SP Angel . Morning View . Wednesday 11 05 22
Gold rangebound ahead of US CPI data
MiFID II exempt information – see disclaimer below
Botswana Diamonds PLC (AIM:BOD) – Setback for Ghaghoo mine acquisition
Gem Diamonds Limited (LSE:GEMD, OTC:GMDMF) – Agreement on sale of the Ghaghoo diamond mine lapses
Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) – Araguaia earth-works contract
SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)* – Appointment of CFO
Sunrise Resources PLC (AIM:SRES) – California approves CS Pozzalan for infrastructure use
SP Angel mining team at 121 in Cape Town this week
- The SP Angel mining team will be reporting from the 121 Mining investment conference in Cape Town this week.
Graphene / graphite purification – private financing
- We are inviting investors to finance a private company which produces high-grade graphite and graphene from low grade graphitic material.
- The company also sells: Graphene paint, and is developing Li-ion battery anodes along with a Concrete modifier
*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.
Dow Jones Industrials -0.26% at 32,161
Nikkei 225 +0.18% at 26,214
HK Hang Seng +1.08% at 19,846
Shanghai Composite +0.75% at 3,059
Resilient US Dollar in 2022 key factor in copper prices though strong fundamentals remain
- Concerns over global growth and a worsening inflation outlook have lent strong support to the dollar so far this year, which in turn has hurt metals prices.
- A strong dollar makes gold more expensive for holders of other currencies, as metals are typically priced in USD.
- Historically the dollar strengthens as global liquidity shrinks, and the renewed focus on Central Bank tightening is expected to be a key tailwind going forward.
- Selected currencies vs USD year-to-date:
- GBP -8.7%
- EUR -7.2%
- CNY -5.5%
- JPY -16.3%
- Copper prices are currently down -4.5% on the year so far and -13% since the beginning of March, attributed to both dollar strength and the worsening growth outlook.
- The US Fed hiked rates by 50bp to 0.75-1.00% range last month, the first such decision in more than 20 years that was largely priced in by markets.
- Investors are also pricing in at least two further rate hikes at the 50bp mark for the remainder of this year, with this lower-liquidity environment historically an environment where the dollar strengthens.
- Despite metals set to become even more expensive for other currency holders, the fundamentals remain strong on the demand side for industrial metals.
- Longer term, buoyant copper prices are expected to be aided in part by government stimulus packages that target copper-consumptive industries such as infrastructure, housing and renewable energy.
- Renewable power generation is also anticipated to take an expanding share of the global copper market, with offshore wind requiring 10kg/kw and onshore wind 3.5kg/kw.
- Current power generation consumes 5% of global copper demand, however this is expected to ramp up at 5% CAGR to hit 1.86mt by 2025, Bloomberg reports.
Conclusion: Copper prices have taken a hit, particularly over the past eight weeks, on fears of an economic downturn as a result of the conflict in Ukraine and concerns that a higher interest rate environment could slow growth. In our view, markets have largely ignored the persistent supply-side risks, namely rising resource nationalism in South America, which has led to ~1/5th of Peruvian copper supply currently offline due to roadblocks. In addition, the bullish demand outlook for copper as a result of EVs, renewable energy, and general infrastructure development mean the price is well supported going forward.
Economics
US – Dollar rally pauses ahead of US inflation data released later today
- Impending US inflation data will be closely followed today as investors weigh whether the Fed’s policy of fighting inflation is working.
- Worse-than-expected data could open the possibility of 75bp hikes vs the consensus 50bp hikes currently priced in by the market.
- The dollar halted its four-day rally and US Treasuries rose across the curve ahead of the release.
US House of Representative approves $40bn aid package for Ukraine
- The House passed the Ukraine spending bill by 368 to 57, with every 'no' vote coming from Republicans.
- President Joe Biden had asked Congress to approve an additional $33bn in aid for Ukraine two weeks ago, but lawmakers decided to increase the military and humanitarian funding.
