SP Angel Morning View -Today’s Market View, Wednesday 7th June 2023

Weak China exports encourage calls for more government stimulus

MiFID II exempt information – see disclaimer below

Arc Minerals* (ARCM LN) – Arc prepares for drilling as wet season subsides in Zambia

Aston Bay Holdings (BAY CN) – Copper assays from the Storm Project, Nanavut

Culpeo Minerals* (CPO AU) – Copper mineralisation in outcrop at Vista Montana

Petra Diamonds (PDL LN) – June sales tender deferred until August

Serabi Gold (SRB LN) – Underground exploration at Palito

Scotgold Resources (SGZ LN) – Interim CEO appointment

Copper climbs despite mixed data as China property market optimism rises on stimulus hopes

• Copper prices rally to the $8,380/t mark, as China property stocks climb on hopes of additional stimulus measures.
• The index tracking property equities rallied 8% yesterday in Hong Kong on hopes of additional stimulus measures.
• Mainland Chinese property equities rallied 2.3% yesterday.
• Copper imports fell 4.6% yoy in May but climbed 9% mom.
• Analysts suggest the monthly rise highlights traders arbitraging as domestic inventories slid and LME prices slumped below $8,000/t.
• Copper concentrate imports hit 2.56m t, the highest since records began and up 17% yoy following a flood of supply from Peru, Chile and the DRC.
• Concentrate continues to accumulate at ports. (at5)
• The data highlights China’s weak domestic demand but strong domestic production, with Marex also suggesting local smelters are ramping up output based off satellite imagery.
• Copper imports fell 11% to 2.14mt for the first five months of 2023 to China yoy.

Gold – $1,955/oz – Prices flatline as traders await Fed clues and dollar strengthens

• Gold prices are holding their range around the $1,955/oz level as traders look for clues before the Fed meeting next Wednesday.
• Analysts are eyeing both inflation and the labour market for guidance to the Fed’s rate hike path going forward.
• The New York Fed noted that inflationary pressures are weakening yesterday, with their Global Supply Chain Pressure Index sliding to -1.71 vs -1.35 for April revised.
• US CPI data is due tomorrow, with a further softening in inflationary pressures expected.
• Some of gold’s upward momentum has been removed by the resolution of the debt ceiling.
• Geopolitical concerns are also fading, with China set to welcome the US’ Blinken over the next fortnight.
• US Treasury yields are hovering lower, providing some support to the metal, although the dollar’s strength is limiting any major upside.
• The dollar index is being supported by Euro weakness, with disappointing German data weighing on the Bloc’s currency.

Iron ore strengthens in line with base metals as optimism mounts over Beijing stimulus

• Iron ore continues to bounce from its sub-$100/t lows to $107/t in Shanghai.
• Improving sentiment in China’s property sector is supporting the metal.
• Authorities called on banks to lower deposit rates yesterday, with analysts suggesting the move is intended to pre-empt a more substantial round of stimulus measures.
• China boosted iron ore imports by 4% yoy in May on improved steel margins. Steel exports jumped 8.4mt, climbing 7.7% yoy.
• However, steel exports in May fell 22% yoy.

Lithium prices continue to strengthen off May lows as prices stabilise on sustained EV demand

• Chinese battery and technical-grade carbonate prices climbed 12% and 22% respectively in May as automaker destocking cooled.
• Spodumene prices from Australia fell 25% in May, hitting a low of $3,250/t before climbing $450/t higher on a confirmed transaction of $4,900/t. (BMI)
• China carbonate prices are down c.25% Jan-May yoy.
• China’s Tsingshan is set to invest in a 50ktpa LCE project in Zheijiang province.

China NEV ownership reaches 15m units

• As of June 4, China’s new energy vehicle (NEV) ownership had exceeded 15m units
• 6.887 million NEVs were sold in China in 2022, up 93.4 percent year-on-year
• Passenger car sales in China are expected to be 23.5 million units in 2023, including 8.5 million NEVs, according to the China Passenger Car Association.

China rare earth exports slide 5.9% yoy

• China rare earth exports fell 5.9% yoy to 4,576t in May vs a 2-year high of 4,863t same month last year.
• Exports between Jan-May fell 4.4% yoy to 20,987t.

Potash – Analysts predict potash price bottom on China-Canpotex supply deal

• A JV between Mosaic and Nutrien has agreed to supply potash shipments to China at $307/t.
• The price is a 48% discount to prices agreed last year and a 27% discount to a deal agreed in April with Indian buyers.
• Brazil has seen weak potash sales despite traditionally strong seasonal dynamics.
• Brazil is now expected to ramp up soybeans, corn, coffee, and sugar production, pushing demand higher.

