SP Angel Morning View -Today’s Market View, Friday 12th January 2023

Gold bounces as hotter-than-expected inflation fails to cool rate cut expectations

MiFID II exempt information – see disclaimer below

Caledonia Mining (CMCL LN) 925p, Mkt Cap £177m – Blanket delivers 2023 production guidance and expects similar levels in 2024

Eurasia Mining* (EUA LN) 2.0p, Mkt Cap £57m – Supreme Court tax dispute win

Kazatomprom (KAP Ll) $45, Mkt Cap $11.5bn – Reduction of 2024 uranium production plans

Solaris Resources (SLS CN) C$4.2, Mkt Cap C$635m – $130m investment from Zijin for development of Warintza Copper Project, Ecuador

VOX Markets:  

09/01/2024: What’s your exposure to clean energy? (youtube.com)

• SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts. We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate. SP Angel acts as Broker/Nomad or both for Aterian, Bluejay and Aura Energy. An SP Angel Analyst holds shares in Bluejay Mining Plc.

Gold bounces as hotter-than-expected inflation fails to cool rate cut expectations

• Gold prices initially weakened yesterday to $2,014/oz in the spot market before rallying to $2,039/oz.
• The move came in the wake of the US CPI release, which showed inflation rising faster than expected in December.
• US Treasuries initially sold off on the release, with the 10-Year climbing to 4.065%, however buyers have subsequently pushed yields down to 3.97%, supporting gold.
• The market currently expects a 68% chance of a 25bp rate cut in March.

Iron ore prices rebound as traders look to PBoC for stimulus

• Iron ore prices have climbed back to $134/t on the 62% benchmark following a sharp sell-off to $132/t.
• The move follows an approval by the PBoC for CNY100bn worth of support to trial a new commercial property project.
• The trial will be rolled out in eight cities and provide credit to provide long-term rental properties. (Economic Observer)
• Holiday restocking has so far disappointed, with steel sentiment disappointing in January to date.
• Coking coal and coke climbed 2% and 1% respectively.

Economics

US – Both headline and core inflation came in stronger than forecast in December with many market participants seen revising their expectations for the first rate cut this year.

• CPI (%mom): 0.3 v 0.1 November and 0.2 est.
  CPI (%yoy): 3.4 v 3.1 November and 3.2 est.
• Core CPI (%mom): 0.3 v 0.3 November and 0.3 est.
• Core CPI (%yoy): 3.9 v 4.0 November and 3.8 est.
• Weekly Jobless Claims: 202k v 203k (revised from 202k) previous week and 210k est.

Eurozone – ECB President Christine Lagarde commenting on the policy outlook yesterday said that the “hardest and worst bit” regarding inflation was likely over.

• “I think that rates, barring any further shocks or unexpected data, will not continue to go up. And if we win our fight against inflation, and if we are certain that inflation will indeed be at 2%, at that point rates will start to go down,” said Lagarde.
• Markets expect the first rate cut to come in March/April with t least five rate cuts for 2024.

UK – November GDP data came in slightly stronger than expected driven by better than forecast services data.

• The economy grew 0.3%mom with services expanding 0.4% (v 0.2%mom forecast).
• “The longer term picture remains one of an economy that has shown little growth over the past year,” ONS commented on the data.
• Stronger GDP data may see markets discounting early start of central bank easing with current estimates for the first cut to come in May or June, FT writes.
• GDP (%mom): 0.3 v -0.3 October and 0.2 est.
• GDP (3m/3m): -0.2 v -0.2 (revised from 0.0) October and -0.1 est.

China – Trade picked in the last month of the year, albeit, annual numbers show a contraction in exports and imports in 2023.

• Trade surplus fell to ~$823n, down from $878bn in 2022, with exports down 4.6%yoy and imports off 5.5%.
• Shipments to the EU and the US were down 10.2% and 13.1% reflecting waning growth momentum amid restrictive monetary policy.
• Meanwhile, exports to Russia were up 46.9% as the latter suffered from severed trading ties with the EU amid a war in Ukraine.
• In a separate report, consumer prices were seen contracting in December for the third consecutive month signalling struggling demand.
• CPI (%yoy): -0.3 v -0.5 November and -0.4 est.
• PPI (%yoy): -2.7 v -3.0 November and -2.6 est.
• Exports (%yoy): 2.3 v 0.5 November and 1.5 est.
• Imports (%yoy): 0.2 v -0.6 November and -0.5 est.

