SP Angel Morning View -Today’s Market View, Monday 11th December 2023

Steel prices in Europe rise as iron ore holds $135/t on strong Chinese exports

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Revised production guidance triggers take-over speculation

Anglo Asian Mining* (AAZ LN) – BUY – Gilar delivers 6.1mt at 1.3g/t and 0.88% in maiden JORC MRE

Argosy Minerals (AGY AU) – Progress update on Rincon Lithium Project

Blencowe Resources (BRES LN) – DFS update for Orom-Crosse graphite project, Uganda

Golden Metal Resources (GMET LN) – Assay results from the Garfield project, Nevada

Phoenix Copper* (PXC LN) – Loan facility extended until early January

Thor Energy (THR LN) – Metallurgical results from Alford East

Gold slides as Treasuries weaken following stronger-than-expected nonfarm payrolls

• Gold prices have weakened to $1,992/oz in the spot market this morning.
• The move follows an end to the recent blockbuster rally in US Treasuries which saw the 10-year yield slide from 4.99% to 4.1%.
• Yields have climbed, with the 10-year climbing back to 4.25%, lifting the dollar.
• The Yen has also weakened, supporting the dollar index.
• Gold investors now turn their focus to Tuesday’s CPI reading in the US, which is expected to show 0% mom inflation and 3.1% yoy.
• Any signs of surprise deflation could fuel further bets on 2024 rate cuts.
• The FOMC meeting on Wednesday will take centre stage, with investors and traders focusing on the dot plots, which opened the door to the previous sharp move higher in yields seen in October.

Steel prices in Europe rise as iron ore holds around $135/t on strong Chinese exports

• European steel prices have followed those in the US and China.
• HRC prices clibed to €306/t in November vs €261/t in October.
• EU pig iron production is fell 11% yoy in October, as blast furnaces underwent maintenance and demand remained soft.
• The rebound reflects improving demand dynamics and a stronger Euro, supporting demand.
• China is ramping up steel exports, which have climbed 47% on a three month basis yoy and up 63% vs a five year average.
• November steel exports rose to 103mt, up 7.3% vs five year average.
• Chinese officials have lifted a steel production cap this year, supporting iron ore buying and flooding the market with steel products.
• Brazilian and Australian iron ore exports have been strong this year, up 6% to November yoy at 1.1bnt.
• Government-backed infrastructure and manufacturing projects are limiting the decline in demand from residential property, alongside elevated oversees exports.
• China’s Politburo meeting on Friday reportedly encouraged fiscal policy to use ‘progress to promote stability.’

Economics

US – Bond yields and US$ climbed on Friday following a beat in labour numbers.

• The economy added 199k jobs in November, beating estimates for 185k, with jobless rate dropping 0.2ppp to 3.7%.
• Wages growth also picked during the month.
• Markets trimmed their expectations for the pace of rates cuts slightly, although, the consensus remains for five 25bp rate cuts through 2024.
• FOMC rate decision announced on Wednesday with expectations to the central bank to stay put at 5.25-5.50% in the last meeting of the year.
• NFPs (‘000): 199 v 150 October and 185 est.
• Unemployment Rate: 3.7 v  3.9 October and 3.9 est.
• Av Hourly Earnings (%mom): 0.4 v 0.2 October and 0.3 est.
• Av Hourly Earnings (%yoy): 4.0 v 4.0 October (revised from 4.1) and 4.0 est.

China – Consumer prices dropped at the steepest rate in three years in November deepening worries over the economy’s strength.

• Deflation in producer prices also accelerated and extended the run of negative readings to 14 months.
• Lower prices are attributed to weaker food prices that account for ~20% of the CPI basket with Bloomberg suggesting that those deducted 0.8pp from the headline gauge.
• On a positive note, core inflation (ex food and energy) was steady at 0.6% during the month suggesting deflationary pressures may not last.
• Mainland stock market opened lower but regained its gains and closed higher amid a spike in volumes that market commentators attribute to a potential buying for state owned funds.
• CPI (%yoy): -0.5 v -0.2 October and -0.2 est.
• PPPI (%yoy): -3.0 v -2.6 October and -2.8 est.
• Chinese exports rise 0.5% yoy in November to $291.9bn reversing five months of falling export values.
• Imports fell by 06% yoy in November to $223.5bn helping the balance of payments surplus higher.

China – Leaders pledge new focus on growth at Politburo meeting

• The meeting led by Xi Jinping pledges to drive domestic demand and strengthen economic policies as China works towards 5% GDP growth for 2023.

