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Todays Market View - Glencore highlights major deficit in nickel

Published: 01:14 02 Nov 2018 AEDT

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SP Angel – Morning View – Thursday 01 11 18

Glencore highlights major deficit in nickel

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BHP (LON:BLT)  1599p, mkt cap £92.8bn – Special dividend and off-market buy-back

Golden Star Resources (TSE:GSC) C$4.6, Mkt Cap C$505m – Wassa underground contributes to Q3 results

Ilika (LON:IKA) 18p Mkt. Cap. £18m – Ilika improves Bluetooth battery performance

KEFI Minerals* (LON:KEFI) 1.5p, Mkt Cap £8.0m – Saudi Arabia exploration licenses renewal

Metals Exploration (LON:MTL) 1.4p, Mkt Cap £29m – Typhoon Rosita update

Randgold Resources (LON:RRS) 6180p, Mkt Cap £5.84bn – Merger receives SA Competition Tribunal approval

Barrick Gold (NYSE:ABX) US$12.55, Mkt Cap US$14.7bn

RioZim – closes three mines in Zimbabwe due to shortage of US dollars

 

Nickel prices look set to rise as premiums rise as market tightens and Glencore endorses prospects for nickel (see nickel comment in commodities section)

  • Just when we were thinking that nickel prices were unrealistically low from a slightly longer term perspective;

  • Glencore reports the market doesn’t realise how strong demand is for the metal.

  • Nickel premiums are rising despite a pullback in LME for the 3-month metal price indicating to us and to Glencore that the market  has got this one wrong.

  • The situation represents a ‘disconnect’ in our minds between real demand for metals and the short-futures prices which are manipulated by CTAs and other funds in the market.

  • While many macro funds play commodities based on broad economic fundamentals we think they are missing much of what is happening in the real world, on the ground.

  • Smart traders like Glencore who are in touch with the reality of physically trading and delivering commodities can see this disconnect more than anyone, and is in close touch with the reality of physical supply vs demand.

  • News today is that a group is to invest $70m into the development of a new nickel mine in Indonesia. The consortia is made up of GEM (a battery recycler) Tsingshan Group, Brunp Recycling, PT Indonesia Morowali Industrial Park and Hanwa Co Ltd.  The project is for 50,000tpa of nickel and 4,000tpa of cobalt and will be able to produce 50,000tpa of nickel hydroxide intermediates, 150,000tpa battery-grade nickel sulfate, and 20,000tpa battery-grade cobalt sulfate according to Fastmarkets.

 

Metals recover as oil prices fall

  • Metals have been significantly oversold in recent months on negative macroeconomic sentiment.

  • A flow of funds in risk-off trading and into higher-yielding investments combined with a recent dip in liquidity in commodity markets in early October may be partly to blame though market positions remain close to neutral for copper from significant long positions in Q1.

 

It is World Vegan Day today

  • What do you call it when one chick pea murders another? – houmousside.

  • What do Vegans drive? - Avo-car-dos.

  • Why did the Tofu cross the road – to prove he was not chicken.

  • Why do people kill animals – fur convenience steak.

 

Dow Jones Industrials

 

+0.97%

at

  25,116

Nikkei 225

 

-1.06%

at

  21,688

HK Hang Seng

 

+1.50%

at

  25,354

Shanghai Composite

 

+0.13%

at

   2,606

FTSE 350 Mining

 

+2.92%

at

  17,165

AIM Basic Resources

 

+0.95%

at

   2,072

 

Economics

UK – The pound is trading 1.1% up against the US$ on the news that the UK and EU have reached a preliminary agreement ot provide UK financial services companies access to European markets.

  • The Times newspaper reported today that a deal allowing an application of “equivalence” to ensure a stable relationship between the EU and British financial services providers after Brexit has been reached.

  • Under the deal, the access to be provided to both markets under the wider UK/EU free trade treaty with potential changes to the legislation would need to be discussed between two parties before implementation.

  • Some questioned the news arguing that such agreement would mean negotiations have already jumped ahead to the second phase of Brexit talks – negotiations on a future trade deal – which would only begin following the UK exit from the EU next March at the earliest.

  • On less positive front, UK manufacturing PMI dropped to the lowest in more than two years reflecting a decline in new orders as well as softer growth in domestic demand.

  • Weaker growth in the sector filtered through into the labour market with manufacturing jobs posting a decline for the first time since July 2016.

