SP Angel . Morning View . Wednesday 21 12 22
Gold climbs on BOJ intervention with the US$ trading lower
MiFID II exempt information – see disclaimer below
Anglo American PLC (LSE:AAL) – De Beers – Final sales cycle of the year generates $410m
Kore Potash PLC (AIM:KP2, ASX:KP2, JSE:KP2)* – BUY, 5.0p – Meeting with Minister of Mines and Board changes
Lithium Americas Corp (TSX:LAC, NYSE:LAC) – Acquisition of Arena Minerals for US$227m
Oriole Resources PLC (AIM:ORR)* – Senegal partner IAMGOLD to sell West African assets for $282m
Power Metal Resources PLC (AIM:POW)* – Drilling progress at Molopo Farms Project
Scotgold Resources Limited (AIM:SGZ) – FY22 results and Q4 guidance revision
Gold climbs as dollar falls against Japanese Yen, shrugging off rising US Treasury yields
- Gold strengthened to $1,825/oz before paring gains to $1,814/oz.
- The Dollar has continued to fall, with yesterday’s strength in the Japanese Yen following central bank chair Kuroda’s intervention weighing on the greenback.
- The Dollar has now fallen c.9% over the past 2 months, supporting gold prices which have risen from lows close to $1,635/oz in October.
- Gold’s further march higher this week has come despite higher US Treasury yields, which have traditionally been a headwind to non-interest bearing bullion.
- US 10-year yields have rallied 20 basis points this week after traders digested Powell’s message of higher rates for longer and the US economy continues to bear strength.
- Reuters reports 11 western investment funds removed over $2.2bn worth of Russian gold from books over the past 6 months, potentially explaining major ETF outflows from gold funds this year.
Base metals climb as Evergrande resumes construction on pre-sold projects
- Dalian iron ore climbed 3.6% this morning to $119/t whilst steel futures rallied across the board.
- The move followed news of China Evergrande resuming work on mothballed development projects.
- China’s beleaguered property sector has been a major headwind to base and ferrous metals since November last year.
- News of Evergrande’s resumption prompts optimism that stimulus measures from Beijing are starting to breathe life into the sector.
- The Industrial and Commercial Bank of China agreed to offer $57bn worth of financing to 10 real estate firms.
Smelting giant Aurubis inks €530m investment for new copper smelter projects in lieu of dividends
- Europe’s predominant copper smelter Aurubis has removed its current dividend policy in favour of €530m of long-term growth investments.
- The Company is looking to take advantage of expected strong demand for refined copper from the renewables and EV sectors going forward.
Russian nickel major warns of 2023 output cuts on falling demand
- Norilsk Nickel is considering slashing output in 2023 by c.10% as European buyers avoid Russian metal delivery.
- Prices rallied 7% on LME to $28,435/t but the exchange’s contracts remain hit by low liquidity and whipsawing volatility.
- The Company has also warned of a nickel surplus.
- Finland’s state railway firm is set to end freight traffic from Russia by January, hurting Nornickel’s supply chains.
- Nickel prices have rallied 40% this year.
Dow Jones Industrials +0.28% at 32,850
Nikkei 225 -0.68% at 26,388
HK Hang Seng +0.20% at 19,134
Shanghai Composite -0.17% at 3,068
Economics
- US - Housing starts fall 0.5% in November to 1.427m units vs -4.2% to 1.425m units in October
- Building permits fell 11% to 1.342m units in November vs -3.3% at 1.512m units in October
- Earthquake – 6.4 earthquake hits northern California
- Around 80 aftershocks followed cantered 215 miles north of San Francisco.
- We do not wish to see a repeat of the 7.9 Richter scale San Francisco earthquake of 1906 which killed around 3,000
China – Budget deficit hits a record $1.1tn in the first 11 months of the year reflecting Covid zero damage, Bloomberg estimates showed.
- That was more than double the same period last year and larger than in 2020, the year when the government first introduced the policy amid the breakout of the pandemic.
- A separate report reflecting of ongoing economic troubles amid rising number of Covid cases as well as ongoing disruptive restrictions has been released with small and medium businesses reporting deteriorating business conditions, according to Standard Chartered data.
- The National Health Commission confirmed reported suggesting that the system of counting Covid related deaths changed, FT reports.
- The Commission will now only count Covid related deaths as the ones resulted from respiratory failure after testing positive for the virus.
- People who died of other conditions including a cardiac arrest with a positive test for the virus would now not be counted in the official Covid death toll.
- Covid -Chinese crematoria see queues of hearses in Beijing as Covid rips through China (Reuters)
- Reuters reports dozens of hearses queueing outside Beijing crematoriums this morning as the previously locked-down population face soaring infections.
- Funeral home workers are reporting multiple days of waiting for cremation appointments.
