SP Angel Morning View -Today’s Market View, Monday 22nd July 2024

Gold prices ($2,400/oz) stabilise as dollar slides on Japanese Yen strength and China cuts rates

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Platinum interim results as AISC under guidance

Beowulf Mining* (BEM LN) – CEO buys shares in bid of confidence

Cornish Metals* (CUSN LN) – Disposal of Canadian tungsten projects royalty interests

Guardian Metal Resources (Formerly Golden Metal Resources) (GMET LN) – Warrants raise ~£76k

Power Metals Resources* (POW LN) – (Power Metals* holds a 51% stake in Golden Metal Resources)

Kavango Resources* (KAV LN) – Early validation of the exploration model at Karakubis, Botswana

KEFI Gold and Copper* (KEFI LN) – 2024 AGM

South32 (S32 LN) – Quarterly results and issues at Alumina refinery

Gold prices ($2,400/oz) stabilise as dollar slides on Yen strength and China cuts rates

• Gold has stabilised at key levels around $2,400/oz following a sharp selloff last week.
• The move followed a significant rally, with the weakness likely reflecting profit taking from momentum-driven funds.
• The dollar is down 10bp this morning against a basket of currencies, after an overnight rally in the Japanese Yen.
• US Treasuries have been volatile this morning, with yields sliding to 4.20% before bouncing back to 4.23%.
• Gold prices traditionally strengthen when yields slide.
• Analysts suggest a Trump victory in November may be bearish for the dollar on looser fiscal policies.
• PBoC surprised the market with a rate cut this morning, first reduction to the RRP in nearly a year.

Metals hold following disappointing China plenum as iron ore supply rises

• Copper prices climbed slightly following last week’s China Third Plenum sell off, up to $9,325/t.
• The move was the largest weekly drop for copper since 2022.
• LME inventory has risen nearly 30% this quarter, with China exports highlighting weak domestic demand.
• China has been increasing substitution for aluminium amid elevated prices and weak margins.
• Iron ore prices fell $1/t overnight, sinking below $105/t.
• Chinese officials failed to provide concrete policy support for the embattled property sector in the five-yearly meeting.

China’s EU-made EVs in pole position for European market dominance – for now

• Chinese EV makers like BYD and Chery have started expanding production in the EU to avoid tariffs imposed by the EU Commission (Reuters).
  • BYD has one plant under construction in Hungary and is looking to build a second plant in Europe in 2025.
  • Chery Auto has signed a joint venture with EV Motor in Spain is to open a manufacturing plant in Catalonia.
  • Leapmotor, along with significant shareholder Stellantis, will start producing small EVs at Stellantis’ Tychy plant in Poland, through a 51/49 JV.
  • SAIC Motor, who own MG are looking for new site to produce its vehicles in Europe. They already has a parts facility in Amsterdam and plans to open a second facility in France.
  • Geely had a license agreement with Poland, has put plans on hold due to the change of government. Geely owns Volvo, and is looking to Volvo EX30 production back to Europe from China.
• Producing a BYD car in Europe costs about €25,000, 25% more than in China but is still €10,000 cheaper than European models.
• BYD’s Seal sedans exported to Europe sell for around €45,000, allowing for a competitive profit margin.
• No wholly-owned Chinese EV production lines are operational in Europe yet, but BYD’s Hungary plant is expected to be completed soon.
• However, as Europe’s investigation into Chinese subsidies, new tariffs, probes, and rules, could potentially disrupt Chinese manufacturers’ supply chains.

SP Angel rankings LSEG StarMine Award for most accurate forecasting in Reuters polls:

• No1 – Q2 Precious Metals and No2 – Q2 Base Metals. Our forecasting uses HI – not AI

SharePickers: Is there a Banking Crisis in China?  Video: https://www.youtube.com/watch?v=rLUGXIhl2q4

•         Podcast: https://audioboom.com/posts/8544049-john-meyer-is-there-a-banking-crisis-in-china

Aluminium – Japan port premium have risen 16-19% qoq to US$172/t for Q3 despite higher production out of certain states in China

• We expect Chinese aluminium production to grow this summer due to greater availability of low-cost hydropower.

• The rise in premiums suggest anticipation on restocking despite port inventories rising 3% mom to 317,860t  (Reuters).

