SP Angel Morning View -Today’s Market View, Monday 8th July 2024

Copper prices climb as funds buy back short positions on shipment failures

MiFID II exempt information – see disclaimer below

Core Lithium (CXE AU) – Preliminary results as production paused and exploration accelerates

Ferrexpo (FXPO LN) – Production Report

Goldstone Resources* (GRL LN) – Production guided to grow to 1kozpa with expansion of HL operations

Great Southern Copper (GSCU LN) – Cerro Negro purchase option

Meteoric Resources (MEI AU) – Caldeira Rare Earth Ionic Clay Scoping Study

Sovereign Metals* (SVML LN) – US OTCQX listing to broaden eligible investor base in the US

Thor Energy (THR LN) – Drilling underway at Alford project, South Australia

Copper prices climb as funds buy back short positions on shipment failures

• Base metals rallied on Friday, with most holding gains into the new week.
• Copper prices have climbed to $9,950/t, holding slightly lower than recent highs of $10,00/t.
• Yangshan premiums have increased, suggesting appetite for copper imports is improving following an extended discount to LME in May.
• LME copper inventories are climbing to October highs and global inventories are near four year highs.
• But in the US copper shipments have failed to arrive leading to potential for a short squeeze on Comex (Reuters).
• The US market is waiting to see why certain copper shipments have not yet arrived with Trafigura and IXM reported to be looking to buy physical copper to deliver against large short positions. (Reuters)
• Iron ore reversed course on Friday, down over 3% to $110/t for the 62% index.
• China iron ore port inventories are at two year highs and remain elevated on a seasonally adjusted basis.

Gold prices ($2,375/oz) rally on slowing US employment as focus shifts to Wednesday’s inflation data

• Gold climbed to $2,391/oz on Friday, triggered by signs of a weakening US labour market.
• US Treasuries rallied to recent highs, with the 10 year yield sliding to 4.27% having neared 4.5% at the end of June.
• The market currently expects a 78% chance of a September Fed rate hike this year, with a second cut expected in December.
• Focus will be on Wednesday’s CPI data, with a softer reading expected to add to dovish positioning.
• China reportedly withheld from additional gold purchases in June.

China has spent upwards of €215bn for EV production, new analysis claims

• According to new analysis from the Center for Strategic and International Studies, China spent €215bn on subsidies for EV manufacturing between 2009 and 2023.
• From 2009 to 2017, only €6.3bn were spent, but subsidies tripled from 2018 to 2020.
• During the COVID-19 pandemic, subsidies increased nearly tenfold.
• Chinese government support includes tax discounts, tax exemptions, and funding for infrastructure.
• The estimates by the Center for Strategic and International Studies are conservative and exclude some forms of support.
• Local incentives, gifted land for factories, electricity discounts, and subsidies for industry suppliers are not included in the estimates.

Economics

US – Weaker than expected labour numbers led rates lower last Friday as downwards revisions from May outpaced slightly higher headline June reading.

• Jobless rate also ticked higher while labour earnings growth slowed in a welcome news to the central bank aiming to bring inflation expectations down.
• Next FOMC meeting is not on until 30-31 July.
• NFPs (Jun/May/Est): 206k/218k(revised from 272k)/190k
• Unemployment Rate (Jun/May/Est): 4.1%/4.0%/4.0%
• Av Hourly Earnings (%yoy, Jun/May/Est): 3.9%/4.1%/3.9%

Japan – Real wages dropped 1.4%yoy in May as earnings fall for a 26^th consecutive month with rising energy prices and a weakening yen fuelling inflation higher.

Germany – Exports dropped more than expected in May driven by weak demand from China, the US and European countries.

• Shipments to EU countries were down 2.5%mom while exports to non-EU destinations fell 4.9%.
• Exports (%mom, May/Apr/Est): -3.6/1.7(revised from 1.6)/-2.8
• Imports (%mom, May/Apr/Est): -6.6/1.2(revised from 2.0)/-1.0

France – In an unexpected outcome, Le Pen’s Rassemblement National Party failed to secure a majority and, in fact, came only third in the second round of general elections.

