SP Angel Morning View -Today’s Market View, Wednesday 14th February 2023

Gold prices slump as US inflation rises beyond expectations

MiFID II exempt information – see disclaimer below

Bradda Head (BHL LN) – Geophysics and new drill target delineation at Basin clay project

Conroy Gold and Natural Resources (CGNR LN) – Further drilling results from the Clay Lake project

Pan African Resources (PAF LN) – Production and cost guidance on track as higher gold prices and cost containment boosts cash generation

Premium Nickel Resources (PNRL CN) – New assay results from Selebi North Underground

Gold prices slide as hot inflation takes traders by surprise, weighing on miners

• Gold prices slid below $2,000/oz yesterday, with spot prices hitting $1,987/oz.
• CPI core for January at 0.4% mom was the largest increase in eight months, weighing on rate cut expectations.
• Expectations of a 25bp rate cut in March fell from 80% at the beginning of the year to 8% today.
• This has weighed on gold by pushing yields higher, with the 10-year now at 4.3%, vs 3.78% in late December.
• The dollar has been supported by higher yields, with the DXY climbing near 105, highest level since November.
• The Van Eck Gold Miners index has fallen 20% from November highs, sitting at early October lows.
• This sell off has been supported by disappointing FCF generation from major index participants, including Evolution and Newmont (both down c.25% since December).
• Whilst we would expect a reversal in the current yield sell-off to be a major catalyst for gold prices, miners will need to convince the market of their ability to generate cash following a period of weak margins into 2024.

Tin prices rally as Indonesia supply concerns mount

• Tin prices have extended gains to $27,600/t, up from December lows of $23,000/t.
• Analysts expect a 1,000t deficit in 2024, with demand from the soldering sector expected to be stable.
• Supply issues are mounting, with Indonesia’s refined tin exports hitting 0.4t in January, down 99% yoy and down from 6kt in December.
• Miners are reportedly suffering delays in approval for annual work plans from the Indonesian mining ministry.
• Focus will be on this week’s Indonesian electitons, where Jokowi’s son is backing previous rival Prabowo.
• Jokowi was instrumental in developing Indonesia’s downstream metals industry, reducing exports of tin, copper and other base metal concentrate exports.

Copper prices hold lower as stronger dollar weighs and China holiday weigh on buying appetite

• Copper prices are still hovering around the $8,500/t mark.
• The dollar rally yesterday, triggered by hot inflation data, is reducing the appetite of international buyers.
• Surplus expectations from Reuters-polled analysts have flipped rom 302kt in 2024 as of October to a 35kt deficit as off Q1.
• Hedge funds flipped from net long at the beginning of the year to their largest net short position at the end of January.
• Codelco boosted copper production in December, surprising analysts and cooling deficit expectations.

New EV alloy could reduce power consumption by 5% in Electric Vehicle motors

• Proterial Metals, formerly Hitachi Metals, has developed a new alloy for EV motors that it says can reduce power consumption by up to 5%, allowing for smaller and faster motors. (Nikkei Asia)
• According to the company, the alloy reduces energy loss by >90% compared with the steel sheet typically used in current motors.
• The alloy is thinner and stronger than current materials and is around five times stronger than electrical steel sheet. It is also thinner making it more difficult to work with.
• Mass production of the alloy is due to start in 2025.
• The new alloy will work with Proterial Material’s ferrite magnets to improve the performance of high-speed motors.

Tungsten: the new alloy will inevitably require greater use of tungsten cutting bits in its forming for EV components

Iron ore – Rio Tinto suffer another iron ore train derailment 120km from Dampier in Western Australia

• The derailment was on a dual track section meaning that trains can still run but with empty trains waiting for loaded trains to pass.
• Drivers are also voted to strike last Friday in a 24-hour work stoppage due on 16 February according to Argus Media.
• We doubt if the action or the derailment will make any difference to iron ore markets.

Economics

US – Inflation beat reported yesterday saw markets pushing the first rate further out

• Headline and core measures came ahead of market estimates with bets that the Fed will announce the first rate cut in June dropping.
• 10y sovereign bond yields registered a 15bp move climbing to over 4.3% while equity indices closed lower (S&P 500 -1.4%, Nasdaq -1.8%).
• CPI (%mom): 0.3 v 0.2 (revised from 0.3) December and 0.2 est.
• CPI (%yoy): 3.1 v 3.4 December and 2.9 est.
• Core CPI (%mom): 0.4 v 0.3 December and 0.3 est.
• Core CPI (%yoy): 3.9 v 3.9 December and 3.7 est.

