SP Angel Morning View -Today’s Market View, Wednesday 17th May 2023

Metals fall as US dollar climbs on Fed intentions to fight inflation

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – De Beers – Slower rough diamonds demand from China curbs fourth sales cycle

Chaarat Gold (CGH LN) – LOI for potential US$250m equity investment to fund growth

Lithium Americas (LAC CAN) – US Officials lift major obstacle introduced by Federal judge

Versarien* (VRS LN) – Banagher demonstrates significant concrete and CO2 savings on use of CementeneTM graphene concrete mix

Gold $1,985/oz – Prices slide as Fed hawks cause dollar and Treasury yields to climb

• Gold prices fell to two-week lows at $1,985/oz.
• The move followed Fed President Goolsbee saying discussion of rate cuts was premature, whilst Bostic noted the Fed will remain concerned with fighting inflation, despite the prospect of rising unemployment.
• Prospects of the Fed holding rates steady in June have shrunk to 78.6% vs previous expectations over 90%.
• US 10-year yields have rallied as a result, climbing to 3.53%, jumping 10 basis points yesterday.
• The dollar index rallied to 103, as the Euro extended losses and and the yen weakened, with safe haven appeal in the greenback rising as US debt default concerns rise.

Copper slows to 5-month lows as global economic slowdown concerns mount

• Copper prices hit $8,088/t this morning before climbing back to yesterday’s $8,147/t mark.
• Chinese growth prospects have been primarily in focus, with industrial production levels disappointing and export growth weakening.
• China’s Yuan weakened to 7 per dollar today for the first time in five months, highlighting the country’s sluggish momentum.
• Reuters reports home prices rose for the fourth month, although this growth weakened in April vs March.
• LME Copper futures have slid into their deepest levels of contango in over five years. Contango traditionally suggests more buoyant supply and weaker demand.

Analysts expect slowing aluminium demand whilst trader looks to corner market

• Aluminium prices have fallen 16% since January to $2,260/t.
• EU demand has been deteriorating for the past six to eight weeks with CRU reporting industrial buyers have slashed demand by 20-40% by 2023.
• Aluminium production is forecast to rise 2% this year vs a 1.5% rise in demand.
• A China CMOC group, IXM, has reportedly built a $700m position in LME aluminium contracts at 318kt vs total available delivery of 370kt in warehouses. (Bloomberg)

Economics

Germany – ZEW economic sentiment index fell to -10.7 in May vs 4.1 in April

EU – EU sentiment index fell to -9.4 in May vs 6.4 in April

• EU second Q1 GDP estimate was corrected slightly higher to 0.1% vs 0% previously and to 1.3% yoy in Q1 vs 1.8% previously

US – Retail sales rose slightly by 0.4% in April vs -0.7% in March and -1.6% yoy in April vs 2.4% in March

• Industrial production rose to 0.5% in April vs 0% in March and 0.2% yoy in April vs 0.1% in March
• Manufacturing output rose 1% in April vs -0.8% in March and -0.9% yoy in April vs -1.8% yoy in March
• Capacity utilisation rose slightly to 79.7% in April vs 79.4% in March
• NAHB housing price index rallied to 50 in May 45 in April

 UK – Inflation drivers:

Prices for food and non-alcoholic drinks rose at fastest rate for 45 years

• 19.2% increase in the price of bread, cereals and chocolate YTD to March.
• Reasons:
• Ukraine war disruption of grain, wheat and other basic food stuffs
• Poor harvests
• Fruit, vegetables and sugar hit by cold weather in Spain and by reduced yields accross Europe and North Africa.
• Output reduced in Holland due to farmers turning down expensive gas heating for greenhouses
• Bird flu hit poultry in the UK and elsewhere and is now in Brazil
• Shortage of manual labour / farm pickers as migrant workers have been slow to return following Covid

Brazil – Bird flu in Brazil has potential to disrupt the world’s largest exporter of chicken.

