SP Angel . Morning View . Friday 20 01 23
Copper strengthens on Peru disruption, China optimism and weak dollar
MiFID II exempt information – see disclaimer below
(Atlantic Lithium Limited (AIM:ALL, OTCQX:ALLIF, ASX:A11)) – OTCQX ‘Best 50’ top performing company
(Ariana Resources PLC (AIM:AAU)) – Guidance hit at Kiziltepe
(GreenRoc Mining PLC (AIM:GROC)) – Purification Test at Amitsoq records 99.97% purity and successful meetings with local stakeholders
(Kodal Minerals PLC (AIM:KOD)) – BUY – Terms on joint venture show how keen Chinese processors are for raw materials
(Liontown Resources (ASX:LTR)) – Kathleen Valley project update highlighting capex upward revision and a potential fundraise
Copper strengthens on Peruvian supply concerns, China optimism and weak dollar despite climbing inventories
- Copper prices are set to enjoy their fifth straight week of gains as Chinese buying ramped up in the run in to the Lunar New Year.
- Traders are expressing concern over a hit to already-tight supply balances from Peru, with protests currently threatening c,2% of global supply in the Country’s South.
- Las Bambas has not exported copper concentrate since January 3rd, whilst Antapaccay, operated by Glencore, is also facing logistical disruptions.
- Copper stockpiles in Shanghai jumped 37% to 139kt, whilst LME inventories fell 1,575t to 81.6kt.
China continues to reshape electricity networks with renewables push in boost to Copper and battery metals
- China’s National Energy Administration reconfirmed its commitment to wind and solar energy this week, whilst also looking to coal to stabilise energy supply.
- The Administration expects peak carbon emissions this decade, with carbon neutrality by 2060.
- The group expects wind and solar capacity to grow from 780GW in 2022 to 920GW in 2023.
- China expects to have over 1,200GW of wind and solar energy capacity installed before 2030.
- Solar is expected to surpass hydropower this year as China’s second largest contributor in terms of GW.
Net zero ambitions to double copper demand by 2030
- If the world aims to reach net zero emissions by 2050 then, annual clean energy investment worldwide will need to more than triple by 2030 to around $4tn (IEA)
- The development of so much more wind, solar and hydropower needs a 20% pa increase in copper production indicating that the world needs to at least double copper supply by 2030.
- “The energy transition requires substantial quantities of critical minerals, and their supply emerges as a significant growth area.
- The total market size of critical minerals like copper, cobalt, manganese and various rare earth metals grows almost sevenfold between 2020 and 2030 in the net zero pathway.
- Revenues from those minerals are larger than revenues from coal well before 2030.
- This creates substantial new opportunities for mining companies. It also creates new energy security concerns, including price volatility and additional costs for transitions, if supply cannot keep up with burgeoning demand.”
- Where is the new metal going to come from?
*Please contact us for ideas on new up-and-coming exploration and mining companies which we hope will help lead the new energy revolution.
Lithium - Volumes on lithium contracts in Chicago hit record high as demand remains robust and supply remains tight
- Open interest on CME’s lithium contract has hit a record high this week, with a surge in participation from banks, traders and hedge funds.
- Liquidity is rising alongside EV sales and soaring lithium prices, despite a 20% pull-back since November.
- The CME’s cobalt contract is also seeing record high open interest, with contracts up 454% in volume from last year.
Coal prices remain elevated as buyers avoid Russian cargoes and supply suffers from underinvestment
- Whitehaven Coal notes buoyant thermal coal prices supporting a fourfold increase in 1H earnings yoy.
- The Company notes it is redirecting met coal traditionally used in steelmaking to power stations.
- Whitehaven previously had a 70/30 split between thermal coal and met coal, but this has fallen to 93/7 following Russia’s invasion of Ukraine and cutting off of Europe’s gas supplies, pushing the requirement for coal-powered stations.
Gold pushes higher as dollar continues to suffer and Central Banks expect more purchases this year
- Gold prices climbed again overnight, climbing to $1,933/oz.
- 10 Year Treasury yields continue to fall as investors buy US bonds, supporting gold buying incentive.
- The dollar remains weak, also boosting gold prices.
- The World Gold Council notes 25% of central banks will increase gold holdings this year of those surveyed – this stood at 8% in 2019.
- The People’s Bank of China continues to hoover up bullion, buying 32 tonnes in November and 30 tonnes in December. China’s return to the gold market has been a major stimulant of gold’s recent rally.
Dow Jones Industrials -0.76% at 33,045
Nikkei 225 +0.56% at 26,554
HK Hang Seng +1.82% at 22,045
Shanghai Composite +0.76% at 3,265
Economics
US – Hawkish Fed comments as well as stronger than expected jobless claims see risk sentiment pulling back on Thursday.
