Today's Market View - Galantas Gold, Kodal Minerals, Power Metal Resources, and more...

SP Angel . Morning View . Wednesday 27 07 22

Metals prices soften ahead of expected Fed rate rise today

NdPr and iron ore prices rise on expectations for further Chinese stimulus

MiFID II exempt information – see disclaimer below

Call for Private financing - Lithium prospects (Africa)

We are raising funds for a highly experienced geological team who have access to a number of prospective lithium licenses in Africa

• We are looking for very early-stage funding to support the discovery and delineation of a number of potential spodumene occurrences on these licenses.
• The licenses are close to another successful lithium project company and are believed to contain spodumene occurrences.
• Please contact us if you are interested in investing in this early stage and highly speculative venture

*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.

Anglo American PLC (LSE:AAL) – De Beers reports continuation of H1 strength in diamond demand

BeMetals Corp (TSX-V:BMET)* – Drilling capacity strengthened following encouraging initial drilling results from Kato, Japan

Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTC:GALKF)* – US$530k loan secured to bring Omagh project into production

Gemfields PLC (JSE:GML) – Reports record breaking auction revenues in H1 2022

Kodal Minerals PLC (AIM:KOD)* – Steven Zaninovich Appointed as Operations Director

Newmont Mining Corporation of Canada Ltd (TSX:NGT) – AISC jumps 16% YoY in Q2 results as inflationary pressures hit miners

Power Metal Resources PLC (AIM:POW)* – Quarterly business update

Rio Tinto PLC (LSE:RIO) – Solid H1 performance and strong market underpins 2nd highest interim dividend

Massive discrepancies in global energy prices to drive gas intensive industries to US from Europe

Gas intensive industries are: fertilizers, steel, cement

• Brent oil $105/bbl
• US natural gas $50/bbl
• UK NBP gas $275/bbl
• European TTF $375/bbl

Dow Jones Industrials -0.71% at 31,762

Nikkei 225 +0.22% at 27,716

HK Hang Seng -1.42% at 20,609

Shanghai Composite -0.05% at 3,276

Economics

US – The Fed is set to hike rates by 75bp for a second consecutive month with the announcement expected later today.

• Alphabet, Microsoft and Texas Instruments delivered reassuring results while more than three quarters of firms that have reported so far either beat or met expectations, Bloomberg reports.
• President Biden will speak with Chinese leader Xi Jinping on Thursday amid new tensions over Taiwan.
• US Case Schiller house price rose 1.5% in May vs 2.3% in April and 20% yoy in May vs 21.2% yoy in April
• Consumer confidence pulled back to 95.7 vs 98.7
• New home sales fell 8.1% in June to 0.590m units vs 6.3% in May
• Richmond Fed manufacturing index at 0 in July vs -9 in June

China – Rising savings rates hit economy

• Q1 debt to GDP rose 4.6% to 277% from Q4 2021

Industrial profits rise due to easing of Covid restrictions

• The increase was driven by a continued rebound in production and sales, as well as “further recovery in industrial chains and supply chains”, the report said.
• Profits at China’s industrial firms rose by 0.8% yoy in June vs 1% for the first half and -6.5 in May (SCMP)
• Foreign Industrial businesses profits fell by 13.9% through the first half.
• The recovery in profit growth was driven by a pickup in demand, said Zhou Maohua, an analyst at China Everbright Bank, adding it led to strong profit growth in the upstream sector.
• Profitability in the middle and downstream manufacturing sectors, as well as producers of electricity, heat, gas and water, also improved, he said..
• Auto manufacturers saw profits jump by 47.7% in June as production resumed in Shanghai and northeast Jilin dragging manufacturing profits higher with Tesla recording record output in Shanghai.
• Liabilities at Industrial companies was 10.5% yoy higher in May and June reflecting worsening balance sheets due to Covid restrictions.

Germany – Consumer confidence hit a new low this morning in recession fears, GfK reported this morning.

• Households are concerned over rising energy and food prices as well as fears about adequate gas supplies this winter
• The income expectations index declined to -45.7 this month, the lowest level since the survey began in 1991.
• GfK Consumer Confidence: -30.6 v -27.4 in July and -28.9 est.

UK – Retail shops’ prices climbed at the strongest pace since 2005 on the back of supply chain disruptions and rising production and shipping costs, according to the British Retail Consortium.

