SP Angel Morning View -Today’s Market View, Tuesday 16th January 2023

Metal prices rangebound as market digests impact of Red Sea attacks

MiFID II exempt information – see disclaimer below

Bradda Head (BHL LN) – Lithium in spodumene intercepted at San Domingo Pegmatite Project

Bushveld Minerals* (BMN LN) – SPR equity investment update

First Quantum (FM CN) – Update as CAPEX slashed and asset sales considered amid Panama disruption

Petra Diamonds (PDL LN) – Resumption of production at Williamson helps to keep full year on track to meet the lower end of the production guidance range

Rio Tinto (RIO LN) – Production guidance achieved in 2023 with increased copper and iron-ore output expected in 2024

Tertiary Minerals* (TYM LN) – BUY – Audited annual results

Automakers halt production in Europe at some factories while others seek alternatives due to Red Sea attacks

• Following attacks on shipping vessels by Houthi militants in support of Hamas, shipping companies have been having to use alternative routes.
• Major container ship owners such as Maersk and Hapag-Lloyd have switched Suez Canal-bound ships to the longer route around Africa’s Cape of Good Hope – the longer route adds approx. $2m in fuel to each journey.
• Tesla will suspend most production at its Berlin Gigafactory due to these changes in transport routes.
• The EV maker will suspend production between 29^th Jan and 11^th Feb.
• Volvo will also pause production after the attacks on freight vessels have disrupted component deliveries from Asia.
• Stellantis has announced that is relying on air freight for the time being to cope with the interruptions.
• Other automakers like VW and BMW are in close coordination with shipping and logistics partners to monitor the situation but have yet to experience any significant delays.

Gold prices cool as yields climb following US holiday

• Gold prices weakened below $2,040/oz in the spot market after a rally in the dollar.
• The dollar index has climbed back to 103 having hit lows below 101 around the New Year.
• 10-year yields have strengthened above 4%, weighing on gold and supporting the dollar.
• The market continues to expect a rate cut in March, and the weight of these expectations will continue to impact gold prices.

Nickel prices continue to struggle as Indonesia sees output rising 5-10% yoy in 2024

• Nickel prices are hovering around $16,200/t, weighing on miner margins.
• Indonesia, which has ramped up nickel substantially following the roll-out of HPAL for its laterite operations, expects to increase ore production by 5% to10% this year.

Economics

Markets normally get off to a flying start in January – but this year markets are dominated by a series of disruptive events

• US: The Fed is threatening to hold back expected interest rate cuts. This seems to be holding a strong US dollar and while dampening US-dollar denominated commodity prices.
• US election issues are creating some uncertainty though, Trump changed much less than his strong rhetoric would suggest.
• China: China continues to bail out property developers and local municipalities through a variety of schemes.
• The collapse of shadow banking giant Zhongzhi Enterprise Group into bankruptcy which oversaw >$140bn of assets at its peak and now has around $39bn of debt is a major issue.
• Japan: The BoJ is expected to start to tighten its ultra loose monetary policy, but when will this happen?
• Europe: The war in Ukraine dominates the agenda with Europe continuing to suffer the impact of higher energy prices and lower business and consumer confidence.
• Many automakers are slowing or halting factories on supply chain disruption from Asia caused by Houthi missiles into the Red Sea. Container shipping is rerouting round South Africa adding an extra 10-16 days to the journey and around an extra $2m per journey. This means that ships are losing around 20-30 days per round trip due to the effective closure of the Res Sea / Suez.
• Ending the war in Ukraine should spark a substantial rebound in confidence in most if not all European economies despite the fact that, higher energy prices and interruptions to logistics chains remain.

US – Donald Trump wins first Republican primaries held in Iowa securing 51% of cast votes compared to 21% for DeSantis and 19% for Haley, according to preliminary results (99% of votes tallied).

• New Hampshire will be the next one for Republican presidential race contestants with the vote scheduled for January 23.
• Fed Governor Christopher Waller will give a speech on the economic outlook later today (4pm GMT) with markets to watch closely for rate outlook comments.

China – The government is considering a fiscal stimulus through an issue of CNY 1tn ($139bn) in long special sovereign bonds.

