SP Angel Morning View -Today’s Market View, Monday 26th June 2023

Safe haven demand lifts gold on news of an attempted coup in Russia

MiFID II exempt information – see disclaimer below

Andrada Mining (ATM LN) – Q1 results show increased production and costs running lower than guidance

Base Resources (BSE LN) – Management lowers 2024 guidance for Kwale mineral sands mine in Kenya

BlueRock Diamonds* (BRD LN) – Suspended – Accounts update. Natural, mined, diamond market collapse

EQ Resources (EQR AU) – Initial blast at Mt Carbine, Queensland

Greatland Gold (GGP LN) – Drilling underway at the Paterson South project

Premier African Minerals (PREM LN) – Force majeure notice for the Zulu Lithium project, Zimbabwe

Gold – $1,936/oz – Prices supported by weaker dollar as traders ramp up bullish bets

• Gold is holding near its three-month lows but has bounced marginally from the $1,915/oz bottom on Friday.
• Prices took a hit following the Fed’s recent emphasis on continuing to hike rates twice more after their pause at the middle of the month. The market expects a 74% chance of a July hike.
• This pushed shorter-term yields higher, weighing on the appeal of non-interest-bearing gold.
• The dollar has been suffering following a rally in the Euro and Sterling.
• COMEX reports traders are net-long gold, increasing bullish positions by 2% over the past week.

Copper slides as Chinese buyers hit by high premiums despite on sliding inventories

• Copper prices touched $8,400/t this morning, down 2% on the week.
• Analysts note that elevated premiums for domestic Chinese buyers have weighed on demand, with a weaker yuan adding to this.
• Global visible inventories fell 7% to Friday.
• Marginal supply concerns are surfacing from Chile due to heavy rains, with Codelco forced to halt some operations on ‘the worst weather front in 10 years.’

Weakening steel demand in China highlights continuation of property downturn

• China’s June steel demand and production is expected to disappoint again in June.
• Crude steel output climbed 1.1% in June 11-20^th, but transaction volumes of construction steel fell 13% to June 25^th and 37% from the previous week.
• Dalian iron ore weakening to $110/t.
• Steel rebar down 1.5%, HRC down 1.44%, wire rod down 2.7% and stainless steel down 1%.
• Copper is failing to hold above the $8,500/t mark.
• Steel mill activity is picking up, however, with hot metal products rising from mills for the third consecutive week.
• Coking coal and coke down over 4.5% respectively.
• Mysteel analysts expect efforts for a coking coal price hike to be avoided as steel mill activity remains low.

Russia – Wagner Group instigated coup attempt ended as unexpectedly as it started with the military group stopping ~200km away from Moscow and pulling back its troops on Saturday.

• Moscow lifted its counter-terror measures put in place over the weekend, although, Monday was decided to keep as a non-working day in response to the Wagner revolt.
• The group managed to down a series of military helicopters and planes killing more than ten militaries as a result.
• An uprising that is estimated to have involved ~25k Wagner members involved a so-called “march of justice”, an attempted military coup essentially, on Friday last week in attempt to displace Russian military command.
• In recent months, the Group has openly accused Defence Minister Sergei Shoigu and Russia’s top general, Valery Gerasimov, of professional incompetence and of denying Wagner ammunition and support.
• Just before the launch of the “march”, Wagner released a video of its bombed positions that the Group blamed on Ministry of Defence friendly fire, although, it is hard to verify the authenticity of the record.
• Evgeny Prigozhin, a Wagner leader, is reported to have agreed a deal with Russian leadership through President Lukashenko as a mediator including security guarantees for its troops while Prigozhin will be able to move to neighbouring Belarus with a criminal case against him to be closed.
• Troops that joined the uprising will not face prosecution and those who did not will be offered contracts by the defence ministry, according to Kremlin spokesman Dmitry Peskov.
• Commentators remain puzzled as to goals and benefactors of the uprising but many agree that it marks the end of Wagner and its head Evgeny Prigozhin.

Economics

Inflation – Are retailers and manufacturers the real cause for underlying and sticky inflation?

