SP Angel Morning View -Today’s Market View, Wednesday 5th June 2024

Gold prices hold as ETFs start buying on lower US bond yields

MiFID II exempt information – see disclaimer below

Empire Metals* (EEE LN) – Near surface zone of rutile and anatase identified in boost to project economics

Goldstone Resources* (GRL LN) – NED appointment

Tungsten West (TUN LN) – Departure of CEO

Sovereign Metals* (SVML LN) – Rio Tinto likely to exercise option to raise stake to 19.99% in July for $18.8m

Gold prices ($2,355/oz) hold following sell-off as ETFs start buying

• Gold prices have steadied back above $2,333/oz having hit $2,315/oz in yesterday’s sell-off.
• The metal was hit in a wider metals market sell-off as traders booked profits and US labour data spooked growth outlooks.
• ETFs added 46koz to holdings yesterday, reducing 2024 net sales to 4.73moz.
• This was triggered by lower Treasury yields, which slumped after yesterday’s JOLTs data, which raised concerns over a slowing US economy.
• The 10 year fell to 4.33%, having risen over 4.6% in mid-May.
• Chinese buying seems to have steadied, having propelled gold prices over $2,450/oz in April.
• Focus now shifts to Friday’s NFP data, which is closely watched by the Fed.
• ETFs are now likely the primary catalyst for bullish gold momentum going forward, with a further slide in Government yields expected to push safe-haven investors into bullion.
• Whether China continues accumulating gold in the scenario of a stronger Yuan remains to be seen. However, persist geopolitical tensions should encourage Central Bank buying.

Copper ($9,920/t) extends losses as China inventories continue to climb

• Copper prices have continued to pare gains having soared to $11,000/t in May, weakening below $10,000/t yesterday.
• The COMEX short squeeze continues to unravel, with the spread between LME now narrowing to near normal historical levels.
• Growth slowdown concerns are mounting, with US Treasuries and oil prices both suggesting traders are reducing growth expectations.
• Additionally, copper inventories are climbing to May 2020 highs on a global level.
• Chinese stocks are driving this inventory build, with seasonal slowdown expectations fuelling demand concerns.
• Copper equities have fallen sharply, with Freeport and FQM down 4.5% and 6.4% respectively.
• Copper producers were taking advantage of high valuations, with Hudbay raising $300m last month and MMG announcing this week a $1.2bn equity raise to pay down debt.

Berkshire Hathaway to boost DLE investments with Occidental partnership

• Warren Buffetts’ Berkshire Hathaway has formed a JV with Occidental Petroleum for DLE commercialisation.
• The JV will look to commercialise Occidental’s DLE process in California, to extract lithium directly from brine.
• First steps will involve building a demonstration plant at scale.
• The Company has patented various direct lithium extraction technologies.
• BHE Renewables currently operates geothermal power plants in the Imperial Valley, with the brine containing lithium.
• Berkshire owns 28% of Occidental.

Iron ore prices extend sell-off to two-month lows on demand concerns

• Iron ore has weakened to $107/t in China for the 62% Fe index, down to eight-week lows.
• Inventories are currently sitting at two-year highs, with demand from the construction sector continuing to weigh.
• Bloomberg reports that 100 of China’s largest real estate companies saw average home sales fall 34% yoy.
• Steel prices fell I China c.0.7% yesterday whilst coking coal futures were down 0.6%.
• Crude steel output for 2024 expected at 1.015bnt vs 1.019bnt last year.

Lithium carbonate prices as China continues to report ‘sluggish market conditions’

• Shanghai lithium carbonate futures reported at CNY102.7kt ($14,170/oz).
• Analysts note limited spot transactions, with downstream buyers holding off on purchases amid sliding prices.
• Upstream producers are reportedly lowering prices to encourage buying.
• Customer lithium inventories are expected to still be high following the restocking cycle in 2023.
• We suggest the longer prices remain at current levels, the lower chance of new supply additions being brought onto market over 2025/26, likely exacerbating future deficits as seen in 2022.

