SP Angel . Morning View . Wednesday 08 06 22
Metals rise despite US dollar strength and World Bank growth cut on stagflation risk
MiFID II exempt information – see disclaimer below
AfriTin Mining Ltd (AIM:ATM, OTC:AFTTF) – Infill drilling results from the Uis mine
PRIVATE-AU:AW1 – High grade zinc-copper mineralisation intersected in the fourth hole at the West Desert Project
Antofagasta PLC (LSE:ANTO) – Leak in Los Pelambres concentrate pipeline not expected to change production guidance.
Anglesey Mining PLC (LSE:AYM) – Bill Hooley
Caerus Mineral Resources PLC (LSE:CMRS) – Drilling results from the Anglisides project, Cyprus
Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF)* – Bonds to finance the Empire open-pit copper project in Idaho
Metal Fraud – Traders expect more collateral frauds in China to emerge as news of a $75m aluminium fraud emerges in Guandong
The danger is that metal which has been double counted by banks may not exist and may create further problems where this metal has been used to back financial instruments.
- If metal has been pledged to multiple banks does not exist, then banks which have used this metal to back hedging strategies may need to enter the market to buy new metal (futures)
- The more of this that comes out, the higher metals prices are likely to rise as seen with the $3bn Qingdao metal warehousing scandal in 2014 with Dezheng Resources.
Uranium - Biden administration seeks $4.3bn for uranium supply plan
- The US is pushing lawmakers to support a $4.3bn plan to buy enriched uranium directly from domestic producers in place of Russian imports that the country is so reliant on.
- Energy Department officials have met with key congressional staff, with both parties reportedly looking for a solution urgently, Bloomberg reports.
- The proposal aims to increase development of more domestic enrichment and create a government buyer programme.
- The country currently only has one domestic commercial enrichment facility, owned by Urenco in New Mexico.
- It is also possible that the US could look to its allies for supply.
- Aura Energy* (AURA LN) is currently developing its 800,000lb uranium project at Tiris Uranium in Mauritania.
- The team are drilling a further 10,000m of to upgrade additional material into the Measured and Indicated categories for future expansion.
- The Tiris global resource stands at 102mt grading 253ppm (0.0253%) for 57mlb of uranium and 18mlb vanadium (V2O5)
- Uranium shares surged on the news, with the Global X Uranium ETF up 7.4% yesterday to its highest intraday price in a month.
*SP Angel acts as Nomad and Broker to Aura Energy
Copper - Las Bambas negotiations continue with communities on the road to the coast.
- The road is essential for supplies, fuel and reagents into the mine and for the export of copper concentrates to port.
- Communities are unhappy at the level of traffic through their communities, lack of financial support from central government and want well-paid jobs at the mine.
- Certain communities also want their land back around the mine site.
- Some 3,000 workers with contractors were laid off and hundreds of direct mine employees have been furloughed to add to the unrest and disruption.
- If the mine produces 2% of global copper in concentrates this would add 1% to Peruvian GDP
Dow Jones Industrials +0.80% at 33,180
Nikkei 225 +1.04% at 28,234
HK Hang Seng +1.99% at 21,959
Shanghai Composite +0.64% at 3,264
Economics
World Bank cut its global growth forecasts in 2022 further warning of stagflation risks in several years to come.
- Global growth estimates were cut to 2.9% for this year compared to 3.2% forecast in April and 4.1% earlier in January.
- Reasons behind the revisions are a surge in energy and food prices, supply disruptions triggered by Russia’s invasion of Ukraine and tighter monetary policy outlook.
- Growth in the US, China and Eurozone was revised down to 2.5% (-1.2pp), 2.5% (-1.7pp) and 4.3% (-0.8pp) compared to January estimates.
- Russia’s GDP is expected to contract 8.9% (-11.3pp) and drop further 2.0% (-3.8pp) the year after.
Stagflation - Press reports on the risk of stagflation in the West are rattling the World Bank
- Their concern is that slowing growth and recession raises the risk of runaway inflation driven by higher input prices, falling currencies and pressure on margins
- We believe Western central banks are focussed on maintaining growth while allowing acceptable rates of inflation with the added benefit of inflating government debt away
China – The State Council has now announced 33 moves to revive the economy with officials inspecting provincial governments and institutions to see they are pushing forwards on the new stimulus policies.
