SP Angel . Morning View . Friday 09 12 22
China Covid reopening optimism and weaker US$ help copper prices
MiFID II exempt information – see disclaimer below
Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTCQX:GALKF) – Trading agreement with Ocean Partners to fund Omagh Gold underground mining operations
GreenRoc Mining PLC (AIM:GROC) – Placing raises £325,000 to advance work on the Amitsoq graphite project in the south of Greenland
Oriole Resources PLC (AIM:ORR) – Oriole provides update on Thani Stratex Resources interest as focus shifts to Cameroon
High energy prices and global uncertainty causing traders to pull back on production and new projects
- This week we have seen a number of smelters and new projects either cut, cancelled or postponed by high energy price, energy supply issues and uncertainty
- Trafigura placed the Auby zinc smelter (165,000tpa capacity) on care and maintenance, though they restarted Budel (290ktpa capacity) in the Netherlands.
- Smelter production cuts could take some 400,000tpa out of the refined market.
- Glencore also cut development of Valeria coal project (20mtpa) in Bowen Basin, Queensland
- Australia has some 250mtpa of new coal projects and expansions planned – just wait till Greta Thunberg hears about this!
Copper prices rise, ICSG report highlights long-term copper supply issues despite jump in TC/RC charges
- Copper prices have strengthened again, pushing past $8,560/t as the dollar sold off against a number of currencies.
- The combination of a weaker dollar, easing Covid restrictions and China’s Bank of Communications moving again to ease property developer liquidity has been a trifecta of tailwinds for copper this week.
- However, TCRCs negotiated by Freeport McMoRan and Chinese smelters, considered the benchmark, will jump 35% next year to 6-year highs. Futures markets remain in contango, highlighting a major easing in supply tightness.
- The copper market has recently seen a sudden wave of production ramp ups, with the Quebrada Blanca II and Spence-SGO mines switching from oxides to sulphide mining to boost output.
- On the other hand, longer term supply issues continue to mount, with the ICSG reporting 2 new copper mines brought online in the 4 years to 2021. Glencore forecasts a 50mt deficit by 2030.
- Chinese output fell 6.7% in the first 9 months of this year, and the ICSG downgraded its full year production forecast growth from 5.1% to 3.9%.
- Refined output is being hit by soaring electricity costs, with a smelter bottleneck causing refined production to lag mined production by 1.2%.
- Aurubis is calling for mining firms to increase capacity and boost investment in the downstream smelter industry.
Gold supported by weaker dollar as traders brace themselves for series of US inflation data and Fed catalysts
- Gold prices have strengthened to hold the $1,800/oz mark following volatile trading as the US dollar looks for direction following a continued sell-off.
- US Treasury yields continue to weaken, with the 10-year hovering around 3.49% and the 2-year falling to 4.28%. Weaker Treasury yields are usually supportive of gold prices.
- Gold is set for a volatile week, with the US PPI reading expected today, CPI reading due on Tuesday and Fed Chair Powell set to outline the Central Bank’s updated rate hike agenda going forward on Wednesday.
- Traders are currently weighing up the relative strength of the US economy with easing inflation data, albeit far hotter than the Fed’s 2% target and concerns mounting over sticky wage growth.
- A more hawkish Fed on Wednesday is expected to weigh on gold prices and support both yields and the Dollar, however this would require a hotter-than-expected reading either today or on Tuesday.
- However, if the Fed continues to take their foot off the proverbial rate hike brakes, gold could enjoy a significant step higher. In recent weeks Powell has been emphasising the ‘higher for longer’ approach to rates.
Dow Jones Industrials +0.55% at 33,781
Nikkei 225 +1.18% at 27,901
HK Hang Seng +2.32% at 19,901
Shanghai Composite +0.30% at 3,207
Economics
US – Equity futures traded higher this morning ahead of US producer prices report with the US$ down for a third day.
- Estimates are for growth in PPI to have slowed down slightly in November driven by tighter Fed monetary policy.
- Jobless claims numbers released yesterday came in slightly up on the week, in line with expectations, while continuing claims were at their highest since early February.
- Jobless Claims (‘000): 230 v 226 (revised from 225) the previous week and 230 est.
