SP Angel . Morning View . Tuesday 12 07 22
US$ index rises to 22-year high depressing copper and most other metals in US dollar terms
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Anglo American PLC (LSE:AAL) – Quellaveco produces its first copper concentrate
Bushveld Minerals Limited (AIM:BMN, OTC:BSHVF)*– Bushveld offers good entry into development of mini-grid and batter storage markets
KEFI Gold and Copper PLC (AIM:KEFI, OTC:KFFLF)* – New licenses secured in Saudi Arabia.
Petropavlovsk PLC (LSE:POG) (POG LN) SUSPENDED – Russian gold producer files for administration
Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF)* – Drilling resumes at Empire
Pure Gold Mining Inc (TSX-V:PGM, LSE:PUR, OTC:LRTNF) – US$6m credit facility secured as the Company launches a strategic review
Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)* – NPV Valuation, 168p/s – June hits 2% copper head grade target with new monthly and quarterly records for copper output
Copper prices fall as speculators push prices lower and manufacturers and stockholders hold back purchases on potential for recession
- Investors have reduced their copper holdings in the CME as expectations for another Fed 75bp rate hike followed by a further 50bp in quick succession raises the prospect of recession.
- We now see the Fed as initiating a, short, sharp, shock to the US economy to control inflation before easing rates again to encourage further reshoring of manufacturing back into the US.
- The simple threat of raising interest rates so much higher will cause many manufacturers and stockholders to delay expansion plans and metal purchases.
- Rising US rates are lifting the US dollar as fund move to take advantage of the differential between higher US rates vs the UK, Europe and Japan.
- We now see the market as oversold given the strength of new demand for the new energy revolution and likely supply disruption out of Peru and Chile.
- Recession might hit, builders, plumbers and manufacturers but we suspect that demand for new wind turbines and cables to connect wind and solar farms as well as new EV charging points will continue regardless.
Gold price hits nine-month low as US dollar continues to strengthen
- Gold prices continue to be supressed by the US dollar, sliding to a nine-month low as the USD gains more than 2% this month.
- Bullion prices have slid 4% so far this month with investors favouring the US dollar and treasuries for safe havens.
- A strong dollar is bearish for gold as it makes bullion more expensive for holders of other currency.
- The Fed’s commitment to hiking rates to tame inflation is bullish for gold and US inflation figures due this week may lead to another rate hike.
- Economists view the Fed tightening at a faster pace than the ECB or BoE which is expected to keep the dollar strong.
- Treasury yields are also rising, with the US 10-year currently sitting at 2.92% vs 1.50% in January.
- Rising yields reduce investors’ incentive of holding non-interest yielding gold.
Three JP Morgan employees charged with racketeering conspiracy and price manipulation
- The charges also include wire fraud, commodities fraud and spoofing from 2008 to 2016 (Kitco News).
- A JP Morgan is alleged to have executed 38,000 layering sequences over the years, or about 20 a day, prosecutors said in filings.
- Another trader is alleged to dip into the futures market to hedge positions and also used layering some 3,600 times.
- It is further alleged that the market was manipulated to fulfil orders involving Moore Cap Tudor Investment Corporation, according to court filings.
Dow Jones Industrials -0.52% at 31,174
Nikkei 225 -1.77% at 26,337
HK Hang Seng -1.22% at 20,866
Shanghai Composite -0.97% at 3,281
Economics
China – Credit climbed more than expected last month to the highest level on record for June on higher bank lending and record government bond sales, Bloomberg reports.
- The end of the lockdown of Shanghai as well as government plans to support economic growth through fiscal stimulus contributed to a rebound.
- The growth of M2, the broadest measure of money supply, accelerated to 11% from 11.1%, the fastest pace since Nov/16.
- Aggregate Financing (CNY bn): 5,170 v 2,792 (revised from 2,790) in May and 4,200 est.
- Money Supply M2 (%yoy): 11.4 v 11.1 in May and 11.0 est.
CPI was flat in June vs a fall of -0.2% in May
- CPI was just 2.5% higher yoy in June and 2.1% in May
- PPI rose 6.1% yoy in June vs 6.4% yoy in May highlighting the contrast between the calculation of the two estimates
- Vehicle sales rose 29% yoy to 2.4m vehicles in June as the market catches up with pent-up demand as lockdown restrictions were released (Association of Auto Manufacturers)
- Sales fell 7.1% yoy in the first half to 12mill units which is hardly surprising considering so many were locked down and unable to get to car showrooms to view vehicles let alone organise a test drive.
