SP Angel . Morning View . Wednesday 30 11 22
Copper stabilises on China covid reopening, dollar weakness and Beijing property stimulus measures
MiFID II exempt information – see disclaimer below
Anglo American PLC (LSE:AAL) – Appointment of new Group Director-Technical
Europa Metals Ltd (AIM:EUZ, JSE:EUZ)– Mineral resource increase at Toral
Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTCQX:GALKF)* – BUY, TP:54p – Q3 results show strong cash position ahead of production restarting at Omagh
Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)* – Q3 results underpinned by release of DFS
Metal Tiger PLC (AIM:MTR, OTC:MRTTF, ASX:MTR) – Disposal of 49% interest in Kalahari Metals
Petra Diamonds Limited (LSE:PDL, OTC:PDLMF) – Williamson mine expected to resume production in mid-2023
Sunrise Resources PLC (AIM:SRES) – £480,000 capital injection from US investor
Talga Group* (ASX: TLG) – Talga update on ACC negotiations for supply of graphite anode from Vittangi
Commodity-focused hedge funds see major inflows as investor appetite returns
- The top 15 commodity hedge-funds have seen assets jump 50% this year to over $20bn. (Bridge Alternative Investments)
- Growing macro interest amid heightened geopolitics and interest rate swings has seen macro funds drawn to bets on metals and energy derivatives.
- Commodity-based hedge funds remain a minimal percentage of funds under management following a lacklustre period in the decade.
Gold holds monthly gains as traders expect volatility following Powell’s speech today
- Gold is still hovering around $1,755/oz but remains up over 7% this month.
- Bullion has been supported by a weakening US dollar against major currencies, alongside a weakening of US Treasury yields.
- We expect today to be a major catalyst for gold, with Jerome Powell due to talk to markets regarding the Fed’s strategy to cool inflation whilst avoiding a US recession going forward.
- The Fed has been offering a mixed message in recent weeks, pointing to a slowdown in rate hikes whilst highlighting the need for rates to remain high for a period longer than the market is anticipating.
- If the Fed were to execute a major pivot towards a more dovish rate hike approach, gold would be a primary beneficiary. However, this is currently an unlikely scenario given the relative strength of the US economy.
- So far, the Fed has hiked the federal funds rate target range by 3.75% since January, whilst shrinking its balance sheet to its maximum rate of up to $60bn in Treasury securities each month. Analysts currently expect a peak fed funds rate of 4.75-5% in March.
Indonesia to appeal WTO’s ruling against planned nickel ore export ban
- Indonesia’s President Jokowi has vowed to fight against the WTO’s decision to rule against his move to ban nickel ore exports.
- Indonesia is attempting to boost the downstream mineral processing industry domestically, by limiting ore exports to foreign buyers.
- The WTO deemed an export ban on the ore a violation of international trade rules – Indonesia is the world’s largest nickel producer.
- The EU has been a major critic of Jokowi’s moves to boost domestic downstreaming.
Copper stabilises following buoyant month on China reopening, dollar weakness and Beijing property stimulus measures
- Copper strengthened this morning to $8,050/t, remains 5.24% off mid-November highs despite having posted its biggest monthly gain in 19 months.
- Copper has rallied 8% this month on news that China will step up liquidity support for its property sector and is seemingly relaxing its zero-covid policy.
- Inventories ticked down again, as global inventories fell 8.2% since last week. Stocks are now 48% lower than 5-year seasonal average but 10% higher than 2021’s seasonal levels, where prices stood at $9,440/t
- Traders have seen easing physical demand recently, however this may be reversing, with 4-month extremes in contango easing on CMX futures.
- LME copper cash premium also easing back to positive levels having hit its lowest levels since March, suggesting physical demand is increasing.
- However, Yangshan copper cathode premiums are continuing to fall, now down 47% from yearly highs reached in mid-October. This may highlight the continued dearth of industrial activity, supported by today’s PMI numbers.
Explosion-proof 5G smartphone
- One of the more interesting mobile innovations for the mining industry.
- You can blow yourself up, safe in the knowledge your phone will survive.