• The leftist Nouveau Front Populaire came first securing 182 seats of 577 total and 289 required for a majority followed by President Macron’s centrist Ensemble alliance with 168, down from current roughly 250 seats in the outgoing National Assembly, FT writes.
• Le Pen’s party got 143 seats, up on 88 in the previous assembly.
• Market reaction has been muted with 10y bond yields and a spread with Germany sovereign debt little changed as France is yet to form a government in a hung parliament.

Labour victory to continue to promote Electric Vehicles in London and other major cities

• Automotive manufacturing contributes £16bn to the UK economy and employs 800,00 people.
• But cars are fast becoming a commoditised industry, albeit with a high-tech element particularly with respect to EVs.
• Investing billions into Li-ion battery manufacturing creates a seat at the table but does not guarantee success.
• It is it the winning battery chemistries which will determine the next range of best-selling cars.
• So far Tesla is the leader in terms of battery performance but staying on top will be tough with so much new investment, innovation and new competition.
• AI is also seen as making a difference offering new ideas for EV motors and Li-ion chemistries.
• Labour is looking to create an environment for new investment and manufacturing in the UK.
• The Conservative party delayed had pushed back the data for the end of petrol and diesel sales to 2035 from 2030 but Labour wants to reinstate the 2030 deadline.
• Labour wants to use the National Wealth Fund to draw more investment into EV manufacturing in the UK to make batteries for 2m EVs, create 80,000 jobs and generate £30bn for the UK.
• These projects will be classed as Nationally Significant Infrastructure Projects to speed their implementation and to help develop the next generation of skilled workers.
• Fortunately, the UK already has skilled people in Li-ion batteries, software and electric motors.
• Electrogenic https://www.electrogenic.co.uk/  is one of a number of companies already converting classic cars into EVs
• The nation will also need an army of engineers to maintain and fix the new fleet of EVs on our roads.
• Power generation and charging infrastructure:
• Labour will need to hasten the rollout of EV charging stations alongside the generation of more green power.
• This means more nuclear power inevitably, more grid pylons, more grid-scale power storage, wind and solar power and more copper cabling.
• Supply Chains Taskforce: Labour is to create a supply chain taskforce to improve raw material security and secure domestic raw materials.
• This should be helpful for a number of listed and private explorers in the UK. Please reply to this email if you are interested in our recommendations.
• Labour are also reported to be interested in a proposed Global Clean Power Alliance to support manufacturers working with critical raw materials.

Currencies

US$1.0831/eur vs 1.0825/eur previous. Yen 160.79/$ vs 160.79/$. SAr 18.143/$ vs 18.200/$. $1.281/gbp vs $1.277/gbp. 0.675/aud vs 0.673/aud. CNY 7.270/$ vs 7.269/$.

Dollar Index 104.97 vs 105.00 previous.

Precious metals:         

Gold US$2,381/oz vs US$2,364/oz previous

Gold ETFs 81.3moz vs 81.3moz previous

Platinum US$1,016/oz vs US$1,008/oz previous

Palladium US$1,005/oz vs US$1,034/oz previous

Silver US$31.01/oz vs US$31/oz previous

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

Base metals:   

Copper US$ 9,900/t vs US$9,947/t previous

Aluminium US$ 2,534/t vs US$2,528/t previous

Nickel US$ 17,440/t vs US$17,365/t previous

Zinc US$ 2,976/t vs US$2,998/t previous

Lead US$ 2,230/t vs US$2,229/t previous

Tin US$ 33,885/t vs US$33,380/t previous

Energy:           

Oil US$86.2/bbl vs US$87.5/bbl previous

Natural Gas €33.3/MWh vs €33.7/MWh previous

Uranium Futures $85.5/lb vs $85.5/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$110.3/t vs US$113.1/t

