Today's Market View

SP Angel . Morning View . Thursday 23 02 23

US$ dollar strength on more Fed tightening weigh on commodities

MiFID II exempt information – see disclaimer below

Lithium exploration opportunity – Ghana – private financing

Hard rock spodumene outcrop on licenses indicate good potential for lithium discovery in highly prospective region of Ghana

Drilling to start shortly to test for lithium below surface of weathered outcrop

Company is also looking at additional downstream processing in Ghana in co-operation with European lithium refinery company

Potential for joint venture with listed company or LSE IPO

*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

Anglo American PLC (LSE:AAL) – Results show impact of inflation, energy costs and reduced production rates

Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)* – 2023 production guidance for 30-32koz gold and 4.1-4.3kt copper

Atalaya Mining (AIM:ATYM, TSX:AYM) – PEA gives insight into the potential of the Riotinto district

Mineral Resources Ltd (ASX:MIN) – JV Agreement with Albemarle and investment in downstream Chinese lithium assets

Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)* – EIA Update

Teck Resources Ltd (TSX:TECK.B) – Spin-off of coal assets as focus shifts to copper

Massive landslide at Chinese open-cast coal mine traps 53 with for dead and six injured

• Over 900 rescue workers are involved in the recovery operation. Digging out workers trapped in trucks and other vehicles is going to be extraordinarily dangerous and difficult.
• Ongoing slope instability is making the digging out of trapped workers following two further landslides.
• See video: https://www.editorji.com/world-news/china-pit-mine-collapse-caught-on-camera-search-on-for-missing-workers-1677140158101
• Concerns over Chinese coal supply following suspension of operations
• The collapse of a 180m-high wall at an open-pit coal mine in Inner Mongolia has triggered a region-wide inspection of China’s no.2 coal producing region.
• The move, expected to feed into other coal producing regions, is feared to weigh on supply as demand recovers on the back of China’s economic recovery.
• Coal burning across power plants has risen up to 15% since late January as demand ramps up on the country’s reopening.
• Analysts expect factories and construction to ramp up in March, with China’s largest miner offering to pay a premium to other miners to ensure supply.

Copper pares gains as protestors lift road blockade in Peru and higher rate hikes weigh on growth optimism

• Copper prices fell c.$100/t overnight as supply concerns from Peru ease and focus turns to demand prospects.
• Peruvian protestors have lifted a blockade that has been stifling MMG’s Las Bambas and Glencore’s Antapaccay’s ability to secure key supplies and ship concentrate.
• Wider anti-government protests are reportedly cooling following months of disruption.
• The recent repricing of Fed rate hike expectations are also weighing on copper demand expectations, with base metals struggling in slower growth environments.
• The Chinese Securities Regulatory Commission yesterday launched a programme to encourage PE funds to invest in the developer sector, an attempt to tap into an alternative source of funding.
• The recent move to shore up its property sector yesterday has failed to boost short term sentiment.
• Chinese property fundraising hit a seven year low last year, however the announcement only moved the Hang Seng Properties Index 0.3% higher.
• Copper supply shows signs of tightening with LME copper futures towards backwardation following a sudden spike on COMEX’s after three months of contango.
• Backwardation points to a tight physical market whilst contango traditionally signals buoyant supply.
• Yangshan refined cathode premiums continue to weaken, now down over $110/t over the past three months. Yangshan premiums traditionally highlight import demand for refined copper products.
• Furthermore, visible inventories remain buoyant, climbing 100% since the start of January, nearing September 2021 levels.

Gold slides following Fed minutes as traders turn to PCE data for further direction of rate hikes

• Gold fell $20/oz yesterday to $1,826/oz as US Treasury yields continue to rise following the Fed minutes from their Feb meeting three weeks ago.
• The minutes highlighted a hawkish-leaning committee who expect continued hikes and concerns over the 2% inflation target.
• Several officials had called for a 50bp vs the 25bp opted for by Powell, with Fed members noting concerns over ‘insufficiently restrictive’ policy.
• The Dollar Index has held higher in line with US Treasury yields, adding pressure to gold.
• ETFs continue to cut holdings of physical supply in favour of yielding Treasuries, with net sales for the year now hitting 1.21m following nine straight days of selling.

Panama reviews FQM’s port certification as dispute over 350ktpa Cobre Panama copper mine continues

• When questioned over the Country’s export halt of Cobre Panama’s concentrate, the Ministry of Commerce stated that a certification to the maritime authority is ‘being reviewed to see if it complies with regulations.’
• Reports suggest talks over a new contract are ongoing, although original discussions in mid-December fell through.
• The Minister notes Panama remains committed to ‘signing a new contract that reflects what was agreed upon in January 2022 and that ends the environment of uncertainty for the company, its workers and contractors.’