Ukraine – PM Rishi Sunak is set to confirm UK military support to Ukraine will increase to £2.5bn in coming financial year during his visit to Kyiv on Friday.

• That marks an increase of £200m on the previous two years.

US/UK – Oil prices are trading higher this morning no the news of the US/UK military strikes against Houthi rebels in Yemen launched overnight.

• Iran backed Houthi previously increased attacks on global shipping vessels in the Red Sea drastically reducing shipments through the Suez Canal and Red Sea.
• IMF figures showed a 35% drop in cargo transported through the Suez Canal in the first week of 2024 compared to last year seeing a drop in transit fees for Egypt that made more than $9bn in charges last fiscal year.
• 25 commercial vessels were attacked in the southern Red Sea and Gulf of Aden since late November as Houthis demanded a stop of Israel’s offensive in Gaza.

Currencies

US$1.0977/eur vs 1.0980/eur previous. Yen 144.96/$ vs 145.39/$. SAr 18.586/$ vs 18.643/$. $1.278/gbp vs $1.277/gbp. 0.671/aud vs 0.672/aud. CNY 7.162/$ vs 7.161/$.

Dollar Index 102.25 vs 102.25 previous.

Commodity News

Precious metals:

Gold US$2,039/oz vs US$2,033/oz previous

Gold ETFs 84.7moz vs 84.8moz previous

Platinum US$924/oz vs US$928/oz previous

Palladium US$999/oz vs US$1,015/oz previous

Silver US$22.96/oz vs US$23/oz previous

Rhodium US$4,450/oz vs US$4,400/oz previous

Base metals:

Copper US$ 8,432/t vs US$8,428/t previous

Aluminium US$ 2,242/t vs US$2,245/t previous

Nickel US$ 16,395/t vs US$16,445/t previous

Zinc US$ 2,515/t vs US$2,527/t previous

Lead US$ 2,098/t vs US$2,117/t previous

Tin US$ 24,815/t vs US$24,620/t previous

Energy:

Oil US$79.3/bbl vs US$77.2/bbl previous

Natural Gas €31.6/MWh vs €30.3/MWh previous

• US natural gas prices rose as the EIA storage report detailed an 140bcf w/w draw (-121bcf expected) to 3,336bcf last week, with storage levels now 15% above last year and 11.6% above the 5-year average.
• The EIA released its January short-term energy outlook this week, forecasting average US crude oil production to grow from 12.9mb/d in 2023 to a record 13.2mb/d in 2024 and 13.4mb/d in 2025, with average US dry gas production also growing from 103.5bcf/d in 2023 to a record 105bcf/d in 2024 and 106.4bcf/d in 2025.
• The newly renamed Norwegian Offshore Directorate (NOD) expects between 40 and 50 exploration wells to be completed in 2024, up from 34 last year (50% technical success). The NOD anticipates average production of about 4mboe/d in 2024, split roughly 50:50 between gas and liquids.
• Chesapeake Energy announced the all-share acquisition of Southwestern Energy to create the largest US Shale gas player with pro forma production of 7.9bcf/d and the potential for annual cost synergies of $400m.

Uranium UXC US$92.50/lb vs US$91.00/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$134.2/t vs US$132.6/t

Chinese steel rebar 25mm US$576.4/t vs US$577.1/t

Thermal coal (1st year forward cif ARA) US$100.5/t vs US$103.0/t

Thermal coal swap Australia FOB US$126.5/t vs US$132.0/t

Coking coal swap Australia FOB US$317.0/t vs US$317.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$55,638/t vs US$56,146/t

Lithium carbonate 99% (China) US$12,077/t vs US$12,081/t

China Spodumene Li2O 5%min CIF US$1,000/t vs US$1,000/t

Ferro-Manganese European Mn78% min US$1,070/t vs US$1,070/t

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

China Graphite Flake -194 FOB US$600/t vs US$600/t

Europe Vanadium Pentoxide 98% 6.0/lb vs US$6.0/lb

Europe Ferro-Vanadium 80% 28.25/kg vs US$27.75/kg

China Ilmenite Concentrate TiO2 US$318/t vs US$318/t

Spot CO2 Emissions EUA Price US$76.2/t vs US$76.2/kg

Brazil Potash CFR Granular Spot US$302.5/t vs US$302.5/kg

Battery News

Company News

Caledonia Mining (CMCL LN) 925p, Mkt Cap £177m – Blanket delivers 2023 production guidance and expects similar levels in 2024

• Caledonia Mining reports that, following production of 20,172oz from its Blanket mine in Zimbabwe during Q4 the mine produced a total of 75,416oz of gold in 2023 meeting its previously announced guidance range of 75-80,000oz/.

