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Today's Market View - Falling Chinese industrial profits highlight growth risks

Today's Market View -  Falling Chinese industrial profits highlight growth risks

SP Angel – Morning View –Wednesday 27 03 19

Falling Chinese industrial profits highlight waning growth risks

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Beowulf Mining* (LON:BEM)– Drilling starts at Aitolampi to test higher-grade graphite in Finland

Bushveld Minerals (LON:BMN) – Bushveld Energy commission 450kWh vanadium redox flow battery at Eskom

IRC Ltd (HK1029) – Amur river bridge construction completion due in Jul/19

Petropavlovsk (LON:POG)

Bluebird Merchant Ventures* (LON:BMV) – Metallurgical testing programme for Kochang ore

MC Mining (LON:MCM) – Makhado coal project phase 1

Thor Mining* (THR LN) – Acquisition of gold and uranium licences

 

Wesfarmers offer US$1.1bn for Lynas Corp

  • Wesfarmers the large Australian conglomerate is bidding US$1.5bn for Lynas Corp.
  • The cash offer is for A$2.25/s represents a 44.7% premium to the last closing price.
  • Lynas produces Rare Earths at Mt Weld in Western Australia.
  • The offer may help support interest in Mkango Resources* which is looking to produce rare earth minerals in Malawi

*SP Angel acts as nomad and broker to Mkango.

 

Western Australia – lithium and cobalt sales rise to A$2.1bn

  • Nickel sales add a further A$2.6bn.
  • The three metals contribute less than 5% to the state’s resource revenues.
  • Iron ore is around half state sales with the rest made up mainly out of oil and gas.

 

Dow Jones Industrials

 

+0.55%

at

  25,658

Nikkei 225

 

-0.23%

at

  21,379

HK Hang Seng

 

+0.56%

at

  28,728

Shanghai Composite

 

+0.85%

at

   3,023

FTSE 350 Mining

 

+0.73%

at

  19,540

AIM Basic Resources

 

+0.83%

at

   2,181

 

Economics

US – Housebuilding dropped more than expected in February led by weak construction data on single-family homes that were down near a two-year low.

  • Consumer confidence also ebbed in March.
  • Stephen Moore, an expected President Trump’s nominee for the Fed Board of Governors, suggested the central bank should cut rated immediately by 0.5pp, New York Times writes in the interview.
  • Housing Starts (%mom): -8.7 v 11.7 in January (revised from 18.6) and -1.6 forecast.
  • Building Permits (%mom): -1.6 v -0.7 in January (revised from 1.4) and -0.9 forecast.
  • Consumer Confidence: 124.1 v 131.4 in February and 132.5 forecast.

 

China – Industrial profits slump 14%yoy, the fastest pace in a decade, in the first two months of the year amid a continuing trade row with the US and the government crackdown on high corporate leverage.

  • Among heavily hit sectors are auto manufacturers (-42%yoy), steel producers (-35%) and chemical industry (-27%).

 

German corporate bonds for top-rated borrowers now in negative territory

  • Top rated borrowers can effectively borrow money and be paid for the privelage
  • With Germany poised to fall into recession we wonder if this us another unintended Brexit effect

 

ECB – The ECB President Mario Draghi made further dovish comments during the Wednesday conference in Frankfurt suggesting there could be further delays to hiking rates.

  • Draghi tried to downplay latest poor economic data readings suggesting that a temporary slowdown in the Eurozone does not necessarily lead to a recession and saying that the path to its inflation target “has been delayed rather than derailed”.
  • "During the four euro area business cycle expansions since 1970, there have been 50 soft patches — defined as a two-quarter growth slowdown — and only four recessions. In fact, the euro area faced an analogous situation in 2016, when the economy also went through a soft patch triggered by a contraction in world trade. At that time, the strength of the domestic economy was able to shield the recovery from external uncertainties," the Italian central banker told an audience Wednesday in Frankfurt.
  • “It was clear that the loss of growth momentum could become more broad-based and persistent if two risks were to materialize: first, if external demand were to remain weak; and second, if this were to spill over into domestic demand," Draghi said about the bank's policy decisions.