BEV and PHEV sales already >40% of total vehicle market

• The proportion of NEV ‘New Energy Vehicles’ to Internal Combustion Engine sales is way ahead of most other nations.
• Total new energy vehicles (NEV) sales in China reached 841,000 in November.
  • Battery EVs accounted for 552,000 sales
  • Plug-in hybrid EVs accounted for 289,000 sales
• The impact on oil demand in China is likely to be significant .
• A weakening currency will help Chinese NEV exports particularly into nearby developing nations.
• A drive to sustain growth within China will likely drive further incentives to buy electric vehicles.

Eurozone – The single currency zone is expected to have slid into recession in the final quarter of the year led by the weakness in Germany, Bloomberg poll results show.

• The economy is forecast to report a second consecutive quarterly 0.1% contraction in Q4/23.
• Of major economies in the region, Germany is the only one to report a recession with declines accelerating to -0.2%qoq from -0.1% recorded in Q3/23.
• Numbers contrast with the EC’s November forecasts for the 20-nation euro area returning to growth this quarter.

UK – Asking property prices recorded a second consecutive monthly decline in December, according to Rightmove data.

• Prices were down 1.9%mom during a period when buyers typically pull asking prices down to close the deal, although, this year’s decline was sharper than the 20-year average, Bloomberg writes.
• Average price stands at £355k, down 1.1%yoy.
• Mortgage rates have dropped for 19 consecutive weeks now with the average 5y fixed rate now at 5.1% compared to 6.1% in July, Rightmove reports.

Ukraine – West can break Russia in Ukraine according to Yale professor

• Timothy Snyder reckons Russia can be beaten in the Ukraine through continuing high levels of military aid (The Guardian)
• Snyder is currently fundraising for a drone-detection system to help Kyiv protect its power grid and other utilities.
• He goes on to state US politicians and western leaders had to be prepared to support Ukraine with long-term military aid as the US Congress debates approval for a $61bn of aid.
• Majorities in both houses of Congress are in favour of continue aid for Ukraine but with opposition from a significant numbers of Republicans.
• Failing to fund Ukraine could open the door for Putin to recreate the FSU through the invasion of Poland, East Germany and other Eastern European states.

BoE and US Fed to meet this week but don’t expect any rate cuts

• The west appears to want to hold interest rates high for a while to continue to hold back inflation.
• US employment looks surprisingly good, in part due to the reshoring of component manufacturing from China back to the US
• Chinese product deflation and lower shipping costs are lowering the cost of importing goods into the West.
• This combined with weaker oil prices is lowering inflation despite rising labour rates.
• If the Chinese Rmb strengthened alongside higher oil prices then the west may struggle to contain its inflation without plunging economies into recession..

Currencies

US$1.0761/eur vs 1.0779/eur previous. Yen 146.18/$ vs 144.14/$. SAr 19.060/$ vs 18.800/$. $1.255/gbp vs $1.257/gbp. 0.656/aud vs 0.661/aud. CNY 7.179/$ vs 7.160/$.

Dollar Index 104.15 vs 103.76 previous.

Commodity News

Precious metals:

Gold US$1,994/oz vs US$2,029/oz previous

Gold ETFs 86.0moz vs 86.1moz previous

Platinum US$925/oz vs US$916/oz previous

Palladium US$944/oz vs US$980/oz previous

Silver US$23.09/oz vs US$24/oz previous

Rhodium US$4,400/oz vs US$4,400/oz previous

Base metals:

Copper US$ 8,412/t vs US$8,359/t previous

Aluminium US$ 2,126/t vs US$2,151/t previous

Nickel US$ 16,800/t vs US$16,700/t previous

Zinc US$ 2,391/t vs US$2,412/t previous

Lead US$ 2,029/t vs US$2,022/t previous

Tin US$ 24,440/t vs US$24,380/t previous

Energy:

Oil US$76.4/bbl vs US$75.5/bbl previous

• Crude oil prices were steady over the weekend after the US DoE announced it would buy up to 3mb for delivery in March to replenish the Strategic Petroleum Reserve (SPR). The DoE has so far bought back ~9mb for the reserve at about $75/bbl, with the stockpile currently estimated at 352mb of oil.
• The US Baker Hughes rig count was up 1 unit to 626 rigs last week (-154 or 20% y/y), with oil rigs down 2 to 503 units (-122 y/y) and gas rigs up 3 to 119 units (-34 y/y) and 3 units added in the Haynesville Basin.
• Santos has shut down the southern hemisphere’s only helium plant at the Darwin LNG facility following the depletion of the Bayu-Undan gas field, which had a capacity of 150mmcf per annum.
• The EU announced that the Northern Lights project has been awarded a €131m grant to support the expansion of the CO2 import terminal in Norway, with a further €157m grant awarded to the Rotterdam CO2 project.

