SP Angel Morning View -Today’s Market View, Friday 31st March 2023

Copper prices pull back despite stronger-than-expected Chinese PMI data

MiFID II exempt information – see disclaimer below

Arc Minerals* (ARCM LN) – Extension to the exclusivity period

Kore Potash* (KP2 LN) – FY22 results and update on Kola and DX potash projects

Economics

Gold prices trade lower this morning ahead of the February US PCE data as markets are weighing chances of further rate hikes from the Fed.

• Gold is on course for the strongest month since Nov/22 trading up >8% in March on the back of fears of banking crisis contagion and significantly reduced expectations for further Fed tightening.
• PCE (%mom): 0.3% est. v 0.6% January.
• PCE (%yoy): 5.1 est. v 5.4 January.
• Core PCE (%mom): 0.4 est. v 0.6 January.
• Core PCE (%yoy): 4.7 est. v 4.7 January.

 Rio Tinto sold a controlling 55% stake in its La Granja copper project in Peru to First Quantum Minerals for $105m.

• First Quantum will become the operator of the project and will commit $546m of initial funding to completed the Feasibility Study and majority of the initial development funding.
• Upon completion of the sole funding commitment, all subsequent expenditures will be applied on a pro-rata basis according to the share ownership of the project.
• The project is located in the region of Cajamarca, Peru, at an altitude of 2,000-2,800m hosting one of the largest undeveloped copper resources with a total resource of 4.3bn tons at 0.51% Cu.

China – PMI numbers surprise on the upside as economic activity gathered pace in March with services leading the way, according to official NBS estimates.

• Commenting on the data the NBS said that spending from local governments to promote growth helped while households showed willingness to spend and travel.
• On the other hand, growth in the manufacturing sector pulled back during the month.
• Strong fiscal support as well as a recovery in consumer spending is expected to drive GDP growth to >5% this year from just 3% recorded in 2022.
• Manufacturing PMI:  51.9 v 52.6 February and 51.6 est.
• Services PMI: 58.2 v 56.3 February and 55.0 est.
• Composite PMI: 57.0 v 56.4 February.

Germany – Annual inflation pulled back in March reflecting lower energy costs, although, core measure continues to run high favouring further monetary policy tightening.

• Energy prices were flat mom and running at 3.5%yoy this month, down from 0.0%mom/19.1%yoy in February.
• Core inflation excluding volatile food and energy was up 0.6%mom/5.9%yoy in March.
• CPI (%mom, EU Harmonised): 1.1 v 1.0 February and 0.8 est.
• CPI (%yoy, EU Harmonised): 7.8 v 9.3 February and 7.5 est.

France – Inflation slowed for the first time in three months in March on lower energy costs.

• Inflation in energy prices fell to 0.3%mom/4.9%yoy in March, from 1.6%mom/14.1%yoy.
• In a welcome news, services sector price change came in lower during the month as well – 0.0%mom/2.9%yoy vs 0.8%mom/3.0%yoy in February.
• Although, both manufacturing and services sector inflation continued to run at higher than historical levels.
• CPI (%mom, EU Harmonised): 0.9 v 1.1 February and 0.8 est.
• CPI (%yoy, EU Harmonised): 6.6 v 7.3 February and 6.5 est.

UK – Property prices drop at the fastest pace since 2009 on the back of higher borrowing costs, Nationwide data shows.

• Average UK home price was down 3.1%yoy in March compared to a -1.1% reading in February.
• Prices are down 4.6% from their peak in August last year with the average house price at ~£257k.
• “It will be hard for the market to regain much momentum in the near term since consumer confidence remains weak and household budgets remain under pressure from high inflation… Housing affordability also remains stretched, where mortgage rates remain well above the lows prevailing at this point last year,” Nationwide commented on the data.

Currencies

US$1.0883/eur vs 1.0867/eur yesterday. Yen 133.13/$ vs 132.45/$. SAr 17.833/$ vs 18.070/$. $1.237/gbp vs $1.236/gbp. 0.668/aud vs 0.671/aud. CNY 6.870/$ vs 6.879/$.

 Dollar Index 102.39 vs 102.47 yesterday.

