SP Angel . Morning View .Tuesday 13 12 22
Gold holds as traders brace for 48 hours of volatility on CPI today and Fed rates tomorrow
MiFID II exempt information – see disclaimer below
Atlantic Lithium Limited (AIM:ALL, OTCQX:ALLIF, ASX:A11)* – Processing plant FEED contract awarded for Ewoyaa Project
BHP Group Ltd (LSE:BHP, ASX:BHP) – Stake in Gates and Friedland-backed, ‘pulsed-power’ rock crushing technology
Centamin PLC (LSE:CEY, TSX:CEE, OTC:CELTF) – Further mineral resource and reserve increases at Sukari
Empire Metals Ltd (AIM:EEE)* – Exploration license area expanded at Pitfield
Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) – Endeavour signs $600m contract for mine development at Lafigué project, Ivory Coast
Petra Diamonds Limited (LSE:PDL, OTC:PDLMF) – Diamond price trends pick up at 3rd tender as China eases lockdown restrictions
Serabi Gold (AIM:SRB, TSX:SBI)* – Cost increases at Palito dent Q3 financial performance
Power Metal Resources PLC (AIM:POW)* – Drilling commences at historic Berringa Gold Mine
Copper prices ease from 6-month highs as inventories begin to climb from lows
- Copper rallied 1.15% this morning to $8,422/t having eased from $8,600/t yesterday.
- The short-term global supply picture has been improving in recent weeks, with global inventories jumping 5% yesterday on inflows to Shanghai and LME warehouses.
- Copper futures remain in contango, pointing to short term surplus of supply. Additionally, domestic Chinese copper cathode premiums continue to fall, suggesting refined demand has also weakened.
- Despite this, the metal has rallied alongside Chinese equities as the reopening trade picks up steam in China.
- However, concerns are starting to mount that a rushed reopening may trigger widespread infections, with anecdotal evidence suggesting this is beginning on the mainland.
- Renewable energy demand for copper continues to climb, with Encore Wire, a US wire and cables manufacturer, reporting a c.13% yoy increase in copper-unit volume.
Gold remains stable as traders brace themselves for 48 hours of volatility on CPI/Fed double
- Gold prices continue to trade between the $1,800-1,785/oz level as traders await the US CPI reading this afternoon followed by the Fed’s December rate hike decision and guidance for 2023.
- The dollar has weakened slightly into today but has been stable over the past fortnight over the Fed blackout period.
- The US 10-year yield has jumped over the past few days, climbing over 5% to 3.6%, weighing on gold prices.
- Today’s US CPI reading will likely be a decisive catalyst for both gold and the dollar, with the market consensus expecting US inflation to ease again.
- A hotter-than-expected reading would likely encourage the Fed to continue its aggressive hiking schedule, weighing on gold prices.
- Bloomberg polled economists and major banks expect 7.3% on average.
- The reading will likely guide the Fed’s decision the following day, although US economic data continues to surprise to the upside and Powell has continued to reiterate his ‘higher for longer’ approach to the rate hike cycle.
Dow Jones Industrials +1.58% at 34,005
Nikkei 225 +0.40% at 27,955
HK Hang Seng +0.57% at 19,574
Shanghai Composite -0.09% at 3,176
Economics
Inflation – Inflation rates to fall as oil prices pull back
- Brent oil prices need to rise materially >$100/bbl next year for inflation to mirror 2022 levels.
China – PRC to postpone Economic Policy meeting due to rising Covid cases in Beijing
- Chinese banks are helping property developers raise offshore loans to restart and fund construction.
- The BoC advanced $700m to Longfor Group so it could redeam a $300m offshore bond due in April.
- The move highlights Chinese state support for struggling property companies in overseas debt markets.
- Sunac recently proposed the swapping of $3-4bn of debt for shares in a $9.1bn restructuring plan.
- In many respects this follows the lessons learned from the collapse of LehmanBros which caused substantial disruption in financial markets and cost far more than the support required at the time.
- China races to develop more effective vaccines
- China is far behind in the race to vaccinate and protect its population from Covid
- The nation is reported to be still using its original vaccines which were designed to combat early Covid variants.
- Covid mutations, to Omicron and beyond require updated vaccines
- Chinese police arrest 63 people accused of laundering $1.7bn in cryptocurrency via Tether Stablecoin.
US Dept. Of Energy finalises $2.5bn loan to GM – LG Battery JV
- The U.S. Energy Department is in the final stages of issuing a loan to General Motors and LG Energy Solution to help pay for three new lithium-ion battery cell manufacturing facilities.