• Proceeds are expected to be directed to food, energy, supply chains and urbanisation.
• Last time similar tool was used was in 2020 when authorities issued 1tn yuan to pay for pandemic response measures.

Japan – PPI slowed to 0.0% yoy in December from 0.3% yoy in November due to cuts in subsidies

• This is the lowest PPI reading since -0.9% yoy decline in February 2021.
• The subsidies cut the wholesale inflation rate by approximately 0.9%
• Export price index rose to 1.1% yoy from 1.0% yoy.
• Import price index climbed to -9.5% yoy from -10.1% yoy.

Eurozone – Goods exports fell -4.7% yoy to EUR 252.5bn in November

• Imports fell -16.7% yoy
• €20.3bn goods trade surplus was recorded.
• Intra-Eurozone trade fell -9.4% yoy to €227.2B.
• Seasonally adjusted goods exports rose 1.0% mom to €236.8bn.
• Seasonally adjusted goods imports fell -0.6% mom to € 222.1bn.
• Seasonally adjusted trade surplus grew to €11.1bn to €14.8bn someway above expectations for €11.2bn..

ECB – “We should not bank on the rate cut at all for 2024,” Governing Council member Robert Holzmann said n an interview at Davos.

• Holzmann mentioned lingering inflation and geopolitical risks.
• Monetary authorities have been pushing against market expectations for early rate cuts arguing that it is “much too early” to discuss easing.
• Investors are currently pricing in six 25bp cuts starting in April, while economists anticipate a first of four cuts in June, Bloomberg writes.

UK – Weaker than expected employment numbers see the pound falling against the US$.

• The economy lost 24k jobs in December, although November numbers were revised higher from a 13k drop to a 9k gain.
• In a welcome set of data for the monetary authorities, wage growth continued to slow down in three months to November.
• Key inflation data is out tomorrow with expectations for headline and core annual rates to continue to drift lower.
• Jobless Claims Change: 11.7k v 0.6k (revised from 16.0k) November;
• Payrolls Change: -24k v 9k (revised from -13k) November and -13k est.
• Weekly Earnings (3M yoy%): 6.5% v 7.2 October and 6.8 est.
• Weekly Earnings ex Bonus (3M yoy%): 6.6 v 7.2 (revised from 7.3) October and 6.6 est.

Currencies

US$1.0919/eur vs 1.0958/eur previous. Yen 146.09/$ vs 145.37/$. SAr 18.821/$ vs 18.643/$. $1.267/gbp vs $1.275/gbp. 0.663/aud vs         0.667/aud. CNY 7.183/$ vs 7.172/$.

Dollar Index 102.98 vs 102.44 previous.

Commodity News

Precious metals:

Gold US$2,049/oz vs US$2,058/oz previous

Gold ETFs 84.6moz vs 84.6moz previous

Platinum US$911/oz vs US$918/oz previous

Palladium US$968/oz vs US$989/oz previous

Silver US$23.15/oz vs US$23/oz previous

Rhodium US$4,500/oz vs US$4,450/oz previous

Base metals:

Copper US$ 8,384/t vs US$8,334/t previous

Aluminium US$ 2,213/t vs US$2,208/t previous

Nickel US$ 16,150/t vs US$16,240/t previous

Zinc US$ 2,558/t vs US$2,538/t previous

Lead US$ 2,109/t vs US$2,095/t previous

Tin US$ 24,785/t vs US$24,700/t previous

Energy:

Oil US$78.1/bbl vs US$78.3/bbl previous

• Crude oil prices edged higher as growing tensions in the Red Sea led to more reports of tanker diversions.
• Media reported that Algeria increased gas exports to Europe by 6% y/y to 52.4bcm of gas in 2023, driven by an increase in LNG exports to 14.9bcm, which is just over 50% of the country’s domestic production.