Natural Gas €36.6/MWh vs €41.3/MWh previous

Uranium UXC US$81.45/lb vs US$81.0/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$136.3/t vs US$134.7/t

Chinese steel rebar 25mm US$578.2/t vs US$578.5/t

Thermal coal (1st year forward cif ARA) US$113.3/t vs US$112.0/t

Thermal coal swap Australia FOB US$153.5/t vs US$149.0/t

Coking coal swap Australia FOB US$322.0/t vs US$322.0/t

Other:

Cobalt LME 3m US$31,975/t vs US$32,700/t

NdPr Rare Earth Oxide (China) US$63,107/t vs US$64,804/t

Lithium carbonate 99% (China) US$12,607/t vs US$12,640/t

China Spodumene Li2O 6%min CIF US$1,380/t vs US$1,380/t

Ferro-Manganese European Mn78% min US$1,033/t vs US$1,035/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$615/t vs US$615/t

Europe Vanadium Pentoxide 98% 6.1/lb vs US$6.1/lb

Europe Ferro-Vanadium 80% 26.25/kg vs US$25.75/kg

China Ilmenite Concentrate TiO2 US$313/t vs US$314/t

Spot CO2 Emissions EUA Price US$74.9/t vs US$75.1/t

Brazil Potash CFR Granular Spot US$322.5/t vs US$325.0/t

EV & Battery news

£15,000 per vehicle fine for automakers to push rollout of EVs

• Under the zero-emission vehicle mandate, that comes into force on 1^st January 2024, manufacturers will have to ensure 22% of vehicles sold must be EVs.
• If too few vehicles are sold, a manufacture will have to pay a £15,000 levy for each petrol, diesel or hybrid model sold above the threshold or buy ‘credits’ from other automakers.
• Currently, EVs only account for 16.3% of the market, so automakers will be under pressure and are therefore expected to cut prices.
• UK customers spend an average of £57,348 for a new EV compared with £26,730 in China.
• China also has 235 different EV models on the market whereas there are just 135 models available in the UK.

VW to consider cooperation with Renault for €20,000 EV

• Volkswagen is speaking with potential partners, including Renault about cooperating on the development of its €20,000 EV (Handelsblatt)
• The automaker wants to create a platform for EVs that will make them more affordable.
• VW declined to comment on the report, but a spokesperson for Renault said that cooperation was necessary to be competitive with entry-level EVs.

Former Tesla execs to take control of next-gen battery and motor developer DG Innovate

• Three former Tesla executives are to take control of DG Innovate, which will see a £2m cash injection.
• Peter Bardenfleth-Hansen will join DG Innovate as chief executive. He is the current chief executive of Zaptec, which provides charging systems for electric vehicles.
• Jochen Rudat, who spent ten years with Tesla in Europe and played a key role in setting up Tesla in China will become an executive director alongside Christian Eidem, an early investor in the EV company and a classmate of Elon Musk, the Tesla founder, at Wharton business school.
• The new team plan to expand manufacturing in Caerphilly to build “a leading green technology business”.
• DG Innovate is developing sodium-ion batteries for EVs, which are touted as a potentially cheaper and safer alternative to widely used lithium batteries if they can be reduced in size.
• The company, alongside the Ministry of Defence, also developed an electric drive system, for use in heavy goods vehicles. The drive technology has a greater range, lower manufacturing costs and increased reliability than existing technology, it is claimed.

Company News

Anglo American (AAL LN) 1838p, Mkt Cap £24.1bn – Revised production guidance triggers take-over speculation

