SP Angel Morning View -Today’s Market View, Monday 5th August 2024

Gold ($2,425/oz) steadies as traders position for emergency Fed rate cut after hiring slowdown

MiFID II exempt information – see disclaimer below

Akobo Minerals (AKOBO OSL) – Akobo Minerals produces first gold concentrate from Segele process plant in Ethiopia

Capital Metals (CMET LN) – Progress with government and local communities on the Eastern Minerals project, Sri Lanka

Cornish Metals* (CUSN LN) – Completion of Canadian tungsten projects royalty disposal

Galan Lithium (GAL LN) SUSPENDED – EnergyX US$150m bid

Kavango Resources* (KAV LN) – Ditau project identified as a promising early stage exploration target while Zimbabwe gold exploration warrants import of a drill rig

Lynas Rare Earths (LYC AU) – 60% increase in Mt Weld reserves

Gold ($2,425/oz) steadies as traders position for emergency Fed rate cut after hiring slowdown

• Gold prices rallied last Friday, following a significant miss in non-farm payroll data.
• This pushed spot prices up to $2,470/oz, before profit taking began.
• US Treasuries rallied sharply on the data drop, which saw unemployment rate trigger the Sahm Rule, considered a key recession indicator.
• The 10-year yield fell as low as 3.67%, now down 100bp since April highs.
• Markets have priced the chance of an emergency rate cut over the next week at 60%.
• Low yields push safe haven money into gold, however the gold price has likely front run the move in bonds, triggering momentum funds to lock in profits.
• Chaos in Japan is weighing on global markets, with the liquidity crunch likely seeing traders sell assets, including gold, to cover margin calls.
• The World Gold Council reports that global mine production hit record highs at 930t for the quarter to June 30^th.
• Central banks were net buyers in June at 12t.

Iron ore strengthens despite persistent Chinese steel slump

• Iron ore prices have strengthened to $104/t for the Chinese 62% Fe index.
• Vale suggests that over 100mt comes off the market when prices fall below $100/t, providing some support for the steelmaking ingredient.
• However, Chinese steel rebar continues to struggle, down over 13% this year at c.$500/t, nearing April 2017 lows.
• HRC is also weak in China, with export prices falling to 2020 lows.
• New regulations are due in September, with analysts suggesting traders are dumping inventories in advance.

Copper ($8,970/t) slides on global growth slowdown concerns as funds cut bullish positions

• Copper prices have pared gains this morning, sliding below $9,000/t as Japan stumbles and US labour slows.
• Bloomberg reports that fund managers have cut over $20bn worth of speculative long positions since May.
• Long positions on COMEX and LME remain elevated but have subsided somewhat.
• Aurubis reported results this morning, noting improved demand for wire rod but higher TCRC charges suggest the concentrate shortage is easing.

Lithium – Lithium carbonate production expected to  rise 41% to 650,000t this year (Antaike )

• Chinese processing of lithium carbonate is expected to rise substantially this year (Caixian).
• The rise in production capacity is expected to rise to 1.72mt resulting in around 200,000t of excess capacity.
• It takes around 681t of lithium carbonate to produce 1GWh of NCM batteries vs645t of lithium carbonate for 1GWh of LFP ‘Lithium phosphate’.
• NCM battery chemistry continues to exceed LFP production despite LFP production gains surprising many in the market.
• LFP now accounts for 46% of the market vs NCM at 48% with Na-ion and LMFP and LMO and others making up 6% of battery sales (Rhomotion).
• Total EV battery demand rose 22% YTD yoy to end June with a 9% increase from May to June.
• We believe improvements to NCM chemistry with solid state and new battery anode coatings to ensure NCM dominance in future years due to its capacity for greater power density..
• Sales of EVs and hybrids rose 32% yoy to 4.9m vehicles in China with EV sales rising 11% and hybrids rising by 88%.
• China added 13.05GW of new energy storage capacity in H1 lifting cumulative capacity to 44GW NEA ‘National Energy Administration’.

Conclusion: We expect EV sales to see stronger forward growth on the sale of new models with longer EV range going forward.  Hybrid battery pack sizes might also grow on lower battery prices and demand for greater electric range.

ElectraLith, a spinoff from Melbourne’s Monash University backed by Rio Tinto, is seeking a $15m funding to build a pilot plant testing its DLE technology.

• The Company is using a so-called DLE-R process that involves no water or chemicals in processing, FT writes.
• The technology uses electrodialysis to filter lithium bearing brine through a membrane to produce lithium chloride with a second membrane purifying it further to go directly to lithium hydroxide.

