SP Angel . Morning View . Thursday 06 10 22
Copper rallies to multi-week highs on weakness in the US$ index
MiFID II exempt information – see disclaimer below
Private Equity / joint venture opportunity
We are looking for investors / jv partners for an exploration opportunity on a newly discovered copper / moly porphyry system with two adjacent non-porphyry gold and silver deposits over 6km in South-East Asia
- 2,000m in 8 holes already drilled with intersections of visible chalcopyrite and molybdenite both disseminated and in B-veins
- Positive indications of grade at shallow depths. Total funding $2.34m to date. Current implied valuation $4.4m. Best drill result:
- 60m grading 0.4% copper, 0.2% gold plus molybdenum from 24m eg. below the leached cap
- 3m grading 0.51% copper, 9.2g/t gold, and 49g/t silver from 64m down hole
- 2m grading 0.3% copper, 6% zinc and 9g/t gold, 40 g/t silver from 33m down hole related to a massive pyrite-magnetite-sphalerite-chalcopyrite vein
*SP Angel’s role is limited to making introductions. No due diligence or verification of information supplied by the company has been performed. 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.
Chaarat Gold Holdings Ltd (AIM:CGH) – Convertible loan note extended
Conroy Gold and Natural Resources PLC (AIM:CGNR, OTC:CGDNF) – Further drilling results from Clontibret
Pan African Resources PLC (AIM:PAF, OTCQX:PAFRY, JSE:PAN, OTCQX:PAFRF) – R50m acquisition of tailings in S Africa
Sibanye-Stillwater* (JSE: SSW) – Sibanye-Stillwater interested in Zambia’s Mopani Copper Mines, according to CEO
Vale SA (ADR) (NYSE:VALE) - Vale SA looks to sell $2.5bn stake in nickel and copper assets as spin-off or IPO of base metals unit remains likely
Gold pushes higher on sustained dollar weakness and mixed data from US labour market
- Gold has rebounded $100 from its September lows, climbing over $1,725/oz.
- The dollar index has retained its weakness against a basket of major currencies, now down nearly 3% over the same period.
- US 10-year yields, whose recent strength has been a major headwind to gold prices, have ticked up over the last 24 hours – this has failed to trigger a downward move in the gold price as of yet.
- Traders are currently assessing the impact of OPEC+’s production cut of 2mb/day and its potential to add to current inflationary pressures.
- Gold has been volatile this week on the back of US economic data which showed relative strength in US services employment.
- Data from earlier in the week had shown US jobs falling in August by the most since 2020, from 11.2m in July to 10.1m. This raised the potential for a less aggressive hike in November.
- The Fed has committed to continuing rate hikes alongside positive US economic data, despite pleas from the UN and emerging markets to ease up.
- We expect continued volatility in the gold price as long as the rate hike cycle continues, however an eventual pivot, although unlikely in the near term, should provide a strong tailwind to gold prices.
Copper rallies to multi-week highs as dollar weakens again whilst short- and long-term supply concerns resurface
- Copper prices have climbed back to $7,850/t, up 7% from its 3-month low hit in late September.
- The LME’s first intervention against Russian metals is thought to have triggered some additional supply concerns.
- Inventories of copper have ticked up in recent weeks, adding pressure to prices, however they remain near 8-year lows and 50% below the 5-year seasonal average.
- Backwardation on the COMEX Dec-March futures spread has soared c.250% over the past 10 days, suggesting tight supply remains on copper exchanges.
- Long term supply concerns are mounting, with Codelco’s output down 30% in August vs 2021, the lowest monthly production in 3 years,
- Chile’s August copper output was the lowest in 16 years and marked 3 months of declines, with the world’s largest producer hit by water restrictions and supply-chain related logistical challenges.
Dow Jones Industrials -0.14% at 30,274
Nikkei 225 +0.70% at 27,311
HK Hang Seng -0.55% at 17,989
Shanghai Composite CLOSED at 3,024
Economics
China - Banks slash exposure to China on persisting economic woes for the world’s second largest economy
- Bloomberg reports SocGen has been trimming counterparty exposure to China on fears of more contagion from property sector slump and zero-covid policy.
- SocGen follows other banks in trimming risk exposure to China, a phenomenon aided by Xi Jinping’s multi-year crackdown on private enterprises.
- JP Morgan and UBS have also been drawing up contingency plans over a potential invasion by China in Taiwan.
Base metals buying activity seen in China ahead of Golden Week
- Chinese manufacturers are thought to have restocked base metals ahead of end of the Golden Week holiday tomorrow
US – Is the fed purely combatting inflation with rising interest rates
- Personally, I reckon the Fed is happy for higher US interest rates to draw capital out of other economies and back into the US dollar and the US economy.