• While logistics issues have helped to raise inflation, many companies have also used this as an excuse to raise margins
• We are increasingly learning of incidents where the public has been told of underlying price hikes which may not be true
• Now that shipping container rates have pulled back to normal, there are sufficient truck drivers post the Great Resignation and oil and gas prices are lower then why is inflation still so ‘sticky’?
• Grain prices have not hiked higher either despite the Ukraine situation
• Egg prices in the UK have also not risen again according to one egg farmer
• We are sure there are nuances and complexities to all this but it sounds like high time for supermarkets to cut food prices and for new discounting in used and new car prices.

Few signs of improvement in global container market as concerns over growth prospects mount

• Container volumes, often used as a measure of global trade sentiment, fell between Feb-April and are at levels seen between Sep-Nov 2021.
• Japan is the most notable contraction, with volumes to the US also weakening.
• Britain suffered the fastest contraction in import/export volumes over Feb-April. (Reuters)
• China ports saw a 4% increase in the first quarter of 2023 in terms of volume, although this disappointed expectations.
• US container traffic fell 16% yoy in the first five months of 2023.
• US truck tonnage down 1%, railroad volumes down 10% over first four months.
• Air cargo in Japan down 25% yoy in first five months of 2023.
• Heathrow freight volumes down 8%, nearing lows seen during GFC in 2009 and the 2020 pandemic.

US – Economic growth slowed in June as manufacturing sector continued to contract on weak customer confidence and destocking while growth in services sector while dialling back slightly remained quite robust on absolute basis, according to preliminary PMI numbers.

• Highlight of the report are measures over employment and inflation that both pulled back in June, a welcome set of data for the central bank.
• Jobs growth dropped to the slowest since January while inflation for goods and services hit a 32-month low.
• Manufacturing PMI S&P 46.3 in June vs 48.4 in May
• Services PMI 54.1 in June vs 54.9 in May
• Composite PMI 53.0 in June vs 54.3 in May

China – Disappointing Chinese tourism data highlights slow post-covid recovery

• Although Dragon boat tourism trips rose 32% yoy, analysts had expected a more significant increase from last year’s very low base.
• China’s tourism equity index fell off 3% on the release, the wider composite index fell 1.5%.

Japan – Core inflation in May beat estimates suggesting the central bank may want to review its extended loose monetary policy.

• The measure of consumer prices ex fresh food and energy hit the highest level since 1981.
• Despite, higher than expected inflation the yen continued to slide against the US$ late last week trading around the weakest since Nov/22.
• CPI (%yoy): 3.2 v 3.5 April and 3.2 est.
• CPI ex Fresh Food, Energy (%yoy): 4.3 v 4.1 April and 4.2 est.
• Manufacturing PMI 49.8 in June vs 50.8 in May

• Services PMI 54.2 in June vs 55.9 in May
• Composite PMI 52.3 in June vs 54.3 in May
• May Japanese CPI flat (Apr 0.6%), yoy 3.2% (3.5%), with official rates at -0.1%, core CPI yoy 3.2% (3.4%).

Germany – Business outlook dropped to the lowest this year in June as weak overseas demand is coupled with a rising interest rates environment.

• The data suggests that a recovery from a recession is likely to be more protracted than hoped for.
• Ifo Business Sentiment: 88.5 v 91.5 (revised from 91.7) May and 90.7 est.
• Ifo Current Assessment: 93.7 v 94.8 May and 93.5 est.
• Ifo Expectations: 83.6 v 88.3 (revised from 88.6) May and 88.1 est.

Switzerland – Swiss National Bank President, Thomas Jordan, hints at potential for a tighter monetary policy

• Swiss interest rates rose 25bp to 1.75% last week.
• The SNB President does not see Swiss interest rates as high enough to hold back inflation.

