SP Angel Morning View -Today’s Market View, Friday 10th November 2023

Copper prices fall in Fed inflation focus

MiFID II exempt information – see disclaimer below

First Quantum Minerals (FQM CN) – Jiangxi copper buying First Quantum Minerals stock

Ionic Rare Earths (IXR AU) – Makuutu test plant construction completion early Q1/24

Neometals Ltd (NMT LN) – Purification Pilot Trial for lithium chemical processing technology

Strategic Minerals* (SML LN) – DDC project field work helps exploration insight for Redmoor

Thor Mining (THR LN) – Drilling underway at the Molyhil tungsten project in NT, Australia

Tungsten West (TUN LN) – CFO appointment

Wheaton Precious Metals (WPM LN) – Quarterly results as gold output increases from Salobo and Constancia

Palladium slides below $1,000/oz as conventional car sector struggles with tepid demand and EV adoption

• Palladium slid below $1,000/oz and is settling around $950/oz this morning.
• The metal has been on a consistent decline since late early 2022, down 62% as of March 2022.
• Catalytic converter demand has fallen on slowing economic growth, with elevated levels of inflation weighing on consumer appetite for new vehicles.
• Hedge funds have increased their net bearish bets on the metal, with palladium the most shorted metal by speculators.
• We imagine falling output from South Africa on load shedding and weak margins may provide some respite to the sell-off.

Gold slides on disappointing US Treasury auction and Powell comments

• Spot gold fell again to $1,955/oz, having been on the retreat from its >$2,000/oz in later October.
• Like gold, Treasuries have been whipsawing, with the 10-Year pushing up to 4.63% having been <4.4% yesterday.
• The move followed a weak 30yr Treasury auction, which showed appetite for longer-dated bonds remains muted.
• Powell’s comments that Fed officials ‘are not confident’ interest rates are high enough to tackle inflation also pushed yields higher.
• Unemployment data was uneventful yesterday, although continuing jobless claims continue to tick higher.
• However, Richmond Fed President Barkin commented that higher rates may not be needed.
• Focus turns to today’s Michigan inflation  and consumer expectations alongside comments from Fed members Logan and Bostic.

Iron ore extends gains to 16-month high as supply concerns mount and property optimism surfaces

• Dalian iron ore bounced to $129/t, and $125/t in Tianjin.
• The move pushes the steelmaking ingredient to its costliest since June 2022.
• Property stocks rallied yesterday in China on reports Ping An would take a stake in Country Garden.
• Supply concerns from Brazil are mounting after a fire in Maranhao state.
• Coking coal and coke prices are also moving higher.

Russia hits iron ore carrier during missile attack near Odesa

• Russia fired and hit an iron ore carrier near the port of Odesa on Wednesday this week (FT).
• The missile struck the bridge of the carrier killing one of the ports pilots and another port employee.
• Three Philippine nationals were also injured.
• Ukraine says the trade shipping corridor is still active with six ships carrying 231,000t of agricultural products leaving the port since the attack with five more waiting to load.

Bear market – Is the bear market in junior equities on the turn?

• Junior, small cap, markets are in the midst of a crushing bear market caused by the general withdrawal of funds from equities and predictions for recession caused by high interest rates.
• In 2028 the market corrected following the collapse of Lehman Bros with many small private investors buying equities at bargain prices as institutions dumped stock into the market.
• Back then we saw savvy investors buying into discounted stocks driving liquidity for the funds to sell into while policy cut interest rates and moved to stimulate markets.
• Today, stimulus is specifically directed at ‘electrification’ of the US, Chinese and European economies as interest rate cuts are reversed
• High borrowing costs, inflation and the potential for recession has hit confidence and consumer spending and drawn funds out of equities.
• China, despite slipping into deflation appears to be doing rather better with the expectation of CNY1tn of government support already lifting confidence and economic growth despite a falloff in new investment.
• Naysayers will point to the dangers of rising government debt and the potential collapse of Evergrande, Country Garden and property portfolios worldwide.
• Deflation in China gives a green light to policymakers for extra stimulus while ongoing inflation in the West looks may hold rates higher for longer.
• Chinese stimulus should be good for metals and the US IRA ‘Inflation Reduction Act’ and other programs is also lifting demand offsetting much of the downside of higher rates.
• In the meantime, the other BRICs nations continue to post strong performance due to lower debt levels.
• In short, any move towards lower interest rates in the US and UK should attract new funding and liquidity into equities with disproportionate effect on the junior end of the market

Economics

US – Rates and US$ climbed on Fed Chairman comments that the central bank will continue to move carefully but will not hesitate to tighten policy if required.

