Slowing US inflation weighs on the US$ and drives risk on sentiment
MiFID II exempt information – see disclaimer below
Pre-IPO financing for High-Purity Alumina project
Li-ion batteries use a separator membrane made out of High-Purity Alumina
- High-Purity Alumina (HPA) is an inert chemical with high thermal stability. It gives good heat resistance and insulation making it ideal as a coating for separator membranes.
- The project alumina has been shown to be suitable for Li-ion batteries, LED lighting and synthetic sapphire for smartphones and tablets,
- The resource contains a JORC inferred resource sufficient for 10,000 – 20,000tpa of HPA >30 years
- The process uses an innovative process flowsheet combining commercial proven technologies with recent metallurgical tests producing 99.995% alumina.
- CRU estimate demand for HPA powder could reach 187,000t in 2028 from 19,000t in 2018.
- CRU predict substantial demand growth led by Li-ion battery and LED production,
- Price: High-purity alumina sells for ~$30,000/t today up from $24,000/t in 2018,
- The company looking to fund HPA studies, metallurgical work, working capital and listing costs
*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.
Anglo Asian Mining* (AAZ LN) – BUY, Target 204p – Q2 delivers 12.4koz GEOs with FY23 guidance reiterated at 50-54koz
Atlantic Lithium* (ALL LN) – BUY – DRA Global appointed for Stage 2 scoping study on flotation circuit for Ewoyaa lithium project
US dollar falls as yesterday’s US inflation figures give the Fed more room to hold back on interest rate rising
- Metals prices continued to post gains with copper climbing to US$8,507/t
- Equities rose and bond yields fell on the news as the market awaits a brace of new quarterly earnings reports.
- In the words of Warren Buffet, “Only when the tide goes out do you discover who’s been swimming naked.”
Iron ore prices climb on Chinese stimulus hopes as markets shrug off disappointing trade data.
- Prices extended a two day increase after closing 3% higher yesterday, Bloomberg reports.
| Dow Jones Industrials | +0.25% | at | 34,347 | |
| Nikkei 225 | +1.49% | at | 32,419 | |
| HK Hang Seng | +2.54% | at | 19,340 | |
| Shanghai Composite | +1.26% | at | 3,236 |
Economics
US – The US$ dropped to a 15-month low on risk on sentiment following weaker than expected headline and core inflation measures released yesterday.
- 2 year sovereign bond yields dropped to 4.66%, the lowest in a month.
- CPI (%mom): 0.2 v 0.1 May and 0.3 est.
- Core CPI (%mom): 0.2 v 0.4 May and 0.3 est.
- CPI (%yoy): 3.0 v 4.0 May and 3.1 est.
- Core CPI (%yoy): 4.8 v 5.3 May and 5.0 est.
- 30-year mortgage rates climbed in the US to 7.07% vs 6.85% a week ago
- Mortgage applications strangely rose 0.9% after a fall of -4.4% previously. We suspect this figure will pull back.
Canada – The Bank of Canada raised official rates 0.25% to 5.0%.
China – Worse than forecast trade data adds to signs of slowing growth momentum and fuels speculation for a step up in government support for the economy.
- In an sign of weakening global growth, exports dropped for four of the six months so far in 2023.
- Shipments to the US, Germany, Italy, the UK, South Korea and Japan among other countries dropped at double digit numbers.
- Exports (%yoy): -12.4 v -7.5 May and -10.0 est.
- Imports (%yoy): -6.8 v -4.5 May and -4.1 est.
- Total China credit growth slowed to a low of +9.0% yoy in June from +9.5% yoy in May and +10.0% yoy in April as the economy slows and costs fall.
- Credit growth was strong through Q1 as President Xi reopened the economy but growth has slowed driven with falls in exports and domestic demand.
- China appears to be slipping into a new deflationary environment. Are US semiconductor sanctions hurting that much? Will China follow Japan into a lost decade, economically.
- While ‘inflation’ turning into ‘deflation’ and a mountain of municipal debt in many if not all provinces it is difficult for the government to create more off-balance sheet finance.
- China Inc. also looks unlikely to stimulate massive new construction in housing with so many unfinished apartments.
- It is possible, the stress of slower growth could cause a new credit crunch in China and possibly elsewhere in Asia to create a re-run of the Asian Financial Crisis which started in Thailand in 1997.
