SP Angel Morning View -Today’s Market View, Friday 1st November 2024

Gold bounces following sharp sell-off as NFP data comes into focus

MiFID II exempt information – see disclaimer below

Agnico Eagle (AEM US) – Production results as higher gold price supports record free cash flow

Emmerson (EML LN) – Moroccan government dispute

Hummingbird Resources (HUM LN) – Debt negotiations update

Kodal Minerals* (KOD LN) – Kodal agrees terms with Mali government on transfer of lithium mining license to new code

Orosur Mining* (OMI LN) – Stock options awarded

Gold ($2,750/oz) bounces following sell-off as ‘Non-Farm Payroll’ data comes into focus

• Gold sold off yesterday following a sustained rally, amid wider market weakness.
• Spot prices fell 1.7% yesterday afternoon, triggering a sell-off across gold miners, as the wider US index suffered weakness.
• Bonds have been weakening across the board on a global scale, with the US 10 year yield hovering around 4.3%, up 60bp since the Fed cut rates in September.
• Concerns have been mounting over the US deficit, whilst escalating de-dollarization discussions from BRIC countries have also added to gold’s strength.
• The sell-off likely reflects the substantial rally gold has enjoyed this year, with momentum-driven funds rushing in to take advantage of the strong price action.
• NFP data is due today, with economists expecting 105k additions vs 254k prior, with weakness expected from hurricane effects.
• A weaker-than-expected reading could reignite recession concerns, potentially pushing yields lower and supporting gold.
• However, gold market participants are likely more focused on the US election next week.

Copper ($9,570/t) holds steady as Freeport probed over Indonesian smelter

• Copper trading has been subdued, hovering below $9,600/t.
• Bloomberg reports the SEC is probing Freeport over its $3.7bn smelter and its vulnerability to earthquakes.
• Base metals are showing some signs of strength, with nickel and lead both climbing.
• Zinc has been weak, whilst aluminium and tin are steady.

Battery cell prices fell to all time low of below $60/kWh in September

• Global battery cell prices hit an all-time low, according to latest data from Benchmark Mineral Intelligence (BMI), driven by persistent declines in raw materials prices, including lithium and cobalt.
• Weaker battery prices were led by lithium iron phosphate (LFP) cells, which reached $59/kWh based on weighted average prices.
• The price of LFP batteries are down 20% this year, the BMI report highlighted.
• “Prices will likely drop a little further on average, but already LFP battery cells have and are actively being purchased in instances at agreed prices around $50/kWh,” said Evan Hartley, research manager at Benchmark.

China’s October NEV retail sales projected to top 1m for third consecutive month

• In October, retail sales of passenger NEVs in China are expected to be at 1.15m units, up 49% yoy and up 2.4% on September, according to estimates released today by the China Passenger Car Association (CPCA).
• The CPCA estimate that penetration rate of NEVs will be at 52.3%, slightly lower that the 53.3% seen in September.

Mali – Government of Mali seals deal with Kodal Minerals for move to new 2023 mining code

• Today’s news on the agreed terms between the Government of Mali and the Kodal Minerals* joint venture with Hainan Mining follows on from the deal agreed with Ganfeng who acquired leo Lithium’s assets in May.
• Ganfeng agreed to pay US$342.7m for Leo Lithium’s Goulamina lithium project in the Bougouni region subject to approval by the Chinese government.
• Leo Lithium had previously paid $7.6m in capital gains tax to the Mali government on the sale of a 5% stake to Ganfeng for US$65m.
• We expect either Leo Lithium or Ganfeng to have paid a further $61m in CGT on the sale of the remaining 40% of Goulamina to Ganfeng.
• The Government of Mali has insisted on taking an additional 25% in the Bougouni lithium project for a relatively modest price raising its stake to 35%.
• The concession is that all related imports are duty free with the possible exemption of petroleum products though we are waiting on clarification on this important item.
• Other miners operating in Mali:
  • Barrick Gold, Anglogold Ashanti, IAM Gold, B2 Gold, Resolute Mining, Allied Gold, Ganfeng (Leo Lithium), Galiano Gold, Robex Resources, Hummingbird, Kodal Minerals*, Cora Gold
• The terms extracted from the Kodal Minerals* joint venture may dissuade miners from looking to invest in Mali in all but the most exceptional of projects.