Europe is slowest growing region for EV sales in H1 2024

• Just under 7m EVs were sold globally in the passenger car and light-duty vehicle market in H1 2024, up 20% from the same period in 2023 (Rho Motion).
  • Global: 7.0m in H1 2024, +20% yoy
  • China: 4.1m, +30%
  • EU & EFTA & UK: 1.5m, +1%
  • USA & Canada: 0.8m, +10%
  • Rest of World: 0.6m, +26%
• Despite slowing sales, EVs now comprise 14.6% of new EU registrations, up from 1% in 2018.

Electric trucks here for the long haul?

• China is by far the world’s largest market for electric trucks with around 38,200 medium-sized and heavy electric trucks sold there in 2023, according to the International Energy Agency.
• Other markets, like Europe and the US are now experiencing good growth – China’s sales grew 13% in 2023, with global growth increasing 35%.
• China’s local industry data is showing a strong resurgence – between January and May, 19,700 electric trucks were sold, up 145% on the same period in 2023.

Economics

US – A faster than expected deceleration in new jobs created as well as wages’ growth sent markets into a risk off mode amid rising US recession fears.

• Markets are now fully pricing in a 50bp rather than 25bp cut in September with expectations for an intermeeting decision climbing to 60%, according to Bloomberg.
• Markets are now expecting five 25bp rate cuts in the final three meetings of the year.
• VIX volatility index hit its highest in 4 years while 10y bonds yields are trading around 3.7%, the lowest since mid-23.
• S&P 500 and Nasdaq futures are trading 2.1% and 3.3% down this morning.
• NFPs (‘000, Jul/Jun/Est): 114k/179k(revised from 206k)/175k
• Unemployment Rate (Jul/Jun/Est): 4..3%/4.1%/4.1%
• Av Hourly Earnings (%mom, Jul/Jun/Est): 0.2%/0.3%/0.3%
• Av Hourly Earnings (%yoy, Jul/Jun/Est):3.6%/3.8%(revised from 3.9%)/3.7%

Cryptocurrency assets are down double digits this morning joining other risky assets that are being shunned by investors.

• Bitcoin and Ethereum together representing ~70% of the market are off 24% and 31%, respectively, over the last 24 hours.

Japan – The Nikkei is down 13.5% today in one of its largest single day drops taking losses from the start of the month to >20%.

• The yen surged as carry trades are being unwound with the currency posting a 2.6% increase on the day trading around 142.9.
• The sell off triggered suspension in Topix and Nikkei futures trading during the afternoon session.
• Similar circuit breakers were triggered in Korea for the first time in four years.

Eurozone – Remaining Flash PMIs released for Italy and Spain this morning showed both economies expanded in July, albeit, the pace of growth is slowing down.

• While beating sub 50 readings recorded in Germany and France, dynamics in both countries show the effect of high borrowing costs on slowing economic activity.
• Italy Flash Composite PMI (Jul/Jun/Est): 50.3/51.3/50.9
• Spain Flash Composite PMI (Jul/Jun/Est): 53.4/55.8/54.3

Middle East – Israel is bracing for an escalation in the region after Iran reiterated its pledge along with Hamas and Hezbollah to retaliate against it for the killings of Hamas’ leader and a top Hezbollah military commander last week.

• Fighting in Gaza continued on Sunday following another round of unsuccessful round of ceasefire talks in Cairo.

China – Zhengzhou the largest city in Henan province has scrapped a cap on the price of new homes to help lift the property market

• The Zhengzhou Housing Security and Real Estate Administration Bureau will no longer guide sales prices and will allow developers to set prices independently.

Up to RMB 140,000 (19,340) subsidy to replace older diesel trucks to Businesses Replacing Old Diesel Trucks (Caixin)

• The subsidy is principally designed to scrap pre-2013 diesel trucks which account for significantly more air pollution than other vehicles.
• The new policy from the Ministry of Transport and Ministry of Finance shares the cost between central and local governments in a 9:1 ratio.
• Truck owners are weighing up the resale value of their older trucks versus their scrappage value and the cost of buying a new vehicle.

Currencies

US$1.0925/eur vs 1.0794/eur previous. Yen 143.05/$ vs 149.09/$. SAr 18.507/$ vs 18.248/$. $1.276/gbp vs $1.271/gbp. 0.641/aud vs 0.651/aud. CNY 7.144/$ vs 7.216/$.

