Copper short squeeze continues as CMOC and speculation Trafigura is also caught out
MiFID II exempt information – see disclaimer below
Cornish Metals* (CUSN LN) – Selling of Cornish Metals shares in Canada causes management to issue statement on share price movement
Empire Metals* (EEE LN) – Assay results from Pitfield support high grade zone near surface
Hummingbird Resources (HUM LN) – Restart of Operations at Kouroussa
Phoenix Copper* (PXC LN) – Conditional subscription for $80m worth of copper bonds to progress Empire Mine development
Sigma Lithium (SGML US) – Q1 results show improving spodumene prices
Copper short squeeze continues as CMOC and speculation Trafigura is also caught out
- LME copper is trading at near $10,500/t following a major move higher, led by speculative positioning on COMEX.
- The US exchange, which is more speculative by nature than LME which is preferred by end users, saw spreads blow out to over $1000/t premiums.
- There have been numerous reports of major trading houses suffering margin calls from short positions.
- China’s CMOC, which owns the IXM trading group, filed a report to the Shanghai Stock Exchange yesterday stating its positions were ‘completely controllable’ and its trades were ‘100% hedged to reduce price risks.’
- Reuters reported on Wednesday that IXM and Trafigura were sourcing physical copper to deliver into CME to cover short positions.
- The positions reflect expectations that current copper prices have moved ahead of current demand requirements, with China buying muted.
- Supply disruptions have limited concentrate availability, seeing smelters rush to secure available feedstock to keep their operations running, with some operating at a loss.
- Traders expect redirected shipments into the US to take some pressure of current prices, although this could take up to two weeks.
- Trading volumes in base metals have seen huge spikes this week, with LME contracts hitting all time highs in liquidity terms.
- Speculators are wagering on base metals alongside hopes of lower interest rate environments and improved PMI data.
- Russian sanctions have also fuelled concerns over metal shortages.
- Copper hedge fund positioning is reaching highest levels since January 2018.
- Shanghai speculators are also taking part, with futures trading volumes setting record highs in April.
- ETFs are seeing major inflows as retail investors flock to gain exposure to the recent rally.
- However, we note Chilean copper commission Cochilco sees prices average $4.3/lb ($4.7 today) for 2024 and $4.2/lb in 2025.
We have been at the 121 Mining Investment conference in London this week
- Numbers were slightly down on last year but the quality of investors and companies was definitely improved.
- Our investor meetings give us some insight over the direction of new money into the market with increasing focus on battery metals alongside copper and other critical materials
- We sat down with representatives from the major miners who appear particularly keen to support promising early-stage exploration.
- Other investor interests generally ranged from feasibility to near development projects.
- There was also more interest in early-state exploration than at previous events particularly for copper as prices move higher.
| Dow Jones Industrials | -0.10% | at | 39,869 | |
| Nikkei 225 | -0.34% | at | 38,787 | |
| HK Hang Seng | +1.09% | at | 19,588 | |
| Shanghai Composite | +1.01% | at | 3,154 | |
| US 10 Year Yield (bp change) | 0.2 | at | 4.38 |
Economics
China – Industrial Production jumps 6.7% yoy
- Fixed Asset Investment rose by a lesser 4.6% yoy
- Retail Sales rose just 2.3% yoy.
China Vanke Co. Ltd reported to be close to collapse
- China Vanke Co appears to be in financial strife with the sale of 19,000sqm of prime land for sale at a 29% discount on the price it paid 7 years ago according to the Economist.
- The situation draws parallels with Evergrande which has now gone into liquidation.
- State owned, Shenzhen Metro holds around a quarter of Vanke stock tying it in with the Chinese government.
- China Vanke owes some CNY320bn ($44bn) with CNY31bn ($4.3bn) in public bonds and losses of CNY1.7bn ($0.24bn) in Q1.
- China reported this week it will issue CNY1tn ($140bn) worth of special bonds to help support the economy in its fourth issuance of special bonds since the Asian Crisis in the 1990s
Eurozone – CPI at 2.4% in April
- Core CPI came in at 2.7%.
- We view the figures as ‘good enough’ and a positive indicator to enable the ECB to cut interest rates sooner rather than later.
- ECB member Isabel Schnabel has indicated potential for rate cuts in June and possibly July as well
Currencies
US$1.0860/eur vs 1.0787/eur previous. Yen 155.81/$ vs 156.48/$. SAr 18.183/$ vs 18.435/$. $1.266/gbp vs $1.255/gbp. 0.667/aud vs 0.660/aud. CNY 7.221/$ vs 7.238/$.
Dollar Index 104.59 vs 105.27 previous.
