SP Angel Morning View -Today’s Market View, Wednesday 1st November 2023

Poor Chinese PMI weigh on sentiment

MiFID II exempt information – see disclaimer below

Chaarat Gold (CGH LN) – Tulkubash EPC and operation contract with Power Construction

Gem Diamonds (GEMD LN) – Q3 sees rising ore contribution from the satellite pipe at Letšeng

Tertiary Minerals* (TYM LN) – BUY – Placing raised £150k to fund exploration across copper portfolio

Wishbone Gold* (WSBN LN) – Cottesloe RC drilling provides geological encouragement ahead of the diamond drilling phase

Battery makers expected to stockpile graphite products in anticipation of China’s export curbs

SP Angel Graphite Market Update: CLICK FOR PDF

• China’s graphite curbs are set to come into effect next month.
• The Bureau of Safety and Control issued the requirement to gain permits to export synthetic graphite products and natural flake products, including spherical and expanded graphite.
• The export controls were issued on the grounds of ‘national security.’
• We estimate that the US imported over $240m worth of spherical graphite products ytd, and over $570m last year when prices were elevated.
• The EU, South Korea, and Japan bought a combined amount of c.$580m worth of spherical graphite products ytd.
• One suggestion for the export controls has been a reaction to the US’ chip controls, first effected by Biden in October 2022 in order to limit Beijing’s access to high-perfornance semiconductors for weaponry.
• Alternatively, the curbs may be targeted at supporting domestic graphite producers, with weak prices weighing on margins.
• We lean towards the view that Chinese gigafactories have taken the opportunity to restock graphite products at lower prices, with inventories now buoyant.
• An upward move in graphite prices across product varieties is now anticipated.

Copper prices ease as futures point to supply glut despite continued China refined imports

• Copper prices weakened below $8,100/t again after a small bump over $8,200/t on Monday.
• LME inventories have slid 15% since mid-October, whilst copper smelter inventories in China have fallen 37%.
• Interestingly, Chinese refined demand remains strong, with import premiums for cathodes sitting at $92/t, their highest level in six months.
• On the other hand, both COMEX and LME are showing severe levels of contango, which suggests there is ample physical supply available to buyers.

Iron ore prices elevated despite China property gloom

• Iron ore prices bounced off $120/t this week, settling around $118/t.
• Analysts suggest that weakening demand from the property sector is being replaced by ample appetite from shipbuilders, automakers and green infrastructure.
• We know that tanker companies are unable to get their orders in for several years after the boom in LNG and container rates over the pandemic caused mass investments in newbuilds.
• Steel prices have been on a tear since September, with January seeing HRC prices jump to $994/t from <$700/t two months ago.

Economics

China – Private manufacturing PMI measure pulled back more than expected in October on soft demand conditions in the sector.

• Total new orders registered the third consecutive monthly expansion, although, the rate pulled back while overseas orders declined for the fourth straight month.
• Employment fell for the second consecutive month with job losses accelerating to the quickest pace since May.
• Final goods prices climbed, albeit, at a modest rate reflecting soft demand conditions.
• Business confidence over next 12 months softened again reaching the lowest since Sep/22.
• Caixin Manufacturing PMI: 49.5 v 50.6 September and 50.8 est.

Evergrande – new debt plan to had offshore creditors 30% stake in subsidiary companies (SCMP)

• Evergrande are asking their offshore bondholders to take a significant cut in the value of their debt though the offer may be better than an outright liquidation which might give a 3% return.
• Offshore bondholders are being offered 30% equity stakes in Evergrande’s two HK-listed subsidiaries, Evergrande Property Services Group and Evergrande New Energy Vehicle Group.
• Shares in Evergrande Property Services Group have fallen 65% since 2^nd August and Evergrande New Energy Vehicle Group have fallen 61% since 27^th July
• Evergrande still control the two groups with a 52% stake in the property services subsidiary and a 59% stake in the vehicle business.
• The restructuring of US$19bn of offshore debt pales into insignificance when compared with Evergrande’s total US$325bn of debt.
• The write down proposed on the offshore bonds sets a dangerous precedent for the treatment of offshore bond holders in Chinese companies and will almost certainly result in ongoing litigation by bondholders to recover their losses.

