SP Angel Morning View -Today’s Market View, Tuesday 22nd October 2024

Copper slips as base metals rally and US dollar climbs to July highs

MiFID II exempt information – see disclaimer below

Boliden AB (BOL SS) – Q3 Results as Tara restart looms

Cornish Metals* (CUSN LN) – Stock option incentivisation for new chief executive

Iluka Resources (ILU AU) – Q3 Production as Balranald construction accelerates as Tio2 market subdued

Largo (LGO CN) – 3Q24 update

Metals Acquisition (MTAL US) – Q3 Production and CSA exploration plan

Neometals (NMT LN) – Opening of the LiB recycling plant in Germany

Orosur Mining* (OMI LN) – Colombian exploration results show high-grade gold in artisanal tunnels

Sovereign Metals* (SVML LN) – Infill drilling program complete with assays and new mineral resource estimate due early next year on Kasya rutile and graphite project in Malawi

Copper ($9,622/t) slips as base metals rally and US dollar climbs to July highs

• Copper prices remain subdued following a sell-off in China equities dampened sentiment.
• The weakness comes despite a rally in various base metals, with zinc, aluminium and lead all rallying.
• The dollar has climbed as US Treasuries sold off, with rising yields attracting international flows.
• BHP reported Olympic Dam copper output will be halted through the end of October on storm damages.
• Iron ore remained subdued, with the World Steel Association expecting Chinese consumption to slide to 870mt in 2024.
• Steel inventories rose in October, a sustained period of weak production since November 2021.

Gold ($2,733/oz) prices rebound despite Treasury sell-off as ETF inflows accelerate

• Gold prices have rebounded from a sell-off yesterday, having fallen from record highs of $2,741/oz to $2,719/oz before rebounding again.
• The metal has moved to all-time highs at a time when US Treasury yields on the 10 year have risen from 3.66% amid the Fed 50bp cut meeting to >4.21% today.
• Higher yields usually weigh on gold prices, but the decoupling suggests new forces are moving the metal.
• Central bank buying has been a major driver, with BRIC countries meeting today likely raising concerns over further de-dollarisation.
• Global gold inflows reached 85moz for the first time this year and remain well below 2020 peaks of 111moz.

US EV sales hit record third quarter

• In the US 346,408 EVs were sold in Q3 2024, 11% up yoy, and a record for the quarter.
• EVs represent 8.9% of all vehicles sold, up from 7.8% last year.
• The rate of EV sales growth has slowed, but sales are still growing.
• A loophole in leasing tax rebates has driven sales in the quarter.
• The government offers a tax rebate of up to $7,500 to help US consumers buy an EV, however, the law sets several restrictions on purchased cars (income limits, price caps, and limits on where certain parts originate or assembly locations), but the IRS waives those restrictions on leased cars.

Economics

US – Jeffrey Schmid, Kansas City Fed President (non-voting FOMC member), said he favours a slower pace to interest reductions.

• “Absent any major shocks, I am optimistic that we can achieve such a cycle, but I believe it will take a cautious and gradual approach to policy,” Schmid said Monday.
• “While I support dialing back the restrictiveness of policy, my preference would be to avoid outsized moves, especially given uncertainty over the eventual destination of policy and my desire to avoid contributing to financial market volatility,” Schmid added.

France – The government is targeting to being budget deficit to 2.8% in 2029 from 6.1% in 2024.

• Projections are to be submitted to the EU by the end of the month as France is seeking an extension to the term to meet EU 3% target to seven years from current four.
• Forecasts are based on GDP growth to accelerate to 1.1% in 2025, 1.4% in 2024 and 1.5% in 2027.
• This is 0.1pp above current market estimates and compares to 1.1% expected by the market in 2024.

Israel – US Secretary of State Antony Blinken will meet with Israeli leaders amid ongoing ceasefire negotiations.

• That would mark Blinken’s 11^th visit into the region since the war started after Hamas’ Octoebr 7 attack.

Good news for flyers

• Airbus has worked out how to install larger overhead bins for luggage on its planes.
• The L-shaped bins will increase luggage space by an extra 60%.
• This doesn’t mean that Squeezy Jet won’t charge you extra for it but it should be helpful particularly for flights where you just don’t want to risk losing your luggage.

Currencies

US$1.0831/eur vs 1.0851/eur previous. Yen 150.99/$ vs 149.77/$. SAr 17.532/$ vs 17.609/$. $1.301/gbp vs $1.303/gbp. 0.669/aud vs         0.669/aud. CNY 7.122/$ vs 7.113/$.

