Metals fall as Dollar gains on the potential for further Fed rate hikes
MiFID II exempt information – see disclaimer below
Galan Lithium (GLN AU) – A$31.5m raised to accelerate development of lithium projects
Wishbone Gold (WSBN LN) – Appointment
Sunrise Resources (SRES LN) – Arizona symposium highlights decarbonisation benefits of natural pozzolan
Gold – $1,956/oz – Prices slide as yields climb as optimism surfaces over debt ceiling deal
- Gold is hovering at around the $1,950/oz mark, its lowest level since the beginning of April.
- The metal has been falling amid waning haven demand as Biden appeared to make progress with House Republicans over a debt ceiling deal.
- Gold had rallied with support from concerns over a US default, although lawmakers yesterday stated they had made progress in negotiations.
- US Treasury yields have rallied, with the 10-year climbing to 3.72%, weighing on non-interest-bearing gold.
- Yields have also been supported by hawkish comments from Fed officials Bullard, who noted the Fed may need to hike further to take inflation.
- Powell added to this, also signalling the potential for more rate hikes yesterday.
Copper prices extend losses as futures point to ample supply and muted demand
- Copper prices have fallen again to $8,044/t, as pessimism continues to intensify following China’s disappointing reopening.
- Futures saw their widest spread since 1994 this morning, with these levels of contango suggesting supply is outpacing demand.
- LME inventories are continuing to build.
- Copper is also facing headwinds from the dollar, which has rallied close to 2% against a basket of currencies over the past week.
- A weaker yuan is also limiting Chinese buyers’ options in the import markets.
Albemarle and SQM sign lithium supply deal with Ford as automakers continue to scramble for product
- Yesterday Ford announced two deals with Albemarle and SQM in Chile for lithium supply to support their ambitions to produce 2m EVs by 2026.
- Albemarle will supply over 100kt of lithium hydroxide to Ford between 2026 and 2030.
- Ford previously signed a deal with Nemaska Lithium for up to 13kt lithium hydroxide pa.
- Ford also signed deals with ENergySource Minerals and Compass Minerals, pre-production companies with projects in California and Utah.
- Ford signed a deal with Liontown Resources last year through an off-take agreement.
- The carmaker is looking to boost EV production 16x over the next few years.
- The supply agreements should help Ford to source sufficient raw materials from the US and free trade partner countries to meet thresholds to receive a $3,750 consumer tax credit under the Inflation Reduction Act, the lithium producers said.
Diamonds – Why has Blackstone agreed to buy IGI for $569.7m?
- Blackstone has agreed to buy IGI, the International Gemological Institute for $569.65m from Fosun which acquired an 80% stake in IGI in 2018
- Diamond experts are perplexed at the scale of the deal in a market where synthetic LGD ‘Lab Grown Diamonds’ are increasingly sold by jewellers in preference to natural diamonds.
- We believe uncut LGD diamonds sell for around 6% of the price of a natural, mined, diamond. Natural mined diamonds sell for 30-40% of the price of their Rappaport price index.
- Worse still the cost of production of a synthetic LGD simply doubles from a 1ct to a 2ct stone whereas the value of a natural mined diamond rises exponentially.
- Jewellers are taking advantage of the price differences to push synthetic LGDs and increase their margins exponentially at the expense of demand for natural diamonds.
- While synthetic LGD diamonds do need grading some of LGD producers are trying to get aways from this due to the obvious price comparison between LGD and natural mined diamonds.
- IGI, based in Belgium operated 29 grading laboratories and 18 gemology schools for the certification of diamonds and other gems.
- The Lorie family who founded IGI have also sold their 20% stake in the business.
- China is the world’s second largest consumer of cut diamonds behind the US.
- Sarine, based in Israel, recently also completed the acquisition of a majority stake in GCAL the ‘Gem Certification and Assurance Laboratory’.
