SP Angel Morning View -Today’s Market View, Friday 24th November 2023

Iron ore rises to $135/t as steel inventories fall

MiFID II exempt information – see disclaimer below

Hochschild Mining (HOC LN) – Guidance raises production and lowers costs as LatAm operations ramp up

LithiumBank Resources (LBNK CN) – DLE testwork results

Iron ore rises as China steel stocks extend declines as demand picks up

• China steel mills have seen inventories decline for the sixth week in a row, hitting December 2019 lows.
• Iron ore prices are sitting at elevated levels of $135/t, reflecting improving appetite for steelmaking.
• November is traditionally a seasonal lull for steel demand.
• BMI have raised their iron ore forecasts for 2024 to $120/t.
• Beijing officials are trying hard to quash the recent rally, seemingly with little success.

Copper prices hold gains as Cobre Panama suspends production and China demand optimism improves

• Copper prices are holding around $8,400/t, despite persistent contango suggesting spot demand remains weak.
• First Quantum’s Cobre Panama, which produces c.1.5% of global production, has stopped commercial production this week.
• The mine has been hit by protests across Panama, and Congress continues to question its role in the Country’s future.
• Protestors had been blocking the Company’s port used to transport supplies to the mine and concentrate from the mine.
• However, the metal continues to trade at a $100/t discount to futures, a sign of ample short-term supply.
• We note a confusing picture going into 2024, with China premiums sliding whilst TC/RC rates also fall.
• Higher treatment charges reflect more abundant concentrate supply.
• Antofagasta has negotiated an $80/t fee for smelting its concentrate in China, down from levels in the $90s this year.
• This year has seen a resumption of flows from Peru following protests and the DRC after the Tenke dispute was settled.
• Las Bambas is facing striking action, adding to supply concerns.
• Chinese smelter capacity expansion has been on a tear since Beijing warned it may cap new capacity, as it did with aluminium. (Reuters)
• We expect China to continue to acquire mining projects, as seen with MMG’s purchase of Khoemacau, to feed their smelters’ demand for concentrate.

Gold (US$1,994/oz) – Gold focus turns to US PMIs for Fed guidance but looks likely to outperform if US dollar pulls back

• Gold has been hovering around the $2,000/oz mark over a quiet week for US economic data.
• Today’s PMIs should provide a catalyst in either direction, with economists currently predicting a contraction in manufacturing for October.
• Muted trading yesterday on closed markets for Thanksgiving.
• Treasuries opened lower, with 10-year yields rising to 4.5% before strengthening again.
• The move lower in yields through November has been a major tailwind for gold prices, despite warming relations in the Middle East removing the appetite for safe haven assets.
• The dollar has been hit by lower yields, with the greenback index sliding to August levels.
• Next week will be a major week for gold, with GDP estimates, inflation data and jobless claims all in focus.

IMF – IMF estimate global subsidies for oil, gas and coal are at $7tn

• Subsidies for fossil fuels have risen $2tn to $7tn on IMF estimates as nations move to help consumers ignoring COP26 agreements to phase out subsidies which promote the burning of fossil fuels.
• This year’s climate meeting will push for the phasing out of global subsidies by 2030.
• Price hikes for gas in Europe caused by the war in Ukraine has caused European nations to raise subsidies.
• China is using subsidies to support industrial and jobs growth with $2.2tn last year equating to 12.5% of GDP.
• Many Chinese subsidies are ‘implicit’, using lax environmental controls and forgoing taxes according to the IMF.
• Coal-fired generators are often given direct funding, preferential loans, and financial guarantees with funding for the maintenance of grid capacity.
• A 2020 study by professors at Nanjing Audit University said China’s coal subsidy policies effectively reduced China’s coal prices by 4.2% and drove up output by 7.6% (AsiaFinancial).
• The US also offers subsidies with around $760bn offered last year according to the IMF report.
• The elimination on US tax breaks on drilling new oil wells could save $13bn over the next 10 years.
• Removing the depletion tax benefits may also save a further $13bn over the same period.
• Russia also spent $420bn on fossil fuel subsidies last year according to IMF data.
• Indian fossil fuel subsidies hit $350bn last year mainly for coal.
• EU subsidies doubled to $310bn last year with some 230 temporary subsidy measures added due to the war in Ukraine.

Economics

 US – Markets will be watching preliminary PMIs for November closely to be released this afternoon.

• Expectations are for a slight pull back in general economic activity with headline PMIs at 49.9 (Manufacturing) and 50.3 (Services).