  • Markit Manufacturing PMI: 51.1 v 53.6 in September and 53.0 forecast.

 

Currencies

US$1.1356/eur vs 1.1345/eur yesterday  Yen 112.91/$ vs 113.11/$  SAr 14.674/$ vs 14.680/$  $1.288/gbp vs $1.273/gbp  0.715/aud vs 0.708/aud  CNY 6.953/$ vs 6.974/$

 

Commodity News

Precious metals:         

Gold US$1,230/oz vs US$1,230/oz yesterday - Gold slides to 3-week low as dollar rises

  • Gold fell to a near three-week low on Wednesday as the dollar scaled a 16-month peak and a bounce in stock markets.

  • However, the metal remained on track for its best month since January, ending a six-month run of losses in October, the longest such streak since a period from August 1996 to January 1997.

  • Spot gold was down 0.71% at $1,213.93 per ounce having touched its lowest since Oct. 11 at $1,211.52.

  • U.S. gold futures settled at $1,215.

   Gold ETFs 68.3moz vs US$68.3moz yesterday

Platinum US$838/oz vs US$838/oz yesterday

Palladium US$1,112/oz vs US$1,112/oz yesterday

Silver US$14.42/oz vs US$14.33/oz yesterday

           

Base metals:   

Copper US$ 6,016/t vs US$6,024/t yesterday

Aluminium US$ 1,957/t vs US$1,965/t yesterday

Nickel US$ 11,585/t vs US$11,700/t yesterday

  • Gencore reckons the market doesn’t realise the strength of demand for the metal and haven’t grasped the magnitude of the global deficit even as stockpiles dwindle.

  • Worldwide consumption is expected to outstrip supply by 124,000t next year after a shortfall of 178,000t in 2018 with subsequent deficits in the prior two years. Demand remains strong for traditional stainless steel, while innovative electric-vehicle battery consumption is rapidly growing.

  • Glencore note “demand is much stronger than most market participants recognise, and the deficit is much higher than people think”, noting a substantial fall in global inventory since 2015. “There is very limited supply-side response excluding Indonesia. That will not change soon”.

  • Nickel has lost about 9% this year, closing at the lowest since December this week, as trade-war concerns hurt metals and investors tracked early efforts by a major Chinese producer to develop new technologies that could drag prices lower. That drop has come even amid sustained enthusiasm for the potential jump in demand for nickel given its use in electric-vehicle batteries.

  • As evidenced by substantial inventory draws, nickel producers are unable to service demand,” said Glencore, which listed nickel operations in North America, Australia, Africa and New Caledonia. “The need for new supply will only become more pressing if EV-battery demand meets expectations.”

  • Holdings of nickel have been shrinking this year. Stockpiles tracked by the London Metal Exchange contracted for a 14th straight month in October, and are the lowest level since 2013. In China, the Shanghai Futures Exchange reports holdings of 14,385t, down from more than 100,000t in 2016.

  • Glencore is not alone in its enthusiasm for the outlook for nickel. In a mid-October report, Goldman Sachs Group Inc. said that it expected the metal to average $17,250/t next year, while only averaging about $13,570/t in 2018.

Zinc US$ 2,514/t vs US$2,558/t yesterday

Lead US$ 1,934/t vs US$1,933/t yesterday

Tin US$ 19,050/t vs US$19,065/t yesterday

           

Energy:           

Oil US$74.6/bbl vs US$76.8/bbl yesterday - Trump gives the all-clear for Iran oil sanctions to kick in Sunday night

  • President Trump said on Wednesday that there is enough oil to support the global energy market without Iran, giving the green light to re-impose energy sanctions on the Islamic Republic next week.

  • There "is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions," Trump said in a formal declaration.

  • Trump said he came to the conclusion "after carefully considering" the reports submitted to Congress by the Energy Information Administration, the analysis arm of the Energy Department, which has been tracking the supply issues that could arise from sanctions.

Crude Oil Ends Lower For 3rd Straight Session

  • Crude oil prices slipped on Wednesday, extending its recent slide, as data from US Energy Information Administration showed crude stockpiles increased last week, rising for a sixth successive week.

  • Crude oil futures for December ended down $0.87, or 1.3%, at $65.31 a barrel.

