SP Angel . Morning View . Friday 10 03 23
China moves to subdue commodity prices as NPC sets 3% inflation target
MiFID II exempt information – see disclaimer below
First Quantum Minerals (TSX:FQM) – Cobre Panama copper mine ramping up following agreement with government on new 12-16% royalty
Power Metal Resources PLC (AIM:POW) * – Appointment of New Chief Executive Officer and update on strategy going forward.
Serabi Gold (AIM:SRB, TSX:SBI) * – Resignation of Aquiles Alegria from board
Versarien PLC (AIM:VRS, OTC:VRSRF) * – Neil Rickets resigns as ceo
Copper prices have continued to slide past $8,800/t, down 1.5% over the past two days.
- The move follows a step down in bond yields as concerns mount over a potential US recession, with US jobs claims coming in higher-than-expected.
- However, Shanghai refined inventories, which have been at 16-month highs, fell 11% overnight, pointing to a potential uptick in Chinese manufacturing demand.
- Zinc hit its lowest level in three months as inventories climbed higher.
Chinese authorities crack down on iron ore hoarding as prices jump
- Beijing officials are urging traders to sell inventories as prices climb.
- They are also reportedly moving to hike port-storage fees for more sizeable cargoes, (Bloomberg)
- Iron ore prices jumped 2.5% to $129/t, giving concerns to China’s steelmaking sector over margin compression.
- Prices have now rallied 50% since October.
- China introduced a state-owned firm last year to exercise more control over prices.
Rare Earths – lutetium – ‘Red matter’ - superconducting material discovered that could lead development of energy transmission and electronics (New Scientist)
- Researchers have developed a new superconducting material which can transmit electricity without resistance, and pass magnetic fields in an easier environment than other superconductors.
- The application of this type of material could save hundreds of MWh in transmission losses and could also serve to propel maglev trains.
- The material is formed from the mixing of lutetium, a rare earth with hydrogen and nitrogen and glows a very bright red when created hence the Reddmatter name.
- The material achieves superconductivity at 20.5C and 145,000 psi which is a lot above your average tyre pressure but is less than is required for other superconducting materials.
EV battery maker CATL sees profits soar as sales soar
- CATL’s revenue climbed 152% yoy as sales for EV batteries climbed.
- The Company now controls a 37% share of the global EV battery market.
- It dominates sales owing to its LFP batteries, which are cheaper to produce and popular with Chinese EV makers.
Dow Jones Industrials -1.66% at 32,255
Nikkei 225 -1.67% at 28,144
HK Hang Seng -3.04% at 19,320
Shanghai Composite -1.40% at 3,230
Economics
US – Risk sold off on Thursday with S&P500 and Nasdaq closing 1.8% and 2.1% lower on concerns about the value of US banks’ bond portfolios and ahead of February payrolls numbers.
- Markets suffer as rising interest rates expose leveraged investors
- SVB Financial, the holding company for Silicon Valley Bank, the 16th largest US commercial bank, collapsed 60% after an emergency $2.25bn capital raise to cover $1.8bn in losses on its $21bn bond portfolio.
- Markets look vulnerable to further shocks as Silicon Valley Bank bank collapse in California lends weight to risk-off strategy.
- To quote Warren Buffett “Only when the tide goes out do you discover who's been swimming naked”
- Every institution holding treasuries is now sitting on paper losses and will be forced to crystalise real losses if required to sell.
- Shares in JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, the our largest US lenders by assets, all fell by between 4.1% and 6.2%.
- Weekly jobless claims climbed to 211k last week coming over expectations of 192k and marking the first time in eight weeks that claims crossed the 200k mark.
- NFP report will be watched closely for the evidence on the state of the labour market as the Fed hinted that it may accelerate rate hikes.
- Earlier, Chairman Powell suggested that the central bank may need to go for higher and potentially faster interest rate increases, although, he highlighted that the debate was still underway and a decision conditional on the incoming data.
- "If - and I stress that no decision has been made on this - but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," Powell told the U.S. House of Representatives Financial Services Committee in testimony earlier in the week.
- US Trade deficit rose to $68.3bn in January vs $ 67.4bn in December
- ADP private employment change came in at 242k in February vs 119k in January
- Challenger job cuts fell to 77.7k in February vs 102.9k in January
China – Xi Jinping officially starts his third five-year term as China’s president today.
- The unanimous re-election by some 3,000 delegates completes a process started in 2018 when parliament abolished two-term limits on China’s presidents, FT writes.
- Some observers expected a higher than 5% GDP growth target a delivered by the outgoing Li Keqiang. Growing a nation the size of China at 5% would be extraordinary and we expect reality to be a lesser number.