- “Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” Vice Chair Lael Brainard, a voting FOMC member, said yesterday.
- “With inflation still high and indications of continued supply-demand imbalances, it is clear that monetary policy still has more work to do to bring inflation down to our 2% goal on a sustained basis,” New York Fed President John Williams, a voting FOMC member, said at an even in New York yesterday.
- Next FOMC meeting is scheduled for the 1st February with expectations for a 25bp hike in the benchmark rate to 4.5-4.75%.
- Initial Jobless Claims (‘000): 190 v 205 previous week and 214 est.
China – PBoC rates in line with expectations as central bank left the one and five year loan prime rates unchanged
Monetary authorities continue to monitor economic growth momentum amid rising Covid infection rates
- The decision follows the PBOC announcement leaving its one year policy rate unchanged at 2.75% after two rate cuts last year earlier this week.
- 1-Year Loan Prime Rate: 4.30%.
- 5-Year Loan Prime Rate: 3.65%.
Japan – Inflation continued to rise with core measure hitting a fresh 41-year high of 4% in December adding pressure on the central bank to reconsider its QE programme.
- Earlier this week, the BOJ voted to leave its yield curve control measures unchanged arguing that growth in wages was not strong enough to sustainably achieve its inflation target.
- The central bank expects core inflation that excludes food prices but includes energy to fall below 2% in the next two fiscal years.
- The measure has now been running over the BOJ target for nine consecutive months.
- The government is considering lifting a three year recommendation to wear masks indoors and downgrading its Covid-19 classification to the same category as seasonal flu from this spring.
- CPI (%yoy): 4.0 v 3.8 November and 4.0 est.
- Core CPI (%yoy): 4.0 v 3.7 November and 4.0 est.
Germany – Factory gate inflation pulled back to 21.6% in December, half the all time high of 45.8% hit in August and September last year, helping to ease pressure on businesses.
- Energy prices have been the main driver behind the decline.
- PPI (%mom): -0.4 v -3.9 November and -1.2 est.
- PPI (%yoy): 21.6 v 28.2 November and 20.7 est.
UK – Retail sales dropped unexpectedly in December as consumers struggled amid falling real incomes.
- Sales fell despite the government’s fiscal support delivered in mid-to-late November that were expected to have boosted spending in the lead up to Christmas, FT cites Capital Economics.
- The data marks the second consecutive monthly decline after a 0.5%mom drop in November as Black Friday failed to produce a significant bump in sales.
- Separately, GfK consumer sentiment index came in below -40 for the ninth month in a row in January, marking the longest period of pessimism in nearly 50 years.
- Retails Sales (%mom): -1.0 v -0.4 November and 0.5 est.
- GfK Consumer Sentiment: -45 v -42 December and -40 est.
France – Retail sales fell for a seventh consecutive month in December reflecting struggling consumer spending amid high inflation and weakening growth.
- Retail Sales (%yoy): -5.0 v -3.1 November.
Australia - Australian coal producers in talks with government over surprise export limit
- The government of New South Wales has brought in a rule for miners to reserve up to 10% of production for domestic supply in order to curb energy costs.
- This is likely to impact global supply chains, mainly with China, as contracts are already locked in amid very high prices.
- Details of the scheme are still unclear as the proposal has been leaked to the media.
Currencies
US$1.0847/eur vs 1.0817/eur yesterday. Yen 128.92/$ vs 128.32/$. SAr 17.252/$ vs 17.153/$. $1.236/gbp vs $1.234/gbp. 0.694/aud vs 0.690/aud. CNY 6.776/$ vs 6.776/$.
Dollar Index 102.01 vs 102.25 yesterday.
Commodity News
Precious metals:
Gold US$1,933/oz vs US$1,913/oz yesterday
Gold ETFs 93.9moz vs US$93.9moz yesterday
Platinum US$1,041/oz vs US$1,045/oz yesterday
Palladium US$1,756/oz vs US$1,724/oz yesterday
Silver US$23.99/oz vs US$23.52/oz yesterday
Rhodium US$12,250/oz vs US$12,250/oz yesterday
Base metals:
Copper US$ 9,338/t vs US$9,255/t yesterday
Aluminium US$ 2,610/t vs US$2,616/t yesterday
Nickel US$ 28,900/t vs US$28,435/t yesterday
Zinc US$ 3,432/t vs US$3,361/t yesterday
Lead US$ 2,135/t vs US$2,173/t yesterday
Tin US$ 29,205/t vs US$28,450/t yesterday
Energy:
Oil US$87.0/bbl vs US$84.2/bbl yesterday
- Crude oil prices experienced another whipsaw week as mixed news flow coming from the two largest global economies and oil demand centres continues to dominate sentiment.