• The data adds to the cost-of-living crisis hitting consumers and strengthening outlook for more BOE rate hikes.

Hungary – Central bank raises rate by 1% to 10.75%

Australia – Inflation hit the highest rate in more than two decades in the three months to June on higher energy, food and housing prices.

• The RBA hiked rates by 50bp to 1.35% in July with markets currently pricing in rates to each ~3.2% by the end of the year.
• CPI (%yoy): 6.1 v 5.1 in Q1 and 6.3 est.
• Core CPI (%yoy): 4.9 v 3.7 in Q1 and 4.7 est.

Inflation vs recession – reasons why raising interest rates and recession are inappropriate policy responses to inflation

• Claudia Sahm of Sahm Consulting states in the FT today that recession is worse than inflation and argues there is too much to lose with recession especially now.
• Sahm argues that use of the Phillips curve by central banks for inflation vs unemployment is inappropriate and in the Great Recession inflation outpaced compensation.
• Inflation is currently being driven by supply side disruption and underlying rises in raw materials, energy and other input costs more than wage increases much of which is being soaked up by higher fuel bills.
• Much of this is driven by Russia, Ukraine and the emergence from and longer-term impact of Covid-19.

Malawi – The World Bank provided $24m worth of guarantees for an investment into a 20MW solar-plus-storage project in Malawi.

• The project is reported to have recently entered commercial operations and is the first grid-connected utility scale co-located project in sub-Saharan Africa and the first utility-scale battery in Malawi.
• The solar farm is paired with a lithium-ion battery energy storage system (BESS).
• The country reports one of the lowest power access rates in the world at just ~11% in 2019 (World Bank) with plans to increase this to 30% by 2030.
• Most of the generated electricity (~75%) comes from renewable sources and mainly from hydropower in Lake Malawi.

Inflation – McDonalds has put up the price of Cheeseburger by 20% to £1.19 from 99p

Reckitt Benckiser raised prices by 9.7% in Q2 as input costs remain unpredictable due to commodity pricing

• The multinational owns brands such as Neurofen, Dettol, Finish and is expecting to see longer term growth in its gold and flu products
• The company saw sales volumes rise by 2.2% in Q2 despite price hikes
• Reckitt’s Nutrition division sales jumped 40% in the US due to problems at Abbott Laboratories (NYSE:ABT), the largest baby formula manufacturer in the US.
• Reckitt was able to step in and make up for the Abbott shortfall and is now feeding around half of all infants in the US

Amazon raise Prime membership rates by 20% in UK to counter rising operating costs

• Amazon prime membership is rising to £95/year in the UK from £79/year, the first price rise since 2014
• Prime membership rates are rising 43% in France, 30% in Germany and 17% in the US
• Amazon estimate they will have 32m subscribers forecast in the UK by 2024 which is higher than the actual number of households at 27.8m in 2020.
• We wonder if consumers might use this to ditch Amazon Prime along with their Netflix accounts.

Long covid – IFS estimates Long Covid is costing the UK economy £1.5bn a month (£18bn pa)

• The Institute for Fiscal Studies reckons >100,000 workers are missing from their jobs in the UK at any one time owing to long Covid (FT)
• The report gives an insight into one of the drivers of employment as companies move to recruit more staff to make up for Covid and Long Covid absences.
• Official data shows Long Covid suffers doubled yoy to around 2m in May with around 1/5th saying it limits their day-to-day activities.
• Long Covid is also more prevalent among people who are claiming benefits, in poverty or living in social housing before the pandemic.
• But Long Covid only accounts for around half the 200,000 rise in economically inactive people due to sickness in the past two years.
• “Official data shows that almost 7m people of working age said they had a long-term health condition of whom just over half are working, but a growing proportion neither have nor want a job.”
• “This appears to be a key reason why the UK’s workforce remains smaller than it was before the pandemic, while labour force participation in other countries has rapidly recovered.”

China aluminium production expected to remain strong despite rising energy costs

• Forecasts on aluminium production out of China are expected to keep prices supressed in the near term, with analysts forecasting a gradual increase in supply through the rest of 2022.
• State-backed metals research house Antaike forecasts China's aluminium output will reach 10.42mt in the Q3 and 10.54mt in the Q4, up from 10.11mt in Q2, Reuters reports.
• Similarly, Bloomberg forecast production to rise 6% in the second half of this year, driving annual growth to 3% to 40mt.
• Meanwhile, smelters continue to get squeezed on costs, driven by electricity costs, which account for one-third of production costs.
• China is entering into the summer peak season for consumption which could drive prices even higher.
• Aluminium prices have fallen ~14% so far this year, further squeezing producers.

