SP Angel . Morning View . Friday 15 10 21
Biden wind farm target to stretch demand for copper
Recent interviews
IGTV: 08/10/21: How high energy prices are pushing up metals: https://youtu.be/em4zwo2i4Cs
VOX Markets: 07/10/21: https://audioboom.com/posts/7956216-john-meyer-on-chinese-energy-issues-and-news-from-altus-strategies-bushveld-minerals-scotsgold
Orosur Mining* (LON:OMI) – Q1 2021 results highlight strong cash position & high-grade drill results
Rio Tinto (LON:RIO) – Q3 production challenges trigger minor adjustments to guidance
Copper surges past $10,000/t for strongest gain in 5 years as 3-month LME copper rises 7.1% this week to $10,025/t.
Recycling restrictions in Malaysia have provided a tailwind to copper as traders are forced towards refined metal.
The current global energy crisis is pushing supply offline, with fabricators desperate for the red metal.
LME copper stocks fell another 5,650t today but a big increase in stocks next week could see copper pull back fastX
Another large increase in cancelled warrants on the LME of 27,050t could indicate traders acting to make demand look stronger than it is
Immediate demand is high due to a lack of available copper with some panic driving nearby spreads but we do not know how much metal sits off the LME which might come into the market and could change the picture.
The move comes despite concerns over future Chinese demand as troubles mount in the overleveraged property sector.
The IEA estimate about 8,000kg of copper is used per MW making wind farms the most copper intensive renewable power technology projects
30GW of wind could potentially consume 240 million tonnes of copper – unless there is a significant reduction in the amount of copper used per MW
Given the market is expected to produce just 21mt this year may rise to 25mt in 2024 then its hard to know where all this copper could come from.
Subsea cables are the biggest consumer of copper for offshore wind indicating that more efficient cabling may be required to meet Joe Biden’s 30GW wind target
Estimates also suggest 8,000kg of copper silicon and other metals are also used per MW for solar (JPEA 2020).
The US plans to have 30GW of offshore wind capacity installed by 2030
800MW Vineyard Wind 1 approved for offshore Massachusetts
Vineyard Wind South, a 2.3GW farm in an adjacent site to Vineyard Wind 1 is awaiting federal approval.
35GW of potential offshore generation capacity in the pipeline including:
The Block Island Wind Farm (30MW) and the Coastal Virginia Offshore Wind pilot project (12MW) – both operational.
The Vineyard Wind 1 project (800MW).
15 projects in the pipeline that have reached the permitting phase.
16 commercial leases in federal waters with exclusive site control.
7 wind energy areas that can be leased at the discretion of the federal government in the future.
The US Bureau of Ocean Energy Management (BOEM) will hold up to seven lease sales for projects in various sites around the US by 2025.
The US offshore wind industry could fall well short of the Biden administration’s goal of installing 30GW of turbines by the end of the decade, due to a combination of a slow and complex permitting process, underdeveloped supply chain and lack of Jones Act-compliant installation vessels, according to predictions from IHS Markit.
European car sales plummeted 25%yoy to ~973k in September marking the worst monthly reading since mid-1990s with all major markets posting double-digit declines.
The fall is largely attributed to the semiconductor shortage amid Covid-19 outbreaks at idled chip packaging and testing facilities in Southeast Asia.
“We currently forecast that this year will not eclipse the desperately weak 2020 result… Our assumption is that sourcing issues will be with us throughout next year and continue to undermine the connection between positive underlying demand drivers and new-vehicle sales,” LMC Automotive commented on the data.
Meanwhile, EVs in the Western Europe reached a new milestone in September with the share of BEVs in new sales hitting a record high of >15% overtaking new diesels that plunged to just 13.4%
Dow Jones Industrials +1.56% at 34,378
Nikkei 225 +1.81% at 28,551
HK Hang Seng +1.15% at 25,249
Shanghai Composite +0.40% at 3,572
Asian stocks follow Wall St’s rise despite China concerns mounting
The broadest index of ex-Japanese Asia-Pacific shares rose 1.07% today, with the Nikkei rising 1.81% as tech stocks rally.