Economics

Australian mining sector paid more in taxes and royalties than all other industries combined for the second consecutive year in 2022/23.

• Mining contributed ~A$75bn to the budget in fiscal payments during the fiscal year including A$32bn in royalties, MiningWeekly reports.
• The industry continues to pay the highest average wages nationally and employs 1.1m people directly and in the sector’s supply chains.
• Fiscal payments increased fivefold since 2014/15.

US – NFPs are due later this afternoon with numbers expected to dip significantly on the back of storms and strikes.

• NFPs are expected to come in at 105k, down from 254k in September, reflecting temporary disruption caused by Hurricanes Helen and Milton, as well as a week long strike at Boeing.
• Unemployment and growth in wages are expected to remain unchanged from September readings at 4.1% and 4.0%, respectively.

China – Rubber stamp parliament is due to sign off on a fiscal stimulus next week confirming the size of the package.

• FT cites estimates for CNY 10tn over three years required to restore domestic consumer confidence.
• Many expect the package to mostly focus on fixing local governments’ balance sheets through debt swpas as well as providing funds to buy land and unsold properties to limit further downside in the real estate market.
• Caixin Manufacturing PMI (Oct/Sep/Est): 50.3/49.3/49.7

UK – Property prices climbed 2.4%yoy in October, slowing down from the 3.2% increase reported in the previous month, according to Nationwide.

• Hopes are for the market to pick up as the long awaited budget came in not as dramatic as feared.
• Potential for lower mortgage rates should also help moving forwards.

Spain – Death toll rises to 158 from extraordinary flooding

• The death toll continues to rise from worst flash flooding in >50 years
• Hot water in the Mediterranean caused the storm to grow beyond normal proportions fuelling giant clouds of water vapour.
• The storm erupted as these warm, moist clouds hit a cold front, known as a ‘gota fria’ coming in from the West.
• Rising water temperatures in the Gulf of Mexico have also been fuelling larger and possibly more frequent storms in the region.
• Scientists estimate that each 1C degree of sea warming raises the amount of rain in the clouds in the Mediterranean by 7%.

Botswana – To the left of the centre opposition Umbrella for Democratic Change will replace the ruling party for the first time in nearly 60 years following general election results this Wednesday.

• President Mokgweetsi Masisi, the leader of his Botswana Democratic Party, agreed with a defeat today before the final tally came in.
• The Democratic Change is led by Harvard educated Duma Boko, a human rights lawyer, which is set to secure 25 seats in the 61 seat parliament.

Currencies

US$1.0859/eur vs 1.0856/eur previous. Yen 152.63/$ vs 151.92/$. SAr 17.656/$ vs 17.734/$. $1.291/gbp vs $1.298/gbp. 0.656/aud vs 0.658/aud. CNY 7.125/$ vs 7.116/$.

Dollar Index 104.11 vs 103.94 previous

Precious metals:         

Gold US$2,754/oz vs US$2,778/oz previous

Gold ETFs 84.0moz vs 83.9moz previous

Platinum US$996/oz vs US$1,004/oz previous

Palladium US$1,113/oz vs US$1,137/oz previous

Silver US$32.8/oz vs US$33.5/oz previous

Rhodium US$4,675/oz vs US$4,675/oz previous

Base metals:   

Copper US$9,553/t vs US$9,538/t previous

Aluminium US$2,630/t vs US$2,629/t previous

Nickel US$16,030/t vs US$15,810/t previous

Zinc US$3,032/t vs US$3,105/t previous

Lead US$2,063/t vs US$2,001/t previous

Tin US$31,365/t vs US$31,200/t previous

Energy:           

Oil US$74.6/bbl vs US$72.4/bbl previous

• US Henry Hub prices moved lower as the EIA reported a 78bcf w/w build to 3,863bcf, with US gas storage levels falling w/w to 2.8% above last year and 4.8% above the 5-year average.
• The EIA estimates average 9M24 US natural gas production flat y/y at 103.1bcf/d, with a ~11% drop in shale gas from the Haynesville and Utica offset by a 10% increase from the Permian, with Marcellus production flat.

