SP Angel Morning View -Today’s Market View, Tuesday 21st May 2024

Copper prices bounce of record highs following short squeeze

MiFID II exempt information – see disclaimer below

Atalaya Mining (ATYM LN) – Q1 report highlights the near term project pipeline

EQ Resources (EQR AU) – Tungsten APT prices continue to rise to $360-370/mtu FOB China for 88.5% min

Leading Edge Materials (LEM CN) – Kurt Budge appointed as new CEO

Premier African Minerals (PREM LN) – Raising an additional £1.25m for the Zulu lithium project.

Rio Tinto (RIO LN) – Rio declares Force Majeure on alumina from Queensland as it struggles for gas supply

Rockfire Resources (ROCK LN) –Molaoi drilling extends known mineralised strike length

Tertiary Minerals* (TYM LN) – Drilling progresses well at Konkola West, 

Copper prices bounce of record highs following short squeeze

• Copper prices have cooled slightly to $10,878/t, having touched 11,030/t on LME.
• The metal has been engulfed in a short squeeze, with several major trading houses reportedly required to deliver physical into COMEX following margin calls
• We note that the players currently short are experienced and well connected participants in the market. Their positioning should raise some warnings to speculators getting caught up in the current copper rally.
• Various indicators suggest current copper demand is relatively muted, with China now exporting refined supply and inventory levels holding high in Shanghai.
• Chinese property starts continue to disappoint – the Country represents 50% of global demand and their property sector represents c.30% of domestic appetite.
• Various high profile fund managers and commentators have been cheering the bull case for copper, which we subscribe to over the long term.
• Elevated copper prices pose the risk of substitution, with aluminium, currently hovering around $2,500, a possibility.
• However speculative funds into the metal have come close to $25bn over the past week according to broker desks.
• Codelco is reportedly directly all of its available shipments into the US to maximise on the arbitrage opportunity on COMEX. (Bloomberg)
• COMEX also suffers from more stringent restrictions on copper delivery, with Russian, Chinese, Bulgarian and Indian supply not regulated for the market.

New CATL Shenxing PLUS Battery can add 600km of range in 10 minutes fast charging

• CATL has introduced the Shenxing PLUS battery, capable of charging at 4C, adding 600 km of range in 10 minutes, and powering an EV for up to 1000 km on a full charge.
• This breakthrough poses a significant challenge to automakers in Europe, North America, Japan, and South Korea, who may struggle to compete with the superior Shenxing PLUS technology.
• Reports also suggest the Shenxing PLUS battery could cost less than $60/kWh by the end of the year, making it highly disruptive if true.
• The International Energy Agency (IEA) has raised alarms about China’s control over critical minerals necessary for battery production, which could disadvantage other countries.
• Despite concerns, the IEA’s 2024 Global EV report is optimistic about the EV revolution, projecting strong growth in EV sales and market share.
• The challenge now is for governments to upgrade grid capacity and power generation to meet expected demand from this next generation of Li-ion batteries

Gold prices ease as traders take profit following sharp move higher

• Gold prices have cooled from $2,450/oz to $2,415/oz. It has now risen 17% ytd.
• There was a sharp rally on Friday which took traders by surprise, but the metal seems to have consolidated around current levels.
• Interest rate cut expectations have increased following more tepid CPI data from the US last week, which was preceded by weak labour market data for March.
• Gold prices have continued to break their close correlation to Treasury yields, instead being propelled by powerful Asian trading.
• China is expected to be behind much of gold’s move, with the current thematic being Western countries selling their gold reserves into the East.
• We note US physical gold ETFs have seen minimal inflows this year, despite record gold prices, suggesting US retail are yet to back the move.
• This could stimulate an additional catalyst should prices maintain their upward momentum.
• Silver has seen sharp rallies as buyers look to leverage the precious metal trade currently unfolding.
• China gold buying has slowed recently, with gold buying on overseas markets down 30% mom in April,
• Chinese investors have been seeking investment alternatives, given the deteriorating housing market and muted stock market.
• The PBoC continues to add gold, however, boosting reserves for the 18^th month in April. Analysts wonder whether they can keep these levels sustained going forward.

