SP Angel Morning View -Today’s Market View, Friday 5th April 2024

Gold and copper prices pause in latest rally as Fed prepares for rate cuts

MiFID II exempt information – see disclaimer below

Arkle Resources* (ARK LN) – Further drilling planned at Stonepark

Red Rock Resources (RRR LN) – Update on DRC and Gold Assets

Rio Tinto (RIO LN) ) – Pressure from Norwegian sovereign wealth fund to divest bauxite asset

Syrah Resources (SYR AU) – Completion of equity raise to fund graphite anode materials plant

West African Resources (WAF AU) ) – Production for first quarter as guidance on track

Gold at $2,292/oz holds gains as focus turns to labour market data following Kashkari hawkishness

• Gold bounced off $2,300/oz yesterday, easing back towards $2,285/oz before recovering to $2,292/oz this morning.
• The Federal Reserve continues to prepare the ground for rate cuts, with Powell reiterating his hopes of two cuts this year.
• However, crude prices are rising, adding concerns over inflationary pressures as the Fed looks to ease policy.
• Treasury yields continue to trade near ytd highs, with the 10-year climbing above 4.35%.
• Focus will be on today’s non-farm payroll data, which is expected to provide a further catalyst for Treasury and gold traders.

Copper prices cool from highs after hedge funds ramp up bets despite ample physical supply

• Copper prices surged yesterday to $9,400/t, before settling somewhat at $9,320/t.
• Brokers are reporting an elevated level of algorithmic traders, also known as CTAs, stepping into the copper market.
• A softer dollar has supported the metals complex, alongside bets on a rebound in global manufacturing after PMI data surprised to the upside.
• Inventories remain high and futures curves sit in contango, suggesting physical supply remains ample.
• China is on holiday today, limiting liquidity in major trading markets.

StoreDot develops battery with 2,000 fast-charge cycles

• The Israeli battery developer StoreDot has completed testing of 2,000 consecutive charging cycles in its fast-charging XFC battery cells.
• In testing the cells were charged from ten to 80% in 10mins and retained 80% capacity after the 2,000 charge and discharge process.
• For an EV with 75kWh capacity and a consumption of 14kWh/100 km, the 2,000 cycles would correspond to a driving distance of 650,000km.

Tsunami of anti-EV news stories suggests developing campaign against EVs

• We have been surprised by a sudden deluge of negative stories on EV depreciation and EV sales
• Our simple analysis of the Porche Taycan EV vs its ICE equivalent showed a remarkably similar rate of depreciation indicating to us that EVs may be no worse than many other vehicles when it comes to second hand values.
• Also, while vehicle sales were lower in China in February they have seen a substantial pick up in March, partly encouraged by the ability to buy a new EVs without a deposit.
• Curiously, we have not see a multitude of stories on EV fires which we suspect are rarer than ICE fires. This is backed up by research by Honeywell Safety and Productivity Solutions.
• Vehicle prices will inevitably fall due to increasing competition from new low-cost Chinese vehicles which are arriving in Europe and the UK from BYD and many other new entrants to the European market.
• We note, any new manufacturer will need to ensure local dealers can maintain and repair its vehicles though we expect many new EVs to require substantially less maintenance than their ICE equivalents.

Economics

US – NFPs are out later today with markets to closely watch for signs of slowing growth in wages and number of new jobs.

• Minneapolis Fed President Neel Kashkari voiced concerns over stalling inflation questioning his previous guidance for two rate cuts this year.
• “If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all… If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all,” Kashkari said in the interview yesterday.
• Kashkari is not voting on the FOMC monetary policy this year.
• Rising energy prices on the back of rising tensions in the Middle East may further delay a normalisation in inflation rates.
• Brent closed over $90/bbl, the highest level since October, amid risks of Iranian retaliation following an alleged Israeli attack on its consulate in Damascus.