Natural Gas €29.4/MWh vs €30.4/MWh previous

Uranium UXC US$92.50/lb vs US$92.50/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$129.2/t vs US$129.2/t

Chinese steel rebar 25mm US$574.2/t vs US$575.3/t

Thermal coal (1st year forward cif ARA) US$103.5/t vs US$104.0/t

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

Coking coal swap Australia FOB US$317.0/t vs US$317.0/t

Other:

Cobalt LME 3m US$29,135/t vs US$29,135/t

NdPr Rare Earth Oxide (China) US$55,758/t vs US$55,631/t

Lithium carbonate 99% (China) US$12,043/t vs US$12,060/t

China Spodumene Li2O 6%min CIF US$1,000/t vs US$1,000/t

Ferro-Manganese European Mn78% min US$1,064/t vs US$1,068/t

China Tungsten APT 88.5% FOB US$305/mtu vs US$305/mtu

China Graphite Flake -194 FOB US$600/t vs US$600/t

Europe Vanadium Pentoxide 98% 6.0/lb vs US$6.0/lb

Europe Ferro-Vanadium 80% 28.75/kg vs US$28.75/kg

China Ilmenite Concentrate TiO2 US$317/t vs US$317/t

Spot CO2 Emissions EUA Price US$70.8/t vs US$76.0/t

Brazil Potash CFR Granular Spot US$295.0/t vs US$295.0/t

Battery News

CATL to build new battery plant to strengthen China’s EV ambitions

• According to Beijing’s city planner, the battery maker will build a new plant in the capital.
• Fujian-based CATL has 13 manufacturing bases globally, including 11 in China, according to its website.
• CATL were the number one battery supplier globally, based on capacity installed, holding a 37.4% market share from the first 11 months of 2023.
• NEV sales in China soared 33.5% yoy to 8.3m vehicles, according to data from the China Association of Automobile Manufacturers and that figure is predicted to continue to grow, albeit at a slower rate.

BMW sales growth passes combustion-engine ‘tipping point’ says CFO

• EVs made up 15% of BMW’s overall sales last year and the automaker is targeting a sales share of 33% by 2026.
• “The current sales plateau for combustion cars will continue and then fall slightly,” CFO Walter Mertl has predicted, pointing to looming environmental regulation that will restrict sales of such vehicles.

BYD’s first purpose-built car carrier sets sail

• The vessel, BYD Explorer No. 1, has loaded vehicles and set sail to Europe, marking a new stage to BYD’s overseas expansion.
• BYD Explorer No. 1 has 7000 parking spaces and is the first of seven such vessels that BYD expect to have operational by the end of 2026.
• The company sold 36,095 NEVs overseas in December, giving it 242,765 overseas NEV sales in 2023, roughly a five-fold increase from 2022.
• The new shipping vessels will allow the company to expand its overseas sales further.

Company News

Bradda Head (BHL LN) 1.7p, Mkt Cap £6m – Lithium in spodumene intercepted at San Domingo Pegmatite Project

• Bradda Head provide an update on its recent drilling programme at its San Domingo Pegmatite project in Arizona.
• The Company has drilled 5,777m and this is the second of three sets of assays.
• Highlights include:
  • SD-DH23-069: 7.28m at 1.27% li2O from 27m depth.
  • SD-DH23-072: 5.18m at 0.88% Li2O from 24m.
  • SD-DH23-081: 2.17m at 0.58% Li2O from 110m.
  • SD-DH23-083: 5m at 0.49% Li2O from 28m.
• A previous intercept at the Jumbo target intercepted 9.54m at 1.85% Li2O.
• The Company notes that spodumene has been observed as the dominant lithium mineral, alongside minor amounts of lepidolite.
• Coarser spodumene crystals over 20cm has been noted to be dominant at San Domingo.
• Management believes ‘the shallow nature of mineralisation is a compelling argument for continued exploration.’

Bushveld Minerals* (BMN LN) 1.4p, Mkt Cap £33m – SPR equity investment update

• SPR $12.5m equity investment remains outstanding.
• SPR reiterated that the funds will be forthcoming having been delayed by administrative, procedural and holiday period delays.
• Bushveld had to suspend certain operational activities constraining production as well as defer creditor payments as part of initiatives to manage working capital while waiting for funds to clear through.
• The Company warned of a risk of additional suspensions should payment get further delayed.

Conclusion: Delay to SPR funds is unfortunate affecting working capital and operations at the time of low vanadium prices and Orion convertible loan note refinancing. We highlight that SPR previously provided a R150m working capital facility as part of its strategic investment announced in Sep/23 which the Company has drawn upon. We have suspended our valuation and recommendation until SPR funds come through.