Economics

US – Joe Biden stepped down as a Democratic candidate for the coming presidential elections endorsing Kamala Harris candidature who just announced the start of her campaign

• Th new nominee will be chosen by the Democratic National Convention next month with Harris seen as a clear leader.
• California governor Gavin Newson who was also seen as a likely contender for the nomination backed Harris on Sunday evening.
• Fundraising race is reported to have been going into Trump’s favour lately with amounts raised by former President outpacing that of Biden by nearly $100m in Q2, according to FT.
• Fundraising by Biden was expected to be even worse in July.
• Harris raised more than $46m in the seven hours after her campaign launch Sunday, more than the 2024 Biden campaign ever raise in one day.
• We suspect there has been much discussion behind closed doors to ensure supporters and doners will support the Kamala Harris nomination

China – The central bank unexpectedly cut amid a lack of short term stimulus from the Third Plenum held last week.

• The seven day repo rate, a key short term policy rate, was reduced to 1.7% in the first such cut in almost a year.
• The Third Plenum underperformed expectations on the front of a possible wide stimulus as the government decided to focus on quality of growth and technological sector, in particular, at the expense of potentially slower growth rates in the near term.
• A number of market commentators are expecting the PBOC to announce further rate cuts and a reduction to the RRR with a August/September period as a potential window for a decision.
• Mainland equities closed lower today amid disappointment over results of the major Communist Party meeting.
• 7d Repo Rate (Act/Previous/Est): 1.7/1.8/NA
• 1y Loan Prime Rate (Act/Previous/Est): 3.35/3.45/3.45
• 5y Loan Prime Rate (Act/Previous/Est): 3.85/3.95/3.95

China – Surprise rate cut indicates greater problems in local property market

• The PBoC has followed the Third Plenum with a surprise rate cut, presumably to help restore buying to the ailing property market.
• The cut follows weaker growth in Q2 and despite strong exports and may also be in anticipation of further tariffs on Chinese goods into the US and EU.
• We note the UK has relatively low tariffs on Chinese imports at 4.2% though China levies 9.4% on imports from the UK.
• The EU are proposing 17.4-37.6% tariffs on Chinese vehicles. Do you really want the government to take this much?
• The CCP leadership has cast it’s five-year vision with >300 reforms including directives on the economy, technology and household registration. (Caixin)
• Key directives:
• Fiscal reform: improve fiscal relations between central and local governments
  • the resolution proposes increasing localities’ autonomous financial and tax resources and raising the proportion of central government financial expenditures
  • inc. development of an urban-rural construction land market,
  • a nationwide integrated technology and data market,
  • a national electricity market.
• Technology: deepen technological and talent development reform to support innovation
  • China will improve the systems for optimizing and upgrading traditional industries and refine policies for promoting industrial digitalization,
  • China will strengthen scientific and technological innovation and talent cultivation in higher education institutions,
• Urbanisation: implement a household registration system promoting people-cantered urbanisation.
  • This is for the provision of basic services to the the place of a person’s registered habitual residence
• Legal: drafting of new law on the promotion of the private economy
  • • new legislation on finance,
    • cross-border corruption,
    • promotion of national unity
• The full report will be released this week based on the third plenums in 2013 and 2018.

UK – Government has no current plans to impose tariffs on Chinese EV imports

• UK Trade Secretary Jonathan Reynolds has announced that the UK has no plans to impose tariffs on Chinese EV imports.
• Reynolds mentioned that tariffs could still be considered if they benefit the UK’s automotive export sector.
• In 2023, the UK exported about 700,000 cars, with 7% going to China and 60% to EU countries.
• The UK’s domestic EV market is heavily dominated by Chinese brands, such as MG, owned by China’s SAIC Motor.

The number of UK businesses in “significant financial distress” increased sharply in Q2 with leisure and tourism being particularly badly hit, a survey of >600k companies showed.

• The number of such companies increased 8.5% from Q1 and was up 37%yoy.
• “While a fall in inflation to more palatable levels will likely provide some relief, consumers simply aren’t behaving like they used to and these businesses, who are still grappling with higher costs pushed up by higher wages, are really struggling,” the report by Begbies Traynor read.
• High borrowing costs have also contributed to a challenging environment.

Ryanair warns average fares will be “materially lower than last summer” as profits fall

• It would have been nice for Ryanair to apologise for the price gouging of travellers post Covid as people recovered from being locked down.
• The fall in prices should help to hold back inflation.

Currencies

US$1.0885/eur vs 1.0890/eur previous. Yen 156.50/$ vs 157.33/$. SAr 18.309/$ vs 18.332/$. $1.293/gbp vs $1.293/gbp. 0.667/aud vs 0.670/aud. CNY 7.273/$ vs 7.268/$.