• Friday’s release from Anglo American heralding production cuts of 4% in 2024 (following a 3% increase this year) and of a further 3% in 2025 before rebounding by 4% in 2026 has triggered press speculation that the company may become a takeover target.
• The revised guidance shows copper 2024 output in the range 730-790kt (previously 910kt-1mt) followed by a further reduction in 2025 to 690-750kt (previously 840-930kt) with production rising in 2026 to 760-820kt.
• The new guidance for nickel and PGMs shows a reduction from the expected ~40kt of nickel in 2023 to between 36-38kt in 2023 before stabilising at 35-37kt in 2025 and 2026.  PGM expectations decline from the expected 3.8moz in 2023 to between 3.3-3.78moz in 2024 and stabilising in the range 3.0-3.4moz in the next two years.
• Diamond guidance remains broadly stable with the expected 32m carats of production in 2023 expected to be in the range 29-32m carats next year, 30-33m carats in 2025 and 32-35m carats in 2026.
• Anglo American’s announcement cites the cost benefits of the lower production with unit costs expected to reduce by 2% in 2024 and capital cost savings of ~US$1.2bn in 2024 and 2025 and further savings of US$0.4bn in 2026 with an overall saving of ~US$1.8bn between 2023 and 2026.
• Operating unit cost reductions of 15% are expected from the Los Bronces copper mine in Chile with a switch to the use of a single processing plant and overall copper costs forecast at US$1.65/lb for 2023 are predicted to fall by 5% to US$1.57/lb next year.
• PGM costs are also expected to fall by around 6% from US$980/oz in 2023 to US$920/oz in 2024 although nickel costs are expected to increase by 7% to US$6.00/lb with diamond production costs posting a similar 7% rise to ~US$80/ct.
• A report in the ‘Times’ suggests that pressure may be mounting on the CEO, Duncan Wanblad, who has seen the company’s valuation more than halve from US$55bn, when he succeeded Mark Cutifani two years ago, to US$24bn.
• The paper suggests that Glencore might be a predator with a similar asset mix capable of generating operational synergies through enlargement of its portfolio.
• Readers who remember the titanic 1989 battle of the Anglo American subsidiary, Minorco, to acquire Consolidated Gold Fields will recall a protracted, vituperative and expensive contest which ultimately proved unsuccessful for Minorco with its target eventually falling to Hanson plc.
• If a predator emerges in this case, a similar tussle over the fate of Anglo American in 2024 would no doubt follow a different path but could not be guaranteed to avoid similar acrimony and expense.

Anglo Asian Mining* (AAZ LN) 71p, Mkt Cap £81m – Gilar delivers 6.1mt at 1.3g/t and 0.88% in maiden JORC MRE

BUY

• The Company released a JORC compliant maiden mineral resource estimate for the Gilar polymetallic development project.
• MRE is estimated at 6.1mt at 1.3g/t gold and 0.88% copper for 255koz and 54kt copper.
• High confidence Measured and Indicated category accounts for most of the resource (>95%).
• The estimate was prepared by Mining Plus UK and is based on ~43,000m (135 drill holes) of drilling.
• We advise our readers to check an interactive 3D presentation for the project that visualises the shape and grade of the deposit along with development highlights – https://gilar-jorc-mre-2023nov.jalnext.com/
• Mineralisation access development progresses well with the main decline and ventilation adit more than a third complete.
• Production start has been revised slightly to Q3/24, from H1/24.

Conclusion: Maiden MRE confirms 6.1mt at 1.3g/t gold and 0.88% copper most of which is in the higher confidence Measured and Indicated category that can be used for reserves. The estimate is very close to an internal estimate released in March for 5.6mt at 1.4g/t and 0.82% enhancing the Group’s understanding of the deposit share and grade as underground development works continue at pace. The deposit hosts higher grade part that will be accessed first to supply rich ores to the existing Gedabek flotation circuit. Additionally, the mineralisation remains open with the team planning to target potential extensions in more cost effective drilling from the underground.

*SP Angel acts as Nomad and Broker to Anglo Asian Mining

Argosy Minerals (AGY AU) A$0.14, Mkt Cap A$204m – Progress update on Rincon Lithium Project

• Argosy provides an update on its Rincon Lithium Project in Salta Argentina, in which it holds a 77.5% interest.
• The Company is currently conducting maintenance work on its 2,000tpa LCE facility to reach continuous production.
• Work includes improving filtration rates through modifying the primary solids filtration circuit.
• The works are intended to support the ramping up of production operations, targeting an increase output in 1Q24.
• Development of the10,000ktpa facility is expected upon receipt of EIA approval, which is anticipated soon.
• Completed pond harvesting works should support increased pond utilisation and concentrated brine output.
• An updated brine MRE is also expected soon following the completion of the expansion diamond drilling programme.
• The Project holds an MRE of 245kt of contained Li2CO3 at an average lithium concentration of 325mg/l.
• The Company is targeting an MRE expansion to 262-479kt Li2CO3 at average grades between 315-327mg/l.

Blencowe Resources (BRES LN) 5p, Mkt Cap £11m –DFS update for Orom-Crosse graphite project, Uganda

• Blencowe has excavated and prepared a 600t bulk sample from Orom-Crosse for further test work by a Chinese graphite lab.
• The sample will be used to test for commercial scale processing alongside tailings disposal testwork.
• Spherical purified graphite testwork will also be completed in advance of offtake discussions.
• Additional test work will also be completed by a US graphite producer for expandability.
• Testwork to date suggests up to 80% of sulphur can be removed from tailings, supporting the green ambitions of the project.
• Further metallurgical testwork will be conducted to explore alternative specialised graphite end user markets.
• The testwork outlined above forms part of the US Government $5m funding through the Development Finance Corporation.
• The Orom-Cross project holds a 24.5mt at 6% tgc JORC resource and a PFS suggesting a post-tax NPV8 of US$482m and an IRR of 48%.
• Blencowe will use the results from the various studies in the DFS, however no specific timeline is given for its completion.