- The package includes $6bn for security assistance, including training, equipment, weapons and support; $8.7bn to replenish stocks of U.S. equipment sent to Ukraine, and $3.9bn for European Command operations.
China – Inflation data exceeds forecasts, with CPI as 2.1% YoY in April
- China CPI accelerated from a 1.5% rise in March as Covid lockdowns caused supply chain issues and caused people to stockpile food.
- The producer price index rose 8% from a year earlier to 8.3% vs 7.8% last month.
Currencies
US$1.0549/eur vs 1.0558/eur yesterday. Yen 130.36/$ vs 130.36/$. SAr 16.112/$ vs 16.112/$. $1.233/gbp vs $1.229/gbp. 0.697/aud vs 0.696aud. CNY 6.725/$ vs 6.709/$.
Commodity News
Precious metals:
Gold US$1,847/oz vs US$1,861/oz yesterday
Gold rose from a near three-month low earlier this morning, as the US Dollar declined with treasury yields ahead of US inflation figures due later today.
Gold ETFs 105.8moz vs US$106.3moz yesterday
Platinum US$984/oz vs US$976/oz yesterday
Palladium US$2,076/oz vs US$2,157/oz yesterday
Silver US$21.61/oz vs US$22.04/oz yesterday
Rhodium US$15,700/oz vs US$16,350/oz yesterday
Base metals:
Copper US$ 9,302/t vs US$9,337/t yesterday
Aluminium US$ 2,786/t vs US$2,757/t yesterday
Nickel US$ 28,030/t vs US$27,920/t yesterday
Zinc US$ 3,650/t vs US$3,655/t yesterday
Lead US$ 2,120/t vs US$2,165/t yesterday
Tin US$ 35,425/t vs US$36,600/t yesterday
Energy:
Oil US$104.7/bbl vs US$105.6/bbl yesterday
Crude oil prices edged lower on a stronger dollar amid worries over tighter US monetary policy as the EIA’s short-term energy outlook also moderated its US production growth forecasts by 0.1-0.2mb/d over 2022-23.
European energy prices rose on news that Ukraine has cited "force majeure" for Russian transited gas flows via one of two key entry points as occupying forces disrupt operations, while Russia’s Gazprom claims there have been no issues that would justify the move.
The EIA also produced a special report on rising ammonia prices, with the USGS assessing China (47 Mt) and Russia (19 Mt) as the world’s largest suppliers, while the US (17 Mt) remains a net importer of 14% of its needs.
Natural Gas US$7.345/mmbtu vs US$7.121/mmbtu yesterday
Uranium UXC US$54.15/lb vs $55.10/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$128.6/t vs US$127.4/t
Chinese steel rebar 25mm US$737.1/t vs US$739.4/t
Thermal coal (1st year forward cif ARA) US$245.0/t vs US$245.0/t
Thermal coal swap Australia FOB US$349.0/t vs US$360.0/t
Coking coal swap Australia FOB US$490.0/t vs US$465.0/t
Other:
Cobalt LME 3m US$82,000/t vs US$82,000/t
NdPr Rare Earth Oxide (China) US$131,618/t vs US$130,379/t
Lithium carbonate 99% (China) US$63,578/t vs US$63,669/t
China Spodumene Li2O 5%min CIF US$3,720/t vs US$3,720/t
Ferro-Manganese European Mn78% $1,861/t vs US$1,863/t
China Tungsten APT 88.5% FOB US$338/t vs US$338/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 10.3/lb vs US$10.4/lb
Europe Ferro-Vanadium 80% 40.75/kg vs US$41.75/kg
China Ilmenite Concentrate TiO2 US$370/t vs US$370/t
Spot CO2 Emissions EUA Price US$91.1/t vs US$92.9/t
Brazil Potash CFR Granular Spot US$1,220/t vs US$1,220/t
Battery News
Norway to target 30GW offshore wind by 2040
- The Government of Norway has launched an investment plan aimed at allocating sea areas to develop 30GW of offshore wind capacity by 2040.
