SP Angel . Morning View . Wednesday 22 06 22
Base metals pick up despite uncertain economic outlook
MiFID II exempt information – see disclaimer below
Anglo American PLC (LSE:AAL) – De Beers reports continuing strong US jewellery demand
American West Metals (PRIVATE-AU:AW1) – Resource definition and exploration drilling to start at Storm Copper Project in July
Castillo Copper Ltd (LSE:CCZ, ASX:CCZ) – Option to sell Zambian projects
Empire Metals Ltd (AIM:EEE)* – Commencement of drilling at Eclipse-Gindalbie
Leo Lithium (ASX: FFX) – Leo Lithium raises A$100m for Goulamina Lithium project in Mali on fully subscribed demerger from Firefinch
Oriole Resources PLC (AIM:ORR) – Muratdere EIA submitted
Serabi Gold (AIM:SRB, TSX:SBI)* – Bulk sampling tests validate ore-sorting for Coringa
Tirupati Graphite PLC (LSE:TGR, OTCQX:TGRHF) – Tirupati makes good progress in raising graphite production in Madagascar despite cyclones
Dow Jones Industrials +2.15% at 30,530
Nikkei 225 -0.37% at 26,150
HK Hang Seng -1.99% at 21,131
Shanghai Composite -1.20% at 3,267
Economics
US – Equity futures resume declines after a short bounce recorded yesterday ahead of Fed’s Chair Senate address later today.
- S&P 500 futures are down 1.9% today following a ~2.5% gain on Tuesday.
- Existing home sales fell for the fourth consecutive month in May as an increase in prices and rising mortgage rates weighed on affordability.
- The median US home price climbed to $408k, surpassing the $400k mark for the first time and representing a 14.8%yoy increase.
- Meanwhile, mortgage rate reached a 35 year high last week.
- Existing Home Sales (%mom): -3.4 v -2.6 (revised from -2.4) in April and -3.7 est.
China – The government is considering more pro-growth policies and urging lenders to step up credit flow for infrastructure projects, Xinhua news agency cited Finance Minister Liu Kun.
- Authorities are planning to front-load stimulus, accelerate implementation of existing policies and aim to adjust macro policies to keep economic growth within a reasonable range, he said.
- The government is looking to accelerate the sale of special local government bonds amid falling tax revenues and land sales to fund more infrastructure investment.
UK – Inflation picked up again hitting another 40-year high and reaching 9.1% in May.
- In line with expectations, the gauge is now forecast to reach double digits by the autumn.
- The BOE is expecting inflation to reach 11% in October.
- Inflation is being driven by higher food, fuel and energy prices.
- CPI (%yoy): 9.1 v 9.0 in April and 9.1 est.
- Core CPI (%yoy): 5.9 v 6.2 in April and 6.0 est.
RMT union leader makes good case for rail worker pay rises
- Rail companies recorded significant profits despite covid restrictions last year
- Rail workers have not had a pay rise through this period and appear to be overdue a rise
- While rail strikes are disruptive and unpopular it appears fair for unions to ask for something closer to the rate of inflation for the year
Singapore – New covid cases jumped 23%wow with the increase blamed on new sub-variants, similar in severity but more transmissible compared to earlier Omicron.
HK – Iconic floating restaurant sinks sea while being towed out of the harbour for maintenance and storage.
Currencies
US$1.0482/eur vs 1.0548/eur yesterday. Yen 136.41/$ vs 135.17/$. SAr 16.036/$ vs 15.982/$. $1.218/gbp vs $1.230/gbp. 0.689/aud vs 0.697/aud. CNY 6.725/$ vs 6.695/$.
