SP Angel . Morning View . Thursday 05 01 23
Gold rally pauses as markets assess Fed pivot chances
MiFID II exempt information – see disclaimer below
CleanTech Lithium PLC (AIM:CTL) – Scoping study of Laguna Verde indicates potential for Post-tax NPV8 of US$1.83bn and IRR of 45%
Great Western Mining Corporation PLC (AIM:GWMO) – Operations Update with Processing Mill Planned for H1 2023
Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF)* – Appointment of General Manager at operating subsidiary
Power Metal Resources PLC (AIM:POW)* – Acquisition of Canadian graphite project
Chinese export container rates crumble 27% on weakening global trade and recovering bottlenecks
- Container line operators have failed to enjoy traditionally buoyant seasonality in the lead up to Chinese New Year.
- Instead, rates have had their worst start to a year for 13, with the containerised freight index down 27% since November and 50% since February.
- Weaker demand from the West, coping with full inventories and lower consumer appetite, is combining with increased container liner supply and easing congestion to weigh on prices.
- Baltic Dry Index falls to 1-month low on weaker coal and iron ore demand
- Rates for dry bulkers sold off on Covid-19 disruptions and the weak Chinese retail estate weighed on demand.
Gold rally cools following boost from options, seasonality and increased Chinese buying and FOMC minutes
- Gold prices have eased from recent highs around the $1,870/oz mark, settling closer to $1,855/oz.
- January has traditionally been gold’s strongest month, with an average return of 3.2% over the past 20 years.
- Bullion has also been lifted in the early stages of the new year from bullish option calls, with March long call options targeting the $1,900/oz mark.
- ETFs sold 46.5koz worth of physical gold from holdings this year, marking the fourth straight day of selling, the most since November 7th.
- The top 10 largest gold funds in China bought 100t worth of bullish gold bets since Christmas.
- No participants of the Fed Open Market Committee suggested the Fed’s target rate in 2023, highlighting their commitment to fighting inflation and limiting gold’s upwards momentum yesterday.
- The release of the FOMC minutes pushing the US 10-year yield 20 bp lower to 3.7%.
Chinese coal importers start shopping for Australian supply following easing of ban
- Australia’s Department of Foreign Affairs and Trade notes Chinese importers will potentially start buying from the country’s coal producers.
- Bloomberg reports four importers have begun asking traders to secure coal following a 2-year ban imposed by Beijing following a diplomatic fall-out between the two trade partners.
- Analysts at the China Coal Association expect domestic coking coal prices to fall c.20% this year, partially as a result of the ban.
UK sales of EVs overtake diesel for the first-time last year
- EV sales rose over 25% YoY in the UK in 2022 to account for 17%, while diesel demand fell to less than 10% of a total 1.61m vehicles registered.
- Total registrations were 2% down on 2021 amid global supply chain disruptions for the worst year for sales since 1992.
- Diesel once accounted for more than half of UK car sales though demand has fallen following the VW emissions scandal and the introduction of clean air rules in cities that specifically penalise diesel vehicles.
- Petrol vehicles account for over 50% of sales, hybrids ~12% and plug-in hybrids ~6%.
- The Society of Motor Manufacturers and Traders expects overall sales to rise by about 15% this year as manufacturers are able to make more cars for customers on their waiting lists.
BMW targets 15% EV sales in 2023
- BMW sold 100k fewer cars in 2022 at 2.4m vehicles, though the proportion of battery-EVs doubled to reach almost 10% of total sales.
- The German automaker plans to raise the share of battery electric vehicles in total sales to 15% in 2023.
Dow Jones Industrials +0.40% at 33,270
Nikkei 225 +0.40% at 25,821
HK Hang Seng +1.27% at 21,056
Shanghai Composite +1.01% at 3,155
Economics
JP Morgan composite global manufacturing PMI 48.6 in December vs 48.8 in November
US – Fed minutes reaffirmed officials’ resolve to continue with tight monetary policy in an effort to bring inflation expectations lower.
- US equities and sovereign debt paired gains following the meeting.
- Although, markets continue to price in a rate cut before year end, Bloomberg reports.
- Job openings numbers, an indicator for the labour market demand, pulled back slightly in November, but came in stronger than expected and remained significantly higher compared to pre-pandemic levels.
- Job Openings (‘000): 10,458 v 10,512 (revised from 10,334) October and 10,050 est.
