparked concerns in May 2019 that it could restrict the supply of rare earths, however did not announce any formal measures and later signed a Phase-1 deal.
  • Reuters reported last month that the US military is seeking to stock neodymium iron boron magnets.

 

2020 has seen an interesting and volatile start to the year

  • The China 2019-nCoV virus smashed copper and other traded LME metals prices on its potential impact of demand.
  • News of the virus was a red rag to Hedge funds, traders and other speculators who shorted and sold down metals as news emerged of travel restrictions and lock-downs in Chinese cities.
  • Copper prices fell to heavily on the virus news following an early rally following bullish equity markets.
  • Equities suffered far less recovering much of their virus-related losses when Apple Inc. reported strong earnings leading the market to look for a better US corporate earnings season.
  • Equities are likely to remain volatile as more data emerges on the Coronavirus.
  • We see funds as buying back into copper again quite soon but with some caution till there is greater confidence that the virus outbreak can be contained in China and elsewhere.
  • Longer term we expect copper to report a growing supply/demand deficit as demand for Electric Vehicles, charging points and related infrastructure rises beyond mine and scrap supply.
  • Disruption to copper and other smelting which is mainly done in China may also serve to drive prices higher elsewhere in the world particularly if the Chinese new year break is extended again as part of the virus containment program.
  • The US are still threatening more metal tariffs in the ongoing Trade War against China as the Trump administration piles the pressure on the Chinese leadership despite signing a Phase 1 Trade Deal.
  • China accounts for around half of all metal demand with Copper at 52%, Aluminium 47%, Nickel 54%, Zinc 50%, Tin 45%

 

Dow Jones Industrials

 

+0.43%

at

28,859

Nikkei 225

 

+0.99%

at

22,205

HK Hang Seng

 

-0.52%

at

26,313

Shanghai Composite

 

CLOSED

at

2,977

FTSE 350 Mining

 

-0.56%

at

17,896

AIM Basic Resources

 

+2.15%

at

2,152

 

Economics

US – President Trump signed the USMCA legislation following three years of negotiations with major trading partners.

  • The deal that updates the 1994 Nafta pact will take effect after Canada’s parliament ratifies it.
  • Better than expected Amazon quarterly numbers saw shares climbing 10% in after trade hours taking its market capitalisation past the $1tn level.

 

China – Numbers of registered coronavirus cases continue to rise with 10,000 infected in China, 213 people deceased and another 1,527 in serious condition.

  • In light of increasing number of infected, the World Health Organisation declared the virus a global health emergency.
  • The rapid spread of the virus fuelled discontent over the government response to the outbreak, FT reports.
  • The anger was directed at local officials who failed to disclose the outbreak in time with Wuhan authorities estimating that some 5m people had left the city before the metropolis of 11m was quarantined.
  • Economic consequence of the outbreak are likely to be significant with FT saying Chinese GDP growth rate was knocked down 2pp to 9.1% in Q1/03 during the outbreak of Sars.

 

Germany – Retail sales dropped more than expected in December in a sign consumer spending is struggling in the largest Eurozone economy.

  • The measure dropped 3.3%mom following a weaker than previously estimated 1.6%mom increase in the previous month.
  • Sentiment surveys point to an improvement in growth momentum at the start of the year which is likely to be a reflection of the recent partial agreement struck between the US and China.

 

UK – The UK is leaving the EU ending its more than 40-year long membership with the government yet to agree a new trade and future relationship deal with the bloc.

  • The pound climbed against the US$ yesterday after the BoE decided to leave rates on hold at 0.75% amid a pick-up in growth momentum following conclusive general elections in December.
  • Financial markets priced in a 50% chance of a cut on Thursday.
  • The MPC were again split 7-2 on the issue with external members Michael Saunders and Jonathan Haskel voting for a cut.
  • “To be clear, these are still early days, and it is less of a case of ‘so far so good’ than ‘so far, good enough’,” Mark Carney commented on the decision.

 

France – Protests and strikes over pension reform see the economy contract in Q4/19.

  • A 0.1%qoq decline, compared to a 0.2%qoq growth expected, has been driven by disruptions to ports, railways and fuel distribution during protests.
  • Weak Q4 data brought FY19 GDP growth down to 1.2% v 1.7% recorded in the previous year.
  • Both consumer spending (0.2%qoq) and business investment (0.3%qoq) slowed during the period while a de-stocking by firms knocked 0.4pp off the GDP number.
  • Exports continued to decline while a respective fall in imports meant that trade had not impact on growth rates.

