SP Angel . Morning View . Wednesday 23 02 22
Russia drives global energy inflation higher as troops march into DNR/LNR
Bushveld Minerals* (Bushveld Minerals Ltd (AIM:BMN, OTC:BSHVF)) – Potential sanctions against Evraz may disrupt vanadium supply as demand drives prices higher
Caledonia Mining* (Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL)) – Fatality at the Blanket mine
Europa Metals Limited (Europa Metals Ltd (AIM:EUZ, JSE:EUZ, OTC:EOPAF)) – H1 2022 work plan for Toral project
MP Materials (NYSE:MP) – Dept. of Defense awards $35m for HREE separation facility
Rio Tinto (Rio Tinto PLC (LSE:RIO)) – Record 2021 financial performance fueled by global recovery and strong commodity prices
IGTV: Are commodities becoming weaponised? https://www.youtube.com/watch?v=jCoPpdNPMpQ
IG Outlook 2022, China new year, winter Olympics may see metals prices soften: (12/01/2022): https://youtu.be/vNqDh74zW5I
VOX Markets: 10/02/22: https://audioboom.com/posts/8028992-john-meyer-talks-about-copper-gold-plus-atlantic-lithium-bluejay-empire-metals-rainbow-rare
*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.
Gold steadies below $1,900/oz as traders weigh Russia-Ukraine crisis
Gold has held around $1,895/oz having hit a 9-month high at $1,913/oz yesterday.
The imposition of sanctions on Russia and the suspension of Nord Stream 2 failed to propel the metal higher, suggesting the gold market has priced in further escalation in the region.
Gold has been restricted by US 10-year Treasury yields, which are inching closer to 2%.
Gold’s focus turns to the March rate hike, with expectations of a 50bp hike falling from 60% to 36.5%. (Reuters)
Russia – The US called the recognition of DNR/LNR as independent states and a subsequent inflow of Russian troops as the “beginning of invasion”.
A number of sanctions were announced by the US administration while warning that further advancement of troops into Ukraine will incur “an even steeper price”.
The US companies will be banned from investing in Russian sovereign debt issued post March 1 this year.
Additionally, the US added two banks (the VEB and Promsvyazbank) as well their 42 subsidiaries to the sanction list calling them “state-owned institutions that play specific roles to prop up Russia’s defence capability and its economy”.
A number of people close to President Putin and nation’s “elites” were included in the sanction list including sons of Bortnikov (director of FSB), Fradkov (former PM) and Kiriyenko (First Deputy Chief of Staff).
The list effectively allows to deny people and entities mentioned US banking services, ban US trading with them and freeze their US assets.
The US will continue to provide “defensive assistance” to Ukraine but has no intention of fighting Russia while also authorising additional movements of US forces already stationed in Europe to support Baltic allies Estonia, Latvia and Lithuania.
The previously planned summit between Russia/US presidents has been called off while the meeting between Foreign Affairs Ministries of Russia and France has also been cancelled suggesting further weakening of diplomatic relations between Russia and Western nations.
In a unanimous move, the EU sanctioned 351 members of Russian Parliament who voted in favour of recognition of DNR/LNR as well as 27 individuals and entities representing Russian business, media and politics that the EU referred to as “oligarchs”.
The vote held in Russian Parliament earlier showed that 351 supported the initiative, 16 members voted against and 1 was impartial.
Germany ordered to halt certification of the Nord Stream 2 gas pipeline effectively freezing the project.
The UK imposed sanctions on close allies of President Putin including billionaires Timchenko and Rotenbergs as well as five banks including Rossiya, IS Bank, GenBank, Promsvyazbank and the Black Sea Bank.
Of the five targeted banks only Promsvyazbank is on the Russian central bank's list of systemically important credit institutions, Reuters reports.
Australia, Canada and Japan imposed their own sanctions on Russia last night similar to those announced by the EU and US reflecting a consolidated position on the issue.