- There is nothing conservative about a 5% GDP growth target in our view and given the tough start to 2023 with the nation emerging from Covid we would expect to see much stronger commodity imports for a nation ramping up to meet this level of real growth through 2023.
- This would also fly in the face of China 3% inflation target. No way does China grow at 5% while holding inflation back at 3% in the current global environment in our view, commodity prices will surely drive inflation higher if China achieves this growth rate.
- CPI fell 0.5% in January vs 0.8% in December and 1.1% yoy in January vs 2.1% in December
- PPI rose to 1.4% in January vs -0.8% in December
Japan – Governor Haruhiko Kuroda left the policy unchanged at his last meeting as head of the central bank.
- The BOJ kept overnight interest rates on hold at -0.1% and reiterated its goal to keep 1- year bond yields within the 1.0pp band of the 0% target.
- Kuroda is due to be replaced by economist Kazuo Ueda who will be taking over on April 9 and is expected to go on a gradual normalisation of interest rates.
- Incoming Governor highlighted that the central bank will be in no rush to change the ultra-loose monetary stsance arguing that future decisions would be based on the strength of inflationary pressures.
- Eco Watchers outlook survey climbed to 50.8 in February vs 49.3 in January
- Retail sales fell 0.3% in February vs -5.3% in January and -6.9% yoy in February and -6.4% yoy in January
- Q4 GDP rose to 0% vs -0.3% in Q3 and 0.1% annualised in Q4 vs -1.1% annualised in Q3
EU – Q4 GDP remained at 0.4% but fell to 1.8% yoy in Q4 vs 2.4% yoy in Q3
UK – The economy recorded a larger than expected increase in January driven by growth in the services sector.
- GDP was up 0.3%mom in January following a 0.5% contraction in the previous month.
- Services were helped by growth in education, transport, and storage as well as healthcare.
- The economy
- was still 0.2% below its pre pandemic Feb/20 level.
Peru - Copper export port hubs reopening after protests
Currencies
US$1.0587/eur vs 1.0544/eur yesterday. Yen 136.36/$ vs 137.59/$. SAr 18.473/$ vs 18.618/$. $1.194/gbp vs $1.183/gbp. 0.658/aud vs 0.660/aud. CNY 6.964/$ vs 6.970/$.
Dollar Index 105.32 vs 105.73 yesterday.
Commodity News
Precious metals:
Gold US$1,835/oz vs US$1,817/oz yesterday
Gold ETFs 91.8moz vs US$91.9moz yesterday
Platinum US$939/oz vs US$942/oz yesterday
Palladium US$1,377/oz vs US$1,368/oz yesterday
Silver US$20.10/oz vs US$20.09/oz yesterday
Rhodium US$9,700/oz vs US$9,850/oz yesterday
Base metals:
Copper US$ 8,769/t vs US$8,839/t yesterday
Aluminium US$ 2,297/t vs US$2,339/t yesterday
Nickel US$ 22,855/t vs US$23,765/t yesterday
Zinc US$ 2,915/t vs US$2,963/t yesterday
Lead US$ 2,066/t vs US$2,079/t yesterday
Tin US$ 22,885/t vs US$23,105/t yesterday
Energy:
Oil US$81.0/bbl vs US$82.8/bbl yesterday
- Crude oil prices fell yesterday even as Trafigura reportedly said it expects Brent to hit $90/bbl a barrel by mid-year as China’s demand rebounds and Russia’s supply declines.
- The US EIA storage report detailed a draw of 84bcf to 2,030bcf last week, in line with consensus forecasts, with storage levels now 32.1% above last year and 21.5% above the 5-year average (top of range).
- All three trains at the 2.1bcf/d Freeport LNG facility have now restarted, with the EIA forecasting that US LNG exports will increase 14% (1.5bcf/d) y/y to average 12.1bcf/d in 2023, and to grow by an additional 5% in 2024.
Natural Gas US$2.496/mmbtu vs US$2.608/mmbtu yesterday
Uranium UXC US$51.10/lb vs US$51.15/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$129.9/t vs US$126.3/t
Chinese steel rebar 25mm US$646.5/t vs US$640.7/t
Thermal coal (1st year forward cif ARA) US$128.5/t vs US$128.5/t
Thermal coal swap Australia FOB US$187.0/t vs US$182.0/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$89,200/t vs US$89,687/t
Lithium carbonate 99% (China) US$41,009/t vs US$42,404/t
China Spodumene Li2O 5%min CIF US$5,110/t vs US$5,110/t
Ferro-Manganese European Mn78% min US$1,308/t vs US$1,304/t
China Tungsten APT 88.5% FOB US$330/mtu vs US$330/mtu
China Graphite Flake -194 FOB US$790/t vs US$790/t
Europe Vanadium Pentoxide 98% 10.2/lb vs US$10.2/lb
Europe Ferro-Vanadium 80% 41.25/kg vs US$41.25/kg
China Ilmenite Concentrate TiO2 US$340/t vs US$339/t
Spot CO2 Emissions EUA Price US$100.2/t vs US$98.3/t
Brazil Potash CFR Granular Spot US$480.0/t vs US$480.0/t
Company News
First Quantum Minerals (TSX:FQM) – C$27.5, Mkt cap C$19bn – Cobre Panama copper mine ramping up following agreement with government on new 12-16% royalty
- First Quantum Minerals (TSX:FQM) is ramping up production at Cobre Panama after settling outstanding tax issues with the government.