ISM 48.4 in December vs 49.0 in November, the data is thought to correspond to -0.1% contraction in GDP according to ISM
- This is the lowest level since Mary 2020
- New orders fell to 45.2 from 47.2
- Production dropped to 48.4 from 51.5
- Employment rose to 51.4 from 48.4
- Prices fell to 39.4 from 43.0.
China – Services sector registered another contraction in December on the back of Covid related restrictions and disruptions.
- Activity, new orders and employment dropped, albeit, at a slower pace.
- Composite PMI was in the sub-50 territory for a fourth consecutive month leading authorities to voice the need for stimulus measures.
- “Under pressure from shrinking demand, weakening expectations and a supply shock, the annual Central Economic Work Conference stated that the foundation for an economic recovery is not solid… policymakers have made it clear that priority must be given to the recovery and expansion of domestic consumption,” Caixin commented on the data.
- Official non-manufacturing PMI 41.6 in December vs 46.7 in November and 42.6 yoy in December vs 47.1 yoy in November
- Caixin Services PMI: 48.0 v 46.7 November and 46.8 est.
- Caixin Composite PMI:48.3 v 47.0 November.
- Major Chinese developer delays default with $2.3bn debt rollover plan
- Domestic bondholders have rolled over 85%/$2.3bn worth of Sunac’s debt.
- The Developer is China’s fourth-largest and the deal will give it an additional 3.5 years to service obligations.
- The move highlights further signs that Beijing is easing its hardline approach to the sector, following the imposition of its ‘three red lines’ in 2021.
- A major government financing vehicle in Guizhou also secured a $2.3bn lifeline worth of lines, giving them 20 years to prop up the region’s property market.
- How much financial aid can China afford to offer to support the nation through its accelerated surge in Covid infections, US chip sanctions and fall in Western demand?
- Reports indicate the authorities are preparing to support property developers with better balance sheets – question is, are there any that are not highly leveraged?
- The lucky companies, presumably run by committed communist party card holders, are likely to find support in new equity financing and preferential loans.(SCMP)
- The chairman of the China Securities Regulatory Commission previously pledged support for the property market and to stabilise the market
- The new support should add to the ‘three arrow’ rescue policy offered in November offering bank credit, bond issuance and equity financing..
- Huawei claims to have made breakthrough in the production of ultra-small microchips in recently filed patents
- Reports suggest Huawei claims to have made a significant breakthrough in semiconductor design that has only previously been achieved in the West.
- The new patents indicate Huawei may be able to make its own ‘complex’ semiconductors using EUV ‘ultraviolet light lithography’ to etch the super small semiconductors into silicon wafers as used by ASML in Holland.
- EUV machines cost $150-300m with semiconductor foundries using between 9-18 machines raising the cost of ultra-small semiconductor manufacturer.
- China risks falling further behind Western and Japanese manufacturers as it struggles to manufacturer its own advanced semiconductors.
- It will take some time for Huawei to manufacturer, test, install and commission the new machinery with the potential for early machines to fail.
HK – Up to 60,000 people can travel into mainland China from HK from Sunday
- China eases Covid restrictions as it allows up to 60,000 people to cross from HK into mainland China.
- The 60,000 quota may simply be down to logistics with travellers required to register online before crossing with an indication of specific times and checkpoints for crossing.
- We wonder if China will use the system to pick up dissidents and other people they want to interrogate.
Japan – PMI manufacturing 48.6 in December vs 48.8 in November
ASEAN - 50.3 in December vs 50.7 in November
India – PMI non-manufacturing 58.5 in December vs 56.4 in November and 59.4 yoy in December vs 56.7 yoy in November
EU – PMI non-manufacturing 49.8 in December vs 48.5 in November and 49.3 yoy in December vs 47.8 yoy in November
Germany – Trade dropped in November amid high inflation and market uncertainty.
- Exports were down 0.3%mom while inbound shipments fell 3.3%mom.
- Shipments to the US, top nation’s export market, were down 1.5%mom and exports to the EU were down 0.4%mom.
- PMI non-manufacturing 49.2 in December vs 46.1 in November and 49.3 yoy in December vs 47.8 yoy in November
UK – PM announced five pledges in his first speech this year including:
- cutting inflation this year,
- returning the economy to growth,
- ensuring national debt is falling by year end,
- cutting NHS witing lists and
- tightening immigration controls.
