SP Angel Morning View -Today’s Market View, Wednesday 3rd July 2024

Copper prices rise despite China PMI data

MiFID II exempt information – see disclaimer below

Anglo Asian Mining* (AAZ LN) – PSA amendments

Aston Bay Holdings (BAY CN) – Drilling underway on Storm copper project, Somerset Island

American West Metals (AW1 AU) – Drilling underway on Storm copper project, Somerset Island

Arkle Resources* (ARK LN) – Drilling at Stonepark, Co Limerick

First Class Metals (FCM LN) – Progress report on Ontario exploration

First Quantum Minerals (FM CN) – Government to order an environmental audit of Cobre Panama

Sovereign Metals* (SVML LN) – Rio Tinto raise stake to 19.76% through further A$18.5m investment

Tungsten West (TUN LN) – Interim CEO appointed to the Board

Lithium – Benchmark comment on DLE ‘Direct Lithium Extraction’

• Benchmark Minerals, which provides pricing and information on EV sales, metals etc.. has published an interesting comment on DLE.
• They say:
  • “Direct Lithium Extraction technologies hold much promise, but hurdles remain before the unconventional becomes conventional.
  • As the world races to decarbonise, lithium to feed the rapidly-growing battery industry is facing an impending supply crunch..
  • This imbalance threatens to derail the battery industry as it enters the terawatt-hour era.
  • Is DLE the key to bridging lithium’s supply gap?”
• We have been watching companies work on DLE as the holy grail of lithium extraction technology for nearly 10 years.
• It is challenging, it is extremely expensive and no company has yet achieved economic, commercial-scale production.
• Sorbent technologies are used to extract lithium from brines in desert areas in Chile, Nevada and in the dryer parts of Argentina after pre-concentration via evaporation ponds.
• This works because the sun and wind provides free energy driving the evaporation of water off the brine bonds.
• Hot, geothermal brines should also work with sorbent technologies for lithium extraction due to the energy in the hot brine.
• DLE works in the lab and in small-scale pilot plants but remains someway off commercialisation.
• The processing of spodumene currently provides the optimum route for the production of lithium hydroxide for Nickel Cobalt Manganese battery chemistries.
• LFP batteries, which are have lesser power density and are cheaper and heavier use lithium carbonate which is more easily produced by lithium brine producers.

Conclusion: The processing of high-grade, hard-rock, spodumene remains the best route for generating lithium hydroxide for NCM battery chemistries. While there are a number of companies working on the DLE route we suspect these projects may continue to struggle to achieve economic production at current prices for lithium carbonate at US$12,030/t in China.

China $347bn investment plot to control world’s EV market has paid off (CSIS)

• China has invested $347bn over the last 15 years to cement its dominant position at top of the global EV market according to CSIS ‘Centre for Strategic and International Studies’.
• A CSIS analyst also cautioned that the huge sum is “highly conservative” and likely to be even bigger (Couriermail).
• This investment has led to innovation and a manufacturing boom, allowing Chinese companies to undercut Western rivals.
• BYD outsold Tesla globally in Q4 ’23, signalling China’s growing influence.
• China’s domestic EV market is booming, with sales expected to top 10m in 2024.
• Chinese EV brands like BYD and Xpeng are gaining prominence at international auto shows.
• China argues its EV market success is due to natural comparative advantages and the quality of its products, despite accusations of unfair trade practices from the West.

Economics

US – Fed acknowledges slowing inflation but will need more evidence of a sustainable trend towards the 2% target before a lowering rates.

• “Because the US economy is strong and the labor market is strong, we have the ability to take our time and get this right,” Jerome Powell said at the ECB forum on central bank in Portugal yesterday.
• Job openings, an indicator for labour demand, unexpectedly picked up off a three year low in May.
• The first Democratic lawmakers publicly called President Bidne to take down his candidacy in the coming elections, FT reports.
• Lloyd Dogget, a Democratic congressman from Texas, said “recognising that, unlike Trump, President Biden’s first commitment has always been to our country, not himself, I am hopeful that he will make the painful and difficult decision to withdraw”.
• JOLTS Job Openings (May/Apr/Est): 8,140k/7,919k(revised from 8,059k)/7,946k

China – Services sector growth cooled to the slowest pace in eight months in June and posted a worse than expected reading.

