SP Angel Morning View -Today’s Market View, Friday 11th August 2023

Gold prices hold lower as US Treasuries weaken despite softer inflation

MiFID II exempt information – see disclaimer below

Celsius Resources* (CLA LN) – Silvercorp sells Celsius shares as management breaks off from MCB offer negotiations

Chaarat Gold (CGH LN) – Convertible note extension and H1/23 production update

Greatland Gold (GGP LN) – Havieron Project update as main decline progresses and drilling to support MRE update accelerates

Wheaton Precious Metals (WPM LN) – Quarterly results as Salobo expansion supports growth

Gold prices hold lower as US Treasuries weaken despite softer inflation

• Gold prices are failing to break out of the sub-$1,920/oz level, despite a minor uptick yesterday in the wake of the US CPI release.
• US inflation data came in slightly softer than expected, with the initial reading pushing prices up to $1,927/oz before resuming their downtrend.
• US Treasuries saw major volatility, rallying 1% before weakening back to yield 4.1%.
• Whilst expectations of a rate hike in September have been all-but dismissed by the market, the fact that core CPI remains at 4.7% is supporting bets of rates being held higher for longer.
• A weak 30-yr auction is also supporting longer duration yields and weighing on gold prices, with funds opting for more attractive government yields than non-interest bearing bullion.
• Demand stood at the lowest levels since April.
• The dollar’s strength is also weighing on gold prices, with the currency set for a fourth week of gains.

Major Chinese copper smelter to accelerate production

• Reuters reports that the Nanfang smelter is due online in October, several months ahead of expectations.
• The smelter will take Nanfang’s production to 700ktpa vs current levels of 300ktpa.
• The increased smelter capacity will boost China’s appetite for concentrate vs refined product.

Economics

US – Inflation came in largely in line with market expectations reflecting a gradual slowdown of price pressures.

• Core measure climbed at the slowest back-to-back pace in more than two years.
• The Fed will have the benefit of assessing another jobs report and inflation data before next meeting in September.
• Jobless claims came in ahead of market estimates with a less volatile four week average ticking up in the first week of August following month of declining unemployment applications.
• Weekly Jobless Claims: 248k v 227k previous week and 230 est.
• CPI (%mom): 0.2  v 0.2 June and 0.2 est.
• CPI (%yoy): 3.2 v 3.0 June and 3.3 est.
• Core CPI (%mom): 0.2 v 0.2 June and 0.2 est.
• Core CPI (%yoy): 4.7 v 4.8 June and 4.7 est.

China – New credit numbers strongly underperformed in July suggesting authorities remain reluctant to step up stimulus amid waning growth momentum

• Aggregate Financing (CNY bn): 528 v 4,224 June and 1,100 est.
• Money Supply (%yoy): 10.7 v 11.3 June and 11.0 est.
• New Yuan Loans (CNY bn): 346 v 3,050 June and 780 est.

UK – Growth beats expectations for a stagnation as stronger consumer and government spending as well as a rise in business investment more than compensates for a drop in exports.

• The strongest quarterly growth reading in more than a year will keep pressure on the central bank to continue tightening the policy.
• Money markets firmed wagers on monetary-policy tightening, putting the chance of a quarter-point increase next month at almost 90% from 80% earlier, Bloomberg reports.
• The central bank expected a 0.1%qoq reading against 0.2%qoq delivered.
• The pound is up 0.2% at 1.27 against the US$ this morning.
• Consumer Spending (%qoq): 0.7 v 0.0 Q1 and 0.0 est.
• Q2 GDP (%qoq): 0.2 v 0.1 Q1 and 0.0 est.
• Q2 GDP (%yoy): 0.4 v 0.2 Q1 and 0.2 est.

Currencies

US$1.0996/eur vs 1.1016/eur yesterday. Yen 144.61/$ vs 143.82/$. SAr 18.84/$ vs 18.850/$. $1.271/gbp vs $1.275/gbp. 0.653/aud vs 0.656/aud. CNY 7.190/$ vs 7.210/$.