Natural Gas €39.4/MWh vs €40.8/MWh previous

Uranium Futures $79.7/lb vs $80.0/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$104.1/t vs US$104.1/t

Chinese steel rebar 25mm US$536.3/t vs US$537.9/t

HCC FOB Australia US$206.5/t vs US$207.0/t

Thermal coal swap Australia FOB US$145.5/t vs US$145.5/t

Other:  

Cobalt LME 3m US$24,300/t vs US$24,300/t

NdPr Rare Earth Oxide (China) US$59,439/t vs US$59,515/t

Lithium carbonate 99% (China) US$9,895/t vs US$9,908/t

China Spodumene Li2O 6%min CIF US$750/t vs US$750/t

Ferro-Manganese European Mn78% min US$985/t vs US$985/t

China Tungsten APT 88.5% FOB US$340/mtu vs US$340/mtu

China Graphite Flake -194 FOB US$440/t vs US$440/t

Europe Vanadium Pentoxide 98% US$4.6/lb vs US$4.6/lb

Europe Ferro-Vanadium 80% US$24.55/kg vs US$24.55/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$314/t

China Rutile Concentrate 95% TiO2 US$1,214/t vs US$1,216/t

Spot CO2 Emissions EUA Price US$62.6/t vs US$63.9/t

Brazil Potash CFR Granular Spot US$280.0/t vs US$280.0/t

Germanium China 99.99% US$2,875.0/kg vs US$2,875.0/kg

China Gallium 99.99% US$455.0/kg vs US$455.0/kg

Battery News

CNGR Advanced Material to build $10bn material production facility in Indonesia

• Chinese battery material maker CNGR Advanced Material is planning to build a $10bn integrated production facility worth in Indonesia.
• The project is the latest venture by a Chinese-backed firm in Indonesia, which banned nickel ore exports in 2020 to try to establish a fully integrated battery industry and EV ecosystem at home.
• The investment is expected to take place over 10-15 years and the company

Company News

Agnico Eagle (AEM US) $86, Mkt Cap $43bn – Production results as higher gold price supports record free cash flow

• Agnico Eagle reported production results this week, producing 863koz over the quarter at $908/oz total cash cost and $1,286/oz AISC.
• Company has now produced 2.6moz over the first nine months of 2024, vs 2.5moz same period last year.
• AISC at $1,214/oz for the nine-month period, up from $1,162/oz same period last year.
• Suggests tracking guidance to meet mid-point, with cost guidance unchanged.
• Operating cash flow of $1.1bn, and free cash flow of $620m.
• Net debt reduced by $1bn from $1.5bn to $0.5bn.
• CAPEX over the period at $437m
• Growth projects include Detour Lake, with extension drilling is ongoing within the underground section.
• Ramp development at the Odyssey Mine at Canadian Malartic, with expectations of additional mineral resources.
• Higher costs reflecting higher royalties and increased production costs from Canadian Malartic, whilst the weaker Canadian dollar benefited operations.

Emmerson (EML LN) 0.6p, Mkt Cap £7m – Moroccan government dispute

• The Company notified the Moroccan government of an investment dispute.
• The Company is arguing the government is in violation of the agreement between the UK and Morocco for the Promotion and Protection of Investments.
• The agreement was signed in October 1990 and entered into force in 2002.
• The Company may submit its dispute for settlement by arbitration to the International Centre for the Settlement of Investment Disputes.
• Before filing an application for arbitration, the team is offering the government to engage in discussions regarding cash compensation for the damages incurred following unfavourable recommendation regarding the Khemisset Potash Project ESIA application.
• Should discussions prove to be unsuccessful, the Company is planning to submit a claim for arbitration.
• The stock is up 50% this morning.