Dollar Index 103.88 vs 103.61 previous

Precious metals:         

Gold US$2,734/oz vs US$2,727/oz previous

Gold ETFs 84.0moz vs 84.0moz previous

Platinum US$1,019/oz vs US$1,025/oz previous

Palladium US$1,074/oz vs US$1,080/oz previous

Silver US$34.2/oz vs US$34.2/oz previous

Rhodium US$4,775/oz vs US$4,775/oz previous

Base metals:   

Copper US$9,623/t vs US$9,731/t previous

Aluminium US$2,630/t vs US$2,642/t previous

Nickel US$16,610/t vs US$17,080/t previous

Zinc US$3,114/t vs US$3,124/t previous

Lead US$2,069/t vs US$2,077/t previous

Tin US$30,810/t vs US$31,313/t previous

Energy:           

Oil US$73.7/bbl vs US$73.5/bbl previous

• WTI crude oil prices fell back below $70/bbl on reports that US Secretary of State Antony Blinken has travelled to the Middle East in order to push for a ceasefire between Israel and Hamas.
• Hunting reduced FY24 EBITDA guidance by 8% due to the subdued US onshore market and low natural gas pricing, which has resulted in cost cutting initiatives being planned to further right-size the Titan. Management continues to evaluate acquisition opportunities, with a focus mainly on subsea and well completion targets.
• Perenco CCS is mid preparation for a CO2 injection test on the Leman 27H platform in the UK Southern North Sea following completion of a workover programme to convert a shut-in gas producer to a CO2 injector.
• Shell’s proposed sale of a package of Nigerian onshore assets to a consortium of local companies for over $1.3bn has failed to gain ministerial approval according to the Upstream Petroleum Regulatory Commission.
• EnCap has raised a total of $6.4bn associated with Fund XII, including $1.2bn of co-investment for Fund XII portfolio companies, which currently invests in 12 portfolio companies across major US oil & gas basins.

Natural Gas €39.9/MWh vs €39.7/MWh previous

Uranium Futures $82.6/lb vs $83.3/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$103.7/t vs US$104.1/t

Chinese steel rebar 25mm US$533.1/t vs US$529.5/t

HCC FOB Australia US$203.0/t vs US$204.5/t

Thermal coal swap Australia FOB US$146.3/t vs US$147.3/t

Other:  

Cobalt LME 3m US$24,300/t vs US$24,300/t

NdPr Rare Earth Oxide (China) US$59,607/t vs US$59,700/t

Lithium carbonate 99% (China) US$9,759/t vs US$9,774/t

China Spodumene Li2O 6%min CIF US$750/t vs US$750/t

Ferro-Manganese European Mn78% min US$985/t vs US$985/t

China Tungsten APT 88.5% FOB US$340/mtu vs US$340/mtu

China Graphite Flake -194 FOB US$445/t vs US$445/t

Europe Vanadium Pentoxide 98% 4.6/lb vs US$4.6/lb

Europe Ferro-Vanadium 80% 24.55/kg vs US$24.55/kg

China Ilmenite Concentrate TiO2 US$315/t vs US$316/t

China Rutile Concentrate 95% TiO2 US$1,285/t vs US$1,301/t

Spot CO2 Emissions EUA Price US$63.9/t vs US$63.9/t

Brazil Potash CFR Granular Spot US$277.5/t vs US$277.5/t

Germanium China 99.99% US$2,875.0/kg vs US$2,875.0/kg

China Gallium 99.99% US$455.0/kg vs US$455.0/kg 

Battery News

UK shift to EV is gaining speed, EY study finds

• According to EY’s latest Mobility Consumer Index, UK car buyers are increasingly turning towards EVs, with interest in petrol and diesel cars continuing to drop.
• The report revealed that 59% of those planning to buy a vehicle in the next two years prefer battery electric vehicles (BEV), hybrid electric vehicles (HEVs), or plug-in hybrid electric vehicles (PHEVs), up from 54% in 2023.

• • 23% of respondents will most likely opt for BEV, up from 19% in 2023
  • 27% plan to purchase an HEV, up from 25% in 2023.
  • Interest in PHEVs has remained steady at 10%.
  • Preference for ICE vehicles has dropped to 36%, down from 41% in 2023.
• Despite growing sentiment for EVs, high up-front cost of EVs is still a major consumer concern.

