SP Angel . Morning View . Thursday 17 11 22
Metals rally pauses as market digest China reopening and 16-point property plan
MiFID II exempt information – see disclaimer below
AfriTin Mining Ltd (AIM:ATM, OTC:AFTTF) – H1 results following the completion of Phase 1 commissioning at the Uis mine
East Star Resources PLC (LSE:EST) – EM programme identifies priority targets next to historical VMS deposits
Shanta Gold Limited (AIM:SHG, OTC:SAAGF) – Infill drilling campaign at West Kenya delivers high grades
SQM (NYSE: SQM) – Net income up 1,000% over 3m and 9m as lithium prices hit record highs
Tesoro Gold Ltd (ASX:TSO, OTCQB:TSORF) – A$8m equity placing including A$4.2m investment from Gold Fields
European Energy – Companies adapt to alternative energy supplies to combat high power prices and potential gas shortages
- We are increasingly confident that the UK and Europe will be well positioned to get through the Russian-caused gas supply squeeze this Winter
- Russia has severely damaged Ukrainian power generation requiring Europe to export power into Ukraine to enable the nation to function
- The US apparently used a similar tactic during the Iraq war damaging utilities to pile pressure onto Saddam Hussein’s regime.
- We now expect Europe to survive the winter relatively well due to:
- A warm start to the winter across the Continent with forecasts for warmer weather in Scandinavia while above-normal temperatures are seen for southwest Europe next week
- European gas storage is at record levels (above 95%) for this time of the year with additional LPG tankers at anchor that are acting as storage and still waiting to unload into the European gas network
- Many companies which had converted heating and energy generation to gas to meet EU emissions directives have converted back to diesel and other fuel oils
- Many UK and European households have delayed turning on their heating and are being much more energy efficient with appliances and lower temperatures.
- Companies have also become allot smarter in how they manage their energy demand, running high-demand plant at off-peak times alongside a multitude of incremental improvements.
- Instillation of wind turbines and solar plants continues at speed
- Heavy rain in Norway has refilled hydropower reservoirs with Norway confirming it can supply power to the UK through the 1,400MW, 720km North Sea Link
- European gas demand has fallen by 15-20% versus last year due to warmer temperatures and the reduction in industrial demand.
- Much of the gas demand in the UK is for gas peaker plants which can generate rapid response power for peak demand.
- German utilities are still offering relatively low wholesale prices to new businesses. These prices are significantly below prices paid by households.
- To quote an old saying: The best solution to high energy prices, is high energy prices.
- Forecasts are for warmer than normal weather to persist across Europe following the warmest October for last 10 years and warmest November 13th in last 100 years.
Gold edges lower on muted trading as investors weigh up varied US economic data
- Gold prices continue to hover around the $1,770/oz mark in a rangebound week of trading.
- Prices have held higher on the weakness of the 10 Year US Treasury yield, down to 3.7% having touched 4.21% in the first week of November.
- Dollar bearishness is also feeding into gold price stability, with the greenback index down 6% from November 3rd.
- US retail sales have complicated the picture further, recording their strongest month in 8 for October, suggesting high inflation and deteriorating economic outlooks are yet to feed into the consumer.
- A 50bp rate hike in December is all but priced in now, further helping gold prices and weighing on the dollar and yields.
- However, Fed officials continue to emphasise the need to keep hiking through 2023.
Copper prices edge lower on rising inventories and recent flip to contango
- Copper prices have eased to around $8,250/t having touched $8,640/t last week.
- The downward move has been triggered by an improving short term supply picture, with futures flipping from backwardation to contango this week, suggesting buyers are less desperate for immediate physical supply.
- Backwardation develops when the spot price is higher than the forward future. Copper had been in backwardation since August.
- Global copper inventories have climbed 15% since last week, following a period of restocking from Chinese buyers.
- The Yangshan copper cathode premium has fallen 34% through October and November against the LME, highlighting weaker Chinese demand.
- However, inventories remain 49% lower than the seasonal 5-year average.
- Covid cases in China continue to rise, with fears of accelerating infections in Beijing and Guangzhou continue to tick higher.
