SP Angel . Morning View . Thursday 14 07 22
Inflation, Interest Rates and the Carry Trade lead metals lower
MiFID II exempt information – see disclaimer below
Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)* – Q2 production -10% yoy on weaker grades; three new CAs ratified growing Group’s copper exposure
Atalaya Mining (AIM:ATYM, TSX:AYM) – High-cost inflation pressures reported as blending of stockpiled ore squeezes grade in Q2
Galan Lithium Ltd (ASX:GLN) – Initial test well results show high lithium grades, porosity and brine flow rates
GoldStone Resources (AIM:GRL)*– Paracale converts debt to equity in show of confidence
Kenmare Resources plc (LSE:KMR) – Ilmenite prices rise for seventh consecutive quarter due to low inventories
Pilbara Minerals Ltd (ASX:PLS) – Pilbara sells 5.5% spodumene concentrate shipment at US$6,188/dmt eq. $6,841/dmt for 6% LiO
Premier African Minerals Ltd (AIM:PREM) – Drilling results from the Zulu Lithium project
SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)* – Senior appointments
Inflation, Interest Rates and the Carry Trade lead metals lower
- Surprisingly high US inflation looks likely to drive a faster and more aggressive interest rate rises as the Fed looks to deliver a short, sharp shock to the economy.
- Prospects for higher US interest rates are also driving the US dollar yet higher helping to reduce input cost inflation for manufacturers and some services.
- The Carry Trade is seen as a major driver as funds look to take advantage of the interest rate differential between major currencies
- The Fed’s first priority is to bring inflation under control, they don’t like being out of control.
- The Fed’s second priority to is to Jobs, so when high interest rates hit jobs they are likely to pull back on interest rates to save the economy again
- The higher they hike rates, the more room they will have to cut rates again – the question is when.
- Other factors are the ongoing reshoring of manufacturing back into the US, the trade balance with China and the cost of servicing the US debt mountain
Copper prices continue to pull back as higher inflation in the US drives raises expectations for higher interest rate rises
- Chinese developers are under renewed pressure, as a rapidly increasing number Chinese homebuyers are refusing to pay mortgages for unfinished construction projects.
- Homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, according to a Chinese research provider.
- The delayed projects make up about 1% of China’s total mortgage balance and translate to roughly $58bn according to Bloomberg.
- Depsite the recent slump in copper prices, an S&P Global study released today warned of “unprecedented and untenable” copper shortfalls in the coming days
- Copper closed at its lowest in 20 months on Wednesday, and fell a further 1% this morning to $7,251/t.
- Quellaveco copper mine shipped its first concentrates from Peru. The mine is targeting 150,000tpa this year and 300,000tpa in stage 1, representing potentially 10% of Peruvian copper exports.
Dow Jones Industrials -0.67% at 30,773
Nikkei 225 +0.62% at 26,643
HK Hang Seng -0.49% at 20,696
Shanghai Composite -0.08% at 3,282
Economics
China – Exports surge drives trade surplus to $98bn record after Shanghai reopens from lockdown
- Chinese manufacturers are concerned that US consumption will fall as higher prices and interest rates hit consumption
- Trade surplus ballooned to $97.94bn in June vs $78.76bn in May
- Exports rose 17.9% in June vs May16.9% in May
- Imports gained just 1% in June vs 4.1% in May as logistics chains take time to restock warehouses
Extreme heat spark >90 red alerts along the Yangtze River system
- China's Yangtze River basin is suffering >40°C heat in places prompting >90 red alert warnings.
- Construction and other outside activities are reduced in extreme events causing further disruption to the construction sector.
Rising petrol prices encouraging move to electric vehicles
- China has raised gasoline prices 10 times this year persuading consumers to move to electric vehicles (SCMP).
- Consumers are moving to electric scooters and electric vehicles for short-distance travel as consumers look for ways to cut costs.
- We suspect China will continue to raise gasoline prices to further encourage the move to electric vehicles as the nation moves to reduce its reliance on imports.
- State control of fuel prices is reported to be forcing trucking companies out of business with freight income falling to CNY6 to 7/km from CNY10/km since 2018.
US - CPI rises 1.3% in June vs 1% in May and 9.1% yoy vs 8.6% yoy in May
- Core CPI rose 0.7% in June and 0.6% in May equating to a 5.9% yoyo increase in June and 6% yoy in May
India - Indian CPI rose 0.5% in June vs 0.9% in May, yoy 7% (7.05%),
Germany - CPI 0.1% in June vs 0.9% in May, yoy 7.6% (7.9%),
France - CPI 0.7% in June vs 0.7% in May
- CPI 5.8% yoy in June vs 5.2% yoy in May as French electricity is mainly nuclear powered, thanks to the French Government sinking Greenpeace’s’ Rainbow Warrior.
