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Todays Market View - China president vows to cut import tariffs and open up economy

Published: 21:44 05 Nov 2018 AEDT

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SP Angel – Morning View – Monday 05 11 18

China president vows to cut import tariffs and open up economy

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MiFID II exempt information – see disclaimer below 

Amur Minerals* (LON:AMC) – 2018 field season to yield larger and higher confidence MRE at Kun Manie

Crusader (LON:CAS) – Nomad resigns as company announces Death Spiral convertible deal and proposes Entitlement stock issue

European Metals (LON:EMH) – Additional resource drilling underway at Cinovec

Galantas Gold (LON:GAL) – Twenty-five tonnes concentrate shipment

 

Asian markets fall as President Xi Jinping fails to announce new stimulus

  • President Xi opened the new China International Import Expo in Shanghai earlier today.

  • Xi’s speech presented "a new round of high-standard opening up" and intent on widening "its market access to the rest of the world." (CNBC)

  • Also vowing to cut import tariffs and open up China's economy.

  • Xi also pledged to speed up trade talks with the EU and Japan and to support reform of the WTO

  • China sees goods imports exceeding $30tr over the next 15 years

  • President Xi also warned against trade protectionism in a thinly veiled reference to Trumps new tariff threats

  • He reiterated that the fundamentals of China’s economy have not changed and that policies will protect legitimate rights of foreign enterprises which is an interesting point to make

  • Xi also announced a new market for technology companies to IPO on within the Shanghai stock exchange – Maybe this will be China’s Silicon Wok

  • Problem is we have heard much of this before in similar words. As always with China we have to wait to see what they do rather than listen to what they say

 

UK – Reports of secret Customs Union deal agreed by British PM as part of Brexit negotiations in Sunday Telegraph

  • Minister of Financial Services extremely confident of an imminent deal on Brexit for financial services

  • Sterling likely to continue to strengthen on the news.

 

Community Tesla battery trial kicks off ahead of schedule amid overwhelming interest

  • Australian-first trial to integrate bulk battery storage into existing network went live today, after 52 customers had signed up to be part of the program in less than two weeks since it had been announced.

  • A 105 kW Tesla battery in the Mandurah suburb of Meadow Springs will allow the customers to store excess power they generate during the day from their solar PV systems, and then draw down on it during the peak evening period.

  • At a cost of $1 per day, each customer participating in the 24-month trial will be able to virtually store up to 8kWh of excess power generated during the day from their solar PV systems in the battery.

  • The 8kWhs storage will be available any time after 3 pm each day.

 

GM to release two electric bikes

  • GM is releasing two electric bicycles next year

  • The company announced Friday that its two commuter-friendly bikes will be "integrated and connected". One will fold and the other is compact.

  • Full details on the bike's motor, battery, frame, and more are yet to be released.

 

Electric car demand fuelling rising child labour

  • Swelling demand for electric vehicles is boosting child labour across cobalt mines in the Democratic Republic of Congo, with rights campaigners urging companies to take action as the industry expands. Tens of thousands of children as young as six dig for the toxic substance in artisanal mines across the country’s south-east, with protective clothing.

  • As companies move to secure their supply of cobalt, they should also make a push to improve transparency and labour rights, said US-based advocacy group Enough Project. "We're not right at the beginning of the rise in demand but we're still pretty early on, where we can make sure that there are systems in place to address these things," said Annie Cathaway, author of the report.

  • Congo's mining ministry said earlier this year it was launching new monitoring and tracing mechanisms to tackle child labour in cobalt and copper production.

  • Rising demand in the last several years has already led to increases in cobalt production, drawing more people – including children – into the sector, said Siddharth Kara, an author on modern slavery who visited Congo this year.

  • "Based on what I saw on the ground, right now there is absolutely no way any company in the world could assure its consumers that the cobalt in its products is not tainted by child labour," Kara told the Thomson Reuters Foundation.

  • The majority of Congo's cobalt comes from industrial mines, while about one fifth is mined informally, according to rights group Amnesty International. Sourcing only from industrial mines would not solve the problem because it is unclear how and when artisanally mined cobalt enters the supply chain, said Callaway of Enough Project. "One of our recommendations is that companies should actually travel to cobalt mining areas in Congo… to demonstrate their interest in this issue," Callaway said.