Natural Gas US$3.275/mmbtu vs US$3.222/mmbtu yesterday

Uranium US$28.10/lb vs US$28.00/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$72.4/t vs US$74.0/t

Chinese steel rebar 25mm US$701.6/t vs US$699.3/t

Thermal coal (1st year forward cif ARA) US$93.3/t vs US$96.0/t

Coking coal futures Dalian Exchange US$206.2/t vs US$205.6/t

           

Other:  

Cobalt LME 3m US$59,500/t vs US$59,250/t

China NdPr Rare Earth Oxide US$45,304/t vs US$45,170/t

China Lithium carbonate 99% US$10,068/t vs US$9,894/t

  • Argentina’s decision to tax primary exports will impact future lithium projects across one of principal countries in the global ‘lithium triangle’, just as the country is ramping up efforts to mine its sizable resources of the white, light metal essential to rechargeable batteries.

  • The government said this week it will put a levy on shipments of lithium at three pesos per dollar until 2020. That will be equal to an 8-10% tax on sales, on top of the royalty of about 3% that mining companies pay the government, Credit Suisse Group AG analysts said in a note Wednesday. The tax could potentially delay investment decisions, although it shouldn’t affect some existing expansions, Credit Suisse said.

  • Argentina holds the world’s largest identified lithium resource, but it trails Australia and Chile in terms of production, according to the U.S. Geological Survey. Over the last few months, established miners and junior companies have started to build and expand lithium operations in its salt flats.

  • Country has ~200 lithium projects under construction or exploration and needs foreign investment to help spur economic growth; between 2015-2017, country experienced a 29% increase in exploration activity.

  • However, Argentina’s national mining secretary Carolina Sanchez insists the nation remains attractive for foreign investment, citing no evidence mining investors have been deterred by the decision to impose a temporary levy on shipments of lithium by existing producers until 2020. The nation’s output is expected to rise to ~70ktpa lithium carbonate equivalent from ~25ktpa from two existing projects, with additional production forecast from growing number of projects in development.

Tungsten APT European US$275-295/mtu vs US$275-295/mtu

Manganese – Element 25 annual report for high-purity manganese

  • The 12th most abundant metal is fundamental to many industries, with the global economy dependent on sustained supply. Manganese is a critical ingredient in steel production, consuming ~90% global production, and the remaining ~10% applied across high-purity products including Electrolytic Manganese Metal, Electrolytic Manganese Dioxide and Manganese Sulphate.

  • Batteries require consistent high purity manganese in both rechargeable lithium-ion batteries and non-rechargeable alkaline cells. As a consequence of growing requirement for global energy solutions, manganese demand is surging. Manganese based batteries enable safe storage with high energy capacities and can be recharged from renewable energy sources.

  • Swelling requirement is being strongly driven by growth in traditional end use markets but also a rapid expansion in electric vehicle production and grid storage device capacity in Asia, Europe, and North America. Nickel-Cobalt-Manganese (NMC) and Lithiated Manganese (LMO) battery cathode chemistries both contain significant amounts of manganese and are widely anticipated to be the dominant formulations in the rapidly growing market for electric vehicles and grid-storage.

  • Manufacturing high performance Li-ion batteries that utilise manganese in the cathode requires reliable, high-purity manganese supply to ensure that the batteries meet increasingly demanding performance, safety and durability standards.

  • Element 25 have completed a Scoping Study focusing on the Yanneri Ridge deposit within the 100%-owned Butcherbird Project, while completing infill drilling to enhance the confidence in the resource for development targeted in 2020/2021. The company have developed a new process flowsheet in collaboration with CSIRO to leach desired high-purity products at ambient temperature and atmospheric pressure for significant cost savings.

 

Battery News

Researchers propose a cheap nickel-hydrogen battery for grid storage

  • Researchers from Stanford and the Georgia Institute of Technology are suggesting a new configuration of a nickel-hydrogen battery that could be cheap enough for mass-adoption on the grid.

  • In the new work, the researchers substituted out the platinum that would have been part of a nickel-hydrogen battery and replaced it with a "bifunctional nickel-molybdenum-cobalt electrocatalyst as hydrogen anode."

  • The estimated cost of a full-scale version of this battery is about $83/kWh, below the Department of Energy's 2040 goal for $100/kWh target for grid-connected storage. 