China – Over CNT91bn ($12bn) of funds committed to newly ‘whitelisted’ property developments in China under new scheme

• Provincial governments have ‘whitelisted’ residential projects which they see as financially sound and fit for loan support under housing ministry guidelines (SCMP).
• CCB ‘China Construction Bank’ spending >CNY20bn (US$2.8bn) on ~100 new ‘whitelist’ projects.
• China Everbright Bank has also approved CNY10.7bn in loans for another 20 whitelist projects.
• Other Chinese banks are also committing funds into the construction and completion of housing projects which have been approved by the authorities.
• CCB is reported to have considered >2,000 projects approving around 100 so far.
• Local governments in 170 cities have put forward 3,218 projects for consideration.
• The BoC ‘Bank of China’ has reported 110 projects totalling CNY55bn with 75 projects approved for a total CNY40bn of finance.
• Shimao Group, now state-owned China Resources Land has 16 projects added to the whitelists over the past week
• Agricultural Bank of China, a state-owned commercial bank, has had ~10 new projects whitelisted for ~CNY5bn of loans after considering 2,700 projects under the whitelists scheme.
• Industrial and Commercial Bank of China has also considered >2,000 projects
• China Everbright Bank and China Citic Bank are also working on loans for new projects subject to Whitelisting
• While many see China’s property sector as holding back the economy the state appears to have developed a mechanism whereby the more economic and important developments are funded while projects with lower economic and social returns are not taking up funds.

Japan – The yen hit the 150 mark for the first time since November amid a general sell off in Geop of 10 currencies against the US.

• A continuing slide in the yen is also being driven by the central bank hesitation to commit to a winddown in a continuing monetary policy easing.

Eurozone – Another ECB official suggested that it is too early to cut rates.

• “Wage pressures remain high and we do not yet have sufficient data to confirm they are starting to ease,” VP Luis de Guindos said in a speech on Wednesday.
• “It will take some more time before we have the necessary information to confirm that inflation is sustainable returning to our 2% target”.
• Markets are not expecting a rate cut before June anyway.
• Next ECB meeting is on March 07.

UK – The pound is down this morning on worse than expected inflation numbers in a relief for the central bank.

• Headline and core measures climbed at the same rate in January as in the previous month compared to expectations for a slight pick up.
• Market bets on the number of rate cuts to get delivered by the BOE in 2024 jumped back where it was on Tuesday, before a stronger than expected inflation in the US, Bloomberg writes.
• 2y bond yields dropped more than 10bp and currently run at 4.58%.
• Next BOE meeting is due March 21.
• CPI (%mom): -0.6 v 0.4 December and -0.3 est.
• CPI (%yoy): 4.0 v 4.0 December and 4.1 est.
• Core CPI (%yoy): 5.1 v 5.1 December and 5.2 est.

Japan – Inflation rose 0.3% in January vs 0.2% in December and 3.1% yoy in January vs 3.4% in December

• Core inflation 0.4% (0.3%), yoy steady at 3.9%.
• PPI 0% in January vs 0.3% in December

India – Inflation -0.1% in January vs -0.3% in December and 5.1% yoy in January vs 5.7% in December

EU – EU proposes sanctions on Chinese companies helping Russian military machine

• The 91-page report names three companies in mainland China and four in HK plus companies in India and Turkey.
• The the EU is proposing the addition of 20 firms to the 600 firms already sanctioned
• We wonder if the DJI, the well known Chinese stat-backed drone company will be high on the list for sanctions
• EU ZEW index climbed to 25.0 from 22.7 previously

Portugal – A coalition of centre right opposition party PSD and smaller conservative party CDS take lead in polls against the ruling Socialist party, according to a local survey carried by Intercampus.

• Results show a 1.9pp lead ahead of general elections scheduled for March 10.