UK  – Over 4m mortgage holders will have been forced to move onto higher rate mortgages before the next General Election

• 0.7m mortgage holders will have moved onto variable or new fixed rates in 2023 according to the BoE
• Another 0.8m mortgage holders will have moved onto variable or new fixed rates in 2024
• Another 0.6m mortgage holders will have moved onto variable or new fixed rates in 2025

Argentina – GDP 0.7% qoq vs -1.7% in Q4 and 1.3% yoy in Q1 vs 1.5% yoy in Q4

• unemployment 6.9% (6.3%),
• Inflation is expected to reach 147% in 2023 with GDP falling to 3.5% according to ICIS in Buenos Aires.
• Those of us who travel to Argentina know most wealthy Argentinians keep their cash in overseas accounts as they simply don’t trust the government of the currency, with much good reason.

Mexico – Central bank rate unchanged at 11.25%,

Currencies

US$1.0896/eur vs 1.0879/eur last week. Yen 143.21/$ vs 143.02/$. SAr 18.712/$ vs 18.637/$. $1.273/gbp vs $1.271/gbp. 0.667/aud vs 0.670/aud. CNY 7.232/$ vs 7.189/$.

Dollar Index 102.74 vs 102.65 last week.

Commodity News

Precious metals:

Gold US$1,936/oz vs US$1,915/oz last week

Gold ETFs 93.4moz vs 93.6moz last week

Platinum US$937/oz vs US$926/oz last week

Palladium US$1,286/oz vs US$1,292/oz last week

Silver US$22.73/oz vs US$22.29/oz last week

Rhodium US$5,600/oz vs US$5,600/oz last week

Base metals:

Copper US$ 8,423/t vs US$8,496/t last week

Aluminium US$ 2,175/t vs US$2,191/t last week

Nickel US$ 21,175/t vs US$21,070/t last week

Zinc US$ 2,348/t vs US$2,380/t last week

Lead US$ 2,097/t vs US$2,142/t last week

Tin US$ 26,476/t vs US$27,050/t last week

Energy:

Oil US$73.4/bbl vs US$73.4/bbl last week

• Energy prices were volatile over the weekend after the reported failed mutiny and political instability in Russia.
• The US Baker Hughes rig count was down 5 units to 682 rigs last week (-71 or 9% y/y), with oil rigs down 6 to 546 units while gas rigs were unchanged at 130 units. Civitas announced last week that it planned to reduce the current rig count from 7 to 4 rigs on its newly acquired assets in the Permian.

Natural Gas US$2.593/mmbtu vs US$2.500/mmbtu last week

Uranium UXC US$56.50/lb vs US$56.50/lb last week 

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$112.6/t vs US$113.5/t

Chinese steel rebar 25mm US$531.7/t vs US$530.6/t

Thermal coal (1st year forward cif ARA) US$117.0/t vs US$116.5/t

Thermal coal swap Australia FOB US$141.0/t vs US$135.0/t

Coking coal swap Australia FOB US$237.0/t vs US$220.0/t

Other:  

Cobalt LME 3m US$29,525/t vs US$29,525/t

NdPr Rare Earth Oxide (China) US$67,971/t vs US$68,248/t

Lithium carbonate 99% (China) US$42,412/t vs US$42,325/t

China Spodumene Li2O 6%min CIF US$4,090/t vs US$4,090/t

Ferro-Manganese European Mn78% min US$1,213/t vs US$1,217/t

China Tungsten APT 88.5% FOB US$315/mtu vs US$315/mtu

China Graphite Flake -194 FOB US$735/t vs US$735/t

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

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

China Ilmenite Concentrate TiO2 US$306/t vs US$305/t

Spot CO2 Emissions EUA Price US$98.6/t vs US$99.2/t

Brazil Potash CFR Granular Spot US$325.0/t vs US$325.0/t

Battery News

Aston Martin to make high performance EVs with Lucid Group

• The British automaker has struck a deal with US start-up, Lucid, for the supply of select powertrain components for initial and future BEV models,
• Under the terms of the deal, Lucid will take a 3.7% stake in Aston Martin and receive a £104m cash payment from the carmaker.
• Aston Martin had been due to issue fresh shares and make a large payment to Mercedes by the end of this year under a deal the pair struck in 2020 for access to Mercedes’ new battery systems for its EVs, which it plans to launch from 2025.
• Aston Martin is expected to set out new targets in a strategic update later this week.

