SP Angel Morning View -Today’s Market View, Friday 21st April 2023

Chile looks to nationalise lithium sector in threat to global supply

MiFID II exempt information – see disclaimer below

BHP (BHP LN) – BHP cuts nickel and copper production targets and iron ore output slides

Glencore (GLEN) – Glencore maintains full year production guidance despite pullback in production

Pathfinder Minerals plc (PFP LN) – Pathfinder posts revised sale and purchase agreement on the disposal of IM Minerals in Mozambique

Piedmont Lithium (PLL US) – DFS delivered for Tennessee Lithium Project

• Atlantic Lithium* (ALL LN)

Scotgold Resources (SGZ LN) – £1.5-2.0m equity raise to cover working capital needs

Chile looks to nationalise lithium sector and boost downstream economy in threat to global supply

• Chile’s President Boric made a national statement regarding his administration’s approach to lithium mining.
• The left-leaning Boric announced that the state will have a controlling stake any new production contracts.
• Albermarle and SQM’s contracts are expected to expire in 2043 and 2030 respectively.
• They also plan to establish a lithium institute to enable more downstream investments, including in refining, to increase margins on their reserves.
• Boric stated that ‘this is the best change we have at transitioning to a sustainable and developed economy. We can’t afford to waste it.’
• SQM shares have fallen 9% in pre-market trading.
• Boric is also looking to flip production from solar evaporation techniques to Direct Lithium Extraction from brines, although this technology remains unproven at an economic scale.

Gold – $1,987/oz – Gold prices weaken as hawkish Fed rhetoric returns to the fore amid inflationary pressures

• Gold prices bounced off the $2,000/oz mark overnight as Fed officials warn the end is not here yet for their rate hike programme.
• Whilst Bostic has called for a one and done style 25bp hike to round things off at 5-5.25%, Bullard countered this with calls for a terminal rate as high as 5.75%.
• US Treasury yields have held around 3.5%, sliding from recent highs of 3.6% and supporting gold’s higher levels to date.
• Importantly, the University of Michigan 1 year forward inflation expectation index has jumped markedly over 4.5% from 3.5%, reflecting the impact of higher US gasoline prices going forward. This is likely fuelling increasing hawkish sentiment from the Fed as expectations of peak inflation intensify.

Tin – Myanmar – Wa State likely to continue to export tin concentrates into China despite state comments on

• We learn from our expert contacts, that comments made by the Wa State may not be quite as they seem.
• Wa State is ruled by the UWSP, ‘United Wa State Army’ possibly, Asia’s largest non-government army and the most powerful drugs militia next to the Taliban.
• The UWSP, which was pit on the US sanctions list for drug trafficking in 2003, was co-opted by the Burmese government to fight against the Shan state which controlled the drug trade and was fighting for independence.
• The UWSP also runs mechanised and semi-formal mining operations in Wa and parts of Shan with control of the core Man Maw mining areas., though more informal mining operates outside this area and outside UWSP control.
• The ITA estimated 50,000tpa in 2016 while the US Geological Survey estimates tin production fell to 31,000t in 2022 from 36,900t in 2021 (Reuters)
• It is difficult to know what is really going on in the Wa state but our contacts believe there is more to the Myanmar announcement than meets the eye.

Iron ore eases to lowest levels since December as demand from China remains subdued

• Singapore iron ore futures slid 6% yesterday, pushing prices down to $108/t.
• Mysteel data highlights Tangshan smelters have shut down 52/126 furnaces, cutting capacity by over 765kt.
• Steelmakers continue to slash prices to stimulate demand, with falling profits weighing on steel mills and compressing iron ore prices.
• Rebar and HRC prices have both fallen 2% overnight.

Thieves steel $15m worth of gold from Canadian airport

• Pearson Airport, which is a major cargo route for gold mined in Canada, has suffered a heist of $14.8m worth of gold from a cargo holding area.
• The Canadian police is investigating the matter.

 Economics

Eurozone – Business activity growth picked up in April to an 11-month high driven by the services sector while manufacturing struggled amid destocking and weakening demand.

