SP Angel Morning View -Today’s Market View, Thursday 15th June 2023

PBOC cuts rates as state council looks to give support

MiFID II exempt information – see disclaimer below

Adriatic Metals* (ADT1 LN) – Moving towards a revised MRE for Rupice in July

Chaarat Gold (CGH LN) – Senior management changes

Galileo Resources (GLR LN) – Preparing to drill the Kamativi Lithium project in Zimbabwe

Oriole Resources* (ORR LN) – CLICK FOR PDF – Geophysics at Bibemi to help guide further drill targets

Russia – The government is considering taking control of western companies’ assets in the country at a “significant discount” in response to Western sanctions that froze Russian assets abroad, FT the confidential Kremlin decree.

• Acquired stakes could later be placed on the local equity market with the difference in value ending up in the national budget.
• Commenting on discussions, Dmitry Peskov, Putin’s spokesman, told FT that western investors and companies were “more than welcome” in Russia but highlighted that many Western companies decided to leave the region.
• “If a company doesn’t fulfil its obligations, then, of course it goes in the category of naughty companies… we say goodbye to those companies… and what we do with their assets after that is our business.”

Gold – $1,933/oz – Prices slide to three-month low despite Fed rate pause as Powell signals more hikes

• Spot gold hit a low of $1,929/oz before recovering some ground to $1,933/oz overnight.
• The downward move was triggered during Powell’s press conference, where the Fed chair noted further rate hikes to come.
• The market is now pricing in a 72% chance of a 25bp hike in July, despite the Fed holding off yesterday.
• Yields jumped, with the 10-year hovering around levels seen in March pre-SVB collapse. Higher yields reduce gold demand.
• The ECB is expected to hike rates for the eighth straight time today, with hawkish sentiment across major central banks limiting gold’s upward momentum.

Weak Chinese steel output highlights stagnant construction market

• China crude steel output fell in May on a mom and yoy basis.
• Daily average output fell 6.7% yoy and May crude steel output slid 7.3% yoy.
• May volume stood at 90.12mt vs 92.65mt in April.
• Daily steel output falling to 2.91mt vs 3.09mt in April.
• Scrap supply is limited, with analysts pointing to limited construction and manufacturing activity alongside wet weather.
• EAF steel mills on May 30^th saw activity levels fall 41% vs end of April.
• Nippon Steel’s CEO warned in May that ‘the outlook for steel demand in China has deteriorated compared to three months ago.’
• Property sales by floor area fell 0.9% Jan-May, with property investment falling 7.2% yoy.
• New construction starts by floor area fell 22.6% over the period vs 21.2% Jan-April.
• Funds raised by property developers fell 6.6% vs 6.4% Jan-April.
• Newly issued bond flows for infrastructure projects slid to 53% in April vs 56.4% in March and 63.29% in February.
• China primarily suffers from a dearth of domestic consumption demand, with the commerce ministry stating today that policy measures will be introduced to support momentum.
• Despite weak steel demand, iron ore prices have rallied to $113/t, although Beijing emphasises this is ‘speculator’ driven.

Tin prices jump to six-week highs as supply threats outweigh slowing demand

• Tin futures have rallied to $26,550/t as volatile trade continues.
• The move comes despite sliding premiums, although Reuters notes the metal’s spreads are tightening, suggesting depleting supply.
• Chinese smelters are noting limited concentrate supply, with Guangxi Tin, the sixth largest tin producer, halting smelting for 45-50 days at its Laibin smelter on limited raw material availability.
• Semiconductor sales, a major driver of tin demand, are expected to fall 10% this year, and were down 22% yoy in April.
• Indonesian tin exports fell 35% yoy in Q1, although they have subsequently rebounded.
• Minsur’s production fell 54% in Q1, although they have subsequently resumed full operations.

