Today's Market View

SP Angel . Morning View . Thursday 01 12 22

Commodities surge higher on dovish Powell comments and weakening US dollar

MiFID II exempt information – see disclaimer below

BHP Group Ltd (LSE:BHP, ASX:BHP) – CEO Henry: "Decarbonisation, electrification doesn't happen without mining"

Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) – Port contracts agreed for the Araguaia ferronickel project

SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)* – Completion of US$50m royalty financing

Tesoro Gold Ltd (ASX:TSO, OTCQB:TSORF) – Drilling uncovers new discovery at El Zorro

Zijin Mining (HKG: 2899) – Zijin estimates lithium prices could halve by 2025, despite $16bn investment into the space

Gold jumps again as traders react to dovish sentiment from Powell’s speech yesterday

• Gold prices climbed 1.5% to settle around $1,775/oz following a speech by Fed chair Jerome Powell yesterday.
• Gold has now climbed over 8% this month.
• Powell echoed other Fed members in stating that the pace of interest-rate hikes will begin to slow, causing the dollar and US Treasury yields to extend losses.
• The dollar fell over 1.5% on the speech, supporting gold prices, whilst the 10-year and 2-year yields fell to 3.6% and 4.355% respectively. Lower yields are supportive of non-interest-bearing gold.
• Hedge funds have been increasing short positions on the dollar, following its largest 1-month drop in 2009. Funds have their largest net-short position on the dollar in over 18 months. (US CFTC)
• US job openings in October fell, supporting the Fed’s decision to cool their aggressive rate hike schedule and buoying markets further.
• However, wage growth continues in conjunction with elevated prices, raising the prospect of longer-term, ‘sticky’ inflation and subsequent ‘higher for longer’ rate hikes.
• ETFs have begun ramping up gold purchases, with net buying for 3 days, however gold in ETFs remains down 3.6%.

Base metals rally on combination of dovish Powell and Beijing’s easing of zero-covid policy

• Copper and iron ore both rallied overnight, with copper testing $8,300/t and iron ore futures in Singapore rising to $101/t.
• An apparent shift in Covid policy from Beijing officials has encouraged traders to bet on a recovery in China’s metals demand, with a top official noting the country is ‘entering a new stage.’
• Powell’s comments of a slowdown in rate hikes has also proved supportive for metals, triggering a further sell-off in the dollar and boosting global economic growth expectations.
• Whilst an easing of zero-covid may be supportive in the short term for manufacturing activity and thus base metals demand, we would remind readers that China’s property sector will continue to struggle with oversupply, inflated real estate prices and a debt-laden developer sector with or without restrictive Covid policies.

Copper - Chilean copper output climbs in October as disruptions ease

• Chile’s copper output climbed 2.2% in October to 485kt.
• The jump marks the first rise since July 2021.
• Chilean producers have been hit by droughts and local protestors.

Nickel - WTO declares Indonesian nickel export ban is unlawful

• The WTO has ruled in favour of the European Union in a dispute over a ban on nickel ore exports with Indonesia, though President Joko Widodo intends to appeal.
• The EU launched its challenge in November 2019, arguing that Indonesian export restrictions on raw materials was unfairly harming its stainless-steel industry.
• Indonesia was the world's biggest exporter of nickel before it banned exports in favour of developing its downstream processing industry.

BHP highlights skilled labour shortage in the mining sector as a threat to critical minerals supply

• BHP’s CTO warns of a skilled labour shortage throughout the mining sector.
• PWC estimate that demand expectations for battery metals in 2040 will require ‘21% more mining and Geotech engineers and 29% more metallurgists’.
• The sector is struggling with a lack of labour following the past decade’s period of underinvestment and the draw of high-paying software engineering roles from the tech industry.

‘Mining Pitch Battles – where miners pitch investors for US$1million’ – but is the $1m real or is it Monopoly money

• We heard from an Aussie miner, who claimed to have won a Mining Pitch Battle that the $1m prize on offer was Monopoly money
• To be fair the moderator does state the money is virtual in the Pitch Battle video – so I guess the organisers are covered.

Dow Jones Industrials +2.18% at 34,590

Nikkei 225 +0.92% at 28,226

HK Hang Seng +0.47% at 18,685

Shanghai Composite +0.45% at 3,165

Economics

US – Fed Chairman confirmed expectations suggesting the FOMC is likely to dial back the pace of rate hikes in the coming December meeting during his speech at the Brookings Institution yesterday

• “The time for moderating the pace of rate increases may come as soon as the December meeting,” the Jerome Powell said.
• The comment suggests the FOMC will opt for a 50bp decision as opposed to four consecutive 75bp hikes announced earlier.
• At the same time, the Chairman said that further tightening is to be expected cautioning against “prematurely loosening policy”.
• ADP employment slowed sharply to 127k in November vs 239k in October – this should cause the Fed to slow its rate tightening and lift markets
• Chicago PMI also slowed to 37.2 in November vs 45.2 in October

China – Private manufacturing sector remained in a contraction for a fourth consecutive month in November on ongoing Covid containment measures.