Precious metals:
Gold US$2,384/oz vs US$2,349/oz previous
Gold ETFs 80.7moz vs 80.7moz previous
Platinum US$1,065/oz vs US$80,520,808/oz previous
Palladium US$987/oz vs US$1,004/oz previous
Silver US$29.73/oz vs US$970/oz previous
Rhodium US$4,725/oz vs US$28/oz previous
Base metals:
Copper US$ 10,496/t vs US$10,424/t previous
Aluminium US$ 2,600/t vs US$10,207/t previous
Nickel US$ 20,885/t vs US$2,544/t previous
Zinc US$ 2,970/t vs US$19,130/t previous
Lead US$ 2,289/t vs US$2,988/t previous
Tin US$ 34,060/t vs US$2,245/t previous
Energy:
Oil US$83.6/bbl vs US$79.0/bbl previous
Natural Gas €30.7/MWh vs €83.3/MWh previous
Uranium Futures $90.7/lb vs $29.5/lb previous
Henry Hub Gas US$2.50/mmBtu vs US$2.40/mmBtu yesterday
- US Henry Hub natural gas prices continued to move higher after the EIA reported a 70bcf w/w build to 2,633bcf (+76bcf exp), with storage levels falling to 19% above last year and 30.8% above the 5-year average.
- Chevron announced plans to dispose its remaining UK North Sea assets, which include the 120kb/d Clair oil field (19.4% WI) plus interests in the Ninian pipeline and the Sullom Voe oil terminal.
- Crescent Energy announced the largely stock-based acquisition of SilverBow Resources for $2.1bn, which will create the 2nd largest operator in the Eagle Ford Basin with 250kboe/d and up to $100m in annual synergies.
- Boralex announced £130m in long-term financing for the 106MW Limekiln Wind Farm in Scotland, which has secured CfDs equivalent to £73.33/MWh in 2024 prices and is expected to be commissioned by December.
Bulk:
Iron Ore 62% Fe Spot (cfr Tianjin) US$116.4/t vs US$116.4/t
Chinese steel rebar 25mm US$538.5/t vs US$116.8/t
Thermal coal (1st year forward cif ARA) US$114.0/t vs US$535.6/t
Thermal coal swap Australia FOB US$14,273.3/t vs US$111.0/t
Hard Coking Coal Australia FOB US$326.0/t vs US$140.5/t
Other:
Cobalt LME 3m US$27,830/t vs US$27,700/t
NdPr Rare Earth Oxide (China) US$55,319/t vs US$27,830/t
Lithium carbonate 99% (China) US$14,332/t vs US$56,440/t
China Spodumene Li2O 6%min CIF US$1,210/t vs US$14,714/t
Ferro-Manganese European Mn78% min US$972/t vs US$1,230/t
China Tungsten APT 88.5% FOB US$365/mtu vs US$972/mtu
China Graphite Flake -194 FOB US$470/t vs US$345/t
Europe Vanadium Pentoxide 98% 5.1/lb vs US$470.0/lb
Europe Ferro-Vanadium 80% 26.35/kg vs US$5.10/kg
China Ilmenite Concentrate TiO2 US$325/t vs US$026/t
China Rutile Concentrate 95% TiO2 US$1,405/t vs US$324/t
Spot CO2 Emissions EUA Price US$68.4/t vs US$1,402.4/t
Brazil Potash CFR Granular Spot US$305.0/t vs US$68.4/t
Battery News
Honda pledges $65bn for cheaper EVs
- The Japanese automaker will invest $65bn into EVs by 2030 – more than double what it had previously committed to.
- Despite current trends indicating that consumers are more interested in hybrids, Honda predicts that demand for all-electric cars will increase rapidly towards the end of the decade.
- Honda wants to be producing more than 2m EVs annually by 2030.
- Through strengthened supply chains said to be adequate for the planned production of these EVs, Honda predicts the cost of battery procurement to drop by “more than 20% compared to the cost of current batteries” and overall production costs by “approximately 35%.”
US demand for EVs falls due to shortage of affordable cars
- The study by J.D. Power shows that the number of people considering an EV purchase in 2024 has fallen from a year ago, due to a shortage of affordable cars and inadequate charging infrastructure.
- It showed that 24% of prospective vehicle buyers were “very likely” to consider purchasing an EV in 2024, down from 26% a year ago.
Xiaomi targeting 100,000 EV sales in 2024
- Despite launching the SU7 in late March, the newcomer to the EV market is targeting sales of 100,000 EVs in 2024.
- The company has said its sales are only limited by production capacity and that already has over 120,000 orders.
- Xiaomi have a second production facility under construction that will take total production capacity to 300,000 annually.
- By using Tesla’s ‘Hyper Die-Casting’ technology, which significantly reduces the number of body parts, Xiaomi will be able to produce an EV every two minutes.