WARNING – Smart phone theft in Oxford Street leads to hacking of banking App and direct money transfer from current account

• We wish to warn our contacts to be very careful with their smart phones in public places.
• One of our friends had his phone stolen out of his hand while ordering a taxi in the street.
• The criminals were able to keep the phone alive and to somehow hack into his bank account which required a 6-digit pin number.
• For iPhones we advise using a second device to ‘Find my iPhone’ and wipe the memory of the stolen phone.
• Make sure you know your Apple password and we recommend using a ‘second’ phone or tablet for 2-pin verification so you can change passwords on critical Apps.

Economics

US – The FOMC voted to keep rates unchanged in the 5.00-5.25% range, in line with expectations.

• Commenting on the state of the economy, Jerome Powell said that the US growth and the job market is holding up better than expected.
• The pause was to allow the central bank to gather more information before deciding if rates do need to rise again, Reuters writes.
• New FOMC members rates outlook showed that policymakers grew more hawkish with nine of 18 officials expecting the benchmark to increase 50bp with three others arguing for even higher increase.
• PPI fell 0.3% in May vs 0.2% in April and 1.1% yoy in May vs 2.3% in April

• Core PPI 0.2% in May vs 0.2% in April and 2.8% yoy in May vs 3.2% in April
• Weekly mortgage rate was 6.77% vs 6.81%
• Weekly mortgage applications rose 7.2% vs -1.4%

US Railroad freight traffic falls in sign of slowing economy reflecting similar falls in activity in China

• The Association of American Railroads reports total rail volume for the first 23 weeks of 2023 fell 5.1% yoy.
• Burlington Northern Santa Fe reports a fall of 14% in railroad traffic in the 23^rd week of 2023.
• Canadian National down 10% in traffic.

China – The central bank cut rates on its one year loans (MTLF) by 10bp to 2.65% marking the first reduction since August last year.

• The news came shortly before official data showing a pull back in economic activity in May, Bloomberg writes.
• Growth in industrial production and retail sales slowed down while fixed asset investment by private businesses contracted in the first five months of the year.
• A contraction in property investment accelerated during the period.
• Separately, the State Council is expected to discuss a series of stimulus measures including targeted support toward the struggling real estate sector, Bloomberg reports.
• Industrial Production (%yoy): 3.5 v 5.6 April and 3.5 est.
• Retail Sales (%yoy): 12.7 v 18.4 April and 13.7 est.
• FAI ex Rural (%yoy YTD): 4.0 v 4.7 April and 4.4 est.
• Property Investment (%yoy YTD): -7.2 v -6.2 April and -6.7 est.

Eurozone – Market expectations for the central bank to raise rates by 25bp this afternoon, in contrast to the US Fed, acknowledging strong continuing inflationary pressures.

• The Governing Council will also release its new GDP and inflation estimates that see a downward revision suggesting that the hiking cycle is nearing its end.
• Markets are currently pricing in another 25bp deposit rate hike in July on top of the 25bp move today taking the benchmark rate to ~3.75%.
• Industrial production rose 0.2% in April vs -1.4% in March and 1% yoy in April vs -3.8% yoy in March

EU keen to sign a trade deal with the Mercosur bloc of Argentina, Brazil, Paraguay and Uruguay where EU goods like cars currently face prohibitive tariffs.

• The Mercosur nations are also keen to export food to Europe which is hugely protectionist over its farmers.
• The EU is also being driven by a need to access more lithium and other critical metals.