Chinese steel rebar 25mm US$516.1/t vs US$517.4/t

Thermal coal (1st year forward cif ARA) US$116.5/t vs US$116.5/t

Thermal coal swap Australia FOB US$135.5/t vs US$134.0/t

Coking coal Dalian Exchange futures price US$214/t vs US$214.2/t

Other:  

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

NdPr Rare Earth Oxide (China) US$49,453/t vs US$49,596/t

Lithium carbonate 99% (China) US$12,036/t vs US$12,038/t

China Spodumene Li2O 6%min CIF US$1,010/t vs US$1,030/t

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

China Tungsten APT 88.5% FOB US$340/mtu vs US$345/mtu

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

Europe Vanadium Pentoxide 98% 5.1/lb vs US$5.1/lb

Europe Ferro-Vanadium 80% 26.75/kg vs US$26.75/kg

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

China Rutile Concentrate 95% TiO2 US$1,396/t vs US$1,396/t

Spot CO2 Emissions EUA Price US$69.6/t vs US$69.6/t

Brazil Potash CFR Granular Spot US$307.5/t vs US$310.0/t

Battery News

New battery design promises more energy and less environmental impact

• Lithium metal batteries can store at least double the energy per unit volume compared to lithium-ion batteries.
• Fluorinated solvents and salts in current lithium metal batteries pose significant environmental concerns.
• A research team led by Maria Lukatskaya at ETH Zurich developed a method to significantly reduce fluorine in lithium metal batteries.
• This new approach requires only 0.1% by weight of fluorine in the liquid electrolyte, 20 times lower than previous studies.
• The method can be integrated into existing battery production processes without additional costs.
• Researchers plan to assess the method’s scalability and application to pouch cells used in smartphones.

Solid-state batteries are coming and could be the solution to consumer concerns

• Solid-state batteries (SSBs) could double the driving range of EVs compared to current lithium-ion batteries.
• SSBs use a solid electrolyte instead of a liquid one, improving efficiency, safety, and reducing the risk of fires.
• Major automotive and battery companies are heavily investing in SSB research and development.
• SSBs offer higher energy density, faster charging times, longer lifespans, and lighter weights than lithium-ion batteries.
• Nissan aims to commercialise SSBs by 2028, and Honda plans for the second half of the 2020s.
• The solid-state battery market is expected to grow from $85m in 2023 to $963m by 2030.
• Chinese automakers, like Nio, are already testing SSBs and have introduced semi-solid-state batteries with impressive ranges.

BMW US EV sales improved to near-record level in Q2 ‘24

• BMW’s EV sales in Q2 2024 amounted to 14,081 units, up 24% yoy.
• EVs represented over 15% of BMW’s total U.S. sales volume in Q2.
• The BMW i4 was the top-selling EV model with 7,066 units.
• During H1 2024 BMW sold 24,794 EVs in the U.S., a 38% increase yoy.
• EVs accounted for 14.1% of BMW’s total US sales volume in H1.

BYD to build €1bn EV base in Turkey

• Turkey will unveil an agreement with the Chinese automaker for the construction of a $1bn plant in the west of the country, Turkish officials have said.
• The new plant may give BYD easier access to the European Union, following the increased tariffs on imports of Chinese EVs, hitting BYD with an additional 17.4% charge on top of the existing 10% rate.

Company News

Core Lithium (CXE AU) A$0.1, Mkt Cap A$211m – Preliminary results as production paused and exploration accelerates

• Core Lithium provides an update on its Finnis spodumene project.
• The Company expects to produce 95kt of spodumene concentrate in FY24.
• OPEX expected in the higher end of revised guidance.
• Finnis operations have now paused, and the company will continue to assess opportunities for a restart.
• Cash position at A$87.6m and no debt on the balance sheet, with increase in cash a result of stockpiled concentrate sales.
• Focus turns to exploration, with drilling programmes starting at Core’s Shoobridge, Finnis and Napperby prospects.