China – Local bank liquidity in Henan province is causing some concern
Local authorities are alleged to be using Covid restrictions to restrict savers from accessing their accounts
- Crowds of customers of defied the authorities to protest outside branches of Henan bank.
- China turned the COVID pass code ' red ' to stop a bank run
- Savers had been restricted from withdrawing their cash.
- Chinese central bank in Zhengzhou, the capital of Henan.
- People who arrived in Zhengzhou to withdraw money from regional banks said their health codes were turn red limiting their movement.
- Affected banks are said to affect 1m savers and are reported to include: Yuzhou Xinminsheng Village Bank, Zhecheng Huanghuai Community Bank, Shangcai Huimin County Bank, and New Oriental County Bank of Kaifeng. (Sixth Tone)
- The managing director of the China Beige Book says “There is quite a bit of wrongdoing that has taken place at the local levels,”
- “The good news is this is not some kind of national bank run.”
China & Australia meet at G20 summit in a path to repair relations
- The Foreign Ministers of China and Australia met at the sidelines of the G20 summit in Bali over the weekend, the second ministerial meeting between the two countries in less than a month.
- Relations between the two nations were previously rock bottom, with no ministerial meetings for two years.
- Canberra wants Beijing to ease trade restrictions, including a ban on imports of Australian coal and import tariffs on other commodities such as barley and beef.
- Australia has continued to be a significant supplier of iron ore and LNG to China.
- Australia's export receipts from China accounted for 25% of all export receipts in May, vs 40% in July 2021.
Germany – Investor confidence hits the lowest since Euro debt crisis on concerns of a looming recession and high inflation, according to ZEW Institute survey.
- “The current major concerns about the energy supply in Germany, the ECB’s announced interest rate hike and further pandemic-related restrictions in China have led to a considerable deterioration in the economic outlook,” ZEW said.
- ZEW Survey Expectations: -53.8 v -28.0 in June and -40.5 est.
- ZEW Survey Current Situation: -45.8 v -27.6 in June and -34.5 est.
UK – The 11 candidates will need to secure backing of 20 MPs to be considered for the PM role with the first round of voting taking place this Wednesday and the second round due on Thursday.
- The plan is to find the final two before the summer parliamentary recess kicks off on 21 July.
- The pound continued to slide against the US$ trading at the lowest since mid-1980s.
Currencies
US$1.0011/eur vs 1.0122/eur yesterday. Yen 137.25/$ vs 136.79/$. SAr 17.149/$ vs 16.962/$. $1.185/gbp vs $1.196/gbp. 0.672/aud vs 0.681/aud. CNY 6.733/$ vs 6.712/$.
Commodity News
Precious metals:
Gold US$1,736/oz vs US$1,738/oz yesterday
Gold ETFs 102.9moz vs US$103.1moz yesterday
Platinum US$859/oz vs US$886/oz yesterday
Palladium US$2,128/oz vs US$2,128/oz yesterday
Silver US$18.99/oz vs US$19.03/oz yesterday
Rhodium US$13,900/oz vs US$13,900/oz yesterday
Base metals:
Copper US$7,442/t vs US$7,702/t yesterday
Aluminium US$ 2,356/t vs US$2,428/t yesterday
Nickel US$ 21,695/t vs US$21,615/t yesterday
Zinc US$ 3,034/t vs US$3,091/t yesterday
Lead US$ 1,935/t vs US$1,948/t yesterday
Tin US$ 25,660/t vs US$25,285/t yesterday
Energy:
Oil US$104.7/bbl vs US$105.7/bbl yesterday
Crude oil prices were steady after a Russian court order allowed the CPC terminal that transports over 1mb/d of Kazakh crude to the Black Sea coast to stay operational.
US natural gas prices continue to edge higher on the back of a heatwave in the South that has forced large industrial power users to curtail their energy use to help avoid blackouts in Texas.
