SP Angel Morning View -Today’s Market View, Tuesday 14th May 2024

Anglo moves to refocus group to copper and iron ore to fend off BHP

Copper strengthens as speculators wager on deficits and Chilean truckers suffer banditry

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Accelerated growth strategy unveiled

Asiamet Resources (ARS LN) – Optimisation of heap-leach facility at BKM, Central Kalimantan

Aterian plc* (ATN LN) – Aterian prepare HCK lithium and tantalum pegmatite targets for drilling in Q3

Castillo Copper (CCZ LN) – Exploration plan to extend Queensland MRE

Goldstone Resources* (GRL LN) SUSPENDED – Update on resubscription

Hochschild Mining (HOC LN) – Commercial production at Mara Rosa

Kavango Resources* (KAV LN) – Drilling to start on Kalahari Copperbelt in June

SolGold* (SOLG LN) – Progress on Cascabel financing

Copper strengthens as speculators wager on deficits and Chilean truckers suffer banditry

• Copper prices have held around the $10,200/t mark, having touched $9,973/t yesterday.
• Truckers in Chile are protesting in Santiago over an up-tick in violent crime on the road.
• The metal has now rallied c.20% since January, despite vaiorus indicators of weak current physical demand.
• Traders are speculating using futures that copper will face imminent deficits, with major banks upgrading their forecasts on shortages.

Stellantis discusses potential Indonesian nickel smelter

• Stellantis is reportedly in talks with Vale , China Huayou for a potential investment into a nickel smelter in Indonesia (FT reports).
• The smelter utilises HPAL technology for converting low-grade ore into battery-quality nickel.
• The move reflects automakers’ continued interest into gaining exposure to upstream/midstream assets.

Gold prices weaken before US inflation data as traders take profits ahead of volatility

• Gold prices have held lower levels having $2,346/oz, bouncing off recent levels at $2,370/oz.
• Traders are bracing for volatility in the wake of two key inflation readings from the US, due today and tomorrow.
• Treasury yields, although less tied to gold prices in the current regime, have been sliding following a dovish NFP reading a fortnight ago.
• Treasuries had sold off on several hot inflation readings in Q1, with focus on tomorrow’s CPI for a guide on the Fed’s capacity for rate cuts.

IG TV: Gold and Copper. 10/04/2024: https://youtu.be/KuGSbDqWglk?si=-8iikkOHxbbLSnPZ

Sharepickers TV:  It’s all about copper. 26/04/2024 podcast: https://audioboom.com/posts/8496588-john-meyer-it-s-all-about-copper

         Video: https://www.youtube.com/watch?v=MV9_8K494rY

*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. SP Angel acts as Broker/Nomad or both for Anglo Asian Mining, Kodal Minerals, Power Metals Resources.

 Economics

UK – Payrolled employment down 85k in April, (-0.3%mom)

• Median monthly pay growth at 6.9% yoy, up from 6.4% in march.
• Claimant count up 8.9k vs expectations of 13.9k
• Unemployment up to 4.3% from 4.2% in March.
• Average hourly earnings ex. Bonus at +6%.

China – China has launched an ultra-long bond sale worth CNY1tn

• 12 tranches of 30 year bonds will be sold, in addition to seven tranches of 20 year bonds.
• Funds will be used to support national infrastructure and development initiatives

Currencies

US$1.0787/eur vs 1.0778/eur previous. Yen 156.48/$ vs 155.85/$. SAr 18.435/$ vs 18.352/$. $1.255/gbp vs $1.252/gbp. 0.660/aud vs         0.660/aud. CNY 7.238/$ vs 7.235/$.

Dollar Index 105.27 vs 105.30 previous.

