SP Angel . Morning View . Monday 16 03 20
Governments and central banks aim to stem panic in financial markets
MiFID II exempt information – see disclaimer below
redT energy (LON:RED) – Merger with Avalon to create Invinity Energy Systems plc. Placing and open offer announced at 1.65p/s.
Bushveld Minerals* (LON:BMN)
Goldstone Resources (LON:GRL) – Akrokeri/Homase project funding
Polarean Imaging (LON:POLX) – SP Angel raises $10.7m (£8.4m) for Polarean Imaging
Rio Tinto (LON:RIO) –Rio Tinto reports the impact of virus mitigation measures at Oyu Tolgoi
Sirius Minerals (LON:SXX) SUSPENDED – Anglo American have reached agreement on the terms of a recommended cash acquisition
Vast Resources* (LON:VAST) – Baita Plai Update
W Resources (LON:WRES) – Impact of Covid19
Stimulus funding relating to the Coronavirus (Updates in bold, figures in US dollars)
$50bn – IMF
$700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE program is to buy Treasuries and mortgage-backed securities. The program in two parts $500bn + $200bn
$50bn – US – in the form of low-interest loans to companies in affected areas through the Small Business Administration.
$39m – UK (£30bn) stimulus to support the economy through the coronavirus – Govt. pledged to do more if needed. (any excuse to spend money through Brexit)
$120bn – ECB increased bond purchases + ECB – targeted loans to companies at an interest rate of -0.75%
$28.3bn (€25bn) – EU
$15.4bn – Hong Kong relief package
$13.7bn – South Korea
$12bn – World Bank
$11.4bn – Australia
$10bn – Switzerland (SFr10bn)
$8.4bn – Italy may move to $18bn
$8.3bn – US House of Representatives – (US GFC stimulus totalled $2.8tr starting with $168bn in early 2008).
$5.5bn – Bank of Japan, ETF purchases and short term liquidity to Banks
$11.9bn – BoJ triples financing for small and mid-sized firms
$3.5bn – Ireland
$2.8bn – Spain coronavirus stimulus
$2bn – Taiwan stimulus
$0.75 – Indonesia
$14.2bn China, already spent. $113bn worth of bonds issued by China regional governments in January
China – much more stimulus to come
ECB ready to take targeted action
Germany – no numbers yet but government intends to spend zillions
$1,107.15bn – TOTAL stimulus offered to-date
SP Angel Mining ranks first in Research Tree research rankings for the Resources Sector
Dow Jones Industrials +9.36% at 23,186
Nikkei 225 -2.46% at 17,002
HK Hang Seng -4.03% at 23,064
Shanghai Composite -3.40% at 2,789
FTSE 350 Mining -7.09% at 11,598
AIM Basic Resources -0.20% at 1,789
Apple to close it global stores outside China for two weeks in an effort to minimise transmission of the disease.
US – The emergency Fed rate cut and the announcement of the $0.7tn QE fail to instil confidence in financial markets with S&P futures hitting another limit down this morning.
The FOMC voted to cut rates by 100bp to the 0-0.25% range and pledged to purchase $500bn in US Treasuries and $200bn in agency mortgage-backed securities “over coming months”.
Additionally, the Fed along with other central banks in Canada, UK, Japan, Eurozone and Switzerland agreed to ease the provision of liquidity via standing US dollar liquidity swap line arrangement lowering rates by 25bp.
This follows the earlier announcement by the New York Fed offering liquidity in the interbank market to the tune of $1tn on Friday.
The news also comes ahead of the scheduled March 17-18 FOMC meeting highlighting concerns of monetary authorities over disrupting effects of the spreading coronavirus.
The administration decided to extend the ban on European flights to the UK and Ireland as the number of infected cases grow.
S&P 500 futures are down 5% this morning after hitting limit down with 10y Treasury yields down 16bp at 0.79% and gold trading $22/oz up at $1,540/oz.
Industrial metals and oil are in the red with copper down 2% at $5,325/t and Brent off 7% at $31.6/bbl.
China – Economic numbers released this morning highlight the severity of the virus outbreak.