• “If it becomes appropriate to tighten policy further, we will not hesitate to do so,” Powell said yesterday during his speech in Washington.
• “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening,” he said.

China – Low confidence, property crisis driving deflation as producer prices continue to fall

• Falling domestic Chinese consumption and property values combined with weak export demand and measures to is reduce input inflation continue to weaken producer prices
• Producer prices hit -2.6% yoy in October marking a 13th consecutive month of producer price falls
• Stripping out food and energy leaves Chinese inflation at around +0.6% yoy according to John Browing at Bands Financial who points out that pork prices, a Chinese staple, have also fallen by around 30% this year.
• While many economists see deflation as a bigger risk than inflation when driven by falling demand and worsening efficiency.
• We believe China reckons it can easily stimulate demand through its ‘Dual Circulation’ policy, eg through the issue of discount vouchers for white goods and other products.
• We also see mortgage lending stimulus combined with lower property prices as enable greater home ownership which itself should raise domestic consumption

Brexit – Germany has asked Brussels to postpone post-Brexit rules imposing an effective 10% tariff on EVs between the UK and the EU

• The UK is Germany’s largest market for EVs with >2m EVs imported from the EU last year (The Times).
• New post Brexit tariffs on sales prices would hit EU sales hard in the UK at a time when Germany needs all the help it can get to support its automotive industry in the face of significantly cheaper Chinese imports.
• The extra 10% equates to an extra £3,400 for EU EV imports and an extra £3,600 for British EV cars sold into the EU with petrol and diesel vehicles unaffected.
• Rule of origin provisions in the Brexit trade deal gives manufacturers till the year-end to ensure 45% of components in EVs comes from the UK or EU. The value threshold rises to 55% in 2027.
• We believe EV manufacturers are a long way off the new hurdle rates with around 90% of vehicle exports likely affected.
• German vice-chancellor and business minister, has written to the EC asking to postponed the new content regulations by three years.

UK – The economy stagnates in Q3/23 on the back of high borrowing costs and rising cost of living.

• Marginally better than expected numbers were driven by a positive net trade contribution while personal spending, government expenditures and business investments all pulled back.
• GDP (%qoq): 0.0 v 0.2 Q2/23 and -0.1 est.
• GDP (%yoy): 0.6 v 0.6 Q2/23 and 0.5 est.

Portugal – President called a snap general election for March next year following a resignation of PM Antonio Costa.

• Elections are set to be held on March 10.

South Africa – South African president deploys army to tackle illegal mining

• The South African President has authorised the deployment of 3,300 military personnel to help combat illegal mining activities.
• Illegal miners often keep workers in slave-like conditions underground for months on end
• The SANDF ‘South African National Defence Force’ under ‘Operation Prosper’ is expected to cost $26m

Child malnutrition in the Eastern Cape – The South African Human Rights Commission says that child malnutrition in the Eastern Cape should be declared a disaster (Daily Maverick)

• A substantial percentage of children in the Eastern Cape are reported to be suffering from various forms of malnutrition with >1,000 children diagnosed with acute malnutricion in 2021-2022 with 120 dying and 25% stunted.