Iron ore prices recover again despite deteriorating China home sales

• Iron ore prices have strengthened again, touching $120/t in Shanghai for the 62% index.
• China’s Hang Seng Property and Construction Index has strengthened c.15% this month.
• Beijing is developing policies to convert unused apartments into social housing, fuelling some optimism in the sector.
• Right transfers for state-owned land, which measures local government land sales to property developers, fell 21% in April yoy.
• Housing sales and investment date fell in April too.
• Surveys by Zhilian Zhaopin reports that 57% of white-collar workers in China feared losing their job in March, highlighting the current economic pressure in the Country.
• China property remains oversupplied, with buyers not incentivised to speculate on apartments given weak prospects for value generation.

Economics

US – Fed officials continue to express caution over interest rate cuts

• At least two fed officials warned overnight on Fed cuts to interest rates.
• The officials reckon it is still too early to tell if inflation will fall to the 2% target.
• Given the relatively high employment rate and reshoring of manufacturing back into the US, the Fed feels it does not need to rush into cutting rates.
• We suspect Fed officials may not wish to soften its stance on the 2% inflation target in the run up to the US Presidential election.
• The Fed looks likely to reiterate its ‘higher for longer’ narrative in Wednesday’s FOMC minutes.
• However, financial markets have started selling the US dollar in anticipation of a fed rate cut this summer

China’s EV makers taking longer to pay bills amid rising stress

• Chinese EV makers like Nio Inc. and Xpeng Inc. are significantly delaying payments to suppliers, with Nio taking 295 days and Xpeng 221 days in 2023.
• The extended payment cycles highlight stress in China’s auto market due to sluggish economic growth and subdued consumer sentiment, reducing demand for EVs.
• Delayed payments are severely affecting auto-parts suppliers, particularly smaller tier-three and four suppliers who cannot pass on the delays, risking bankruptcies and production issues.
• Intense price competition among EV makers is further stressing the market as manufacturers reduce prices, resulting in less revenue and further delaying supplier payments.
• Analysts predict a “messy consolidation” in the EV sector, where weaker suppliers may go bankrupt, causing further disruptions in the supply chain.
• Consumers will tend to avoid any manufacturer which looks like it might go under and take its after-sales support down with it.

Risk of flooding in Pearl River region as heavy rain hits region

• ‘Dragon Boat Rain’ is forecast to flood the Bei River with expectations for 20-50% more rain than normal in the region according to the Ministry of Water Resources.
• Heavy rain has already raised the main tributaries by 0.5m with reservoir levels up 10%.
• Guangdong and Guangxi provinces are on a level four flood prevention response with Shenzhen cities are on high alert.

Eurozone – Trade Balance €24.1bn in March vs 23.6bn previously (Eurostat)

South Korea builds $171m critical minerals reserves for Li-ion battery supply to reduce supply chain vulnerability

• South Korea is reported by Bloomberg to be building its lithium inventories, with the government now allocating $171m to boost inventories. (Bloomberg)
• Officials have already started buying lithium carbonate towards the construction of a new lithium reserve to secure supplies for critical minerals for automotive manufacturing.
• KOMIR ‘Korea Mine Rehabilitation and Mineral Resources Corp’ has already bought lithium carbonate from Chile.
• The move also takes advantage of historically low prices for lithium carbonate.
• Lithium carbonate is easier to ship and to store and is more versatile than lithium hydroxide. Carbonate is better suited for LFP battery chemistries but can be easily upgraded into hydroxide for NCM-type batteries.
• The South Korean trade ministry is also looking to stockpile gallium and other critical and rare earth oxides.

