SP Angel . Morning View . Friday 04 02 22
Copper and nickel press ahead despite rate rises
PRIVATE FUNDING – We are raising funds for a Rare Earth Phosphate deposit in the US with up to 28% P2O5 in the raw ore.
Please let us know if you wish to take part in this funding
*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.
Galantas Gold (Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTC:GALKF)) – Closing of US$1.06m loan for Omagh project
KEFI Gold and Copper* (KEFI Gold and Copper PLC (AIM:KEFI)) – Tulu Kapi Project update
Red Rock Resources (Red Rock Resources PLC (AIM:RRR)) – Drilling results expected soon from Kenya, DRC and Australian projects
Tesoro Resources (TSO AU) – Further drilling at Ternera extends known mineralisation
IGTV: IG Outlook 2022, China new year, winter Olympics may see metals prices soften: (12/01/2022): https://youtu.be/vNqDh74zW5I
VOX Markets: 12/01/22: https://audioboom.com/posts/8011559-john-meyer-on-china-s-factory-shut-downs-plus-news-from-bluejay-beowulf-atlantic-lithium
*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts.
We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.
Russia and China – an unholy alliance – from a commodity perspective
Russia and China have never been easy bedfellows with the histories of the development of their regimes following parallel paths but with significant differences.
We now see Russia supplying China with natural gas at preferential rates while it ramps up prices into Europe, stoking inflation and pressurising the EU in many ways.
China is enjoying the benefits of its newly cemented alliance as Russia punishes the West for NATO encroachment.
This is helping China reduce inflation and is giving China further economic advantage over its competitors and trading partners.
For the west it’s like two fat kids blocking the entrance to the tuck shop and then charging a premium for access to the sweets therein.
2021 sees both metals imports and exports boom in China
China imported double its refined nickel volumes at 261kt in 2021 yoy.(Reuters)
China’s appetite for battery grade nickel saw nickel sulphate imports rise from 5.6kt in 2020 to 44.7kt in 2021.
Imports of refined copper fell 25% to 3.3mt but remain strong on a bumper 2020 year.
Scrap copper imports jumped 80% in 2021 to 1.7mt on a policy change to higher-grade recyclable material imports.
Refined zinc imports fell 16% to 429kt – lowest since 2016.
However, domestic Chinese zinc production hit a record high of 6.56mt in 2021.
China lead exports at their highest since 2007 at 95kt.- 37kt to the US in Oct. and Nov.
China tin exports hit their highest since 2007 at 14,320 having imported 13,200t in 2020.
Gold climbs following volatile trading as focus turns to today’s US jobs data
Gold climbed 0.2% this morning to $1,809/oz having touched $1,789/oz yesterday on rising US Treasury yields.
US 10-year yields have been trading around 1.87%, reducing gold’s appeal.
Gold has been supported by a weakening US dollar, notably against the euro which rallied on a more hawkish announcement from the ECB and its rate hike schedule.
The dollar is headed for its worst week in 2 years.
The White House has warned that today’s non-farm payroll data will come in weaker than previous months on Omicron’s impact – expected to further hit the dollar.
The metal is also being supported by increasing geopolitical tension between the Russia and Ukraine and extreme market volatility in major tech stocks
Copper gains on weak dollar and falling inventories
Copper rose 0.4% to $9,879/t, headed for a >3% gain this week.
The metal appreciates on a weaker dollar, which is headed for its worst week in 2 years.
Trading remains thin on China’s Lunar New Year holiday.
LME stocks remain down 60% from Aug. 2021 highs to 82,400t.
Smelting activity in China hit a 13-month peak in January, with inactive smelters levels at their lowest since Feb. 2018. (Marex)
Lithium – Short seller hits Standard Lithium with allegations over extraction technology
Hindenburg Research have produced a critical report on the technology of Standard Lithium (Mkt cap C$1.1bn).
Standard Lithium have described the short report as "false and misleading."
Previously, a report by ‘Blue Orca’ claimed the actual recovery rate from the company’s Arkansas facility was magnitudes lower than company claims.
Standard Lithium claims this report is full of inaccuracies and misunderstandings.
We note that Standard Lithium is using a “a novel osmotically assisted High Pressure Reverse Osmosis (HPRO) unit to concentrate the LiCl solution prior to carbonation.”
