By 
SP Angel . Morning View . Wednesday 20 01 21
Markets trade higher supported by earnings and stimulus hopes
Antofagasta (LON:ANTON) – Q4 production highlights strong quarter
BHP (LON:BHP) – Record iron ore production, workforce reductions in Chile for Covid and continuing focus on copper exploration
IronRidge Resources* (LON:IRR) – Call notice for exercise of warrants
Shanta Gold (LON:SHG) – Reserves/Resources update replaces mined ounces
SolGold* (LON:SOLG) – Nick Mather steps aside to allow search for new CEO to lead Alpala block-cave financing and development
Automotive Factories suspend production on chip shortage
Strong sales of X-boxes and other games consoles from families in Lockdown combined with poor planning by Automotive manufactures to leave factories short of essential computer chips.
The ramp up in new car sales appears to have caught buyers by surprise with foundries (semiconductor manufacturers) unable to meet the increase in demand
Many more chips are required for engine management and other controls in new cars than in previous generations exacerbating the crisis.
The problem appears to be affecting automotive manufactures in China as much as elsewhere with the world’s largest foundries based in Taiwan and South Korea.
VW has lost tens of thousands of cars in production in China due to the global chip supply shortage that’s crippling automakers around the world (Bloomberg).
Note: The last major collapse in global financial markets occurred shortly after we ‘SP Angel’ broke the story on Bloomberg TV of a global shortage in critical components due to logistical problems in China precipitated by the Lockdown of Wuhan and Hubei province which serves as a major logistical hub in China.
China – Beijing Lockdowns five neighbourhoods with 1.6m people ordered to stay at home
You have to admire the Chinese, when it comes to Lockdowns there is no messing about.
The Chinese state knows that the only way to hope to control this pandemic within China is to completely lockdown whole neighbourhoods and cities with zero-tolerance.
Even so, it is clear, the virus is spreading despite the lockdown of two cities in Hebei around 10 days ago.
China – Dual Circulation policy likely to expand as China moves to protect its manufacturing recovery through increasing internal demand
Trump may be leaving the Whitehouse but some key policies may not follow him into his Florida hideaway.
We expect many in the US to continue to call for increasing tariffs against China across a broader range of industries.
We also expect Biden to try to firmly and more diplomatically squeeze China back into line.
There are many areas where China continues to offend its neighbours and threaten the West.
While many fear Biden will shy away from the conflict we suspect the Biden/Kamala Harris combo may potentially take a firmer stance than Trump.
Base metals continue to rise helped by weaker US dollar
Bringing Janet Yellen into the Treasury served to consolidate the market’s view on the scale of Biden’s $1.9tn stimulus package.
The US dollar reversed recent gains and looks likely to continue to weaken as the Biden.
Recent Interviews:
IGTV: Is 2021 the start of the new COVID-Supercycle or will Lockdowns delay the recovery? https://youtu.be/7LO0tDc-pNc
As traders continue to bid up Tesla, is the EV sector approaching a bubble? https://youtu.be/LaDWBpTZ7SQ
Copper price rise: https://youtu.be/mdPXTup15VY
VOX Markets: 13/01/20 https://audioboom.com/posts/7770987-john-meyer-on-lithium-ironridge-res-savannah-res-kodal-mins-cornish-metals-bluerock-diamonds
iiTV: The mining stock to own in 2021: https://www.youtube.com/watch?v=4x7SuSLQwCI&t=11s
Small Cap Mining Share tips for 2021 – https://www.youtube.com/watch?v=G_6RKAp91k4
Miners for a green industrial revolution – https://www.youtube.com/watch?v=rXlNS6JIDvg&t=3s
A Mining megatrend and three solid dividend stocks – https://www.youtube.com/watch?v=sH5r-QbTRwg
*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts.
We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, one and all, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.
Dow Jones Industrials +0.38% at 30,931
Nikkei 225 -0.38% at 28,523
HK Hang Seng +1.08% at 29,962
Shanghai Composite +0.47% at 3,583
Economics
US – Equity futures are trading stronger this morning after Janet Yellen addressed the Senate Finance Committee supporting President-elect Biden’s $1.9tn programme, WSJ reports.
