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

Weak Chinese CPI and trade data fuel economic growth concerns

MiFID II exempt information – see disclaimer below

GreenX Metals (GRX LN) – Quarterly report

Rockfire Resources (ROCK LN) – Drilling at Molaoi

Resolute Mining (RSG LN) – Project update and operational forecasts

IGTV:  New lower lows in base metals keep coming – why? https://youtu.be/1KWgI2HTUGw?si=VlVfQtpW-mrI7slD

           Copper will still move up despite a gear shift down in carbon-zero targets  https://youtu.be/jbywf2hmEU8?si=yxJcwGiE1_V121Ok

VOX:  06/10/23:  https://audioboom.com/posts/8379837-john-meyer-on-diamond-price-weakness-petra-anglo-asian-bushveld-power-metal-resources

           29/09/23:  https://audioboom.com/posts/8375969-john-meyer-on-china-s-property-implosion-plus-atlantic-lithium-bushveld-sovereign-metals

*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.

Gold prices pause rally as US CPI data reignites bond sell-off

• Spot gold prices have cooled to $1,872/oz after rallying to late September highs at $1,885/oz.
• The US 10-year weakened following CPI data coming in marginally hotter than expected, pushing yields to 4.65%.
• Higher yields weigh on gold prices as investors look for a return on their safe haven assets.

• We believe many hedge funds have been short gold as US interest rates rise as a way of financing other investment ideas.
• These funds may well be compelled to reduce their exposure to equity and bond markets as they start to unwind their gold positions.
• Fed President Collins suggested another rate hike may be necessary to quash inflation.
• Other Fed member statements on holding rates higher for longer will also slow this unwinding process but we suspect the hedge funds .
• US COMEX now show the lowest net Long position since November last year.

Iron ore prices tick up but China ramps up exports as domestic demand stays weak

• Iron ore prices strengthened to $114/t following a sell-off after trading picked up on China’s return to work.
• September data showed China’s iron ore imports fell 5% from August, slightly up yoy however.
• Steel margins are still weak, with 1/3^rd of mills operating at a profit at September end. (Mysteel)
• China is ramping up exports, with steel exports up 625 and imports down 28% – both suggest domestic demand for construction remains weak.

Copper prices slide as China cuts imports and increases refined output

• Copper prices are hovering below $8,000/t again as China boosts output into a weak market.
• China copper imports are down 9.5% yoy over the Jan-Sept period, with September imports sliding 6%.
• Domestic refining output hit record highs.
• Traders are being forced to reduce copper exposure as a result of higher rates, weighing on financing costs.
• Strong demand is being seen from home appliances, EVs and renewable energy products.

LGD ‘Lab Grown Diamond’ producer goes bankrupt with total liabilities of $44m

• WD Lab Grown Diamonds has filed for Chapter 7 bankruptcy in the US.
• We believe the company is suffering from the impact of falling LGD prices and stock revaluation.
• Cheaper and subsidised energy prices in China may be helping to reduce LGD production costs.
• NORINCO which makes guided missiles for China’s Peoples Liberation Army, produced LGDs for guidance systems as well as for sale to jewellers.
• We suspect funding by the PLA has helped NORINCO and some Russian LGD labs to reduce costs below $80/ct.
• Diamond substrate wafers are used to keep semiconductors cool as computing power increases.
• Diamond is used due to is better head dissipation .

Economics

China – US considering ban on AI semiconductors to the overseas operations of Chinese controlled companies

• The Biden administration are keen to close this, rather obvious, loophole and we wonder why they left it open in the first place.
• Chinese birth rate falls to record low with only 9.56m new births in China through 2022. The lowest rate since records began in 1949.
• The move from rural village life to the cities combined with millions of young families living in small flats designed under the ‘One Child’ policy is delaying new births.
• Job and economic uncertainty combined with , lower factory wages, mortgage debt, rising childcare, education and healthcare costs is not helping the situation.
• Natural disasters cost China some $$42bn this year as typhoons, landslides and sandstorms kill 499 people in the first nine months of 2023.
• China Resources’ plans to list property business with US$1bn IPO in HK
• The business will likely IPO as a REIT ‘Real Estate Investment Trust. Wil have to be priced at a discount to attract interest while Chinese

US – Bond yields and the US$ jumped on stronger than estimated headline inflation numbers with markets revising expectations for another rate hike before year end.

• Swap contracts linked to futures Fed rate decision saw odds of another 25bp hike increase back to 40% from closer to 30% on Wednesday, according to Bloomberg.
• Q3 earnings season kicks off today with reports from JPMorgan, Citigroup and Wells Fargo.
• CPI (%mom): 0.4 v 0.6 August and 0.3 est.
• CPI (%yoy): 3.7 v 3.7 August and 3.6 est.
• Core CPI (%mom): 0.3 v 0.3 August and 0.3 est.
• Core CPI (%yoy): 4.1 v 4.3 August and 4.1 est.

