SP Angel Morning View -Today’s Market View, Tuesday 18th June 2024

Metals drift lower on stronger US dollar, rising EV Tariffs and ongoing China property collapse

MiFID II exempt information – see disclaimer below

Alpha HPA (A4N AU) – Update on High Purity Alumina Project

Arc Minerals (ARC LN) SUSPENDED – Collapse in shares leads to suspension

Cobra Resources (COBR LN) – Metallurgical test results from the Boland project, South Australia

Galantas Gold* (GAL LN) – Successful trial mining at the Omagh Gold Project

Snowline Gold (SGD CN) – Maiden MRE released for Valley Gold Project

Xtract Resources (XTR LN) – Bushranger ore-pre-concentration study

Copper prices ($9,660/t) continue to slide but China sees uptick in buying

• Copper prices have weakened to two-month lows below $9,700/t.
• Inventories are still high, however SMM reports that stocks have fallen at two of China’s major consumption hubs, down 40kt from June highs.
• Reports suggest that fabricators have picked up buying again after they pulled out of the market during the May short squeeze.
• Negative import premiums continue to suggest muted downstream demand.
• Copper is sliding alongside other base metals, with nickel down 20% from May.
• China’s property sector is fuelling negative sentiment still, with home prices continuing to slide.

Gold prices ($2,318/oz) flat as traders wait for US retail sales for further rate cut clues

• Gold prices have held flat just below the $2,320/oz mark.
• Retail sales in the US today will be closely watched by bond and gold traders for clues on the strength of the US economy.
• US Treasuries have pared gains somewhat following their strong rally last week on cooler inflation data.
• The Fed’s focus will be on the labour market now, which is showing signs of slowing.
• The World Gold Council reports 20 central banks are expected to increase their gold holdings this year.
• However, China held of adding gold in May, which hit gold prices given the role the PBoC has played in driving gold over the past year.

Lithium prices continue to slide on sufficient downstream inventories

• Lithium prices have cooled, with spodumene prices below $1,100/t in China and carbonate prices below $13,000/t.
• The recovery in Q1 seems to have petered out, with supply still ramping up into a weak downstream demand environment.
• SMM reports total market carbonate inventories are up 13% mom, with smelter inventories rising whilst downstream cathode inventories sliding.
• Spot buying is reportedly weak as a result of poor margins for convertors and smelters.
• Cathode production is expected to weaken in China in June, adding further negative sentiment to lithium markets.
• However, industry players continue to secure long-term supply, with SQM signing agreements with Hyundai and Kia for lithium hydroxide.
• Saudi Arabia is reportedly set to visit Chile next month as it eyes potential lithium investments in country.

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

121 Mining Investment Conference investment Leaders panel: https://youtu.be/OWEASjgXiME?si=ZPzQT-1SnUhXRo0g

*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

US – Philadelphia Fed President Patrick Harker, a non voting FOMC member, reiterated median forecast for one rate cut for 2024 should the economy perform in line with expectations.

• “I see two cuts, or none, for this year as quite possible if the data break one way or another,” he said.
• Comments follow Minneapolis Fed President Neel Kashkari’s (non-voting) take on rates outlook as he said that it’s a “reasonable prediction” that the US central bank will cut interest rates once this year, waiting until December to do it.
• “We need to see more evidence to convince us that inflation is well on our way back down to 2%,” Kashkari said.
• NY Empire State manufacturing index improved to -6 in June vs -15.6 in May

China starting investigation into pork imports from EU in response to EU tariffs on EVs

• China has initiated a probe into EU pork imports, seen as retaliation for EU tariffs on Chinese EVs.
• The CAAA ‘China Animal Agriculture Association’ filed a first application on the dumping of pork imports into China on 6 June setting the investigation in motion.
• Pork is seen as an important and emotive food product in China inflation in pork prices sometimes seen as a potential threat to stability.
• China imported some $6bn of pork last year with more than half coming from the EU with Spain as the largest single exporter at ~$1.5bn, followed by the Netherlands and Denmark.

US research institute Information Technology and Innovation Foundation estimates the US is 15 years behind China in developing high-tech nuclear power plants.