- The facilities will be built in Ohio, Tennessee and Michigan, while the JV is reportedly considering building a fourth site in Indiana.
- President Biden has set a goal for 50% of U.S. auto production by 2030 to be EVs, while GM intends to build 1m EVs in North America by 2025
EU – EU unlocks €18bn of funding for Ukraine as Hungary agrees to lift its block
- The EU has agreed to approve €5.8bn for Hungry’s Covid-19 recovery plan as a sop to Hungry to unlock the €18bn for Ukraine.
- Victor Orban is also seen blocking an EU wide 15% minimum corporation tax plan following a deal agreed with the OECD last year which requires the agreement of all 27 EU member states
- EU corruption: A senior MEP and three officials have been charged with corruption, money laundering and participating in a criminal organisation.(The Times)
- Eva Kaili, vice-president of the EU parliament and a Greek Socialist is being held in custody by the Belgian prosecutor.
- €600,000 has been seized from the home of one suspect, €150,000 from a flat owned by an MEP and another several hundred thousand euros seized in a suitcase in a Brussels hotel room.
- Russian lobbying / interference in EU to spark new corruption scandal
- The corruption investigation into Qatar’s lobbying of EU and FIFA officials appears to have taken a new turn
- We suspect, investigators have used the FIFA corruption investigation to uncover corruption from other nation states into the EU.
- Russia is a leading suspect due to its apparent influence over certain German and Eastern European politicians with ‘Kompromat’ ‘honey trap’ blackmail and security threats more subtle than straight forward bribery but equally effective.
UK – Real wages falling by 2.7% according to ONS data
- Private sector pay grew 6.9% from August to October vs 2.7% in the public sector
- Rishi Sunak reckons public sector pay demands could cost the average family and extra £1,000 a year if the government met demands in full.
- The public sector appears to have a right to demand more on these figures
- Two NHS unions vote to accept improved pay offer of 7.5% in Scotland
- Energy: The National Grid did not need to use its, warmed up, coal-fired power plants last night
- Gas storage at the ‘Rough’ facility is only around 30bn cubic feet representing around three days capacity. It will take £150m to double gas storage at the Rough facility in the North Sea.
- Striking rail workers are saving significant amounts of electrical power helping National Grid avoid blackouts this week
- Hot water bottles are selling out in the UK as families turn to more traditional methods of staying warm.
Indonesia doubles down on nickel ore export ban, with no plans for change
- Indonesia’s Mining Ministry has stated it currently has no plans to resume nickel ore exports.
- In addition to a ban on ore exports, the Ministry is looking to impose export taxes on semi processed nickel.
- The Country is undertaking a major push to boost the down-streaming process to extract maximum value from its abundant battery metals reserves.
Peruvian copper output remains steady despite political chaos, miners claim
- Peru’s Mining and Energy Society head has stated mines operated by Southern Copper Corp., Freeport-McMoRan Inc (NYSE:FCX)., BHP Group, Glencore PLC (LSE:GLEN) and Hochschild Mining PLC (LSE:HOC, OTCQX:HCHDF) remain fully operational.
- La Republica reported yesterday that workers are threating to strike at major copper operations in opposition to the newly appointed President following Castillo’s dramatic departure.
- Protests are dominating urban areas, but no impact has been reported on either the mining or energy sector.
- In contrast to the Society’s comments, Freeport reports its Cerro Verde copper mine in Peru is seeing delays in transportation of people, supplies and mined product.
- Peru produces c. 10% of global copper supply.
- The Society has reported that a blockade on Las Bambas mine which has been ongoing for months is limiting semi-processed copper transportation, with storage space reportedly beginning to run out, (Bloomberg)
Currencies
US$1.0553/eur vs 1.0569/eur yesterday. Yen 137.52/$ vs 136.39/$. SAr 17.586/$ vs 17.147/$. $1.227/gbp vs $1.224/gbp. 0.678/aud vs 0.675/aud. CNY 6.980/$ vs 6.948/$.
Dollar Index: 104.87 vs 105.18 yesterday.
