SP Angel . Morning View . Friday 01 11 19
Positive Chinese manufacturing PMI lifts industrial metals
MiFID II exempt information – see disclaimer below
Arc Minerals* (LON:ARCM) STRONG BUY – First commercial sale and shipment of copper concentrate from Kalaba mine in Zambia
Bushveld Minerals* (LON:BMN) – Support for RedT – Avalon reverse takeover to gain strategic interest in growing VRFB maunfacturer
Firestone Diamonds (LON:FDI) – Resumption of production at Liqhobong
10% of the worlds tailing dams have stability issues (Reuters)
- Research led by the Church of England and fund managers revealed that at least 166 of 1,635 dams holding mining waste have had safety issues in the past.
- The inquisition which probed more than 700 resources companies was launched in response to the dam collapse in Brazil that killed hundreds of people.
- Less than half of the 726 companies contacted responded, with many Chinese and Indian miners yet to provide information.
- Leading industry names such as BHP, Rio Tinto and Vale disclosed dam sizes, construction methods and safety records.
Gold Fund – Old Mutual decides not to close its South African Gold Fund in South Africa (Moneyweb)
- The Old Mutual Gold Fund is reported to be the best performing unit trust in South Africa returning 80% over the past 12 months
- A relatively small group of investors had sought to close the trust in a ballot but given the small proportion of respondents Old Mutual has decided after discussions with the FSCA to withdraw the application for closure as so many did not vote for the proposal.
- The fund has returned 2.8% pa over 10 years, the fourth worst performance of any local unit trust.
- South African gold miners have been hit by rising costs, productivity and health and safety issues in the deep level gold mines.
- The closure of many mines and shafts within existing mines combined with a lack of new investment has caused South African gold production to shrink.
- The rise in popularity of gold ETFs based either on physical gold or on baskets of gold equities has reduced inflows into traditional gold funds effectively removing much equity funding from the sector.
- Pre-ETFs US, Canadian and European investors bought South African gold miners for their leverage to gold.
- Now they tend to buy ETFs which carry less country risk, corporate risk and commission cost.
- The cost of complying with Black Economic Empowerment legislation, the rise of the militant union the AMCU along with significant increases in labour and ESKOM power costs and the need to mine deeper as the mines mature has not helped the sector.
- A few dedicated gold miners continue to keep the lights on in South Africa through innovation and great technical skill.
- The nation should cherish the skills inherent in Sibanye-Stillwater, AngloGold Ashanti, Harmony Gold and other gold miners which employee >100,000 workers effectively supporting >1 million South Africans within the community.
- If South Africa loses the technical ability and corporate infrastructure to run deep level shafts then the gold mines of the Witwatersrand will close for good.
- Having said that, Sibanye-Stillwater has been cutting costs and may return a dividend next year highlighting the gains to be made from restructuring the South African gold sector.
Dow Jones Industrials -0.52% at 27,046
Nikkei 225-0.33% at 22,851
HK Hang Seng +0.72% at 27,101
Shanghai Composite +0.99% at 2,958
FTSE 350 Mining +0.59% at 17,753
AIM Basic Resources +0.06% at 2,152
Economics
- Eurofer, an EU steel industry lobby group, is forecasting lack of demand to continue through the end of the year and into early 2020.
- A slowdown in the EU steel demand that already cost local producers a total $50bn in market value and is expected to see local demand down 3.1% in 2019, the most since 2012.
- Conditions are expected to improve from the second quarter next year and apparent consumption is forecast to increase 1.4% in 2020, mostly due to restocking.
- US threats to impose tariffs on EU cars and components continue to weigh over the industry, Eurofer said.
- Steelmakers have been battling with weaker economic growth rates and geopolitical uncertainty as well as low-cost competition from countries like Turkey, Russia and China.
US – Equities are trading higher this morning recovering from a short pull back yesterday following negative news on the trade deal outlook.
- Additionally, Chinese private survey PMIs came in stronger than official data released earlier in the week.
- Non-farm payroll numbers to be released later today (85k v 136k) that is likely to reflect challenges in the auto industry as 46,000 GM workers went on strike on September 15 for six weeks.
- This was the longest nationwide walkout in the automakers history since 1970 and has also affected the producers suppliers and contractors.
China – Risk sentiment is helped by stronger growth in the manufacturing sector.
- Both production and new orders sub indices expanded at steeper rates with the latter supported by a pick up in export business.
- “The gauge of new export orders returned to expansionary territory and reached the highest point since February 2019, due likely to the US move to exempt more than 400 types of Chinese products from additional tariffs,” Caixin-Markit wrote.
- Overall, positive report with the headline index hitting the strongest level since February 2017.
- Caixin Manufacturing PMI: 51.7 v 51.4 in September and 51.0 forecast.
Japan – Manufacturing sector growth at the weakest in more than three years in October amid a slowdown in global economic conditions as well as domestic challenges including a decision to hike the sales tax and Typhoon Hagibis related disruptions.
- The sector has been in a contractionary territory for the last six months.
- “With weak regional growth across Asia and signs of fragility within the domestic economy, it is difficult to see any respite coming in the near-term,” Jibun-Markit wrote.
- Jibun Manufacturing PMI: 48.4 v 48.5 in September.
South Korea – Trade remains a victim to a worldwide economic growth slowdown dampened by national protectionist policies.
- Both exports and imports posted double digit annual declines in October.
- Manufacturing sector gauge showed local producers remain under pressure amid weakness in both domestic and external demand, although business confidence picked up in October.
- “Latest survey data highlight the impact that difficult external conditions, which prompted the Bank of Korea into cutting rates, are having on the South Korean economy… spill over effects into the domestic economy have become increasingly apparent, with many firms indicating that weak domestic economic conditions are weighing on output and demand,” Markit wrote.