• Crude steel output fell 3.2% and -1.5% yoy to 92.64m in April according to the Chinese National Bureau of Stats
• Coal output fell 381mt off 8.6% mom up 4.5% yoy
• Oil refinery throughput rose 18.9% yoy to 14.87m bpd

Currencies

US$1.0821/eur vs 1.0881/eur yesterday. Yen 137.15/$ vs 135.81/$. SAr 19.240/$ vs 19.132/$.  $1.242/gbp vs $1.249/gbp. 0.664/aud vs 0.668/aud. CNY 7.001/$ vs 6.965/$

Dollar Index 102.43 vs 102.57 yesterday.

Commodity News

Precious metals:

Gold US$1,986/oz vs US$2,007/oz yesterday

Gold ETFs 94.0moz vs US$94.0moz yesterday

Platinum US$1,072/oz vs US$1,063/oz yesterday

Palladium US$1,489/oz vs US$1,529/oz yesterday

Silver US$23.64/oz vs US$23.75/oz yesterday

Rhodium US$7,000/oz vs US$7,400/oz yesterday

 Base metals:   

Copper US$ 8,198/t vs US$8,194/t yesterday

Aluminium US$ 2,265/t vs US$2,261/t yesterday

Nickel US$ 21,205/t vs US$21,435/t yesterday

Zinc US$ 2,525/t vs US$2,512/t yesterday

Lead US$ 2,050/t vs US$2,078/t yesterday

Tin US$ 24,800/t vs US$24,890/t yesterday

Energy:           

Oil US$74.9/bbl vs US$75.2/bbl yesterday

• Crude oil prices edged lower after the API reported a 3.7mb build in US crude oil and fuel stocks (vs 1.3mb draw expected).
• European energy prices are unchanged with Gazprom reporting a stable supply of 41.2mcm/d via the Sudzha gas pumping station in Ukraine and French nuclear reactors’ operating levels reported at 61% of capacity.
• According to industry media, KUFPEC has authorised a sales process for its Norwegian assets that are expected to produce 19kboe/d in 2023 from the Gina Krog, Sleipner West and Sleipner East fields.

Natural Gas US$2.378/mmbtu vs US$2.371/mmbtu yesterday

Uranium UXC US$53.40/lb vs US$53.40/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$105.1/t vs US$105.1/t

Chinese steel rebar 25mm US$537.8/t vs US$540.4/t

Thermal coal (1st year forward cif ARA) US$108.3/t vs US$119.0/t

Thermal coal swap Australia FOB US$163.0/t vs US$164.0/t

Coking coal swap Australia FOB US$224.0/t vs US$235.0/t

Other:  

Cobalt LME 3m US$34,930/t vs US$34,930/t

NdPr Rare Earth Oxide (China) US$66,061/t vs US$65,755/t

Lithium carbonate 99% (China) US$31,352/t vs US$30,078/t

China Spodumene Li2O 6%min CIF US$3,990/t vs US$3,990/t

Ferro-Manganese European Mn78% min US$1,315/t vs US$1,322/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$328/t vs US$329/t

Spot CO2 Emissions EUA Price US$94.0/t vs US$93.2/t

Brazil Potash CFR Granular Spot US$380.0/t vs US$380.0/t

Battery News

US allocates $11bn to support rural electrification

• The US government has announced two new grant and loan programmes, through the US Department of Agriculture (USDA), with total availability of nearly $11bn to aid rural electrification across the country with a focus on clean energy.
• A Letter of Interest process will be opened for the programme dubbed Empowering Rural America (New ERA) – $9.7bn will be made eligible for the deployment of renewable energy plants, as well as zero-emission and carbon capture systems.
• USDA will also gauge interest in the $1bn Powering Affordable Clean Energy (PACE) which will focus on the development of large-scale solar, wind, geothermal, biomass, hydro and energy storage projects.
• According to the announcement, this is the single largest investment in rural electrification in the US since 1936, when President Franklin Roosevelt signed the Rural Electrification Act into law.

Company News

Anglo American (AAL LN) 2,335p, Mkt Cap £32bn –De Beers – Slower rough diamonds demand from China curbs fourth sales cycle

• Anglo American reports that, provisionally, the fourth De Beers sales cycle of 2023 realised US$480m and that the previously reported provisional sales of US$540m for the third sales cycle have now been confirmed as US$542m.
• The outcome of the fourth sales cycle brings the year-to-date sales to approximately US$2bn, which we estimate is around 37% lower than the over US$3bn of sales achieved during the first four sales cycles of 2022.
• Al Cook, CEO of the De Beers Group, commented that “Sales of our rough diamonds in the fourth sales cycle of the year saw a small decrease from the previous cycle as the industry has entered what is traditionally a seasonally quieter period”.
• He also clarified that rough diamond demand “was also influenced by ongoing macroeconomic uncertainty and a slower pace of recovery in consumer demand from China than was widely anticipated”.

