SP Angel Morning View -Today’s Market View, Friday 7th July 2023

Tin extends gains to five-month highs as buyers secure supply over Myanmar concerns

MiFID II exempt information – see disclaimer below

Keras Resources* (KRS LN) – Shares trading after suspension lifted

MiFID II – UK government to boost investment in new startups and infrastructure projects and to reverse MiFID rules on research.

• Jeremy Hunt, UK Finance Minister, is reported to be planning to allow insurers to invest billions of pounds into startups and infrastructure projects. (Boomberg)
• The move may roll back some of the damaging legislation put in place by Gordon Brown whose puritanical policies seemed to think insurers and pension funds should invest mainly in bonds.
• The move is said to follow a key recommendation of a review on investment research done by lawyer Rachel Kent.
• Hunt is also reported to be planning to roll back legislation requiring investment banks to split the cost of research from trading expenditures.
• MiFID II also included regulations requiring brokers to unbundle customer charges for research and order execution.

Small Cap Equities – Oversold but not under loved

• We are in an environment where qood quality stocks are being sold down in preference to lesser quality companies as investors sell anything with liquidity
• Last time it was this bad was April/May 2020 due to Covid and Summer/Autumn 2008 when Lehman Bros went bust
• It gives free reign to the short sellers, whoever they are, though many will have been deleveraged by their lenders
• Equities will be prone to increasingly volatile swings as value investors pick up bargains in this unexpectedly poor market environment
• If the UK government allows insurers and pension funds, which hold just 4% of their assets directly in UK equities, to invest in into new startups and infrastructure projects this should make a dramatic difference to the market.
• But, how quickly this occurs and how much funding will be made is another question.

Tin extends gains to five-month highs as buyers secure supply over Myanmar concerns

• Tin prices pushed higher to $29,100/t, up 20% since May.
• Analysts suspect traders have been securing physical supply before a potential suspension of mining in Myanmar’s Wa State.
• The ban is expected to begin from August 1^st to protect reserves.
• However, LME tin stocks are buoyant at 3380t vs 1510t on the 25^th April.
• Reuters reports one individual company holds between 50-80% of tin warrants currently n ussue.
• Another single company is reportedly holding 30-39% of LME open interest short – expect volatility going forward.
• LME premiums have risen to $1,700/t, the highest in nearly two years.
• Myanmar accounted for 77% of Chinese tin ore imports in 2022.

Gold whipsaws in volatile trade as further strong US jobs data pushes real yields higher

• Gold prices have rebounded to $1,920/oz having closed in on $1,900/oz in yesterday’s afternoon trade.
• The move follows US private payroll data, which showed the US economy went from strength to strength, despite interest rates rising to >5%.
• US 2-year Treasury yield rallied over 5% yesterday, its highest level since 2008 as the market began to price in a rate hike in November.
• Inflation remains sticky, with the Fed’s preferred gauge sitting at an increase of 3.8% in May yoy, core PCE index at 4.6%, well above the 2% target.
• Real yields, which factor in inflation rates and Treasury yields, hit a 2008 high yesterday, adding further pressure to gold prices.
• Gold has an inverse relationship to real yields.

Copper continues downtrend in limited trading as supply climbs in China

• Copper prices are holding below the $8,300/t mark as a rising dollar pressures prices and the supply picture improves.
• Rising refining charges are encouraging traders to place bearish bets as smelters look to take advantage of rising charges on ample concentrate supply.
• Shanghai stocks are up c.10% on the week to 74.6kt.
• Importantly, copper premiums are sliding, down from 440CNY earlier in the week to 60CNY today.
• New housing sales fell 28% in June yoy, despite an extremely low base last year, as Beijing fails to revive the property market.
• Housing sales climbed month on month by 8.5%, slowest growth on record for June. Sales declined in May by 59%.
• Goldman slashed a number of many Chinese banks ratings yesterday owing to their $4.7tn of local government debt, raising concerns over defaults and debt restructurings going forward.
• Chinese developer Shimao Group, one of multiple currently in default, offered a $1.8bn project for sale in forced auction but failed to find a buyer, highlighting the dire state of investment appetite in the country.

Chinese copper smelters set new TC/RC guidance of US$95/t for Q3.