• China now has 27 nuclear power plants under construction as it transitions towards high-tech industrial growth.
• China is also targeting the replacement of gasolene and diesel with electricity and unlike Westen politicians it is well advanced in preparing the power to supply the new fleet of vehicles

EU – Cost index rose 5.1% in Q1 vs 3.4% in Q4

• Wage growth rose to 5.3% in Q1 vs 3.1% in Q4

EU ‘provisional’ tariffs on Chinese EVs

• EU member states will be called to vote on the
• BYD – 17% tariff,
• Geely – 20% tariff
• SAIC – 38.1% tariff
• EV manufacturers which did not co-operate with the investigation will face tariffs of 38.1% on top of the current 10% import tax.
• A number of EU-based automotive manufacturers have called on the EU not to impose tariffs partly as they manufacture cars in China that are reimported into the EU.
• Chinese officials have said the EU investigation into subsidies for electric vehicle production in China is “typical protectionist behavior” that disregards WTO rules..

UK – Grocery inflation slowed for the 16^th consecutive month to 2.1% in June in a positive sign of waning inflationary pressures.

• That would mark the slowest pace since 2021 and down from 2.4% recorded in the previous month.
• The reading also compares to the average of 1.6% in the decade to 2021.
• The BOE is due to hold its policy meeting this week with the decision due Thursday with forecasts for no change in the current rate of 5.25%.

Israel – PM Benjamin Netanyahu dissolves the six member war cabinet amid disagreements over the course of the Gaza war.

• PM is now expected to hold consultations with a small group of ministers including Defence Minister and Strategic Affairs Minister who were previously in the war cabinet, Reuters reports.

Russia/North Korea – President Putin is heading to North Korea for the first time in 24 years in what is considered a move to replace lost military equipment in Ukraine.

Australia – The central bank leaves rates unchanged, in line with expectations, at a 12-year high of 4.35%.

• The RBA highlighted that inflation is proving sticky.

Gerald Group hit by $49m in tin fraud

• Gerald Group, the metals trader was reported to have been hit by a $49m tin fraud last week.
• The group has provisioned for $37.3m on a deal to buy tin from Brazil and has hired investigators to recover funds.
• The fraud highlights the risks of global metals trading.

Currencies

US$1.0730/eur vs 1.0706/eur previous. Yen 158.07/$ vs 157.54/$. SAr 18.172/$ vs 18.348/$. $1.269/gbp vs $1.268/gbp. 0.662/aud vs         0.661/aud. CNY 7.256/$ vs 7.256/$.

Dollar Index 105.39 vs 105.58 previous.

Precious metals:         

Gold US$2,318/oz vs US$2,319/oz previous

Gold ETFs 80.9moz vs 81.0moz previous

Platinum US$974/oz vs US$952/oz previous

Palladium US$892/oz vs US$896/oz previous

Silver US$29.31/oz vs US$29/oz previous

Rhodium US$4,560/oz vs US$4,560/oz previous

Base metals:   

Copper US$ 9,659/t vs US$9,668/t previous

Aluminium US$ 2,479/t vs US$2,498/t previous

Nickel US$ 17,300/t vs US$17,315/t previous

Zinc US$ 2,808/t vs US$2,783/t previous

Lead US$ 2,165/t vs US$2,151/t previous

Tin US$ 32,060/t vs US$32,270/t previous

Energy:           

Oil US$84.2/bbl vs US$82.6/bbl previous

• WTI crude oil prices climbed above $80/bbl for the first time in a month in line with wider markets.
• European energy prices edged lower following warmer temperatures spreading to Northwest Europe.

Natural Gas €34.0/MWh vs €35.3/MWh previous

Uranium Futures $86.3/lb vs $86.5/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$106.4/t vs US$107.6/t

Chinese steel rebar 25mm US$507.9/t vs US$534.8/t

Thermal coal (1st year forward cif ARA) US$119.8/t vs US$120.5/t

Thermal coal swap Australia FOB US$134.8/t vs US$135.0/t   

Other:  

Cobalt LME 3m US$27,150/t vs US$27,150/t

NdPr Rare Earth Oxide (China) US$51,340/t vs US$49,753/t

Lithium carbonate 99% (China) US$12,887/t vs US$13,162/t

China Spodumene Li2O 6%min CIF US$1,080/t vs US$1,080/t

Ferro-Manganese European Mn78% min US$995/t vs US$995/t

China Tungsten APT 88.5% FOB US$357/mtu vs US$357/mtu

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

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.2/lb

Europe Ferro-Vanadium 80% 26.85/kg vs US$26.85/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$316/t

China Rutile Concentrate 95% TiO2 US$1,413/t vs US$1,413/t

Spot CO2 Emissions EUA Price US$69.4/t vs US$69.4/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$310.0/t

Battery News

Fisker files for bankruptcy

• Fisker, a relatively new EV startup, have filed for bankruptcy protection late on Monday, looking to sell its assets and restructure its debt.
• The startup has succumbed to rapid cash burn as it tried to deliver its “Ocean” SUVs in the US and Europe.
• Fisker is not the first EV startup to fall victim to this, following Proterra, Lordstown and Electric Last Mile Solutions into bankruptcy due to depleting cash reserves, fundraising difficulties and supply chain issues.
• Fisker will definitely not be the last bankruptcy in a challenging and highly competitive EV market.

