SP Angel Morning View -Today’s Market View, Friday 19th July 2024 – Share Talk

Gold ($2,420/oz) dumps following sharp rally on profit taking whilst ETF holdings climb

MiFID II exempt information – see disclaimer below

First Majestic (AG CN) – Production results

Orezone Gold (ORE CN) – Production from Bomboré

Whitehaven Coal (WHC AX) – Production results following acquisition of BHP met coal mines

Gold ($2,420/oz) dumps following sharp rally on profit taking whilst ETF holdings climb

• Gold prices fell $55/oz from recent record highs, likely reflecting reversal in momentum triggering profit taking.
• Treasury yields climbed slightly higher to 4.2% for the 10 year, after Treasuries rallied to yield lows of 4.15%.
• China has held off gold buying over the past two months, however ETF holdings have risen, providing a major source of buying.
• ETFs have been net sellers this year, giving ample room for renewed purchases.
• Fed’s Waller boosted expectations of a Fed rate cut in September, with comments that cuts are ‘drawing closer.’

New findings could lead to safer, more stable metal batteries

• Metal batteries can offer more energy at lower weight than lithium-ion batteries but have short lifespans due to reactive lithium metal.
• Chalmers University of Technology found creating the metal electrode directly in the battery cell can overcome stability issues.
• Researchers used 3D X-rays to observe lithium behaviour, finding that lithium forms unstable dendrites during charging and discharging.
• Forming the metal electrode inside the battery via electroplating avoids the formation of a damaging surface layer, enhancing stability and safety.
• The study is part of a broader research initiative at Chalmers, supported by the government-funded Compel program for electrification and battery technology.

Self-healing solid-state polymer electrolytes for high-safety and long-cycle lithium-ion batteries

• Self-healing solid-state polymer electrolytes offer solutions to challenges faced by lithium-ion batteries by repairing mechanical damage.
• Various self-healing mechanisms include polymer interchain diffusion, capsule-based, vascular-based, reversible covalent chemistry, and supramolecular dynamic chemistry.
• Current LIBs with liquid electrolytes suffer from thermal runaway, electrolyte leakage, and higher energy density demands.
• SSPEs are promising alternatives due to their stability and compatibility with lithium-ion transfer.
• Self-healing mechanisms fall into two categories: external self-healing (using repair chemicals) and intrinsic self-healing (reversible bonding).
• The review emphasizes the importance of developing novel SHSSPE materials for next-generation high-safety, long-cycle energy storage devices.

Macro data depressing base and industrial metals as US and China growth slows and EU activity slides

• Reports suggest Chinese buyers take their time over restocking this year on a more cautious approach to the market.
• Chinese buyers are still expected to show growth in demand for feedstock and processed materials but appear to be taking longer over their restocking.
• Buying may be slowed by a cautious approach to demand as well as a lack of available liquidity with Chinese banks and in Chinese markets in general.

Copper prices ($9,365/t) slide on weak China demand and rising exports

• Base metals got hit hard across the board yesterday, with copper prices sliding nearly 3% to April lows.
• China’s exports have risen 185% yoy as demand weakens domestically on the property sector collapse.
• The Third Plenum has failed to boost trader hopes of a major stimulus rollout.
• Zinc down 5% wow and tin down c.9%.
• Xi’s focus remains on high quality industry as opposed to the past two decades’ mass manufacturing expansion.
• The CCP is taking a preventative approach to the property collapse as opposed to seeking measures to reignite growth.
• Yangshan index remains close to zero, highlighting weak appetite for imports whilst smelters continue to export copper to the LME, pushing stocks to seasonally elevated levels.
• The dollar index rebounded following a sell-off as yields ticked higher and rallies across major FX markets, including the Euro and the Yen, faded.

Lithium – Carbonate prices start to pick up as buyers kick off restocking cycle in China

Demand

• We have been talking to our contacts in China who tell us that Chinese buyers of lithium feedstock are taking a more cautious approach to the market this year.

