SP Angel Morning View -Today’s Market View, Friday 26th July 2024

Iron ore prices climb as China stimulus optimism improve 

MiFID II exempt information – see disclaimer below

Gemfields Group (GEM LN) – Operational update for half year

Phoenix Copper* (PXC LN) – Earn-in agreement renewed over Cobalt Property

Power Metal Resources* (POW LN) – Uranium JV update

Iron ore prices climb as China stimulus optimism improve

• Singapore iron ore prices rose 3.5% to $103.5/t whilst the 62% Fe Mysteel index held below $100/t.
• Steel mill inventory up nearly 6% in China this month, pushing domestic steel prices lower.
• Baoshan steel is boosting capacity, buying Nippon Steel’s stake in their Auto sheet JV and looking to boost its $1bn investment in a Saudi JV.

Umicore impairs €1.6bn on battery metal division weakness

• Umicore has recorded a €1.6bn impairment on its battery materials business.
• Umicore makes materials used in battery cathodes, specialising in nickel/cobalt heavy batteries which are being displaced by LFP technology.
• The Chemicals company recorded a 13% yoy slide in adjusted revenue of €1.8bn.
• Umicore has initiated a strategic review over its battery materials business, expecting it to be lossmaking through 2025 and 2026.
• Umicore has also pushed back plans for a European battery recycling plant to c.2032 vs 2026.
• The Company had previously profit warned in June over slowing EV demand in Europe.
• The announcement follows Ford’s 20% share price decline yesterday, whilst Stellantis fell 10%.

Lithium – Proposals to develop Altoandinos salt flats in the northern region of Atacama

• ENAMI, a Chilean state-owned mining Company, received proposals from 12 companies including Rio Tinto and BYD to develop Altoandinos salt flats in the northern region of Atacama, according to Mining.com.
• ENAMI launched a search process in May looking for a partner on the project.
• Applicants are Eramet , LG Energy Solution, Posco, Tecpetrol (Argentina), Axionit (Russia), Summit Nanotech (Canada), Grupo Errazuriz (Chile), CNRG and a consortium known as BTR (China) and Chilean construction group Belsaco.
• ENAMI was planning to start construction 2027-28 with the project potentially running at 60ktpa LCE.

Vale – Mines and Energy Minister Alexandre Silveira criticised Vale for delaying the deal to pay reparations over a 2015 dam collapse, Mining.com writes.

• The government could apply “tougher measures and sanctions” on Vale as a result.
• “I’m worried about Vale’s stance, which seems unfortunately will only change when we have to apply tougher measures and sanctions on the company,” Silveira said.
• Government highlighted lack of leadership since Vale announced CEO Eduardo Bartolomeo departure at the end of this year saying that has delayed a deal for reparations.

SP Angel rankings LSEG StarMine Award for most accurate forecasting in Reuters polls:

• No1 – Q2 Precious Metals and No2 – Q2 Base Metals. Our forecasting uses HI – not AI

SharePickers: Is there a Banking Crisis in China?  Video: https://www.youtube.com/watch?v=rLUGXIhl2q4

•         Podcast: https://audioboom.com/posts/8544049-john-meyer-is-there-a-banking-crisis-in-china

Economics

US – Will a housing market correction in the US unbalance global markets?

• We have been watching China for the impact of its property market problems but maybe we should have been looking West towards the US
• High US interest rates are an increasing burden for the American property market with home sales falling 5.4% mom in June and 4.3% yoy.
• The median new mortgage payment costs 41.4% of pre-tax median household income (Reventure Consulting) according to Dave Kranzer on Seeking Alpha.
• US house prices have fallen for four straight months raising the risk of negative equity for new buyers and greater financial stress for anyone forced to sell.
• The situation is hitting the most financially vulnerable as always with lower cost housing <$250k suffering the most while more expensive homes >$500k continue to rise in value.

PCE data is due later today for the index to show a slight pick up in inflation in June, although, yoy the measure is expected to see a continuing moderation in inflationary pressures.

