Renmimbi weakens as China trust defaults on property slump
MiFID II exempt information – see disclaimer below
Atlantic Lithium* (ALL LN) – Piedmont commit to development funding for Ewoyaa lithium / spodumene mine in Ghana
Horizonte Minerals (HZM LN) –Progress of Araguaia project construction
PYX Resources (PYX LN) – Indonesian Government eases export restrictions on ilmenite and rutile
Sociedad Quimica y Minera de Chile (SQM US) – Quarterly results hit by lower lithium and potassium prices
Thor Energy (THR LN) – Drilling permits for project in southwest Colorado
What if the financial crisis unfolding in China causes the economy to slow to a point where Oil drops below Russia’s breakeven rate
- Russian operating costs for oil production run at around $10-15/bbl
- Russia’s fiscal breakeven requires oil prices of over $60/bbl.
- S&P Global Commodity Insights estimates Russia’s fiscal breakeven oil price at $114/b in 2023, up from $64.47/b before its invasion of Ukraine, as the Kremlin’s outgoings to fund the war add to its overall budget spending.
- Russia is expected to have to start borrowing in international markets next year according to a former foreign minister.
- With Russian gas exports severely curtailed, any further collapse in oil prices will hasten the demise of the Russian economy.
- China’s own financial crisis may give it good reason not to help out its communist neighbours as the Ukraine conflict drains Russia of financial resources.
India approves US$7bn to launch electric buses nationwide
- The Indian government has approved plans to invest almost $7bn, to deploy 10,000 electric buses in 169 cities, over the next decade.
- The federal government will fund a third of the cost of the scheme.
- India has plans for an eventual fleet of 50,000 electric buses at an estimated cost of $12bn.
- The push for electric public transport comes as it works to cut emissions and reduce fuel imports.
- The government has offered generous incentives to companies to build vehicles and parts in India.
Gold drops below key $1,900/oz level as US Treasuries extend sell-off
- Gold fell below $1,900/oz overnight to $1,896/oz, weakest level since March 15th of $1,888/oz.
- The move follows a major sell-off in US government bonds, with US Treasury yields climbing to their highest levels since October.
- The 10 year has weakened to 4.3% – the last time it touched these levels, gold fell to $1,650/oz.
- Treasuries are weakening following Fed minutes yesterday which showed US Central Bankers continue to worry about persistent inflation as the economic strength persists.
- Jackson Hole will become gold and US Treasury investors’ primary focus next week, as Fed officials meet and give guidance on potential September rate clues.
- Disinflation continues in CPI readings and nonfarm payrolls have stopped accelerating, although retail sales data and industrial data this week show the US consumer remains strong.
- The dollar is strengthening as the Yen, Yuan and Aussie all weaken, with the Japanese yen nearing intervention territory.
- ETF gold investors continue to rotate into high-yielding, risk-free US Treasuries, with a reversal in yields expected to provide a catalyst to the upside for gold.
Copper hovers around May lows as China growth concerns persist
- Copper continues to hold below the $8,200/t mark as the market’s risk-off sentiment amplifies.
- China property slowdown is of primary concern, whilst the potential for higher rates in the US is also weighing on infrastructure investment outlook.
- China home prices are down 15% from 2021 highs in top tier neighbourhoods.
- The Yangshan premium is ticking higher, suggesting import demand is improving, although this may reflect weak domestic smelter output over maintenance periods.
- Copper contango levels persist on LME, suggesting spot demand is weak.
VOX Markets:
*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts. We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.
| Dow Jones Industrials | -0.52% | at | 34,766 | |
| Nikkei 225 | -0.44% | at | 31,626 | |
| HK Hang Seng | +0.13% | at | 18,353 | |
| Shanghai Composite | +0.43% | at | 3,164 |
Economics
US – FOMC July meeting minutes showed that “most” policymakers remained focused on prioritising the battle against inflation.
- “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” minutes read.
- US bond yields hit session highs following the release of the minutes while US equities extended losses and the US$ was trading higher against the basket of currencies, Reuters reports.
China – Official data likely underestimates the extent of the property market slump
- Released data shows that new house prices slipped just 2.4% from a high in Aug/21 with existing homes down 6% (Bloomberg).
- Property agents on the ground are reporting much worse numbers with prices for existing houses down at least 15% in prime neighbourhoods of major metropolitan areas like Shanghai and Shenzhen and in more than half of China’s Tier 2 and Tier 3 cities.
- Official methodology is reported to be partly based on surveys rather than price data from transactions helping authorities to smooth the trend and avoid large swings.
- Investors reversed CNY 54bn in net purchases of Chinese equities after a July24 pledge from the government to increase policy support, FT reports.
