SP Angel Morning View -Today’s Market View, Friday 2nd February 2023

Gold rises on falling US rates ahead of US labour numbers

MiFID II exempt information – see disclaimer below

Wishbone Gold* (WSBN LN) – £300,000 fundraising to progress the Mosquito Creek project, WA

Indaba / 121 (South Africa) – We look forward to catching up with the mining industry next week

• This is our busiest investor schedule ever by a country mile highlighting an unforeseen level of new investor interest in the mining sector.
• The last two years were dominated by metals traders working to secure offtake
• This year heralds a return of value investors looking for new opportunities in battery metals while fishing for bargains
• 2024 promises to be an interesting year with so much opportunity and so many smart investors showing new interest.

Gold prices climbed on the back of a weaker US$ and lower sovereign bond yields amid concerns over regional banks’ losses on commercial property loans.

• 10y bond yields are trading below 3.9%, down from 4.1% at the start of the week, despite the Fed attempt to cool market expectations on timing of the first rate cut.

Diamonds – Chinese demand collapses as confidence dissipates ahead of Chinese New Year

• Slow trading for diamond jewellers in China is partially offset by growth in gold jewellery sales
• A collapse in demand for diamond jewellery is blamed on failing consumer confidence as property prices slump and Chinese buyers take a more cautious approach to cash preservation
• Marriages are also falling with just 6.83m in 2022, the lowest since records began.
• Younger Chinese people don’t want and possibly don’t trust local brands preferring to go for Western brands when they can afford them
• The investment credentials of diamonds have also been damaged by the onset of LGDs, with their Lab Grown alternatives costing <$100/ct to make.
• While LGDs are better than glass, they are not particularly expensive and are essentially identical.
• Coloured stones are now seen as better investments as they are less easy to copy

Question:  Who is the world’s richest and most accomplished African American

Answer:  Elon Musk – born in Pretoria in 1971.

Economics

US – Non-farm payrolls numbers are out later today with estimate for a 185k reading compared to 216k in December.

• Earnings are expected to slowdown slightly to 0.3%mom/4.1%yoy v 0.4%/4.1% December.
• US money market assets climbed above $6tn for the first time, FT cites the Investment Company Institute.
• Inflows into highly liquid funds were driven by higher rates with three fifths of money market funds held by institutions and the balance owned by retain investors.
• Investments into funds continued to rise in 2024 after attracting more than $1tn in 2023.
• A number of banks reported losses and a sharp drop in earnings related to commercial property loan losses amid high vacancy rates and high borrowing costs.
• The KBW Regional Banking Index is down almost 9% this week marking the biggest drop in months.
• Meta is trading 16% higher post earnings after providing strong outlook and announcing maiden dividend as well as a $50bn buyback.
• Amazon is up 7% in pre-market after estimates beating earnings driven by e-commerce business and growth in advertising, Barron’s reports.

China – Evergrande liquidation prompts rush by developers to offload new properties at significant discounts

• China recently moved to equalise the judicial system between HK and the mainland with a HK court immediately moving to order the liquidation of Evergrande, the indebted property developer.
• We suspect the authorities grew impatient at Evergrande’s impossible, two year, attempt at restructuring and enforced liquidation by bringing the HK legal system into line with mainland China
• We also suspect a few people saw it coming with new home sales said to be down 40% yoy in January and other property developers moving to offload property at hefty discounts.
• ”Country Garden sold 40 out of 60 properties last Saturday in their Allegro development in Kowloon City cutting prices 30% below a similar offering in 2022” according to John Browing’s Letter to Shanghai
• Individual sellers are rightfully standing back and new buyers appear to be waiting patiently for prices to fall further.
• Also: the authorities are consolidating around 2,100 rural banks which were borne out of the rural co-operative movement of the 1950’s to strengthen their balance sheets and avert disruption from individual failures.

Conclusion: While the liquidation of Evergrande is a significant event for the Chinese economy, we suspect the authorities are prepared to step in to cover the shock of its default and to manage debt write-downs within the economy.

UK – The central bank held rates unchanged at 5.25%, in line with expectations, in a three way vote with two MPC members backing a 25bp hike and one voting in favour of a cut.