• PCE (%mom, Jun/May/Est): NA/0.0/0.1
• PCE (%yoy, Jun/May/Est): NA/2.6/2.4
• Core PCE (%mom, Jun/May/Est): NA/0.1/0.2
• Core PCE (%yoy, Jun/May/Est): NA/2.6/2.5

China – Workers unhappy at plan to raise retirement age

• China is facing a demographic time bomb with falling numbers of people of working age.
• This combined with a rise in the ‘lay flat’ generation is leading to a shortage of workers.
• The government has suggested raising the retirement age will help the economy.
• Current retirement ages are 60 for all males, 50 for women in blue-collar work, 55 for women in white-collar work.
• To be fair most governments appear to be looking to raise retirement ages.
• We suspect many workers bearing larger mortgages won’t be considering basic government retirement ages.
• The issue makes healthcare for people near retirement ages all the more important.
• China, which is going through a rapid form of industrial revolution has suffered horrendous pollution in urban and industrial areas.
• The nation is cleaning up fast driving the transition to EVs in cities to create clear skies and improving environmental practices.
• It is 32^oC in Beijing rising to 34^oC on Friday. Chongquing is expected to reach >40^oC in August with 10 cities expected to average >33^oC next month.
• Nations are also having to contend with a 20% rise in the number of works suffering heat-related stress with some 2.4bn workers (70% of the workforce) seen at risk of extreme heat.

Japan – The yen is off this morning on the back of lower than expected inflation numbers.

• Tokyo CPI (%yoy, Jul/Jun/Est): 2.2/2.3/2.3
• Tokyo CPI ex Fresh Food, Energy (%yoy, Jul/Jun/Est): 1.5/1.8/1.6

France – Olympic Games XXXIII ceremony is set to kick off at 6.30pm BST today marking the centenary of Paris 1924 and it being the sixth time France hosted the event.

• The ceremony is expected to last 3.5 hours and for the first time is planned not to be held in a stadium but rather on the Seine with each nation sailing on the own boat.
• High speed rail services are reported to have been suspended across much of the country following sabotage attacks on Thursday night, FT reports.
• “Fires were set intentionally to damage our infrastructure, and teams of engineers are already on the ground working to solve the issue,” high-speed rail operator SNCF said.
• “Many trains will have to be cancelled.”

UK – The fourth MP launched a bid to replace Rish Sunak as the next leader of the Conservatives party.

• Mel Stride, the former UK work and pensions secretary, joined the race.
• Previously, former home secretary James Cleverly and former ministers Tom Tugendhat and Robert Jenrick announced their intentions to run for leadership.

Russia – The central bank is expected to hike rates 2pp to 18% at the meeting later this afternoon amide strong inflation.

• YTD CPI data released this week showed prices were up 4.9%, accelerating from 4.8% the previous week and moving away from the 4% target.
• Rates have been hike to 20% at the beginning of 2022 following an invasion into Ukraine to fight the flight of capital.

Currencies

US$1.0853/eur vs 1.0834/eur previous. Yen 154.08/$ vs 152.37/$. SAr 18.271/$ vs 18.522/$. $1.287/gbp vs $1.288/gbp. 0.656/aud vs 0.653/aud. CNY 7.252/$ vs 7.243/$.

Dollar Index 104.34 vs 104.33previous

Precious metals:         

Gold US$2,369/oz vs US$2,375/oz previous

Gold ETFs 82.4moz vs 82.2moz previous

Platinum US$933/oz vs US$941/oz previous

Palladium US$907/oz vs US$916/oz previous

Silver US$27.63/oz vs US$28/oz previous

Rhodium US$4,650/oz vs US$4,650/oz previous

Base metals:   

Copper US$ 9,073/t vs US$8,979/t previous

Aluminium US$ 2,273/t vs US$2,281/t previous

Nickel US$ 15,820/t vs US$15,640/t previous

Zinc US$ 2,654/t vs US$2,636/t previous

Lead US$ 2,034/t vs US$2,033/t previous

Tin US$ 29,465/t vs US$28,985/t previous

Energy:           