Conclusion: Given the high costs associated with idling furnaces, it is possible that smelters are still producing as they expect an uptick in prices in the near term.

South Korea – Q2 advanced GDP rose 0.7% qoq vs 0.6% in Q1 and rose 2.9% in Q2 yoy vs 3% yoy in Q1

Currencies

US$1.0138/eur vs 1.0227/eur yesterday. Yen 137.03/$ vs 136.58/$. SAr 16.884/$ vs 16.750/$. $1.205/gbp vs $1.205/gbp. 0.693/aud vs 0.697/aud. CNY 6.764/$ vs 6.755/$.

Commodity News

Precious metals:

Gold US$1,719/oz vs US$1,727/oz yesterday

Gold ETFs 101.5moz vs US$101.5moz yesterday

Platinum US$878/oz vs US$891/oz yesterday

Palladium US$2,008/oz vs US$2,022/oz yesterday

Silver US$18.63/oz vs US$18.65/oz yesterday

Rhodium US$14,750/oz vs US$15,000/oz yesterday

Base metals:

Copper US$ 7,574/t vs US$7,646/t yesterday

Aluminium US$ 2,425/t vs US$2,443/t yesterday

Nickel US$ 21,660/t vs US$22,228/t yesterday

Zinc US$ 3,040/t vs US$3,038/t yesterday

Lead US$ 2,020/t vs US$2,016/t yesterday

Tin US$ 24,395/t vs US$25,100/t yesterday

Energy:

Oil US$104.9/bbl vs US$107.0/bbl yesterday

Crude oil prices weakened ahead of today’s expected 75bp rise from the Fed, which more than offset API data that showed a larger-than-expected 4.1mb (vs 1.1 exp.) drawdown in US crude stockpiles.

European energy markets surged higher as Gazprom carried through on plans to halt another turbine that pumps gas into the Nord Stream 1 pipeline, limiting production to just 20% of its capacity.

EU member states reached agreement yesterday on a voluntarily cut in gas use by 15% from August to March, but with numerous exemptions.

Germany's BASF, the world's largest chemical company, announced it would further reduce ammonia production due to soaring natural gas prices. SKW Piesteritz and Ineos also said they could not rule out cuts.

US natural gas prices traded higher as scorching weather across the South increases cooling demand.

Natural Gas US$8.955/mmbtu vs US$8.856/mmbtu yesterday

Uranium UXC US$47.30/lb vs US$47.15/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$112.1/t vs US$106.3/t

Chinese steel rebar 25mm US$593.0/t vs US$593.9/t

Thermal coal (1st year forward cif ARA) US$292.0/t vs US$270.0/t

Coking coal swap Australia FOB US$215.0/t vs US$235.0/t

Other:

Cobalt LME 3m US$50,460/t vs US$50,460/t

NdPr Rare Earth Oxide (China) US$122,337/t vs US$121,765/t

Lithium carbonate 99% (China) US$67,636/t vs US$67,730/t

China Spodumene Li2O 5%min CIF US$4,720/t vs US$4,720/t

Ferro-Manganese European Mn78% min US$1,343/t vs US$1,355/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% 7.6/lb vs US$7.6/lb

Europe Ferro-Vanadium 80% 34.25/kg vs US$34.25/kg

China Ilmenite Concentrate TiO2 US$356/t vs US$356/t

Spot CO2 Emissions EUA Price US$77.4/t vs US$77.9/t

Brazil Potash CFR Granular Spot US$1,040.0/t vs US$1,040.0/t

Battery News

Redwood Materials to spend $3.5bn on EV battery materials factory

• Redwood Materials, the lithium-ion battery recycling specialist, said on Monday it plans to spend $3.5bn on a battery-materials factory in northwest Nevada.
• Redwood is planning to ramp up production of anode and cathode components to 100GWh by 2025, enough to supply batteries for 1m EVs a year, then to 500GWh by 2030, enough to supply 5m EVs a year – about 30% of the lithium and nickel used in the components will come from recycled materials.
• The company has already partnered with automakers Ford, VW and Toyota to develop a ‘closed loop’ solution for the supply of EV batteries with the aim of both reducing cost by cutting dependence on imported materials and reducing the environmental impact.
• Redwood first announced first its intention to expand activities beyond just recycling in September last year and now expects to spend $3.5bn over 10 years on the plant and offer more than 1,500 full-time jobs in that time

