SP Angel Morning View -Today’s Market View, Friday 2nd August 2024

Gold soars as US Treasury yields slump on weak US labour data as recession concerns mount

MiFID II exempt information – see disclaimer below

Critical Mineral Resources PLC (CMRS LN) – Fieldwork underway at the Igli exploration project, in Morocco

Ecora Resources (ECOR LN) – Update on Santo Domingo NSR

Kazatomprom (KAP Ll) – Second quarter trading update as output ramps up

Keras Resources* (KRS LN) – Keras starts commercial production of PhoSul® organic phosphate fertilizer granules in Utah, USA

Savannah Resources* (SAV LN) – Portuguese investor buys 75m shares of Slipstream

Strategic Minerals* (SML LN) – Initial results from resampling Redmoor drill core and expansion of exploration land holdings

Uranium stocks sell off as NexGen raises CAPEX and Kazatomprom lifts output

• ASX uranium equities suffered a sharp selloff overnight, with Paladin, Bannerman and Boss all down over 10%.
• Major Canadian developer NexGen raised its CAPEX requirements for Rook 1 to $1.6bn from $940m, as it advances talks with financiers.
• The market was also weighed by Kazatomprom’s adjusted production guidance, with the world’s largest producer raising guidance against expectations.

Gold prices ($2,460/oz) soar as US Treasury yields slump on weak US labour data as recession concerns mount

• Gold prices rallied to two-week highs, nearing all time highs of $2,484/oz following a sharp rally in US Treasuries.
• The 10 year yield slumped below 4% for the first time since the Fed meeting in December.
• World Gold Council reports central bank gold holdings continue to rise, up 6% yoy in Q2.
• ETF outflows are reversing, with investors rotating out of high yielding Treasuries into gold as a safe haven alternative.
• Weak US ISM data is worrying investors, whilst a rise in continuing jobless claims is raising concerns of a potential US recession.
• Focus today turns to Non-Farm payroll data, with private payrolls closely watched for signs of labour market slowdown.

Metals volatile amid rocky markets as inventories rise and tariff tension continue

• Markets are behaving as if there is a financial seismic event happening somewhere
• Copper ($9,100/t) whipsawed alongside other metals, nearing $9,300/t yesterday before falling below $9,000/t.
• Inventories rose to four-year highs on the LME as China exports continue, whilst nickel inventories hit three year highs.
• Iron ore prices are hovering around $100/t for the 62% Fe index.
• Arcelor Mittal suggests steel prices in Europe and the US are below marginal costs as China persists with aggressive pricing tactics.

Restocking – Chinese buyers are enjoying the ability to refill warehouses at low price levels

• We expect the Chinese government to allow the Yuan to weaken once the restocking cycle is done
• China has tariffs on many if not most commodity imports and can easily cut tariffs if import prices start to drive inflation
• Falling goods prices in China look deflationary so the authorities might tolerate a degree of input price inflation
• We believe China will continue to stimulate exports with a weakening of the Yuan while making overseas goods more expensive – eg Chinese people will buy more local than foreign goods

Economics

Global manufacturing PMI slipped below the 50 threshold implying a contraction in output with the slowdown led by weaker readings in the US, Eurozone, China and Japan

• New business orders contracted for the first time since January.
• Rate of hiring moderated as did final goods inflation.

US – Markets sold off on the back of weak economic data with bonds gaining ground and 10y yields dropping below 4% for the first time in six months

• Nasdaq closed down 2.3% and S&P was off 1.4% on Thursday.
• Manufacturing sector remained in contraction with the pace of a decline accelerating in July, according to ISM data.
• Labour numbers are due later today with estimates for the labour market growth in wages continuing to cool down setting the stage for the start of rate cuts by the Fed later in the year.
• NFPs are expected to come in at 175k vs 206k in June and wages growth are forecast at 0.3%mom/3.7%yoy vs 0.3%/3.9% the previous month.
• ISM Manufacturing (Jul/Jun/Est): 46.8/48.5/48.8
• ISM Prices Paid (Jul/Jun/Est): 52.9/52.1/51.8
• ISM New Orders (Jul/Jun/Est): 47.4/49.3/49.0
• ISM Employment (Jul/Jun/Est): 43.4/49.3/49.2
• The Fed is not going to bow to market sentiment and, we suspect, will more often look to surprise the market for greater impact with its policy decisions
• Chicago PMI 45.3 in July vs 47.4 in June

China – Official nonmanufacturing PMI dropped to 50.2 in July vs 50.5 this was a larger than expected fall