Dow Jones Industrials -0.26% at 33,045

Nikkei 225 -1.34% at 27,104

HK Hang Seng -0.35% at 20,351

Shanghai Composite -0.11% at 3,287

Economics

US – FOMC meeting minutes (31Jan-01Feb) indicated that there are signs inflation is coming down, albeit not enough to stop interest rate increases.

• Market have repriced peak Fed rates since the meeting adding approximately two more 25bp moves amid strong payroll reports as well as continuing inflationary pressures.
• FOMC minutes indicate that a few participants still favour a 0.5% rate hike, though most agreed that a 25bp rise was appropriate.
• James Bullard comments on inflation risk indicate this remains the Fed’s key priority.
• US Treasury yields jump higher to 3.95% for the 10-year T-bill
• The US needs to raise its debt ceiling or face potential for default on the government payroll and other obligations.
• The US is forecast to reach its statutory debt limit by the summer or early Autumn according to the BPC, Bipartisan Policy Centre..
• MBA weekly mortgage applications fell 13.3% this week vs -7.7% a week ago
• 30year mortgage rate rose to 6.62% from 6.39%.

South Korea – The central bank paused rate hikes revising growth outlook lower, FT reports.

• The BOK kept rates unchanged at 3.5% after raising its policy rate by three percentage points since August 2021.
• Monetary authorities revised their economic growth estimates for this year to 1.6% from 1.7% projection in November.
• The economy posted a drop in GDP in the last quarter (-0.4%qoq) marking the first negative reading in more than two years.

Japan - Reuters Tankan manufacturing sentiment index lifted slightly to -5 in February from -6 in January

Eurozone - CPI falls to 8.6% yoy in January vs 0.2% yoy in December

• Core CPI rose slightly to 5.3% yoy in January from 5.2% yoy in December

Turkey – The central bank is expected to cut rates by 50bp to 8.5% later today, according to FT.

• The decision is seen as an effort to minimise the economic impact of latest devastating earthquakes in the country.
• Business confidence rose to 102.4 in February vs 101.7 in January
• Capacity utilisation at 75.2% in February vs 75.3% in January

German - CPI 8.7% yoy in January vs 8.1% in December

• Ifo business climate index lifted to 91.1 in January vs 90.1 in December

Italy - CPI 10% in January vs 1.6% in December

France - Business confidence 104 in February vs 103 in January

UK – Inflation could fall below 2% this year according to Citi

• Citi predict that falling gas prices could support a recovery for household living standards.
• The bank sees the CPI falling to 2.3% in November.
• The forecasts might serve to persuade the Bank of England to go easy on further interest rate rises which have slowed mortgage applications and approvals.

Semiconductors – Nvidia semiconductor sales beat expectations lifting the sector in Taiwan

• The recovery in sales is earlier than market expectations indicating a pickup in manufacturing in anticipation of a recovery in consumer electronics demand

Currencies

US$1.0612/eur vs 1.0654/eur yesterday. Yen 134.85/$ vs 134.76/$. SAr 18.338/$ vs 18.363/$. $1.205/gbp vs $1.210/gbp. 0.683/aud vs 0.683/aud. CNY 6.891/$ vs 6.893/$.

Dollar Index 104.47 vs 104.09 yesterday.

Commodity News

Precious metals:

Gold US$1,828/oz vs US$1,838/oz yesterday

Gold ETFs 92.5moz vs US$92.6moz yesterday

Platinum US$953/oz vs US$944/oz yesterday

Palladium US$1,463/oz vs US$1,510/oz yesterday

Silver US$21.59/oz vs US$21.80/oz yesterday

Rhodium US$11,500/oz vs US$11,550/oz yesterday

Base metals:

Copper US$ 9,051/t vs US$9,105/t yesterday

Aluminium US$ 2,390/t vs US$2,436/t yesterday

Nickel US$ 26,155/t vs US$26,280/t yesterday

Zinc US$ 3,040/t vs US$3,071/t yesterday

Lead US$ 2,083/t vs US$2,130/t yesterday

Tin US$ 26,600/t vs US$27,295/t yesterday

Energy:

Oil US$80.9/bbl vs US$82.3/bbl yesterday

• US crude prices fell after the API reported a 9.9mb build in US crude stocks last week, which added to negative sentiment from US Fed minutes showing officials backed further rate hikes to tame inflation.
• European energy prices remain subdued with German natural gas storage falling from 75% to 71% full w/w (vs 46% 5-year average) and the EU reportedly down w/w from 69% to 63% full (vs 42% 5-year average).
• Wood Group is up over 30% in early trading after it announced that the Board has rejected three unsolicited bids from private equity firm Apollo Global Management (NYSE:APO), the most recent valuing the Company at 230p/sh (57% premium to close and slightly below the 12M high).