Industrial production is down 13.5%yoy in the first two months of the year.
Business investment is off 24.5%yoy (YTD).
Retail sales dropped 20.5%yoy (YTD).
Construction investment -16.3%yoy (YTD).
The government earmarked CNY 111bn ($15.9bn) to fight the virus outbreak and is planning to ease environmental rules temporarily allowing manufacturers to resume production faster.
Japan – The BoJ pledged to step up its purchases of ETFs and corporate bonds as well as offer a new zero-interest rate loan programme.
ETFs purchases would be doubled to JPY 12tn ($113bn) per annum from current JPY 6tn while the central bank has also indicated its preparedness to cut rates into the negative territory.
The announcement failed to avert a sell of in risk with Nikkei down 2.5% this morning while the yen is up 1.9% since Friday.
UK – delays mayoral and local elections for a year
Germany – The economy is not expected to recover in Q1/20 with stabilisation possible in Q3 unless supply chains are disrupted, according to German Economy Ministry.
Bavaria to make €10bn available to help the region withstand the coronavirus outbreak after the state declared the state of emergency.
Authorities tightened coronavirus crisis measures on Monday including a closure of borders with Austria, Switzerland, France, Luxembourg and Denmark in a move to slowdown the spread of the virus and buy more time for the healthcare sector.
Measures are not to affect the transportation of goods.
Thousands of schools and pre-school facilities are also to close from Monday.
France – The country ordered the closure of all non-essential public places apart from grocery stores, pharmacies and banks.
Spain – The nation joined Italy in a virtual lockdown over the weekend amid a jump in new coronavirus cases with the number of infected climbing to 7,753 on Sunday, up from 5,753 on Saturday
The death toll in Span has more than doubled to 288 from 136.
South Korea – The Bank of Korea cut its benchmark rate by 50bp to a record low of 0.75% during its first emergency board meeting since the global financial crisis.
Switzerland – The cabinet may provide additional economic support in addition to the $10bn COVID-19 aid package if the crisis worsens, Bloomberg reports citing the nation’s president.
Poland – Authorities implemented full border controls and international flights are suspended with cafes, bars, restaurants and shopping malls closed.
New Zealand – The central bank cut its benchmark interest rate by 75bp to 0.25% in an emergency meeting on Monday.
The Reserve Bank said it will keep rates at that level for at least the next 12 months.
Additionally, monetary authorities promised a programme of quantitative easing should it be required which in turn would mean the first undertaking of the QE in New Zealand history.
The government is planning to make a “multi-billion dollar” fiscal stimulus announcement tomorrow.
Slovenia – The country suspended all public transport from Sunday and the government is planning to close all bars and restaurants.
Estonia – The government is limiting people entering the country to only residents and their family members from tomorrow.
Bulgaria declares state of emergency as Coronavirus cases tripple
South Africa – Coronavirus expected to have ‘huge impact’ on already fragile economy
Despite having relatively few confirmed cases of coronavirus, the country’s economy is set to suffer due to its two main earners – mining and tourism, expected to take a hit.
About 18.5% of South African exports go to China, with mined material making up around 86% of total trade with the Asian country (Rappler).
As China’s growth is expected to slow this year due to COVID-19, demand for minerals is also expected to fall and China is also expected to prioritise domestic supply where it can.
According to South Africa’s Minerals Council Economist, China imports approximately 8.5bn to 9bn rand of materials monthly.
Automakers and union form joint task force to restrict virus outbreak
General Motors, Ford, and FCA are forming a coronavirus ‘task force’ along with the United Auto Workers union to improve protections for their employees and limit the spread of the virus.
The task force will focus on areas including vehicle production plants, as FCA have already seen production halted at a plant in Canada after employees refused to work on Thursday over virus fears (Reuters).
The leaders of the three automakers said in a joint statement ‘This is a fluid and unprecedented situation, and the task force will move quickly to build on the wide-ranging preventative measures we have put in place’ (Forbes).
