Today's Market View - Kefi Gold & Copper, and more...

SP Angel . Morning View . Monday 17 10 22

Xi Jinping holds firm on Zero Covid in hit to base metals

Private Zambian copper exploration opportunity

• We are looking for investment into a private copper explorer with four highly prospective licences in Zambia, near major mines or significant exploration targets.
• One license is contiguous with First Quantum’s Sentinel copper and Enterprise nickel mines which whom they have a Technical Cooperation Agreement.
• Historic drilling on the licence includes 0.7% copper over 1m and 0.2% nickel over 3m. Geophysics in 2021 & 2022 advanced project toward identifying drill targets.
• A large licence with multiple copper targets. Samples from small artisanal mines assayed 15.8% copper, 0.57g/t gold and 4.87% copper, 18.3 g/t gold.
• A highly prospective licence acquired in 2022 on the Western Foreland trend which hosts the giant Kamoa-Kakula mine.
• IPO documentation has been prepared for listing when market conditions improve.
• All licences are 100% owned with Zambian partners significant shareholders in the company.

Atalaya Mining (AIM:ATYM, TSX:AYM) – 2022 Production guidance maintained as Riotinto plant continues to exceed nameplate capacity

Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) – Award of Vermelho feasibility study

KEFI Gold and Copper PLC (AIM:KEFI, OTC:KFFLF)* – Jibal Qutman exploration license reissued

Gold steadies lower on higher US Treasury yields as US Dollar remains elevated

• Gold is currently hovering around $1,650/oz, the lower end of its recent trading range.
• The Dollar fell initially on US inflation data on Friday, but has since recovered, pushing gold prices further down.
• US Treasury yields have continued to fall on weaker-than-expected US Treasury auctions, with the US 10-Year nearing 4%.
• The recent US CPI print has pushed market expectations for Fed rate hikes to March 2023 closer to 5% from 4.5%, weighing on both risk sentiment and gold prices.

Copper prices fail to extend gains despite record premiums as Xi Jinping doubles down on Zero-Covid

• Copper prices remain rangebound around the $7,550/t mark as the market continues to weigh up depleted inventories with expectations of a global economic slowdown.
• Major exchanges saw copper stocks fall 12kt, with much of the LME warehouses’ copper currently loaded with Russian copper, untouchable to many buyers.
• Xi Jinping’s comments at the National Congress point to expectations of retaining the current zero-covid policy, with analysts now expecting a policy shift no earlier than March 2023 with the National People’s Congress.
• The subdued copper price follows a series of significant premium hikes from sellers last week, pointing to tight supply expectations in 2023.
• The premium increases from Codelco and Aurubis reflect expectations of a c.300kt supply gap for the European market following a phasing out of Russian copper purchases. (Reutes)
• Shanghai copper premiums are currently at their highest since March 2014.
• In a boost to copper prices, Xi’s speech yesterday confirmed his administration’s commitment to decarbonising China’s economy.
• Xi vowed to ‘basically eliminate’ air and water pollution and that Beijing would pursue an ‘energy revolution’, of which copper will be a major beneficiary.
• This will likely stem from government-backed stimulus measures, with Xi noting they will ‘advance initiatives to reach peak carbon emissions.’
• China’s state banks, under direction from Beijing, have increased ‘green loan’ funding by 25% this year.

Dow Jones Industrials -1.34% at 29,635

Nikkei 225 -1.16% at 26,776

HK Hang Seng -0.01% at 16,586

Shanghai Composite +0.42% at 3,085

Economics

China – China sticks to zero Covid policy as 20th National Congress of the CPC opens

• President Xi’s mercifully short 105-minute speech set out the next five year plan along with commitments to Chinese Marxist/Socialism
• Xi stressed the need to modernise and focus on the following key areas:
• Population
• Common prosperity
• Material and cultural-ethical advancement.
• Harmony between humanity and nature.
• Peaceful development.
• Xi also emphasised national security: economic security, military, technological independence, international security cultural, and social security, talent and innovation.
• China has cited a focus on smaller-scale military conflicts and the need to win regional wars – does this include to Taiwan? And what about North Korea?
• President Xi did not signal any change in direction on strict Covid rules in his two hour address to the party congress on Sunday.
• That offers little optimism over near term economic growth outlook.
• Separately, authorities are reported to be delaying the release of Q3 GDP data initially scheduled for Tuesday without providing a reason for delay.