IG TV:  Copper and gold 10/04/2024:      https://youtu.be/KuGSbDqWglk?si=-8iikkOHxbbLSnPZ

121 Mining Investment Conference investment Leaders panel: https://youtu.be/OWEASjgXiME?si=ZPzQT-1SnUhXRo0g

Sharepickers TV:  Everybody wants copper. 17/05/2024 podcast:  https://audioboom.com/posts/8507288-john-meyer-everybody-wants-copper

         Video:       https://www.youtube.com/watch?v=XfYNVjIiEs4

*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts. We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate. SP Angel acts as Broker/Nomad or both for Anglo Asian Mining, Kodal Minerals, Power Metals Resources.

Economics

US – Preliminary labour data showed a smaller than expected increase in labour vacancies in April helping 10y sovereign yields lower and stock indices higher.

• JOLTS US job opening dropped to the lowest level in over three years.
• May payroll numbers are due this Friday with estimates for a 185k print, up on 175k recorded in April.
• Earnings growth is expected to pick up only slightly to 0.3%mom, up from 0.2%, with annual rate unchanged at 3.9%.
• JOLTS job Openings (‘000, Apr/Mar/Est): 8,059/8,355(revised from 8,488)/8,350.

China – Services sector expanded at the fastest pace since July 2023, a Caixin PMI survey of private businesses showed.

• Caixin Manufacturing PMI (released Monday, May/Apr/Est): 51.7/51.4/51.6;
• Caixin Services PMI (May/Apr/Est): 54.0/52.5/52.5;
• Caixin Composite PMI (May/Apr/Est): 54.1/52.8/-.

Japan – Labour earnings jump at the fastest pace since 1994 as firms deliver on their pledges for wage increases.

• Nominal wages were up 2.1%yoy in April, although, adjusted for inflation real rate remained in contraction.
• Real wages were down 0.7%yoy marking the 25th consecutive decline as pay growth lagged inflation.
• The central bank will hold a policy meeting next week with no change in rates expected.
• Surveys indicate that the BOJ is likely to wait until October before raising rates, Bloomberg reports.
• The yen is weaker this morning following a strong run on Finance Minister comments regarding the recent authorities’ FX market intervention.

India – Markets recover following a sell off on Tuesday after final results showed that PM Modi led Bharatiya Janata party lost its majority in parliament.

• The ruling party won 240 seats in India’s 543-seat Lok Sabha remaining the largest part, down from 303 recorded in 2019.
• The opposition INDIA bloc, led by formerly ruling Indian National Congress, performed better than expected securing 234 seats.
• Modi will now be looking to form a government with smaller parties from the National Democratic Alliance that won further 53 seats giving the PM bloc a potential total of 293 seats, FT writes.

Russia – How long can Russia survive under its current regime?

• Putin’s Russia has succeeded in breaking most US and EU sanctions with the help of China and India but we suspect is lacking in certain critical industrial components.
• Russia’s central bank interest rate is 16% with CPI reported to be running at 7.8% vs 18% in 2022.
• The war in Ukraine is grinding away at the economies of both sides. Crimea is now within range of Ukrainian missiles and is perhaps more of a liability for Putin than an asset with its navy pinned down.
• Russia is also suffering from a fall in its working population with many more personnel moving overseas.
• Its automotive industry is being replaced by China and we expect its aerospace industry will also collapse. We also understand Chinese entities are busy buying up Russian businesses.
• We understand that Putin’s regime has overseen the closure of nearly half its hospitals and schools as funding and staff run short.
• Business with the West has collapsed with China and India warned over their ongoing involvement. Russia will also be selling less military kit overseas after their humiliation on the road to Kiev.
• Russia’s mines are failing as seen with the recent collapse and multiple fatalities at the Pioneer gold mine in Amur a symptom of a lack of skilled personnel and maintenance and machinery.
• Oil prices are falling as high US interest rates slow economic activity and as the greater use of electric vehicles requires less fuel.
• China is enjoying discounted oil, gas and other resources from Russia during the conflict while maintaining amicable relations with Europe and the US and is possibly waiting in the wings to re-acquire the Amur and Ussuri regions which it lost to Russia in 1858 and 1860 along with some other useful infrastructure and resources.
• China is also negotiating hard on long-term gas prices and volume commitments on a new gas pipeline from Russia into China.
• Russia’s economy is also missing out on gas sales through the Nordstream pipeline into Europe.
• Sabotage of European military bases and businesses related to Ukraine organised by the GRU is increasing as Putin develops more ways to frustrate efforts to support Ukraine hardening European politicians against Russia.
• Russian oligarchs are now not able to enjoy their wealth around the world as they did pre-war and run the risk of easily upsetting Putin and ending up in jail.
• Russia has also lost a significant proportion of its working weaponry in terms of tanks and field guns with very old stock now being upgraded for the front line.
• Sooner or later the Russian generals will turn against their leader as did Prigozhin with potential break up of the Russian state.
• Falling oil prices should hasten the demise of the Russian regime though it is difficult to forecast when the current administration will fall.