US$1.1216/eur vs 1.1169/eur last week. Yen 106.10/$ vs 106.20/$. SAr 16.677/$ vs 16.146/$. $1.237/gbp vs $1.260/gbp. 0.618/aud vs 0.631/aud. CNY 6.999/$ vs 6.977/$.
Gold US$1,541/oz vs US$1,583/oz last week
Gold ETFs 86.3moz vs US$86.9moz last week
Platinum US$734/oz vs US$801/oz last week
Palladium US$1,796/oz vs US$1,978/oz last week
Silver US$13.89/oz vs US$15.76/oz last week
LME ring-dealing member employee tests positive for coronavirus
The London Metal Exchange announced this morning that a member of staff of a ring-dealing member has tested positive for coronavirus.
Whilst the venue has not yet closed, the LME has taken a number of precautionary measures such as a deep clean of the trading venue.
Copper US$ 5,344/t vs US$5,545/t last week
Aluminium US$ 1,675/t vs US$1,704/t last week
Nickel US$ 12,130/t vs US$12,690/t last week
Zinc US$ 1,956/t vs US$2,027/t last week
Lead US$ 1,730/t vs US$1,806/t last week
Tin US$ 15,750/t vs US$16,285/t last week
Oil US$31.5/bbl vs US$35.1/bbl last week
Oil Price News – Brent and WTI are having one of their worst months in history as a result of the Saudi-Russian oil price war
Prevailing market sentiment seems to be that an oil price recovery is not imminent
Prices are off again this morning with Brent reaching a low of US$33/bbl and WTI dipping below US$30
The London-listed E&P sector is also having another ‘red day’ with Premier Oil and Tullow Oil both down 15% at the time of writing
As with all shocks, there remains a number of opportunities to invest in profitable and well capitalised companies and take advantage of any upturn in the macro-environment
Companies such as Gulf Keystone Petroleum (GKP LN) RockRose Energy (RRE LN) certainly fit into this category in our view
US shale sector at risk
The current oil price shock threatens serious damage to the overleveraged US oil and gas sector, which is already weakened by depressed demand and prices, and threatens to trigger widespread bankruptcies and debt default in US markets
According to a report by Evercore ISI, shale operators have had cumulative negative cash flow of over US$280bn since 2007
US lenders and PE firms are starting rapidly reducing exposure to shale firms as their balance sheets deteriorate
Recent reports indicate that over US$140bn debt for the US E&P sector is in danger of falling into the junk range, and the total is over US$300bn for associated gathering, processing, and transportation companies
The sector accounts for between 10 and 16% of all high yield debt on the market and therefore has a significant impact on the US economy
Since 2015 there have been over 400 company bankruptcies in the US E&P sector with direct losses of c.US$200bn
Natural Gas US$1.849/mmbtu vs US$1.909/mmbtu last week
Natural gas futures finished higher on Friday as investors reacted to rising demand for risky assets and heightened volatility in commodity markets, especially the energy sector
Prices were also supported by colder trends in the latest weather forecasts.
NatGasWeather issued colder guidance – reversing milder trends from Thursday’s data
Natural Gas Intelligence have forecast colder trends around weather systems moving into the US around the middle of next week and also March 21-24
Uranium US$24.00/lb vs US$24.10/lb last week
Iron ore 62% Fe spot (cfr Tianjin) US$88.4/t vs US$86.2/t
Chinese steel rebar 25mm US$536.0/t vs US$528.6/t
Thermal coal (1st year forward cif ARA) US$55.5/t vs US$55.6/t – China’s January-February coal output drops 6.3%
Coal output in the first two months of 2020 fell .% from the same period a year earlier as the virus outbreak prevented miners returning to work.
China produced 489mt in the period vs 514mt in the same period last year (National Bureau of Statistics).
Chinese authorities prolonged the week-long Lunar New Year celebration and some regions blocked roads in an attempt to slow the spread of the virus – both of which harmed coal production (New York Times).
Despite the fall in production, data suggests production is returning to previous levels, as the National Energy Administration said on the 5th of March that production has reached 83.4% of total coal mining capacity.