• Interestingly, the spread between growth in services relative to manufacturing was at its widest since early 2009 and the survey has not yet previously recorded such a strong service sector expansion at a time of manufacturing decline.
• New orders climbed for a third successive month in April posting the steepest rate since May 2022, although it was solely driven by the services sector while manufacturing new orders fell at the sharpest pace in four month.
• Employment gained at the strongest pace in 11 months, again, driven by the services sector while growth in employment in the manufacturing slowed to the weakest rate in the past 27 months.
• Final goods and services price inflation pulled back to the lowest in two years, however, the absolute level remained elevated compared to historical levels.
• Importantly, services sector inflation which makes up a significant share of core CPI and is one of measures closely by the ECB despite hitting a 15-month remained strong and higher than anything recorded by the survey prior to pandemic.
• Flash Manufacturing PMI: 45.5 v 47.3 March and 48.0 est.
• Flash Services PMI: 56.6 v 55.0 March and 54.5 est.
• Flash Composite PMI: 54.4 v 53.7 March and 53.7 est.

Germany

• Flash Manufacturing PMI: 44.0 v 44.7 March and 45.7 est.
• Flash Services PMI: 55.7 v 53.7 March and 53.4 est.
• Flash Composite PMI: 53.7 v 52.6 March and 52.9 est.

France

• Flash Manufacturing PMI: 45.5 v 47.3 March and 47.8 est.
• Flash Services PMI: 56.3 v 53.9 March and 53.5 est.
• Flash Composite PMI: 53.8 v 52.7 March and 52.9 est.

UK – April Flash Composite PMI hit the strongest level in 12 months as the services sector (12-month high) more than compensated for a contraction in the manufacturing industry (4-month low).

• “The key takeaway is that the economy as a whole is not only showing encouraging resilience but has gained growth momentum heading into the second quarter, the latest PMI reading broadly indicative of GDP rising at a robust quarterly rate of 0.4%,” the PMI report read.
• “Inflationary pressures have meanwhile continued to cool in manufacturing, but price pressures have picked up in services following the resurgence of demand.”
• “This combination of faster growth and elevated price pressures put a twelfth rate hike by the Bank of England an increasingly done deal when it next meets on 11th May, and will add to speculation that further hikes may be needed.”
• Consumer confidence data showed an improvement in the sentiment in April, albeit, on absolute basis the measure is not far off pandemic lows (-34).
• Retail sales disappoint in March as consumers struggle amid high inflation and elevated borrowing costs.
• Retail Sales (%mom): -0.9 v 1.1 (revised from 1.2) February and -0.5 est.
• Retail Sales ex Auto Fuel (%mom): -1.0 v 1.4 (revised from 1.5) February and -0.6 est.
• GfK Consumer Confidence: -30 v -36 March and -35 est.
• Flash Manufacturing PMI: 46.6 v 47.9 March and 48.4 est.
• Flash Services PMI: 54.9 v 52.9 March and 52.8 est.
• Flash Composite PMI: 53.9 v 52.2 March and 52.2 est.

Bulgaria – Russian Ambassador to Bulgaria publicly commented that if she were a Bulgarian citizen, she would vote for Kostadin Kostadinov, leader of the radical pro-Russian party Vazrazhdane.

• The comment is in an apparent violation of the Vienna Convention which lays down rules for diplomatic and state relations that Russia signed in 1986.
• Bulgaria is a FSU state with a significant element of pro-Russian support
• In March 2022, Ukraine expelled Kostadinov, banning him from the Ukraine on reports that he was a Russian spy. (Euractiv)

Currencies

US$1.0945/eur vs 1.0955/eur yesterday. Yen 133.94/$ vs 134.50/$. SAr 18.064/$ vs 18.194/$. $1.240/gbp vs $1.243/gbp. 0.669/aud vs 0.672/aud. CNY 6.895/$ vs 6.886/$.

Dollar Index 101.98 vs 101.95 yesterday.

Commodity News

Precious metals:

Gold US$1,985/oz vs US$1,999/oz yesterday

Gold ETFs 93.5moz vs US$93.4moz yesterday

Platinum US$1,093/oz vs US$1,085/oz yesterday

Palladium US$1,590/oz vs US$1,603/oz yesterday

Silver US$24.97/oz vs US$25.20/oz yesterday

Rhodium US$7,900/oz vs US$7,900/oz yesterday

Base metals:   

Copper US$ 8,806/t vs US$8,900/t yesterday

Aluminium US$ 2,400/t vs US$2,432/t yesterday

Nickel US$ 24,760/t vs US$25,340/t yesterday

Zinc US$ 2,746/t vs US$2,764/t yesterday

Lead US$ 2,153/t vs US$2,144/t yesterday

Tin US$ 26,215/t vs US$27,210/t yesterday

Energy:           

Oil US$80.5/bbl vs US$81.9/bbl yesterday

• Crude oil prices continued to give back most of the OPEC+ supply cut gains on growing concerns that slower economic growth would impact global oil demand growth forecasts.
• The US EIA storage report detailed a build of 75bcf to 1,930bcf last week, with builds noted across all L48 storage regions and storage levels now 33.8% above last year and 20.5% above the 5-year average.