Canada to offer temporary tariff relief for firms importing Chinese EVs

• The Canadian government will allow domestic firms to request temporary relief from recently imposed tariffs on Chinese EVs, steel, and aluminium products.
• The announcement is intended to provide Canadian businesses with a transitional period to adjust supply chains in response to the tariffs.
• According to the finance ministry’s statement, the relief will be granted under “specific and exceptional circumstances.”

Company News

Boliden AB (BOL SS) SEK338, Mkt Cap SEK91bn – Q3 Results as Tara restart looms

• Boliden reported operating profit of SEK2,999m, yoy from SEK1,940m but down qoq from SEK4,000m.
• Free cash flow reported at (SEK400m), down from SEK400m the prior quarter but an improvement yoy from 3Q23 of (SEK1,200).
• Net debt increased to SEK14,800m, up qoq from SEK14,372 and yoy from SEK12,333m.
• CAPEX over the period at SEK3.2m, with funds used to ramp up Odda zinc smelter to 350ktpa from current 200kt.
• CAPEX guided for 2024 at SEK15.5bn and SEK13.5bn in FY25.
• Full production from Odda expected 2025.
• Ramp up at Rävliden in the Kristineberg polymetallic mines in the Boliden Area due for first production 1Q25.
• Company reports record milling volume from the Garpenberg underground zinc mine.
• Company also ramping up Tara zinc project in Ireland for first milling production in January 2025.
• Boliden is reviewing the Kevitsa operation, where nickel in concentrate production is lower due to lower grades and recoveries.
• Regarding smelting operations, Boliden report negative contributions from lower TC charges, metal premiums and nickel prices.
• Operating costs are also reported higher owing to ‘more external services.’

Market Commentary

• Boliden notes that spot treatment charges for zinc continued to fall into Q3, and suggests over 50% of Chinese smelters are now operating cash negative.
• Refined zinc demand increased 3% qoq and 2% yoy, whilst global mine production increased 2% qoq.
• Copper demand seen increasing 5% qoq and yoy, with global refined copper production up 2% qoq and yoy.
• Spot treatment charges for copper improved marginally over the quarter but remained in negative territory.
• Global copper concentrate production up 4% yoy.
• Global nickel demand down 6% qoq and 2% yoy.
• Sulphuric acid spot price up 17% qoq, on robust global demand and a shortage in Europe, alongside smelter capacity shutdowns in Europe.

Cornish Metals* (CUSN LN) 7.9p, Mkt Cap £42m – Stock option incentivisation for new chief executive

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• Cornish Metals report the granting of 2.5m stock options for the new CEO, Don Turvey.
• The options have an exercise price of 8.5p/s with a five-year term.
• The options vest over three-years with a third of the options vesting at the end of each of the three years.
• Adding in the new 2.5m options brings the total number of stock options to 29.45m representing 5.5% of the issued share capital.

Conclusion:  Most investors and institutions support the issue of stock options as a financial incentive to management.

If Cornish Metals shares realise our calculated valuation of 39p/s the award should be worth £762,500 pre-tax. This seem reasonable given Mr Turvey’s level of expertise and the effort required to restart the South Crofty tin mine.

*SP Angel acts as Nomad and Broker. An SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals

Iluka Resources (ILU AU) A$6, Mkt cap A$2.6bn – Q3 Production as Balranald construction accelerates as Tio2 market subdued

• Iluka reports Mineral Sands revenue of A$232m over the period, down qoq from A$338m but up yoy from A$222m.
• Mineral sands revenue ytd down 10.2% vs 2023 at A$838m.
• Company produced 138kt Zircon, Rutile and synthetic rutile, alongside 108kt ilmenite.
• Ytd zircon, rutile and synthetic rutile production down 31% vs 2023.
• Ilmenite production down 30% ytd vs 2023.
• Synthetic rutile price reported at US$1,178/t for the quarter, down from US$1,194/t previous quarter.
• Zircon price over the quarter at US$1,891/t vs US$1,907 previous.
• YTD cash costs of production at A$1,302/t, up from A$866/t previous.
• Weakness from Jacinth-Ambrosia mine in South Australia, where lower grade ore was processed, in line with the mine plan.
• Cataby production increased following the commissioning of a new mining unit boosted throughput.
• HMC inventory build ytd of 193kt, driven by ilmenite-bearing concentrate from Cataby, which will support restart of SR1 kiln.
• Funding discussions for Eneabba ongoing, with CAPEX guided at A$1.7-1.8bn, update due 2H24.
• Balranald rutile project earthworks progressing, with site access road due for completion this quarter. Commissioning due 2H25.

