SP Angel . Morning View . Wednesday 15 02 23
US$ climbs dragging metal prices lower on hotter than expected inflation
MiFID II exempt information – see disclaimer below
Castillo Copper Ltd (ASX:CCZ, LSE:CCZ) – Drilling results add confidence in the rare earth elements potential of the BHA project.
Glencore PLC (LSE:GLEN) – Record 2022 EBITDA performance against a backdrop of pandemic, commodity price volatility and conflict.
Jubilee Metals Group PLC (AIM:JLP, JSE:JBL, OTC:JUBPF) – Operations and Zambian Strategy Update
Pan African Resources PLC (AIM:PAF, OTCQX:PAFRY, JSE:PAN, OTCQX:PAFRF) – Six Month Results to 31st December 2022
Private investment opportunity in Zambian copper exploration company holding four licenses in highly prospective areas close to existing mines.
- Licenses are located in highly prospective areas close to existing and historic mines. All licenses are 100% owned.
- Drill-ready targets have been set following substantial early-stage work including airborne and ground geophysical surveys, rock chip and soil sampling.
- High-grade intersections from nearby mines and on-licence artisanal pits indicate potential for mineralisation on a number of the licenses.
*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors
Gold sinks to 5-week low as US Inflation comes in hotter-than-expected
- Gold fell below $1,840/oz following the US CPI release which came in at 6.4% vs 6.2% expected.
- Core CPI stood at 5.1% for Jan vs 4.9% in December, reigniting concerns of stickier inflation and pushing the market’s expectations of the Fed Funds Rate peak to 5.25% vs 5.1% on Monday.
- The US 10-year yield rallied to January 05th highs, pressuring non-interest yielding gold as traders sold off bonds in expectations of further Fed rate hikes to quell inflation.
- ETFs sold gold again alongside the rise in US Treasury yields, supporting the sell-off.
- Gold had enjoyed a sustained rally since early November, pushing close to $1,980/oz levels as traders looked to signs of rapidly fading inflation and a cooling US economy to encourage Powell to pivot on his rate hike cycle.
- The dollar remains near 7-month lows; however, it has bounced alongside Treasury yields from late January lows, adding further pressure to gold prices.
Chinese thermal coal prices hit one-year low as industrial recovery fails to meet expectations
- China’s benchmark power-station coal prices hit a one-year low at $147/t this week.
- Prices have fallen 40% in the past four months.
- Stockpiles remain buoyant and industrial activity has failed to meet expectations following the Lunar New Year and China’s rapid reopening.
- Beijing had pushed a major drive in both domestic production and coal imports following blackouts in Summer 2021 and 2022.
- However, coal power generation rose 28% in the first week of February yoy, suggesting industrial demand may be increasing.
Cobalt - Glencore is willing to hold back cobalt sales to support the price of the metal that crashed to ~$35k from its highs of >$80k in 2022.
- “We don’t have to be price takers,” Glencore CFO commented on cobalt prices.
- A more than 50% correction in prices since their peak in May was driven by a sharp drop-off in buying from Chinese electronics manufacturers, a key demand driver.
- Glencore produced 44kt of cobalt last year accounting for ~20% of global supply.
Dow Jones Industrials -0.46% at 34,089
Nikkei 225 -0.37% at 27,502
HK Hang Seng -1.65% at 20,765
Shanghai Composite -0.39% at 3,280
Economics
US – Two year bond yields that better reflect monetary policy expectations compared to longer term debt climbed to the highest since November taking the US$ higher after inflation data came in stronger than forecast.
- Voting FOMC member, Philadelphia Fed President Patrick Harker said that the restrictive policy is “not done yet” while adding “we are likely close”.
- Richmond Fed President Thomas Barkin (non-voting) said the Fed might “have to do more” to fight inflation.
- Dallas Fed President Lorie Logan (voting) suggested that rate increases could last “for a longer period than previously anticipated”.
- CPI (%yoy): 6.4 v 6.5 December and 6.2 est.
- Core CPI (%yoy): 5.6 v 5.7 December and 5.5 est.
- NFIB business optimism index rises to 90.3 in January vs 89.8 in December and 97.1 a year earlier
China – The central bank injected a net CNY199B ($29B) with its one-year medium term lending facility in line with previously voiced strategy to maintain “reasonably sufficient” liquidity in the economy.
- The volume was broadly in line with market expectations.
- The MLF borrowing rate was left unchanged at 2.75%, again in line with estimates.
EU – Authorities are set to announce the 10th sanction package around the anniversary of the Russian invasion in Ukraine with another series of measures targeting €11B worth of goods via trade bans and technology controls.