Dollar Index 104.27 vs 104.31 previous

Precious metals:         

Gold US$2,402/oz vs US$2,417/oz previous

Gold ETFs 82.1moz vs 82.1moz previous

Platinum US$962/oz vs US$967/oz previous

Palladium US$917/oz vs US$926/oz previous

Silver US$29.00/oz vs US$29/oz previous

Rhodium US$4,650/oz vs US$4,650/oz previous

Base metals:   

Copper US$ 9,256/t vs US$9,328/t previous

Aluminium US$ 2,338/t vs US$2,377/t previous

Nickel US$ 16,210/t vs US$16,370/t previous

Zinc US$ 2,769/t vs US$2,783/t previous

Lead US$ 2,106/t vs US$2,145/t previous

Tin US$ 30,695/t vs US$30,300/t previous

Energy:           

Oil US$83.0/bbl vs US$84.6/bbl previous

• The US Baker Hughes rig count rose by 2 units w/w to 586 rigs last week (-83 or 12% y/y), with oil rigs down 1 to 477 units (-53 y/y) and gas rigs up 3 to 103 units (-28 y/y) as the Canadian rig count gained 8 to 197 units.
• Two leading OFS companies pointed to ongoing momentum in international markets in their 2Q24 results, which SLB said was driven by long-cycle gas and deepwater projects. However, Hallibuton expects domestic sales to drop by 6-8% amid a slowdown in US shale activity due to low prices and industry consolidation.
• Woodside has agreed to pay $900m cash ($1.2bn EV) to acquire Tellurian, which owns the right to develop the 27.6mmtpa capacity Driftwood LNG project that is a fully permitted, pre-final investment decision (FID) development opportunity located in Louisiana, USA. Woodside targets completion in 4Q24 and FID in 1Q25.
• Occidental Petroleum is considering selling a 30% ownership stake in its recent Permian basin acquisition of Crown for $12bn in late 2023 to EcoPetrol, which has an existing US shale joint venture with the Company.

Natural Gas €31.2/MWh vs €32.7/MWh previous

Uranium Futures $83.9/lb vs $84.7/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$104.1/t vs US$105.0/t

Chinese steel rebar 25mm US$510.2/t vs US$510.5/t

Thermal coal (1st year forward cif ARA) US$112.3/t vs US$112.0/t

Thermal coal swap Australia FOB US$138.5/t vs US$138.8/t

Coking coal Dalian Exchange futures price US$207/t vs US$212.5/t

Other:  

Cobalt LME 3m US$26,625/t vs US$26,625/t

NdPr Rare Earth Oxide (China) US$49,498/t vs US$49,535/t

Lithium carbonate 99% (China) US$11,206/t vs US$11,214/t

China Spodumene Li2O 6%min CIF US$970/t vs US$970/t

Ferro-Manganese European Mn78% min US$995/t vs US$995/t

China Tungsten APT 88.5% FOB US$330/mtu vs US$330/mtu

China Graphite Flake -194 FOB US$470/t vs US$470/t

Europe Vanadium Pentoxide 98% 5.1/lb vs US$5.1/lb

Europe Ferro-Vanadium 80% 26.75/kg vs US$26.75/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$314/t

China Rutile Concentrate 95% TiO2 US$1,396/t vs US$1,397/t

Spot CO2 Emissions EUA Price US$66.6/t vs US$66.6/t

Brazil Potash CFR Granular Spot US$297.5/t vs US$300.0/t

Germanium China 99.99% US$2,025.0/kg vs US$2,025.0/kg

China Gallium 99.99% US$426.0/kg vs US$426.0/kg

Battery News

WoodMac sees 640% growth in global energy storage by 2033

• Research body Wood Mackenzie forecasts almost 640% growth in global energy storage by 2033.
• Excluding pumped hydro, it expects nearly 1TW of new capacity to come online in the period.
• China is expected to continue to dominate the energy storage market, the report said, with an average of 42GW/120GWh capacity additions to energy storage annually.

Automaker’s frustrated by late Northvolt battery deliveries

• German motor magazine Automobilwoche reported that VW, which owns 22% of Northvolt, is setting up the internal taskforce as a result of late deliveries.
• BMW pulled a €2bn battery cell order in June, citing late deliveries.

Renault first-half sales rise on strong demand for hybrids in Europe

• Renault’s first-half global sales rose by 1.9% to 1,154,700 vehicles, compared to 1,133,478 units last year.
• Nearly three-quarters of Renault’s sales volume went to Europe, where sales grew by 6.7%, outpacing the market growth of 5.5%.
• EVs, including fully electric and hybrids, accounted for 29.6% of Renault’s sales in Europe, up 4.3% from 2023.
• Hybrids accounted for 34.6% of Renault’s sales, up from 25% a year ago.
• Fully electric vehicle sales in Europe remained stable at 11.6% but are expected to increase with the launch of the Scenic EV and new R5 in October.
• Renault expects electrified vehicles, including fully electric and hybrids, to surpass 50% of sales in the second half.

