SP Angel Morning View -Today’s Market View, Thursday 23rd November 2023

Iron ore prices hit $135/t despite Beijing’s intervention attempts

MiFID II exempt information – see disclaimer below

Adventus Mining (ADZN CN) C$0.37, Mkt Cap C$66m – Adventus and Luminex merge to support Ecuadorian copper-gold developments

Ionic Rare Earths (IXR AU) A$0.02, Mkt Cap A$83m – Positive drilling results from the ongoing infill and step out programme

Libero Copper (LBC CN) C$0.025, Mkt Cap C$3.7m – Rights issue to raise C$2.5m

Neometals Ltd (NMT LN) 10.2p Mkt cap £60m – A$9m placement for Primonius LiB recycling and R&D activities

Iron ore prices hit $135/t despite Beijing’s intervention attempts as Australian exports disappoint

• Iron ore prices have climbed to $135/t, their highest point since March.
• Beijing officials are trying their best to crack down on the rally, with the NDRC forcing a short-lived 3.4% slide
• Tangshan steel mills are delaying maintenance works as steel prices climb.
• Chinese steel giants are raising prices, with Baosteel and Shagang hiking prices by c.$15/t for HRC and between $50-100/t for more premium products.
• HRC prices in China have risen to c.$540/t, however with steel margin negative margins closing closer to breakeven at -$28/t.
• Rebar margins have closed to -$9/t from -$20/t last week.
• Inventories are shrinking as domestic demand picks up on improving steel economics.
• Iron ore inventories are sitting at <18 days consumption vs historical averages of 25 days.
• US rebar prices are strengthening to $920/t.
• Brazil is ramping up exports, nearly 10% above October’s daily average.
• Australian exports are weak, down nearly 10% weak on weak at 16.3mt.
• We suggest that steelmakers may be front running an announcement from Beijing of the much reported $137bn in financing for urban village stimulus measures.
• Steelmaker price hikes highlight strengthening demand, whilst planned maintenance periods in Tangshan are also supporting prices.
• Excavator sales rose in 9% October, although remain down 40% yoy, partly explained by emission standards forcing replacements.
• Interestingly, Mysteel reports that coking coal imports fell 26% mom in October, although this was from elevated levels.

Conclusion: Iron ore prices have presented a confusing picture in recent weeks given the muted Chinese construction sector, negative steel mill margins and strong exports from Brazil. We expect Chinese officials are pressuring steelmakers to ramp up output in preparation for long-awaited stimulus for the property sector. This is expected to be c. $140bn worth of financing for urban village development. Weaker seasonal output from Australia is providing some support on the supply side. Rising prices are taking the pressure of money-losing steel mills, supporting a ramp up in iron ore buying, with iron ore sintering fine purchases climbing 2% this week. We are not sure how long this period of restocking will last, but the windfalls will be enjoyed in the Pilbara and Brazil.

Lithium prices continue to fall as analysts look for end of destocking

• LCE prices fell to $17.3k/t and spodumene prices hit the $1500s/t.
• Prices have shed 75% from their elevated levels earlier this year.
• Analysts are noting a supply glut currently, with end user demand weak following a period of inventory building.
• SQM hinted that the trend could continue through the end of the year, however Albemarle notes that some marginal producers are cutting output.
• Downstream cathode producers are reining in spot buying, hitting the price on the screen.
• SMM notes an 85% increase in LCE exports yoy from Chile to China in October.
• Energy storage demand is weak.
• Chinese recyclers are cutting production on thin margins.
• We anticipate the continued decline in spot prices to hit higher-cost Chinese lepidolite producers first, providing some respite from oversupply.

Copper prices hold gains despite producers slashing 2024 China premiums

• Copper prices have strengthened to $8,434/t.
• The move comes as Chinese imports ramp up in anticipation of a fresh wave of Beijing’s stimulus.
• However, 2024 is seeing producers cut premiums to Chinese buyers, suggesting demand is expected to be weaker on improved supply from the likes of Kamoa Kakula.
• Refined Japanese producer PPC has asked for premiums from Chinese buyers of $88/t, vs this year’s $95-100/t.
• Kazakhmys slashed premiums to Chinese traders down to $65/t and $80/t.
• A weaker dollar is boosting short-term buying, with the stronger CNY boosting traders appetite for domestic products.
• Contango persists across future curves, however, suggesting demand remains weak for physical copper.
• Fitch has slashed Codelco’s credit rating to BBB+ from A on increased spending requirements as grade decline accelerates, raising costs and hitting margins.
• Codelco is shelling out $720m in additional CAPEX for Chuquicamata.

Economics

US – US markets are closed today as the nation celebrates Thanksgiving.

• Yields climbed yesterday and the US$ gained slightly as weekly jobless claims declined by the most since June.
• Additionally, a separate report showed a pick up in inflation expectations to 4.5% over the next year, up from 4.4% expected earlier in the month.
• “Consumers appear worried that the softening of inflation could reverse in the months and years ahead,” authors of the survey at the University of Michigan said.

