SP Angel Morning View -Today’s Market View, Friday 7th June 2024

China refined copper imports climb making up some of the shortfall in concentrate supply

MiFID II exempt information – see disclaimer below

Nevada Copper (NCU CN) – Funding issues at Pumpkin Hollow ramp up

Rio Tinto (RIO LN) – Considering restart of Zulti South mineral sands project

Sovereign Metals* (SVML LN) – Groundworks for test pits started at Kasiya rutile, graphite mine site in Malawi

Tertiary Minerals* (TYM LN) – Updated JV structure to support corporate development in Zambia

VALE S.A (VALE US) – Samarco counteroffer from Court

Copper prices ease below $10,000/t as iron ore climbs following sell-off

• Copper prices are sitting at around $9,990/t, having climbed yesterday to $10,150/t.
• China refined imports climbed above expectations in May, up 16% yoy.
• Suggestions that Russian metal is flowing into China following sanctions on the LME introduced in April.
• Shipments are also coming from the DRC, where stockpiles were held.
• China unwrought copper product imports up 9% yoy for first five months of 2024.
• Imports of unwrought products at 515kt up 17% mom.
• BHP is currently in mediated talks at their Spence mine (250ktpa) in Chile over labour negotiations.
• Codelco just agreed with the Andina mine (160ktpa) union last week
• Iron ore jumped from four-week lows yesterday, climbing $5/t on Singapore markets to $112/t.

China EV sales rebound in May following drop in April

• Wholesale sales of passenger EVs were an estimated 910,000 units, up 35% yoy and 16% from April.
• China had seen a surprise drop sales for April as a slow start to the year continued.
• In May, China’s new auto trade-in subsidy policy came into effect and the price war on new EVs cooled.
• BYD accounted for over one third of sales with 330,483 units sold.
• Tesla took second spot with 72,573 vehicles sold and Geely sold 58,673 to take third spot.

Nickel – Expert warns of shortage of high-grade nickel near 2030 on rising demand for EV batteries (Nikkei Asia)

• Nickel mining executives have highlighted the potential for further shortages of high-grade nickel at a conference in Jakarta this week
• Demand for Class 1 high-grade nickel used in EV batteries looks likely to exceed planned supply despite rising low-grade production.
• We suspect further rises in NCM battery chemistry to lead new demand for Class 1 nickel displacing production growth in  LFP which does not use nickel.
• NCM and NCA batteries make up 56% of total EV batteries with LFP rising to 44% in April this year according to the latest Rho Motion’s EV battery chemistry assesment.
• Pure EVs continue to lead sales with 65% of the EV market continuing to outpace PHEV ‘Plug-in hybrids EVs’.
• Battery pack capacities continue to increase with larger, heavier cars looking for greater range. Battery pack sizes have risen to >80kWh while PHEV battery packs are getting smaller.

US lawmakers call to add CATL and Gotion to import ban list. CATL shares fall 5.7%

• A group of Republican lawmakers have urged the US government to immediately add CATL and Gotion Hi-tech to an import ban list, on claims of forced labour in the supply chain. (WSJ)
• The lawmakers called for CATL and Gotion, which have ties to Ford and Volkswagen respectively, to be added to what is known as the entity list under the Uyghur Forced Labor Prevention Act.
• The entity list restricts the import of goods tied to what the US government has characterised as an ongoing genocide of minorities in China’s Xinjiang region.
• In a statement from Gotion, the company state that any allegations it “uses or is related to forced labour is baseless and absolutely false.” (Reuters)
• Volkswagen Group China has no evidence of human rights violations in connection with its business activities in China a spokesperson told Reuters.
• CATL denied any suggestion that the company has used forced labour, or has any connection to forced labour, the WSJ report said.

Gold  ($2,347/oz) prices fall as China pauses purchases

• Gold prices eased $20/oz this morning to $2,347/oz, having rallied yesterday on Central Bank rate cuts.
• China’s PBOC didn’t add to their gold reserves in May, with their position flat at 72.8moz.
• China has bee buying for eighteen months, supporting gold’s record rally to $2,450/oz last month.
• Whilst China may be slowing, we anticipate ETF demand to return to the fore as US Treasury yields fall, pushing safe haven investors into bullion.

Economics

US – Key labour numbers are due later today with estimates for a 180k print (175k in April), jobless rate unchanged at 3.9% and a little uptick in labour earnings growth (+0.3%mom v +0.2%mom in April; 3.9%yoy v 3.9%yoy in April).

