SP Angel Morning View -Today’s Market View, Thursday 13th June 2024

Copper drifts as market looks for new direction following Fed outlook and weaker US CPI figures

MiFID II exempt information – see disclaimer below

Ariana Resources (AAU LN) – Increased MRE at the Dokwe project, Zimbabwe

Bezant Resources (BZT LN) – Progress report on Namibian gold project

Power Metal Resources* (POW LN) – Disposal of Australian interests

Trident Royalties (TRR LN) – Recommended all cash offer at 49p from Deterra Royalties

Umicore (UMI EBR) – Umicore warns of a sharp slowdown in growth of demand for EVs impacting the entire supply chain

Copper ($9,885/t) – prices drift as market looks for new direction following Fed outlook and weaker US CPI figures

• Kamoa-Kakula in the DRC is now the third largest copper mining complex behind Escondida in Chile and Grasberg in Indonesia.
• The mine has seen commissioning of the Phase 3 concentrator that is projected to expand Kamoa-Kakula’s production to over 600ktpa Cu.
• MMG will invest $700m to double production at its recently acquired Khoemacau copper mine in Botswana, according to Mining.com.
• Copper production is estimated to more than double to 130ktpa from current 60ktpa.
• “Our new owners are committed to the expansion project… with first concentrate expected from the last quarter of 2027,” Johan Ferreira, MD, said at a mining conference.
• BHP reached a preliminary wage agreement with union leaders in Chile as the miner is trying to avoid an industrial action amid high commodity prices, Bloomberg writes.
• More than 1,100 members of the main union at BHP’s Spence mine in northern Chile will vote on the new offer in the coming days.
• The operation delivered 250kt copper last year.
• The deal at Spence should help with upcoming labour talks at BHP’s other Chilean operations including Escondida that is more than four times the size of Spence.

Li-ion battery plants being built to flood mkts with more cells than needed

• A wave of new lithium-ion battery factories will produce far more cells than needed globally, according to BloombergNEF.
• By 2025, global production capacity will be more than five times the required demand.
• This oversupply benefits automakers and EV buyers but presents challenges for new battery industry entrants.
• Manufacturing capacity in China will exceed demand by at least 400% for the rest of the decade.
• In the US, efforts to build a domestic battery supply chain include a conditional $9.2 billion loan to Ford for constructing three battery factories.
• Despite overcapacity, European governments are pushing for more production, with Germany lobbying for additional plants.
• BloombergNEF has reduced its forecast for nickel usage in batteries by 25% for the next year.

Avesta Holding Announces Plans for new 20GWh LFP Battery Cell Gigafactory to be located in Europe

• Avesta Holding which is based in Belgium has announced plans to build a new gigafactory for advanced lithium iron phosphate (LFP) batteries.
• Discussions are ongoing with two European countries to work out the sighting of the plant. The group recently signed an MoU on a R&D facility in Portugal.
• The initial production capacity will be 5GWh/year.
• The factory will support subsidiaries Avesta Battery & Energy Engineering (ABEE), battery factory BE-Volt, and other strategic partners.
• The production capacity is expected to reach 20GWh with the factory’s expansion.

EU hits China with tariffs up to 38.1%

• The European Commission said it will impose duties of up to 38.1% on imported Chinese EVs from July.
• The provisional tariffs, which will range from 17.4% to 38.1% will be applied on top of the standard 10% duty.
  • BYD and subsidiaries: 17.4% tariff
  • Geely and subsidiaries: 20.0% tariff
  • SAIC Group: 38.1% tariff
  • Other companies (including BMW Brilliance, Chery, Dongfeng Motor, Great Wall Motor, Leapmotor, NIO, Tesla and Xpeng, among others) who the commission said cooperated with the investigation: 21.0% tariff
• The announcement has not gone down well with automakers in Europe.
  • BMW, VW, Stellantis and Mercedes-Benz have all expressed disappointment in the new measures, with general sentiment being that the measures will cause fragmentation in global trade and damage the European automotive industry.
• Reaction in China has been mixed:
  • The Chinese Passenger Car Association has said, “The EU’s provisional tariffs come basically within our expectations, which won’t have much of an impact on the majority of Chinese firms.”
  • However, automakers NIO and Chery, who will both incur 21% tariffs have released statements strongly opposing the measures.
  • The companies did also reiterate their commitment to expanding into the European market and that they will continue make decisions when the full extent of the tariffs is made clear in November.
  • The Chinese government has said that it will take necessary action to safeguard its interests.
• It is believed that the Chinese OEMs will not pass on all tariffs via higher prices and rather will sacrifice some of their generous gross margin.
• Industry experts think most Chinese BEVs will continue to be cheaper than those of EU OEMs despite the new tariffs.
• The true impact of the tariffs will be felt if and when China decides to retaliate in kind.