Xi Jinping’s statements at National Congress reaffirm commitment to frugality, with Zero-Covid policy and common prosperity to weigh on base metals

• Xi’s commitment to Zero Covid policy is set to continue to damage productivity in the country’s manufacturing sectors.
• Xi also signalled no change in direction for housing market policies during his 2 hour speech, with current efforts to stimulate the property market failing to resuscitate the sector.
• The Leader’s comments on frugality and a more balanced economy point to his intention to shift policy from encouraging growth, however possible, to pursuing a more balanced growth, or ‘common prosperity.’
• CPI rose 0.3% in September vs -0.1% in August and 2.8% yoy in September vs 2.5% yoy in August
• PPI fell to 0.9% yoy in September vs 2.3% yoy in August - food prices raised inflation as expected with rising pork prices leading the way
• Q3 GDP recovered significantly according to the NDRC ‘National Development and Reform Commission’ (SCMP).
• The commission says China’s economic performance has been ‘outstanding’ from a global point of view indicating better than Q2’s 0.4% GDP
• China’s consumer inflation is only marginal, the job market steady and international payments stable according to the NDRC.
• Chinese citizens advised to evacuate Ukraine – does China know something that we don’t about Putin’s intentions re: nuclear weapons?
• Maike, the indebted copper trader is reported to have sold some stock though it may be more accurate to say its banks may have forced the sale of its stock

US - Biden ramps up foreign policy approach to China by calling home semiconductor makers and banning key chipmaking exports

• US citizens working as engineers in China’s semiconductor sector have been ordered to stop working in hit to Xi Jinping’s efforts to develop the country’s tech sector.
• The Bureau of Industry and Security also restricted exports of advanced chips, chip-making equipment and chip-making components to China.
• Advanced chipmaking has become increasingly important in geopolitics, especially considering their importance in today’s weapon manufacturing.
• The moves mark a major ramp up in the US’ policy against China, following Pelosi’s unprecedented visit to Taiwan.
• Weekly jobless claims rose slightly to 228k from 219k
• Retail sales held steady at 0.4% and were 8.2% in September vs 8.4% in August
• Retail sales ex autos rose 0.1% in September vs -0.1% in August
• Preliminary University of Michigan consumer sentiment rose to 59.8 for October vs 58.6 for September
• The US economy continues to benefit from the reshoring of manufacturing out of China, though much lower value manufacturing is expected to move to Vietnam etc..

Eurozone – Bloomberg estimates the single currency zone to post a -0.1% GDP change next year, a revision on 0.3% growth expected a month ago.

• A drop in GDP is expected to be led by Germany (-0.5%) while other major economies in the region like France, Italy and Spain are expected to expand.
• Inflation estimates were revised higher to 5.5%, up from 5.0%, while the ECB is forecast to continue hiking rates with the first rate cut seen only in Q2/24.

Germany looks to Mongolia for future key raw materials partner

• German Chancellor Olaf Scholz welcomed Mongolian Prime Minister to Berlin on Friday, where the two nations discussed energy cooperation and the sourcing of raw materials.
• Scholz commented: "In our diversification strategy, Mongolia will become an important partner for many raw materials," – before later specifying copper and rare earths.
• Final CPI rose 1.9% in September vs 0.3% in August vs 10.0% yoy in in September vs 7.9% yoy in August

French - CPI pulled back to 0.6% in September vs +0.5% in August ), yoy 5.6% (5.9%)

South Korea - Unemployment rose slightly to 2.8% in September vs 2.5% in August

Singapore – Q3 GDP rose 0.3% vs -0.1% in Q2 and 1.5% yoy in Q3 vs -0.2% in Q2

UK – New chancellor Jeremy Hunt will make an emergency statement today outlining new measures to be included in the Budget on October 31.

• Sky News describes Jeremy Hunt as de-facto Prime Minister. Hunt is expected to shred Truss’ mini budget in statement today.
• The Chancellor is expected to drop almost all the tax cuts contained in last month’s “mini” Budget in an attempt to reassure markets and bring market rates lower.
• The £13bn cut in NI contributions is one of the very few measures that is likely to survive from the £45bn package of unfunded tax cuts announced by his predecessor in late September, FT writes.
• Previously, PM has already abandoned £20bn worth of tax cuts including corporate and income tax rates.
• Separately, concerns are building up around the current leadership of the Conservative party with a number of senior Tory members calling for a PM resignation.
• The pound is up slightly this morning trading at 1.1258 while 10y bond yields are pulling back towards the 4% mark after hitting 4.6% last week, marking the highest level in more than a decade.