Moscow announced it was evacuating diplomatic staff from Kyiv to “protect lives” raising concerns of further escalation.
Following the decision to recognise DNR/LNR independence, the question comes: what are the borders of recognised territories since areas controlled by separatists behind the current “line of contact” account for only ~1/3 of two Ukrainian provinces?
Expanding DNR/LNR territories past the “line of contact” risks direct military confrontation with now deployed in the area Russian troops and Ukrainian militaries.
The EU said it will count crossing that line as an “invasion” of Ukraine.
The rouble continued to trade close to its record lows hit earlier in the weak and hovering around 79.4 against the US$ levels.
EV battery metals value soars to $1.5bn in December
The global value of battery metals in newly registered EVs hit $1.5bn in December, up 192% vs Dec. 2020. (EV Metal Index)
The December total was four times the value of all EV battery metals deployed in 2017
The 2021 total value of EV battery metal business was $8.1bn.
2021 EV sales hit 10m units. (Mining.com)
USGS adds nickel and zinc to critical minerals list
The US Geological Survey has released an updated list of 50 critical minerals vital to the domestic economy for national security.
Nickel and zinc were added.
Helium, potash, rhenium, and strontium were removed from the list.
Biden’s bipartisan infrastructure bill will add funding for the USGS’ resource earth mapping project to help locate additional supplies both in the ground and in mine tailings.
Sixty people killed at unofficial artisanal gold mine in Burkina Faso as dynamite store explodes
An explosion killed around 60 people at an artisanal gold mine in Burkina Faso on Monday.
Dynamite in a store caught fire and exploded uprooting trees and killing many nearby.
Many of the fatalities were migrant workers displaced from the north of Burkina Faso by warring groups affiliated with Al Qaeda
The incident highlights the dangers of artisanal mining camps and the near total lack of health and safety in these informal operations.
Dow Jones Industrials -1.42% at 33,597
Nikkei 225 -1.71% at 26,450
HK Hang Seng +0.59% at 23,658
Shanghai Composite +0.93% at 3,489
Economics
US – Private sector growth came in stronger than forecast in February on the back of a recovery in demand from Covid-related disruptions at the start of the year.
Services and manufacturing sector growth gauges both improved, although a survey of charged prices showed record high readings.
Private sector employment expanded further in February, taking the current sequence of job creation to 20 months.
“With demand rebounding and firms seeing a relatively modest impact on order books from the Omicron wave, future output expectations improved to the highest for 15 months, and jobs growth accelerated to the highest since last May, adding to the upbeat picture… with growth rebounding sharply amid resurgent demand, and price pressures rising again to an all-time high, the survey will add to expectations of a more aggressive policy tightening by the FOMC,” Markit commented on data.
Markit Manufacturing PMI: 57.5 v 55.5 in January and 56.0 est.
Markit Services PMI: 56.7 v 51.2 in January and 53.0 est.
Markit Composite PMI: 56.0 v 51.1 in January and 52.5 est.
LA container port congestion cools in sign of easing supply chain disruption
Inbound ship numbers at LA and Long Beach have fallen by c.30% since the early Jan peak of 109.
Disruption has eased on fewer omicron cases impacting dockworkers and a quieter period in global container-based trade.
Increased shipping costs have been a major contributing factor to soaring consumer price inflation in the US.
Analysts forecast additional disruptions from contract negotiations with warehouse workers and the long-term issue of a dearth of truckers in North America.
China’s provincial authorities take further steps to ease lending requirements to boost economy
4 banks in Shandong have slashed minimum deposit requirements from 30% to 20%.
Property buyers in Guangxi have increased available lending from 40% of the cost of a 2nd home to 60%.
The easing comes as China’s economy in Q4 grew at its slowest pace in 18 months.
China’s housing market is valued at $1.7tn and shrinking property sales, down 41% from Jan. 2021, are weighing on growth prospects.