Dollar Index 102.92 vs 104.30 previous

Precious metals:         

Gold US$2,430/oz vs US$2,462/oz previous

Gold ETFs 82.5moz vs 82.5moz previous

Platinum US$934/oz vs US$974/oz previous

Palladium US$858/oz vs US$912/oz previous

Silver US$28.14/oz vs US$29/oz previous

Rhodium US$4,650/oz vs US$4,650/oz previous

Base metals:   

Copper US$ 8,986/t vs US$9,084/t previous

Aluminium US$ 2,253/t vs US$2,292/t previous

Nickel US$ 16,225/t vs US$16,345/t previous

Zinc US$ 2,626/t vs US$2,712/t previous

Lead US$ 2,009/t vs US$2,049/t previous

Tin US$ 29,730/t vs US$30,250/t previous

Energy:           

Oil US$76.1/bbl vs US$80.2/bbl previous

• Oil prices slumped ahead of the weekend on deteriorating sentiment following negative data points on the industrial and manufacturing demand outlook in the US and China.
• The US Baker Hughes rig count fell by 3 units w/w to 586 rigs last week (-73 or 11% y/y), with oil rigs flat at 482 units (-43 y/y) and gas rigs down 3 to 98 units (-30 y/y), as the Texas rig count lost 2 to 274 units (-40 y/y).
• US Henry Hub natural gas prices moved lower after the EIA reported an 18bcf w/w build to 3,249bcf for US inventories, with storage levels declining w/w to 8.4% above last year and 15.7% above the 5-year average.
• Sidara announced that in light of rising geopolitical risks and financial market uncertainty at this time, the Company does not intend to make a firm offer for Wood Group.

Natural Gas €36.0/MWh vs €36.4/MWh previous

Uranium Futures $82.4/lb vs $84.3/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$104.2/t vs US$102.7/t

Chinese steel rebar 25mm US$505.0/t vs US$500.4/t

Thermal coal (1st year forward cif ARA) US$123.8/t vs US$123.0/t

Thermal coal swap Australia FOB US$144.0/t vs US$144.0/t

Coking coal Dalian Exchange futures price US$199/t vs US$197.0/t

Other:  

Cobalt LME 3m US$26,500/t vs US$26,500/t

NdPr Rare Earth Oxide (China) US$52,140/t vs US$51,606/t

Lithium carbonate 99% (China) US$10,568/t vs US$10,432/t

China Spodumene Li2O 6%min CIF US$940/t vs US$940/t

Ferro-Manganese European Mn78% min US$995/t vs US$995/t

China Tungsten APT 88.5% FOB US$325/mtu vs US$325/mtu

China Graphite Flake -194 FOB US$465/t vs US$465/t

Europe Vanadium Pentoxide 98% 4.7/lb vs US$4.8/lb

Europe Ferro-Vanadium 80% 25.15/kg vs US$25.75/kg

China Ilmenite Concentrate TiO2 US$320/t vs US$316/t

China Rutile Concentrate 95% TiO2 US$1,407/t vs US$1,389/t

Spot CO2 Emissions EUA Price US$66.4/t vs US$66.4/t

Brazil Potash CFR Granular Spot US$297.5/t vs US$297.5/t

Germanium China 99.99% US$2,145.0/kg vs US$2,125.0/kg

China Gallium 99.99% US$440.0/kg vs US$440.0/kg

Battery News

China’s automakers post mixed July sales figures amidst slow EV demand

• In July, China’s automakers experienced mixed sales results amid weakening demand for EVs. (Bloomberg)
• Zeekr, an EV brand of Geely, saw a significant 22% drop in sales to 15,655 units, attributed to equipment checks and production line adjustments.
• Geely itself reported a 9.2% decline, and Great Wall Motor Co. experienced a 6.9% decrease.
• The China Passenger Car Association projected flat sales for new-energy vehicles at 860,000 units and a 2.2% yoy drop in overall retail vehicle sales to 1.73m units.
• BYD maintained its top-selling position with a slight 0.2% increase in sales to 340,799 units, driven by a rise in plug-in hybrid sales, though pure EV sales declined.

Despite slow sales, many automakers showed improved delivery figures for the month

• In July, Chinese EV makers XPeng, NIO, and Li Auto showed improved delivery statistics.
• Li Auto saw a significant 49.4% increase, reaching a record 51,000 units.
• NIO’s deliveries rose by 43.9% to 20,498 units, despite a 3.4% drop from June, breaking its four-month sequential growth streak.
• XPeng’s deliveries increased by 1% to 11,145 vehicles, marking a 4.5% rise from June but ending its trend of double-digit growth.

