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

Copper rises on China stimulus speculation and lower Western inflation

MiFID II exempt information – see disclaimer below

Condor Gold* (CNR LN) – La India gold mine offers robust economics at current gold prices in sale process update

Glencore (GLEN LN) – Half-year production in line with expectations

Freeport-McMoran (FCX US) – Half-year and quarterly production results beat expectations

Oriole Resources* (ORR LN) – Update on Cameroonian lithium exploration

Premier African Minerals (PREM LN) – CEO bridge loan

Pre-IPO financing for High-Purity Alumina project

Li-ion batteries use a separator membrane made out of High-Purity Alumina

• High-Purity Alumina (HPA) is an inert chemical with high thermal stability. It gives good heat resistance and insulation making it ideal as a coating for separator membranes.
• The project alumina has been shown to be suitable for Li-ion batteries, LED lighting and synthetic sapphire for smartphones and tablets,
• The resource contains a JORC inferred resource sufficient for 10,000 – 20,000tpa of HPA >30 years
• The process uses an innovative process flowsheet combining commercial proven technologies with recent metallurgical tests producing 99.995% alumina.
• CRU estimate demand for HPA powder could reach 187,000t in 2028 from 19,000t in 2018.
• CRU predict substantial demand growth led by Li-ion battery and LED production,
• Price: High-purity alumina sells for ~$30,000/t today up from $24,000/t in 2018,
• The company looking to fund HPA studies, metallurgical work, working capital and listing costs

*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.

VOX Markets:  14/07/2023: https://audioboom.com/posts/8334912-john-meyer-on-china-s-deflation-plus-bushveld-minerals-empire-metals-strategic-minerals

*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 hold weekly gains as traders position for Fed meeting next week

• Gold prices are holding around the $1,970/oz mark following a sharp move higher over the past 10 days.
• The move reflects a repricing in interest rate expectations, with traders now betting July will be the Fed’s last hike this cycle.
• This has weighed on the dollar and US Treasury yields, supporting gold prices which traditionally move inversely with the two asset classes.

Economics

China – Authorities set out 10 steps to support auto industry including lower costs for EV charging and extending tax breaks, Bloomberg writes.

• Latest data showed car sales climbed 3%yoy to 9.5m units in six months of the year with growth driven by strong increase in EV and plug-in hybrid sales.
• NEVs (EVs and plug-in hybrids) were up 37%yoy at 3.1m during the period compared to a 8%yoy drop in ICE vehicles’ sales.

Continued China property weakness sees developer fire sales to stay afloat

• Wanda, another of China’s indebted property giants, is nearing the finalisation of an asset disposal to pay off its dollar bonds due this month.
• Bloomberg reports it is close to raising $400m through an asset sale for a bond due on Sunday.
• The bond prices are rallying on the speculation from $0.53 on Wednesday to $0.90 today.
• As a result, other Chinese junk notes are rallying as a result.

The Chinese state is working to streamline business practices for greater efficiency – we wish the UK government would do the same

• The Communist Party and State Council have published 31 guidelines on the development and growth of the private sector, including:
  • The breaking down of barriers for market access in relation to filing, registration, annual inspection, identification, certification, designation, and need for branch offices.
  • Implementation of fair competition policy systems to strengthen competition along with anti-monopoly law enforcement
  • Support efforts to enhance scientific and technological innovation capabilities
  • Increase private investment particularly in research and development along national strategic needs and industry trends
• Forthcoming statements from this Politburo meeting are expected to follow through with measures to support the 31 guidelines

China & Covid – China slowdown potentially more to do with Covid than many other issues

• We also suspect the very high and rising youth unemployment figures are also partly attributable to Long-Covid and related issues
• China published official data on Covid according to an article in the NY Times
• The official data hinted at China’s hidden Covid Toll, but then the figures disappeared.
• The data suggested that “as many people may have died from the virus in a single province earlier this year as Beijing has said died in the mainland during the entire pandemic.”
• The figures were deleted off the provincial website shortly after publication.
• A 70% rise in cremations in Q1 in one province provides supporting evidence that many more people have died than were officially recognised.
• Analysis by The New York Times estimates around 1 – 1.5m people may have died in China since the end of the government’s Zero-Covid policy.