Commodity News
Precious metals:
Gold US$1,825/oz vs US$1,834/oz yesterday
Gold ETFs 105.1moz vs US$105.1moz yesterday
Platinum US$930/oz vs US$942/oz yesterday
Palladium US$1,864/oz vs US$1,874/oz yesterday
Silver US$21.29/oz vs US$21.57/oz yesterday
Rhodium US$13,600/oz vs US$13,450/oz yesterday
Base metals:
Copper US$ 8,995/t vs US$8,978/t yesterday
Aluminium US$ 2,534/t vs US$2,527/t yesterday
Nickel US$ 25,949/t vs US$25,738/t yesterday
Zinc US$ 3,592/t vs US$3,518/t yesterday
Lead US$ 2,066/t vs US$2,069/t yesterday
Tin US$ 31,339/t vs US$30,800/t yesterday
Energy:
Oil US$108.9/bbl vs US$114.3/bbl yesterday
Crude oil prices fell as the market flip-flopped towards demand fears in the face of increasing evidence of the need to contain global inflation.
European energy prices remain elevated despite evidence that industrial use has buckled under high input prices.
Natural Gas US$6.657/mmbtu vs US$6.667/mmbtu yesterday
Uranium UXC US$47.45/lb vs US$47.85/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$113.3/t vs US$121.0/t
Chinese steel rebar 25mm US$636.9/t vs US$646.0/t
Thermal coal (1st year forward cif ARA) US$262.0/t vs US$248.0/t
Thermal coal swap Australia FOB US$394.0/t vs US$346.0/t
Coking coal swap Australia FOB US$385.0/t vs US$385.0/t
Other:
Cobalt LME 3m US$72,400/t vs US$72,400/t
NdPr Rare Earth Oxide (China) US$140,147/t vs US$140,768/t
Lithium carbonate 99% (China) US$68,029/t vs US$68,330/t
China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t
Ferro-Manganese European Mn78% min US$1,745/t vs US$1,756/t
China Tungsten APT 88.5% FOB US$327/t vs US$327/t
China Graphite Flake -194 FOB US$815/t vs US$815/t
Europe Vanadium Pentoxide 98% 9.9/lb vs US$9.9/lb
Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
China Ilmenite Concentrate TiO2 US$362/t vs US$367/t
Spot CO2 Emissions EUA Price US$87.1/t vs US$87.5/kg
Brazil Potash CFR Granular Spot US$1,150.0/t vs US$1,150.0/kg
Battery News
Toyota joins Redwood Materials’ EV battery recycling initiative
- Japan’s Toyota Motor (NYSE:TM) Corp is the latest auto giant to join startup, Redwood Materials’, EV battery recycling and remanufacturing initiative.
- Redwood is building a closed-loop battery ecosystem in a bid to lower EV costs by reducing the dependence on imported materials and reducing the environmental impact of EV batteries.
- The US startup has also partnered with automaker Ford and battery manufacturer Panasonic.
- Redwood have plans to ramp up production of anode and cathode components to 100GWh by 2025, enough to supply batteries for 1m EVs a year and 500GWh by 2030, enough for 5m+ EVs.
- The battery recycler currently operates a 175-acre facility in Nevada and has plans to build a new facility in the south-eastern US.
- Industry forecasters have predicted that global EV production could reach as high as 40m EVs a year by 2030.
Audi to invest $320m to boost EV engine output in Europe
- Audi’s Hungarian division will invest $320.2m to ramp up EV engine production at its factory in the west of Hungary.
- Foreign Minister Peter Szijjarto said Audi, would start manufacturing the new engines from 2025, adding 500 jobs at the plant, which Audi says is the world's biggest engine factory.
- Hungary is the 20th largest car exporter in the world, with over 90% of vehicle manufactured in the country exported.
Renault announces partnership with Minth Group to expand EV plant in France
- Renault Group announced yesterday that it would be entering a joint venture with Chinese parts manufacturer Minth Group to expand an existing production facility to manufacture battery parts.
- The two companies have been working together for a long time, but this is the first formalisation of their relationship.
- The production facility will take advantage of existing Renault infrastructure, being an expansion of an existing plant in Northern France, part of Renault’s ElectriCity.
- The new production facility will focus on “battery casings,” aiming to make 300,000 casings a year by 2025 – the expansion will consist of two new production lines and aims to be up and running by early 2023.
Company News
Anglo American PLC (LSE:AAL) 3,267p, Mkt Cap £45.1bn – De Beers reports continuing strong US jewellery demand
- Anglo American reports that the fifth De Beers sales cycle of 2022 realised US$650m on a provisional basis and that the previously reported sales for the fourth sales cycle of 2022 have now been confirmed as US$604m.