LG Energy Solution to look for new battery site in Europe

• LG Energy Solution will look at sites in Europe for a new battery plant as it seeks to ramp up production in Asia outside of China, where COVID lockdowns and rising costs are weighing on profits.
• The South Korean firm, which supplies batteries to automakers including GM, Ford and Volkswagen, said it was responding to increased demand in Europe for cylindrical batteries.
• The company did not say how much it planned to invest in the new European plant or give a timeframe for construction.
• LGES added that it would use its other Asia production sites outside of South Korea and China, like its battery joint venture with Hyundai in Indonesia, to better respond to customer demand.
• It also said that it would look to expand joint ventures for pouch and cylindrical batteries for strategic customers and EV startups in North America.

Neoen Australia battery to provide world’s first grid stabilisation service

• French renewables developer Neoen has won approval for its battery energy storage system (BESS) in South Australia to provide inertia services to help stabilise the grid.
• The 150MW Hornsdale Power Reserve, that uses Tesla’s Megapack battery, now has the capacity to provide an estimated 2000MWs of equivalent inertia to the grid via Tesla’s Virtual Machine Mode Technology – around 15% of the states predicted inertia shortfall.
• The virtual synchronous machine technology gives batteries the capacity to help stabilise the grid by providing inertia – along with frequency control services, inertia is necessary for operating a stable grid and is especially important after major disturbances.
• Until now, inertia services have only been provided by gas or coal-fired generators and the rapid retirement of these facilities is causing inertia shortfalls and grid instability.
• Utility-scale batteries have mainly been used for frequency services and soaking up surplus energy for release in short bursts to boost power supply.
• Inertia is the kinetic energy that is stored in spinning parts of the energy system – when there’s a sudden change in system frequency, these parts will carry on spinning even if the generator itself has lost power and slowdown that change (the rate of change of frequency) while the grid restores balance.

Indonesia begins to see large investments for EV production

• Indonesia is hoping to become a global hub for EV production and exportation of EVs, thanks to its abundant supplies of nickel laterite – a key material in lithium batteries.
• Japanese automaker Toyota will invest $1.8bn in Indonesia in the next five years to produce EVs, Indonesia's economics ministry said on Wednesday.
• Last year, South Korean automaker Hyundai and battery specialist LG Energy Solution, announced a joint venture in Indonesia, building a $1.1bn EV battery plant – part of a $9.8bn EV battery MoU agreed with LGES back in December 2020.
• In comments made on Tuesday, Indonesia’s chief economics minister revealed that Mitsubishi will also look to invest up to $670m to produce hybrid vehicles and EVs in the country.

Company News

Anglo American PLC (LSE:AAL) 2,739p, Mkt Cap £36.8bn – De Beers reports continuation of H1 strength in diamond demand

• Anglo American reports that the sixth De Beers sales cycle of 2022 realised US$630m on a provisional basis and that the previously reported sales for the fourth sales cycle of 2022 have now been confirmed as US$657m compared to the provisionally estimated US$650m.
• The latest provisional sales figures are US$116m ahead of the US$514m reported for the equivalent sixth sales cycle of 2021 and bring sales so far in 2022 to almost US$3.8bn.
• De Beers Chief Executive, Bruce Cleaver, said that the strong performance of the sixth sales cycle of 2022 continues “a period of consistently robust demand in the first half”.

BeMetals Corp (TSX-V:BMET)* – C$0.15, Mkt cap C$27m – Drilling capacity strengthened following encouraging initial drilling results from Kato, Japan