- World average deaths per million runs at 856.5 according to Worldometers .
- Peru ranks the highest with 6,470 deaths per million.
- The US runs at 3,327 per million vs Japan at 430 where 9.9% of the population are >80
- Just 2% of China’s population is >80 at around 32m people suggesting its natural demographic might help in terms of Covid death rates
- Its all relatively academic as China is unlikely to fess up to its real Covid mortality rate
- While Omicron is thought to be less severe than the Delta variant it is still a nasty virus
- Long Covid rates int eh WHO European region are estimated to be >17m (2.3%) out of ~750m people – defined as people suffering post Covid symptoms for at least three months
Conclusion: China may easily lose >1m people through Covid but the real impact to the economy will be the 33m people suffering Long Covid for >3 months after the initial infection.
Japan – BoJ leaves rates at -0.1% but allows the upper limit of bond yields to rise to 0.5% from 0.25%.
EU – EU places cap of €180/MWh ($288/bbl) on natural gas from February
- European energy prices continue to fall on expectations for milder and windier weather, near-record LNG imports and with gas storage still c.83% full.
- The price is still higher than the current Dutch gas one day forward price of €97/MWh (eq. $155/bbl) , though much lower than the high of €338/MWh (eq ~$600/bbl) in late August.
- The price cap is way above normal historical price levels with gas normally trading at a discount to oil, mainly due to Russian supplies of cheap gas depressing prices.
- Consumer confidence improved slightly to -22.2 in December vs -23.9 in November and -28.7 in September
Germany - PPI declined 3.9% in November vs -4.2% , yoy 28.5% (34.5%),
UK – Business sentiment gauge climbed at the fastest rate in 20 months as the festive trading period exceeded expectations, Bloomberg writes.
- Business confidence among British firms increased to 17% in December, up from 10% in November, according to Lloyds Bank data.
- This compares to lows of -33% reported during the Covid hit period and up on most of the 2019.
- The results contrast with other major industry surveys pointing to weak consumer sentiment, falling retails sales and a continuing slide in economic activity as showed by S&P Global Composite PMI (49.0 v 48.2 November).
Sweden – Property prices posted an eighth consecutive decline marking the worst slump in three decades.
- Prices in the largest Nordic country are now down 15% from a March peak, Bloomberg reports.
- Further losses are widely expected as the central bank has not concluded its hiking cycle.
Turkey - Consumer confidence slipped to 75.6 in December from 76.6 in November
Ukraine – President Zelenskiy will meet US counterpart of the announcement of the planned US$2bn military assistance package including long range Patriot missile battery systems to Ukraine.
- This would be the first time President Zelenskiy left Ukraine since the Russia’s invasion.
- The speech to the US Congress coincides with a 300th day of the war.
Indonesia commits to bauxite export ban in line with expectations
- Indonesia’s President Jokowi confirmed an export ban on bauxite will begin in June 2023.
- Indonesia has been moving to boost the country’s domestic processing and downstream industries in recent years.
- Shipment bans on palm oil and coal were put in place temporarily this year.
- Longer term export bans have been initiated for unrefined tin and nickel from Indonesian mines. Similar bans are expected for copper going forward.
- The President stated: "The government will remain consistent in implementing downstreaming so the value add can be enjoyed domestically for the country's development and people's welfare."
- Analysts expect Guinea and Australia to account for lost bauxite supply to China.
Panama – Government playing hard ball with First Quantum
- The Cortizo government announced the suspension of Minera Panama (Cobre Panama) last week halting production without a timetable to resume sales.
- This was an unusual move for a government that has previously been more cautious in its negotiations with Panama’s ports and gas projects.
- Resolution 144 instructing the Labor, Environment, and Commerce ministers to intervene was approved by the Panama Cabinet.
- In 2017, the Supreme Court declared that the initial contract between First Quantum and the Republic (signed in 1997) violated the Constitution.
- Panama and First Quantum started to negotiate a new contract and in January Cortizo declared that the bases of the new agreement were accepted, including a minimum payment of US 375m to the Panama Government. This is more than 7x the previous amount promoting several further rounds of discussions till the 14 December deadline expired.
- First Quantum is arguing that the agreed contract law is valid and was extended until 2037.
- Officials and Ministers claim the company has changed its position on certain financial agreements which were, presumably, agreed in January including payment of 10%-15% of operating profitsalong with royalties, and other taxes.
- First Quantum is thought to have requested price protection if the copper price falls drops below a threshold to protect the workforce and the mine.
- For now the mine is in care and maintenance under government supervision as allowed by the Panama mining code.
- The Minister of Agriculture has asserted that several international companies are interested in taking over the contractual relation with the Panama government, though we believe this is a bluff but the tone of the assertion was harsh.