Seismic activity in Scotland – Taylor Swift concert sets off British Geological Survey earthquake monitors

• Seismic activity was recorded up to six kilometres away from the concert.
• Certain songs appear to generate spikes in seismic activity.
• Given public opposition to oil and gas well Fracking we wonder if regulators should step in to stop Swift’s most Seismic songs.
• We recommend cutting “Shake it off” due to its potential to frack and contaminate local water supplies impacting the Whisky industry.

Economics

US – Fed delivers a hawkish rate outlook calming markets enthusiasm following a release of lower than expected CPI numbers for May.

• FOMC members revised their rate expectations to a single rate cut from three expected in March.
• Updated Fed projections also included upward revisions to inflation in 2024 and 2025 to 2.6% (2.4% in March) and 2.3% (2.2%), respectively.
• The benchmark rate was held steady at 5.25-5.50% for a seventh consecutive meeting.
• Although Chairman Jerome Powell hinted that the new Inflation numbers that came out during the second day of the FOMC meeting and were lower than expected may not have been fully reflecting in latest quarterly projections.
• 10y bond yield fell nearly 15bp once inflation data was released midday only to bounce back and ending the day at ~10bp off following the Fed press conference.
• Gold prices swung around as well jumping more than $25 before coming back and now trading little changed at $2,315/oz compared to pre CPI period.
• CPI (%mom, May/Apr/Est): 0.0/0.3/0.1;
• Core CPI (%mom, May/Apr/Est): 0.2/0.3/0.3;
• CPI (%yoy, May/Apr/Est): 3.3/3.4/3.4;
• Core CPI (%yoy, May/Apr/Est): 3.4/3.6/3.5.

ECB – Further rate cuts possible this year according to Bostjan Vasle

• The ECB run the risk of devaluing the Euro as hedge funds extend their carry trades to borrow more in low-interest rate Euros for investment in higher-rate US Treasuries.

Currencies

US$1.0807/eur vs 1.0740/eur previous. Yen 157.15/$ vs 157.31/$. SAr 18.349/$ vs 18.544/$. $1.278/gbp vs $1.274/gbp. 0.665/aud vs 0.661/aud. CNY 7.252/$ vs 7.254/$.

Dollar Index 104.85 vs 105.29 previous.

Precious metals:         

Gold US$2,315/oz vs US$2,312/oz previous

Gold ETFs 81.0moz vs 81.1moz previous

Platinum US$953/oz vs US$957/oz previous

Palladium US$899/oz vs US$891/oz previous

Silver US$29.33/oz vs US$29/oz previous

Rhodium US$4,560/oz vs US$4,600/oz previous

Base metals:   

Copper US$ 9,885/t vs US$9,818/t previous

Aluminium US$ 2,547/t vs US$2,534/t previous

Nickel US$ 17,810/t vs US$17,900/t previous

Zinc US$ 2,860/t vs US$2,798/t previous

Lead US$ 2,169/t vs US$2,164/t previous

Tin US$ 33,105/t vs US$32,860/t previous

Energy:           

Brent Oil US$82.3/bbl vs $82.5/bbl yesterday

UK NBP Futures 86p/therm vs 83p/therm yesterday

Henry Hub Gas US$3.05/mmBtu vs US$3.09/mmBtu yesterday

• Crude oil prices were flat after the EIA reported a 3.7mb w/w build to US crude, as well as a 2.6mb build to distillate and 1.1mb build to gasoline stocks, as refinery utilisation continues operating at a high level of 95%.
• The IEA announced yesterday that it expects global demand growth for oil to plateau at ~105mb/d over 2026-2030 while potential output is set to surge driven by non-OPEC supply, which the European-based agency predicts will lead to a major increase in spare capacity.
• Media reports that Shell is the lead bidder to buy the Pavilion Energy LNG assets that are estimated at ~$2bn.