• BeMetals has released results from its initial drillhole of a planned 1,250m programme at its wholly-owned Kato gold exploration project in Hokkaido Japan.
• Hole KT22-11 has extended the known strike extension of a high grade vein, previously drilled during the 1990s by Japan’s state Metals Mining Agency of Japan (MMAJ), by around 60m.
• The hole intersected 10.80m of stockwork mineralisation averaging 0.43g/t gold before encountering vein mineralisation over 11.50m at an average grade of 6.42g/t gold from a depth of 236.80m including an 8.70m wide. higher grade portion of the vein which averaged 7.80g/t gold between 239.60m and 284.30m depth.
• The vein is underlain by further stockwork mineralisation over 4.90m between 248.30m and 253.20m which averaged 0.76g/t gold.
• John Wilton, President and CEO of BeMetals explained that “we believe there is good evidence that this intersection pierced the interpreted upper area of this vein zone and our second hole which is currently being drilled, is aiming to test a further strike extension of this high-grade vein zone and test other vein targets”.
• BeMetals’ geological advisor, Dr. Richard Sillitoe concluded that the core showed “Near-paleosurface and textural features … [which] … would suggest that much of the historical drilling intersected the relatively shallow parts of the gold system and, based on similar epithermal deposits globally, downward vein extensions and grade continuity seem likely”.
• In our November 2021 review of BeMetals, we commented that geological features reported from Kato were “an important indication that any epithermal system present beneath the project area is likely to be largely intact with minimal losses through post-emplacement erosion”. The early stage results of the drilling and Dr. Sillitoe’s observations appear to keep this hypothesis intact.
• The company has recently supplemented its drilling team with “another drill crew and helpers … in order to increase the team's drilling capacity. These added personnel are expected to continue to improve drilling progress and provide constant geological exploration data and assay results. Hole KT22-12 is currently underway and is targeting additional strike extension of the high-grade vein zone drilled in hole KT22-11, and to test other vein targets”.
• The Kato project is described as the “most advanced, of five exploration projects in Japan based on the amount of available historical drilling information, and the Property covers close to 2,000 hectares in central Hokkaido … [and is characterised as] … an example of a remarkably well-preserved epithermal gold system”.
• Although Japan is strategically located on the prolific circum-Pacific ‘Ring of Fire’ it sometimes overlooked as a destination for gold exploration. Prior to WW2 it operated a number of gold mines and the current Hishikari gold mine on Kyushu has produced over 8 million ounces of gold since 1985 historically at an average grade of 30 to 40 grams per tonne (g/t) although current resources are thought to grade round 20g/t.

Conclusion: In its first drill hole at the Kato project BeMetals has extended the strike of the main vein, identified by Japan’s Metals & Mining Agency during the 1990s, by a further 60m. The initial drilling exhibits geological characteristics indicative of the upper levels of a low-sulphidation epithermal system which could offer potential for depth and lateral extensions to be tested as the programme progresses.

*SP Angel act as broker to BE Metals

Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTC:GALKF)* 29p, Mkt Cap £24m – US$530k loan secured to bring Omagh project into production

• Galantas reports this morning that it has entered into a further loan agreement with Ocean Partners, with funds used to develop underground mining operations at the Omagh Gold Project, as well as working capital.
• The loan is repayable in six months with interest at an annual rate of 12% compounded monthly and repayable in full on maturity of the Loan.
• Ocean Partners will receive 125,000 warrants of Galantas with an expiry time of 12 months.
• Galantas will also pay Ocean a commitment fee of US$10,000 which will be deducted from the initial proceeds of the Loan and can extend the loan for a further six months by paying an additional US$20k.
• The company also reports that it has extend the US$1.06m loan entered into with Ocean on January 31, 2022 for a further six months, to January 31, 2023.
• Ocean Partners own ~5% of Galantas and are offtakers for the concentrate produced at Omagh.

Conclusion: The continued support by Ocean Partner has been well received by Galantas and is vital support in the final stages of getting their high-grade operation into commercial production.

*SP Angel acts as broker to Galantas Gold

Gemfields PLC (JSE:GML) 14.25p, Mkt Cap £166m – Reports record breaking auction revenues in H1 2022

• Ahead of its interim results for the six months to 30th June, which are to be released on 22nd September, Gemfields reports that the three auctions held during H1 2022 each broke previous records and generated an “all time high” auction revenue of US$330.3m.
• The provisional and unaudited results report a 30th June cash balance of US$111.4m excluding “auction receivables of a further USD 81.1 million” and gross debt of US$29.7m.
• The company also reports capital expenditure of US$14.1m during H1 and that Fabergé did not draw cash from Gemfields during the period and that in the twelve months to 30th June it drew US$1.5m.