Covid cat & mouse strategy likely to continue in China for next two to three years
- China’s zero-Covid policy is likely to prolong the impact of the virus for the next two to three years.
- We suspect there will be many more Covid cases classed as simple migraines and deaths as pneumonia without admitting Covid as the principal cause.
- New lockdowns will appear as case numbers rise to levels which threaten health services, hence our cat & mouse analogy.
- China is good at adapting to the challenge of running factories and logistics while cities are locked down, partly by locking in workers.
- The strategy risks further unrest if there are too many or too frequent lockdowns and potential for more open, high level political disagreement as seen in recent weeks.
US – Treasury yields for 10-year bonds rise >3% on expectations for a 0.5% rate rise next week and higher inflation forecasts from the US Administration of over 4.7% for the year
- The US dollar rose as money flowed back into the dollar causing the yen to slip to a new 20-year low
- Household spending rose 1% in April vs 4.1% in March and fell -1.7% yoy in April vs a fall of -2.3% in March
- The US trade deficit fell by $8.5bn to $34.9bn, with imports from China falling by $10.1bn the most in seven years as disruption of goods out of China due to port congestion and Covid lockdowns hitting factories around Shanghai and across China.
Germany – Industrial sector growth continued to slow down in line with previously announced PMI and factory orders numbers amid war in Ukraine and slowdown in overseas growth.
- Industrial Production (%mom): 0.7 v -3.7 in March and 1.2 est.
- Industrial Production (%yoy): -2.2 v -3.1 in March v -2.4 est.
- ISM construction fell to 45.4 in May vs 46.0 in April
EU - ISM construction fell to 49.2 in May vs 50.4 in April
Peru – Leaked document suggests the Peru military are backing Congress, eg not the very socialist President
Russia - Foreign exchange reserves pulled back to US$587bn vs US$593bn in April and US$630bn in January. A portion of these assets may now be frozen.
India – The central bank hiked rates more than expected in response to strengthening inflation pressures.
- The central bank raise the benchmark rate by 50bp as inflation driven by supply side disruptions reached 7.8% in April, above the RBI’s 2-6% target range.
- RBI Repurchase Rate: 4.9% v 4.4% in April and 4.8% est.
Chile – Copper exports totalled $3.76bn in May, down 18% YoY
- Chile’s total exports increased by 19.2% to $9.29bn, while its imports increased by 25.7% to $8.44bn.
Australia - Reserve Bank raised rates by 0.5% to 0.85%
Currencies
US$1.0685/eur vs 1.0690/eur yesterday. Yen 133.46/$ vs 132.67/$. SAr 15.387/$ vs 15.458/$. $1.256/gbp vs $1.248/gbp. 0.720/aud vs 0.719/aud. CNY 6.674/$ vs 6.666/$.
Commodity News
Precious metals:
Gold US$1,848/oz vs US$1,845/oz yesterday
Gold ETFs 105.0moz vs US$105.0moz yesterday
Platinum US$1,010/oz vs US$1,008/oz yesterday
Palladium US$1,985/oz vs US$2,016/oz yesterday
Silver US$22.10/oz vs US$21.97/oz yesterday
Rhodium US$14,500/oz vs US$14,800/oz yesterday
Base metals:
Copper US$ 9,679/t vs US$9,635/t yesterday
Aluminium US$ 2,771/t vs US$2,762/t yesterday
Nickel US$ 29,200/t vs US$28,800/t yesterday
Zinc US$ 3,797/t vs US$3,812/t yesterday
Lead US$ 2,226/t vs US$2,195/t yesterday
Tin US$ 37,200/t vs US$35,350/t yesterday
Energy:
Oil US$120.8/bbl vs US$120.1/bbl yesterday-
Crude oil prices edged higher as market commentators continue to forecast ever tightening crude and product markets in 2H22 as the Western embargo on Russian oil takes effect.
Global GDP growth was reduced from 3.4% to 3.1% in this month’s EIA Short-Term Energy Outlook report, which also forecast a 2mb/d drop in Russian oil production from 11.3mb/d in 1Q22 to 9.3mb/d by 4Q23.
While spot European energy prices remain muted, forward gas prices have strengthened as traders turn their attention to the potential impact of reduced Russian flows during the coming winter.