Beijing has looked to inject liquidity through the reserve-requirement ratio and mortgage reference rates.
The most recent easing suggests the need for local government to boost revenue, with January land-sale proceeds down 72%. (SCMP)
Land sales accounted for 43% of local government revenue in 2021.
China’s latest five-year plan stipulates that it should produce 70% of the chips it consumes by 2025, up from less than 20% last year
China’s birth rate falling due to expense of housing, food and education as raising children becomes more expensive in China than in U.S and Japan (Reuters)
Germany – Consumer sentiment pulls back more than expected in March on strong inflation concerns.
“Above all, the hopes for an improvement in price trends at the beginning of the year have been dashed for the time being as the inflation rate is still at a high level,” GfK commented on data.
GfK Consumer Confidence: -8.1 v -6.7 in February and -6.3 est.
Interest rates will not hit pre-financial crisis levels according to MPC member
One of the four MPC members has indicates that BOE interest rates will not rise to pre-financial crisis levels eg pre 2008 (The Tines).
Rates are likely to rise 0.5% in February but with modest rate rises to follow taking interest rates to 2% within two years.
The member does not envisage rates rising to anything like pre-2007 levels of 5%.
We agree, though we are wary of Black Swan events that can cause sudden changes and unexpected in monetary policy.
US and UK government borrowing is at levels where higher interest rates could destabilise economic activity
All Covid restrictions will end in England on Thursday and free mass testing will stop from 1 April.
Currencies
US$1.1337/eur vs 1.1311/eur yesterday. Yen 115.06/$ vs 114.81/$. SAr 15.033/$ vs 15.168/$. $1.361/gbp vs $1.357/gbp. 0.725/aud vs 0.720/aud. CNY 6.321/$ vs 6.338/$.
Commodity News
Precious metals:
Gold US$1,896/oz vs US$1,911/oz yesterday
Gold ETFs 100.0moz vs US$100.0moz yesterday
Platinum US$1,087/oz vs US$1,094/oz yesterday
Palladium US$2,374/oz vs US$2,432/oz yesterday
Silver US$24.13/oz vs US$24.24/oz yesterday
Rhodium US$18,550/oz vs US$18,400/oz yesterday
Base metals:
Copper US$ 9,962/t vs US$9,872/t yesterday
Aluminium US$ 3,298/t vs US$3,364/t yesterday
Nickel US$ 24,535/t vs US$24,790/t yesterday
Zinc US$ 3,599/t vs US$3,559/t yesterday
Lead US$ 2,339/t vs US$2,315/t yesterday
Tin US$ 44,500/t vs US$44,300/t yesterday
Energy:
Oil US$96.9/bbl vs US$97.8/bbl yesterday
Oil rose to nearly US$100/bbl yesterday, reaching its highest level since 2014 after Russia ordered troops into two breakaway regions in eastern Ukraine
Benchmark Brent futures pared gains in late trading after Western governments announced sanctions aimed at stopping what they fear is the beginning of a full-scale Russian invasion
The US and UK announced sanctions targeting Russian banks, while the EU blacklisted more politicians and Germany put the brakes on the US$11bn Nord Stream 2 gas pipeline project
Ministers of Arab oil-producing countries announced that OPEC+ should stick to its current agreement to add 400,000bopd each month to output, rejecting calls to pump more to ease pressure on prices
Tight supply was seen in US crude oil stockpiles which unexpectedly fell 4.8MMbbls in the week to 4 February to 410.4MMbbls as overall refined product demand reached an all-time record
This compares with a consensus forecast of a 369kbbl rise
OPEC has forecasted that world oil demand might rise even more steeply this year
The group has forecast an increase of 4.15MMbopd this year, as the global economy posts a strong recovery from the pandemic
Natural Gas US$4.504/mmbtu vs US$4.612/mmbtu yesterday
Russia has warned European gas prices will more than double after Germany puts the Nord Stream 2 pipeline on hold
Former Russian President Dmitry Medvedev threatened a “brave new world” where Europeans would pay €2,000/Mcm
Benchmark European prices are currently trading at around €79/MwH, equal to about €830/Mcm
Germany had been reluctant to include Nord Stream 2 in sanctions as the move would hurt its own gas supplies
However, Chancellor Olaf Scholz said Russia had gone a step too far and the project should not be approved
Uranium UXC US$44.00/lb vs $44.05/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$139.8/t vs US$128.8/t - New Beijing iron ore platform expected to shift international pricing dynamics
Analysts expect China’s new iron ore pricing platform to force major miners to negotiate with the Chinese authorities themselves over pricing.