Dollar Index 102.51 vs 102.34 yesterday.

Commodity News

Precious metals:

Gold US$1,917/oz vs US$1,920/oz yesterday

Gold ETFs 90.7moz vs US$90.7moz yesterday

Platinum US$916/oz vs US$904/oz yesterday

Palladium US$1,297/oz vs US$1,253/oz yesterday

Silver US$22.76/oz vs US$22.85/oz yesterday

Rhodium US$4,100/oz vs US$4,100/oz yesterday

Base metals:

Copper US$ 8,315/t vs US$8,439/t yesterday

Aluminium US$ 2,182/t vs US$2,212/t yesterday

Nickel US$ 20,400/t vs US$20,580/t yesterday

Zinc US$ 2,418/t vs US$2,484/t yesterday

Lead US$ 2,125/t vs US$2,130/t yesterday

Tin US$ 26,885/t vs US$26,900/t yesterday

Energy:           

Oil US$86.6/bbl vs US$87.9/bbl yesterday

Natural Gas US$2.787/mmbtu vs US$2.973/mmbtu yesterday

• US natural gas prices edged higher as the EIA storage report detailed a 29bcf build to 3,030bcf last week, with storage levels decreasing to 21.4% above last year and 11.2% above the 5-year average.
• Separately, the EIA forecasts global LNG import capacity to grow by 16% to 163bcf/d in 2023-24 once all regasification terminals currently under construction (mainly in Asia and Europe) are completed. The global LNG trade amounted to 51.7bcf/d in FY22, implying a 37% utilisation of the 140bcf regasification capacity.

Uranium UXC US$56.75/lb vs US$56.75/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$100.9/t vs US$100.1/t

Chinese steel rebar 25mm US$518.5/t vs US$519.3/t

Thermal coal (1st year forward cif ARA) US$123.0/t vs US$123.0/t

Thermal coal swap Australia FOB US$148.5/t vs US$145.0/t

Coking coal swap Australia FOB US$236.0/t vs US$236.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$66,152/t vs US$65,971/t

Lithium carbonate 99% (China) US$34,324/t vs US$34,338/t

China Spodumene Li2O 6%min CIF US$3,560/t vs US$3,560/t

Ferro-Manganese European Mn78% min US$1,052/t vs US$1,048/t

China Tungsten APT 88.5% FOB US$310/mtu vs US$310/mtu

China Graphite Flake -194 FOB US$675/t vs US$675/t

Europe Vanadium Pentoxide 98% 7.6/lb vs US$7.6/lb

Europe Ferro-Vanadium 80% 31.85/kg vs US$31.85/kg

China Ilmenite Concentrate TiO2 US$311/t vs US$311/t

Spot CO2 Emissions EUA Price US$91.5/t vs US$91.2/t

Brazil Potash CFR Granular Spot US$352.5/t vs US$352.5/t

Battery News

Used EV values could collapse due to fleet dumping

• The growing number of used EVs that could be dumped by lease companies and businesses will see the value of used EVs plummet.
• EV registrations in the UK were up 39.4% yoy in June and up 32.7% YTD.
• However, business and fleet registrations accounted for almost 80% of EVs registered, rather than private buyers, thanks to attractive fiscal incentives.
• The reduced benefit-in-kind tax that EVs attract (2% at present, compared with, ~30% for a 1.5-litre petrol Volkswagen Golf) and salary-sacrifice schemes, whereby an employee is offered an EV on a lease through their employer at an all-inclusive monthly rate with no deposit while paying reduced national insurance contributions.
• The lack of support for private buyers, most of whom can only afford to buy used, presents car makers and leasing companies with the challenge of how to manage the flow of ex-company EVs into the used car market without oversupplying it and crashing residual values.