 

Dow Jones Industrials

 

-0.43%

at

  25,271

Nikkei 225

 

-1.55%

at

  21,899

HK Hang Seng

 

-2.08%

at

  25,934

Shanghai Composite

 

-0.41%

at

    2,665

FTSE 350 Mining

 

-0.07%

at

  17,460

AIM Basic Resources

 

+1.06%

at

   2,157

 

Economics

Currencies

US$1.1384/eur vs 1.1439/eur last week  Yen 113.18/$ vs 112.91/$  SAr 14.403/$ vs 14.302/$  $1.299/gbp vs $1.303/gbp  0.720/aud vs 0.724/aud  CNY 6.927/$ vs 6.892/$

 

Commodity News

Precious metals:         

Gold US$1,233/oz vs US$1,235/oz last week

  • Gold remains little changed as the dollar steadies ahead of the US midterm elections tomorrow. Goldman Sachs Group Inc. says it sees a divided Congress as the most likely outcome of the midterm elections, with Democrats taking the House of Representatives and Republicans keeping a slim majority in the Senate. This is in line with recent poll that projects Democrats to win 225 house seats, although the estimate has a wide margin of error.

  • While there is a wide margin of error the tracker pole forecast Democratic majority would be supportive of a softer dollar, says Nomura.

  • The strong monthly jobs report on Nov. 2 reinforced the case for the Federal Reserve to keep raising interest rates. While officials are expected to keep the benchmark rate unchanged at their penultimate 2018 meeting Thursday, clues will be sought for moves into 2019.

  • We’re keenly looking at the midterms this week, where it may provide investors opportunities to short gold,” SHZQ Futures says in note. “We expect safe haven demand to fall once the spate of risky events in November are over”.

   Gold ETFs 68.5moz vs US$68.5moz last week

Platinum US$871/oz vs US$866/oz last week

Palladium US$1,121/oz vs US$1,108/oz last week

Silver US$14.74/oz vs US$14.78/oz last week

           

Base metals:   

Copper US$ 6,241/t vs US$6,222/t last week

Aluminium US$ 1,982/t vs US$1,990/t last week

Nickel US$ 11,795/t vs US$12,035/t last week - Nickel futures down 0.31% on profit-booking

  • Nickel prices dropped 0.31% in futures trade on Friday as traders cut down their bets to book profits at current levels amid a weak trend overseas.

  • In futures trading at the Multi Commodity Exchange, nickel for delivery in November was trading lower by Rs 2.70, or 0.3%, at Rs 864.30/kg in a business turnover of 903 lots.

Zinc US$ 2,547/t vs US$2,594/t last week

Lead US$ 1,980/t vs US$1,987/t last week

Tin US$ 19,090/t vs US$19,180/t last week

           

Energy:           

Oil US$72.6/bbl vs US$72.9/bbl last week - Adnoc plans to boost oil production to 5m b/d by 2030

  • Adnoc has unveiled plans to boost oil production capacity to 4m bpd by the end of 2020 and 5m bpd by 2030 as part of a $132bn plan.

  • The firm, which produces around 3m bpd with a planned capacity of 3.5m bpd by the year’s end, said the emirate’s Supreme Petroleum Council had approved the capital investment plans for 2019 to 2023.

  • Sheikh Mohammed bin Zayed Al Nahyan in a tweet on Sunday unveiled the plan, which includes a new gas strategy seeking self-sufficiency and potentially moving towards becoming a net gas exporter.

 South Korea gets US exemption on Iranian crude oil imports

  • South Korea has been granted a waiver from the United States on Iranian oil imports just as U.S. sanctions against Tehran come into force, a South Korean government official said this morning.

  • South Korea asked Washington for "maximum flexibility" last week, after some of its construction firms cancelled energy-related contracts in the Islamic republic due to financing difficulties.

  • The United States said on Friday it would temporarily allow eight importers to keep buying Iranian oil after it re-imposed sanctions on the country's crude flows from today.

