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02 March 2020

China crisis: tin tells a tale.

Robin Bromby

By early afternoon Saturday, we had digested all the bad news for the week — or so we thought — and looked again at our share portfolio to make sure one had not been dreaming the devastation. At that point, many investors would have decided to get on with their lives and try not to think about the economic crisis until forced to when the markets re-opened on Monday.

Oh, no: not that easy. Saturday afternoon the February figures for China’s Purchasing Manager’s Index lobbed, and they were awful. By the time you read this, those will be seared on your brain: the manufacturing PMI down from January’s 50.0 (which was just short of recessionary) to 35.7, while the non-manufacturing (services and construction) numbers were even worse — down from 54.1 to 29.6. There goes a worry-free weekend.

On the internet you read all sorts of theories, but one rang true to your correspondent. Why would the Chinese not manipulate and fabricate these latest PMI figures (as they surely do with most things) to make them appear less disastrous? Because that would blow their cover; anything even semi-rosy would just give the final confirmation that Beijing’s statistics are usually lies, and the Chinese realised that. For them, this was one occasion when it was TINA-time (as in “there is no alternative”) and, for once, it was a case of tell the truth or be laughed out of town.

So far as commodities are concerned, it’s hard to get a comprehensive picture of what is happening in China. But the International Tin Association has given us a valuable glimpse into what is going in its sector.

Through its China contacts, the ITA found that most smelters were planning to re-start operations at the end of February. But resuming production at the Baiyinchagan mine in Inner Mongolia was being delayed and border closures are affecting tin concentrate supplies from Myanmar; the ITA notes that “according to our survey, the inflow of concentrates is completely blocked”.

So far as commodities are concerned, it’s hard to get a comprehensive picture of what is happening in China. But the International Tin Association has given us a valuable glimpse into what is going in its sector.

Moreover, many miners have yet to return to work in China. Smelters there are at present working through their already low stocks of concentrates.

And, it seems, many Covid-19 roads lead back to Wuhan. That is the situation in tin’s case. The city is, as we have noted previously, a hub for high-end manufacturing, and home to semiconductor and auto manufacturers (and around nine percent of Chinese television set production). They all need tin solder.

Not that this is an issue right now, because ITA says that most tin-using companies in China, if not closed themselves, report that many of their customers are. Europe is going to feel the tin crunch soon, too. Tin-using companies there are also now having to draw down their tin stockpiles; many European chemical operations are totally reliant on China for tin.

Keep in mind that tin is increasingly a tech metal, used in electric vehicles, advanced robotics, IT and renewable energy.

Here’s another pointer to just how bad production in China has been hit. Kansas City radio station KMBC reported at the weekend that bridal shops are telling customers that they have to be content with whatever wedding dresses are in stock. The reason: some 80% of wedding dresses sold in the US are made in China, and stores are being advised that any future shipments could be delayed indefinitely.

 

Stirrings in the Australian tin sector

Back in 2013 BNP Paribas described tin as its favourite metal. There’s been a long, disappointing winter of discontent in the tin sector ever since. According to figures from Reuters, last year global production fell six per cent largely due to Chinese smelters (including the majors Yunnan Tin, Yunnan Chengfeng and Guangxi China Tin) cutting back due to the low price of the metal.

In the last week of January, the London Metal Exchange price dropped from US$17,900/tonne to US$15,690. Last Tuesday LME stockpiles rose to a five-year high of 7,595 tonnes.

Yet a Canadian-based crowd (although led by Australians) is amassing a portfolio of tin assets in this country, taking advantage of the low prices, with a plan to launch a listing based on what they regard as world-class projects. Stuart Smith of TinOne Resources Corp makes the point that the bulk of tin is now produced in dicey jurisdictions — Bolivia, Myanmar and Indonesia in particular. The attraction of Australia as a reliable tin supplier, especially after this virus business, is obvious. TinOne has already acquired two tin-tungsten projects in Tasmania (including the historic Aberfoyle mine) and one tin project in northern NSW. (Keep in mind, too, that Australia was once, although long ago, an important global producer of tin.)

Smith, incidentally, grew up in Inverell, right in the middle of the great northern NSW tin mining province. He has been making the point that tin has missed out on the wave of exploration of recent years and the advances in exploration technology.

