Proactive Investors - SP Angel . Morning View . Friday 06 01 23
- Copper climbs on optimism over Beijing easing property market crackdown
- MiFID II exempt information – see disclaimer below
- (Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL)) – Completion of acquisition of Bilboes gold project in Zimbabwe
- (Red Rock Resources PLC (AIM:RRR)) – Confirmation of mineralisation at second drill target within Bilbale, Burkina Faso
- Copper climbs on optimism over Beijing easing property market crackdown
- Copper jumped to $8,455/t, up $200 since yesterday on media reports of a more accommodative policy from Chinese lawmakers to the suffering property sector.
- Bloomberg reports Beijing may offer more leverage to property, easing its stringent ‘three red lines’ crackdown on debt in the sector from November 2021.
- The Yuan advanced 0.4% and an index of Chinese developers climbed 3% on the news. High yield property bonds have also strengthened to their highest levels since January 2022 at 75c on the Dollar.
- The move comes as an additional sign Beijing is moving to shore up the sector’s growth prospects, having introduced its 16-point plan to shore up balance sheets late last year.
- Xi has continued to emphasise that ‘property is for living, not speculation,’ with the three red lines a move to burst a bubble that has been building in mainland Chinese property for over a decade.
- However, home sales tumbled over 2022, declining for 15 straight months. This hit China’s growth prospects, weighing on local government finances, real estate investors and the base metals demand.
- A retraction of the three red lines approach will mark Beijing’s largest policy shift to date on property, however future demand remains of a concern, with a surplus of apartment blocks across China remaining.
Gold steadies ahead of US non-farm payroll data as investors pile into gold mining ETFs
- Gold prices are hovering around the $1,840/oz mark having retreated $20 from 7-month highs.
- Focus turns to non-farm payroll date due later today, with hotter-than-expected data set to push the dollar and US Treasury yields higher and weigh on gold.
- The Fed’s primary concern currently is a hot labour market, which supports core inflation. This will enable them to hold rates higher for longer, which may provide a headwind to non-interest bearing gold.
- Weaker-than-expected labour data may provide early signals of a recession, with traders hoping that a deterioration in US employment data will encourage the Fed to take their foot off the pedal, supporting equity prices, weighing on the dollar and boosting gold
- Options markets are highlighting increased appetite for gold mining exposure, with the VanEck Gold Miners ETF (NYSE:GDX) seeing their most active bullish option data since March. (Bloomberg)
- The Fund has rallied 40% since September, when gold was wallowing around the $1,620/oz mark.
China looks to boost strategic minerals exploration to increase controlled reserves - minister of Natural Resources (Xinhua)
- China intends to launch a new round of domestic strategic mineral mining operations while investing in efforts to bolster reserves that will help it enhance long-term security.
- China’s Minister of Natural Resources says the Ministry will encourage private capital to enter the sector, particularly for exploration and prospecting opportunities.
- The minister plans to launch a new round of exploration focusing on strategic bulk minerals and minerals that are in short supply
- The plan is to strengthen strategic reserves and enhance long-term security in strategic mineral resources with incentives to bring new investors in for exploration
- The minister is also looking to open up international trade in resources for a "two resources and two markets" model
- China is concerned over its dependence on foreign mineral imports and how this impacts national security.
- Around two-thirds of China’s strategic mineral production and supply is highly dependent on external sources according to the State Key Laboratory of Safety and Health for Metal Mines (Caxin)
- A top Chinese academic put external dependency on: iron ore at 82%, chrome ore at 98%, manganese ore at 96%, cobalt ore at 95%, nickel ore at 90%, and both copper ore and oil at 78%.
- Ominously the minister for Natural Resources referred to “once the international situation changes, it will certainly affect economic security or even national security” (Xinhua)
- The minister also wants to promote further opening and trade in the event of “special circumstances”.
- This could be translated into preparations for international isolation of China in the event of its invasion of Taiwan.
- The West might not care if China retook the Amur Region of Russia which was also formerly Chinese but for some reason the Communist party fears the Chinese Nationalists in Taiwan and seems determined to settle old scores there.
- China has state reserves of crude, copper, aluminium, and zinc and is looking to boost EV mineral supplies such as cobalt and lithium.
Coal - Official approval for major electricity and steel producers to restart coal imports from Australia, blocked since the 2020 ban was imposed.
- Though we believe ships carrying Australian thermal coal were allowed to unload coal during the energy crisis last year.
- One of China’s biggest coal importers has already struck a deal for a number of Australian cargoes indicating their preference for Australian coal.