Japan – The yen fell the most in a day since April yesterday as the central bank announced only modest changes to its dovish monetary policy stance.

• The currency hit 151.7 after the BOJ announced only mild changes to its policy.
• Officials changed the 1% limit on 10-year Japanese yields from a hard cap to a “reference point”.
• The BOJ maintained its policy rate at -0.1%, the world’s only negative interest rate, albeit, raising its core inflation forecast for 2024 from 2.8% to 1.9%.
• The yen has been the worst performing major currency this year, falling by over 13% on the back of an increasing yield gap between US and Japanese borrowing costs.

UK – Property prices unexpectedly climbed in October driven by a lack of supply, according to latest Nationwide data.

• Prices were up 0.9%mom, reducing YTD fall to 3.3% from 5.3% recorded in the previous month.
• “Labour market conditions are solid and mortgage arrears are at historically low levels,” Nationwide added.
• Manufacturing PMI came in below estimates with the sector remaining in cotnraction at the start of the fourth quarter.
• Output, new order and employment all declined.
• Business sentiment dipped to a ten month low.
• Manufacturing PMI: 44.8 v 44.3 September and 45.2 est.

Panama – First Quantum Minerals (FQM CN) shares continue to fall on Panama referendum threat

• FQM shares have fallen 46% in Canada this week following news the government of Panama is looking to organise a referendum on the
• Panama’s electoral court says the government can not hold a referendum over the Cobre Panama copper mine as called for by President Laurentino Cortizo
• The Government of Panama is now looking to introduce a bill to congress to allow the referendum to go ahead.
• Officials are now preparing legislation to enable a referendum on 17 December according a government Tweet.
• Panama is dangerously close to breaching its debt ceiling of 3% of GDP with the Cobre Panama copper mine expected to produce close to 1% of GDP in government receipts.
• The last time Panama was this unpopular was at the time General Noriega, sometimes known as Pineapple face.

Currencies

US$1.0558/eur vs 1.0627/eur previous. Yen 151.30/$ vs 150.36/$. SAr 18.735/$ vs 18.798/$. $1.215/gbp vs $1.216/gbp. 0.634/aud vs 0.636/aud. CNY 7.319/$ vs 7.318/$.

Dollar Index 106.78 vs 106.26 previous.

Commodity News

Precious metals:

Gold US$1,978/oz vs US$1,997/oz previous

Gold ETFs 87.3moz vs 87.3moz previous

Platinum US$926/oz vs US$937/oz previous

Palladium US$1,113/oz vs US$1,128/oz previous

Silver US$22.56/oz vs US$23/oz previous

Rhodium US$4,350/oz vs US$4,450/oz previous

Base metals:

Copper US$ 8,084/t vs US$8,141/t previous

Aluminium US$ 2,247/t vs US$2,261/t previous

Nickel US$ 18,025/t vs US$18,360/t previous

Zinc US$ 2,409/t vs US$2,464/t previous

Lead US$ 2,082/t vs US$2,115/t previous

Tin US$ 23,735/t vs US$24,585/t previous

Energy:

Oil US$85.6/bbl vs US$88.1/bbl previous

• Crude oil prices edged lower as the EIA reported record US crude production of 13.05mb/d and natural gas production of 104.4bcf/d in August.
• European energy prices edged lower as November opened with a mild and windy weather outlook, with over 50% of the UK’s power generation currently being produced by wind turbines ahead of Storm Ciaran.
• Ørsted is down 20% after raising 9M23 impairment to c.$4bn, which is mostly attributed to a decision to cease development of the Ocean Wind 1 and 2 projects as part of an ongoing review of its US offshore wind portfolio.