• New orders fell and 12-month outlook remained subdued.
• Employment drop was the quickest since the initial wave of the pandemic in February 2020.
• Caixin Manufacturing PMI: 49.4 v 49.2 October and 48.9 est.
• Covid – According to Sun Chunlan, second-ranked vice-Premier of the PRC the Covid virus is conveniently less lethal than it was last week
• Sun Chunlan was a leading proponent for Zero-Covid and has led the nation’s Covid-19 response
• How very convenient, suddenly, Covid appears to have weakened in China a week after protest and rioting in cities across the nation.
• 90% of people >80 must be fully vaccinated and have received booster shots by end-January.
• We suspect China will need to impose more ‘Dynamic’ Zero Covid lockdowns before the nation returns to a new normal .

Eurozone – November Manufacturing PMI was revised lower on weaker readings at major economies of the block including Germany, France and Spain.

• New orders continued to fall this month amid uncertain economic outlook, recession fears and the European energy crisis.
• Deteriorating growth outlook and easing supply chain disruptions helped with cost pressures that in turn filtered into weaker increases in final goods prices.
• Employment continued to grow albeit at the weakest pace since Feb/21.
• S&P Global Eurozone Manufacturing PMI: 47.1 (revised from 47.3) v 46.4 October.

EU – CPI slowed to 10% yoy in November vs 10.6% in October

• Economic sentiment 93.7 in November vs 92.7 in October
• Industrial sentiment -2 in November vs -1.2% in October
• Service sentiment 2.3 in November vs 2.1 in October
• Consumer confidence -23.9 in November vs -27.5 in October
• Germany – CPI also slowed slightly by 10% yoy in November vs 10.4% in October
• Unemployment 5.6% in November vs 5.5% in October
• France - GDP slowed sharply to 1% yoy in Q3 vs 4.2% in Q2
• Italy – Italy GDP halved to 2.6% in Q3 vs 4.9% in Q2
• CPI held at 11.8% in November

UK – Property prices fell at the fastest pace since June 2020 on the back of increasing borrowing costs, Nationwide data showed.

• House prices were down 1.4%mom in November accelerating from a 0.9%mom drop recorded the previous month.
• On annual basis, growth slowed to 4.4%yoy this month, from 7.2%yoy in October.
• Separately, mortgage approvals were down at their lowest since June 2020 while the average borrowing cost of a new mortgage climbed to 3.1%, the highest since 2014.

Korea - Truck strike creates disruptions of over $1.2bn as global inflation continues to trigger wage disputes

• South Korean officials are still trying to quell strikes from the 25,000-member strong trucking union.
• Officials are concerned over the strikes’ impact on petrol shortages and additional economic damage.
• Strikes have been going on for 7 days, however a ‘back to work’ order has seen some return to work.
• The strikes are a further sign that rising costs are triggering wage increase demands, with US and European rail workers and South African port operators also pursuing industrial action.

Australia to play key role in South Korea’s EV ambitions, according to POSCO managing director

• Ben Bosung Kim, MD of POSCO, said the company has already invested A$5bn in Australia and expects that to increase in the coming years.
• Mr Kim told Reuters: "Australia and Korea are always complementary and interdependent in terms of Australia's mining and Korea's manufacturing. It was like that in the past in terms of steelmaking, and it will be for the battery materials in the future,"
• South Korea controls one third of the $46bn EV battery market.
• Last year, POSCO entered into a JV deal with Pilbara Minerals to build a 43,000t lithium hydroxide chemical facility in Gwangyang, South Korea.

Ghana central bank to buy 20% of all refined gold from local mining companies

• The Bank of Ghana will buy 20% of gold produced from all mining companies effective January 2023 as part of the recently announced “Gold for Oil” programme.
• The government is targeting to save US$3bn in foreign exchange from the policy.
• The Ghanaian Cedi has lost over 57% of its value against the US Dollar this year.

South Africa - Ramaphosa faces impeachment as South African lawmakers examine robbery scandal

• South Africa’s parliament has advised lawmakers to investigate a scandal involving President Ramaphosa and a robbery at his farm.
• A panel found that Ramaphosa ‘may have committed’ violations of sections of the constitution.
• The report pushed the rand down 1.6%. A debate has been scheduled for Dec. 6th.