• The rise in treatment charges indicates that smelters feel emboldened with sufficient copper concentrate supply
• Antofagasta has also agreed to maintain US$88/t with Chinese smelters for 2024.
• Freeport Indonesia continue to wait for a renewed permit to export copper out of Indonesia.

Africa – Giant superplume breaking Africa apart along the East African Rift valley

• Scientists reckon Africa is being split in two along the East Africa Rift which runs from the Red Sea to Mozambique
• Momentum has been measured in the Rift Valley, probably driven by a giant plume of super-heated rock rising up from near Earth’s core.
• Perpendicular deformation moving east and west as the rift stretches and the lithosphere thins
• Iceland’s rift and volcanoes are driven by similar hot mantle plumes
• GPS measurements to millimeter precision combined with seismic have been used to create a series of 3D simulations showing the deformations running parallel to the rift may be driven by northward mantle flow associated with the African Superplume.
• Shanta Gold’s Singida gold mine sits on an escarpment of the Rift in Tanzania with highly fractured rock at surface indicating an unusual level of geological deformation.
• We suspect there are many more mineral occurrences driven by these giant superplumes

Economics

US – Strong private hiring data along with hawkish FOMC meeting minutes saw equity markets sell off yesterday with futures trading lower this morning.

• ADP labour numbers were reported at the highest level in more than a year in June (497k v 225k est).
• Official NFPs to be released later today with estimates pointing to a slowdown in the pace of new jobs created along with a marginal reduction in labour earnings growth rate.
• NFPs (‘000): 230 est v 339 May.
• Unemployment Rate: 3.6% est v 3.7% May.
• Av Hourly Earnings Growth (%yoy): 4.2 est v 4.3 May.

Japan – Wages increased by more than twice the pace forecast following successful spring’s wage negotiations.

• Major labour unions are reported to have secured a 3.6% total pay increase during this year’s wage talks, the largest increase in decades.
• Stronger labour earnings are pointing in favour of a potential pause in the official loose monetary policy.
• Labour Earnings (%yoy): 2.5 v 0.8 (revised from 1.0) April and 1.2 est.

ECB – Lagarde warns of further inflation stoked by rising company profits and wages

• Lagarde expects inflation to remain above the ECB 2% target through 2024 and 2025.

Germany – Industrial production pulled back in May as the industry continued to struggle amid tighter financing conditions, higher energy prices and weaker global demand.

• Industrial Production (%mom): -0.2 v 0.3 April and 0.0 est.
• Industrial Production (%yoy): 0.7 v 1.7 (revised from 1.6) April and 0.5 est.

UK – Property prices dropped 2.6%yoy in June to ~£286k on the back of rising mortgage rates are falling real incomes, according to Halifax data.

• The data follows Nationwide numbers released last week that showed a 3.5%yoy decline in prices.
• Estimates suggest that ~800k of fixed rate loans will need to be refinanced in H2/23 and a further 1.6m in 2024 out of ~13m outstanding.

UK automotive industry asks UK to cut VAT on electric car charging in the street

• The UK car industry is asking the government to cut its 20% VAT (Pavement Tax) applied to selling electricity in the street
• Home charging currently incurs just 5% VAT which is the levy on domestic electrical power.
• The system is fundamentally unfair for drivers who do not have their own driveway or domestic charging point.
• New car registrations rose 26% in June to 177,266, the 11th consecutive monthly rise  but still well below pre-pandemic levels
• The UK Treasury claims to have provided >£bn to cut purchase costs and build infrastructure to help the roll out of Electric Vehicles

Taiwan – Exports dropped in June at the quickest pace since 2009 suggesting deteriorating market for technological goods including semiconductors, a key product, Bloomberg writes.

• Inflation and interest rate hikes as well as high base were cited as factors weighing on demand by the finance ministry.
• Exports (%yoy): -23.4 v -14.1 May and -13.5 est.