South Africa – Court rules Zuma is not eligible to stand for Parliament with five years of his criminal conviction

• The court ruling comes a day after Zuma led the uMkhonto Wesizwe party’s official election manifesto launch (Daily Maverick).
• This means that Zuma is not qualified to stand for election to the National Assembly until five years have elapsed since the completion of his sentence.

Currencies

US$1.0863/eur vs 1.0873/eur previous. Yen 156.13/$ vs 155.66/$. SAr 18.177/$ vs 18.127/$. $1.272/gbp vs $1.267/gbp. 0.667/aud vs 0.669/aud. CNY 7.238/$ vs 7.231/$ 

Dollar Index 104.57 vs 105.27 previous.

Precious metals:         

Gold US$2,418/oz vs US$2,437/oz previous

Gold ETFs 80.9moz vs 80.7moz previous

Platinum US$1,044/oz vs US$1,088/oz previous

Palladium US$1,023/oz vs US$1,011/oz previous

Silver US$31.65/oz vs US$32/oz previous

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

Base metals:   

Copper US$ 10,918/t vs US$10,948/t previous

Aluminium US$ 2,636/t vs US$2,631/t previous

Nickel US$ 21,485/t vs US$21,524/t previous

Zinc US$ 3,142/t vs US$3,077/t previous

Lead US$ 2,340/t vs US$2,326/t previous

Tin US$ 34,455/t vs US$34,251/t previous

Energy:           

Oil US$83.3/bbl vs US$84.2/bbl previous

Natural Gas €31.6/MWh vs €31.3/MWh previous

Henry Hub Gas US$2.76/mmBtu vs US$2.65/mmBtu yesterday

• Crude oil prices edged lower on demand concerns after the US Fed said it was waiting to see more signs of an inflation slowdown before cutting interest rates.
• TotalEnergies has taken FID on the all-electric Kaminho FPSO project to develop the Cameia and Golfinho fields in the deepwater offshore Angola Kwanza Basin, which is expected to reach plateau production of 70kb/d following start-up in 2028 and has an estimated breakeven under $30/bbl and 16kg CO2/boe carbon intensity.
• Apache announced the sale of 13kboe/d of non-core assets in the Midland and Eagle Ford Basins for more than $700m cash, as the Company looks to exit assets that are unlikely to compete for capital in its portfolio.

Uranium Futures $91.6/lb vs $91.3/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$118.7/t vs US$117.0/t

Chinese steel rebar 25mm US$538.3/t vs US$538.0/t

Thermal coal (1st year forward cif ARA) US$119.0/t vs US$111.0/t

Thermal coal swap Australia FOB US$138.5/t vs US$140.5/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$55,196/t vs US$55,421/t

Lithium carbonate 99% (China) US$14,300/t vs US$14,322/t

China Spodumene Li2O 6%min CIF US$1,210/t vs US$1,210/t

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

China Tungsten APT 88.5% FOB US$365/mtu vs US$365/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$325/t

China Rutile Concentrate 95% TiO2 US$1,402/t vs US$1,405/t

Spot CO2 Emissions EUA Price US$68.9/t vs US$68.4/t

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

Battery News

Kia Global EV Retail Sales Surged In April 2024

• Kia sold 17,140 all-electric vehicles in April, representing a 90% increase from the previous year and almost 7% of the brand’s total volume.
• The Kia EV6 was the best-selling EV model with 5,728 wholesale units in April 2024.
• Kia expects to maintain its EV sales momentum with the introduction of the new EV3 and an updated EV6 in the second half of 2024.
• Kia’s year-to-date retail EV sales exceeded 61,000 units, with an estimated growth rate of over 70%.
• Wholesale shipments of E-GMP-based models so far for 2024 exceeded 44,000 units, marking a 23% year-over-year increase.