- Russia and China have been trying to break the dominance of the US dollar as the global reserve currency.
- The US Fed is currently demonstrating why the US dollar is a better place to be when risk rises and times get tough.
- Sadly the British pound and a few other highly liquid currencies are casualties of the move and easy targets for short sellers.
- The UK, Europe and others will suffer higher input costs and reduced economic activity as funding moves west unless the BoE, ECB and others opt to match Fed rate rises and risk deepening our recession.
US ADP payrolls released yesterday showed the economy added 208k jobs implying some consolidation in the labour market after monthly rate came back from 300-400k recorded earlier in the year.
- The data precedes the government’s payrolls report tomorrow which is expected to show another month of robust job creation and the unemployment rate holding near a 50-year low.
- Markets rallied earlier in the week after reports of falling vacancies suggesting labour market is easing that in turn led markets to bet on Fed opting to pivot away from further aggressive rate hikes.
- Mortgage applications fell more than 14% last week as rates hit a 16-year high of 6.75%.
- Mortgage rates climbed 1.30pp over the past seven weeks marking the largest increase over a comparable period since 2003 amid rapid rate hikes managed by the Fed.
- The gauge of applications to acquire a home fell to the lowest since 2015 while the measure of refinancing dropped to a 22-year low.
- ADP Employment Change (‘000): 208 September v 132 August and 200 est.
OPEC+ agreed to cut production by 2mm barrels a day that was the top of the expected range.
- The move risks further inflationary pressures in a world economy seeing major US equity indices closing down yesterday with sovereign bond yields picking along with the US$ index.
- Brent hit $94.0 a barrel after announcement, up from $84.0 last week, before pairing some gains.
Germany – Factory orders drop more than expected adding further evidence that the country is heading towards a recession, FT writes.
- Poor numbers were driven by supply disruptions, rising costs and weakening demand in the face of an energy crisis.
- Factory Orders (%mom): -2.4 August v -1.1 July and -0.7 est.
UK – Fitch cut the outlook on the UK’s AA- investment grade credit rating to Negative from Stable following a similar decision from S&P.
- The agency quoted the “large and unfunded fiscal package” that has the potential to significantly increase budget deficits over the medium term driving its revision in outlook.
- “The large fiscal stimulus, announced without compensatory measures or an independent evaluation of the macroeconomic and public finances’ impact, and the inconsistency between fiscal and monetary policy stance given strong inflationary pressures, have in Fitch’s view, negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength,” Fitch said.
UK – Mortgage rates soar ahead of BoE rates with two year fixed mortgage deals hit 6%
- Nationwide are now charging 5.24% on their standard variable mortgage rate.
- The move in rates will undoubtedly hit the housing market hard, particularly in the South of England
Automotive sales – to be hit by rising interest rates as the cost of leasing / HP soars
- Inflation within the auto sector caused by rising raw materials and lower efficiency rates due to logistics issues is raising the price of new vehicles.
- Higher finance rates adds to the cost of buying a new vehicle and is likely to cut sales as businesses and households move to preserve cash.
Russia – Putin’s nuclear train threatens brinkmanship or worse
- Unconfirmed news reports on a Russian nuclear train are of huge concern, though there may not be true.
- Putin’s twisted rationale is that the US dropped two nukes on Japan at the end of WWII, but that was to end the war, not to start a new one.
Currencies
US$0.9906/eur vs 0.9954/eur yesterday. Yen 144.66/$ vs 144.42/$. SAr 17.775/$ vs 17.658/$. $1.134/gbp vs $1.144/gbp. 0.651/aud vs 0.650/aud. CNY 7.116/$ vs 7.116/$. Dollar Index 111.03 / -1.12% on week
Commodity News
LME bans new metals inflows from Russian giant UMCC following new round of sanctions
- The London Metal Exchange will block deliveries of copper and zinc from Ural Mining & Metallurgical Co following a round of sanctions on its co-founder, Iskander Makhmudov.
- Russian metals had continued to be traded on the LME despite a swathe of sanctions on other commodities from the EU and UK.
- The LME will also block metals from UMCC’s subsidiary, Chelyabinsk Zinc.
- UMCC and its subsidiary will have to prove it won’t constitute a breach of sanctions by delivering metals to LME warehouses, essentially restricting it from doing business with the exchange.
- This is the first step the LME has made to sanction Russian metals having begun discussions in recent weeks to block all Russian metals from delivery.
- The announcement saw zinc prices rise 4.4% and boosted copper prices.
- Zinc prices were also boosted by Glencore’s announcement to shutter its Nordenham smelter from Nov. 1st.