- Selling gained pace in August as markets are losing confidence in authorities’ commitment to strong stimulus measures.
- The government promised a series of initiatives at the end of last month pledging to boost weak consumer spending, tackle high youth unemployment and provide support for struggling property market.
- Zhongzhi Enterprise, a struggling asset manager with a considerable exposure to real estate, will conduct a debt restructuring.
- The plan is for “self-rescue” through restructuring, with a focus on debt collection and asset liquidation, but bankruptcy is also an option, Reuters writes.
Japan – Exports dropped for the first time in more than two years in an indication of struggling overseas demand growth momentum.
- The drop was driven by a 13.4% drop in shipments to China while exports to the US and Europe were up 13.5% and 12.4%, respectively.
- Exports (%yoy): -0.3 v 1.5 June and -0.2 est.
- Imports (%yoy): -13.5 v -12.9 June and -15.2 et.
Russia – The rouble continued to strengthen this morning coming down below the 94 level as the government is considering measures to ramp up currency controls.
- President Putin planned to hear proposals from Russia’s finance ministry to demand exporters to convert some of their foreign currency earnings, most of which are held abroad, into roubles, according to FT.
- Under the considered plan exporters will need to sell up to 80% of their FX revenue within 90 days after delivery or face a ban on receiving government subsidies.
Australia – The currency is trading lower this morning following the release of the labour data showing an unexpected drop in employment in July.
- Employment Change: -14.6k v 31.6k (revised from 32.6k) June and 15.0k est.
- Unemployment Rate: 3.7% v 3.5% June and 3.6% est.
NATO – official suggests Ukraine might give up some territory in return for NATO membership
- While we are not sure that giving up any territory to Russia is acceptable to Ukraine or that Ukraine membership of NATO will be accepted by Russia.
- The NATO official comments were made to VG, a Norwegian newspaper.
Currencies
US$1.0880/eur vs 1.0926/eur yesterday. Yen 146.25/$ vs 145.46/$. SAr 19.163/$ vs 19.083/$. $1.273/gbp vs $1.274/gbp. 0.640/aud vs 0.647/aud. CNY 7.306/$ vs 7.295/$.
Dollar Index 103.45 vs 103.07 yesterday.
Commodity News
Precious metals:
Gold US$1,897/oz vs US$1,905/oz yesterday
Gold ETFs 90.4moz vs US$90.6moz yesterday
Platinum US$892/oz vs US$894/oz yesterday
Palladium US$1,216/oz vs US$1,242/oz yesterday
Silver US$22.65/oz vs US$22.66/oz yesterday
Rhodium US$4,100/oz vs US$4,100/oz yesterday
Base metals:
Copper US$ 8,207/t vs US$8,203/t yesterday
Aluminium US$ 2,144/t vs US$2,143/t yesterday
Nickel US$ 20,100/t vs US$20,015/t yesterday
Zinc US$ 2,296/t vs US$2,292/t yesterday
Lead US$ 2,122/t vs US$2,118/t yesterday
Tin US$ 25,010/t vs US$25,035/t yesterday
Energy:
Oil US$83.9/bbl vs US$84.7/bbl yesterday
Natural Gas US$2.595/mmbtu vs US$2.669/mmbtu yesterday
Uranium UXC US$56.75/lb vs US$56.75/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$101.3/t vs US$100.7/t
Chinese steel rebar 25mm US$510.6/t vs US$510.8/t
Thermal coal (1st year forward cif ARA) US$123.0/t vs US$123.0/t
Thermal coal swap Australia FOB US$155.3/t vs US$154.0/t
Coking coal swap Australia FOB US$253.0/t vs US$254.0/t
Other:
Cobalt LME 3m US$33,420/t vs US$33,420/t
NdPr Rare Earth Oxide (China) US$65,222/t vs US$65,323/t
Lithium carbonate 99% (China) US$30,455/t vs US$31,188/t
China Spodumene Li2O 6%min CIF US$3,260/t vsUS$3,360/t
Ferro-Manganese European Mn78% min US$1,039/t vs US$1,043/t
China Tungsten APT 88.5% FOB US$310/mtu vs US$310/mtu
China Graphite Flake -194 FOB US$672/t vs US$672/t
Europe Vanadium Pentoxide 98% 7.6/lb vs US$7.6/lb
Europe Ferro-Vanadium 80% 31.75/kg vs US$31.85/kg
China Ilmenite Concentrate TiO2 US$309/t vs US$309/t
Spot CO2 Emissions EUA Price US$94.7/t vs US$94.4/t
Brazil Potash CFR Granular Spot US$345.0/t vs US$345.0/t
Battery News
CATL launches fast charging LFP batteries
- The Chinese battery giant CATL has launched a fast-charging lithium iron phosphate (LFP) battery capable of a 400km range on a 10-minute charge.