Japan – PPI fell 0.2% in June vs 0.7% in May but was still 4.1% yoy higher in June and 5.2% yoy higher in May
India – Inflation rose 1% mom in June vs 0.5% in May and 4.8% yoy in June vs 4.5% in May
- Floods in northern India are spoiling crops with tomato prices rising 160% mom.
- Onions are the major food staple in India
Ukraine – NATO members agree to allow Ukraine to join NATO when conditions are met
- The US remains opposed for the time being, most likely due to Russian threats of nuclear retaliation.
- Sweden was allowed into NATO on the promise by the US to transfer US F-16 jets to Turkey.
- With each new country comes an extra fighting force to bolster the alliance.
- NATO allies have made an enduring commitment to spend a minimum 2% of GDP on defence though many are now playing catchup on their commitments.
- The Europe and Canada are now reported to be raising defense expenditure by 8.3% in real terms.(NATO)
- G7 also reported to ensure new security assurance to support Ukraine to deter future attacks and end the war with Russia
UK interest rates continue to rise causing a great deal of mortgage pain particularly for young families
- It seems a tad unfair to blame the rise in mortgage rates on the governor at the BoE, though the nation’s press appears to revel in blaming him anyway.
- In reality, successive governments, both Labour and Conservative have been happy to watch property prices rise causing most new buyers to borrow excessive amounts just to put a half-decent roof over their heads.
- The UK Treasury enjoys the fruits of higher house prices through ‘Stamp Duty’ with receipts peaking at 5.9bn in Q3 2022, though they have since fallen to £3.77bn in Q1 2023. Stamp Duty receipts were £21.7bn in FY 2022 and £18.7bn in FY 2021.
- But nobody seems to blame any of the former governments for helping property prices to continue to rise.
- UK property may well be in for a correction with potential for 10-years’ worth of property price stagnation though that is want it needs to start to correct the horrible inequality caused by high house prices.
Currencies
US$1.1142/eur vs 1.1027/eur yesterday. Yen 138.47/$ vs 139.60/$. SAr 18.064/$ vs 18.472/$. $1.302/gbp vs $1.295/gbp. 0.683/aud vs 0.669/aud. CNY 7.170/$ vs 7.191/$.
Dollar Index 100.40 vs 101.47 yesterday.
Commodity News
Precious metals:
Gold US$1,961/oz vs US$1,936/oz yesterday
Gold ETFs 92.1moz vs US$92.1moz yesterday
Platinum US$964/oz vs US$933/oz yesterday
Palladium US$1,306/oz vs US$1,253/oz yesterday
Silver US$24.21/oz vs US$23.15/oz yesterday
Rhodium US$4,350/oz vs US$4,200/oz yesterday
Base metals:
Copper US$ 8,507/t vs US$8,350/t yesterday
Aluminium US$ 2,247/t vs US$2,169/t yesterday
Nickel US$ 21,335/t vs US$21,000/t yesterday
Zinc US$ 2,443/t vs US$2,359/t yesterday
Lead US$ 2,114/t vs US$2,064/t yesterday
Tin US$ 28,900/t vs US$28,010/t yesterday
Energy:
Oil US$80.4/bbl vs US$79.5/bbl yesterday
- Crude oil prices edged higher after the EIA forecast higher oil prices over 2H23 and 2024 in its Short-Term Energy Outlook, driven by an average inventory drawdown of 0.4mb/d over the next 18M.
- The EIA also reported significant w/w builds to crude oil (+4.9mb), distillate (+4.8mb) and other oil (+6.2mb) stocks, with refinery utilisation increasing 2.6% to 93.7%.
- European energy prices fell as natural gas storage levels rose 1.3% w/w to 80.2% full (vs 65.3% 5-Yr average), as strong builds in Germany, France and the Netherlands contributed to aggregate storage of 904TWh.
- Media reports that Apache has abandoned plans filed last year to maintain production operations until 2037 from the giant Forties field in the UK North Sea, which was based on £238m capex over 2022-2029. Apache now plans to spend just £9m over 2023-2030, which we think will likely lead to an asset sale to another operator.
- TotalEnergies and its JV partners have taken the final investment decision (FID) to develop phase 1 of the Rio Grande LNG project in South Texas, which comprises three trains with total capacity of 17.5mtpa and capex of $14.8bn split roughly 45:55 between equity contributions from the JV and debt from a consortium of banks.