Company News

Atalaya Mining (ATYM LN) 483p, Mkt Cap £680m – Q1 report highlights the near term project pipeline

• Atalaya Mining reports a Q1 2024 profit of €1.63 (Q1 2023 – €11.1m) arising from the production of 10,666t of copper at an average cash cost of US$2.99/lb (Q1 2023 – 12,139t of copper at US$2.88/lb).
• On an all-in-sustaining cost basis copper production was US$3.17/lb (Q1 2023 – US$3.12/lb).
• The company reports a closing net cash position of €36.1m.
• Lower production compared to Q1 2023 and lower copper prices of US$3.89/lb (q1 2023 – US$4.00/lb) combined to reduce revenue to €69.9m (Q1 2023 – €91.2m), with lower EBITDA of €10.3m (Q1 2023 – €24.4m).
• Commenting on the level of production, CEO, Alberto Lavandeira explained that “we expect copper grades to improve in the coming quarters”. 
• He also confirmed that “Waste stripping activities are also advancing at San Dionisio, which is expected to provide Riotinto with higher grade material in the coming years”.
• The substitution of higher-grade mill feed from San Dionisio, and eventually from other nearby deposits, including at San Antonio, in place of lower grades from Cerro Colorado are key to Atalaya Mining’s production growth strategy.
• Mr. Lavandeira also commented on the paucity of “new large sources of supply … in the coming years as a result of permitting and execution challenges, discipline by key producers and a preference for buying production capacity rather than building it, as highlighted by recent corporate activity”.
• He contrasted Atalaya Mining’s “pipeline of growth projects that are located in regions with high quality infrastructure and long mining histories … [which] … are expected to have low capital intensities and could come onstream much quicker than the mega projects being pursued by peers”.
• We note that, in April, the International Copper Association is reported to have forecast an increase of 12.6mtpa (~45%) in copper demand from 28.3mt in 2020 to 40.9mt by 2040.

Conclusion: Atalaya’s focus on delivering increased production through the near-term development of deposits close to its existing processing plant is a positive response to an increasing demand for copper.

EQ Resources (EQR AU) A$0.055/s, Mkt cap A$103m – Tungsten APT prices continue to rise to $360-370/mtu FOB China for 88.5% min

• Tungsten prices continue to scale new highs having risen from $295-305/mtu a year ago.
• The rise in tungsten price is good news for EQ Resources which runs Saloro at Barruecopardo in Spain and the Mt Carbine tungsten mine in Australia
• EQ Resources has just raised A$9.5m at A$0.045/s with backing from Oaktree Capital which took 15% of the placement.
• The Queensland Critical Minerals and Battery Technology Fund will also provide EQR’s Mt Carbine Tungsten Mine with an up to A$20m in a 3-year loan facility to raise production.
• Chinese tungsten carbide prices surged late last week despite limited orders from downstream.
• Increasing raw material costs continue to cause carbide producers to raise prices with further rises expected this week.
• Increasing munitions and other weapons manufacturing combined with retooling for new EV models, aircraft and other manufacturing is seen as driving new demand.
• Seven tungsten concentrate producers stopped production in April idling some 10,660t of capacity.

Leading Edge Materials (LEM CN) C$0.09/s, Mkt cap C$17m – Kurt Budge appointed as new CEO

• Leading Edge Materials report the appointment of Kurt Budge as their new CEO.
• Kurt, former ceo at Beowulf, is well acquainted with the politics of permitting mining projects in Sweden and appears well qualified for the role.
• While at Beowulf Kurt was looking to develop the Grafintec graphite anode materials plant in Finland alongside the Kallak North high-grade iron ore project in Sweden.
• Leading Edge Materials is looking to advance the Woxna graphite and Norra Kärr HREE projects in Sweden.

Premier African Minerals (PREM LN) 0.16p, Mkt Cap £53m – Raising an additional £1.25m for the Zulu lithium project.