US – A pullback in jobless claims see markets pricing in higher odds of a further rate hike at the FOMC meeting next week.

• Four week moving average of jobless claims, a less volatile measure of unemployment applications, continued to pull back through the middle of July pointing to the strength of the labour market.
• Weekly Jobless Claims: 228k v 237k the previous week and 240k est.
• Continuing Claims: 1,754k v 1,721k (revised from 1,729k) the previous week and 1,722k est.

Japan – The central bank is unlikely to change its yield curve control programme at the coming meeting, Bloomberg cites people familiar with the matter.

• The BOJ will deliver its policy decision next Friday.
• The news saw the yen continuing to slide this morning with the rate trading a little below the 142.0 mark compared to sub 138.0 a week ago.
• Meanwhile, inflation is reported to be running at 3.3%yoy in June, up on 3.2% in the previous month and above the 2% BOJ target.
• CPI (%yoy): 3.3 v 3.2 May and 3.2 est.
• CPI ex Fresh Food and Energy (%yoy): 4.2 v 4.3 May and 4.2 est.

UK – Retail sales came in stronger than expected in June in a sign that consumer spending is weathering strong headwinds amid soaring borrowing costs.

• “Retail sales grew strongly, with food sales bouncing back from the effects of the extra bank holiday, partly helped by good weather,” the Office for National Statistics said.
• Retail Sales (%mom): 0.7 v 0.1 (revised from 0.3) May and 0.2 est.
• Retail Sales (%yoy): -1.0 v -2.3 (revised from -2.1) May and -1.6 est.
• Public sector pension bill exceeds size of UK economy
• Government borrowing rises slower than forecast as higher tax revenues and lower interest costs boost finances.
• Public borrowing rose by £18.5bn in June less than the £21.1bn expected by the OBR
• The government paid £12.5 bn on debt interest in June (ONS)

Chile looks to increase domestic copper smelting capacity to reduce China reliance

• Chile’s mining ministry has delivered a proposal to Congress to develop new smelting operations in country whilst upgrading existing smelters.
• President Boric is looking to follow Indonesia’s model of enhancing mineral reserves through down streaming.
• Over 50% of Chile’s copper output is shipped as concentrate.

Currencies

US$1.1218/eur vs 1.1233/eur yesterday. Yen 139.50/$ vs 139.29/$. SAr 17.809/$ vs 17.848/$. $1.292/gbp vs $1.296/gbp. 0.682/aud vs 0.679/aud. CNY 7.185/$ vs 7.213/$.

Dollar Index 100.77 vs 100.19 yesterday.

Commodity News

Precious metals:

Gold US$1,971/oz vs US$1,982/oz yesterday

Gold ETFs 91.8moz vs US$91.8moz yesterday

Platinum US$966/oz vs US$974/oz yesterday

Palladium US$1,287/oz vs US$1,302/oz yesterday

Silver US$24.85/oz vs US$25.15/oz yesterday

Rhodium US$4,050/oz vs US$4,150/oz yesterday

Base metals:   

Copper US$ 8,537/t vs US$8,474/t yesterday

Aluminium US$ 2,208/t vs US$2,205/t yesterday

Nickel US$ 21,330/t vs US$21,395/t yesterday

Zinc US$ 2,398/t vs US$2,376/t yesterday

Lead US$ 2,131/t vs US$2,091/t yesterday

Tin US$ 28,735/t vs US$28,680/t yesterday

Energy:           

Oil US$80.3/bbl vs US$79.5/bbl yesterday

• US natural gas prices edged higher as the EIA storage report detailed a 41bcf build to 2,971bcf last week (+45bcf expected), with storage levels now 24% above last year and 13.8% above the 5-year average.
• US oil & gas energy service providers, Halliburton and Baker Hughes, beat analysts’ 2Q23 profit estimates on the back of strong demand for their respective international oilfield services divisions.
• Vattenfall announced it would suspend development on the 1.4GW Norfolk Boreas offshore wind farm after seeing cost increases of up to 40%. Vattenfall was awarded Contracts for Difference (CfD) at £37.35/MWh by the UK Government in July 2022. The 1.8GW Norfolk Vanguard is being developed as part of phase two.