Diamond market indigestion – Petra postpones tender as trade demand for rough mined diamonds falls away

• Anecdotal evidence is now being followed by the harsh reality of tough market conditions.
• Petra has politely postponed its Tender 6 for FY 2023 due to a ‘temporary slowdown’ in the market for rough diamonds.
• Jewellers are pushing LGDs ‘Lab Grown Diamonds’ onto unsuspecting customers in place of natural mined diamonds due to much higher LGD margins.
• The mid-stream and retail are also said to be stuffed with mined diamonds which they are struggling to pass on.
• Add to this ongoing economic uncertainty, rising interest rates (borrowing costs) and weaker sentiment in the non-engagement sector of the market
• We hear that the margin on an LGDs can be >80% as the cost of LGDs continues to fall. This is very substantially over that for natural mined stones.
• Petra says it will offer the Tender 6 diamonds into the August auction though we wonder if market conditions will have recovered by then.
• It is possible that the G20 sanction on imports of Russian diamonds might disrupt natural diamond supply though we suspect Indian diamond cutters and polishers will continue to buy Russian stones without any particular impediment given that India has resolutely disregarded all Western sanctions against Russia.
• Skipping tenders is a tough decision and we hope but do not expect Petra will be able to make up for its lost June sales.
• Consumers should be advised that Lab Grown Diamonds will have very little value other than the cost of the energy required to make them but sadly, many jewellers are simply not incentivised to point this material fact out.

Economics

World Bank forecasts slow growth period over the 2023-24 as inflation persists and tight monetary policy is maintained, although, revises its 2023 numbers higher as major economies surprised on the upside at the start of the year.

• Global growth is expected to slow down to 2.1% this year from 3.1% in 2022 compared to 1.7% forecast earlier in the year.
• Although, 2024 growth was revised lower to 2.4% from 2.7%.
• On downside risks, the report highlights more persistent inflationary pressures as well as possible further global financial stress stemming from the banking sector.
• Global +2.1% (+0.4pp on previous projections in Jan/23) and 2.4% (-0.3pp) in 2023 and 2024.
• US +1.1% (+0.6pp) and +0.8% (-0.8pp).
• Eurozone +0.4 (+0.4pp) and 1.3% (-0.3pp).
• China +5.6% (+1.3pp) and 4.6% (-0.4pp).

OECD released its own growth projections today pointing to a stronger recovery compared to the World Bank helped by falling energy costs, easing supply bottlenecks and the reopening of the Chinese economy.

• Nevertheless, the agency recognises persistent nature of core inflation and argues in favour of maintaining restrictive monetary policy.
• Global +2.7% and +2.9% in 2023 and 2024.
• US +1.6% and +1.0%.
• Eurozone +0.9% and +1.5%.
• China +5.4% and 5.1%.

China – Poor trading data in May is likely to see more calls on authorities to step up stimulative policies.

• The data follows up on a drop in manufacturing activity in May as well as slowing home sales after a pickup earlier in the year.
• Exports (%yoy): -7.5 v 8.5 April and -1.8 est.
• Imports (%yoy): -4.5 v -7.9 April and -8.0 est.

Germany – Industry started Q2/23 on a weak footing as production came in weaker than expected in April following a substantial drop in March (-2.1%).

• The modest recovery is reported to have been driven by a 2% rebound in construction with manufacturing little changed.
• Industrial production (%mom): 0.3 v -2.1 (revised from -3.4) March and 0.6 est.

UK – Property prices post the first annual drop in more than a decade in May on the back of higher borrowing costs, Halifax data shows.

• Prices were down 1%yoy last month marking the first annual fall since Dec/12.
• Halifax expects further rate increases that “will inevitably impact confidence in the housing market”.
• Earlier in the month, Nationwide UK house prices falling by an annual rate of 3.4% in May, the largest decline since 2009.

Turkey – The lira dropped by the most since late 2021 as market expects new government to potentially reduce central bank interventions.

• The currency dropped 5% in early trading hitting a new record low of 22.7.

Currencies

US$1.0674/eur vs 1.0718/eur yesterday. Yen 139.31/$ vs 139.25/$. SAr 19.202/$ vs 19.195/$. $1.240/gbp vs $1.244/gbp. 0.667/aud vs 0.667/aud. CNY 7.128/$ vs 7.108/$.

Dollar Index 104.30 vs 103.85 yesterday.