- The phone can also help rescuers track the location of your incident for rapid collection of surviving body parts.
- The phone could also more accurately log lost-time injury and mortality data for rapid ESG reporting.
Dow Jones Industrials +0.01% at 33,853
Nikkei 225 -0.21% at 27,969
HK Hang Seng +2.33% at 18,630
Shanghai Composite +0.05% at 3,151
Economics
US – The Chairman of the Fed is set to speak later today at the Brooking Institution which would be the major scheduled speech for Fed officials before the next monetary policy meeting on December 13-14.
- Markets are expecting Powell to signal a 50bp hike at the coming meeting, down on 75bp announced in the previous three, although, he is also likely to warn that policy tightening has further to go.
China – Decline in business activity accelerates through November as PMI data reflects domestic Covid disruptions as well as slowing growth in overseas markets.
- Nomura estimates that a quarter of the national GDP is now affected by lockdowns, up on 21% recorded in April when the whole of Shanghai was shut down.
- Bloomberg estimates are for growth to slowdown to 1.2% in Q4/22 from 3.9% the previous quarter taking total for the year to 3.3% before recovering to 4.9% in 2023.
- Official Manufacturing PMI: 48.0 v 49.2 October and 49.0 est.
- Official Services PMI: 46.7 v 48.7 October and 48.0 est.
- Official Composite PMI: 47.1 v 49.0 October.
- China steel orders continue to fall, hitting sharpest decline in 13 months
- China new orders fell at the largest rate since October 2021, when the property sector began its major decline.
- Steel activity contracted further, hitting 40.1 from 44.3 (lowest since July) on the purchasing manager’s index – below 50 signals contraction.
- The steel industry in China has contracted for 30 straight months now.
- New housing starts in China from Jan-Nov fell 39% yoy to a 13-year low.
- However, signs of optimism are surfacing from the infrastructure sector, with 3-month average growth rates increasing to 15% in October, supported by Beijing’s liquidity stimulus measures. (Bloomberg)
- Special bond-issuances by local governments have jumped 31% this year to September yoy as officials look to shore up the economy.
- Health authorities strike a conciliatory tone urging to avoid excessive curbs following a series of protests over the weekend.
- Some concessions are being reported with people who stay at home are no longer needing frequent Covid testing while movement restrictions imposed in Beijing to trace the source of the virus should not exceed 24 hours now, Bloomberg writes.
- At a briefing on Tuesday, officials from bodies including the National health Commission did not refer to “dynamic Covid zero” policy at all marking a stark contrast to previous meetings.
- Minor details suggest the government may opt to pivot towards less restrictive virus containment measures that is likely to come at a cost of higher daily Covid cases.
- CCP leadership blaming local officials for overzealous lockdowns and poor vaccination rates in the elderly
- It was inevitable that the Chinese leadership would blame the lower ranks for China’s handling of the Covid pandemic.
- A relatively low vaccination uptake in the population and particularly with the elderly has left China vulnerable to high hospitalisation rates arising from Covid.
- China’s poor vaccine efficacy is also a significant impediment with Chinese officials so far refusing to buy or distribute more-effective western vaccines.
- Strict lockdowns by overzealous local officials trying to curry favour with the higher ranks in the CCP has upset the Chinese people causing protest, rioting and calls for Xi’s removal.
- The CCP leadership is now blaming the lower ranks for the strict application of Xi’s zero-Covid policy and will no-doubt point towards the less-strict but somewhat undefined ‘Dynamic’ Zero-Covid.
- While some might hope the situation could tear China apart, we suspect, a few arrests, some teargas, curfew and other measures will manage the situation.
- China faces extreme cold snap, adding to Covid woes and placing pressure on energy infrastructure
- China is enduring the coldest weather in its northwest for over a decade.
- The Mongolian border is recording -47°C, whilst southern parts of China have fallen to below -14°C.
- The cold weather threatens to destabilize the country’s energy security, with heating demand soaring and coal transportation disrupted by heavy snowfall.
