SP Angel Morning View -Today’s Market View, Tuesday 20th February 2024

China rate cut to stimulate new demand and support housing market

MiFID II exempt information – see disclaimer below

Anglesey Mining (AYM LN) – Further drilling result from Parys Mountain

Anglo American (AAL LN) – Kumba Iron Ore results

Anglo Asian Mining* (AAZ LN) – Maiden Xarxar MRE delivers 25mt at 0.48%

Antofagasta (ANTO LN) – Improved copper market stability helps lift operating cash flow

Aterian plc* (ATN LN) – Ongoing exploration shows copper grade and mineralisation at Akka and West Tazalaght Projects in Morocco

BHP (BHP LN) – Half year earnings bolstered by iron ore after nickel impairment hit

Horizonte Minerals (HZM LN) – Araguaia development capex revised 87% higher

Osino Resources (OSI AU) – Superior proposal received for Namibian assets following Dundee offer

Sayona Mining (SYA AU) – Moblan, Québec DFS results reported

BYD announce ‘new era’ of affordable EVs

• The BYD Qin PLUS Honor will be available as a hybrid from $11,000 or fully electric from $15,000.
• BYD said the car is the start of a new era where “electricity is cheaper than oil,” in which both hybrid and pure-electric models have become as affordable as traditional combustion engine models.
• The Qin PLUS Honor is equipped with two motors of 100 and 150 kW and a lithium iron phosphate paddle battery and it can be built in configurations with 420km, 510km and 610km of range.

Uranium – Uranium prices continue to rise as demand for yellow cake and enriched uranium increases

• Investor demand is seen leading yellowcake prices higher as the US argues over a total ban on Russian enriched uranium.
• A number of hedge funds are reported by Reuters to be positioning their funds to benefit from rising physical uranium prices.
• themselves to reap the benefits of a newly buoyant uranium sector as prices of the nuclear fuel ingredient spike.

Tin rally cools despite concerns over tight Chinese supply

• Tin prices have eased 2% having climbed $3,000/t to $27,500/t since the beginning of February.
• Myanmar is reported to have raised export taxes recently, now standing at 30% on all tin concentrates. (Bloomberg)
• Myanmar is the third largest tin ore producers globally, with the Wa state accounting for c.30% of China’s tin concentrate supply.
• Indonesia has slashed exports of concentrate in line with its intentions to support the downstream economy and preserve ore as alluvial deposits deplete.
• Analysts expect Myanmar exports to start to cool from March.
• Tin stockpiles are currently high, but the small nature of the global market leaves it vulnerable to sudden shocks in price.

Economics

China – The central bank cut 5y benchmark lending rate more than expected in an effort to support housing market

• The rate used by lenders to price mortgages was cut to 25bp to 3.95% compared to 4.1% expected.
• The announcement marks the sharpest cut to thee five year lending rate since it was introduced in 2019.
• 1y rate that is used for household and corporate loans remained unchanged at 3.45% versus a 5bp cut expected.

China returns from a quieter than normal Lunar New Year as weak economic sentiment has dampened the normal enthusiasm of many Chinese travellers

• The Chinese government is tackling consumer lethargy through this latest cut in interest rates, lifting equities and funding ‘whitelisted’ property developments.
• It’s a positive strategy but wage stagnation along with the prospects for lower working hours and pay if order levels fall is not helping the cause.
• Apathy from the ‘Lay Flat’ generation of youth alongside numbers of Long-Covid sufferers is a further drag on the economy with the authorities now refusing to publish stats on youth unemployment.

US – The US is warning China against its dumping of goods in global markets, though a tide of low-cost EV’s may be unstoppable and will cause further consternation.

• The situation might help persuade the Fed to keep interest rates high to dampen consumer demand as China works ever harder to raise export levels.
• Recent, higher than expected, inflation is pushing out expectations for an early Fed rate cut prompting some selling in gold and copper.
• This combined with slower economic activity in Europe due to the Ukraine war is slowing expectations for global demand and dampening sentiment in commodity markets.

 Currencies

US$1.0772/eur vs 1.0783/eur previous. Yen 150.34/$ vs 149.97/$. SAr 19.074/$ vs 18.900/$. $1.259/gbp vs $1.262/gbp. 0.653/aud vs 0.654/aud. CNY 7.199/$ vs 7.198/$.

Dollar Index 104.34 vs 104.16 previous.