Precious metals:
Gold US$1,724/oz vs US$1,720/oz yesterday
Gold ETFs 97.0moz vs US$97.0moz yesterday
Platinum US$926/oz vs US$930/oz yesterday
Palladium US$2,272/oz vs US$2,322/oz yesterday
Silver US$20.70/oz vs US$20.83/oz yesterday
Rhodium US$14,000/oz vs US$14,000/oz yesterday
Base metals:
Copper US$ 7,842/t vs US$7,712/t yesterday
Aluminium US$ 2,386/t vs US$2,364/t yesterday
Nickel US$ 22,850/t vs US$22,035/t yesterday
Zinc US$ 3,153/t vs US$3,046/t yesterday
Lead US$ 2,081/t vs US$1,961/t yesterday
Tin US$ 20,395/t vs US$20,190/t yesterday
Energy:
Oil US$93.3/bbl vs US$92.0/bbl yesterday
Natural Gas US$7.042/mmbtu vs US$6.693/mmbtu yesterday
Uranium UXC US$49.15/lb vs US$49.20/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$94.4/t vs US$94.0/t
Chinese steel rebar 25mm US$581.4/t vs US$581.4/t
Thermal coal (1st year forward cif ARA) US$278.0/t vs US$278.0/t
Thermal coal swap Australia FOB US$406.0/t vs US$410.0/t
Coking coal swap Australia FOB US$281.0/t vs US$281.0/t
Other:
Cobalt LME 3m US$51,955/t vs US$51,955/t
NdPr Rare Earth Oxide (China) US$94,155/t vs US$94,155/t
Lithium carbonate 99% (China) US$69,492/t vs US$69,492/t
China Spodumene Li2O 5%min CIF US$5,590/t vs US$5,590/t
Ferro-Manganese European Mn78% min US$1,224/t vs US$1,229/t
China Tungsten APT 88.5% FOB US$32.3/kg vs US$32.3/kg
China Graphite Flake -194 FOB US$835/t vs US$835/t
Europe Vanadium Pentoxide 98% 7.2/lb vs US$7.2/lb
Europe Ferro-Vanadium 80% 30.75/kg vs US$30.75/kg
China Ilmenite Concentrate TiO2 US$320/t vs US$320/t
Spot CO2 Emissions EUA Price US$65.0/t vs US$65.2/t
Brazil Potash CFR Granular Spot US$670.0/t vs US$670.0/t
Battery News
Michigan award battery project $200m grant for gigafactory
- Michigan State have awarded the cash to Our Next Energy, founded by ex-Apple Mujeeb Ijaz, with the firm planning to build a $1.6bn cell factory.
- The gigafactory will make LFP batteries for electric vehicles and scheduled to come online in 2024 and hit full capacity in 2027.
- In a similar fashion, Chinese battery maker Gotion High-Tech has been awarded $175m in grants and a zoning designation with an estimated value of $540m, according to the Michigan Economic Development Corp.
- Gotion has proposed investing $2.4bn in a plant in Big Rapids, Michigan that will produce battery cathode and anodes.
US Dept. of Energy to provide funding for lithium brine technologies
- The U.S. Department of Energy through the Office of Energy Efficiency and Renewable Energy has announced the intent to issue a funding opportunity for lithium extraction & conversion from geothermal brines.
- The funding, while not specified, will include approx. at least $12m in federal funding, focused on lithium production from geothermal brines and DLE from brines.
Company News
Chaarat Gold Holdings Ltd (AIM:CGH) 10p, Mkt Cap £69m – Convertible loan note extended
- The Company agreed to extend maturity of outstanding convertible loan note facility from 31 October 2022 to 31 July 2023.
- As of 31 October, the outstanding amount of the note would have been $19.7m in principal and $9.0 in accrued interest.
- The Company is paying a one off 1% fee to maturity date extension that will be accrued to the outstanding balance.
- The interest will remain at 12% and continue to be accrued as well.
- As such, total amount outstanding along with the fee and accrued interest is estimated to increase to ~$31.5m by 31 July 2023.
- Martin Andersson, Chairman and major shareholder of the Company (~45.8%), holds $1.0m of loan notes excluding accrued interest.
Conroy Gold and Natural Resources PLC (AIM:CGNR, OTC:CGDNF) 19.8p, Mkt Cap £9m – Further drilling results from Clontibret
- Conroy Gold reports results from the fourth hole of its 8-hole, 3,000m drilling programme at its Clontibret prospect in the Longford-Down Massif in Ireland where it is working with its joint-venture partner, Demir Export.