US – May ADP private employment fell to 150k in May vs 188k in April

• JOLTS job openings also fell to 8.059m in April vs 8.355m in March
• JOLTS job quits rose surprisingly to 3.507m in April vs 3.329m in March
• Challenger job cuts 63.8k in May vs 64.7k in April
• Q1 non-farm productivity 0.2% vs 3.5% in Q4
• Unit labour costs revised to -2.8% from 0%
• LMI Logistics Managers index 55.6 in May vs 52.9 in April
• RCM/TIPPS economic optimism index 40.5 for June vs 41.8 for May
• Factory orders rose 0.7% in April vs 0.7% in March
• Total vehicle sales rose to 15.9m vehicles in May definitely not led by EVs in the US

China – Trade numbers deliver a mixed bag with growth in exports seen accelerating while imports point to a pull back in domestic demand.

• China’s trade balance saw a massive US$82.6bn surplus in May well above US$72.2bn estimates.
• Potential trade barriers in the US and the EU represent risks to further export oriented growth.
• Overseas shipments are reported to have climbed 4.8%yoy in May, the most in three months, with exports to Asian countries up 25% and those to the EU down 0.7%.
• Exports (%yoy, May/Apr/Est): 7.6/1.5/5.7
• Imports (%yoy, May/Apr/Est): 1.8/8.4/4.3

HK – Three football fans arrested for ‘not standing and turning their backs’ on the Chinese national anthem

• The arrests were made at a football match between Iran and Hong Kong.
• Insulting the Chinese national anthem carries a maximum penalty of three years in prison in HK..

Eurozone – The central delivered on an expected rate cut with a 25bp reduction in the key deposit rate to 3.75%.

• The decision was unanimous, except for one governor.
• The Governing Council is not committing to further cuts just yet.
• “Are we today moving into a dialling-back phase? I wouldn’t volunteer that,” President Lagarde said.
• Latest quarterly projection showed it would take a little longer to bring inflation down to 2% target.
• Inflation projections were revised higher for both 2024 and 2025 – 2.5%(+0.2pp from March) in 2024 and 2.2%(+0.2pp) in 2025.
• Markets in return pushed their expectations for another rate cut slightly out with the next move expected in October.
• The € climbed against the US$.

Construction PMIs continue to show weakening activity across Europe:

• EU 42.9 in May vs 41.9 in April – still slow
• Germany 38.5 in May vs 37.5 in April – disasterous
• France 43.4 in May vs 41.5 in April – not good
• Italy 49.0 in May vs 48.5 in April – some improvement
• UK 54.7 in May vs 53.0 in April – no wonder its so hard to find builders these days

Germany – Trade comes in better than expected in April in a welcome news for an economy where export oriented industries account for a significant share of the economy.

• On a separate note, the Bundesbank released its update economic projections.
• Economy to slowly gain momentum in 2024 with GDP forecast to expand 0.3% in 2024, 0.1pp lower on previous estimate, with growth accelerating to 1.1% and 1.4% in 2025 and 2026.
• Monetary authorities expect private consumption to gradually recover and export business to improve from H2/24.
• Headline and core inflation measures are expected to average 2.8/2.5 in 2024 and 2.7/2.3 in 2025; those are slightly higher than forecast previously.
• Exports (%mom, Apr/Mar/Est): 1.6/1.1(revised from 0.9)/1.1
• Imports (%mom, Apr/Mar/Est): 2.0/0.5(revised from 0.3)/0.5

UK – Property prices stagnated in May as high borrowing costs continued to weigh on buying activity, Halifax data showed.

• House prices fell 0.1%mom following no change the month before and a drop of 0.9% in March, Bloomberg reports.
• Numbers contrast with Nationwide data that showed growth for the first time in three months in May (+0.4%mom).
• UK prices are up 1.5%yoy at an average of ~£289k.

Currencies

US$1.0895/eur vs 1.0882/eur previous. Yen 155.28/$ vs 156.18/$. SAr 18.886/$ vs 18.885/$. $1.280/gbp vs $1.279/gbp. 0.668/aud vs 0.666/aud. CNY 7.243/$ vs 7.247/$.

Dollar Index 104.00 vs 104.21 previous.