The Hong Kong local benchmark rose 1.06%, tracking overnight US gains.
US stocks have rallied on lower-than-expected factory gate price inflation, strong results from US consumer banks and signs of falling US unemployment.
US jobless claims fell to their Pandemic low in March.
The dollar has risen near 3-year highs vs JPY.
Chinese stocks have been subdued as investors wait for key GDP data out Monday.
Analysts forecast a slowing of China’s GDP to 4.6% y-o-y, from Q2’s 5.6%.
Economics
US – Weekly jobless claims dropped to the lowest since Mar/20 last week, a welcome news supporting monetary policy tightening planned for Nov/Dec.
A separate report showed producer prices inflation slowed slightly in September on the back of cooling costs of services including airfares.
Headline PPI climbed 0.5%mom (0.6% est) with the core measure excluding energy and food up 0.2% (0.5 est).
Weekly Jobless Claims (‘000): 293 v 329 (revised form 326) in the previous week and 320 est.
Continuing Claims (‘000): 2,593 v 2,727 (revised from 2,714) in the previous week and 2,670 est.
US – Democrat Senator Manchin promises to block mining royalty bill
Manchin, chair of the Senator’s Energy and Natural Resources committee, has promised to exclude the new mining royalty proposal impacting mines on Federal land.
The news is according to Nevada Senator Cortez Masto’s office.
The bill hopes to set an 8% royalty on existing mines and 4% on new projects.
Nevada projects will be hardest hit owing to the considerable portion of the state under Federal control.
The state has the largest share of gold and silver projects as well as new lithium projects.
Biden has yet to offer an opinion on the bill but has previously pointed to America’s ‘allies’ as the source for their EV metals.
China – The central bank injected CNY 500bn (US$78bn) through its medium term lending facility matching the CNY 500bn maturing Friday
The move secures market access to liquidity amid growing contagion concerns from the debt crisis at Evergrande.
China energy crisis continues as coal prices extend rally
Cooling weather across much of China this morning has put further pressure on China’s power plants to boost coal supplies.
Zhengzhou thermal coal futures hit a record high of $259.42/t, a 200% rise ytd.
North-eastern provinces have been hardest hit with winter heating beginning in Inner Mongolia and Gansu.
Analysts expect a 12% drop in industrial power consumption as coal supplies are limited to residential users.
Power price restrictions have been raised 20% from today, with power costs passed on the end-users.
Japan – Expectations are building for the central bank to cut its FY22 GDP growth and inflation guidance over weak economic data being released lately in the wake of logistics challenges and a further extension of the state of emergency, according to Bloomberg.
The bank will release its quarterly report at the end of a two-day meeting on Oct. 28.
Inflation estimates may be lowered close to 0% from 0.6% for the year ending March 2022.
UK – Two BOE board members pushed back against talks of an imminent rate hike, Bloomberg reports.
Catherine Mann said she “can wait” before raising rates because market have already tightened financial conditions.
Separately, Silvana Tenreyro, considered to be the one of the BOE’s most dovish policy makers, warned against a “self-defeating” hike to contain temporary inflation pressures.
Port of Los Angeles to introduce 24/7 operations to ease bottlenecks as typhoon intensifies Asian shipping disruptions
Port of LA is aiming to convince key workers including trucking firms, terminal operators, and importers to begin working night shifts to move supply.
Biden pushed retailers Walmart and Home Depot alongside logistics firms UPS and FedEx (NYSE:FDX) to pledge workers to ease port backups from the primary China import hub.
US ports are suffering from a shortfall in truck drivers and warehouse staff, adding to oversupplied ports.
Chinese terminals already operate 24/7 with automation far more common than in the US.
LA currently has 62 container ships waiting offshore with over 500,000 containers.
25 additional cargoes are set to arrive over the weekend.