- India has contradicted weaker global demand trends this year, seeing refined copper consumption between Jan-August jump 45% vs 2021.
- India’s copper demand has now jumped over pre-Covid levels (Reuters) on robust housing demand and the electrification of the Country’s roads.
Dow Jones Industrials -0.12% at 33,554
Nikkei 225 -0.35% at 27,931
HK Hang Seng -1.15% at 18,046
Shanghai Composite -0.15% at 3,115
Economics
US – Good retail sales at the beginning of Q4/22 suggesting the consumer is in a good place despite a series of latest hikes.
- The data may see the Fed preferring to continue with aggressive rate
- Retail Sales (%mom): 1.3 v 0.0 September and 1.0 est.
- Retail Sales Control Group (%mom): 0.7 v 0.6 (revised from 0.4) September and 0.3 est.
ECB – The central bank is weighing dialling back the size of the next rate hike to 50bp, Bloomberg cites people with knowledge of the matter.
- Mounting recession risks and the possibility of weakening consumer price pressures were named among reasons for a potential decision.
- As such November 30 inflation reading will be closely ahead of the ECB monetary policy meeting in mid-December.
- Last reports on inflation showed price pressures continued to escalate and remained at the highest level since the formation of the single currency zone.
UK – Chancellor is set to deliver a package of tax hikes and spending cuts worth up to £60bn today.
- Expectation is for new initiatives have a 60-40 split between cuts and taxes.
Australia – Employment comes in stronger than expected in October following a report of a strong growth in wages released yesterday.
- Indicators of tight labour market suggest the central bank is likely to continue to monetary tightening policy.
- The RBA hiked by 25bp at the last meeting with the next one scheduled for December 6.
Australia not likely to support formation of ‘nickel cartel’, according to Minerals Council
- The Minerals Council of Australia have commented that it wouldn’t support the formation of supply-constricting cartels, according to CEO Tania Constable.
- Ms Constable commented: “we’ll always be mindful we are meeting all our international trade obligations, and you don’t see cartels forming”
- This news follows on from yesterday’s reporting that Indonesia made the proposal to Canada when Indonesian Investment Minister Bahlil Lahadalia met Canada's International Trade Minister Mary Ng on Tuesday at the G20 summit.
- In a statement, Bahlil said "Through this collaboration, we hope that all nickel producing countries can benefit an evenly distributed value addition,"
- The Canadian minister responded saying the two countries could explore such collaboration and that both shared a vision on optimising natural resources in a sustainable way.
- Since 2020, Jakarta has banned exports of unprocessed nickel ore to attract investment into domestic processing, enabling it to capture more value down the EV supply chain.
- According to the USGS, Australia and Indonesia are joint top with 21mt of nickel reserves.
China’s aluminium smelters look to West Africa and Southeast Asia as domestic market slows
- Major smelters accounting for 80% of China’s aluminium capacity have stated plans to establish alumina plants in Guinea.
- The group also stated plans to build fabricators and factories in Southeast Asia.
- With China’s property market slowing, the smelting giants are eyeing a ramp up in exports to over 10mt.
- State-backed research house Antaike is forecasting aluminium product exports to rise by 15% this year, with muted demand onshore.
- The group will also seek to boost bauxite reserves and imports from alternative sources. (Bloomberg)
- The group are also aiming to boost green energy-fuelled production by 30% of total capacity by 2030 vs 23% now.
Iron ore weakens on rumoured steel mill production cuts and rising iron ore inventories
- Iron ore prices fell 3.3% in their largest drop since October having enjoyed an extended rally last week.
- MySteel reports China’s steelmaking hub Tangshan is cutting production by 30% for 10 days at major sinter plants on poor profitability.
- Inventories at major Chinese steel mills have risen 1.5% in early November from late October. (China Iron and Steel Association)
- Crude steel production has fallen 2% over the same period, pointing to a continuation of weak consumption trends in China.
Currencies
US$1.0394/eur vs 1.0408/eur yesterday. Yen 139.07/$ vs 139.35/$. SAr 17.239/$ vs 17.278/$. $1.195/gbp vs $1.189/gbp. 0.674/aud vs 0.678/aud. CNY 7.126/$ vs 7.074/$.
