SP Angel Morning View -Today’s Market View, Friday 6th September 2024

Copper rebounds as dollar weakens whilst iron ore slumps

MiFID II exempt information – see disclaimer below

EQ Resources (EQR AU) – Continued ramp up of Mt Carbine and Saloro operations

First Majestic Silver (AG US) – Takeover of Gatos Silver

Perseus Mining (PRU AU) – Increasing stake in Predictive Discovery

Zamare* (Private) – Drilling at Dongwe licence shows visible copper mineralisation

Copper ($9,150/t) rebounds as dollar weakens whilst iron ore slumps

• Copper prices have bounced 1.5%, over $9,100/t as funds buy the dip following a negative week.
• Cochilco expect weak TCRCs into next year as copper concentrate supply remains pressured by China’s major smelter capacity expansion.
• The Chilean copper giant expects concentrate demand to rise 10.5& next year as smelter capacity continues to grow from Indonesia, DRC, China and India.
• The Company expects a concentrate deficit of 1.9mt this year.
• A ramp up of concentrate supply is due from Teck’s QB2, Chuquicamata and Escondida.
• Meanwhile, iron ore pushes lower, hovering around the $90/t mark for the 62% China index.
• Key China August trade data is due next week, whilst steel production data is due on Saturday.
• Mysteel suggests that less than 5% of Chinese steel mills are currently profitable, whilst a sell-off in met coal prices highlights weak current steelmaking demand.

Lithium carbonate prices continue to fall in China as Caixin reports supply coming offline

• Guangzhou lithium carbonate futures fell 3.2% intraday, slumping below $10,000/t again
• Caixin reports that China’s lithium province Yichun is suffering from low prices, stating ‘many processors and producers in the lithium hub have had to curb production or shut down entirely to stem losses.’
• Western lithium major Arcadium reported yesterday that it will place Mt Cattlin on care and maintenance.
• The market continues to suffer from a supply glut. However, strong EV penetration in China and future growth prospects presents an interesting opportunity for counter-cyclical investors.
• We would expect further spodumene supply to come offline from Australia, given the lossmaking operations.

China – President Xi pledges US$50.7bn in funding for Africa in revival of Belt and road initiative

• China plans to continue investment into Africa through investment in industry, agriculture, infrastructure, trade and investment.
• Xi is also looking for the development of Free-Trade areas and a China to Africa network of land to sea links .
• China is looking to reopen the 1,860km TAZARA Tanzam railway to run from Zambia to Tanzania.
• The single-track railway connects Zambia’s copperbelt to the Port of Dar-es-Salaam.
• The new Lobito railway runs from the West coast of Angola through to the DRC and plans to connect to Kansanshi and Solwezi Ndola in Zambia through a combination of rail and road.

Economics

US – Labour report to be released later today will influence the size of the Fed rate cut later this month (September 17-18).

• 25bp move is now fully priced with market speculating the central bank may go further announcing a 50bp move.
• Estimates are for the economy to have added 165k jobs including 140k in the private sector (114k and 97k in July) with jobless rate down at 4.2% (4.3%).

China/Netherlands – The Dutch government adds more chipmaking equipment to the list of restricted exports into China to match US rules.

• Restrictions will apply to less advances models of deep ultraviolet immersion lithography systems, FT reports.
• Latest models are already restricted.

Japan – Former BOJ Governor Haruhiko Kuroda said the central bank has lots of room for further tightening seeing nominal neutral rate at 1.5-2.0%.

• Bloomberg median estimates are currently for the BOJ to take the benchmark rate to 1.0% in the latest tightening cycle.
• The rate is currently set to 0.25%.
• The yen strengthened today trading at 142.5, not significantly far off August ‘’lows’’ of 141.7.

Germany – A mixed set of economic data showing an acceleration in the industrial production contraction and better than expected trade volumes registered in July.

• Wrose than expected industrial production was predominantly by a worsening automotive sector, although most industries were down.
• Yesterday, the IFO Institute lowered its forecasts for this year and next expecting no growth in 2024, down from 0.4% estimated before, and only 0.9%, compared to 1.5% previously, in 2025.
• Industrial Production (%mom, Jul/Jun/Est): -2.4/1.7(revised from 1.4)/-0.5
• Industrial Production (%yoy, Jul/Jun/Est): -5.3/-3.7(revised from -4.1)/-3.5
• Exports (%mom, Jul/Jun/est): 1.7/-3.4/1.1
• imports (%mom, Jul/Jun/est): 5.4/0.2(revised from 0.3)/0.7

UK – Property prices are just £1,000 short of peak values reached in June 2022 as market expects mortgage rates to come down with lower benchmark rates, Halifax data showed.

