SP Angel Morning View -Today’s Market View, Tuesday 23rd July 2024

Copper price ($9,180/t) weakness persists amid wider metals sell off on China disappointment

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Kumba Iron Ore results

Base Resources (BSE LN) – Quarterly results as takeover looms and Kwale winds down

Iluka (ILU AU) – Quarterly results as costs climb on lower production

Lynas Rare Earths (LYC AU) – Quarterly results as Kalgoorlie ramp up accelerates

Pensana (PRE LN) – £2.0m working facility update

Savannah Resources* (SAV LN) – Major shareholder tops up his stake in the market

Tungsten West (TUN LN) –– Additional convertible note funding

Copper price ($9,180/t) weakness persists amid wider metals sell off on China disappointment

• Base metals have fallen overnight, with copper touching $9,122/t and zinc and aluminium both down.
• Iron ore has also fallen towards $100/t, with the 62% China index below $104/t.
• Copper traders have been disappointed by China’s Third Plenum, which failed to provide mass stimulus rollouts to shore up the property sector.
• China continues to export refined production into Western exchanges, with LME inventories doubling since May.
• China exports climbed to 157.7kt in May vs 2012 record highs of 102kt.
• Producers are boosting output, with Southern Copper lifting guidance and Zambia planning to hit 3mtpa by 2030.
• Iron ore prices are suffering from weak steel margins, with reports of soaring steel inventories in China.
• Nippon Steel is ending its JV with Baoshon on weak domestic demand from automakers vs Chinese players. We imagine their contentious bid for US Steel may also play a role in the decision to reduce Chinese exposure.
• Treatment and refining charges remain extremely low at $4.5/t and o.45c/lb with at least one negative contract reported partly caused by miners finding new ways to process their own copper concentrates.
• Kamoa and Grasberg are increasingly processing their own concentrates while Cobre Panama remains offline.
• Chinese traders are being particularly cautious this year on their restocking indicating some concern over manufacturing output in Q4.

Gold prices ($2,404/oz) bounce as traders look to Friday’s inflation data

• Gold bounced from recent lows of $2,388/oz this morning, now back over $2,404/oz.
• PCE data is due on Friday, which is closely watched by the Fed and expected to show 2.5% inflation vs 2.6% in May.
• The 10 year yield has eased from recent highs, having climbed 10bp from 4.16% to 4.26%.
• The reversal in yields saw ETF buying slow, however further progress on inflation and cooling in the labour market may push borrowing costs down, triggering further rotation from bonds to gold.
• China buying has slowed since April, with weakening premiums in Shanghai suggesting consumers are slowing purchases alongside the PBoC.

Lithium slump continues as China carbonate imports slide in June

• Lithium continues to struggle as supply surpluses persist following an unforeseen ramp up in African hard rock supply.
• China imports for lithium carbonate fell 23% in June month of month.
• Argentina is ramping up supply, accounting for 17.5% of China’s imports in June vs Chile’s 80% market share. (SMM)
• Demand remains strong from the EV sector, albeit slower than 2023, with EV growth in China expected to be c.25% this year.
• However, Mysteel reports that China carbonate production grew nearly 60% for 1H24 yoy.

EVs could get 50% lighter with new carbon fibre batteries

• The recent innovation could potentially reduce the weight of cars and aircraft by up to 50%.
• Sinonus, a spin-out from Chalmer’s University of Technology (CTU) has developed carbon fibre-based structural batteries.
• The potential energy density of the battery could be between 25% and 50% of current lithium-ion batteries.
• Sinonus has already demonstrated the technology’s potential by replacing AAA batteries in low-power products in its lab.
• The company is hoping to expand the technology to larger applications such as IoT devices, and eventually to drones, computers, larger vehicles, and even airplanes.

SP Angel rankings LSEG StarMine Award for most accurate forecasting in Reuters polls:

• No1 – Q2 Precious Metals and No2 – Q2 Base Metals. Our forecasting uses HI – not AI

SharePickers: Is there a Banking Crisis in China?  Video: https://www.youtube.com/watch?v=rLUGXIhl2q4

•         Podcast: https://audioboom.com/posts/8544049-john-meyer-is-there-a-banking-crisis-in-china

Economics

US – SEC approves spot ether ETFs as investment in cryptocurrency assets goes further mainstream.