• Composite PMI 50.2 in July vs 50.5
• Chinese foreign direct investment fell 29.1% from January to June yoy to CNY498.91bn vs a fall of -28.2% from January to May yoy

UK – The BoE cut interest rates by 25bp to 5.00% for the first time since 2020

• The decision was voted five to four at the MPC with Governor Bailey cautioning that the move does not mean a rapid succession of further cuts, FT reports.
• “Inflationary pressures have eased enough that we’ve been able to cut interest rates today, But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” Bailey said.
• Yields on 2y debt dropped sub 3.7%, the lowest in more than a year, while the pound sold off and currently trading at 1.2730

Currencies

US$1.0794/eur vs 1.0809/eur previous. Yen 149.09/$ vs 149.92/$. SAr 18.248/$ vs 18.215/$. $1.271/gbp vs $1.279/gbp. 0.651/aud vs 0.653/aud. CNY 7.216/$ vs 7.237/$.

Dollar Index 104.30 vs 104.19 previous

Precious metals:         

Gold US$2,462/oz vs US$2,443/oz previous

Gold ETFs 82.5moz vs 82.5moz previous

Platinum US$974/oz vs US$974/oz previous

Palladium US$912/oz vs US$929/oz previous

Silver US$28.87/oz vs US$29/oz previous

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

Base metals:   

Copper US$ 9,084/t vs US$9,181/t previous

Aluminium US$ 2,292/t vs US$2,290/t previous

Nickel US$ 16,345/t vs US$16,540/t previous

Zinc US$ 2,712/t vs US$2,672/t previous

Lead US$ 2,049/t vs US$2,065/t previous

Tin US$ 30,250/t vs US$30,000/t previous           

Energy:           

Oil US$80.2/bbl vs US$81.5/bbl previous

Natural Gas €36.4/MWh vs €36.0/MWh previous

Uranium Futures $84.3/lb vs $84.2/lb previous           

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$102.7/t vs US$99.8/t

Chinese steel rebar 25mm US$500.4/t vs US$500.4/t

Thermal coal (1st year forward cif ARA) US$123.0/t vs US$119.3/t

Thermal coal swap Australia FOB US$144.0/t vs US$139.3/t

Coking coal Dalian Exchange futures price US$197/t vs US$200.1/t           

Other:  

Cobalt LME 3m US$26,500/t vs US$26,625/t

NdPr Rare Earth Oxide (China) US$51,606/t vs US$50,708/t

Lithium carbonate 99% (China) US$10,432/t vs US$10,639/t

China Spodumene Li2O 6%min CIF US$940/t vs.US$940/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$465/t vs US$465/t

Europe Vanadium Pentoxide 98% 4.8/lb vs US$4.9/lb

Europe Ferro-Vanadium 80% 25.75/kg vs US$25.95/kg

China Ilmenite Concentrate TiO2 US$316/t vs US$316/t

China Rutile Concentrate 95% TiO2 US$1,389/t vs US$1,389/t

Spot CO2 Emissions EUA Price US$66.4/t vs US$66.4/t

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

Germanium China 99.99% US$2,125.0/kg vs US$2,125.0/kg

China Gallium 99.99% US$440.0/kg vs US$440.0/kg

Battery News

US to delay tariff hikes on Chinese EVs, batteries, tech, etc.

• The United States has delayed implementing new tariff hikes on Chinese imports, including EVs, batteries, computer chips, and medical products, originally set for 1^st August. (Reuters)
• The US Trade Representative’s office must review 1,100 public comments and now expects to finalise the tariffs later in August.
• The proposed tariffs, initiated by President Biden to counter China’s state-driven overproduction and protect US industries, include a quadrupling of EV duties and doubling of semiconductor tariffs.
• The tariffs aim to shield American jobs from cheap Chinese imports, affecting $18bn worth of goods.

Samsung, LG’s electric auto parts sales soar despite EV slump

• Despite a slowdown in EV sales, Samsung and LG have reported significant growth in their automotive electric parts businesses in Q2.
• Samsung’s audio subsidiary Harman achieved sales of 3.62 trillion won and an operating profit of 320 billion won, marking a 33.3% increase from the previous quarter.
• Similarly, LG Electronics’ Vehicle Component Solutions division reported sales of 269.9bn won and a record operating profit of 81.7bn won.
• In the first half of the year, LG’s division has already exceeded last year’s total profit.
• LG aims to reach 20 trillion won in sales by 2030, focusing on infotainment, EV powertrains, and lighting systems.
• Both companies anticipate continued growth in the automotive electric parts sector, driven by stable order volumes and the expansion of premium product offerings, despite the broader EV market slump.

