SP Angel . Morning View . Monday 18 07 22
Copper climbs on a pullback in US inflation expectations and Chinese property market news
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Botswana Diamonds PLC (AIM:BOD) – Drilling underway at Thorny River
CMOC (BMV: CMOCTEZ) – CMOC suspends all exports from Tenke Fungurume copper, cobalt mine in the DRC
Kore Potash PLC (AIM:KP2, ASX:KP2, JSE:KP2)* – Q2/22 update highlights completion of the Optimisation Study with EPC proposal expected in Aug/22
Power Metal Resources PLC (AIM:POW)* – Site visit completed at newly acquired Botswana licenses
Ukraine central bank has sold over $12bn of its gold reserves during war
- Ukraine's central bank has sold $12.4 billion of gold reserves since the beginning of Russia's invasion on the 24th of February.
- Deputy Governor Kateryna Rozhkova told domestic news outlets: “We are selling so that our importers are able to buy necessary goods for the country,"
Copper prices rise as China seeks to firm up property sector
- Copper prices recovered somewhat on Monday morning, following two weeks of decline which saw prices dip below $7,000/t for the first time in over a year.
- Chinese regulators have urged banks to increase lending to developers so they can complete unfinished housing projects.
- Turmoil in China’s property market has weighed on copper prices in recent weeks, with China accounting for over 50% of global copper demand.
- Copper prices are trading over 2% higher than Wednesday’s close as of 9.30am London time.
Will we be fighting ‘Deflation’ next year as a surge in manufacturing output growth meets collapsing consumer demand?
- US Federal Reserve First priority is to control inflation by adjusting interest rates
- Inflation is therefore driving:
- Interest rates
- US dollar strengthening – as a result of the carry trade and funds seeking shelter in the US dollar.
- US Federal Reserve Second priority is to create jobs
- US payroll data is strong enabling the Fed to focus on their first priority, though this is almost certainly about to change fast
- Demand
- New job changes and higher resulting incomes encouraged spending as the US / West came out of lockdown
- Inflation now appears to be weakening consumer demand
- High fuel prices is further tightening household cash availability
- Higher interest rates adding to higher cost of fuel reducing household spending power
- Consumer confidence is poor due to raised uncertainty over Ukraine and energy availability
- Business confidence has collapsed - pushing back expansion projects and capex
- Manufacturing output
- New order growth is stalling manufacturing and is slowing in services
- Overproduction is already leading to heavy discounting by retailers
- Construction sector
- Cost inflation in construction renders more marginal projects unworkable
- Labour shortages and supply chain issues add to project risk and costs, though these should improve.
- Higher day rates for skilled crafts(people) and unskilled labourers
- Chinese property investment fell 5.4% in H1.
- Chinese property sales collapsed 22% yoy in H1 by floor area
- Chinese buyers of unfinished properties threaten a mortgage strike
- China has just started to encourage lenders to lenders to extend loans to qualified real estate projects
- Oil prices stabilising
- Oil prices may prove to be deflationary next year
- Gas prices likely to remain high till Ukraine war is over / potential regime change in Russia
- Europe – European economies slowing fast as recession adds to potential new crisis if Russia restricts gas supplies
- The recent shutdown of the Nordstream pipeline has delayed plans to refill storage with Russian gas through the Summer
- It’s not a question of if, it’s just a question of how hard will it be in Europe this Winter?
- Government bond yield differential between PIGS and Northern European economies creates potential new debt crisis.
- China – is concerned that demand from its largest customer, the US, is falling and could weaken their ‘export-led’ growth prospects
- Q3 is likely to show a sharp recovery from a disastrous Q2 as manufacturing output recovers to meet order backlog but who will buy the products?
- China has virtually no inflation, this is partly due to its US dollar currency peg and partly due greater state influence on wages and basic consumer prices.
- But China has property and potentially a banking crisis to work through before it restores consumer confidence.
- Chinese policymakers and the PBoC have developed a broader range of levers with which to adjust its economy and may be forced to accelerate its ‘Dual Circulation’ policy to encourage domestic consumption, though this may be tough with the ongoing property crisis.
- China is already offering low-cost finance to drive domestic EV sales to reduce gasoline consumption and generate demand to support growing EV production
China – turbocharges Electric Vehicle sales through lower-cost loans for buyers
- We knew it would come, China is determined to be and remain the world’s largest manufacturer of Electric Vehicles.
- Credit for vehicles rose 37.5% mom to $8.1bn in June
- We would go further and say that China’s ambition is to become the premier manufacturer of vehicle worldwide.
- First base for China is to raise EV sales and cut oil imports for gasoline.
- Second base is probably to cut vehicle imports, steer sales towards domestic producers.