  • "Petrochemicals are key to our economy, and we stressed that if we're hit by the Iran sanctions, it would pose grave challenges to our whole economy," the official said, requesting anonymity due to the sensitivity of the issue.

Natural Gas US$3.475/mmbtu vs US$3.188/mmbtu last week

Uranium US$28.75/lb vs US$28.25/lb last week

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$70.8/t vs US$71.2/t

  • Low-grade iron ore is showing signs of resilience after being shunned by steel mills for several quarters in favour for higher-quality counterparts as China cleans up its environment and mills’ seek to maximise productivity. The raw material with 58% iron content has gained 12% ytd, aided by a surged in October, while benchmark 62% ore remains little changed over 2018, according to Mysteel.com.

  • The global market has seen a flight to quality in recent years as China clamps down on emissions, aiding top miners Vale SA, BHP Billiton Ltd. and Rio Tinto Group while creating a headwind for low-grade shippers such as Fortescue Metals Group Ltd. That’s set off a debate over whether the shift is structural and set to endure, or a cyclical pattern that’ll reverse over time. The latest uptick in low grade has several drivers, with Marex Spectron suggesting top-quality material may have become too expensive, spurring pushback.

  • It might sound counter-intuitive at first-hand, since margins are firm and one would naturally assume that mills will go all out to maximize output,” Marex analyst Hui Heng Tan said. Still, high grade was “getting too expensive for end-users and it makes sense for them to scale back on such products, saving them some costs that would outweigh the effect in lower output.”

  • Low-quality spot ore ended last week at $64.8/t, while benchmark grade was at $74/t, according to Mysteel.com. Top-notch 65% material fetched $96/t, and last month it advanced to $98.5/t, the highest price since September 2017. On Monday, futures for benchmark ore rose 1% in Singapore.

  • Shipping an average grade lower than the benchmark, Fortescue has seen a 13% jump in average realised prices last quarter as mills returned to cheaper iron ore. That “demonstrates strong demand for our product”, according to CEO Elizabeth Gaines. “There’s always this debate about structural versus cyclical,” Gaines said. “There’s no doubt that there’s some aspects of what’s happened in China that’s structural in nature, whether that’s environmental reform or supply-side reform. But we actually are seeing that steel mill profitability is still the key driver of demand for various iron ore products.”

  • Low grade ore price has been supported by disruptions in supply, bringing the global market back into balance. Halted shipments from Goa and Sierra Leone due to legal and political issues, as well as Cleveland-Cliffs Inc.’s exit from Australia, have removed material from China according to CRU Group.

  • However, China’s focus on the environment is still spurring support for quality ore. “This structural theme of flight-to-quality remains in play in the longer term,” said Marex’s Tan. “With the high-low grade spreads coming under pressure of late, and if steel prices stay firm going forward, it make sense for the preference for higher grade to re-emerge again.”

Chinese steel rebar 25mm US$702.8/t vs US$706.4/t

Thermal coal (1st year forward cif ARA) US$91.9/t vs US$92.0/t

Premium hard coking coal Aus fob US$199.2/t vs US$200.2/t

           

Other:  

Cobalt LME 3m US$57,750/t vs US$57,750/t

China NdPr Rare Earth Oxide US$45,621/t vs US$45,854/t

China Lithium carbonate 99% US$10,106/t vs US$10,157/t

  • Sliding lithium shares don’t point to the bottom of the tumble as many investors point to the risk of oversupply in the battery materials market which could drive prices lower. Jiangxi Ganfeng Lithium Co. and Tianqi Lithium Corp., China’s dominant producers of the commodity vital for electric-vehicle batteries, are retracing last year’s share surge as optimism around a fast-expanding market gives ways to concerns about too much production.

  • Tianqi is down 41% this year in Shanghai and Ganfeng, China’s top producer and number three in the world, has lost almost half its value. Ganfeng’s newly-listed Hong Kong shares dropped 19% since debuting just over three weeks ago. Many analysts and companies predict renewed supply tightness in the long term as battery output accelerates. But there’s still room for valuations to waver when considering the near-term outlook, according to a fund manager at Uni-President Assets Management Corp. “Supply is sufficient for now. Lithium prices will remain relatively stable. So while the lithium companies can still have a certain degree of profit, the excess profits will disappear”.