Commodity News

Precious metals:

Gold US$2,022/oz vs US$2,020/oz previous

Gold ETFs 83.0moz vs 82.9moz previous

Platinum US$901/oz vs US$908/oz previous

Palladium US$943/oz vs US$957/oz previous

Silver US$23.00/oz vs US$23/oz previous

Rhodium US$4,425/oz vs US$4,375/oz previous

Base metals:

Copper US$ 8,452/t vs US$8,423/t previous

Aluminium US$ 2,185/t vs US$2,204/t previous

Nickel US$ 16,365/t vs US$16,205/t previous

Zinc US$ 2,380/t vs US$2,373/t previous

Lead US$ 2,034/t vs US$2,036/t previous

Tin US$ 26,325/t vs US$26,600/t previous

Energy:

Oil US$83.5/bbl vs US$82.9/bbl previous

• Crude oil prices edged higher after the crew of a Belize-flagged, British-registered cargo vessel were forced to abandon ship off Yemen following damage caused by Houthi missiles.
• European natural gas prices are now down over 50% y/y driven by mild weather conditions and robust wind generation in Germany and the UK this week.
• SNP leader, Humza Yousaf, said he would maintain the current status quo on the UK Energy Profits Levy, in contrast to Labour’s plans to increase the effective tax rate from 75% to 78% and duration by one year to 2029.
• Kistos announced an agreement with EDF to pay £25m to acquire two onshore UK gas storage facilities at Hill Top Farm (active) and Hole House Farm (non-operational), which could potentially be converted other uses.

Natural Gas €23.8/MWh vs €24.5/MWh previous

Uranium Futures $101.8/lb vs $101.8/lb previous 

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$129.7/t vs US$129.7/t

Chinese steel rebar 25mm US$569.9/t vs US$569.9/t

Thermal coal (1st year forward cif ARA) US$89.1/t vs US$91.3/t

Thermal coal swap Australia FOB US$122.5/t vs US$122.5/t

Coking coal swap Australia FOB US$310.0/t vs US$310.0/t

Other:

Cobalt LME 3m US$28,550/t vs US$28,550/t

NdPr Rare Earth Oxide (China) US$54,872/t vs US$55,434/t

Lithium carbonate 99% (China) US$12,225/t vs US$12,295/t

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

Ferro-Manganese European Mn78% min US$1,061/t vs US$1,062/t

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

China Graphite Flake -194 FOB US$560/t vs US$560/t

Europe Vanadium Pentoxide 98% 5.8/lb vs US$5.8/lb

Europe Ferro-Vanadium 80% 27.55/kg vs US$27.55/kg

China Ilmenite Concentrate TiO2 US$320/t vs US$320/t

Spot CO2 Emissions EUA Price US$61.3/t vs US$61.3/t

Brazil Potash CFR Granular Spot US$290.0/t vs US$290.0/t

Battery News

French battery recycling plant on fire

• The fire broke out in a warehouse owned by recycling group SNAM Sunday.
• According to officials, the warehouse is housing ~900t of lithium batteries.
• It is yet to be known what caused the fire, but local fire services have said that it is under control.

New plasma technology to transform lithium extraction efficiency

• Researchers from the Korea Institute of Fusion Energy (KFE) have fund a way of leveraging plasma to enhance lithium extraction.
• Conventional extraction involves mixing sodium carbonate (Na2CO3) with lithium-rich saltwater, resulting in the extraction of lithium carbonate (Li2CO3) – an additional step is then required to separate the lithium carbonate from the sodium impurities.
• The study from KFE uses carbon dioxide microwave plasma to extract the lithium, achieved a 27.87% extraction rate.

Company News

Anglesey Mining (AYM LN) 1.7p, Mkt Cap £7.1m – Further drilling result from Parys Mountain

• Anglesey Mining reports the completion of its drillhole NCZ-002 where, although assay results have still to be received, drilling intersected 107m of visible sulphide mineralisation between 413-520m downhole depth.
• Hole NCZ-002 infills the space between two holes drilled during the 1970s “that intersected broad zones of mineralisation – 91m grading 0.9% copper equivalent (‘CuEq’) and 75m grading 0.8% CuEq – both of which reported higher grade zones including 43m grading 1.2% CuEq and 26m grading 1.3% CuEq”.
• Chairman, Andrew King, said that the drilling programme at the Northern Copper Zone is “confirming that Parys Mountain has a significant zone of copper dominant mineralisation within an area 600 to 700 metres along strike and 300 to 400m downdip”.
• He also explained that “Widths of mineralisation appear to be averaging over 20 metres in this zone with copper equivalent grades of between 1.0 – 1.3%” which implies that the drilling is intersecting the mineralised zone at a relatively steep oblique angle.
• “Drilling of the third drill hole in this latest programme, NCZ003, has commenced with 200m drilled to date”.