- The EIA reported another large 8.4mb US crude inventory build last week with a 3.5mb build to gasoline and 1.9mb draw from distillate stocks, the SPR unchanged, as refinery utilisation remains limited to 85.3%.
- The US EIA storage report detailed a draw of 82bcf to 2,820bcf last week, with storage now 1% above its 5-year average as growth from the Permian and Haynesville regions contributed to dry production of 100.2bcf/d.
- Reuters has reported the announcement that there would be no new UK oil and gas fields under a Labour government, as made by opposition leader Keir Starmer during a speech in Davos.
Natural Gas US$3.163/mmbtu vs US$3.283/mmbtu yesterday
Uranium UXC US$48.95/lb vs US$49.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$123.7/t vs US$123.8/t
Chinese steel rebar 25mm US$621.2/t vs US$620.8/t
Thermal coal (1st year forward cif ARA) US$176.0/t vs US$176.0/t
Thermal coal swap Australia FOB US$317.0/t vs US$328.0/t
Coking coal swap Australia FOB US$330.0/t vs US$317.0/t
Other:
Cobalt LME 3m US$49,000/t vs US$49,000/t
NdPr Rare Earth Oxide (China) US$106,634/t vs US$106,623/t
Lithium carbonate 99% (China) US$66,047/t vs US$66,040/t
China Spodumene Li2O 5%min CIF US$5,970/t vs US$5,970/t
Ferro-Manganese European Mn78% min US$1,340/t vs US$1,336/t
China Tungsten APT 88.5% FOB US$325/mtu vs US$325/mtu
China Graphite Flake -194 FOB US$885/t vs US$885/t
Europe Vanadium Pentoxide 98% 9.0/lb vs US$9.0/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
China Ilmenite Concentrate TiO2 US$343/t vs US$343/t
Spot CO2 Emissions EUA Price US$84.7/t vs US$84.0/t
Brazil Potash CFR Granular Spot US$510.0/t vs US$510.0/t
Battery News
Company News
(Atlantic Lithium Limited (AIM:ALL, OTCQX:ALLIF, ASX:A11)) 39.5p, Mkt Cap £220m – OTCQX ‘Best 50’ top performing company
- Atlantic Lithium reports that it has been listed in the 2023 OTCQX® Best 50, a ranking of top performing companies traded on the OTCQX Best Market last year .
- The ranking is calculated based on an equal weighting of one-year total return and average daily dollar volume growth in the previous calendar year.
- The company completed a PFS for the Ewoyaa project based on a 2.0mtpa operation:
- Capex $125m
- C1 and AISC costs are estimated at $278/t and $460/t SC6 after by-products.
- Post-tax NPV8% of US$1,328m
- Post-tax IRR of 224%
- LOM average EBITDA of $248m
- Payback 4.9 months $278/t
- Average long-term SC6 costs US$1,359/t
- Atlantic Lithium is targeting a resource upgrade in Q1 2023 ahead of a feasibility study targeted for completion mid-2023.
*SP Angel acts as nomad to Atlantic Lithium. An SP Angel mining analyst recently visited the Ewoyaa Lithium Project in Ghana
(Ariana Resources PLC (AIM:AAU)) 3.4p, Mkt Cap £39m – Guidance hit at Kiziltepe
- Ariana Resources reports that its 23.5% owned Kiziltepe mine in Turkey produced a record total of 28,421 ounces of gold during the year, exceeding its full-year production guidance by c.14% following record mil throughput of over 400,000tpa.
- Throughput increased ~55% compared to 2021.
- Head grade rose to 2.81g/t Au vs 2.19g/t Au.
- Recoveries fell to 92.4% from 95.8%.
- Gross revenue came in at US$58m at an average realised gold price of US$1,858/oz, against an average revenue per gold ounce of US$2,041oz due to a silver credit.
- Ariana also provides an operational update, commenting that “mine construction at Tavsan is advancing on schedule, with earthworks progressing well and concrete for the Adsorption-Desorption-Recovery ("ADR") plant due to be poured in February; drilling is also underway to provide for a further revision to the Resource Estimate.”
- At Salinbas, two diamond drill rigs are operating with results due to be announced soon.
GreenRoc Mining (GreenRoc Mining PLC (AIM:GROC)) 5.37p, Mkt Cap £6.4m – Purification Test at Amitsoq records 99.97% purity and successful meetings with local stakeholders
- GreenRoc has received test results from a sample taken form the Lower Graphite Layer at Amitsoq which was successfully spheronised last autumn.
- Purification tests using sodium hydroxide were conducted and recorded a purity of 99.97%.
- The test results suggest Amitsoq graphite is suitable for application in anodes used for EV batteries, which require a 99.95% purity.
- Previous testing by ProGraphite utilised hydrofluoric acid for purification.
- The purified graphite product was achieved by GreenRoc using a leaching process at 250°C.