The EIA also reported that it expects US natural gas prices to remain at high levels in 2H22 due to steady demand for LNG exports and high demand from the electric power sector given limited opportunities for natural gas-to-coal switching, before falling back in 2023 amid rising natural gas production.
Natural Gas US$9.341/mmbtu vs US$9.332/mmbtu yesterday
Uranium UXC US$51.55/lb vs $51.30/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$145.1/t vs US$144.0/t
Chinese steel rebar 25mm US$720.1/t vs US$722.7/t
Thermal coal (1st year forward cif ARA) US$230.0/t vs US$229.0/t
Thermal coal swap Australia FOB US$370.0/t vs US$386.0/t
Coking coal swap Australia FOB US$402.0/t vs US$385.0/t
Other:
Cobalt LME 3m US$72,900/t vs US$73,895/t - Moroccan miner Managem to supply cobalt to Renault
Managem has agreed to supply a total of 35,000t of cobalt sulphates between 2025 and 2032.
Managem plans to build a refinery in Guemassa, Morocco, in order to produce cobalt sulphate from cobalt ore.
The direct cooperation between Renault and Managem guarantees long-term traceability of supply chain, something especially important in the cobalt market given the supply market share of the DRC, where child mining is known to occur.
NdPr Rare Earth Oxide (China) US$144,693/t vs US$142,881/t
Lithium carbonate 99% (China) US$67,799/t vs US$67,878/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,854/t vs US$1,855/t
China Tungsten APT 88.5% FOB US$333/t vs US$333/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 9.6/lb vs US$9.6/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$37.25/kg
China Ilmenite Concentrate TiO2 US$368/t vs US$372/t
Spot CO2 Emissions EUA Price US$87.5/t vs US$89.1/kg
Brazil Potash CFR Granular Spot US$1,200.0/t vs US$1,200.0/kg
Battery News
LG Energy Solution commences construction of Indonesia nickel processing plant
- The South Korean battery maker broke ground on its first project as part of a wider $9.8bn investment into the country, Reuters reports.
- The company will initially build a $3.5bn smelter with the capacity to produce 150,000 tonnes of nickel sulfate per year.
- It will also build a $2.4bn factory in the Batang park to produce 220,000 tonnes of precursor and 42,000 tonnes of cathode per year.
- These materials will provide the raw materials for a planned 200 gigawatt-hours battery cell plant in the industrial town of Karawang in West Java, worth $3.6bn.
- LG Energy and the Indonesian state miner Antam are set to sign an agreement in December to jointly invest $300m in a nickel mine in Halmahera to produce 16mt of nickel ore.
- Indonesia has the world’s largest nickel reserves, and govenremnt has made it clear that companies need to invest in downstream manufacturing if they want access to nickel assets in country.
BYD to supply batteries to Tesla
- There have been a lot of rumours over the last year about a potential supply deal between BYD and Tesla for EV batteries.
- In an interview with Chinese state media CGTN, BYD’s Chief Executive Vice President, Lian Yubo, confirmed that BYD will supply Tesla with batteries ‘soon’.
- No details have been revealed about the size of the supply deal, but rumours from the last year have hinted at a 10GWh order for LFP batteries, and that Tesla had officially placed orders for BYD’s blade batteries for 204,000 units per year.
- BYD is China’s second largest battery manufacturer, installing 4.27GWh in April, only behind CATL who installed 5.08GWh.
- BYD is also China’s largest new energy vehicle manufacturer, selling almost 115,000 vehicles in May, the third consecutive month of more than 100,000 units.
Company News
AfriTin Mining Ltd (AIM:ATM, OTC:AFTTF) 6.85p, Mkt Cap £72m – Infill drilling results from the Uis mine
- Afritin has reported initial results from its infill drilling programme on the V1/V2 pegmatite at the Uis mine in Namibia.
- The pegmatite is “is currently being mined to extract tin … [and the infill drilling is aimed at] … increasing the confidence of the existing lithium and tantalum estimates for the deposit”.