- The American Gem Society announced it would close AGS Laboratories at the end of 2022 and merge its operations with the Gemological Institute of America. (Nationaljeweler.com)
Conclusion: While we would personally prefer to buy natural mined diamonds, we believe many consumers are happy to buy the synthetic LGDs undermining demand for mined diamonds. We assume the team at Blackstone either see a market for grading LGDs or they see the market for LGDs falling away when consumers realise they are funding 96% profit margins for the trade.
China ramps up coal imports from Australia as focus shifts to higher quality product
- China has been increasing its Australian coal imports steadily since lifting a ban at the beginning of this year.
- Thermal coal cargoes from Australia have jumped 75% in April mom, accounting for 10% of China’s total coal imports.
- Australian coal is traditionally higher in quality.
- Russian coal and crude shipments fell in April vs March, although these were from elevated levels.
- April saw China’s third-highest level of coal shipments, sliding slightly from March.
Iron ore falls alongside base metals as Chinese consumption remains muted
- Iron ore prices have fallen 20% since the end of March and 8% since last Wednesday to below $100/t.
- China’s peak construction season, which is coming to an end on historical data points, disappointed, causing the steelmaking ingredient to pare gains made at the turn of the year.
- Bloomberg reports consumer spending is beginning to slow, with manufacturing continuing to struggle.
- Building activity in China is traditionally muted over the summer, adding to base metal bearishness.
| Dow Jones Industrials | -0.42% | at | 33,287 | |
| Nikkei 225 | -0.42% | at | 30,958 | |
| HK Hang Seng | -1.31% | at | 19,421 | |
| Shanghai Composite | -1.52% | at | 3,246 |
Economics
EU – Flash consumer confidence index held steady at -17.4 in May vs -17.5 in April
- Manufacturing PMI 44.6 vs 46.2 expected and 45.8 previous
UK – PMI composite fell to 53.9 from 54.9
- PMI Manufacturing fell to 46.9 in May from 47.8 reaching a new 5-month low.
- PMI Services fell to 55.1 from 55.9. to 53.9.
Currencies
US$1.0791/eur vs 1.0805/eur yesterday. Yen 138.48/$ vs 137.91/$. SAr 19.280/$ vs 19.372/$. $1.241/gbp vs $1.242/gbp. 0.663/aud vs 0.663/aud. CNY 7.052/$ vs 7.025/$.
Dollar Index 103.40 vs 103.39 yesterday.
Commodity News
Precious metals:
Gold US$1,956/oz vs US$1,977/oz yesterday
Gold ETFs 94.1moz vs US$94.0moz yesterday
Platinum US$1,063/oz vs US$1,071/oz yesterday
Palladium US$1,474/oz vs US$1,507/oz yesterday
Silver US$23.30/oz vs US$23.88/oz yesterday
Rhodium US$7,000/oz vs US$7,000/oz yesterday
Base metals:
Copper US$ 8,057/t vs US$8,156/t yesterday
Aluminium US$ 2,248/t vs US$2,263/t yesterday
Nickel US$ 21,000/t vs US$21,290/t yesterday
Zinc US$ 2,395/t vs US$2,456/t yesterday
Lead US$ 2,082/t vs US$2,097/t yesterday
Tin US$ 24,185/t vs US$25,451/t yesterday
Energy:
Oil US$75.9/bbl vs US$75.1/bbl yesterday
- Crude oil remains rangebound in the face of market uncertainty despite improving fundamentals from constrained OPEC+ supply and a recovering demand outlook in Asia.
- European energy prices are unchanged with Gazprom reporting a stable supply of 41.2mcm/d via the Sudzha gas pumping station in Ukraine.