Currencies

US$1.0879/eur vs 1.0888/eur previous. Yen 155.98/$ vs 155.65/$. SAr 18.717/$ vs 18.668/$. $1.278/gbp vs $1.279/gbp. 0.666/aud vs 0.666/aud. CNY 7.246/$ vs 7.246/$.

Dollar Index 104.26 vs 104.12 previous.

Precious metals:         

Gold US$2,331/oz vs    US$2,344/oz previous

Gold ETFs 80.9moz vs 80.9moz previous

Platinum US$991/oz vs US$1,014/oz previous

Palladium US$925/oz vs US$919/oz previous

Silver US$29.48/oz vs US$30/oz previous

Rhodium US$4,725/oz vs US$4,725/oz previous

Base metals:   

Copper US$ 9,920/t vs US$10,119/t previous

Aluminium US$ 2,635/t vs US$2,673/t previous

Nickel US$ 18,730/t vs US$19,470/t previous

Zinc US$ 2,899/t vs US$2,954/t previous

Lead US$ 2,229/t vs US$2,285/t previous

Tin US$ 31,615/t vs US$32,545/t previous 

Energy:           

Oil US$77.6/bbl vs US$77.4/bbl previous

• Crude oil prices were stable despite the API reporting a large 4mb w/w build to US crude stocks, which was more than double expectations for a 1.9mb build.
• European energy prices moved lower as Norway outage fears subsided with French nuclear reactor operating levels broadly flat w/w at 64% of 61.4MW capacity and Gazprom reporting stable supply of 42.4mcm/d (~1.5bcf/d) via the Ukraine.
• Today is World Environment Day, an annual milestone to help drive faster action for the protection of the planet.

Natural Gas €33.9/MWh vs €35.9/MWh previous

Uranium Futures $89.4/lb vs $89.8/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$107.7/t vs US$110.2/t

Chinese steel rebar 25mm US$539.9/t vs US$540.4/t

Thermal coal (1st year forward cif ARA) US$124.8/t vs US$128.0/t

Thermal coal swap Australia FOB US$139.5/t vs US$143.5/t

Hard Coking Coal Australia FOB US$326.0/t vs US$326.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$50,928/t vs US$51,408/t

Lithium carbonate 99% (China) US$13,595/t vs US$13,870/t

China Spodumene Li2O 6%min CIF US$1,180/t vs US$1,190/t

Ferro-Manganese European Mn78% min US$972/t vs US$972/t

China Tungsten APT 88.5% FOB US$360/mtu vs US$360/mtu

China Graphite Flake -194 FOB US$470/t vs US$470/t

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.2/lb

Europe Ferro-Vanadium 80% 26.85/kg vs US$26.85/kg

China Ilmenite Concentrate TiO2 US$318/t vs US$321/t

China Rutile Concentrate 95% TiO2 US$1,415/t vs US$1,415/t

Spot CO2 Emissions EUA Price US$71.4/t vs  US$74.1/t

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

Battery News

Registrations of Chinese-made EVs leap in EU and UK ahead of potential tariffs

• Registrations of Chinese-made EVs jumped 23% yoy for the months of January to April.
• 119,300 Chinese EVs were registered in the EU and UK in the first four months of 2024 according to Schmidt Automotive Research.
• The EU has become the market of choice for China’s EV exports after the US introduced a 100% on EV imports last month.
• The EU Commission is set to finalise a probe into whether Chinese subsidies have enabled EVs made in China to undercut European-made vehicles.
• It is likely that this will lead to higher tariffs on imports of Chinese-made EVs.