Yellen addressed concerns over mounting government debt levels ($21.6tn or ~100% of annual GDP) but urged lawmakers to act as benefits of the stimulus outweigh potential costs, in particular, given currently low interest rates.
“To avoid doing what we need to do now to address the pandemic and the economic damage that it’s causing would likely leave us in a worse place fiscally… than taking the steps that are necessary and doing that through deficit finance,” she said.
She assured senators that Biden is not looking at increasing taxes immediately but would consider them as part of a later package that focuses on long-term investments.
On China, Ms. Yellen offered a hawkish take calling it “our most important strategic competitor” and promising to address its “abusive, unfair and illegal practices” such as price dampening, trade barriers and IP stealing.
Ms. Yellen’s nomination is expected to reach the Senate floor for her confirmation as Treasury Secretary vote tomorrow.
China is building a quarantine camp that can house more than 4,000 people as authorities are trying to contain the spread ahead of national holidays due to start later in February.
The camp is located next to Shijiazhuang, the provincial capital of Hebei province, that saw a spike in new cases earlier in the month.
Construction works began on January 13 and the first section is now complete and ready for use.
UK – Home Secretary argued it is “far too early to speculate” about easing lockdowns given high rates of hospital admissions and death rates.
The UK reported a record high number of deaths on Tuesday (1,610) and 33,355 new cases.
Inflation picked up in December on the back of transport and apparel cost, although, the combination of the VAT reduction for the hospitality sector and the continued drag from energy prices is likely to keep inflation below 1% until April, according to Bloomberg.
CPI (%yoy): 0.6 v 0.3 in November and 0.5 est.
Italy – Bond yield spreads came down as PM Conte survived the Senate confidence vote.
Australia – new home sales increased 26.2% in December vs 15.2% in November
Indonesia – motorbike sales fell 45.4% yoy in December vs -56% in November but this is an improvement on the collapse in sales earlier in the year
EU – new car registrations fell 3.3% yoy in December vs -12% in November
ZEW economic sentiment index was 61.8 (Dec 55.0),
Germany – ZEW economic sentiment index rose to 58.3 for January vs 54.4 previously
CPI rose 0.5% in December vs -0.8% in November but remained -0.3% lower yoy.
Indonesia remains China’s second largest nickel supplier despite export ban
Indonesia exported 3.4mt of nickel into China last year, down 86% compared to a year prior, but still only second only to the Philippines who exported 40mt.
Shipments from Indonesia totalled 1.98mt in the first two months of the year, the last cargoes to depart before than ban came into force on the 1st of January.
Data shows a small amount of nickel being imported into China from Indonesia, which is likely to be iron ore with a low nickel content which can be used to produce ow-grade nickel pig iron.
China’s imports of nickel pig iron from Indonesia, which can still be exported, rose 101% YoY to 2.73mt (Reuters).
China’s reliance on Indonesia for nickel highlights tight supply in the market, with production heavily concentrated to a few key players.
Currencies US$1.2138/eur vs 1.2116eur yesterday. Yen 103.78/$ vs 104.00/$. SAr 14.908/$ vs 15.082/$. $1.366/gbp vs $1.359/gbp. 0.773/aud vs 0.772/aud. CNY 6.467/$ vs 6.488/$.
Commodity News
LME – to end its open outcry trading ring
The London Metal Exchange has set out plans to permanently close its trading floor, operating since 1877, in favour of electronic trading.
The trading floor has not operated through the Lockdown and has, by necessity, been fully replaced by its electronic trading platform.
Closing the trading floor ends the ability to take investors and companies to the floor, an intangible that probably has more value than many realise.
