SP Angel Morning View -Today’s Market View, Friday 14th June 2024

Luxury brands discount products at an unprecedented rate in China in a sign of waning local consumer spending

MiFID II exempt information – see disclaimer below

Arc Minerals (ARC LN) – Drilling starts at Virgo project in Botswana

Empire Metals* (EEE LN) – Presentation on Pitfield project highlights processing potential

NextSource Materials (NEXT CN) – IFC mandate letter for US$91m loan

Oriole Resources* (ORR LN) – CEO buys 3m shares

EV sales aren’t ‘lagging’ – they’re headed for long-term growth (electrek)

• EV sales will continue to grow despite a mixed near-term outlook, driven by falling battery prices, next-gen battery technology advancements, and improving economics compared to ICE vehicles according to BloombergNEF.
• Global passenger EV sales are expected to exceed 30 million vehicles in 2027 and grow to >73 million per year by 2040.
• EV sales are predicted to grow at an average of 21% per year over the next four years, somewhat slower than the 61% average from 2020 to 2023 but with significantly larger numbers of vehicles produced.
• The global EV share of new passenger vehicle sales is projected to reach 33% in 2027, with China at 60% and Europe at 41% leading the way.
• LFP batteries are gaining market share, particularly in China, with LFP technology improvements reducing cell prices to $53/kWh. LFP is predicted to make up over 50% of the global passenger EV market within the next two years.
• The charging industry will need between $1.6 trillion and $2.5 trillion in cumulative investment by 2050 to meet growing EV electricity demand.
• Jeep have just released a new all-electric version of their 4×4 Renegade at under $25,000. The Stelantis CEO reckons Jeep EV sales will restore sales for the brand.
• Jeep’s new Wagoneer S luxury SUV was also unveiled two weeks ago with up to 300 miles range.
• The challenge for automakers is to rival or better the performance of Tesla which, in our view, remains the leader in producing EVs which actually perform to or close to specification.

Economics

US – Initial applications for US unemployment benefits climbed to the highest level in nine months with a less volatile 4-week average hitting 227k, the highest level since September.

• Weekly Jobless Claims (Jun8/June1/Est): 242k/229k/225k.

China – Luxury brands discount products at an unprecedented rate in China in a sign of waning local consumer spending

• Balenciaga is reported to have averaged a 40% discount on sale items in three of the first four months of 2024 (Bloomberg).
• The brand has also more than doubled its number of discounted products on Alibaba’s e-commerce platform called Tmall.
• The Company only discounted items in January and at an average of ~30% in 2023 and no markdowns reported in the first four months of 2022.
• Other brands like Versace, Givenchy and Burberry are seen cutting prices with some by more than half.

Japan – The yen is down this morning as the central bank voted to leave rates unchanged at 0.0-0.1% and offering little details on policy normalisation outlook.

• The Bank of Japan said that it is planning to cut bond purchases but details on the size/timing of the programme will be provided at the July meeting.

France – CAC 40 equity index is down 1.4% this morning weighed down by banking shares with the euro at its lowest since April amid political turmoil.

• Spreads over German sovereign debt are on course for their biggest move since European debt crisis in 2011.
• Concerns are for Marine le Pen’s far right National Rally party that leads in polls by a wide margin to win general elections leading to looser fiscal policies, Bloomberg reports.

UK – Reform party overtakes Conservatives in UK election polls

• A level of dissatisfaction amongst former Conservative voters appears to be swinging opinion towards the Reform party.
• While Labour remains the outstanding leader in the polls.it is possible that Reform may take a proportion ‘Red Wall’ voters away from Labour.
• Boris Johnson successfully captured much of the Red Wall vote on 24 July 2019.
• Everything went ok for Boris till he was forced as PM to lock down the nation over Covid with later revelations of partying in No10 leading to his forced resignation.
• Reform are campaigning on a number of the key issues which helped to bring Boris Johnson into power and which, we suspect, will continue to resonate with many ‘Red Wall’ voters.
• Pollsters are also forecasting a relatively low turnout for this election due to widespread dissatisfaction over the behaviour of many politicians.
• It is therefore possible the UK could see some form of coalition.