Market Commentary

• Zircon

• • Subdued Chinese ceramics demand from weak property sector.
  • Refractory and foundry markets showing signs of softening.
  • European demand stable, whilst US manufacturing also steady.
  • Floodingin India hit opacifier demand over Q3 but expected to recover.
  • Q4 seasonality effect likely to weigh on Zircon demand.

• Titanium Feedstocks

• • Welding-grade rutile demand weak from China, weighing on prices.
  • Pigment demand stable whilst pigment producers boosting operating rates in anticipation of 2025 turnaround.
  • EU anti-dumping tariffs set to boost demand growth in 2025 alongside China property stimulus measures.

Largo (LGO CN) C$2.8, Mkt Cap C$176m – 3Q24 update

• The Company released a quarterly operating update at the Maracas Menchen Mine in Brazil.
• 3Q24 production amounted to 3.1kt V2O5, marking a 42%yoy growth.
• Higher production was driven by better plant recoveries and processed grades.
• Ilmenite by product production came in at 16.4kt, up 90%qoq, as the circuit ramps up.
• Second kiln maintenance will be carried during 4Q24 as opposed to originally planned 1Q25 with production expected to come in lower during the quarter.
• The decision is argued to mitigate the operational impacts of the rainy season and higher precipitation months of December and January.
• Additionally, the market remains challenging with sales lagging production.
• 2Q24 sales amounted to 2.0kt V2O5 amid weak demand, particularly, in the Chinese and European steel industries.
• 2024 guidance left unchanged.
• Vanadium market prices are reported to have continued to fall averaging $5.7/lb in Europe in 3Q24, down 4%qoq and 29%yoy, on oversupply in Asia and Europe.
• The Company is quoting Vanitec consultancy saying that the oversupply gap is now gradually narrowing.
• The Company signed an agreement with an investment fund to monetise its vanadium inventories and access additional liquidity at the time of depressed demand and vanadium prices.
• Under the agreement, the Company will deliver 2.1kt V2O5 to the fund in exchange for ~$23.5m (equivalent to $5.1/lb V2O5 price).
• Deliver will be completed in separate shipments between October 2024 and March 2025, with funds received upon each delivery.
• At the fund’s discretion, it may elect the Company to repurchase up to a maximum of 2.1kt V2O5 at a fixed price not more than $7.0/lb (~$32.4m), 90d prior to 30 September 2027.

Metals Acquisition (MTAL US) $12.25, Mkt cap $850m – Q3 Production and CSA exploration plan

• Australian copper producer Metals Acquisition, which bought Glencore’s CSA mine in the Cobar, reports production results for the quarter.
• Production reported at 10,159t, down 6.5% qoq.
• Double lift stope strategy implemented in 2Q24 to boost grade consistency, with average grade over past two quarts at 4.1% Cu, benefiting from lower dilution.
• Record December quarterly production expected.
• Guiding to mid-point of annual guidance at 40.5kt.
• 2025 guidance at 43-48kt.
• Company aiming to boost production to >50ktpa by 2026.
• C1 costs for the quarter at US$1.9/lb, down 6% qoq on reduced milling costs and lower treatment and refining charges.
• Total cash costs reported at US$2.71/lb, down 0.4%.
• Sustaining capital down 2% qoq at US$12.5m.
• Operational free cash flow over the quarter reported at US$30m.
• Cash and cash equivalents reported at US$81m, having repaid US$8m in senior debt obligations.
• Company raised US$103m subsequent to quarter end, with which it aims to retire the Mezzanine debt facility and ‘pursue strategic inorganic growth opportunities.’
• Pro-forma net debt following equity raise at US$131m.

Neometals (NMT LN) 4.8p, Mkt Cap £34m – Opening of the LiB recycling plant in Germany

• The Company reports opening of the lithium ion battery (LiB) recycling facility in Kuppenheim, Germany.
• The plant uses patented LiB recycling process developed by 50/50 JV Primbius between Neometals and SMS Group.
• The process recovers lithium, nickel, cobalt and manganese from black mass to enable the production of new battery modules.
• Final assembly and commissioning of the hydrometallurgical processes will continue gradually after the opening event.
• Primobius designed, fabricated and is installing 2.5ktpa integrated plant with purchase orders secured from Mercedes under the partnership agreement reached in March 2022.
• This is the first battery recycling plant in Europe based on an integrated mechanical-hydrometallurgical process opened by Mercedes-Benz in Kuppenheim, southern Germany.
• The recovered materials will be used to produce more than 50,000 battery modules for new all-electric Mercedes-Benz models.