- Minera Panama represented around 4.2% of Panama GDP last year employing > 5,000 direct jobs and many more indirectly. The project also has significant impact on Panama’s interior region.
Zimbabwe bans export of unprocessed lithium
- The Zimbabwean government has imposed the ban in order to stop artisanal miners who are reportedly digging up and taking the mineral across borders.
- Companies with assets in the country include Zhejiang Huayou Cobalt, Sinomine Resource Group and Chengxin Lithium Group who have over the past year acquired projects worth a combined $678m in Zimbabwe, according to Reuters.
- All of the companies are developing processing plants which would exempt them from the ban.
Currencies
US$1.0626/eur vs 1.0612/eur yesterday. Yen 131.75/$ vs 132.30/$. SAr 17.308/$ vs 17.302/$. $1.215/gbp vs $1.215/gbp. 0.668/aud vs 0.667/aud. CNY 6.969/$ vs 6.973/$.
Dollar Index: 103.92 vs 104.14 yesterday
Commodity News
Precious metals:
Gold US$1,816/oz vs US$1,797/oz yesterday
Gold ETFs 94.0moz vs US$94.0moz yesterday
Platinum US$1,002/oz vs US$987/oz yesterday
Palladium US$1,744/oz vs US$1,698/oz yesterday
Silver US$23.94/oz vs US$23.14/oz yesterday
Rhodium US$12,300/oz vs US$12,300/oz yesterday
Base metals:
Copper US$ 8,372/t vs US$8,301/t yesterday
Aluminium US$ 2,391/t vs US$2,372/t yesterday
Nickel US$ 28,435/t vs US$27,450/t yesterday
Zinc US$ 3,051/t vs US$3,022/t yesterday
Lead US$ 2,159/t vs US$2,159/t yesterday
Tin US$ 23,910/t vs US$23,600/t yesterday
Energy:
Oil US$79.8/bbl vs US$79.6/bbl yesterday
Natural Gas US$5.519/mmbtu vs US$5.669/mmbtu yesterday
TTF Dutch Futures €98/MWh vs €106/MWh yesterday
- Crude oil prices remain range bound in thin markets with no real news flow to drive a change in sentiment.
- European energy prices continue to fall on expectations for milder and windier weather, near-record LNG imports and with gas storage still c.83% full.
- US natural gas prices have also fallen back this week on expectations that the current Arctic blast that has brought freezing temperatures to the Lower-48 states will moderate next week.
Uranium UXC US$48.10/lb vs US$48.1/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$109.4/t vs US$107.6/t
Chinese steel rebar 25mm US$581.0/t vs US$580.8/t
Thermal coal (1st year forward cif ARA) US$225.0/t vs US$225.0/t
Thermal coal swap Australia FOB US$379.0/t vs US$368.5/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$100,801/t vs US$100,740/t
Lithium carbonate 99% (China) US$73,538/t vs US$74,211/t
China Spodumene Li2O 5%min CIF US$6,010/t vs US$6,040/t
Ferro-Manganese European Mn78% min US$1,312/t vs US$1,310/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% 8.1/lb vs US$8.1/lb
Europe Ferro-Vanadium 80% 33.75/kg vs US$33.75/kg
China Ilmenite Concentrate TiO2 US$325/t vs US$323/t
Spot CO2 Emissions EUA Price US$90.5/t vs US$90.6/t
Brazil Potash CFR Granular Spot US$510.0/t vs US$510.0/t
Battery News
GM recalls 140,000 Chevrolet Bolts over fire risks
- GM says it is recalling the vehicles in North America because the carpet could catch fire after a crash where a front seat belt pretensioner deploys.
Company News
Anglo American PLC (LSE:AAL) 3,170p, Mkt Cap £42bn – Final sales cycle of the year generates $410m
- Anglo American reports that the tenth De Beers sales cycle of 2022 realised US$410m on a provisional basis and that the previously reported provisional sales of US$450m for the ninth sales cycle of 2022 have now been confirmed as US$454m.
- The cycle 10 value of $410m compares to $336m over the same period last year.
- Bruce Cleaver, CEO, De Beers Group, said: "Demand for our rough diamonds over the final sales cycle of 2022 was in line with expectations, ahead of the normal seasonal closure of polishing factories in southern Africa over the Christmas period and with Sightholders taking a prudent approach ahead of restocking after Christmas and the expected re-opening of the China market."
Kore Potash PLC (AIM:KP2, ASX:KP2, JSE:KP2)* 0.7p, Mkt Cap £23m – Meeting with Minister of Mines and Board changes
BUY – 5.0p
- Sameer Oundhakar, a representative of the 19% interest held by the Oman Investment Authority, resigned as NED after leaving the OIA to pursue other opportunities.