Recession to last till next summer (EY Item Club)

• The EY Item Club has forecast the UK will see negative growth till next summer with GDP contracting by 0.3% next year.
• The Club reckons the risk of a severe downturn has been mitigated by government handouts on energy bills (The Times).

UK Directors to face jail for fraudulent filings

• MPs are due to propose an amendment to the economic crime and transparency bill including corporate and director-level liability for criminal activity.
• The new ruling means that directors could be jailed for money laundering, fraud and other crime.
• The bill also includes long-overdue reform to Companies House filings and greater powers for law enforcement
• There is further pressure for the proposed bill to extend the potential for jail terms to senior executives.

Covid cases rise in UK and depleted NHS struggles with Covid absences

South Africa - port and rail strikes continue, reportedly costing miners $44m/day

• The union striking against South Africa’s major port and rail operator, Transnet, has rejected a wage increase of 6%.
• The union has subsequently stated they are ‘willing to compromise with the employer.’
• The port has been operating at between 12-30% of daily averages as a result of the strike. (Minerals Council of South Africa)
• Reuters reports miners are losing $44m in export revenue each day because of the strike action.

Currencies

US$0.9738/eur v 0.9756/eur last week. Yen 148.63/$ vs 147.59/$. SAr 18.213/$ vs 18.194/$. $1.125/gbp vs $1.127/gbp. 0.624/aud vs 0.631/aud. CNY 7.202/$ vs 7.183/$.

Dollar Index 112.91 / -0.36% on week

Commodity News

LME Week starts next Monday 24th October

• The week brings metals traders, suppliers and buyers from all over the world. Key points:
• The setting of physical price premiums across a range of commodities, not just LME metals,
• The future of LME – how the LME should go forward after the cancellation of trades in the Nickel market. LME in the dock as funds look for compensation for lost profit.
• Will physical ring trading be withdrawn,
• Will CME take advantage of LME leadership chaos,
• Lack of drinks parties since Covid lockdowns.

Precious metals:

Gold US$1,654/oz vs US$1,664/oz last week

Gold ETFs 96.3moz vs US$96.5moz last week

Platinum US$915/oz vs US$908/oz last week

Palladium US$2,024/oz vs US$2,125/oz last week

Silver US$18.54/oz vs US$18.94/oz last week

Rhodium US$13,700/oz vs US$13,700/oz last week

Base metals:

Copper US$ 7,557/t vs US$7,635/t last week

Aluminium US$ 2,283/t vs US$2,367/t last week

Nickel US$ 21,777/t vs US$22,310/t last week

Zinc US$ 2,915/t vs US$2,975/t last week

Lead US$ 2,033/t vs US$2,039/t last week

Tin US$ 19,880/t vs US$20,220/t last week

Energy:

Oil US$92.6/bbl vs US$94.7/bbl last week

Natural Gas US$6.244/mmbtu vs US$6.691/mmbtu last week

Uranium UXC US$50.60/lb vs US$50.20/lb last week

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$93.7/t vs US$91.8/t

Chinese steel rebar 25mm US$565.1/t vs US$570.8/t

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

Thermal coal swap Australia FOB US$394.0/t vs US$396.0/t

Coking coal swap Australia FOB US$291.0/t vs US$293.0/t

Other:

Cobalt LME 3m US$51,955/t vs US$51,955/t

NdPr Rare Earth Oxide (China) US$95,114/t vs US$95,708/t

Lithium carbonate 99% (China) US$72,967/t vs US$73,017/t

China Spodumene Li2O 5%min CIF US$5,640/t vs US$5,640/t

Ferro-Manganese European Mn78% min US$1,203/t vs US$1,205/t

China Tungsten APT 88.5% FOB US$32.0/kg vs US$32.0/kg

China Graphite Flake -194 FOB US$855/t vs US$855/t

Europe Vanadium Pentoxide 98% 7.3/lb vs US$7.2/lb

Europe Ferro-Vanadium 80% 30.75/kg vs US$30.75/kg

China Ilmenite Concentrate TiO2 US$313/t vs US$317/t

Spot CO2 Emissions EUA Price US$66.3/t vs US$66.4/t

Brazil Potash CFR Granular Spot US$650.0/t vs US$650.0/t

Battery News

China won’t rush its clean energy transformation, according to President Xi

• President Xi Jinping has promised a slow and steady end to China’s emissions growth, with energy security the top priority.
• At the CCP congress, Xi’s view is that China wont stop burning fossil fuels until it is confident that clean energy can reliably replace them.
• Xi Commented: “Based on China’s energy and resource endowments, we will advance initiatives to reach peak carbon emissions in a well-planned and phased way, in line with the principle of getting the new before discarding the old.”
• China is the world’s largest emitter of greenhouse gases, although invests more than any other country in clean energy – but it hasn’t been able to outrun the growth in energy demand which sees China burn more and more coal every year.
• China will continue to expand exploration and development of oil, gas and coal reserves, with Xi commenting: “Coal will be used in a cleaner and more efficient way and we will speed up the planning and development of new energy systems.

EVs & hybrids to make up 40% of Renault’s European sales in 2022

• Fully electric and hybrid sales have jumped from around 25% to 40% of total car sales this year, according to a Renault exec ahead of the Paris Motor Show.
• European new vehicle registrations in 2022 should be "more or less" flat versus 2021, unless ongoing supply chain problems worsen.

France targets production of 2m EVs per year in 2030

• France has laid out ambitious EV targets, aiming to produce 1m EVs per year in 2027 and 2m by 2030, according to President Macron.
• In 2021, 144,000 new EVs were registered in France.
• The President also outlined intentions to raise the financial aid to purchase EVs from €6k to €7k for half the country’s households.

Company News

Atalaya Mining (AIM:ATYM, TSX:AYM) 220.5p, Mkt Cap £313m – 2022 Production guidance maintained as Riotinto plant continues to exceed nameplate capacity

• Atalaya Mining (AIM:ATYM, TSX:AYM) reports that it produced 13,453t of copper in concentrate at Proyecto Riotinto in Spain during the three months to 30th September bringing year-to-date output to 38,300t and keeping the operation on track to meet the 52-54,000t guidance for 2022.
• The quarterly result reflects the treatment of 3.9mt of ore at an average grade of 0.41% copper which is marginally higher than the 0.40% of the preceding quarter and also higher than the 0.39% achieved in Q3 2021.
• Commenting on the performance of the mine, the company explains that “Waste mined during Q3 2022 was 5.8 million tonnes, below the 6.7 million tonnes mined in Q2 2022 and also below Q3 2021 levels. Waste stripping year-to-date has been higher than budget as waste mining was prioritised during the temporary plant maintenance stoppage in Q1 2022”.
• Plant throughput of 3.9mt is above the plant’s rated 15mtpa capacity and also “above processing rates in Q1 2022, which was impacted by the transport sector strike and maintenance stoppage”.
• Copper prices of US$3.83/lb were “below the average realised price in Q2 2022 of $4.32/lb and the Q3 2021 period of $4.31/lb”.
• As previously reported, exploration is continuing on the Masa Valverde (PMV) property package located around 28km south of its processing plant at Proyecto Riotinto with 3 drilling rigs operating and a Preliminary Economic Assessment (PEA) underway to “consider operating PMV as a satellite deposit by processing mined material at Riotinto's 15 Mtpa plant”.
• A PEA is also in progress to evaluate the potential to combine “Cerro Colorado reserves with higher grade material from San Dionisio, targeting an uplift to copper production by increasing the blended head grade. The permitting process for San Dionisio is currently underway”.
• Atalaya Mining discusses the continuing impact of the conflict in Ukraine “which drove the price of electricity in Spain to unprecedented levels of over €500/MWh in March 2022”. Government action to cap prices and adjust payments to gas power plants “which took effect in mid-June 2022 and had a positive impact on market electricity prices”.
• The company summarises the effects saying that its “estimated realised electricity price for Q3 2022 is expected to be around €280/MWh, with the market price component averaging around €150/MWh and the "adjustment" component accounting for the remainder. Since the end of Q3 2022, estimated realised electricity prices for the Company have improved to around €200-240/MWh. During the extreme pricing in late August, the Company took the opportunity to carry out planned preventive mill maintenance to mitigate the impact.”.
• Atalaya’s previously announced plans for 50MW of solar power generation “will guarantee that over 50% of the electricity requirements at Proyecto Riotinto are sourced at an average final cost of less than €40/MWh”.
• CEO, Alberto Lavandeira confirmed “our guidance for the full year despite the many uncertainties in Europe and abroad. Inflation remains high mainly due to high electricity prices that will continue to impact our cash costs during this year. We look forward to 2023 and the significant benefits we will realise from the start of our long term PPA and 50 MW solar plant”.
• He also expressed enthusiasm for the “many growth opportunities within Atalaya's asset portfolio and … [confidence]… on the outlook for copper. It is evident that more copper supply will be required to fuel the global energy transition, and that high quality assets in safe jurisdictions will become increasingly scarce”.