Dow Jones Industrials +0.40% at 33,270
Nikkei 225 +0.40% at 25,821
HK Hang Seng +1.27% at 21,056
Shanghai Composite +1.01% at 3,155
| Economics |
JP Morgan global services PMI 48.2 in December vs 48.0 in November
- Global composite PMI held steady at 48.1 in December
US – NFP numbers are due later today with estimates for a 202k reading for December, down on 263k in November.
- The data comes at the time as markets are adjusting expectations for the monetary policy outlook and assessing chances of a potential rate cut as early as this year.
- Labour markets have proven to be tighter than expected so far with strength in labour earnings growth supporting the case for further rate hikes.
- ADP (NASDAQ:ADP) private employment added 235,000 in December from 182,000 jobs
- Challenger job losses fell to 43.6k from 76.8k previously
- Weekly jobless claims fell to 204,000 from 225,000
- None of this will slow the Fed in its mission to raise interest rates
- The US dollar will continue to strengthen
- Employment data due today
- S&P Services PMI fell to 45.0 in December vs 46.2 in November
- Composite PMI rose to 44.7 in December vs 46.4 in November
Fed’s Raphael Bostic says inflation is way too high in the US
- Bostic indicates the FOMC remains determined to use policy to reduce inflation toward objective, whatever their objective might be?
- While there may be some in the Fed that remember the 700% hyperinflation of the Weimar Republic in 1922 – only joking.
- The Fed’s PCE ‘Personal Consumption Expenditure’ which excludes food and energy is running at 5.5%.
- But why not allow a proportion of government debt to be inflated away?
China - PBOC announce new dynamic mortgage rate system to make it easier for first time buyers to gain mortgages if property prices weaken for three consecutive months
- The government is also offering to ease the three Red Lines rules for aid to property companies reflecting the importance of the sector to the economy.
- The average prices of property-dominated China high-yield dollar bonds have risen close to 40% (Bloomberg)
- Debt to GDP expected to rise to over 78% seen last year
- By comparison UK debt to GDP rose to 97.3% at end 2021/22 with the OBR forecasting a 64-year peak of 106.5% in 2023/24 and all that without a Labour government.
- At least he former Chancellor and now Prime Minister is there to resolve the overspending, though sadly through higher taxes for just about everyone.
- Investigation ongoing into ‘Big Fund’ executives responsible for Chinese government funding into advanced semiconductors and other technology.
- Government officials are unhappy at the lack of progress in advanced semiconductor manufacturer in China despite billions of Big Fund investments
- Job losses – news continues to further job losses in China where Sichuan Languang Development has cut some 90% of its workers.
- GDP may have only grown 2% in 2022 according to data from China Beige Book vs last year
- President Xi’s new year address focussed on the change to a science-based and targeted approach for Covid. Eg they have given up trying to control the virus.
Covid – Chinese variant cause little concern.
- Chinese sub variant XBB.1.5 of most interest
- One estimate is for 248m cases representing ~18% of the population caught Covid in the first 20 days of December overwhelming hospitals etc….
Chinese railway investment slides for 3rd year in a row,
- Chinese railway investments from state rail operators fell 5.1% in 2022, its third year of declines.
- Analysts expect rail investment may have peaked in 2019/20, where investment stood at $117bn vs $103bn in 2022.
- Investment is falling primarily due to debt risks and expectations of weaker returns for state backed investment in public infrastructure projects.
Singapore – PMI fell heavily to 49.1 in December vs 56.2 in November
Germany – Factory orders decreased 5.3%mom in November in a larger than expected decline.
- This marks the seventh monthly drop in the past 10 months after reaching a peak before Russia’s invasion of Ukraine..
- Orders were down 11%yoy and hit the lowest level since July 2020.
- The decline was mostly driven by weaker overseas markets with orders from Eurozone and Non Eurozone nations down 10.3%mom and 6.8%, respectively.
- Domestic orders were down 1.1%mom.
UK - Services PMI rose to 49.9 in December vs 48.8 in November
- Composite PMI rose to 49.0 in December vs 48.2 in November
Property prices dropped for the fourth consecutive month in December as higher borrowing costs and falling real incomes weigh on the sector.
- Average house prices were down 1.5%mom to ~£281k in December, Halifax data showed.
- That brought annual increase in property prices to 2%, from 4.6% reported in the previous month, and marking the slowest pace since Oct/19.
Chile - Congress approves modified mining royalty bill which now passes to the Treasury Commission for further review and approval before its final vote.
Copper output falls 6.9% YoY in November
- Chile produced 449kt of copper in November, according to Cochilco.
- Total copper from Jan- Nov was 4.83mt vs 5.13mt last year.
- State miner Codelco produced 136kt of copper in November, down 12% YoY.