China – PBoC looks likely to continue to allow the yuan to weaken to boost exports in a relatively strong US dollar environment

• China’s central bank appears poised to continue to loosen monetary policy to offset property market and other domestic troubles.
• The PBoC has pledged to stimulate domestic demand and restore economic growth.
• The policy is helped by delays to US Fed rate cuts which is helping to maintain a relatively strong US dollar.
• The weaker yuan is helping Chinese exports as China ramps up high-tech exports, particularly Electric Vehicles which are relatively high-value items.
• The move helps Chinese exporters to undercut western manufacturers and accelerate the opening up of new markets for Chinese vehicles.
• The PBoC may make a further rate cut this year to encourage further property purchases and slowly improve the property market malaise.
• The bank may also allow financial institutions to cut their foreign currency holdings and other reserves to provide further liquidity and support GDP growth

Myanmar – China’s PLA remain on high alert on Myanmar border

• There is substantial risk of conflict between China and Myanmar on the border between the two countries.
• Rebel groups in the region continue to resist Myanmar military rule since the coup in 2021.
• Myanmar’s eastern regions are known for hosting drug trafficking and drug production with Myanmar farmers now growing poppies in place of rice
• China has called for a ceasefire within the region.
• Ongoing conflict in the region will continue to disrupt local, small scale tin and tungsten production.
• The Wa State controls the Man Maw tin mine controlled by the United Wa State Army which is blacklisted by the US for drug trafficking.

Japan – BOJ Governor Kazuo Ueda said inflation is likely to accelerate from “summer towards autumn” driven by higher wages and lower yen hinting the central bank may raise rates again later this year.

• Two year bond yield climbed to the highest in more than a decade on comments with the currency strengthening further away from the 34-year low hit last week.
• Ueda said that the central bank could “respond with monetary policy” if currency moves significantly drive inflation and wages.
• The BOJ ended an eight year period of negative interest rates last month.
• The central bank will issue updated quarterly growth and inflation forecasts at its next meeting in April25-26.

UK – Property prices dropped 1%mom in March taking annual increase to only 0.3%, according to Halifax data.

• The drop was largely unexpected given a strong pickup seen in mortgage approvals lately and suggest high borrowing costs remain a drag on the market.
• Mortgage approvals reached the highest level in 17-months in February.
• Average property price currently stands at £288k.

Israel – President Biden urged Benjamin Netanyahu to address the humanitarian crisis in the Gaza strip calling for an “immediate ceasefire” in the conflict, FT reports.

• That marks the strongest signal from the US that its support of Israel’s offensive on Hamas is contingent on bringing civilian casualties down.
• The call follows an incident in Gaza when Israel air strikes killed seven humanitarian workers.
• In response, Israel agreed to temporarily reopen the Erez land crossing for humanitarian aid, allowed its Ashbod port to be used to process aid shipments for Gaza and le increased Jordanian aid shipments through another land border crossing.

Zimbabwe – Government to launch new currency backed by gold

• The government of Zimbabwe has said it will bring in a new gold-backed currency to help stabilise the economy.
• President Mnangagwa, aka the Crocodile, says the nation has sufficient gold to support the new ‘structured currency’ (FT).
• Investors are going to take a lot of convincing on any new currency following the collapse of the latest incarnation of the Zimbabwean dollar.
• The Zim dollar continues to collapse in local and global markets due to the government’s ongoing printing of currency.
• Many business continue to work with US dollar as a more reliable and functional currency within Zimbabwe
• Investors may worry about where the government might acquire the gold for this latest currency ideas and could require more gold to be deposited into the central bank.
• Caledonia Mining continues to mine gold and operate relatively unimpeded in Zimbabwe despite the past requests for funds to support ZanuPF campaigns.
• We are not aware of miners having lost any assets to the government other than at the Marange diamond fields which were reported to be briefly annexed by a Chinese force some years ago.
• From a mining perspective Zimbabwe continues to provide opportunity with an educated and skilled labour force and good access to expertise from South Africa.

DRC – ERG mines hit by suspension of contractors in DRC

• Eurasian Resources Group mined have been hit by the suspension of nine subcontracting companies in the DRC
• Subcontractors are required by law to be owned by Congolese nationals following a ban first announced on 14 March.
• Gecamines is reported to be looing to take over some ERG mining assets due to slow development.
• The DRC has also stopped work at one of ERGs copper mine due to alleged environmental damage.
• ERG has reported plans to invest a further US$800m into a new hydrometallurgical refiner at COMIDE.