- China has been stockpiling coal for months now having been hit by shortages both during the summer and last winter.
- However, Shanxi, which is a primary coal producer, saw sales fall 21% in the first half of this month.
- Death of Jiang Zemin highlights contrast with Xi Jinping
- The death of Jiang Zemin who is said to have helped stabilise China after Tiananmen Square serves to highlight differences between Jiang and Xi’s leaderships.
- Jiang served as general secretary to the CCP from 1989-2002 and helped entrench the sweeping market-orientated reforms of Deng Xiaoping and placed China on firmer international footing (FY).
- Retrospectively Jiang’s leadership was seen as relatively liberal when compared with Xi Jingping.
- The implication is that president Xi is far more authoritarian and less interested in market-orientated reform. This is, therefore, a sad day for China.
Germany – Inflation slowed down slightly, in line with estimates, but continued to run at a double digit pace in November.
- The move in the headline number is reported to have been driven by lower energy costs and a larger drop in package holiday prices, Bloomberg writes.
- That would suggest that core CPI potentially remained high that in turn supports the case for more monetary policy tightening moving forwards.
- The ECB will meet on December 15 to decide on the policy rate that saw two consecutive 75bp hikes during last meetings in September and October.
- CPI (EU Harmonised, %mom): 0.0 v 1.1 October and 0.1 est.
- CPI (EU Harmonised, %yoy): 11.3 v 11.6 October and 11.3 est.
France – Inflation rate was unchanged in November despite slowdowns recorded in Germany, Spain and Belgium.
- CPI (EU Harmonised, %mom): 0.5 v 1.2 October and 0.4 est.
- CPI (EU Harmonised, %yoy): 7.1 v 7.1 October and 7.0 est.
UK – Business confidence across the services sector dropped for a third consecutive quarter, according to data from the Confederation of British Industry.
- Among reasons behind weak outlook, businesses mentioned little efforts from the government to boost growth and inflation running at the highest in four decades.
- “Strong cost and price pressures are continuing to hurt services firms, damaging optimism and investment intentions and hitting profitability,” CBI commented on findings.
Currencies
US$1.0354/eur vs 1.0368/eur yesterday. Yen 138.64/$ vs 138.21/$. SAr 16.969/$ vs 17.022/$. $1.197/gbp vs $1.203/gbp. 0.671/aud vs 0.672/aud. CNY 7.145/$ vs 7.163/$.
Dollar Index: 106.55 /-0.46% on week
Commodity News
Precious metals:
Gold US$1,756/oz vs US$1,753/oz yesterday
Gold ETFs 94.3moz vs US$94.3moz yesterday
Platinum US$1,012/oz vs US$1,001/oz yesterday
Palladium US$1,875/oz vs US$1,875/oz yesterday
Silver US$21.35/oz vs US$21.19/oz yesterday
Rhodium US$13,300/oz vs US$13,300/oz yesterday
Base metals:
Copper US$ 8,042/t vs US$8,052/t yesterday
Aluminium US$ 2,379/t vs US$2,382/t yesterday
Nickel US$ 26,800/t vs US$25,795/t yesterday
Zinc US$ 2,947/t vs US$2,955/t yesterday
Lead US$ 2,132/t vs US$2,139/t yesterday
Tin US$ 22,675/t vs US$22,520/t yesterday
Energy:
Oil US$83.9/bbl vs US$84.8/bbl yesterday
Natural Gas US$7.167/mmbtu vs US$7.309/mmbtu yesterday
Uranium UXC US$50.35/lb vs US$50.35/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$100.5/t vs US$100.4/t
Chinese steel rebar 25mm US$544.1/t vs US$543.1/t
Thermal coal (1st year forward cif ARA) US$229.0/t vs US$229.0/t
Thermal coal swap Australia FOB US$372.0/t vs US$375.0/t
Coking coal swap Australia FOB US$268.0/t vs US$248.0/t
Other:
Cobalt LME 3m US$51,955/t vs US$51,955/t
NdPr Rare Earth Oxide (China) US$92,152/t vs US$91,546/t
Lithium carbonate 99% (China) US$78,718/t vs US$78,498/t
China Spodumene Li2O 5%min CIF US$6,110/t vs US$6,110/t
Ferro-Manganese European Mn78% min US$1,278/t vs US$1,280/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% 7.7/lb vs US$7.7/lb
Europe Ferro-Vanadium 80% 31.75/kg vs US$31.75/kg
China Ilmenite Concentrate TiO2 US$316/t vs US$315/t
Spot CO2 Emissions EUA Price US$81.1/t vs US$81.2/t
Brazil Potash CFR Granular Spot US$530.0/t vs US$530.0/t
Battery News
Company News
Anglo American PLC (LSE:AAL) 3,318p, Mkt Cap £44bn – Appointment of new Group Director-Technical
- Anglo American reports that following the retirement of Technical Director, Tony O’Neill, it is appointing Matt Daley is to become its Group Director-Technical with effect from 1st January.