They say “This HPRO unit was successfully integrated into the plant and has been operating according to design criteria since September 2021 and consistently producing LiCl solutions containing approximately 7,000 mg/L lithium.”
We are not going to give any opinion on Standard Lithium or its processes.
However, we are not aware of any lithium company that has proven DLE ‘Direct Lithium Extraction’ technology in anything other than pilot scale to date.
We note SQM and Albemarle extract lithium after the concentration of already high-grade brines in the Atacama in Chile in a process which is sensitive to the chemistry of the brines and their concentrate.
While we can see DLE works in process plants in certain circumstances but we suspect there are still be significant issues to overcome before DLE sees commercial reality.
This is down to the chemistry, consistency and concentration of the lithium-bearing brines input into the process.
Rio Tinto’s proposed $825m acquisition of Rincon is interesting and if completed Rios will throw significant hydrometallurgical expertise at the project to raise production rates.
We are hopeful that certain projects have sufficiently clean chemistry to enable DLE commercialisation but in the meantime we continue to favour hard-rock spodumene pegmatites as the preferred source for lithium ores and concentrate feedstock.
Dow Jones Industrials -1.45% at 35,111
Nikkei 225 +0.73% at 27,440
HK Hang Seng +3.23% at 24,571
Shanghai Composite CLOSED at 3,361
Economics
Chinese markets are closed for the Lunar New Year holiday
JP Morgan composite service 51.3 in January vs 54.7 in December
Composite 51.4 in January vs 54.3 in December
China - Shenzhen 2nd hand home sales hit decade-low as Beijing liquidity intervention continues to hit property sector
January 2nd hand home sales in Shenzhen, China’s tech hub, fell to 1,577 units – its lowest level in a decade.
Land sales continued to weaken despite Beijing’s efforts to increase liquidity accessible to developers with looser lending policies.
Major developers continue to struggle with the current market environment, with Shimao, rated investment grade by Fitch last year, forced to offer its prize Hong Kong assets at fire sale prices.
Chinese state-backed firms continue to accumulate distressed developers’ assets.
Nonmanufacturing PMI 51.1 in January vs 52.7 in December
Composite 51.0 (52.2),
US – Meta Platforms Inc (NASDAQ:FB). (Facebook) lose $251bn in a day as US tech stocks rerate lower
Amazon has provided the Nasdaq with a lifeline, with its earnings beat pushing the index futures up 1.7%.
A rate hike from the Bank of England to 0.5% and the ECB pivoting to potentially hiking rates this year to tackle inflation has provided an additional headwind to growth stocks currently struggling under the Fed’s accelerated rate hike programme beginning next month.
Facebook/Meta crashed 26% yesterday causing the Nasdaq to endure its worst day in 17 months. Snap fell 23.6% in market hours but is up 49% pre-market.
US technology stocks are under pressure as the prospects for further US interest rate rises are driven by .
ISM nonmanufacturing 59.9 in January vs 62.3 which was revised lower from 67.6
Weekly jobless claims rose to 238k from 261k,
ADP private employment fell 301k in January vs 776k in December
Factory orders fell 0.4% in December vs 1.6% in November
Factory orders ex transport rose 0.1% in December vs 0.8% in November
US Markit service 51.2 in January vs 57.6 in December
composite 51.1 in January vs 57.0 in December
ECB – Europe - ECB resists pressure to raise rates from 0%.
The Governing Council agreed not to exclude the possibility of an interest hike this year, Bloomberg cites people familiar with discussions.
President Christine Lagarde dropped her previous stance that a rate hike was very unlikely this year during the most meeting press conference highlighting more persistent than expected inflation pressures.
“Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term,” Lagarde said.
The Governing Council reiterated that it will slow bond buying through 2022 and end asset purchases entirely before raising borrowing costs.
The Euro jumped ~1.4% against the US$ on the announcement.
Money markets are pricing in a 30bp tightening by year end.
Nonmanufacturing PMI 51.1 in January vs 53.1 in December
Composite 52.3 in January vs 53.3 in December
Germany – Factory orders climbed more than expected in December with domestic demand leading charge.
Business surveys recently highlighted an easing of the bottlenecks that weighed on factory output suggesting a strong rebound in production may follow later in the year.
German economy registered a 0.7%qoq drop in Q4/21 on supply chain challenges and Covid-19 restrictions.
Factory Orders (%mom): 2.8 v 3.6 (revised from 3.7) in November and 0.3 est.