- The new agreement works off a royalty of 12-16% on profitability with a minimum annual income of $375m to the Panamá government effective for 20 years.
- The parties have agreed downside protection to the annual minimum contribution if:
- The copper price falls below $3.25/lb until the end of 2025.
- A total tax contribution for 2026 of less than $300 million from 2026 and beyond.
- Royalty rates will vary with operating margins, with over 50% margin seeing an effective royalty rate of 16%.
- FQM’s CEO, Pascall, notes that the Company ‘looks forward to a long and constructive partnership with the Government of Panamá for many years to come.’
Power Metal Resources PLC (AIM:POW) * 0.9p, Mkt cap £16m – Appointment of New Chief Executive Officer and update on strategy going forward.
- Power Metal Resources provides an update on its portfolio of projects and its change in leadership
- The Company has appointed Sean Wade to take over the reins from Paul Johnson as CEO.
- Sean has a proven managerial track record in the natural resources sector with companies including Berkeley Energia, Pensana and Asia Resource Minerals.
- He comes from a background of capital markets, including Cazenove & Co and Liberum.
- Paul Johnson will step down both as CEO and from the Board on the 17th March to focus on certain critical family health matters.
- Paul comments that he will ‘take great pride in watching Power Metal take its rightful place amongst the leaders’ in the sector.
- Sean comments that Power Metal ‘has an excellent resource asset set that is yet to be recognised by the wider market.’
- Going forward, the Company will continue to execute its strategy of gaining value through spin-out IPOs whilst developing through exploration and resource definition.
- Power Metal notes that Golden Metal Resources, in which it holds an 83.13% interest, has completed pre-IPO preparations, with IPO financing currently underway.
- Golden Metal Resources holds the Pilot Mountain project, the USA’s largest known tungsten resource estimate, alongside Golconda Summit, which holds prospective Carlin-style gold mineralisation.
- First Development Resources, in which Power Metal holds a 58% interest, holds the Wallal project in the Paterson region of Western Australia.
- FDR is also moving towards IPO, with pre-listing and financing set to begin shortly.
- Power Metal is also looking to list its Uranium Energy Exploration spin-off, which holds two uranium properties in the Athabasca Basin.
- Similarly, Power is exploring options for listing its JV New Ballarat Gold Corp, which holds large licence packages over historic working mines in the Victoria Goldfields of Australia.
Conclusion: Paul has been the primary driver behind Power Metal’s incubation and development of an exciting global portfolio of prospective and strategic assets and will remain well involved with the Company as its largest shareholder. We wish him the best. We look forward to following the Company’s continued development under Sean and the team’s efforts to generate value from Power Metal’s wide range of assets.
*SP Angel acts as Nomad and Broker for Power Metal Resources
Serabi Gold (AIM:SRB, TSX:SBI) * 30.1p, Mkt Cap £22.8m – Resignation of Aquiles Alegria from board
- Serabi Gold (AIM:SRB, TSX:SBI) report the resignation of Mr Aquiles Alegria who is standing down from the Board with immediate effect.
- Mr Aquiles Alegria has served as a Director of Serabi since July 2014 giving him a near 10-year tenure.
- Aquiles has contributed knowledge and support to Serabi’s exploration teams and will continue to be available to support the Company.
- Mr Algeria is a professional geologist and formerly was deputy manager at Antofagasta
- Serabi reported gold of 7,798oz in Q4 bringing full-year production to 31,819oz, ahead of 30,000oz guidance.
- The company processed ~172,000t of ore grading 6.14g/t from the Palito and Sao Chico mines in the Amazon, Brazil.
*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil
Versarien PLC (AIM:VRS, OTC:VRSRF) * 3.4p, Mkt Cap £7.2m – Neil Rickets resigns as CEO
- Versarien reports the resignation of Neil Rickets as CEO of Versarien.
- “The executive directors will continue to manage the Company supported by the non-executive directors.
- The Board is considering the appropriate longer term management structure of the Company and further announcements will be made in due course, as appropriate.”
*SP Angel acts as Nomad and Broker to Versarien
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
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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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