Conclusion: We await the assay results from hole NCZ-002 with interest and for further news as the drilling proceeds.

Anglo American (AAL LN) 1,745p, £24bn – Kumba Iron Ore results

• Anglo American reports annual results from its Kumba Iron Ore division/.
• FOB price realised at $117/t, C1 unit costs at $41/t, production for the period at 35.7mt.
• EBITDA for the period at 45.7bn ZAR, operating cashflow at 14.9bn ZAR.
• Production forecasts for 2024 at 35-37mt, unit costs expected at $38/t for this year.
• Margins affected by logistical constraints and loadshedding, weighing on future production forecasts.

Anglo Asian Mining* (AAZ LN) 58p, Mkt Cap £66m – Maiden Xarxar MRE delivers 25mt at 0.48%

• The Company released maiden JORC compliant mineral resource estimate on the Xarxar Porphyry Copper Project in Azerbaijan.
• MRE stands at 24.9mt at 0.48% for 119.1kt copper (in-situ).
• Nearly 90% of the total is contained within the higher confidence Indicated category.
• High percentage of the resource in the higher confidence category is reflecting a fair amount of drilling completed on the project (~22,000m with ~17,000m completed by the Company) as well as data collected from the 470m long underground adit driven into the deposit by the team.
• Mineralogy wise, oxide material at surface accounts for 5.9mt at 0.57% with sulphide mineralisation estimated at 18.9mt at 0.45%.
• The Company has released a 3d presentation of the project helping to visualise dimensions and orientation of the deposit; please use the following link:
• https://xarxar-jorc-mre-2024feb.jalnext.com/
• The plan is complete further infill and extension drilling, as well as geotechnical and hydrogeological studies along with metallurgical testwork ahead of the Final Investment Decision).
• The Project is one of four projects the team is planning to bring into production along with Gilar, Garadag and Zafar to ramp up output to >35ktpa CuEq.

Conclusion: The team released maiden MRE on the Xarxar Porphyry Project after having secured licenses in mid-2022. MRE delivered ~120k copper in-situ with an unusually high share of tonnages in the Indicated category reflecting a fair amount of exploration completed on the project to date. The Company moves fast with infill drilling, geotechnical design studies, metallurgical testwork to follow as the team aims to derisk Xaxar Porphyry Project enough to commence development. Xarxar is instrumental to the Company’s strategy to reach >35ktpa CuEq production in the medium term with the greenfield operation potentially contributing nearly 10ktpa.

*SP Angel acts as nomad and broker to Anglo Asian Mining

Antofagasta (ANTO LN) 1,754p, Mkt Cap £17.29bn – Improved copper market stability helps lift operating cash flow

• Reporting results for 2023, Antofagasta reports increased operating cash flows of US$US$3.03bn (2022 – US$2.74bn) and EBITDA of US$3.09bn (2022 – US$2.93bn).
• The results are generated from the sale of 667kt of copper (2022 – 643kt), 205koz of gols (2022 – 175koz) and 11.100t of molybdenum (2022 – 9,200t) produced at an average cost, net of by-products, of US$1.61/lb of copper (2022 – US$1.61/;b).
• With what CEO, Ivan Arriagada, described as “a solid pipeline of copper growth projects”, Antofagasta’s net debt at 31^st December increased to US$1.16bn (2022 – US$0.89bn).
• “Profit before tax including exceptional items decreased by 23% to $1,966 million, with this year-on-year movement principally related to the recognition in 2022 of an exceptional gain relating to the disposal of the Reko Diq project” in Pakistan.
• “Capital expenditure of $2,129 million in 2023, compared with $1,879 million in 2022, reflecting the Los Pelambres Phase 1 Expansion, construction of which was completed during the year, and mine development work at Centinela. Capital expenditure in 2024 is expected to increase to US$2.7bn.
• Antofagasta reconfirms its previously announced production guidance for 2024 of copper output in the range 670-710,000t of copper at a net cash cost of US$1.60/lb with gold output in the range 195-215koz and molybdenum production of between 11-12,500t.
• Highlighting other developments during the year, Antofagasta confirms the decision to “double the size of the Los Pelambres’ desalination plant to an instantaneous design capacity of 800 litres per second, as well as replacing the concentrate pipeline and the construction of certain planned enclosures at the El Mauro tailings storage facility” as well as its acquisition of a 19% interest in Peru’s “largest, publicly traded precious and base metals company”, Buenaventura.
• The company explains that the decision to double the desalination capacity at Los Pelambres will increase “a level of 90% of water use across the Group from seawater sources or recirculated water”.  Current desalination capacity contributes “approximately one third of total withdrawals”.
• More recently on, “31 January 2024, during regular cleaning activities prior to scheduled maintenance of the concentrate pipeline that connects the processing plant at Los Pelambres to the Company’s port at Los Vilos, concentrate material was detected that was stopping the normal transit of concentrate. This material has now been successfully cleared, with filtering of concentrates at the Company’s port facilities expected to resume in the coming days. Mining and processing operations at Los Pelambres continued to operate unaffected throughout this process”.