Chinese companies raise a record US$14bn in offshore convertible bonds

• Alibaba raised $5bn in May
• Ping An Insurance raised $3.5bn last week.
• Offshore convertible issuance was just $829m last year
• A loss of confidence in the HK market with international buyers is changing the way funds are raised with Singapore picking up some of the slack.

China Third Plenum: The Decision, published in the People’s Daily

(With reference to today’s note from John Browning at Bands Financial)

• China’s leadership has published the results of its deliberations from its Third Plenum today. Key points seem to be:
  • China intends to be the largest and most influential industrial superpower by 2035 reaching technological self-sufficiency by 2035.
  • Beijing appears to be looking to decouple from western markets via the development of “a self-sustaining-global-south-centric-marketplace to drive consumption thereby freeing it from the West.”
• John Browning reminds us of Chinese exports into the ASEAN region which now exceed exports int the US and the EU.
• Problem is that when it comes to higher-value technologies like EVs the US and EU may be more valuable markets than the ASEAN region.
  • Chinese exports rose 8.6% yoy to a 21-month high of USD 308bn
    • EU 4.1%, the
    • US 6.6%,
    • ASEAN 15.0%
  • Key export components:
    • Electronics 4.9%,
    • Automobile parts 5.6%,
    • Cars 18.9%,
    • Integrated circuits 21.6% probably mainly for white goods
• Putin’s war against Ukraine and its disruption to supply chains hurt confidence in German manufacturing with companies moving new production elsewhere.
• European manufacturing is struggling to recover with activity in German still falling as consumers shun diesel vehicles in favour of petrol, hybrids and EVs..
• Beijing’s support for Russia surely helps to accelerate the decline in German manufacturing thereby reducing the capacity of a major competitor.
• Restrictive working practices across Europe led by strong unionisation and socialist leaders may also be making harder for industry to restructure and recover.
• Tariffs: we are not sure who started the tariff thing between the West and China but note that China has had tariffs on its commodity imports for as long as we can remember.
• If China was to reduce those tariffs it would be anti-inflationary at the expense of some local miners and refiners and would also help lower input costs for its manufacturing industry.
• China could in effect, start exporting its more polluting industries abroad as the west has done as it upgrades to higher-value technology.
• China offshoring: We see Chinese manufacturers working to develop manufacturing plants within Europe, Mexico and the US so they can establish sales into these regions. Surely part of a plan to broaden brand acceptance.
• Reshoring:  The west is trying to reshore as much as it can to reduce its dependence on China.
• Diode supply was a particular problem when Wuhan shutdown to limit Covid infection in January 2020.
• Western manufacturers with diversified supply chains found their non-Chinese suppliers all bought certain components from China, particularly Diodes causing assembly times which work on just-in-time-inventory to slow or even shut down.
• It is a difficult decision for governments, do you maintain low tariffs and try to trade and compete with China and its subsidies or do you raise tariff barriers to protect domestic industry.
• This would be an easier decision if China was to stimulate its domestic consumption and make it easier for the West to sell into China but if anything easy China free trade appears off the menu for now.
• The irony is that much manufacturing in China has been funded by US institutions which we believe have been gradually withdrawing from investment in China.
• The Biden administration recently released its proposed rule that would establish a regulatory framework for outbound investments in China.
• The proposal is for a high-level framework to mitigate the risks to US national security from US outbound investments in “countries of concern” which is just China for now.
• The Proposed Rule would prohibit or impose notification requirements on investments by US entities in companies based in China or owned by Chinese interests conducting targeted activities in certain sectors including semiconductors and microelectronics, quantum information technologies, and certain applications of AI.

India – The government raised spending on jobs and rural development compensating that with an increase in taxes on equity investments in the 2024-25 budget.

• New coalition government will spend $24bn on new jobs efforts over the next five years and $32bn on rural development.
• Total capital expenditure on infrastructure was unchanged from interim budget at $133bn.

Philippines – Property stocks pulled back yesterday following President Ferdinand Marcos Jr decision to ban online casinos.

• Casinos’ back office operations account for more than 10% of commercial real estate in the nation’s capital, Manila, FT reports.

Chile – 7.4 earthquake hit northern Chile on Thursday

• The earthquake struck near the mining centre of Calama and 28 miles southeast of San Pedro de Atacama
• Aftershocks have remained between 4-6 on the Richter scale

Currencies

US$1.0878/eur vs 1.0885/eur previous. Yen 156.44/$ vs 156.50/$. SAr 18.367/$ vs 18.309/$. $1.292/gbp vs $1.293/gbp. 0.663/aud vs 0.667/aud. CNY 7.275/$ vs 7.273/$.