South Korea – raised interest rates by 0.5% to 2.25%
Canada - Bank of Canada raised rates by 1% to 2.5%.
Currencies
US$1.0023/eur vs 1.0009/eur yesterday. Yen 138.90/$ vs 137.13/$. SAr 17.042/$ vs 17.009/$. $1.186/gbp vs $1.189/gbp. 0.677/aud vs 0.677/aud. CNY 6.738/$ vs 6.720/$.
Commodity News
Precious metals:
Gold US$1,718/oz vs US$1,725/oz yesterday
Gold ETFs 102.6moz vs US$102.7moz yesterday
Platinum US$848/oz vs US$847/oz yesterday
Palladium US$1,949/oz vs US$1,994/oz yesterday
Silver US$18.98/oz vs US$19.00/oz yesterday
Rhodium US$13,900/oz vs US$13,900/oz yesterday
Base metals:
Copper US$ 7,243/t vs US$7,306/t yesterday
Aluminium US$ 2,351/t vs US$2,345/t yesterday
Nickel US$ 21,150/t vs US$21,300/t yesterday - LME to restart Asian nickel trading
Zinc US$ 2,901/t vs US$3,034/t yesterday
Lead US$ 1,920/t vs US$1,935/t yesterday
Tin US$ 24,615/t vs US$25,660/t yesterday
Energy:
Oil US$99.2/bbl vs US$100.3/bbl yesterday
Natural Gas US$6.674/mmbtu vs US$6.257/mmbtu yesterday
Uranium UXC US$47.50/lb vs US$47.70/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$104.6/t vs US$105.0/t
Chinese steel rebar 25mm US$641.1/t vs US$642.9/t
Thermal coal (1st year forward cif ARA) US$251.0/t vs US$251.0/t
Coking coal swap Australia FOB US$240.0/t vs US$260.0/t
Other:
Cobalt LME 3m US$60,445/t vs US$60,445/t
NdPr Rare Earth Oxide (China) US$127,260/t vs US$130,220/t
Lithium carbonate 99% (China) US$67,600/t vs US$67,789/t
China Spodumene Li2O 5%min CIF US$4,720/t vs US$4,720/t
Ferro-Manganese European Mn78% min US$1,418/t vs US$1,416/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% 8.5/lb vs US$8.7/lb
Europe Ferro-Vanadium 80% 35.25/kg vs US$35.75/kg
China Ilmenite Concentrate TiO2 US$360/t vs US$361/t
Spot CO2 Emissions EUA Price US$83.9/t vs US$83.8/t
Brazil Potash CFR Granular Spot US$1,050.0/t vs US$1,050.0/t
Battery News
Panasonic to build new $4bn EV battery facility in Kansas
- Panasonic Energy has announced it has selected Kansas as the site for a new battery plant that state officials said would create up to 4,000 jobs with investment of up to $4bn.
- The company is a major Tesla supplier, and the announcement comes following comments from Tesla CEO Elon Musk saying the automaker faced challenges ramping up production of its in-house batteries, contributing to limited auto output.
- The decision to choose Kansas over another possible site in Oklahoma comes after Kansas Gov. Laura Kelly pushed the state legislature to approve an incentive package of up to $1bn earlier this year.
- The new plant will primarily supply batteries to Tesla but will also supply other car manufacturers, it will also have a research department focused on next generation batteries.
- No decisions have been finalised on the production capacity of the new facility.
- In a separate announcement, Panasonic has revealed that it is working on a new technology to increase battery density by a fifth by 2030.
- A 20% boost in energy density would likely translate to an energy density of 900Wh/l for Panasonic's most advanced cell compared to 750Wh/l today.
Mercedes-Benz to start building electric bus in Brazil
- German automaker Mercedes-Benz is set to start the assembly of its first electric bus in Brazil later this year as demand grows in Latin America's largest economy.
- The company sees demand for electric buses in Brazil reaching 3,000 vehicles by 2024, from just over 1,000 buses in 2023.#
- Mercedes-Benz's 84-passenger electric bus, the EO500U, has a 250km range.
Company News
Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)* 82p, Mkt Cap £93m – Q2 production -10%yoy on weaker grades; three new CAs ratified growing Group’s copper exposure
BUY
- Q2 production totalled 15.1koz GEO (Q2/21: 16.7koz GEO) reflecting lower yoy gold output on weaker processed grades.