- The latest provisional sales figures are more than US$170m ahead of the US$477m reported for the equivalent fifth sales cycle of 2021 and bring sales so far in 2022 to over US$3.1bn and, we estimate, is the first time sales at this stage of the year have exceeded US$3bn since 2016.
- Reporting strong US diamond jewellery demand, De Beers Chief Executive, Bruce Cleaver, confirmed that “The continued strength of US demand for diamond jewellery and the gradual reopening of retail outlets in China following Covid-19-related lockdowns have supported the sales momentum of De Beers Group's rough diamonds”.
American West Metals (PRIVATE-AU:AW1) A$0.14, Mkt Cap A$23m – Resource definition and exploration drilling to start at Storm Copper Project in July
- The Company is planning to start diamond drilling at the Storm Copper Project in Nunavut, Canada, in July to test key resource and exploration targets.
- This will be the maiden drilling programme carried by American West as the operator of the project after signing an option agreement with Aston Bay.
- The programme is planned to define maiden resource at the high grade 2750N Zone that is envisaged as a potential low footprint DSO operation as well as test growth potential verifying a number of high priority EM anomalies identified in 2021.
- Resource definition drilling will comprise >1,500m of shallow (100-150m) drilling following up on historic drilling that returned high grade intersections including 110m at 2.45% Cu from surface and 56m at 3.07% from 12m.
- Exploration drilling will focus on EM anomalies including seven strong near surface and subvertical conductors and seven large, deeper and generally flat lying conductors.
Castillo Copper Ltd (LSE:CCZ, ASX:CCZ) 0.78p, Mkt Cap £11.0m – Option to sell Zambian projects
- Castillo Copper reports that it has granted London-based, Hyperion Copper, an option to acquire its wholly-owned subsidiary, Zed Copper for £3.75m.
- The Zambian assets include the Luanshya and Mkushi projects. Previously, Castillo Copper has announced induced polarisation geophysical surveying identing a 6km long zone containing multiple potential drilling targets at Luanshya and geochemical soil anomalies at both Luanshya and Mkushi.
- Under the 12-month option, Hyperion Copper is will pay US$100,000 “to secure a 12 month exclusive option and, if exercised, issue £2.25m (~A$4m) in Hyperion shares to acquire 100% of the issued capital of Zed”.
- In addition, Castillo Copper will receive an additional £1.5m in Hyperion shares on the definition of a mineral resource of 200,000t of contained copper.
- Today’s announcement says that Hyperion “intends to list on the AIM market of the London Stock Exchange in H2 2022 and raise funds to fully develop its African projects”, which also include a gold project in Burkina Faso.
- Castillo Copper discloses that “The consideration shares must represent no less than 25% of the enlarged share capital of Hyperion upon its listing on the LSE's AIM market”.
- Welcoming the agreement with Hyperion Copper, Managing Director of Castillo Copper, Dr. Dennis Jensen, said that “we now have a partner who will fund all future development work, whilst benefits accrue to Castillo via retaining the shareholding in Hyperion Copper post its AIM listing.”
Conclusion: Earlier this year, Castillo Copper abandoned plans to acquire lithium projects in Australia so that it could focus on its copper/cobalt opportunities at Broken Hill NSW and in Queensland and the decision to take advantage of the increasing interest in the copper exploration potential of Zambia underlines the company’s focus on the projects in eastern Australia.
Empire Metals Ltd (AIM:EEE)* 1.3p, Mkt Cap £5m – Commencement of drilling at Eclipse-Gindalbie
- The Company launched the next drilling programme at the Eclipse-Gindalbie Gold Project in WA, Australia.
- The programme includes ~3,300m of RC drilling across 26 drill holes targeting high grade targets at the project including Homeward Bound area.
- Drilling at Homeward Bound previously delivered narrow high grade intersections including:
- 5m @ 8.99 g/t Au from 31m downhole, including 1m at 40.90 g/t Au
- 3m @ 8.96 g/t Au from 98m downhole, including 2m at 13.28 g/t Au
- 3m @ 9.88 g/t Au from 46m downhole, including 1m at 26.20 g/t Au
- Additionally, the programme will test for mineralisation below the small open pit at Bud’s Find, at depth and along strike extension of the Eclipse lode and around historical workings at Bulletin.