Factory Orders (%yoy): 5.5 v 2.3 (revised from 1.3) in November and 3.0 est.
UK – BoE raises official rate 0.25% to 0.5% warning households are facing the worst squeeze in their disposable incomes for at least 30 years
BoE estimates the real income to fall 2% in 2022 amid high inflation (7.5%) and an increase in taxes.
The economy is forecast to grow 3.75% this year marking a downward revision from 5% estimated previously.
Unemployment is expected to rise from a low of 3.8% to 5%.
Market rates are pricing in further rate hikes this year to at least 1% by May and 1.5% by November.
To address rising costs of living Chancellor Rishi Sunak announced a ~£9bn programme including a £150 rebated on council tax (~£3.6bn) as well as a £200 discount to power bills in October (~£5.5bn) that are expected to be recouped over the next five years at £40pa.
A typical and gas annual bill is expected to rise >50% to almost £2,000 in April when charge caps will be reviewed.
Nonmanufacturing PMI 54.1 in January vs 53.6 in December
Composite 54.2 in January vs 53.6 in December
Peru – Copper output rises 6.9% in 2021
Peru’s Ministry of Energy and Mines reports that total copper output for the year rose 6.9% to 2.3mt.
Gold output rose 9.7%.
MINEM also reported an increase in production of zinc (14.8%), silver (21.5%), lead (9.3%), iron (36.6%), and molybdenum (6.1%).
Chile – Vote to scrap water rights for mines and farms approved
A proposal to annul water rights granted to Chile’s private sector was approved in an initial vote by an environmental committee.
The plan would require mines and farms to seek permits to use water in a new model that prioritises human consumption.
The proposal still requires subsequent approval by two-thirds majority of the full assembly before becoming part of a draft charter that will go to a referendum in H2 22.
Japan - nonmanufacturing PMI 47.6 in January vs 52.1 in December
Composite 49.9 in January vs 52.1 in December
Germany - nonmanufacturing PMI 52.2 in January vs 48.7 in December
Composite 50.3 in January vs 50.2 in December
France - nonmanufacturing PMI 53.1 in January vs 57.0 in December
Composite 52.7 in January vs 55.8 in December
India - nonmanufacturing PMI 51.5 in January vs 55.5 in December
Composite 53.0 in January vs 56.4 in December
Brazil - nonmanufacturing PMI 52.8 in January vs 53.6 in December
Composite 50.9 in January vs 52.0 in December
Russia - nonmanufacturing PMI 49.8 in January vs 49.5 in December
Composite 50.3 in January vs 50.2 in December
Currencies
US$1.1444/eur vs 1.1293/eur yesterday. Yen 115.11/$ vs 114.68/$. SAr 15.263/$ vs 15.360/$. $1.358/gbp vs $1.355/gbp. 0.711/aud vs 0.713/aud. CNY 6.361/$ vs 6.361/$.
Commodity News
Precious metals:
Gold US$1,809/oz vs US$1,803/oz yesterday
Gold ETFs 99.3moz vs US$99.3moz yesterday
Platinum US$1,037/oz vs US$1,038/oz yesterday
Palladium US$2,360/oz vs US$2,380/oz yesterday
Silver US$22.55/oz vs US$22.54/oz yesterday
Rhodium US$16,850/oz vs US$16,850/oz yesterday
Base metals:
Copper US$ 9,879/t vs US$9,822/t yesterday
Aluminium US$ 3,063/t vs US$3,005/t yesterday
Nickel US$ 22,805/t vs US$22,745/t yesterday
Zinc US$ 3,619/t vs US$3,611/t yesterday
Lead US$ 2,217/t vs US$2,232/t yesterday
Tin US$ 43,010/t vs US$43,150/t yesterday
Energy:
Oil US$91.6/bbl vs US$89.3/bbl yesterday
Both Brent crude and WTI are trading above US$90/bbl extending this weeks’ gains as cold weather swept across large parts of the US, threatening to further disrupt oil supplies
A massive winter storm swept across the central and Northeast US yesterday where it was delivering heavy snow and ice, making travel treacherous if not impossible, knocking out power to thousands and closing schools in several states
Tight oil supplies pushed the six-month market structure for WTI into steep backwardation of US$8.08/bbl this morning
Backwardation occurs when prices for prompt spot trade are at a premium to future prices, and usually encourages traders to take oil out of storage
Elsewhere, OPEC+ has stuck to its target of monthly increases of 400,000bopd and blamed surging prices on the failure of consuming nations to ensure adequate investment in fossil fuels as they shift to greener energy