 

Mining veteran targets $1bn battery metals giant

  • South African mining veteran Brian Menell has ambition to construct a battery metal giant to help challenge China’s dominance of the nascent industry, with the privately funded TechMet Ltd holding a handful of assets from Canada to Rwanda. But he’s raising more money and sees countries such as the U.S. and Japan as potential partners to help catch China in the rapidly growing industry to provide battery grade supplies of everything from tin and tungsten to nickel and cobalt.

  • Menell states “it’s a massive problem” that China has dominated supply of these materials for about 15 years, highlighting “a degree of urgency”. The western world is becoming increasingly reliant on Chinese materials for battery applications, with the nation boosting dominance of output across rare earths, tungsten and cobalt.

  • The sentiment is reflected across the US and Europe, where a range of high tech metals have been designated critical minerals, which represent a security risk due to a distinct lack of domestic production.

  • TechMet, which is backed by high-net-worth investors, will begin another round of fundraising for ~$80m with plans for as much as $400m over the next three years, to expand its portfolio including stakes in a tin and tungsten mine in Rwanda, a nickel project in Brazil, a U.S. vanadium processing plant and a recycling facility in Canada that extracts cobalt and nickel from spent lithium batteries. The end goal is a $1bn IPO offered in five years’ time.

  • Despite prices of key metals, including cobalt and lithium, retreating this year, Menell remains positive – “there has been a cooling off around some of the hype. Prices still do not reflect how quickly these techs will evolve and how much metal is needed to fuel that growth”.

 

Company News

BHP (LON:BLT)  1599p, mkt cap £92.8bn – Special dividend and off-market buy-back

  • BHP has announced plans to return US$10.4bn to shareholders via a combination of an off-market share buy-back, intended to appeal to Australian based shareholders eligible for tax benefits and a special dividend.

  • The plans will be funded by the proceeds of the sale of the company’s US onshore assets as was previously promised.

  • The company expects a US$5.2bn share buy-back with the remaining US$5.2bn applied to the special dividend.

  • The quantum of the dividend will be determined on 17th December once the level of take-up for the buy-back has been established. The indicative timetable shows the dividend being paid on 30th January 2019.

Conclusion: The return of US$10.4bn to the market should enhance liquidity and if even a small part of the funds filters down to the junior mining sector it may help to invigorate the sector.

 

Golden Star Resources C$4.6, Mkt Cap C$505m – Wassa underground contributes to Q3 results

  • Golden Star reports production of 57,113oz of gold at a cash cost of US$780/oz and an all-in-sustaining cost of US$994/oz. during the quarter ending 30th September.

  • Production in the year to date is 175,938oz at a cash cost of US$831/oz and the company “is on track to achieve its consolidated full year (2FY”) 2018 guidance in terms of gold production, cash operating costs per ounce and AISC per ounce.”

  • The guidance  is 225-235,000oz of production at cash costs in the range US$790-830/oz and AISC between US$1050-1100/oz.

  • The company points to the improving profile of underground production from the Wassa mine which, at 36,517oz represents a 130% increase compared to Q3 2017 and contributed almost 65% of the company’s quarterly output and over 95% of the output of the Wassa mine.

  • We note that the increased gold output from Wassa is derived from the processing higher grade ore from the “B” Shoot (3.69g/t compared to 2.61g/t in Q3 2017) underground ore and reduced throughput of 394,293t compared to 668,902t a year earlier. As a result, cash operating costs for the Wassa mine complex reduced to US$613/oz during the quarter.

  • The Company expects the grade processed in the fourth quarter of 2018 to be in line with Wassa Underground’s average Mineral Reserve grade of 4.11g/t Au” which implies continuing grade improvements at least in the immediate future.

  • The Prestea mine produced 19,016 oz during the quarter at a cash cost of US$1,110 “and this is expected to decrease significantly in FY 2019 once Prestea underground is fully ramped up”.

  • Output during the quarter was approximately 55% lower than in Q3 2017 reflecting the winding down of the Prestea open-pits and the “slower than expected ramp up of Prestea Underground. Gold production is expected to strengthen in FY 2019 when Prestea Underground is fully ramped up.”

  • Cost reduction plans at Prestea are expected to include a reduction in workforce as the operation moves to underground operations and the open pits become exhausted as well as increasing production rates underground to 650tpd.

Conclusion: Wassa operations are now almost entirely underground and are showing the expected cost reductions. A slower than expected transition to underground mining at Prestea is expected to show significant improvements next year, meanwhile the company is on track to achieve 2018 production and cost guidance.