Natural Gas €36.3/MWh vs €34.7/MWh previous

Uranium Futures $86.0/lb vs $82.9/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$104.8/t vs US$103.9/t

Chinese steel rebar 25mm US$536.4/t vs US$536.8/t

Thermal coal (1st year forward cif ARA) US$120.5/t vs US$118.8/t

Thermal coal swap Australia FOB US$135.0/t vs US$134.3/t

Hard Coking Coal Australia FOB US$326.0/t vs US$326.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$49,231/t vs US$50,181/t

Lithium carbonate 99% (China) US$13,170/t vs US$13,166/t

China Spodumene Li2O 6%min CIF US$1,120/t vs US$1,150/t

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

China Tungsten APT 88.5% FOB US$357/mtu vs US$360/mtu

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

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.2/lb

Europe Ferro-Vanadium 80% 26.85/kg vs US$26.85/kg

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

China Rutile Concentrate 95% TiO2 US$1,414/t vs US$1,413/t

Spot CO2 Emissions EUA Price US$69.4/t vs US$69.4/t

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

Battery News

CATL and BYD working on 6C charging tech

• While some Chinese EVs are just beginning to carry batteries that support 5C charging, the two battery giants are reportedly competing to develop the next generation of batteries with event faster charging.
• CATL has plans to launch its second-gen Qilin battery with 6C charging capability in H2 ’24.
• BYD, which hasn’t released a new battery in three years, is also developing its next-gen battery with 6C charging capabilities.
• C refers to the battery’s charging multiplier, and 6C means that the battery could theoretically be fully charged in one-sixth of an hour, or 10 minutes.

EV Trains – Tesla is to Replace Diesel-Electric Trains With Battery-Electric Models on Berlin Shuttle Service

• Tesla will replace diesel-electric trains with battery-electric models for its Berlin factory shuttle service starting in summer 2024.
• The shuttle service, free for both employees and the public, operates from Berlin to Tesla’s factory railway station, about 35 kilometers from the city center.
• Over 3,500 people use the shuttle service daily.
• The new battery-electric trains will be Siemens Mireo Plus B models, rented from Siemens’ Smart Train Lease subsidiary.
• There will be a short transitional period with no shuttle service before the new trains begin operating.

Solar – Warehouse rooftop solar, batteries could unlock 28 GW in Australia

• Nexa Advisory has identified a 28 GW potential for rooftop solar and battery storage in Australia, with 7 GW in New South Wales (NSW) alone.
• Current uptake by businesses in NSW is slow, with commercial and industrial (C&I) consumers representing only 5% of customer-owned energy resources, compared to 27% for residential.
• Nexa recommends the NSW government establish a scheme similar to Small-scale Technology Certificates (STCs) for systems over 100 kW or leverage the Peak Demand Reduction Scheme (PDRS).
• Battery installations in C&I sectors could significantly increase grid reliability as coal-fired power stations retire.
• Nexa Advisory is calling for a business education program to raise awareness of rooftop solar and battery benefits, improving energy resilience and reducing peak demand charges.

Audi to invest €1bn in Mexican EV projects

• The German automaker will invest €1bn in new EV projects in Puebla, Mexico.
• Audi Mexico has already begun installing the infrastructure and equipment necessary for the production of a car with “e-tron” – or fully electric – equipment, a statement from the Puebla government said.

Ferrari’s first EV to debut in 2025

• The luxury automaker has confirmed plans to launch a battery EV in late 2025.
• When speaking to media this week, executives promised the company’s first EV will be a “true Ferrari,” and will not spell the end for petrol and hybrid models.
• They also confirmed that the electric Ferrari will also make an ‘authentic’ noise.