- Mass production of the new battery called Shenxing is expected by the end of the year while electric vehicles equipped with Shenxing batteries will hit the market in the first quarter of 2024.
- CATL is working hard to maintain its industry leadership while facing challenges of weakening demand and pressure to cut costs from EV makers amid a price war and a slowdown in auto sales this year.
Texas is latest state to mandate Tesla EV charging technology
- Texas has approved its plan to require companies to include Tesla’s technology in EV charging stations to be eligible for federal funds, despite calls for more time to re-engineer and test the connectors.
- The decision sees Tesla become the biggest recipient of the $5b program to electrify US highways – it is being closely watched by other states and is a step forward for Elon Musk’s plans to make its technology the US charging standard
Company News
Atlantic Lithium* (ALL LN) 21.59p, Mkt Cap £131m – Piedmont commit to development funding for Ewoyaa lithium / spodumene mine in Ghana
(Piedmonth can earn into up to 50% of the Ewoyaa lithium project through the expenditure of around 70% of the project capex)
BUY
- Atlantic Lithium report the commitment by Piedmont to sole fund the first US$70m of total development expenditure at Ewoyaa and another 50% of any additional development.
- Piedmont have also acquired an Initial 22.5% interest in Atlantic’s spodumene licenses in Ghana in accordance with Stage 2 of the agreement of their agreement which required sole funding of US$5m of regional exploration and US$12m towards the PFS in 2022 and the following on DFS.
- Piedmont is now committed to raise its stake in the Atlantic’s entire portfolio to 50% through the US$70m funding of the Ewoyaa development.
- Funding: Atlantic will need to fund 50% of the remaining capital cost of the estimated US$185m development expenditure for Ewoyaa as per the recent DFS
- Eg. Atlantic should expect to cover their US$57.5m share of the development cost.
- We would expect this to be funded through project finance, through the sale of a portion of the remaining 50% of the available offtake or through a royalty or streaming agreement.
- While Atlantic could also raise funds through the issue of equity we suspect the directors, who have been active buying shares in the market may not go for this option.
- Production target increase: Spodumene concentrate production ‘target’ increased to: 350,000tpa of spodumene concentrate in RNS on 31st July from ~300,000tpa in the DFS offering further upside potential
- Early-stage revenue is possible through the construction of a Modular Dense Media Separation plant for the starter-pit operations.
- The first year of Modular DMS is expected to produce c. 38,000t of spodumene concentrate and 170kt of lower-grade secondary product with early modular DMS revenues of ~US$170m intended to cut peak capex.
- DFS project economics:
- Throughput: ~2-2.7mtpa
- Total mined ore 30.6mt
- Spodumene concentrate production ~300,000tpa (SC5.5 and SC6)
- The production ‘target’ is higher than for the DFS due.
- 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 life-of-mine
- EBITDA: US$316mpa
- Revenue US$550mpa and $6.6bn life-of-mine
- C1 Op costs US$377/t unchanged
- AISC US$610/t unchanged
- Capex: US$185m
- LOM: 12 years
- LOM revenues increased to $6.6bn
- Mineral resource for DFS: 35.3Mt grading 1.25% Li2O including ore reserves of 25.6mt grading 1.22% Li2O.
- The resources is based on a total 137,153m of drilling with 47,000m completed last year.
- “Under Ghana’s current mining framework, a 10% carried interest is attributed to the Government of Ghana at the asset level once in production, meaning a 45:45:10 interest ratio between the Company, Piedmont and the Government of Ghana, respectively.
- Cash: The company held A$15.3m in cash at end June
Conclusion: Today’s commitment by Piedmont is a further sign that spodumene is set to be the major source for lithium feedstock over the next ten years. Piedmont is clearly keen to advance the Ewoyaa project and to receive spodumene concentrates from Ghana to meet commitments to supply Tesla in the US.
*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.
Horizonte Minerals (HZM LN) 143.5p, Mkt Cap £400m –Progress of Araguaia project construction
- Horizonte Minerals reports a pre- and post-tax loss of £2.8m for the six months to 30th June (2022 – loss of £0.9m) as it progresses the initial phase of its Araguaia ferronickel project in Brazil towards initial metal production in Q1 2024.
- The company reports a 30th June cash balance of £138.7m with around 65% of the overall project now complete and “US$329 million has been spent on the Araguaia construction out of the budgeted capital requirement of US$537 million”.