- The ambition is that almost as much new power will be produced from offshore wind as Norway produces in total currently.
- “Our ambition is that by 2040 we will allocate areas for 30,000MW offshore wind production in Norway,” Norway’s Prime Minister Jonas Gahr Støre said.
- Norway will have to go from the two offshore wind turbines that are in operation today to about 1500 offshore wind turbines. The construction will take place over the next 20 years
Almost 15GW of battery storage planned in US by 2024
- The US has approx. 14.5GW of battery storage capacity in the pipeline to come online from 2021 to 2024, according to the Department of Energy (DoE).
- 9.4GW will be co-located with solar farms and 1.3GW with wind farms or fossil-fuel generators.
- The remaining 4GW of planned battery storage will be located at standalone sites.
Tesla open to buying mining company
- Elon Musk has said that Tesla would be interested in buying a mining company, if producing its own supply of EV metals would speed up the worldwide adoption of clean energy technologies.
- Speaking at the FT Future of the Car 2022 conference, Musk said, “We will address whatever limitations are on accelerating the world’s transition to sustainable energy. It’s not that we wish to buy mining companies, but if that’s the only way to accelerate the transition, then we will do that.”
- The automaker currently has contracts with suppliers globally, but its goal to produce 20m EVs annually by 2030 will require vastly more supply of key metals.
- Tesla has no experience with the time-intensive and laborious task of building and operating a mine, so the automaker would be better to focus on buying an existing operator.
Company News
Botswana Diamonds PLC (AIM:BOD) 1.03p, Mkt Cap £9m – Setback for Ghaghoo mine acquisition
- Botswana Diamonds reports that it has not been able to conclude its efforts to find a suitable partner for its proposed acquisition of the Ghaghoo diamond mine in Botswana before the previously extended deadline, 10th May.
- As a consequence, the existing sale agreement with Gem Diamonds “has therefore now lapsed”.
- Botswana Diamonds says that “Gem Diamonds have indicated their willingness to re-engage on substantially the same terms as the Agreement if BOD and a partner can finalise an agreement and accordingly, BOD is continuing its discussions with potential joint venture partners”.
Conclusion: Botswana Diamonds has been consistent in its efforts to reach agreement with Gem Diamonds for the acquisition of the Ghaghoo mine. Although an alternative purchaser may emerge at this late-stage Gem Diamonds appears favourably disposed to remain in discussion with Botswana Diamonds and we look forward to further news.
Gem Diamonds Limited (LSE:GEMD, OTC:GMDMF) 58.4p, Mkt Cap £84m – Agreement on sale of the Ghaghoo diamond mine lapses
- Gem Diamonds has announced that its agreement to sell its wholly-owned Ghaghoo diamond mine in Botswana to Okwa Diamonds (owned by Vast Resources and Botswana Diamonds) has lapsed.
- The date for completion of the sale, which had previously been extended until 10th May, lapsed as “Botswana Diamonds has not been able to meet this deadline“.
- In February this year, Botswana Diamonds announced that Vast Resources had confirmed that it did not intend to proceed with the Ghaghoo acquisition and that Botswana Diamonds remained committed to continue with the transaction and that it was seeking alternative partners.
- “Gem Diamonds is considering its options for the Ghaghoo diamond mine which may include re-engaging with Botswana Diamonds on substantially the same terms as contained in the Agreement in the event Botswana Diamonds is able to successfully conclude its funding arrangements”.
- Gem Diamonds confirms that it has “been reassured by Botswana Diamonds that they remain committed to securing a funding partner and to completing a transaction and Gem Diamonds will continue to engage with Botswana Diamonds in this regard.”
Conclusion: At this stage, Gem Diamonds does not appear to have alternative potential buyers for Ghaghoo and though an alternative purchaser may emerge at this late stage it appears favourably disposed to remain in discussion with Botswana Diamonds which has worked consistently to conclude the acquisition.
Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) 6.9p, Mkt Cap £261m – Araguaia earth-works contract
- Horizonte Minerals reports that it has awarded the earthworks contract for its Araguaia ferronickel project to the major Brazilian contractor, Copa Construção S.A.
- The “contract incorporates the 'process plant and supporting infrastructure' components of the bulk earthworks for the ferro nickel plant”.
- The “contract scope is designed to ensure the site is ready for the civil construction works on completion, and will see Copa levelling the main plant area, creating a series of stepped plateaus that will support the key process equipment packages and buildings, installing initial drainage facilities, as well as the main ramp and crusher platform”.
- CEO, Jeremy Martin, welcomed the appointment which, he said, “is another important milestone in our 24-month project construction timeline, with next steps being the award of the civil works, 230 kV powerline and electromechanical construction contracts”
Conclusion: The appointment of the earth-works contractor keeps the Araguaia ferronickel project on schedule and should allow construction to get underway at the beginning of the dry season which should, in our opinion, help to minimise construction delays
SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)* 25.5p, Mkt Cap £576m – Appointment of CFO
- Solgold has announced the appointment of Ms Ayten Saridas as Chief Financial to replace Ingo Hofmaier who assumed the role in November 2020 in an interim capacity following the resignation of the then incumbent, Mr Priy Jayasuriya.
- Ms Saridas, who will “assume her new role on June 27, brings over 30 years of international corporate finance experience … is a high-impact executive who brings a compelling blend of strategic and capital allocation discipline, well-honed finance skills, and transformational leadership abilities”.
- Previous appointments include “Group CFO for ASX listed and US based Coronado Global Resources where she led the company through the largest global IPO for a metallurgical coal company in 2018. Prior to this Ms. Saridas held a number of CFO and executive roles with major ASX listed companies across the energy, resources and infrastructure sectors”.
- Ms. Saridas’ appointment comes at a time when Solgold is moving ahead with the development of its Alpala deposit in Ecuador. The pre-feasibility study, published in April, envisages the initial development of a 558mt ore reserve over 26 years to produce an average of 132,000tpa of copper, 358,000ozpa of gold and 1mozpa of silver with peak annual output hitting 210,000t of copper, 829,000oz of gold and 1.4m oz of silver.
- An initial pre-production capital investment of US$2,746m followed by post-production sustaining capital of a further US$2,136m is expected to generate an after-tax NPV8% of US$2,907m and an IRR of 19.3% using base case commodity prices of US$3.60/lb for copper, US$1,700/oz for gold and US$19.90/oz for silver.
- Mr. Hofmaier “will continue in his role as interim CFO until Ms. Saridas's appointment and will remain as Executive General Manager, Project and Corporate Finance of SolGold”.
*SP Angel acts as advisor to SolGold
Sunrise Resources PLC (AIM:SRES) 0.15p Mkt Cap £5m – California approves CS Pozzalan for infrastructure use
- Sunrise Resources reports that the California Department of Transport has approved the use of natural pozzalan from its CS deposit in Nevada for use in concrete for State-funded infrastructure projects.
- Executive Chairman, Patrick Cheetham explained that “We are targeting the California markets with our CS natural pozzolan and, as Caltrans projects account for a significant percentage of SCM and concrete consumption in California, acceptance of CS Pozzolan onto the Authorized Materials List is an important step to maximise futures sales of our natural pozzolan”.
- He also clarified the potential of natural pozzolan to replace the use of power station ‘fly-ash’ in concrete as the use of coal in power generation declines. Mr. Cheetham said that California official reports issued in 2016 said that “One of the primary obstacles to replacing fly ash is the large volume that would be required to fill a supply shortfall. Based on expert industry representatives and data available from USGS (United States Geological Survey), natural pozzolans have the greatest single potential supply volume”.
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
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Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
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+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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