Philippines – Death toll from landslide jumps to 68 with 110 missing

• MANILA, Feb 12 (Reuters) – The death toll from a landslide in the southern Philippines has climbed to 68 as officials said on Monday the window of finding more survivors is closing.
• Rescuers were looking for 51 more people in the wake of the Feb. 6 landslide, which struck outside a gold mine in Maco town in Davao de Oro province and buried homes and vehicles that were supposed to ferry employees of the mining company.
• Disaster authorities plan to shift their focus from search and rescue to search and retrieval beginning on Tuesday, Maco town disaster officer Ariel Capoy said.
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• Torrential rains have battered Davao de Oro in recent weeks, triggering floods and landslides, forcing many families to flee their homes.
• The United States, through the U.S. Agency for International Development, was providing $1.25 million in humanitarian aid to the affected communities in the southern islands, its embassy in Manila said in a statement.
• The U.S. Defense Department also provided two C-130 cargo planes to help deliver food packs in the affected communities..

Currencies

US$1.0699/eur vs 1.0774/eur previous. Yen 150.47/$ vs 149.58/$. SAr 19.161/$ vs 18.852/$. $1.255/gbp vs $1.265/gbp. 0.647/aud vs 0.652/aud. CNY 7.194/$ vs 7.194/$.

Dollar Index 104.91 vs 104.16 previous.

Commodity News

Precious metals:

Gold US$1,989/oz vs US$2,025/oz previous

Gold ETFs 83.3moz vs 83.3moz previous

Platinum US$876/oz vs US$898/oz previous

Palladium US$868/oz vs US$907/oz previous

Silver US$21.97/oz vs US$23/oz previous

Rhodium US$4,325/oz vs US$4,350/oz previous

Base metals:

Copper US$ 8,207/t vs US$8,313/t previous

Aluminium US$ 2,211/t vs US$2,248/t previous

Nickel US$ 16,270/t vs US$16,095/t previous

Zinc US$ 2,301/t vs US$2,336/t previous

Lead US$ 2,007/t vs US$2,025/t previous

Tin US$ 27,290/t vs US$27,480/t previous

Energy:

Oil US$83.0/bbl vs US$82.2/bbl previous

• Crude oil prices are flat following a positive monthly report from OPEC, despite the API reporting a larger than expected 8.5mb w/w build (+2.6mb exp) to US crude stocks.
• European energy prices edged lower on mild weather conditions and record inventories, with natural gas prices now approaching the equivalent of $7.5/mmBtu in Europe and $8.5/mmBtu in Asia.
• French nuclear reactor operating levels fell 3% w/w to 73% of 61.4MW capacity after EDF shut down two reactors at Chinon following a fire at the weekend.
• Shell expects the global LNG market to grow c.50% to reach 625-685mtpa in 2040 (vs prior 700mtpa estimate), mostly driven by decarbonisation in China and demand growth in other Asian countries.
• Diamondback Energy’s CFO announced plans to reduce rig capacity c.20% from today’s running total of 26 rigs in the Permian basin, as investors wanted “return-of-capital-per-share growth through lower share count.”

Natural Gas €25.0/MWh vs €26.0/MWh previous

Uranium Futures $103.0/lb vs $103.8/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$128.4/t vs US$128.1/t

Chinese steel rebar 25mm US$569.9/t vs US$569.9/t

Thermal coal (1st year forward cif ARA) US$91.5/t vs US$92.3/t

Thermal coal swap Australia FOB US$124.0/t vs US$123.5/t

Coking coal swap Australia FOB US$310.0/t vs US$310.0/t

Other:

Cobalt LME 3m US$28,550/t vs US$28,550/t

NdPr Rare Earth Oxide (China) US$55,466/t vs US$55,466/t

Lithium carbonate 99% (China) US$12,303/t vs US$12,303/t

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

Ferro-Manganese European Mn78% min US$1,054/t vs US$1,061/t

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

China Graphite Flake -194 FOB US$565/t vs US$565/t

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

Europe Ferro-Vanadium 80% 27.55/kg vs US$27.55/kg

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

Spot CO2 Emissions EUA Price US$59.5/t vs US$60.5/t

Brazil Potash CFR Granular Spot US$290.0/t vs US$290.0/t

Battery News

Europe continues push to end reliance of Chinese EVs with €4.4bn of EV gigafactories in pipeline

• Stellantis and Mercedes-Benz have raised approx. €4.4bn for three new EV gigafactories in the European Union through their JV Automotive Cells Company (ACC).
• In a press release on Monday, the companies announced that they expect the funds needed for these factories would total €7bn.
• The gigafactories will be set up in Kaiserslautern in Germany, Termoli in Italy and an undisclosed location in France.
• So far ACC have yet to comment on the capacity of these gigafactories.