Oil US$82.3/bbl vs US$81.1/bbl previous

• US Henry Hub natural gas prices moved lower as the EIA reported a 22bcf w/w build to US natural gas storage to 3,231bcf, with levels declining w/w to 8.4% above last year and 16.4% above the 5-year average.
• Media reports that Freeport LNG is not expected to reach its 2bcf/d capacity next month, with Fitch lowering its credit rating from B- to CCC+ junk status citing the Texas plant’s frequent operational outages.
• US driller Helmerich & Payne announced the $2bn cash acquisition of KCA Deutag, which is set to significantly expand the Company’s international footprint on closing in 4Q24, especially in the Middle East region.

Natural Gas €32.5/MWh vs €32.4/MWh previous

Uranium Futures $82.0/lb vs $82.6/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$99.1/t vs US$100.0/t

Chinese steel rebar 25mm US$505.7/t vs US$507.8/t

Thermal coal (1st year forward cif ARA) US$115.0/t vs US$114.8/t

Thermal coal swap Australia FOB US$138.3/t vs US$138.6/t

Coking coal Dalian Exchange futures price US$205/t vs US$203.5/t   

Other:  

Cobalt LME 3m US$26,625/t vs US$26,625/t

NdPr Rare Earth Oxide (China) US$50,124/t vs US$49,981/t

Lithium carbonate 99% (China) US$11,238/t vs US$11,253/t

China Spodumene Li2O 6%min CIF US$950/t vs US$970/t

Ferro-Manganese European Mn78% min US$995/t vs US$995/t

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

China Graphite Flake -194 FOB US$470/t vs US$470/t

Europe Vanadium Pentoxide 98% 5.0/lb vs US$5.1/lb

Europe Ferro-Vanadium 80% 26.25/kg vs US$26.75/kg

China Ilmenite Concentrate TiO2 US$315/t vs US$315/t

China Rutile Concentrate 95% TiO2 US$1,386/t vs US$1,388/t

Spot CO2 Emissions EUA Price US$66.9/t vs US$64.6/t

Brazil Potash CFR Granular Spot US$297.5/t vs US$297.5/t

Germanium China 99.99% US$2,095.0/kg vs US$2,075.0/kg

China Gallium 99.99% US$435.0/kg vs US$427.0/kg

Battery News

LGES cuts sales target on weak EV demand

• LG Energy Solution (LGES) announced a more than 20% revenue drop and a reduction in capacity expansion due to a significant slowdown in global EV demand.
• The battery maker highlighted the risk of further weakening EV demand if US policies change after the upcoming presidential election, with Trump potentially reversing current EV mandates if elected.
• The company reduced its expected US federal tax credit to 30-35GWh from 45-50GWh due to decreased demand, affecting profitability.
• LGES forecasts global EV market growth to slow to slightly above 20% this year, compared to 36% last year, revising its annual revenue outlook from expected growth to a decline.
• LGES reported a 58% drop in operating profit to US$140m for Q2 and a 30% decrease in revenue to US$4.47bn.
• Shares rose by 4.2% following the announcement, due to potential benefits from increased EU tariffs on China-built EVs and US policies limiting the Chinese EV supply chain.

Chinese EV startups are spending more on research than Tesla

• Chinese EV startups are investing more in R&D relative to sales than Tesla, aiming to survive in China’s competitive auto market. (CNBC Analysis)
• Nio leads with nearly 29% of revenue spent on R&D in Q1, surpassing Tesla’s 5.4%. Other companies like Xpeng and Li Auto also show significant R&D investments.
• High R&D spending aims to enhance product quality and technological innovation, crucial for long-term competitiveness in the EV market.
• Geely and its subsidiary Zeekr are focusing on software and hardware improvements, launching new battery technologies like the Aegis Short Blade Battery.
• EV companies are competing in battery and software technology to stand out, although matching suppliers like CATL and Huawei is challenging.
• The ability to innovate and consistently deliver new products is seen as a key differentiator in the EV market, where consumer loyalty is low.