Natural Gas US$2.394/mmbtu vs US$2.706/mmbtu yesterday
Uranium UXC US$53.40/lb vs US$53.40/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$102.1/t vs US$103.1/t
Chinese steel rebar 25mm US$528.3/t vs US$541.4/t
Thermal coal (1st year forward cif ARA) US$110.0/t vs US$108.3/t
Thermal coal swap Australia FOB US$161.0/t vs US$164.0/t
Coking coal swap Australia FOB US$228.0/t vs US$224.0/t
Other:
Cobalt LME 3m US$34,930/t vs US$34,930/t
NdPr Rare Earth Oxide (China) US$66,924/t vs US$66,791/t
Lithium carbonate 99% (China) US$40,055/t vs US$33,111/t
China Spodumene Li2O 6%min CIF US$4,010/t vs US$3,990/t
Ferro-Manganese European Mn78% min US$1,311/t vs US$1,315/t
China Tungsten APT 88.5% FOB US$325/mtu vs US$325/mtu
China Graphite Flake -194 FOB US$775/t vs US$775/t
Europe Vanadium Pentoxide 98% 7.5/lb vs US$7.5/lb
Europe Ferro-Vanadium 80% 32.25/kg vs US$32.25/kg
China Ilmenite Concentrate TiO2 US$323/t vs US$327/t
Spot CO2 Emissions EUA Price US$91.8/t vs US$94.0/t
Brazil Potash CFR Granular Spot US$370.0/t vs US$380.0/t
Battery News
Volvo receives record orders for electric trucks
- The Swedish automaker has announced it Volvo Trucks unit will supply 1,000 electric trucks to Swiss building solutions provider Holcim.
- The order will be fulfilled over the next seven years, with the first 130 trucks being delivered during the Q4 ’23 and throughout 2024.
Company News
Galan Lithium (GLN AU) A$1.06, Mkt Cap A$323m – A$31.5m raised to accelerate development of lithium projects
- Galan Lithium reports the raising of A$31.5m at A$1.05/s to accelerate the development of lithium projects in Argentina and .
- Galan’s key asset is the HMW ‘Hombre Muerto West’ brine project in Argentina within the infamous Lithium Triangle.
- HMW PEA results December 2021:
- Project life Years 40
- Steady state lithium carbonate production Tonnes/year 20,000
- Long term lithium carbonate price US$/tonne 18,594
- Steady state average cash cost of production US$/tonne 3,518
- Initial capital cost (including contingency) US$M 439 Steady state average annual EBITDA US$M 287
- NPV8% (after tax) US$M 1,338
- IRR (after tax) % 33.1
- Payback from start of operations Years 2.75
- Candelas Project PEA results November 2021:
- Project life Years 25 Steady state lithium carbonate production Tonnes/year 14,000
- Long term lithium carbonate price US$/tonne 18,594
- Steady state average cash cost of production US$/tonne 4,277
- Initial capital cost (including contingency) US$M 408 Steady state average annual EBITDA US$M 188
- NPV8% (after tax) US$M 660
- IRR (after tax) % 20.9
- Payback from start of operations Years 4.75
- Lithium bearing Salars within the Lithium Triangle generally report relatively high-grade lithium within a high-altitude, low rainfall region.
- A long-term pumping test at Pata Pila (PPB-01-21) well at the 100% owned Hombre Muerto West Lithium Project in Catamarca showed rates of between 17-20 L/s enabling the extraction of grades of 821-927mg/L supporting potentially higher production capacity at the project for the ongoing DFS.
- A 72-hour flow rate test at Rana de Sal around 3.500m to the northwest also showed similar pumping rates at 20L/s with brine samples returning high lithium grades ranging between 932-957 mg/L.
- Exploration drilling at Rana de Sal shows thick sedimentary intersections with high Li grades ranging 942-1,035 mg/L.
- Galan held net cash of A$59m at end March
Conclusion: The raising of so much capital for lithium projects at the PEA stage highlights strong ongoing investment demand for lithium projects.
Wishbone Gold* (WSBN LN) – 2.30p, Mkt Cap £4.56m – Appointment
- We are pleased to report SP Angel’s appointment as broker to Wishbone Gold.
- Cottesloe: Wishbone’s Cottesloe project in the Paterson Range area of Western Australia looks highly prospective for sediment hosted base metal mineralisation similar to that at the nearby Nifty copper mine and Maroochydore copper cobalt deposit.
- Nifty and Maroochydore, held by Metals X Limited with Nifty having produced >700,000t of copper metal to date.
- Maroochydore is a large copper oxide and supergene deposit hosting around 486,000t of copper and 18,500t of cobalt
- Wishbone’s Cottesloe prospect could also see Mt Isa style zinc, lead, silver deposits.