- Exports (%yoy): -14.7 v -11.7 in September and -13.6 forecast.
- Imports (%yoy): -14.6 v -5.6 in September and -13.7 forecast.
- Markit Manufacturing PMI: 48..4 v 48.0.
South Africa – Moodys is set to release its sovereign credit assessment later today as markets are watching closely if the last agency rating the national debt as investment grade will reconfirm its risk estimate.
- The Finance Ministry released its updated fiscal outlook earlier this week projecting wider budget deficits for the current 2019/20 fiscal year and the next two years amid weak economic growth, downgrade to forecast revenues and bailouts of struggling state-owned companies.
- 2019/20 budget deficit is projected at 5.9%, a revision on 4.5% estimated previously and marking the highest level since 2009/10.
- “Lets see what they say (Moodys), but I really hope they keep the rating the same… but it is not looking good,” Minister Mboweni said.
- A downgrade risks a sell off in government debt and an increase in borrowing costs.
Currencies
US$1.1152/eur vs 1.1168/eur yesterday. Yen 108.04/$ vs 108.43/$. SAr 15.112/$ vs 15.156/$. $1.295/gbp vs $1.295/gbp. 0.690/aud vs 0.691/aud. CNY 7.039/$ vs 7.042/$.
Commodity News
Gold US$1,512/oz vs US$1,503/oz yesterday
Gold ETFs 82.2moz vs US$82.2moz yesterday
Platinum US$933/oz vs US$927/oz yesterday
Palladium US$1,793/oz vs US$1,804/oz yesterday
Silver US$18.09/oz vs US$18.03/oz yesterday
Base metals:
Copper US$ 5,822/t vs US$5,881/t yesterday
Aluminium US$ 1,760/t vs US$1,746/t yesterday
Nickel US$ 16,775/t vs US$16,710/t yesterday
Zinc US$ 2,493/t vs US$2,496/t yesterday – Indias largest zinc miner to ramp up production through $2bn investment (miningweekly.com)
- Hindustan Zinc (HZL) has lined up a $2bn investment over the next five years.
- The miner wants to increase production from 800,000tpa to 1.5mtpa.
- The entire investment will be funded by internal accruals.
- HZL has 26 mining licenses across the country and is looking to diversify its mining activity entering iron-ore, copper and gold production.
Lead US$ 2,164/t vs US$2,197/t yesterday
Tin US$ 16,450/t vs US$16,820/t yesterday
Energy:
Oil US$59.9/bbl vs US$61.1/bbl yesterday
Natural Gas US$2.611/mmbtu vs US$2.726/mmbtu yesterday
Uranium US$23.85/lb vs US$23.90/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$80.3/t vs US$83.5/t
Chinese steel rebar 25mm US$562.4/t vs US$561.4/t
Thermal coal (1st year forward cif ARA) US$64.6/t vs US$64.0/t
Coking coal futures Dalian Exchange US$184.1/t vs US$184.0/t
Other:
Cobalt LME 3m US$36,000/t vs US$36,000/t
NdPr Rare Earth Oxide (China) US$41,412/t vs US$41,397/t – Reducing the reliance on Chinese supply is key for long-term rare earth supply (Telegraph)
- The strategic importance of rare earths, and the overwhelming dominance that China has on supply means that other countries (especially the US) want to improve the security of supply of such minerals.
- China currently produces 80% of the global supply or are earths, and dominates refining the elements.
- Furthermore, Beijing has imposed a 25% tariff on rare earths sent to the country for refining into magnets.
- The US has made it clear that it wants to reduce its reliance on China, and has approached Australia in order to try and assist development and subsequent export to the US of critical minerals.
- The US has also spoken to both Mkango Resources* and Rainbow Rare Earths who are developing high quality projects outside of China.
- In addition to mining, building refineries outside of China is also important to reduce reliance on China.
- Australia-based Peak Resources have selected Teesside as a location to build a rare earth refinery- expected to be operational by 2023.
*SP Angel acts as Nomad and broker to Mkango Resources
Lithium carbonate 99% (China) US$6,890/t vs US$6,888/t – Recycled lithium batteries market to hit $6bn by 2030 (mining.com)
- Global uptake of EVs is also increasing the amount of battery waste, as vehicles become spent.
- China is forecast to generate 500,000t of battery waste per year by 2020, and 1.2mt by 2030, according to Circular Electric Storage (CES).
- CES believes the second life battery market is worth more than $6bn based on current metals prices.
- 125,000t of LCE, 35,000t of cobalt and 86,000t of nickel could be recovered by 2030 from waste batteries.
- The west is lagging behind Chinas willingness to recycle, and the gap is set to widen as American and European companies are likely to struggle to find the volumes of used batteries.
Ferro Vanadium 80% FOB (China) US$31.0/kg vs US$32.0/kg
Antimony Trioxide 99.5% EU (China) US$5.4/kg vs US$5.4/kg
Tungsten APT European US$225-245/mtu vs US$205-215/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
Company News
Arc Minerals* (LON:ARCM LN) 3.1p, Mkt Cap £22m – First commercial sale and shipment of copper concentrate from Kalaba mine in Zambia
(The Cheyeza project is 66% owned by Arc Minerals through its holding in Zamsort)
STRONG BUY – click for previous pdf
- Arc Minerals reports the first commercial sale and shipment of copper concentrate from its Kalaba mine in Zambia.
- Arc sold 15t of copper concentrate to a Zambian-based Chinese customer at close to its equivalent LME spot price.
- The sale proves the concept of selling concentrates from the Kalaba Commercial Scale Demonstration CSD plant.
- Cheyeza East: The team are looking into the viability of mining 1-2% copper oxide material from the Cheyeza East pRead More – Source