Company News

Ariana Resources (AAU LN) 2.5p, Mkt Cap £26.9m – Increased MRE at the Dokwe project, Zimbabwe

• Following completion of its recent due diligence and confirmatory drilling at the Dokwe gold project in Zimbabwe, Ariana Resources has announced an updated JORC (2012) compliant mineral resource estimate (MRE).
• The new MRE increases the project’s contained gold by over 0.5moz (40%) to 1.83moz hosted within 55.9mt at an average grade of 1.02g/t gold and includes “the addition of Dokwe Central and revisions to the geological models at both Dokwe North and Central”.
• The estimate, which is reported at a cut-off grade of 0.3g/t and is based on results of 141 drillholes, includes ~13.8mt of ‘Measured’ resources at an average grade of 1.35g/t (599koz) and ~20.1mt of ‘Indicated’ resources at an average grade of 1.15g/t (742koz) representing an increase of 139koz on the previously reported 1,202koz of ‘Measured & Indicated’ resources.
• Hints of further expansion potential lie in the increased ‘Inferred’ resource of ~22mt at a grade of 0.69g/t (490koz) which increase the previously reported 23koz of inferred resources by 467koz.
• Approximately 91% of the overall resource (~1.7moz) is hosted in the Dokwe North deposit, including ~0.6moz outside the limits of the current pit design, with the remaining 0.16moz at Dokwe Central of which, 62koz are classed as ‘Indicated’ with the remaining 100koz as ‘Inferred’.
• Ariana Resources confirms that the mineral reserves at Dokwe are now “to be revised following new pit optimisations”.
• Commenting on the increased resources, Managing Director, Dr. Kerim Sener, explained that a “significant contribution to this uplift is due to the update of Dokwe Central”.
• He confirmed that “Measured and Indicated Resources currently comprise 73% of the total resource, much of which sits within the historic optimised pits. If Inferred Resources are also included, approximately 1.1Moz of gold sits within the previously designed or optimised pits … [which, he suggested showed] … the potential to significantly enhance Reserves (currently 0.8Moz of gold) in future economic studies”.
• Dr. Sener said that “Our assessment of the Dokwe Project has improved significantly during the period in terms of diligence and we see opportunities for significant exploration upside to the established resources at North and Central, in addition to camp-scale potential in the wider area”.
• He described the characteristics of the host Archaean greenstone belt geology where “major gold deposits tend to occur as clusters within distinct multi-million ounce “camps”, occurring along crustal-scale shear zones … [and said that all] …  of these elements are present in the Dokwe region, including several untested gold-in-soil anomalies, and this bodes well for our long-range strategy to develop the Dokwe Project as a modern mining hub in Zimbabwe”.
• The Dokwe project, located “in the Tsholotsho District 110km WNW of Bulawayo, Zimbabwe” was discovered by Rockover Resources in 2002. “Ariana is in the process of acquiring the Dokwe Project via an all-share merger with Rockover, which is due to close at the end of June”.

Conclusion: The new MRE for Dokwe delivers a meaningful increase in resources and hints at further exploration potential. We look forward to further news on progress of the merger with Rockover Resources, the owner of the project, later this month.

Bezant Resources (BZT LN) 0.02p, Mkt cap £2.6m – Progress report on Namibian gold project

• Bezant Resources reports that while it awaits approval of a mining licence it has lined up contractors for mining, plant construction and concentrate haulage for its Hope & Gorob copper/gold project in Namibia.
• Although today’s announcement does not indicate when mining licence approval is expected it does confirm that Bezant Resources has secured “Letters of Intent and offers for financing of an off-grid hybrid renewable power supply for the Project”.
• Chairman, Colin Bird, welcomed the “response from the contracting community … [and confirmed that] … all the components required to start a new project are in place and the Hope & Gorob has the makings of a pathfinder project for Bezant’s mining aspirations in southern Africa”.

Power Metal Resources* (POW LN) 19p, Mkt cap £21m – Disposal of Australian interests

• Yesterday afternoon, Power Metal Resources confirmed the completion of plans to dispose of its 49.9% interest in New Ballarat Gold Corporation (NBGC) which holds exploration interests in the Victoria Goldfields and in South Australia,
• The disposal, to Power Metal Resources’ joint-venture partner, Red Rock Resources, is to be concluded within 5 days of 11th June.
• In payment, Red Rock Resources will issue a £250,000 convertible loan note and ~166.7m new shares with “accompanying warrants exerciseable at 0.25p per share “.
• Commenting on the disposal, CEO, Sean Wade, said that it enables Power Metal Resources “to focus and direct its managerial, operational and financial resources on retained high value business interests and new opportunities … [while enabling] … the ownership of NBGC to be focused in one entity which is the optimal holding structure for its continual development”.