Currencies

US$1.0418/eur vs 1.0354/eur yesterday. Yen 136.50/$ vs 138.64/$. SAr 17.324/$ vs 16.969/$. $1.209/gbp vs $1.197/gbp. 0.681/aud vs 0.671/aud. CNY 7.074/$ vs 7.145/$.

Dollar Index: 105.74 /-0.31% on week

Commodity News

Precious metals:

Gold US$1,776/oz vs US$1,756/oz yesterday

Gold ETFs 94.3moz vs US$94.3moz yesterday

Platinum US$1,039/oz vs US$1,012/oz yesterday

Palladium US$1,905/oz vs US$1,875/oz yesterday

Silver US$22.10/oz vs US$21.35/oz yesterday

Rhodium US$13,300/oz vs US$13,300/oz yesterday

Base metals:

Copper US$ 8,265/t vs US$8,042/t yesterday

Aluminium US$ 2,494/t vs US$2,379/t yesterday

Nickel US$ 27,090/t vs US$26,800/t yesterday

Zinc US$ 3,054/t vs US$2,947/t yesterday

Lead US$ 2,191/t vs US$2,132/t yesterday

Tin US$ 23,170/t vs US$22,675/t yesterday

Energy:

Oil US$86.8/bbl vs US$83.9/bbl yesterday

• Crude oil prices edged higher after the EIA reported a 12.6mb draw on US crude inventories last week, representing the biggest weekly decline since June 2019, with refinery utilisation up 1.3% to 95.2%.
• European energy prices climbed higher as Winter in Northern Europe started to bite.

Natural Gas US$6.972/mmbtu vs US$7.167/mmbtu yesterday

Uranium UXC US$49.95/lb vs US$50.35/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$100.7/t vs US$100.5/t

Chinese steel rebar 25mm US$548.7/t vs US$544.1/t

Thermal coal (1st year forward cif ARA) US$229.0/t vs US$229.0/t

Thermal coal swap Australia FOB US$383.0/t vs US$372.0/t

Coking coal swap Australia FOB US$272.0/t vs US$268.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$93,057/t vs US$92,152/t

Lithium carbonate 99% (China) US$79,491/t vs US$78,718/t

China Spodumene Li2O 5%min CIF US$6,110/t vs US$6,110/t

Ferro-Manganese European Mn78% min US$1,286/t vs US$1,278/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% 7.8/lb vs US$7.7/lb

Europe Ferro-Vanadium 80% 31.95/kg vs US$31.75/kg

China Ilmenite Concentrate TiO2 US$319/t vs US$316/t

Spot CO2 Emissions EUA Price US$84.7/t vs US$81.1/t

Brazil Potash CFR Granular Spot US$530.0/t vs US$530.0/t

Company News

BHP Group Ltd (LSE:BHP, ASX:BHP) 2,584p, £55bn – CEO Henry: "Decarbonisation, electrification doesn't happen without mining"

• BHP’s Chief Executive has given interviews with various news outlets this week, stressing the importance of mining in the world’s decarbonisation efforts.
• Henry Commented: "The world is going to require roughly four times as much nickel over the next 30 years as it did in the past three years, two times as much copper and steel."
• Henry is also bullish on Chinese growth, commenting that all fundamentals are in place" in China for continued economic growth over the next 20 years, while also predicting that the Chinese steel sector would grow in 2023.
• THE CEO says there will be particular opportunities for miners who can produce metal with less impact on the environment as auto manufacturers and others looking increasingly at how they ensure that their supply chains are sustainable.

Horizonte Minerals PLC (AIM:HZM, TSX:HZM, OTC:HZMMF) 126p, Mkt Cap £318m – Port contracts agreed for the Araguaia ferronickel project

• Horizonte Minerals has agreed port contracts for the import of consumables and outbound nickel product from its Araguaia ferronickel project through the Vila do Conde port in northeast Brazil.
• The contracts cover an initial minimum term of five years and “Port operation costs … [are] … in line with feasibility study with synergies through inbound loads to site and backhaul loads to port”.
• The agreements with the port operators, Grupo Atlantica Matapi and Santos Brasil Tecon Vila do Conde, have “an option to extend for a further five years”.
• Grupo Atlantica Matapi is described as “a major port operator in northern Brazil with several operational ports … [which] … owns the largest private terminal with extensive infrastructure and capacity for up to 160,000 tons of storage”.
• Santos Brasil Tecon Vila do Conde, which also works with Vale, Votoratim Metais and Norsk Hydro, “has some of the largest and most complete logistics complexes in Brazil, responsible for 18% of all container and cargo moving in the country. It operates the largest container terminal in Latin America and is one of the three most efficient in Brazil”.
• CEO, Jeremy Martin, explained that “As we move closer to our first debt draw down, these port contracts are a key condition to accessing the debt facility, another example of the progress we are making in terms of de-risking the project”.
• The port agreement follows the announcement, in November, of a renewable power supply agreement for Araguaia securing fixed price power for the first five years of the project and with the flexibility to extend into a second five years covering “over 60% of the expected power demand for the following five years” during which time a second rotary kiln furnace is expected to be installed doubling the phase 1 production to 29,000tpa of contained nickel.