Natural Gas US$2.653/mmbtu vs US$2.721/mmbtu yesterday
Uranium UXC US$55.40/lb vs US$55.40/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$109.9/t vs US$106.4/t
Chinese steel rebar 25mm US$525.1/t vs US$521.7/t
Thermal coal (1st year forward cif ARA) US$108.5/t vs US$108.5/t
Thermal coal swap Australia FOB US$128.0/t vs US$135.0/t
Coking coal swap Australia FOB US$225.0/t vs US$226.0/t
Other:
Cobalt LME 3m US$33,420/t vs US$33,420/t
NdPr Rare Earth Oxide (China) US$60,109/t vs US$59,794/t
Lithium carbonate 99% (China) US$41,491/t vs US$42,065/t
China Spodumene Li2O 6%min CIF US$4,080/t vs US$4,080/t
Ferro-Manganese European Mn78% min US$1,120/t vs US$1,108/t
China Tungsten APT 88.5% FOB US$315/mtu vs US$315/mtu
China Graphite Flake -194 FOB US$685/t vs US$695/t
Europe Vanadium Pentoxide 98% 7.5/lb vs US$7.5/lb
Europe Ferro-Vanadium 80% 32.25/kg vs US$32.25/kg
China Ilmenite Concentrate TiO2 US$305/t vs US$304/t
Spot CO2 Emissions EUA Price US$94.0/t vs US$93.0/t
Brazil Potash CFR Granular Spot US$335.0/t vs US$335.0/t
Company News
Anglo Asian Mining* (AAZ LN) 85p, Mkt Cap £97m – Q2 delivers 12.4koz GEOs with FY23 guidance reiterated at 50-54koz
BUY – 204p
- Q2/23 production amounted to 12.4koz GEO (Q2/22: 15.0koz) taking total for H1/23 to 23.4koz (H1/22: 28.8koz).
- Quarterly production breakdown included:
- Gold production 7.9koz (Q2/22: 10.9koz) including 7.4koz in dore from heap and agitation leaching circuits (Q2/22: 10.1koz).
- Agitation leaching accounted for most of decline in gold production on the back of lower throughput and recoveries as the plant stayed idle between 2 May and 30 May with ore processed on campaign basis with the flotation plant.
- Copper production 1.0kt (Q2/22: 0.7kt).
- Stronger copper production reflects higher processing rates (191kt v 114kt in Q2/22) following recent expansion of the circuit.
- Silver Production 22koz (Q2/22: 49koz).
- Q2/22 gold sales (post PSA) totalled 4.8koz at an average realised price of $1,992/oz (Q2/22: 3.8koz at $1,895/oz) including 1koz delivered under forward sales contracts (4.6koz over seven months between June and December 2023 at average prices between ~$1,950/oz and ~$1,980/oz) at ~$1,948/oz.
- Quarterly copper concentrate sales (post PSA) amounted to 5.5kt generating $7.7m in revenue (Q2/22: 4.6kt and $8.1m).
- Closing cash balance stood at $9.4m as H1/23 with inventory of 2.4koz in unsold gold valued at $4.5m and $4.4m worth of unsold copper concentrate; Company remains bank debt free.
- FY23 production guidance was reiterated at 50-54koz GEOs including 30-32koz gold and 4.1-4.3kt copper.
Conclusion: Quarterly production numbers were largely in line with expectations with the decline attributed to rebalancing of processing capacities in favour of the flotation circuit treating higher in copper but lower in gold feed. The team reiterated FY23 guidance and confirmed commissioning of the high grade underground operation at Gilar in Q4/23. Gilar will be key to growth in production in H2/23.