China – Trade came in better than expected but continued to decline in September while inflation dropped to 0% last month in a sign of struggling consumer spending.

• Exports (%yoy): -6.2 v -8.8 August and -8.0 est.
• Imports (%yoy): -6.2 v -7.3 August and -6.3 est.
• CPI (%yoy): 0.0 v 0.1 August and 0.2 est.

China is considering establishing a state backed stabilisation fund to absorb selling in capital markets to prop up confidence in markets, Bloomberg reports.

• Following at least two rounds of consultation with industry participants over a period of months, financial regulators recently submitted a preliminary plan to the nation’s leadership.
• The news follows the announcement that China’s sovereign wealth fund will purchase the equivalent of around $65m of shares in the nation’s largest banks this week.
• Authorities introduced a series of measures to help the sentiment including cutting transaction fees and stamp duties, although selling continues with the CSI 300 Index trading at a 11-month low and down 37% from its 2021 highs amid struggling property market and rising geopolitical tensions.

Israel – Israeli military called for the evacuation of Palestinians from the northern Gaza strip to southern Gaza ahead of the planned ground operation, FT writes.

• The announcement comes on the seventh day of the declared war against Hamas that rules the enclave.
• “The IDF (Israel Defense Forces) call for the evacuation of all civilians from Gaza City… from their homes, southwards, for their own safety and protection, and to move to the area south of.. the River Gaza,” IDF spokesperson said.

Israeli diplomat stabbed in Beijing

• The news highlights the potential for the Israeli conflict to expand outside of Israel and Gaza.
• Joe Biden has said Israel has a right to respond to the Hamas attack

BBC asked by politicians to refer to Hamas as terrorists

• Labour leader, Kier Starmer says Israel has a right to withhold power and water from Gaza highlighting Labour’s change from Jeremy Corbyn’s sympathetic view on Hamas and Palestine.
• Jeremy Corbyn, who was ejected from the Labour party has predictably failed to condemn Hamas.

BYD, a major Chinese EV manufacturer, is considering the purchase of lithium mining assets in Brazil.

• The Company is looking to secure raw materials supply to complement the planned $0.6bn EV production facility in Brazil’s northeast.
• “We prefer to buy any available and affordable resource, but it needs to be competitive… at the same time, BYD also prefers to own some mining operations in Brazil,” Stella Li, BUYD’s global VP, said.

Currencies

US$1.0538/eur vs1.0624/eur previous.Yen 149.66/$ vs149.10/$.SAr 19.002/$ vs18.797/$.$1.219/gbp vs$1.231/gbp.0.632/aud vs0.642/aud.CNY 7.308/$ vs7.298/$.

Dollar Index 106.47 vs 105.65 previous.

Commodity News

Precious metals:

Gold US$1,878/oz vs US$1,881/oz previous

Gold ETFs 86.8moz vs 86.7moz previous

Platinum US$871/oz vs US$895/oz previous

Palladium US$1,141/oz vs US$1,173/oz previous

Silver US$22.10/oz vs US$22/oz previous

Rhodium US$4,750/oz vs US$4,350/oz previous

Base metals:

Copper US$ 7,992/t vs US$8,046/t previous

Aluminium US$ 2,201/t vs US$2,214/t previous

Nickel US$ 18,600/t vs US$18,580/t previous

Zinc US$ 2,443/t vs US$2,470/t previous

Lead US$ 2,055/t vs US$2,090/t previous

Tin US$ 25,095/t vs US$25,150/t previous

Energy:

Oil US$87.2/bbl vs US$86.2/bbl previous

• Crude oil prices have risen in early trading following a pullback yesterday due to the EIA reporting a 10.2mb w/w US crude build and smaller draws to refined stocks as refinery utilisation fell by 1.6% to 85.7%.
• European energy prices maintained their upward trajectories due to heightened concerns about geopolitical risks to global gas supplies as the heating season approaches.
• US natural gas prices edged lower as the EIA storage report detailed an 84bcf build to 3,529bcf last week, with storage levels decreasing w/w to 9.8% above last year and 4.8% above the 5-year average.

Natural Gas €56.000/MWh vs €47.400/MWh previous

Uranium UXC US$69.00/lb vs US$72.75/lb previous

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$114.4/t vs US$113.1/t

Chinese steel rebar 25mm US$538.9/t vs US$540.1/t

Thermal coal (1st year forward cif ARA) US$133.0/t vs US$128.4/t

Thermal coal swap Australia FOB US$149.5/t vs US$144.5/t

Coking coal swap Australia FOB US$321.0/t vs US$321.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$72,460/t vs US$72,554/t

Lithium carbonate 99% (China) US$21,690/t vs US$21,307/t

China Spodumene Li2O 6%min CIF US$2,230/t vs US$2,230/t

Ferro-Manganese European Mn78% min US$1,017/t vs US$1,030/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$635/t vs US$635/t