China – Zhongzhi admits to $64bn liabilities

• Zhongzhi Enterprise, a major wealth manager has written to investors stating the firm is insolvent (Reuters).
• The firm is heavily exposed to property and if forced to sell its real estate interests will surely extend its $58-64bn of liabilities.
• Zhongzhi, which is also active in finance in the shadow banking may also be struggling with heavy exposure to the $3tn real estate sector.
• Zhongrong International Trust Co controlled by Zhongzhi has already missed payments on a number of investment products.
• We are concerned the problems at Zhongzhi could spread through the property sector and economy where
• If Zhongzhi is not able to raise sufficient funding to meet repayments it may affect its other businesses in EV, semiconductors, healthcare and finance.
• Zhongzhi has been cleaning up its act for some time through the sale of business but may need to sell more to better manage its debt.

Japan – Inflation remained strong through October, albeit, printed numbers came in slightly below forecasts.

• Strong inflation puts more pressure on the BOJ to revise its loose monetary policy as policymakers have been reluctant to intervene so far.
• Earlier, PM Kishida unveiled an economic package worth more than JPY17tn ($115bn) that should also add to inflationary pressures.
• The programme includes extended subsidy to contain energy prices until April and tax rebates and cash handouts to support households hit by rising prices, Bloomberg reports.
• On the flip side, PMI numbers released this morning showed business activity stagnated in November on the back of a deeper contraction in the manufacturing sector.
• New orders were down while inflation continued at above historic averages on the back of higher labour costs and a weakness in exchange rate.
• CPI (%yoy): 3.3 v 3.0 September and 3.4 est.
• CPI ex Fresh Food and Energy (%yoy): 4.0 v 4.2 September and 4.1 est.
• Preliminary Manufacturing PMI: 48.1 v 48.7 October.
• Preliminary Services PMI: 51.7 v 51.6 October.
• Preliminary Composite PMI: 50.0 v 50.5 October.

Germany – Business sentiment recovered slightly in November reaching a six-month high, according to Ifo data.

• “The German economy is stabilizing, albeit at a low level,” Ifo said.
• IMF expects Germany to be the only major economy to contract this year reflecting the nation’s reliance on imported energy and export markets including China that has been struggling lately.
• Ifo Business Climate: 87.9 v 86.9 October and 87.5 est.

UK – The pound is trading higher this morning following a beat in consumer confidence for November.

• The GfK measure climbed by 6 points o -24 marking the strongest increase since April.
• “Despite the acute cost-of-living pressures, many would still like to loosen their purse strings just a little so they can enjoy that feel-good factor we all associate with the festive season,” GfK commented.
• Although all five components of the confidence index increased this month, they remain in negative territory amid cost of living pressures.
• GfK Consumer Confidence: -24 v -30 October and -28 est.

Currencies

US$1.0908/eur vs 1.0924/eur previous. Yen 149.54/$ vs 149.07/$. SAr 18.889/$ vs 18.771/$. $1.254/gbp vs $1.253/gbp. 0.656/aud vs 0.657/aud. CNY 7.154/$ vs 7.139/$. Dollar Index 103.72 vs 103.66 previous.

Commodity News

Precious metals:

Gold US$1,994/oz vs US$1,995/oz previous

Gold ETFs 86.6moz vs 86.7moz previous

Platinum US$920/oz vs US$927/oz previous

Palladium US$1,049/oz vs US$1,058/oz previous

Silver US$23.63/oz vs US$24/oz previous

Rhodium US$4,400/oz vs US$4,350/oz previous

Base metals:

Copper US$ 8,398/t vs US$8,423/t previous

Aluminium US$ 2,218/t vs US$2,227/t previous

Nickel US$ 16,400/t vs US$16,350/t previous

Zinc US$ 2,540/t vs US$2,538/t previous

Lead US$ 2,203/t vs US$2,230/t previous

Tin US$ 23,740/t vs US$24,115/t previous

Energy:

Oil US$81.5/bbl vs US$81.2/bbl previous

• Crude oil prices are stable ahead of the OPEC+ meeting, which has reportedly been delayed to 30 November to allow members to agree on further production cuts.
• Media reports that Abu Dhabi National Oil Company (Adnoc) is exploring the potential $11bn acquisition of Wintershall Dea, as the state-player continues to pursue international expansion opportunities.
• UAE-owned TAQA plans to cease production from all of its UK North Sea platforms by the end of 2027, according to comments by the UK manging director at the OEUK decommissioning conference in St Andrews.
• Gazprom announced it would cut capex levels by 20% y/y to $17.5bn in 2024, which is in response to higher domestic taxes and the loss of export markets.
• The Morning Energiser is transferred to Calgary for the next week, please feel free to contact David Mirzai if you would like to catch up over a coffee while he’s in town.