BMW EV sales soar as Mercedes EV sales struggle

• BMW’s EV sales increased significantly in Q2 2024, while Mercedes-Benz’s EV sales declined.
• BMW Group’s electrified model sales, including PHEVs, rose by 8.5% in Q2 2024 and 9.6% in H1 2024, with 146,483 and 269,065 models sold respectively.
• Total electrified Mercedes-Benz Cars sales, including PHEVs, were 90,000 in Q2 2024, with no growth from Q1 and a 6% yoy decline.
• Despite overall decline, Mercedes-Benz PHEV sales grew by 27% yoy.

European BEV sales continue to slow despite overall market growth

• H1 2024 car sales in 28 European nations rose by 4.4%, but BEV sales only grew by 2%.
• The modest BEV sales increase is mainly driven by Chinese-made models from brands like BYD, MG, Volvo, Polestar, Lotus, and BMW.
• Volkswagen Group remains the top BEV seller in Europe with 178,000 units sold, despite a 14% drop from H1 2023.
• Tesla’s registrations in Europe fell from 185,200 units in H1 2023 to 161,600 units in H1 2024, reflecting an aging model lineup.
• Potential EU tariffs could lead to higher prices and reduced BEV demand in the coming months.

Company News

Anglo American (AAL LN) 2,250p, Mkt cap £27bn – Platinum interim results as AISC under guidance

• Anglo’s majority-owned Anglo American Platinum reports interim results.
• PGM production up 5% in 1H24 to 1.78moz yoy, metal in concentrate production down 4% to 1.76moz yoy.
• Sales volumes up 9% on the drawing down of inventory.
• Company reported R12.3bn EBITDA (c.$660m), which marked an 8% decline yoy following a 24% decline in PGM basket prices to $1,442/oz.
• CAPEX guidance for 2024 at R10bn ($550m) on track .
• AISC for the period at $957/oz vs $1,050/oz target.
• Net cash of R14.5bn ($790m) and interim dividend worth R2.6bn paid out, over expectations.
• The Company continues to execute their cost cutting initiative, stopping the Mogalakwene concentrator expansion plan, favouring pit optimisation instead.
• Management sees firmer PGM from growing hybrid market share, new medical and battery technologies.

 Beowulf Mining* (BEM LN) 28p, Mkt cap £11m – CEO buys shares in bid of confidence

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• Beowulf’s Chief Executive Officer Ed Bowie has acquired 18,831 shares at £0.265 for c.£5,000.
• The purchase brings Mr. Bowie’s stake to c.0.7% of the Company.

Conclusion: The purchase follows last week’s restructured timeline for the Gallok Iron Ore project progression, which sees a revised PFS delivery for 2Q25 following infill drilling over the MRE.

*SP Angel acts as Nomad and Broker to Beowulf Minin

Cornish Metals* (CUSN LN) 6.15p, Mkt Cap £31m – Disposal of Canadian tungsten projects royalty interests

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• Cornish Metals has sold royalty interests in two tungsten projects, at the Mactung and Cantung, in northern Canada for US$4.5m.
• Mactung attracts a 4% net smelter royalty and Cantung’s royalty is a 1% NSR.
• The sale, to Elemental Altus Royalties, comprises a cash payment of an initial US$3m on closing of the transaction with the balance of US$1.5m due 12 months later.
• The sale of the royalty interests follows the disposal of the Nickel King exploration project announced in June and, in our view, the disposal of non-core assets underlines the company’s focus on its efforts to reopen the historic South Crofty tin mine in Cornwall which is targeting resumption of tin production in 2027.
• Today’s announcement, which confirms that each of the royalties “have a book value of nil” also discloses that the “Royalties were acquired by the Company in March 2016 for C$1,500,000”.

Conclusion: Cornish Metals confirms the disposal of royalty interests on two tungsten projects in Canada underlining its priority commitment to the work on reopening the historic South Crofty tin mine in Cornwall

*SP Angel acts as Nomad and Broker. An SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals

Guardian Metal Resources (Formerly Golden Metal Resources) (GMET LN) 31p, Mkt Cap £34m – Warrants raise ~£76k

Power Metals Resources* (POW LN) 19p, Mkt cap £20m – (Power Metals* holds a 51% stake in Golden Metal Resources)

1. Guardian Metal Resources (formerly Golden Metal Resources) reports that warrants over ~450,000 new shares at a price of 17p/share have raised an additional £76,462.
2. The new shares represent around 0.4% of the enlarged company which focusses on exploration projects in the Walker Lane mineral belt of Nevada including the Pilot Mountain tungsten project and the Garfield copper/gold project.