- Feasibility work for the second phase of the project, “which aims to double nickel production from 14,500 tonnes per annum to 29,000 tonnes per annum … [is expected] … to be published later this year”.
- Commenting on operational highlights during the first half of 2023, the company confirms that ore mining has started and that it has taken delivery of the rotary kiln furnace for the process plant.
- Previously Horizonte Minerals has said that the start of mining, following the receipt of the mining permits, has enabled it to start stockpiling ore which we consider should provide a buffer of material once the plant moves into the commissioning phase and mitigate the risk of any unforeseen mining issues.
Conclusion: Horizonte Minerals’ schedule for initial production from Araguaia remains on track to produce its first metal in Q1 2024 with over half of the site construction work now completed. Work on the feasibility of a second process line to double production at Araguaia is expected to be completed later this year.
PYX Resources (PYX LN) 26p, Mkt Cap £114m – Indonesian Government eases export restrictions on ilmenite and rutile
- Following its announcement earlier this month of the expected easing of Indonesian Government restrictions on the export of ilmenite and rutile products, PYX Resources confirms that it has now received the required export licences.
- The LSE Standard List company currently has 8,200t of material available for export via the port of Banjarmasin and confirms that it “is now authorised to:
- extract, produce, and export 24kt of zircon, 20kt of rutile and 50kt of ilmenite; and
- extract and produce other by-products such as SiO2”
- The company, which describes itself as “the world’s third-largest publicly listed zircon producer by zircon resources” explains that its export permissions “stipulate minimum grades for ilmenite TiO2 ≥ 45% and rutile TiO2 ≥ 90% … In line with the Industrial and Trade Department’s regulations”.
- PYX Resources explains that it started “rutile production on 12 January 2022 and ilmenite production on 27 June 2022, has been stockpiling the material” prior to receipt of the export permits.
- Thanking the Indonesian Government for its “continued support … [Chairman & CEO, Oliver Hasler explained that] … Rutile and ilmenite are by-products for PYX, which can significantly increase our revenue and margin levels”.
Sociedad Quimica y Minera de Chile (SQM US) $65, Mkt Cap $18.5bn – Quarterly results hit by lower lithium and potassium prices
- World’s second largest lithium producer SQM reports quarterly results to June 30th.
- SQM saw EBITDA for 1H23 at $1,964m with an adjusted EBITDA margin of 45.5% vs $2,511m for same period last year.
- Net profit at $580m for the quarter, $2/share vs $2.88 expected by analysts.
- Lithium sales rose 26%, whilst prices slid 37% yoy for the quarter.
- Potassium sale volumes fell 30%, whilst average sales prices fell 48%.
- Industrial chemical prices fell 13%, with volumes falling -8%.
- SQM expects global lithium market demand to grow c.20% this year.
- Potash market expected to grow 10% yoy for 2023.
- Iodine sales increasing alongside higher prices.
- SQM contributed $1.7bn to the Chilean treasury over the first half of 2023.
- Production for the year expected at 180-190kt vs 200-210kt previously guided on delays to China refinery.
Conclusion: SQM’s results reflect the 37% decline in lithium prices vs same period last year, with weaker fertiliser product also weighing on revenue. Management notes an improving ‘positive dynamic in lithium market supported by strong EV sales.’ EV sales this year are reported to be stronger than expected in the Europe at 40% growth, with China and US growth both reaching c.50% in Q2 yoy. Lithium carbonate capacity expected to hit 210kt by 2024-end.
Thor Energy (THR LN) 0.23p, Mkt Cap £5.4m – Drilling permits for project in southwest Colorado
- Thor Energy reports that it has received the required permits to drill its uranium licence in the historic Uravan belt of southwestern Colorado and expects drilling to start during September.
- The company plans a 4,000m programme to build on the results of the 2022 drilling campaign and investigate the wholly-owned Wedding Bell and Radium Mountain projects “along strike of the mineralisation at Rim Rock and Groundhog” identified during the work in 2022.
- The new drilling is planned to explore “airborne uranium anomalies, and to continue assessing the underexplored Section 23 area, where drilling in 2022 confirmed the uranium and vanadium prospectivity of the area”.
- Managing Director, Nicole Galloway-Warland explained that ahead of the start of the drilling, “Thor is on the ground actively following up on our identified uranium anomalies from the recently completed magnetic and radiometric surveys. Each anomaly is being mapped, sampled, and ranked for potential drill testing”.
Conclusion: Thor Energy will be starting its 2023 drilling in the Uravan belt during September following up results from the 2022 campaign and on geophysical targets. We await results as the drilling progresses.
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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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