- Twenty-seven of the fifty planned holes, which were vertical, have now been completed and the company has released assay results for the first four holes including:
- A 132m long intersection of the V1/V2 pegmatite averaging 0.168% tin, 75ppm tantalum and 0.74% Li2O from a depth of 124m in hole V1V2-2049; and
- A 110m long intersection of the V1/V2 pegmatite averaging 0.171% tin, 92ppm tantalum and 0.75% Li2O from a depth of 124m in hole V1V2-2057; and
- An 8m wide lithium intersection averaging 1.08% Li2O from a depth of 140m in hole V1V2-2036; and
- A 10m wide lithium intersection averaging 1.05% Li2O from a depth of 136m in hole V1V2-2045; and
- A 12m wide lithium intersection averaging 0.99% Li2O from a depth of 231m in hole V1V2-2049; and
- A 45m wide lithium intersection averaging 1.04% Li2O from a depth of 136m in hole V1V2-2057
- The company says that the “mineralised intersections of the reported holes are well aligned with the current geological model, highlighting the veracity of the existing dataset. These drill holes intersected the pegmatite where the V1 and V2 bodies have amalgamated into a single larger unit. The dip angle of the pegmatite varies from 24 degrees to 48 degrees across the unit”.
- CEO, Anthony Viljoen, said that the “drilling results which have produced lithium grades surpassing our expectations and reinforce our belief that Uis is host to one of the largest lithium resources globally”.
- He explained that extensive historic drilling at Uis “has focused solely on the tin with no regard for the lithium or tantalum in the deposit. This programme will increase the confidence of the current lithium and tantalum estimates and is part of our strategy to bring these two commodities into production alongside our tin operation”.
- Tin prices jumped to 37,200/t this morning from US$35,350/t yesterday. The market appears well supported though volatile with disruption to tin production in Myanmar.
Conclusion: Initial results from the infill drilling at UIs are reported to be consistent with existing geological modelling and reinforce the company’s confidence in Uis, which is currently producing tin, as a potentially significant lithium resource. Metallurgical results released last month confirmed the technical viability of producing a concentrate of the lithium mineral, petalite. We await further results from the infill drilling with interest.
*SP Angel act for Bushveld Minerals which holds around 9.5% of AfriTin
American West Metals (PRIVATE-AU:AW1) A$0.18, Mkt Cap A$28m – High grade zinc-copper mineralisation intersected in the fourth hole at the West Desert Project
- The Company continued to release results from its ongoing drilling programme at the West Desert polymetallic project in Utah, US.
- Latest assay results relate to the WD22-03 drillhole completed to ~550m downhole depth intersecting high grade zinc, copper, silver and indium mineralisation within halos of lower grade zones.
- Selected high grade zinc/copper mineralisation intersections within the wider >105m interval include:
- 6.09m @ 2.04% Cu, 1.09% Zn, 0.33g/t Au, 66.09g/t Ag, 47.98g/t In from 225m;
- 10.36m @ 6.56% Zn, 0.05% Cu, 10.35g/t Ag, 36.06g/t In from 263m;
- 16.47m @ 10.22% Zn, 0.26% Cu, 0.17g/t Au, 16.24g/t Ag, 48.63g/t In from 316m;
- 9.75m @ 21.7% Zn, 192.75g/t In from 369m.
- That was the fourth drill hole in the 2022 programme and was designed to test the continuity of high grade zinc and copper mineralisation in the eastern flank, an area offering potential to expand the resource.
- Assays from further two holes completed in the area of strong copper sulphide mineralisation (WD22-04 and WD22-05) are expected over the coming weeks.
- 2022 drilling programme results will be used to update the current resource and is targeted for Q4/22.
Antofagasta PLC (LSE:ANTO) 1,498p, Mkt Cap £15bn – Leak in Los Pelambres concentrate pipeline not expected to change production guidance.
- Antofagasta reports that a leak has been detected in the underground pipeline which transports concentrates from its Los Pelambres mine to the port of Los Vilos and that it has suspended the use of the pipeline during continuing investigations into the causes of leakage.
- The company says that the “full year impact on production will depend on the duration of the shutdown and if the standstill has created any conditions requiring further actions. Currently, the impact on Group copper production is expected to be limited to within the current full year guidance range, which remains unchanged at 660-690,000 tonnes”.
- Confirming that “Capital expenditure in bringing the pipeline back to normal operations is not expected to be material … [and that] … Preliminary assessment shows no indication of any environmental damage” Antofagasta says that recommendations arising from its investigation of the causes of the leak “will be applied to the concentrate pipeline and the new replacement pipeline that is currently being designed and permitted, which is expected to be in operation by 2025”.