Dollar Index: 106.12 /-1.91% on week
Commodity News
LME increases scrutiny of nickel trading as volatility overwhelms market
- Nickel prices slid 12% yesterday following a week of whipsawing volatility.
- The LME nickel contract has seen its highest levels of volatility since the infamous nickel short squeeze in March.
- The LME has hiked the nickel margin 28% to $6,100/t in a bid to limit intraday swings.
- Liquidity has increased dramatically on the Shanghai exchange following the March saga, with volatility on that contract far lower.
- Traders have been put off by the LME’s decision to suspend trading during the fiasco, hitting buyers who were long at a time when prices hit $100,000/t.
LME – Decides not to delist Russian metal brands
- Russian metal brands are to remain listed on the LME causing complications for regulators who may view any form of trading in goods from sanctioned Russian companies as a violation
- Sanctions against Russian companies are making life tricky for traders who definitely do not want to be accused of sanctions violations
- Rusal welcomed the decision not to delist its brands in a letter to the LME. Rusal aluminium is not thought to be directly covered by current sanctions.
- The LME is wholly owned by HKEX the Hong Kong Exchanges and Clearing Limited which is owned by the HK government, eg China.
Precious metals:
Gold US$1,770/oz vs US$1,777/oz yesterday
Gold ETFs 94.2moz vs US$94.1moz yesterday
Platinum US$1,012/oz vs US$1,019/oz yesterday
Palladium US$2,064/oz vs US$2,096/oz yesterday
Silver US$21.30/oz vs US$21.65/oz yesterday
Rhodium US$13,550/oz vs US$13,550/oz yesterday
Base metals:
Copper US$ 8,258/t vs US$8,358/t yesterday
Aluminium US$ 2,414/t vs US$2,453/t yesterday
Nickel US$ 26,645/t vs US$28,665/t yesterday
Zinc US$ 3,041/t vs US$3,113/t yesterday
Lead US$ 2,151/t vs US$2,207/t yesterday
Tin US$ 23,550/t vs US$24,200/t yesterday
Energy:
Oil US$92.8/bbl vs US$93.7/bbl yesterday
Natural Gas US$6.364/mmbtu vs US$6.005/mmbtu yesterday
Uranium UXC US$50.65/lb vs US$50.60/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$95.6/t vs US$95.7/t
Chinese steel rebar 25mm US$548.0/t vs US$550.7/t
Thermal coal (1st year forward cif ARA) US$199.0/t vs US$202.0/t
Thermal coal swap Australia FOB US$319.0/t vs US$332.0/t
Coking coal swap Australia FOB US$273.0/t vs US$312.0/t
Other:
Cobalt LME 3m US$51,955/t vs US$51,955/t
NdPr Rare Earth Oxide (China) US$90,862/t vs US$91,179/t
Lithium carbonate 99% (China) US$80,899/t vs US$81,496/t
China Spodumene Li2O 5%min CIF US$6,110/t vs US$6,110/t
Ferro-Manganese European Mn78% min US$1,284/t vs US$1,285/t
China Tungsten APT 88.5% FOB US$31.7/kg vs US$31.7/kg
China Graphite Flake -194 FOB US$880/t vs US$880/t
Europe Vanadium Pentoxide 98% 7.5/lb vs US$7.5/lb
Europe Ferro-Vanadium 80% 31.75/kg vs US$31.75/kg
Spot CO2 Emissions EUA Price US$77.8/t vs US$80.0/t
Brazil Potash CFR Granular Spot US$570.0/t vs US$570.0/t
China Ilmenite Concentrate TiO2 US$315/t vs US$317/t - Ilmenite prices hold at CNY 2,235/t following pullback from
- Prices are holding at around CNY 2,235/t in China for Ilmenite concentrates grading 46% min TiO2; 8% max Fe2O3ex-VAT EXW ex-works China.
- The price equates to around $273/t after 13% VAT into China and includes shipping costs for contracts signed on this basis.