The move is Beijing’s most recent effort to limit speculative price frenzies in the iron ore market.
Iron ore prices bounced back to $140/t as steelmaking activity is expected to ramp up again following a Winter Olympics/Lunar New Year lull.
Chinese steel rebar 25mm US$769.9/t vs US$769.9/t
Thermal coal (1st year forward cif ARA) US$124.2/t vs US$119.0/t
Thermal coal swap Australia FOB US$228.0/t vs US$206.0/t
Coking coal swap Australia FOB US$390.0/t vs US$390.0/t
Other:
Cobalt LME 3m US$73,290/t vs US$72,780/t
NdPr Rare Earth Oxide (China) US$175,148/t vs US$175,148/t
Lithium carbonate 99% (China) US$70,138/t vs US$68,245/t
China Spodumene Li2O 5%min CIF US$2,710/t vs US$2,710/t
Ferro-Manganese European Mn78% min US$1,808/t vs US$1,804/t
China Tungsten APT 88.5% FOB US$333/t vs US$333/t
China Graphite Flake -194 FOB US$805/t vs US$805/t
Europe Vanadium Pentoxide 98% 10.6/lb vs US$10.6/lb
Europe Ferro-Vanadium 80% 42.75/kg vs US$42.75/kg
China Ilmenite Concentrate TiO2 US$395/t vs US$395/t
Spot CO2 Emissions EUA Price US$101.3/t vs US$97.1/t
Brazil Potash CFR Granular Spot US$815/t vs US$815/t
Battery News
China to add record solar power in 2022 despite surging costs
China is forecast to add 75 to 90GW of solar power capacity this year, according to the chairman of China Photovoltaic Industry Association (CPIA).
Last year, China added a record 55GW of new capacity.
New installations will mostly be massive solar parks in the country’s deserts, although there is also strong growth expected in the rooftop market as factories look to replace some of their grid consumption.
China is expected to average between 83 and 99GW of new solar capacity every year to 2025.
Global installations are expected to rise to 232- 286GW per year over the same period.
Polysilicon prices are already up ~12% this year following strong price increases last year, however Chinese companies are expected to boost output by 700,000t this year according to the CPIA.
Nora Ventu up Italian floating wind portfolio to 4.6GW
Nora Ventu, a joint venture by Falck Renewables and BlueFloat Energy, has opened consultation with locals on two new floating projects which would see their floating portfolio reach 4.6GW.
The JV has begun a series of meetings with local stakeholders to outline proposals for the two offshore floating wind farms, the 795MW Nora Energia 1 in the south-west, and 600MW Nora Energia 2 in the south-east – a total of around 1.4GW of installed capacity.
Falck Renewables and BlueFloat Energy already have several floating wind projects under development in Italy. These include the 675MW Minervia Energia wind farm in the Gulf of Squillace, the 1.3GW Odra Energia off the province of Lecce, the 1.2GW Kailia Energia off Brindisi – the five projects have a combined capacity of around 4.6GW.
DOE to invest $150m in energy transition projects
The US Department of Energy (DOE) will invest $150m in research projects focused on advancing clean energy technologies.