China – Authorities are considering allowing banks to offer unsecured short term loans to qualified borrowers for the first time in an effort to shore up the property sector.

• Lenders may be allowed to provide so called working capital loans to some developers,. Bloomberg cited people familiar with discussions.
• The government is finalising a draft list of 50 developers eligible for financial support.
• Nomura estimated earlier that a potential funding gap of 3.2tn yuan ($446bn) required to complete the remaining housing units.
• Separately, Zhongzhi Enterprise Group, one of the nation’s largest private wealth managers, warned investors of a $30bn hole, Bloomberg reports.
• “Preliminary due diligence shows the group has endured a significant risk of sustainable business operation and the company doesn’t have sufficient assets to cover debt in the short term,” the firm said in the letter sent to investors.
• The Company was widely featured in the press in August after one of its trust company affiliates failed to make payments to customers on high yield investment products.
• The Company engaged KPMG to conduct an audit of its balance sheet for a potential debt restructuring.

Eurozone – The region recorded a sixth consecutive monthly drop in business activity with both manufacturing and services sectors remaining in contraction through November.

• Firms reported another fall in new orders that translated into companies reducing their staff levels.
• The fall in employment was the first in just under three years, but only marginal.
• Interestingly, the rate of inflation picked up ion November led by gains in the services sector where price gains reached a three month high.
• Manufacturing PMI: 43.8 v 43.1 October and 43.5 est.
• Services PMI: 48.2 v 47.8 October and 48.1 est.
• Composite PMI: 47.1 v 46.5 October and 46.8 est.

Germany

• Manufacturing PMI: 42.3 v 40.8 October and 41.2 est.
• Services PMI: 48.7 v 48.2 October and 48.5 est.
• Composite PMI: 47.1 v 45.9 October and 46.3 est.

France

• Manufacturing PMI: 42.6 v 42.8 October and 43.3 est.
• Services PMI: 45.3 v 45.2 October and 45.5 est.
• Composite PMI: 44.5 v 44.6 October and 44.9 est.

UK – The pound is up this morning helped by better-than-expected preliminary PMI numbers as growth in services sectors helps to stabilise UK economy.

• While headline numbers came ahead of estimates with a contraction in the manufacturing sector slowing while services sector posting a marginal expansion, outlook remains dim.
• New orders pulled back for the fifth consecutive month, albeit only marginally and at the slowest pace since July.
• Export market offered little support with overseas orders falling in both manufacturing and service sectors.
• Inflation picked up to the strongest in four months largely driven by the services sector.
• Total employment was broadly unchanged.
• Manufacturing PMI: 46.7 v 45.0 October and 44.8 est.
• Services PMI: 50.5 v 49.5 October and 49.5 est.
• Composite PMI: 50.1 v 48.7 October and 48.7 est.

Currencies

US$1.0924/eur vs 1.0899/eur previous. Yen 149.07/$ vs 149.18/$. SAr 18.771/$ vs 18.746/$. $1.253/gbp vs $1.252/gbp. 0.657/aud vs         0.653/aud. CNY 7.139/$ vs 7.149/$.

Dollar Index 103.66 vs 103.71 previous.

Commodity News

Global EV sales continue to grow to despite market concerns

• In a recent report from the World Resource Institute (WRI) it highlights that EV passenger sales at an average annual rate of 65%.
• China continues to lead the way in EV uptake, despite the end of government subsidies in December last year.
• New car sales in the European Union climbed 14.6% in October, with EVs seeing a 36% growth.
• The European Automobile Manufacturers Association (ACEA) reported a 36.3% yoy increase in fully electric sales and hybrid vehicles saw a 39% increase.
• Turkey is expected to see annual growth of around 61% until 2032 which would see passenger EVs account for 30% of the market.

Chinese sodium battery maker Zoolnasm begins construction of its 1st production base

• The planned annual capacity of Zoolnasm’s manufacturing facility includes 20GWh of sodium-ion battery cells and 10GWh of sodium-ion battery systems.
• The plant in Anhui province will be the world’s first mass production base for polyanionic sodium iron sulphate sodium-ion batteries, it said.
• Sodium-ion batteries are a promising alternative to lithium-ion batteries, offering better charging times, longer potential lifecycle as well as being cheaper to manufacture.
• Sodium-ion battery manufacturing will need to overcome challenges before it can be widely adopted as a replacement for lithium-ion batteries, particularly the lack of supply chain.