Commodity News
Precious metals:
Gold US$1,787/oz vs US$1,790/oz yesterday
Gold ETFs 93.8moz vs US$93.7moz yesterday
Platinum US$1,010/oz vs US$1,024/oz yesterday
Palladium US$1,912/oz vs US$1,946/oz yesterday
Silver US$23.37/oz vs US$23.42/oz yesterday
Rhodium US$12,600/oz vs US$12,600/oz yesterday
Base metals:
Copper US$ 8,435/t vs US$8,449/t yesterday
Aluminium US$ 2,420/t vs US$2,456/t yesterday
Nickel US$ 29,600/t vs US$29,020/t yesterday
Zinc US$ 3,278/t vs US$3,238/t yesterday
Lead US$ 2,188/t vs US$2,175/t yesterday
Tin US$ 24,075/t vs US$23,750/t yesterday
Energy:
Oil US$79.2/bbl vs US$76.1/bbl yesterday
Natural Gas US$6.780/mmbtu vs US$6.907/mmbtu yesterday
Uranium UXC US$48.70/lb vs US$48.70/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$108.5/t vs US$111.6/t
Chinese steel rebar 25mm US$571.9/t vs US$572.6/t
Thermal coal (1st year forward cif ARA) US$250.0/t vs US$250.0/t
Thermal coal swap Australia FOB US$375.0/t vs US$384.5/t
Coking coal swap Australia FOB US$275.0/t vs US$275.0/t
Other:
Cobalt LME 3m US$51,955/t vs US$51,955/t
NdPr Rare Earth Oxide (China) US$97,711/t vs US$97,754/t
Lithium carbonate 99% (China) US$76,292/t vs US$76,755/t
China Spodumene Li2O 5%min CIF US$6,110/t vs US$6,110/t
Ferro-Manganese European Mn78% min US$1,303/t vs US$1,301/t
China Tungsten APT 88.5% FOB US$320/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$323/t vs US$323/t
Spot CO2 Emissions EUA Price US$94.1/t vs US$93.1/t
Brazil Potash CFR Granular Spot US$530.0/t vs US$530.0/t
Battery News
Enovate to build EV plant in Saudi Arabia
- Enovate, a new Chinese EV start-up is to build a manufacturing plant in Saudi Arabia in joint venture with Sumou for $500m (SCMP).
- The manufacturing plant will have capacity for 100,000 vehicles per year.
- The company has an EV plant in Shaoxing city .
- Th joint venture with Sumou and EV plant was signed with the Saudi Arabian authorities last Wednesday during Xi’s meeting with King Salman bin Abdulaziz.
- China expects three of every five cars sold in China in 2030 to be electric vehicles.
- The move to large scale EV production will help China in its long-term quest to become more energy secure and independent through its reduction in oil consumption.
Company News
Atlantic Lithium Limited (AIM:ALL, OTCQX:ALLIF, ASX:A11)* 38p, Mkt Cap £2m – Processing plant FEED contract awarded for Ewoyaa Project
- Atlantic Lithium reports that it has awarded the processing plant Front-End Engineering Design contract for the Ewoyaa Lithium Project to Primero Group.
- Primero will provide services to optimise the Project's flow sheet in order to maximise profitability and reduce execution risk.
- The value of the contract is US$980k which is to be paid in accordance with the 3-stage earn-in agreement the Company has with Piedmont Lithium.
- Primero has experience in delivering large-scale construction contracts, including the lithium industry and in West Africa.
- Previous clients of Primero include Pilbara Minerals, Core Lithium and Sigma Lithium among others.
- Atlantic Lithium is also working towards producing an updated Mineral Resource Estimate, with an update expected in Q1 2023 followed by a DFS completed by mid-2023.
*SP Angel acts as nomad to Atlantic Lithium
BHP Group Ltd (LSE:BHP, ASX:BHP) 2,529p, Mkt cap £128bn - Stake in Gates and Friedland-backed, ‘pulsed-power’ rock crushing technology
- BHP has invested in I-Rox which looks to utilise high-voltage power pulses to break rocks when mining.
- The start-up argues it can reduce rock crushing energy consumption for mining firms by 80%.
- The process of ‘electrical disintegration’ has been in development since the 1970s but is yet to be utilised in commercial mining.
- BHP’s Mike Henry hopes the process will help improve the major’s ‘competitiveness of and help decarbonise’ the business.
Centamin PLC (LSE:CEY, TSX:CEE, OTC:CELTF) 107.7p, Mkt Cap £1,236m – Further mineral resource and reserve increases at Sukari
- Centamin reports an increase of 1.3m oz (13%) in the measured and indicated mineral resource inventory of its Sukari gold mine in Egypt to a total of 11.1moz.
- The resource increase includes a 5% rise in the proven and probable ore reserve base of the mine to 6.0moz. The higher reserve includes the addition of 0.8moz of reserves and allows for reserves depleted by mining over the last 12 months.