EV maker Nio gets permission for third factory in China (Reuters)

• The Chinese automaker has won approval to build a third factory in China that would boost its total approved production capacity to 1m cars.
• China’s state planner has been very cautious about approving new EV production plans since 2022 amid overcapacity worries and slowing demand.
• The approval of a new 600,000 unit factory is a big win for Nio and takes there total production capacity to around that of Tesla’s Giga Shanghai plant.

Volvo to issue world’s first EV battery passport ahead of new EU regulations

• Volvo Cars is launching the world’s first EV battery passport recording the origins of raw materials, components, recycled content and carbon footprint.
• The passport will be applied to its new flagship EX90 SUV which has just gone into production.
• It was developed by Volvo and UK startup Circulor, which uses blockchain technology to map supply chains – it took over 5 years to develop.
• Battery passports will be mandatory for EVs sold in the European Union from February 2027 showing the composition of batteries, including the origin of key materials, their carbon footprint and recycled content.
• Volvo has seen a recent jump in sales, up 13% yoy in May, driven by 27% growth in Europe and strong sales from its EX30 model.

BYD’s battery unit FinDreams to supply Tesla with battery cells for Megapack

• BYD’s battery making unit FinDreams will be supply Tesla with energy storage cells making it the first outside of CATL.
• FinDreams signed the deal with Tesla in March to supply the latter with cells for the US automakers Megapack product line, securing a deal for more than 20% of orders.
• Tesla’s energy storage business model involves sourcing cells from suppliers and assembling them into complete energy storage systems, including the Megapack, a large-scale energy storage system for office buildings and factories, and the Powerwall for homes.
• FinDreams will begin supplying Tesla with cells for energy storage in Q1’25.

Company News

Empire Metals* (EEE LN) 12p, Mkt Cap £70m – Near surface zone of rutile and anatase identified in boost to project economics

(Empire holds 70% of Pitfield, Century Minerals, which is run by two geologists holds the other 30%. One of these geologists works for Empire.)

• Empire Metals, following its recent diamond and RC drilling programme, provides an update on their Pitfield Titanium Project.
• The team has used core from diamond drilling across the Cosgrove and Thomas high-grade targets at Pitfield for metallurgical and mineralogical studies.
• The results show a dominance of titanium dioxide minerals, rutile and anatase specifically, in the first 10m ‘saprolite’ zone from surface.
• The titanite mineralisation then gets more prevalent at depth.
• Titanite is believed by the team to have been weathered into titanium dioxide minerals rutile/anatase within the first ~10m of the deposit. Specific grades have yet to be released.
• Empire considers this a major development for the project, opening the opportunity for a staged development plan, which involves mining the high-grade titanium dioxide minerals from surface whilst it develops a processing route for the titanite below.
• Management believes this upper zone ‘requires little further beneficiation to produce a high-quality TIO2 product.’
• Empire also notes the rutile / anatase zone is ‘extremely soft and friable which bodes well for low-cost mining and mineral processing techniques.’
• The scale of the strike and mineralised zone is expected to support bulk mining.
• Empire is conducting further metallurgical and mineralogical studies to identify relative proportions of the specific titanium dioxide minerals.

Conclusion:  Empire continues to progress the Pitfield Project with drilling, metallurgical and mineralogical studies. Today’s announcement is an interesting development in project progression, with rutile at surface likely supporting project economics. Recent rutile DFS have assumed long term prices of $1,400/t, with spot pricing at $1,415/t. The key question for Empire now regards processing and metallurgy. Anatase presents some complications and is not currently processed elsewhere. Empire’s team has recently been bolstered by several expert titanium metallurgists who will be able to support project progression. If Empire are able to demonstrate attractive economics for the rutile / anatase process flowsheet for this new ‘high value’ zone, the size, scale and soft nature of the mineralisation bode well for future financing and development.