- Mr. Daley is described as “a mining engineer with more than two decades of underground, open cut, smelting, refining, project and commodity trading experience. He has lived and worked in Australia, South America, North America, the UK and the Middle East” who joined Anglo American in 2017 as Group Head of Mining.
- A search is underway to fill Mr. O’Neill’s duties as Group Director - Projects & Development “to facilitate the next phase of prioritisation for Anglo American's technical disciplines to best support business performance”.
Europa Metals Ltd (AIM:EUZ, JSE:EUZ) 4.1p, Mkt Cap £2.7m – Mineral resource increase at Toral
- Europa Metals has announced an updated mineral resource estimate for its Toral lead/zinc/silver project in Castilla y Leon, Spain.
- The new estimate, which is reported at a 4% Zinc equivalent cut-off grade follows the 2022 drilling campaign, reports a JORC (2012) compliant indicated resource of 7.0mt at an average grade of 5.0% zinc, 3.7% lead and 29g/t silver (reported as 8.1% on a zinc equivalent basis) plus an additional inferred resource of 13mt at a grade of 4.1% zinc, 2.3% lead and 19g/t silver (6.0% ZnEq).
- The estimate, prepared independently by Addison Mining Services, is based on a total of 61,545m of drilling and represents “a 19% increase to the Indicated Mineral resource and a 14% increase in grade” compared to the previous, October 2021, estimate.
- Europa Metals says that the new estimate represents an increase of 39% in the contained zinc content at Toral (to 349,000t) compared to the earlier estimate with the lead content 33% higher (at 260,000t) and the silver content 27% above the previous figure at 6.6moz.
- Chairman and Acting CEO, Myles Campion, said that the new mineral resource estimate “will enable the project team to now utilise a substantial tonnage of independently reported Indicated Mineral Resources in the mine plan for the upcoming mining licence application scheduled to be delivered by 31 July 2023 to the Junta of Castilla y León”.
- The company comments that although the 4% ZnEq cut-off “is to be taken forward as the base case for resource reporting” resources above a 3.5% ZnEq cut-off “are considered to have a reasonable prospect of eventual economic extraction”.
- At this lower cut-off, indicated resources are increased by around 3% to 7.2mt with ZnEq grades around 1% lower at 8.0% with inferred resources around 15% higher at 15mt at a 5% lower ZnEq grade of 5.7%.
- Although the overall impact on both tonnage and grade of the lower cut-off is relatively minor, we suspect that it may simplify mine planning and provide some flexibility in stope design.
Conclusion: The new mineral resources estimate builds on the recent results from the resource expansion drilling at Toral and provides a basis for the preparation of the mining licence application.
Galantas Gold Corp (AIM:GAL, TSX-V:GAL, OTCQX:GALKF)* 34p, Mkt Cap £36m – Q3 results show strong cash position ahead of production restarting at Omagh
BUY – TP:54p
- Galantas has released its results for the three months to the 30th September 2022.
- The company reported a net loss of C$1.6m vs $1.2m over the same period last year.
- Admin expenses rose to $1.2m vs $914k last year.
- The company had a cash balance of $3.6m at September 30, 2022.