• UK house prices climbed 0.3%mom and 4.3%yoy to £292,505 in July.
• Annual gain was the strongest since November 2022.
• The data contradicts numbers released by Nationwide earlier that reported a monthly drop.
• Mortgage rates are reported to have fallen to lowest levels since before PM Liz Truss released her mini budget in September 2022.
• Prices were up 1.5%yoy at £536,056 in London.

Russia – Shares in Raiffeisen trade 7% lower this morning following the news over Moscow freezing its Russian assets.

• The lender faced pressure to reduce its presence in Russia that accounted for around half of the Group’s profits in the first half of the year.

Miners vs Technology companies

• Mining companies are able to more easily dial back capex spend than technology companies. Eg the asset stays in the ground and doesn’t go anywhere
  • Ok there was a case of a pile of tailings left on a beach by artisanal miners in Chile which did shift after a tsunami
• With Tech, the asset is generally software development. It is expensive, it needs constant updating and the asset can be easily superseded or even walk out the door.
• Tech companies collapse and go bust allot
• Miners and explorers tend to hibernate and come out in the Spring

Conclusion: Technology is fun but investing in mining carries significant potential upside and generally gets there in the end

Currencies

US$1.1119/eur vs 1.1081/eur previous. Yen 142.23/$ vs 143.64/$. SAr 17.695/$ vs 17.839/$. $1.319/gbp vs $1.314/gbp. 0.673/aud vs 0.672/aud. CNY 7.085/$ vs 7.102/$.

Dollar Index 100.86 vs 101.28

Precious metals:         

Gold US$2,520/oz vs US$2,506/oz previous

Gold ETFs 83.0moz vs 83.0moz previous

Platinum US$933/oz vs US$919/oz previous

Palladium US$944/oz vs US$940/oz previous

Silver US$28.9/oz vs US$28.4/oz previous

Rhodium US$4,700/oz vs US$4,650/oz previous

Base metals:   

Copper US$ 9,131/t vs US$8,944/t previous

Aluminium US$ 2,384/t vs US$2,374/t previous

Nickel US$ 15,940/t vs US$16,145/t previous

Zinc US$ 2,750/t vs US$2,733/t previous

Lead US$ 1,990/t vs US$2,000/t previous

Tin US$ 31,045/t vs US$30,165/t previous

Energy:           

Oil US$72.9/bbl vs US$73.1/bbl previous

• Crude oil prices bounced off 12M lows after OPEC+ announced a decision to postpone its planned production increases that would have added 0.18mb/d to global supply in October and November.
• The EIA reported a large 6.9mb draw to crude inventories, offset slightly by a 0.8mb build to motor gasoline stocks in the US, with refinery utilisation flat at 93.3% and domestic production of 13.3mb/d.
• US Henry Hub natural gas prices rose after the EIA reported a lower than expected 13bcf w/w build to 3,347bcf (+26bcf exp) for US inventories, with storage levels 6.6% above last year and 10.7% above the 5-year average.
• The Trans Mountain Pipeline (TMX) in Canada achieved an average daily throughput of 704kb/d during June, the first full month of operations under the expanded system.
• A new report by the North Sea Transition Authority (NSTA) estimates that well intervention to extend the lifespan of existing well stock provides attractive additional production volumes at a cost of less than £12/boe.