Shell sues Greenpeace for $2.1 million after boarding oil vessel

• Shell is suing Greenpeace for $2.1m of damages to an oil production vessel in transit this year.
• It will be interesting to see how the claim progress through court as the judge will need to balance the right to protest with the cost of the protest action.
• Greenpeace claim to ‘defend the natural world and stand for a green and peaceful future.’ and, allegedly, briefly dropped its anti-nuclear agenda in recognition of the low-carbon benefits of nuclear power generation.
• Unfortunately the organisation reinstated their anti-nuclear stance, despite their new anti CO2 agenda as their popularity allegedly waned.
• Remember, Greenpeace also promoted the lower CO2 benefits of diesel engines in cars as part of their low-carbon strategy.
• Today young activists are telling Greenpeace to drop their ‘old fashioned and unscientific’ campaign against nuclear power.
• Even the Snowflake generation appreciate that Electric Vehicles and iPhones need power and that base-load nuclear generation is required to feed their future energy needs.
• It will be interesting to see how Greenpeace react to Shell’s challenge and the potential impact on Greenpeace finances which stood at €46.5m of cash at end 2022.
• Sadly the cost to UK energy prices and the economy caused by Greenpeace’s anti-nuclear campaigning almost certainly stretches into many billions or to put another way costs every person in the UK thousands of pounds each year

Currencies

US$1.0669/eur vs 1.0703/eur previous. Yen 151.40/$ vs 150.99/$. SAr 18.674/$ vs 18.554/$. $1.223/gbp vs $1.228/gbp. 0.636/aud vs 0.641/aud. CNY 7.293/$ vs 7.285/$.

Dollar Index 105.91 vs 105.62 previous.

Commodity News

Precious metals:

Gold US$1,956/oz vs US$1,949/oz previous

Gold ETFs 87.1moz vs 87.3moz previous

Platinum US$860/oz vs US$870/oz previous

Palladium US$980/oz vs US$1,048/oz previous

Silver US$22.64/oz vs US$22/oz previous

Rhodium US$4,550/oz vs US$4,550/oz previous

Base metals:

Copper US$ 8,127/t vs US$8,096/t previous

Aluminium US$ 2,231/t vs US$2,246/t previous

Nickel US$ 17,600/t vs US$17,855/t previous

Zinc US$ 2,603/t vs US$2,597/t previous

Lead US$ 2,190/t vs US$2,186/t previous

Tin US$ 24,645/t vs US$24,720/t previous

Energy:

Oil US$80.2/bbl vs US$80.1/bbl previous

Natural Gas €47.250/MWh vs €47.000/MWh previous

Henry Hub Gas US$3.03/mmBtu vs US$3.13/mmBtu yesterday

• Energy prices appear to have stabilised after the significant volatility seen over the last few months, which came despite limited data-driven changes to the production or demand outlooks.

Uranium UXC US$74.00/lb vs US$73.00/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$124.6/t vs US$124.3/t

Chinese steel rebar 25mm US$541.4/t vs US$542.0/t

Thermal coal (1st year forward cif ARA) US$109.5/t vs US$109.5/t

Thermal coal swap Australia FOB US$128.5/t vs US$126.5/t

Coking coal swap Australia FOB US$300.0/t vs US$318.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$70,204/t vs US$70,282/t

Lithium carbonate 99% (China) US$19,814/t vs US$20,247/t

China Spodumene Li2O 6%min CIF US$1,810/t vs US$1,860/t

Ferro-Manganese European Mn78% min US$1,027/t vs US$1,031/t

China Tungsten APT 88.5% FOB US$295/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$625/t vs US$625/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$312/t vs US$312/t

Spot CO2 Emissions EUA Price US$78.8/t vs US$79.1/t

Brazil Potash CFR Granular Spot US$335.0/t vs US$335.0/t

EV & Battery News

GM and Stellantis to invest in EV magnet start-up

• GM and Stellantis have announced they will invest in start-up Niron Magnetics.
• The automakers joined Niron’s latest $33m funding round and plan to collaborate to develop permanent magnets without rare earths.
• The investment comes as the auto industry seeks to reduce dependency on China.
• China also recently announced that it would require export permits for graphite products, also used in EVs, to protect national security.
• Niron believe their iron nitride magnet is more magnetic than a traditional permanent magnet that uses neodymium and praseodymium.

Polestar becomes first EV maker to use StoreDot’s fast-charge batteries

• Polestar is one of around 15 automakers and others including BP, Daimler and Volvo Cars who are strategic partners with Israeli start-up StoreDot.
• Polestar will become the first automaker to incorporate its fast-charging battery cells, which can be recharged to almost full in 10 minutes.
• StoreDot said it hopes Polestar cars using its ultra-fast-charging batteries will be on the road by 2027.
• StoreDot CEO, Doron Myersdorf, told Reuters he expects further collaborations with other automakers in which a battery at 10% charge could be charged to 80% in 10 minutes more than 1,000 times consecutively.