Currencies

US$1.0710/eur vs 1.0807/eur previous. Yen 158.02/$ vs 157.15/$. SAr 18.491/$ vs 18.349/$. $1.272/gbp vs $1.278/gbp. 0.661/aud vs 0.665/aud. CNY 7.256/$ vs 7.252/$.

Dollar Index 105.48 vs 104.85 previous.

Precious metals:         

Gold US$2,310/oz vs US$2,315/oz previous

Gold ETFs 81.0moz vs 81.0moz previous

Platinum US$955/oz vs US$953/oz previous

Palladium US$888/oz vs US$899/oz previous

Silver US$28.96/oz vs US$29/oz previous

Rhodium US$4,560/oz vs US$4,560/oz previous

Base metals:   

Copper US$ 9,776/t vs US$9,869/t previous

Aluminium US$ 2,542/t vs US$2,547/t previous

Nickel US$ 17,600/t vs US$17,810/t previous

Zinc US$ 2,824/t vs US$2,860/t previous

Lead US$ 2,160/t vs US$2,169/t previous

Tin US$ 32,825/t vs US$33,105/t previous

Energy:           

Oil US$82.5/bbl vs US$82.2/bbl previous

• US Henry Hub natural gas prices edged lower as the EIA reported a 74bcf w/w build to 2,974bcf, with storage levels declining w/w to 13.9% above last year and 23.9% above the 5-year average.

Natural Gas €35.3/MWh vs €36.3/MWh previous

Uranium Futures $86.0/lb vs $86.0/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$106.7/t vs US$104.8/t

Chinese steel rebar 25mm US$536.1/t vs US$536.4/t

Thermal coal (1st year forward cif ARA) US$122.6/t vs US$120.5/t

Thermal coal swap Australia FOB US$136.0/t vs US$135.0/t

Hard Coking Coal Australia FOB US$326.0/t vs US$326.0/t

Other:  

Cobalt LME 3m US$27,150/t vs US$27,150/t

NdPr Rare Earth Oxide (China) US$49,755/t vs US$49,231/t

Lithium carbonate 99% (China) US$13,162/t vs US$13,170/t

China Spodumene Li2O 6%min CIF US$1,100/t vs US$1,120/t

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

China Tungsten APT 88.5% FOB US$357/mtu vs US$357/mtu

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

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.2/lb

Europe Ferro-Vanadium 80% 26.85/kg vs US$26.85/kg

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

China Rutile Concentrate 95% TiO2 US$1,413/t vs US$1,414/t

Spot CO2 Emissions EUA Price US$69.4/t vs US$69.4/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$310.0/t

Battery News

Tesla Model Y muscles out Toyota RAV4 to become world’s best-selling car

• Tesla Model Y became the world’s best-selling car in 2023, selling over 1.2 million units.
• This marks the first time an electric vehicle has topped global car sales charts.
• Data from Jato Dynamics shows that 78.32 million new cars were sold in 2023 across 151 countries, with SUVs comprising nearly half of the global sales.
• Despite its success, Tesla Model Y has limited presence in emerging markets, which presents potential future growth opportunities.
• In the UK, the Model Y hasn’t been in the top 10 monthly sellers since March 2024, with no EVs currently among the UK’s best-selling cars as of June 2024.
• An updated version of the Model Y, codenamed ‘Juniper’, could be released early next year, featuring upgrades similar to the facelifted Tesla Model 3.

Tesla shareholders approve Musk’s $56bn pay package

• Tesla shareholders approved CEO Elon Musk’s $56bn pay package, the EV maker said on Thursday, despite opposition from some large institutional investors.
• The bumper pay out is still dependent on the outcome of a lawsuit in Delaware.
• The judge invalidated the pay package in January, describing it as “unfathomable.”