Conclusion: The conclusion of key contracts for port facilities and power supply in recent weeks shows the increasing momentum of the Araguaia ferronickel development project where initial metal production is expected in early 2024.

SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)* 18.48p, Mkt Cap £413m – Completion of US$50m royalty financing

• Solgold reports the completion of its previously announced US$m royalty financing with Osisko Gold Royalties (TSX:OR).
• Under the agreement, Osisko holds a 0.6% net-smelter return on the Cascabel copper/gold project in northern Ecuador which hosts the Alpala and Tandayama-America resources and other promising targets currently at the pre-resource stage.
• Welcoming the involvement of Osisko, Scott Caldwell, interim CEO of Solgold, said that the “financing provides the Company with greater optionality going forward and is an overwhelmingly positive development for all our stakeholders. SolGold is very well-positioned to advance strategic project initiatives and accelerate exploration opportunities that hold the most significant potential to generate shareholder value”.
• Osisko’s President and CEO, Sandeep Singh, described the Cascabel project as “one of very few projects of its size and quality at this stage of development … [and said that] … we are pleased to be participating in the Company's future success”
• Solgold’s pre-feasibility study, released in April, showed that pre-production capital investment of US$2,746m followed by post-production sustaining capital of a further US$2,136m at Alpala is expected to generate an after-tax NPV8% of US$2,907m and an IRR of 19.3% using base case commodity prices of US$3.60/lb for copper, US$1,700/oz for gold and US$19.90/oz for silver.
• The study envisages a 25mtpa underground mining operation using block-caving is producing an average of 132,000tpa of copper, 358,000ozpa of gold and 1mozpa of silver over an initial 26 years mine life.

Conclusion: Conclusion of the royalty agreement provides additional financial resources for Solgold to continue its strategic project review at Cascabel and we await the findings of the review with interest.

*SP Angel acts as Financial Advisor to SolGold

Tesoro Gold Ltd (ASX:TSO, OTCQB:TSORF) A$0.035, Mkt cap A$30m – Drilling uncovers new discovery at El Zorro

• Tesoro reports that two initial holes drilled at the Calderillas target, 5km north of the Ternera Gold Deposit have intercepted significant gold mineralisation.
• Hole ZDDH0310
• 21m @ 0.55 g/t Au from 128m including:
• 7.2m @ 1.43 g/t Au from 141m
• 1.7m @ 3.92 g/t Au from 147m
• Hole ZDDH0308
• 1m @ 2.38 g/t Au from 15m and
• 1.9m @ 0.59 g/t Au from 62m
• Tesoro is planning additional drilling for early 2023 to further test and the Calderillas target, while continuing to step-out its Ternera deposit.
• Ternera 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 last 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

Zijin Mining (HKG: 2899) CNY10.30, CNY256bn – Zijin estimates lithium prices could halve by 2025, despite $16bn investment into the space

• The head of China's Zijin Mining Group has already spent $16bn buying three lithium mines over the past year, though is predicting a supply gut as mines progress through development.
• Company President Zou Laichang commented: "Zijin aims to become one of the top three to five mining companies in the world by 2030. To do that, we need a new growth driver on top of our gold, copper and zinc sectors. New energy and new materials are the key strategic path for us to achieve this goal"
• Zijin recently purchased Canada's Neo Lithium Corp (TSX-V:NLC), focused on a brine project in Argentina, while also purchasing stakes in Lakkor Tso Lithium Salar mine in China's Tibet region and the Xiangyuan lithium mine in Hunan province.
• Zijin is aiming to have 150,000t of lithium carbonate equivalent capacity by 2025.

Conclusion: A halving the lithium price from US$79,491/t for lithium carbonate and US$6,110/t for spodumene by 2025 would be a great result for the lithium mining industry which has planned all projects and mines on significantly lower lithium prices in recent years. We would expect most hard-rock lithium miners to still be profitable at <$1,000/t for spodumene concentrate.

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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

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Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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*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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