In addition, the group suggested that prices had been pushed up by Russia-US tensions
OPEC+ produces over 40% of global supply and has faced pressure from top consumers such as the US and India to increase output to facilitate economic recovery from the pandemic
However, the group has refused to adhere to speedier increases arguing that the world is facing an energy shortage due to poorly calculated energy transitions to greener fuels by consuming nations
Several OPEC members have struggled to pump even in line with their quotas due to under-investments of the past few years
It said it expected demand to rise to pre-pandemic levels in the second half of the year
Oil demand reached its peak of slightly above 100MMbopd in 2019
A number of risks continue to linger over the oil market, including uncertainties associated with the potential impact of the Omicron coronavirus variant, ongoing supply chain bottlenecks and central bank policy to counter inflation
Natural Gas US$4.940/mmbtu vs US$5.228/mmbtu yesterday
Similar fundamentals are pushing US natural gas futures as many parts of the US ramped up demand for heating and electricity
Natural gas prices rising as demand is expected to be high and very high through the weekend due to a winter storm with below-freezing temperatures that is spreading out of the US Midwest south to north Texas
Freezing temperatures and snow and sleet are expected to hit north Texas this week and test the electric grid following last year’s deadly deep freeze that left millions of Texans without electricity for days and led to the largest ever decline in oil production as wells froze
Uranium UXC US$44.00/lb vs $43.80/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$144.0/t vs US$139.4/t
Chinese steel rebar 25mm US$751.3/t vs US$751.3/t
Thermal coal (1st year forward cif ARA) US$113.5/t vs US$114.5/t
Thermal coal swap Australia FOB US$195.0/t vs US$194.0/t
Coking coal swap Australia FOB US$410.0/t vs US$408.0/t
Other:
Cobalt LME 3m US$71,000/t vs US$71,000/t
NdPr Rare Earth Oxide (China) US$150,129/t vs US$150,129/t
Lithium carbonate 99% (China) US$56,986/t vs US$56,986/t
China Spodumene Li2O 5%min CIF US$2,710/t vs US$2,710/t
Ferro-Manganese European Mn78% min US$1,825/t vs US$1,801/t
China Tungsten APT 88.5% FOB US$320/t vs US$320/t
China Graphite Flake -194 FOB US$805/t vs US$805/t
Europe Vanadium Pentoxide 98% 9.7/lb vs US$9.7/lb
Europe Ferro-Vanadium 80% $39.25/kg vs US$39.25/kg
China Ilmenite Concentrate TiO2 US$391/t vs US$391/t
Spot CO2 Emissions EUA Price US$104.3/t vsUS$103.0/t
Brazil Potash CFR Granular Spot US$805/t vs US$805/t
Battery News
QuantumScape achieve solid-state battery advancements
Solid-state battery start-up, QuantumScape has shared new data showing further development of its solid-state batteries.
QuantumScape's cells have completed 400 consecutive 15-minute fast-charge cycles, replenishing from 10% to 80% capacity while still retaining over 80% of the initial energy.
Current consumer EVs generally need between 25-30 minutes on a DC fast charger to replenish from 10%-80% without reducing the longevity of the cell - it takes around 3-5 mins to fill a diesel or petrol vehicle.
Quantumscape believes that if it can successfully deliver these demonstrated charge capabilities to the EV market, the time difference between EVs and ICE vehicles can be lowered to several minutes.
Company News
Galantas Gold (Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTC:GALKF)) 33p, Mkt Cap £24.7m – Closing of US$1.06m loan for Omagh project
Galantas Gold reports that it has agreed its’ previously announced six-month US$1.06m loan with Ocean Partners to fund further development of the Omagh gold project in Northern Ireland.
The loan carries interest at 10%, compounded monthly and payable on repayment of the loan.
In addition, to the initial structuring fee of US$20,000 and US$40,000 consulting fee a further “US$40,000 extension fee will be paid to Ocean if the Company elects to extend the Loan for a further six months”.
KEFI Gold and Copper* (KEFI Gold and Copper PLC (AIM:KEFI)) 0.73, Mkt Cap £22m – Tulu Kapi Project update
Security condition at the Tulu Kapi site are improving as the national State of Emergency is being lifted.