Precious metals:         

Gold US$2,338/oz vs US$2,349/oz previous

Gold ETFs 80.5moz vs 80.5moz previous

Platinum US$1,004/oz vs US$997/oz previous

Palladium US$970/oz vs US$985/oz previous

Silver US$28.32/oz vs US$28/oz previous

Rhodium US$4,725/oz vs US$4,725/oz previous

Base metals:   

Copper US$ 10,207/t vs US$10,096/t previous

Aluminium US$ 2,544/t vs US$2,531/t previous

Nickel US$ 19,130/t vs US$18,995/t previous

Zinc US$ 2,988/t vs US$2,948/t previous

Lead US$ 2,245/t vs US$2,235/t previous

Tin US$ 33,145/t vs US$32,320/t previous

Energy:           

Oil US$83.3/bbl vs US$82.8/bbl previous

Henry Hub Gas US$2.34/mmBtu vs US$2.28/mmBtu yesterday

• European energy prices edged lower with French nuclear reactor operating levels falling 1% w/w to 63% of 61.4MW capacity and Gazprom reporting stable supply of 42.4mcm/d (~1.5bcf/d) via the Ukraine.

Natural Gas €29.5/MWh vs €29.6/MWh previous

Uranium Futures $91.3/lb vs $91.3/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$116.8/t vs US$115.9/t

Chinese steel rebar 25mm US$535.6/t vs US$534.0/t

Thermal coal (1st year forward cif ARA) US$111.0/t vs US$113.3/t

Thermal coal swap Australia FOB US$140.5/t vs US$142.5/t

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

Other:  

Cobalt LME 3m US$27,830/t vs US$27,830/t

NdPr Rare Earth Oxide (China) US$56,440/t vs US$56,118/t

Lithium carbonate 99% (China) US$14,714/t vs US$14,721/t

China Spodumene Li2O 6%min CIF US$1,230/t vs US$1,230/t

Ferro-Manganese European Mn78% min US$972/t vs US$972/t

China Tungsten APT 88.5% FOB US$345/mtu vs US$345/mtu

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

Europe Vanadium Pentoxide 98% 5.1/lb vs US$5.1/lb

Europe Ferro-Vanadium 80% 26.35/kg vs US$26.35/kg

China Ilmenite Concentrate TiO2 US$324/t vs US$324/t

China Rutile Concentrate 95% TiO2 US$1,402/t vs US$1,403/t

Spot CO2 Emissions EUA Price US$68.4/t vs  US$71.1/t

Brazil Potash CFR Granular Spot US$305.0/t vs US$305.0/t

Battery News

Malaysia – EV sales reach 11,000 units in Q1 as government charging targets spur adoption

• According to the Minister of Investment, Trade and Industry, sales of BEVs and PHEVs reached nearly 11,000 units in the first three months of 2024.
• EV sales totalled 13,257 units for the whole of 2023, taking the number of EVs on Malaysian roads to 16,763.
• The Minister also said that 268 new EV charging stations came into operation this year, taking the total to 2,288 charging stations across the country.
• The Malaysian government has a target of 10,000 charging stations in operation by 2025.

Netherlands sees plug-ins near 50% share of new car sales

• Despite a decline in overall car sales, down 4%, April saw plug-in registrations up 11% yoy.
• The increase in sales saw the plug-in EV market reach 47% for the month.

Back and forth between China and US over EVs continues

• China’s EV industry has faced heavy scrutiny, with the US and EU launching investigations into Chinese-made EVs.
• The US investigation has been projected as efforts to promote fair competition and safeguard national security.
• The US claims that China’s EV sector is plagued by overcapacity, and the Chinese government gives unfair subsidies to EV manufacturers.
• An article for China Daily, labels those accusations as “unfounded, divorced from reality and those levelling the accusations [as] overlooking the nature of capacity building inherent in rapidly evolving industries.”
• The article also states that those accusing China of giving unfair price subsidies are failing to acknowledge the market dynamics and technological prowess that underpin China’s competitive edge.
• The article claims Chinese-made EVs are highly cost-effective because of China’s efficient supply chains, technological prowess and market dynamics, rather than subsidies and/or dumping policy.
• A comprehensive analysis by UBS shows that the overall cost of EV-maker BYD’s Dolphin model is 35% lower than that of similar models manufactured by Volkswagen in Europe.