- Ilmenite prices have pulled back from a near high of $345/t a year ago in China .
Battery News
Chinese EV makers look to Southeast Asia as demand continues to accelerate
- Chinese EV makers, including BYD, Great Wall, Hozon and Aiways are all ramping up their deliveries to Southeast Asia.
- China-made EVs are more affordable than Western alternatives, improving their accessibility to the developing markets in countries such as Thailand.
- Research House TTB Analytics forecasts EV sales in Thailand are set to jump 539% this year, encouraged by Government subsidies.
Company News
AfriTin Mining Ltd (AIM:ATM, OTC:AFTTF) 4.43p, Mkt Cap £70m – H1 results following the completion of Phase 1 commissioning at the Uis mine
- In its interim results for the six months to 31st August, Afritin reports an after-tax loss of £2.8m (2021 - £0.5m loss) and a cash balance of £1.7m.
- The 15th November cash balance is reported at £12.2m “subsequent to the US$53.6 million proposed funding package announced in September 2022”.
- Principal elements of the funding include a £19.8m equity raising in September, a US$5.8m funding facility provided by the Development Bank of Namibia (subject to the completion of legal documentation)and a US$25m (~£21.5m) package from Orion comprising US$12.5m via a royalty agreement, a US$10m Convertible note and a US$2.5m equity injection.
- The results reflect the production of 454t of tin in concentrate at the Uis mine in Namibia (H1 2021 – 286t of contained tin) which generated revenues of £4.7m (H1 2021 - £5.1m).
- Afritin attributes the reduction in revenues to a combination of “the decrease in the tin price as well as the impact of the timing of settlement adjustments (initial prepayment versus final settlement spot prices during reporting period)” and points out that received tin prices averaged US$25,227/t compared with US$36,910 during the first half of 2021.
- Chief Executive, Anthony Viljoen, explained that the settlement issues “related to a few delayed shipments which net settled at prices much lower than the original prepayment rate” resulting in “an adjustment to revenue of approximately £1.4 million for which the prepayment was recognised in H2 2021”.
- He confirmed that Afritin has “since changed shipping lines to speed up the shipping timelines and limit the time exposure for revenue recognition.”
- The company also explains that its £5.7m cost of sales (H1 2021 - £4.0m) reflect the “inflationary pressures of high fuel prices and higher maintenance costs” but says that “Except for higher fuel prices, aforementioned cost factors are expected to be resolved during H2 2022” with unit costs expected to “improve with the achievement of higher production volumes from the Phase 1 Expansion Project”.
- As previously announced, Afritin confirms the completion of commissioning of its Phase 1 Expansion project at the Uis mine where production is now expected to “ramp to more than 1,200 tpa of tin concentrate in H2 2022”.
- The modular expansion included additional crushing and screening capacity which is expected to facilitate a 50% increase in ore throughput to drive the expected increase in tin production.
- Longer term enhancements at Uis include the recovery of by-product tantalum and lithium which should contribute to cost reduction initiatives.
Conclusion: The successful commissioning of the expanded Phase 1 plant provides a foundation for expanded tin concentrate production at Afritin’s Uis mine in Namibia where output is expected to rise by around 50% from a rate of 780tpa to 1,200tpa over the next three months with the tin content of the concentrates increasing to 720tpa of tin.
East Star Resources PLC (LSE:EST) 3.8p, Mkt Cap £7m – EM programme identifies priority targets next to historical VMS deposits
- The Company released preliminary results from the helicopter borne electromagnetic survey over five VMS mineralisation prospective licenses in the Rydny Altai belt in Kazakhstan.
- Based on EM results, satellite imagery and in the field data the Company shortlisted a series of priority targets:
- Five ‘Priority’ targets, four of which are drill ready.
- Two of those are located in immediate vicinity to the historic Pokrovskoye VMS deposit that was mined out in 1979 and is reported to have hosted grades of 11.5% Cu, 12% Zn and 3.3% Pb.
- To the north east of those, another target was identified with a large, shallow, highly conductive, strike extensive and moderately dipping EM anomaly reported; the area had not seen any prior exploration.