• Restocking tends to occur in July and August but may see some deferred demand this year as battery manufacturers slow the rate of growth.
• Battery grade lithium Carbonate prices are now recovering from a low of RMB 79,000/t (US$10,880/t) with buyers looking to stock up at these levels.
• Battery plant buyers appear happy to buy and restock lithium at RMB 80,000t (US$11,020/t) and to restock cobalt with the major players BYD and CATL active in the market.
  • BYD battery demand increased 5% in July
  • CATL battery demand increasing 8-9%
• Production for year-end promotions and further growth are driving buyers and the rest of the supply chain
• Stronger demand for Hybrids is holding up prices for platinum and palladium while holding back demand growth in lithium.
• Peak season demand for lithium is seen as average but ex- peak season expectations are not so good.
• Some buyers and investors are expected to buy forward looking for higher prices in September and October
• But our sources in China see lithium prices falling in Q4 again
• Tariffs on Chinese-made EVs in the US and EU is of concern.
• There is a rumour in China the government may restock lithium carbonate but there is no evidence of this so far
• China produced around 70% of global EV Li-ion batteries last year and has around 72% of global lithium refining capacity.
• But only 8% of global lithium reserves rendering western automotive manufacturers reliant on Chinese production.
• Unfortunately, a few bad batches of batteries can cost an automotive company hugely in recalls and reputation.
• South Korean manufacturers went through a costly cycle of production and recalls in recent years until they improved quality control and battery chemistries.
• Tesla is struggling to get its new high capacity (NCM) 4860 battery into production and we suspect battery issues led to two major manufacturers pulling back on their EV plans.
• Global EV sales saw a 13% increase from April to May and a 21% increase yoy to 1.27m vehicles according to Rhomotion’s latest report.
• We see ongoing 20-30% growth in EV sales continuing to drive strong demand for lithium and related battery metals.
• Marked improvement in NCM battery chemistries with the development of ‘solid’ electrolyte and improvements offering better stability and charging capacity in anode and cathode chemistries helping to drive the market.
• We suspect the market will start to revert towards NCM for their better capacity and range and as NCM batteries become safer and more reliable.

Supply– we expect spodumene prices to rise on falling production of lithium from higher-cost hard-rock lepidolite and other sources

• Lithium mines which sprung up in less well-regulated regions such as Zimbabwe and Nigeria are closing faster than flies heading for a shower of hippo dung.
• Price volatility is also putting off lenders with a relatively new markets on which to base hedging contracts to secure longer-term lithium prices.
• Chinese miners who often operate without proper permission and little environmental consideration are seen closing mines in some key areas
• These mines are often inefficient and reliant on poor quality source rocks like low grade and high-mica content lepidolite.
• Africa is expected to more than double lithium production this year to ~145,000mt of lithium carbonate equivalent according to Ganfeng.
• Chinese lithium carbonate capacity rose to around 1.1mt last year with lithium hydroxide set to rise to 700,000t.
• LFP, Lithium Iron Phosphate battery capacity is expected to reach 5.75mt in 2025 despite global demand estimated to remain at 2.67mt chairman of Zhejiang Huayou.
• DLE, true Direct Lithium Extraction processing remains elusive with certain major miners increasingly focussing on hard rock deposits.

Zimbabwe signs $310m lithium deal with China/British consortium for spodumene concentrator

• State-owned miner Kuvimba has signed a $310m deal with various Chinese and British investors for the Sandwana mine.
• The mine was previously owned by Rio for emerald production.
• The investment will support the construction of a 3mtpa concentrator to boost production to 600ktpa concentrate.
• Reuters reports that over $1bn has been invested in Zimbabwean lithium projects since 2021.

Cobalt (US$26,625/t) – prices hit lowest level in China for 10 years

• Market is very quiet as peak season demand is showing a relatively minor pickup
• LFP ‘Lithium Iron Phosphate’ demand is eroding the grown of NCM ‘Nickel Cobal Manganese’ chemistry batteries
• Stronger production of cobalt from mines in the DRC which produced around 170,000t in 2023 70% of the world’s cobalt is also likely to be a factor
• We expect NCM battery chemistries to continue to dominate the EV battery market as new anode and cathode chemistries along with solid state innovation improve power density, longevity, charging times and safety.