 

Currencies

US$1.1028/eur vs 1.1019/eur yesterday.  Yen 10900/$ vs 108.89/$.  SAr 14.834/$ vs 14.646/$.  $1.314/gbp vs $1.302/gbp.  0.670/aud vs 0.673/aud.  CNY 6.911/$ vs  6.911/$.

 

Commodity News

Gold US$1,578/oz vs US$1,580/oz yesterday

   Gold ETFs 82.6moz vs US$82.6moz yesterday

Platinum US$978/oz vs US$970/oz yesterday

Palladium US$2,306/oz vs US$2,269/oz yesterday

Silver US$17.88/oz vs US$17.73/oz yesterday

            

Base metals:    

Copper US$ 5,591/t vs US$5,636/t yesterday - Copper slides to five month low yesterday on China demand concerns (Reuters)

  • Benchmark LME copper closed 1% lower yesterday at $5,588/t as funds sold on expectations of slowing demand in China due to the virus outbreak.
  • Since the virus outbreak, copper has fallen as low as $5,566/t and is down 12% since the 16th of January.
  • Copper prices are expected to be sustained by low stocks in LME warehouses, currently standing at 182,000t – down 45% compared to the end of August.

Aluminium US$ 1,728/t vs US$1,742/t yesterday

Nickel US$ 12,695/t vs US$12,685/t yesterday - China’s nickel ore imports from Indonesia rose 72% in 2019 (Nasdaq)

  • China’s imports of nickel ore from Indonesia rose as traders scrambled to ship the material before an export ban from the Southeast Asian nation took effect from the start of this year.
  • Total 2019 imports of nickel ore in China rose 30% to 56mt, of which 24mt were from Indonesia.  

Zinc US$ 2,193/t vs US$2,215/t yesterday - LME Zinc falls to 3 year low amid virus concerns (Fastmarkets MB)

  • LME 3m zinc fell on Thursday to their lowest level since July 2016, trading at $2,182/t.
  • The latest price decrease marks a 10.5% fall since the markets opened on the 22nd of January.
  • Mine output growth has altered the supply-demand balance for zinc, further weighing on the prtice.
  • The International Lead Zinc Study Group recorded a 2.1% increase in global mined zinc production form January to October 2019, with demand 0.3% lower.

Lead US$ 1,851/t vs US$1,812/t yesterday

Tin US$ 16,105/t vs US$16,155/t yesterday

            

Energy:            

Oil US$58.8/bbl vs US$58.8/bbl yesterday – 

  • The flow of oil traveling from Latin America to China has stopped in the wake of the outbreak of the coronavirus that has sunk oil prices to three-month lows, with no oil making its way from Brazil or Colombia to China since last week, according to Bloomberg
  • The virus has progressed quickly, and so too has the effects on demand. With the death toll reaching 213 and many flights have been cancelled to and from China, posing a tangible threat to jet fuel demand
  • The Chinese government has tried to quarantine Wuhan and other cities, affecting tens of millions of people
  • Multinational businesses in China are also implementing lockdown procedures.
  • Brent futures were flat at $59.3/bbl, whilst WTI futures are up 0.2% to US$53.9/bbl

Natural Gas US$1.837/mmbtu vs US$1.846/mmbtu yesterday

  • Natural gas markets fell again yesterday, as the inventory number came out basically as expected.
  • This shows that there isn’t any type of increase in the demand of the natural gas commodity, as it struggles due to a serious oversupply issue, and of course the warmer than anticipated winter
  • That being the case, the market is very likely to continue to be sluggish
  • With this, the market is very likely to go looking towards the $1.80 level in our view with very little support at current prices

Uranium US$24.555/lb vs US$24.40/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$81.8/t vs US$85.0/t

Chinese steel rebar 25mm US$570.4/t vs US$570.4/t

Thermal coal (1st year forward cif ARA) US$59.0/t vs US$60.8/t

Coking coal swap Australia FOB US$149.7/t vs US$152.0/t

            

Other:   

Cobalt LME 3m US$33,000/t vs US$33,000/t

NdPr Rare Earth Oxide (China) US$40,371/t vs US$40,371/t

Lithium carbonate 99% (China) US$5,571/t vs US$5,571/t

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

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

UPS completes minority investment in Arrival and purchases 10,000 EV vans. (Business Green)

  • Combined with recent investment from Hyundai and Kia of £85m, the UPS stake makes EV pioneer Arrival one of the UK’s most valuable start-ups.
  • The 10,000 vehicle order is reportedly worth €400m. (Energy Reporters)
  • UPS is also testing Waymo self-driving vehicles ability to carry packages. A 6-month test will begin next month using Chrysler Pacifica minivans to move packages from Phoenix UPS stores to a local sorting centre, conducting multiple trips per day. (Yahoo Finance).
  • Both projects are part of a concerted effort by the package delivery service to cut emissions and delivery costs. Amazons recent order with Rivian for 100,000 electric vans is putting pressure on UPS and FedEx. (Reuters)
  • UPS plans to take ownership of the entire fleet of vehicle by 2025, but the first vans should start hitting the streets of London, Paris and as of yet undisclosed US cities in H2’20.