Europe to adopt speed limiters to all vehicles sold from 2022

  • Sadly, the UK seems set to follow.
  • Curiously, you don’t actually need a working speedometer to pass the MOT in the UK which is lucky for those of us driving older vehicles.

 

UK – MPs are readying to hold a series of votes on the preferred Brexit option while PM is set to meet fellow Tories to win their support for her deal.

  • Jacob Rees-Mogg expressed his support for the deal arguing he will vote in favour should the Northern Irish DUP does so as well.
  • “Theresa May’s deal is a bad one, it does not deliver on the promises made in the Tory Party manifesto and its negotiation was a failure of statesmanship… (but) all the other potential outcomes are worse,” he wrote.
  • Some speculated PM may set out a timetable for her departure in an attempt to win support for her twice-rejected Brexit deal in Parliament.
  • Meanwhile, the Speaker is expected to select half a dozen options today, likely ranging from cancelling Brexit to leaving the EU without a deal, with MPs marking on paper each option ‘yes’/’no’, BBC reports.
  • The sterling is slightly off against the US$ and the € this morning.

 

Italy – Authorities are preparing a package of pro-growth measures to lift GDP projections for the year that could be in turn used for new deficit and debt targets to be issued next month, Reuters reports.

  • The “growth decree” that the government is expecting to pass on Friday is looking at raising tax breaks on investments, cut property taxes on factories and warehouses, and simplify procedures for public tenders, according to a draft.
  • Reforms are expected to be approved before the Treasury presents new public finance target in its Economic and Financial Document (DEF) that is due by April 10 which would form the basis for the 2020 budget.
  • The 2019 deficit target of 2% released in December were based on GDP growth of 0.6% versus EC and OECD estimates for 0.2%.
  • Sources in the government are suggesting forecasts will be cut in the DEF but will remain in positive territory and above those of most independent economists.
  • Business periodical Il Sole is suggesting the government may cut 2019 growth forecasts to just 0.1% or 0.2% if reforms are accepted taking expected deficit to GDP target to 2.3%.

 

Turkey – makes it impossible for foreign investors to sell the Turkish Lira

  • Turkish banks are reported to have been told not to provide liquidity to foreign investors ahead of local elections on 32 March.
  • The move effectively traps foreign hedge funds in Lira trades. Bet the Heggies didn’t see that coming?

 

Venezuela – Major oil export terminal Jose and four crude upgraders with 0.7mmbbl per day capacity have been unable to resume operations following a power blackout on Monday.

  • The most recent oil shipment for export left jose on March 24.
  • “There is no electricity, everything is paralyzed,” oil workers union leader told Reuters yesterday.

 

Currencies

US$1.1261/eur vs 1.1307/eur yesterday. Yen 110.58/$ vs 110.14/$. SAr 14.468/$ vs 14.379/$. $1.320/gbp vs $1.320/gbp. 0.710/aud vs 0.713/aud. CNY 6.723/$ vs 6.712/$.

 

Commodity News

Precious metals:         

Gold US$1,315/oz vs US$1,317/oz yesterday

   Gold ETFs 72.3moz vs US$72.1moz yesterday

Platinum US$863/oz vs US$853/oz yesterday

Palladium US$1,539/oz vs US$1,568/oz yesterday

Silver US$15.38/oz vs US$15.48/oz yesterday

           

Base metals:   

Copper US$ 6,337/t vs US$6,332/t yesterday

Aluminium US$ 1,895/t vs US$1,891/t yesterday

Nickel US$ 13,020/t vs US$12,880/t yesterday

Zinc US$ 2,864/t vs US$2,847/t yesterday

Lead US$ 2,001/t vs US$2,019/t yesterday

Tin US$ 21,330/t vs S$21,295/t yesterday

           

Energy:           

Oil US$68.2/bbl vs US$67.6/bbl yesterday

Natural Gas US$2.717/mmbtu vs US$2.744/mmbtu yesterday

Uranium US$25.65/lb vs US$25.75/lb yesterday

           

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$84.0/t vs US$84.0/t

Chinese steel rebar 25mm US$619.4/t vs US$620.2/t

Thermal coal (1st year forward cif ARA) US$75.3/t vs US$73.5/t

Coking coal futures Dalian Exchange US$187.2/t vs US$187.5/t

           

Other:  

Cobalt LME 3m US$30,000/t vs US$30,000/t

NdPr Rare Earth Oxide (China) US$42,774/t vs US$42,832/t

Lithium carbonate 99% (China) US$9,745/t vs US$9,758/t

Ferro Vanadium 80% FOB (China) US$65.0/kg vs US$65.5/kg

Antimony Trioxide 99.5% EU (China) US$6.6/kg vs US$6.7/kg

Tungsten APT European US$271-282/mtu vs US$271-282/mtu

 

Battery News

New  hydride lithium superionic conductor reported to hold highest energy density to date (Phys.org)

  • Scientists at Tohoku University and the High Energy Accelerator Research Org have developed a new complex hydride lithium superionic conductor that may result in all-solid-state batteries with the highest energy density to date.
  • The new material shows markedly high stability against lithium metal making it better anode material for all-solid-state batteries.
  • This offers the potential to address the energy density issues in conventional lithium-ion batteries.
  • This new solid electrolyte exhibits high ionic conductivity and high stability against lithium metal representing a breakthrough for all-solid-state batteries that use a lithium metal anode.

 

Xpeng Motors looks to rival Tesla – seeks $500m funding with potential US listing

  • Xpeng began delivery of its G3 SUV in December with a base price of RMB227,800 or U$33,883.
  • Xpeng is looking to 1,000 SUVs a week and produce 40,000 this year.

 

Company News

Beowulf Mining* (LON:BEM) 7.5p, Mkt Cap £43m – Drilling starts at Aitolampi to test higher-grade graphite in Finland

  • Beowulf Mining reports drilling has started at its Aitolampi graphite project in Finland.
  • The campaign is for seven new drill holes of which four are to test potential for higher grade graphite mineralisation.
  • Drilling should test 1,040m in total of which 620m is for the higher-grade graphite area.
  • Beowulf has previously reported an Indicated and Inferred JORC resource of 19.3mt grading 4.5% Total Graphitic Carbon ‘TGC’ for 878,000t of contained graphite with lenses >3.0% the cut-off grade.
  • The higher-grade Western Zone has an Indicated and Inferred Resource of 9.8mt grading 5.0% for 490,000t of contained graphite.
  • The Eastern Zone has an Indicated and Inferred Resource of 9.5mt grading 4.1% for 388,000 t of contained graphite.
  • Raising the cut-off grade to 4.0% gives an Indicated and Inferred Resource of 12.8mt grading 5.0% for 639,000t.
  • Beowulf has invested over €760,000 in Aitolampi and ~€1.4m in its graphite exploration.
  • Recently Beowulf report that it’s Finnish subsidiary received some €224,900 for graphite purification and spheroidization test work into its Fennoscandian subsidiary.
  • Business Finland has €10m for the BATCircle part of a EU Strategic Energy Technology Program project to develop a Finnish-based ecosystem for Battery Metals including recycling facilities.

*SP Angel acts as nomad and broker

 

Bushveld Minerals (LON:BMN) 40p, Mkt cap £448m – Bushveld Energy commission 450kWh vanadium redox flow battery at Eskom

STRONG BUY (from BUY) - Target Price 87p

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(Bushveld Minerals now hold 74% of Vametco and 84% of Bushveld Energy it’s vanadium redox battery unit)

  • Bushveld Energy report the commissioning of their 450kWh vanadium redox flow battery at the Eskom test site in South Africa.
  • The team have also initiated development of a smallish 1MW mini PV grid paired with a 4MWh vanadium flow battery at the Vametco plant. This will supply around 8% of Vametco’s electrical power consumption and in theory, should be sufficient to supply several thousand houses in South Africa.
  • Bushveld is also working on the development of a vanadium electrolyte production plant starting off with 2t of vanadium for conversion into electrolyte.
  • The work with ESKOM is helping the team prepare to bid on 1,000MWh of energy storage facilities by 2020 and should also enable the move into more complex hybrid energy storage solutions on mini-grid projects.
  • Bushveld now appears well positioned to become a significant energy storage and power provider in Southern Africa with potential to expand into more developed markets which appear to suffer from some remarkably similar issues to that seen in SA.
  • The Cyclone in Mozambique has also knocked out a portion of power available to South Africa making new power generation storage solutions ever more urgent.
  • Ongoing load shedding in South Africa is seen as the greatest single risk to production faced by the local mining sector risking workers being trapped underground if there is insufficient power to run the winders.
  • Bushveld is working with the Industrial Development Corporation ‘IDC’ on their new electrolyte manufacturing facility. This should help proposed hybrid mini-grid power solutions.
  • The Eskom VRFB project should upgrade and expand to a peak output of 450kWh supported by Bushveld Energy and the IDC.
  • Bushveld Energy has now procured 2t of vanadium for conversion into vanadium electrolyte following positive pilot results.
  • The team have significant interest from VRFB manufacturers for vanadium electrolyte suggesting demand to support the installation of a 200MWh electrolyte manufacturing capacity in South Africa.
  • The World Bank Group is committed to US$1bn of battery storage for energy systems in low and middle-income countries which is expected to mobilise an additional US$4bn in concessional climate financing and public and private investments. The programme aims to finance 17.5GWh of battery storage by 2025;
  • South Africa’s draft 2018 Integrated Resource Plan is looking for the development of 15,000MW of new renewable electricity generation by 2040; 9,000MW in peaking generation capacity with provision for alternative technologies (such as battery energy storage) to participate; and a new allocation of an additional 200MW per annum for small scale embedded generation that can include storage.
  • Eskom is preparing to roll-out 1,400MWh of battery energy this year with completion by 2022.

Conclusion: Bushveld Energy should prove to be a valuable business unit in its own right over the next few years. The ability to buy vanadium directly from Vametco and then help customers finance the vanadium in electrolyte form should give Bushveld Energy an important edge.

The market for VRFB batteries to support renewable energy and grid systems looks set to expand very rapidly assuming the ESCOM trial goes well. Integrating the vanadium – electrolyte – VRFB supply chain could put Bushveld Energy at the forefront of rolling out battery technology to support renewable energy generation systems.

*SP Angel act as nomad and broker to Bushveld Minerals

 

IRC Ltd (HK1029) HKD0.13, Mkt Cap HKD908m – Amur river bridge construction completion due in Jul/19

Petropavlovsk (LON:POG) 8.1p, Mkt Cap £268m

  • The Company has released IRC announcement today citing Chinese media reports that Amur river bridge has been connected to its Chinese part.
  • Authorities in Heilongjiang province have confirmed that the last steel beam of the Russian-Chinese railway bridge over the Amur River has been installed.
  • Full construction is expected to be completed in July this year and to be operational later in 2019.
  • The bridge will help IRC to reduce transportation unit costs by $5/t as well as cut delivery times to 3-5 days from current 7-10 days.

 

Bluebird Merchant Ventures* (LON:BMV) 2.35p, Mkt Cap £5.4m – Metallurgical testing programme for Kochang ore

(Bluebird is earning into a 50:50 jv with Southern Gold Ltd at Gubong and Kochang)

  • Bluebird Merchant Ventures has announced its intention to carry out additional metallurgical test work on ore from its Kochang deposit in S Korea during April.
  • The intention of the testing is to establish “what the most appropriate process will be to recover the gold from Kochang ore.  This information factors into the economics of production”.
  • Testing conducted to date indicates that “the ore is not problematic and does not require complicated or expensive extraction techniques which will allow the company to consider low cost options for the design and construction of its process plant”.
  • The company is also “in the process of identifying and evaluating suitable locations for a processing plant.”
  • Additional work at Kochang includes the refurbishment of the underground access to the mine in order to facilitate a planned programme of underground drilling aimed at identifying the “structure and the continuation of the three veins below the existing floor of the Kochang mine which is 150 metres below surface.  The deposit is open along strike and to depth.”
  • Bluebird Merchant Ventures also confirms that it “continues to await feedback from the application for the 'permit to develop' which will allow the reopening of the Gubong Mine which was made on 23 January 2019.  This is expected at any time within the next couple of weeks.”

