Gold slides as dollar strengthens on better US GDP
MiFID II exempt information – see disclaimer below
Bushveld Minerals* (BMN LN) – Enerox update
Neometals Ltd (NMT LN) – Quarterly activities update
Sovereign Metals* (SVML LN) – Quarterly report highlights Rio Tinto investment into Sovereign for its Kasiya rutile project in Malawi
Vale (VALE US) – Quarterly production results and sale of 13% stake in metals business at a $27bn enterprise value
VOX Markets:
*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 slides as dollar strengthens on US GDP beat and Yen/Euro weakness
- Spot gold prices fell below $1,950/oz following a day of major data points and currency volatility.
- The dollar index strengthened c. 1% following a major beat in US GDP numbers, supporting Powell’s Wednesday warnings that rates will be held for longer at current/higher levels.
- 10-year yields for US Treasuries saw a major move higher as traders sold off bonds on concerns of the sustained strength in the US economy.
- Yields and gold prices have resumed their inverse correlation, with any signs of sustained weakness in the US economy expected to provide a supportive tailwind to bullion.
- Reuters analysts slashed forecasts for Q3 to $1,950/oz and $1,988/oz for 2024.
| Dow Jones Industrials | -0.67% | at | 35,282 | |
| Nikkei 225 | -0.47% | at | 32,766 | |
| HK Hang Seng | +1.28% | at | 19,920 | |
| Shanghai Composite | +1.84% | at | 3,275 |
Economics
US – GDP grew 2.4% in Q2 vs expectations of 1.6%
- PCE price index slowed from 4.1% to 2.6%
- PCE Core slowed from 4.9% to 3.8%.
- June durable goods orders up 4.7% vs expectation of 1%.
- Jobless claims fell to 221k vs expectations of 233kt.
- Kansas City Fed manufacturing index fell -11 in July
- Pending home sales rose 0.3% in June vs -2.7% in May and -15.6% yoy in June vs -22.2% yoy in May
China – Industrial profits fell 16.8% ytd to June vs a fall of 18.8% in May
Japan – BOJ to make yield curve control ‘more flexible’, sending Yen whipsawing
- The Bank of Japan has effectively removed its 0.5% yield cap in a long-anticipated move away from its ultra-low monetary policy.
- The Yen strengthened up to 1.2% against the dollar, before falling 1% to 141.2 before recovering to 139.76
- 10-year rate held at 0% target, with the Bank starting to buy at 1% vs previous 0.5% rate, enabling yields to rise to 1%.
- BoJ’s Ueda says “We will not tolerate 10-year JGB yield above 1%”
ECB – 25bp hike as concerns of inflation remain
- Refinancing rates: 4.25%
- Marginal lending rates – 4.5%
- Deposit rates – 3.75%
Germany – GfK consumer confidence index remains in negative territory -24.4 for August vs -25.2 for July
Switzerland – KOF Economic Barometer rose to 92.2 in July from 90.7 in June
- The services and banking sector has recovered much from the trials at Credit Suisse
- Construction and for manufacturing outlook is reported to be poor.
France – GDP rose 0.5% qoq
Currencies
US$1.0972/eur vs 1.1113/eur yesterday. Yen 139.13/$ vs 139.90/$. SAr 17.882/$ vs 17.557/$. $1.279/gbp vs $1.297/gbp. 0.664/aud vs 0.681/aud. CNY 7.155/$ vs 7.141/$.
Dollar Index 101.87 vs 100.83 yesterday.
Commodity News
Precious metals:
Gold US$1,949/oz vs US$1,979/oz yesterday
Gold ETFs 91.7moz vs 91.7moz yesterday
Platinum US$944/oz vs US$972/oz yesterday
Palladium US$1,229/oz vs US$1,262/oz yesterday
Silver US$24.32/oz vs US$25.02/oz yesterday
Rhodium US$4,100/oz vs US$4,100/oz yesterday
Base metals:
Copper US$ 8,620/t vs US$8,640/t yesterday
Aluminium US$ 2,219/t vs US$2,223/t yesterday
Nickel US$ 21,959/t vs US$21,650/t yesterday
Zinc US$ 2,481/t vs US$2,514/t yesterday
Lead US$ 2,157/t vs US$2,158/t yesterday
Tin US$ 29,010/t vs US$29,160/t yesterday
Energy:
Oil US$83.7/bbl vs US$83.6/bbl yesterday
- WTI crude oil prices pushed briefly above $80/bbl yesterday to the highest levels since April on signs of economic strength in the US and additional supply curbs from Saudi Arabia.