Ferrexpo (FXPO LN) 46p, Mkt Cap £277m – Production Report

• Ukrainian iron ore pellet producer Ferrexpo provides a production update for the six month period to June 2024.
• Ferrexpo has been operating two and sometimes three pelletiser lines out of four during the quarter.
• Total production for the June quarter was 1.67mt, with 1.5mt pellets and 180kt concentrate.
• 1H24 production up 83% vs previous half and up 75% yoy.
• Total commercial production fell 19% from 1Q24.
• Margins weaker amid lower iron ore prices and higher electricity prices.
• Cash position retained despite sustaining and efficiency CAPEX.
• Cash conversion reportedly improving with shorter rail times to port and renewed access to MENA and Asian customers.

Goldstone Resources* (GRL LN) 1.4p, Mkt Cap £14m – Production guided to grow to 1kozpa with expansion of HL operations

• 2024 production to mid June amounted to 1.4koz.
• Gold recoveries are reported to have significantly improved to 68% over the past six months (2022 average of 34%).
• Current operations are running at an average of 5.4ktpm of mined and stacked ore.
• Operations are on track to reach planned 50ktpm targeting 1kozpm within six months.
• Pad 4 construction is nearing completion, Pad 5 is in the processing of being constructed awhile Pads 6 and 7 are in the engineering phase.
• The Company hired a 50t excavator and three 45t ADT trucks.
• Additionally, the team commissioned an on site laboratory that will help to manage better grade control.
• Further drilling planned at the Homase trend to grow the existing mineral inventory.

*SP Angel acts as broker to Goldstone Resources

Great Southern Copper (GSCU LN) 1.23p, Mkt Cap £5.8m – Cerro Negro purchase option

• Great Southern Copper reports that, following four months due diligence,  it has finalised the purchase option to acquire the Cerro Negro exploitation licence area in Chile, expanding the footprint of its Especularita project.
• The project area, which includes Antofagasta’s former Mostaza copper/silver/gold mine, has “Untested alteration-mineralisation traced at surface along strike for up to 4km” and has previously received only limited exploration including 25 drill holes totalling 1,024m with the deepest hole less than 100m deep.
• The company confirms that it will start further drilling once it has secured the necessary permits and that, with “high-grade Cu-Ag-Au mineralisation … open in all directions. A resource definition programme targeting near-mine depth and strike extensions to the Mostaza mineralisation will be the Company’s initial focus for drilling”.
• Mostaza currently hosts a non-JORC mineral resource, completed in 1981, of “190,600t of measured & indicated sulphide with grades of 1.2% Cu, 80 g/t Ag, and 0.45 g/t Au, plus an additional 63,000t of inferred sulphide resource at depth” within 2 lenses and the company says that it has identified 7 lenses so far in its exploration.
• Great Southern Copper says that its technical due diligence “suggests that the style of high-grade copper-silver-gold mineralisation seen at Mostaza is consistent with the upper high-sulphidation zones of porphyry copper type deposits… and exploration programmes at Mostaza and Cerro Negro will be designed with the aim of vectoring toward large-scale porphyry copper type deposits”.
• Chief Executive, Sam Garrett, confirmed the intention “to commence drilling at the soonest opportunity targeting both extensions to the existing high-grade resource and upscaling the deposit to the south along the MFZ … [Mostaza Fault Zone] …, as well as testing the potential for large-scale porphyry copper type mineralisation”.
• The announcement describes a long and relatively intermittent mining history at Mostaza dating from early mining in 1884 through to Antofagasta’s involvement during the 1980s when it mined “mixed and sulphide ores for processing at their nearby Parral flotation plant until the company’s focus shifted with the acquisition and of the Michilla and Los Pelambres deposits”.