- Continuing Claims (‘000): 1,671 v 1,609 (revised from 1,608) the previous week and 1,618 est.
- PPI (%yoy): 7.2 est v 8.0 October.
- Core PPI (%yoy): 5.9 est v 6.7 October.
China – Muted inflationary pressures leave room for more policy support amid waning growth momentum, Bloomberg reports.
- CPI pulled back to 1.6%, in line with estimates, in November while core inflation came in also unchanged at 0.6%.
- The data highlights challenges the economy is dealing with as zero Covid measures weigh on domestic demand and economic activity.
- The latest Bloomberg survey suggested the PBOC might cut rates on its medium-term lending facility in Q2 and Q3 2023 with a potential cut to the reserve requirement ratio.
- CPI (%yoy): 1.6 v 2.1 October and 1.6 est.
- PPI (%yoy): -1.3 v -1.3 October and -1.5 est.
- Crude oil imports rose 12% mom to 11.37mbpd due to a rise in refined oil exports replacing product lost from Russia
- Shipments of oil products rose 38% to 6.14mt in November equating to some 1.64mbpd in November.
Healthcare in China is about to get very tough
- The haphazard and draconian application of lockdown restrictions are not helping.
- The 2022 Flu season has arrived early and is causing some disruption.
- Fevers, coughs, colds, and other viruses are disrupting factories and offices around the world with influenza-like illnesses.
- Catching Flu and then Covid is not a good combination.
- Catching Flu, some other virus and then Covid sounds even worse.
- Covid: China is very poorly vaccinated and is desperately trying to catch up before it overwhelms its healthcare systems..
- China risks 1m Covid deaths this winter according to modelling by Wigram Capital Advisors which provides advice to governments (FT)
- They estimate a mortality rate of up to 20,000 a day in mid-March 2023 with demand for intensive care beds at 10x capacity.
- The daily hospitalisation rate could hit 70,000/d in late March.
- Shanghai’s Fudan University reckons an unchecked Omicron surge could lead to 1.6m fatalities within ~three months
- China’s leadership appear to be devolving responsibility for managing the pandemic to the cities and regions and to its citizens who are now expected to self-isolate in some cities.
- This is a massive change to the draconian detention of Covid positive people in internment camps. Maybe these camps will now become field hospitals?
- Manufacturing: Factory lockdowns, human rights and logistical uncertainty are causing international manufacturers to move production elsewhere.
- The US and other Asian Tigers are beneficiaries of the move in manufacturing and continue to show GDP growth despite the rise in US interest rates and impact of high inflation.
- Pullback in Western orders for new products combined with high inventory levels in the West are causing a double whammy for Chinese manufacturers who are reported to be closing surplus factories.
Taiwan – The US House passed a $858bn defence spending bill that includes $10bn to fund provision of weapons to Taiwan amid escalating tensions with China.
- The National Defence Authorization Act that is expected to pass the Senate later this month provides military related funding for five years.
- It marks the first time that the American government will fund weapons for Taiwan, FT reports.
Japan – Q3 GDP fell 0.2% qoq v 1.1% in Q2
- Q3 GDP fell -0.8% yoy vs 4.5% yoy in Q2
- Eco Watchers survey fell to 45.1 in November vs 46.4 in October
France – Monthly survey of 8,500 companies carried by the Bank of France suggested the economy marginally avoided a contraction in Q4/22 as activity improved more than expected in all sectors in November.
- Results come in conflict with PMI data released earlier showing business activity slipped into a contraction territory last month (48.7) after recording virtually little growth in October (50.2).
- “If I had to sum up the situation, I’d say it’s sustained resilience, but higher uncertainty and heightened vigilance,” Bank of France Governor said.
- Supply chain difficulties eased to the weakest since it started recording disruptions in May/21, although, surging energy prices remained a concern.
- Growth in 2023 is expected only slightly positive following a 2.6% expansion forecast for this year, according to the central bank estimates.
- “I can’t rule out a recession but it’s not our central scenario… If there were to be a recession, it would be temporary and limited.”
Peru – Castillo has been replaced by vice president Dina Boluarte and may have been detained by police.
- Expect protests, rioting and potential widespread unrest.