- Low levels of Fe, Cu and Cr at 15.4ppm, 0.8ppm and 0.2ppm respectively, all considered unwanted elements in graphite production.
- The Company has also completed a number of meetings with local stakeholders, the Minister for Mineral Resources and Justice and the Permanent Secretary.
- Management notes ‘strong support’ from the Minister for ‘specifically the Amitsoq Graphite Project.’
- The team also held meetings with the local community in advance of the Amitsoq Social Impact Assessment.
- GreenRoc is also set to test for ilmenite content using coarser (>1mm) grain fraction from the Thule Black sands drill samples in advance of assay finalisation. Larger material was previously excluded.
(Kodal Minerals PLC (AIM:KOD)) 0.37p, Mkt Cap £62m – Terms on joint venture show how keen Chinese processors are for raw materials
BUY
(Kodal Minerals holds 100% of the Bougouni lithium project. The Mali government has the right to a free carry on 10 of the project and an option to acquire a further 10%)
- Kodal Minerals reported its acceptance of an offer by Hainan Mining for $100m of funding for the Bougouni lithium project in Mali yesterday.
- Hainan Mining is backed by Fosun which holds a 45.9% alongside the province of Hainan which holds around 20%.
- The joint venture arrangement is interesting in that Hainan is committing $100m into the new joint venture for its 51% stake.
- In more detail, Hainan are also buying 51% of the jv for $94.34m in cash + a $5.66m loan to the jv which is being partially used to compensate Kodal for its expenses to date on the project.
- Valuation: The deal effectively values the joint venture company at $188.68m with Kodal holding a 49% stake worth $92.45m on the Hainan valuation.
- Cash Flow valuation:
- Valuing the jv company on its estimated cash flow shows :
- Sales of >$1bn of revenues over 4 years .
- NPV $420m at a 7% discount rate on a post-tax basis.
- Assumptions:
- $2,080/t for 5.5% spodumene concentrate.
- Production of 120,000tpa
- Trucking: 10 trucks carrying 350t per day at a cost of under $100/t.
- Valuation: Kodal’s 49% of $420m is estimated to be worth some $206m (£166m) at a spodumene concentrate price of $2,080/t spodumene concentrate.
- Kodal shares at 0.37p represent around a third of the value offered in the NPV estimate indicating to us that Kodal shares should be worth at least 0.5p based on 50% of the value of the NPV.
- When the $100m + $17.75m lands in Kodal’s jv and corporate bank accounts the funding will be secured. We should then reduce our 50% discount to NPV to around a 25% discount to account for potential construction, commissioning and trucking issues and add the $17.75m cash subscription into the Kodal valuation.
- This could raise our valuation to around 0.88p/s representing a 138% uplift on today’s share price. We therefore rate the shares as a buy on the assumption the deal will consummate.
- Management: Kodal are managing the joint venture with Steve Zaninovich (Kodal operations directo) running the day-to-day activities
- Break fee: Hainan are paying US$7m into an escrow account within 10 days of their signing as a non-refundable deposit.
Conclusion: The Hainan deal is extraordinary in that Kodal are entitled to their 49% of the profit from the joint venture through their simple addition contribution of the project.
We assume the joint venture will pay all related costs out of the $100m of cash provided by Hainan. There does not appear to be any preferential repayment of capital to Hainan.
We are not aware of any expensive royalty, streaming or peculiar loan note arrangements draining the cash flow making this possibly the simplest and cleanest deal we have seen.
*SP Angel acts as financial advisor and broker to Kodal Minerals.
(AIM:LTR) A$1.4, Mkt Cap A$3.0bn – Kathleen Valley project update highlighting capex upward revision and a potential fundraise
- The Company launched on-site construction activities at Katheleen Valley in Oct/22 after declaring FID in Jun/22.
- The team decided to increase the scale of the project by 20% to 3.0mtpa operation on the back of strong market fundamentals.
- Additionally, the Company is considering to include a Direct Shipping Ore option to monetise material that was previously not expected to be treated.
- The project remains on target for first concentrate production in mid-2024.
- Although, project scale adjustments as well as industry-wide cost escalation increased development capital estimate to A$895m (including A$40m contingency).
- The Company estimated project capex at A$473m (including A$27m contingency) for the 2.5mtpa scale in the Nov/21 DFS.
- The team reports it spent A$73m on the Project to date with a further ~A$685m liquidity available including ~A$385m in cash and A$300m via a debt facility.
- That leaves a gap when compared to a revised development capital estimate.
- The Company is reported to be progressing a range of potential further funding options with additional funding not currently expected to be required until the end of 2023.
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Analysts
John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490
Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486
Sales
Richard Parlons –Richard.Parlons@spangel.co.uk - 0203 470 0472
Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534
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Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
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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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SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%