EU signs MoU with Argentina on sustainable raw materials value chains

• The EU, which we suspect is a tad naïve about mining in Argentina, has signed a ‘critical minerals agreement’ with the President of Argentina
• The partnership centres around five collaborative areas:
  • Integration in the sustainable raw materials value chains, including through joint development of projects, new business models, promotion and facilitation of trade and investment linkages;
  • Cooperation on research and innovation along the raw materials value chains, including on minerals knowledge, the minimisation of environmental and climate footprint, and circular economy;
  • Cooperation to leverage environmental, social, and governance (ESG) criteria and align with international standards;
  • Deployment of hard and soft infrastructure for projects development, minimising their environmental and climate impact;
  • Strengthening capacities, vocational education and training and skills development along sustainable raw materials value chains in accordance with international labour standards.
• The EU Commission President cited a potential 12-times increase in lithium demand in Europe by 2030 highlighting how desperate European vehicle manufacturers are.
• A wave of new, smart and low cost, Chinese EV models are heading towards our shores with relatively little domestic and EU capacity to compete with the Chinese influx.
• Argentina has a number of lithium-rich salars on the east side of the Andes offering potential for substantial lithium production.
• Problem is, just as soon as the clouds pass over the Andes from Chile into Argentina it rains which makes the use of evaporation ponds less effective unless you are high up in the Atacama desert.
• Many Argentinian projects are developing DLE, ‘Direct Lithium Extraction’ technologies, such as Rincon, now owned by Rio Tinto.
• These DLE projects are highly capital intensive and not one of them has yet been commercially proven at anything but Pilot plant scale.
• While reckon some of these multi-billion-dollar projects will work in time, we are also sure the road to DLE success will be littered with a multitude of failures.

Germany – Wholesale price index fell 1.1% in May vs -0.4% in April and -2.6% yoy in May vs -0.5% yoy in April

Aluminium – Chinese aluminium production driven by hydropower

• Summer appears to be starting early in many parts of China as temperatures rise earlier than expected
• Power supply will be increasingly diverted to powering air conditioning in cities as temperatures rise with 41^oC expected in Beijing this week
• Aluminium production is effectively determined by available hydropower and thus the length and strength of the wet season in critical provinces
• Either way there is likely to be a growing surplus of aluminium as global markets slow.

Ukraine – Last night we attended the premier of ‘The Eastern Front’ documentary by John Sweeney.

• The film shows the devastation in Bakhmut, Kherson and Eastern Ukraine along with footage of shelling and people being evacuated from front-line war zones.
• https://byline.tv/putindocumentary/
• John Sweeney, ex Panorama and probably the only investigative journalist to catch Putin with surprise questions and to also interview Donald Trump.
• Sweeney’s documentary shows continuing crimes against humanity with white phosphorous and cluster bombs used in civilian areas where there was no Ukrainian military presence.
• The catalogue of war crimes and torture inflicted by Putin’s regime and is also being presented as evidence for future trials.
• Russia is simply a Fascist state which needs to be drained and contained.
• Our greatest risk is that politicians like Trump along with a few UK and EU politicians who allegedly appears to have been compromised by Russia cut funding to Ukraine.

WE Soda scraps London IPO as City investors remain cautious

• WE Soda, the largest global producer of natural soda ash, has scrapped plans to list on London within seven days of its confirmation.
• The Company, set to list around the £6bn mark, blamed ‘extreme investor caution in London.’
• It was set to offer 10% of its equity for £600m.
• We imagine the specialty nature of natural soda ash may have weighed on investor enthusiasm, with copper and lithium both seeing encouraging sentiment despite a weaker wider market.

Currencies

US$1.0811/eur vs 1.0789/eur yesterday. Yen 141.43/$ vs 140.05/$. SAr 18.357/$ vs 18.538/$. $1.265/gbp vs $1.261/gbp. 0.681/aud vs 0.678/aud. CNY 7.154/$ vs 7.162/$.

Dollar Index 103.34 vs 103.32 yesterday..

China – Yuan exchange rate continues to slide

• The Chinese Yuan / renminbi continues to slide recording 7.16 / USD this morning.
• While the rate is not as low as last November when it hit 7.31 / USD during China’s strict Covid lockdown, the currency is heading back into weaker territory as semiconduction sanctions and lower Western demand hits exports. Western sanctions hit over 9,000 Chinese firms according to once source.
• Lower ‘processed’ raw material prices may also be hurting the value of exports and therefore the Yuan as China is a substantial convertor and exporter of many metals and some metal alloys.
• Foreign investment into China has slowed substantially on China threats against Taiwan and on Russian threats to seize Western owned assets in Russia.
• Russia gives us a textbook guide on how China might react if it invades Taiwan and the West further sanctions China while it supports the defense of the island of Taiwan.
• Regional debt: default risk of LGFVs ‘local government financing vehicles’ which has risen to CNY 66tn ($9.2tn from CNY 50tn ($7tn) at end 2021
• These LGFVs have some CNY 5.5tn ($768bn) of onshore bonds due through 2023 at a time of falling exports and weaker domestic demand.