Washington state to mandate Tesla charging plug

• Washington state plans to require EV charging companies to include Tesla’s plug if they want to be part of a state program to electrify highways
• Washington follows Texas in mandating Tesla’s technology, The North American Charging Standard (NACS)
• GM, Ford and Rivian have all announced they would embrace Tesla’s NACS, shunning efforts by the Biden administration to make the Combined Charging System (CCS) the dominant charging standard in the United States.
• The plan by Washington may add pressure on other states and the federal government to adopt Tesla’s NACS.

Company News

Andrada Mining (ATM LN) 8.3p, Mkt cap £132m – Q1 results show increased production and costs running lower than guidance

• Andrada Mining reports a 52% year-on-year increase in concentrate output and a 42% rise in the contained tin content during the 3 months to 31^st March 2023.
• Concentrate output increased to 359t (Q1 2022 – 239t) and the tin content rose to 216t (Q1-2022 – 152t) suggesting a modest decline in the grade of concentrate from ~63.5% to ~60%..
• The company confirms that its bulk sampling pilot plant to test the recovery of the lithium mineral petalite remains on budget and on course for completion at the end of June and that concentrate “is being tested by potential industrial offtakers and for conversion to lithium carbonate and lithium hydroxide”.
• Continuing exploration drilling “to upgrade historic resources” within the “Uis Southern Cluster pegmatites” has intersected mineralisation in all of the seventeen holes drilled to date at the ‘Spodumene Hill’ licence.
• The higher production levels are having a beneficial effect on unit cost performance with the average “operating cash costs below management guidance for the year of between USD17,000 and USD20,000 per tonne of contained tin at, USD15,741 … [and] … All-in sustaining cost³ (“AISC”) below management guidance for the year of between USD25,000 and USD30,000 per tonne of contained tin at, USD21,377”.
• Commenting on the quarterly results, CEO, Anthony Viljoen said that they “have laid the necessary foundation for the accelerated growth we expect for the balance of the financial year”.
• He also expressed satisfaction with “the significant efficiencies achieved with the increased production of tin concentrate and the lower-than-expected cash cost increases QoQ … [and emphasised a commitment] … to keeping costs within the lower range of our guidance”.
• Outlining progress on Andrada Mining’s efforts to identify a “partner for the lithium development … [Mr. Viljoen said that it] … is going well and will transform Andrada from being a fledging developer to a fully-fledged miner of technology metals … [and that the company is] encouraged by the level of interest from potential lithium partners globally”.

Base Resources (BSE LN) 9.18p, Mkt cap £189m – Management lowers 2024 guidance for Kwale mineral sands mine in Kenya

• Base Resources management have cut production guidance for the Kwale mine in Kenya for 2024.
• Mining is transitioning to the North Dune from the South Dune operations with the South Dune expected to be mined out in March 2024.
• Lower grades in the North Dune and at Bumamani show lower grades than seen historically at Kwale.
• Lower production within the new mining areas is expected due to ‘elevated oversize and slimes’.
• The shutdown of around half the mining operation is also expected to have an impact as machinery is moved into new areas in the South Dune in March 2024.
• New guidance 2023:
  • Rutile      62,000-73,000
  • Ilmenite   130,000-160,000
  • Zircon     13,000-16,000
• New guidance 2024*;
  • Rutile      35,000-41,000
  • Ilmenite  130,000-160,000
  • Zircon     13,000-16,000

• *2024 guidance is based on the mining of 14.1mt grading 2.23% heavy minerals.
• HMC production 311kt at the wet concentrator plant. HMC fed into the mineral separation plant (MSP) of 297kt.
• MSP product recoveries of 101% for rutile, 101.5% for ilmenite and 84.5% for zircon.

• Previous 2023 guidance issued 24 January 2023:
  • Rutile – 62,000 to 73,000t,
  • Ilmenite – 260,000 to 310,000t,
  • Zircon – 22,000 to 27,000t,
• Toliara (Madagascar): Discussions with the government of Madagascar continue with the Toliara Project Rare Earths Concept Study said to be due this quarter.