Labour leader claims “We're no longer the party of big spending”
- Sir Keir Starmer vows Labour will not get the "big government chequebook out again" if it wins the next election. (The Telegraph)
- Problem for Labour is that Boris Johnson splashed out so much money during Covid that there is little room for new borrowing without collapsing the pound as so spectacularly demonstrated by Liz Truss in her short tenure at prime minister.
South Africa – Private sector economic activity registered a marginal expansion in December amid a series of growth risks including load shedding, inflation, supply problems and weak demand.
- New orders dropped for the third time in four months last months.
- Output growth pace was the lowest in four months while employment gained only slightly.
- Inflation softened driven by lower input cost pressures.
- S&P Composite PMI: 50.2 v 50.6 November.
France – PMI non-manufacturing 49.5 in December vs 49.3 in November and 49.1 yoy in December vs 48.7 yoy in November
- Preliminary CPI off 0.1% in December vs 0.3% in November and 5.9% yoy in December vs 6.2% yoy in November
- Consumer confidence 82 in December vs 83 in November
Peru – Nexa Resources forced to suspend Atocacha San Gerardo Mine on renewed protests
- Nexa’s 0.2kt per week zinc producing asset in Peru is suffering an illegal blockade at a primary access road to the mine.
- Operations have been limited to critical activities, with production suspended to date.
- Protests have reportedly resumed across the country following a fortnight’s break, with the impeachment of Castillo still in focus.
- Protestors are demanding a new constitution, the closure of Congress and the release of Castillo from prison. (Aljazeera)
Brazil – PMI non-manufacturing 51.0 in December vs 51.6 in November and 49.1 yoy in December vs 49.8 yoy in November
Ukriane – Ukraine estimate some 800 Russian soldiers killed in past day
- Heavy fighting in the eastern Donetsk region is reported to have killed some 800 Russian soldiers, one helicopter, an aircraft and three tanks.
- Russia reckons Ukraine was able to target Russian mobile phone signals in rocket attack which possibly killed 400 Russian soldiers on New Years Day.
Amazon to cut 18,000 jobs as the group cuts costs
- Amazon joins the list of fast growth tech companies which is cutting jobs.
- Alibaba and Tencent are also reported to have cut back .
- It is no surprise to see ‘rapid growth’ tech companies reorientating their business units to reflect higher operating cost and lower growth prospects in certain divisions.
- Amazon is mainly cutting back in Amazon Fresh, Go and its human resources division, presumably after they have effected the bulk of the redundancies.
Currencies
US$1.0614/eur v 1.0627/eur yesterday Yen 132.83/$ vs 130.05/$. SAr 16.994/$ vs 16.809/$. $1.201/gbp vs $1.208/gbp. 0.681/aud vs 0.688/aud. CNY 6.875/$ vs 6.882/$.
Dollar Index: 104.32 vs 103.96 yesterday.
Commodity News
Precious metals:
Gold US$1,847/oz vs US$1,863/oz yesterday
Gold ETFs 94.0moz vs US$94.1moz yesterday
Platinum US$1,074/oz vs US$1,098/oz yesterday
Palladium US$1,783/oz vs US$1,733/oz yesterday
Silver US$23.36/oz vs US$24.31/oz yesterday
Rhodium US$12,400/oz vs US$12,250/oz yesterday
Base metals:
Copper US$ 8,248/t vs US$8,380/t yesterday
Aluminium US$ 2,258/t vs US$2,318/t yesterday
Nickel US$ 28,760/t vs US$30,610/t yesterday
Zinc US$ 2,973/t vs US$2,957/t yesterday
Lead US$ 2,248/t vs US$2,268/t yesterday
Tin US$ 25,250/t vs US$25,515/t yesterday
Energy:
Oil US$78.4/bbl vs US$80.4/bbl yesterday
- Crude oil prices found support following two days of c.5% falls driven by concerns about a possible economic slowdown reduced demand growth.
- European energy prices remain below pre-war levels with reports that EU storage sites are still almost 84% full providing a buffer to withstand the impact from any further cold snaps later in the 2022/23 winter season.
- The UK’s National Grid ESO announced that a new record of 87.2% was set for the percentage of low-carbon electricity (renewables and nuclear) generated in a half-hour period on Friday 30th December.