- GEO production comprised of:
- Gold 10.9koz (Q2/21: 12.3koz);
- Copper 0.7kt (Q2/21: 0.7kt);
- Silver 49koz (Q2/21: 17koz).
- H1/22 production amounted to 28.8koz GEO (H1/21: 32.2koz GEO).
- Mined tonnages were largely flat on the quarter with ROM grades trending lower.
- Agitation leaching plant that account for >40% of total GEO performed well with higher throughput and better recoveries more than compensating for a lower processed grades.
- Q2 gold dore sales (net of state share under the PSA) totalled 3.8koz at an average realised price of $1,895/oz.
- Copper concentrate sales (net of state share under the PSA) generated $8.1m (Q2/21: $9.1m).
- The Company expects Vejnaly and newly discovered Hasan Vein at Gosha to start contributing towards total production in H2/22 with Zafar expected to come onliune in 2023.
- Following the quarter end, the Company secured new Contract Areas adding 882km2 of new ground prospective in copper/gold mineralisation hosting a previously operating flotation operation as well as a historic copper resource.
- The team is currently working on a three year production plan and a development strategy regarding new licenses.
- Closing cash balance stood at $21.1m as of 30 June with $15.6m held in inventory in the form of unsold gold dore (~7.0koz at $12.7m) and copper concentrate (~$2.9m), little changed from $$37.4m held in cash and unsold inventories as of Q1/22.
*SP Angel act as Nomad and broker to Anglo Asian Mining
Atalaya Mining (AIM:ATYM, TSX:AYM) 258p, Mkt Cap £360m – High cost inflation pressures reported as blending of stockpiled ore squeezes grade in Q2
- Atalaya Mining (AIM:ATYM, TSX:AYM) reports increased production of 13,386t of copper during the 3 months to 30th June compared to the preceding quarter’s output of 11,461t (Q2- 2021 – 14,353t).
- The production results from the processing of 4mt of ore at a grade of 0.39% copper as throughput increased from the 3.5mt of the preceding quarter which was impacted by the “Q1 2022 transport sector strike and maintenance stoppage, which lowered throughput to 3.5 million tonnes”.
- Atalaya Mining explains that the grades so far in 2022 have been lower than those of 2021 as a result of “blending with lower grade stockpiles due to pit sequencing”.
- Copper recoveries of 86.44% during the quarter exceeded the Q1 “86.07% and despite lower grades, higher than the Q2 2021 comparative period” (84.83%).
- The mine produced a total of 3.8mt of ore during the quarter but waste stripping of 6.7mt brought the total for H1 to 13.5mt which “was higher than budget as waste mining was prioritised during the temporary plant maintenance stoppage”.
- Atalaya Mining is reducing its 2022 production guidance to the range 52-54,000t of copper from the previously announced range of 54-56,000t although CEO, Alberto Lavandeira explained that “the performance of the plant in Q2, … [achieved] … strong recoveries and a return to processing rates above our 15 Mtpa nameplate capacity”.
- He cautioned that “cost inflation remains very high and the prices of many key inputs are uncontrollable by nature. Therefore, we continue to focus on several key initiatives that will deliver operational efficiencies, stable and low cost electricity from 2023 and higher grade material to our processing plant” while providing reassurance that “Our balance sheet remains strong and we are well placed to navigate the ongoing uncertainties”.
- Elsewhere, the company reports progress with the Phase 1 E-LIX processing plant with commissioning expected to start “by the end of 2022” and with the 50MW solar energy plant at Riotinto where Atalaya expects start-up in Q2 2023.
- Atalaya recaps its previous announcements of the new mineral resources estimate at the San Dionisio and San Antonio deposits at Riotinto which indicated that “San Dionisio includes a potentially open pittable resource, with separate copper-rich and polymetallic zones, that represents an extension of the existing Cerro Colorado pit, as well as an underground polymetallic resource. San Antonio is an underground polymetallic deposit located less than one kilometre east of the Cerro Colorado pit”.
- In April, the company reported new estimates for San Dionisio showing an NI-43-101 compliant ‘Measured & Indicated’ resource of 56.1mt at an average grade of 0.91% copper, 1.14% zinc and 0.23% lead in the west extension of the existing Cerro Colorado pit.
- Atalaya Mining expects to complete a Preliminary Economic Assessment (PEA) of San Dionisio by the end of this year.