Chaarat Gold (CGH LN) 13.2p, Mkt Cap £61m – LOI for potential US$250m equity investment to fund growth

• Chaarat Gold reports that it has signed a non-binding Letter of Intent (LOI) with Xiwang International for a potential US$250m equity investment to “develop Chaarat’s organic pipeline and external growth through value-added acquisitions”.
• Today’s announcement explains that the proposed investment would “be in the form of a new issue of shares in Chaarat at a price of £0.20 per share resulting in Xiwang holding 60% of the shares in Chaarat” and that “it is the intention of the parties to enter into a formal investment agreement with completion by 30 July 2023”.
• Xiwang, is described as a British Virgin Islands registered company which aims to “create a significant portfolio of mining assets and resources on a global basis by partnering with and providing funding to listed public operating companies with strong governance, focussed on disciplined capital allocation and shareholder value creation”.
• Welcoming the involvement of Xiwang International, Executive Chairperson of Chaarat, Martin Andersson explained that “Xiwang is undergoing a transformational change and Chaarat is one of the potential platforms for their investment consideration and passed their initial due diligence, governance and investment criteria”.
• Earlier this month, Chaarat Gold confirmed its 2023 production guidance at 50-55koz from own sources with additional 5-10koz produced from third party ore.

Lithium Americas (LAC CAN) C$30, Mkt Cap C$4.8bn – US Officials lift major obstacle introduced by Federal judge

• The US Interior Department have removed an obstacle to Thakcer Pass introduced by a Federal judge in February.
• The judge ordered officials to inspect Lithium America’s plans to store waste rock on Federal land that potentially contains lithium, with the mine’s opposers noting waste material should not be placed on mineralised land.
• The law dates to 1872 for mining in Nevada and the Biden Administration has announced it will take steps for the 1872 law to reflect ‘the realities of the 21^st century.’
• Lithium Americas will begin construction and production by applying for a right-of-way to use the claims for ‘non-mining purposes.’

Versarien* (VRS LN) 1.13p, Mkt Cap £3.0m – Banagher demonstrates significant concrete and CO2 savings on use of CementeneTM graphene concrete mix

• Versarien reports success in the use of its CementeneTM concrete mix is added to cement.
• The work undertaken by Banagher, the precast concrete experts, have demonstrated 20% of ordinary Portland cement can be removed from a typical precast concrete mix through the use of CementeneTM.
• The trials also show that use of CementeneTM can cut CO2 emissions without impairing the performance of the concrete.
• Production of 1 kg of CementeneTM is estimated to generate approximately 1.44 kg of CO2 emissions
• ~5 kg of CementeneTM is used per cubic metre of concrete.
• The production of 1 kg of ordinary Portland cement emits ~0.8 kg of CO2 and c.500 kg of OPC is used per cubic metre of Banagher’s precast concrete.
• The removal of 20% of ordinary Portland cement in precast concrete ~100kg equates to a net saving of ~72.8 kg/m3 of CO2 emissions.
• Banagher pours around 60,000m3 pa of concrete which could see a saving of around 4.4mkg pa of CO2 using CementeneTM.
• The use of graphene in a liquid mix such as CementeneTM could make a significant contribution towards ‘net zero’ targets for construction and for the nation as a whole.
• Banagher’s new UKAS/INAB accredited laboratory has enabled the company to test improvements in performance on compression testing, chloride migration and water absorption and more.
• The results are still an early stage but show the way forward for the incorporation of graphene modifiers into concrete for construction.

Conclusion: We expect the CementeneTM product to play a major role in Versarien’s ‘Turnaround Strategy’ with renewed focus on the delivery of commercial products.

*SP Angel acts as Nomad and Broker to Versarien

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                                                            

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.

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II – Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins ([email protected]).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expec