• Guidance for 2024 is broadly in line with Blanket expected to produce 74-78,000oz/.  Costs are expected to fall within the range US$870-970/oz on a cash basis and between US$1,370-1,470/oz on an all-in-sustaining basis.
• The company says that it is budgeting US$34.4 million in 2024, including “planned exploration at Motapa and further work on the Bilboes feasibility studies”.
• Chief Executive, Mark Learmonth, says that 2023 production reflected “the prudent decision to suspend mining in lower margin areas which include lower grades and volumes, and higher costs”.
• Explaining the broader context, he said that Caledonia Mining’s “significant investment in Blanket over the past seven years and completion of the Central Shaft has nearly doubled production, extended the mine life and allowed the restart of underground exploration in 2023”.
• He also commented that “in July we announced that the Eroica zone persists to depth and grades are significantly higher than previously thought. We continue to progress with the underground exploration programme and we expect to publish further exploration results in the first quarter of 2024 and a revised resource statement in the following quarter”.

Conclusion: The refurbished Blanket gold mine is delivering the expected production levels with over 75,000oz in 2023 expected to run at a similar level in 2024.  Continuing underground exploration is expected to result in a revised mineral resources estimate for the mine in te middle of the year.

*SP Angel mining analysts have visited Caledonia’s mining operations in Zimbabwe

Eurasia Mining* (EUA LN) 2.0p, Mkt Cap £57m – Supreme Court tax dispute win

• The Company has won litigation regarding a mining tax claim against fiscal authorities in the Supreme Court, Moscow.
• The decision referred to the tax code change in 2021 that aimed at unifying the mining tax rate and involved raising the charged rate for certain minerals to 3.5% from 1.0%.
• Tax authorities applied the adjusted 3.5x multiple to other minerals that were already taxed at rates of 6% and more which in turn raised rates paid by the subsidiary to 22.75%.
• The Company challenged the misinterpretation of the laws and won the case against authorities in the Supreme Court.
• The team is now due a refund for overcharged taxes for the last three years since 2021.
• The first tranche of £480k has already been received with the Company’s cash position as of 31 December standing at just below £1m.
• The Company estimates that it has sufficient working capital for the period until early Q3/24.

*SP Angel act as Nomad and Broker to Eurasia Mining

Kazatomprom (KAP Ll) $45, Mkt Cap $11.5bn – Reduction of 2024 uranium production plans

• World’s largest uranium producer Kazatomprom provides a production update for 2024.
• The Company reports it has been forced to adjust production lower due to lack of sulphuric acid availability.
• Management remains committed to reaching 2024 production delivery obligations and will increase volumes to a 90% level from 80% in 2023.
• However, they note that this intention ‘in 2024 may be challenging.’
• The Company notes sulphuric acid supplies in the region are being strained by growing demand from agricultural and industrial enterprises.
• They also note that 2024 production plans may also be affected owing to restraints on sulphuric acid supply.
• Kazatomprom will release a Q4 Trading Update before Feb 1^st where it will detail how its operational performance and 2024 guidance has been affected.
• Kazatomprom mined 21,227t of uranium in 2022 – global production is estimated between 55-65kt.

Solaris Resources (SLS CN) C$4.2, Mkt Cap C$635m – $130m investment from Zijin for development of Warintza Copper Project, Ecuador

• Solaris reports it has received an equity investment from Zijin of C$130m.
• Zijin will be issued 28,481,289 at a premium price of C$4.55/share for a 15% stake.
• The Warintza Project in Ecuador holds combined indicated and inferred resource of:

• • 1.466mt at 0.52% CuEq for 7.6mt CuEq.

• The indicative starter pit outlined by the Company points to:

• • 287mt at 0.79% CuEq for 2.27mt CuEq.
• The Zijin funds will be used for ‘the advancement and development of the Company’s flagship Warintza Project… for working capital and general corporate purposes.’

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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