Indonesia investigates illegal nickel exports following three years of ban

• Jakarta is currently investigating a case of illegal nickel ore shipments to China.
• Concentrate exports are banned for nickel, with the country looking to implement similar laws for copper and other base metals.
• Indonesia is looking to extract more value in country from its natural resources, with nickel product exports rising to over $30bn in 2022 vs $1bn in 2015.
• China has reportedly imported 5.56mt of nickel ore from Indonesia between 2020 and 2023. (Reuters)

Currencies

US$1.088/eur vs 1.0864/eur yesterday. Yen 143.43/$ vs 143.66/$. SAr 19.1022/$ vs 18.776/$. $1.274/gbp vs $1.271/gbp. 0.662/aud vs 0.668/aud. CNY 7.243/$ vs 7.246/$.

Dollar Index 103.06 vs 103.26 yesterday

Commodity News

Precious metals:

Gold US$1,919/oz vs US$1,921/oz yesterday

Gold ETFs 92.4moz vs 92.4moz yesterday

Platinum US$909/oz vs US$921/oz yesterday

Palladium US$1,232/oz vs US$1,253/oz yesterday

Silver US$22.86/oz vs US$23.24/oz yesterday

Rhodium US$4,000/oz vs US$4,000/oz yesterday

Base metals:

Copper US$ 8,229/t vs US$8,291/t yesterday

Aluminium US$ 2,131/t vs US$2,137/t yesterday

Nickel US$ 20,918/t vs US$21,295/t yesterday

Zinc US$ 2,365/t vs US$2,375/t yesterday

Lead US$ 2,064/t vs US$2,061/t yesterday

Tin US$ 27,633/t vs US$28,200/t yesterday

Energy:

Oil US$77.0/bbl vs US$76.4/bbl yesterday

Natural Gas US$2.637/mmbtu vs US$2.642/mmbtu yesterday

Uranium UXC US$55.60/lb vs US$55.60/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$109.6/t vs US$109.7/t

Chinese steel rebar 25mm US$525.5/t vs US$525.5/t

Thermal coal (1st year forward cif ARA) US$118.0/t vs US$118.0/t

Thermal coal swap Australia FOB US$150.5/t vs US$151.5/t

Coking coal swap Australia FOB US$226.0/t vs US$228.0/t

Other:  

Cobalt LME 3m US$33,420/t vs US$33,420/t

NdPr Rare Earth Oxide (China) US$61,767/t vs US$61,814/t

Lithium carbonate 99% (China) US$41,753/t vs US$41,785/t

China Spodumene Li2O 6%min CIF US$4,090/t vs US$4,090/t

Ferro-Manganese European Mn78% min US$1,103/t vs US$1,107/t

China Tungsten APT 88.5% FOB US$315/mtu vs US$315/mtu

China Graphite Flake -194 FOB US$715/t vs US$725/t

Europe Vanadium Pentoxide 98% US$7.5/lb vs US$7.5/lb

Europe Ferro-Vanadium 80% US$32.25/kg vs US$31.95/kg

China Ilmenite Concentrate TiO2 US$302/t vs US$302/t

Spot CO2 Emissions EUA Price US$92.3/t vs US$92.8/t

Brazil Potash CFR Granular Spot US$320.0/t vs US$320.0/t

Battery News

Company News

Keras Resources* (KRS LN) – 4.10, Mkt cap £3.27m – Shares trading after suspension lifted

(Keras holds 100% of the Diamond Creek phosphate mine in Utah, UASA. Keras also holds an 85% interest in Societé General des Mines for the Nayéga manganese project in Togo)

• Keras shares are now trading again following their suspension.
  • The company received its £1.7m of funds from the Republic of Togo.
  • The 2022 accounts were finalised and issued
  • The acquisition of the Diamond Creek organic phosphate mine in Utah was paid for
• We believe the government of the Republic of Togo had send the money on time but it had been held up in the banking system for a few days.

• The deal with Togo is for Keras to assist the Togolese government to hand over and operate the Nayéga manganese project to a state company.
• Nayéga is considered to be a Togolese strategic asset.
• Keras will hand over all intellectual knowledge on Nayéga to the Société Togolaise de Manganèse
• Keras will be paid an advisory fee of 1.5% of gross revenue from the mine for the provision of advisory services for three years plus 6% of gross revenue for the provision of brokerage services for the lesser of 3.5 years or 900,000t of beneficiated manganese.

*SP Angel acts as nomad and broker to Keras

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 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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