Taiwan – TSMC restarts semiconductor fabrication following earthquake

• Non-critical damage was seen at a number of facilities allowing fabrication to restart relatively quickly.
• The rapid restart and low fatality rate is testament to the skill and careful preparations by Taiwanese companies and national leadership.
• TSMC provides chips for Apple and Nvidia..

Insider trader Joe Lewis avoids prison in US

• A US judge has fined Joe Lewis $5m and sentenced Joe Lewis to three years’ probation due to his age, ill health and remorse.
• Lewis, who is worth >$6bn and is 87 faced a 18 month to 2 year term under US guidelines having pleaded guilty.
• Other participants in the insider trading scandal are due to go to trial.

Currencies

US$1.0836/eur vs 1.0854/eur previous. Yen 151.29/$ vs 151.73/$. SAr 18.674/$ vs 18.595/$. $1.262/gbp vs $1.266/gbp. 0.658/aud vs 0.659/aud. CNY 7.233/$ vs 7.233/$.

Dollar Index 104.27 vs 104.18 previous.

Precious metals:

Gold US$2,292/oz vs US$2,294/oz previous

Gold ETFs 82.2moz vs 82.1moz previous

Platinum US$927/oz vs US$944/oz previous

Palladium US$1,012/oz vs US$1,025/oz previous

Silver US$26.76/oz vs US$27/oz previous

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

Base metals:   

Copper US$ 9,302/t vs US$9,355/t previous

Aluminium US$ 2,443/t vs US$2,453/t previous

Nickel US$ 17,765/t vs US$17,395/t previous

Zinc US$ 2,640/t vs US$2,580/t previous

Lead US$ 2,147/t vs US$2,111/t previous

Tin US$ 28,765/t vs US$28,645/t previous

Energy:           

Oil US$91.1/bbl vs US$89.3/bbl previous

• Crude oil prices pushed above the $90/bbl level for the first time in 6M on the back of continued tensions in the Middle East and OPEC+ commitments to manage supplies.
• US natural gas prices fell on news that outages would continue until end-May on the Freeport LNG facility and as the EIA reported a 37bcf w/w draw (-40bcf exp) to 2,296bcf for US gas storage levels.
• Senegal’s newly elected President Bassirou Diomaye Faye announced the Government would undertake an “audit of the mining, gas and oil sector that aims to strengthen the protection of local content for the benefit of the national private sector,

Natural Gas €26.5/MWh vs €25.8/MWh previous

Uranium Futures $89.0/lb vs $89.0/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$98.6/t vs US$99.0/t

Chinese steel rebar 25mm US$521.8/t vs US$521.8/t

Thermal coal (1st year forward cif ARA) US$115.0/t vs US$116.3/t

Thermal coal swap Australia FOB US$128.9/t vs US$131.0/t

Other:  

Cobalt LME 3m US$28,550/t vs US$28,550/t

NdPr Rare Earth Oxide (China) US$50,185/t vs US$50,185/t

Lithium carbonate 99% (China) US$14,724/t vs US$14,724/t

China Spodumene Li2O 6%min CIF US$1,210/t vs US$1,210/t

Ferro-Manganese European Mn78% min US$975/t vs US$975/t

China Tungsten APT 88.5% FOB US$310/mtu vs US$310/mtu

China Graphite Flake -194 FOB US$490/t vs US$490/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$330/t vs US$330/t

China Rutile Concentrate 95% TiO2 US$1,431/t vs US$1,431/t

Spot CO2 Emissions EUA Price US$57.4/t vs US$56.1/t

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

Battery News

Australia sees record EV sales in March, but market share sees slight fall

• EV sales in Australia topped 10,000 for the second consecutive month and a highest monthly high in March.
• 10,548 EVs were sold in March, but market share fell to 9.5% from 9.6% in February.
• Tesla was the best selling EV maker and sixth overall bestseller in Australia in March.