• The MPC acknowledged recent progress on slowing inflation rate leaving a previous warning that rates may rise again out of the announcement and replacing it with that borrowing costs will be kept “under review”.
• “For me, the key question has moved from ‘How restrictive do we need to be?’ to ‘How long do we need to maintain this position for?'” Governor Baley told a press conference.
• The currency is trading stronger against the US$ and € as markets see the BOE to take more time to start cutting rates.
• Markets are not expecting a rate before June for a total of four in 204 compared to more than five in the US and the Eurozone.
• The central bank revised its GDP growth estimates reflecting a waning drag on the economy from past increases in the benchmark rate.
• The labour market continued to ease but remained tight by historical standards.
• The BOE pointed out that albeit inflation has been pulling back growth in services and wage growth remain elevated.
• GDP forecasts are for 0.5% (0.0%) in Q1/25 and 0.8% (0.6%) in Q1//26 with November estimates provided in parentheses.
• CPI estimates are for 2.8% (2.5%) in Q1/25 and 2.3% (1.9%) in Q1/26.

Conclusion: While banks have cut mortgage rates to help transaction volumes for mortgages we see very little chance for the BoE to cut interest rates ahead of the US Federal Reserve.

If the UK cuts rates, investors will simply sell Sterling to buy US dollars and treasuries (carry trade).

A fall in Sterling will simply serve to import inflation and if the US then decides to hold rates high for longer the BoE will have some proper egg on its face

Germany is setting up a €1bn fund for raw materials investments to reduce regional dependence on producers like China for critical minerals, Bloomberg writes.

• Funding will be provided via Germany’s state owned KfW development bank and come in the form of equity capital for minority stakes.
• Raw materials include cobalt, copper, lithium, silicon and rare earth metals, which are needed to make microchips, wind turbines and batteries for electric vehicles.
• The fund is planned to be set up for four years.
• Investments will be coordinated with Italian and French initiatives in the raw materials sector, the people familiar with discussions said.

Currencies

US$1.0876/eur vs 1.0783/eur previous. Yen 146.65/$ vs 146.76/$. SAr 18.649/$ vs 18.756/$. $1.276/gbp vs $1.265/gbp. 0.659/aud vs 0.652/aud. CNY 7.180/$ vs 7.184/$.

Dollar Index 103.01 vs 103.72 previous.

Commodity News

Precious metals:

Gold US$2,055/oz vs US$2,040/oz previous

Gold ETFs 83.9moz vs 84.0moz previous

Platinum US$916/oz vs US$915/oz previous

Palladium US$964/oz vs US$969/oz previous

Silver US$23.17/oz vs US$23/oz previous

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

Base metals:

Copper US$ 8,469/t vs US$8,524/t previous

Aluminium US$ 2,229/t vs US$2,247/t previous

Nickel US$ 16,310/t vs US$16,080/t previous

Zinc US$ 2,465/t vs US$2,485/t previous

Lead US$ 2,147/t vs US$2,143/t previous

Tin US$ 25,645/t vs US$25,640/t previous

Energy:

Oil US$79.1/bbl vs US$80.6/bbl previous

• Energy prices pulled back on unconfirmed rumours of a ceasefire between Israel and Hamas, which would act to defuse tensions in the key Red Sea transportation corridor.
• US natural gas prices fell even as the EIA reported a 197bcf w/w draw to 2,659bcf and storage levels now 2.1% above last year and 5.1% above the 5-year average, with US dry gas production at a record high of 105.9bcf/d.
• Octopus Renewables Infrastructure Trust (ORIT) has completed the €160 acquisition of four newly constructed solar farms in Ireland, which have 15-year PPAs with Microsoft. ORIT’s capacity now stands at 735MW.
• The Viking carbon capture and storage (CCS) project, a 10mt per annum Humber-based CO2 transportation and storage system, has awarded a front-end engineering design (FEED) contract to Technip Energies for the handling station, onshore and offshore pipeline and platform to inject CO2 into the depleted Viking gas fields.
• The Energy Minister admonished certain UK wind farm producers and announced an investigation into their conduct following a Bloomberg investigation into the overstating of production forecasts to receive higher payments in the event of wind curtailment by the National Grid.