Typhoon Kompasu, hitting much of Southeast Asia has added to supply disruptions.
Shenzhen’s Yantian port has suspended the picking up and dropping off of containers.
67 ships are currently waiting off Hong Kong, 22% more congested than average.
Currencies
US$1.1614/eur vs 1.1611/eur yesterday. Yen 114.15/$ vs 113.43/$. SAr 14.707/$ vs 14.722/$. $1.372/gbp vs $1.370/gbp. 0.744/aud vs 0.741/aud. CNY 6.429/$ vs 6.435/$.
Commodity News
Precious metals:
Gold US$1,792/oz vs US$1,793/oz yesterday
Gold ETFs 98.7moz vs US$98.7moz yesterday
Platinum US$1,059/oz vs US$1,028/oz yesterday
Palladium US$2,138/oz vs US$2,137/oz yesterday
Silver US$23.48/oz vs US$23.15/oz yesterday
Rhodium US$14,000/oz vs US$13,800/oz yesterday
Base metals:
Copper US$ 10,048/t vs US$9,830/t yesterday
Aluminium US$ 3,170/t vs US$3,092/t yesterday
Nickel US$ 19,635/t vs US$19,265/t yesterday
Zinc US$ 3,543/t vs US$3,514/t yesterday
Lead US$ 2,306/t vs US$2,276/t yesterday
Tin US$ 37,150/t vs US$36,495/t yesterday
Energy:
Oil US$84.8/bbl vs US$83.9/bbl yesterday
Natural Gas US$5.687/mmbtu vs US$5.668/mmbtu yesterday
Uranium UXC US$47.5/lb vs $48.3/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$121.3/t vs US$120.6/t – Labour market squeeze forces Rio Tinto to cut iron ore shipment forecasts
A ‘tight labour market’ in WA has forced Rio to cut its iron ore shipment outlook for the remainder of the year.
The miner cut its forecasts from 325m-340m to 320m-325m tonnes.
The completion of several of Rio’s mining sites has been hindered by labour constraints according to the company.
Pandemic restrictions between states have reduced worker availability.
Chinese steel rebar 25mm US$905.8/t vs US$903.8/t –
ArcelorMittal latest producer to limit steel output amid soaring energy costs
ArcelorMittal has ‘paused’ production at peak times across several European plants.
The company stated the pauses were ‘aligned with the hourly/daily changes in electricity prices.’
They do not expect the limits in output to have a ‘meaningful impact’ on production output.
The company produces 40mt pa of steel in Europe.
Spanish steelmaker Sidenor has also reduced production, slashing output by 30% until Jan. 2022 at least.
British Steel has introduced ‘temporary energy and transport surcharges on all new orders from October 1.’
Thermal coal (1st year forward cif ARA) US$155.0/t vs US$146.0/t
Thermal coal swap Australia FOB US$252.5/t vs US$245.5/t
Coking coal swap Australia FOB US$370.0/t vs US$377.0/t
Other:
Cobalt LME 3m US$56,300/t vs US$53,380/t
NdPr Rare Earth Oxide (China) US$94,968/t vs US$94,249/t
Lithium carbonate 99% (China) US$26,911/t vs US$26,884/t
China Spodumene Li2O 5%min CIF US$1,170/t vs US$1,170/t
Ferro-Manganese European Mn78% min US$1,945/t vs US$1,899/t
China Tungsten APT 88.5% FOB US$310/t vs US$310/t
China Graphite Flake -194 FOB US$555/t vs US$555/t
Europe Vanadium Pentoxide 98% 7.9/lb vs US$7.9/lb
Europe Ferro-Vanadium 80% 31.25/kg vs US$31.25/kg
China Ilmenite Concentrate TiO2 US$382/t vs US$382/t
Spot CO2 Emissions EUA Price US$68.5/t vs US$68.5/t
Battery News
Gas boilers to be scrapped with GBP5,000 grant to switch
Boris Johnson will announce the ‘boiler upgrade scheme’ as part of his Heat and Buildings Strategy.