- Galantas continue to make strong progress at its Omagh Gold Project in Northern Ireland, raising C$6.9m during the period for exploration and development at Joshua and Kearney Veins.
- Four working levels have been developed or partly developed on the Kearney Vein to date, improving flexibility of mining operations at Cavanacaw.
- Development ore from the underground operation has been successfully run through the existing surface processing plant, that produces a gold concentrate using conventional froth flotation without the use of cyanide or mercury. Recovery rates to date have averaged 90%.
- Key components of the plant have been recently refurbished and management are confident of a ramp up from an initial 100tpd throughput to 480tpd in the coming years following staged expansions funded using operating cash flow.
- The current MRE at Cavanacaw is hosted within a system of ~9 mineralised veins, while the wider system is comprised of 16 vein structures in an area of 6km2. Mineralisation on veins remains open along strike, and we expect a MRE upgrade in 2023, justifying a life of mine extension from the initial 12 years.
Conclusion: Galantas remain well funded through the recent capital raise to progress their two pronged strategy of development and exploration at the Omagh project.
*SP Angel acts as broker to Galantas Gold
Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)* 16p, Mkt Cap £36m – Q3 results underpinned by release of DFS
- Mkango has released its results for the three months to the 30th September 2022.
- The company reported a net loss of US$1.1m vs $2.5m over the same period last year.
- Admin expenses rose to $850k vs $536k last year.
- The company had a cash balance of $418k at September 30, 2022.
- Mkango released the results of its DFS for Songwe Hill during the quarter, with financial highlights:
- LOM post-tax nominal cash flow of $2.08bn
- Post-tax NPV10 of $559m
- EBITDA of $215m per year
- Post-tax IRR 31.5%
- Payback period from project start (assumed Mar 23) of 5 years.
- Capex of $389m
- Operational summary of DFS:
- Average yearly ore mined of 1.48mt at an average 1.16% TREO
- Life of mine: 18yrs
- Average strip ratio of 2.2
- Yearly flotation plant feed of 1mt
- Flotation TREO concentrate grade of 11.6%
- TREO recovery to concentrate of 74%
- Average yearly flotation concentrate feed of 74,000t
- Average yearly carbonate production (dry basis) of 10,826t
- Mkango also reported the signing of a non-binding term sheet with CoTec Holdings Corp, who agreed to invest £2m convertible into Mkango shares at 27p each, for working capital purposes.
- CoTec also agreed to invest £1.5m for a 10% stake in Maginito, Mkango’s downstream rare earth technologies company.
*SP Angel acts as nomad and broker to Mkango Resources
Metal Tiger PLC (AIM:MTR, OTC:MRTTF, ASX:MTR) 11p, Mkt Cap £19m – Disposal of 49% interest in Kalahari Metals
- Metal Tiger reports that Cobre Limited has acquired MTR's 24.5% interest in Kalahari Metals (KML) for £750k and a further 24.5% in KML through the issuance of 4,632,155 shares in Cobre to Metal Tiger at a price of A$0.29/share.
- Metal Tiger also reports it has received 9,808,076 placing shares in consideration for its A$1.471m investment in Cobre as part of a A$7m placement.
- KML is currently exploring on the Kalahari Copper Belt in Botswana, owning a 5,348 km2 license package in an area prospective for copper mineralisation.
Petra Diamonds Limited (LSE:PDL, OTC:PDLMF) 90p, Mkt Cap £184m –Williamson mine expected to resume production in mid-2023
- Petra Diamonds has provided further information on the escape of mine tailings at its75%-owned Williamson diamond mine in Tanzania which occurred on 7th November.
- The company says that it has confirmed that “no fatalities or serious injuries occurred as a result of the incident” but that the breach of the dam wall on the tailings storage facility released “12.8 million cubic metres of water and tailings material … [and covered] … A total area of 3.57km2 … on Williamson’s mine lease area with 1.52km2 outside the mine lease area”.
- Follow-up environmental testing “confirms the tailings material which flowed out of the TSF is inert … [and] … Analysis is underway with the assistance of independent experts to ascertain appropriate measures for the clean-up or remediation of affected areas”.