Precious metals:
Gold US$1,856/oz vs US$1,845/oz yesterday
Gold ETFs 107.2moz vs US$107.2moz yesterday
Platinum US$1,099/oz vs US$1,103/oz yesterday
Palladium US$2,380/oz vs US$2,385/oz yesterday
Silver US$25.52/oz vs US$25.30/oz yesterday
Base metals:
Copper US$ 8,059/t vs US$7,995/t yesterday
Aluminium US$ 1,981/t vs US$1,963/t yesterday
Nickel US$ 18,220/t vs US$18,010/t yesterday
Zinc US$ 2,714/t vs US$2,668/t yesterday
Lead US$ 2,024/t vs US$1,993/t yesterday
Tin US$ 21,165/t vs US$21,040/t yesterday
Energy:
Oil US$56.5/bbl vs US$55.2/bbl yesterday
Natural Gas US$2.498/mmbtu vs US$2.641/mmbtu yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$166.5/t vs US$168.5/t – Iron ore supply concerns mount as cyclones approaches Pilbara coast
Meteorologists have predicted a category 1 or 2 cyclone to reach the Pilbara coast of western Australia as early as this Friday, which could affect iron ore shipments out of the hub.
Australian officials believe that the storm is strengthening, however is unlikely to develop into a severe (Category 3) tropical cyclone but it may reach Category 2 as it nears the Pilbara coast.
February 2020 saw cyclone Damien shutdown operations at the Port of Dampier in Western Australia, and Rio Tinto lowered its iron ore shipment guidance for 2020 after Pilbara storm damage (Fastmarkets MB).
Chinese steel rebar 25mm US$664.0/t vs US$663.4/t
Thermal coal (1st year forward cif ARA) US$68.7/t vs US$69.0/t
Coking coal swap Australia FOB US$140.0/t vs US$135.0/t
Other:
Cobalt LME 3m US$37,520/t vs US$37,510/t
NdPr Rare Earth Oxide (China) US$69,735/t vs US$69,053/t
Lithium carbonate 99% (China) US$9,509/t vs US$9,248/t
Ferro Vanadium 80% FOB (China) US$30.2/kg vs US$30.2/kg
Ferro-Manganese high carbon 78% Mn US$1,430/t vs US$1,380/t
Tungsten APT European US$235-240/mtu vs US$235-240/mtu
Graphite flake 94% C, -100 mesh, fob China US$530/t vs US$520/t
Graphite spherical 99.95% C, 15 microns, fob China US$2,475/t vs US$2,475/t
Spodumene 6% Li2O min, cif (China) US$395/t vs US$380/t
Battery News
GE Renewable Energy finalises contracts for US offshore wind project
GE Renewable Energy has finalised supply and service contracts for the 1.1GW Ocean Wind offshore project in New Jersey, US.
They will equip Orsted’s Ocean Wind project with GE’s Haliade-X MW wind turbine, with an option to use the 13MW variant.
Upon completion, Ocean wind will power half a million new Jersey homes annually.
Company News
Antofagasta (LON:ANTO) 1,525p, Mkt Cap £15bn – Q4 production highlights strong quarter
Antofagasta has recovered much ground in the last quarter of the year to achieve 733,900t of copper output in 2020.
Gold production rose to 204,100oz for the year, 27.7% less than seen in 2019
While this is within the group’s revised guidance copper production was also 4.7% lower than seen in 2019.
Cash costs fell 9c/lb to $1.56/lb due to the weaker Chilean peso for the year though costs rose in Q4 to $1.63/lbas the Peso recovered.
Management guide to 730-760,000t of copper for 2021 and 240-260,000oz of gold assuming COVID-19 controls remain in place limiting transport and logistics.
Conclusion: Antofagasta should remain a core holding for any copper bull. The company continues to expand in Chile and is able to work through the Covid crisis.
While 2020 was a tough year, Antofagasta has had the resolve and determination to work through the crisis and should see profits rise substantially through 2021
BHP (LON:BHP) 2,145.5p, £44.6bn – Record iron ore production, workforce reductions in Chile for Covid and continuing focus on copper exploration
BHP reports record production from its Western Australian iron-ore operations in the six months to 31st December as well as record throughput at the Escondida copper concentrator in Chile.
“Production guidance for the 2021 financial year remains unchanged for petroleum and metallurgical coal. Iron ore guidance has increased to between 245 and 255 Mt as a result of the restart of Samarco in December 2020. Copper guidance has been narrowed to between 1,510 and 1,645 kt and reflects strong performance at Escondida. Energy coal guidance has been reduced to between 21 and 23 Mt following a 91-day strike at Cerrejón.”