GM and LG to pay out $150m to Chevy Bolt owners over faulty batteries
- General Motors and LG Energy Solution have reached a settlement to establish a $150m fund to provide relief to Chevrolet Bolt EV owners affected by defective batteries.
- Launched in 2015, GM began issuing recalls in 2020 following numerous reports of fires in some vehicles.
- “Bolt owners who received a battery replacement or who have installed the latest advanced diagnostic software may qualify for compensation,” the companies said in a statement.
- Owners of the recalled Bolts who installed the final software remedy at a GM-authorised dealership before 31st December 2023 could receive up to $1,400.
Nio to launch one new EV model annually
- The Chinese EV giant will launch one new model every year under its Onvo brand.
- Onvo has been launched as a more affordable brand with prices competitive with similar ICE vehicles.
- The Onvo L60 SUV launched with a starting price of approx. $30,476, 12% lower that the Tesla Model Y starting price in China.
Company News
Cornish Metals* (CUSN LN) 6.71p, Mkt Cap £31m – Selling of Cornish Metals shares in Canada causes management to issue statement on share price movement
Valuation under review
- Cornish Metals report the company is not aware of any “operational or corporate reason for the price movement” this week.
- Management reiterate the recent PEA validates South Crofty’s economic viability, producing a post-tax NPV of US$201m and IRR of 29.8%
- Substantial volumes of shares have traded in Canada over the past week with volumes picking up substantially on the opening of the Canadian market at 2:30 each afternoon.
- The team continue to refurbish the New Cook’s Kitchen mine shaft with ongoing dewatering of the mine.
- Exploration drilling of the Wide Formation should continue to add to the resource while new planned drilling from the underground workings will fill in any gaps in the existing resource.
- It is important to note that on-vein development at South Crofty has run since the 1592 and has only ever been limited by the availability of capital, tin prices and major wars.
- The mine runs across 2.5 miles and extends to 910m depth with >40 lodes mined.
- Mineralisation continues below the 910m level offering the opportunity for further resource expansion while the new discovery of the Wide Formation offers further lateral extension.
- The introduction of XRT ‘X-Ray’ and DMS ‘Dense Media Separation’ further enhances the future profitability of the mine through more efficient processing.
- This works well with the use of Long-Hole Stoping to increase the mining rate, improving efficiency and enabling better mechanisation of the mine.
- Long-Hole Stoping was developed at South Crofty in the 1990s. We understand this process worked well and our memory of the mined-out and sub-vertical open stopes is that they are well suited to this type of mining.
- It will also be relatively easy to develop new, deeper levels to expand production or extend the existing reserve and resource life.
- There are multiple shafts and ventilation raises available to use with permission for mining running out to 2017.
- While expanding hoisting capacity can be done through modification of the skips used at New Cook’s Kitchen shaft further capacity could be gained through the sorting and disposal of waste material underground.
- The mine plans to dispose of its waste rock and tailings into the many underground voids reducing the need for surface tailings impoundment..
- Key PEA financials:
- Tin price assumption: US$31,000/t
- Post-tax NPV8% US$201m, pre-tax US$264m
- IRR of 29.8% post-tax and 33.4% Pre-tax
- Payback within 3 years.
- Production: 4,728 t tin in concentrate from years 2 to 6
- Grade 0.94% mined
- Cash costs of US$12,705/t for life of mine
- AISC $13,661 /t payable tin.
- EBITDA US$83mpa from years 2–6 average.
- Capex: US$177m
- Mining rate rises to 500ktpa from 350ktpa in the 2017 PEA. Total LOM tonnes mined 5,955,000t
- Processing 250,000tpa @ 1.83% tin due to pre-concentration technology
- Recovery: 87.8%
Conclusion: The current share price appears to substantially undervalue the forecast cash flow and resource potential of the South Crofty tin mine.
*SP Angel acts as Nomad and Broker. An SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals
Empire Metals* (EEE LN) 9.5p, Mkt Cap £57m – Assay results from Pitfield support high grade zone near surface
(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, which is progressing the Pitfield titanium project in Western Australia, reported additional assay results from their current drill programme.
- All 22 holes identified Tio2 mineralisaiton, at consistent grades with previous results.
- Diamond drilling highlights shallow lying weathered sandstones coinciding with higher Tio2 grades.
- Average grades at Cosgrove and Thomas for the top 40m represent 5.5% Tio2 vs 4.82% below that depth.
- Highlights include:
- 154m at 6.6% Tio2 from surface
- 150m at 6.44% Tio2 from 4m
- 154m at 6.3% Tio2 from surface
- 142m at 6% Tio2 from 12m.
- Analytical results from the diamond drill holes are due soon.
- Empire has now drilled 107 holes over 17,000m.