- Also in April, the company reported an underground ‘Inferred’ resource of 11.8mt at an average grade of 1.32% copper, 1.79% zinc and 0.99% lead at San Antonio is located “east of the Cerro Colorado pit”.
- Atalaya reports continuing exploration at Proyecto Masa Valverde where four rigs are in operation and work to date has shown that “mineralisation includes zones that are copper-rich and low-zinc, which could deliver higher grade material for processing at the existing Riotinto plant with minimal plant modifications”. A PEA is expected by the end of 2022.
- At its Proyecto Touro in Galicia, northern Spain, Atalaya “continues to engage with the many stakeholders in the region in advance of its plans to submit a new project design” aimed at addressing concerns expressed earlier in the permitting process.
Conclusion: The plant at Riotinto has returned to throughput rates above nameplate capacity but the combination of strike affected reductions in Q1 and lower grades arising from blending stockpiled ore and mine sequencing has led Atalaya to adjust its full year 2022 production guidance to 52-54,000t. PEAs are expected later this year for both the San Dionisio deposit, adjacent to the Cerro Colorado pit at Riotinto, and for Masa Valverde located less than 30km from Riotinto. We await the PEAs with interest.
Galan Lithium Ltd (ASX:GLN) A$0.98, Mkt Cap A$297m – Initial test well results show high lithium grades, porosity and brine flow rates
- The Company released first well test results at the flagship HMW lithium brine project in Catamarca Province, Argentina.
- 72-hour constant rate pump testing successfully completed at the first well (PPB-01-21).
- Tests indicated favourable brine production flow rates (permeability) with expected levels of 15-20 L/s.
- 14 brine samples collected during the test confirmed high grade nature of the brine returning ~910mg/L.
- The Relative Brine Release Capacity (RBRC) testing focused on studying porosity of the deposit returned positive results with specific yield values consistent with reported values for typical medium-to-fine sand lithologies.
- RBRC values ranged between 10.1% and 21.0% with a mean specific yield value of 14.1%.
- Pumping tests are planned to be competed on three further wells.
- All well pump test data will be incorporated into the upcoming HMW DFS carried by Hatch.
GoldStone Resources (AIM:GRL)* 6.25p, Mkt Cap £30.2m – Paracale converts debt to equity in show of confidence
TP – Under Review
- GoldStone reports that Paracale Gold, an entity closely associated with GoldStone’s Chairman Bill Trew, has elected to convert its total outstanding loan and associated interest into fully paid new ordinary shares.
- The loan in question was $1.22m at 6% per annum, issued on the 28th Dec 2018.
- Paracale reduced the balance of the loan to $724k in July 2021 through the exercising of 20m warrants at 1.2p.
- Yesterday, GoldStone reported that the outstanding loan totalling $767k will be converted into 9,802,821 new Ordinary Shares at a price of 6.55p / share – the closing mid-market price per share on 12 July 2022.
Conclusion: This is a positive deal for all parties as it reduces GoldStone’s debt position, while also acting as a strong show of confidence in the company from Mr Trew.
*SP Angel acts as broker to GoldStone Resources (AIM:GRL). An SP Angel analyst has visited GoldStone’s operations in Ghana.
Kenmare Resources plc (LSE:KMR) 429p, Mkt Cap £412m – Ilmenite prices rise for seventh consecutive quarter due to low inventories
- Kenmare report continuing rising ilmenite prices in their half year trading update.
- Low inventories are reported through the value chain
- The news supports supporting anecdotal evidence of low stock levels in China caused by disruption to port logistics and shipping.
- High freight costs may also play a part in this with container rates now falling fast as logistics chains normalise.
- Kenmare report a fall of 11% in ilmenite production at the Moma mine in Mozambique due to higher slimes recirculation, impacting excavated ore volumes and grades.
- Management now expect production to be at the bottom of guidance for the full year though Increased pricing should more than offset the pull back in production.
- The group reduced net debt by $17. 3m to $65.5m vs $82.8m at end December 2021.
- Kenmare paid out $24.1m in their final dividend for last year and are targeting a final dividend payout ratio of 25% profit after tax for 2022.
- Primary zircon production fell 6% in H1 to 26,000t
- Rutile production fell 5% in H1 to 4,000t
- Total shipments of finished products fell 29% in H1 to 424,300 in H1 due to reduced transshipment capacity, as one of Kenmare’s two vessels began its five-yearly dry dock in May.
- The cyclone season did not help much either.