Australia – EVs drive boom in vehicle leasing

• According to fleet manager, FleetPartners, EVs accounted for 63% of new business in its novated leasing sector in March.
• Novated leasing is a finance arrangement where the employer pays for the car lease and car running costs out of the users salary package through a combination of pre-tax and post-tax salary deductions.
• Novated leasing has seen significant growth in Australia, up 81% yoy.
• EVs are driving the growth, with the BYD Atto 3 and Tesla Model Y and Model 3 amongst the most popular.

Company News

Anglo American (AAL LN) 2,646.5, Mkt Cap £36.2bn – Accelerated growth strategy unveiled

• Against the background of overtures from BHP, which it rejected again yesterday as inadequately representing its value, Anglo American has published the findings of its asset review, initiated in 2023, describing its accelerated strategy for growth.
• Describing “strategic priorities of operational excellence, portfolio simplification, and growth” Anglo American envisages a “simpler portfolio of world-class assets” built around:
  • Copper – including “3 of the top 10 producing copper mines in South America” at Quellaveco, Los Bronces and Collahusai; and
  • Premium Iron Ore production with a focus on material “suited to support steel decarbonisation”; and
  • Crop nutrients where development of the Woodsmith polyhalite project in the UK is being slowed “to support Anglo American’s balance sheet deleveraging, with capex for critical studies and other activities expected to total $200 million in 2025 and no capex in 2026” and where it “will complete critical technical studies in 2025 … to then support syndication”.
• The decision to slow down the Woodsmith project to conserve capital and continue technical studies seems prudent and we suspect that, with its existing commitment to the Jansen potash project, a successful acquisition by BHP would tempt it to suspend further development of Woodsmith on a long term basis.
• As part of the streamlining of the portfolio, Anglo American plans to divest its steelmaking coal business; consider mothballing or divesting its nickel operations; demerge the platinum operations; and progress the De Beers“sales agreement with the Government of the Republic of Botswana”, with the asset also to be divested or demerged.
• Today’s announcement says that the “simplification of the portfolio stands to accelerate – and step up – value delivery exclusively for Anglo American shareholders”.  We interpret the use of the term ‘exclusively’ as a warning to its shareholders not to allow BHP (or presumably any other predator which may emerge) to capture the benefits currently accruing solely to them.
• Anglo American describes benefits of its strategy including organic growth to over 1mtpa of copper production by the early 2030sas well as “EBITDA margin increases from 31% to 46% on a 2023 pro forma basis”.
• Anglo American says that its strategy delivers “$1.7 billion lower cost … [including] … an additional $0.8 billion of cost out from the end of 2025 … [with] … additional reductions in operating expenditure; reduced corporate initiatives and other funding commitments”.
• Citing is delivery of the Quellveco project within time and budget during the Covid19 pandemic and its specific expertise in South America and southern Africa, Anglo American highlights its project delivery capacity to implement its growth strategy.
• Acknowledging that the restructuring of its business “may create uncertainty for Anglo American’s workforce” today’s announcement asserts that they expect “the changes to present numerous opportunities for Anglo American’s workforce, particularly in relation to the acceleration of Anglo American’s strategy and the differentiated skills and capabilities required to deliver that strategy”.
• The company confirms its intention “to take steps to retain the skills and talent required to deliver Anglo American’s full potential”.

Conclusion: Anglo American’s growth strategy paints a picture of a rosy future but, with BHP and, potentially other predators, in the offing it could be too late to preserve its long independence unless it can convince its shareholders that an independent Anglo American offers them more than the shorter term sell-out.

