SP Angel . Morning View . Wednesday 14 12 22
US and UK inflation data supports slowing interest rate rise and higher gold prices
MiFID II exempt information – see disclaimer below
Beowulf Mining PLC (AIM:BEM)* – New exploration target identified at Mitrovica
Celsius Resources Ltd (ASX:CLA)* (CLA AU) – Local partnership agreement to develop the MCB copper/gold project in the Philippines
Leo Lithium Ltd (ASX:LLL) – Further high-grade drill results from Goulamina Lithium Project
Rio Tinto PLC (LSE:RIO) – Rios still pursuing “organic and M&A growth opportunities” in lithium sector
GM confirms ambition of moving further upstream to access critical EV minerals
- GM is looking to follow Tesla’s route of taking more direct control of their battery metal supply chain for their EV arm.
- General Motors’ director of EVs stated yesterday that the Company has started to look further downstream for mineral access, going ‘all the way down to mine sites.’
Gold jumps to 6-month high on US inflation data and traders’ hopes of a Fed slow-down today
- Gold jumped 2.33% yesterday to $1,824/oz before cooling to settle around the $1,810/oz mark.
- The move followed the release of US CPI data which showed a slower overall rise of 7.1% yoy vs 7.3% expected and a 6% yoy rise in Core CPI.
- Gold has now risen 12% over the past 3 months as traders look to signs of peaking inflation opening the door to a slowdown in the Fed’s rate hike agenda.
- The market now expects the Fed funds rate to peak around 4.8% in May before the Fed begins to pivot, this had been closer to 5% in advance of the reading.
- Both the dollar and US Treasury yields fell on the reading and widespread expectations of a more dovish Powell this afternoon.
- 10-year yields fell 5.3% on the initial news and the dollar index slumped 1.4% - both securities usually have an inverse correlation to bullion.
- Powell is due to speak later today, with focus set to turn to the labour market as wage growth continues to accelerate amid a strong US economy.
Copper prices strengthen on Peruvian supply concerns, dollar weakness and China reopening
- Copper prices ticked higher overnight, settling back around the $8,525/t mark.
- Copper has now rallied 19% since July lows, with copper inventories continuing to hover around 2008 lows and bets on China reopening ramping up.
- Futures remain in contango and Yangshan refined premiums have fallen further, both suggesting supply is relatively ample in the short term whilst demand is yet to ramp up.
- China has stopped mandatory Covid testing, however reports of rapidly rising infections are raising concerns over the reopening policy which has bolstered metals prices.
- LME copper traders have ramped up bullish bets to their highest level in 3 months, with the fewest short positions in 20 weeks.
- Concerns are mounting over Peru’s output, with Mexico, Argentina and Colombia all backing the impeached ex-President Castillo.
- The nations have ‘paused’ relations with Peru until a resolution is reached.
- Copper supply from the world’s second largest producer is under pressure owing to highways being blocked across the country as protests intensify.
- On site production reportedly continues uninterrupted at Antamina, Cerro Verde and Las Bambas despite disruptions to labour, supplies and product. (Bloomberg)
Iron ore and steel prices ease as concerns over China Covid infections mount
- Dalian iron ore eased 20bp and 1% on the Singapore Exchange as traders temper their demand expectations for 2023.
- Both the steelmaking ingredient and steel prices have rallied for the past few weeks on optimism over China lifting its zero covid policy, however this seems to have tempered given recent infection levels.
- Coking coal prices have also eased 1.2% on expectations of disruptions to steel mill output going forward.
Dow Jones Industrials +0.30% at 34,109
Nikkei 225 +0.72% at 28,156
HK Hang Seng +0.47% at 19,688
Shanghai Composite +0.01% at 3,177
Economics
US – Consumer Price Inflation slowing alongside core as rent and energy pressures ease
- US November CPI up 0.1% from last month and 7.1% yoy – a second straight month of lower-than-expected inflation.
- November CPI exc. Food and energy rose 0.2%, up 6% yoy.