Dollar Index 104.34 vs 104.27 previous

Precious metals:         

Gold US$2,394/oz vs US$2,402/oz previous

Gold ETFs 82.0moz vs 82.1moz previous

Platinum US$948/oz vs US$962/oz previous

Palladium US$894/oz vs US$917/oz previous

Silver US$28.82/oz vs US$29/oz previous

Rhodium US$4,650/oz vs US$4,650/oz previous

Base metals:   

Copper US$ 9,124/t vs US$9,256/t previous

Aluminium US$ 2,301/t vs US$2,338/t previous

Nickel US$ 16,065/t vs US$16,210/t previous

Zinc US$ 2,689/t vs US$2,769/t previous

Lead US$ 2,072/t vs US$2,106/t previous

Tin US$ 29,175/t vs US$30,695/t previous

Energy:           

Oil US$82.5/bbl vs US$83.0/bbl previous

Henry Hub Gas US$2.25/mmBtu vs $2.19/mmBtu yesterday

• Media reports that Russia exported 15.2bcm of natural gas to China in 1H24, somewhat ahead of the 14.6bcm supplied to Europe where Austria, Hungary and Slovakia remain key customers.
• Perenco has completed a campaign of velocity string installations on five wells at the West Sole Charlie platform in the UK Southern North Sea, which increased production by 5mmcf/d to ~30mmcf/d. Inserting velocity strings of narrower diameter helps to increase the fluid velocities, thereby sustaining production at lower pressures.
• Eni plans to sell a 20-25% stake in Enilive to KKR based on a gross valuation of €11.5-12.5bn for its biofuel unit, which is above consensus expectations following the recent negative sentiment towards the sector.

Natural Gas €31.7/MWh vs €31.2/MWh previous

Uranium Futures $83.3/lb vs $83.9/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$103.0/t vs US$104.1/t

Chinese steel rebar 25mm US$508.1/t vs US$510.2/t

Thermal coal (1st year forward cif ARA) US$111.5/t vs US$112.3/t

Thermal coal swap Australia FOB US$138.5/t vs US$138.5/t

Coking coal Dalian Exchange futures price US$206/t vs US$207.2/t

Other:  

Cobalt LME 3m US$26,625/t vs US$26,625/t

NdPr Rare Earth Oxide (China) US$49,488/t vs US$49,498/t

Lithium carbonate 99% (China) US$11,204/t vs US$11,206/t

China Spodumene Li2O 6%min CIF US$970/t vs US$970/t

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

China Tungsten APT 88.5% FOB US$325/mtu vs US$330/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% 26.75/kg vs US$26.75/kg

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

China Rutile Concentrate 95% TiO2 US$1,382/t vs US$1,396/t

Spot CO2 Emissions EUA Price US$63.9/t vs US$66.6/t

Brazil Potash CFR Granular Spot US$297.5/t vs US$297.5/t

Germanium China 99.99% US$2,055.0/kg vs US$2,025.0/kg

China Gallium 99.99% US$427.0/kg vs US$426.0/kg

Battery News

Trump open to Chinese EV factories in the US

• Former President Donald Trump is open to allowing Chinese EV manufacturers to establish operations in the US under certain conditions.
• The plants must be built in the US and staffed by American workers.
• This contrasts with President Joe Biden’s administration, which has put in place measures to keep Chinese EVs out of the US, namley the Inflation Reduction Act
• Trump’s proposal aims to prevent Chinese companies from building plants in Mexico to avoid tariffs and to take advantage of US EV tax credits.
• He proposed imposing tariffs of 100 to 200% on Chinese EVs made in Mexico to make them unsellable in the US.

Toyota to go all-in on hybrids in US

• Toyota aims to offer hybrid options for all key models in the US by 2030.
• Toyota’s hybrid sales in the US jumped 66% in the first half of the year to 410,000 vehicles.
• Hybrids accounted for 33% of Toyota’s North American sales in the first half of the year.
• PHEVs are generally 20% cheaper than EVs and have fewer limitations on driving range.
• Hybrids are a significant profit source for Toyota, with some hybrid SUVs yielding 10% higher profits than gasoline models.