Hummingbird Resources (HUM LN) 6.3p, Mkt Cap £51m – Debt negotiations update

• The Company provides an update regarding ongoing discussions with its primary lenders including Coris and CIG.
• Negotiations are focused on the Company’s liquidity position and the grant of short term waivers.
• The Company received $10m of new $20m CIG loan facility in September with the balance expected to be drawn in the coming days.
• Coris agreed to delay payments totalling $30m due on 31 October pending agreement on wider restructuring planned to be concluded on or before 6 November.
• Net debt due to Coris is currently at $135m, include $90m secured against the Company’s assets, with a further $20m due in unsecured debt to CIG.
• Both Coris and CIG are controlled by the same principal.

Kodal Minerals* (KOD LN) 0.42p, Mkt Cap £84m – Kodal agrees terms with Mali government on transfer of lithium mining license to new code

Target price under review

(Hainan Mining holds a 51% stake in KMUK which holds the Bougouni Lithium Project in Mali with Kodal holding 49%. Mali will hold 35% of the jv company with KMUK)

(Kodal Minerals Plc now, effectively, hold 49% of 65% of the Bougouni project)

• Kodal Minerals report the agreement of terms with the Government of Mali for the transfer of the Bougouni lithium project mining licence to the new code.
• The mining project license will be transferred to LMLB and will migrate to the new Mali 2023 mining code:
• Key terms:
  • 35% of the mining project will be transferred to the Mali government and will be held in the LMLB jv company made up of:
    • 10% free carry. This is a long-standing item in Mali.
    • 25% of new equity for ~US$4.3 million.
    • The 35% equity interest cannot be diluted below 35% in the event of any capital increases in LMLB.
    • KMUK partners are able to recover all capital investment and intercompany loans from the operation as a priority.
  • 65% of LMLB will be held by the Kodal jv with Hainan Mining within KMUK.
  • 10-year term for the mining license with renewal likely but subject to conditions in the mining code.
  • Customs and duties exemptions during construction continue including the temporary admission of vehicles, machinery and other property under the regime and in the mining list.
    • Including all tools, oils and greases for machines necessary for their activities, petroleum products, spare parts, materials and equipment, machinery and appliances.
  • LMLB will have at least four directors representing Mali including two independent directors.
  • Mali will grant all necessary permits for operation including export permits for the spodumene product.
  • US$15 million cash payment to the State relating to the Hainan Transaction with US$7.5m payable within 5 days of signing the MoU. The second US$7.5m is due by 31 March 2025.
• “Upon completion of transfer of the mining licence the MoU confirms that the Bougouni mining licence will be in full compliance with all legal requirements and in good standing.”
• Today’s news follows on from the deal agreed with Ganfeng who acquired Leo Lithium’s assets in May.
• Ganfeng agreed to pay US$342.7m in May for Leo Lithium’s Goulamina lithium project in the Bougouni region subject to approval by the Chinese government.
• Leo Lithium had previously paid $7.6m in capital gains tax to the Mali government on the sale of a 5% stake to Ganfeng for US$65m.
• We expect either Leo Lithium or Ganfeng to have paid a further $61m in CGT on the sale of the remaining 40% of Goulamina to Ganfeng.

Conclusion:  The sale of 25% of equity in the joint venture company with the government for US$4.3m is tough on the Kodal / Hainan joint venture.  The $15m cash payment relating to Hainan’s acquisition of 51% of KMUK, the jv company where Kodal holds 49% and Hainan Mining holds 51% is a surprise concession to the government and sets a concerning precedent for other miners and transactions relating to assets in Mali.

*SP Angel acts as financial advisor and broker to Kodal Minerals.

Orosur Mining* (OMI LN) 2.9p, Mkt Cap £8m – Stock options awarded

(Anzá 100% indirect ownership proposed)

• Orosur has awarded officers, employees and consultants 1.75m options and 1.68m RSUs in line with their equity incentive plan.
• 2.25m options and 1.35m RSUs were granted to Directors.
• Options are exercisable at C$0.06 and are exercisable until November 2034.
• Total RSU and Options represent 5.8% of the non-diluted share capital of the Company.
• The RSUs vest in two equal parts, on the anniversary of this grant and the second half will vest on the second anniversary.
• 5.76m options have been cancelled.

*SP Angel acts as Nomad and Broker to Orosur Mining

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

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