SP Angel Morning View -Today’s Market View, Monday 21st August 2023

China PBoC makes smaller rate cut to stem capital exodus

MiFID II exempt information – see disclaimer below

Cornish Lithium* (Private) – Cornish Lithium presses ahead with $67m institutional financing

Ferro-Alloy Resources (FAR LN) – Trading update as supply chain issues limit production capacity

Jubilee Metals Group (JLP LN) – Completion of the S African chrome processing expansion

Pensana (PRE LN) – Capital cost reduction for the Longonjo rare- earths project

Tirupati Graphite (TGR LN) – Update on potential business combination with TSG

Gold hovers around 5-month low as traders look to Jackson Hole for Fed guidance

• Gold prices have weakened to c. $1,890/oz in the spot market and $1,918/oz in futures following last week’s volatile trade.
• The move followed a repricing in US Treasuries, pushing yields higher on the long end as concerns over recession cooled on strong US retail sales.
• However, following consistent outflows, the SPDR Gold ETF reported its first inflows in August on Friday, rising 0.3%.
• ETF rotation from gold to Treasuries has been a consistent theme this year, and a reversal of that could see a welcome tailwind to the gold price.
• Traders will look to Jackson Hole this week for the next market catalyst.
• Analysts have raised the potential for Powell to further hint towards higher rates for longer, expected to weigh on both long-duration Treasuries and gold prices. 

Yuan strengthens from nine-month low as PBoC takes conservative approach to rate cuts

• The yuan has jumped from a nine-month low after the PBoC set a stronger-than-expected daily reference rate, limiting the currency’s movement band.
• The move reflects concerns of the current debt load and increasing the disparity between the USD.
• Analysts had expected the PBoC to slash rates more, with the Central Bank prioritising market stability over increased growth prospects.
• The yuan has fallen 6% against the dollar this year.

China is between a rock and a hard place

• The PBoC has opted to keep rates higher than it might have liked to avert pressure on Yuan flows out of China.
• Note, the authorities are also cracking down on illegitimate currency traders who have been busy exporting Yuan out of China.
• Chinese investors, like so many others, are chasing higher yielding US dollar Treasuries and higher rate instruments outside China.
• The slowing of economic growth in China combined with failing domestic demand, a collapsing property market and disruption from targeted sanctions on advanced semiconductors along with potential for further sanctions is persuading Chinese investors to increasingly move money offshore.
• While China is big enough to make its own options, its increasingly authoritarian stance is worrying many and causing capital flight.

Copper strengthens on stronger yuan and lower inventories

• Copper prices ticked higher from their third weekly loss on seasonal optimism.
• Inventories in Shanghai hit September 2022 lows last week, down 26% on the week to 40kt.
• Policies targeting debt-laden local government are being considered by Beijing, although concrete details are yet to be announced.
• Yangshan premium is ticking higher, suggesting demand for imports is improving.

Economics

China

• PBoC cuts one-year loan price rate by 10bps to 3.45% (15bp cut forecast)
• Five-year LPR kept at 4.2% vs expectations of 15bp cut

Germany

• PPI down -1.1% mom vs -0.2% forecast, (-0.3% in June)
• PPI down -6% yoy vs -5.1% forecast and 0.1% in June

Currencies

US$1.0886/eur vs 1.0873/eur last week. Yen 145.38/$ vs 145.24/$. SAr 19.036/$ vs 19.036/$. $1.274/gbp vs $1.272/gbp. 0.640/aud vs 0.647/aud. CNY 7.219/$ vs 7.286/$.

Dollar Index 103.33 vs 103.45 last week.