- Management have a substantial database of historic drill assays from 483 drillholes completed by Esso, Amax, Occidental and others through the 70s and 80s with follow-up exploration by Mt Isa Mines, City Resources and BHP covering the Cottesloe project area in the Paterson Range areas
- Cottesloe’s stratigraphy looks similar to Nifty with a strong, consistent pattern of copper anomalism along the base of the Broadhurst Formation seen in drill assays and surface sampling over a 15km strike.
- Previous drilling was targeted uranium anomalies which is why the data needs re-examination from a base metal perspective.
- BHP previously identified high grade anomalous copper over a 3km zone with grades of up to 766 & 1440ppm.
- Red Setter: Wishbone’s Red Setter project lies close to Greatland’s Havieron project and Newcrest’s Telfer mine. While exploration at Red Setter is in its early stages, a recent airborne ultra-detailed magnetic survey shows magnetic bodies closer to surface than previous data sets.
- Magnetic targets appear to cover an area of 3.5 x 1 km with the highest order over a strike length of 1.5 x 0.4 km within 50-75m of surface.
- Modelling shows several north plunging magnetic bodies within this anomaly with potential for pyrrhotite alteration which may be analogous to the Havieron and Winu discoveries.
Conclusion: There is much to like about Wishbone’s Cottesloe project and the re-examination of the historic drill-hole data along with new exploration could well lead to other discoveries in the area within easy reach of the Nifty Copper Mine which is currently on care and maintenance pending the discovery of further economic resources. The Red Setter prospect also looks interesting.
*SP Angel acts as Broker to Wishbone Gold
Sunrise Resources (SRES LN) 0.09p Mkt Cap £3.6m – Arizona symposium highlights decarbonisation benefits of natural pozzolan
- Sunrise Resources has commented on a symposium, convened by the Natural Pozzolan Association, on the role of natural pozzolan (NP) in reducing carbon emissions by the cement and concreate industry, which was held recently in Arizona.
- The company explains that a capacity attendance of over 100 delegates included representatives of cement and concrete producers, fly ash suppliers and distributors as well as mine producers of NP product.
- Fly ash is a waste product of burning coal or lignite in power production and its availability to cement producers is expected to decline as the use of coal fired power stations declines with increasing use of renewable power generation with NP gaining increasing acceptance as an alternative.
- “Various papers and discussions during the symposium highlighted what is now becoming a more established direction of travel for the cement companies in their effort to decarbonise cement. This revolves around reducing the percentage of … the intermediate product …cement clinker used to make cement”.
- Sunrise Resources explains that a “number of papers presented at the NPA symposium addressed the need to change various US cement and concrete testing methods … [to performance-based testing criteria rather than the prescriptive criteria currently used today] … which have built up around the use of fly ash and which are square pegs in round holes when testing and evaluating natural pozzolan”.
- Sunrise Resources is working to develop its CS and Hazen natural pozzolan projects and Executive Chairman, Patrick Cheetham, remarked that, as “one of the earliest members to join the NPA … it was gratifying to see the growing momentum building behind the use of Natural Pozzolan and an industry-wide recognition that the days of fly ash are numbered”.
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 – [email protected] – 0203 470 0490
Simon Beardsmore – [email protected] – 0203 470 0484
Sergey Raevskiy –[email protected] – 0203 470 0474
Sales
Richard Parlons –[email protected] – 0203 470 0472
Abigail Wayne – [email protected] – 0203 470 0534
Rob Rees – [email protected] – 0203 470 0535
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
SP Angel
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*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
| Sources of commodity prices | |
| Gold, Platinum, Palladium, Silver | BGNL (Bloomberg Generic Composite rate, London) |
| Gold ETFs, Steel | Bloomberg |
| Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt | LME |
| Oil Brent | ICE |
| Natural Gas, Uranium, Iron Ore | NYMEX |
| Thermal Coal | Bloomberg OTC Composite |
| Coking Coal | SSY |
| RRE | Steelhome |
| Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite | Asian Metal |
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