Dow Jones Industrials		-1.29%	at	40,665
Nikkei 225		-0.16%	at	40,064
HK Hang Seng		-2.06%	at	17,413
Shanghai Composite		0.17%	at	2,982
US 10 Year Yield (bp change)		-0.4	at	4.198

Economics

US – Donald Trump gave a speech after accepting the Republican presidential nomination pledging to cut taxes, crack down on immigration and renew trade wars if he was to win the race.

• Trump is reported to lead in nearly all national and swing state opinion polls appearing as the most likely winner in the coming elections, FT reports.
• President Biden may withdraw his candidacy amid new calls from senior Democrats to quit the race.
• Former President Barack Obama said that Biden should reconsider whether he can win while former House Speaker Nancy Pelosi said that she is pessimistic about his chances to win, FT writes.
• Additionally, a number of members of Congress called President Biden to quit as few see his candidacy as a liability to the party and their own chances of re-election.

Microsoft 365 and its Azure cloud services issues lead to global IT outages with banks, airports and airlines reporting issues.

• The LSE said that no RNS can be published while Sky News in Australia and the UK could not broadcast live.
• Many airlines could not use automated check ins and have been issuing hand written boarding passes.
• Issues AT Windows hosts are reported to be related to the CrowdStrike Falcon Sensor that is designed to block cyberattacks while recording suspicious activity, Bloomberg says.

China – President Xi Jinping vows to promote “high quality development” rather than an outright government spending driven economic growth following the Third Plenum.

• A more detailed announcement highlighting specific measures is likely to come later this month following a 24-man Politburo meeting, according to Bloomberg.
• Vague wording of the post plenum announcement seems to focus on Xi’s ambitions to move up the value chain through tech innovation and become more resilient against US trade sanctions.
• The meeting follows a series of weak economic data with the property sector continuing to report annual price declines for more than two year now.

Japan – Core inflation picks up in June as the BOJ is considering tightening its monetary policy at the coming meeting.

• Headline measure was little changed at 2.8% while CPI ex Food and Energy ticked higher breaking the latest trend of disinflation.
• CPI (%yoy, Jun/May/Est): 2.8/2.8/2.9
• CPI ex Food & Energy (%yoy, June/May/Est): 2.2/2.1/2.2

ECB – The central bank kept rates unchanged, in line with expectations, while saying that a decision on a potential cut in September was “wide open”.

• While inflationary pressures have been coming down, strong services inflation remains a concern.

UK – Retail sales fell more than expected in June on the back general elections uncertainty and cooler than usual weather.

• Retail Sales (%mom, Jun/May/Est): -1.2/2.9/-0.6
• Retail Sales ex Fuel (%mom, Jun/May/Est): -1.5/2.9/-0.5

Zimbabwe – Depressed global commodity prices weigh on Zimbabwe’s mineral sales

• Zimbabwe sold 1.9mt of minerals worth US$1.5bn in the first half of the year.
• The country missed its target of 2mt valued at US$2bn, falling short by 6% in volume.
• Depressed global mineral prices contributed to the missed target.
• The top three mineral contributors by value were PGM matte, PGM concentrate, and spodumene (primary lithium export).

Currencies

US$1.0890/eur vs 1.0929/eur previous. Yen 157.33/$ vs 156.13/$. SAr 18.332/$ vs 18.164/$. $1.293/gbp vs $1.300/gbp. 0.670/aud vs 0.674/aud. CNY 7.268/$ vs 7.256/$.