  • Over the past two years “many lithium mines have been expanding capacity, so it’s expected that supply will increase considerably, but demand increased slightly,” Sean Lee, fund manager at Shin Kong Investment Trust. “Lithium prices still have pressures next year” due to the supply, he said.

  • Prices have already fallen significantly, with lithium carbonate down 53% this year in China, according to Asian Metal Inc. Lithium hydroxide, the product used in batteries, is down 20%. The demand side has also been hit by a rejig of government subsidies for the electric vehicles industry that’s reverberated down the supply chain.

  • Affected by the tightening of subsidies for electric vehicles, material suppliers are facing a reshuffle,” Lv Lishun, research manager at TrendForce. Rising inventories in the first half have dampened demand, he said.

  • The long-term outlook for battery metals remains positive, with Bloomberg New Energy Finance forecasting a deficit in 2024 following supply exceeding demand through 2022.

  • Producers need to be more conservative in the face of concerns about oversupply, Ganfeng vice chairman Wang Xiaoshen said. While it’s “fasten seatbelts time” for lithium suppliers in the short term, there’s likely to be a supply crunch by 2023 or 2024.

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

 

Company News

Amur Minerals* (LON:AMC) 3.8p, Mkt Cap £26.3m – 2018 field season to yield larger and higher confidence MRE at Kun Manie

  • The Company completed just over 32,500m of drilling within 169 holes this season taking the grand total to 117,343m at Kun Manie sulphide nickel/copper project.

  • The team is reporting to have completed all four primary objectives set for this year including:

  • Russian regulatory drilling requirements amounting to 6,742m on a 50x50m spacing to be used in the Russian TEO, a local equivalent of the feasibility study, as part of a mining license update.

  • Infill drilling at the IKEN high grade zone, western part of KUB as well as at the ISK deposit that strikes between IKEN and KUB which is estimated to host a combined of 32.5mt at 0.78% Ni and 0.22% Cu in Inferred Mineral Resources; preliminary results point to a potential to convert some 25mt into a higher confidence Indicated category.

  • Step out drilling at IKEN, KUB and ISK using the 100x100m spacing sufficient to estimate Indicated Mineral Resources over the area; the Company expects it may add 25-30mt to the March 2018 MRE most of which will be suitable for inclusion in the Indicated category.

  • Collection of a representative metallurgical sample at IKEN and KUB as well as at the recently identified mineralised area ISK; as such 7.5t sample has been collected taking total cumulative bulk metallurgical sample to 15t which would be used to identify the processing flow sheet of the project as well as optimal operating parameters and potential deleterious elements in the final product.

  • The drilling programme has been completed using inhouse diamond core drill rigs allowing the Company to keep all in per meter costs at an impressive level of $20-50.

  • This compares to an in-situ value of discovered NiEq of c.15.5t/m or around $187,000/m at current spot nickel price.

  • While the mineralisation has not yet been delineated at all of the deposits, the management is now committed to “fully shift its focus to the detailed engineering phase of the project”.

Conclusion: The latest exploration programme has delivered on set objectives including a potential expansion of the resource base by 15-20% as well as shifting more tonnages into a higher confidence Measured and Indicated category. Extension of the mineralised strike at ISK and KUB points to new pit optimisation benefits allowing to reduce waste stripping and improving project economics. Having collected the representative metallurgical sample from various deposits of the Kun Manie project the focus will now shift towards metallurgy tests and fine tuning the optimal production schedule whether it would be flotation concentrate or low grade matte.

 

Crusader (LON:CAS) – Suspended on AIM, Trading on the ASX, Nomad resigns as company announces Death Spiral convertible deal and proposes Entitlement stock issue

  • Crusader Resources report they have entered into an agreement to subscribe for a A$1m convertible issue with a coupon of 8% and convertible at the investor’s election at a 30-day VWAP price.

  • The statement, rather unusually, does not appear to declare the name of the organisation issuing the convertible. We note, some convertible issues are better than others.

  • While this instrument does not appear to be convertible at a discount to the share price the market may view the placement of stock into the market from the convertible as a negative.