Recent EV Sales data shows Tesla facing stronger competition

• EV sales in the US have risen each month from February to May 2024.
• Despite overall sales being down from the previous year, Tesla remains the top-selling EV brand in May 2024.
• The EV market is diversifying, with non-Tesla EVs accounting for the majority of EV registrations in the US this year.
• Tesla’s competitors are gaining ground, with increasing sales from other brands.
• The increase in non-Tesla EV sales indicates a growing competition in the market.
• The positive trend in monthly EV sales suggests a healthy market despite challenges.

Von der Leyen re-election paves way for combustion engines

• The European Commission is proposing to put an end to greenhouse gas emissions on the roads in 2035, but with “a wide range of innovative technologies and a technology-neutral approach, in which synthetic fuels can play a role.”
• Upon re-election, she announced that she would pursue the objectives of the Green Deal with more pragmatism.
• Steering away from 100% electric, the use of e-fuels and synthetic fuels would see the use of combustion engines extend past the 2035 ban on petrol and diesel vehicles in Europe.

EV market hasn’t ‘stalled’ despite media reports

• Despite reports, EV sales have not stalled; they’re actually experiencing record growth.
• EV sales are outpacing conventional car sales growth, even in a year with slower than expected growth.
• In the first half of 2024, US EV sales were up 7.3%, outperforming the overall auto market.
• Tesla’s slowing sales are pulling down the industry average, yet EV sales excluding Tesla rose 33% yoy.
• Political and economic opposition to EVs, especially from fossil fuel interests, contributes to misleading narratives.
• EVs continue to set sales records globally in all vehicle categories, indicating sustained and accelerating growth.

Company News

Anglo American (AAL LN) 2,185.5p, Mkt Cap £29.9bn – Kumba Iron Ore results

• Anglo American draws attention to Kumba’s release to the JSE of its results for the six months ending 30^th June.
• Kumba Iron Ore produced ~18.5mt of iron ore from its Sishen operation in the Northern Cape Province of S Africa generating R15.6bn of EBITDA at a margin of 44% and “attributable free cash flow of R9.1 billion”.
• Kumba reports a closing net cash position of R14.6bn and has declared an interim dividend of R18.77/share.
• Anglo American, which owns ~52.5% of the iron-ore operation is due to report its own results tomorrow.

Base Resources (BSE LN) 13.5p, Mkt cap £157m – Quarterly results as takeover looms and Kwale winds down

• Base Resources, currently in the process of being acquired by US Energy Fuels, reports quarterly results.
• Kwale achieved FY24 production guidance at 159kt ilmenite, 41kt rutile and 17kt zircon.
• The Company continues their mine closure and rehabilitation process.
• FY25 production forecast at 17-19kt rutile, 55-63kt ilmenite and 5.5-7kt zircon to end of mine life.
• Kwale mining is expected to end in December 2024.
• Average unit revenue for the period at $655/t vs $685/t for the quarter prior. OPEX at $335/t vs $403/t previous quarter.
• Mineral Sands Market Update:
  • June ilmenite demand strong on high operating rates at Chinese pigment plants.
  • Pigment producers ramping up exports ahead of EU import duties from1st July 2024.
  • Concerns EU duties may weigh on Chinese pigment production rates and ilmenite demand/prices.
  • Recovery in Western pigment demand believed to be re-stocking from consumers vs underlying pigment consumption.
  • Weak housing markets continue to weigh on demand.
  • Recommencement of rutile mining from Sierra Leone to pressure rutile prices over the short term.
• Toliara update:
  • Fiscal agreements with Madagascar officials believed to have been reached ‘in principle’ whilst terms remain subject to change.
  • The Government is working to include monazite under the new Mining Code within Toliara’s Exploitation Permit.
  • FID expected to take 14 months once fiscal terms agreed.
• Cash at end of period $88m with no debt.

*The analyst has previously visited the Toliara project in Madagascar.