Plunging EV sales pushes NZ charging manufacturer to Australia

• Christchurch-based EV charger manufacturer Evnex is increasingly focusing on the Australian market due to a drop in EV sales in New Zealand.
• Founder Ed Harvey attributes the shift to rising EV sales in Australia, fuelled by government subsidies, contrasting with New Zealand’s decline from 27% to 8% of new car sales.
• The company secured substantial funding from an Australian private equity firm, which was facilitated by their growing Australian market presence.
• With around 6,000 chargers in NZ and 1,000 in Australia, Evnex expects Australian volumes to surpass New Zealand’s within months, shifting focus and resources to their Sydney office.

Toyota to build new battery plant to supply Lexus brand

• The automaker plans to build a battery plant, in the southwest Fukuoka prefecture, to supply batteries to its Lexus brand. (Nikkei)
• The world’s top-selling automaker would seek to make the island of Kyushu where Fukuoka is located a central part of its supply chain for battery-powered vehicles and an export base for Asia.
• Toyota has previously said it will introduce EVs employing next-generation batteries globally from 2026, manufactured by its EV-focused unit BEV Factory.
• The company is targeting sales of 3.5m EVs annually by 2030, with just under half of those made by the BEV Factory unit. It sold 104,000 EVs in 2023.

Company News

Gemfields Group (GEM LN) 11.4p, Mkt cap £134m – Operational update for half year

• Gemfields reports operational and financial results for the half year to 30^th June.
• The Company generated $121m auction revenues .
• Cash position of $22m, $67m of debt.
• Kagem saw 19,578k carats gemstones produced over the period, total rock handled at 9mt,
• CAPEX at $3.8m and Gemstone cash unit costs of $1.44/carat.
• Total cash operating costs for the period at $28m.
• Average per carat sales value of $4.44/carat at the March Jaipur auction and $167/carat at the Bangkok May auction.
• Montepuez saw 409k carats gemstones produced, with gemstone unit cash costs of $70/carat.
• $22m CAPEX over the period.
• Bangkok June auction saw revenues of $69m, at $316/carat.
• $10m returned to shareholders this year.

Phoenix Copper* (PXC LN) 20p, Mkt Cap £30m – Earn-in agreement renewed over Cobalt Property

Phoenix holds 80% of the Empire mining property in Idaho)

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• Phoenix Copper has renewed its earn-in agreement with Electra Battery Metals over the Redcastle property.
• The agreement extends two main exploration expenditure commitments by two years, respectively.
• The amendment to the agreement will require a $1.5m investment into exploration or development work by the third anniversary date of May 21, 2026, followed by an additional $1.5m by the fifth anniversary date of May 21, 2028.
• Electra has identified copper surface showings over the Redcastle claims.
• The Company is planning a field reconnaissance programme subject to financing.
• Empire’s Bighorn cobalt property doesn’t form part of the agreement.

*SP Angel acts as Nomad to Phoenix Copper

Power Metal Resources* (POW LN) 18p, Mkt cap £20m – Uranium JV update

• Power Metal Resources provides an update on their JV with ACAM LP to form a uranium-focused JV.
• The JV will encompass POW’s entire portfolio of uranium licences, which hold strong prospectivity in the Athabasca Basin mining hub.
• The parties announce today that they have extended their due diligence period until 23^rd August owing to ‘certain legal due diligence processes’ remaining outstanding.
• Management warns that no guarantee can be made, but completion is fully expected over the upcoming period.

*SP Angel acts as Nomad and Broker for Power Metal Resources

No.1 in Precious Metals: SP Angel mining team awarded No 1. ranking for Precious Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q2 2024

No.2 in Base Metals: SP Angel mining team awarded No 2. ranking for Base Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q2 2024

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                                                            

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35-39 Maddox Street London

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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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