Commodity News

Precious metals:

Gold US$1,890/oz vs US$1,892/oz last week

Gold ETFs 90.4moz vs US$90.4moz last week

Platinum US$915/oz vs US$899/oz last week

Palladium US$1,255/oz vs US$1,229/oz last week

Silver US$22.86/oz vs US$22.83/oz last week

Rhodium US$4,090/oz vs US$4,100/oz last week

Base metals:   

Copper US$ 8,248/t vs US$8,234/t last week

Aluminium US$ 2,137/t vs US$2,150/t last week

Nickel US$ 20,130/t vs US$20,322/t last week

Zinc US$ 2,303/t vs US$2,288/t last week

Lead US$ 2,148/t vs US$2,134/t last week

Tin US$ 25,260/t vs US$25,066/t last week

Energy:

Oil US$85.48/bbl vs US$84.4/bbl last week

• Energy prices were stable over the weekend ahead of a meeting of US Fed officials at Jackson Hole later this week and ongoing talks to avert strike action at three Australian LNG facilities.
• The US Baker Hughes rig count was down 12 units to 642 rigs last week (-120 or 16% y/y), with oil rigs down 5 units to 520 units (-81 y/y) and gas rigs down 6 to 117 units (-42 y/y).

Natural Gas US$2.617/mmbtu vs US$2.590/mmbtu last week

Uranium UXC US$57.00/lb vs US$56.75/lb last week

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$106.1/t vs US$105.2/t

Chinese steel rebar 25mm US$510.6/t vs US$510.8/t

Thermal coal (1st year forward cif ARA) US$123.0/t vs US$123.0/t

Thermal coal swap Australia FOB US$155.3/t vs US$154.0/t

Coking coal swap Australia FOB US$253.0/t vs US$254.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$65,222/t vs US$65,323/t

Lithium carbonate 99% (China) US$30,455/t vs US$31,188/t

China Spodumene Li2O 6%min CIF US$3,260/t vsUS$3,360/t

Ferro-Manganese European Mn78% min US$1,039/t vs US$1,043/t

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

China Graphite Flake -194 FOB US$672/t vs US$672/t

Europe Vanadium Pentoxide 98% 7.6/lb vs US$7.6/lb

Europe Ferro-Vanadium 80% 31.75/kg vs US$31.85/kg

China Ilmenite Concentrate TiO2 US$309/t vs US$309/t

Spot CO2 Emissions EUA Price US$94.7/t vs US$94.4/t

Brazil Potash CFR Granular Spot US$345.0/t vs US$345.0/t

Battery News

China’s EV makers face challenges to conquer Europe

• Despite strong sales at home, Chinese automakers might find it more challenging to overcome the European market.
• Western perceptions of Chinese manufacturing, import costs, and a less developed EV market are seen some of the issues Chinese brands will have to overcome to thrive in Europe.
• Chinese sales have been steadily growing Europe as brands such as BYD and XPeng target sales overseas.
• 8% of new EVs sold in Europe in 2023 were Chinese brands, up from 6% in 2022 and 4% in 2021.
• European manufacturers are concerned that if Chinese automakers do get a foothold in the European market, then their cheap EVs will dominate.
• The new range of EVs being offered by BYD, MG and other Chinese brands will likely see substantial sales growth later this year as Chinese vehicles are pitched at substantially lower cost than their Western competitors.

Company News

Cornish Lithium* (Private) – Current valuation £120m – Cornish Lithium presses ahead with $67m institutional financing