Precious metals:         

Gold US$2,377/oz vs US$2,364/oz previous

Gold ETFs 81.0moz vs 80.9moz previous

Platinum US$1,009/oz vs US$996/oz previous

Palladium US$926/oz vs US$937/oz previous

Silver US$31.27/oz vs US$30/oz previous

Rhodium US$4,700/oz vs US$4,700/oz previous

Base metals:   

Copper US$ 10,076/t vs US$10,014/t previous

Aluminium US$ 2,642/t vs US$2,642/t previous

Nickel US$ 18,525/t vs US$18,470/t previous

Zinc US$ 2,920/t vs US$2,893/t previous

Lead US$ 2,232/t vs US$2,238/t previous

Tin US$ 32,645/t vs US$31,710/t previous

Energy:           

Oil US$80.0/bbl vs US$78.9/bbl previous

• European energy prices fell back from its highs earlier this week as the flow of ~1.5bcf/d from Norway’s Nyhamna’s gas facility to the UK via the Langeled pipeline resumed today.
• US Henry Hub natural gas prices edged higher even as the EIA reported a 98bcf w/w build to 2,893bcf, with storage levels declining w/w to 14.8% above last year and 25.1% above the 5-year average.
• Saturn Oil & Gas announced the placement of $650m in senior secured 2029 notes with a fixed interest rate of 9.625%, which will largely fund the acquisition of a portfolio of Southern Saskatchewan assets from Veren.

Natural Gas €32.9/MWh vs €33.5/MWh previous

Uranium Futures $87.2/lb vs $88.4/lb previous           

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$108.8/t vs US$107.0/t

Chinese steel rebar 25mm US$538.7/t vs US$536.9/t

Thermal coal (1st year forward cif ARA) US$117.5/t vs US$118.0/t

Thermal coal swap Australia FOB US$134.5/t vs US$136.5/t

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

Other:  

Cobalt LME 3m US$27,150/t vs US$27,150/t

NdPr Rare Earth Oxide (China) US$50,175/t vs US$50,023/t

Lithium carbonate 99% (China) US$13,596/t vs US$13,593/t

China Spodumene Li2O 6%min CIF US$1,180/t vs US$1,180/t

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

China Tungsten APT 88.5% FOB US$360/mtu vs US$360/mtu

China Graphite Flake -194 FOB US$470/t vs US$470/t

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.2/lb

Europe Ferro-Vanadium 80% 26.85/kg vs US$26.85/kg

China Ilmenite Concentrate TiO2 US$318/t vs US$318/t

China Rutile Concentrate 95% TiO2 US$1,415/t vs US$1,414/t

Spot CO2 Emissions EUA Price US$71.1/t vs US$71.4/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$310.0/t

Battery News

Nio expects Q2 sales to more than double

• The Chinese automaker expects its Q2 sales to have more than doubled from the same period last year.
• It expects to deliver between 54,000 and 56,000 vehicles and see revenue also nearly double to $2.3bn.
• The company, which has been in operation since 2015, has yet to turn profitable, but has made changes to long-term plans to strengthen its financial performance in the short term.
• Nio also received approval for a third EV manufacturing plant in China which, at full capacity, will take total annual production close to 1m.

Australia sees 25% of May vehicle sales as NEVs

• Australia saw a record number of vehicles purchased in May, with almost one in four being an EV or hybrid.
• Hybrid and plug-in hybrid vehicles (PHEV) accounted for 15.8% of new vehicle sales, up from 7.9% in the same period last year.
• EVs accounted for 8.1% of total vehicle sales, with 8,900 being sold in the month.
• Australia has seen more than 40,000 EVs sold this year.

Polestar and StoreDot complete demo of Extreme Fast Charging

• As automakers chase faster charging speeds, Polestar and StoreDot’s latest collaboration has seen its prototype battery unit capable of charging from 10% to 80% in 10 mins.
• The 77kWh battery was installed in a Polestar 5, which saw a consistent charge rate of 310kW.
• The amount charged is equivalent of around 200 miles of range that could be added in the 10 mins of charging.

Gotion High-tech to build battery gigafactory in Morocco

• The Chinese battery maker, will build Morocco’s first EV battery gigafactory according to the Moroccan government. (Reuters)
• The gigafactory will have an initial battery capacity of 20GWh, with plans to increase capacity to 100GWh.
• Initial investment will be around $1.3bn according to the statement, but this could rise to $6.5bn for the increased capacity.
• Morocco has good geographic proximity to Europe as well as free trade agreements with the EU and the US.

Company News

Nevada Copper (NCU CN) C$0.1, Mkt Cap C$43m – Funding issues at Pumpkin Hollow ramp up

• Nevada Copper, which is ramping up the Pumpkin Hollow underground mine in Yerington, Nevada, comments on its liquidity conditions.
• The Company reports that it has engaged stakeholder discussions to obtain funding or sell the asset.
• Management stated yesterday that it does not have ‘sufficient ordinary course funding to continue operations.’
• Underground operations have been scaled down and Pala Investment nominees Gill and Iorich have stepped down.
• The Company reports it may have to seek creditor protection.
• The Pumpkin Hollow underground operation was estimated to feed 1.8mt/pa over a 14 year mine life at 1.74% CuEq.
• Ramp up had been hit by unanticipated underwater build up, incomplete ore handling system and processing plant bottlenecks.