Will solid-state batteries be commercialised by 2030?

• Current lithium-ion batteries are routinely able to provide ranges of 483km and outliers like the Lucid Air Grand Touring offer more than 805km of range.
• Automakers are increasingly focusing on the long-delayed promise of solid-state batteries.
• These batteries can be lighter, safer, faster to recharge, and more energy dense while still being able to deliver ranges of 600 miles (965 km) or more.
• Toyota, working with Japanese petroleum refiner partner Idemitsu Kosan, says it will start to produce commercial-grade cells in 2027 or 2028, with a range of 1000km plus and charge in 10 minutes.
• Nissan reportedly plans solid-state battery commercialisation by 2028, and Honda, has informally floated 2028 or 2029 for their batteries.

Company News

First Quantum Minerals (FQM CN) C$16.84, Mkt cap £11.7bn – Jiangxi copper buying First Quantum Minerals stock

• Reports suggest First Quantum Minerals are not overly happy to discover Jiangxi copper are buying their stock in the market without so much as a ‘by your leave’
• Jiangxi copper has raised its stake to 19.5% from 18.5% taking advantage of lower prices caused by the Panamanian situation.
• We suspect Jiangxi copper might feel it is able to exert more pressure on the Panamanian government through the Chinese embassy than FQM and may discount the risk of expropriation of Cobre Panama
• While the Canadian government has been discouraging Chinese investment in Canadian companies we do not feel that Canada will be overly concerned if a Chinese company makes a hostile offer for First Quantum

Ionic Rare Earths (IXR AU) A$0.03, Mkt Cap A$103m – Makuutu test plant construction completion early Q1/24

• The Company reports that the Makuutu Demonstration Plant is on course to commissioning in early Q1/24.
• The plant will produce samples of MREC Product that will be sent to potential customers and offtake parties for testing.
• Process equipment is being delivered from Perth with deliveries expected to be arriving at site November and December enabling assemblage of the facility and laboratories before the end of 2023.
• The plant and production of samples are key for project development with the Mining License expected to be granted shortly.
• The team previously announced that the Company’s Large Scale Mining License has been approved for granting by the Uganda Directorate of Geological Survey and Mines.
• Grade control drilling on one of two identified test pit locations is progressing well and is expected to be completed this month.

Conclusion: Pilot plant will be used to reduce technical and commercial risks at the Makuutu Ratre Earths Project in Uganda that will in turn help with future funding discussions.

Neometals Ltd (NMT LN) 14p Mkt cap £75m – Purification Pilot Trial for lithium chemical processing technology

• Neometals provides an update on its 70% ELi technology, which is exploring potential for the purification of lithium chloride.
• The trial has been using salar brine concentrates from Argentina.
• The Purification Test work is reportedly removing >97% of brine feed source impurities.
• Neometals expects this to support the production of a brine solution applicable to electrolysis at the Company’s ELi Technology.
• The ELi technology is owned 70% by Neometals and 30% by MinRes under Reed Advanced Materials.
• The process uses electrolysis to convert lithium chloride solutions to lithium hydroxide or lithium carbonate.
• Brine impurities complicate the electrolysis process.
• The group has provided an Engineering Cost Study for the ELi project:
  • Annual production: 25ktpa
  • 80ktpa throughput
  • Total development CAPEX: $446m
  • Operating Cost: $1,945/t

Strategic Minerals* (SML LN) 0.1p, Mkt Cap £2.2m – DDC project field work helps exploration insight for Redmoor