Jaguar Land Rover to spend £3bn more on revamp in slow EV shift

• Jaguar Land Rover (JLR) will increase its investment by £3bn, raising its total planned spending to £18bn over five years (Bloomberg).
• This move aims to support its strategy of offering fully electric options for all models by the end of the decade, despite a slower global shift to EVs.
• JLR has reduced its planned pure electric Land Rover models by 2026 from six to four.
• The Range Rover Electric, however, has garnered significant interest with 41,000 sign-ups to its wait list.

SAIC Motor – President reckons broad array of vehicles will offset losses caused by EU tariffs

• The SAIC president has downplayed concerns over the impact of EU tariffs on Chinese EVs at its recent EGM.
• The president reckons sales of SAIC’s broad array of hybrids and ICEs will offset the losses caused by the EU’s extra tariffs.

Company News

Akobo Minerals (AKOBO OSL) NOK2.3, Mkt cap NOK414m – Akobo Minerals produces first gold concentrate from Segele process plant in Ethiopia

• Akobo Minerals is reported to have production of first gold concentrate from its Segele process plant in Ethiopia (Mining Weekly).
• Segele has an inferred and indicated mineral resource of 68,000oz grading 22.7 g/t. The deposit is said to be open at depth.
• The process plant has capacity for 4,000oz a month with an expected recovery rate of 96%

Conclusion:  The establishment of gold production by a western mining company in Ethiopia is good news and it will be interesting to see how well mining proceeds and how much production is achieved by the Akobo team at this very high grade.

Capital Metals (CMET LN) 1.7p, Mkt Cap £6m – Progress with government and local communities on the Eastern Minerals project, Sri Lanka

1. Capital Metals has provided a progress report on its Eastern Minerals Project in Sri Lanka where it is working “with the various regulatory authorities for the approvals required to commence construction … [of its mineral sands project] … in the first half of 2025”.
2. The company also confirms that it has received the formal approval of Sri Lanka’s Board of Investment (BOI) “for the Project holding company, Damsila Exports (Pvt) Limited, to benefit from BOI status” providing it with access to customs-free imports and accelerated depreciation rates as well as enhanced capital allowances and other benefits including constitutional protection from nationalisation.
3. Capital Metals says that its site preparation for drilling is now substantially complete with drilling expected to start “in or around the week beginning 12 August 2024”.
4. Commenting on his first site visit last week, COO, Stuart Forrester, said that “my main thought was Grade is King! Sri Lanka is blessed with rich heavy mineral deposits and the country’s growing focus on developing these critical resources is promising”.
5. Mr. Forrester welcomed the progress with government and local stakeholders and said that “It was evident from my recent visit that the local community supports the Project, recognising the many benefits a venture of this scale can bring”.

Conclusion: The company reports constructive dialogue with Government and host communities with drilling expected to start on the Eastern Minerals Project later this month.  We await results with interest.

Cornish Metals* (CUSN LN) 5.5p, Mkt Cap £29m – Completion of Canadian tungsten projects royalty disposal

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• Cornish Metals reports the completion of its previously announced disposal of royalty interests in two tungsten properties in northern Canada, at Cantung and Mactung, to Elemental Altus Royalties Corpn.
• The company has now received an initial cash payment of US$3m with a further US$1.5m due by 1^st August 2025.
• The disposal, which follows its disposal of the Nickel King exploration project earlier this summer will enable Cornish Metals to sharpen its focus on the reopening of the historic South Crofty tin mine in Cornwall where detailed feasibility work and dewatering of the old workings is underway with a view to the resumption of tin production in 2027.
• In July, SP Angel published research, based around the company’s pre-feasibility level production profile and operating and cost assumptions, showing that our long-term tin price assumption of US$35,000/t South Crofty generates an after tax NPV_8% of ~US$268m from an initial capital investment of ~US$177m.
• SP Angel’s tin price outlook is higher than the US$31,000/t the company applied in its pre-feasibility study – current tin prices are around US$30,000/t
• In today’s announcement, the company stresses tin’s role as a ‘Critical Mineral’ with approximately “two-thirds of the tin mined today … [sourced] … from China, Myanmar and Indonesia”.
• Cornish Metals also highlights tin’s applications in energy transition and technology as it is used to connect “almost all electronic and electrical infrastructure”.