 

Ilika (LON:IKA) 18p Mkt. Cap. £18m – Ilika improves Bluetooth battery performance

 

  • Ilika is an advanced solid-state battery technology and materials innovation company.

2017 sales were £2.1m and losses were £2.9m.   

  • Ilika is collaborating with eight global OEMs to develop new materials including: protected

anodes for lithium sulphur batteries with Johnson Matthey and advanced battery

materials and fuel cell catalysts with Toyota.

  • The company has developed the Stereax M250 cell which is a 7mm thick battery with 250uAh capacity targeting wireless communications such as Bluetooth Low Energy.

  • Potential Bluetooth Low Energy markets are massive and include: automotive, sensors for IoT,  healthcare

equipment, wearable technology and home automation.  

  • Ilika today announced cell improvements such that the M250 cell can be charged or discharged in three minutes.

  • This, Ilika state, is twice the previously qualified continuous current for the battery and 10x the maximum

continuous current typically specified for conventional lithium ion batteries.

 

KEFI Minerals* (LON:KEFI) 1.5p, Mkt Cap £8.0m – Saudi Arabia exploration licenses renewal

  • Saudi authorities have formally renewed the Hawiah Exploration License owned by a local JV Gold and Minerals Limited where KEFI holds 40% and acts as an operator on the project.

  • The Company will update drilling programme targeting gold at surface and the underlying VMS type sulphide mineralisation.

  • Drilling is planned to start in Q2/19 following the commencement of construction works at the Kulu Tapi Gold Project in Ethiopia.

  • Exploration licenses cover a highly prospective 120km long belt called Wadi Bidah Mineral District in the southwest of the Arabian Shield which historically has been proven up to host 24 VMS occurrences.

  • Exploration works have been suspended in 2016 amid community requests which the Company ensured were addressed since then allowing for works to restart.

  • Historical exploration activities included surface trenching which returned high grade (2-9g/t) samples over 2-8m intervals as well as geochemical and geophysical surveys that identified two parallel anomalies 600m and 800m in strike.

  • “We are very pleased to have received the formal renewal of the Hawiah EL… the area is very prospective and our planned exploration activities there will sit well alongside our planned production at Tulu Kapi and further exploration in the Tulu Kapi district,” KEFI commented in the announcement.

*SP Angel act as Nomad and Broker to KEFI Minerals

 

Metals Exploration (LON:MTL) 1.4p, Mkt Cap £29m – Typhoon Rosita update

  • The Typhoon Rosita including strong winds and torrential rain which deposited 354mm of water over the mine site passed directly over Runruno operations.

  • Mining operations are currently suspended as a bridge failure has cut off the primary access to the site for vehicles as well as delivery of supplies including diesel fuel.

  • The mine is expected to be operational in 24-48 hours as alternative delivery routes are established.

  • The plant should restart in 24 hours following repairs to electrical equipment that has been damaged by water ingress.

  • In particular, as a result of damages to a power transformer, BIOX blowers have shut down for several hours affecting bacteria in tanks.

  • Emergency power generators have been used as grid power supply has been cut off for a period of 14 continuous period.

  • The Company is working on re-establishing feeding rates at BIOX plant to full capacity.

  • The Residual Storage Impoundment performed in line with design plans without any uncontrolled discharge recorded.

 

Randgold Resources (LON:RRS) 6180p, Mkt Cap £5.84bn – Merger receives SA Competition Tribunal approval

Barrick Gold (NYSE:ABX) US$12.55, Mkt Cap US$14.7bn

  • Randgold Resources reports that the South African Competition Tribunal has granted unconditional clearance for the proposed all share merger between Randgold and Barrick Gold.

  • The transaction remains conditional on the receipt of shareholder approval by both companies and of “the sanction of the Scheme by the Royal Court of Jersey which is being sought at a hearing scheduled for 17 December 2018.”

 

RioZim – closes three mines in Zimbabwe due to shortage of US dollars

 

  • RioZim, Zimbabwe’s third largest gold producer and a major employer has been forced to close three mines due to a shortage of US dollars with which to pay its bills.

  • The Cam and Motor Mine, Dalny Mine and \renco Mine have all involuntarily stopped operation after running out of consumables and spare parts according to a letter sent to the Govenor of the Reserve bank of Zimbabwe.

  • The company has threatened to take legal action against the Reserve Bank so it can get more US dollars

  • The situation highlights the desperate state of the Zimbabwe nation 

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