Indonesia gives automakers more time to qualify for EV credits

• Indonesia will give automakers two more years to qualify for EV incentives in Southeast Asia’s largest auto market.
• The moves announced at the Jakarta auto show come as Indonesia races Thailand and India to build out an EV industry as an alternative to China.
• Under the new investment rules, automakers need to commit to producing at least 40% of the content of EVs in Indonesia by 2026 to qualify for incentives, two years later than the initial target – the 40% threshold had been set to encourage local battery production.
• Indonesia is Southeast Asia’s largest auto market and its second-largest production hub behind Thailand. Toyota, Daihatsu and Honda account for two-thirds of sales but have been slow to pivot to EVs.
• Indonesia has set an ambitious target of producing some 600,000 EVs by 2030 – more than 100 times the number sold in Indonesia in the first half of 2023.

Sunwoda Electric to build EV battery plant in Hungary

• Chinese EV battery manufacturer Sunwoda Electronic Co. has plans to build a battery plant in northern Hungary with an initial investment of $264m.
• The factory will be the companies first in Europe and will produce lithium-ion batteries and battery systems.
• Sunwoda is the third Chinese battery maker to select Hungary for a European battery plant after EVE Energy and CATL previously confirmed that they would build battery plants in the country.
• EVE will invest up to 10b yuan and CATL will invest $8.07b.
• Construction is expected to begin next year but no completion timeframe has been given.

Company News

Celsius Resources* (CLA LN) 0.61p, Mkt Cap £17m – Silvercorp sells Celsius shares as management breaks off from MCB offer negotiations

Click Link for SP Angel research report PDF note – MCB project NPV@8% US$463m, IRR of 34.3%

BUY

• Silvercorp Metals (SVM CN) with is run by Derek Liu and Rui Feng out of Canada reports “The two companies have not agreed on the terms of a definitive agreement in line with those contained in the Term Sheet and currently no negotiation is ongoing.”
• Celsius Resources report the proposed transaction “did not have reasonable prospects of being approved by the requisite majorities of shareholders at the initial proposed price” of A$0.03/s.
• We note it is traditional in the Australian market for investors to reject a first offer in favour of a negotiation for a higher bid.
• Silvercorp have been selling Celsius shares in the market as reported on 9^th and 10^th August causing Celsius’ shares to pull back to lower than its IPO price.
• Celsius report the sale of some 60m shares into the market so far with the latest sale at A$0.015233/s
• Silvercorp previously subscribed for A$5m worth of Celsius shares on 15 May at A$0.015/s (£0.008/s) giving Silvercorp 333.3m new shares
• Recommendation:  The recent award of the, all-important, environmental license indicates the mining license is close to issuance.
• This is an important and value adding step in the process of any mine and particularly for a copper mine in the Philippines.
• We continue to rate Celsius Resources as a BUY due to the inherent and increasing value in the MCB copper project.
• Copper:  We see strong demand growth driving copper prices higher in future years as China, the US and many other nations continue to install increasing renewable energy generation capacity in the form of hydropower, wind and solar farms and more distributed energy capacity.
• Substantial sales of Electric Vehicles this year should accelerate the instillation of EV charging points requiring further strengthening of local grid capacity.
• China reports the sale of 3.17m EVs for the year to end-June with the US following at 671,000 new EVs and Europe at something over 750,000
• Heatwaves in parts of Europe, the US and China are also raising demand for air-conditioning, which work best when made with copper tubing.
• MCB project ownership:  Celsius agreed on 20^th March to sell a 30% economic ownership of the MCB copper mine to Sodor Inc. and PMR Holding Corp.for US$43m implying a valuation of >$143m.
• The deal gave Sodor Inc. and PMR Holdings Corp. ownership of 60% of the outstanding shares of MMCI, Celsius’ wholly-owned local subsidiary in order to qualify the MCB copper mine as a locally-owned Filipino entity. The 60% legal ownership is a pre-requisite for MMCI to sign a PSA ‘Production Sharing Agreement’ with the Filipino government as required for the for construction and operation of the Maalinao-Caigutan-Biyog copper-gold mine in the Philippines.  Celsius’ wholly-owned subsidiary, Makilala Mining signed a binding deed with Sodor, Inc. to acquire the 60% legal ownership for A$8.2m allowing the company to apply for an MPSA for MCB.