- Castillo had proposed additional taxes on mining companies which served to stall much potential new investment into Peru
- The reaction of mine workers may be critical to how communities react to Castillo’s removal
- Copper production rose 8.3% yoy to 232,464t in October a Las Bambas resumed production
- Zinc production fell 5.4% to 115kt yoy in October.
Ukraine - Official interest rate remains at 25%
Brazil – Interest rate remains at 13.75%
Currencies
US$1.0569/eur vs 1.0518/eur yesterday. Yen 136.39/$ vs 136.91/$. SAr 17.147/$ vs 17.193/$. $1.224/gbp vs $1.219/gbp. 0.675/aud vs 0.672/aud. CNY 6.948/$ vs 6.972/$.
Dollar Index: 104.71 vs 105.18 yesterday.
Commodity News
Precious metals:
Gold US$1,791/oz vs US$1,773/oz yesterday
Gold ETFs 93.8moz vs US$93.8moz yesterday
Platinum US$1,006/oz vs US$987/oz yesterday
Palladium US$1,922/oz vs US$1,863/oz yesterday
Silver US$23.04/oz vs US$22.31/oz yesterday
Rhodium US$12,900/oz vs US$13,150/oz yesterday
Base metals:
Copper US$ 8,562/t vs US$8,513/t yesterday
Aluminium US$ 2,500/t vs US$2,505/t yesterday
Nickel US$ 30,285/t vs US$31,750/t yesterday
Zinc US$ 3,235/t vs US$3,233/t yesterday
Lead US$ 2,216/t vs US$2,229/t yesterday
Tin US$ 24,825/t vs US$24,400/t yesterday
Energy:
Oil US$76.5/bbl vs US$77.6/bbl yesterday
Natural Gas US$5.969/mmbtu vs US$5.816/mmbtu yesterday
Uranium UXC US$48.50/lb vs US$48.15/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$109.3/t vs US$106.6/t
Chinese steel rebar 25mm US$565.4/t vs US$559.5/t
Thermal coal (1st year forward cif ARA) US$250.0/t vs US$262.0/t
Thermal coal swap Australia FOB US$379.0/t vs US$391.0/t
Coking coal swap Australia FOB US$279.0/t vs US$283.0/t
Other:
Cobalt LME 3m US$51,955/t vs US$51,955/t
NdPr Rare Earth Oxide (China) US$98,233/t vs US$97,887/t
Lithium carbonate 99% (China) US$77,363/t vs US$77,521/t
China Spodumene Li2O 5%min CIF US$6,110/t vs US$6,110/t
Ferro-Manganese European Mn78% min US$1,305/t vs US$1,299/t
China Tungsten APT 88.5% FOB US$317/mtu vs US$317/mtu
China Graphite Flake -194 FOB US$880/t vs US$880/t
Europe Vanadium Pentoxide 98% 7.9/lb vs US$7.9/lb
Europe Ferro-Vanadium 80% 33.25/kg vs US$33.25/kg
China Ilmenite Concentrate TiO2 US$325/t vs US$323/t
Spot CO2 Emissions EUA Price US$93.9/t vs US$91.9/t
Brazil Potash CFR Granular Spot US$515.0/t v US$515.0/t
Battery News
Battery metals set to take centre stage at next week’s US-Africa Leader’s summit in Washington
- Biden is set to meet leaders from across Africa next week at a major summit in Washington, with the US’ access to critical battery minerals set to lead the narrative.
- An adviser for Congo’s Tshisekedi’ stated a USA-DRC Free Trade Agreement ‘is an option for the medium to long-term, but in the short term other avenues will be explored.’ (Reuters)
- Biden’s major IRA stimulus package has pushed for domestic onshoring of battery metals production, however African leaders will look to develop agreements for the supply of minerals including lithium, cobalt, tin, and nickel crucial to the energy transition next week.
Company News
Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTCQX:GALKF) 34.5p, Mkt Cap £36m - Trading agreement with Ocean Partners to fund Omagh Gold underground mining operations
- Galantas Gold has entered an agreement with Ocean Partners UK utilising Ocean’s trading platform and credit lines.
- The agreement sees Ocean sell call options on 6,000oz of gold at 500oz per month from Feb 2024-Jan2025 at a strike price of $1,775/oz for proceeds of US$804k, with an option premium of $134/oz of gold. Ocean will maintain all margin requirements on behalf of Galantas.