• Construction sector remains a drag while weak consumer confidence translates into deflationary pressures.
• A gauge of confidence among service providers pulled back to the lowest level since Mar/20 amid rising competition and expectations of softer economic conditions.
• Caixin Manufacturing PMI (released Monday, Jun/May/Est): 51.8/51.7/51.5
• Caixin Services PMI (Jun/May/Est): 51.2/54.0/53.4/
• Caixin Composite PMI (Jun/May/Est): 52.8/54.1/NA

Third CCP plenum set to meet in July

• 370 members of the party elite will meet to set out policy direction for the next 5-10 years this month.
• New policies are likely to focus on (Japan Times):
  • Increasing urbanisation – only ~66% of China’s population live in cities
  • Reform of rural economy – with more farmers expected to move into cities rural systems will need further refinement
  • ‘Common Prosperity’ will require increasing social and public services
  • Reform of ‘Hukou system’ which registers every household and determines where people can live, work, go to school and claim benefits.
  • Rural land reform acceleration
  • Potential to trade or use value in rural homes for the buying of urban apartments
  • Energy generation and green power incentives
  • Some fiscal and tax reform is likely again to encourage greater urbanisation
  • VAT / consumption tax reform to increase income
  • Property tax and inheritance taxes may be initiated at modest levels
  • Profit transfer and dividend taxes may increase for state-owned enterprises,

UK – Wealthy investors are seen selling assets including shares and property in anticipation of the Labour win at general elections and a potential hike to the capital gains tax, according to FT.

• Some people were also considering moving overseas and several would “seriously be exploring moving offshore and becoming non-resident” if CGT was to be significantly increased, one of senior directors at RBC Wealth Management said.
• While Shadow Chancellor Rachel Reeves said that Labour had not plans to increase CGP, she refused to completely rule out such a hike during new government full term.

France – More than two thirds of third place candidates representing leftist and centrist parties post the first round elections have pulled out of the race in an effort to reduce chances of the far right Rassemblement National taking an absolute majority.

• A hung parliament remains a likely outcome, FT writes.

Currencies

US$1.0756/eur vs 1.0717/eur previous. Yen 161.86/$ vs 161.68/$. SAr 18.507/$ vs 18.473/$. $1.269/gbp vs $1.262/gbp. 0.668/aud vs 0.665/aud. CNY 7.273/$ vs 7.271/$.

Dollar Index 105.64 vs 106.02 previous.

Precious metals:         

Gold US$2,342/oz vs US$2,325/oz previous

Gold ETFs 81.0moz vs 81.1moz previous

Platinum US$1,002/oz vs US$977/oz previous

Palladium US$1,032/oz vs US$979/oz previous

Silver US$30.02/oz vs US$29/oz previous

Rhodium US$4,625/oz vs US$4,625/oz previous           

Base metals:   

Copper US$ 9,812/t vs US$9,625/t previous

Aluminium US$ 2,539/t vs US$2,519/t previous

Nickel US$ 17,230/t vs US$17,395/t previous

Zinc US$ 2,966/t vs US$2,932/t previous

Lead US$ 2,217/t vs US$2,220/t previous

Tin US$ 33,035/t vs US$32,935/t previous           

Energy:           

Oil US$86.5/bbl vs US$86.7/bbl previous

• Crude oil prices moved lower after the API reported a larger than expected 9.2mb w/w draw to US crude stocks, with market consensus anticipating a 0.1mb draw.
• European energy prices were also stable with French nuclear reactor operating levels falling 2% w/w to 64% of 61.4MW capacity and Gazprom reporting stable supply of 42.4mcm/d (~1.5bcf/d) via the Ukraine.
• US natural gas prices closed at the lowest level since mid-May due to forecasts for cooler weather, as gas storage levels remain over 20% above the ten-year average and rebalancing takes longer than expected.