Kodal Minerals PLC (AIM:KOD)* – 0.25p, Mkt cap £43m – Steven Zaninovich Appointed as Operations Director

• Kodal Minerals report the appointment of Steven Zaninovich as Operations Director.
• Zaninovich is an engineer and a member of the Australasian Institute of Mining and Metallurgy.
• He has successfully delivered and commissioned a number of mining projects, including the Bald Hill Lithium Project in Western Australia and has been leading the development of the Bougouni lithium project in southern Mali as project manager since November 2018.
• Steven was formerly COO at Gryphon Minerals and vice president of major projects at Teranga Gold, where he was also part of the executive management team following Teranga’s acquisition of Gryphon.
• Kodal is currently updating its original economic study
• The recent Study Update showed
• Price $1,060/t vs $738/t of spodumene 6%
• Production: 238,000tpa vs 218,000tpa previously of 6% spodumene concentrate over an initial 8.5 years
• Recovery: 74% vs 71% recovery of contained lithium based on laboratory metallurgical recoveries of 75%
• Total revenue: $2.15bn at $1,060/t vs $1.4bn of total revenue at $738/t
• Throughput: 2mtpa
• C1 cash costs: $362/t vs $337/t
• All-in C1 Costs $474/t vs $431/t inc.inc. transportation and other selling costs.
• Royalties: $38/t vs $26/t
• Sustaining capital: $8/t vs 8/t
• Capex: $154m vs US$129m
• Payback: 0.8 years vs 1.8 years
• Life of Mine: 8.5 Years
• LoM production 2mt vs 1.94mt of concentrate previously .
• Sales: $2.15bn vs $1.4bn
• IRR 91.2% vs 51% post tax
• NPV7% $567m vs $200m post-tax
• Lithium: The market expects to see annual demand growth of more than 20% between 2021 and 2025 driven by the expansion of Gigafactories in China, the US and Europe.
• Lithium from hard-rock Spodumene is supplying the majority of this growth as lithium brine producers struggle to raise up production in Chile.
• Direct Lithium Extraction processing from brines in Argentina is still struggling with issues of chemistry, power and continuous operation putting greater pressure on demand from Spodumene producers ramping up prices to $4,720/t for 5% min Li2O CIF and $67,530/t for Lithium carbonate 99% in China.

Conclusion: Zaninovich is a good man to lead the Bougouni project forwards into its next phase of financing, future development and commissioning.

*SP Angel acts as Financial Advisor and Broker to Kodal Minerals.

Newmont Mining Corporation of Canada Ltd (TSX:NGT) US$46.1, Mkt Cap US$36.6bn – AISC jumps 16% YoY in Q2 results as inflationary pressures hit miners

• Newmont released its Q2 results earlier this week, showing sharp increases in its costs and warnings that inflationary pressures would persist in 2023.
• The Company reports that its All In Sustaining Cost (AISC) increased to $1,199/oz in Q2 2022 vs $1,035/oz in Q2 2021.
• Newmont also raised its Gold AISC for the remainder of 2022 to $1,150/oz vs $1,050/oz as of Dec 2021.
• Management say they have seen a 20-30% spike in prices for raw materials such as cyanide and explosives.
• G&A costs have also risen as a result of increases in labour costs due to inflationary pressures.

Power Metal Resources PLC (AIM:POW)* 0.875p, Mkt Cap £12m – Quarterly business update

• Power Metals has provided a summary of its projects and the operational plans over the next three months.
• Athabasca Uranium (TSX-V:UAX) – Delineation of data over the seven properties, with ground exploration to follow shortly.
• Authier North - Ground exploration plans are being finalised with work expected to commence this quarter.
• Molopo Farms – Diamond drilling will follow up the discovery of nickel sulphides in the first drill campaign.
• Tati Project – Recent drilling showed 3m at 5.2g/t from 9m, and POW will now follow up with further sampling in Sept/Oct.

*SP Angel acts as nomad and broker to Power Metal

Rio Tinto PLC (LSE:RIO) – 4,678p, Mkt cap £61bn – Solid H1 performance and strong market underpins 2nd highest interim dividend