Conclusion: Cornish Metals has now completed its disposal of royalty interests on two tungsten projects in Canada underlining its priority commitment to the work on reopening the historic South Crofty tin mine in Cornwall.  We look forward to the outcome of the current feasibility work and to the formal project go-ahead decision.

*SP Angel acts as Nomad and Broker. An SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals

Galan Lithium (GAL LN) SUSPENDED – EnergyX US$150m bid

• The Company went into a trading halt today amid a potential takeover offer.
• EnergyX, an Austin based DLE and lithium batteries technology Company, is offering US$150m in cash and shares to acquire Galan, according to the Australian Financial Review article.
• That implies 3.9x premium to the current estimated undiluted enterprise value of A$60m or ~US$40m.
• The Company is expected to make an announcement before trading halt is lifted on Wednesday morning.

Kavango Resources* (KAV LN) 1.5p, Mkt Cap £23m – Ditau project identified as a promising early stage exploration target while Zimbabwe gold exploration warrants import of a drill rig

• Kavango Resources reports that evaluation by an “internationally recognised mining advisor, SLR Consulting (Canada)” has concluded that its Ditau project in Botswana presents an attractive early-stage exploration target for orogenic gold, iron-oxide copper gold and rare-earth bearing carbonatite targets.
• The company explains that it selected SLR Consulting “because of its extensive understanding of the types of deposit and targets associated with the Ditau Project”.
• The report says that Ditau warrants “a systematic exploration effort consisting of detailed geophysical surveying and a significant amount of drilling”.  Among the recommendations are reinterpretation of regional airborne magnetic geophysical data and the acquisition of “very high resolution horizontal gradient enhanced magnetic” data followed up by ground magnetic surveys.
• Welcoming the findings CEO, Ben Turney, described Ditau as offering “a longer-term, blue-sky exploration opportunity. This strategically complements our nearer-term exploration efforts in the Kalahari Copper Belt, where we are currently drilling testing a large copper system”.
• In a separate announcement today, the company also announces that recent Induced Polarisation (IP) geophysics at its Nara exploration project in Zimbabwe has identified previously undetected geological structures as well as the continuation of known features associated with former mining activity.
• The Nara project area “extends from the western sheared margin of the greenstone belt across to the eastern boundary” and the company explains that its “initial drilling focused on old mine workings and abundant artisanal workings along parallel structural features … with sulphides and arsenopyrite”.
• The IP work has now shown “Several new IP zones have been identified as targets for prospective shear zones in addition to further extensions of existing known gold bearing quartz vein shear structures already hosting mines and artisanal workings”.
• Further modelling including integrating the existing drilling information is “expected to identify further drill targets associated with both expanding the footprint of existing deposits, as well as testing new structures”.
• Mr. Turney described Kavango Resources as “one of the first companies to pursue modern exploration in Zimbabwe’s greenstone belts” which gave it “a significant first mover advantage … [for the discovery of] … undiscovered, large-scale gold deposits”.
• He explained that the “current bottleneck … [to progressing its Zimbawean exploration] … is drilling capacity. The rig we are using at Hillside is booked to run there continuously for the rest of year, so we now making a plan to bring a second rig into the country”.

Conclusion: Further exploration justified in Botswana to follow up a range of exploration models at Ditau while gold exploration success in Zimbabwe prompts plans to import an additional drilling rig.

*An SP Angel Analyst holds shares in Kavango

Lynas Rare Earths (LYC AU) A$5.9, Mkt cap A$5.6bn – 60% increase in Mt Weld reserves

• Major Australian rare earth producer Lynas reported an updated MRE and Reserve statement this morning.
• Mt Weld now holds an MRE of 107mt at 4.1% TREO for 4.4mt TREO using a 2.5% TREO COG.
• Reserves stand at 32mt at 6.4% TREO for 2.1mt TREO.
• The increase in Resource followed drilling targeting a lateral extension from the Central Lanthanide Deposit.
• Drilling also identified additional heavy REE zones in the saprolite zone surrounding the previously identified saprolite zone.
• The Company has completed over 84km of drilling since the previous 2018 MRE.
• They highlight the updated Reserve saw contained Dy oxide increase 92%.
• The drilling also added a new Deep Apatite zone, supported by test work on the Mt Weld expansion flowsheet.
• The Company reports that the updated Reserve statement supports a 20 year LOM at 12ktpa NdPr oxide, or a 35yr LOM at 7.2ktpa NdPr oxide.

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

SP Angel                                                            

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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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