Europe Vanadium Pentoxide 98% 6.5/lb vs US$6.6/lb

Europe Ferro-Vanadium 80% 28.25/kg vs US$28.75/kg

China Ilmenite Concentrate TiO2 US$315/t vs US$316/t

Spot CO2 Emissions EUA Price US$83.7/t vs US$84.3/t

Brazil Potash CFR Granular Spot US$345.0/t vs US$345.0/t

Battery News

Tesla loses market share as US EV sales hit record high

• EV sales in the US reached record highs in Q3 with sales of over 300,000 units sold.
• With record sales, Tesla’s market share slipped to around 50% from 62% in Q1.
• Automakers have been aggressively cutting prices to counter a tough demand environment triggered by high inflation and rising borrowing costs.
• Average EV prices in the US were down at $50,683 in September from $52,212 in August.

Thailand looking to accelerate EV plans

• Thailand will provide incentives and tax breaks for carmakers setting up EV R&D centres, as it seeks to build on early success as a regional EV frontrunner, a government official said.
• Thailand is Southeast Asia’s second-largest economy and is the largest car producer and exporter in the region.
• 2.5m vehicles are produced in Thailand each year, with the Thai government aiming to convert 30% of its annual production to EVs by 2030.
• Thailand’s auto industry has been dominated by Japanese manufacturers, but China is trying to muscle in as production moves towards EVs.
• Chinese carmakers have committed to invest $1.44bn in new production facilities in Thailand, with BYD investing nearly $500m to produce 150,000 EVs a year.
• Japanese automakers including Toyota, Honda, Nissan and Mitsubishi, which already have R&D centres in Thailand, would be encouraged to work on EVs in the country.
• A government subsidy of up to 150,000 baht ($4,100) per vehicle, has seen EVs enjoy strong sales in Thailand this year, accounting for about half of all EV sales in Southeast Asia in Q2 ’23.

Norway and Iceland lead the way in EV adoption

• In 2016, the Norwegian Parliament committed to the goal of all new cars sold by 2025 should be zero emission.
• In Norway, 79.3% of new cars purchased in 2022 were EVs.
• EVs now total 20.9% of all passenger cars in Norway.
• EV adoption has been driven by government initiatives such as tax exemptions and free road tolls and parking for EV owners.
• In Iceland, almost 100% renewable electricity and the high cost of petrol have made EVs an attractive option for residents.
• A small population has also contributed to high levels of EV adoption – 85% of private cars sold in Iceland during H1 ’23 being electric.

Electronics giant Xiaomi in talks with Chery for EV production

• Xiaomi has held talks with Chery and other automakers on potential production partnerships, as it waits for Beijing to approve a license that would give it the right to manufacture EVs itself.
• The smartphone manufacturer initially began talks with Beijing Automotive Group in August 2022.
• With China now looking to limit the number of EV production licenses it gives out, Xiaomi has now started speaking with other automakers to cover its bases.

Company News

GreenX Metals (GRX LN) 48p, Mkt Cap £136m – Quarterly report

• GreenX provides an update from the third quarter.
• The Company raised £2.1m through the issue of new equity for exploration activities in Greenland.
• GreenX also acquired an option agreement for a 100% interest of the Eleonore North gold project.
• The Project complements GreenX’s Arctic Rift Copper Project and is targeting ‘reduced intrusion-related gold systems.’
• The Company held a cash balance of A$10.7m at 30^th September.

Rockfire Resources (ROCK LN) 0.37p, Mkt Cap £9.3m – Drilling at Molaoi

• Rockfire has begun drilling at its Molaoi zinc deposit in Greece.
• The campaign will involve five holes and will replicate historical holes to increase confidence in previous data.
• The Company is aiming to prove up the resource from the Inferred category to Indicated.
• Rockfire is targeting the delivery of a Feasibility Study for Molaoi in 2024.

Resolute Mining (RSG LN) 19p, Mkt Cap £397m – Project update and operational forecasts

• Resolute provides an update on its Syama and Mako mines and gives production forecasts for 2024-2026.
• As a result of Syama oxide operations underperforming on lower mined grades, overall guidance for gold production has been revised lower to 330-340koz vs previous 350koz guidance.
• Lower guidance primarily reflects higher carbon content at Syama in an area of the Tabokoroni open pit, lowering recoveries.
• AISC for the group is forecast at $1,480/oz and the Company management their continues to emphasise their commitment to cutting costs.
• However, over the next three years, underground Sub-Level Cave production at Syama is expected to see production from the mine alone exceeding 260koz from 2026.
• CAPEX spend, with Phase 1 Syama expansion consuming the majority stake of this, has been guided lower to $70m from previous expectations of $88m.
• Over the three years from 2024 to 2026, Resolute expects to produce  total of 1-1.1m oz Au, lowering AISC from current levels of $1,480/oz to $1,175-275/oz.
• CAPEX guidance for 2024 is set at $95-110m, falling to $55-68m in 2025 and increasing to $71-83m in 2026.

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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