Conclusion:  Base Resources have a good team and have proven their mining expertise at Kwale. The delay to mining license approval at Toliara in Madagascar means the company will inevitably suffer a period of lower production. While we don’t think Base Resources should give up on Madagascar we do think they would do well to acquire one of the more recent ilmenite or rutile discoveries located where there are more predictable permitting regimes.

BlueRock Diamonds* (BRD LN) – Suspended – Accounts update

• BlueRock Diamonds report the company will not be in a position to publish its annual report and accounts for 2022.
• BlueRock shares were suspended on 24 February and will be cancelled within six months of this date.
• The company was placed in administration on 5^th June.
• BlueRock was not able to meet its obligations to Teichmann, its major shareholder and mining contractor forcing the directors to place the South African operating subsidiary into ‘Business Rescue’.
• LGD: The rise in sales of Lab Grown Diamonds has come at the expense of rough mined diamonds, largely due to the very substantial margins to cutters and polishers and jewellers.
• The President of India recently gave a 7.5ct synthetic diamond to Jill Biden which was grown in an Indian Laboratory, highlighting India’s move into growing their own LGD stones.
• Petra Diamonds recently withheld diamond sales from its fifth auction of the year as the company expects an improvement in demand in May and June as cutters and polishers in India reopened their doors after an extended shutdown following the holiday period.
• With so many LGD synthetic stones now being grown and sold in India we wonder when demand for natural, mined, diamonds might return.
• The Rapaport diamond index is now showing a 24% fall year-on-year for 1ct stoned and a 23% fall for 0.5ct stones indicating a monumental collapse in prices on last year.

Conclusion:  While the BlueRock team have worked hard the impact of such a dramatic collapse in demand and pricing for its natural mined diamonds would have exacerbated the company’s issues in the current inflationary environment.

*SP Angel acts as nomad and broker to Bluerock Diamonds. The analyst holds shares in BlueRock Diamonds.

EQ Resources (EQR AU) A$0.069, Mkt Cap A$101m – Initial blast at Mt Carbine, Queensland

• EQ Resources which is restarting production at the Mt Carbine tungsten mine in Queensland, has announced an initial blast in the open pit.
• The 42,000t blast, which is smaller than the 60,000t which the company expects to be its normal size, will help calibrate the parameters to be used in normal operations and the company explains that its grade control modelling is “showing good correlation to the resource model, with expected ore grade being defined in the current zones drilled”.
• CEO, Kevin MacNeill, welcomed the milestone of its first blasting and confirmed that it expects to “complete ramp up by the end of Q3 to meet planned production targets … [and said that EQ Resources] … is working hard to become a major player in the tungsten market this year and demonstrate its positioning as a long term supplier of tungsten, supporting critical mineral supply chains for the Western world”.
• In its May 2023 Economic Update to its Bankable Feasibility Study for Mt Carbine (Mt Carbine Bankable Feasibility Study (eqresources.com.au), the company describes treating 350tph of ore using X-Ray sorting and gravity recovery to produce an average of 3,800tpa of tungsten concentrate at an average grade of 50% tungsten trioxide over a life of 8.9 years.
• The company’s study envisages production at an average cash cost of US$10/mtu of tungsten trioxide (an mtu or metric tonne unit is an industry measure equivalent to 10kg).
• Capital costs for the project of A$26m are expected to generate a pre-tax NPV8% of A$307m based on an initial benchmark price of US$350/mtu for ammonium paratungstate (APT) escalating to US$372.5/mtu by 2029.