Conclusion: Expansion of the Especularita project area through the Cerro Negro acquisition expands the company’s Especulrita project and includes a former operating mine which was closed during the late 1980s, We look forward to further news as exploration and resource definition  drilling advances.

Meteoric Resources (MEI AU) A$0.155, Mkt Cap A$308m – Caldeira Rare Earth Ionic Clay Scoping Study

• Australian rare earth developer Meteoric provides results from its Caldeira scoping study, in Minas Gerais, Brazil.
• The study highlights potential for a plant capacity of 5mtpa over a 20-year LOM, selling a mixed rare earth carbonate.
• CAPEX at US$297m, which, inclusive of a 35% contingency, is US$403.
• Annual TREO production of 11kt over the initial five years, with an average LOM production of 9.1kt TREO.
• The TREO product is expected to contain 31% NdPr and 1% DyTb.
• TREO OPEX at US$5.5/kg and NdPr OPEX averaging $21.3/kg over LOM.
• The project economics uses Adamas pricing forecasts and is discounted by 40% to generate a pre-tax NPV8 of $1,235m, IRR of 38% and Payback of 2.2 years.
• Using spot prices, the post-tax NPV8 is $16m for an IRR of 9%.

Sovereign Metals* (SVML LN) 35.51p, Mkt Cap £207m – US OTCQX listing to broaden eligible investor base in the US

(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 and have now exercised their option to raise their state to 19.8%)

STRONG BUY – Valuation 55p

• Sovereign Metals has upgraded its US listing to the OTCQX Market to access a broader eligible US investor base.
• The stock was previously trading on the OTC Pink Market and will trade under ‘SVMLF’ on OTCQX® Best Market.
• The move is reported to follow “increased US investor and strategic interest in Sovereign and its Kasiya Rutile-Graphite Project in Malawi”.
• The US Department of Energy has designated both titanium and graphite as critical minerals due to national security concerns.
• We believe, this is in response to Chinese dominance of titanium processing and the interruption of titanium feedstock from Ukraine into Russia.
• Rio Tinto recently reported their further investment of A$18.5m (US$12.4m) into Sovereign Metals raising their stake to 19.76%.
• The investment followed a site visit by a number of Rio Tinto executives who may have offering guidance and advice on the new trials for the mining process, site rehabilitation, tailings treatment, processing, ESG etc….

• PFS results (September 2023):
  • Operating costs US$8.74/t mined (Op costs are ~$4.3/t for hydro-mining at Kwale in Kenya)
  • Total operating costs including royalties US$404/t of concentrate – 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

*SP Angel act as Nomad and broker to Sovereign Metals. The analyst has recently visited the Kasiya mine site. We highly recommend the Malawi coffee beans sold in Lilongwe airport.

Thor Energy (THR LN) 0.9p, Mkt Cap £3.2m – Drilling underway at Alford project, South Australia

• Thor Energy confirms that drilling is underway at its 26.3% owned Alford West In-Situ-Recovery (ISR) copper project in South Australia.
• The work, being undertaken by EnviroCopper, “comprises three water bores for hydrogeological baseline assessment, and subsequent push-pull and tracer testing as part of the first phase of In-Situ Recovery (“ISR”) Site Environmental Lixiviant Trials”
• The company describes the programme as “the first step in assessing whether the Alford West orebodies are amenable for sustainable recovery of copper using ISR”.
• The project “includes the Bruce, Larwood and Wombat deposits … with a Mineral Resource Estimate of 66.1Mt @ 0.17% Cu containing 114,000t of contained copper”.
• Managing Director, Nicole Galloway Warland said that “If the trials are successful, it will highlight the significant copper potential of the Alford Copper Belt (comprising Alford East and Alford West ISR Copper Projects), and its potential to be a future “green” copper-producing opportunity for South Australia”.

Conclusion: The latest phase of drilling at Alford West will test the project’s amenability to ISR techniques for the recovery of copper. We await the results with interest.

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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