 

Tesla enters into partnership with LG Chem and CATL to supply EV batteries. (Inside EVs)

  • Tesla suggested the partnership is on a smaller than its existing battery supply agreement with Panasonic of Japan. Little further information is available about the deal as none of those involved have provided comment.
  • Panasonic is Tesla’s key partner at their Gigafactory in Nevada. The Japanese electronics maker currently provides Tesla with 18650 type cells for the Model S and X and 21700 cells for Models 3, Y and Semi.

 

Total announce JV with PSA Group to launch EV battery manufacturing program. (Power Engineering International)

  • The JV, referred to as the Automotive Cell Company is a partnership between four French companies: Total, Saft, Group PSA and Opel.
  • The $5.5b program targets producing 1m batteries/year which would account for up to 15% of the European Market.
  • Construction of a $220m pilot facility on the site of Saft’s existing Nersac facility will begin next year to be followed by decisions on larger scale production plants of 8GWh perhaps rising to 24GWh in Hauts-de-France region and another of equal capacity in Germany.
  • The Project will receive €1.3b of public funding and implementation is contingent on securing approvals of relevant anti-trust authorities. (RTT News)

 

University of Southern Denmark research team working to address issues of Li-ion technology in batteries. (Oil Price.com)

  • The research team is working in conjunction with a team from MIT to address the issues of scare amounts of lithium supply and the expensive cobalt supply from the Democratic Republic of Congo, a country with a record of human rights abuses.  
  • The team is developing a sodium ion battery with electrodes made from iron, phosphorus and manganese, with the latter the key element as its enables a higher voltage to be achieved and greater energy storage capacity. (SDU)
  • The sodium can be taken from seawater which is both abundant and easy to access and sodium batteries can be produced in the same factories as Li-ion batteries making technology transfer easier.
  • On the downside to date it has proven difficult to compress a sodium battery into small spaces and they are also prone to breaking as the cathode swells and shrinks on charging.  

 

Company News

Arc Minerals (ARCM LN) – Price 2.4p, Mkt cap £18m – Long intercept of copper at Cheyeza raises prospect of much larger resource

CLICK FOR PDF - Strong Buy 

(ARC Minerals holds an effective 71.34% of Zamsort in Zambia and 99% of Casa which  owns ~73% of the Akyanga Project in the DRC. Zamsort has a portfolio of copper-cobalt prospects close to FQM’s new Trident mine on the Copperbelt in Zambia. The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort.)

  • Arc Minerals continues to report impressive copper results from drilling on their Cheyeza prospect at the Western end of the Copperbelt in Zambia.
  • The results are near-surface, indicate the presence of a high-grade core to the mineralised zone and show impressive intersection lengths.
  • Mineralisation starts at just 7.5m down the hole from surface at drill collar CHDDE058 grading 0.61% copper over 68.75m with three higher grade sections within the drill hole.
  • The target is some 3,000x800m in scale according to its soil anomaly.
  • Drilling shows mineralisation covers >300mx750m so far with good potential for further drilling to significantly extend the scale of the prospect.
  • Cheyeza is the first of 14 targets identified.
  • Management have signed NDAs with three major mining companies on targets within the license area.
  • Drill assays 
  • Hole 58 - 68.75m grading 0.61% copper from 7.50m down hole
    • Including 1.14% copper over 8.00m from 11.50m  down the hole
    • 1.09% Cu over 3.00m from 41.50m; and
    • 1.14% Cu over 11.50m from 61.50m
  • Hole 61 - 26.50m grading 0.99% Cu from 18.50m down hole
    • Includes 1.63% Cu over 9.50m from 35.50m
  • Hole 62 - 33.00m grading 0.71% copper from 18.00m down the hole
    • Includes 0.92% Cu over 4.50m from 23.50m; and
    • 1.44% Cu over 8.5m from 42.50m
  • This long intersection follows on from other increasingly long sections of mineralisation reported in drilling in recent months.
  • While the sections reported are not true widths they do represent very good shallow intersections of copper with significant copper grade.
  • There are also a significant number of intercepts running at >1% copper.