Commodity News

Precious metals:

Gold US$1,955/oz vs US$1,958/oz yesterday

Gold ETFs 94.0moz vs US$94.0moz yesterday

Platinum US$1,036/oz vs US$1,032/oz yesterday

Palladium US$1,411/oz vs US$1,409/oz yesterday

Silver US$23.42/oz vs US$23.45/oz yesterday

Rhodium US$6,400/oz vsUS$6,400/oz yesterday

Base metals:   

Copper US$ 8,310/t vs US$8,277/t yesterday

Aluminium US$ 2,218/t vs US$2,225/t yesterday

Nickel US$ 20,950/t vs US$21,000/t yesterday

Zinc US$ 2,341/t vs US$2,302/t yesterday

Lead US$ 2,038/t vs US$2,035/t yesterday

Tin US$ 25,535/t vs US$25,740/t yesterday

Energy:           

Oil US$75.9/bbl vs US$75.6/bbl yesterday

• Crude oil prices edged higher as the API reported a 1.7mb w/w draw in US crude oil and fuel stocks (vs 1.5mb build expected)
• European energy prices shifted downwards again reflecting market volatility this week caused by the planned closure of Gazprom’s 31.5bcm Turkstream gas pipeline for annual maintenance this week, exacerbated by the closure of Norway’s Hammerfest LNG plant until June 14.

Natural Gas US$2.257/mmbtu vs US$2.248/mmbtu yesterday

Uranium UXC US$54.60/lb vs US$54.60/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$107.0/t vs US$106.1/t

Chinese steel rebar 25mm US$524.9/t vs US$526.2/t

Thermal coal (1st year forward cif ARA) US$104.3/t vs US$100.0/t

Thermal coal swap Australia FOB US$139.0/t vs US$143.5/t

Coking coal swap Australia FOB US$225.0/t vs US$225.0/t

Other:  

Cobalt LME 3m US$29,525/t vs US$29,525/t

NdPr Rare Earth Oxide (China) US$70,278/t vs US$69,044/t

Lithium carbonate 99% (China) US$41,031/t v US$41,131/t

China Spodumene Li2O 6%min CIF US$4,060/t vs US$4,030/t

Ferro-Manganese European Mn78% min US$1,254/t vs US$1,259/t

China Tungsten APT 88.5% FOB US$323/mtu vs US$323/mtu

China Graphite Flake -194 FOB US$755/t vs US$755/t

Europe Vanadium Pentoxide 98% 7.1/lb vs US$7.1/lb

Europe Ferro-Vanadium 80% 31.75/kg vs US$31.75/kg

China Ilmenite Concentrate TiO2 US$309/t vs US$310/t

Spot CO2 Emissions EUA Price US$85.0/t vs US$85.3/t

Brazil Potash CFR Granular Spot US$345.0/t vs US$345.0/t

Battery News

India to offer almost $500m in incentives for battery storage projects

• India will offer 37.6b rupees ($455.2m) in incentives to companies setting up battery storage projects totalling 4,000MWh under a scheme announced earlier this year, two government sources said. (Reuters)
• The scheme is intended to boost battery storage projects critical to India’s ambitious plan is to expand its renewable energy capacity to 500GW by 2030.
• It also aims to cut the cost of battery energy storage from the current 5.5-6.5 rupees per unit.

France will need to maintain nuclear power generation levels to meet 2035 EU EV laws (RTE)

• EVs and other technology to cut emissions is likely to drive a surge in French power demand by 2035, meaning France will need to maintain its existing nuclear capacity, according to grid operator RTE.
• The EU approved a law to end sales of new C02-emitting cars in 2035 earlier this year.
• To meet that goal, electricity consumption, needed both to power the EVs and the battery plants, is likely to rise by nearly 10TWh per year on average over the next decade to between 580 and 640TWh in 2035, the RTE climate and energy report said.
• Energy output in 2022 was 452.8TWh, a 34-year low, as Europe sought to curb its energy demand to cope with the impact of the Ukraine war and France’s nuclear fleet was subject to an unusually high level of maintenance.
• Nuclear energy has typically supplied around 70% of France’s supply and will remain dominant, but renewable supplies are expected to increase.

Company News

Arc Minerals* (ARCM LN) 3.4p, Mkt Cap £42m – Arc prepares for drilling as wet season subsides in Zambia

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(Arc holds 67% of Unico Minerals Limited with 33% held by Kopara Investments. Arc effectively holds 72.5% of Zaco, 66% of Handa in Zambia and 66% of Cheyeza license)

(Arc holds 75% in Alvis-Crest (Proprietary) Limited which holds two licenses in the Kalahari Copper Belt, known as Virgo covering >210km2, around 10km south east the recently commissioned Khoemacau Copper in Botswana.)