Conclusion: Atalaya Mining is maintaining its annual production guidance for 2022 and helping to insulate itself from fluctuating costs of electricity supply through the construction of its own solar generating capacity. The assessment of upgrading ore feed to the Riotinto plant through the development of the PMV and San Dionisio deposits is underway and may show a route to increasing copper output within the existing plant capacity.

Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) 89p, Mkt Cap £170m – Award of Vermelho feasibility study

• Horizonte Minerals reports that it has appointed contractors to prepare the feasibility study for its Vermelho nickel/cobalt project in the Carajas region of Brazil.
• The project is expected to produce 25,000tpa of nickel and 1,250tpa of cobalt over an expected 38 years mine life and, in conjunction with the more advanced Araguaia project, also in Brazil, eventually provide Horizonte Minerals with annual nickel production of 60,000tpa.
• Horizonte Minerals explains that pre-feasibility level work on Vermelho, released in October 2019, “estimated a NPV₈ of US$3.4Bn and a post-tax IRR of 38.6% with net cash flows of US$12.9Bn using a nickel price of US$23,000 per tonne”.
• CEO, Jeremy Martin, explained that “The commencement of the FS is an important step forward in unlocking Vermelho's significant value. There are very few nickel resources of this scale and quality at an advanced stage of development, leaving Vermelho well positioned to capitalise on the growing demand for sustainable critical metals”.
• He explained that “Araguaia and Vermelho have a combined inventory of over four million tonnes of nickel. By leveraging the synergies of these two world-class projects, located within trucking distance of each other in a stable and pro mining jurisdiction, Horizonte is well positioned to deliver its growth target of producing 60,000 tonnes of nickel per year”.
• The company says that “Environmental licencing for Vermelho is well advanced, with key regulatory submissions, forming the basis for the construction licence issuance, expected to be made prior to year-end”.

Conclusion: With Araguaia working towards initial production in Q1 2024, Horizonte Minerals is moving on with the feasibility work for the next project in its pipeline at the nearby Vermelho deposit.

KEFI Gold and Copper PLC (AIM:KEFI, OTC:KFFLF)* 0.60p, Mkt Cap £24m – Jibal Qutman exploration license reissued

• JIbal Qutman exploration license is renewed allowing the team to resume fieldwork by the exploration and project team
• The license is granted for five years and covers ~100km2 including the Jibal Qutman mineral resource area that on latest estimates stood at 28.4mt at 0.80g/t for 0.7moz.
• Field programme will now start and include the construction of camp, environmental baseline studies and geotechnical/metallurgical diamond drilling.
• The team is working on a 2mtpa FS that remains on target for completion at the end of Q4/22 or early Q1/23 with environmental permits targeted for Q1/23.
• The license adds to total project area that including recently secured exploration licenses at Jibal Qutman North and Jibal Qutman Southeast takes total land holding to 270km2 located with the highly prospective Nabitah-Tathlith gold belt.
• The operating company, a JV between KEFI (30%) and its local partner ARTAR (70%), started discussions with the Saudi Investment Fund over potential project funding once mining license is awarded.

Conclusion: Authorities re-issued Jibal Qutman exploration license allowing the Company to access the site for baseline studies and drilling as part of the DFS work that is targeted for completion in Q4/22 or Q1/23. The license consolidated ~270km2 of prospective ground over Nabitah-Tathlith Fault Zone that runs north-south across much of the Arabian Shield.

*SP Angel act as Nomad to KEFI Gold and Copper

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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