Natural Gas €46.7/MWh vs €48.6/MWh previous

Uranium UXC US$73.00/lb vs US$69.00/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$118.7/t vs US$122.5/t

Chinese steel rebar 25mm US$534.9/t vs US$534.5/t

Thermal coal (1st year forward cif ARA) US$119.3/t vs US$123.8/t

Thermal coal swap Australia FOB US$128.5/t vs US$134.5/t

Coking coal swap Australia FOB US$333.0/t vs US$320.0/t

Other:  

Cobalt LME 3m US$33,420/t vs US$33,420/t

NdPr Rare Earth Oxide (China) US$69,883/t vs US$69,892/t

Lithium carbonate 99% (China) US$21,108/t vs US$21,111/t

China Spodumene Li2O 6%min CIF US$2,010/t vs US$2,010/t

Ferro-Manganese European Mn78% min US$1,019/t vs US$1,026/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$630/t vs US$630/t

Europe Vanadium Pentoxide 98% 6.2/lb vs US$6.2/lb

Europe Ferro-Vanadium 80% 26.25/kg vs US$26.25/kg

China Ilmenite Concentrate TiO2 US$311/t vs US$311/t

Spot CO2 Emissions EUA Price US$82.7/t vs US$83.3/t

Brazil Potash CFR Granular Spot US$342.5/t vs US$342.5/t

EV and Battery news

Toyota to commit $8bn for US battery plant expansion

• Toyota has said it would boost investment by $8bn and add about 3,000 jobs at its EV battery plant in North Carolina, accelerating the push to electrify its lineup.
• The Japanese automaker has ambitious plans to electric options for all its models by 2025.
• Toyota had earlier bet on hybrids and hydrogen-fuel cell vehicles rather than battery EVs, but the world’s top-selling automaker this year announced a change of direction, with plans to commercialise advanced batteries and adopt die-casting technology pioneered by Tesla.
• The North Carolina facility is set to begin operations in 2025 and will be the company’s first automotive battery plant globally.
• It will have six battery production lines, four supporting hybrid vehicles such as the Prius, and two additional lines to support EVs.
• Legacy automakers have been racing to ramp-up EV output and close the gap with market leader Tesla.
• Ford and GM have both scaled back their investment plans after reaching expensive new contract agreements with the United Auto Workers union.

Thailand approves new EV subsidies

• Thailand has approved a new subsidy package for EVs in a move to support EV sales where they are steadily gaining traction.
• EV sales in Thailand this year accounted for about half of all EV sales in Southeast Asia in the second quarter.
• Thailand currently offers a government subsidy of up to 150,000 baht ($4,100) per vehicle, but the amount could be brought down to 100,000 baht, a government official said last month. (Reuters)

Company News

Chaarat Gold (CGH LN) 5.0p, Mkt Cap £29m – Tulkubash EPC and operation contract with Power Construction

• The Company signed a binding conditional construction and operation agreement with Power Construction Corporation of China over the Tulkubash Gold Project in Kyrgyzstan.
• The arrangement covers $83m EPC ceiling price contract, a $160m five year mining contract and a $7m five year operation and maintenance contract.
• The agreement is subject to securing full project funding for Tulkubash.
• The team continues discussions with potential investors regarding project funding including Xiwang International.
• Project capex is now estimated at $104m, $11m lower than previously estimated in May 2021, which includes $83m EPC contract, $16m in owners costs (project management, spares and first fills and pre-production fuel) and $5m contingency (5% of total).