Asiamet Resources (ARS LN) – 1.28p, mkt cap £32.4m – Optimisation of heap-leach facility at BKM, Central Kalimantan

1. Asiamet Resources reports that optimisation of its 2023 Feasibility Study for the BKM project has yielded meaningful reductions in the volume of earthworks required for the heap leach facility (HLF) by phasing the work over two stages.
2. “The overall bulk earthworks volumes for the new pad are less than half that of the 2023 design … with the first stage development to enter production delivering a bulk earthworks volume of approximately one-third of that required for the 2023 FS design”.
3. The company explains that the “HLF is the single largest capital cost item in the 2023 Feasibility Study (“FS”) and is the critical path activity for project construction”.
4. Today’s announcement does not quantify the magnitude of any cost savings, saying that “the considerable reduction in bulk earthworks to achieve first production results in a substantial decrease in the upfront capital cost”.
5. The Feasibility Study said that the Heap Leach represented US$$31.7m of the total US$$145.9m direct cost of the project.
6. CEO, Darryn McClelland, explained that Asiamet Resources “can now pursue development of a smaller, initial stage heap leach facility to get into production and defer capex to later in the project life … [as well as delivering] … lower construction risk compared to our original project design”.

Conclusion: Phased development of the BKM heap-leach facility expected to reduce required volume of earthmoving and lower execution risk for the largest capital cost component of the project.

Aterian plc* (ATN LN) 0.64p, Mkt Cap £7m – Aterian prepare HCK lithium and tantalum pegmatite targets for drilling in Q3

(Rio Tinto jv has the option to invest US$7.5m in two stages to earn up to 75% in the HCK lithium and tantalum hard rock prospect in Rwanda)

(Aterian holds a 70% interest in Kinunga Mining Limited which holds the HCK licence  alongside HCK Mining Company Limited which has a 30% interest.

• Aterian highlight work done on their HCK Prospect in the Republic of Rwanda in jv with Rio Tinto.
• The team have been busy planning a new drill programme at HCK with drilling due to start in Q3 as directed by the geological interpretation of the collected data.
• Early stage exploration using soil sampling with mechanical augers has generated a series of new targets over the main HCK-1 pegmatite with some other, new, areas of interest on the licence.
• A new ground magnetic survey lends supporting indications on the pegmatite structures lying below.
• Contractors are being prepped to improve site access and drill pad construction.
• Assays from Rio Tinto’s field team work including  277 rock chip surface samples are due to help focus on 10 priority areas.
• Aterian recently raised £500,000 in equity to support its work in Morocco, Botswana and Rwanda
• The company also sold an effective 1.25% out of their 2% NSR Royalty over the HCK Project to Elemental Altus for a £200,000
• Rio Tinto have the option to invest US$7.5m in two stages to earn up to a 75% interest in the licence.
  • Stage 1 exploration expenditures of US$3m over two years to earn a 51% interest in the Licence.
  • Stage 2 exploration expenditures of US$4.5m for the following three years to earn a further 24% interest in the licence.
• Rio Tinto are also contributing cash of US$300,000 over Stage 1 and Stage 2.

Conclusion:  Rio Tinto are making steady progress on the HCK prospects in Rwanda through methodical geological data collection and analysis. We hope this will lead to a successful drilling program in Q3.

*SP Angel acts as Broker to Aterian Plc

Castillo Copper (CCZ LN) 0.3p, Mkt Cap £3.3m – Exploration plan to extend Queensland MRE

• Castillo Copper reports that, when it has received the relevant approvals, it plans a programme of soil and rock-chip sampling over an area north of the existing 2.1mt mineral resource averaging 1.1% copper at its ‘Big One’ project in the Mt Isa belt of northwest Queensland.
• The company explains that the current resource estimate “was modelled from historic data and three drilling campaigns across 2020-21” and the new exploration is expected to assist the company’s geologists “to formulate a drilling campaign to test key targets and extend known mineralisation … where there is a sizeable, untested bedrock conductor”.

Conclusion: The Mt Isa mineral belt is well established as a host for copper mineralisation. We await results from the latest phase of exploration at the ‘Big One’ prospect with interest.