*SP Angel act as nomad and broker to Bushveld Minerals

First Quantum (FM CN) C$13.4, Mkt cap C$14.2bn – Update as CAPEX slashed and asset sales considered amid Panama disruption

• First Quantum provides an update on production alongside plans to shore up its balance sheet amid the shutdown of its Cobre Panama copper mine.
• The Company produced 708kt Cu in 2022, down 9% yoy, with Cobre producing 331kt over the year.
• Zambian operations produced 349kt over the year, down 10% yoy on lower Kansanshi grades and lower throughput.
• The Company has guided towards 400-460kt in 2025 and 2026, up from 370-420kt guidance for 2024.
• Increased Zambian production is stemming from the S3 Expansion at Kansanshi.
• C1 and AISC cost per unit in line with 2023 guidance. Copper AISC costs of $2.7-3/lb on a total basis in 2024 and $2.85-3.15/lb in 2025.
• Higher copper AISC reflects the impact of the absence of Cobre Panama production.
• Nickel AISC guided at $8.4-10.4/lb in 2024 and $7.7-9.7/lb in 2025.
• The Company has suspending mining at its Shoemaker-Levy project at Ravensthorpe and will bypass HPAL circuits amid weak marking pricing and margin pressure.
• Sentinel production missed guidance at 214kt vs 220-230kt expected, with harder rock mining impacting throughput alongside excessive waterfall.
• As regards its balance sheet, FQM has suspended its dividend and reduced CAPEX by $400m in 2024 and $250m in 2025.
• Management notes that ‘the Company has commenced discussions with its banking partners to address and extend its bank loan facilities.’
• They comment that they are ‘exploring the sale of smaller mines and interests in its larger mining assets.’

Petra Diamonds (PDL LN) 64.9p, Mkt Cap £126m – Resumption of production at Williamson helps to keep full year on track to meet the lower end of the production guidance range

• Aided by the resumption of production at the Williamson mine in Tanzania following the tailings dam incident in November 2022, Petra Diamonds has reported H1 production of 1.43m carats of diamonds during the six months to 31^st December 2023.
• The company is maintaining its previously issued full year production guidance range of 2.9-3.2m carats although it confirms its November 2023 caution that full year output “will be towards the lower end of guidance”.
• Diamond sales of ~1.66m carats (H1 2023 – 1.30m carats) generated revenues of US$187.8m (H1 2023 -US$208.5m) representing a 13.3% decline in like-for-like sales prices.
• Petra Diamonds confirms that revenues do not include sales of ‘Exceptional Stones’, classified as individual diamonds selling for US$15m or more, in either the current or comparative historic period.
• The company says that its 31^st December net debt rose to US$212.3m (30^th June 2023 – US$187.8m) “due to the timing of closing the Company’s sales tenders … [as well as] … the continued lower diamond pricing environment, working capital funding for the resumption of mining at Williamson and the increasing capex spend profile… to extend the life of … operations at … [the] … Cullinan Mine and Finsch”.
• Chief Executive, Richard Duffy, confirmed that Petra Diamonds continues to “make good progress on the CC1E development project at Cullinan Mine and the 78-Level Phase II development project at Finsch, and the resumption of the deferred capital programmes remains on target for July 2024”.
• Commenting on the rough diamond market, Mr. Duffy said that “we are seeing encouraging indications of price recovery and some stabilisation in the rough diamond market, following actions taken by both producers and the mid-stream, we continue to adopt a cautious approach to the market in the near-term”.

Conclusion: On track to hit lower end of the FY 2024 production guidance as the Williamson mine ramps up to resume full production.