*SP Angel acts as nomad and broker to Empire Metals
Leo Lithium (ASX: FFX) A$0.70c, Mkt cap A$838m – Leo Lithium raises A$100m for Goulamina Lithium project in Mali on fully subscribed demerger from Firefinch
(Firefinch has subscribed to A$20m of stock and holds 20% of Leo Lithium. Firefinch retains its gold portfolio including the Morila gold mine)
- Le Lithium has raised A$100m at A$0.70c/s and will start trading tomorrow in Australia.
- A$60m of the funds raised in the demerger will fund stage 1 of the Goulamina Lithium project for the construction of the 2.3mt capacity plant for the production of spodumene concentrate.
- Funds will also be used to repay a A$10m loan to Firefinch, A$25m is for working capital, exploration and other expenses and A$5m for transaction costs.
- Ganfeng, the Chinese lithium processor, has already committed £130m to the project and will either procure $64m of external debt or $40m of its own debt to fund Stage 1 development .
- Goulamina ranks within the world’s top 7 global mineral resources at 108mt grading 1.45% Li2O with a reserve of 52mt grading 1.51% Li2O
- Stage 1 production: 506,000tpa rising
- Stage 2: 831,000tpa
- Demerger: the demerger grants 1 Leo Lithium share for each 1.4 Firefinch shares and entitled Firefinch shareholders to subscribe to a further 1 Leo Lithium share for each 10.33 firefinch shares held.
- Goulamina capex US$255m is now covered with:
- $130m from Ganfeng
- $40-64m loan funding through Ganfeng
- A$85m (US$58.6m) of the A$100m (US$69m) available from demerger funding
- Total US$228-252m
- Capital and operating costs have risen around 20% over the past couple of years for many mining projects requiring revision to project costings.
- Around US$43m will not be required for at least 12 months giving management time to further optimise the project and work out how to fund the shortfall.
- Trucking: Kodal Minerals recently revised their estimated trucking costs to US$112/t from US$93.6/t for the Bougouni project next door.
Conclusion: While current rise in spodumene prices far outweighs the impact of capital and operating cost increases management will challenged to develop the mine, process plant and logistics within the current financing. However, given the very substantial demand for spodumene concentrate and the rise in prices, we do not envisage a problem with additional finance.
Oriole Resources PLC (AIM:ORR) – 0.22p, Mkt cap £4.1m – Muratdere EIA submitted
- Oriole Resources reports that the owners of the Muratdere copper/molybdenum project in Turkey, Lodos Maden Yatırım Sanayii ve Ticaret (Lodos) have submitted an updated Environmental Impact Assessment to the relevant authorities.
- Oriole Resources holds a 1.2% post-tax net-smelter-return royalty over the project which it operated between 2005-2011 when it established an inferred resource of 51mt at an average grade of 0.36% copper, 0.12g/t gold, 2.40g/t silver and 0.01255 molybdenum prior to selling an initial 51% interest in the project to Lodos in 2012.
- The project, which will be fully funded by the Turkish owners, is expected to operate as an open-pit mine producing 1.6mtpa of ore over a ten year mine life and Oriole Resources’ NSR “is estimated to be approximately US$7.5 million over the same period, though this does not take into account any value from the underlying Resource, which is outside of the current mine plan”.
- Oriole Resources’ CFO, Bob Smeeton, explained that “the Muratdere royalty is a highly saleable asset for the Group and, with a positive outcome on the EIA report expected later this year, the value of that sale is likely to increase markedly in line with the enhanced level of de-risking that brings. We are actively engaging with royalty groups regarding a potential sale”.
Serabi Gold (AIM:SRB, TSX:SBI)* 40.5p, Mkt Cap £30m – Bulk sampling tests validate ore-sorting for Coringa
- Serabi Gold (AIM:SRB, TSX:SBI) reports that treating 566t of ore from Coringa in the processing plant at its Palito mine has demonstrated that initial ore-sorting improved the feed grade threefold from 6.24g/t gold to 19.61g/t gold, resulted in a mass-rejection of around 70% and delivered 96% gold recovery.