• Rio Tinto has declared its 2nd highest ever interim dividend of US$4.3 billion (US$2.67/share); a 50% distribution of its US$8.6 billion H1 underlying earnings.
• Chief Executive, Jakob Stausholm, said that although they were below last years record levels “Market conditions were good” and Rio Tinto had “delivered largely flat production and solid financial results, with underlying EBITDA of $15.6 billion … [and] … free cash flow of $7.1 billion”.
• The company also comments that strengthening of the US$ against both the Australian and Canadian currencies “increased underlying EBITDA by $312 million relative to 2021 first half” while “Higher sales volumes and changes in product mix across the portfolio increased underlying EBITDA by $283 million compared to 2021 first half” particularly the impact of “increased iron ore portside sales in China and favourable market and value-added product premiums for our Aluminium business”.
• Offsetting these positive influences, “movements in energy prices compared with 2021 first half reduced underlying EBITDA by $560 million, mainly due to higher diesel prices for our trucks, trains and ships” and “Rising general price inflation across our global operations resulted in a $595 million reduction in underlying EBITDA, including $137 million for the impact of higher than expected inflation on closure provisions”.
• Mr. Stausholm also emphasised Rio Tinto’s commitment “to making lasting, long-term change to our culture, including to our workplace culture, and to building better relationships with Indigenous peoples, communities and partners”.
• Looking to the future, Rio Tinto confirms its 15th July production guidance with 2022 iron ore production in the range 320-335mt, bauxite output between 54-57mt, alumina in the range 7.6-7.8mt and aluminium between 3.0-3.1mt. Mined copper output is expected to be between 500-575kt and diamond output in the range 4.5-5.0m carats.
• Contributions from its iron ore operations, which produced 150mt of ore during the six months period, dominated both EBITDA and underlying earnings representing US$10.4bn of underlying EBITDA and US$6.5bn of underlying earnings. EBITDA margins on an FOB basis declined to 70% “compared with 79% in 2021 first half, largely due to the change in the iron ore price”.
• As the programme of replacement in the Pilbara nears completion with the commissioning of the Mesa A wet plant at Robe River and the new Gudai Darri iron ore operation ramps up to phase 1 production of 43mtpa capacity in 2023, capital expenditure declined by 6% to US$3.1bn.
• “At the Simandou iron ore project in Guinea, project activities have stopped following an order from the Government of Guinea to all parties to stop work in country. We are actively engaging with the Government and the Winning Consortium Simandou (WCS) towards the resumption of formal negotiations. We remain committed to delivering Simandou in accordance with international ESG standards, ensuring that the project results in sustainable benefits to Guinea and its people, along with our shareholders and customers”.
• Rio Tiinto’s aluminium business generated US$2.9bn of underlying EBITDA of US$1.5bn at a margin of 41% as it benefitted from “higher product premiums for primary metal in addition to the stronger pricing environment for primary metal and alumina” offsetting “higher input costs for key materials such as caustic soda, coke, pitch and anodes”.
• Bauxite output grew by 2% to 27.8mt underpinned by “a strong operational performance at Weipa” while alumina production declined by 7% to 3.8mt “impacted by a range of challenges in the first half including significant COVID-19 absenteeism, above average rainfall in Eastern Australia, and some unplanned outages and equipment reliability”.
• Strike action at the Kitimat smelter in British Columbia declined by 9% to 1.5mt.
• Copper output of 251,900t at a cost of US$1.48/lb generated underlying EBITDA of US$1.5bn and underlying earnings of US$0.5bn.
• Copper production improved by 7% on H1 2021 benefitting from “higher grades and recoveries at Kennecott and an improvement in concentrator feed grade at Escondida which more than offset lower grades and recoveries at Oyu Tolgoi”.
• At Oyu Tolgoi, total project costs have now been estimated at US$7.06bn and Rio Tinto explains that “This $0.3 billion increase against the 2020 Definitive Estimate is largely related to COVID-19 disruptions” which includes delays to Shafts 3 and 4 and which the company says will lead to them being commissioned in H1 2024 “15 months later than the 2020 Definitive Estimate”.
• At Kennecott, pre-feasibility assessment is underway to investigate the potential to push back the north wall and extend the pit life past 2032 and “We are also advancing studies to support an underground mine below the existing open pit, due to be complete by 2024. Potential underground mining would occur concurrently with open pit operations and result in increased copper output”.
• Exploration is underway in 19 countries “with a particular focus on copper projects in Australia, Peru, Zambia and the United States, diamonds in Canada and Angola, and nickel in Canada and Finland”.

Conclusion: Solid market conditions, a strengthening US$ exchange rate and maintained production performance have helped Rio Tinto combat inflationary pressures and energy prices to deliver its 2nd highest interim dividend. Exploration is focussing on copper, nickel and diamonds.

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

SP Angel

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

*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.

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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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SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%