- US natural gas prices edged higher as the EIA storage report detailed a 16bcf build to 2,987bcf last week (+20bcf expected), with storage levels now 23.7% above last year and 13.1% above the 5-year average.
- Macquarie AM has acquired 50% of Enel’s Greek subsidiary, which operates 482MW of installed capacity powered by wind, solar and hydro plus six solar projects under construction for an overall capacity of 84MW, for a total consideration of c.€345m that is equal to an implied full enterprise value of c.€980m (~€2m/MW).
Natural Gas US$2.614/mmbtu vs US$2.615/mmbtu yesterday
Uranium UXC US$56.23/lb vs US$56.15/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$115.5/t vs US$115.3/t
Chinese steel rebar 25mm US$538.4/t vs US$537.2/t
Thermal coal (1st year forward cif ARA) US$133.3/t vs US$133.3/t
Thermal coal swap Australia FOB US$148.0/t vs US$148.5/t
Coking coal swap Australia FOB US$237.0/t vs US$237.0/t
Other:
Cobalt LME 3m US$33,420/t vs US$33,420/t
NdPr Rare Earth Oxide (China) US$65,468/t vs US$66,068/t
Lithium carbonate 99% (China) US$37,880/t vs US$38,522/t
China Spodumene Li2O 6%min CIF US$4,040/t vs US$4,060/t
Ferro-Manganese European Mn78% min US$1,095/t vs US$1,090/t
China Tungsten APT 88.5% FOB US$310/mtu vs US$313/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% 32.05/kg vs US$32.05/kg
China Ilmenite Concentrate TiO2 US$312/t vs US$311/t
Spot CO2 Emissions EUA Price US$100.2/t vs US$99.7/t
Brazil Potash CFR Granular Spot US$340.0/t vs US$340.0/t
Battery News
China’s gasoline demand expected to reach peak thanks to EV boom
- China’s demand for petrol is expected to hit its peak, even as early as next year, thanks to the rapid adoption of EVs throughout the country.
- In January to May, the EV share of the world’s largest car market jumped to 28%, up from 9% in the same period of 2021, while the share for petrol cars shrank to 72% from 91%, data from China Association of Automobile Manufacturers showed.
- The International Energy Agency (IEA) and consultancy Rystad Energy have brought forward forecasts of China’s peak gasoline demand by about a year to 2024.
- IEA now expects Chinese gasoline demand to peak at about 3.7mbpd
- The research arm of China’s state refiner CNPC expects gasoline demand to peak in 2025, citing accelerating sales of EVs, and sees gasoline demand shrinking 2.3% annually between 2026 and 2030.
Company News
Bushveld Minerals* (BMN LN) 2.7p, Mkt Cap £33m – Enerox update
BUY – Under Review
- Garnet Commerce Ltd, a 50% shareholder in Enerox Holdings Ltd that wholly owns producer of VRFB batteries, provided a notice that it is exercising its option to take its stake to 60% in exchange for a $3.25m payment.
- On completion of the investment, Garnet will have the right to appoint a majority of board members to Enerox Holdings Ltd.
- Under the agreement, Bushveld Energy, a 84% owned subsidiary of Bushveld Minerals, that currently holds a ~25% interest in Enerox will retain its rights of first refusal to supply electrolyte to Enerox projects for six months after which Bushveld Energy will be bidding for future Enerox supply contracts along other companies.
- Enerox agreed to not grant a right of first refusal to any other third party.
- Garnet investment is subject to obtaining regulatory approvals from Austrian authorities.