Natural Gas US$6.504/mmbtu vs US$6.330/mmbtu yesterday
Uranium UXC US$48.40/lb vs US$48.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$107.1/t vs US$113.3/t
Chinese steel rebar 25mm US$641.5/t vs US$648.8/t
Thermal coal (1st year forward cif ARA) US$251.0/t vs US$251.0/t
Coking coal swap Australia FOB US$250.0/t vs US$250.0/t
Other:
Cobalt LME 3m US$60,445/t vs US$60,445/t
NdPr Rare Earth Oxide (China) US$131,799/t vs US$133,369/t
Lithium carbonate 99% (China) US$67,639/t vs US$67,877/t
China Spodumene Li2O 5%min CIF US$4,620/t vs US$4,620/t
Ferro-Manganese European Mn78% min US$1,446/t vs US$1,503/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% 8.9/lb vs US$9.0/lb
Europe Ferro-Vanadium 80% 35.75/kg vs US$36.25/kg
China Ilmenite Concentrate TiO2 US$360/t vs US$361/t
Spot CO2 Emissions EUA Price US$83.9/t vs US$83.0/t
Brazil Potash CFR Granular Spot US$1,050.0/t vs US$1,050.0/t
Battery News
Ganfeng Lithium buys lithium mines in Argentina
- Ganfeng Lithium has announced it has an agreement in place to buy Argentina-focused Lithea for up to $962m as it seeks to secure access to more resources for production of key battery metals.
- Privately-owned Lithea owns the rights to two lithium salt lakes – Pozuelos and Pastos Grandes (the PPG Project) – in Argentina’s mineral-rich Salta province.
- The PPG Project will produce 30,000t of lithium carbonate per year in Phase 1 and can be expanded to 50,000 tons per year depending on resource conditions.
- Ganfeng said the PPG project is "an excellent project in terms of resource amount, resource quality, capacity expansion potential and other aspects amongst the major lithium salt lake projects in Argentina".
- The acquisition comes amid a rush to secure resources as the transition from ICE vehicles to EVs accelerates.
LG Energy Solution to supply batteries to India’s Mahindra
- Following the reports that Mahindra and British International Investment will each invest $250m in the automakers new EV unit, an insider source has revealed to Reuters that LGES will supply batteries for Mahindra & Mahindra’s first electric SUV.
- The batteries will power the Indian automaker's XUV400 SUVs, likely scheduled for delivery between the fourth quarter and January, the source said.
- Mahindra has plans to launch five electric SUVs over the next few years starting with the XUV400 in September – these models are expected to contribute up to 30%, around 200,000 vehicles, of its total annual SUV sales by March 2027.
Hyundai to build first South Korean EV factory
- Hyundai Motor Co has said it will build a dedicated EV factory in South Korea that will become its first automobile facility to open in the country in almost three decades.
- The countries largest automaker last opened an automobile factory in South Korea in 1996.
- In May, Hyundai Motor Group, which houses Hyundai Motor and Kia Corp, said it would invest 63 trillion won ($48.1 billion) in South Korea through to 2025.
Company News
Anglo American PLC (LSE:AAL) 2,650p, Mkt Cap £36.4bn – Quellaveco produces its first copper concentrate
- Anglo American reports that its US$5.5bn Quellaveco mine in Peru has produced its first copper concentrate as the project moves towards receipt of its final regulatory clearances and commencement of commercial operations.
- Project leader, Tom McCulley, hailed the initial production “less than four years after project approval, including through two years of considerable pandemic-related disruption, is testament to the strength of our commitment to our workforce, local communities, the Moquegua region and government stakeholders in Peru”.
- The initial concentrates come from plant testing as ore production from the mine builds up ahead of full scale operations which are expected to reach 127,500tpd of ore production and an average 300,000tpa of copper production over the initial ten years of its planned 36-year mine life.
- The 60% owned mine, developed in partnership with Mitsubishi, incorporates innovative technology including autonomous mining equipment and digital infrastructure including AI and environmental monitoring and control systems.
Bushveld Minerals Limited (AIM:BMN, OTC:BSHVF)* – 6.83p, Mkt cap £86m – Bushveld offers good entry into development of mini-grid and batter storage markets
BUY – Valuation 31p
- The more we rely on wind and solar for our grid and local energy supply, the more we need to install grid-scale and local battery storage.
- The UK and US governments are still far away from commissioning new nuclear, even with a new political will to sign off on these projects.
- Worse still, new nukes are needed to replace the many nuclear power stations that are due for decommissioning.
- While nuclear is good for carbon-free baseload power wind looks cheaper per KWh depending on how you calculate the costs.
- The problem is that wind power needs to be combined with sufficient grid-scale battery backup for days when the turbines are becalmed.