- Shelter costs were the largest contributor to inflationary pressures again, with rents increasing 0.8% and owners’ equivalent up 0.7%, this marked the smallest jump in 4 months as hotel costs fell 0.7%.
- Food prices rose 0.5% and services rose 0.4% in their smallest jump since July.
- Major detractors included used car and truck prices and energy costs as oil prices and fuel prices eased.
- Airfares fell 3%, energy prices fell 1.6%.
- US equities initially rallied 3% on the data release.
- Jerome Powell recently divided inflation into three main categories:
- Core goods – expect deflation
- Housing – inflation will take time to reduce due to method of calculation
- Ex-housing core services – this is critical to Fed policy
- If ex-housing core services inflation falls, then we can expect less aggressive rate rises
- The risk of further US CPI rate increases appears to be on the downside and should hopefully follow the pull back in energy prices.
- The Fed will be careful in its public statements to avert a substantial rally in equity and bond markets
- Inflation swap traders are pricing a significant fall in CPI next year with rates falling to 2.5% by August 2023.
- US Prototype hypersonic missile tested
- The new hypersonic missile is designed as an Air-Launched Rapid Response Weapon (ARRW).
- The missile accelerated to five times the speed of sound.
- The test demonstrates how quickly the US military can catch up with Russia and China which have heavily invested in hypersonic weapons in recent years.
- Problems with the launch process led to a number of test failures last year with the ARRW program.
- The threat posed by Russian and Chinese hypersonic first strike capability has destabilised global security, particularly with the added manoeuvrability of hypersonic missiles to evade defence systems.
UK – CPI 7.1% yoy for November vs 11.1% in October and 10.9% forecast by economists
- UK inflation rose by just 0.4% month-on-month in November 2022 with the CPI rising to 10.7% yoy for November.
- The pull back to 0.4% mom is marks a significant decline on the high 1.6% CPI rate increase in October.
- Core inflation is now expected to fall to 6.3% for the year with the pull back in core inflation reducing inflation risk and enabling the BoE to take an easier stance on interest rate rises.
- CPIH which includes owner occupier housing costs grew by 0.4% in November month-on-month vs 1.6% in October vs 0.9% in October 2021
- Higher prices in hospitality in the run up to Christmas drove CPI inflation through November followed by food, health and household goods.
- Housing bills, communications, clothing, recreation, alcohol and tobacco and transport prices all fell with transport leading a 0.2pt fall in inflation.
- Petrol and diesel prices were 17.2% higher yoy in November but this was better than the 22.2% yoy rise seen in October (The Times).
- Mathematically, the pull back in oil prices and its knock-on effect into petrol, diesel and other costs will serve to reduce inflation next month.
- We expect some month-on-month figures could show the deflationary impact of lower fuel prices, particularly if gas prices reduce after the weather warms next week.
- Demonstrating that unusually high 2022 inflation is a one-off should enable more reasonable settlements with the rail, postal and healthcare unions.
- UK GDP grew by 0.5% in October despite a fall of 0.1% in August and 0.6% in September.
Europe - Europe blocking acquisitions by Chinese semiconductor companies
- Direct investment Chinese companies into Europe rose 34% in 2021 to €10.6bn with Auto related deals accounting for around 25% of the deal flow (Mercator Institute for Chinese Studies).
- Germany blocked the acquisition of a Elmos, a semiconductor foundry business in Dortmund by Silex (Sweden) which is part of Sai MicroElectronics (China) in November.
- Berlin also blocked a potential Chinese PE firm from investing in a Bavarian chipmaking equipment company ERS Electronic.
- China has invoked a WTO dispute against the US ban on semiconductor exports, though Japan, Holland and others have joined the embargo.
- Tokyo Electron (Japan) and ASML (Holland) are seen as critical to the semiconductor supply chain and are holding back from.
- China filed a trade dispute at the WTO on Monday. We suspect the US will cite that restrictions are only applied to Chinese companies which do not have the relevant license.
- The US move is designed to deny advanced semiconductors for use in weapons, munitions and related electronics by Peoples Liberation Army, largely due to Chinse threats against Taiwan.