EV market share falls in UK as sales sluggish in March

• 15.2% of new cars registered in the UK in March were EVs, down from 16.2% in the same month last year the Society of Motor Manufacturers and Traders revealed 9SMMT)
• According to the industry body, sales have fallen due to the ‘tough economic background’ of low growth, weak consumer interest and higher interest rates.
• Yoy sales of EVs did rise during the month, but this was driven by fleet investment, rather than from private drivers.

Company News

Arkle Resources* (ARK LN) 0.34p, Mkt Cap £1.4m – Further drilling planned at Stonepark

• Arkle Resources announces an update from its Stonepark Project.
• The Company, which holds a 23% stake in the asset alongside Group Eleven, states that a drilling programme is set to get underway ‘in the coming months.’
• The programme will target the Carrickittle West target, where previous drilling intersected a major fault.
• Widely spaced holes will be drilled to better understand mineralisation, brecciation and Waulsortian thickness variations.
• Additional targets will be drilled at the Stonepark block.

Conclusion: Group Eleven’s decision to continue exploring the Stonepark Project is a major development for Arkle, with the longer term zinc supply/demand structure also looking positive. We look forward to more details of the upcoming programme as the Group progresses towards drilling.

*SP Angel are Nomad and Broker to Arkle Resources

Red Rock Resources (RRR LN) 0.06p, Mkt Cap £3m – Update on DRC and Gold Assets

• Red Rock Resources provides an update on its arbitration process in the DRC the VUP copper-cobalt JV.
• The Company now expects that, following the Presidential elections, it expects a finalisation of the arbitration award over RRR’s share of the sale proceeds within a short timeframe.
• They note that discussions with former JV partners support a potential agreement with which to approach the arbitrator.
• In Burkina Faso, plant operation equipment is being delivered, with first gold wash plant expected to arrive over the next few days.
• Chairman Andrew Bell and Mr Samuel are planning to relocate to Burkina Faso as the transition to stable gold production ramps up at Bilbale.

Rio Tinto (RIO LN) ) 5,005p, Mkt Cap £81bn – Pressure from Norwegian sovereign wealth fund to divest bauxite asset

• Reuters reports Norway’s $1.6tn sovereign-wealth fund is considering encouraging Rio Tinto to divest their 22% stake in MRN.
• Mineração Rio do Norte is a bauxite asset in Northern Brazil and the fund’s ethics advisor is concerned over deforestation.
• The fund, which is one of Rio’s largest shareholders with a $2.7bn stake in the Company, is considering selling its stake in Rio as an alternative.
• Investors are also concerned over Rio’s ability to ramp up Simandou whilst meeting ‘nature and biodiversity targets.’

Conclusion: Norway’s sovereign wealth fund continues to express concerns over major mining company assets, having previously blacklisted Glencore over their exposure to coal. The mining equity capital pool continues to shrink under pressure from ESG councils, presenting long term threats to capital investment in the sector, leaving the industry vulnerable to shortages and subsequent price spikes.

Syrah Resources (SYR AU) A$0.53, Mkt Cap A$420m – Completion of equity raise to fund graphite anode materials plant

• Syrah has now concluded its Entitlement Offer, raising US$65m at $0.55/share, which includes the previously announced institutional placement.
• Funds will be used to progress the Vidalia plant, paying off loans to the DoE and support the expansion FID progression.
• Funds will also be used to support Balama working capital and general corporate purposes.
• Note 34m new share, or A$18.7m, were not taken up by retail shareholders, leaving them with the sub-underwriters.

West African Resources (WAF AU) ) A$1.3, Mkt Cap A$1.35bn – Production for first quarter as guidance on track

• WAF reports Q1 production update from its Sanbrado operations.
• The Company produced 56.6koz, selling 49.5koz at $2,080/oz.
• Underground mine ounces increased 22% qoq, mining 105kt of ore from m1 South at 8.1g/t Au.
• Open pit mining decreased 59% qoq, mining 555kt of ore at 1.2g/t for 21koz.
• The decrease reflects the mine plan as M5 South mining wraps up.
• Gold in stockpiles down 10.8koz qoq.
• Total ore milled over the period at 844kt at 2.2g/t head grade with 93.9% recoveries.
• Guidance reiterated for 210koz over the period at AISC under $1,300/oz.

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.

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II – Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%