 Goldstone Resources* (GRL LN) SUSPENDED – Update on resubscription

• The Company notes that it has extended its timeline for Subscription to enable the completion of transfer of funds from certain subscribers.
• All funds are expected to be received no later than 17^th May 2024.
• Shares will likely be admitted to AIM on or around the 20^th May 2024, suspension will be lifted on the same day.

*SP Angel acts as broker to Goldstone Resources

Hochschild Mining (HOC LN) 158.6p, Mkt Cap £817m – Commercial production at Mara Rosa

• Precious metal miner Hochschild reports it started commercial production at Mara Rosa in Brazil.
• The processing plant this month has operated at an average throughput of 7,000tpd (90% of nameplate).
• Recoveries have averaged over 80%.
• Ramp up is expected to be complete in H1, with gold production expected at 83-93koz this year.
• Hochschild are boosting their exposure to Brazil, having recently secured an option to buy the Monte do Carmo project in Tocantins.

Kavango Resources* (KAV LN) 1.3p, Mkt Cap £17m – Drilling to start on Kalahari Copperbelt in June

• Kavango Resources has signed a drilling contract for phase 1 of its drilling campaign at Karakubis, in western Botswana.
• The Company will drill 5,000m of diamond drilling over 10-15 holes next month.
• Drilling will target anomalies identified through historic AEM and IP surveys.
• One rig will start with two expected to be introduced as the campaign progresses.

*An SP Angel Analyst holds shares in Kavango

SolGold* (SOLG LN) 8.95p, Mkt Cap £268m – Progress on Cascabel financing

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• Solgold has announced that it is in discussion with potential financiers for the development of its US$1.55bn Cascabel copper/gold project in Ecuador.
• Earlier this year, Solgold released details of its pre-feasibility study describing an underground block-caving operation with an initial 28-year mine life generating an after-tax NPV_8% of US$3.2bn and IRR of 24% from the production of an average of 123,000tpa of copper, 277,000ozpa of gold and 794,000ozpa of silver.
• Following a two-year ramp-up, the new, phased, mine plan builds to producing 12mtpa of high-grade ore averaging 1.5% on a copper equivalent basis with a doubling of the production rate to 24mtpa in year 6.
• Costs, on a net basis after precious metals by-product credits, were estimated to average US$0.25/lb with life-of-mine costs on an all-in-sustaining (AISC) basis of US$0.69/lb and the project is expected to require a further US$2.57bn of sustaining capital during its life.
• The planned mine is based on a ‘Proven and Probable’ ore reserve of ~540mt at an average grade of 0.60% copper, 0.54g/t gold and 1.6g/t silver containing 3.2mt of contained copper, 9.4moz of gold and 28moz of silver with 85% of the reserve tonnage falling within the high-confidence, ‘Proven’ classification of the CIM reporting codes.
• The ore reserves are contained within 3.01bn tonnes of ‘Measured and Indicated’ resources at an average grade of 0.35% copper, 0.28g/t gold and 0.94g/t silver (reported as 0.52% on a copper equivalent basis).
• Today, the company also reports that it has secured a US$10m loan facility “to support the Company’s ongoing operations … [and] … give SolGold the flexibility required as we aim to finalize the more comprehensive Financing arrangement”.
• CFO, Chris Stackhouse, said that the progress on the financing is “significant for SolGold as we continue to establish the financial foundations necessary for the next phases of the Cascabel Project”.
• While cautioning that “the completion of a transaction remains subject to negotiation” and cannot be guaranteed, he said that the “strong interest from potential financiers not only validates the Project’s exceptional prospects but also strengthens our capability to achieve planned milestones”.
• The pre-feasibility work, published in February, captured capital cost savings of ~US$1.2bn compared with previous studies by phasing the project development and delivering an enhancement of ~10% in project NPV which we imagine will have made the funding more attractive to potential financiers.

Conclusion: Solgold is advancing financing discussions for its Cascabel project in Ecuador. Optimisation of the technical profile of the project, released earlier this year, generated improved economic returns and lower pre-production capital requirements which we expect to enhance the interest of project financiers.

*SP Angel acts as broker to Solgold

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 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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