Indonesia’s state-backed bank expects increased smelter loaning as onshoring policy kicks in
- Indonesia’s state bank BNI expects strong loan growth potential from the metals processing sector amid President Joko’s domestic downstreaming policy.
- Jokowi has moved to ban bauxite and tin ore exports, encouraging a domestic smelting industry to enhance Indonesia’s income form its natural resources.
Ukraine GDP fell 30% in 2022 as the nation repelled Russia’s invasion of its territory
- The war has displaced some 15-30m residents, killed >100,000 Russian soldiers and ~40,000 Ukrainian civilians.
- An all because one man and his generals think Russia has the right to steal the Ukraine.
Putin calls for ceasefire for Russian Orthodox Christmas
- Russian forces have broken so many offers of safe corridors for civilians and temporary ceasefires that nobody believes this latest offer.
- Ukraine forces are seen as having the upper hand and are making gains against inexperienced Russian forces in disarray.
- The US and Germany are reported to be sending armoured fighting vehicles to Ukraine.
- France, which has done almost nothing to help Ukraine is also reported to be sending AMX-10 tank killing tanks.
- Germany is sending Marder infantry fighting vehicles while the US is sending its Bradley infantry fighting vehicle.
| Currencies |
- US$1.0523/eur vs 1.0614/eur yesterday.
- Yen 134.23/$ vs 132.83/$.
- SAr 17.170/$ vs 16.994/$. $1.190/gbp vs $1.201/gbp. 0.675/aud vs 0.681/aud.
- CNY 6.860/$ vs 6.875/$.
Dollar Index: 105.21 vs 104.32 yesterday.
| Commodity News |
LME chair to step down following 2022 nickel crisis
- LME Chair Gay Huey Evans will not seek re-election and step down once a new chair has been appointed.
- The exchange has been under immense pressure since it responded to a short squeeze by cancelling billions worth of trades.
- The news comes ahead of the planned publication of an independent review of the crisis, due next week.
- The LME is being sued in London by Elliot Investment Management and trading firm Jane Street.
Precious metals:
- Gold US$1,840/oz vs US$1,847/oz yesterday
- Gold ETFs 94.1moz vs US$94.0moz yesterday
- Platinum US$1,061/oz vs US$1,074/oz yesterday
- Palladium US$1,758/oz vs US$1,783/oz yesterday
- Silver US$23.47/oz vs US$23.36/oz yesterday
- Rhodium US$12,400/oz vs US$12,400/oz yesterday
Base metals:
- Copper US$ 8,450/t vs US$8,248/t yesterday
- Aluminium US$ 2,275/t vs US$2,258/t yesterday
- Nickel US$ 27,785/t vs US$28,760/t yesterday
- Zinc US$ 3,019/t vs US$2,973/t yesterday
- Lead US$ 2,207/t vs US$2,248/t yesterday
- Tin US$ 25,300/t vs US$25,250/t yesterday
Energy:
Oil US$78.7/bbl vs US$78.4/bbl yesterday
- Crude oil prices edged lower as market data indicators continued to point to near-term oversupply as 2023 oil demand growth targets are shifted to the right on global demand concerns
- European energy prices edged higher on news that a cold weather front is bearing down on the Continent.
Natural Gas US$3.620/mmbtu vs US$4.109/mmbtu yesterday
Uranium UXC US$48.80/lb vs US$48.80/lb yesterday
Bulk:
- Iron ore 62% Fe spot (cfr Tianjin) US$116.6/t vs US$117.1/t
- Chinese steel rebar 25mm US$606.2/t vs US$603.8/t
- Thermal coal (1st year forward cif ARA) US$225.0/t vs US$225.0/t
- Thermal coal swap Australia FOB US$371.0/t vs US$363.5/t
- Coking coal swap Australia FOB US$305.0/t vs US$291.0/t
Other:
- Cobalt LME 3m US$50,000/t vs US$50,455/t
- NdPr Rare Earth Oxide (China) US$104,976/t vs US$104,368/t
- Lithium carbonate 99% (China) US$66,995/t vs US$68,003/t
- China Spodumene Li2O 5%min CIF US$5,990/t vs US$5,990/t
- Ferro-Manganese European Mn78% min US$1,300/t vs US$1,311/t
- China Tungsten APT 88.5% FOB US$320/mtu vs US$320/mtu
- China Graphite Flake -194 FOB US$885/t vs US$885/t
- Europe Vanadium Pentoxide 98% 8.9/lb vs US$8.9/lb
- Europe Ferro-Vanadium 80% 36.75/kg vs US$36.75/kg
- China Ilmenite Concentrate TiO2 US$335/t vs US$334/t
- Spot CO2 Emissions EUA Price US$79.2/t vs US$85.4/t
- Brazil Potash CFR Granular Spot US$500.0/t vs US$500.0/t
| Battery News |
Zeekr EV with supposed 1,000km range coming to Europe this year
- Chinese EV maker Zeekr, a subsidiary of Geely, is launching its 001 EV in Europe in 2023.