New gas boilers will be banned from 2035 and the government is set to offer GBP5000 grants to those who make the switch to alternative heating – working, existing gas boilers will not need to be removed.
Currently around 22m homes in the UK are heated by a gas boiler.
Heat pumps currently cost around GBP10,000 – significantly more than the cost of gas boilers, GBP1500-GBP3500.
The government hopes that it can work with the industry to halve the cost of heat pumps by 2025.
The announcement should send a signal to the market that demand for heat pumps is set to soar in the hope of boosting competition, driving down prices and improving the technology.
Wish they would extend this to oil boilers as I install a new borehole ground-source heating system into my country hovel.
Company News
Orosur Mining* (LON:OMI) 15.5p, Mkt Cap GBP29m – Q1 2021 results highlight strong cash position & high-grade drill results
Orosur report their results for the quarter ended August 31st, 2021.
The company made a net loss for the period of $185k compared to $281k the quarter prior.
Orosur’s net cash position at the end of the period was $6.27m vs $6.96m in Q4 2020.
Corporate and administration expenses rose to $320k vs $249k the quarter prior.
Orosur made strong drilling progress during the quarter, with assay results from nine additional diamond drillholes including 59.55m @9.16g/t Au and 61.75m @2.05g/t Au.
Work also commenced on regional mapping and sampling across the wider lease holding in Colombia.
The JV between Agnico Eagle and Newmont, Monte Aguila, continued to meet its financial obligations with respect to the Exploration Agreement and elected to move to Phase 2 by September 2022.
Aside from Colombia, the company entered into a non-binding Letter of Intent in order to establish a joint venture on a tin project in Rhondonia state in Brazil.
Orosur has received approval to transfer its listing from the TSX to the TSX Venture Exchange.
*SP Angel act as Nomad and broker to Orosur
Rio Tinto (LON:RIO) – 5,015p, Mkt cap GBP64bn – Q3 production challenges trigger minor adjustments to guidance
Reporting what he described as an operationally difficult three months to 30th September, Rio Tinto’s Chief Executive, Jakob Stausholm, stressed the paramount importance of ensuring the safety of its workforce and said that “despite improving versus the prior quarter, we recognise the opportunity to raise our performance. We have consequently modestly adjusted our guidance”.
Rio Tinto describes global economic recovery from the Covid19 pandemic with “vaccination rates steadily increasing and global trade flows recovering” but recognises the risks to commodity supply “due to supply chain bottlenecks as well as material and energy shortages”.
The company sees a slowing of China’s economic growth “from above-trend levels and … [and says that it is]… becoming more balanced” while “In the United States, the economy maintained its solid momentum in spite of a summer surge in COVID-19 cases – a positive sign for other countries as they approach similar rates of vaccination. GDP growth is expected to slow as peak recovery passes, but should be supported by the automotive and infrastructure sectors”.
Commenting on the situation in Europe, Rio Tinto says that while it “has also navigated COVID-19 lockdown challenges in the third quarter with relative success … the current tightness in energy markets presents significant uncertainty to the winter outlook”.
Group iron-ore production in Western Australia of 83.3mt during the quarter brings year-to-date output to 235.6mt, around 5% below that for the first 9 months of 2020 and Rio Tinto is reducing its fill year guidance to a range of 320-325mt from the previously indicated 3-340mt range “following modest delays to completion of the new greenfield mine at Gudai-Darri and the Robe Valley brownfield mine replacement project due to the tight labour market in Western Australia”.
Rio Tinto also cites “heritage management, brownfield mine replacement tie-ins and project completion delays” as causes of the modest reduction in its iron ore output.
“Pilbara iron ore 2021 unit cost guidance is unchanged at $18.0-$18.5 per tonne”.
“Iron ore prices retreated from their record levels in the second quarter of 2021, but remained reasonably-supported averaging $163/dmt CFR during the third quarter. On the supply side, aggregate shipments of the major seaborne suppliers are trending flat year on year and are not expected to regain their 2018 levels for the third consecutive year.”