Natural Gas US$2.198/mmbtu vs US$1.978/mmbtu yesterday

Uranium UXC US$51.70/lb vs US$51.75/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$130.4/t vs US$129.7/t

Chinese steel rebar 25mm US$648.6/t vs US$641.9/t

Thermal coal (1st year forward cif ARA) US$144.0/t vs US$144.0/t

Thermal coal swap Australia FOB US$199.0/t vs US$197.0/t

Coking coal swap Australia FOB US$370.0/t vs US$375.0/t

Other:

Cobalt LME 3m US$34,180/t vs US$35,690/t

NdPr Rare Earth Oxide (China) US$99,544/t vs US$99,375/t

Lithium carbonate 99% (China) US$52,457/t vs US$54,040/t

China Spodumene Li2O 5%min CIF US$5,820/t vs US$5,840/t

Ferro-Manganese European Mn78% min US$1,311/t vs US$1,316/t

China Tungsten APT 88.5% FOB US$333/mtu vs US$333/mtu

China Graphite Flake -194 FOB US$845/t vs US$845/t

Europe Vanadium Pentoxide 98% 10.1/lb vs US$10.1/lb

Europe Ferro-Vanadium 80% 39.75/kg vs US$39.75/kg

China Ilmenite Concentrate TiO2 US$342/t vs US$342/t

Spot CO2 Emissions EUA Price US$101.2/t vs US$102.7/t

Brazil Potash CFR Granular Spot US$495.0/t vs US$495.0/t

Company News

Anglo American PLC (LSE:AAL) 3,002p, Mkt Cap £41bn – Results show impact of inflation, energy costs and reduced production rates

• In its 2022 results, released today, Anglo American reports lower EBITDA and attributable profits which the company ascribes to the combined effect of higher inflationary pressure and energy prices and lower production volumes.
• EBITDA of US$14.5bn was 30% below the record US$20.6bn achieved in 2021 while attributable profit of US$4.5bn was 47% lower than 2021’s US$8.6bn.
• Anglo American announces a “$0.9 billion final dividend, equal to $0.74 per share, consistent with our 40% payout policy”.
• Highlighting the commissioning of the new Quellaveco copper mine in Peru which “increases our global production base by 10%”, Chief Executive, Duncan Wanblad, commented that “As most of the world's major economies accelerate their decarbonisation efforts and as the global population increases and continues to urbanise, we aim to keep growing the value of our business into that demand”.
• PGM operations were the largest contributor EBITDA at US$4.4bn (2021 - US$7.1bn) with iron ore generating a further US$3.5bn (2021 – US$6.9bn).
• Steelmaking coal generated a further US$2.7bn (2021 – US$0.96bn) with copper operations adding a further US$2.2bn (2021 – US$4.0bn) and De Beers, which was the only major commodity group to increase its EBITDA in 2022 a further US$1.4bn (2021- US$1.1bn).
• Anglo American comments that the lower EBITDA contribution of its copper operations were “driven by a 28% increase in unit costs and a 15% decrease in realised price, despite total sales being in line with the prior year” and reiterates previous comments on the continuing impact of drought in Chile which it says were “partially offset by water management initiatives”.
• The company says that a 6% reduction in the average market price for its commodity basket reduced “underlying EBITDA by $2.2 billion” with iron ore prices 29% lower, copper 15% lower and PGMs down 8% “primarily driven by rhodium, which decreased by 20%”. These price reductions were partially “offset by steelmaking coal prices, where the weighted average price increased by 52%, and De Beers, where the realised price increased by 35%”.
• Anglo American comments that “adverse weather and planned lower grades at many of our operations contributed to a 2% production decrease on a copper equivalent basis”.
• “Extreme rainfall in Brazil, South Africa and Australia affected iron ore production at Minas-Rio and Kumba, steelmaking coal production at Capcoal and Dawson, and nickel production at Barro Alto. First copper concentrate production from our newly commissioned Quellaveco copper mine in Peru more than offset lower production at our copper operations in Chile that were due to planned lower grades at Los Bronces and Collahuasi”.
• Diamond output from De Beers rose by 7% to 34.6m carats “to meet continued strong demand for rough diamonds, particularly in the first half of the year”.
• Anglo American summarises its 2023 -2025 production guidance:
• Diamonds – 2023 30-33m carats; 2024 – 29-32m carats; & 2025 – 32-35m carats
• Copper – 2023 – 840-930,000t; 2024 – 910-1mt; & 2025 – 840-930,000t
• Nickel – 2023 – 38-40,000t; 2025 – 39-41,000t & 2025 – 37-39,000t
• PGM in concentrate – 2023 and 2024 -3.6-4.0moz; 2025 – 3.5-3.9moz
• Iron Ore -2023 – 57-61mt; 2024 – 61-65mt; & 2025 – 64-68mt
• Steelmaking Coal - 2023 – 16-19mt; 2024 and 2025 – 20-22mt
• Commenting on its capital spending plans for the next 3 years, Anglo American expects to spend US$6.0-6.5bn in 2023 including US$0.8bn on the Woodsmith polyhalite mine in UK and US$0.4bn on desalination projects at Collahuasi; with a further US$5.5-6.0bn in 2024, including US$1bn on renewable energy projects in South Africa another US$0.3bn on desalination at Collahuasi; and US$5.0-5.5bn in 2025.