Orosur Mining* (OMI LN) 2.9p, Mkt Cap £7m – Colombian exploration results show high-grade gold in artisanal tunnels

(Anzá 100% indirect ownership proposed)

• Orosur Mining provides an update from their Colombian assets following the recent reacquisition of the Anzá project.
• Previous drilling had reported high-grade mineralisation from surface at Pepas over a composite intersection of 151m at 3g/t Au.
• Additional holes from the same pad had returned 35.5m at 2.1g/t Au and 80.6m at 3g/t Au.
• However, step out holes, drilled further away from the original wide intercept holes failed to return mineralisation.
• The Company believes that the later drilling failed to understand the structural controls of the Pepas gold mineralisation.
• Recent exploration work has seen detailed sampling and geological mapping of Pepas to better understand the geological controls,
• The Company has also identified two abandoned artisanal mining tunnels.
• Rock-chip sampling over 120m showed grades ranging up to 80g/t Au.
• The Company took 1m composite channel samples over the entire length of each tunnel.
• Tunnel A showed channel samples from 0.35g/t Au to 10g/t Au, whilst the Tunnel B showed higher grade assays, hitting 195g/t Au and consistently over 10g/t Au in sections.
• Given that the 150m hole at 3g/t Au (PEP-001) lies 61m from Tunnel B, the Company believes there is potential for mineralisation at scale.
• As a result of this hypothesis, Orosur plans to drill a hole from tunnel B to intercept the PEP-001 intercept.
• Elsewhere in Colombia, the Company has been mapping and geochemical surveying the El Cedro and El Roble porphyry prospects, previously held by Anglo American.
• Sampling to date suggests that the El Roble and El Cedro could be part of the same, larger porphyry system, according to the company.
• They have identified ‘extensive areas of quartz veining with highly anomalous gold values up to 10g/t Au.’
• Orosur will look to progress the El Roble and El Cedro prospects with more detailed mapping to delineate drill targets.

Conclusion: Orosur has wasted no time in beginning ground-based exploration work at their Anzá project having secured it back from Newmont and Agnico Eagle. The Project has had limited attention following the formation of the JV and Orosur has begun executing detailed mapping and geochemical programmes on site. Today the Company reports an encouraging breakthrough, discovering high-grade gold in old artisanal tunnels. The Company is looking to use this development to boost their understanding of the Pepas gold mineralisation, where previous drilling had reported wide gold intercepts from surface. Management plans to collar new holes from the entrance of the high-grade tunnel to intersect the previous drilled intercepts, before working to assess the potential scale.

*SP Angel acts as Nomad and Broker to Orosur Mining

Sovereign Metals* (SVML LN) 34.5p, Mkt Cap £207m – Infill drilling program completes with assays and new mineral resource estimate due early next year on Kasya rutile and graphite project in Malawi

(Sovereign currently holds 100% of the Kasiya project. Malawi has 10% free carry right. Rio Tinto acquired an initial strategic interest of 15% for A$40m mid 2023 and has recently invested a further A$19.2 to move up  to 19.9%)

STRONG BUY – Valuation 55p

• Sovereign Metals report the completion of their 281 hole (5,607m) aircore infill drilling program at the Kasiya rutile and graphite project in Malawi
• The team have been infill drilling into loose unconsolidated sedimentary material over the designated planned pit areas with an average drill spacing of 142m covering a 200x200m grid.
• Drilling is also with support from an additional 309 (1,280m) hand auger holes down to 4m plus 30 push tube and diamond core drill holes for another 663m down to 22m depth.
• The huge number of samples generated are processed in the company’s process facilities in Lilongwe with samples sent to third party laboratories in South Africa and Australia for verification.
• Drilling focused on the southern portion of the Kasiya project which is expected to supply feedstock for its first eight years of production.
• The result and updated resource estimate is due in early 2025.
• Pre-development activities are being overseen by the Sovereign-Rio Tinto Technical Committee.
• The current Mineral Resource Estimate covers high-grade rutile and graphite zones over >201 sq km.
• Plan views and photos of the drill program are available on the company press release.

*SP Angel act as Nomad and broker to Sovereign Metals. The analyst has recently visited the Kasiya mine site. We highly recommend the Malawi coffee beans sold in Lilongwe airport.

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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35-39 Maddox Street London

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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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