• Arc Minerals is preparing to restart drilling on their licenses in the West of Zambia with the coming of the dry season.
• Management have been reviewing their proposed drill targets in preparation for Anglo’s go-ahead decision.
• Vassilios Carellas, coo and geologist at Arc is still in Zambia preparing for the new season’s campaign.
• Nick von Schirnding, Arc CEO, expects Anglo to complete its due diligence on the conditions precedent in the next few weeks which should enable drilling to restart in earnest.
• Anglo American recently signing a binding joint venture agreement with Arc Minerals on its exploration assets in Zambia.
• Under the joint venture Anglo American will invest up to $88.5m, including up to $14.5m in cash to earn a 70% interest in Arc’s Zambian licenses.

• Arc, through its subsidiary Unico will retain a meaningful 30% stake in any exploration discovery within the joint venture.
• Anglo American has the right to retain 51% ownership by funding US$24m of exploration within 3½ years and phased cash payments of US$14.5m.
• The deal requires compliance with certain conditions precedent and the receipt of normal regulatory approvals in Zambia.
• Under the jv agreement $3.5m of cash is due on closing with further payments of $1m on each of the next three anniversaries with a further $8m to be paid at the end of the period.
• Anglo American will have the right to retain an additional ownership interest of 9% to raise its ownership to 60% with another $20m of exploration spend within 2 years in Phase I and an additional 10% by funding $30m within 2 years of the Phase II.

Conclusion:  It’s been over 20 years since Anglo American exited Zambia, when copper prices were significantly less attractive than they are now. Anglo’s return will be seen as a substantial vote of confidence in a nation which has witnessed the harsh realisation that nationalisation does not work when it comes to mining.

*SP Angel acts as Nomad and broker. An SP Angel analyst has driven across the Zambian copper belt, flying the British flag, to visit Arc’s licenses West of Solwezi.

Aston Bay Holdings (BAY CN) C$0.035, Mkt cap C$5.4m – Copper assays from the Storm Project, Nanavut

• Aston Bay reports assay results from drilling conducted by its partner, American West Holdings on the 4100N Zone at the Storm Copper Project on Somerset Island, Nunavut.
• The company says that the results demonstrate the continuity of near surface copper mineralisation and that the “near-surface setting, thick intersections, and high grades of the copper mineralization support the potential for a low-cost open pit mining operation”.
• Among the results highlighted in today’s announcement are:

• • An intersection of 29m at an average grade of 1.1% copper from a depth of 59.4m in hole SR-23-02; and
  • An intersection of 67.1m also at an average grade of 1.1% copper from a depth of 54.9m in hole SR-23-03; and
  • An intersection of 6.1m, again at an average grade of 1.1% copper from a depth of 50.3m in hole SR-23-04, which also intersected 19.8m at an average grade of 1.1% copper from 77.7m depth; and
  • An intersection of 21.3m at an average grade of 1% copper from a depth of 41.23m in hole SR-23-05; and
  • An intersection of 7.6m at an average grade of 1.1% copper from a depth of 53.3m in hole SR-23-06 which also intersected 3.1m grading 2% copper from 54.9m and 6.1m averaging 1.2% copper from 82.3m
• The company says that “The drilling results received to date demonstrate consistent copper grades and excellent lateral continuity of the high-grade mineralization. Additionally, drilling results show significant thicknesses of coherent copper mineralization (<1% Cu) are present outside of the stronger zones of mineralization”.

Culpeo Minerals* (CPO AU) A$0.07, Mkt cap A$4.5m – Copper mineralisation in outcrop at Vista Montana

Phase-2 drill programme continues to yield positive results

• In a release to the ASX, Culpeo Minerals reports the identification of outcropping copper mineralisation at its Vista Montana prospect within its Lana Corina copper/molybdenum project in Chile.
• Copper mineralisation has been identified over an area of 800m x 700m at Vista Montana, approximately 1km NE of the main Lana Corina prospect, and coincides with previously defined geochemical anomalies and the company confirms that it is planning follow-up drilling.
• Managing Director, Max Tuesly confirmed that “Geological mapping is continuing, and the company is planning a maiden drill program at Vista Montana to commence in Q3 2023”.
• So far the mapping has “identified outcropping copper mineralisation associated with an extensive sheeted vein system and a stockwork / breccia zone … [with] … an extensive network of copper bearing sheeted veins … [which] … appears to be related to the possible porphyry intrusive centers identified in the area, from the interpretation of geophysical and geochemical data”.
• Mapping has also shown the presence of “a large stockwork alteration zone and associated breccia zone 400m x 400m in size … Proximal to the sheeted vein system … [with highly silicified breccias containing] … significant copper sulfide mineralisation in the form of chalcopyrite”.
• The company says that the “discovery of this copper bearing sheeted vein system and associated stock-work breccia zone broadens the range of targets at Vista Montana and supports the Company’s exploration model that Lana Corina style mineralisation could be present at shallow levels below what is outcropping in the area”.