Coking coal futures Dalian Exchange US$160.0/t vs US$160.0/t
Cobalt LME 3m US$32,100/t vs US$32,100/t
NdPr Rare Earth Oxide (China) US$38,579/t vs US$38,697/t
Lithium carbonate 99% (China) US$5,715/t vs US$5,733/t
Ferro Vanadium 80% FOB (China) US$28./kg vs US$28./kg
Antimony Trioxide 99.5% EU (China) US$5.2/kg vs US$5.2/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
Potash – Australian Potash signs its first offtake agreement for Lake Wells project
The company has signed the agreement in Western Australia with chemical distributor Redox.
Redox will receive 20,000tpa of potash sulphate and Redox have sales and distribution rights in Australia and new Zealand for a ten year period.
Last year, Australian Potash completed a DFS for the Lake Wells Project, which estimates a life mine of 30 years and producing 150,000tpa of premium grade SOP (The Market Herald).
New catalyst could boost performance of metal-air batteries
Researchers from Korea’s Ulsan National Institute of Science and Technology and the University of Pennsylvania, US have produced a new composite catalyst for metal-air batteries combining a cobalt oxide catalyst and a manganese-based perovskite catalyst. (Mining.com)
A perovskite catalyst is a substitute for those made of precious metals. Perovskite catalysts have excellent catalytic performance but low activation barriers.
The composite catalyst is a very thin layer of metal oxide deposited on the surface of a perovskite catalyst. The interface formed between the two catalysts enhances performance and the stability of the composite. (Phys.org)
Metal-air batteries (MAB) which use oxygen from ambient air sources to store energy have been considered a strong candidate for use in EVs given their large storage capacity, light weight and affordability.
To date their use of precious metal catalysts has blocked the route to commercialization.
Internal resistance algorithm reduces damage during faster charging
A key selling point for EVs, the faster charge subject batteries to high temperatures and high resistance which causes damage and reduces storage capacity. (Science 20)
Engineers at the University of California, Riverside have developed a method of charging at low temperatures to rectify this. (Knowridge)
The charging method is an adaptive system that checks the battery’s internal resistance during charging, resting when internal resistance starts. The new algorithm is based on the internal resistance which fluctuate with temperature, charge state and battery age.
Differences between the traditional system and new algorithm began showing up from the 14th charge cycle onwards. After 40 cycles those using the internal resistance charging method retained more than 80% of their capacity compared to 60% in those charged using the industry faster charging.
At 80% capacity lithium-ion batteries have reached the end of their use life. This take 25 cycles normally but took 36 when using the internal resistance method.
Mongolia – Ideanomics announces $250 million electric vehicle order including 1,000 heavy mine trucks
Ideanomics announced on Friday a new vehicle order through its MEG subsidiary from Zhitong company Jiangsu Linghao Network Technology Co Ltd.
The order is for 3,000 units of heavy haulage vehicles costing RMB 400,000 (~$57,000),
1,000 heavy dump trucks RMB 420,000 (~$60,000),
800 passenger cars costing RMB 160,000 (~$23,000).
MEG has a strategic partnership agreement with the Inner Mongolia Autonomous Region People’s Government to cut pollution and carbon emissions.
The company is also working in Yunnan to replacement diesel trucks with EVs.
redT energy (LON:RED) 1.2p, Mkt cap £11.7m – Merger with Avalon to create Invinity Energy Systems plc. Placing and open offer announced at 1.65p/s.
Bushveld Minerals* (LON:BMN) 9.8p, Mkt Cap £112m
(Bushveld Minerals owns 74% of Vametco, 100% of Vanchem, 84% of Bushveld Energy in South Africa, 100% of Lemur Holdings, 9.5% of Afritin)
The merger of redT and Avalon Battery Corporation is to create Invinity Energy Systems plc, a new leader in the VRFB energy storage market.
redT shares will start trading again under the new Invinity name
The new deal raises £14.9m through the proposed placing of 479,363,312 new shares and Open Offer of up to 380,500,174 new Shares at 1.65p/s.
The deal also converts the $5m (£3.97m) debt with Bushveld Minerals into equity and brings in a new £3m loan facility from Riverfort Global Opportunities PPC Limited.