Conclusion: Improved cashflows should aid the expansion programme where 2024 capital expenditure is expected to reach US$2.7bn.

*An SP Angel mining analyst has previously visited a number of Antofagasta’s copper mines

Aterian plc* (ATN LN) 0.84p, Mkt Cap £8.1m – Ongoing exploration shows copper grade and mineralisation at Akka and West Tazalaght Projects in Morocco

• Aterian plc report exploration progress at their Akka and West Tazalaght Projects within the western Anti-Atlas Mountains of Morocco.
• The best result from this latest work is a chip sample of 3.93 % copper from the sedimentary-hosted copper target.
• The region considered highly prospective for sedimentary-hosted copper mineralisation with potential to support larger scale copper mines .
• The projects are close to good infrastructure, with other operating mines nearby.
• Morocco has preferential trade status with the EU and US making the nation a preferred destination for mining and manufacturing.
• Aterian has a joint venture with Rio Tinto in Rwanda for the exploration and potential development of lithium and tantalum bearing pegmatites.
• Rio Tinto also has an MoU with the government of Rwanda highlighting its interest in a nation which recorded strong 45.6% yoy growth in mineral exports in 2023.

Conclusion:  Aterian is working hard to discover new copper targets in Morocco. The team are covering a good amount of ground and delivering interesting results as they progress across the targets. We look forward to their further analysis as they continue mapping at the Akka project along strike from some Managem workings. Further Stream sediment sampling at West Tazalaght should also give a better view of the prospects for the project.

*SP Angel acts as Broker to Aterian Plc

BHP (BHP LN) 2,320p, £118bn – Half year earnings bolstered by iron ore after nickel impairment hit

• In its interim report for the six months ending 31^st December 2023, BHP reports stable underlying attributable profit of US$6.6bn (H1 2023 – US$6.6bn).
• Attributable profit declined to US$0.9bn (2023 – US$6.5bn) following the previously announced charges of US$5.6bn relating to the impairment of the Western Australian nickel operations and increased provisions in relation to the Samarco dam failure in Brazil.
• Operating cashflow increased by 31% to US$8.9bn (2023 – US$6.8bn) and net debt rose to US$12.6bn over the period from US$11.2bn.
• Net debt at $12.6bn vs $3.8bn in FCF.
• Commenting on the underlying economic background, BHP says that its “operating environment in CY23 was relatively volatile. Our key commodity prices were slightly higher overall but with significant variation in performance between individual commodities”.
• “In the near term, the economic outlook for the developed world is expected to improve modestly after a difficult year for both steel and non-ferrous metals demand in CY23. China and India are expected to remain relative sources of stability for commodity demand, as they have been over the last 12 months”.
• BHP also says that “The Chinese economy has been volatile since the zero-COVID policy was eased in December 2022. CY23 saw a solid recovery in a range of sectors important to commodity demand including conventional infrastructure, lower GHG emission technology, manufacturing capital, automotive, shipbuilding and consumer durables”.
• Copper production for the period stood at 894kt, up 7% – FY24 estimate at 1,720-1,910kt.
• Copper CAPEX for the period stood at $2bn – FY24 estimate at US$4.2bn.
• Escondida unit cost for the period at US$1.5/lb (572kt), up 5%. Spence (138kt) unit cost at $1.98/lb, down 10%.
• Increased Escondida volumes on higher concentrator feed grade and throughput.
• Iron ore production for the period at 129mt, down 2%, with average realised price at $104/t – up 20%.
• Reporting stronger China demand and improved product mix at Jimblebar, alongside improved efficiency from Rail Technology Programme.
• Western Australian iron ore unit costs at $18.5/t – EBITDA up 27% HoH to $9.6bn.
• Coal production up 17% for the period HoH to 11.3mt, with average realised met pricer at $266/t and average realised thermal price at $123/t (down 65%)
• Reporting easing labour constraints but lower volumes on planned maintenance.
• BMA unit cost at $129/t – up 29%, affected by prime stripping increase, depleted inventories, weather impacts and labour constraints.
• Nickel production in WA at 40kt for the period, average realised price at $18.6k/t, EBITDA at -$200m and CAPEX at $800m.
• Potash CAPEX at $520m, up 64% with Jansen Stage 1 production target date at CY26 end. (total CAPEX forecast at $5.7bn)
• Exploration spend at $199m, up 28%.
• BHP reported last week its plan to impair $2.5bn worth of the value of its assets. The Company expects a ‘multi-year period of over-supply in nickel.’
• Company expects copper concentrate supply to remain tight following the closure of Cobre Panama,