- Additionally, the EU may force its financial institutions to report information on Russian Central Bank assets what may be seen as the first step to potentially using those funds to contribute to Ukraine’s reconstruction.
UK – The pound is down against the US$ this morning after UK inflation data showed both headline and core CPI measures pulled back more than expected in January.
- Headline CPI dropped to 10.1% in January marking the lowest reading in five months.
- Markets are pricing in a 0.25 percentage point rate rise in interest rates next month, a slowdown from the half percentage point increase in February, FT writes.
- Additionally, services price inflation, a measure of of domestically generated price pressures, eased sharply to 6% from 6.8%.
- CPI (%yoy): 10.1 v 10.5 December and 10.3 est.
- Core CPI (%yoy): 5.8 v 6.3 December and 6.2% est.
- Three month rolling unemployment steady at 3.7%
- Average earnings ex-bonuses rose 6.7% in December vs 6.4% in November
- Participation rate 63.1% in November vs 63.0% in October
India – January wholesale price index at 4.7% yoy in January vs 4.9% in December
Germany - Wholesale price index up 0.2% in January vs -1.6% in December vs 10.6% yoy in January vs 12.8% in December
France - Q4 unemployment at 7.2% vs 7.3% in Q3
Currencies
US$1.0710/eur vs 1.0739/eur yesterday. Yen 133.35/$ vs 131.94/$. SAr 17.969/$ vs 17.832/$. $1.208/gbp vs $1.216/gbp. 0.690/aud vs 0.697/aud. CNY 6.847/$ vs 6.818/$.
Dollar Index 103.54 vs 103.20 yesterday.
Commodity News
Precious metals:
Gold US$1,834/oz vs US$1,860/oz yesterday
Gold ETFs 92.9moz vs US$92.9moz yesterday
Platinum US$925/oz vs US$958/oz yesterday
Palladium US$1,472/oz vs US$1,551/oz yesterday
Silver US$21.55/oz vs US$21.86/oz yesterday
Rhodium US$12,100/oz vs US$12,100/oz yesterday
Base metals:
Copper US$ 8,893/t vs US$8,959/t yesterday
Aluminium US$ 2,398/t vs US$2,420/t yesterday
Nickel US$ 26,370/t vs US$26,500/t yesterday
Zinc US$ 3,040/t vs US$3,086/t yesterday
Lead US$ 2,085/t vs US$2,094/t yesterday
Tin US$ 26,355/t vs US$27,250/t yesterday
Energy:
Oil US$84.4/bbl vs US$86.3/bbl yesterday
- Crude oil prices fell following yesterday’s higher-than-expected 10.5mb API inventory build and on Fed comments that it will need to keep raising interest rates to beat inflation.
- European energy prices edged higher despite a surprise 15% increase to 35.3mcm/day in Gazprom gas supply via the Sudzha gas pumping station in Ukraine.
Recent purchases of LNG in India, Bangladesh, and Thailand suggest some demand recovery as price falls in both Europe and Asia to c.$15/mmBtu has made the gas more affordable to previous buyers.
Natural Gas US$2.566/mmbtu vs US$2.468/mmbtu yesterday
Uranium UXC US$51.00/lb vs US$50.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$123.1/t vs US$121.0/t
Chinese steel rebar 25mm US$635.6/t vs US$613.1/t
Thermal coal (1st year forward cif ARA) US$133.0/t vs US$133.0/t
Thermal coal swap Australia FOB US$195.0/t vs US$209.0/t
Coking coal swap Australia FOB US$349.0/t vs US$349.0/t
Other:
Cobalt LME 3m US$35,690/t vs US$38,920/t
NdPr Rare Earth Oxide (China) US$102,601/t vs US$105,222/t
Lithium carbonate 99% (China) US$58,932/t vs US$60,934/t
China Spodumene Li2O 5%min CIF US$5,950/t vs US$5,970/t
Ferro-Manganese European Mn78% min US$1,323/t vs US$1,326/t
China Tungsten APT 88.5% FOB US$333/mtu vs US$333/mtu
China Graphite Flake -194 FOB US$865/t vs US$865/t
Europe Vanadium Pentoxide 98% 10.1/lb vs US$10.0/lb
Europe Ferro-Vanadium 80% 38.75/kg vs US$38.55/kg
China Ilmenite Concentrate TiO2 US$342/t vs US$344/t
Spot CO2 Emissions EUA Price US$95.5/t vs US$95.7/t
Brazil Potash CFR Granular Spot US$502.5/t vs US$502.5/t
Battery News
Company News
Castillo Copper Ltd (ASX:CCZ, LSE:CCZ) 0.9p, Mkt Cap £12m – Drilling results add confidence in the rare earth elements potential of the BHA project.