- Russian agents are thought to be behind the theft of Swedish speed cameras for their chips and optical lenses for Russian missiles being used against Ukraine.
Russia / Caspian.Sea eutrophying according to satellite data due to excessive pollution
- Failed Russian missiles are thought to be behind the 2,500 seals found dead on the shores of the Russian Caspian.
- Russia is air launching missiles over the Caspian into Ukraine with a number of missiles thought to have fallen into the Caspian following technical failure.
- The people of Kazakhstan, Azerbaijan, Turkmenistan and Iran may be less than pleased to see the Caspian sea polluted with military-grade chemicals .
- The Caspian Sea is eutrophying according to satellite data with the Carlson's trophic state index showing around 12%, 26%, and 62% of the Caspian Sea's area was eutrophic, mesotrophic, and oligotrophic, respectively. The trends reflect an increasing rate of environmental degradation with surrounding states so far failing to agree on a legal regime to govern the sea and its resources.
- The Caspian Sea is a land-locked meaning that chemicals which do not readily break down will continue to build up within the basin.
India drafts survey for mass offshore wind roll-out
- Following four years of delay, India has released a draft for surveys of its southern seabed targeting potential offshore wind generation.
- The move marks a turning point in India’s nascent offshore wind industry.
- The Indian government has offered grants for grid interconnection and onshore transmission networks.
- However, the guidance suggests that successful bidders will have to find their own buyers of the power generated.
Ukraine - Zelensky calls for >$850 million to repair damage to the nation’s energy sector
- Zelensky commented that Ukraine needed more
Binance pauses withdrawls following $1.9bn of redemptions of USDC stablecoin in past 24 hours
- Binance, the world’s largest cryptocurrency exchange, reported a proof-of-reserves audit report by Mazars last week showing the exchange holdings in bitcoin exceeded customer deposits on a specific day last month.
- The exchange appears to have managed some $3.7bn of cryptocurrency outflows in the past week according to Bloomberg.
- Binance’s capital structure is reported to be debt free.
Currencies
US$1.0636/eur vs 1.0554/eur yesterday. Yen 135.35/$ vs 137.53/$. SAr 17.162/$ vs 17.584/$. $1.238/gbp vs $1.228/gbp. 0.686/aud vs 0.678/aud. CNY 6.943/$ vs 6.980/$.
Dollar Index: 104.03 vs 104.87 yesterday
Commodity News
Precious metals:
Gold US$1,810/oz vs US$1,787/oz yesterday
Gold ETFs 93.8moz vs US$93.8moz yesterday
Platinum US$1,038/oz vs US$1,010/oz yesterday
Palladium US$1,935/oz vs US$1,912/oz yesterday
Silver US$23.76/oz vs US$23.37/oz yesterday
Rhodium US$12,600/oz vs US$12,600/oz yesterday
Base metals:
Copper US$ 8,529/t vs US$8,435/t yesterday
Aluminium US$ 2,459/t vs US$2,420/t yesterday
Nickel US$ 28,415/t vs US$29,600/t yesterday
Zinc US$ 3,321/t vs US$3,278/t yesterday
Lead US$ 2,178/t vs US$2,188/t yesterday
Tin US$ 24,485/t vs US$24,075/t yesterday
Energy:
Oil US$80.7/bbl vs US$79.2/bbl yesterday
- Crude oil prices edged higher ahead of the US Fed’s monetary policy meeting later today that is likely to set the tone in the market for 2023 crude oil demand growth expectations.
- European energy prices continue to trade sideways with expectations for milder weather in the coming week.