- Outlook: ilmenite pricing and demand looks to remain robust through the third quarter supported by low inventories and continued supply constraints
- The market for zircon continues to tighten further due to inventory draw downs and is expected to remain tight in Q3
Conclusion: Kenmare are being bailed out by ongoing high prices for ilmenite, zircon and rutile with low inventory levels tightening the supply chain for feedstock materials.
Pilbara Minerals Ltd (ASX:PLS) A$2.45, Mkt Cap A$7.3bn – Pilbara sells 5.5% spodumene concentrate shipment at US$6,188/dmt FOB eq. $6,841/dmt for 6% LiO
- Pilbara’s Spodumene Concentrate grades 5.5%, indicating the US$6,188/dmt equated to $6,841/dmt for 6% Li2O
- The cargo of 5,000t of 5.5% lithium oxide attracted a highest bid of US$6,188/dmt, with delivery expected from late August 2022.
- This is the first time the Pilbara Minerals spot auction comes in lower than the last with the previous auction was at $6,350/t FOB.
- Does this mark the top of spodumene prices?
- Prices are still around 10 times higher than at the beginning of 2021
Premier African Minerals Ltd (AIM:PREM) 0.3p, Mkt Cap £90m – Drilling results from the Zulu Lithium project
- Premier African Minerals has released further drilling results from its Zulu Lithium project, located in the Fort Rixon greenstone belt in Zimbabwe.
- The drilling forms part of a continuing “programme that is intended to upgrade confidence in the original resource estimate from an inferred level to an indicated level”.
- The company emphasises that the “deposit remains open on strike in both directions and at depth”.
- Among the new results reported today are:
- An intersection of 21.92m averaging 1.11% LiO2 and 204ppm Ta2O5 from a depth of 22.38m in hole ZDD-036 and including a 5m section from 23.38m depth which averaged 1.44% LiO2 and 243ppm Ta2O5 as well as a deeper intersection of 4m width from 32.38m at an average grade of 1.88% LiO2 and 125ppm Ta2O5; and
- A 2m wide intersection at an average grade of 1.39% LiO2 from 47.32m depth in hole ZDD-052 which includes a deeper mineralised intersection of 5m averaging 1.04% LiO2 from 51.32m depth; and
- An intersection of 4.55m from 52.18m depth in hole ZDD-060 at an average grade of 0.82% LiO2 and 223ppm Ta2O5 including a single metre averaging 1.35% LiO2 from 53.18m depth.
- The mineralised intersections include rubidium values of up to 3,733ppm
- CEO, George Roach, explained that “we have reviewed all the previous work done prior to January 2022 and adjusted the geological model as indicated. The work to date has provided the level of confidence we needed internally to support the pilot plant concept as recently announced. In fact, what we are now understanding about the Zulu deposit is entirely complementary to the use of sensor-based ore sorting and in time is likely to result in a most efficient and effective process”.
- The Zulu lithium project is located around 80km north-east of Bulawayo and has previously been reported to contain an inferred mineral resource (reported under South Africa’s SAMREC Code) of 20.1mt at an average grade of 1.06% Li2O and 51ppm TaO2.
SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)* 25.54p, Mkt Cap £593m – Senior appointments
- Solgold has announced senior management appointments for both project development and corporate roles.
- Rufus Ghandi, a senior corporate lawyer and former General Counsel & Company Secretary to the Gladstone Ports Corporation joins as General Counsel and Company Secretary.
- Steven Botts, described as “a Senior Mining Executive, Director, and Consultant with over 40 years of international mining experience in the development of mining projects, socio-environmental management, and sustainable development. Mr. Botts has extensive Latin America experience, having worked in Argentina, Brazil, Colombia, Ecuador, Mexico, Panama and Peru” is appointed as President of Solgold’s Ecuador subsidiaries, based in Quito.
- Bernie Loyer, who will also be Quito-based, joins as Vice-President – Projects. He is described as having over 35 years of international experience in delivering large mining projects including over 20 years in Latin America including at Penasquita in Zacatecas, Mexico and at Santa Cruz in Argentina. Including 10 years with BHP Billiton in Peru and Chile.
- Welcoming the new appointments, CEO, Darryl Cuzzubbo, said they “bring the skills, experience and energy that we need to assist SolGold to realise its full potential as an organisation … [and that] … Steve, Bernie and Rufus were attracted to these roles because they want to play a significant role in realising the incredible opportunity that Cascabel and SolGold presents for Ecuador as the next Copper frontier”.
Conclusion: Solgold is strengthening its management team following the publication of the Cascabel PFS in April
*SP Angel acts as Financial Advisor to SolGold
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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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