| (Dec year end) | FY20 | FY21 | FY22 | FY23E | FY24E | ||
| Gold price | US$/oz | 1,777 | 1,799 | 1,783 | 1,928 | 1,900 | |
| Copper price | $/t | 6,185 | 9,294 | 8,801 | 8,860 | 10,500 | |
| Gold production | koz | 56.9 | 48.7 | 43.1 | 32.1 | 40.0 | |
| Copper production | kt | 2.6 | 2.6 | 2.5 | 4.2 | 6.8 | |
| AuEq Production | koz | 67.3 | 64.6 | 57.6 | 52.8 | 79.6 | |
| CuEq Production | kt | 19.3 | 12.5 | 11.7 | 11.5 | 14.4 | |
| AISC (incl PSA, co product) | US$/oz | 840 | 964 | 1,131 | 1,122 | 907 | |
| Revenue | US$m | 102.1 | 92.5 | 84.7 | 83.9 | 125.1 | |
| EBITDA | US$m | 52.9 | 29.2 | 26.4 | 30.5 | 57.9 | |
| FCF | US$m | 33.8 | 12.2 | -3.8 | -1.7 | 7.0 | |
| EV/EBITDA | x | 2.9 | 6.0 | 4.2 | 3.7 | 1.9 | |
| PER | x | 8.3 | 28.6 | 35.1 | 10.8 | 5.0 | |
| DY | % | 5% | 4% | 7% | 7% | 7% | |
| Net Debt | US$m | -36.9 | -34.2 | -17.7 | -6.5 | -4.5 | |
| AISC estimation changed from by-product to co-product for estimates and historical periods to reflect higher Cu contribution
Source: SPA, Company |
|||||||
*SP Angel acts as nomad and broker to Anglo Asian Mining
Atlantic Lithium* (ALL LN) 24p, Mkt Cap £144m – DRA Global appointed for Stage 2 scoping study on flotation circuit for Ewoyaa lithium project
BUY
- Atlantic Lithium have appointed DRA Global to run the Scoping Study on a flotation circuit for the Ewoyaa lithium project in Ghana.
- The study results should add value to the main Ewoyaa project and eventually add to further updates on the recently published Ewoyaa DFS.
- DRA Global are well respected in the mining industry and have a long history in process plant engineering.
- The new ‘Stage 2’ study should confirm the benefits of adding a flotation plant after and alongside the DMS circuit.
- This has the benefits of concentrating more of the already-mined spodumene ore to add to production extending the mine life.
- In technical terms the study will be an:
- “Evaluation of the the technical and commercial viability of the use of flotation to process fines and middlings as a potential additional downstream circuit to the planned Ewoyaa Lithium Dense Media Separation (“DMS”) processing plant”
- assessing the use of the 4.7Mt of 1.2% Li2O fines material currently intended to be sold as a low-grade Li2O secondary product (refer Ewoyaa Definitive Feasibility Study1, announced on 29 June 2023) as potential feedstock for the flotation circuit.”
- The Stage 2 study should add to the exceptional economics shown in the recently published DFS study. Highlights below:
- DFS project economics published 29 June:
- Throughput: ~2-2.7mtpa
- Total mined ore 30.6mt
- Spodumene concentrate production: ~300,000tpa (SC5.5 and SC6)
- Price assumption US$1,587/t with $1,200/dmt long term pricing for SC6% FOB Ghana Port
- NPV8 post-tax: US$1.5bn
- IRR: 105%
- Payback: 19 months
- Free cash flow: US$2.4bn
- EBITDA: US$316mpa
- Revenue US$550mpa
- C1 Op costs US$377/t
- AISC US$610/t
- Capex: US$185m
- LOM: 12 years
- LOM revenues increased to $6.6bn
Conclusion: Today’s announcement is a natural extension to the work done within the DFS. The new Scoping Study will simply evaluate and show the benefits of concentrating Spodumene fines and reject material from the Dense Media Separation plant in a flotation circuit as part of the Stage 2 expansion of the process plant.
*SP Angel acts as Nomad to Atlantic Lithium. Two mining analysts from SP Angel recently visited the Ewoyaa mine site in Ghana and drove onto Takoradi to check the quality of the road to port. Our intrepid analysts also visited the Ministry of Minerals Commission and MIIF, the Ghana Minerals Income Investment Fund.
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
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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.
| Sources of commodity prices | |
| Gold, Platinum, Palladium, Silver | BGNL (Bloomberg Generic Composite rate, London) |
| Gold ETFs, Steel | Bloomberg |
| Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt | LME |
| Oil Brent | ICE |
| Natural Gas, Uranium, Iron Ore | NYMEX |
| Thermal Coal | Bloomberg OTC Composite |
| Coking Coal | SSY |
| RRE | Steelhome |
| Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite | Asian Metal |
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SPA research ratings – Based on a time horizon of 12 months:
