SP Angel Morning View -Today’s Market View, Friday 3rd May 2024

Base metals rise ahead of US labour data

MiFID II exempt information – see disclaimer below

Albemarle (ALB US) – Q1 Results as low lithium prices threaten growth plans

Capstone Copper (CS CN) – Q1 Results as Monteverde ramps up to nameplate capacity

Glencore GLEN LN) – Glencore considering approach for Anglo American

MP Materials (MP US) – Q1 Results show continued weakness in REO prices

Zinc extends gains to 12-month highs as smelters come back online

• Zinc prices have climbed to $2,923/t, having hit $2,450/t earlier this year.
• Reuters reports Trafigura’s Nyrstar smelter is set to come back online this month given the improved market conditions.
• Glencore brought its Nordenham smelter out of care and maintenance in February.
• The International Lead and Zinc Study Group expects a refined zinc surplus in 2024 of 56kt.
• Treatment charges have fallen on the back of limited concentrate availability, with TC fees sliding to $165/t from $274/t last year.

Li-ion battery costs down 90% in under 15 years

• The average cost of Li-ion batteries has declined by 90% from 2010, with new battery technology continuing to revolutionise the industry.
• The price of Li-ion batteries was ~$1400/kWh in 2010, and was less than $140/kWh in 2023.
• Further innovations in battery chemistries is expected to reduce battery prices by another 40% by 2030.
• Next-generation sodium-ion batteries, which use less expensive materials and do not require lithium, are expected to dominate the market after 2030 with production costs 30% lower than lithium iron phosphate (LFP) batteries.
• The global value of battery packs in EVs and storage applications is currently $120bn, projected to rise to nearly $500bn by 2030.
• The energy sector now accounts for over 90% of annual lithium-ion battery demand, up from 50% in 2016 when the total market was 10 times smaller.
• Falling battery prices have led to more affordable electric vehicles and solar energy at prices comparable to fossil fuels.
• More affordable EVs driven by falling battery prices could help meet the Biden Administration’s goal of 50% of new vehicle sales being electric by 2030.

PE / Private Equity concerns pile up as investee companies cut growth in favour of faster route to survival

• The PE, ‘Private Equity’ industry is increasingly of concern regulators.
• Fund returns are normally supported by internal valuations, occasional asset sales and third-party investments meaning that portfolio valuations can be subject to significant change.
• While there are many good people in the PE industry there is a great temptation to value portfolio assets at the more optimistic end of the scale particularly with respect to growth companies.
• Valuations which were previously seen as reasonable can look allot less conservative as the parameters and environment for valuations change.
• PE continuation funds enable assets to be further supported with new funds by the same or connected managers effectively kicking the valuation can down the road.
• Unfortunately, we suspect that for every firm with prudent in-house valuations there will be another offering something more adventurous.
• High US interest rates have drawn substantial funds away from all other asset classes causing PE funds to suffer a 22% fall in fund raising globally last year to $1.05tn.
• Asian PE funds saw a much worse 48% fall in PE funding to $79bn while European PE funds were relatively steady with a 3% fall to $243bn last year according to a Mckinsey study.
• The FT reports today the PE industry has quadrupled in scale since 2012 but that the FCA is not yet concerned despite the impact of higher interest rates on borrowing costs.
• Exits: Unfortunately, listed equity market for smaller growth companies have fallen away particularly in the UK all but removing a key route to exit and valuation.
• Listed company valuations have been hit by:
  • Fund flows out of UK equities into the US
  • Loss of confidence
  • Short selling
  • The rising cost of borrowing coupled with the rising cost of living
  • Rising UK personal tax rates with the freeze on tax thresholds,
  • Higher ICARA rates causing funds to restructure with key staff voting to leave the UK,
  • Higher effective taxes on Partnerships,
• These are just a few of the issues / taxes holding back business and the UK market
• The collapse of Neil Woodford’s funds over a short-term liquidity crisis removed one of the better small-cap investors from the market and put off funding into other growth funds.
• Increasing regulation in recent years has also reduced investment by the very investment funds which helped create the market for smaller companies in the UK.
• Largely speculative and predatory Short selling of equities and sometimes funds has destroyed valuations in many cases with naked short selling believed to be widespread and obscured by dark pools and complex trading strategies.  This is particularly damaging for small and mid-cap companies.
• Regulators are concerned that a lack of deal flow and collapse in asset valuations could expose the more aggressive valuations potentially collapsing this multi-trillion dollar industry.
• Octopus’ Titan funds suffered a severe writedown putting Venture Capital Trusts on stage with a 19% cut in valuations following a £469 cumulative loss over two years despite investors paying £2,626 for a £10,000 investment into the fund (The Times).
• One solution for the UK would be to require pension funds taking UK investor money to invest a minimum % of it into UK growth markets to enable more partial or whole asset sales exit and establish broader valuation metrics.
• The redirection of more funds into UK growth equities and a ban on various forms of short selling would help.
• While we believe the very public decision by Coutts to move almost £2bn out of UK equities into overseas investments will mark the bottom of the UK growth market we hope regulators will take note and act to keep more UK money within UK markets.

Schrödinger’s cat & junior Canadian mining companies

• Seems that Schrödinger was right after all and his cat was both in the box and not in the box at the same time.
• Physicists have captured a clear image of individual atoms behaving like waves with frozen lithium atoms transforming into quantum waves in images which can be used to better understand the mysteries of the quantum world.
• The images shows fluorescing atoms transforming into fuzzy packets of waves indicating the atoms exist both as particles and waves.
• We note, something similar happens in the Canadian mining industry from time to time.
• Canadian juniors look like mining companies in one state and then simultaneously look like cannabis companies in another.
• Sadly, this duality appears to blow up their investors particularly when the cat gets out of the box.
• Our variation of Schrödinger’s equation suggests that Canadian companies often both exist as packets of prospect-like probability which then collapse into discrete share price particles upon investor observation.
• While bafflingly counterintuitive, this bizarre property of the quantum world has been witnessed in numerous Canadian juniors!

Copper – Constitutional court refused hear appeal to restore work at the Llurimagua copper-molybdenum project in the primary cloud forest in Ecuador.

• China is reported to be interested in the project which is run by ENAMI, the Ecuadorean state mining company in cooperation with Codelco, the Chilean state mining company.
• The $3bn project is located in the Cordillera de Toisán and is strongly opposed by indigenous communities.
• The mine is reported to have a resource of 982mt grading 0.89% copper and 0.04% moly

US to team up with Philippines in bid to limit China nickel dominance

• Bloomberg reports that the US and Philippines are eyeing ways to reduce China’s nickel dominance over Indonesian supply.
• They are reportedly considering trade agreements that include US financing with Japanese/Korean/Australian smelting technology.
• Philippines is the second largest nickel producer globally.
• However, Indonesia dominates, producing 1.8mt last year of mined nickel vs the Philippines’ 400kt.

IG TV: Gold and Copper. 10/04/2024: https://youtu.be/KuGSbDqWglk?si=-8iikkOHxbbLSnPZ

Sharepickers TV:  It’s all about copper. 26/04/2024 podcast: https://audioboom.com/posts/8496588-john-meyer-it-s-all-about-copper

         Video: https://www.youtube.com/watch?v=MV9_8K494rY

*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. SP Angel acts as Broker/Nomad or both for Anglo Asian Mining, Kodal Minerals, Power Metals Resources.

Economics

US – NFPs are due later today with estimates for payrolls to pullback to 240k in April, down from the highest level in nearly a year (303k) recorded in the previous month.

• Av hourly earnings are expected to continue to grow at a solid pace, albeit, down a bit on the previous month (+4.0% v 4.1% in March).
• Unemployment rate is expected to be little changed at 3.8%.

Russia – Gazprom, a state controlled energy company, reported the largest loss in decades on plunging sales to Europe.

• Revenues were down nearly 30% to Rbs8.5tn with sales outside Russia falling from RBs7.3tn to Rbs2.9tn in 2023.
• Russian share of gas imports in Europe is reported to have dropped from 40% in a pre war year of 2021to 8% in 2023, FT quotes EU data.
• The Company reported the loss Rbs629bn during the period.

Turkey – Inflation accelerated for a sixth straight month as government policies like wage hikes countered latest interest rate increases, Bloomberg reports.

• CPI growth hit nearly 70%,the fastest pace since late 2022.
• Central bank rate is currently at 50%, up from 8.5% seen in June last year.
• The lira is down 9% YTD extending its losses to almost 80% since the start of 2021.
• CPI (%mom, Apr/Mar/Est): 3.2/3.2/3.4
• CPI (%yoy, Apr/Mar/Est): 69.8/68.5/70.1

Argentina – Monetary authorities cut key interest rate for the third time in three weeks taking it to 50% from 60% as inflation cools down.

• The central bank cut its rate five times from an initial 133% since President Milei took office in December.
• Inflation rate slowed down to 11%mom in March from a three decade high of 26% in December.

Israel/Palestine – US, Egypt and Qatar step up pressure on Israel and Hamas to get a deal.

• US secretary of state urged Hamas to accept the latest proposal by Israel.
• The latest proposal is for a multi-phase process including an initial six-week pause in the fighting with Hamas releasing 33 hostages in return.
• That would be followed by a second phase calling for “restoring a sustainable calm” as proposed by the US.
• Under the proposal Israel is also set to release 20 Palestinian prisoners for every civilian hostage and 40 for each female soldier released.
• The main objection to a potential deal is no agreement on a potential permanent ceasefire in the conflict.

Manufacturing PMIs for April vs March

Currencies

US$1.0731/eur vs 1.0724/eur previous. Yen 153.22/$ vs 155.37/$. SAr 18.569/$ vs 18.523/$. $1.255/gbp vs $1.254/gbp. 0.657/aud vs         0.654/aud. CNY 7.241/$ vs 7.241/$.

Dollar Index 105.31 vs 105.62 previous.

Precious metals:         

Gold US$2,299/oz vs US$2,311/oz previous

Gold ETFs 80.9moz vs 81.1moz previous

Platinum US$958/oz vs US$960/oz previous

Palladium US$930/oz vs US$956/oz previous

Silver US$26.54/oz vs US$27/oz previous

Rhodium US$4,725/oz vs US$4,725/oz previous

Base metals:   

Copper US$ 9,888/t vs US$9,958/t previous

Aluminium US$ 2,537/t vs US$2,586/t previous

Nickel US$ 18,815/t vs US$18,880/t previous

Zinc US$ 2,902/t vs US$2,910/t previous

Lead US$ 2,194/t vs US$2,193/t previous

Tin US$ 31,500/t vs US$31,025/t previous

Energy:           

Oil US$83.9/bbl vs US$84.0/bbl previous

Natural Gas €31.0/MWh vs €29.4/MWh previous

Uranium Futures $92.3/lb vs $91.8/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$117.6/t vs US$116.6/t

Chinese steel rebar 25mm US$523.4/t vs US$523.4/t

Thermal coal (1st year forward cif ARA) US$113.5/t vs US$110.0/t

Thermal coal swap Australia FOB US$148.8/t vs US$147.0/t

Hard Coking Coal Australia FOB US$326.0/t vs US$326.0/t

Other:  

Cobalt LME 3m US$27,830/t vs US$27,830/t

NdPr Rare Earth Oxide (China) US$55,724/t vs US$55,724/t

Lithium carbonate 99% (China) US$15,122/t vs US$15,122/t

China Spodumene Li2O 6%min CIF US$1,240/t vs US$1,240/t

Ferro-Manganese European Mn78% min US$972/t vs US$972/t

China Tungsten APT 88.5% FOB US$333/mtu vs US$333/mtu

China Graphite Flake -194 FOB US$480/t vs US$480/t

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

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

China Ilmenite Concentrate TiO2 US$327/t vs US$327/t

China Rutile Concentrate 95% TiO2 US$1,416/t vs US$1,416/t

Spot CO2 Emissions EUA Price US$71.4/t vs US$64.4/t

Brazil Potash CFR Granular Spot US$305.0/t vs US$305.0/t

Battery News

BYD see sales continue to grow, but profits down

• BYD saw April 2024 sales reach 313,245, up 48.96% yoy and up 3.57% from March 2024.
  • BEVs accounted for 134,465 sales, slightly down on March sales.
  • PHEV sales were 177,583 units, up almost 10% on March sales and ~70% yoy.
• April sales also saw BYD reach 41,000 sales in overseas markets, a 176% increase yoy, as BYD seeks new markets to compensate a slowdown in new car sales in China.
• Despite sales continuing to sore, BYD reported that profits were down 47% for Q1 2024.

UK battery storage pipeline expands to over 95GW

• The UK’s battery storage pipeline has grown by over two-thirds in the past year, reaching 95.6GW of projects either operational, under construction, consented, or in planning stages.
• The pipeline increased by 38.5GW over the last 12 months, a 67% rise compared to last year’s 57.1GW pipeline.
• If all projects become operational, they could provide enough power to charge over 2.6m EVs from stored energy.
• RenewableUK’s director called for reforms to planning and grid connection processes to ensure project delivery and unlock the full potential of battery storage.
• Globally, battery deployment in the power sector increased by over 130% yoy in 2023, adding 42GW to electricity systems worldwide.
• The UK Infrastructure Bank announced a £25 million direct equity investment into flow battery manufacturer Invinity Energy Systems to support longer-duration energy storage technology development.

Three takeaways about the current state of batteries

• First, battery storage in the power sector was the fastest-growing commercial energy technology in 2023, indicating batteries are starting to play a role in balancing the grid.
• Second, the IEA report calls batteries a “master key” that can unlock the potential of other technologies to cut emissions.
• Third, more energy storage needs to be built, but the good news is that battery costs have fallen 90% since 2010 and could drop another 40% by 2030.

Allegations of overcapacity in China’s green industries ‘debunked’

• China’s green industries have significantly contributed to the global fight against climate change by accelerating the green transition of the auto industry, providing affordable green energy, and promoting green technology cooperation.
• The allegation that China’s green industries are causing “overcapacity” and hammering global industrial chains is flawed, unfair, and likely fabricated for selfish purposes, according to officials and experts.
• The NDRC stated that equating supply-demand fluctuations with “overcapacity” is a misunderstanding of how market economies work.
• Emerging industries often see a “surge” phase where capacity temporarily exceeds demand as companies vie for market share, which is part of the industrial life cycle, according to the NDRC.
• Goldman Sachs’ Timothy Moe said it is unfair to solely blame Chinese government support for the current overcapacity disputes, and the world needs to better understand the causes.