• Premier African Minerals is raising an additional £1.25m via a subscription issue of 781.25m shares at a price of 0.16p/share to assist in remedial measures at its troubled Zulu lithium plant in Zimbabwe.
• In addition to the subscription, Premier African Minerals is issuing a further 983.5m shares  (also priced at 0.16p/share) to some of its contractors as “payment of US$2 million dollars of invoices”.
• The subscription shares and the shares issued to the contractors represent ~5.6% of the enlarged company.
• The company, which earlier this month reported that the plant had achieved 50% capacity, says that it expects ‘steady-state’ production to be achieved “from Q3 of 2024”.
• Premier African Minerals confirms that “mining operations and the ROM ore grades … consistently exceed our resource estimate and this is mitigating for the moment, the ore sorter deficiencies” which, following the replacement of “the original plant contractor in March 2024” the company’s “preferred outcome … [is that] … that the original supplier” should resolve.
• “Extensive ore sorting test work is about to commence and replacement ore sorters will be considered thereafter”.
• The company is also expecting results from its programme of “Dense Media Separation based test work on the undersized ore fraction being stockpiled … [with] … has completed and laboratory results are awaited to determine spodumene and tantalum recoverability”.

Conclusion: The raising of additional funds provides the resources to pursue remedial measures at Zulu which the company expects to bring the operation to steady-state production in Q3 this year.  Additional metallurgical testing is also underway however, in hindsight,  it is possible to speculate that if the testing had been done earlier the commissioning of the plant might have been smoother

Rio Tinto (RIO LN) £134/s, Mkt cap £186m – Rio declares Force Majeure on alumina from Queensland as it struggles for gas supply

• Rio has declared force majeure on alumina cargoes from its Queensland operations.
• The Company is reportedly struggling for gas supply to power its refineries, Bloomberg reports.
• Rio operates the refinery in a JV with Rusal.
• Fires in March had impacted gas pipelines.
• Rio’s own aluminium operations will reportedly not be affected.

Rockfire Resources (ROCK LN) 0.18p, Mkt Cap £4.6m –Molaoi drilling extends known mineralised strike length

• Rockfire Resources reports that drilling at its wholly-owned Molaoi zinc project in Greece has intersected zinc mineralisation 400m north of the “currently defined resource area”.
• The company says that hole HMO-002 “intersected 4.52m @ 9.3% ZnEq” in “4 separate lodes”.
• The company confirms that drilling is continuing “with observations of the core recording visible zinc mineralisation in holes drilled deeper than historical drilling, as well as holes being drilled to the north of the resource”.
• Current ‘Inferred’ resources are reported as 2.3mt at an average zinc equivalent grade of 11% and Rockfire Resources says that it “is striving to expand the zinc resource at Molaoi at depth and along strike to the north”.
• So far, resources extend along 1.4km of strike length and to a depth of 220m below surface.
• The company’s current objective is to define “a zinc equivalent resource of at least 400,000 tonnes”.

Conclusion: Rockfire Resources’ drilling at Molaoi is continuing and aiming to expand the existing ‘Inferred’ resource by around 60% to 400,000t on a contained zinc equivalent basis.

Tertiary Minerals* (TYM LN) 0.13p, Mkt Cap £3.3m – Drilling progresses well at Konkola West

• Tertiary provides an update on their current drill programme at Konkola West in Zambia.
• KoBold is currently earning into the asset, with the hole now reaching a depth of 1,023m down-hole.
• The Group are targeting ore-shale, which hosts neighbouring mineralisation such as the neighbouring Mingomba deposit.
• Today the Company reports that several key market horizons have been noted from visual analysis of the drillcore, which bear similarities to those in neighbouring deposits.
• Assay results are expected following completion of the hole in mid-June.

Conclusion: This is a promising update from Tertiary and KoBold as they progress the Konkola-West hole at depth. The Group has now hit 1,024m at depth and several key marker horizons have now been identified. The Group suggests that these market horizons bear similarities to those that were identified above economic deposits at neighbouring copper projects. This presents the possibility that Tertiary and KoBold are now nearing mineralisation, albeit at considerable depth. However, it remains early days in the Konkola-West exploration story and Management notes ‘it is not yet possible to predict with any certainty the depth at which the ore-shale might be encountered.’

*SP Angel acts as Nomad and Broker to Tertiary Minerals

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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