The funding is specifically for research projects focused on increasing efficiency and reducing carbon emissions from energy technologies and manufacturing – it includes hydrogen, long duration storage, and carbon capture and sequestration.
Airbus to test hydrogen plane propulsion
Airbus has announced it would build a demonstrator to test propulsion technology for hydrogen airplanes with engine maker CFM International.
Airbus plans to fit a specially adapted version of a current-generation engine near the back of an A380 superjumbo test plane.
The plane maker has said it will produce a small "ZEROe" passenger aircraft powered by hydrogen to enter service in 2035.
It told the European Union a year ago that most airliners will rely on traditional jet engines until at least 2050.
Airbus officials say the research will seed disruptive technology likely to play a role in the next generation of larger airplanes, as well as offering radically new technology for small planes holding some 50-100 people.
Company News
Bushveld Minerals* (Bushveld Minerals Ltd (AIM:BMN, OTC:BSHVF)) – 9.2p, Mkt cap £118m – Potential sanctions against Evraz may disrupt vanadium supply as demand drives prices higher
BUY – Valuation 31p
(Bushveld Energy holds an indirect interest of 25.25% in Enerox. Bushveld is invested in Enerox. Bushveld Minerals holds 74% of Bushveld Energy. Bushveld Energy holds a 50.5% interest in VRFB-H)
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Ferro-vanadium prices continue to rise in China and Europe driven by new demand for structural steel
China has elected to follow its tried and tested policy of funding new infrastructure projects creating demand for structural steel.
It is interesting to see prices rise as production at most if not all steel works in and around Hubei province has been suspended through the Olympics and ongoing Paralympics
Ferro vanadium prices have risen in recent weeks to $40.65/kg in China which translates to a price of $35.36/kg after the deduction of import tariffs.
European prices rose 4% last week to $34-37/kg on Friday
Russian sanctions: The potential for sanctions against Russian-owned Evraz could create further disruption of supply chains in the market, though we would expect Evraz to simply sell more material into China if sanctioned. Evraz represent some 17% of global vanadium production from the reprocessing of vanadium-bearing slag from their steel furnaces.
VRFBs: Chinese vanadium demand for energy storage batteries is expected to triple this year as China looks to bring on new VRFB battery systems
Invinity Energy Systems sold a 8.4 MWh system to Elemental Energy which should use around 55 tons of vanadium equating to just under 100 metric tons of vanadium pentoxide material.
H2, Inc launched a 5MW / 20 MWh flow battery project in California in December with backing from Korea. Deployment is due at end 2023 and will require the sourcing of vanadium pentoxide for conversion into vanadium electrolyte over the next 18 months.
Our valuation for Bushveld assumes $35/kg for ferro-vanadium rising to $38/kg from 2023 indicating potential for further upside if ferro-vanadium and vanadium product prices continue to rise.
Conclusion: We expect positive momentum to continue in the vanadium market. Global demand for structural steel and production of vanadium electrolyte to fill VRFB batteries looks likely to drive demand to new levels this year.
*SP Angel act as nomad and broker to Bushveld
Caledonia Mining* (Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL)) 925p, Mkt Cap £120m – Fatality at the Blanket mine
We are saddened to learn of the tragic death of a mineworker at Caledonia’s Blanket gold mine in Zimbabwe.
The accident “involved a LHD loader in one of Blanket's underground haulages” and the company explains that “details cannot be released pending the outcome of an ongoing enquiry into this incident by the relevant authorities”.
The Blanket mine has a laudable safety record and in January while announcing record annual gold production for 2021, the company said that it had “Achieved more than 2,4 million fatality free shifts since 2018”.
The unfortunate accident, which occurred yesterday morning, is a stark reminder of the inherent risks of mining and we express our condolences to the colleagues and family of the victim, Andrew Clydon Phiri.