Natural Gas €46.250/MWh vs €45.000/MWh previous

Uranium UXC US$80.25/lb vs US$73.65/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$135.6/t vs US$135.6/t

Chinese steel rebar 25mm US$569.3/t vs US$569.1/t

Thermal coal (1st year forward cif ARA) US$113.5/t vs US$111.0/t

Thermal coal swap Australia FOB US$127.5/t vs US$127.5/t

Coking coal swap Australia FOB US$326.0/t vs US$326.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$68,912/t vs US$69,060/t

Lithium carbonate 99% (China) US$16,843/t vs US$17,300/t

China Spodumene Li2O 6%min CIF US$1,540/t vs US$1,580/t

Ferro-Manganese European Mn78% min US$1,051/t vs US$1,052/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$620/t vs US$620/t

Europe Vanadium Pentoxide 98% 6.1/lb vs US$6.1/lb

Europe Ferro-Vanadium 80% 25.55/kg vs US$25.75/kg

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

Spot CO2 Emissions EUA Price US$82.2/t vs US$81.0/t

Brazil Potash CFR Granular Spot US$325.0/t vs US$325.0/t

EV & Battery news

Nissan to invest $1.12bn to build new EV models in UK

• In an announcement, the automaker said it would invest £1.12bn to build electric versions of the Juke and Qashqai at its plant in Sunderland.
• Nissan said that its plans would require total investment of £2bn, including a third battery plant in the UK.
• The project is expected to receive government support.
• Nissan has been manufacturing the electric Leaf model at its Sunderland plant for years, supplied by a small onsite battery plant.
• In 2021 it announced £1.12bn investment for a second battery plant in partnership with Chinese battery maker Envision AESC.

Glencore to pilot battery recycling away from Italy

• Glencore said in May it was going to develop a recycling hub with Canada’s Li-Cycle in Portovesme, Sardinia, Italy.
• Glencore has since decided to build a pilot project for an EV battery recycling plant outside of Italy,
• Speaking to Reuters, the decision to relocate the testing and demonstration plant away from Portovesme would allow for faster commissioning of the project.
• The mining giant has yet to decide where it will build the plant.

Tesla leading way in global sustainable EV battery race

• Tesla is leading efforts to remove cobalt and rare earth minerals from EV batteries, focusing on more sustainable and cost-effective alternatives.
• In 2020, the automaker announced it was actively trying to remove cobalt from its batteries to create more environmentally friendly and cheaper models.
• Earlier this year, Tesla also announced it would remove rare earths from its next generation EVs.
• These models will rely on a technology called EESM, externally excited synchronous machines, which are able to generate a magnetic field using electric current.
• Other automakers like GM, Jaguar Land Rover, and Nissan are also researching and developing motors with minimal or no rare earth content.

Company News

Hochschild Mining (HOC LN) £1.08, Mkt Cap £560m – Guidance raises production and lowers costs as LatAm operations ramp up

• Hochschild reported their 2024 guidance and production update earlier this week.
• The Company raised production guidance to 340-375koz AuEq for 2025
• 343-360koz AuEq expected in 2024. (AISC of $1,510-1,550/oz including a $45m CAPEX consideration for MEIA delays).
• AISC expectations for 2025 set at $1,300-1400/oz.
• The production increase is driven by the flagship Inmaulada operation, expecting minimum 200kozpa production from 2025.
• Mara Rosa in Brazil is expected to begin production in 1Q24, with 2024 production expected at 83-93kozpa Au at AISC of $1,090-1,120/oz.
• The Company is looking to develop the Royropata deposit in southern Peru to produce 100kozpa from 2027.
• Total CAPEX for 2024 expected at $171-178m, of which Immaculada will take $133-136m.
• Longer term, the Company is targeting AISC of $1,100-1,200/oz from 2026.

LithiumBank Resources (LBNK CN) C$1.0, Mkt Cap C$46m – DLE testwork results

• The Company released results from bench-scale DLE tests run on brines from its Boardwalk Lithium Brine Project in west-central Alberta, Canada.
• The G2L Greenview DLE technology produced the highest purity concentrated lithium solution (eluate) of the 15 technologies tested or considered to date by the Company.
• Recoveries came in more than 98% of lithium with eluate concentrations reaching >3,000mg/L Li compared to resource grades of ~70mg/L.
• Reagents mix used are estimated at a third of the cost of those used in the DLE process assumed in maiden Boardwalk PEA published May/23.
• The team is planning to use test results and the process in the updated Boardwalk PEA to be released later in 2023.
• The Company is expecting to take a delivery of a deployment-ready pilot plant in November and test DLE process on a continuous bases at a planned rate of 10,000L/day starting in Q1/24.
• May/23 PEA envisaged US$2.1bn project capex and ~$6,800/t C1 cash cost delivering ~32ktpa LiOH.
• Project NPV8% and IRR (both after tax) estimated at $1.7bn and 17.8% using $26,000/t LiOH price assumption.
• The project hosts 0.4mt LCE at 72mg/L in Indicated resources and 5.8mt LCE at 68mg/L in Inferred.

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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