Natural Gas €33.3/MWh vs €33.2/MWh previous

Uranium Futures $85.5/lb vs $85.5/lb previous           

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$109.8/t vs US$107.4/t

Chinese steel rebar 25mm US$518.0/t vs US$519.0/t

Thermal coal (1st year forward cif ARA) US$112.8/t vs US$112.8/t

Thermal coal swap Australia FOB US$131.3/t vs US$131.0/t

Coking coal Dalian Exchange futures price US$222/t vs US$221.3/t

Other:  

Cobalt LME 3m US$27,150/t vs US$27,150/t

NdPr Rare Earth Oxide (China) US$50,252/t vs US$50,060/t

Lithium carbonate 99% (China) US$12,030/t vs US$12,034/t

China Spodumene Li2O 6%min CIF US$1,030/t vs US$1,030/t

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

China Tungsten APT 88.5% FOB US$345/mtu vs US$345/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% 26.85/kg vs US$26.85/kg

China Ilmenite Concentrate TiO2 US$313/t vs US$313/t

China Rutile Concentrate 95% TiO2 US$1,395/t vs US$1,396/t

Spot CO2 Emissions EUA Price US$65.9/t vs US$65.9/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$310.0/t

Battery News

EU governments waver on Chinese EV tariffs as trade war looms

• European governments are having second thoughts as to whether or not to back the additional tariffs on Chinese-made EVs.
• The EU Commission is struggling to gather support for its new tariffs as Beijing threatens retaliation.
• Germany, whose automakers made a third of their sales last year in China, wants to stop the tariffs, according to a government source. (Reuters)
• According to an informal poll from Reuters, a majority of countries are still weighing the pros and cons of the escalating trade spat.
• EU members will vote to formally enact these tariffs in October if the Commission officially proposes them at the end of its investigation.
• These tariffs would be blocked if a “qualified majority” of at least 15 countries representing 65% of the EU population votes against them.
• France, Italy and Spain, who make up 40% of the EU population, have indicated they would back tariffs.

BMW sees highest-ever half-yearly car sales in India, crosses 2,000 electric car sales

• BMW Group India achieved its highest-ever half-yearly car sales at 7,098 units in H1 2024.
• Sales in H1 2024 grew 21% yoy due to high demand for sports activity vehicles (SAVs), luxury class, and electric cars.
• BMW Group India sold 397 electric BMW and Mini cars in the first half of 2024, with the BMW i7 being the top-selling BMW EV.
• BMW became the first luxury car manufacturer in India to surpass 2,000 EV sales, with the BMW iX being the most popular luxury EV in India with over 1,000 units sold.
• The company will introduce the Mini Countryman E and the BMW CE 04 (an electric two-wheeler) in July.

China’s BYD posts 21% jump in quarterly EV sales, closes gap with Tesla

• BYD posted a 21% increase in second-quarter electric vehicle sales, selling 426,039 units.
• This narrows the gap with Tesla, which sold 443,956 vehicles in the same period, reducing the difference from over 86,000 to less than 18,000 vehicles.
• Tesla’s deliveries decreased by 4.8% in Q2, marking its first consecutive quarterly decline due to competition in China and reduced demand from a lack of new affordable models.
• Tesla’s China-made EV sales in June fell by 24.2% year-on-year to 71,007 units.
• Tesla has experienced slowed growth and warned of lower delivery growth for 2024, partly due to price cuts losing their impact.
• BYD and other Chinese EV makers like Nio reported strong growth, with Nio’s Q2 deliveries more than doubling to 57,300 units.
• In May, new energy vehicles, including EVs and plug-in hybrids, accounted for 46.7% of total car sales in China, a new monthly high.

Nyobolt’s revolutionary battery can charge EVs in less than five minutes and last 600,000 miles

• Nyobolt’s new battery technology enables EV batteries to charge from 10% to 80% in under five minutes using a 350kW DC charger.
• This charging speed is twice as fast as the current fastest-charging EVs without the degradation typically seen in lithium-ion batteries.
• Nyobolt batteries are sustainable, lasting over 4,000 fast charge cycles or 600,000 miles while maintaining over 80% battery capacity retention.
• Low-volume production of these batteries may start within months, potentially reaching 1,000 packs in 2025, with the capacity to produce up to two million cells per year.
• Nyobolt uses patented carbon and metal oxide anode materials, low-impedance cell design, integrated power electronics, and software controls.
• The technology is developed in collaboration with British engineering team CALLUM.