*SP Angel mining analysts have visited Caledonia’s mining operations in Zimbabwe
Europa Metals Limited (Europa Metals Ltd (AIM:EUZ, JSE:EUZ, OTC:EOPAF)) 3.75p, Mkt Cap £3m – H1 2022 work plan for Toral project
Europa Metals has issued a progress report on plans for advancing its Toral lead/zinc/silver project in the Castilla y Leon region of Spain.
The company confirms that a short programme of geotechnical drilling at the proposed plant site is underway to assess ground conditions and that it expects to complete the work “in the coming weeks”.
Additional mineral resource drilling is expected to start in March in order to “incrementally augment the current indicated JORC resource estimate of 5.9Mt @ 7.8% Zn equivalent (including Pb credits) and 27g/t Ag at depth”.
Metallurgical test work is continuing “to further develop the ore sorting process route through the utilisation of the bulk sample, along with increasing the spacial representivity within the current defined indicated resource via the testing of two deeper samples to provide further information on the processing characteristics of the ore”.
The resulting tailings are being assessed their suitability “for proposed future reclamation work and as paste back fill for underground support”.
Interim CEO and Chairman, Myles Campion, explained that the “latest round of metallurgical and geotechnical work streams will serve to expand our knowledge base on various aspects of the Toral Project as part of the ongoing feasibility studies. The next stage of resource drilling is aimed at enhancing the existing indicated resource estimate which can then be applied in mine scheduling under a Pre-Feasibility Study environment”.
MP Materials (NYSE:MP) $40.98, Mkt cap $7.3bn – Dept. of Defense awards $35m for HREE separation facility
The US Department of Defense (DoD) has awarded $35m to MP Materials to build a facility to process heavy rare earth elements (HREE) at the company’s Mountain Pass in in California.
Funds will be used to design a commercial-scale operation operated by MP and servicing HREEs for products into the DoD and civilian applications.
The award requires MP to find innovative solutions to bring HREE production costs on par with the international market within five years of the first production batch.
The project will be the first processing and separation facility of its kind for HREEs in the US.
MP has said it will invest an additional $700m and create more than 350 jobs in the magnet supply chain by 2024.
The project is one of the most developed US projects in the sector and seen as critical in shoring up a domestic supply chain of rare earths.
The West’s reliance on China for REE mining and processing is well documented, with many analysts estimating that China accounts for 90% of mining, when taking into account illegal supply, and virtually all processing
China’s dominance in rare earth mining and processing has led to calls from other world powers for the emergence of a new rare earth supply chain to reduce reliance on China- with companies with projects in Africa and North America set to benefit.
Governments including the US, Canada, UK and Australia have all publicly expressed concerns over the dominance of Chinese supply, and that a consistent supply of rare earths is of future strategic as well as economic importance to Western economies.
Last week, a Chinese miner purchased a 20% stake in ASX-listed Peak Rare Earths which is currently progressing its Ngualla rare earths project in Tanzania.
In relation to the latest news form MP Materials, President Biden commented: “This isn’t anti-China or anything else… This is pro-America”
MP Materials hopes to produce over 6,000tpa of NdPr once in steady state production.
Rio Tinto (Rio Tinto PLC (LSE:RIO)) – 5,696p, Mkt cap £71bn – Record 2021 financial performance fueled by global recovery and strong commodity prices
In today’s announcement of record financial results for 2021,Rio Tinto reports a recovery in global production and “significant price strength for our major commodities” as a driver of “free cash flow of $17.7 billion … [2020 – US$9.4bn] … and underlying earnings of $21.4 billion … [2020 – US$12.4bn] …, after taxes and government royalties of $13.0 billion”.
Rio Tinto reports net cash of US$1.6bn at 31st December 2021 compared with net debt of US$0.7bn at the beginning of the year.
The company is declaring its “highest total dividend ever of 1,040 US cents per share, including a 247 US cents per share special dividend, representing a 79% payout” and continuing a pattern which Rio Tinto says gives an average payout ratio of 74% over the past six years.
