SP Angel Morning View -Today’s Market View, Tuesday 4th April 2023

Copper prices jump as inventories slide to lowest levels since 2005

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Collaborating on the use of its ore in low carbon steelmaking.

Anglo Asian Mining* (AAZ LN) BUY – 201p – CLICK FOR PDF – Road to +35ktpa CuEq production

Rockfire Resources (ROCK LN) – Geotechnical drilling at the Molaoi zinc project shows continuity of mineralisation.

Savannah Resources* (SAV LN) – Public consultation period extension, DIA timeline unchanged

Teck Resources (TECK CN) – Teck rejects Glencore’s unsolicited $23bn offer and aims to court alternative suitors

Tirupati Graphite (TGR LN) – Commercial production of 97% pure flake graphite and operational update

Copper prices jump as inventories continue to slide to lowest levels since 2005

• Copper prices climbed back to $8,955/t as global inventories continue to slide.
• Global copper inventories have fallen 30% since the end of February. However Asian warehouses are seeing marginal inflows.
• LME inventories have fallen 28% this year, nearing their 2005 lows again.
• The spread between LME spot prices and futures rose to its largest gap since November 7^th yesterday but has since retreated to neutral levels this morning.
• Weak factory data from China and the US yesterday is weighing on base metals despite inventory draws.

Gold rises as dollar weakens and yields hold lower on weak US factory data

• Gold prices bounced to $1,981/oz following a step down in both the dollar index and US Treasury yields.
• US ISM Manufacturing PMI fell to 46.3 in March vs 47.7 in February. Economists expected 47.5.
• The PMI measure stands at its lowest level since 2009 and is thought to reflect tighter lending conditions induced by the Fed to lower inflation.
• The move marks a fifth month of contraction, and concerns over the US economy weakening weighed on the dollar, relieving pressure from gold.
• Weaker economic data is being watched by gold investors looking to take advantage of further cuts in Fed rate hike expectations.

China’s coal centre threatened by blizzards, but stockpiles remain buoyant

• Northern Inner Mongolia has seen swathe of coal mine production halts.
• Bloomberg reports over 10,000 truck drivers are stranded following blizzard conditions.
• However, power plants remain well stocked following a major inventory build push from Beijing and the current off-peak spring season.
• China’s National Climate Center expects flooding, heat waves and drought over the coming summer, adding potential strain to China’s mining hubs and power supplies.

Iron ore prices slide as shipments jump and China’s steel mills slash prices

• Singapore iron ore fell 2.1% to $118/t.
• Coking coal prices fell 3.5% and coke fell 4.2%.
• Steel HRC prices fell 2.3%.
• Iron ore shipments from Brazil and Australia have risen, pressuring prices as steel mill demand in China cools.
• A major meeting with iron ore market participants was held in China yesterday, over sustained concerns of hoarding and speculation.
• Mysteel reports mills in China are slashing coke purchase prices by between 50-100CNY/t, as iron ore supply remains buoyant.
• Analysts report construction weakness in March is due to inclement weather conditions, with expectations of an improved demand picture for April.

Economics

Australia – RBA holds cash rate target at 3.6% and expects inflation around 3% by mid-2025.

Currencies

US$1.0919/eur vs 1.0835/eur yesterday. Yen 132.63/$ vs 133.50/$. SAr 17.754/$ vs 17.910/$.  $1.243/gbp vs $1.232/gbp. 0.676/aud vs 0.669/aud. CNY 6.879/$ vs 6.888/$.

Dollar Index 102.03 vs 102.74 yesterday.

Commodity News

 Precious metals:

Gold US$1,981/oz vs US$1,960/oz yesterday

Gold ETFs 93.1moz vs US$93.2moz yesterday

Platinum US$990/oz vs US$990/oz yesterday

Palladium US$1,468/oz vs US$1,468/oz yesterday

Silver US$23.94/oz vs US$23.74/oz yesterday

Rhodium US$7,300/oz vs US$7,400/oz yesterday           

 Base metals:   

Copper US$ 8,914/t vs US$8,944/t yesterday

Aluminium US$ 2,383/t vs US$2,421/t yesterday

Nickel US$ 23,075/t vs US$23,780/t yesterday

Zinc US$ 2,882/t vs US$2,900/t yesterday

Lead US$ 2,117/t vs US$2,118/t yesterday

Tin US$ 25,850/t vs US$25,895/t yesterday

           Energy:           

Oil US$85.4/bbl vs US$84.1/bbl yesterday

• Crude oil prices edged higher as the market digested the surprise OPEC+ supply cuts and assessed the likely impact of higher prices on global demand growth.