Geely produces EV battery that can last up to 50 years and 1 million km

• Geely has announced the success of its Aegis Short Blade Battery that can be used for up to 50 years or the equivalent of 3500 charging cycles and travels nearly 1 million km.
• The battery also charges to 80% capacity in 17 minutes.

Company News

Anglo Asian Mining* (AAZ LN) 83p, Mkt Cap £94m – PSA amendments

BUY

• The Company reports a change to its local partner under the production sharing agreement (PSA).
• The current local party, the Ministry of Ecology and Natural Resources, will be replaced by state owned AzerGold.
• Originally, the PSA was signed with the predecessor of the MENR given limited to none mining activity in the country and no state Company operating in the mining sector.
• AzerGold has been established post agreed original PSA.
• State organisations operating in the relevant sector and acting as PSA counterparties is part of usual business practice in the Azerbaijan.
• We understand that apart from the change in the PSA counterparty, all terms and conditions remain the same.

*SP Angel acts as Nomad and Broker to Anglo Asian Mining

Aston Bay Holdings (BAY CN) C$0.11, Mkt cap C$28m – Drilling underway on Storm copper project, Somerset Island

American West Metals (AW1 AU) A$0.12, Mkt cap A$65m

(Aston Bay hold 20% of the Storm copper and Seal Zinc projects. American West Metals Limited hold 80%)

• Yesterday, Aston Bay Holdings and American West Metals reported that the latest drillhole at the Storm copper project on Somerset Island in northern Canada has intersected 20m at an average grade of 2.3% copper from a depth of 38m.
• The intersection, in hole ST23-03 testing the ‘Gap Prospect’, includes a higher-grade section of 8m at an average grade of 5.3% copper from 39m depth with 3m from 41m depth averaging 7% copper.
• The hole was drilled to test an electromagnetic anomaly and the announcement confirms that a “further 10 EM anomalies have already been identified by the 2024 EM programme, with deep penetrating, high-resolution surveys planned to recommence this month around the existing Storm deposits as well as the regional Tornado, Blizzard, and Tempest areas”.
• A 20,000m programme of reverse-circulation and core-drilling is underway for 2024 aiming to define a resource at the Thunder prospect “where drilling during 2023 intersected 48.6m @ 3% Cu from 32.4m” in hole ST23-03 as well as resource definition and extension drilling at the Cyclone and Chinook Prospects and testing of shallow EM targets in the Storm prospect area.
• CEO of Aston Bay, Thomas Ulrich, described the “grade and length of this intercept at the new Gap Prospect … [as] … impressive … [and said that it is] … further proof of the effectiveness of EM geophysics as a targeting tool for copper”.
• He confirmed that “Multiple anomalies remain untested – we are just getting started, with more geophysics and 20,000 metres of reverse circulation (RC) and diamond drilling planned for the rest of the season”.

Conclusion: Given the remote northern location, the exploration season on Somerset Island is short.  Geophysics is proving an effective target identification tool and we look forward to results of the 20,000m drilling programme now underway.

Arkle Resources* (ARK LN) 0.22p, Mkt Cap £1.1m – Drilling at Stonepark, Co Limerick

• Arkle Resources reports that its partner on the Stonepark project (Arkle 23.44%), Group Eleven Resources, is planning a drilling programme of ~1,350m in 3-4 holes starting in Q3 2024.
• Drilling, which is expected to be complete by the end of 2024, will test “the margins of the southern volcanic centre and the southwestern continuation of the Coonagh Castle Fault” within the 11km long Carrickittle Prospect..
• The Stonepark project, which currently hosts an ‘Inferred’ resource of 5.1mt at an average grade of 8.7% zinc and 2.6% lead, is situated west of Glencore’s Pallas Green deposit.

Conclusion: We look forward to results from the drilling at Stonepark later this year.