The new company ‘Invinity Energy Systems plc’ then consolidate its shares on a 50 to 1 basis.
The proposed merger will create a leading player in the growing energy storage market with operations in North America, Europe and Asia
The new group offers a VRFB ‘Vanadium Flow Battery’ solution that it claims competes effectively with other energy storage technologies.
“The agreed value of Avalon is $37.5 million as announced on 25 July 2019, adjusted to reflect working capital movements within the two businesses and the value contained in existing in-the-money employee options in Avalon that will be rolled forward into options in Invinity. The merger will be accomplished by the issue by redT of 1,735,397,545 new Ordinary Shares at 1.65 pence per share (the “Issue Price”) valuing Avalon’s issued shares at $36.1 million (£28.6 million).”
The Company could raise under the Placing and Open Offer a maximum of £14.2m assuming that the Open Offer is fully subscribed .
*SP Angel acts as Nomad & Broker to Bushveld Minerals.
Goldstone Resources (LON:GRL) 2.2p, Mkt Cap £5.4m –Akrokeri/Homase project funding
Goldstone Resources reports that it has secured US$4.3m to fund the development of its Akrokeri/Homase gold project in Ghana.
The funds are to be provided by both new and existing investors with US$1.3m in bonds attracting a 14%pa interest rate for an initial 12 months period with the possibility for the company to elect to extend the bond for a further 12 months.
Existing shareholders, Paracale Gold, which holds 28.1% of Goldstone Resources and BCM Investments (20.0%) have each subscribed for US$0.3m of the bond issue.
The remaining US$3m of the fundraising is provided via a gold loan over up to 2000oz of gold at a gold price of US$1500/oz.
An initial US$0.3m of the gold loan, equivalent to 2000z, is available immediately from Asian Investment Management Services Ltd (“AIMS”). ʺDrawdown of the balance of the Gold Loan, being 1,800 troy ounces (US$2.7million), is conditional on, inter alia, the finalisation of the loan agreement and the granting of security to AIMS.ʺ Interest is at 14% pa.
A total of 172m warrants, exercisable at 3p/share have been granted to the providers of the bond and gold-loan finance.
The new funds will enable the start of mining in the Homase open pit and construction of a heap leach gold plant.
The company explains that the relevant mining permit applications have been submitted and are expected to be received with 3 months.
Goldstone Resources has consolidated its control of the project via exchanging the 10% interest held by Cherry Hill Mining for a 2% revenue royalty.
Polarean Imaging (LON:POLX) 22p, Mkt cap £25.2m – SP Angel raises $10.7m (£8.4m) for Polarean Imaging
Polarean Imaging has developed a proprietary platform which provides a non-invasive, radiation-free method to visualise lung structure and function using MRI.
In January 2020, the Group successfully completed two Phase 3 trials for its technology and is now looking to submit an application to the FDA, the US drug regulator, for marketing approval for its technology.
The annual burden of pulmonary disease in the US is estimated to be over US$150b. The addition of Polarean’s technology is expected to increase the asset utilisation and profitability of a customer’s MRI system, whilst enabling earlier diagnosis.
The proceeds of the recent fundraised are to be used for the submission or US marketing approval as well as preparations for a potential commercial launch of its drug-device combination. As part of the fundraise, Bracco Group, a multinational life sciences business, invested £2.2m which is a strong validation of the commercial value of the Group’s technology by a specialist provider of diagnostic imaging.
* SP Angel acts as Nomad & Broker to Polarean and therefore this information should be viewed as a Marketing Communication; One of the authoring analysts has an interest in Polarean shares.
Rio Tinto (LON:RIO) 3245p, Mkt cap £55bn –Rio Tinto reports the impact of virus mitigation measures at Oyu Tolgoi
Rio Tinto reports that following the first confirmed case of the Covid189 virus in Mongolia measures imposed by the Government to mitigate the spread of the Covid19 the movement of people and materials is being restricted.