Honda to start selling micro-sized electric vans in October

• Honda will start selling a micro-sized electric van in October, targeting Japan’s delivery industry.
• The van will have a cruising range of 245 km and be classified as a “kei” vehicle, which are low-powered and low-taxed domestic vehicles.
• Honda also plans to start selling an electric kei passenger car next year.
• Honda is a leading player in Japan’s kei car market, with its N-Box model being a top seller.
• Kei vehicles are popular for delivering agricultural produce, parcels, and other goods in urban and rural areas due to their affordability.
• The launch follows Toyota’s delay of a small electric van developed with Suzuki and Daihatsu due to a safety test scandal at Daihatsu.

Ceer and Hyundai sign $2.2bn electric vehicle deal

• Ceer, Saudi Arabia’s first EV brand and OEM, has signed a $2.2 billion deal with Hyundai Transys for electric vehicle drive systems (EDS).
• Hyundai Transys’s EDS is an integrated system combining a motor, inverter, and reduction gear, which reduces size and weight while enhancing power efficiency.
• This technology will streamline Ceer’s EV design process and boost cost competitiveness.
• Ceer’s CEO, James DeLuca, highlighted the deal as a significant step in advancing the Saudi automotive sector.
• The Ceer EV manufacturing facility in Jeddah’s King Abdullah Economic City is progressing, with Metallurgical Corporation of China and local contractor Modern Building Leaders involved in construction.

Honda and Mitsubishi form a joint venture aimed at electric vehicle battery improvements

• Honda Motor Co. and Mitsubishi Motors Corporation announced a 50-50 joint venture called Altna Co., to be established in July.
• Altna Co. aims to optimize EV usage costs, enhance battery lifetime value, and improve resource circulation within Japan.
• The venture will also address the growing demand for grid storage batteries to support increased renewable energy use in Japan.
• Honda will contribute its control and connected technologies for EVs and batteries, while Mitsubishi will provide power-generation expertise.
• Altna Co. intends to offer new mobility services to reduce EV users’ total cost of ownership and create new power-supply operations for long-term EV battery use..

Ford revises EV dealer restrictions to boost sales

• The automaker will now sell EVs through all of its dealers, going back on a decision which limited which dealerships could sell EVs.
• Ford had originally restricted sales of its EVs to dealerships that invested a set amount into training and infrastructure.
• The decision comes following ‘slower-than-expected’ sales in the first half of the year.

NIO rolls out first batch on 4^th generation swap stations that support multi-brand battery swapping

• Nio saw its first two fourth-generation battery swap stations go live yesterday as it continues to develop its battery swap network in China.
• The new generation swap stations cut service time by 22% and store 23 battery packs up from 21 in its predecessor.
• The new stations will be able to complete 480 battery swaps services per day.
• Nio’s fourth-generation battery swap stations are more open and support servicing of multi-brand vehicles with different sized battery packs, the company said.
• The swap stations will provide battery swap services for Nio, Onvo (Nio’s sub-brand), and Nio’s battery swap partners.
  • NIO has partnered with Changan Automobile, Geely Holding, JAC Group and Chery Automobile in battery swap to develop the battery swap network and industry standards.
  • The company is also calling on other automakers and big players in the industry to join its battery swap alliance.

Company News

Arc Minerals (ARC LN) 1.84p, Mkt cap £27m – Drilling starts at Virgo project in Botswana

• Arc Minerals reports the start of drilling at the Virgo project in Botswana.
• Management have worked up some drill targets based on the results of an Induced Polarisation survey along two trends of high chargeability.
• These lie close to an interpreted redox contact.
• This refers to an area where there is a change in the chemistry and particularly oxidising agents / reductants within the underling geology.
• Arc is planning a 3,000m maiden exploration drilling campaign using relatively cheap, Percussion and Reverse Circulation drilling to take the holes through the Kalahari sand before extending the holes using more expensive Diamond Drilling.
• The plan is for five holes using Percussion and RC drilling for 930m with a further 1,320m of DD to follow indicating the team expect to drill through around 186m of sand cover before drilling into harder rock below.
• This indicates that any potential discovery will likely start at around 186m depth.
• A further three holes will be drilled on a separate license for just 750m to test soil geochemistry with one hole to test a potential syncline.

