SP Angel . Morning View . Friday 03 03 23
Higher oil prices on China PMI data cause base metals to take profits
MiFID II exempt information – see disclaimer below
Conroy Gold and Natural Resources PLC (AIM:CGNR, OTC:CGDNF) – New gold target discovered in Co. Monaghan
CVE:MLP – Oversubscribed C$3.6m raise for Gabon potash project
Azerbaijan -
- We have just returned from Azerbaijan which has seen a substantial and impressive transformation over the past 20 years helped by the wealth of its mineral resources and the industry of its people.
- We travelled across the nation from Baku to Ganja and Gedabek and fully recommend the train from Ganja to Baku.
- The government is stable, the streets are safe and there are no obvious signs of homeless deprivation.
- Azerbaijan is geopolitically strategic sharing borders with Georgia, Armenia, Russia and Iran.
- The Iranian leadership looks precarious with news today of religious zealots causing the mass poisoning of schoolgirls – this will further inflame public anger against the regime.
- Russia is fairly fully occupied with Ukraine and Armenia has been forced to give back land it invaded in the 1990s with so-called Russian peacekeepers in place.
- Azerbaijan has proven to be supportive and highly prospective for exploration and mining over the past 20 years.
- As the world around Azerbaijan changes we expect the nation to play a quietly important role in the reshaping of surrounding regions as their political regimes transition.
Higher oil prices on China PMI data cause base metals to take profits
- We expect the rise in Chinese PMI data to push oil prices higher and support higher-than-normal inflation in the West for longer.
- The effect will be to keep US interest rates higher for longer and possibly to cause the Fed to raise rates further than previously anticipated.
- Inflation is also being driven by a shortage of labour in the US and elsewhere in the world post the Covid ‘Great Resignation’ – which is not just about older people retiring.
- Inflation is now expected to persist for longer and to be more difficult to control despite recent gains.
- The US dollar pared gains after a recent rally despite the oil price move suggesting US growth will be stunted by higher Fed rates.
Gold enjoys upward momentum following calmer US Treasury yield volatility
- Gold prices are set to enjoy their best week since January as the dollar weakened from recent highs and US Treasury yields paused their march higher.
- Gold prices have climbed over 1.5% to $1,840/oz this week, having fallen over $100/oz through February.
- US 10 yr Treasury yields have paused around 4%, following a major sell-off in bonds, with stability providing gold with some respite.
- Yields and gold have traditionally enjoyed an inverse relationship.
- Analysts expect central bank demand to remain strong as geopolitical tensions remain heightened.
Copper prices hold over $9,000/t as inventories in China slide and smelting activity ramps up
- Copper prices have strengthened following a series of positive Chinese economic indicators.
- Strong PMI data earlier in the week has bolstered optimism in the lead up to this weekend’s National Congress Meeting, where economic stimulus plans are outlined for the coming years.
- Marex reports that copper-smelter production hit a record high in February, based on satellite data.
- Industrial activity traditionally remains muted following the Lunar New Year, however analysts note an uptick in activity, providing bullish sentiment to base metals.
- Shanghai Copper inventories fell for the first time in 2023, falling 4.6% this week.
Baltic dry index climbs to two-month high as iron ore and coal demand pick up
- The Baltic dry index, which tracks rates for dry bulking shipping cargoes used to transport primarily coal and iron ore, has hit its highest level since Jan.5th.
- Daily earnings climbed $600 for 150kt cargoes.
- Dalian coking coal futures hit an 8-month high yesterday following the tragic mine collapse in Inner Mongolia triggering concerns over domestic supply.
Tesla looks to ramp up lithium refining investments with ‘Master Plan 3’
- Tesla is looking to ramp up the Corpus Christi lithium refinery, with expected production for the end of this year.
- Tesla is set to invest $365m into its Corpus Christi lithium plant in Texas, aiming for battery-grade lithium production within 12 months.
- Musk noted that ‘no country has a monopoly on lithium, or even close to it,’ stating that ‘if the US was the only place producing lithium, there’s enough domestic material to electrify earth.’
Dow Jones Industrials +1.05% at - 33,004
Nikkei 225 +1.56% at 27,927
HK Hang Seng +0.78% at 20,590
Shanghai Composite +0.54% at 3,328
Economics
US – Equity indices closed higher yesterday on the back of Atlanta Fed President Raphael Bostic (non voting FOMC member) comments supporting “slow and steady” 0.25pp rate hikes.