- Third base is to become the world’s largest producer of Electric Vehicles with a strong command of the market.
Dow Jones Industrials +2.15%at 31,288
Nikkei 225 closed at 26,788
HK Hang Seng +2.38% at 20,780
Shanghai Composite +1.55% at 3,278
Economics
US – US markets closed higher on Friday with futures building on those gains early on Monday following better than expected retail sales released on Friday as well as a pullback in inflation expectations as indicated by the University of Michigan data.
- Long term inflation expectations (over the next 5-10 years) measured by the University of Michigan came in at 2.8% in July, down from 3.1% in June and the lowest since July last year.
- The headline Consumer Sentiment index also came in better than expected for July.
- Easing of inflation expectations is welcome news with positive economic data reducing risks of the central bank going for full percentage point hike next week.
- Retail Sales (%mom): 1.0 v -0.1 (revised from -0.3) in May and 0.9 est.
- Core Retail Sales (%mom): 0.7 v -0.1 (revised from 0.1) in May and 0.1 est.
- UoM Consumer Sentiment: 51.1 v 50.0 in June and 50.0 est.
China – Regulators asked banks to step up lending to property developers on the back of growing boycott of mortgage payments for unfinished housing projects.
- Hundreds of thousands of buyers have stopped mortgage payments on more than 200 unfinished real estate projects in China last week adding to sector’s liquidity crunch.
- Property sales by floor area fell 22% yoy from January-June vs a 24% yoy in fall January-May
- New construction starts fell 34% yoy in the first six months accelerating from a 31% fall in the first five months.
- Property prices were flat in around 70 major cities in June on the previous month.
- Regulators from the China Banking and Insurance Regulatory Commission met with banks last week to discuss boycotts.
- Shares of lenders and property developers climbed on the back of the news.
Regulators seen encouraging lenders to extend loans to qualified real estate projects (Reuters)
- The move is designed to reduce the risk of a mortgage-payment boycott on unfinished houses
- Eg the faster the apartment blocks are finished the sooner owners can move in.
- Ultimately, the authorities might like to unwind the practice of buyers making mortgage payments on unfinished properties.
- Covid: New covid cases reported continued to climb over the weekend with officials imposing new restrictions over the weekend, FT reports.
- 580 new local cases were recorded on Sunday marking the highest number since late May when many cities remained under lockdown.
- Officials in Guangxi responsible for half of the nation’s new cases were removed from their posts for allowing the virus to spread.
- Tianjin, a city of 16m residents neighbouring Beijing, brought in temporary restrictions on movement on Monday as it conducted mass testing after local cases of the virus were reported.
- Shanghai continued with mass testing in nine districts while the gaming enclave of Macau extended its lockdown, Bloomberg writes.
Japan – Tokyo’s Metropolitan Government raised its Covid infection alert for the capital to the highest level Thursday last week.
- The capital reported ~16.9k new cases mid last week, compared to ~3.6k at the start of the month.
- Cases are reported to be surging across the country as well, although the number of severe infections so far remains low.
ECB – The ECV governing council will be meeting this week and is expected to announce the first rate hike since 2011 on Thursday.
UK – The third round of voting among member of parliament to be held today to eliminate the one of the five remaining candidates.
- Results are to be announced at 8pm this evening.
- Rishi Sunak led last week’s second round of voting with 101 votes followed by Penny Mordaunt (83) and Liz Truss (64).
- Two further rounds of voting with be held on Tuesday and Wednesday to narrow the list to two candidates.
- The final result will be announced on September 5.
UK weather: 'Stay indoors' warning as Met Office 'never seen' weather charts like this (Sky Newa)
- the UK could hit 41C over the next two days - with forecasters saying the record temperature of 38.7C is likely to be broken on Monday and Tuesday.
Currencies
US$1.0143/eur vs 1.0028/eur last week. Yen 138.13/$ vs 138.74/$. SAr 17.004/$ vs 17.205/$. $1.194/gbp vs $1.184/gbp. 0.683/aud vs 0.674/aud. CNY 6.740/$ vs 6.764/$.
US dollar pulls back following strong gains
- Expectations for a potential 100bp rise in US interest rates has been tempered by recent comments helping the dollar lower.
- The US dollar has had an extraordinarily strong run against most other currencies knocking commodity prices and raising the cost of servicing US-dollar denominated debt for overseas companies.