  • The RNS does not declare the currency of the convertible placement so we assume this is being done in Australian dollars indicating that the convertible price will be A$0.01 or 0.554pence.

  • The statement also reports an Entitlement issue is to be announced in the coming weeks. The convertible price will be adjusted to the Entitlement Share price if this is lower than A$0.01/s.

  • Crusader shares were suspended on AIM on 1st October at 1.38p. The company listed on AIM on 16th April 2018 with a market capitalisation of £13.8m having raised £3.53m from investors as part of the listing.

  • Crusader’s Nomad who floated the company on the AIM market also announced its resignation today.  

  • Shareholders which have supported the group including Ruffer, the IFC and Bank Julius Baer must be livid.

  • Crusader is focussed on developing the Borborema gold project in northern Brazil.

  • Borborema is estimated to have a Proven and Probable Ore Reserves host some 1.61moz of gold in 42.4mt of ore grading 1.18 g/t (0.4 & 0.5 g/t cut-offs for oxide & fresh ores).

  • There is also measured, indicated and inferred Mineral Resource estimate of 2.43Moz @ 1.10 g/t gold.

  • The Borborema project has an estimated initial capex of US$93m and a post-tax NPV of US$118m assuming a gold price of US$1,300/oz and a discount rate of 8%.

  • The funds will help Crusader dig itself out of its financial hole and combined with a further fund raising may enable the company to lift its AIM suspension.

  • Management do nor report any progress on the Juruena gold project which may host better grades and prospects than the Bororema project.

Conclusion:  We never like to see a company fail on the AIM market but the lipstick does not look right on this particular pig.

 

European Metals (LON:EMH) 25.25p, Mkt Cap £35.3m – Additional resource drilling underway at Cinovec

  • European Metals Holdings reports that it has completed the first diamond drill hole of a planned eight-hole programme totalling 2,560m aimed at converting part of the current indicated resource of 372.4mt at an average grade of 0.45% Li2O and 0.04% tin to sufficient measured resources to support mining during the first two years of the scheduled mine plan.

  • The indicated resource estimate is supplemented by an additional inferred resource totalling 323.5mt at an average grade of 0.39% Li2O and 0.04% tin.

  • Results from hole CIS-10, which reached a depth of 340m have not been published at this stage.

  • In addition to the drilling to upgrade the resources estimate, the company reports that it has completed the geophysical logging of four holes drilled to help establish the geo-technical characteristics of the rock mass. “A further five geotechnical holes along the planned mining decline route will be drilled and logged subsequent to the completion of the resource drilling. This data will allow final development ready designs to be completed for the portal and decline.”

  • Commenting on the drilling work, Managing Director, Keith Coughlan confirmed that “This drilling campaign will provide an upgrade to the existing resource at Cinovec.  We are excited about the acceleration in the rate of project development that has been achieved by the team in recent months. 

  • Pre-feasibility study work has demonstrated that bulk underground mining is appropriate for the development of Cinovec and that the investment of US$393m is expected to generate an after tax NPV8% of US$540m and an IRR of 21%, at a price of $10,000/t for battery grade lithium carbonate, from the production of 20,800tpa of battery grade lithium carbonate over a 21 years mine life.

Conclusion: Limited additional resource drilling is underway at Cinovec in order to establish a measured resource for the initial two years of planned production.

 

Galantas Gold (LON:GAL) 5.25p, Mkt Cap £10.1m – Twenty-five tonnes concentrate shipment

 

  • Galantas Gold reports that approximately 25 tonnes of flotation concentrate has been delivered from the processing of feed from underground development ore on the Kearney Vein at its underground Omagh gold mine in Northern Ireland.

  • The company confirms that the concentrate is “Destined for Glencore’s New Brunswick smelter”. Galantas Gold also points out that “Recent analytical test-work has confirmed  that the processing plant is meeting quality expectations”.

  • Commenting on the delivery of the concentrates, Roland Phelps, President and CEO of Galantas, welcomed the opportunity for early cash flow and said “We continue to make solid and determined progress towards commercial production.”

  • At this point, the outcome of the Court of Appeal review in relation to the permitting, which was expected to be announced in September this year, does not appear to be available. 

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