*SP Angel acts as nomad and broker to Empire Metals. Partners of SP Angel hold shares in Empire Metals

Goldstone Resources* (GRL LN) 0.9p, Mkt Cap £9m – NED appointment

• Campbell Smyth is joining the Board as Non Executive Director with immediate effect.
• He is representing Asian Investment Services Ltd that holds ~30% interest in the Company.
• Mr Smyth holds a Bachelor of Commerce from the University of WA and postgraduate in Economics from Oxford University.
• He has over 30 years of experience in fund management, capital markets and corporate finance having assisted in raising over $500m of capital for junior resource companies.

*SP Angel acts as broker to Goldstone Resources

Tungsten West (TUN LN) – 5p, Mkt cap £9.4m – Departure of CEO

• Tungsten West has announced the resignation of its CEO, Neil Gawthorpe, who will remain a “Director of the Board pending finalisation of his Settlement Agreement”.
• Pending the appointment of a replacement, the CFO, Alastair Scobie, will become the interim CEO.
• Thanking Mr. Gawthorpe for his contribution as CEO, Chairman, David Cather takes the opportunity to highlight recent progress on “right-sizing the project cost base whilst the updated Feasibility Study is finalised … [as well as] … obtaining the lifting of the tonnage cap for truck haulage of aggregates, and obtaining the draft Environmental Permit for the Mineral Processing Facility … [which is] … the last outstanding permit required for the restart of mining operation”.
• We regard Tungsten West’s Hemerdon deposit as one of the western-world’s larger sources of tungsten and we expect a successful resumption of production at Hemerdon to be welcomed by western-world and other consumers of the commodity in a market dominated by China.
• We note that, in a release to the ASX today, Keith McKnight, the Managing Director of Group6 Metals, the operator of the Dolphin Tungsten mine on King Island, Tasmania, commented on rising prices of the benchmark ammonium paratungstate (APT) price in recent weeks saying that “Chinese APT prices, quoted on an FOB delivered basis, are now higher than European CIF prices quoted CIF Rotterdam”.
• He said that “This is an unusual development in the tungsten market which points to tightening domestic supply in China and more activity by Chinese buyers in Western market. Chinese import of tungsten concentrates almost doubled in the first calendar quarter of 2024 and the expectation is that this trend will continue into the second half of the year”.
• European APT 88.5% prices have pulled back to $350-360/mtu following a recent high of $355-365/mtu. Prices have risen from $300-310/mtu in December.

Sovereign Metals* (SVML LN) 33.75p, Mkt Cap £188m – Rio Tinto likely to exercise option to raise stake to 19.99% in July for $18.8m

(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 with an option to increase it to 19.99% within 12 months from 17 July 2023)

STRONG BUY – Valuation 55p

• Rio Tinto heading towards decision to exercise option to increase stake in company to 19.99% in July at a cost of $18.8m (eq. A$54.5/s).
• We recently visited Malawi to see Sovereign’s Kasiya rutile and graphite mine
• Management are busy planning a series of areas for open pit trials to test and hopefully optimise the mining method, tailings disposal and land rehabilitation.
• Much of this work is being done in conjunction and close consultation with Rio Tinto who had a significant number of executives also visiting the site at the time.
• We believe the Kasiya project represents a significant world-class rutile resource along with potentially the world’s second largest graphite resource.
• Investors are keen to see if Rio Tinto will go further and move to fully acquire Sovereign Metals for the Kasiya project after exercising their option.

Conclusion:  Kasiya appears to have the scale and longevity of the type of project sought after by the major mining companies. For us the question is not if Rio Tinto will take over Sovereign Metals but when?

*SP Angel act as Nomad and broker to Sovereign Metals. The analyst has recently visited the Kasiya mine site with no ill effects in this site visit.

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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