- Castillo Copper has reported rare-earth element assay results from its diamond-coring and re-assaying of reverse-circulation (RC) drilling in the BHA East Zone in New South Wales, Australia.
- The drilling comprised a 137.7m deep diamond-drill hole (TT-005DD) at the Tors Tank prospect and results from four RC holes (516m) at the Fence Gossan prospect as well as 4 RC holes (564m) at the Reefs Tank prospect and a further 4 RC holes (625.7m) at the Tors Tank prospect.
- The company highlights the results from the diamond drill-hole, TT-005DD at Tors Tank which intersected 13m assaying 1,550ppm Total Rare Earth Oxides ("TREO") from 5m depth.
- Castillo Copper explains that the intersection includes a high proportion of “high value Magnetic REO (Nd+Pr+Dy+Tb) … [which] … represented an exceptional 38.9% of the TREO grade vs 25% peer average”.
- The company cites “Nelson, S. "Rare earths rush showed no signs of abating in Q4 2022 6 February 2023. Available at: https://www.proactiveinvestors.com.au/companies/news/1005217/rare-earths-rush-showed-no-signs-of-abating-in-q4-2022-1005217.html” in support of the 25% peer average.
- Castillo Copper also says that re-assaying “4m composite samples at Tors Tank and Fence Gossan to 1m provided greater clarity on the underlying geology, whilst delivering further evidence of an extensive, shallow REE mineralisation system - the best intercepts comprise:
- 17m @ 1,605ppm TREO from 2m and 1m @ 3,236 TREO from 19m (FG_003RC)
- 10m @ 1,013ppm TREO from 49m (FG_001RC)
- 6m @ 1,480ppm TREO from 7m (FG_004RC)
- 5m @ 1,598ppm TREO from 14m (TT_002RC)
- 4m @ 1,342ppm TREO from 28m (FG_004RC)
- 2m @ 3,491ppm TREO from 7m (TT_003RC)”
- The company says that its “recent hand auger surface sampling campaign across Fence Gossan delineated a sizeable 4.5km2 anomalous area for REE mineralisation” which it says “suggests there are several more prime targets to test-drill that could potentially extend known mineralisation between the Fence Gossan and Tors Tank Prospects”.
- Commenting on the results, Managing Director, Dennis Jensen, said that they increase “confidence in the underlying REE system. In addition, the hand auger surface sampling campaign is proving to be a treasure trove of insights, with several new targets now on the radar. The Board looks forward to receiving the remaining assays and charting the next phase of the exploration campaign."
Glencore PLC (LSE:GLEN) 515.5p, Mkt cap £65bn – Record 2022 EBITDA performance against a backdrop of pandemic, commodity price volatility and conflict.
- Reporting what CEO, Gary Nagle described as a year which witnessed “unprecedented developments in global energy markets” Glencore’s preliminary results show a US$12.8bn (60%) increase in Group Adjusted EBITDA to US$34.1bn.
- The result reflects a 26% increase in revenue to US$256bn (2021 – US$204bn) and a 248% increase in attributable income to US$17.3bn (2021 – US$5.0bn).
- Glencore’s net debt fell sharply from US$6bn at the end of 2021 to US$75m.
- The company is recommending a US$0.44/share distribution for the year with “two equal tranches of $0.22 payable in the first six months of the 2023 financial year (H1) and second six months of the 2023 financial year” with payments expected on 1st June and 22nd September.
- Glencore’s marketing business contributed US$6.8bn (20%) of the adjusted EBITDA largely on the back of US$5.6bn from its ‘Energy Products’ with ‘Metals & Minerals’ marketing delivering an additional US$1.7bn (2021 – US$2.6bn) offset by corporate marketing expenses of approximately US$0.5bn.
- Glencore says that its “Marketing delivered record results, successfully navigating the elevated levels of market volatility, disruption, rapidly and materially changing underlying commodity flows, and a constant reassessment of forward-looking supply and demand scenarios, particularly relating to energy markets”.
- “Industrial Adjusted EBITDA increased by 59% to $27,265 million … compared to $10,800 million in 2021) … primarily driven by stronger average year-over-year commodity prices, particularly related to our coal operations and the additional contribution from the increased ownership in Cerrejón”.