• Retail investors believe they risk losing value in their investment in Cornish Lithium after rescue by institutional investors according to The Sunday Times.
• The British government is desperate to increase local content for EVs to meet EU requirements for the export of EVs into the EU.
• Pressure from UK automotive manufacturers who are racing to transform factories into new EV assembly lines is building.
• The new Gigafactory planned by Tata will need to source Lithium hydroxide or Lithium Carbonate depending in which Li-ion battery chemistry they use along with graphite, manganese and probably nickel and cobalt. HPA ‘High Purity Alumina’ will be on their buying list as well.
• Cornish Lithium is probably the most advanced lithium project company in the UK and has very wisely spread its options across a range of prospects.
• While Cornish Lithium, like most other potential brine producers has struggled with DLE ‘Direct Lithium Extraction’ technology, management should have the option to concentrate Lepidolite, lithium-bearing clays in Cornwall.
• This concentrate could be transformed into lithium hydroxide / carbonate in a potential UK refinery being planned by ‘Green Lithium Refining Limited’ or potentially by Livista in Germany to help meet the UK’s EU content rules.
• Cornish Lithium’s new institutional financing involves a 14% pa convertible preference share priced at 20p/s led by £24m from The UK Infrastructure Bank.
• EMG, a PE fund from the US, has invested an additional £24m whilst TechMet, Cornish Lithium’s largest shareholder, has also invested an additional $7m into the Company’s equity. Techmet which is backed by the US Government has now invested $30m into Cornish Lithium.
• Unfortunately, private investors are not being offered the interest payment but are being offered 20p/s according to The Sunday Times.
• The good news is the funds are to be used to develop the Trevalour hard rock project to ‘construction-ready status’, with funds also being directed towards engineering design work for a demonstration-scale geothermal waters extraction facility.
• Cornish Lithium is working on a feasibility study for the extraction of 8,000t pa lithium hydroxide from the repurposed china clay (kaolin) pit at Trevalour.
• Funds are also to be used to drill additional exploratory boreholes on the brine project though production from this source is less certain and likely to take more time.
• The news is also great for the Cornish economy which has struggled since the closure of the last working tin mine in the 1990s to provide meaningful, non-tourist / fishing / farming jobs for the local population.

*An SP Angel Analyst has visited Cornish Lithium’s geothermal brine assets

Ferro-Alloy Resources (FAR LN) 8.5p Mkt Cap £48m – Trading update as supply chain issues limit production capacity

• Vanadium producer and developer Ferro-Alloy provides an update on its operations in Southern Kazakhstan.
• Ferro-Alloy reports that one of its major suppliers defaulted this year on a monthly supply commitment, causing the Company to enter alternative supply agreements.
• There have been delayed by additional supplier / transport delays, limiting output in the first two months of Q3.
• As a result of the additional delays, processing and output at the Southern Kazakh plant is expected to resume in full at the beginning of September.
• Management warns that the risk of trans-Caspian Sea routes are expected to exacerbate supply issues, affecting Q4 production.
• The Company notes that Vanadium prices remain weak year-to-date with China turning into a net exporter of vanadium from its previous position as a net importer.
• Supply chain delays and weak vanadium prices are expected to have a ‘material impact on the Company’s financial results for 3Q23.’
• As regards the Balasausqandiq project, the Company notes that the feasibility study is nearing its final stages.
• The Company has raised $1.3/3m in the first tranche of its bond programme on the AIE, which will fund the ongoing Balasausqandiq study to completion in either 2023 or Q1’24.
• Going forward, management expects results to improve from 2022.

Jubilee Metals Group (JLP LN) – 6.55p, Mkt cap £174m – Completion of the S African chrome processing expansion

• Jubilee Metals has outlined progress at its chrome joint-venture in South Africa and at its Roan copper concentrator in Zambia.
• In South Africa, Jubilee Metals reports the completion of its expansion project for the chrome processing joint venture in the Bushveld Complex where the company is targeting “an additional 200 000 tonnes of chrome concentrate and adding an additional 10 000 PGM oz per annum”.
• The company reports that it has now achieved “targeted operational output … [with] … 24 500 tonnes of newly produced final chrome product already traded and on track to trade an additional 17 000 tonnes of metallurgical grade per month”.
• Additionally, the expansion is “Expected to contribute an additional 60 000 tonnes of chrome concentrate for the half year ending Dec 2023 and 4000 PGM oz”.
• Jubilee Metals confirms that it “is in advanced discussions to conclude its next partnership agreement targeting an additional 600,000 tonnes per annum processing capacity”.
• In Zambia, Jubilee Metals confirms that its “copper expansion strategy … [is] … progressing ahead of schedule with all long lead items secured for Roan upgrade”.
• The company says that “Commissioning remains on track to commence in October 2023 … [and that it] … has secured an additional 6-year Copper ROM supply at Roan on the back of the targeted expansion of the operations. The ROM supply agreement targets the supply of a minimum of 2% total Cu grades of previously mined material … [providing] … approximately 60% of the stated capacity at Roan”.
• Jubilee Metals says that “refining process trials which were initiated to understand the extent of the waste and non-traditional ore opportunities, delivered encouraging results, exceeding expectations in copper recoveries achieved from historical tailings materials”.
• “Results from the pilot trials, which target feed batches of approximately 500 tonnes at a time, will be used to confirm the design assumptions on scalability of the process flowsheet and to confirm final plant unit sizes”.
• Commenting on the expansion of the South African chrome processing capacity, CEO, Leon Coetzer, said that the expansion “intends to take advantage of price support in the market for chrome, coupled with our continued strong operational performance”.
• He also explained that the “upgrade of our Roan concentrator forms a vital link to the processing solution for the much larger Northern Refining solution and sets a new standard in the processing of mixed copper ores in Zambia”.
• He commented that the upgrade to the Zambian concentrator “incorporates … key breakthroughs in the processing of these weathered ores that many regard as too complex and reject the material as waste”.