Company News

Albemarle (ALB US) $125, Mkt Cap $14.7bn – Q1 Results as low lithium prices threaten growth plans

• Major lithium integrated producer Albemarle report their Q1 results.
• The Company reported net sales of $1.4bn, with adjusted EBITDA at $291m. Cash from operations at $98m, down $623m yoy.
• CAPEX guided for the year at $1.6-1.8bn.
• The Company is working towards $280m in ‘productivity benefits’ in an attempt to cut costs amid a lower lithium pricing environment.
• Kemerton 1 has reportedly hit a 50% operating rate, with commissioning at Meishan and Salar Yield Improvement Project reportedly ramping up well.
• The Company completed a $2.3bn convertible preferred stock offering in March.
• $2.1bn of cash and total debt of $3.5bn reported.
• Albemarle expects to continue their spodumene auctions, noting ‘very good participation’ as it looks to boost transparency in the market.
• Three auctions are planned in May.
• During their earnings call, Albemarle noted they will look to ramp CAPEX down if prices stay at current levels, noting a minimum sustaining CAPEX of $1bn to maintain their current asset base.
• Management does not expect prices to ‘run up dramatically,’ but also anticipates additional supply to come offline at current prices.
• Furthermore, they note that inventory levels are very low currently, with downstream cathode inventories below a week’s level and upstream lithium producers holding less than two weeks worth of inventories.

Capstone Copper (CS CN) C$9.4, Mkt Cap C$7bn – Q1 Results as Monteverde ramps up to nameplate capacity

• Q1 Copper production reported at 42.1kt, with 15.7kt from Pinto Valley, 6kt from Cozamin and 9.1kt from Mantos Blancos.
• 11.3kt produced from the cathode business, including 1.8kt from Mantos Blancos and 9.5kt from Mantoverde.
• Production grew from 40.7kt in Q1 last year.
• C1 cash costs reported at $2.55/lb for the sulphide business and $3.76/lb from the cathode business.
• EBITDA for the period reported at $80m, up from $66m yoy reflecting increased copper volumes.
• The Mantoverde Development Project is accelerating, with first saleable concentrate expected 2Q24.
• First ore was introduced to the grinding circuit in March, with CAPEX estimates unchanged at $870m.
• Raised $253m from a bought deal financing backed by Orion at C$6.3/shr.
• Net debt fell from $927m to $740m from December 31^st.
• Guidance reiterated at 190-220kt Cu at C1 costs of $2.3-2.5/lb.
• CAPEX guided at $275m with an additional $180m capitalised stripping.

Glencore GLEN LN) 453.5p, Mkt cap £55bn Glencore considering approach for Anglo American

• Discussions are internal and preliminary at this stage with Glencore have not yet approached Anglo regarding a potential deal (Reuters).
• “We do not comment on market rumour or speculation,” Glencore responded to the article.
• A potential for a competing offer saw shares trading +3.1% up in London this morning.

Mike Henry, BHP CEO, flew to South Africa yesterday in an effort to win over local government officials, regulators and investors regarding a proposed takeover of Anglo American, Bloomberg writes.

• BHP team is planning to engage with President Cyril Ramaphosa administration laying out a plan to a multi stage deal.
• Earlier, Mining Minister Gwede Mantashe in an interview to Bloomberg (  Wednesday) said that BHP has not contacted the office regarding the transaction.
• He previously said that he “wouldn’t support” the deal in its current form.

MP Materials (MP US) $16, Mkt Cap $2.65bn – Q1 Results show continued weakness in REO prices

• MP Materials reported their Q1 results last night.
• The Company produced 11.15kt REOs, selling 9.33kt.
• Average realised price per REO tonne was $4,294 vs $9,365 previous year.
• NDPR price per KG realised at $62.
• Revenue of $48.7m vs $95.7m previous year.
• Adjusted EBITDA fell to negative $1.2m from $59m previous year.
• Management notes REO prices fell 54% over the period, expecting a mid single digit sequential decline in Q2 for concentrate.
• Price per kilogram expected to fall 20% in Q2 given a more notable lag to market prices than for concentrate.
• On current rare earth pricing environment, management noted that they ‘strongly suspect that most of Chinese industry is losing money at these prices.’
• The Company repurchased 7.3% of their outstanding shares for $201m during the period, whilst also issuing $748m worth of 3% convertible notes due 2030.
• MP also repurchased $480m of 2026 convertible notes for $429m.

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                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

*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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