Horizonte Minerals (HZM LN) 3.6p, Mkt Cap £9m – Araguaia development capex revised 87% higher

• The Company revised development capital requirements for the Araguaia Nickel Project in Brazil.
• The latest review showed the project requires ~$454m to see the project through to maiden production.
• That implies that total project capex is now at $1,004m, approximately 87% higher than the previous estimate of $537m (October 2023).
• The estimate is likely to see higher cash commitments still since it does not include working capital, capitalised ramp-up costs and financing costs.
• Updated development plan includes 18 months of construction with completion expected in Q1/26 assuming re-mobilisation of the team in Q3/24.
• Ramp up schedule was extended to 18 months from previously assumed 12 months.
• The review was carried by G Mining Services, a specialised mining construction and engineering firm, with a track record of successfully commissioning a number of mining projects including Lundin Gold’s Fruta del Norte Project in Ecuador, Newmont Mining’s Merian Mine in Suriname and IAMGOLD’s Greenstone project in Ontario.
• G Mining will work with project investors to prepare higher confidence economic study (AACE Class 1 with -3% and +15% accuracy compared to current Class 3 -10% +30% estimate) as refinancing discussions are ongoing.

Conclusion: A revised capital cost estimate suggests investors are only halfway through project funding with a further $454m remaining to be spent and the final commitment to first production likely to be higher when accounted for working capital, financing costs etc. Refinancing discussions are ongoing and the team highlight that there is no guarantee of success. All while nickel is trading in the $16,000-16,500/t range, the lowest since early 2021.

Osino Resources (OSI AU) C$1.39, C$240m – Superior proposal received for Namibian assets following Dundee offer

• Osino Resources announces it has accepted a ‘superior proposal’ from a ‘foreign-based mining company.’
• Osino had previously been under offer from Dundee Precious Metals, with the agreement valued at C$287.
• The new bid reflects a c.30% premium to the Dundee offer via a $368m all-cash offer.
• Osino holds the Twin Hills gold project in Namibia, with a DFS suggesting 169koz pa over a 13 year LOM. (64.5mt at 1g/t Au for 2.15moz)
• Osino also holds c. 8,000km² of ground in Namibia’s Damara sedimentary belt, targeting orogenic gold discoveries.

Sayona Mining (SYA AU) A$0.059, A$556mn –Moblan, Québec DFS results reported

• Sayona reports DFS results from its Moblan lithium project in the James Bay region, Québec.
• Project suggests a 300ktpa concentrate prodiction via a head grade of 1.36% Li20, LOM recovery of 74.7% for SC6.
• Strip ratio of 2.3:1, LOM of 21 years from probable ore reserves of 34.5mt at 1.36% Li20.
• Annual throughput of 1.75mt milled.
• Suggests $571/t AISC, CAPEX of $722m, Sustaining CAPEX of $72m, for a total project cost including OPEX of £3.3bn.
• The study assumes a SC6 average price of $1,990/t for a post-tav NPV8 of $1.6bn and IRR of 34%.
• The study assumes average prices 99% higher than spot.
• Processing includes both DMS and flotation, alongside ore sorting technology.
• We note a relatively high iron feed grade of 1% over LOM.
• Two open pits have been proposed in the study.

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 employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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