Commodity News

 Precious metals:

Gold US$1,975/oz vs US$1,968/oz yesterday

   Gold ETFs 93.3moz vs US$93.1moz yesterday

Platinum US$985/oz vs US$971/oz yesterday

Palladium US$1,487/oz vs US$1,438/oz yesterday

Silver US$23.71/oz vs US$23.64/oz yesterday

Rhodium US$8,000/oz vs US$8,200/oz yesterday

           Base metals:   

Copper US$ 8,873/t vs US$9,048/t yesterday

Aluminium US$ 2,376/t vs US$2,391/t yesterday

Nickel US$ 22,945/t vs US$23,720/t yesterday

Zinc US$ 2,898/t vs US$2,970/t yesterday

Lead US$ 2,122/t vs US$2,151/t yesterday

Tin US$ 25,485/t vs US$25,745/t yesterday

           Energy:           

Oil US$78.7/bbl vs US$78.8/bbl yesterday

Natural Gas US$2.107/mmbtu vs US$2.118/mmbtu yesterday

Uranium UXC US$50.35/lb vs US$50.35/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$125.9/t vs US$124.5/t

Chinese steel rebar 25mm US$618.4/t vs US$615.1/t

Thermal coal (1st year forward cif ARA) US$134.5/t vs US$134.5/t

Thermal coal swap Australia FOB US$188.5/t vs US$197.0/t

Coking coal swap Australia FOB US$320.0/t vs US$340.0/t

           Other:  

Cobalt LME 3m US$34,930/t vs US$34,930/t

NdPr Rare Earth Oxide (China) US$76,060/t vs US$77,793/t

Lithium carbonate 99% (China) US$28,895/t vs US$29,736/t

China Spodumene Li2O 5%min CIF US$4,610/t vs US$4,610/t

Ferro-Manganese European Mn78% min US$1,344/t vs US$1,343/t

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

China Graphite Flake -194 FOB US$790/t vs US$790/t

Europe Vanadium Pentoxide 98% 9.4/lb vs US$9.4/lb

Europe Ferro-Vanadium 80% 37.75/kg vs US$38.25/kg

China Ilmenite Concentrate TiO2 US$346/t vs US$345/t

Spot CO2 Emissions EUA Price US$95.1/t vs US$95.6/t

Brazil Potash CFR Granular Spot US$450.0/t vs US$450.0/t

 Battery News

Company News

Arc Minerals* (ARCM LN) 4.0p, Mkt Cap £48m – Extension to the exclusivity period

• The Company announced a short extension to the exclusivity period under the agreement with Anglo American.
• The team expects to complete all outstanding steps to form a proposed JV by 21 April.
• All substantive commercial terms of the proposed Joint Venture remain unchanged from those previously announced.
• Under terms of the JV, Anglo American will invest up to $88.5m, including up to $14.5m in cash, for a 70% interest in the project.

*SP Angel acts as Nomad and broker to Arc Minerals

Kore Potash* (KP2 LN) 0.6p, Mkt Cap £21m – FY22 results and update on Kola and DX potash projects

• The Company is continuing discussions with SEPCO to finalise terms for the Engineering, Procurement and Construction contract for the Kola Potash Project.
• Negotiations with PowerChina, a SEPCO parent company, regarding the provision of the typically required EPC contract guarantees including performance and retention bonds supporting the completion of construction and the operating performance of Kola are ongoing.
• PowerChina is carrying its own review of the Kola design as part of potential EPC contract guarantees provisions.
• Currently, PowerChina has not advised the Company on the expected timeline for completing its reviews and internal approvals.
• Summit Consortium reiterated its commitment to provide the financing proposal for the Kola development capital within six weeks once final EPC terms are agreed.
• Separately, the team is considering strategic options for development of the DX project recognising the ROC government’s aim to accelerate the production of potash in Congo.
• The DX Project is a smaller scale project compared to flagship Kola Project but benefits from significantly lower development capital cost (~$0.3bn vs $1.9bn) and can be brought into production faster utilising selective solution mining as opposed to conventional underground shaft operation.
• Strategic options may include forming a JV or a sale of the project.
• The Company also released its FY22 results outlining operational highlights of the year.
• The Company recorded a $1.5m loss last year (FY21: -$1.9m).
• FCF amounted to -$5.8m (FY21: -$7.5m) including -$1.2m in net operational spend and ~$4.6m in project related capitalised expenses.
• The Company remained debt free with closing cash balance at $5.0m (FY21: $11.1m).
• Given ongoing cash burn and remaining cash balances, the team is expecting to raise additional capital before Q4/23.
• Operationally, the team continued to work on finalising EPC terms and funding for the flagship Kola Project as well as delivering an updated DX PFS (published Jan/23).

Conclusion: The team continues to finalise EPC contract terms with SEPCO and PowerChina that will be used as the basis for the Kola funding proposal from Summit Consortium. Once EPC terms are agreed upon, the proposal should come within guided six weeks. Separately, the team is looking at strategic options to accelerate development of the smaller but lower cost DX Project. With Kola development terms taking longer than expected, the Company also flagged that it will be needing to raise funds before Q4/23.

*SP Angel acts as Nomad and Broker to Kore Potash

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 – [email protected] – 0203 470 0490

Simon Beardsmore – [email protected] – 0203 470 0484

Sergey Raevskiy –[email protected] – 0203 470 0474

Sales

Richard Parlons –[email protected] – 0203 470 0472

Abigail Wayne – [email protected] – 0203 470 0534

Rob Rees – [email protected] – 0203 470 0535

Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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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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