Natural Gas €37.0/MWh vs €36.0/MWh previous

Uranium Futures $79.7/lb vs $79.4/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$90.8/t vs US$92.9/t

Chinese steel rebar 25mm US$473.8/t vs US$473.4/t

Thermal coal (1st year forward cif ARA) US$118.5/t vs US$117.9/t

Thermal coal swap Australia FOB US$139.0/t vs US$138.5/t

Coking coal Dalian Exchange futures price US$174/t vs US$173.9/t

Other:  

Cobalt LME 3m US$24,300/t vs US$24,300/t

NdPr Rare Earth Oxide (China) US$60,338/t vs US$59,841/t

Lithium carbonate 99% (China) US$9,809/t vs US$9,927/t

China Spodumene Li2O 6%min CIF US$740/t vs US$750/t

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

China Tungsten APT 88.5% FOB US$333/mtu vs US$333/mtu

China Graphite Flake -194 FOB US$440/t vs US$440/t

Europe Vanadium Pentoxide 98% 4.6/lb vs US$4.6/lb

Europe Ferro-Vanadium 80% 24.55/kg vs US$24.75/kg

China Ilmenite Concentrate TiO2 US$321/t vs US$320/t

China Rutile Concentrate 95% TiO2 US$1,376/t vs US$1,373/t

Spot CO2 Emissions EUA Price US$72.4/t vs US$72.4/t

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

Germanium China 99.99% US$2,575.0/kg vs US$2,545.0/kg

China Gallium 99.99% US$445.0/kg vs US$445.0/kg

Battery News

Nio owner achieves 554mi range with semi-solid state battery

• A Nio owner has managed to complete a 554mi (~890km) journey on a single charge.
• The owner, who documented his experience online, swapped the battery in his Nio ET5 sedan to the new 150kWh battery, to run a 100%-0% range test.
• Nio made the 150kWh semi-solid state pack available to rent from Power Swap stations on 1^st June.
• The ET5 takes a standard 75kWh battery that offers around 300mi of range.
• Despite the successful journey, the YouTuber called Ran, admitted he was disappointed with the range as it fell short of the 1000km range advertised when the CEO William Li drove over 1000km in an ET7.

Japan to invest $2.4bn to support domestic EV battery production

• Japan has committed up to $2.4bn in subsidies for domestic battery production as it seeks to strengthen its battery supply chain.
• The government investment will support 12 storage battery projects or projects in that sphere, the Minister of Economy, Trade and Industry Ken Saito told reporters.
• The move will help expand the country’s annual production capacity for storage batteries by around 50% to 120GWh, from 80GWh currently, Japanese media reported.
• Backing will provide support for investments by Toyota, Nissan and joint projects from Panasonic’s energy unit that it will run with Subaru and Mazda.
• Toyota are expected to invest around $1.7bn in its battery subsidiaries Prime Planet Energy & Solutions and Primearth EV Energy to boost production capacity for solid-state and prismatic batteries by 9GWh.
• Nissan revealed that it had won investment to begin production of lithium-iron-phosphate (LFP) batteries.
• The automaker aims to install these batteries in vehicles from 2028, targeting a domestic production capacity 5GWh per year.
• Panasonic’s project with Subaru is for the supply of cylindrical lithium-ion batteries for EVs starting in 2028, with 16GWh in annual production from the Gunma plant by 2030 and 4GWh its Osaka plant.

BMW to launch first hydrogen car in 2028

• BMW is aiming to bring its first hydrogen-powered vehicle onto the market in 2028, using fuel cell technology developed with Toyota.
• The company said the vehicle would be an existing model with a hydrogen fuel cell drive option, but did not give further details on price or production volume.
• BMW has been testing a hydrogen passenger vehicle, the iX5 Hydrogen, with a range of 500 km (310 miles) and an ability to refuel in three to four minutes.

Company News

EQ Resources (EQR AU) A$0.045, Mkt cap A$94m – Continued ramp up of Mt Carbine and Saloro operations

• EQ Resources reports production updates from Saloro and Mt Carbine, their tungsten mines in Spain and Australia.
• Mt Carbine hit production record at 9,040mtu for the month of August, hitting a 24 hour record of 571mtu.
• Saloro recorded monthly production of 9,018mtu for August, a production record.
• Ore sorting at Mt Carbine using TOMRA XRT alongside higher recoveries from the Gravity circuit by using a scavenger jig.
• Saloro production has been enhanced by upgrades to the spiral circuit, and new hydrocyclones alongside improvements to the flotation circuit.