- We have seen many different solutions for energy storage from old-school water pumping to 25t concrete blocks lifted by a crane to chemical storage devices.
- Our money is still on Vanadium Redox Batteries for grid-scale storage as if offers a relatively clean, reliable and near-maintenance free solution.
- Working with Bushveld Minerals and Bushveld Energy has given us an insight into the technical issues which have confronted VRFB development and deployment.
- The Bushveld team have worked through these practical issues and are ready to build their new solar ‘mini grid’ to be supported with a VRFB battery instillation.
- Proving the ‘mini grid’ should be a major advance in South Africa which is suffering increasing ‘loadshedding’ affecting industry and consumers alike.
- Not only should the mini grid prove to be more reliable than the South African grid but it could also prove to be cost effective.
- We see Bushveld Energy and its affiliates as developing into substantial businesses feeding not just the South African market.
Conclusion: While lithium-ion batteries are being installed for ‘rapid-response’ grid support in the US and UK, VRFB batteries offer a compelling case for longer term storage. Bushveld currently offers investors a good entry into the VRFB market through the development of Bushveld Energy which has the potential to become a substantial provider of VRFB systems and electrolyte.
*SP Angel act as nomad and broker to Bushveld
KEFI Gold and Copper PLC (AIM:KEFI, OTC:KFFLF)* 0.55p, Mkt Cap £22m – New licenses secured in Saudi Arabia.
- The Company secured two exploration licenses in Saudi Arabia through the Gold and Minerals JV (KEFI holds a 30% interest in G&M).
- Jibal Hillit and Qunnah are located ~30km apart and straddle the Ad Dawadimi and Afif terranes in the eastern portion of the Arabian Shield and cover a combined area of ~184km2.
- Location of new licenses can be seen using the following link https://www.rns-pdf.londonstockexchange.com/rns/0896S_1-2022-7-11.pdf.
- Licenses represent attractive gold exploration targets with 23 known gold occurrences having been recorded and grades of up to 15.3g/t at Jibal Hillit and 46g/t at Qunnah seen in historic waste dumps.
- Both properties are largely underexplored with reconnaissance programmes including mapping and rock chip sampling conducted by BRGM and USGS in 1970s and 1980s being the only modern exploration carried on licenses.
- G&M is planning to launch a mapping and sampling programme shortly to follow up on historic targets, extend the known limits of mineralisation and define the structural framework controlling mineralisation.
Conclusion: New licenses expand Saudi portfolio of assets and add to existing Hawiah VMS discovery that is expected to have a PFS completed by YE22 and Jibal Qutman where the team is aiming to prepare a DFS by Dec/22 and in discussions with authorities regarding the mining license.
*SP Angel act as Nomad to KEFI Gold and Copper
Petropavlovsk PLC (LSE:POG) (POG LN) SUSPENDED – Russian gold producer files for administration
- Petropavlovsk shares have been suspended following an administration application at the High Court in London in the coming days.
- POG has also requested the halting of trading on the Moscow Exchange.
- The company comments that it is currently unable to repay its loan with Gazprombank, and the Board considers it very unlikely that it will be able to refinance the loan in the short term and has to date been unable to do so.
- The company is still exploring a sale of its operating subsidiaries and has received an offer from one party to acquire and a proposal from another party expressing an interest in the acquisition of those subsidiaries.
- Discussions with both parties are ongoing.
Phoenix Copper Ltd (AIM:PXC, OTCQX:PXCLF)* 31.5p, Mkt Cap £37.9m – Drilling resumes at Empire
(Phoenix holds 80% of the Empire mining property in Idaho)
- Phoenix Copper reports that its 2022 drilling programme has started at its Empire mine project in Idaho.
- Drilling will recover relatively large (PQ size) 85mm diameter core to provide samples for additional metallurgical testing of the Empire mineralisation and provide further insight into the “non-toxic, environmentally friendly … [ammonium thiosulphate ] … reagent for the recovery of copper, gold, silver, and zinc from the Empire open pit resource” as well as providing additional geotechnical data to aid pit design.
- After completion of the large diameter drilling at the Empire open-pit site, drilling “will move to the Red Star silver-lead resource and the Empire deep sulphide target to conduct further exploratory drilling through to late autumn”.
- CEO, Ryan McDermott, explained that the additional information from drilling “may enable us to bring forward production of gold and silver, currently scheduled as a second phase of the open pit project”.