• Strategic Minerals reports the completion of field work at its Redmoor project as its contribution to the Camborne School of Mines-led ‘Deep Digital Cornwall’ (DDC) project.
• The contributions from Strategic Minerals’ subsidiary, Cornwall Resources, include soil sampling data for over 2,000 samples, detailed ground gravity geophysical information and the associated interpretation as well as aerial survey information “consisting of electro-magnetic and magnetic data over 40 km²”.
• The company confirms that it is continuing to “review, analyse and interpret output datasets from DDC”.
• It also confirms that it has started work on the ‘Target 1’ area which “contains Tin-Tungsten and Copper-Lead-Zinc soil anomalies located near a previously identified granite upwelling, and within a prospective zone highlighted by the MPM … [Mineral Prospectivity Map] … mapping” resulting from the DDC work.
• Director, Peter Wale, commented that following the end of the DDC work, Strategic Minerals “aims to advance and analyse further the work undertaken, through the completion of a case study, modelling of project data and follow-up exploration activities.”
• He also thanked “Camborne School of Mines, the DDC team and Cornish Lithium Plc for their cooperation and collaboration on work packages and the successful completion of the project”.

Conclusion: Participation in the DDC project has provided additional exploration insights into the Redmoor project and we look forward to the investigation of the Target 1 area as the follow up work progresses.

*SP Angel acts as Nomad and Broker to Strategic Minerals

Thor Energy (THR LN) 1.51p, Mkt Cap £4m – Drilling underway at the Molyhil tungsten project in NT, Australia

• Thor Mining reports that ASX listed Investigator Resources has started drilling at the Molyhil tungsten project in Australia’s Northern Territory approximately 220km northeast of Alice Springs.
• According to an announcement by Investigator Resources to the ASX, the drilling which, will comprise 1,650m in 12 holes as part of Investigator Resources’ farm-in agreement, aims to “verify and update … [the] … resource estimate” which is currently a combined (Measured, Indicated & Inferred) estimate of 4.4mt at an average grade of 0.27% tungsten trioxide, 0.1% molybdenum and 0.05% copper.
• Investigator Resources’ Managing Director, Andrew McIlwain expressed the view that “there are significant opportunities to improve the Molyhil project and this drill programme will allow Investigator to present a revalidated Mineral Resource Estimate in early 2024”.
• The drilling programme will
  • ‘twin’ previous reverse circulation and diamond drill holes with new diamond drill holes “to verify historical data”; and
  • Collect rock density data; and
  • Drill previously under-explored areas; and
  • Provide multi-element assay information “to assist in deposit geological modelling, geometallurgical understanding and waste characterisation work”.
• Under the earn-in agreement, expenditure of A$1m earns Investigator Resources a 25% interest in Molyhil and its surrounding exploration ground plus a 40% interest in the adjacent Bonya tenement.
• “Two further stages of expenditure of up to $7m over 6 years give the ability to earn an 80% Molyhil project interest”.

Tungsten West (TUN LN) 1.55p, Mkt cap £2.9m – CFO appointment

• Tungsten West has announced the appointment of Mr. Alistair Stobie as its new Chief Financial Officer following the resignation, in August of his predecessor.
• Mr. Stobie “was previously CFO at Hurricane Energy, which raised c.$700 million to fund drilling campaigns and an Early Production System during his tenure” and has also served as “CFO at Octavia Energy, an international oil and gas business operating in North Africa and the Middle East”.
• Chairman, David Cather, welcomed the appointment and said that Mr. Stobie’s “extensive experience in fundraising and debt refinancing will play a pivotal role as we look to continue towards the recommencement of operations at Hemerdon”.

 Wheaton Precious Metals (WPM LN) 3,588p, Mkt Cap £16bn– Quarterly results as gold output increases from Salobo and Constancia

• In Q3 Wheaton saw attributable production of 154.8koz GOE, supported by a ramp up at Salobo and Constancia.
• Third quarter revenue came in at $223m for the streaming company, alongside $171m operating cash flow.
• The Company reported $834m in net cash at the time, having invested $90m in streaming interests.
• Wheaton currently holds streaming agreements with 18 operating mines and 14 development projects.
• The Company reiterates its annual production guidance of 600-660koz GOE.
• Following quarter-end, Wheaton acquired a silver stream from Waterton Copper at the Mineral Park mine for $115m.
• The group also acquired a 0.5% NSR from Liberty Gold for the Black Pine Oxide Gold Project for a total consideration of $5m.

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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*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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