*SP Angel acts as Nomad and Broker for Power Metals

Kavango Resources* (KAV LN) 1. 53p, Mkt Cap £21m – Early validation of the exploration model at Karakubis, Botswana

• Kavango Resources reports that its drilling at the Karakubis project in the Kalahari Copper Belt in Botswana has confirmed “the presence of a copper-silver mineralising system at Karakubis, as well as further indicators of structural trap sites”.
• Based on the results of hand-held pXRF analysis of the drill core “suggests the mobilisation of copper sulphides in mineralising fluids within the system, and may provide a vector towards further mineralisation” and reported “local values of up to 1.8% copper, 723ppm lead, 264ppm zinc and 116ppm silver”.
• The company says that the drill core “is being cut and sampled and will be dispatched for assay in due course” and that the “drill rig … [has been] … mobilised to the second high-priority target … [where] … Hole KCBDD003 is currently at 232.58m”.
• CEO, Ben Turney, explained that within the first 500m of the planned 5,000m drilling programme at Karakubis the company had shown the “the presence of a copper-silver mineralising system” which validates the geological model and meets the prime objective of this phase of the exploration.
• Mr. Turney said that “Kavango looks forward to building on these results as our drilling continues … [and with] … a further 4,300m of drilling planned over our remaining 14 high-priority targets, we believe our chances of discovery success have increased significantly”.

Conclusion: Early stages of the drilling at Karakubis have helped to validate the exploration model and we look forward to detailed assay results from the early drilling and further results as the rest of the 5,000m programme continues.

*An SP Angel Analyst holds shares in Kavango

KEFI Gold and Copper* (KEFI LN) 0.66p, Mkt Cap £40m – 2024 AGM

• The Company held its 2024 AGM this morning in Ethiopia with all resolutions passed.
• In an AGM statement, Harry Adams reiterated on development plans of the Company’s portfolio of precious and base metals in Ethiopia and Saudi Arabia.
• Tulu Kapi remains on schedule for a sign off from the project’s funding consortium for the start of development works in October this year ahead of maiden production in mid-2026.
• Drilling at Saudi Arabia exploration license areas are ongoing with a view to upgrade and expand the resource.

*SP Angel act as Nomad and Broker to KEFI Gold and Copper

South32 (S32 LN) 155p, Mkt cap £7bn – Quarterly results and issues at Alumina refinery

• South32 report their quarterly results for the period to June 2024.
• The Company’s alumina production fell 1% to 5,063kt vs 5,101kt in FY23, but rose 1% qoq in 4Q24.
• Aluminium production flat yoy at 1,138kt.
• Copper production fell 15% yoy to 60.8kt but rose 10% qoq to 15.3kt in 4Q24.
• Silver and lead production rose 12% and 11% respectively yoy, up 6% and 16% qoq.
• Zinc production rose 22% qoq to 17.4kt and 3% yoy.
• Manganese production down 55% qoq to 534kwmt and 20% yoy to 4,499kwmt.
• The Company sold their Illawarra Met Coal operations for US$1.65bn, expected to complete in late 1Q25.
• Impairment of pre-tax US$554m expected for the Worsley Alumina asset, following WA government recommendations for development approval.
• Cerro Matoso is expected to record a $264m impairment on weak nickel markets and discounts to ferronickel products.
• Total of $915m depreciation and amortisation charges guided for the FY24 results.
• Unwind of $180m working capital expected in 2H24 vs $276m build in first half of the year.
• Group CAPEX excluding EAIs and Hermosa expected at $670m for FY24, with the bulk of this going to Illawarra improvements.
• $372m invested in Hermosa zinc project over the FY24, with permitting and infrastructure construction.
• Shaft construction for Hermosa’s Taylor deposit expected to begin 1Q25.
• Operating costs generally in line with forecasts.

Conclusion: South32 shares are down 13% following a warning over the viability of their Worsley alumina refinery on increased environmental stringency, triggering a $389m post-tax impairment.

No.1 in Precious Metals: SP Angel mining team awarded No 1. ranking for Precious Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q2 2024

No.2 in Base Metals: SP Angel mining team awarded No 2. ranking for Base Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q2 2024

No.1 in Base Metals: SP Angel mining team awarded No 1. ranking for Base Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q1 2024

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

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

*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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