South Korea sees EV registrations surpass 600,000

• Korea’s cumulative EV registrations surpassed 600,000 in H1 2024.
• The adoption of EVs has accelerated rapidly since 2020, when registrations first exceeded 100,000 units – since then, annual growth has consistently met or surpassed 100,000 units.
• During the first half of 2024, 62,710 new EVs were registered.
• Hyundai Motor leads with the highest share of registered EVs at 39.8%, followed by its affiliate Kia with 27.4% and Tesla with 13.3%.
• Adoption has been accelerated thanks to improved charging infrastructure – 361,163 chargers have been installed nationwide as of May 2024.

Evergrande EV arm faces bankruptcy

• China Evergrande Group’s EV arm, Evergrande New Energy Vehicle, is experiencing significant turmoil as creditors seek bankruptcy proceedings for the company’s units.
• The real estate giant has been experiencing significant financial troubles, grappling with liquidity issues and massive debt.
• The company had ambitious plans for its EV division, aiming to become a significant player in the electric vehicle market. However, the ongoing financial difficulties have jeopardized these plans and raised concerns about the future of Evergrande EV and its impact on the broader EV sector.

EcoPro BM may cut battery materials capacity on EV slowdown

• South Korea’s leading battery materials maker EcoPro BM Co. is considering reducing cathode output capacity amid sustained weakness in the global EV industry on sluggish demand.
• EcoPro BM said on Tuesday its operating profit had tumbled to 3.9bn won ($2.8m) in the Q2 from a year earlier with sales down 57.5% to 809.5bn won.
• The company is building a cathode plant in Hungary with an annual capacity of 54,000 tons production from 2025 while adding facilities in South Korea, including a precursor plant, for commercial operations next year as scheduled to expand its customer base.

Company News

Critical Mineral Resources PLC (CMRS LN) 1.3p, Mkt Cap £1m – Fieldwork underway at the Igli exploration project, Morocco

Apologies to Critical Metals plc which operates in the DRC and is a completely different company from Critical Mineral Resources PLC which has exploration in Morocco

• Critical Mineral Resources reports that its exploration team is now on site and has started systematic exploration at the Igli project in Morocco.
• Reconnaissance work in January “returned very high grade silver and good copper assays” from the site, which is located relatively close to “two important mines” at Tiouit and Imiter and in a favourable geological setting with “widespread NE-SW faulting, which act as one of the controls for mineralisation in the region”.
• The company says that its Phase 1 exploration is expected to include detailed geological and structural mapping and sampling as well as the identification of “silver, copper and other economic mineral showings across the property” and satellite imaging analysis.

Conclusion:  Initial field exploration at Igli should provide a basis for any future work and aid target identification for any subsequent work which is merited.  We look forward to news from the project as work proceeds.

Ecora Resources (ECOR LN) 66p, Mkt cap £166m – Update on Santo Domingo NSR

• Royalty and streaming company Ecora provides an update on their Santo Domingo 2% NSR.
• Capstone Copper published a 2024 feasibility study on the asset, showing a post tax NPV8 of $1.7bn and IRR of 24.1%.
• Project expected to produce 68ktpa Cu and 3.6mtpa iron concentrate over the 19 year LOM.
• CAPEX estimated at $2.3bn.
• Project holds grades of 0.33% Cu, 26.5% Fe within 436mt of reserves.
• Ecora estimates their royalty area includes the ‘highest grade portion of the deposit.’

Kazatomprom (KAP Ll) $37, Mkt Cap $10bn – Second quarter trading update as output ramps up

• Kazatomprom report production and financial results for the period to 30^th June 2024.
• KAP produced 5,780tU U₃O_{8, on 100% basis,}  up 5% yoy, whilst the 1H24 period was up 6% yoy.
• Group sales up 48% yoy at 5,027tU.
• Group average realised price at $68/lb, up 44%.
• Increased guidance to 22.5-23.5ktU vs 21-22.5ktU for FY24.
• C1 costs guided at $16.5-$18/lb, with AISC guided at $26-27.5/lb, both cost guidance in line with previous expectations.
• Company reports weaker short term contracting volumes, whilst spot prices strengthened.
• Sulphuric acid requirements have been met, enabling a ramp up in production.