Commodity News

Precious metals:

Gold US$1,932/oz vs US$1,947/oz yesterday

Gold ETFs 93.8moz vs US$93.8moz yesterday

Platinum US$970/oz vs US$980/oz yesterday

Palladium US$1,375/oz vs US$1,356/oz yesterday

Silver US$23.30/oz vs US$23.80/oz yesterday

Rhodium US$6,100/oz vs US$6,100/oz yesterday

Base metals:   

Copper US$ 8,445/t vs US$8,402/t yesterday

Aluminium US$ 2,224/t vs US$2,244/t yesterday

Nickel US$ 22,560/t vs US$22,150/t yesterday

Zinc US$ 2,443/t vs US$2,397/t yesterday

Lead US$ 2,114/t vs US$2,084/t yesterday

Tin US$ 26,550/t vs US$26,140/t yesterday

Energy:

Oil US$73.4/bbl vs US$74.5/bbl yesterday

• Crude oil prices pulled back after the EIA reported a 7.9mb US crude build, as well as ~2mb builds to both distillate and gasoline stocks, with refinery utilisation falling from last week’s high of 95.8% to 93.7%.
• European gas prices surged higher yesterday as prolonged outages in Norway and forecasts for hot weather across the continent stimulated supply concerns.
• EU natural gas storage levels rose 3% w/w to 72.9% full (vs 55.9% 5-year average), with strong builds in Germany, Italy, the Netherlands and France contributing to aggregate storage of 721TWh.

Natural Gas US$2.331/mmbtu vs US$2.322/mmbtu yesterday

Uranium UXC US$57.50/lb vs US$55.50/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$113.4/t vs US$111.5/t

Chinese steel rebar 25mm US$531.3/t vs US$530.2/t

Thermal coal (1st year forward cif ARA) US$113.5/t vs US$107.0/t

Thermal coal swap Australia FOB US$137.0/t vs US$136.0/t

Coking coal swap Australia FOB US$220.0/t vs US$220.0/t

Other:  

Cobalt LME 3m US$29,525/t vs US$29,525/t

NdPr Rare Earth Oxide (China) US$70,027/t vs US$69,945/t

Lithium carbonate 99% (China) US$42,701/t vs US$42,651/t

China Spodumene Li2O 6%min CIF US$4,090/t vs US$4,090/t

Ferro-Manganese European Mn78% min US$1,259/t vs US$1,257/t

China Tungsten APT 88.5% FOB US$320/mtu vs US$320/mtu

China Graphite Flake -194 FOB US$740/t vs US$740/t

Europe Vanadium Pentoxide 98% 7.1/lb vs US$7.1/lb

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

China Ilmenite Concentrate TiO2 US$308/t vs US$308/t

Spot CO2 Emissions EUA Price US$97.2/t vs US$93.2/t

Brazil Potash CFR Granular Spot US$340.0/t vs US$340.0/t

Battery News

EVs – Beijing EVs account for around 20% of passenger cars

• In Shanghai 40% private cars are pure EVs or hybrids.
• Taxis and busses are almost exclusively EV in both cities.