Conclusion:  We are big fans of structural geology and its ability to direct geologists towards new mineral discoveries, but we remain cautious over its ability to direct drilling to economic targets in the Botswana Kalahari due to the relatively deep sand cover.

We continue to favour Kavango Resources* which, we see as, substantially further advanced in its exploration of the Kalahari Copper Belt and is drilling 5,000m to test trap site structures associated with associated with doubly plunging fold targets and anticlines identified from modelling of Airborne ElectroMagnetic at around 200-300m depth. The level of sand cover makes exploration equally difficult and speculative for both companies.

*The analyst holds shares in Kavango Resources

Empire Metals* (EEE LN) 10.02p, Mkt Cap £60m – Presentation on Pitfield project highlights processing potential

(Empire holds 70% of Pitfield, Century Minerals, which is run by two geologists holds the other 30%. One of these geologists works for Empire.)

• Empire Metals have released a new and updated presentation in relation to their exploration at Pitfield in Western Australia.
• https://www.empiremetals.co.uk/investors/reports-presentations/.
• The presentation explains describes the ‘giant-scale’ hydrothermal mineral system at Pitfield which is hosted within a soft rock sedimentary basin.
• The weathered cap contains across the target areas contains grades of rutile and anatase (>95% TiO2).
• Anatase is a weathered titanium mineral which is rich in titanium content but is not currently processed in the world due to its rarity and metallurgical characteristics.
• Rutile is a rare and valuable titanium raw material and generally sells for around $1,400/t.
• We do not yet know the grade of the rutile at this stage.
• The target areas also contain Titanite (~67% TiO2) within the fresh bedrock and makes up ~20% of the mineralised material by mass.
• Re: Processing, the presentation states:
  • “Rutile, anatase and titanite considered to be “non-refractory” minerals and should dissolve readily under low temperature acidic conditions.
  • An initial mineral separation stage followed by acid leach is likely to produce a high-quality TiO2 product (>95% TiO2).
  • The flowsheet will not require an energy intensive, smelting process as used by the igneous sourced “hard rock” ilmenite miners.
  • Aim is to make a pigment quality product for marketing directly to the end users for use in the manufacture of paints and coatings, plastics and paper.
  • Potential exists to further refine the TiO2 product to produce titanium metal (sponge).”

Conclusion:  While we expect the continued rutile to have ready realisable value, the sheer scale of the exploration target resources at Pitfield suggest that Titanium Dioxide convertors will also look seriously at the potential to process  anatase and titanite.

*SP Angel acts as nomad and broker to Empire Metals. Partners of SP Angel hold shares in Empire Metals

NextSource Materials (NEXT CN) C$0.9, Mkt Cap C$134m – IFC mandate letter for US$91m loan

• The Company signed a Mandate Letter with International Finance Corporation for a senior debt facility of US$91m.
• IFC provided indicative terms to lead the coordination of the overall debt syndicate with other select commercial banks and financial institutions.
• The facility covers just under half of the estimated capital cost (~US$162m) and working capital (~$25m) requirement for the Molo Graphite Mine expansion project in Madagascar.
• The Company released project FS December 2023 for the expansion of the current capacity of 17ktpa graphite concentrate to 150ktpa.
• The project is estimated to deliver NPV8 and IRR of $370m and 29.0% (both post tax) with a AISC of $714/t and using a weighted average price of $1,191/t.
• Project graphite flake distribution is Jumbo (+50 mesh, 21.8%), Large (27.3%) and Fine (50.9%.
• Funding is subject to technical, social, legal and environmental due diligence as well as regulatory and board approvals.
• Due diligence has commenced and is expected to be complete in Q1/25.
• The team has recently announced a site selection for the Battery Anode Facility wigning a long term lease agreement for a facility in the Freeport Zone of Port Louis, Mauritius.

Oriole Resources* (ORR LN) 0.4p, Mkt Cap £14m – CEO buys 3m shares

• Martin Rosser, CEO, bought 3m shares at a price of 0.354p or ~£11k worth.
• This is the first purchase of the Company’s shares by Martin Rosser with current holding estimated at ~0.1%.

*SP Angel acts as Broker to Oriole Resources

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

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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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