Rio Tinto (RIO LN) – 5,446p, Mkt cap £68bn – Production guidance achieved in 2023 with increased copper and iron-ore output expected in 2024

• Final quarter production data leaves Rio Tinto meeting its previously issued 2023 guidance for its major commodity groups, iron-ore, bauxite and mined copper.
• Previously issued 2024 production guidance is maintained across all its principal commodity groups.
• Rio Tinto comments that Q4 saw some stabilisation of the Chinese economy, reduced fears of global recession and “a broad slowdown in inflation” and the company expresses some optimism that “interest rates may now have peaked”.
• The company says that the “US economy is slowing down with labour markets cooling … [and that the] … eurozone has been stagnant during the past year, driven by the contractionary monetary policy, impact of inflation on consumers’ real income and weak external demand” although it expresses optimism of the eurozone making a “gradual recovery later in 2024 from a low base …as consumption improves while financial conditions ease”.
• Pilbara iron-ore production of 331.5mt in 2023 matched the previously issued guidance range of 320-335mt as the Gudai Darri operation ramped up to its nameplate 43mtpa capacity.
• The October announcement of an increase in capacity at Gudai Darri to 50mtpa “through incremental productivity gains, at a cost of around $70 million” remains subject to approvals from environmental and heritage regulators.
• Rio Tinto expects its Pilbara operations to produce 323-338mt of iron ore in 2024.
• Longer term expansion plans for the Pilbara iron ore operations include a $77m pre-feasibility study on the development of the 40mtpa Rhodes Ridge project.  The study is expected to be completed “by the end of 2025 and will be followed by a feasibility study, with first ore expected by the end of the decade”.
• “Bauxite production of 54.6 million tonnes in 2023 was unchanged from 2022” and within the published guidance range of 54-57mt.  Guidance for 2024 is similar at 53-56mt.
• The company says that the bauxite operations “saw a continued improvement in the fourth quarter, with production 8% higher than the prior quarter, following the challenges of higher-than-average rainfall at Weipa in the first quarter and equipment downtime at both Weipa and Gove in the first half”.
• Resumption of full capacity at the Kitimat aluminium smelter helped lift 2023 output by 9% to 3.3mt (2022 -3.0mt) and Rio Tinto expects aluminium production in the range 3.3-3.4mt in 2024.
• Increased ownership of the Oyu Tolgoi operation in Mongolia which delivered the “first sustainable production from Oyu Tolgoi underground in the first quarter”, contributed to production of 620kt of mined copper in 2023 within the previously issued guidance range of 590-640kt.
• The largest contributor to Rio Tinto’s mined copper output was the Escondida mine in Chile (~300kt) with ~152kt from Kennecott’s North American operations and ~110kt from Oyu Tolgoi.
• Mined copper production guidance for 2024 is 660-720kt.
• Rio Tinto’s exploration, described by Chief Executive, Jakob Stausholm, as “one of the most exciting exploration pipelines in years” is focussing on “copper in Australia, Colombia, Chile, and Namibia, nickel in Peru and Brazil, heavy mineral sands in South Africa, and potash in Canada” across 18 countries.

Conclusion: Rio Tinto is maintaining its 2024 production guidance across all its main commodity groups with the company identifying stabilisation of the Chinese economy, a sluggish Eurozone economy and a slowdown in the US as key drivers while fears of a global recession and inflationary pressures ease and hopes that interest rates may have peaked. The company’s exploration is highlighted as ‘exciting’ by the CEO with an emphasis on copper, nickel mineral sands and potash.

Tertiary Minerals* (TYM LN) 0.11p, Mkt cap £2.3m – BUY – Audited annual results

CLICK FOR PDF

• Tertiary reports its audited annual results to the 30^th September 2023.
• The Company is developing five Zambian copper exploration assets alongside a local partner, Mwashia Resources.
• Over the year the Company successfully completed soil sampling and drill target delineation over five of the projects, handing back one to the local partner to prioritise focus.
• The technical cooperation agreement with First Quantum has supported drill target definition at the Mukai and Mushima North prospects.
• A recent earn-in agreement was signed with KoBold Metals to fund drilling at the Konkola West Project, targeting deep dipping mineralisation extending from the Konkola operations.
• The Company’s idled Storuman Project received a positive development when the 2019 decision not to grant the exploitation concession was annulled.
• Going forward, drilling has been planned at Jacks, Mushima North and Mukai, with the Company considering farming out options to joint venture partners, as seen at Konkola West.
• The Company’s cash position at financial year end stood at £122k.

*SP Angel acts as Nomad and Broker to Tertiary Minerals

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

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

*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.

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II – Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%