Keras Resources* (KRS LN) – 4.00p, Mkt cap £3.22m – Keras starts commercial production of PhoSul® organic phosphate fertilizer granules in Utah, USA

(Keras holds 100% of the Diamond Creek phosphate mine in Utah, USA)

We are publishing an amended comment on Keras as the jv with Phosul plans to sell 3,500-4,000t of PhoSul® this year and not 10,000t which the jv could, in theory produce

• Keras Resources reports the start of commercial production of PhoSul® granules at its Integrated Delta processing facility in Utah.
• The Phosul joint venture expects to produce somewhere between 3,500-4,000t of PhoSul® this year and not 10,000t which the jv could, in theory produce.
• Revenue: The jv could, in theory, sell $24.7m – $30,7m of product next season but if we assume $1/kg for bulk sales then the Keras jv could sell $7.7-8.8m of product this year.
• The plant has moved to commercial production after some optimisation and certain upgrades to achieve consistent production with support from contractor Burningham Enterprises Group and jv partner PhoSul LLC.
• PhoSul® solves Phosphorous run-off and water resource contamination and has been developed to improve P2O5 availability to crops with field tests showing significant yield and quality improvements over other rock phosphate products.
• The joint venture plans to produce between 8,000-10,000t this summer with Keras’ mine selling rock phosphate to the jv building up to steady-state sales of approximately 10,500tpa in addition to internal sales of approximately 6,500tpa.

• Phosul® consists of 80% of 50 mesh ore from Keras’ Falcon Isle Diamond Creek mine therefore 10,500t could produce 13,125t of Phosul® assuming no losses.
• Plant capacity: 5tph with a 520t/month running a single shift operation.

• • Double shift capacity ~ 920tpm of saleable bulk Phosul® granules expected in Q4.

• The Phosul jv should consume ~10,500tpa of 50 mesh phosphate when running at steady state.
• Keras plans to mine somewhere between 8-10,000t of rock phosphate this summer to cover the Phosul® granulator feed and Keras’s own sales through May/June 2025 though around half of this will go to Keras’ own sales and not into the Phosul joint venture.
• Note: Keras’ Diamond Creek can produce ~25,000tpa of rock phosphate enabling potential to potentially move to higher production of Phosul®.

• Pricing: Phosul® granules are currently quoted at $40 for a 25lb bag on Walmart or $70 / 50lb bag on ebay in the US (equates to US$3,086/t at $70/50lb bag) with PhoSul LLC producing  bagged products for the retail market from their Sugar City, Idaho plant.
• The jv will only produce a bulk Phosul® product in the short-term implying a lower price per kg and not bagged product for the retail.
• The https://www.phosul.com/ website highlights a 2020 crop study:
  • “The control plot (no fertilizer added) yielded 6.47 t/ac (fresh weight) and 3.78 t/ac dry weight, while Phosul yielded (on average) 18.64 t/ac (fresh weight) and 11.80 t/ac dry weight.
  • An increase of 12.17 t/ac (wet) and 8.02 t/ac (dry) was realized in this field.
  • At $125/ton, a return of $821/ac (gain – product cost @500 lbs/ac) makes Phosul a great investment!
  • The producer plans to re-apply Phosul after his first cutting.”
• Stockpile: ~4,250tons of 50 mesh product which will cover the operation through 2024 with all mining and crushing costs already expensed.
• The jv will build a stockpile of PhoSul® at the Delta Facility.
  • “Organic granulation requires a very specific formula and the blending of the PhoSul® ingredients in the design ratio, supplemented with moisture, an organic binder and a dust control agent in the overall product blend has been a challenging process which we will continue to optimise with strong support from our PhoSul LLC JV colleagues.
  • An important part of our transition to sales will include moisture and hardness testing as well as 240 size guide number (“SGN”) analysis on an ongoing basis. 
  • Our intention is to produce 240SGN product in bulk in the short-to medium-term, with the option to produce 1 ton bags should demand dictate.”
• Power: Connection to 3-phase power will replace 600kW of diesel generation as soon as is practicably possible reducing power costs and CO2 emissions.

• Manganese:  we await news on the restart of the Nayéga manganese mine by the government of Togo where Keras holds a 1.5% royalty advisory fee plus 6.0% of gross revenue from the mine over the lesser of 3.5 years or 900,000t of beneficiated manganese ore sold..
• The deal with the Togo government should give nearly $0.9m a year at a price of $3.5/dmt for manganese and production of 7,480tpa equating to some $2.6m over three years.
• Manganese ore prices for 38%min FOB South Africa jumped in July to $4.07-4.22/dmtu from 3.47-3.62/dmtu at end June. Note Manganese concentrates are subject to a 25% import tariff into China from this year.
• The recent jump in manganese prices should be good for Keras assuming the government of Togo starts production from the Nayéga manganese mine.