Commodity News
Precious metals:
Gold US$1,721/oz vs US$1,704/oz last week
Gold ETFs 102.4moz vs US$102.5moz last week
Platinum US$868/oz vs US$845/oz last week
Palladium US$1,878/oz vs US$1,906/oz last week
Silver US$18.95/oz vs US$18.26/oz last week
Rhodium US$14,000/oz vs US$13,900/oz last week
Base metals:
Copper US$ 7,346/t vs US$6,975/t last week
Aluminium US$ 2,379/t vs US$2,314/t last week
Nickel US$ 19,810/t vs US$18,440/t last week
Zinc US$ 2,980/t vs US$2,829/t last week
Lead US$ 1,962/t vs US$1,844/t last week
Tin US$ 25,250/t vs US$24,250/t last week
Energy:
Oil US$103.7/bbl vs US$99.7/bbl last week
Crude oil prices rose this morning after President Joe Biden's trip to Saudi Arabia failed to extract any near-term commitment to boost its oil supply and relieve the fundamentally tight physical market.
European energy prices edged lower on reports that Canada has returned a repaired turbine required by the Russian Portovaya compressor station, which is a crucial element of the Nord Stream pipeline.
The US rig count rose by 4 to 756 rigs last week, with oil rigs adding 2 units to 599 rigs and 2 units recorded as miscellaneous rigs.
Natural Gas US$7.164/mmbtu vs US$6.703/mmbtu last week
Uranium UXC US$46.65/lb vs US$46.70/lb last week
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$96.6/t vs US$100.1/t
Chinese steel rebar 25mm US$624.4/t vs US$638.7/t
Thermal coal (1st year forward cif ARA) US$271.0/t vs US$251.0/t
Coking coal swap Australia FOB US$250.0/t vs US$240.0/t
Other:
Cobalt LME 3m US$55,445/t vs US$60,445/t
NdPr Rare Earth Oxide (China) US$125,009/t vs US$125,305/t
Lithium carbonate 99% (China) US$67,587/t vs US$67,347/t
China Spodumene Li2O 5%min CIF US$4,720/t vs US$4,720/t
Ferro-Manganese European Mn78% min US$1,375/t vs US$1,389/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% 8.3/lb vs US$8.4/lb
Europe Ferro-Vanadium 80% 35.25/kg vs US$35.25/kg
China Ilmenite Concentrate TiO2 US$360/t vs US$359/t
Spot CO2 Emissions EUA Price US$85.0/t vs US$83.5/t
Brazil Potash CFR Granular Spot US$1,050.0/t vs US$1,050.0/t
Battery News
VW to double ID EV sales in China, despite COVID-19 disruptions
- Volkswagen China has stuck to its goal of doubling sales of its ID series of EVs this year despite COVID-19 disruptions.
- VW is confident of delivering 15,000 to 20,000 of its ID vehicles per month in the upcoming months, according to Stephan Wollenstein, the company's China CEO.
- The German carmaker set a target in January of doubling sales of its ID battery EVs in China to 140,000 this year, from the 70,000 units it sold in 2021.
- Despite disruptions from recent COVID lockdowns at its major manufacturing sites, the company said it sold 59,400 ID EVs in China in the first six months this year.
China’s H1 battery output surges 176% yoy
- China's output of power batteries surged 176.4% yoy to 206.4GWh in the first half of the year, according to industry data.
- In the first six months of 2022, production of lithium iron phosphate (LFP) batteries totalled 123.2GWh up 226.8% from a year ago.
- Ternary lithium battery output totalled 82.9GWh, up 125% from H121.
Johnson Matthey to build £80m hydrogen cell facility in the UK
- Johnson Matthey has announced it is building an £80m gigafactory as it looks to scale up the manufacturing of hydrogen fuel cell components at its existing site in Royston, UK.
- Earlier this year, Johnson Matthey announced its strategy, with an ambition to be the “market leader in performance components for fuel cells and electrolysers”, targeting more than £200m in sales of hydrogen technologies by end of 2024/25.
- The gigafactory will initially be capable of manufacturing 3GW of proton exchange membrane (PEM) fuel cell components annually for hydrogen vehicles.
- The Advanced Propulsion Centre estimates that the UK will need 14GW of fuel cell stack production and 400,000 high pressure carbon fibre tanks annually to meet vehicle production demands by 2035.
- There could be as many as 3m fuel cell electric vehicles (FCEVs) on the road globally by 2030.
- The plans have been backed by the governments Automotive Transformation Fund, with Business Secretary Kwasi Kwarteng saying: “This investment, backed by Government, is a major vote of confidence from Johnson Matthey in the UK. Their new facility will not only add to our growing electric vehicle supply chain, but it will also help secure hundreds of highly skilled jobs.”
Tesla lays down 2TWh challenge to Panasonic
- Following new mandate from Tesla, Panasonic is building a pipeline of 2TWh of battery and raw material supplies for automaker, according to Chief Technology Officer Shoichiro Watanabe.