The company purchased the two Tasmanian projects from TNT Mines (ASX:TIN). TNT was listed in 2017 but has recently shifted its focus to North America, with zinc projects in Montana and Nevada — another one to add to our list of companies entering North America mining as outlined in last week’s column.

Elementos (ASX:ELT) also has its eye on the looming tin deficit (it expects that to be about 40,000 tonnes in 2022). It recently completed acquisition of the Oropesa tin project in Spain; the junior has long been labouring away at its Cleveland tin project in Tasmania and is due to make a decision-to-mine call by the end of the year.

We have previously mentioned another Tasmanian player, Venture Minerals (ASX.VMS), but there’s another play there too. Last month Stellar Resources (ASX:SRZ) completed its scoping study on the Heemskirk tin deposit near Zeehan while Kasbah Resources (ASX:KAS) is ready to flick the “go” switch at its Morocco project whenever the tin price takes off. Meanwhile, Thomson Resources (ASX:TMZ) has had its head turned by gold and has put its Bygoo tin project on the backburner. Bygoo surrounds the historic Ardlethan tin mine in Central NSW.

Incidentally, it is Ardlethan that shows how tough it can be to become a tin miner. Back in 2000 Marlborough Resources thought it was going to become a world tin player by reviving Ardlethan. It didn’t get to do any mining before having to be restructured as Australian Oriental Mining which, in turn, tried to take on two other tin projects in NSW, one near Yass and the other the historic Emmaville field in the north of the state. Nope, that didn’t work either. Both these juniors are now history.

 

Cashing in – just in time?

Will it be like 2008? That is, will many juniors who would normally seek to top up their cash reserves suddenly find that shareholders and financiers have turned off their phones and closed their chequebooks? Of course back then people were laid off, exploration plans put on ice, directors having their fees cut or deferred (or both). So far we haven’t seen that loom this time.

Last week we saw Middle Island Resources (ASX:MDI) raise $2.8 million for its Sandstone gold project. The company said it had one of the largest (17,400 metres) drilling programs by a junior in Western Australia to further define open pit resources at its 14 deposits. MDI says it possesses the only gold processing plant for 150km.

Also riding the gold wave (which suffered a rather serious dip on Friday, unfortunately) was Gladiator Resources (ASX:GLA) which banked $235,000 from a placement that will cover acquiring two gold projects in Victoria.

Alloy Resources (ASX:AYR) raised $1 million to help pay for acquiring two projects, a nickel-copper prospect in the Musgrave region of Western Australia and gold-copper in the Byrah Basin. Auroch Metals (ASX:AOU) pulled in $1.06 million for its nickel projects.

But what about lithium brine hopeful Lake Resources (ASX:LKE)? It has increased its shareholder purchase plan by $1 million to $2.5 million “due to overwhelming demand” and has added $500,000 to a private placement, making it $3.9 million “to accommodate some key sophisticated and professional investors”. Is the lithium swoon over?

 

Head-on crash: liquidity event sends gold reeling

Back in 2008 a neighbour worked at one of the big four banks. He told this writer that his job was a misery: he had the task of calling clients with margin loans that the bank needed them to hand over large sums of money as the GFC cratered share prices — or else.

The US$55/oz dive by gold futures on Friday suggests that there are once again plenty of investors who need to get their hands on some readies to meet margin calls when the market hits the wall. Then stir in gold owners who decided to take their profits. This shakeout — that is, both equities and gold diving in tandem — occurred in 2008; in fact, gold lost 30% of its value in 2008-09 before recovering.

Needing money to save your skin trumps sticking to gold as a store of value.

However, one website offers another theory. That is, the Japanese central bank watched the unofficial yen-gold coupling come apart, thus further threatening the value of its paper (fiat) money, so the Bank of Japan did a big sell of gold futures. There were several high value dumps of gold derivatives on Friday. Someone was trying to dent the yellow one.

Meanwhile, this comment from Mickey Fulp, the frequently quote US mining commentator who posts as the Mercenary Geologist: “For those who suggest that speculating in gold stocks equates to owning gold bullion, here is a stark reminder that juniors behave just like the broader stock markets when sell-offs are in fashion”.

 

 

 

 

 

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