*SP Angel acts as Nomad and Broker for Power Metal Resources

Trident Royalties (TRR LN) 48p, Mkt Cap £141m – Recommended all cash offer at 49p from Deterra Royalties

• Deterra Royalties announced a recommended all cash offer to acquire Trident Royalties for 49p, a ~23% premium to yesterday’s closing price.
• The deal values Trident equity at ~£144m and the business at £171m when ~£27m in net debt (FY23) of is included.
• The Board of Trident intends to unanimously recommend the deal.
• Additionally, shareholders interested in ~29% of Trident provided irrevocable undertakings and a letter of intent to vote in favour of the deal.
• Trident is a mining royalty and streaming company with a portfolio of 21 royalties well diversified geographically (>60% located in the US, Canada and Australia) and across multiple commodities.
• Latest trident presentation offers the following split for the Group estimated NAV with 41% assigned to lithium assets (Thacker Pass being key project in the portfolio), 32% to gold projects, 19% to copper (including a royalty on the Mimbula Copper Mine operated by Moxico in Zambia), 6% to silver and 2% for other projects.
• The Company generated ~US$10m in revenues in FY23 with ~80% coming from precious metals portfolio.
• Funding wise, Deterra is reported to have entered into a bridge loan facility with JP Morgan for a total of £150m.
• Additionally, the Company is reporting it has an existing A$500m in bilateral facilities remaining undrawn at this point.
• Deterra Royalties is an Australian based royalty Company with six royalties in its current portfolio predominantly focused on iron ore and to a lesser extent mineral sands and other commodities.
• Cornerstone assets is a royalty non the Mining Area C iron ore operation, one of four hubs within BHP’s Western Australian Iron Ore business, that accounted for almost all of A$229m FY23 revenues for the Group.
• Deterra is listed on ASX with a A$2.4bn market capitalisation, held A$25m in cash and no debt as of Dec/23.

Umicore (UMI EBR) €14.76, Mkt cap, €3.64bn – Umicore warns of a sharp slowdown in growth of demand for EVs impacting the entire supply chain

• Umicore, the Belgium based battery materials processor has warned of lower profits on slower growth in Electric Vehicles
• They say a steep  decline in recent weeks for Umicore’s battery materials mean that 2024 volumes for its battery materials could be equal or slightly lower than for last year.
• We know from our Chinese sources that buying for lithium carbonate and hydroxide stalled in China a few months ago as Li-ion gigafactories worked through high inventory levels.
• The rush to buy raw material stocks in recent years has led to some dysfunctionality in a relatively complex supply chain where fears of supply shortages led to some overstocking.
• We also suspect there will be some sub-standard stock out there which will need reprocessing.
• Management are now reviewing expansion plans due to the slowdown in expected EV production growth by certain manufacturers.
• Full-year forecasts for Umicore’s Battery Materials Group EBITDA have been lowered to around break-even including a positive €50m one off down from €135mn previously.
• The Battery Materials Group EBITDA was €149 in 2023
• Capex for the Group should not exceed €650m.
• The Battery Materials division has been hit by:
  • a reduction in cathode materials sales with legacy contracts coming to an end faster than anticipated.
  • Delays to new volume ramps up for new European contracts
  • Non materialisation of Chinese battery OEM volumes this year. We suspect this was destined for a new European factory.
• Mercedes and Ford have both recently pulled back from EV expansion plans with Mercedes stating that going electric is not currently suitable for their type of vehicles.
• Umicore’s effective profit warning highlights the challenge for each part of the new EV supply chain as manufacturers adjust their plans to suit sales trends.
• Umicore is also reducing planned output destined for a Chinese automotive manufacturer which will not happen this year.
• Umicore Group expects to see full-year EBITDA of €760m down from €800m.

Conclusion: We suspect Umicore management are being cautious following adjustment by certain vehicle manufacturers towards petrol hybrids as opposed to full battery EVs. While certain contracts are expiring and some others are delayed new contracts as at Avesta (see above) will appear in Europe to take up the slack. In the meantime, Umicore’s Hoboken PGM recycling and refining facility should do well from sales from Pt, Pd and Rh into hybrid exhaust catalysts.

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

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