BHP is maintaining its previously published cost guidance across its suite of commodities.
“Energy coal production decreased by 30 per cent to 8 Mt. Following a strike at Cerrejón, guidance for the 2021 financial year has been reduced to between 21 and 23 Mt from between 22 and 24 Mt.”
Energy coal output in New South Wales fell by 7% to 6.9mt reflecting “significant weather impacts and higher strip ratios, as well as lower volumes due to an increased proportion of washed coal in response to reduced port capacity”.
The company “expects to recognise an impairment charge of between US$1.15 billion and US$1.25 billion post tax in relation to NSWEC … [New Soth Wales Energy Coal] … and associated deferred tax assets, resulting in net operating assets of between US$250 million and US$350 million (excluding tax). This reflects current market conditions for Australian thermal coal, the strengthening Australian dollar, changes to the mine plan and updated assessment of the likelihood of recovering tax losses.”
BHP reports that it spent US$86m on mineral exploration during the half-year with efforts “predominantly focused on advancing copper targets within Chile, Ecuador, Mexico, Peru, Canada and the south-west United States”.
Resource definition drilling at Oak Dam in South Australia is expected to start around mid-2021.
The company also points to an agreement with “Midland Exploration to undertake a nickel exploration alliance in northeastern Quebec” as well as “an Option Agreement with Encounter Resources covering the 4,500 km2 prospective Elliott Copper Project in the Northern Territory”.
Iron-ore output from Western Australia rose by 6% to 128mt over the half year “reflecting record production at Jimblebar and strong performance across the supply chain, with significant improvements in dumper car productivity and reliability. This was partially offset by weather impacts, and the planned Mining Area C and South Flank major tie-in activity”.
The company is maintaining full year production guidance for Western Australlian iron-ore in the range 245-255mt.
Production of iron-ore pellets resumed at Samarco in December following the shutdown in the aftermath of the Fundao Dam failure in November 2015.
The company says that “Production for the 2021 financial year … [at Samarco] … is expected to be between 1 and 2 MT. Production capacity of approximately 8Mtpa (100 per cent basis) is expected once ramped up.”
The company reports “broadly flat” equivalent copper output over the six months period with “Strong underlying operational performance offset … [by] … the impacts of planned maintenance … copper grade decline and adverse weather”.
The company is tightening its production guidance for the year to the range 1.51mt-1.645mt from the previous range of 1.48mt-1.645mt as a result of lifting the lower estimate for Escondida by 30,000t to a new guidance range of 0.97-1.03mt.
BHP says that Covid19 containment measures in Chile led to a reduction in operational workforce numbers of approximately 30% and that “reductions in our workforce … [are] …forecast to remain substantial during the March 2021 quarter.”
Copper production at Pampa Norte fell by 20% during the period as a result of the workforce restrictions and planned maintenance while output at Olympiic Dam increased by 16% to 99,000t “reflecting improved smelter stability and strong underground mine performance”.
Metallurgical coal output declined by 5 4% to 19mt and the company maintains its guidance between 40-44mt “with a stronger second half performance projected in line with our plans”.
Conclusion: BHP has reported record iron-ore production from Western Australia as well as strong performance from Escondida and Olympic Dam. Energy coal output was hit by the strike at Cerrejon while in Australia, adverse weather and operational parameters curbed energy coal production. Copper remains a key focus of the Group’s exploration effots across North and South America and in Australia.
IronRidge Resources* (LON:IRR) 18p, Mkt cap £78.9m – Call notice for exercise of warrants
IronRidge has called on holders to exercise their fundraise warrants, in accordance with the Terms & Conditions of the Fundraise Warrants, which stipulate that the Company’s ordinary shares trade at a Volume Weighted Average Price at or above 16p per share for a period of five consecutive days constitutes a trigger event- which was achieved on the 12 August 2020.
IronRidge is exercising its right to call on the holders of all the Fundraise Warrants to exercise their holdings and advises all holders of the Fundraise Warrant that they have 20 calendar days from the date of this announcement in which to elect to exercise their warrants, after which they have a maximum of 10 calendar days for payment.
The resultant shares are expected to be allotted progressively as funds are received, as the Fundraise Warrants were subject to a Block Listing Application as advised to the market on 17 September 2020.
The exercise of the Fundraise Warrants is fully underwritten by Open Source Capital Limited (50%), Alberona Pty Ltd (a company controlled by Vincent Mascolo, the Chief Executive Officer of IronRidge) and Neil Herbert (the Chairman of IronRidge) such that, to the extent any Fundraise Warrants are not exercised, the ordinary shares that would have been issued to the Fundraise Warrant holder if exercised will instead be issued to the three parties in the proportion of 50%, 25% and 25% respectively at a price of 12p per share.
An underwriter’s fee will be payable to each of the three underwriters at the rate of 6% of the value of the ordinary shares subject of the Fundraise Warrant exercise process, with no fees attributable to warrants held by entities associated with Vincent Mascolo and Neil Herbert, or Assore Limited.
*SP Angel act as Nomad for IronRidge Resources
Shanta Gold (LON:SHG) 17p, Mkt Cap £180m – Reserves/Resources update replaces mined ounces
The Company released group-wide Reserves/Resources update over two assets in Tanzania and one in Kenia.
Total resources are estimated at 3.2moz grading 3.53g/t including;
13.4mt at 2.56g/t for 1,105koz at New Luika, Tanzania;
11.8mt at 2.38g/t for 904koz at Singida, Tanzania;
2.9mt at 12.6g/t for 1,182koz at West Kenya, Kenya.
Mineral reserves are estimated at 625koz grading 3.00g/t over two projects in Tanzania including:
4.0mt at 2.98g/t for 382koz at New Luika;
2.5mt at 3.000g/t for 243koz at Singida.
At New Luika, mineral reserves increased by 37koz in net ounces after adjusting for ~135koz in mine depletion and resource optimisation.
The Company declared maiden resource of 64koz at 2.08g/t at the open pit deposit next to New Luika (Porcupine South) with additional drilling planned for H1/21.
The management is planning to increase exploration budget by 50% to $8.0m for Tanzania targeting >40,000m of drilling at MLGM and Singida.
Additionally, two rigs have been mobilised at the high grade West Kenya Project with first results due in February.
Conclusion: The Company reported updated group-wide mineral resources/reserves delivering net increase in ounces at New Luika extending its life of mine. The team is planning to grow exploration budgets by 50% for Tanzania with a view to add further low cost ounces to the mineral inventory of the Group.
SolGold* (LON:SOLG) 34.8p, Mkt Cap £718m – Nick Mather steps aside to allow search for new CEO to lead Alpala block-cave financing and development
Nick Mather, founder and driver of SolGold has elected to retire and step aside after 13 years at the helm.
Mather will remain on the board as a Non-executive director and will continue to support the company’s exploration focus in Ecuador.
SolGold’s shares have risen under Nick’s leadership to the current price from a low of 1.25p in 2015.
Keith Marshall is stepping into the CEO role till a suitable replacement is found.
Marshall has previous form in ‘Block Caving’ in his former roles as MD of Palabora in South Africa and as President of the giant Oyu Tolgoi block caving project in Mongolia. In many respects this makes Keith the ideal man for the job.
We suspect the next CEO will also be approved by the major shareholders BHP and Newcrest.
Conclusion: We have acted and worked with Nick Mather for many of his 13 years at SolGold and know his ambition was always to delineate one of the world’s larger copper deposits. While Nick is able to retire having succeeded in his ambition we suspect his work within Solgold is far from done and could still lead to the discovery of a further and potentially more valuable copper porphyry for the group in Ecuador.
SP Angel act as Financial Advisor to SolGold.
Analysts
John Meyer – – 0203 470 0490
Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk – 0203 470 0474
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk – 0203 470 0486
Sales
Richard Parlons –Richard.Parlons@spangel.co.uk – 0203 470 0472
Abigail Wayne – Abigail.Wayne@spangel.co.uk – 0203 470 0534
Rob Rees – Rob.Rees@spangel.co.uk – 0203 470 0535
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
SP Angel
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*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.
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