- The additional reserves include 0.4moz for each of the open-pit and underground mine workings with open pit additions “successfully replacing reserve depletion and extending the open pit life of mine to 14 years” and the extra ounces available for underground mining supporting “the plan to increase the underground mining rate to 1.5Mtpa” from the current 1.1mtpa rate.
- The new resource estimates use cut-off grades of 0.3g/t for the open pit resource and 1.0g/t for the underground operations and is effective at 30th June 2022 and incorporates the addition of a further 79,364m of drilling since the previous, June 2021, estimate.
- Open-pit ore reserves of 136.4mt at an average grade of 1.0g/t gold (4.6moz) include around 80% of the tonnage (108.9mt at an average grade of 0.9g/t gold – 3.3moz) classified as ‘proven’ with the balance of the reserve (27.5mt averaging 1.5g/t – 1.3moz) classed as ‘probable’.
- The previous estimate classified around 83% of the reserve (100.4mt at an average grade of 1.2g/t or 3.9moz) as ‘proven, with the balance as ‘probable’.
- Reserve estimates for the underground mine show increased tonnage and grades compared to the pre-existing estimate with 9.3mt at an average grade of 4.0g/t gold (1.2moz), of which 4.0mt at an average grade of 3.6g/t (0.5moz) is ‘proven’ with the balance ‘probable’.
- Stockpiles remain unchanged at 17.4mt containing 0.3moz at an average grade of 0.5g/t gold.
- CEO, Martin Horgan, commented that “Today's announcement marks the second consecutive year of resource and reserve growth at Sukari … Our improved geological understanding has resulted in meaningful growth of both resources and reserves at unchanged cut-off grades”.
- He explained that “The open pit Mineral Reserve gain replaced annual depletion for the first time since 2015, while the underground Mineral Reserves of 1.2Moz represents a threefold increase since 2020, net of mining depletion, which further supports the planned underground expansion project”
- Mr. Horgan confirmed that, as part of the operational growth strategy “we have an aggressive drilling campaign across known targets within the underground and elsewhere in the Concession area” and he pointed out that Centamin has “added nearly 2Moz of gross Mineral Reserves over the last two years”.
- Plans for the drilling include a 280,000m programme for 2023 “focussing on open pit resource-to-reserve conversion at depth, underground exploration and delineation of known targets, and testing surface targets across the Sukari Concession”.
Conclusion: The additional reserves announced today underpin increased life of open-pit mining and an expansion of underground production rates at Sukari where the company has previously targeted increased annual production of 500,000oz. Current year production guidance for Sukari is in the range 430-460,000oz.
Empire Metals Ltd (AIM:EEE)* 1.9p, Mkt Cap £7.5m – Exploration license area expanded at Pitfield
- Empire Metals reports the addition of two new exploration license applications covering the north and south of a regionally extensive geophysical anomaly previously reported by the company at Pitfield.
- The addition of the two licenses takes Empire’s package at Pitfield from 615km2 to over 1,041km2.
- Empire began fieldwork at Pitfield in November 2022, with working following up on historical geochemical and aeromagnetic data, that suggested a reginal anomaly over 40km on the license.
- Initial work at Pitfield consists of geological surface mapping and soil sampling, ahead of further IP surveying in Q1 2023 which is expected to further delineate drill targets.
- Empire notes that the soil programme comprising 1030 sample sites is currently 40% complete.
*SP Angel acts as nomad and broker to Empire Metals
Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) 1,691p Mkt Cap £4.17bn – Endeavour signs $600m contract for mine development at Lafigué project, Ivory Coast
- Endeavour have signed a $600m contract with Portuguese contracting firm Mota-Engil for mine development work at the Lafigué project in Ivory Coast.
- Contract terms include mine development, pit dewatering free digging, drilling, blasting, loading, and hauling of ore and waste
- Work will begin in December 2023 and last 60 months.
- The project is expected to yield an annual production of 203koz over 12.8 years at an AISC of $871/oz. Construction commenced in Q4-2022 and first gold is expected to be poured in Q3-2024.
Petra Diamonds Limited (LSE:PDL, OTC:PDLMF) 94p, Mkt Cap £180m – Diamond price trends pick up at 3rd tender as China eases lockdown restrictions
- Petra Diamonds reports that its third tender for its 2023 financial year realised US$42.3m from the sale of 305,366 carats of diamonds at an average price of US$138/carat.
- The 3rd tender result brings sales so far during the FY to US$206.4m from the sale of 1,272,653 carats of diamonds at an average price of 162/carat (FY2022 – US$264.7m from the sale of 1,595,848 carats at US$166/carat).