Natural Gas US$4.109/mmbtu vs US$3.942/mmbtu yesterday
Uranium UXC US$48.80/lb vs US$48.70/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$117.1/t vs US$117.1/t
Chinese steel rebar 25mm US$603.8/t vs US$603.2/t
Thermal coal (1st year forward cif ARA) US$225.0/t vs US$225.0/t
Thermal coal swap Australia FOB US$363.5/t vs US$360.5/t
Coking coal swap Australia FOB US$291.0/t vs US$291.0/t
Other:
Cobalt LME 3m US$50,455/t vs US$50,455/t
NdPr Rare Earth Oxide (China) US$104,368/t vs US$103,508/t
Lithium carbonate 99% (China) US$68,003/t vs US$68,642/t
China Spodumene Li2O 5%min CIF US$5,990/t vs US$5,990/t
Ferro-Manganese European Mn78% min US$1,311/t vs US$1,311/t
China Tungsten APT 88.5% FOB US$320/mtu vs US$320/mtu
China Graphite Flake -194 FOB US$885/t vs US$880/t
Europe Vanadium Pentoxide 98% 8.9/lb vs US$8.9/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
China Ilmenite Concentrate TiO2 US$334/t vs US$333/t
Spot CO2 Emissions EUA Price US$85.4/t vs US$85.5/t
Brazil Potash CFR Granular Spot US$500.0/t vs US$500.0/t
Company News
CleanTech Lithium PLC (AIM:CTL) 37.5p, Mkt Cap £40m – Scoping study of Laguna Verde indicates potential for Post-tax NPV8 of US$1.83bn and IRR of 45%
- CleanTech Lithium has released a scoping study for its Laguna Verde project located in the northern Atacama Region of Chile, based on annual production of 20ktpa lithium carbonate over a 30-year life-of-mine.
- Scoping study financials:
- Post-tax NPV8% of US$1.83bn
- Post-tax NPV10% of US$1.43bn
- Post-tax IRR of 45%
- Accumulated net cashflows over LOO US$6.3bn
- The study proposes extracted brine being fed into DLE adsorption columns before reinjection into the salar basin:
- Capex $384m
- Costs: $3,875/t of lithium carbonate
- Price: long-term lithium carbonate price of US$22,500/t assumed
- Payback is expected to be <2 years
- Cleantech holds a total MRE estimate (MI&I) of 1.51mt LCE at an average grade of 206mg/l Li, with 0.8mt of this classified in the M&I categories, which has been used in the scoping study for estimating the mining inventory.
- Mining Method: Lithium enriched brine occurring within the porous sub-surface sediments is to be extracted utilising a well field, with the brine then transferred to a tank to be mixed prior to being fed into the first stage of plant processing, which is the DLE adsorption columns.
- The company notes that further hydrogeological work is required to develop the extraction and reinjection model for the production phase of the project, which could bring with it additional operating costs.
- Processing: Initial lab and bench scale tests carried out last year have confirmed the feasibility of obtaining battery grade lithium carbonate, with an assumed recovery rate of 85%.
- Scoping study consultants Ad-Infinitum stress the need to a pilot plant in order to develop greater understanding of the engineering, construction and operation of the future plant – which CleanTech plan to develop with SunResin.
- The DLE unit for the pilot plant was ordered from SunResin's Belgium facilities in December 2022 and its assembly and commissioning are scheduled for the end of the second quarter of 2023.
- Services: The project is located 275km from the city of Copiapó, and the port of Caldera is 340km away by road.
- CleanTech intend to use renewable energy for power supply through contracting a supplier of renewable energy via a Power Purchase Agreement (PPA).
- Water supply for the process is to come from wells drilled within the Laguna Verde basin and from the recovery of water in the concentration stages of processing, and purified water will be obtained from the condensates in the forced evaporation and mother liquor treatment stages.
Great Western Mining Corporation PLC (AIM:GWMO) 0.13p, Mkt Cap £4.9m – Operations Update with Processing Mill Planned for H1 2023
- Great Western Mining, which has gold, copper and silver exploration and development assets focused in Mineral County, Nevada, provides an update on operations going forward into the New Year.
- The Company’s Precious Metal Joint Venture, ‘Western Milling LLC’:
- The Company expects precious metal concentrate production this year.
- A meeting is scheduled with the regulatory authority of Nevada this month to review plans, enabling the start of construction.
- All going to plan, groundwork and initial concrete are expected to be poured by the end of February.
- The Project will initially utilise gravity-separating spoil material to produce gold and silver concentrates for sale.