Greatland Gold (GGP LN) 6.65p, Mkt Cap £340m – Drilling underway at the Paterson South project

• Greatland Gold has announced the start of its initial drilling campaign at the Paterson South Project in Western Australia where it announced an agreement with Rio Tinto to farm-in to the project in late May.
• Greatland Gold says that drilling has already started at the “Stingray target on the Budjidowns tenement which is located north of Greatland’s world class Havieron gold-copper project” and that it will start drilling at the Decka target “shortly”.
• The company explains that both targets are defined by magnetic geophysical anomalies, with an additional conductive anomaly at Decka, suggesting the zone of interest is “within 250m of surface, making them shallower than Havieron”.
• Stingray is located “10km along strike N-NW of the Havieron magnetic anomaly” and so far, only one hole has been drilled, by Rio Tinto in 2021, with results showing anomalous levels of copper and of bismuth,
• Following Stingray and Decka, the next target at Paterson South is expected to be the Atlantis target “which lies 6km along strike to the N-NW of Decka (Figure 3) and has no effective drilling on +2km strike of magnetically anomalous targets”.
• Commenting on the start of drilling at Paterson South, Managing Director, Shaun Day, said that the “rapid commencement of drilling following entry into the farm-in and joint venture arrangement with Rio Tinto Exploration is testament to both the high quality of the targets and Greatland’s drive to rapidly unlock greater value from our Paterson Province exploration portfolio”.

Conclusion: The start of drilling at Paterson South less than a month after agreeing the farm-in  with Rio Tinto indicates Greatland Gold’s enthusiasm for the projects and suggests that some of the preparatory work may have been undertaken in parallel with the farm-in discussions. The targets are shallower than those at Havieron suggesting that initial results may become available before too long and we await them with interest.

Premier African Minerals (PREM LN) 0.45p, Mkt Cap £160m – Force majeure notice for the Zulu Lithium project, Zimbabwe

• Following its previous announcements of the necessity for plant modifications at its Zulu Lithium and Tantalum project in Zimbabwe and the resulting discussions with offtaker, Canamax Technologies, Premier African Minerals reports that “civil preparatory works associated with the installation of the hydro sizer and now for the installation of the UV sorters is complete and installation is expected to commence this coming week”.
• Canamax holds a 13.14% interest in Premier African Resources.
• The company has been advised by its contractor, Stark International Projects “the installation of the hydro sizer is expected to see concentrate production at or near 50% of design throughput” although Premier African Minerals cautions that “there can be no assurance or guarantee that Stark’s projections will be achieved and that there will not be further delays to Stark’s completion of plant modification and final commissioning”.
• Discussions with Canamax are continuing and Premier African says that it “remains committed to an equitable solution and will continue to engage with Canmax to the extent to which Canmax is so prepared. As previously announced, Canmax previously confirmed that their intention was to continue to support Premier and not to terminate the Agreement providing that an addendum between the parties is entered into on or before 25 June 2023”.
• The company is clear, however, that it will not accept Canamax’s proposals to convert “the Pre-Payment Amount into either (i) a convertible debt instrument in the event that Zulu is unable to meet its delivery obligations under the amended Agreement, with no floor to the conversion price or (ii) a proportionate amount of the equity of Zulu”.
• Premier African Minerals also says that it finds the proposal for Canamax to purchase “all concentrate produced at Zulu, not only that from the Pilot Plant, at fixed prices with limited ability for Premier to accommodate cost variations”, unacceptable.
• Pending resolution, Premier African Minerals served a formal notice of Force Majeure on Canamax on 25^th June.
• CEO, George Roach, said that “The issues at Zulu have been acknowledged by the plant contractor to be beyond the control of Premier, and could not have been foreseen by Premier. Whilst I am deeply upset and committed to finding an equitable way forward with Canmax, that solution should strive to be fair and reasonable and in the best interests of all Premier shareholders as whole”.
• Mr. Roach said that his “focus is squarely on resolution of the plant issues during this period of FM and production at Zulu, … [and said that he] … will diligently strive to resolve the issues with Canmax and will actively pursue alternative strategies”.
• The ‘alternative strategies’ appears to allude to a reference in today’s announcement that “Premier has received approaches from competing hydroxide producers based out of China and from European based entities intending to complete their own hydroxide and other downstream lithium operations. To date, Premier has resisted serious review of any of these approaches in the light of the Agreement with Canmax. However, in the context of the current stage of discussions with Canmax in respect of the Amended Agreement, Premier will now engage with these other interested parties”.

Conclusion: Force majeure is now in place at the Zulu project while work continues towards resolving the technical and contractual issues.

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

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