Iluka Resources (ILU AU) A$6.2, Mkt cap A$2.65bn – Quarterly results as costs climb on lower production

• Iluka reports quarterly results.
• The Company produced 229kt zircon, rutile and synthetic rutile over 1H24, down 38% yoy.
• Ilmenite production fell 37% yoy to 191kt.
• Zircon and rutile sales down 13% to 242kt and ilmenite sales down 13% at 71kt.
• Weighted average zircon sand price at US$1,907/t, up 2% , synthetic rutile price of US$1,194/t.
• Cash costs at US$1,405/t vs US$833/t same period last year.
• Unit revenue at US$2,312/t.
• CAPEX over the period was A$173m, with A$124m allocated to mineral sands (excluding Balranald) and A$49m on Eneabba rare earths refinery.
• Eneabba refinery progressing, with long lead engineering packages awarded and project financing ongoing.
• Balranald rutile project on track for commissioning 2H25.
• Wimmera mineral sands project progressing environmental approvals and process engineering.
• Titanium Feedstock market update:
  • Subdued market for welding-grade rutile in Asia.
  • Production disruptions at pigment producers, including Chemours’ Altamira plant and INEOS’ Ashtabula facility alongsideTronox’ Stallingborough plant.
  • Iluka see import duties on Chinese pigment producers as shifting deman in Europe and North American pigment producers’ favour
• Net cash at period end was A$154m.

Lynas Rare Earths (LYC AU) A$6, Mkt cap A$5.6bn – Quarterly results as Kalgoorlie ramp up accelerates

• Australian rare earth producer Lynas reports quarterly results.
• The Company sold 3.2kt REO, for an average selling price of A$42.3/kg (excludes price adjustments).
• Company notes a slight improvement in Chinese domestic demand but persistently low prices.
• June NdPr oxide prices excluding VAT stood at US$44/kg.
• Mining operations at Mt Weld resumed over the quarter, trucking concentrate to the Kalgoorlie facility.
• Maintenance at one of Lynas’ downstream kilns saw a shutdown for over a month, reflecting total REO production volumes slide to 2.2kt over the period vs 3.5kt in the prior quarter.
• Production also lower owing to maintenance works in Malaysia, with a ramp up towards 9ktpa NdPr capacity underway.
• Malaysia first production of Heavy Rare Earth products due in CY25.
• Cash fell from A$616m to A$524m over the period, down from A$1bn at the beginning of the FY24 period.

Pensana (PRE LN) 16p, Mkt Cap £47m – £2.0m working facility update

• Paul Atherley (Chairman) sold 1.5m shares for total proceeds of £250k that will be provided to the Company as working capital.
• Funds are provided under previously announced £2m working capital facility offered by Paul Atherley and Tim George (CEO).
• The Company will be issuing 1.5m new shares to Atherley imminently repaying £250k drawn with new shares expected to be admitted to trading 26 July.
• The balance available under the facility will be reduced to £1.75m post transaction.
• Working capital facility will be support the Company as the team is aiming to finalise main fundraising for the Longonjo REE Project in Angola.

Savannah Resources* (SAV LN) 3.8p, Mkt Cap £82m – Major shareholder tops up his stake in the market

BUY – 18.3p

• Mario Ferreira increased his stake back to 5.0% from 4.2% after having been diluted by the issue of 343m new shares to AMG in June this year.
• Ferreira now holds 108.6m shares in the Company up from 91.6m owned previously.

*SP Angel acts as Nomad and Broker to Savannah Resources

Tungsten West (TUN LN) – 3.5p, Mkt cap £6.6m – Additional convertible note funding

• Tungsten West has announced that it has raised an additional £2.975m through the issue of a further tranche of “the existing 2023 Convertible Loan Notes and Tranche D Convertible Loan Notes“.
• The Notes will mature on 31^st January 2025 and the proceeds will be used to “continue work on an updated feasibility study which the Company expects to complete in Q3 2024”..
• Completion of the study is expected to prompt “a financing round in 1H 2025 which will enable the Company to recommence production of tungsten and tin in 2026” at the Hemerdon mine in Devon.
• The benchmark ammonium paratungstate (APT) price is currently around US$330/metric tonne unit (~50% above the prices seen in 2020) as awareness increases of the strategic value of a commodity with a market dominated by China which produces over 80% of world supply.
• Tungsten is recognised as a ‘Critical Mineral’ in jurisdictions including the EU, UK, US, Australia, and Japan and we believe that resumption of production at one of the western world’s larger deposits should be welcomed by western-world consumers.

No.1 in Precious Metals: SP Angel mining team awarded No 1. ranking for Precious Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q2 2024

No.2 in Base Metals: SP Angel mining team awarded No 2. ranking for Base Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q2 2024

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                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

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

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