- The car has a 140kWh battery and the company claims a range of 1,000km.
- The 001 is expected to challenge Tesla, with both vehicles costing around the same in China ($40k).
China – Tesla cut its prices for Model 3 and Model Y in China amid increasing competition and days after subsidies to EV buyers offered by authorities expire, FT writes.
- The Company reduced prices by 13.5% and 10% for two models, respectively.
| Company News |
(Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL)) 1070p, Mkt Cap £137m – Completion of acquisition of Bilboes gold project in Zimbabwe
- Caledonia reports it has completed the acquisition of the Bilboes gold project, located approximately 75km north of Bulawayo for a consideration of US$65.7m in shares plus a 1% net smelter royalty.
- The company will issue “5,123,044 shares representing approximately 28.5 per cent of Caledonia's fully diluted share capital and a 1 per cent net smelter royalty ("NSR") on the Project's revenues”
- Technical studies by the previous owners of the project showed “the potential for an open-pit gold mine producing an average of 168,000 ounces per year over a 10-year life of mine” however Caledonia Mining has confirmed its intention to “conduct its own feasibility study to identify the most judicious way to commercialise the Project to optimize shareholder returns”.
- Caledonia Mining’s approach is to develop the project in stages to “minimise the initial capital investment and reduce the need for third party funding”.
- The former Anglo American (LON:AAL) project is reported to have had limited open-pit mining producing “approximately 288,000 ounces of gold since 1989” and to host an NI43-101 compliant proven and probable mineral reserve of 1.96moz within 26.6mt at an average grade of 2.29g/t gold.
- Ore is reported to be refractory but is said to deliver approximately 84% recovery “using Biox technology in conjunction with gravity and carbon-in-leach processing”.
- Caledonia plans to undertake its own feasibility assessment but reports that a “feasibility study prepared by the vendors … indicates the potential for an open-pit gold mine producing an average of 168,000 ounces per year over a 10-year life of mine”.
- CEO, Mike Learmonth commented: "Completion of the Transaction is the cornerstone in Caledonia's strategy to create a mid-tier, multi-asset gold producer focussed on Zimbabwe. In the short term, I expect ore production from the Bilboes oxides will commence in early February and we anticipate beginning to recover gold from the heap leach from March.” And “the feasibility study will take 12 to 14 months to complete”
- Learmonth placed the Bilboes acquisition in the broader context of Caledonia Mining’s strategy saying that it is part of “the successful implementation of the Central Shaft project at Blanket Mine, which is now producing at its target production rate of 80,000 ounces per annum[4], and the acquisitions of the exploration projects at Maligeen and Motapa”.
- The acquisition of the Motapa project, which is located adjacent to Bilboes was announced in November last year and we speculate that further work on Motapa may be included within Caledonia Mining’s work on the Bilboes development.
Conclusion: Completion of the Bilboes acquisition maintains Caledonia Mining’s strategy to expand its production base in Zimbabwe following the successful completion of the Central Shaft Project at its Blanket mine. We await the outcome of Caledonia Mining’s feasibility study on the development plan for the project with interest.
*Two SP Angel mining analysts have formerly visited Caledonia’s Blanket gold mine in Zimbabwe
(Red Rock Resources PLC (AIM:RRR)) 0.30p, Mkt cap £4.6m – Confirmation of mineralisation at second drill target within Bilbale, Burkina Faso
- Red Rock has received results from the second batch of 380 samples taken during the 2022 RC drilling campaign at Bilbale in Burkina Faso.
- 380 samples were taken from 3 RC holes across 358m at Bilbale, a previously artisanal mine site.
- Highlights included:
- 11m at 0.26 g/t gold from 42 metres depth.
- 4m at 0.77 g/t from 68 metres depth.
- The Company will now focus on ground-based geophysics to identify further targets for drill testing this year.
- Chairman Andrew Bell notes that these early-stage drilling campaigns are ‘for structure and not grade, and any intersections over 1g/t show we are in mineralisation and so are positive.’
- Red Rock hopes that more detailed geochemical and geophysical preparation will yield more conclusive results.
- Burkina Faso remains in a volatile and insecure state of national security following the military coup on 30th September 2022, with the country currently in a state of emergency across six regions. Kidnappings and terrorist threats remain prevalent.
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
Simon Beardsmore
Sergey Raevskiy
Joe Rowbottom
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
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 - Asian Metal
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