- As per the agreement, if the gold price rises above $1,775/oz between Feb 2024 and Jan 2025, Galantas will receive $1,755/oz in revenue for the sale of its gold. If it falls below that price during the agreed period, Galantas will receive the price of gold at the time for the sale of its gold produced.
- Galantas will grant 500,000 warrants to Ocean at an exercise price of CAD$0.55 expiring Jan, 31st, 2025 as per the terms of the agreement.
- The proceeds from the agreement with enable Galantas to fund further development of its Omagh Gold underground mining operations in Northern Ireland in addition to working capital.
- The Company is looking to ramp up production in 2023.
- CEO Stifano states: ‘the sale of call options represents approx.. 1% of (Galantas’) resource base, resulting in a strengthened balance sheet.’
*SP Angel act as Broker to Galantas Gold
GreenRoc Mining PLC (AIM:GROC) 5.00p, Mkt Cap £5.56m – Placing raises £325,000 to advance work on the Amitsoq graphite project in the south of Greenland
- GreenRoc Mining recently reported the placing of 7m new ordinary shares at a price of 4.5p/s raising £325,000 for the company.
- The GreenRoc CEO subscribed for £36,000 worth of new shares in the offering.
- The company’s broker has a broker option whereby it can place another £200,000 worth of new shares at 4.5p/s
- Proceeds will be used for the ongoing evaluation of the Amitsoq Graphite Project which ranks as one of the world's higher grade graphite projects.
- The funds will support further test work on a 700kg bulk ore sample as part of the commercialisation process with UVR-FIA GmbH appointed is to complete test work on the Amitsoq bulk sample.
- Environmental and social impact assessment studies are ongoing as part of the licencing application process.
- The work should lead to further offtake discussions. GreenRoc recently appointed ProGraphite to act as an adviser to GreenRoc on graphite processing, sales and marketing.
- Cores have been sent to the Geological Survey of Denmark and Greenland for detailed mineralogical and petrographical studies to support the process plant design and other test work.
- Amitsoq has a current, reported, JORC resource of 8.28Mt ore grading 19.75% graphite.
- Amitsoq shows up to 23.96% Cg contained carbon grades in graphite layers
- UGL grades ranged from 17.29-20.92% Cg for mineable widths >2m.
- UGL layer ranges from 32.91m to 49.05m down hole in the results
- UGL true thickness widths range from 0.14-4.7m)
- Results show assays from four graphite layers down to 139m with drilling down to 167m.
- LGL2 seam shows 23.45% Cg over a true thickness of 11.84m.
Oriole Resources PLC (AIM:ORR) 0.11p, Mkt cap £2.6m – Oriole provides update on Thani Stratex Resources interest as focus shifts to Cameroon
- Oriole has provided an update on its 24.94% interest in privately-owned Thani Stratex Resources (TSR) and its ownership of the Egyptian Hodine Licence.
- As announced on the 19th October, TSR’s earn-in agreement with Red Sea Resources, was terminated following RSR’s $2.2m investment into exploration at the Hodine licence failed to ‘significantly improve’ the Inferred MRE at Anbat from 2017.
- In addition to this, the Egyptian Mining Code has deemed the 2017 MRE as unsatisfactory under the definition of a commercial discovery, ultimately resulting in full control of the Licence returning to TSR.
- Considering the licence was due to expire on the 31st of December 2022, TSR will relinquish the Licence and Oriole will write down the amount of £1.45m in its year end Company accounts.
Conclusion: As highlighted in the October announcement, exploration efforts have failed to yield satisfactory results at the Hodine licence. The Company’s decision to write down the value of its Hodine interest reflects both their emphasis and confidence in their Cameroonian assets, where both the Bibemi and Central Licence Packages offer highly prospective potential in the underexplored jurisdiction.
*SP Angel act as a broker to Oriole Resources
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Sources of commodity prices
Gold, Platinum, Palladium, Silver - BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel - Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt - LME
Oil Brent - ICE
Natural Gas, Uranium, Iron Ore - NYMEX
Thermal Coal - Bloomberg OTC Composite
Coking Coal - SSY
RRE - Steelhome
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite - Asian Metal
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