Natural Gas US$2.134/mmbtu vs US$2.066/mmbtu yesterday

• European gas prices currently reflect oil equivalent pricing of $88/bbl in the UK and $76/bbl in Europe, which is in line with Brent but significantly higher than depressed US natural gas prices that currently trade at ~$12/bbl.

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

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$120.8/t vs US$124.3/t

Chinese steel rebar 25mm US$605.8/t vs US$613.5/t

Thermal coal (1st year forward cif ARA) US$142.0/t vs US$142.0/t

Thermal coal swap Australia FOB US$217.5/t vs US$192.0/t

Coking coal swap Australia FOB US$320.0/t vs US$320.0/t

           Other:  

Cobalt LME 3m US$34,930/t vs US$34,930/t

NdPr Rare Earth Oxide (China) US$75,944/t vs US$75,853/t

Lithium carbonate 99% (China) US$27,398/t vs US$28,091/t

China Spodumene Li2O 5%min CIF US$4,610/t vs US$4,610/t

Ferro-Manganese European Mn78% min US$1,348/t vs US$1,338/t

China Tungsten APT 88.5% FOB US$325/mtu vs US$325/mtu

China Graphite Flake -194 FOB US$785/t vs US$790/t

Europe Vanadium Pentoxide 98% 9.4/lb vs US$9.4/lb

Europe Ferro-Vanadium 80% 37.55/kg vs US$37.75/kg

China Ilmenite Concentrate TiO2 US$345/t vs US$345/t

Spot CO2 Emissions EUA Price US$101.1/t vs US$95.2/t

Brazil Potash CFR Granular Spot US$420.0/t vs US$420.0/t

 Battery News

Company News

Anglo American (AAL LN) 2,666p, Mkt Cap £36bn – Collaborating on the use of its ore in low carbon steelmaking.

• Anglo American has agreed to work with Sweden’s hydrogen and steel producer, H2Green Steel on progressing the low-carbon production of steel using ore from Anglo American’s south African and Brazilian mines.
• “The agreement includes studying and trialling the use of premium quality iron ore … as feedstock for H2 Green Steel’s direct reduced iron (DRI) production process at its Boden plant in Sweden”.
• H2 Green Steel “is developing a fully integrated, digitalised, and circular DRI plant in Boden, northern Sweden, which will produce green steel, reducing CO₂ emissions by up to 95% compared to traditional steelmaking”.
• Peter Whitcutt, CEO of Anglo American’s Marketing business explained that the agreement would help to pave “the way to a cleaner, greener way to produce steel – one of the backbone materials for the roll-out of energy transition infrastructure and for ongoing global socio-economic development”.
• H2 Green Steel’s Luisa Orre explained that they looked forward to working with Anglo American “not only for our first green hydrogen integrated steel plant in Sweden but for other future locations globally”.

Anglo Asian Mining* (AAZ LN) 116p, Mkt Cap £133m – Road to +35ktpa CuEq production

BUY – 201p

CLICK FOR PDF

• The Company released its strategic plan last week providing a roadmap to gradually grow its production rate from current ~52koz(AuEq)/10kt(CuEq) to >175koz/35ktpa by 2028 becoming a multi asset, mid-tier copper/gold producer;
• The plan involves commissioning of four new mines in Azerbaijan including development of two greenfield copper projects (Xarxar and Garadag) significantly growing exposure to copper (from current ~20/30% to 90%);
• Near term growth is driven by commissioning of high grade Gilar underground mine (2023/24) and doubling of the flotation plant capacity (Q3/Q4/23) lifting gold and more than doubling copper output (FY23e: 50-54koz AuEq; FY24-25e: 70-75koz AuEq); higher processed grades help unit costs lower during the period;
• Medium term growth is led by sequential development of two open pit copper projects including Xarxar (~9ktpa Cu, in-house MRE ~20mt at 0.46% Cu, est start 2026) and Garadag (~22ktpa Cu, in-house MRE ~66mt at 0.49% Cu, 2027/28);
• The Company has ~$20m in cash and no bank debt (YE22), positive FCF at Gedabek and access to a recently agreed credit revolving facility ($32m) with forecast earnings supporting higher debt levels if required;
• The team has recently reiterated commitment to maintain existing dividend policy (2023-24e 8c pa/$9mpa or ~5-6%DY).

Valuation: We estimate risked NAV of ~$300m and 201p reiterating our BUY recommendation. The Company offers an attractive exposure to a strong growth profile, increasing share of copper production, management team with a track record of discovering and commissioning projects as well as a potential new discovery at the strategic >2,500sq km landholding in Azerbaijan, all while paying a dividend. Current market value seems to reflect only Gedabek with little recognised for the rest of portfolio. Gedabek accounts for ~50% of value in our risked NAV and ~30% in 100% unrisked scenario highlighting significant rerating potential.