Conclusion: Inflation and energy costs have taken their toll on Anglo American’s 2022 results. The PGM sector proved the largest contributor to EBITDA and diamond production from De Beers proved the only major commodity group to increase its contribution in 2022. In the future, Anglo American is looking to increase production across many of its commodities and to support global decarbonisation initiatives.

Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)* 94p, Mkt Cap £107m – 2023 production guidance for 30-32koz gold and 4.1-4.3kt copper

BUY

• The Company released 2023 production guidance this morning highlighting increasing share of copper in total output.
• 2023 guidance is estimated at 50.0-54.0koz GE (2022: 57.6koz GE) comprised of:
• 30.0-32.0koz gold (2022: 43.1koz) and;
• 4.1-4.3kt copper (2022: 2.5kt).
• $1,800/oz and $8,500/t gold and copper prices used for GE conversions.
• Gedabek processing facilities will be increasingly shifting towards treating copper rich ores with expanded flotation circuit to be supported by crushing and milling currently used for the agitation leaching.
• Flotation plant capacity is expected to be doubled this year.
• Gilar is expected to provide first ore in Q4/23.
• Development works are focused on Gilar and Zafar with only a minimal amount of ore to be sourced from the Vejnaly and Gosha mines in 2023.
• 2024 production is expected come in stronger led by the same or greater copper output helped by full year of expanded flotation circuit contribution while gold production is forecast to increase led by the contribution from Gilar.

Conclusion: 2023 production guidance is for a ~30% drop in gold and ~70% increase in copper output as operations are increasingly pivoting towards copper concentrate production. The Company is doubling capacity of the flotation circuit in anticipation of increased polymetallic feed from Gilar and Zafar replacing falling amount of ore suitable for agitation leaching. 2024 is guided to come in stronger driven by increased gold output and flat or greater production of copper.

*SP Angel acts as nomad and broker to Anglo Asian Mining

Atalaya Mining (AIM:ATYM, TSX:AYM) 348.5p, Mkt Cap £488m – PEA gives insight into the potential of the Riotinto district