- CEO, Mike Hodgson, explained that the results “demonstrate that ore sorting works … well … [and that] … While these processing results are in line with our expectations based on the significant metallurgical test work that has been completed, achieving gold recovery of 96% on a bulk sample through our full-scale processing facility is a major step in further de-risking Coringa”.
- He explained that ore-sorting “brings significant economic benefits, reducing the waste material passing through the plant and therefore processing cost and the volume of tailings generated”.
- Serabi Gold also reports channel sample results from the continuing underground development at Coringa including:
- “0.65 metres @ 99.26g/t Au (SRR-320-042 - development 320_V3S)
- 0.42 metres @ 116.18g/t Au (SRR-320-044 - development 320_V3S)
- 0.17 metres @ 302.36g/t Au (SRR-340-031 - development 340_V3N)
- 0.55 metres @ 46.53g/t Au (SRR-320-050 - development 320_V3S)
- 0.52 metres @ 55.57g/t Au (SRR-340-039 - development 340_V3S)
- 0.22 metres @ 123.62g/t Au (SRR-320-052 - development 320_V3S)
- 0.32 metres @ 133.92g/t Au (SRR-340-042 - development 340_V3S)
- 0.50 metres @ 68.59g/t Au (SRR-320-056 – development 320_V3S)”
- Mr. Hodgson also confirmed that “Underground mine development … [at Coringa]… is continuing, with over 200 metres of on-lode development now completed. This is enhancing our understanding of the ore-body and also providing a stockpile of high-grade ore that in the near term we will truck to Palito to generate additional gold production and revenue”.
Conclusion: Validation of the viability of ore-sorting while maintaining gold recovery rates at Coringa contains the possibility for meaningful cost reductions as the project develops
*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil
Tirupati Graphite PLC (LSE:TGR, OTCQX:TGRHF) 33.5p Mkt Cap £30m – Tirupati makes good progress in raising graphite production in Madagascar despite cyclones
- Tirupati Graphite report on the continuation of graphite mining and processing in Madagascar despite six cyclones in the past six months.
- Vatomina: management report shipments of 1,137t of graphite at US$866/t from January to March (Q4 FY22).
- The mines produced 2,996t in FY 2022 to end March with sales of 2,662t vs 1,857t a year earlier.
- The head grade at Vatomina remains 3% vs a target of 4-4.5%.
- Instillation of a new column flotation system at Vatomina has been completed with trials and integration scheduled for this month.
- Sahamamy: commissioning of their second 18,000tpa module has been delayed by three months to September due to the inclement weather.
- Hydropower: The commissioning of the 100KW Sahamamy hydropower plant is on schedule for July.
- This will replace much of the diesel used on site and should have on-site emissions by ~50% and power costs by ~10%.
- Cost inflation: Tirupati are shifting sales to Free-on-Board ‘FOB’ shipments, eg shifting freight costs onto buyers to combat the high cost of freight.
- Fuel, stell and other products are raising operating and inventory costs. The new Sahamamy 100KW hydropower plant will serve to offset some of the rise in fuel costs.
- Exploration continues to show new discoveries at Vatomina and Sahamamy.
- Graphite market: Tirupati see continued growth in graphite demand based on growth in electric vehicle production and remain confident in their ability to sell increased production from their mines.
- Production target: management remain focussed on raising production capacity to 30,000tpa of rated capacity in the near term from the current 12,000tpa capacity. This is through the commissioning of the second module at Sahamamy.
- Tirupati retain their longer-term target of 84,000tpa through the addition of a further three modular 18,000tpa process plants in Madagascar. This is due by end 2024.
- Madagascar is not the easiest of places to run a mine in, not helped by a longer and stronger than normal cyclone season this year with >200 weather related fatalities on the island over a million people affected with flooding affecting >60,000ha of rice fields.
Conclusion: We see Tirupati as a graphite company offering strong growth prospects backed by an expert management team with ambitions to grow the business into a world leader in the graphite space.
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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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