Conclusion: Garnet is exercising its option to take a 60% majority stake in Enerox, a VRFB OEM based in Austria and operating under CellCube brand name. The option has been granted as part of the April 2023 agreement with Mustang Energy that was planning to consolidate interest in Enerox and acquire Garnet’s 50% Enerox stake. Under the agreement, Mustang would have paid $33.2m to Garnet for its 50% stake in Enerox in a form of cash/convertible loan (up to $7.5m) and shares ($25.7m) subject to a number of conditions including LSE readmission as well as raising a minimum of $15m on readmission before July 31 deadline among other conditions.
Mustang Energy is unlikely to meet the 31 July deadline with outstanding $8.0m unsecured convertible loan note (plus accrued 10%pa coupon) issued in 2021 as part of the acquisition of the 22.1% interest in VRFB Holdings, a holder of the remaining 50% interest in Enerox, coming due at the same time. Under the agreement with Bushveld Minerals, unless repayment is completed within 28 days of 31 July, Mustang Energy will have to transfer its interest in VRFB Holdings to Bushveld Energy taking its interest in VRFB-H to 72.6% (remaining 27.4% held by Acacia Resources) and Bushveld Minerals in return to repay convertible loan noteholders by issuing new shares. Mustang Energy had £22k in cash as of Dec/22.
We are reviewing our target valuation to reflect additional potential dilution from new shares and will release updated estimates in due course.
*SP Angel act as nomad and broker to Bushveld
Neometals Ltd (NMT LN) 28p Mkt cap £135m – Quarterly activities update
- Neometals, with ventures across the Li-ion battery recycling, Vanadium recycling and lithium-brine conversion sectors provides an update for the quarter.
- As regards the Company’s Lithium-ion battery recycling facility, the group is concluding an engineering cost study for a 21ktpa LiB recycling plant.
- The JV, alongside GmbH, has a mechanical package supply contract with Mercedes for 10tpd.
- Recoveries for lithium are targeting >83%.
- As regards the Vanadium Recovery JV with Critical Metals, Neometals increased their stake to 72.5% over the period, with an FID deadline for the plant extended to 30th September.
- The Company has signed an offtake agreement with Glencore for 100% of vanadium products.
- For the Lithium Chemicals segment JV with Bondalti Chemicals, pilot test work programmes are set to begin to test purification.
- The Barrambie Titanium and Vanadium project is currently in offtake negotiations with Jiuxing Titanium.
- Neometals had A$24.6m in cash at period end with no debt.
Sovereign Metals* (SVML LN) 26p, Mkt Cap £142m – Quarterly report highlights Rio Tinto investment into Sovereign for its Kasiya rutile project in Malawi
- Sovereign Metals has published its June 2023 quarterly report today.
- Highlights include:
-
- Rio Tinto investment of A$40.4m
- Rio Tinto provision of assistance and advice on technical and marketing aspects of Kasiya (Rutile) including the graphite co-product.
- The Rio Tinto team are to focus on the spherical purified graphite for the lithium-ion battery anode market where the Kasia graphite shows ‘excellent suitability’.
- Graphite:
-
- Near perfect crystallinity gives better conductivity
- Above benchmark >99.95% cg purity achieved.
- No critical impurities
- Testwork focussed on production of Spherical Purified Graphite anode material via purification, spheronisation, coating and battery cell cycling tests.
- Assessment and qualification for traditional industrial graphite markets, including the refractory, foundry, and expandable graphite segments.
- Future production of Coated Spherical Purified Graphite to be provided to anode / battery manufacturers for assessment and qualification.
- “Sovereign’s next objective is to secure offtake MoUs for the Kasiya flake graphite co-product.”
- Kasiya graphite has a much lower carbon footprint than synthetic graphite which is produced from coke and oil refining by-products in an energy intensive processes.
- It is also 3 times less polluting than proposed Tanzanian natural graphite production from hard rock sources,
- And 6x less polluting than current Chinese natural graphite production which accounts for up to 80% of current global graphite supply.
- Rutile:
- Rutile material to be processed via a dry mineral separation circuit including electrostatic and magnetic separation at AML laboratories in Perth
- AML will produce a natural rutile product for larger scale product assessment and end-user applicability testing, with focus on the higher-value welding sector.