Natural Gas US$6.618/mmbtu vs US$6.780/mmbtu yesterday
Uranium UXC US$48.35/lb vs US$48.70/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$108.2/t vs US$108.5/t
Chinese steel rebar 25mm US$575.1/t vs US$571.9/t
Thermal coal (1st year forward cif ARA) US$250.0/t vs US$250.0/t
Thermal coal swap Australia FOB US$377.5/t vs US$375.0/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$98,230/t vs US$97,711/t
Lithium carbonate 99% (China) US$75,977/t vs US$76,292/t
China Spodumene Li2O 5%min CIF US$6,110/t vs US$6,110/t
Ferro-Manganese European Mn78% min US$1,314/t vs US$1,303/t
China Tungsten APT 88.5% FOB US$320/mtu vs US$320/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$94.8/t vs US$94.1/t
Brazil Potash CFR Granular Spot US$530.0/t vs US$530.0/t
Company News
Beowulf Mining PLC (AIM:BEM)* 4.3p, Mkt Cap £45m – New exploration target identified at Mitrovica
(Beowulf holds an approximately 59.5% interest in Vadar Minerals)
- Beowulf reports that following a detailed geological mapping programme over the Red Lead target, the area shares similarities with the neighbouring Stan Terg deposit, such as the same host rocks, trachyte heat source, hydrothermal breccias and hydrothermal alteration patterns.
- Stan Terg has a resource of 63mt @ 3.5% Pb, 2,3% Zn & 80 g/t Ag.
- Mapping at Red Lead has defined a 2km East-Northeast trending lead-zinc-copper-gold soil sample anomaly supported by IP anomalies and outcrops at surface indicative of alteration.
- Vadar note that several outcrops of marble in the basement host rocks could provide an ideal trap-site for metal-rich hydrothermal fluids.
- The company now consider Red Leg a priority target for follow-up drill testing given alteration and metal associations with Stan Terg.
- Elsewhere at the Mitrovica license, Beowulf reported at the end of last month that drilling commenced at its recently discovered polymetallic targets at Madjan Peak.
- The Company expect to drill five holes, followed by another round of drilling in Spring 2023 for a total 3,500m.
- Three holes will target high-sulphidation polymetallic targets, investigating potential feeder structures to mineralisation intersected in previous drillhole MP006, that returned 10.8m at 0.48g/t Au, 0.1% Cu and 18g/t Ag.
- Two holes will be drilled at Madjan South, which have been designed to test for higher grade extensions to the gold and silver-lead-zinc-copper mineralisation intersected in holes MP001 and MP003.
- One hole will target anomalous gold in rocks samples of up to 7.2g/t which is also the location of an IP anomaly at the Gold Ridge.
*SP Angel acts as nomad and broker to Beowulf Mining
Celsius Resources Ltd (ASX:CLA)* A$0.016, Mkt Cap A$25.5m – Local partnership agreement to develop the MCB copper/gold project in the Philippines
- In an announcement to the ASX today, Celsius Resources says that it has secured a non-binding agreement with a Philippines company, Sodor Inc, to help develop the 314mt Maalinao-Caigutan Biyog (MCB) copper/gold project in Luzon.
- Under the term sheet announced today, Sodor and associated company, PMR, will invest up to US$43m to secure a 60% interest in the project meeting the requirements of the Philippine Mining Act for a minimum 60% Filipino ownership of mineral resource development projects.
- Sodor, which is described as a company which, since 1987, through its associate company PMR, has developed and operated “major power plant projects in the Philippines comprising 3,000MW”, is to invest US$8.75m in Celsius Resources’ subsidiary, Makilala Mining Company (MMCI) and a further US$34.25m in another subsidiary, PDEP Inc, which will be subcontracted “to operate the processing plant and other ancillary equipment … When the MCB Project goes into operation”.
- PMR is described as “a Nauru corporation with a Philippine Branch established in 1996” whose Chairman, Dr.Daniel Chalmers, and his family are majority shareholders of Sodor Inc.
- PMR is credited with the development of the US$1.1bn Mariveles power plant as well as the US$830m Quezon power plant and is expressly committed to move towards renewable energy generation and a shift towards a zero-carbon economy and “a multi-pronged clean and green strategy to MMCI’s and PDEP’s operations enabling it to brand its products as green copper, besides substantially reducing its electricity costs, one of its biggest operating expenses.”