*SP Angel acts as nomad and broker to Anglo Asian Mining

Rockfire Resources (ROCK LN) 0.22p, Mkt Cap £3.2m – Geotechnical drilling at the Molaoi zinc project shows continuity of mineralisation.

• Rockfire Resources has announced results from its second geotechnical drill hole at the wholly-owned Molaoi zinc project in Greece.  Core samples from a third hole have been dispatched to the laboratory.
• Results from hole MO-GTK-002 have shown “An underground mineable width of 2.4m has an average grade of 5.8% ZnEq., from 106.94m (5.4% Zn, 0.6% Pb and 17.8g/t Ag)”.
• The company explains that the holes “was drilled halfway between historical drill holes to provide sufficient sample volume for geotechnical test work, and to confirm continuity of zinc between the existing holes”.
• The company confirms that the “geotechnical drilling programme continues, with hole MO_GTK_008 having recently been completed … [and says that it] … will soon commence with potential partners in Athens, Greece to commission the Company’s planned geotechnical test work on the core being collected in this drilling campaign”.
• Currently, based on historical exploration drilling, the Molaoi deposit hosts a JORC (2012) compliant inferred resource of 2.3mt at an average grade of 9.4% zinc, 1.7% lead and 47g/t silver (reported as 11% Zinc equivalent grade).
• CEO, David Price, said that the company “is committed to proceeding as quickly as possible towards a resource upgrade and to commence feasibility studies before the end of the 2023 calendar year. We remain on track to achieve this”.
• He also said that the geotechnical drilling results “continue to confirm the location, continuity and high-grade nature of the zinc resource”.

Conclusion: Rockfire Resources’ drilling at Molaoi has shown continuity of the zinc mineralisation as it works towards a resource upgrade and the start of feasibility work later this year.

Savannah Resources* (SAV LN) 3.1p, Mkt Cap £54m – Public consultation period extension, DIA timeline unchanged

BUY – 17.9p

• The Company announced yesterday that it will be extending the public on consultation period for the Barroso Lithium Project in Portugal.
• The period that will be extended by a further 15 days to 19 April allowing more time for local stakeholders to review project design documentation.
• The overall 50 working day period for the DIA review by Agência Portuguesa do Ambiente (APA) remains unchanged with a decision expected by 31 May 2023.

Conclusion: The decision to extend public consultation period by the Company should allow more time for local stakeholders to review updated project documentation and demonstrates the Company’s focus on promoting good standards of local community engagement. Adjustment will not affect the DIA decision timing.

*SP Angel act as Nomad and Broker to Savannah Resources

Teck Resources (TECK CN) C$90, Mkt Cap C$59n – Teck rejects Glencore’s unsolicited $23bn offer and aims to court alternative suitors

• Teck’s Board of Directors has unanimously rejected the ‘unsolicited and opportunistic acquisition proposal’ from Glencore.
• The offer represented a 20% premium to Teck’s share price on March 26^th.
• Teck’s CEO states the merger attempt would ‘negatively impact the value potential of Teck’s business.’
• Glencore’s CEO described the move as a ‘compelling transaction,’ to support the Swiss trading giant’s ambitions to ‘merge two great companies,’ emphasizing that ‘it is certainly not a takeover.’
• Teck is currently in the process of spinning off its coal assets into Elk Valley Resources, retaining its flagship copper and zinc assets under a new vehicle, Teck Metals.
• The move from Glencore highlights the continuously increasing appetite for copper assets as the energy transition gains steam, with Teck currently ramping up the Quebrada Blanca Phase 2 Project in Chile, with first copper produced on Friday.
• Teck’s shareholders are set to vote on the spin-off of their coal assets on April 26^th.

Tirupati Graphite (TGR LN) 32p Mkt Cap £32m – Commercial production of 97% pure flake graphite and operational update

• Tirupati announces it has successfully achieved commercial production of 97% pure flake graphite at its Vatomina project in Madagascar.
• The 97% jumbo flakes of >50 mesh size was produced for a specialist German graphite product manufacturer.
• Tirupati will now look to ramp up high-grade output for increased sales.
• The Company is hoping to sell its Madagascan production for between $910-$935/t over the next 12 months.
• Tirupatu notes that the recent cyclone in Madagascar had no significant impact on either its Vatomina or Sahamamy projects.
• It notes that production at Sahamamy remains in line with expectations, and production in March 2023 stood between the guidance range of 800-1000t.
• Total production for the quarter ending 31 March came below guidance at c.2400t owing to adverse weather conditions.
• Tirupati retains its Q1 production guidance at 6,100-6,500t.
• The company expects a ‘demand supply gap’ for flake graphite over the next year.

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

 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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