Conclusion:  Drilling continues to show good potential for an economic copper project at Cheyeza East. Copper intersections are all relatively close to surface with grades that will be the envy of many other copper miners and explorers. Recent results significantly raises the scale of the resource being evaluated.

Recommendation: We recommend Arc Minerals due to its potential for a major copper discovery at the Cheyeza project in Zambia.

The potential value of a significant copper discovery is likely to be a multiple of the current market capitalisation with the market recognising the value of the discovery on further drill results and resource estimation.

Discoveries in Zambia in recent years include: 

Sentinel in 2014 with 1bnt grading 0.51% copper just 40km away from Kalaba (Arc Mineral, Zamsort asset) and is producing >190,000tpa of copper.

Lumwana which is 100km to the east also has a reserve of 678mt grading 0.49% copper and is producing >116,000tpa of copper.

Kanshanshi: 200km to the east hosting 1.4bnt grading 0.64% copper resource.

*SP Angel acts as Nomad and broker. Our intrepid mining analyst and co-driver drove to Arc’s license and pilot process plant at Kalaba from Lusaka and back again.

 

Aura Energy* (AURA LN) 0.275p, Mkt Cap £4.2m – Quarterly Report

  • Aura Energy’s quarterly report for the three months to 31st December 2019 reports a ʺlow level [of]project development work given the completion of both the Tiris Uranium Project Definitive Feasibility Study (DFS) and the Häggån Vanadium Scoping Studyʺ.
    • Aura Energy says, however that it ʺhas also reduced work activity, reduced staff and cut costs given the financing difficulties that faced the company in this periodʺalthough it has advanced funding for the company’s gold projects and pursued its compensation case against the Swedish Government where a change in policy to preclude uranium mining incurred losses for the company in relation to its exploration at Häggån.
    • Sources of export credit financing for the Tiris project are still being pursued as success in securing this support is seen as a  ʺprecursor to the development of the projectʺ.
    • In Sweden, additional, previously reported, work on the mineral resource in Sweden has identified a coherent zone of relatively shallow, high grade, ‘indicated’ mineralisation containing 42m tonnes at an average grade of 0.35% vanadium pentoxide in the Northwest Zone. The company comments that the limits of this zone have yet to be defined by drilling and there is, therefore, ʺexcellent potentialʺto expand the indicated resources in this area of the deposit.
    • Future work on the company’s exploration projects in Mauritania is expected to include further ground and airborne geophysical work with follow-up air-core and/or auger drilling to help define copper nickel mineralisation targets.
    • ʺGiven the difficult market conditions, Aura commenced a broad-based process of cost management via reduction in staff costs and reduction of non-critical activities. The majority of these initiatives were put in place in the August/September periodʺ
    • The company confirms its previously announced strategy that in the current environment, ʺExpenditure on the gold and vanadium assets will be minimal with the focus only on corporate transactions and/or IPO or spin-outs of those assetsʺ.

*SP Angel act as Nomad & Broker to Aura Energy

 

Metals Exploration (MTL LN) 1.55p, Mkt Cap £32.1m – Sale of senior loan facility completed

  • MTL Guernsey Ltd and Runruno Holdings Ltd completed the purchase of the $68.5m senior loan facility from HSBC and BNP Paribas.
  • The terms of the standstill agreement, under which the Company has been relieved of making both principal and interest payments due in relation to both the Senior Facility and the Mezzanine Debt Facilties ($41m owed to MTL (Luxembourg) Sarl and Runruno Holdings Ltd as of Jun/19), will remain in place until further notice.

 

Vast Resources* (VAST LN) 0.355p, Mkt Cap £36.5m – $7.1 Atlas tranche completed

  • Trance 1 of the Atlas Capital Markets facility has been completed involving $7.1m ($6.4m net).
  • Vast will cover outstanding debt to SSSGI ($1m) and repay $1m of the $4m Mercuria pre-payment finance with the remaining principal and interest accrued to be recovered from future cash flows.
  • Mercuria will remain an offtaker of production from the Vast polymetallic operations.
  • Directors of Vast have also pledge their shares (143m in total) as a security against the Atlas facility that will be released back to the Directors upon the achievement of a number of obligations and milestones.

Conclusion: The facility allows the Company to restructure outstanding liabilities while, more importantly, provides development capital required to bring Baita Plai into production. The brownfield project hosts 1.8mt at 2.2% Cu, 3.5% Zn, 3.1% Pb, 1.4g/t Au and 128g/t Ag (NAEN Code) with operations planned to be restarted in H1/20 and once ramped up running at 13ktpm yielding ~4kt CuEq per annum.

*SP Angel acts as Broker to Vast Resources

 

 

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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