First Majestic Silver (AG US) $4.9, Mkt cap $1.5bn – Takeover of Gatos Silver

• First Majestic announced yesterday it has agreed to acquire Gatos Silver.
• The all share transaction sees Gatos shareholders receive 2.55 shares of First Majestic for each common share of Gatos.
• The deal represented a 16% premium on 20-day VWAP to 4^th September, valuing Gatos at c.$970m.
• Gatos is expected to contribute $80m in free cash flow annually from their Cerro los Gatos project.
• The Company expects the acquisition to boost annual silver equivalent production to 30-32moz at an AISC of $18-20/AgEq. Oz.
• Gatos held 70% of the Cerro los Gatos mine, which is expected to produce 13.5-15moz AgEq at an AISC of $14-16/AgEq oz.
• Cerro los Gatos holds a seven year mine life off current reserves but management expects potential for extension.

Perseus Mining (PRU AU) A$2.44, Mkt cap A$3.4bn – Increasing stake in Predictive Discovery

• Perseus has increased its stake in Predictive Discovery to 19.9%.
• The increase is partly a result of Perseus unwinding their equity swap position.
• Perseus reiterates they ‘have no current intention to acquire control or make a takeover offer for Predictive.’
• Predictive holds the Bankan Gold Project in Guinea.
• Bankan holds reserves of 57.7mt at 1.64g/t Au for 3.05moz.
• The Company reported a recent PFS showing an NPV5 of US$670m at $1,800/oz Au, rising to US$1.4bn at $2,300/oz.
• Bankan is expected to produce 270koz over a 12 year LOM.
• The deposit is split between 2,300koz Au in open pit at 1.42g/t and 740koz underground at 3.24g/t in reserves.
• Perseus recently acquired OreCorp’s Nyanzaga gold project in Tanzania and is aiming first production for 1Q27.
• Perseus held US$587m in cash as of June 30^th.

Conclusion: Guinea continues to gain traction for gold project development, with Perseus boosting their stake in Predictive and their Bankan discovery. Resolute Mining is set to deliver an MRE from their Mansala Project this month, whilst Hummingbird and Robex are both progressing their respective Kouroussa and Kiniero assets next door.

Zamare* (Private) – Drilling at Dongwe licence shows visible copper mineralisation

• Zamare, a private exploration company operating in Zambia, report visual identification of copper mineralisation in fresh core from drilling.
• The diamond drilling crew drilled a total of 472m in four holes at Breccia Ridge and Msanza on Zamare’s Dongwe licence.  The core will be split and sent off for assay.
• All four holes show visible copper mineralisation. Assay results are expected in around six weeks.
• The holes were targeted through a combination of geochemistry done in 2021, geophysics, regional aeromagnetics and a recent ground gravity survey.
• Breccia Ridge: has been drilled on Kamikochi the Moxico owned licence to the east.
  • BREDD001 – Chalcopyrite along quartz vein in dark grey sedimentary unit.
• Msanza (IOCG) a coincident geochemical and geophysical anomaly with iron cap at surface.
  • MSZDD001 – Veined, altered, and locally brecciated rock with abundant sulphide (pyrite)at ~130m depth.
  • MSZDD002 – over 100m of hydrothermally altered, veined and brecciated rock iron oxide and iron sulphide (pyrite) rich, grading into copper sulphides from a depth of 150m to base of hole at 172m.
• MSZDD002 will be extended to +300m at a later date as management anticipate the copper mineralisation will continue and increase to depth.
• The recently opened Kitumba mine in Zambia, ~200km from Dongwe has IOCG ‘Iron-Oxide-Copper-Gold’ geology.
• The team do not expect high copper grades in the Msanza core but do expect to gain valuable stratigraphic information from the results, which will guide future drilling.
• We note gold is commonly associated with IOCG discoveries

• Mwanza is one of four similar targets on Zamare’s Dongwe licence. All have coincident gravity and mag highs with elevated copper in soils and iron caps at surface.

• Tungsten: The team have also identified a new anomaly with >100ppm tungsten in soils at ~1sqkm scale using a pXRF gun which is good for tungsten.
• New targets: Zamare’s in-country team are looking to secure a new and highly prospective licence in Zambia.
• Funding: Management recently raised £0.7m at 2.5p, implying an overall company valuation of £4.6m, for license acquisition, drilling and general working capital and continue to work towards a listing of the stock.

Conclusion:  Zamare are adding value to their licenses and the portfolio in general. Their geological work in Zambia increases the opportunity for the future discovery of copper, gold and tungsten. Negotiations for a further license hosting a potential copper resource could also add value.

*SP Angel acts as broker to Zamare

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

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Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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