- Antofagasta says that “Full access to the site is currently being blocked by some members of the community who are in discussion with the local authorities and representatives of the Company. Once access is obtained the required repairs will be completed”.
Anglesey Mining PLC (LSE:AYM) 3.25p, Mkt Cap £9.1m – Bill Hooley
We are saddened to learn of the sudden and unexpected death of Anglesey Mining’s Deputy Chairman, Bill Hooley.
Announcing the sad news and offering condolences to Bill’s family, Anglesey Mining Chairman, John Kearney said “His wise counsel, friendship, dry humour, and loyalty will be sadly missed".
Bill’s service to the mining industry over more than half a century made him a stalwart of the UK’s mining scene and he will be much missed, particularly by those who had the pleasure of working with him and benefitting from his sound practical common sense and deep knowledge of our industry.
Caerus Mineral Resources PLC (LSE:CMRS) 12.25p, Mkt Cap £7m – Drilling results from the Anglisides project, Cyprus
- Caerus Minerals has released assay results from its recently completed drilling at the Anglisdes project in Cyprus.
- The project area contains near surface copper mineralisation and “represents a potential satellite mineral resource that could be delivered to the Troulli central processing hub”.
- Among the results from eleven drillholes at Anglisides highlighted in today’s announcement are:
- An 11.5m long intersection, from surface reported as grading 0.85g/t gold and 1.48% ‘Cu eq’ in hole AN22DD-001; and
- An 18.7m long intersection, also from surface, reported as grading 0.91g/t gold and 1.11% ‘Cu eq’in hole AN22DD-002; as well as
- A 7m long intersection from a depth of 9.1m in hole AN22DD-006 which averaged 3.3g/t gold and 2.36% Cu eq; and
- A 17m long intersection from a depth of 6.0m in hole AN22DD-005 which averaged 1.15g/t gold and 1.44% Cu eq;
- CEO, Charlie Long, described the reported grades “of up to 2.36%, … [as] … very encouraging”.
- The company reports its Cu eq (copper equivalent) grades on the basis of a gold price of US$1,800/oz and a copper price of US$4.00/lb (equivalent to US$8,818/t).
- In our opinion it would have aided understanding of the results if the company had reported the results for the copper assays as well those for gold and copper equivalent, however it appears that copper grades for the four intersections quoted above range between around 0.2% and approximately 1%.
- Mr. Long explained that “Anglisides is approximately 25km from Troulli and a potential satellite operation. It is therefore important that Anglisides material is sufficiently valuable to allow for the extra trucking cost”.
- He said that “The current plan envisages constructing a central plant at Troulli capable of processing various ore types. These would include near-surface oxides such as Anglisides' gossans, deeper sulphide ores discovered at Troulli, as well as surface material, dumped or left unprocessed when mining stopped abruptly in the 1970's”.
Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF)* 52p, Mkt Cap £60m – Bonds to finance the Empire open-pit copper project in Idaho
(Phoenix holds 80% of the Empire mining property in Idaho)
- Phoenix Copper reports the engagement of a broking syndicate to place non-convertible corporate bonds for the construction and development of its Empire open-pit copper project in Idaho.
- The bonds, which are repayable in 10 years, are expected to raise at least US$60m and “will pay a semi-annual coupon linked to the copper price with a minimum of 7.5% per annum (at a $3.60 / lb or lower copper price) and a maximum of 20% per annum (at a $11.95 / lb or higher copper price)”.
- The company confirms its intention “to list the Bonds on The International Stock Exchange ("TISE") in the Channel Islands as soon as practical after issue”.
- Richard Wilkins, Chief Financial Officer, described the non-convertible bonds as a “relatively novel form of mine finance” and explained that “the Bond Placement should free up significant additional cash during the initial few years of the mine life, which would otherwise have been used to repay more traditional forms of mine finance. It is intended that this additional early cash will enable us to accelerate exploration and development of the mineralised district surrounding the Empire Open Pit Mine, including the Red Star silver-lead deposit, the Navarre Creek gold project, and the historically mined sulphide copper deposit below the Empire Open Pit Mine”.
- He pointed out that “We have previously indicated that we intended to finance construction of the Empire Open Pit Mine with minimal or no dilution to existing shareholders, and we expect the Bond Placement to achieve this”.
*SP Angel acts as nomad to Phoenix Copper
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Analysts
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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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