Among other consequences of these measures ʺThere is restricted access for teams from Rio Tinto, Oyu Tolgoi and our construction partners to oversee development and provide specialist technical services. The availability of specialist service providers at the site is essential to safely continue work on technical activities such as the headframe commissioning of Shafts 3 and 4ʺ
While the company stresses its overriding commitment to the welfare of its employees, contractors and the wider community, it explains that ʺThe full impact of the slowdown on the Underground Project is unknown at this time and the company will update the market once more information is available. The mine design for the Underground Project currently remains on track to be completed in the first half of this year, with a definitive estimate to be provided for the development of this world-class orebody in the second half of 2020ʺ.
Rio Tinto does, however, confirm that ʺthe open pit of the Oyu Tolgoi mine continues to operate and deliver shipments of copper concentrate to its customers.ʺ
Conclusion: Managing a highly complex project such as the development of the Oyu Tolgoi underground mine project requires many specialist personnel and the shipment of complex and bespoke equipment which is proving more difficult as a result of restrictions required to help contain the spread of Covid19. We imagine that many other projects will be battling with similar challenges.
Sirius Minerals (LON:SXX) SUSPENDED – Anglo American have reached agreement on the terms of a recommended cash acquisition
The scheme of arrangement for the cash offer should become effective tomorrow, 17 March.
Sirius Minerals’ listing will be cancelled tomorrow as a result of the offer.
Given the developing global situation it is a good that Sirius shareholders did not vote down the offer by Anglo American.
Anglo American has sufficient access to capital to complete the development of the Woodsmith mine, though we reckon management will further optimise the project before construction restarts.
Todays’ rate cut in the US is helpful for Anglo and other miners which are suffering from significantly lower base metals prices, though iron ore prices which are a key driver rose on Friday to $88.4/t from $86.2/t .
Conclusion: Investors should be wary of companies looking to develop large-scale projects with unrealistic financing plans. Sirius was unusual as well as unrealistic in the level of its financing ambitions.
Investors should also be wary of companies which are looking to sell significantly more product into a market than it currently supports which we see as a significant risk particularly through commissioning.
There are speciality minerals where we expect future demand to significantly outstrip current supply, such as with rare earth minerals, neodymium and praseodymium which are key magnet metals in Electric Vehicles.
Nickel and Tin are also seen as beneficiaries of the new Electric Vehicle revolution with new demand expected to outstrip current supply as EV Li-ion battery production ramps up.
We also expect Vanadium and Niobium to also see significant increases in demand from new construction and in the case of vanadium new Vanadium Redox Flow Battery demand.
Vast Resources* (LON:VAST) 0.22p, Mkt Cap £22m – Baita Plai Update
The Company announced the team has put in place a contingency plan to maintain the implementation schedule to bring Baita Plai into production with minimal disruption amid an outbreak of the coronavirus.
Romania declared a state of emergency in the country as of today.
*SP Angel acts as Broker to Vast Resources
W Resources (LON:WRES) 0.19p, Mkt Cap £13m – Impact of Covid19
W Resources reports its response to the Spanish and Portuguese Governmentsʼ States of Emergency to address the Covid19 virus.
The company reports that the Extremadura Region where it operates the La Parilla tungsten mine ʺis one of the less affected areas in Spain. At present, there are some 100 reported cases of infection in the region. With no areas showing a heavy concentration of cases save for a small village which is subject to quarantine at present. The region’s low population density and the large distances between big cities has helped to reduce the speed of transmission.ʺ
W Resources also confirms that none of its personnel have been diagnosed with the infection and that it has implemented a range of precautions, including separation of shifts, operating a work-from-home regime where possible and the restriction of all but essential visits to the La Parilla site, to mitigate the risk of exposure.
Similar measures are in force at the company’s Portuguese operations where W Resources has also requested ʺan extension of the trial mine license period for a further 12-18 monthsʺ which the company expects to be approved in the context of the current disruption to normal business conditions.
Stressing the company’s commitment to the welfare of its personnel during these challenging times, Chairman, Michael Masterman said that ʺWe continue a proactive review of steps to protect our team and in a safe and sensible way continue operationsʺ.
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.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
Lithium Carbonate, Ferro Vanadium, Antimony