Used EV prices plummet below gas cars amid changing consumer preferences

• In June 2023, used EV prices were 25% higher than gasoline cars; by May 2024, they were 8% lower.
• Gasoline vehicle prices dropped by 3-7% over the past year, while EV prices fell by 30-39%.
• Consumer perception has shifted, with increased availability of used EVs making them accessible to a broader market.
• Tesla’s price cuts in 2023 led to an industry-wide price war, significantly impacting used EV prices.
• Hertz sold off 20,000 EVs in January, further contributing to the decline in used EV prices.
• Automakers like GM and Ford are scaling back aggressive EV rollouts due to declining demand and infrastructure challenges.
• The decline in used EV prices is influenced by a combination of consumer perception, technological advancements, and strategic shifts by automakers.

Musk says future $20,000 Tesla Model Y would be ‘game-changer’

• Elon Musk discussed the potential for a more affordable Tesla Model Y at the 2024 Annual Stockholder Meeting, suggesting a sub-$20,000 model could be a significant market changer.
• Musk emphasised the necessity of making Tesla vehicles more affordable, noting that many people desire a Tesla but can’t afford one.
• Analysts pointed out that Tesla currently makes less profit per vehicle than many mainstream automakers, suggesting that achieving a $20,000 Tesla would involve significant compromises.
• Tesla is already reducing car costs through leasing options, making models like the Model 3 more accessible at $299 per month with a $2,999 downpayment, comparable to gas cars from other manufacturers.

Tesla unveils plan for first hydrogen-powered vehicle, Model H by 2026

• Tesla plans to diversify its product offerings by exploring hydrogen fuel cells, with the first hydrogen-powered car, Model H, expected to debut in 2026.
• This strategic move is seen as a response to competition from China’s BYD and aims to keep Tesla ahead in the evolving automotive industry.
• Hydrogen fuel cells offer clean power, reducing greenhouse gas emissions, but hydrogen production is energy-intensive, and the infrastructure for hydrogen refuelling is underdeveloped.
• The exact details of Tesla’s hydrogen project are unclear, and no official confirmation about prototypes has been made.
• This shift to hydrogen has sparked curiosity and scepticism among industry experts and consumers.

Electric vehicles to account for 25% of all new sales in the UAE by 2035

• EVs in the UAE are expected to account for 25% of new passenger and light commercial vehicle sales by 2035 as part of the country’s decarbonisation efforts.
• Currently, EVs represent 3% of all vehicles sold in the UAE, with ICE vehicles dominating the market.
• Factors such as increased variety in EV models, investments in charging infrastructure, and decreasing total cost of ownership are crucial for growth projections.
• Battery electric vehicles make up 7% of cars offered by UAE dealers, compared to 26% in Europe.
• The UAE and Saudi Arabia are considered “wave II” countries for EV adoption, allowing them to learn from “wave I” countries like the US, China, and European nations.
• The UAE currently has around 2,000 public charging points, but demand is expected to reach 45,000 by 2035. At the current rollout rate, only 10,000 points will be available by then.
• The UAE Ministry of Energy and Infrastructure and Etihad Water and Electricity launched UAEV, a government-owned charging network, to address the need for more charging stations.

Xpeng demo’s flying ‘car’ in Beijing

• Xpeng AeroHT showcased its X2 flying car at the 2024 China Langfang International Economic and Trade Fair at the end of last week.
• In May, the Beijing City Government issued a draft action plan to establish Beijing as a hub for innovation in the low-altitude economy.
• The plan explores new business models for flying cars, including intercity commuting and inner-city shuttle services.
• The Xpeng X2 is more of a drone-type vehicle than a car, and has a 25 min maximum flight time.

Company News

Alpha HPA (A4N AU) A$0.88, Mkt cap A$884m – Update on High Purity Alumina Project

• Alpha HPA, which is progressing the HPA project in Australia, provides an update.
• The Company reports it has received various new sales orders following the Stage 2 FID.
• Stage 2 of the HPA First Project is set to hit full commercial scale of up to 10.4ktpa of high-purity alumina, alumina hydroxide and aluminium nitrate precursors.
• These include preliminary sales for the semiconductor and direct lithium extraction catalyst industries.
• Qualification is ongoing with end users.
• The Company’s Stage 1 HPA project is now producing 550kg/week, with weighted average unit pricing reported at US$32/kg.
• Stage 1 is also currently producing 100kgpd of alumina hydrate.