Dollar Index 104.31 vs 103.77 previous

Precious metals:         

Gold US$2,417/oz vs US$2,469/oz previous

Gold ETFs 82.1moz vs 81.8moz previous

Platinum US$967/oz vs US$1,010/oz previous

Palladium US$926/oz vs US$975/oz previous

Silver US$29.26/oz vs US$31/oz previous

Rhodium US$4,650/oz vs US$4,600/oz previous

Base metals:   

Copper US$ 9,328/t vs US$9,678/t previous

Aluminium US$ 2,377/t vs US$2,407/t previous

Nickel US$ 16,370/t vs US$16,600/t previous

Zinc US$ 2,783/t vs US$2,867/t previous

Lead US$ 2,145/t vs US$2,195/t previous

Tin US$ 30,300/t vs US$33,030/t previous

Energy:           

Oil US$84.6/bbl vs US$83.9/bbl previous

WTI Oil US$82.7/bbl vs $81.6/bbl yesterday

UK NBP Futures 75p/therm vs 74p/therm yesterday

TTF Dutch Futures €32/MWh vs €32/MWh yesterday

Henry Hub Gas US$2.09/mmBtu vs $2.04/mmBtu yesterday

• US Henry Hub natural gas prices halted their recent decline as the EIA reported a 10bcf w/w build (+29bcf exp) to 3,209bcf, with storage levels declining w/w to 8.4% above last year and 16.9% above the 5-year average.
• Singaporean maritime authorities announced that two oil tankers have been on fire since early Friday morning near the small island of Pedra Branca to the east of Singapore.

Natural Gas €32.7/MWh vs €32.8/MWh previous

Uranium Futures $84.7/lb vs $85.4/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$105.0/t vs US$107.2/t

Chinese steel rebar 25mm US$510.5/t vs US$512.7/t

Thermal coal (1st year forward cif ARA) US$112.0/t vs US$114.3/t

Thermal coal swap Australia FOB US$138.8/t vs US$138.0/t

Coking coal Dalian Exchange futures price US$213/t vs US$216.4/t

Other:  

Cobalt LME 3m US$26,625/t vs US$26,625/t

NdPr Rare Earth Oxide (China) US$49,535/t vs US$49,352/t

Lithium carbonate 99% (China) US$11,214/t vs US$11,495/t

China Spodumene Li2O 6%min CIF US$970/t vs US$990/t

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

China Tungsten APT 88.5% FOB US$330/mtu vs US$330/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% 26.75/kg vs US$26.75/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$315/t

China Rutile Concentrate 95% TiO2 US$1,397/t vs US$1,397/t

Spot CO2 Emissions EUA Price US$66.6/t vs US$66.6/t

Brazil Potash CFR Granular Spot US$300.0/t vs US$300.0/t

Germanium China 99.99% US$2,025.0/kg vs US$2,015.0/kg

China Gallium 99.99% US$426.0/kg vs US$426.0/kg

Battery News

AA says EVs with flat batteries almost as rare as ICE cars running out of petrol or diesel

• Only 1.4% of EV breakdowns in June 2024 involved running out of battery, a significant drop from 8% in 2015.
• The issue of EVs running out of charge is now almost as rare as petrol or diesel cars running out of fuel, the vehicle recovery company has reported.
• Improved EV battery technology and better availability of chargers have contributed to this decline.
• The AA attends to about 8,000 breakdowns daily, with only five or six involving out-of-charge EVs.
• AA noted an 80% reduction in EVs running out of charge over the past eight years.
• Many drivers initially hesitant about EVs often do not regret the switch once made.
• The top causes of breakdowns for both EVs and ICE cars are similar, mainly involving tyres, wheels, and the 12-volt battery.

Ford switches focus from EVs to heavy-duty trucks at Canadian plant

• The legacy automaker has outlined plans to use the Canadian plant it was going to use to build EVs to instead build gasoline models of its F-Series pickup truck.
• Ford has also delayed the launch of its new EV from being produced at its Oakville assembly facility from 2025 to 2027 citing slow EV demand.

Nio charging app reaches 6m users

• The EV maker launched the Jia Dian App at the end of 2019 and took almost 3 years to see its first 1m users registered.
• The app reached 5m users in April 2024 and has just passed the 6m landmark 3 months later.
• The app gives users access to over 1.06m charging piles and users have logged more than 531GWh of charging using the app.
• Nio’s personal charging network has 2,445 battery swap stations and 2,298 charging stations with 10,541 charging piles. 