Conclusion: Bluebird Merchant Ventures is progressing the technical plan plans to reopen the Kochang mine with plans for additional metallurgical test-work and underground drilling and expects to have further news on its permit application within the next two weeks.

*SP Angel act as broker to Bluebird Merchant Ventures

 

MC Mining (LON:MCM) 45.5p, Mkt cap £64.1m – Makhado coal project phase 1

  • Following its announcement, on 14th March, that it would proceed with the proposed phase 1 development of its Makhado coal project in the Limpopo Province, S Africa MC Mining has provided further details.
  • Makhado contains a total probable reserve of 188.25mt, which after allowing for geological losses, mining recovery rates and likely contamination equates to 172.76mt of extractable coal.
  • Phase 1 consists of the West Pit development, expected to exploit approximately 25.2mt of reserves (23.1mt after losses etc) which are expected to produce approximately 0.54mtpa of hard-coking coal and 0.57mtpa of thermal coal product over a 9 years mine life.
  • Capital expenditure of US$29.1m (R400m) and a 9 months construction period, starting in Q3 2019  is expected to produce around 3mtpa of ROM production starting in mid-2020 although we would expect a steady ramp-up to this level.
  • The Phase 2 project “generating an estimated 4Mtpa of ROM coal” is indicated to start in “circa CY2022” through the development of lower levels of the West Pit plus the Central and East Pits.
  • Chief Executive, David Brown, confirmed that “The Company is in advanced thermal coal off-take discussions with various parties and expects that the marketing and fundraising elements will be completed during Q2 and Q3 CY2019 respectively, with construction of Phase 1 commencing thereafter”.

 

Thor Mining* (LON:THR) 0.85p, Mkt Cap £6.1m – Acquisition of gold and uranium licences

  • Thor Mining has announced that it has acquired two private Australian companies with gold and uranium licences and applications covering 784km2 in Western Australia and in the Northern Territory.
  • The acquisition of Pilbara Goldfields and of Hamersley Metals for a total consideration of £450,500 is payable “through the issue of 53 million new Thor …  shares at an issue price of 0.85p per share … In addition, following shareholder approval, the vendors will receive 26.5 million warrants in the Company to subscribe for a further 26.5 million Ordinary Shares at a price of 1.30p per share with a three year life to expiry from today's date”.
  • An additional payment of 22.5m shares will become payable “should any project enter commercial production, and further payments should the Company dispose of any interests for in excess of the Initial Consideration”.
  • The company has also announced a strategic financing of £400,000 via the issue of approximately 47.1m additional shares at 0.85p per share. Each of the new shares has a warrant to purchase a further share at a price of 1.30p within 3 years.
  • At the advanced Moluhil tungsten/molybdenum project, Thor Mining “is currently in a commercialisation process to secure project level finance for the mine construction phase” while the previously announced plans to put the Company’s interest in the Kapunda copper project in S Australia into Enviro Copper with a view to a future listing of Enviro Copper is continuing.
  • Commenting on the acquisitions in the light of progress made at Molyhil and Kapunda, Executive Chairman, Mick Billing, said that “the Company needs to access new Australian opportunities and the Strategic Acquisitions announced today enable us to take a material step forward in this regard”.

Conclusion: At this stage there is little detailed information on the acquisitions, however, as the company moves Molyhil towards development and prepares Kapunda for inclusion in Enviro Copper it is adding earlier stage projects to its pipeline of projects.

 

*SP Angel act as joint broker to Thor Mining

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