- Residues from the separation will be stored for processing using leaching in a secondary phase of the construction programme.
- The secondary leaching phase will incorporate tailings material from the OMCO Mine, with additional piles utilised from alternative tailings piles owned by Great Western.
- The Mill will also utilise third party material, both shallow-mined or pre-mined material.
- Trafalgar Hill, Olympic Gold Project:
- The Company awaits assay results from three drill holes completed during the Summer 2022 drilling campaign.
- The team plans to complete an IP geophysical survey over the Trafalgar Hill prospect.
- Mineral Jackpot Project:
- The Company hopes to utilise the Mineral Jackpot spoil material to supply the milling operations.
- Further drilling at Mineral Jackpot will be completed to follow up targets identified during the 2022 campaign. .
- Copper Projects:
- The team will utilise IP and airborne magnetic surveys alongside selective drilling and soil sampling across its M2 and Huntoon copper prospects.
- They also hope to pursue copper intercepts identified at Huntoon following a 2018 drilling programme.
- Rare earth opportunities at the M2 Copper Project will also be analysed over the course of the year.
Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF)* 28p, Mkt Cap £34.3m – Appointment of General Manager at operating subsidiary
(Phoenix holds 80% of the Empire mining property in Idaho)
- Phoenix Copper reports the appointment of an experienced mining engineer, David Jarvis, as General Manager of its operating subsidiary, Konnex Resources.
- Mr. Jarvis succeeds Zach Black in the role and Phoenix Copper confirms that “Mr Black will continue to support Konnex's operations as the Qualified Person (QP) focusing on mining and process engineering”.
- Mr. Jarvis, who is an Idaho resident living in Custer County where the project is located, is described as having a 40-year career in “managing mining operations from exploration through production … [including starting] … Newmont's Batu Hijau Mine in Indonesia and the Thompson Creek Mine in Idaho”.
- Welcoming the appointment, CEO, Ryan McDermott said that Mr. Jarvis’ “wide-ranging experience in the mining industry … will prove to be incredibly valuable to the Company … [and expressed confidence that] … under his direction the Empire mine and our surrounding properties will have their fullest potentials realized”.
- We expect that the addition of experienced, locally based, technical expertise should aid the project at Empire as it continues its metallurgical test programme and moves through the permitting process towards mine development of the Empire open-pit copper project. Mr. Jarvis’ experience at another Idaho operation at Thompson Creek will have furnished him with a detailed understanding of the regulatory regime for mining in Idaho and residence in Custer County suggests local connections which should aid dialogue with the host community.
Conclusion: Phoenix Copper is strengthening its local management team with experienced personnel with strong local connections in Idaho as it advances the Empire open-pit copper project.
*SP Angel acts as nomad to Phoenix Copper
Power Metal Resources PLC (AIM:POW)* 1.4p, Mkt Cap £24m – Acquisition of Canadian graphite project
- Power Metal reports the acquisition of the 4,222-hectare Doerksen Bay graphite Project in Saskatchewan, Canada along with the formation of ION Battery Resources Limited, a new UK private battery metals and minerals focused vehicle.
- Power Metals will pay the vendors, a local consortium, a total of £37,500 through issue of 2,500,000 Power Metal new ordinary shares at a price of 1.5p per share.
- The project is centred around five graphite occurrences labelled the Ben, Ben North, Bear Bones, Brabant Lake and Doerksen Bay showings.
- These occurrences returned multiple grab samples of graphite bearing gneisses including assays up to 45% C (incl. 45%, 36%, 14%, 13%, 12% and 10% C.
- Other work includes geophysics in 2013, that highlighted numerous untested very-low-frequency electromagnetic conductors coincident with grab samples.
- Power Metals comments “the recently identified conductive anomalies may be related to additional undiscovered high-grade graphite bearing gneiss units and ground-truthing them will be a priority of future work programmes undertaken by Power Metal planned for 2023.”
- Power Metal has formed a new wholly owned UK private subsidiary ION Battery Resources Limited that will act as a holding company for the Company's battery resources exploration interests including Doerksen Bay (graphite), Authier North/Duval East (lithium) and the North Wind (lithium).
- All of the projects listed in the vehicle are in Canada, and after further work Power Metal comments ION Resources will be available for outright disposal or listing on an appropriate stock exchange.
*SP Angel acts as nomad and broker to Power Metal
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The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Analysts
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Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
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Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486
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)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
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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