- CEO, Richard Duffy, said that the 3rd tender reverses the “downward … [price] … trend observed in the previous two tenders” and he said that “Although it is still too early to speculate on whether rough diamond prices have bottomed out, we are very satisfied with the overall result”.
- Mr. Duffy said that “We continue to expect a supportive diamond market in the medium to longer term as a result of the structural supply deficit and see current levels of demand continuing into the New Year”.
- He confirmed that “Prices in the 2ct to 10ct size ranges saw an upward movement in contrast to the recent negative trends, partly ascribed to improving expectations for the current festive season and potentially reflecting signals from the Chinese authorities with respect to an easing of lockdown restrictions”.
- “Prices in smaller size ranges saw improved pricing which more than offset softer pricing in the 0.75ct to 2ct ranges”.
Conclusion: Latest sales tender show early signs that the recent decline in diamond prices may have stalled and could be reversing
Serabi Gold (AIM:SRB, TSX:SBI)* 24p, Mkt Cap £20.1m – Cost increases at Palito dent Q3 financial performance
- Serabi Gold (AIM:SRB, TSX:SBI) reports an after-tax loss of US$2.94m for the three months to 30th September (2021 – profit US$1.31m) bringing the total loss for the first 9 months of 2022 to US$0.87m (2021 US$7.66m profit).
- The results reflect the production of 8,541oz of gold at an average cash cost of US$1,242/oz and an all-in-sustaining cost (AISC) of US$1,564/oz during the quarter.
- Year-to-date production of 24,021oz of gold was achieved at an average cash cost of US$1,353/oz and AISC of US$1,662/oz indicating a declining cost trend “representing an 11.0% improvement quarter on quarter”.
- Revenues of US$13.19m during the quarter and US$44.39m for the YTD are broadly consistent with the US$14.21m quarterly and US$46.74m YTD revenues in 2021.
- Higher costs of sales of US$10.81m for the quarter and US$34.08m for the YTD reflect “Increased costs of operations at the Palito Complex … [where] … The level of expenditure incurred in the first nine months of the year has increased by 51%” and include “the increased level of underground drilling being undertaken which is building mineral resources for the future and helping secure production for the coming years”.
- Performance was also adversely affected by the inclusion of a US$1m provision “against the recovery of historic tax debts owed to the Company in Brazil”.
- The operations continue cash positive with quarterly operational cash flow of US$2.63m (2021 – US$3.21m) partially offset by investment of US$1.87m (US$5.83m).
- CFO, Clive Line, confirmed that “the cash position remains strong, with cash held at 30 September 2022 of US$10.2 million notwithstanding the continued investment being made in the development of the Coringa project”.
- Mr. Line said that Serabi Gold expects “gold production continuing to improve as we progress into 2023, with further mining levels developed, and new areas prepared for stoping, we expect Coringa to continue to require funding from the Palito cash flow in the immediate term”.
Conclusion: The Palito mine has seen cost increases of over 50% at so far this year outpacing rising gold production
*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil
Power Metal Resources PLC (AIM:POW)* 1.4p, Mkt Cap £2m – Drilling commences at historic Berringa Gold Mine
(NBGC is a JV between Power Metal (49.9%) and its partner Red Rock Resources PLC (AIM:RRR) - RRAL(50.1%))
- Power Metal reports that a 1,000m diamond drill programme has commenced at the historic Berringa former high-grade producing gold mine in the Victoria Goldfields.
- The planned programme consists of 5 drill holes into 3 priority targets to test for the extensions of gold mineralisation in proximity of previously mined areas.
- The JV between the two companies is held through New Ballarat Gold Corporation which holds 15 granted exploration licences for a total area of 1,841km2 within the gold fields of Victoria with 5 licences covering 493km2 awaiting grant.
- The three targets:
- South Birthday – The most consistent known mineralisation consisting within a reef as a laminated 1-2m quartz lode, open to the south.
- Berringa Syndicate – Targeting a previously identified non-JORC compliant resource at the Southland mine.
- Kangaroo East – testing a secondary parallel reef named the Big Reef which is located east of the main Kangaroo shaft.
- In parallel with drilling, the JV is currently investigating the potential to excavate and open a buried entrance to Berringa and exploring the possibility of processing ore at the nearby Ballarat Gold Mine, located approx.. 25km away.
*SP Angel acts as nomad and broker to Power Metal
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Analysts
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Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
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Sales
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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)
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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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