Chief Executive, Jakob Stausholm, describes Rio Tinto’s strategy as moving towards positioning the company to “thrive in a decarbonising world”.
Earnings from Rio Tinto’s iron-ore business dominate contributing US$17.3bn (78%) to the US$22.2bn total product earnings compared with US$11.4bn in 2020 despite “a 3% decline in iron ore shipments from the Pilbara, as a result of above average rainfall in the first half of the year”.
Copper earnings of US$1.6bn (2020 – US$0.8bn) represent approximately 7%, with aluminium’s US$2.5bn (2020 – US$0.5bn) and the Group’s Minerals business – US$0.9bn (2020 – US$0.6bn) representing 11% and 4% respectively.
Commenting on the forces behind the improved performance, Rio Tinto says that “strong commodity prices drove a $17,464 million uplift in underlying EBITDA compared with 2020. This was primarily from the strength in the Platts index for 62% iron fines … [with higher LME prices driving] … a significant price uplift for copper (+$1,896 million) and for our Aluminium business (+$3,027 million)”.
Iron ore prices were “45% higher on average compared with 2020” driven by “a strong resurgence in demand for iron ore, with global crude steel production estimated to have grown by 6%. Chinese demand strength was most apparent in the first half of 2021 while the recovery in demand for steel and iron ore in developed and other emerging economies maintained its momentum. At the same time, seaborne iron ore supply recovered, albeit at a slower than anticipated rate”.
Aluminium “prices rallied to multi-year highs, following a firm recovery in global demand and extensive power-related supply disruptions in China, which led to a global market deficit”.
Realised copper prices “increased by 50% to 424 US cents per pound … while the benchmark gold price rose just 2% to $1,799 per ounce”.
Rio Tinto discusses the underground copper project at Oyu Tolgoi which, with expected output of 500,000tpa of copper from 2028 to 2036 and initial sustainable production in H1 2023, is expected to become the world’s 4th largest copper mine. Oyu Tolgoi is described as “a complex greenfield project comprising an underground block cave mine and copper concentrator as well as an open pit mine which has been successfully operating for ten years. It is also one of the most modern, safe, sustainable and water-efficient operations globally, with a workforce which is more than 96% Mongolian”.
Rio Tinto spent US$7.4bn in capital investment in 2021, including $0.6 billion of growth capital, $3.3 billion of replacement capital and $3.5 billion of sustaining capital. In 2022, capital expenditure is expected to increase to “around $8.0 billion” and to continue to rise to around US$9bn in 2023 and US$10bn in 2024.
Among the Group’s other projects, the “$0.9 billion investment in phase one of the south wall pushback project at Kennecott, extending mine life to 2026, is complete and we are gradually accessing higher grades. The $1.5 billion phase two investment will further extend pre-stripping and support additional infrastructure development, allowing mining to continue into a new area of the ore body between 2026 and 2032”.
Also in Rio Tinto’s copper business, dialogue continues with the indigenous groups and regulatory bodies at the Resolution project in Arizona and at Winu in W Australia.
Rio Tinto has “a strong portfolio of exploration projects with activity in 18 countries across seven commodities in early exploration and studies stages, reflected in our pre-tax central spend of $257 million … with a particular focus on copper projects in Australia, Canada, United States, Kazakhstan and Zambia and increased activity on greenfield nickel projects in Canada and Finland”.
Collaborative exploration with third parties includes the “agreement with KoBold Metals for copper and nickel exploration and our agreement with Western Copper and Gold Corporation, where we made a strategic investment to advance exploration on the Casino copper-gold project located in Yukon, Canada”.
Conclusion: Rising commodity demand and stronger commodity prices helped Rio Tinto deliver record financial results and its highest ever dividend in 2021. The company is debt free and has outlined a capital growth plan of US$8bn in 2022 rising to US$9bn in 2023 and US$10bn in 2024.
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
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