*SP Angel acts as nomad and broker to Keras

Savannah Resources* (SAV LN) 3.9p, Mkt Cap £85m – Portuguese investor buys 75m shares from Slipstream

BUY – 18.3p

• Mario Ferreira buys 75m shares off Slipstream Resources taking his stake in Savannah to ~188m shares or 8.6%.
• Slipstream remains one of its larger shareholders holding ~73m shares or 3.4%.
• Following the transaction, Portuguese investors are now estimated to hold ~12% in the Company implying good support from local investment community.
• Slipstream commenting on the transaction reiterated its support for the Barroso Lithium Project and added that selling was attributed to redemptions in its fund.
• Dale Ferguson, a founding partner at Slipstream Resources and former CEO of the Company, maintains his role as Technical Director in the Company.

*SP Angel acts as Nomad and Broker to Savannah Resources

Strategic Minerals* (SML LN) 0.19p, Mkt Cap £3.8m – Initial results from resampling Redmoor drill core and expansion of exploration land holdings

• Strategic Minerals has reported assay results from an initial batch of 194 drill-core samples from its Redmoor tin/tungsten project in Cornwall.
• The samples are part of a relogging exercise on drillholes completed by Strategic Minerals’ wholly-owned subsidiary, Cornwall Resources in 2019 which underpinned a JORC (2012) ‘Inferred’ mineral resource estimate of 11.7mt at an average grade of 0.56% tungsten trioxide, 0.16% tin and 0.50% copper.
• The samples come from three diamond drill holes and include:
  • An intersection of 4.12m at an average grade of 0.94% tungsten trioxide from a depth of 606.75m in hole CRD-032 which also intersected a shallower mineralised horizon of 1.5m at an average grade of at an average grade of 0.81% tungsten trioxide from 305.15m depth; and
  • An intersection of 1.45m at an average grade of 0.55% tungsten trioxide from a depth of 561.71m in hole CRD-031; and
  • A zone of “elevated Tin concentrations up to 0.25% Sn over 1.39m from 552.55m from drillhole CRD032” within the previously identified Sheeted Vein Syastem (SVS); and
• Intersections of newly identified mineralised structures beyond the SVS including;
  • “Copper grades up to 1.19% Cu over 1.65m from 360.40m in CRD031; and
  • Copper and Tin grades of 0.46% Cu and 0.24% Sn over 1.28m from 516.90m in CRD029”
• The company confirms that it has now re-logged 4,900m of drill-core derived from 7 holes and representing ~35% of its historic drilling.
• As well as the results from the drill-core, the company reports that it has received assay results from 3 grab-samples “collected during reconnaissance mapping of the Tamar Valley Licence … with sample CRL24042301 returning grades of 1.72% Sn … [plus 0.26% tungsten trioxide and 0.09% copper] … and sample CRL24042302 returning a grade of 1.19% WO3 [with 0.01% tin]”.
• Commenting on the results, project manager, Dennis Rowland, said “these first results confirm our assumption that there is potential upside at Redmoor from reviewing our existing drillcore with fresh eyes and improved methodologies. This low-cost process is expected to deliver further positive results”.
• He confirmed that a second batch of 65 samples from a further two holes has already been shipped for analysis and a third batch is being prepared for shipping and also that the company expects to “report results and ship new samples at regular intervals moving forward until completion of this project”.
• The announcement explains that “re-logging, sampling and modelling of newly obtained and interpreted geological data has improved the understanding of the Redmoor Deposit, with better knowledge of the controls on tin and tungsten mineralisation along with lode-style mineralisation that is independent of the main SVS hosted MRE” which can be incorporated in a future revision of the mineral resources estimate.
• The announcement also confirms that, following the agreement with the Duchy of Cornwall extending its mineral licences in the area it has now agreed “with a third mineral rights owner to lease certain mineral rights in east Cornwall, including 546 hectares (5.46 km²) of His Majesty’s Land Registry registered mineral rights in the historically mined and highly prospective Tamar Valley Mining District, within and around CRL’s existing exploration footprint”.
• The new agreement extends over 5 years and the additional land holding increases the company’s holdings to a total of 91.67km².
• Director, Peter Wale confirmed that the newly acquired exploration holdings “are within and around CRL’s already existing exploration footprint and include historic mining prospects”.
• He commented that the results to date from the re-logging and sampling of the historic core “work have potentially material implications for both our existing mineral resource and beyond”.

Conclusion: Initial results from a re-examination of the 2019 drill-core have identified previously undetected zones of mineralisation both within and beyond the CVS zone which hosts the current ‘Inferred’ mineral resource.  The additional sampling is continuing and we await further results which may be incorporated in a future revision of the resource estimate.  We await results of the continuing exploration with interest.

*SP Angel acts as Nomad and Broker to Strategic Minerals

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

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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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