Natural Gas US$2.751/mmbtu vs US$2.635/mmbtu yesterday

Uranium UXC US$55.75/lb vs US$55.75/lb yesterday 

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$115.2/t vs US$112.6/t

Chinese steel rebar 25mm US$527.0/t vs US$524.4/t

Thermal coal (1st year forward cif ARA) US$114.0/t vs US$107.8/t

Thermal coal swap Australia FOB US$140.0/t vs US$139.0/t

Coking coal swap Australia FOB US$236.0/t vs US$229.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$63,032/t vs US$62,633/t

Lithium carbonate 99% (China) US$40,092/t vs US$40,712/t

China Spodumene Li2O 6%min CIF US$4,080/t vs US$4,080/t

Ferro-Manganese European Mn78% min US$1,097/t vs US$1,116/t

China Tungsten APT 88.5% FOB US$315/mtu vs US$315/mtu

China Graphite Flake -194 FOB US$675/t vs US$675/t

Europe Vanadium Pentoxide 98% 7.5/lb vs US$7.5/lb

Europe Ferro-Vanadium 80% 32.25/kg vs US$32.25/kg

China Ilmenite Concentrate TiO2 US$310/t vs US$310/t

Spot CO2 Emissions EUA Price US$96.8/t vs US$96.3/t

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

Battery News

Chinese automakers dominate Southeast Asia EV market

• 75% of EVs sold in Southeast Asia (SEA) in Q1 were from Chinese automakers.
• Thailand, the market driving the transition, was responsible for almost 79% of EV sales across SEA.
• Incentives for consumers and generous subsidies to automakers to build EVs locally has attracted big investments from Chinese automakers, including Great Wall Motor and BYD.
• Thailand aims to convert 30% of its annual production of 2.5m vehicles into EVs by 2030.
• In total, Chinese EV makers have committed to invest at least $1.44b  in setting up production facilities in Thailand, where the auto industry has been dominated by Japanese companies for decades.

US battery makers scrambling to get foothold in EV battery recycling

• Companies in North America are looking to recycle EV batteries to take advantage of a clause in the US Inflation Reduction Act (IRA).
• The clause in the IRA automatically qualifies EV battery materials recycled in the US as American-made for subsidies, regardless of their origin.
• This in turn qualifies automakers using US-recycled battery materials for EV production incentives.
• Currently, China manages almost all global EV battery recycling in a market projected to grow from $11b in 2022 to $18b by 2028.
• Firms have already received large loans from the US government, including Li-Cycle who received $375m for a recycling plant in New York and Redwood Materials who were awarded $2b for a plant in Nevada.
• These incentives have encouraged US companies to move faster on recycling efforts than their counterparts in the EU, which has focused instead on mandates, including minimum amounts of recycled materials in future EV batteries.

NIO Power Day – what was announced?

• Third annual ’NIO Power Day’ was held in Beijing to give an update on company projects and targets.
• 20kWh vehicle-to-grid (V2G) chargers
  • vehicles can interact with the grid, allowing EVs to receive power when the grid is idle and release power when the grid load is high.
  • for the grid, this makes it possible for vehicles to participate in load regulation, helping to improve grid efficiency and reliability.
• Infrastructure targets to be realised ahead of schedule
  • Nio has 1,564 battery swap stations and 1,509 supercharging stations in China
  • Nio is likely to meet its goal of adding 1,000 battery swap stations this year one month ahead of schedule.
  • The company currently has three battery swap stations assembly plants in China, and Nio will be able to deploy these stations faster as the plants ramp up capacity.
• 150kWh battery could face delays
  • The 150kWh semi-solid-state battery pack was expected to be available in July, but it looks as though it will not be available until mid-August.
  • The battery, unveiled in January 2021, will give the automakers flagship vehicle, the ET7, a range of over 1000km.