- A quarter point US rate increases should limit risk to economy, Bostic said.
- Meanwhile, a drop in jobless claims reported for last week continues to point to tight labour market conditions.
- Applications for unemployment benefits dropped 2k to 190k for the week ended February 25 marking the seventh consecutive week that claims remained below 200k.
- NFPs are due Friday next week to give enough time to collect the data after a short February month.
- The consensus is for a 195k reading with a range of 150-215k.
- Final US Q4 unit labour costs were 3.2% vs 2% in Q3
- Nonfarm productivity rose to 1.7% vs 1.4%
China – Services sector expanded at the fastest pace in six months in February reflecting a lifting of Covid related restrictions.
- The Caixin/S&P Global services PMI climbed to 55.0 from 52.9 in January.
- The report follows a positive reading from the manufacturing industry earlier in the week and tallies with an official services PMI.
- "The economy has entered a post-COVID recovery, with services activity showing signs of a stronger recovery than the manufacturing sector," Caixin wrote.
- New orders, an indicator of demand outlook, posted the strongest increase since April 2021 while new export orders growth climbed to the highest in almost four years.
- Stronger demand led employment higher with services firms adding new staff at the sharpest pace since Nov/20 as spending and travel got a boost.
- China is becoming increasingly ambitious with its 2023 economic growth target aiming potentially as high as 6% building on a post pandemic recovery, Reuters reports.
National People’s Congress meets on Sunday to start 10-day meeting
- A mass change in the leadership is expected to retire many of the leaders who have helped steer China through the past five years of turmoil.
- President Xi is expected to consolidate his control and sweep away other factions from within the state.
- The move is expected to herald greater state influence in non-state companies.
- The official GDP target is expected to be reset at 5 - 6%.
South Korea - Manufacturing PMI steady at 48.5 in February
- Industrial production rose 2.9% in January vs -3.1% in December and -12.7% yoy in January vs -10.5% yoy in December
Singapore - Manufacturing PMI 50.0 in February vs 49.8 in January. Singapore is a barometer of trade between China and the rest of the world.
UK - Services PMI rose to in February vs 48.6 in January marking their strongest performance since last June
- Lower energy prices, fading recession fears, falling inflation and Covid funds washing around the economy are providing support.
- Low unemployment and a strong jobs market are helping to drive the recovery
Currencies
US$1.0621/eur vs 1.0630/eur yesterday. Yen 136.23/$ vs 136.64/$. SAr 18.132/$ vs 18.196/$. $1.198/gbp vs $1.196/gbp. 0.676/aud vs 0.673/aud. CNY 6.899/$ vs 6.913/$.
Dollar Index 104.77 vs 104.78 yesterday.
Commodity News
LME to face UK regulator probe following nickel crisis
- The UK market watchdog has opened an investigation into the LME, appointing an independent monitor following a review.
- The exchange has been called to improve risk management after the LME nickel price climbed 250% amid a short squeeze involving Chinese nickel tycoon ‘Big Shot.’
- The LME is currently being sued by Elliot and Jane Street over the trading action.
Precious metals:
Gold US$1,845/oz vs US$1,831/oz yesterday
Gold ETFs 92.5moz vs US$92.6moz yesterday
Platinum US$969/oz vs US$952/oz yesterday
Palladium US$1,456/oz vs US$1,425/oz yesterday
Silver US$21.06/oz vs US$20.81/oz yesterday
Rhodium US$9,850/oz vs US$9,400/oz yesterday
Base metals:
Copper US$ 8,990/t vs US$9,059/t yesterday
Aluminium US$ 2,417/t vs US$2,431/t yesterday
Nickel US$ 24,300/t vs US$24,815/t yesterday
Zinc US$ 3,054/t vs US$3,109/t yesterday
Lead US$ 2,128/t vs US$2,120/t yesterday
Tin US$ 24,300/t vs US$25,000/t yesterday
Energy:
Oil US$84.7/bbl vs US$84.2/bbl yesterday
- Crude oil prices were broadly unchanged with the Kommersant reporting that Russia’s total oil liquids average February production was down 0.03mb/d y/y to 11.05mb/d, little changed from pre-war levels. Russia plans to cut oil production this month by 0.5mb/d, or ~5% of crude oil production, in retaliation for Western sanctions.