- The “Adjusted EBITDA contribution from Energy products assets was $18,590 million, compared to $5,603 million in 2021, mainly due to the significantly higher prices across the energy complex”.
- Coal production delivered US$17.9bn (66%) of the Adjusted Industrial EBITDA with the major contributor the Australian thermal coal operations which represented around 64% (US$11.4bn) of coal’s total.
- Copper operations delivered US$5.7bn (~21%) of Adjusted Industrial EBITDA, with contributions from of ~5% from both zinc (US$1.5bn) and nickel (US$1.3bn) with minor contributions from ferroalloys, alumina and iron-ore.
- Reshaping the portfolio of operating assets through the disposal of the Ernest Henry copper/gold operation in Australia and zinc assets in South America contributed to a 23% year-on-year decline in the “Adjusted EBITDA contribution from Metals and minerals assets … [to] … $9,274 million”.
- Geotechnical and “other operating challenges” at the Katanga copper operations which led to “a decrease of 44kt of copper production” reduced the EBITDA contribution of Glencore’s African copper operations by US$0.6bn to US$1.55bn.
- Mr. Nagle reflected that “Recent government policies, such as the US Inflation Reduction Act and the EU’s proposed Green Deal Industrial Plan, demonstrate the growing need for critical raw materials through to the end of the decade and beyond, necessitating fresh investment in both primary supply and recycling”.
- In an optimistic view of the future, he also said that Glencore’s diversified business model “across industrial and marketing, focusing on metals and energy … [provides it] … a solid foundation to successfully navigate shorter-term challenges that may arise, as well as meet the resource needs of the future”.
Conclusion: Glencore has delivered record Adjusted EBITDA and a large reduction in net debt against a background of the “global pandemic, recovery from it and years of underinvestment, followed by conflict in Europe” and considers that it is well-placed for the future.
Jubilee Metals Group PLC (AIM:JLP, JSE:JBL, OTC:JUBPF) – 9.27p, Mkt cap £253m – Operations and Zambian Strategy Update
- Jubilee Metals reports a 6-month update on its African operations ending on 31st December 2022.
- The Company notes that strong PGM and chrome operations helped ‘buffer’ the impact of power and water infrastructural issues in Zambia.
- In Zambia, copper production fell 10% to 1,149t vs previous 6-month period and below the targeted 3kt.
- In-process stock from processed material at Roan increased, however, to 830t of contained copper.
- Reduced production is blamed for widespread power outages in Zambia and subsequent damage to plant and equipment.
- Jubilee has invested a further $2.5m in infrastructure at its Zambian operation as a result.
- The Company notes Roan now has the potential to more than double its existing 780kt annual processing capacity.
- Jubilee’s Sable, also in Zambia, has completed its first cobalt production runs from waste, with the Company now looking to expand the cobalt circuit as a result.
- Going forward, Jubilee will look to maximise cobalt production at the Sable Refinery to support the expansion of the Roan copper operations.
- Sable will target 450t/month of cobalt hydroxide (125t of contained cobalt) from recycled waste by May 2023.
- In South Africa, Jubilee’s Inyoni Facility delivered 18,208PGM ounces for the period, vs 21,270oz in the 6-month period to 30th June.
- PGM revenue per ounce stood at $1,599/oz vs $1,456/oz for the previous period.
- The Company reported a $516/oz net cost per PGM ounce for the period vs $283/oz for the previous period.
- Jubilee ramped up chrome production to 634,111t of chrome concentrate, remaining on track for full-year guidance of 1.2mt.
- The Company trimmed its PGM full year guidance to 38koz PGM for FY2023.
Pan African Resources PLC (AIM:PAF, OTCQX:PAFRY, JSE:PAN, OTCQX:PAFRF) 14.70, Mkt cap £287m – Six Month Results to 31st December 2022
- Pan African’s gold production stood at 92,307oz for the period vs 108,085 for the respective period in 2021.
- The Company forecasts increased production for H2-2023 financial year and full year production guidance has been maintained between 195-205koz.
- Pan African reports an AISC for the period of $1,291/oz vs $1,173/oz in same period 2021.
- Headline earnings were reported at $29.1m for the period vs $46.1m in same period 2021.
- The Company is planning to begin construction at its Mintails project by June 2023, subject to funding and permitting.
- Pan African’s slide in production has mainly been triggered by sliding output from its underground Barberton project.
- Production at the underground Evander Mine fell by 29.8% to 19,173oz despite ramping up tonnes processed by 6%. This was a result of falling grades and limited mining rates in accordance with geotechnical parameters.
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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
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474
Sales
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Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
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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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