Natural Gas €28.8/MWh vs €30.1/MWh previous

Uranium Futures $106.4/lb vs $101.3/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$130.7/t vs US$128.7/t

Chinese steel rebar 25mm US$571.8/t vs US$571.9/t

Thermal coal (1st year forward cif ARA) US$94.0/t vs US$96.3/t

Thermal coal swap Australia FOB US$117.0/t vs US$118.0/t

Coking coal swap Australia FOB US$312.0/t vs US$312.0/t

Other:

Cobalt LME 3m US$29,135/t vs US$29,135/t

NdPr Rare Earth Oxide (China) US$55,573/t vs US$55,537/t

Lithium carbonate 99% (China) US$12,048/t vs US$12,040/t

China Spodumene Li2O 6%min CIF US$1,000/t vs US$1,000/t

Ferro-Manganese European Mn78% min US$1,071/t vs US$1,062/t

China Tungsten APT 88.5% FOB US$305/mtu vs US$305/mtu

China Graphite Flake -194 FOB US$585/t vs US$590/t

Europe Vanadium Pentoxide 98% 5.8/lb vs US$5.8/lb

Europe Ferro-Vanadium 80% 28.45/kg vs US$28.75/kg

China Ilmenite Concentrate TiO2 US$320/t vs US$319/t

Spot CO2 Emissions EUA Price US$67.0/t vs US$68.1/t

Brazil Potash CFR Granular Spot US$292.5/t vs US$292.5/t

Battery News

Genex Power to open largest solar-battery facility on Australian grid

• Genex has been named the preferred contractor to build the first stage of a 2GW solar-battery storage system.
• The first stage will see the 775MW Bulli Creek solar farm built – which would be the largest connected to the Australian grid depending on timings.
• Genex has begun the tender of the first stage battery storage, but the fate of the solar project rest on Fortescue Metals’ commitment to the Gibson Island green hydrogen project.
• The Gibson Island project had signed up to take 50% of the Bulli Creek project, but the project is still waiting for state and federal approvals for Fortescue.

Tesla to open US battery plant with equipment from CATL

• The US automaker will establish a small battery production facility in Nevada with idle equipment from battery giant CATL.
• CATL will have zero involvement in the control of the facility, only supplying the equipment and setting it up.
• The plant will battery cells for Tesla’s Megapack.
• The decision comes at a time of heightened scrutiny by US lawmakers and the Biden administration of technology collaboration with China.

Harvard battery could revolutionise EVs, with 6000+ charge cycles and 10-minute charge time

• The new lithium metal battery can be charged and discharged at least 6,000 times and only needs 10 minutes to be recharged.
• Lithium metal batteries offer the potential for higher energy density compared to traditional lithium-ion batteries, which would allow them to store more energy and potentially extend the range of EVs without increasing the size or weight of the battery.
• Previously these batteries have been unviable as dendrites forming on the surface of the anode could cause the battery to short or even catch fire.
• The scientists at Harvard believe they have achieved a way to stop the dendrites forming, enabling the battery to perform safely.

Company News

Wishbone Gold* (WSBN LN) – 1.13p, Mkt Cap £2.9m – £300,000 fund raising to progress the Mosquito Creek project, WA

See link for recent note: CLICK FOR PDF

• Wishbone Gold reports that it has placed 25m new shares priced at 1.2p/share to an investor raising £300,000 to explore its recently acquired Mosquito Creek property located approximately 260km south of Port Hedland in the Pilbara district of W Australia.
• The new shares represent approximately 8% of the enlarged company.
• In December, Wishbone Gold announced that it was exercising its option to acquire the property which it reported contained historical records of gold, as well as lithium exploration potential along the southern margins of the licence area.
• Chairman, Richard Poulden, explained that the “summer season, which is both hot and wet is coming to an end in the Pilbara and we are preparing to mobilise our exploration teams back out into the field as the weather starts to cool down”.

Conclusion: With additional finance in place and the start of more favourable weather for field work, we await news of the progress of exploration within the recently acquired Mosquito Creek licences.

*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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*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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