Arc Minerals (ARC LN) SUSPENDED at 1.35p, Mkt cap £20m – Collapse in shares leads to suspension

(Arc has a 20% indirect interest in Handa and Zaco (Arc owns 67% of Unico which holds 30% of Handa, which owns Zaco)

• Arc Minerals shares were suspended yesterday afternoon following the trading of ~104 million shares in the day representing around 10 times the normal value traded.
• The shares fell from 1.82p down to 1.35p with around £1.5 million of stock traded vs the average of £142,000.
• It is very rare for trading to be suspended on the AIM market and we suspect:
  • A shareholder was potentially forced to sell stock through a Margin Call
  • Investors may had Borrowed against stock and were stopped out,
  • An investor or investors had Borrowed against the stock with stock being sold to cover aspects of the loan.
• The shares may have started moving due to bulletin board chatter on the status of a number of licenses within the Arc portfolio precipitating the stock rout.
• The Ministry of Mines and Minerals Development through the Mining Cadastre Department issued a public notice on the results of the 80^th Mining License Committee held on 6^th, &th and 10^th June.
• The public list shows the status of licenses which have either been Approved, Rejected or Deferred by the committee.
• Within the list:
  • 33403 – HQ–LML held by Zaco – Rejected
  • 33403 – HQ-LML held by Handa – Rejected
  • 23004 – HQ-LEL held by Zaco – Deferred.
• According to Arc’s annual report the licences, which are the subject of the Anglo American JV are :
  • 19906-HQ-LEL
  • 23004-HQ-LEL – Now Deferred
  • 23005-HQ-LEL
  • 28700-HQ-LEL
• According to the accounts “The Group has submitted three mining license applications (33402-HQ-LML, 33403-HQ-LML and 33404-HQLML), over the expired exploration licenses 23004-HQ-LEL and 19906-HQ-LEL. All of the mining licence applications been approved and validated by the Mining Cadastre Department and following the submission of the subsequent requisite documentation, the Mines Advisory Committee (MAC), will meet and review the finalised LML applications prior to issuance of the Mining Licenses.”
• We suspect some ‘rejected’ applications may be over areas which have been previously surrendered by ARC Minerals.

Conclusion: Arc Minerals tells us that their “Exploration licences remain unaffected so work continues.”

Cobra Resources (COBR LN) 1.2p, Mkt cap £8.4m – Metallurgical test results from the Boland project, South Australia

• Cobra Resources reports metallurgical test results, conducted by the Australian Nuclear Science and Technology Organisation (ANSTO) on drill core from its Boland ionic rare-earths prospect in South Australia.
• The test work, which was “designed to emulate the ISR … [In-situ recovery] … has revealed an exceptionally high head grade, enriched in high value magnet and heavy rare earth metals”.
• The 0.5m core sample, taken from a depth of 26.7m is reported to have a grade of 4,506ppm Total Rare Earth Oxides (TREO) including “high value magnet rare earths Nd2O3 + Pr6O11 total 892 ppm and Dy2O3 + Tb2O3 total 131 ppm, including 0.2m from 26.7m yields 7,476 ppm TREO, where Nd2O3 + Pr6O11 total 1,515 ppm and Dy2O3 + Tb2O3 total 225 ppm”.
• The company says that these grades “exceed the reported grades observed in zone three reported from three other wellfield holes … [and] … are favourable in comparison to highly valued South American ionic rare earth projects owing to the high heavy rare earth (HREO) content, equating to ~28% of the TREO”.
• Cobra Resources confirms that it is preparing a second sample for testing and that “Favourable permeability rates … are being achieved at low pressures … [and are] …. comparable to ISR production rates achieved at operating ISR uranium mines”.
• Today’s announcement confirms that “Testing, analysis and results are expected by the end of June 2024”.
• CEO, Rupert Verco, explained that “Ionic rare earth projects are desirable for their low extraction cost which is a function of simple metallurgy. Should we be successful in bypassing the challenges associated with handling and processing clays through ISR, we can confidently deliver a compelling, low-cost, environmentally credentialed source of heavy and magnet rare earths”.

Conclusion: We await results later this month.