Company News

Condor Gold* (CNR LN) 23p, Mkt Cap £43m – La India gold mine offers robust economics at current gold prices in sale process update

(Condor Resources holds 100% of the La India gold mining project)

CLICK FOR PDF

• Condor Gold have updated the market on their ‘sale process’ for the La India gold mining project in Nicaragua.
• So far “the Company has received five non-binding offers and three site visits have been completed.”
• There are currently eight companies under Non-Disclosure Agreements in place with additional enquires have been received in the past two weeks.
• Eight companies are reported to have signed Non-Disclosure Agreements with five non-binding offers received.
• Three companies have completed site visits in Nicaragua.
• The data room gives access to all drill data, technical studies to Feasibility Study level, details of permits and financial models.
• The La India gold mining project is fully permitted, and construction ready
• Management have acquired a new Semi Autogenous Grinding mill, a major long lead time item, which speeds up the construction period to just 18 months are rare.
• The Feasibility study published on 26 October 2022 shows:
  • Post-tax NPV_5% of US$86.9m at US$1,600/oz gold price
  • IRR of 23%
  • Post-tax NPV_5% US$205.2m at US$2,000/oz gold price
  • IRR of 43%.
  • La India generates an additional US$200m EBITDA at the US$2,000/oz gold price level
• Capex: US$105.5m
• Production: 81,545oz of gold for the first five years
  • The project contains two additional satellite pits which could raise production to 120,000oz pa
  • Adding underground resources could lift production further to around 150,000oz pa
• Mining rate: 1.3mtpa – lower grade material will be stockpiled for later years
• Plant throughput 0.89mtpa over 9 years
• Mining of probable ore-reserve of 602,000oz gold and 1.25moz of silver
• AISC cost: US$1,039/oz
• Total ore mined 7.3 mt
• Grade 2.56 g/t gold
• Waste 96.7 mt
• Strip ratio: 13:1
• Life of mine: 8.4 years
• The Central Breccia and Cacao deposits within the catchment of the La India plant site contain an aggregate 206,000t grading 9.9 g/t gold for 66,000oz of indicated resource and 2.1mt grading 3.3 g/t for 223,000 oz gold in inferred resource.
• Underground resources add a further 979,000t grading 6.2 g/t for 194,000 oz gold in indicated resource and 5.6mt grading 5.0 g/t gold for 898,000 oz gold inferred resource at La India, America, Mestiza, Central Breccia San Lucas, Cristalito-Tatescame, and Cacao.

Conclusion:  Condor are fielding offers for the La India gold mine project and satellite assets. The project is construction ready and the presence of a SAG mill helps to shorten and firm up on the time to first commissioning. The mine appears to offer compelling and robust economics at current gold prices.

*SP Angel acts as a broker to Condor Gold

Glencore (GLEN LN) 468p, Mkt cap £58bn – Half-year production in line with expectations

• Copper production down 4% to 488kt vs 510kt in same period 2022. Guiding towards 1,040kt FY23 vs 1,058kt FY22.
• Cobalt production up 5% to 21.7kt vs 20.7kt same period 2022. Guiding towards 38kt FY23 vs 43.8kt FY22.
• Zinc production down 10% to 435kt vs 480kt same period 2022. Guiding towards 950kt FY23 vs 939kt FY22.
• Nickel production down 20% to 46.4kt vs 57.8kt same period 2022. Guiding towards 112kt vs 108kt FY22.
• Coal production down 2% to 54.2mt vs 55.4mt same period 2022. Guiding towards 110kt (unch vs 2022)
• Vanadium pentoxide production for H1 stood at 9.3mlb, down 6% yoy. Ferrochrome production fell 9% yoy for H1.
• Glencore notes weak market conditions for cobalt, highlighting oversupply in cobalt hydroxide, but improving recoveries at its Katanga operations.
• Nickel production has been hit by offsetting third party production and the strike at their Raglan mine in 2022.
• The Company’s production is weighted more heavily to the second half of the year, with increasing production volumes from Collahuasi, Kazzinc, Mount Isa and INO.
• In terms of costs, Glencore notes ‘significantly higher post by-product $/lb’ unit costs for cobalt production.
• The Company expects full year adjusted EBIT around the $3.5-4bn range for its trading division.