- As reported last week, Panasonic plans to spend $4bn to build a second gigafactory in Kansas to target growth in the US auto market – the Japanese battery producer is Tesla’s largest supplier due to the Nevada gigafactory, a joint venture with Tesla that has a capacity of 44GWh.
- Tesla has said it wants to produce 20m EVs by the end of the decade, and while it aims to make its own batteries, CEO Elon Musk has said that it will still rely on external suppliers.
- Assuming the 2TWh will be a mix of 50% lithium nickel cobalt aluminium oxide (NCA) and 50% NCM high nickel, the total raw material consumption would equal 170,000t of cobalt hydroxide, 1,630,000t of LCE, 1,660,000t of nickel and 2,400,000t of graphite anode, according to assessment from Benchmark Mineral Intelligence.
Company News
Botswana Diamonds PLC (AIM:BOD) 0.93p, Mkt Cap £8.2m – Drilling underway at Thorny River
- Botswana Diamonds reports the start of its latest phase of drilling at its Thorny River prospect in South Africa where the company is planning to drill at least ten reverse-circulation drilling to determine the possible presence of additional ‘blows’.
- Structural geological mapping in conjunction with geophysical data has defined “four high-grade gravity anomalies “ and the drilling is aimed at potential resource expansions.
- Chairman, John Teeling, described the drilling as “an important next step in our drive to establish a commercial operation at Thorny River. We are hopeful that these additional holes will expand the resource base to allow a financial evaluation of greater potential for the Thorny River diamond project
- The company says that drilling is expected to take around 2 weeks.
Conclusion: The latest drilling at Thorny River aims to expand the resource envelope and we look forward to the results
CMOC (BMV: CMOCTEZ) – CNY5.31, CNY103bn – CMOC suspends all exports from Tenke Fungurume copper, cobalt mine in the DRC
- CMOC is complying with demands by a court-appointed administrator.
Kore Potash PLC (AIM:KP2, ASX:KP2, JSE:KP2)* 1.2p, Mkt Cap £39m – Q2/22 update highlights completion of the Optimisation Study with EPC proposal expected in Aug/22
BUY
- The Company highlighted progress at its development ready flagship Kola Sylvinite Potach Project in the Sintoukola Basin, Republic of Congo.
- Q2/22 marked completion and receipt of the Optimisation Study on the project in April that delivered capital cost savings and reduced construction period enhancing project economics.
- Capital cost was reduced by $520m to $1.83B compared to the 2019 DFS on an EPC basis and cut construction period by 6m to 40m.
- NPV10% (attributed post 10% ROC free carried interest) and IRR (both post tax) increased to $1.62B and 20%, from $1.45B and 17%, using same $360/MOP price assumption.
- Using close to current spot $1,000/MOP CFR Brazil price, economics come in at $9.35B and 49%, respectively.
- Late June, the team announced it had signed a Heads of Agreement with SEPCO confirming project design, timeline and development cost (except for a potential changes related to the underground mine share of works that currently under review and account for ~9% or $164m of total capital cost) while reiterating completion of the EPC proposal in Aug/22.
- The EPC contract proposal for development of the Project is expected in August 2022.
- Once terms of the contract are agreed by the Company, financing should follow and is expected to be finalised in H2/22.
- The Company remained debt free and held $7.6m in cash (Q4/21: $11.1m).
Conclusion: Highlight of the quarter is the delivery of the Optimisation Study that improved project economics by reducing total development capex by >20% and cut construction period by six months. The HoA signed in June suggests the EPC proposal should be delivered in August and following the review by the Company should clear the way for funding proposal in H2/22, closing on which would mark a significant de-risking and rerating event for the Company.
*SP Angel acts as Nomad and Broker to Kore Potash
Power Metal Resources PLC (AIM:POW)* 0.875p, Mkt Cap £12m – Site visit completed at newly acquired Botswana licenses
- Power Metal provides an exploration update for the Company’s Tati project, Botswana.
- Visits have been made to all three of the company’s licenses, including the newly acquired 16.14km2 PL049/2022 which covers the historic Cherished Hope gold mine.
- Ground mapping has shown the historical gold workings are more extensive than previously understood, with at least 10 individual workings comprising of vertical shafts and trial pits over 175m.
- Extensive tailings on site are going to be evaluated for their reprocessing potential.
- Follow-up exploration includes sampling of the fines dump material and planning for RC drilling aimed at testing the along-strike and down-dip extent of the Cherished Hope mineralised quartz reef structures.
*SP Angel acts as nomad and broker to Power Metal
No.1 in Copper: “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”
No1. In Gold: “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”
The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020
Analysts
John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490
Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk - 0203 470 0474
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486
Sales
Richard Parlons –Richard.Parlons@spangel.co.uk - 0203 470 0472
Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534
Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
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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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