• Atalaya Mining (AIM:ATYM, TSX:AYM) has released a Preliminary Economic Assessment (PEA) describing the potential to integrate the existing mining operations at Cerro Colorado and the 15mtpa processing plant with the development of the nearby San Dionisio and San Antonio deposits to deliver increased production and reduced operating costs over a potential mine life of 15.6 years.
• The findings of the PEA require further optimisation and greater definition of the inferred mineral resources which are included but they show the economic opportunity to maximise the benefits of the expansion of processing capacity of achieved in recent years at the Riotinto plant through blending higher grade material from San Dionisio and San Antonio with the existing production from Cerro Colorado.
• CEO, Alberto Lavandeira, explained that “As we progress the permitting process for San Dionisio, we shall continue to evaluate ways to further optimise the development plan for Riotinto”.
• “The PEA contemplates continued open pit mining at Cerro Colorado, but at a reduced annual rate to provide capacity for material mined from the San Dionisio and San Antonio deposits … [with San Dionisio] … using the same open pit methods, equipment and contractors as Cerro Colorado”.
• “The conceptual open pit design includes two phases, with Phase 1 containing primarily CuSW … [copper stockwork mineralisation from Cerro Colorado and San Dionisio] … mineralised material and Phase 2 containing a majority of PolyMS … [polymetallic massive sulphide] … mineralised material”. The PolyMS mineralisation “is assumed to be stockpiled until the necessary plant modifications are implemented”.
• The development plan envisages increasing annual copper output from the current 2023 guidance range of 53-55,000t to “~60 ktpa Cu during copper stockwork-only phase (2023-2026) … [and to] … ~90 ktpa CuEq during polymetallic massive sulphide phase (2027+)”.
• The plan expects to deliver reduced cash costs of around US$2/lb over the mine’s life. The most recent cost information shows cash costs for the first nine months of 2022 of US$3.26/lb and of US$3.47/lb on an all-in-sustaining basis.
• The mining of the stockwork ore is expected to incur capital expenditure of US$186m to deliver a cash cost reduction to US$2.56/lb on the increased copper output with the expenditure of an additional US$341m to add in the polymetallic material further reducing costs to the US$2.00/lb level.
• At the company’s base case commodity price assumptions of copper at US$3.50/lb with zinc at US$1.20/lb and lead at US$0.95/lb shows the total capital investment of US$566m delivering an after-tax NPV10% of US$915m.
• Sensitivity analysis included in today’s announcement shows that at higher copper prices of US$4.03/lb for copper, with unchanged zinc and lead prices, the after tax NPV10% increase to US$1.36bn. Lower metal prices of US$2.98/lb copper and unchanged zinc and lead prices reduce the after-tax NPV10% to US$470m.
• The company explains that permitting is still required to expand “the Cerro Colorado pit into the San Dionisio area, which will require the relocation of the public road, power lines and water lines that run between the two deposits, as well as the fulfilment of other regulatory matters”.
• In addition to optimisation of the plan developed for the PEA, continuing exploration at the nearby PMV and PRE projects has “the potential to become further sources of mineralised material that could be processed at Riotinto and integrated into a regional operating model”.

Conclusion: Atalaya Mining’s PEA develops a plan to use its 15mtpa plant at Riotinto to integrate production from the suite of deposits in the area to increase production, lower operating costs and extend the mine life. Further, more detailed optimisation will be needed to firm up the detail but the concept delivers an exciting future in an area where mining has been established since Roman times. We look forward to further news as the project gains momentum.

Mineral Resources Ltd (ASX:MIN) A$85, Mkt Cap A$16bn – JV Agreement with Albemarle and investment in downstream Chinese lithium assets

• MinRes and Albemarle have agreed to restructure the terms of its agreement over the MARBL JV.
• MinRes have boosted their interest in the Wodgina lithium mine to 50% and will continue to operate it.
• Albemarle will boost its interest in the first two trains of the Kemerton Lithium Hydroxide Plant from 60% to 85%.
• MinRes also announces it will acquire a 50% stake in Albemarle’s 100% owned Qinzhou and Meishan plants in China.
• Qinzhou currently has a capacity of 25kt pa and will convert Wodgina’s spodumene concentrate from early next year.
• The Meishan plant is currently under construction and is expected to produce up to 50kt pa.

Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)* 2.6p, Mkt Cap £45m – EIA Update

BUY – 17.9p

• The Company is updating on the status of the Article 16 phase of the Barroso Lithium Project permitting process in Portugal.
• The team remains on track to deliver the updated project and environmental report before the deadline date of 17 March 2023.
• The Company completed a series of meetings with APA and other authorities from the Assessment Committee to understand and incorporate recommendations and concerns of interested parties as part of the environmental permit application.
• The Company is having further discussions with local stakeholders around planned changes to be incorporated in the project design focused on the management of water resources, optimisation of infrastructure, ecology, socio-economic considerations and landscape impacts.

Conclusion: The team maintain close engagement with local stakeholders ahead of the environmental permit application that remains on track for completion before 17 March this year.

*SP Angel act as Nomad and Broker to Savannah Resources

Teck Resources Ltd (TSX:TECK.B) C$88, Mkt Cap C$45n – Spin-off of coal assets as focus shifts to copper

• Teck has spun off its metallurgical coal assets to a new entity, Elk Valley Resources, which has an EV of $11.5bn.
• Teck will be renamed Teck Metals, with a focus on copper production.
• Teck’s four copper assets currently produce 270ktpa across Canada and SA, with their Quebrada Blanca phase 2 completion set to double total capacity.
• The Company believes this will ‘enhance the strategic and financial focus of the two companies.’
• Teck sold its Canadian oil sands assets last year for US$743m as it continues its decarbonisation drive.

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

Sales

Richard Parlons –Richard.Parlons@spangel.co.uk - 0203 470 0472

Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534

Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535

Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

SP Angel

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

*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.

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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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