Pensana (PRE LN) 22p, Mkt Cap £62m – Capital cost reduction for the Longonjo rare- earths project

• Pensana reports that its revised financing and development strategy for the Longonjo rare earths project has cut the pre-production capital requirements for the mine and process plant to US$200m.
• The revised estimate follows the company’s announcement in June 2023 of a plan to develop the project in stages reducing “the upfront Capex to US$200 million with US$105 million deferred until year three”.
• In a presentation in April 2022 available on the company’s website Independent & Sustainable Rare Earth Production – Pensana PLC, the company outlined a US$494m project with US$195m required for the refinery at Saltend, plus US$127m for the MRES (Mixed rare earth double sulphate) refinery with US$172m for Longonjo itself comprising US$49m for the mine and associated infrastructure and US$123m for the concentrator.
• The company says that the “revised process plant design is a scaled-down version of the existing processing route with revised mining, comminution, flotation, thickening, calcining, leaching and product precipitation throughput rates”.
• Pensana says that “Site infrastructure development in preparation for main construction continues – being largely unaffected by the revised development strategy” while its engineering team has been reinforced “to develop and implement the detailed design and execution plan … [and coordinate] … execution of the project as well as the procurement, construction, operational readiness and commissioning activities”.
• CEO, Tim George, confirmed that “the team is on schedule with the Stage 1 re-engineering … [and that it is also] … well advanced on the financial due diligence for the main financing later this year”.
• Longonjo contains a proven and probable ore reserve totalling 30.1mt at an average grade of 2.55% TREO (total rare-earths oxides) and 0.55%NdPrO (Neodymium and Praseodymium oxide) using a 0.3% NdPrO cut-off.
• Pensana confirms that “At full production, after completing the phased development, the mine will target production of up to 38,000 tonnes per year of refined Mixed Rare Earth product containing 14,000 tonnes of TREO and up to 4,400 tonnes of NdPr oxide, equating to around 5% of the global annual production of NdPr oxides for downstream processing or sale on the international market”.

Tirupati Graphite (TGR LN) 25p Mkt Cap £28m – Update on potential business combination with TSG

• Tirupati provides an update on Tirupati Specialty Graphite Private Limited, now renamed to PranaGraf Materials & Technologies Private Ltd.
• PranaGraf manufacturers and develops downstream flake graphite products and develops graphene materials.
• Tirupati and PranaGraf agreed in 2018 to a share swap deal, but this was sidelined following regulatory restrictions.
• The Tirupati Board subsequently identified the following options for the deal:
  • Pursue regulatory approval for the Acquisition.
  • Pursue an alternative investment vehicle through which to take a stake in PranaGraf;
  • Pursue commercial agreements with PranaGraf.
• Tirupati has now decided to pursue their efforts to reach an agreement with PranaGraf following improving operational efficiency at mines in Madagascar and the acquisition of Suni Resources.

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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