France temporarily halts EV subsidies after high demand

• France will end its programme to subsidise EV leases for low earners after demand exceeded initial plans.
• The French government had budgeted €1.5bn to subsidise 20,000 leases, but after the high demand it will up that to 50,000 this year, before resuming the plans next year.
• Under the programme, people with an annual income of less than €15,400 were able to lease an EV for €100-150 per month.
• The programme had been launched to encourage EV adoption amongst those who could not otherwise afford them.
• The government has also adjusted its cash incentive of between €5,000 and €7,000 for EV buyers.
• The 50% highest-income car buyers will now only be eligible for €4000 in subsidies.
• People on lower incomes will still be eligible for €7000 in subsidies.

Company News

Bradda Head (BHL LN) 1.6p, Mkt Cap £6.3m –Geophysics and new drill target delineation at Basin clay project

• Bradda Head reports results from its recent gravity survey at the Basin North prospect in Arizona.
• The results indicate a significant gravity low, potentially suggesting an area of thicker clay beds.
• Field reconnaissance also suggested extensions to the north, where the clay sequence is believed to lie in a shallow setting below tuffs and basalt layers.
• As a result, the Bradda Head team staked new claims on BLM land, targeting additional clay potential.
• The Company is aiming to expand their LCE resource at Basin to >2.5mt. This is expected to be achieved ‘with a limited amount of further drilling.’
• For comparison, Lithium America’s sedimentary lithium clay project Thacker Pass hosts 16.1mt LCE and is targeting Phase 1 nominal production capacity of 40ktpa LCE. ($5.7bn post-tax NPV8 for an IRR of 21% using $24k/t LCE price – Spot currently $12k/t)
• Upon delivery of a 2.5mt LCE resource at Basin, Bradda Head will receive a US$3m payment from LRC.
• Furthermore, Bradda Head issued Company Directors and Operational team 2.85m new options at an exercise price of £0.015..

Conroy Gold and Natural Resources (CGNR LN) 12.5p, Mkt Cap £6.0m – Further drilling results from the Clay Lake project

• Conroy Gold has reported results of a further two drill-holes from the Derryhennet section of its Clay Lake project on the Longford Down Massif in Co Armagh where the company is exploring a target “3Km in length and in places 2Km wide”.
• The drilling, which was undertaken in conjunction with Conroy Gold’s partner, Demir Export, completes the planned 8-hole, 2,303m step-out programme and brings “the total drilling to date at Derryhennet to 5,067.0 metres in twenty-five drill holes”.
• The company reports that:
  • Hole CGA-22-001 “intersected a series of gold zones including 29.0 metres grading 0.9 g/t gold from a down hole depth of 26.0 metres and 31.0 metres at 1.0 g/t gold with grades up to 3.2 g/t gold within 38.0 metres grading 0.9 g/t gold from a down hole depth of 107.0 metres”; and
  • Hole CGA-22-008 “intersected 2.0 metres at 1.0 g/t gold from 126.0m, 4.0 metres at 1.1 g/t gold from 155.0 metres, 3.0 metres to 1.6 g/t gold from 267.0 metres and 2.0 metres at 1.0 g/t gold from 280.0 metres”.
• Hole CGA-22-001 is “situated 300m to the northeast of the drill hole (CGA-22-005) which intersected 40.5 metres at 1.2 g/t gold and c.100.0m to the northeast of the drill hole which intersected 100.0 metres at 0.6 g/t gold, at a depth of 26.4 metres, which is believed to be the longest continuous gold intersection in the British Isles”.
• Both holes also intersected narrower zones of gold mineralisation, generally at around 0.3-0.6g/t gold both above and below the highlighted intersections.
• In December, the company reported results from hole CGA-22-004 which intersected 80m at an average grade of 0.8g/t gold from a depth of 33.0m and is described as being located “c.100m to the southwest of where the Company intersected 100.0 metres at 0.6 g/t gold, at a depth of 26.4 metres, which is believed to be the longest continuous gold intersection in the British Isles”.
• The company says that “further step-out drilling is being considered on the Derryhennet section of the Clay Lake gold target”.
• Chairman, Prof Richard Conroy, described the potential of “the Derryhennet folded orogenic black carbonaceous shale hosted section of the Clay Lake gold target … [and said that] …  Orogenic black carbonaceous shale hosted gold targets can contain multimillion ounce gold deposits such as those seen in Tien Shan and the … Paracatu mine in Brazil”.