- The Company is progressing the JORC Exploration Targets for the Cosgrove and Thomas higher grade zones as it works towards an MRE,
- Empire has appointed a resource modelling consultant to progress the exploration target.
Conclusion: Empire has now completed a major drilling programme at Pitfield, spanning over 17,000m and 107 holes. It is promising to see higher grades towards surface, which will be supporting of bulk open pit mining of the Cosgrove and Thomas zones. Empire is accelerating its JORC Exploration Target with the appointment of a resource modelling consultant. We look forward to the diamond drilling results which will provide additional information into the mineralogy of the deposit. Processing remains the key to unlocking Pitfield’s potential and Empire’s recently expanded metallurgical team are working towards the construction of a demonstration plant to highlight the Project’s economics.
*SP Angel acts as nomad and broker to Empire Metals
Hummingbird Resources (HUM LN) 10.6p, Mkt Cap £85m – Restart of Operations at Kouroussa
- Hummingbird announces today it has resumed operations at the Kouroussa Gold Mine following a suspension of contracting operations.
- The Company’s largest shareholder CIG SA will provide a $10m loan to support working capital expenses.
- The short-term loan will hold an interest rate of 14% pa maturing on 30th September 2024 and is unsecured.
- Corica’s equipment has been mobilised to site and operations have now resumed.
- Full ramp up is expected by beginning of the third quarter of this year, hitting the nameplate 200koz pa production target.
Phoenix Copper* (PXC LN) 20.4p, Mkt Cap £9m – Conditional subscription for $80m worth of copper bonds to progress Empire Mine development
Phoenix holds 80% of the Empire mining property in Idaho)
- Phoenix Copper announced on Wednesday that it has entered a subscription agreement with NIU Invest for its bond financing.
- The conditional agreement sees the Private Equity firm subscribe for US$80m worth of bonds, drawn in tranches to fund construction of the mine and support working capital.
- The bonds are not convertible, however Phoenix has agreed to pay an arrangement fee of 33.9m in new shares alongside a drawdown fee of 22.59m warrants.
- The warrants will vest with the drawdown of the first $30m tranche.
- The Investor will thus be able to secure a 25% investment in Empire over a five year period.
- The bonds will pay a floating rate coupon at a minimum of 8.5% pa and a maximum of 20% pa.
- The coupon is based off of the LME copper price and is payable semi-annually.
- The bonds are secured over the Company’s interest in the Empire mine.
- The Company plans to list the Bonds on a European stock exchange.
*SP Angel acts as nomad to Phoenix Copper
Sigma Lithium (SGML US) $18, Mkt Cap $2bn – Q1 results show improving spodumene prices
- Sigma, operator of the Groto do Cirilo spodumene mine in Brazil, report their Q1 results.
- The Company produced 54kt over the period, at a concentrate grade of 5.4%.
- Revenue generated of $37m for an average selling price of $704/t.
- Adjusted EBITDA of $5.9m with net income at negative $6.9m.
- Cash unit operating costs reported at $397/t and FOB costs including royalties at $483/t, down 16% from 4Q23.
- Management has greenlit their expansion plans to boost 250ktpa production capacity to the current 270ktpa operation.
- Total expected CAPEX for the expansion expected at $100m.
- Reserves boosted 40% to 77mt.
- The Company held $108m in cash at the end of the reporting period.
Conclusion: Sigma’s results show improving spodumene concentrate prices from their auctions and sales, which help provide more transparency into current pricing than available from index figures. The Company has sold 22kt priced at $1,459/t grossed at VAT, an 11% increase from their last shipment in April. Lithium producers continue to report improving customer demand following the period of weakness into the New Year. Whilst a return to the lofty heights of early 2023 prices is unfeasible, we remain confident in the long-term appeal of low cost hard rock lithium development projects, including Atlantic Lithium*, Kodal* and Savannah Resources*
*SP Angel acts as Nomad/Broker for Atlantic and Savannah and Broker and Financial Adviser to Kodal.
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
SP Angel
Prince Frederick House
35-39 Maddox Street London
W1S 2PP
*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.
| Sources of commodity prices | |
| Gold, Platinum, Palladium, Silver | BGNL (Bloomberg Generic Composite rate, London) |
| Gold ETFs, Steel | Bloomberg |
| Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt | LME |
| Oil Brent | ICE |
| Natural Gas, Uranium, Iron Ore | NYMEX |
| Thermal Coal | Bloomberg OTC Composite |
| Coking Coal | SSY |
| RRE | Steelhome |
| Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite, Rutile | Asian Metal |
DISCLAIMER
This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.
This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.
This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.
This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.
Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.
Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.
SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).
SPA is registered in England and Wales with company number OC317049. The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP. SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.
MiFID II – Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.
A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).
SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%