Company News

	Overnight Change	Weekly Change		Overnight Change	Weekly Change
BHP	-2.1%	-3.8%	Freeport-McMoRan	-5.3%	-10.9%
Rio Tinto	-1.7%	-4.9%	Vale	-2.4%	-4.0%
Glencore	-2.1%	-7.7%	Newmont Mining	-1.6%	0.7%
Anglo American	-1.9%	-6.4%	Fortescue	-1.9%	-2.2%
Antofagasta	-1.5%	-15.9%	Teck Resources	-4.7%	-6.6%

First Majestic (AG CN) C$6.2, Mkt Cap C$1.7bn – Production results

• Silver and gold producer First Majestic provides production data from their three Mexican mines.
• The Company produced 2.1moz Ag in Q2 and 39.3koz Au, up 7 and 9% respectively over the quarter.
• However, ore processed down 8% yoy for the quarter and silver equivalent ounces down 16%.
• La Encantada saw production increase by 28% for silver following improved processing rates, set to hit target levels of 3ktpd in Q3.
• Santa Elena production increased 13% qoq, set to outperform guidance, with guidance for FY24 increased 14% from the mine.
• Santa Elena gold recoveries at 94% and silver recoveries at 66%.
• San Dimas gold recoveries at 95%, silver at 92%.
• La Encantada recoveries for gold at 90% and silver at 60%.
• FM now has 22 active drill rigs across their Mexican mines.
• The Company has adjusted total guidance for FY24 to 21.4-22.6moz AgEq vs 21.1-23.5moz, with silver production increasing and gold production decreasing.
• Total operations 2H24 AISC guided at $18.5-$19.8/oz AgEq, excluding corporate charges of $0.5-0.6/oz, with FY consolidated AISC at $20.4-$21/oz AgEq.

Orezone Gold (ORE CN) C$0.7, Mkt Cap C$265m – Production from Bomboré

• Orezone report quarterly gold production of 25.5koz from the Burkina Faso mine.
• Gold sales averaged price of $2,334/oz for sales of $58.2m.
• 1.43mt of ore processed at an average grade of 0.64g/t.
• Down from 0.78g/t processed in 1Q24.
• Recoveries also fell to 86.8% vs 89% in the prior quarter.
• Orezone report they have now entered the higher-grade oxide zone and production has been reiterated at 110-125koz for the FY24.
• The company has secured $105m in funding to finance the hard rock expansion to increase production to 170koz in 2026.

Whitehaven Coal (WHC AX) A$8.3, Mkt Cap A$7bn – Production results following acquisition of BHP met coal mines

• Australian thermal and met coal producer Whitehaven provides their 4Q24 production report.
• The Company recently acquired BMA’s Blackwater and Daunia Queensland met coal mines.
• Queensland ROM production within guidance at 4.8mt (4.5-5mt forecast).
• Railing constraints from Daunia delayed sales to 3.2mt for the quarter.
• Average coal price realized at A$271/t (c.US$170/t).
• NSW thermal ROM production at 4.9mt for the period and 19.7mt for the FY24. (Guidance at 18.7-20.7mt)
• Average thermal coal price received at A$207/t and A$217/t for FY24.
• Management highlight the ‘smooth transition and integration’ alongside the positive ‘benefits of diversification and exposure to the supply-constrained metallurgical coal market.’
• Unit costs expected at A$114/t, excluding QLD royalties, towards higher end of guidance on disappointing production volumes from Narrabri and inflation.
• CAPEX for the FY24 period at A$380m vs forecasts of $400-450m.
• Coal Market Outlook:
  • Company expects higher metallurgical coal prices going forward following increased demand from India and Australian supply constraints.
  • Disruptions following Anglo’s Grosvenor fire expected to drive volatility in metallurgical coal.
  • High CV thermal coal demand robust from Asian power generation demand and supply constrained by underinvestment.

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

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.

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, Rutile	Asian Metal

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