*SP Angel are Nomad and Broker to Arkle Resources

First Class Metals (FCM LN) 2.7p, Mkt Cap £2.1m – Progress report on Ontario exploration

1. First Class Metals has issued a review of progress on its exploration projects in northern Ontario where it reports that it has now completed field work at its Coco East project where it now considers that, in addition to its precious metals potential there may also be opportunities for base metals mineralisation.
2. The base metals potential identified is in the “eastern continuation of the ‘zinc belt’ from the Winston Lake area” and the company also explains that the field work “ensures the property’s positive standing beyond 2024”.
3. Additional samples have been submitted for fire assay for gold from the ‘Dead Otter Trend’ in the North Hemlo area, as some outcrop samples have yielded assays as high as 19.6g/t gold.  The company explains that the prospect hosts visible gold “in rock samples … [but] … the assays have not reflected the apparent potential to report significant gold values”.
4. The company suggests that “the assays are not reflecting the true gold content of the quartz / shear” which may be explained as either the presence of coarse gold in the samples or the presence of the gold telluride mineral calaverite, or possibly a combination of both factors.
5. At the Zig-Zag lithium prospect, the company has secured a three-year extension to its exploration permit where mineralisation “remains open in all directions, including down dip”.

First Quantum Minerals (FM CN) C$19, Mkt Cap C$17bn – Government to order an environmental audit of Cobre Panama

• President Jose Raul Mulino who took office on Monday announced plans to order an environmental audit of the Cobre Panama operations, MiningWeekly reports.
• “I will order a strict environmental audit of the mine, with the best international experts, so that the country knows the truth about the state of the site…,” he said on Monday.
• “The plan to open and definitively close the mine in a safe and positive manner for our country will depend on the results of that environment study,” President added.
• The Company did not comment on the announcement but the news was seen as a first to a potential reopening of operations that were suspended in December last year.

Sovereign Metals* (SVML LN) 38.5p, Mkt Cap £189m – Rio Tinto raise stake to 19.76% through further A$18.5m investment

(Sovereign currently holds 100% of the Kasiya project. The government has a right to a 10% free carry in the project. Rio Tinto acquired an initial strategic interest of 15% for a $40.6m and have now exercised their option to raise their state to 19.8%)

STRONG BUY – Valuation 55p

• Rio Tinto report their investment of a further A$18.5m (US$12.4m) into Sovereign Metals raising their stake to 19.76%.
• The option exercise raises Rio Tinto’s stake to 19.76% and follows a recent site visit to the Kasiya project in Malawi by a substantial contingent of Rio Tinto personnel.
• Rio’s team of around 18 experts included specialists in ESG, land rehabilitation, mining, titanium mineral processing, tailings reclamation etc….
  • “Under the Investment Agreement between Sovereign and Rio Tinto, Rio Tinto continues to provide assistance and advice on technical and marketing aspects of Kasiya”
• The investment will be used to continue to optimise and advance the Kasiya project covering expenses related to the optimisation study and DFS with the latter expected next year.
• The project is currently preparing for pilot mining of rutile and graphite in a test pit of significant scale.
• Location: The Kasiya project is located an hour’s drive north of Lilongwe and is just off the paved highway making access unusually easy for an African mining project.
• The project is also remarkably close to the Chipata-Nkaya rail line which connects to the new rail line down to Nacala port in Mozambique.
• While Rutile is a high-value product which currently sells for >US$1,400/t in port in China

Conclusion: Rio Tinto’s further investment into Sovereign confirms Rio’s interest in the project and increases the likelihood of its future participation in the project.

This is a significant milestone for Sovereign Metals, it is a vote of confidence in the quality of the work done to date by management including community relations and other ESG.

Sovereign continue to manage the Kasiya project with support and advice from Rio Tinto and are working towards the publication of a DFS expected next year.

*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.

Tungsten West (TUN LN) – 4.4p, Mkt cap £8.3m – Interim CEO appointed to the Board

• Tungsten West has announced that its interim CEO, Alistair Scobie has been appointed to the Board.
• Tungsten West, which is working towards the resumption of tungsten production at the Hemerdon mine in the UK received Environment Agency approval for the processing plant last month.
• In our opinion, Hemerdon is one of the western-world’s larger sources of tungsten and a successful resumption of production at Hemerdon should be welcomed by western-world consumers of the commodity in a market dominated by China.

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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