- The company confirms that “A temporary rehousing scheme is being planned for the families affected by the breach. Interim accommodation and humanitarian relief, including psycho-social assistance, continues to be provided to those affected”.
- Petra Diamonds says that its technical team has identified “that the failure mechanism was subsidence of a portion of the East wall of the TSF by around 1.5m that enabled the water to crest the wall, initiating the breach. The root cause of the subsidence has not been determined and will require a forensic geotechnical investigation to be completed.”
- Design work for a new tailings storage facility (TSF) “which will determine the additional construction work required to make the facility operational. It is now expected that this new TSF will take longer than initially anticipated to become operable” and the necessary studies will not be completed until February 2023.
- “As a result of the additional work required to progress these long-term solutions, interim deposition options are being developed that may enable the Williamson mine to resume production around the middle of 2023”.
- During the three months to 30th September, Petra Diamonds Q1, the mine produced a total of 100,750 carats of diamonds and sold approximately 71,000 carats generating US$21m revenue.
- Previously issued production guidance envisaged Petra Diamonds’ FY 2023 production totalling 3.3-3.6m carats with the Williamson mine’s contribution ranging between 319-358,000 carats. We expect that this guidance will now need revision.
Conclusion: It is welcome news that the tailings leakage at Williamson caused no injuries or deaths nor did it release any toxic reagents but it inundated a sizeable area, and displaced some families. The mine is not now expected to resume production until mid 2023.
Sunrise Resources PLC (AIM:SRES) 0.15p Mkt Cap £6.1m – £480,000 capital injection from US investor
- Sunrise Resources reports that a US based institutional investor, Towards Net Zero, has agreed to invest up to £480,000 in Sunrise Resources.
- Next week, Towards Net Zero, which is described as focussing on the green economy, will invest an initial £200,000in a “two-year zero-coupon convertible security with a face value of £200,000” and will also invest an additional £80,000 in a placing of 80m share at 0.1p/share.
- Sunrise Resources “will have a five-month option to require the Investor to invest a further £200,000 for a two-year zero-coupon convertible security, which will be issued to the Investor no later than six-months after the First Closing”.
- “Each convertible security may be converted in full or in part at any time of the Investor's choosing during the two-year term of the convertible security, initially at 0.16 pence per share, and after the initial month, at the greater of the Market Price and the Floor Price (0.1 pence per share)”.
- “The funds raised will be applied to the further development and exploration of the Company's projects and general working capital purposes”.
- Executive Chairman, Patrick Cheetham said that the agreement with Towards Net Zero “provides funding on day one as well as additional capital committed by the Investor, while the Company retains the flexibility not to take up the additional funding committed by the Investor if it is not needed”.
- He also explained that “The Board anticipates a number of value catalysts for the Company's key projects which have potential to minimise dilution under this funding structure. The agreement also gives us downside protection on the conversion price and also allows a repayment option at a time of our choosing”.
Talga Group* (ASX: TLG) A$1.46, Mkt Cap A$490m – Talga update on ACC negotiations for supply of graphite anode from Vittangi
- Talga management report they expect negotiations for the supply of graphite anode material to Automotive Cells Company SE to finalise shortly.
- While there can be no guarantee that the documentation will be finalised management are clearly hopeful to get the deal done in short order.
- Talga is offering 60,000t of Talnode®-C battery anode material from the Vittangi Anode Project in Sweden over a five-year term starting in 2026.
- The agreement is expected to account for the commissioning and ramp up volumes from 2023 – 2025 before the offtake agreement starts in 2026.
- ACC is co-owned by Mercedes-Benz and Stellantis.
- Talga recently passed EIB ‘European Investment Bank’ screening for debt finance for a potential €300m funding commitment.
- The EIB recently backed Northvolt with a €350m facility for the Skellefteå gigafactory in Sweden.
Conclusion: It is good to hear of progress in the future offtake for Talga’s Talnode®-C battery anode material.
*SP Angel has previously acted as UK broker to Talga Resources.
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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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