- Spot European energy prices are currently trading at the equivalent of $79/bbl in the UK and $73/bbl on the mainland, materially below the price of Brent but still significantly higher than the $16/bbl price of US HH gas.
- The US EIA storage report detailed a draw of 81bcf to 2,114bcf last week, in line with consensus forecasts, with storage levels now 27.1% above last year and 19.3% above the 5-year average (top of range).
- Statoil announced the $850m acquisition of acquisition of Suncor’s UK assets, consisting of 15kbo/d net production on the Buzzard field (29.89% WI) and Rosebank undeveloped discovery (40% WI), with $250m contingent upon a final investment decision for Rosebank that is expected later this year.
- Two new M&A deals in the UK renewables sector with RWE (ETR:RWE) acquiring JBM Solar, which has a 6.1GW development pipeline, and INPEX acquiring a 16.7% stake in the 950MW Moray East Offshore Wind Farm.
Natural Gas US$2.818/mmbtu vs US$2.772/mmbtu yesterday
Uranium UXC US$50.45/lb vs US$50.70/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$126.4/t vs US$126.2/t
Chinese steel rebar 25mm US$645.2/t vs US$641.4/t
Thermal coal (1st year forward cif ARA) US$155.0/t vs US$156.0/t
Thermal coal swap Australia FOB US$197.0/t vs US$197.0/t
Coking coal swap Australia FOB US$340.0/t vs US$340.0/t
Other:
Cobalt LME 3m US$34,180/t vs US$34,180/t
NdPr Rare Earth Oxide (China) US$96,037/t vs US$97,792/t
Lithium carbonate 99% (China) US$46,750/t vs US$47,088/t
China Spodumene Li2O 5%min CIF US$5,580/t vs US$5,750/t
Ferro-Manganese European Mn78% min US$1,312/t vs US$1,313/t
China Tungsten APT 88.5% FOB US$331/mtu vs US$331/mtu
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 10.1/lb vs US$10.1/lb
Europe Ferro-Vanadium 80% 40.75/kg vs US$40.75/kg
China Ilmenite Concentrate TiO2 US$343/t vs US$342/t
Spot CO2 Emissions EUA Price US$102.6/t vs US$102.7/t
Brazil Potash CFR Granular Spot US$480.0/t vs US$480.0/t
Company News
Conroy Gold and Natural Resources PLC (AIM:CGNR, OTC:CGDNF) 19.8p, Mkt Cap £8.7m – New gold target discovered in Co. Monaghan
- Conroy reports a new gold target in County Monaghan.
- Combined with Conroy’s discovery announced in County Armagh in February, the Company has identified a second gold trend in the Longford-Down Massif.
- Gold-in-soil sampling yielded values over 10ppb Au across 1.5km by 1.1km in area, with similar results in the Longford-Down Massif pointing to gold-in-bedrock associations.
- The Co Monaghan area had previously returned gold-in-soil anomalies of up to 170ppb Au.
- Both the County Monaghan results and the quartz breccia samples in County Armagh, which yielded up to 123g/t Au, are considered to lie along the Skullmartin Fault Zone.
- The trend along the Skullmartin Fault Zone connects the Monaghan and Armagh discoveries together, the Company believes.
- The Company has applied for an additional five prospecting licences along the same trend.
CVE:MLP C$0.50, Mkt Cap C$19.5m – Oversubscribed C$3.6m raise for Gabon potash project
- Millennial has raised C$3,951,500 via an issue of common shares and warrants.
- The Company notes an oversubscribed placing demand, highlighting sustained demand for potash projects.
- The funds raised are intended to fund exploration efforts at the Company’s Banio Potash Project in Gabon.
- Millennial is aiming to complete its initial drill programme and deliver a resource estimate in the first half of this year, followed by seismic surveys, lab testwork, drilling and resource estimate upgrades by the end of 2023.
- It hopes to deliver a PEA by H2-23.
- The deposit is hosted by sedimentary evaporite rocks of the Congo Basin extending from Angola to Gabon that also hosts such projects as Kola, Dougou and Kanga in the Republic of Congo among others.
- The Company is led by a team with a good track record of successful M&A transactions in both potash (C$170m sale of Allana Potash, C$430m sale of Potash One (TSX:KCL)), lithium (C$490m sale of Millennial Lithium (TSX-V:ML)) and uranium sectors ($1.8B sale of Energy Metals).
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
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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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