Freeport-McMoran (FCX US) $42, Mkt cap $60bn – Half-year and quarterly production results beat expectations

• Freeport reports net income of $343m for Q2.
• The Company produced 1.1bnlb Cu, 484koz Au and 21mlb Moly in Q2.
• Copper sales fell 3% in Q2 vs expectations owing to shipment delays with Freeport Indonesia’s export licence.
• Freeport Indonesia’s smelter is reportedly now 75% complete.
• The Company expects cash costs for copper units to increase to $1.55/lb Cu vs $1.47/lb in Q2.
• CAPEX for the period stood at $1.2bn on a $500m investment in Indonesia smelting projects and $400m on mining projects.
• Total capex for 2023 expected at $4.8bn.
• Freeport had $9.5bn in debt over the period and cash of $6.7bn.

Oriole Resources* (ORR LN) 0.18p, Mkt cap £5m – CLICK FOR PDF – Update on Cameroonian lithium exploration

• Oriole reports an update from its lithium exploration efforts at its Ndom and Gamboukou licences in the 4091km2 CLP licence package in central Cameroon.
• Oriole have analysed a small batch of rock-chip samples from pegmatite outcrops.
• Multi-element suite analysis returned a maximum lithium value of 39.5ppm at Ndom.
• Lithium-in-soil trends have also been identified at Ndom over 9.6km.
• The Company tentatively suggests the samples returning mineralisation might be associated with lepidolite.
• Oriole’s management notes they are open to discussions with strategic partners as regards further lithium exploration at the CLP.

Conclusion: Although the Ndom licence has shown evidence of lithium mineralisation, Oriole’s exploration efforts remain in their early innings for the key battery metal. We remind readers that Oriole is primarily a gold-focused exploration and development company. Whilst lithium has the potential to offer Oriole an alternative strategy to value creation, they are currently progressing the Bibemi asset towards an exploitation licence to enable a potential standalone, gold producing project. There is also significant potential to expand the maiden resource at Bibemi, which was only published late last year. In addition, they have returned high-grade surface sample returns of up to 134g/t Au at their Mbe licence withing the Eastern CLP project, with RC drilling currently planned at the asset. We look forward to additional positive updates from the Company’s highly prospective gold assets whilst they assess their lithium strategy going forward.

*SP Angel acts as Broker to Oriole Resources

Premier African Minerals (PREM LN) 0.47p, Mkt Cap £114m – CEO bridge loan

• George Roach, CEO, will lend the Company £1.7m in unsecured loan.
• The loan will be provided in two tranches (£1m and £0.7m) repayable in six months from the drawdown.
• Under the agreement with the Company, CEO will sell shares in the Company in the market to fund the loan.
• The Company then will repay CEO in new shares on the repayment date with the number of shares equal to the loan amount divided by the price CEO shares were sold for in the market adjusted for broker fees.
• CEO will be essentially reissued the number of shares that will be sold in the market to raise loan funds.
• Loan proceeds will be used for general working purposes ahead of the general meeting scheduled for 12 August.
• If the Company is not able to issue new shares to repay the loan for some reason, the Company will repay in cash equal to the loan amount plus compounded accrued interest of 8%.
• Following the placing in May/23, CEO holds 1,628m shares in the Company representing 7.1% and valued at ~£7.7m at current spot price.

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.

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