- Payments will be made in stages with the investment in MMCI “payable in up to 3 tranches” while the investment in PDEP will also be “payable in tranches within a schedule to be mutually agreed by the Parties”.
- Celsius Resources confirms that “Subject to execution of a binding agreement, the consideration proposed to be paid by Sodor Inc, and PMR shall be used to finance the MCB Project, with an appropriate level of debt to be raised in a collaborative and concerted good faith effort by all Parties”.
- Chairman of both Celsius Resources and MMCI, Julio R Sarmiento, confirmed that “We are excited by the combined investment proposed by Sodor Inc and PMR as both are strongly positioned to leverage a proven successful track record of profitability, operational efficiency, developing a first class workforce, and commitment to Environmental and Social Governance (ESG) principles in the energy industry into the successful development of the MCB Project and the renaissance of our country’s mining industry”.
*SP Angel are acting as broker to Celsius Resources with respect to its AIM IPO.
Leo Lithium Ltd (ASX:LLL) – A$0.49c, Mkt cap A$587m – Further high-grade drill results from Goulamina Lithium Project
- Leo Lithium has released the latest round of resource drilling results at the Danaya Domain as part of a ~12,000m programme with highlights as follows:
- GMRC539 – 82m at 1.67% Li2O, from 68m
- GMRC538 – 47m at 2.43% Li2O, from 146m
- GMRC537 – 20m at 1.56% Li2O, from 84m
- The programme at Danaya aims upgrade this part of the orebody, converting Inferred Resource into the Indicated Resource category.
- Mineralisation remains open at depth and along strike and extensions will be targeted in future drilling campaigns.
- The current MRE for the Danaya domain is 7.8mt at 1.43% Li2O in the indicated category and 14.5mt at 1.3% Li2O in the inferred category, though Leo comments that the MRE update is currently underway with an expected completion in Q2 2023.
- Kodal Minerals PLC (AIM:KOD)* continues to progress its Bougouni Project next door to Goulamina, with a recent update (Sep/22) regarding processing showing that using dense media separation can reduce capital cost and time to first production.
- Key economic parameters for Kodal’s DMS feasibility update (DMSU) include:
- Initial capex of $65m for straight to milling/flotation option.
- 3.9mt at 1.13% Li2O mining inventory to be processed over 3.9y LOM;
- 1.0mtpa DMS plant processing capacity, down from 2mtpa estimated originally;
- DMS recoveries assumed at 63.5%, a 10pp reduction given no milling/flotation;
- 130ktpa SC5.5 forecast annual production, down from ~240ktpa reflecting lower scale;
- On site unit costs (mining/processing/G&A) estimated at $436/SC, up on $362/SC, reflecting lower economies of scale from smaller mining/throughput rates;
- TCC (on site plus selling costs) estimated at $561/SC, up on $474/SC.
- Post tax NPV7% and IRR are estimated at $420m and 274% using an average spodumene price of $2,080/t FOB (price starts at $2,950 in first year and ends at $1,400/t in the last year).
*SP Angel acts as financial advisor and broker to Kodal
Rio Tinto PLC (LSE:RIO) – 5,658p, Mkt cap £94bn – Rios still pursuing “organic and M&A growth opportunities” in lithium sector
- Rio Tinto is still actively searching for lithium assets and hasn’t given up on its Jadar project in Serbia, according to a presentation released yesterday.
- The company details a scenario where over 50% of vehicle sales could be EVs by 2030 which would result in rapid demand growth, that “could see prices clear the cost curve for a long period of time”
- Rio predicts “High-grade brines and Australia hard rock called upon to meet demand in all cases”
- The company lists three projects as part of its global lithium business:
- Rincon, Argentina – PFS-level brine project expected to come online in 2024
- Boron, USA – FS-level open pit clay project where Rios began producing lithium from waste rock on a demonstration plant level.
- Jadar, Serbia – Construction ready jadarite project which has been shelved after the government revoked the project’s licences.
- In response to Rios listing Jadar on the presentation, Serbian Prime Minister Ana Brnabic told local news yesterday she didn’t see any possibility to revive the lithium-borat project.
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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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