- He explained that the continuing open pit feasibility study was progressing but that “global volatility in pricing for everything from structural steel to chemical reagents has also slowed progress on the study” but that there were “some indications that markets are slowly calming and supply backlogs are shortening”.
Conclusion: As the new drilling season gets underway at Empire, Phoenix Copper is examining the possibility of advancing precious metals production currently planned as a second phase of the Empire open-pit project. We await the outcome of this analysis and of news from the latest drilling.
*SP Angel acts as nomad to Phoenix Copper
Pure Gold Mining Inc (TSX-V:PGM, LSE:PUR, OTC:LRTNF) 10.3p, Mkt Cap £75m – US$6m credit facility secured as the Company launches a strategic review
- The Company is postponing 2022 production guidance by two months to August as the team initiated a strategic review process.
- The Company is expecting to reach positive site level cash flow status in Q3/22 and deliver Updated Life of mine plant and NI 43-101 by Q4/22.
- The strategic review process carried with advisors may include a potential sale or merger of the Company or sale of some or all of mining operations among other things.
- The Company agreed an up to $6m short term credit facility with Sprott that matures on Dec/22 and carries a 14%pa interest.
- Additionally, the Company revised payment schedule on the existing Sprott debt replacing four principal repayments due Sep/22, Dec/22, Mar/23 and Jun/23 with the bullet payment in Aug/26.
- The team also agreed temporary reductions to debt covenants in the meantime.
- Restructuring provides ~C$12m of additional liquidity for the Company as it works its way through an optimisation plan.
Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)* 21.25p, Mkt Cap £34m – June hits 2% copper head grade target with new monthly and quarterly records for copper output.
NPV Valuation: 168p/s
- In its report of monthly performance for June, included in the H1 2022 operating results released yesterday afternoon, Rambler Metals & Mining reports an average copper feed grade of 2.02% achieving the 2% level which the company has previously discussed as a target for 2022.
- During the quarter to 30th June, copper feed grades have been rising steadily from 1.46% in April to 1.58% in May and reaching 2% in June as higher grades became available from the Upper Footwall and Ming North zones and with gold grades also improving from 1.46g/t in April to 0.41g/t in June.
- Copper concentrate production from the Nugget Pond plant has been increasing steadily from 1,341t in February to reach 2,347t in June bringing the total for the quarter to 5,890t (Q1 2022 – 4,191t and Q2 2021 – 2,502t) with saleable copper output reaching 624t in June to bring the quarterly total to 1,569t (Q1 2022 – 1,066t and Q2 2022 – 673t).
- Commenting on the results, President and CEO, Toby Bradbury, said that “June as a month and Q2 2022 as a quarter have set new records for the Ming Mine in terms of copper production”.
- Mining is reported to have “progressed in all four of the main production areas … [of the Ming mine] … with emphasis for the month on backfilling mined out stopes as part of the mine plan”.
- The total of ore and waste mined during the month increased by around 7% during June to 53,870t (May 2022 – 50,388t).
- The company explains that it placed 21,520t of backfill in the three lower mining zones of the mine during June (May – 16,296t0 and that “This necessary step in the mining sequence also benefits the operation by reducing or eliminating haulage of waste rock to surface and is one of the reasons why ore tonnes were lower for the month”.
- The backfilling programme “was introduced to the cycle to assist with reducing dilution and achievement of improved grades from the mine”.
- Mr. Bradbury expressed confidence in Rambler’s ability to “continue the improvement in performance though further optimisation of our mining execution. Maintaining a mining balance with backfilling to ensure at least 2 stopes are available for ore production at any one time necessitated a large proportion of waste backfilling in June to achieve this state”.
- He also confirmed that, in future, “Rambler will provide quarterly operational updates to the market which is now more appropriate given the condition that the operations have achieved”.
- Based on the operating statistics tabulated in today’s announcement H1 copper production amounts to 2,634t, implying that further improvements will be required during H2 to reach the previously issued production guidance of 7,000t of copper in 2022, however in our opinion, the encouraging improvements in copper head grades, if sustained, will be an important element in delivering the guidance.
Conclusion: Copper feed grade reached 2% during June and helped deliver record monthly and quarterly copper production for Q2 2022. Increased levels of backfill will aid in containing mine dilution improving operational resilience and flexibility and delivering continued grade stability at around 2% copper.
*SP Angel act as Nomad and Broker to Rambler Metals & Mining
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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
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Sales
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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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