- Sovereign has non-binding MoUs with Mitsui, Chemours and Hascor, all major players in the Rutile space covering >50% stage 1 production.
- Kasiya natural rutile appears to have premium chemical parameters making it suitable for major end-use markets including welding, pigment feedstock and titanium metal.
- Malawi: the Government of Malawi has welcomed Rio Tinto’s involvement marking it as a milestone towards realising the country’s aspirations of growing the mining sector.
- Rio Tinto’s involvement is a vote of confidence in the nation where a number of new mines are being planned. See Mkango*
- Paladin Energy Limited ran the Kayelekera uranium mine from 2009-2014, though the mine is currently closed due to low uranium prices.
- Bulk Sample ongoing for production of samples for downstream testwork and product qualification for the Li-ion battery anodes
- PFS: in advanced stage on the Kasiya project focussed on Rutile and graphite co-production.
Conclusion: Today’s quarterly update highlights progress towards the marketing and qualification of rutile and graphite co-product for end-users. Rio Tinto’s recent investment intothe project should accelerate this work with finance, technical advice and marketing team assistance.
*SP Angel act as Nomad and broker to Sovereign Metals.
Vale (VALE US) $14.8, Mkt Cap £66bn – Quarterly production results and sale of 13% stake in metals business at a $27bn enterprise value
- Brazilian iron ore giant Vale reports its quarterly production results.
- Iron ore fine sales rose qoq to 63.3mt vs 45.8mt in Q1 and vs 62.7mt same period last year.
- Pellet sales rose to 8.8mt vs 8.1mt in Q1 but fell vs same period last year of 8.8mt.
- Nickel sales were flat qoq at 40kt, copper sales jumped to 74kt vs 51kt same period last year and 63kt in Q1.
- COGS for the iron solutions business rose 30% qoq to $4.3bn.
- COGS for the energy transition metals business was flat at $1.6bn.
- Adj. EBITDA fell $1.4bn yoy reflecting lower iron ore prices and slightly weaker nickel prices.
- Higher price premiums are expected from Brucutu following the commissioning of the Torto dam.
- MoUs signed with UAE, Saudi and Oman to advance a low-carbon steelmaking hub.
- Growth CAPEX investment fell 16% yoy in Q2 to $376m.
- The most interesting part of Vale’s quarterly update was the announcement of a sale of 13% equity interest in Vale’s base metals business, valuing the segment at an implied enterprise value of $26bn.
- The cash investment came from a JV between Saudi group Ma’aden and the Saudi Public Investment Fund, taking 10% of the equity, whilst Engine No. 1 from the US will take 3%.
- Vale is looking to ultimately invest $25-30bn in copper and nickel production ramp up, taking the group’s copper production from c.300kt pa to 900kt pa and nickel to 300ktpa vs current 175ktpa.
- Vale holds supply agreements for nickel with both Tesla and GM.
Conclusion: Vale’s production highlights a successful ramp up in iron ore output, with the quarter seeing record new production for the second consecutive period. The Company continues to invest in dam and tailings upgrades, but lower iron ore prices and weaker market premiums for high grade product weighs on earnings. We take particular interest in the 13% sale of Vale’s ‘Energy Transition Metals’ business, which holds a portfolio of copper and nickel projects. Their aim to reach 900ktpa copper production by 2033 is ambitious but commendable. Saudi putting their money where their mouth is in a bid to diversify away from the oil sector is also noticeable as investors continue to scramble for copper and nickel exposure.
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Analysts
John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490
Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484
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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.
| Sources of commodity prices | |
| Gold, Platinum, Palladium, Silver | BGNL (Bloomberg Generic Composite rate, London) |
| Gold ETFs, Steel | Bloomberg |
| Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt | LME |
| Oil Brent | ICE |
| Natural Gas, Uranium, Iron Ore | NYMEX |
| Thermal Coal | Bloomberg OTC Composite |
| Coking Coal | SSY |
| RRE | Steelhome |
| Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite | Asian Metal |
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