Galantas Gold* (GAL LN) 9.0p, Mkt Cap £10m – Successful trial mining at the Omagh Gold Project

• The Company reports the successful completion of trial stoping programme at the Cavanacaw Gold Mine at the Omagh Project, Norther Ireland.
• Six stopes were mined and backfilled using a narrow vein, modified Avoca longhole open stoping method.
• The minimum stope width was 2.2m, with a stope length of 10-15m and 8m high.
• The team plans to increase height of stopes to 12m that should improve mining efficiencies.
• In total 3.2kt of ore was mined from six stopes.
• Reconciliation over two stopes showed grades were 113% compared to modelled values.
• An optimised mining cycle is expected to be two days from initial stope blast to completion of backfill which would imply a ~250tpd mining rate.

Conclusion: Successful trial mining is a positive news helping to test mining method, train staff and optimise mine schedule. Higher than expected mined grades, while over limited tonnage, also offers some optimism to the high grade potential of future mining operation at the Omagh Project.

*SP Angel acts as Broker to Galantas Gold

Snowline Gold (SGD CN) C$5.6, Mkt cap C$882m – Maiden MRE released for Valley Gold Project

• Canadian gold explorer Snowline reports a maiden MRE for the Valley Gold Deposit in Yukon, Canada.
• The MRE stands at:
  • 76mt at 1.66g/t Au for 4.05moz Indicated.
  • 71mt at 1.25g/t Au for 3.26moz Inferred.
• The MRE is pit-constrained by a 0.72 revenue factor and 0.4g/t Au cut-off.
• The Company believes the pit has ample room for expansion, with mineralisation reported beyond the limits of the current pit shell.
• Snowline is progressing the drilling programme, with three active rigs and 4,000m worth of assays due.

Xtract Resources (XTR LN) 0.9p, Mkt Cap £8.8m – Bushranger ore-pre-concentration study

• Xtract Resources reports that a review of options for pre-concentration of ore at its Bushranger project in New South Wales by Altrius Consulting has advised that the “mineralisation is not considered amenable to upgrade by Tomra ore sorting, other methods of ore sorting/pre-concentration may be more suitable”.
• The Altius Consulting review concluded that “the pre-concentration techniques potentially most suitable for processing the fine grained copper-gold mineralisation of the Racecourse deposit were, in order of preference:
  • Pre-Screening of run-of-mine ore after blasting and primary crushing, which have shown at some operations to concentrate between 60% and 80% of the target mineralisation into less than 40% to 60% of the feed mass.
  • Gravity Separation via Dense Media Separation (“DMS”), a commonly used and well understood technology. Typically, a DMS circuit would be expected to achieve a mass rejection of approximately 70% with a corresponding valuable mineral recovery of >95%.
  • Coarse Particle Flotation (“CPF”) which consists of the recovery of partially liberated valuable mineral particles following coarse primary grinding. The concept is to reject a portion of barren material at a coarse size, rather than having to grind the entire feed resulting in reduced comminution (milling) costs. CPF has been shown to recover between 92% and 98% of the mineralisation into 6% of the mass for deposits similar to the Racecourse deposit”.
• Further test-work “on Pre-Screening and Dense Media Separation” is now underway conducted by ALS in Perth and coarse-particle flotation test work is also in progress and reported to be “progressing favourably”.
• The company reiterates previous comments that “the Bushranger Racecourse project has the potential to be economically mined at rates of 20Mtpa or greater at USD10,000 per tonne copper price or above. The objective of the current work is to re-assess the breakeven copper price for the Project”.
• Highlighting the growing realisation “that new copper resources have to be found on an urgent basis”, Executive Chairman, Colin Bird, explained that the “Bushranger project, whilst marginal at previous prices, becomes as previously reported NPV positive at USD10,000 per tonne copper. The project has the benefit of a high-grade component, which can be optimised and integrated into future mining plans”.
• Current copper prices are around US$9,670/t.
• The company’s website reports an ‘Indicated & Inferred’ mineral resource of 512mt at an average grade of 0.22% on a copper-equivalent basis (CuEq) for the Racecourse deposit and an additional “new mineralised porphyry system named the Ascot Prospect”, located 1km further south containing an initial ‘Inferred’ “mineral resource of 87Mt @ 0.22% CuEq”.
• Open-pit mining studies conducted in late 2023 “concluded that the current Racecourse Prospect Mineral Resource has the potential to be economically mined at mining rates of 20Mtpa, or greater, and at copper prices of US$10,000/t and above”.
• Mr. Bird confirmed Xtract Resources’ intention “if the current tests results are positive, to rework … [its] … financial and technical plans to re-assess the break-even copper price for the project”

Conclusion: Increasing recognition of the scale of future copper supply shortages provides an opportunity to re-examine previously marginal or uneconomic deposits as copper prices rise.  We look forward to the outcome of Xtract Resources’ reassessment of the Bushranger project.

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

SP Angel                                                            

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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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