Conclusion:  It was a very smart move by Slivercorp to offer to buy the MCB copper project at the pre-permitting stage, in the knowledge that the project had a good chance of being substantially de-risked by the time the acquisition completed.  Celsius shareholders were smart enough to recognise the value being added by recent award of the environmental license and the impending award of the mining license on MCB and were right to demand a greater value from Silvercorp as a result of the value addition.

*SP Angel acts as broker to Celsius Resources.

Chaarat Gold (CGH LN) 7.5p, Mkt Cap £51m – Convertible note extension and H1/23 production update

• The Company extended the maturity of its secured loan notes to 31 October from 31 July.
• The principal amount and accrued interest that together amount to $31.7m is no payable on 31 October.
• As a compensation for the extension, the rate on convertibles went up to 20% with an additional one-off $1m (5% of original principle amount) will be payable to note holders.
• Separately, the team released H1/23 production results showing output at Kapan polymetallic mine coming in at 26.5koz GE (-11.7%yoy).
• Production includes 21.4koz from own ore (-8.7%) and 5.1koz from third-party ore (-22.1%).
• Lower production was attributed to lower stop availability at its mining operations.
• AISC averaged $1,556/oz (H1/22: $1,420/oz) reflecting lower production as well as adverse impact from Armenian Dram appreciation with average FX climbing ~20%yoy.
• Kapan EBITDA mine level contribution dropped to $2.3m (H1/22: $8.1m).
• FY23 guidance reiterated at 50-55koz from own ore and 5-10koz from processing third party material.
• Closing net debt balance stood at $51.6m with $0.8m available in cash and $1m in undrawn working capital facility.
• The Company highlighted the need for further funding during Q3/23 with the Board considering all available options including the previously announced potential Xiwang investment and other initiatives such as asset sales which include the potential sale of Kapan.

Greatland Gold (GGP LN) 7.24p, Mkt Cap £365m – Havieron Project Update as main decline progresses

• Greatland Gold provides an update on the Havieron project, where they operate a JV with Newcrest.
• The Company notes that the primary decline at Havieron has now surpassed 1,840m, with the total development standing at over 2,600m.
• Greatland is also working towards publishing an updated MRE.
• To support this additional MRE, the Greatland team will incorporate 80,000m worth of further step-out drilling.
• The new MRE is expected to be published in the December 2023 quarter.

Wheaton Precious Metals (WPM LN) 3,450p, Mkt Cap £16bn– Quarterly results as Salobo expansion supports growth

• Precious metals streaming major Wheaton provides a quarterly financial update for the three months to 30^th June.
• Wheaton reports revenue of $265m with $202m in operating cash flow, $141m in net earnings and $143m in adjusted net earnings.
• The Company had $829m in cash and no debt at the time of reporting.
• Wheaton holds streaming arrangements with 19 operating mines and 13 development projects.
• The expansion of Salobo is supporting Wheaton’s production growth, with gold production climbing to 55koz from 44koz in Q1 following a ‘better-than-expected’ ramp up at Salobo III.
• Production down from 156koz GE same period 2022.
• The Company also notes the resumption of Constancia mining is supporting gold stream despite the suspension at Peñasquito in early June.
• Wheaton is maintaining average annual production guidance at 600-660kz GE for 2023, with 5-10yr average gold production of 810-850koz GE going forward.
• Wheaton’s 2022 GE production stood at 617koz.
• Cash operating margins rose to $1,487/oz GE, an 8% increase vs same period last year.
• Wheaton reports the successful EMP approval at Marmato, with the project set for first gold pour 3Q25.
• Wheaton paid $300m for 6.6% of the Ecuadorian Cangrejos Project, where annual attributable production is expected to be 24.5kozpa.

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

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