*An analyst at SP Angel holds shares in Culpeo Minerals

Petra Diamonds (PDL LN) 68p, Mkt Cap £134m – June sales tender deferred until August

• Petra Diamonds has announced that its planned sales tender scheduled for June will now take place in August in response to “a temporary slowdown in the market for rough diamonds as a result of elevated inventory in the mid-stream”.
• The company says that it is postponing “the majority of our Tender 6 rough diamond sales” suggesting that some sales will occur.
• Petra Diamonds acknowledges that there will be a deferral of “sales revenues for only a relatively short period” but they are able to be flexible on the timing as a result of “our strengthened balance sheet and the resilience of our business”.
• The change of timing until August “coincides with stronger demand due to the end of Northern Hemisphere summer holidays and the commencement of manufacturing orders being filled ahead of the seasonally strong end of year festive period”.
• Petra Diamonds says that the June sale “would have offered c.230kct of goods for sale from Cullinan Mine and c.150kct from Finsch. Instead, these goods, together with the 75.9kcts of predominantly higher value stones withheld from Tender 5 as well as run of mine production from both Cullinan Mine and Finsch”.
• In April when it released its Q3 production statistics, Petra Diamonds discussed plans to increase annual diamond output by around 1m carats by FY 2025 as a consequence of operating improvements at Finish and Cullinan and the resumption of production at the Williamson mine in Tanzania.
• Conclusion: We infer that the August tender will be for a substantially larger volume of diamonds than usual as a result of the additional production volume generated due to the deferral and will be interested to see the impact on prices.

Serabi Gold (SRB LN) 27.5p, Mkt Cap £20m – Underground exploration at Palito

• Serabi Gold has issued a progress report on its underground exploration of the G3 vein at its Palito gold mine in northern Brazil.
• CEO, Mike Hodgson, explained that “The G3 Vein was a major source of gold production for much of Palito’s earlier mine life with the benefit of also being one of the widest orebodies … [and that ] … With the deepening of other sectors within the mine, and particularly Palito West and Chico da Santa which are the sectors either side of the Palito Main Zone within which G3 occurs, drilling out the deeper portions of G3 is now becoming possible”.
• Mining of the G3 vein “ceased when a fault structure was encountered” but now that following deeper mining of the parallel Palito West and Chico de Santa zones “it has been possible to position drill rigs to drill test the depth and lateral extent of the G3 Vein. The drill results demonstrate that mineralisation continues strongly below the fault although in places the fault can cause a minor off-set in the vein.”
• The current campaign is testing the northwest and down-dip extension of the G3 vein along 600m of strike and 300m depth with further drilling to “test an additional southerly extension” planned during 2024 over “a vertical extent of approximately 500m and strike of approximately 500m”.
• Among the results highlighted in today’s announcement, are:

• • A 1.30m intersection at an average grade of 44.75g/t gold from a depth of 337.85m in hole PDD-0557; and
  • An intersection of 0.55m at an average grade of 45.20g/t gold from 190.60m depth in hole PDD-0590; and
  • An intersection of 0.90m at an average grade of 23.33g/t gold from 286.30m depth in hole PDD-0786; and
  • An intersection of 0.75m at an average grade of 24.92g/t gold from 230.00m depth in hole PDD-0825; and
  • An intersection of 0.50m at an average grade of 32.11g/t gold from 238.10m depth in hole PDD-0827.

• The company confirms that “Good progress is being made with the Independent Mineral Reserve and Resource Estimate although it has been decided to include the current round of G3 drilling which will cause a delay in the completion of the estimate into the third quarter”.

Conclusion: Underground exploration at Palito is extending the G3 vein laterally and at depth beyond a fault zone and should add to resources and reserves in a forthcoming updated estimate now expected during Q3.

*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil

Scotgold Resources (SGZ LN) 12p, Mkt Cap £10m – Interim CEO appointment

• Sean Duffy, CFO, has been appointed as interim CEO with immediate effect.
• Search for a permanent replacement is ongoing.

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

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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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