Precious metals:

Gold US$1,995/oz vs US$2,002/oz previous

Gold ETFs 86.7moz vs 86.7moz previous

Platinum US$927/oz vs US$938/oz previous

Palladium US$1,058/oz vs US$1,073/oz previous

Silver US$23.69/oz vs US$24/oz previous

Rhodium US$4,350/oz vs US$4,350/oz previous

Base metals:

Copper US$ 8,423/t vs US$8,406/t previous

Aluminium US$ 2,227/t vs US$2,234/t previous

Nickel US$ 16,350/t vs US$16,675/t previous

Zinc US$ 2,538/t vs US$2,503/t previous

Lead US$ 2,230/t vs US$2,263/t previous

Tin US$ 24,115/t vs US$24,665/t previous

Energy:

Oil US$81.2/bbl vs US$82.6/bbl previous

Natural Gas €45.000/MWh vs €44.250/MWh previous

Uranium UXC US$80/lb vs US$73.65/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$135.6/t vs US$133.8/t

Chinese steel rebar 25mm US$569.1/t vs US$566.5/t

Thermal coal (1st year forward cif ARA) US$111.0/t vs US$108.6/t

Thermal coal swap Australia FOB US$127.5/t vs US$123.5/t

Coking coal swap Australia FOB US$326.0/t vs US$326.0/t

Other:  

Cobalt LME 3m US$33,420/t vs US$33,420/t

NdPr Rare Earth Oxide (China) US$69,060/t vs US$69,102/t

Lithium carbonate 99% (China) US$17,300/t vs US$17,695/t

China Spodumene Li2O 6%min CIF US$1,580/t vs US$1,610/t

Ferro-Manganese European Mn78% min US$1,052/t vs US$1,050/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$620/t vs US$620/t

Europe Vanadium Pentoxide 98% 6.1/lb vs US$6.1/lb

Europe Ferro-Vanadium 80% 25.75/kg vs US$26.05/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$315/t

Spot CO2 Emissions EUA Price US$81.0/t vs US$85.7/t

Brazil Potash CFR Granular Spot US$325.0/t vs US$330.0/t

Company News

Adventus Mining (ADZN CN) C$0.37, Mkt Cap C$66m – Adventus and Luminex merge to support Ecuadorian copper-gold developments

• Adventus Mining has agreed to acquire the issued and outstanding common shares of Luminex.
• Luminex shareholders will receive 0.67 of an Adventus share for each held.
• The deal was backed by Altius Minerals, Ross Beaty and Wheaton Precious Metals, the latter two providing US$17m of financing through a private placement.
• The pro forma market enterprise value will stand at C$109m.
• The combined entity will focus on the development of the El Domo Project, with a feasibility study targeting production of 102koz AuEq pa at an AISC of $820/oz AuEq.
• The project holds 6.6mt at 1.93% Cu and 2.52g/t Au mostly between 40-80m from surface.
• The pro forma entity will also look to progress the Condor copper-gold project, which holds a PEA suggesting a 12-year LOM and indicated and inferred gold ounces of 2.3moz and 4.2moz respectively.
• Condor neighbours the Lundin Gold Fruta del Norte project.
• Management suggests the deal will save c.$2mpa through ‘synergies’ and add ‘liquidity and a greater following’ whilst supporting the development of El Domo.

Ionic Rare Earths (IXR AU) A$0.02, Mkt Cap A$83m – Positive drilling results from the ongoing infill and step out programme

• The Company released initial results for 56 holes of the 128-hole Phase 5 drilling programme at the Makuutu Heavy Rare Earths Project in Uganda.
• Selected drilling results included:

• • 9.9 metres at 1,163 ppm TREO from 4.2 metres in RRMDD767
  • 6.7 metres at 1,008 ppm TREO from 9.5 metres in RRMDD713
  • 2.7 metres at 977 ppm TREO from 4.4 metres in RRMDD734
  • 9.9 metres at 952 ppm TREO from 3.9 metres in RRMDD712
  • 7.3 metres at 828 ppm TREO from 4.8 metres in RRMDD724
  • 6.8 metres at 792 ppm TREO from 5.3 metres in RRMDD758
  • 21.8 metres at 783 ppm TREO from 4.7 metres in RRMDD762
• Infill drilling returned thicker and higher grade intersections compared to previous wider spaced drilling.
• Resource extension drilling confirmed extensions at least 1.8km west of current mineral resource limit of one of license areas.
• The programme is designed to infill the existing inferred resource in areas A and B as well as test extensions of existing mineralised areas.

Libero Copper (LBC CN) C$0.025, Mkt Cap C$3.7m – Rights issue to raise C$2.5m

Anglo Asian Mining* (AAZ LN) holds ~21m shares and ~12m warrants accounting for ~17% interest in LBC

• The Company launched a C$2.5m rights issue at C$0.02 per share.
• Record date is set at December 1 with unexercised rights to expire December 27.
• Funds are planned to be directed towards exploration in Columbia and Argentina and general corporate purposes.

*SP Angel acts as Nomad and Broker to Anglo Asian Mining

Neometals Ltd (NMT LN) 10.2p Mkt cap £60m – A$9m placement for Primonius LiB recycling and R&D activities

• Lithium recycling developer Neometals has raised A$9m through an equity placing for the advancement of its various projects.
• The placement represents c. 8.6% of the existing issued share capital.
• The Company will also execute a 1 for 8 pro rate entitlement offer to eligible shareholders.
• Neometals will use the funds to develop the Primobius LiB recycling project, its lithium chemical R&D and its vanadium/titanium business units.

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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