Golden Metal Resources (GMET LN) 7.75p, Mkt Cap £6.5m – Assay results from the Garfield project, Nevada

1. Golden Metal Resources reports that 11 of the previously announced 32 rock samples taken from its wholly-owned Garfield project in the Walker Lane mineral belt of Nevada have returned assays in excess of 1% copper equivalent (CuEq).
2. Among the samples reported today, which were above the detection threshold applied in the original reported earlier this month, the company highlights:

1. • A sample grading 2.37% copper, 27.2g/t gold and 29.9g/t silver – reported as 23.92% on a CuEq basis; and
   • 4.27% copper, 0.40g/t gold and 11.95g/t silver (4.70% CuEq); and
   • 3.24% copper, 0.16g/t gold and 10.8g/t silver (3.47% CuEq

1. The company says that the “results have far exceeded the Company’s expectations with significant high-grade copper, gold and silver now delineated over a greater than 1.5km x 0.5km footprint at the High-Grade Zone”.
2. Golden Metal Resources says that it will now decide “on the most appropriate exploration programme to continue to advance the Company’s knowledge of the mineralisation at the Garfield Project”.

Conclusion: Golden Metal Resources is assessing its future exploration plans for the Garfield project in Nevada following encouraging high grade results from early stage exploration samples.

Phoenix Copper* (PXC LN) 13.75p, Mkt Cap £29.4m – Loan facility extended until early January

Phoenix holds 80% of the Empire mining property in Idaho)

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• Phoenix Copper reports that its initial US$2m loan facility has been extended until 2^nd January 2024.
• The extension will “allow further time to conclude ongoing discussions with various investors regarding the Company’s proposed corporate copper bond issue” which, Phoenix Copper  confirms “are at an advanced stage and the Directors remain confident that the bond issue will close”.
• The copper-bond will help fund development of the planned open pit heap leach and solvent extraction/electrowinning oxide project at Mackay, Idaho, where the company has defined a ‘Measured & Indicated’ mineral resource of ~23mt at an average grade of 0.38% copper, 0.32g/t gold, 10.3g/t silver and 0.19% zinc.
• The project is located within an area of historic mining, largely during the first half of the 20th century, and hosts additional exploration potential including at the nearby Navarre Creek gold project, the “historic Horseshoe, White Knob and Blue Bird Mines” as well as from the underground extensions of the former Empire mine.

*SP Angel acts as nomad to Phoenix Copper

Thor Energy (THR LN) 1.6p, Mkt Cap £4.3m – Metallurgical results from Alford East

• Thor Energy reports that mini-column leach tests on saline groundwater and leaching of copper in drill core from its Alford East project in South Australia have delivered copper recovery rates ranging between 66.8% and 72.2% .
• “The Alford East Project covers the northern extension of the Alford Copper Belt … [and ] … Thor is earning up to 80% interest from unlisted Australian explorer Spencer Metals Pty”.
• The company is assessing the potential use of in-situ recovery (ISR) via  leaching of copper at Alford East which it says “Based on CAPEX and OPEX costs, recovering metal in an ISR operation in comparison to conventional mining (open cut or underground operation) enables lower metal recoveries whilst maintaining equal or similar profit margins”.
• Four tests on 1.3kg agglomerated samples used an environmentally benign, hydrometallurgical process with an amino acid reagent known as ‘GlyLeach’ “that can leach copper, nickel, cobalt and zinc from oxide, mixed oxide and supergene ores, and even primary sulphide ores”.
• The reagent is capable of leaching at ambient temperatures and Thor Energy explains that it “is not chemically consumed in the overall process. It is easily recovered and recycled, and process losses can be minimised by good design”.
• The company expresses the view that “With further optimisation, recoveries ranging from 70 – 75% might be attainable”.
• Based on historic drilling data, the Alford East project, located on the Yorke Peninsula of SA has an ‘Inferred’ mineral resource of ~126mt at an average grade of 0.14% copper.
• Managing Director, Nicole Galloway-Warland, described the results as “highly encouraging” and said that the company will continue its evaluation of “deep structurally controlled troughs. As part of a future drilling program”.

Conclusion: Laboratory scale test work on material from Alford East has shown encouraging copper recovery rates using an environmentally benign reagent. Work is continuing and we look forward to further news as it progresses.

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 employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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