- A fourth anomaly is reported NE of the Solonovskoye deposit that was discovered in mid-1960s comprising six lenses up to 760m long and 58m thick with grades up to 3.8% Cu, 3.3% Zn and 1.1% Pb.
- Three ‘Priority 2’ with minor fieldwork required to reach drill ready status.
- Additionally, the Company generated 40 targets that may potentially make it into a shortlist following more desktop and field work.
- The programme was conducted between May and July this year.
- The team is now planning to launch a drilling programme to test identified targets in the coming year.
Conclusion: Geophysical survey identified a series of priority targets in the area of known historical VMS deposits and operations ahead of the drilling programme targeted for 2023.
Shanta Gold Limited (AIM:SHG, OTC:SAAGF) 10.3p, Mkt Cap £107m – Infill drilling campaign at West Kenya delivers high grades
- The Company released another set of drilling results from its ongoing infill programme at the West Kenya Project in Kenya.
- The update covers ~2,500m of drilling completed across 7 diamond holes in Q3/22 at the Isulu deposit.
- The results are some of the best that have been delivered by the Company with selected intersections including grades of 721g/t (over 0.6m), 210g/t (over 1.6m), 172g/t (over 0.5m) and 93g/t (over 0.5m).
- This is the seventh update related to the current Phase 2 with ~64,000m of the budgeted 75,000m programme having now been completed.
SQM (NYSE: SQM) US$100, Mkt Cap $26.7bn – Net income up 1,000% over 3m and 9m as lithium prices hit record highs
- Lithium brine producer SQM has released its earnings for the three and nine months to September 30th 2022, with sales and production at a record high.
- Net income for the 3m and 9m rose over 1,000% to $1.01bn and $2.76bn respectively.
- Lithium sales rose 89% YoY to 41,600t and 63% YoY to 113,800t.
- Average prices during the quarter reached a record high of $56,000/t.
- Outlook: SQM estimate demand is up 40% on 2021, justifying investment in new projects such as Salar Futuro and R&D including Advanced Evaporation Technologies and Direct Lithium Extraction.
- SQM’s board of directors have approved the expansion of the company’s Chilean lithium hydroxide capacity to 100,000t from 40,000t, requiring $360m in investment.
- The company is also in the early stage of development of a new Chinese plant that will produce up to 30,000t of lithium hydroxide, fed from lithium sulphate from Chile.
Tesoro Gold Ltd (ASX:TSO, OTCQB:TSORF) A$0.037, Mkt cap A$30m – A$8m equity placing including A$4.2m investment from Gold Fields
- Tesoro reports a capital raising of A$8m, including a $4.2m strategic investment from Gold Fields and a fully underwritten Entitlement offer to raise $3.8m.
- The equity placing comprises 120m ordinary shares at a price of $0.035 per Share to Gold Fields and a non-renounceable entitlement offer on the same terms as the Placement for existing shareholders; who are able to subscribe for one new share for every eight shares held.
- The placing was done at a 5.4% discount to the closing price on the 15th of November, and a 4.7% discount to the 5-day VWAP.
- An agreement between Tesoro and Gold Fields stipulates that 80% of the funds raised under the Placement are to be deployed towards assessing regional targets at El Zorro.
- Gold Fields will have 50% representation on an advisory technical committee so as long as their interest in Tesoro remains over 5%.
- Tesoro currently has a mineral resource of 30.5 Mt @ 1.12g/t Au for 1.1Moz of gold at 0.3g/t Au cut-off – though recent work has been focused on extending known mineralisation.
- A drill hole of particular interest, reported earlier this month, was Hole ZDDH0309 that intersected 53.50m @ 1.17g/t Au from 57.00m and is located 300m south of the existing Ternera MRE.
- Sampling at the Animas Viejas target has identified widespread outcropping gold mineralisation approx. 35km north of Ternera.
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
DISCLAIMER
This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.
This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.
This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.
This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.
Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.
Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.
SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).
SPA is registered in England and Wales with company number OC317049. The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP. SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.
MiFID II - Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.
A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).
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%