Gem Diamonds (GEMD LN) 11p, Mkt Cap £15m – Q3 sees rising ore contribution from the satellite pipe at Letšeng

• In its trading report for the three months to 30^th September, Gem Diamonds reports the production of 26,913 carats of diamonds; an 18% increase on the previous quarter’s 22,857 carats which brings the YTD output to 77,513 carats from its Letšeng mine in Lesotho.
• The increased output reflects the combination of a 7% increase in the volume of ore treated to 1.223,987t (Q2 2023 – 1,149,754t) and a 10% rise in ore grades to 2.18cpht (Q2 2022 – 1.99cpht).
• During the quarter, the mine yielded one “diamond greater than 100 carats … and another one in October 2023”.
• Ore tonnage from the satellite pipe at the mine increased by almost 40% to 850kt (Q2 2022 – 613kt) representing around 70% of the total (Q2 2022 – ~53%).
• Reflecting, we surmise, the current weaker market for rough diamonds, diamonds sales declined by 10% in both volume and revenue terms to 23,955 carats (Q2 2022 – 26,476 carats) realising US$31.4m (Q2 2022 – US$34.9m).
• The company says that it experienced a “decrease in the number of large, high-value diamonds recovered” and that the highest prices it achieved were from “a white 58.71 carat Type IIa diamond was US$36,399 per carat and US$67,853 per carat for a 5.96 carat pink diamond”.
• In total. “Four diamonds sold for more than US$1.0 million each, generating revenue of US$6.1 million during the Period”.

Tertiary Minerals* (TYM LN) 0.13p, Mkt cap £2.55m – BUY – Placing raised £150k to fund exploration across copper portfolio

CLICK FOR PDF

• Tertiary has raised £150k through a placing of 125m new shares at 0.12p.
• The placing reflects a discount of 7.7% to yesterday’s closing price.
• The Company will use the funds for exploration activities in Zambia and Nevada, alongside working capital.
• We expect current events in Panama will encourage majors to continue to see Zambia as a mining-friendly and attractive jurisdiction for copper investment.

*SP Angel acts as Nomad and Broker to Tertiary Minerals

Wishbone Gold* (WSBN LN) – 2.35p, Mkt Cap £5.7m –Cottesloe RC drilling provides geological encouragement ahead of the diamond drilling phase

See link for recent note: CLICK FOR PDF

• Wishbone Gold reports that the results of its pre-collar reverse circulation drilling programme at the Cottesloe project in the Paterson Region of WA, where it is exploring for sedimentary exhalative mineralisation similar to the Nearby Nifty deposit, support the project as “highly prospective for precious and base metals”.
• Results “included 2 holes, 23CTRC001 and 23CTRC005, which encountered zones with pyritic black shales in both holes … consistent with the development of a significant basin related hydrothermal system consistent with a sediment hosted base metal deposit”.
• The company reports that hole “23CTRC001 intersected pyrite over a wide zone from 72-148m with the zone from 112-121 metres showing the strongest sulphide zone … [and that] … 23CTRC005 intersected pyritic shales towards the base of the weathered zone (89-90m) within partly ferruginous clays interpreted to be weathered pyritic shales from 12m”.
• The best intersection was a 78m wide interval from a depth of 12m in hole 23CTRC005 which is reported at an average grade of “1400g/t Zn and 243 ppm Co” and included a 6m wide intersection from 50m depth at a grade of “3500 g/t Zn and 1300 g/t Co”.
• The zinc grades, expressed in more conventional percentage terms are 0.14% for the wider interval with the higher-grade section at 0.35% zinc.
• The company says that “There was also stronger pyrite within black shales from 124-145m, with disseminated pyrite throughout the hole.  This zone also had highly anomalous Zinc”.
• Wishbone Gold says that the “limited information gained to date is highly encouraging with a thick zone of anomalous sulphidic shales present in both holes, confirming the overall exploration model for a major sediment hosted system” and confirms that it plans to start diamond drilling “in the coming weeks” which we expect to provide insight into deeper levels of the geology.
• 50% of the diamond drilling programme is being funded by the WA Government’s EIS scheme, covering $220k of the direct costs.

Conclusion: Initial reverse-circulation drilling at Cottesloe has demonstrated the expected geological environment and we look forward to results from the forthcoming diamond drilling.

*SP Angel acts as a Broker for Wishbone Gold

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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