Conclusion: Conroy Gold is considering more step-out drilling at Derryhennet following wide mineralised intersections in the recent drilling.

Pan African Resources (PAF LN) 16.8, Mkt cap £332m – Production and cost guidance on track as higher gold prices and cost containment boosts cash generation

• Pan African Resources produced 98,458oz of gold during the six months to 31^st December 2023 (2022 92,307oz) and says that it is expecting to achieve its full FY 2024 guidance range of 180-190,000oz.
• Costs, on an all-in-sustaining (AISC) basis US$1,287/oz (2022 -US$1,291/oz) and the company expects full year AISC costs for FY2024 in the range US$1,325-1,350/oz.
• The company reports a 47% YoY increase in profit to US$42.4m (2022 – US$28.9m) with a 135.4% rise in net cash from operations of US$27.2m (2022 – US$11.6m).
• Pan African Resources says that its’ net debt increased to US$64.3m (2022 – US$53.7m) as a result of “the capital expenditure of US$21.6 million incurred on the Mogale Tailings Retreatment project” where it expects “Steady-state production … [to be achieved] … by December 2024”.
• The project is expected to deliver “Incremental annual production of approximately 50,000oz, at an expected AISC per ounce of approximately US$900/oz, over the 20-year life-of-mine” and capital expenditure is currently on track with budget.
• Elsewhere, the “Evander Mines’ 8 Shaft 24, 25 and 26 Level underground expansion project is on track … [and] … Dewatering of Evander Mines’ 7 Shaft Egoli project is ongoing and once dewatered to below 20 Level, reserve delineation drilling will commence during the first quarter of the 2025 financial year to further define the ore payshoot and its grade variability”.
• At Barberton, a “regional drilling campaign has also been initiated to identify other suitable material for processing” and with “current Mineral Reserves … adequate to maintain production for another two years albeit with a declining profile … [the Royal Sheba and Western Cross projects have been] … earmarked to provide sustainable ore feed for the BTRP once existing reserves are depleted”.
• Chief Executive, Cobus Loots, attributed the “higher US$ gold price, improved production and cost and capital discipline … to the much-improved cash generation of US$27.2 million … [and said that Pan African’s] … surface remining operations performed exceptionally well, with their sub US$900/oz AISC contributing significantly to Group production, cash flows and profits”.
• He also said that the “development of Evander Mines’ 24, 25 and 26 Level project is progressing well, with ramped-up mining operations at 24 Level already contributing to the replacement of ounces as mining from the 8 Shaft’s pillar nears completion”.
• He confirmed that “In the short term, our priority is to deliver into the production guidance for the 2024 financial year and commission the MTR project on schedule and within budget”.

Premium Nickel Resources (PNRL CN) C$1.53, Mkt Cap C$224m – New assay results from Selebi North Underground

• Premium Nickel reports additional drill results from its drilling programme at Selebi North.
• 34 holes have now been released over 12,000m.
• Assay highlights include:
  • SNUG-23-060: 36m at 1.64% NiEq (1% Ni, 1% Cu) and 38m at 1.67% NiEq (1% Ni, 0.97% Cu)
  • SNUG-23-062: 21m at 1.64% NiEq (0.85% Ni, 1.35% Cu)
  • SNUG-23-064: 103m at 2.23% NiEq (1.4% Ni, 1.3% Cu)
• See link to Vrify visualisation of drilling and orebody: https://vrify.com/decks/15205
• Management suggests true widths are ‘difficult to estimate accurately,’ given complex folds.
• Premium Nickel is aiming to deliver an updated MRE.
• The Company continues to evaluate metallurgical processing options, exploring a bulk flotation concentrate route.
• Flotation testing delivered average nickel and copper grades in concentrate of 4.9% Ni and 5.6% Cu, hitting highest recoveries of 71% Ni and 89% Cu.
• The Company is also exploring additional grinding and flotation optimisation studies for maximising metal recovery.

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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