Rio Tinto (RIO LN) 5,385p, Mkt Cap £88bn – Considering restart of Zulti South mineral sands project

• Reuters reports Rio is eyeing a restart of expansion plans at its South African Zulti South project.
• The $463m Zulti South expansion project was paused in 2019 on political instability in the region.
• Zulti South forms part of the Richards Bay Minerals group, with the expansion considered to boost the operation’s life by 25 years.
• Rio had declared force majeure on violence in KwaZulu-Natal.

Sovereign Metals* (SVML LN) 33.05p, Mkt Cap £189m – Groundworks for test pits started at Kasiya rutile, graphite mine site in Malawi

(Sovereign currently holds 100% of the Kasiya project. The government has a right to a 10% free carry in the project. Rio Tinto acquired an initial strategic interest of 15% for a $40.6m with an option to increase it to 19.99% within 12 months from 17 July 2023)

STRONG BUY – Valuation 55p

• Sovereign Metals have started groundworks at the Kasiya mine site in Malawi (see video in link below).
• https://x.com/sovereignmetals/status/1798672597003206709.
• Much has happened since our visit to the mine site a month ago.
• The work has been planned with advice and guidance from Rio Tinto who currently hold 15% of Sovereign Metals.
• Rios look likely to increase their stake to 19.99% in July at a cost of $18.8m (eq. A$54.5/s).
• While Rio Tinto may be interested in acquiring the whole project we suspect they will not make an offer till the mining process, tailings impoundment, land rehabilitation and a few other issues have been confirmed.
• Kasiya is the largest, defined rutile resource in the world also hosting what looks like the world’s second largest graphite resource.
• The rutile and graphite process easily via gravity separation. The ore appears to be a friable sand with a high clay content with little need for crushing or grinding.
• The new pits are designed to test the effectiveness of hydro mining with high pressure water hoses versus simple dry mining with excavators. Both are seen as low cost mining methods.
• The separation of the rutile from the graphite and country will also be a low cost process.
• PFS results from September 2023:
  • Operating costs are currently estimated to be US$8.74/t mined vs $4.3/t for hydro-mining at Kwale in Kenya
  • Total operating costs including royalties US$404/t– FoB Nacala port, Mozambique.
  • Assumptions – pricing:
    • Rutile price US$1,484/t – average over the life of mine.
    • Graphite – US$1,290/t – average over the life of mine
  • NPV (8%) post-tax US$1,605m ,NPV (10%) post-tax US$1,205m
  • IRR of 28% ungeared
• The mining, tailings and land rehabilitation trial results will feed into a new DFS Definitive Feasibility Study to be done this year.
• Rutile prices have recovered slightly to $1,420-1,463/t having started the year at $1,670-1,630/t

*SP Angel act as Nomad and broker to Sovereign Metals. The analyst has recently visited the Kasiya mine site with no ill effects in this site visit.

Tertiary Minerals* (TYM LN) 0.13p, Mkt Cap £3.3m – Updated JV structure to support corporate development in Zambia

• Tertiary provides on its JV agreement with local partner Mwashia Resources in Zambia.

• The Company announced yesterday that all conditions for the JV have now been met.
• As a result, a Newco has been formed with Tertiary’s 96%-owned subsidiary holding a 90% stake in the group.
• The Zambia Revenue Authority has approved the Licence transfer.
• The Newco will facilitate third party JV approaches easier and simplifies the Company’s corporate structure in Zambia.
• Tertiary reports they are now advancing drill planning, whilst Konkola West drilling is approaching target.

*SP Angel acts as Nomad and Broker to Tertiary Minerals

VALE S.A (VALE US) US$11.6, Mkt Cap US$50bn – Samarco counter offer from Court

• Vale reported yesterday that it and BHP have received a counteroffer from the 6^th Region Federal Regional Court regarding their Mariana settlements.
• The Company has confirmed its ‘commitment to reparation and compensation actions related to Fundao dam collapse.’
• Reuters reports the government is demanding £20.74bn for the 2015 tailings dam collapse, higher than previous offers.
• The payment is reportedly set to be made over a 12-year period, with the offer endorsed by the Minas Gerais and Espirito Santo governing bodies.
• Vale and Brazil had previously offered to pay $25bn as reparations, including $7bn which has already been paid.
• However, the Brazilian authorities rejected the Group’s offer, suggesting it didn’t do enough for the removal of mining waste from Rio Doce.

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 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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