The project funding syndicate remains committed to the Project and is on standby waiting for the situation to normalise to close the financing and start development works.
The Company is in extensive discussions with the Ethiopian Ministry of Mines to provide assurances that further project delays are being minimised.
The team have scheduled a series of meetings with the Ministry for the next week.
Operationally, the Company will is focused on reviewing detailed resettlement plans with the newly-appointed local government administration while finalising outstanding documentation with the Ministry and other Government agencies.
The team is also highlighting that previously scheduled Investor Webinar that was supposed to take place 7 February will be rescheduled in the light of overlapping meetings with the Ministry.
*SP Angel act as Nomad and Broker to KEFI Gold and Copper
Red Rock Resources (Red Rock Resources PLC (AIM:RRR)) 0.53p, Mkt cap £6.4m – Drilling results expected soon from Kenya, DRC and Australian projects
In a review of its current projects and likely near-term work, Red Rock Resources confirms that it has now completed drilling in Kenya and the DRC and that the joint-venture with Power Metal Resources in Australia is progressing with drilling currently underway at Pitfield south-west of Ballarat.
At the Mikei gold project in western Kenya, 2,093m of reverse-circulation (RC) drilling was completed during H2 2021 with 7 of the first 9 holes assayed reporting gold mineralisation including one intersection of 17m averaging 1.02g/t gold and results from the remaining 11 holes expected during the next 2 weeks. Preparatory work, including ground geophysics, for further drilling elsewhere in the licence area is underway.
In the DRC, 29 RC holes, totalling 2,469m were completed during H1 2021 at the Luanshimba copper/cobalt project in Katanga Province. Results are currently being reviewed by the company’s consultants.
The Australian JV (50.1% owned) has completed a programme of 6 diamond drill holes at “at the O'Loughlins prospect SE of Ballarat, before moving to current drilling at Pitfield SW of Ballarat. Drill results from O'Laughlins are expected within the next weeks”. The company says that “It remains the intention of Red Rock and its JV partner to seek a listing for NBGC, … [New Ballarat Gold Corporation] … and work on this will proceed with due regard to market timing”.
Elsewhere, early-stage exploration, including remote sensing, is in progress on the company’s licences in the Boromo and Banfora greenstone belts of Burkina Faso where the company is applying for additional licences. Licence applications are also underway in Cote d’Ivoire.
Summarising progress, Chairman, Andrew Bell, commented that Red Rock Resources “is therefore in the unusual position of expecting drilling results from six targets in three countries over the coming weeks”.
Tesoro Resources (Tesoro Resources Ltd (ASX:TSO, OTCQB:TSORF)) A$0.075, Mkt cap £40m – Further drilling at Ternera extends known mineralisation
Tesoro reports infill and extensional drilling for 22 holes at its Ternera Gold Deposit in Chile.
Holes drilled at Western Ternera and Southern Ternera extend mineralisation in both directions.
Highlights at Western Ternera include:
ZDDH0258: 1.20m @ 10.20g/t Au from 10.00m.
ZDDH0261: 1.00m @ 25.00g/t Au from 41.00m; and
3.00m @ 4.03g/t Au from 52.00m
ZDDH0262: 1.50 @ 16.91g/t Au from 60.50m
Highlights at Southern Ternera include:
ZDDH0255: 2.83m @ 7.29g/t Au from 356.67m, contained within19.00m @ 1.40g/t Au from 353.00m;
ZDDH0252: 1.36m @ 6.60g/t Au from 294.80m, contained within12.95m @ 1.12g/t Au from 294.80m
Highlights from infill drilling include:
ZDDH0259: 9.30m @ 1.19g/t Au from 41.00m; and
9.00m @ 2.43g/t Au from 96.00m.
ZDDH0263: 263: 3.00m @ 3.76g/t Au from 41.00m; and.
21.67m @ 1.54g/t Au from 230.65m, contained within 82.00m @ 0.50g/t Au from 230.00m.
ZDDH0265: 5.27m @ 1.38g/t Au from 59.00m; and
20.75m @ 1.51g/t Au from 82.00m including;
10.75m @ 2.40 g/t Au from 92.00m;
Tesoro has drilled a total of 290 diamond drill holes for 95,601m at El Zorro.
Assay results remain outstanding for 22 diamond drill holes.
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
Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
SP Angel
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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