Natural Gas US$2.218/mmbtu vs US$2.224/mmbtu yesterday

Uranium UXC US$51.00/lb vs US$51.00/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$116.4/t vs US$117.3/t

Chinese steel rebar 25mm US$578.1/t vs US$583.0/t

Thermal coal (1st year forward cif ARA) US$132.0/t vs US$132.0/t

Thermal coal swap Australia FOB US$196.0/t vs US$184.5/t

Coking coal swap Australia FOB US$286.0/t vs US$286.0/t

Other:  

Cobalt LME 3m US$34,930/t vs US$34,930/t

NdPr Rare Earth Oxide (China) US$69,329/t vs US$68,977/t

Lithium carbonate 99% (China) US$22,844/t vs US$23,307/t

China Spodumene Li2O 5%min CIF US$4,290/t vs US$4,410/t

Ferro-Manganese European Mn78% min US$1,352/t vs US$1,353/t

China Tungsten APT 88.5% FOB US$325/mtu vs US$323/mtu

China Graphite Flake -194 FOB US$780/t vs US$780/t

Europe Vanadium Pentoxide 98% 8.7/lb vs US$8.9/lb

Europe Ferro-Vanadium 80% 35.25/kg vs US$36.25/kg

China Ilmenite Concentrate TiO2 US$344/t vs US$345/t

Spot CO2 Emissions EUA Price US$98.9/t vs  US$101.2/t

Brazil Potash CFR Granular Spot US$415.0/t vs US$415.0/t

Company News

BHP (BHP LN) 2,390p, £121bn – BHP cuts nickel and copper production targets and iron ore output slides

• BHP lowers its full year nickel production to 75-85kt vs 80-90kt.
• Copper production guidance from Escondida has been cut to 1,050-1,080kt vs 1,080-1,180kt on geotechnical issues, however total copper production guidance is unchanged.
• BHP’s Western Australian Iron Ore produced record iron ore output over the past nine months, but its quarter to March 31^st saw production slide to 66.2mt from 66.7mt over the same period 2022. Analysts had expected 67.4kt.
• The Company’s Mt Keith nickel mine has been hit by wet weather, weighing on output.
• Unit cost guidance remains unchanged.
• The Company notes its exploration team have identified a new copper porphyry mineralised system in Arizona, USA.
• The Company’s met coal output fell 13% vs same period last year, with output sliding to the lower end of expectations.
• BHP’s thermal coal output fell 2%, however production guidance remains unchanged.
• On a macroeconomic level, BHP notes that they remain positive on the commodities demand outlook from India and China, despite iron ore prices falling 15% since March.
• They also note that they expect the acquisition of OZ Minerals to complete next month.

Glencore (GLEN LN) 495.5p, Mkt cap £62bn – Glencore maintains full year production guidance despite pullback in production

• Glencore reports significant falls in Q1 copper, zinc, lead, nickel, silver and coal production compared with Q1 2022.
• Much of the decline appears to be explained by local issues such as pit phasing at the Collahuasi copper mine in Chile, suspension of the Antiamina zinc mine in Peru due to wet weather and the mining and processing of lower grades.
  • Copper production fell 5% to 244,000t from 257,800t
  • Cobalt production gained 8% to 10,500t from 9,700t
  • Zinc production fell 15% to 205,300t from 241,500t
  • Lead production fell 16% to 39,300t from 46,800t
  • Nickel production fell 32% to 20,900t from 30,700t
  • Gold production fell 1% to 187,000oz from 189,000oz
  • Ferrochrome production rose 3% in South Africa to 400,000t .
  • Coal production fell 6% to 26,900t from 28,500t due to the closure of the Newlands coal mine in Queensland and a wind down of production at the Liddell coal mine in NSW..
• Marketing: Trading continued to perform well. Management forecast their adjusted marketing EBIT to exceed the top end of their $2.2-3.2bn long-term guidance range.
• Prices for copper, nickel and zinc remain relatively firm but are trading below last year’s averages. Thermal Coal prices continue to trade at around 24% higher than last year’s average.

Conclusion:  While margins at mines are under some pressure from lower prices, higher input, and wage prices, falling fuel and energy prices should provide some respite.

We expect the marketing business to continue to perform well in the current environment supported by management’s statement on good conditions with energy product trading. This should offset much of the margin erosion in the Industrial mining business..