- The hole “was located 100m up dip from drillhole TW001, one of the drill holes from Demir Export’s due diligence drilling as announced on 21 February 2022 which encountered the widest gold intercept yet drilled at Clontibret - 94.5m grading 1.0 g/t Au (including 45m grading 1.5 g/t Au)”.
- Hole 4, which is inclined at 60⁰, reports a 33.2m wide intersection at an average grade of 0.8g/t gold and includes a higher grade section of 8m at an average grade of 1.2g/t gold implying that the balance of the intersection averages around 0.7g/t gold.
- The company comments that individual assays of “up to 2.3 g/t gold … [were] … intersected”.
- Chairman, Prof. Richard Conroy, said that the drilling results “confirm the presence in the stockwork of significant widths of over 30m of gold mineralisation, together with gold grades of up to 2.3g/t. The earlier results on holes 1-3 showed 18 gold intersections, four new zones to the north-east of the existing Clontibret target, with significant intersections made”.
- He summarised the results of the drilling campaign so far saying that it “has significantly extended the stockwork continuity, added new gold lodes and, most importantly, it has further enhanced our understanding of the ore body, which we are confident remains open along strike and at depth"
- We have previously pointed out that although the wider intersections are encouraging for building resource tonnages at Clontibret, intersection widths may not necessarily be true mineralised widths as holes could be intersecting the mineralisation at an oblique angle.
- We are confident that the exploration team will address these issues as exploration proceeds and its knowledge of the geometry of the mineralisation increases.
Conclusion: The latest drilling at Clontibret has intersected wide mineralised zones and we look forward to further results from the continuing programme and to the drilling results incorporated into a mineral resources estimate in due course.
Pan African Resources PLC (AIM:PAF, OTCQX:PAFRY, JSE:PAN, OTCQX:PAFRF) 17.55, Mkt cap £384m – R50m acquisition of tailings in S Africa
- Pan African Resources has acquired tailings assets from Mintails in S Africa in an R50m (~US$2.8m) cash transaction.
- The company reports that a June 2022 definitive feasibility study “on the Mogale Gold tailings storage facilities … demonstrated compelling economics and the potential to significantly increase Group gold production … [by over 25%] … over an initial life of mine (LOM) of 13 years”.
- Pan African Resources also confirms that the treatment of tailings in the ‘Soweto Cluster’ (the MSC) “has the potential to add further production upside and extend the LOM to 21 years”.
- The company confirms that it has agreed a US$80m term sheet with Rand Merchant Bank for senior debt to fund a part of the project construction and that it “is in the process of evaluating a number of additional funding options for the balance of the capital budget requirement”.
- Outlining the project timetable, Pan African says that it expects to start construction in 2023 and to commission the project during the second half of 2024.
- Welcoming the transaction and its potential for increased production, CEO, Cobus Loots, explained that the “area where Mintails is situated presents a number of environmental and social challenges. We will require the assistance of the government and all the other legitimate stakeholders to successfully address those challenges, remediate the site and develop a world-class project”.
Sibanye-Stillwater* (JSE: SSW) ZAR 4,440, Mkt cap ZAR 126bn – Sibanye-Stillwater interested in Zambia’s Mopani Copper Mines, according to CEO
- Sibanye’s CEO, Neil Froneman, was quoted on Wednesday expressing an interest in Zambia's Mopani Copper Mines, Reuters reports.
- Zambia’s state mining firm ZCCM-IM hired advisors in June to help find an advisor to upgrade and expand Mopani, which needs at least $300m to fund an underground expansion.
- Mr Froneman praised the investment and transparency policies of Zambia’s President known as HH, with Mr Froneman commenting: “We like what the new president is doing there”
- Mopani produced 87,618t of copper cathode in 2021, down from 93,106t in 2020 although has the potential to produce 225,000t.
- Sibanye has been active in diversifying from traditional PGM and gold production, looking to buy a nickel project in Brazil and also taking a controlling stake in a Finnish Lithium company, Keliber.
*An SP Angel mining analyst has visited Sibanye’s Montana operations.
Vale SA (ADR) (NYSE:VALE) $14.80, Mkt Cap $71bn - Vale SA looks to sell $2.5bn stake in nickel and copper assets as spin-off or IPO of base metals unit remains likely
- FT reports Vale has hired Goldman Sachs (NYSE:GS) as it weighs options for the growth of its copper and nickel operations.
- The paper reports the Brazilian iron ore giant is considering a sale of a 10-15% stake of its nickel and copper assets for c. $2.5bn.
- The Company is also considering bringing in a strategic partner to support the growth of the unit.
- Vale has been hit by lower iron ore prices following China’s property sector slump.
- Vale confirmed this morning that it ‘has engaged advisors as it continues to assess alternatives to unlock long term value.’
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.
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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