- Separately, the Company reported yesterday of the meeting with the Mines Minister to discuss funding and development progress of the Kola Potash Project.
- Following the meeting, the Minister expressed support for the project and encouraged the Company to continue to keep him informed of its continued progress.
*SP Angel acts as Nomad and Broker to Kore Potash
Lithium Americas Corp (TSX:LAC, NYSE:LAC) $20.86, Mkt Cap C$2.82bn – Acquisition of Arena Minerals for US$227m
- Lithium Americas has agreed to acquire all of the issued and outstanding shares in Arena Minerals, implying a total equity transaction of US$227m on a 100% basis.
- Arena owns 65% of the Sal de la Puna Project covering approximately 11,000 hectares of the Pastos Grandes basin located in Salta, Argentina
- The agreement sees Arena shareholders receive 0.0226 of a Lithium Americas common share for each Arena share held – equating to a 28% premium to Arena’s closing price.
- Lithium Americas comments that the transaction “will consolidate the highly prospective Pastos Grandes basin, and creates an exciting opportunity for Lithium Americas, a Canadian incorporated and headquartered company, to add incremental growth in one of the most important lithium producing regions in the world,”
- In October 2021, Arena announced an Inferred MRE of 230,000,000 cubic metres (“m3”) of brine at an average lithium grade of 460 mg/l, for a total of 106,000 tonnes of lithium metal, which the company says equates to 560,000t LCE.
Oriole Resources PLC (AIM:ORR)* 0.2p, Mkt cap £5.6m – Senegal partner IAMGOLD to sell West African assets for $282m
- Oriole’s partner on its Senala gold project in Senegal, IAMGOLD, has signed a definitive agreement to sell its assets in Senegal, Mali and Guineau.
- The assets are being bought by Managem Group for approximately $282m.
- Oriole has an Option Agreement with IAMGOLD, with the latter recently earning a 51% initial interest through a $4m exploration spend.
- The Company has the option to earn an additional 19% through a further $4m spend before 2024.
- Senala’s flagship Faré South has a JORC-compliant resource of 155koz Au at 1.26g/t in the inferred category. This sits within a larger JORC-compliant exploration target estimate of up to 280koz Au at 1.1g/t.
- Oriole expects the transaction to close in Q3-2023 and the Company is in discussions with IAMGOLD over future exploration work at Senala.
*SP Angel acts as a broker to Oriole Resources
Power Metal Resources PLC (AIM:POW)* 1.3p, Mkt Cap £22m – Drilling progress at Molopo Farms Project
- Power Metals provides an update from its Molopo Farms Project in Southern Botswana, where exploratory drilling has been underway since September.
- Diamond drillhole DDH1-3A has been completed at target area T1-3 to a depth of 450m while DDH2-3A has been drilled to a depth of 129.4m but paused for the holiday season.
- In drillhole DDH1-3, visible nickel sulphides identified at 327m and within the interval from 348-354m and confirmed using a pXRF spectrometer.
- Paul Johnson, Chief Executive Officer of Power Metal Resources PLC (AIM:POW) commented: “From 5 drillholes across 4 target areas we have completed over 2,000m of diamond drilling, the drill core from which, is now the focus of multiple ongoing technical work streams including detailed core logging, downhole geophysics analysis and assay testing.”
- A new presentation detailing Power Metal’s progress at Molopo Farms and Tati is available here: https://www.powermetalresources.com/investors/botswana-in-focus-december-22/
*SP Angel acts as nomad and broker to Power Metal
Scotgold Resources Limited (AIM:SGZ) 52p, Mkt Cap £31m – FY22 results and Q4 guidance revision
- The Company released FY22 results along with an operational update highlighting a Q4/22 production guidance downgrade.
- FY22 gold concentrate sales amounted to A$17.8m having achieved Phase 1 production rates of 3ktpm in Q1/22.
- Further debottlenecking at the mine and processing plant allowed to ramp up operations to 4ktpm in Q3/22 with final upgrades guided to take mining and processing rates to Phase 2 6ktpm in 2023.
- Loss for the year amounted to A$10.4m as operations remained in the ramp up stage.
- Operating cash flow amounted to -A$4.9m with a further -A$1.4m in capitalised expenses taking FCF to -A$6.3m.
- Closing cash balance stood at A$0.2m after accounting for £2.1m drawn from the Fern Wealth £3.0m facility as of FY22 end.
- Net debt stood at A$23.3m (FY21: A$17.4m).
- Separately, the Company cut its Q4/22 production guidance to 2koz, down from 3.0-3.5koz, reflecting delays to switching of mining operations to long hole stoping as well as adverse weather conditions.
- The Company is planning to announce final Q4/22 results and 2023 operations outlook in January next year.
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Analysts
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Sales
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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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