 Pathfinder Minerals plc (PFP LN) £0.50p, mkt cap £3.16m – Pathfinder posts revised sale and purchase agreement on the disposal of IM Minerals in Mozambique

• Pathfinder has posted a revised sale and purchase agreement on the disposal of IM Minerals in Mozambique.
• The agreement relates to an improvement in the structuring mechanics in relation to the potential deferred consideration.
• Management have agreed a deal whereby AAG ‘Acumen Advisory Group LLC’, a litigation company, can acquire Pathfinder’s mineral sands business in Mozambique, IM Minerals Limited, so that AAG can litigate against the government of Mozambique.
• Completion of the Sale and Purchase Agreement with AAG will result in a cash payment of £2m to Pathfinder.
• AAG has secured at least US$15m to fund the claim and will used best endeavours to settle and or finalise the claim within five years.
• Pathfinder has been in dispute with General Valoso and the Mozambique government over the unauthorised transfer of mineral sands licenses out of Pathfinder’s Mozambique subsidiary in 2011.

Conclusion:  We remain hopeful that AAG will secure substantial damages against the Mozambique government which, if not settled, could result in the seizure of Mozambique government assets.

Piedmont Lithium (PLL US) $53, $1bn – DFS delivered for Tennessee Lithium Project

Atlantic Lithium* (ALL LN) 33p, Mkt Cap £201m

• Piedmont releases its Definitive Feasibility Study for the Tennessee Lithium Project, which will use waste-reducing Metso:Outotec conversion technology to produce Lithium Hydroxide.
• The project will operate for a LOM of 30 years, with an annual steady state production rate of 30ktpa.
• Its total initial CAPEX is set at $809m with a post-tax NPV8 of $2.5bn with an after-tax IRR of 32% and a 2.8yr payback period.
• The study anticipates LiOH conversion AISC at $2,952/t and assumes fixed prices of $26,000/t of lithium hydroxide and $1,600/t of spodumene concentrate.
• The project is set to benefit from Biden’s Inflation Reduction Act, receiving $141.7m in tax credits from the DOE.
• The Company hopes to begin construction in 2024.
• Piedmont’s Tennessee Plant will be fed by offtake agreements with Sayona Quebec and Atlantic Lithium, who expect a DFS this summer for the Ewoyaa Lithium Project in Ghana.
• Atlantic’s Ewoyaa will be the primary feedstock for Tennessee Lithium.

*SP Angel acts as Nomad to Atlantic Lithium

Scotgold Resources (SGZ LN) 16p, Mkt Cap £11m – £1.5-2.0m equity raise to cover working capital needs

• The Company is raising ~£1.5-2.0m in new equity by way of a subscription and an open offer at 15p.
• Under the subscription agreement, Maurice and Nicole Mason, existing shareholders (~657k share pre raise), will subscribe for 3.3m shares for gross proceeds of £0.5m.
• Existing shareholders will have an opportunity to participate in the placing through an open offer (3 new shares for every 20 existing).
• A number of Board members and existing shareholders have indicated to subscribe for at least £1.0m including Peter Hetherington (Chairman, 0.7m shares for ~£0.1m), Ian Proctor (NED, 0.2m shares for ~£30k), Nathaniel Le Roux (NED, 1.7m shares for £0.25m), William Styslinger (NED, 0.7m shares for £0.1m), Maurice and Nicole Mason (Shareholder, 3.3m shares for £0.5m) and Charles Outhwaite (Shareholder, 0.3m shares for ~£50k).
• Assuming Open Offer is fully taken up, the raise represents ~20% of existing number of shares (~59.5m).
• Proceeds will be used to buy a drilling rig to improve grade control modelling as well as additional working capital as Cononish continues to ramp up to design capacity.
• Operationally, the team is reporting that long hole stoping that started 4 April is going well and in line with management expectations.
• The grade that averaged at 4.9g/t on the first cut is expected to improve as mining progresses into higher grade areas of the stope.
• The current stope is expected top provide feed for the plant until August while development works are ongoing at the 445 level that will be accessed in May to prepare the next stope mining area.
• The Company had £8k in cash as of 31 March 2023.

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 – [email protected] – 0203 470 0490

Simon Beardsmore – [email protected] – 0203 470 0484

Sergey Raevskiy –[email protected] – 0203 470 0474

 Sales

Richard Parlons –[email protected] – 0203 470 0472

Abigail Wayne – [email protected] – 0203 470 0534

Rob Rees – [email protected] – 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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