Bauxite output of 14mt during the quarter brings year-to-date production to 41.2mt, 4% below the 2020 level, and prompts a reduction in guidance to 54-55mt from the earlier range of 56-59mt although guidance for alumina (7.8-8.2mt) and aluminium (3.1-3.3mt) remain unchanged.
The company attributes a 3% decline in bauxite output during the quarter to “equipment reliability issues and overruns on planned shutdowns at our Pacific operations”.
Mined copper output declined by 3% quarter-on-quarter to 125,200t bringing year-to date output to 361,200t, 9% below the level at September 2020 prompting a guidance adjustment for the full year to ~500,000t from the previously indicated range of 50-550,000t.
“Copper C1 unit cost guidance for 2021 has increased to 75-80 US cents/lb (previously 60-75 US cents/lb) as a result of reduced refined copper production at Kennecott”.
Rio Tinto says that the lower copper production is the result of “lower recoveries and throughput at Escondida as a result of the prolonged impact of COVID-19, partly offset by higher recovery and grade at Kennecott in Utah and improved performance and increased mill feed at Oyu Tolgoi”.
The “transition to higher grade material … [at Kennecott is going] … at a slower pace than expected, as a result of the slope failure in May 2021” and in September “there was an incident at the smelter resulting in declaration of force majeure on customer contracts. The immediate impact is on acid customers due to low levels of inventory. Copper cathode customers continue to be supplied, via processing of matte and anodes inventory. Repair work is underway and we are focused on the safe restart of operations”.
At Escondida, “Mined copper production was 17% lower than the same quarter of 2020, mainly due to a 15% decline in concentrator feed grade, 4% lower concentrator throughput and 17% lower recoverable copper in ore stacked for leaching due to COVID-19 restrictions which has continued to impact workforce availability” while at Oyu Tolgoi, “Mined copper production from the open pit was 16% higher than the same quarter of 2020 as the operations begin to catch up on the significant impacts of the first half, with improved performance and increased mill feed following geotechnical issues in the first half, partly offset by lower manning levels due to COVID-19”.
The initial production from the underground development at Oyu Tolgoi is now expected “no earlier than January 2023 (previously October 2022), subject to the timing of commencement of the undercut” which has been slowed by staffing restrictions arising from Covid19 containment measures which are estimated to have cost $140m.
Diamond output from Diavik declined by 17% during the quarter bringing year to date output to 2.7m carats (2020 3.7m carats) to “due to lower grades and lower processed ore”. Full year guidance remains intact at 3.0-3.8m carats.
Discussing its project pipeline, Rio Tinto says that feasibility work is continuing at the US$2.4bn Jadar lithium/borates project in Serbia while drilling continues at the Winu project in Australia and further infrastructure studies are being undertaken at the Simandou ironore project in Guinea.
The company reports expenditure of US$516m on exploration and evaluation so far this year (2020 – US$450m) with “Approximately 41% of this expenditure … incurred by central exploration, 35% by Copper, 17% by Minerals and 7% by Iron Ore”.
“The bulk of the exploration expenditure in the third quarter focused on copper in Australia, Canada, United States, Kazakhstan and Zambia, and diamonds projects in Canada” and the company says that it has made “no significant divestments of central exploration properties in the third quarter of 2021”.
Conclusion: Rio Tinto describes an operationally challenging Q3 with supply chains under pressure as global economic activity continues to recover. Production guidance for 2021 is being eased for iron ore, bauxite and copper. Exploration expenditure shows a focus on copper.
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
Joe Rowbottom – [email protected] – 0203 470 0486
Sales
Richard Parlons [email protected] – 0203 470 0472
Abigail Wayne – [email protected] – 0203 470 0534
Rob Rees – [email protected] – 0203 470 0535
Grant Barker – [email protected] – 0203 470 0471
SP Angel
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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.
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
Asian Metal