Company News

Adriatic Metals* (ADT1 LN) 150p, Mkt cap £407m – Moving towards a revised MRE for Rupice in July

• Adriatic Metals reports that it plans to revise the mineral resources estimate for its Rupice project in Bosnia in July following results from recent exploration which has extended the known mineralisation to the west and southwest and identified the Rupice Northwest (RNW) mineralisation as a separate “but overlapping” structure.
• In 2021, ore reserves at Rupice were reported to be 7.3mt at an average grade of 485g/t on a silver equivalent basis.
• The company says that the RNW ‘Lower Zone’ has “continued to be confirmed as a copper gold rich body with high grade lead, zinc, silver and antimony and reduced barium”.
• Confirming that exploration“in Q1 and Q2 2023 positioned Adriatic Metals for a major Rupice mineral resource update in July 2023” Paul Cronin, CEO and Managing Director, said that recent drilling “demonstrated narrower but higher-grade zones of mineralisation and added quality base and precious metals rich tonnes peripheral to the thick centre of RNW. Extension drilling to the west and southwest of RNW saw strong increases in copper and gold grades as mineralisation narrowed, while retaining outstanding lead, zinc and silver grades”.
• Outlining future exploration plans, including the deployment of a 4^th drilling rig, Mr. Cronin said that the “Q3 drilling schedule will turn attention back to the main Rupice orebody with a focus on growing the Rupice resource beyond the current reserve, both up-dip and down-dip, using the knowledge gained from RNW”.
• The company confirms that “As at end of June, Rupice, RNW and RNW Lower Zone remain open to resource expansion”.

*An SP Angel mining analyst has visited Adriatic Metals operations in Bosnia

Chaarat Gold (CGH LN) 9p, Mkt Cap £80m – Senior management changes

• Darin Copper, COO, will be stepping down from his role pursuing other opportunities after over four years with Chaarat.
• The search for a successor commenced.
• Separately, David Mackenzie was appointed as CFO after acting as the interim CFO since early February 2022.

Galileo Resources (GLR LN) 1.13p, Mkt Cap £13.1m – Preparing to drill the Kamativi Lithium project in Zimbabwe

• Galileo Resources reports that it has secured a drilling contract to follow up geochemically anomalous levels of lithium in soils at its 520km² Kamativi licence in Zimbabwe.
• The licence is adjacent to the historic Kamativi tin-tantalum mine but Galileo Resources makes clear that it has no involvement in that area.
• Although drilling has not yet started, Chairman and CEO, Colin Bird, said that “We have quickly moved from the discovery of a widespread lithium soil anomaly to the commencement of a drill programme at Kamativi.
• Mr. Bird described the anomaly as “substantial and… [said] … we believe it is highly significant that the target is comparable in size to other large lithium deposits including the 42.3Mt Arcadia deposit also located in Zimbabwe”.
• The main geochemical anomaly extends over 3km of strike length and Galileo resources has “an option to earn an 80% interest through spending a combined total of $1.5million on exploration and evaluation in the Project area and over the Bulawayo gold-nickel property by 21 July 2024”.
• The initial drilling programme is reported to involve a total of 1,000m in “at least 10 holes”.

Conclusion: We await early-stage drilling results from the Kamativi project area in Zimbabwe with interest.

Oriole Resources* (ORR LN) 0.2p, Mkt cap £5.8m – CLICK FOR PDF – Geophysics at Bibemi to help guide further drill targets

• Oriole announces an exploration update for its Bibemi Project in Cameroon.
• The Company has completed an infill ground magnetics programme to build on prospect-level data acquired in 2022.
• The results from the data processing are expected in H2-2023, with the additional ground magnetic data expected to help generate drill targets.
• Bibemi has significant expansion potential, with the JORC-compliant Resource of 305koz @ 2.19g/t Au at Bakassi Zone 1, remaining open along strike to the northeast and ripe for additional ounces.
• The geophysics will also support expansion efforts at Bakassi Zone 2, Lawa West and Lawa East, where gold anomalies and previously identified mineralisation offer encouraging signs of controlled gold deposition.
• Oriole are considering the potential of developing a series of pits in addition to Bakassi Zone 1 to support a Bibemi mining operation, given the proximity of the various targets.
• The Company has commenced local-level technical studies, including an Environmental Impact Assessment.

*SP Angel acts as Broker to Oriole 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 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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