☢️UK nuclear plans – will it all be completed on time?
 
📌Recently, the UK announced plans to build 8 new NPPs by 2030
 
📝Though NPP technology has remained broadly unchanged for >60 years, safety protocols mean the construction process takes several years; costs reach USD 8-10bn for the average-sized reactor. Several more years are needed for the receipt of the necessary environmental and government approvals

• Earlier in 2010, the UK announced the start of a new large reactor, Hinkley Point C, with a combined generation capacity of 3.26GW. The initial target was to start operations in the early 2020s. However, construction has been postponed several times and now it is expected to start operations only in 2026. Capex is now slated for GBP 22-23Bn (>10% above initial estimates). The construction of several other announced projects have not even commenced

❗️Therefore, it is entirely possible that the new British plans prove overly optimistic: costs could well be higher and timelines pushed outward

☢️Uranium market – balance to be restored in the mid-cycle
 
📌Uranium price growth (c. 51% YTD 2022) has mainly been caused by concerns about the security of supply. Another supporting factor has been the decision of some European countries to postpone their plans to phase out nuclear electricity or even build new capacity

⛏On the supply side, Cameco plans to ramp up uranium production to 10.9 Ukt by 2024 (33% CAGR from 2021), with the increase accounting for some 12% of uranium mined supply. Moreover, Namibian uranium production might increase roughly 2.7 Ukt (5% of mine supply) in 2024
 
❗️Thus, the potential growth of uranium production, and the high inventories held by funds, might restore uranium market balance in the medium term. To recap, in 2021, two major physical uranium holding funds - Sprott and Yellow Cake – purchased some 18Ukt (~30% of global uranium annual demand)

❗️As such, uranium prices might stabilise at a relatively high level of USD c.55/lb amid cost inflation in the medium term

☢️Uranium sector – which companies are interesting?
 
• Since the start of 2022, uranium prices have surged >50%, widely supported by concerns over supply security. This has translated into a 10-91% increase in global uranium miner share prices

• However, most of these miners have either small-scale operations or no uranium mining at all. All they have are legacy mines with suspended production, which require additional investment to restart operations

❗️We note that the uranium market has been speculatively heated since 2021 due to purchases by physical uranium funds and the suspension of operations at Cameco’s Cigar Lake mine (c.13% of global output). However, as we expect market balance to be restored in the medium term, we do not see much value behind all these artificially pumped stories

❗️Kazatomprom, which has not responded to this uranium price hike so far, is the only name that we believe is worth looking at

💎De Beers has reported a 25% YoY increase to 8.9mnct in rough diamond production in 1Q22

• According to the company, the growth reflected the planned higher output levels amid continued strong demand for rough diamonds

• Rough diamond sales from 2 cycles in 1Q22 totalled 7mnct, vs. 13mnct from 3 cycles in 1Q21. 1Q22 sales were down 3% relative to the 2019 level and 3% lower QoQ

• The company noted risks to 2Q22 rough diamond demand due to the seasonal effect, geopolitics and COVID-19 lockdowns in China

• De Beers left its FY22 guidance unchanged at 30-33mnct

$AAL #diamonds

💍LVMH has reported a 19% YoY increase in the organic sales of watches and jewellery in 1Q22

• The growth rate slightly decelerated from the 21% YoY in 4Q21

• According to the company, the sales growth was mainly driven by robust Tiffany & Co performance in the US

❗️However, we note risks to jewellery demand in the short term amid weakening consumer sentiment, growing inflation and COVID-19 restrictive measures in China

#diamonds

🧲What are Rare Earth metals, exactly?
 
🧪Rare earth elements (REE) are a batch of 17 metallic elements:15 lanthanides plus scandium and yttrium.As these metals have many similar properties, they are often found together in deposits. Many REEs are typically sold as oxide compounds; as such, they are sometimes called rare earth oxides (REO). REE are not so rare, but they are difficult to mine because it is unusual to find them in concentrations high enough for economical extraction
 
❗️REE are the main components of permanent magnets and catalysts (more than 50% of global demand by volume). The primary ingredient in the most efficient and highest strength permanent magnets is Neodymium-Praseodymium (NdPr) oxide. Given permanent magnets are used in EVs (REE based permanent magnets are used in more than 90% of new EVs) and wind turbines, the structural shift to the green economy is a significant driver for REE demand. NdPr magnets are also critical for the tech used in drones, mobile devices, etc.
 
#rare_earth

Norilsk Nickel announces FY21 dividends with a 6% yield

📌On Friday, the Nornickel BoD recommended FY21 dividends of RUB 1,166.2/sh. The record date is 14 June; the AGM is to consider this recommendation on 3 June 2022

• On our numbers, this dividend offers a c.6% yield and implies a <50% EBITDA payout, which is below the company’s policy (of paying 60% EBITDA). Had the company matched policy, the implied FY21 DY would have been 7%

❗️Nornickel was the first name in the Russian M&M space since March to announce its intention to pay dividends for 2021, which might be a positive trigger for the stock

📌Global crude steel output declined 6% YoY to 161mnt in March

• The decrease was partially driven by the 6% YoY decline if steel output in China, which accounted for 55% of world steel production in March (vs. 53% in February)

• Ex-China steel production fell 5% YoY in March (after being roughly flat YoY in February)

• US steel production decreased 2% YoY in March (vs. 1% YoY growth in February), while EU crude steel output was down 9% YoY in March (vs. 3% YoY decline in February)

#steel

📌China has approved the construction of 6 new nuclear reactors

• Recently, China reiterated its plan to increase installed nuclear generation capacity to 70GW by 2025 (38% above the current level). The increase accounts for 5% of global nuclear power capacity

• Meanwhile, in March, China’s nuclear power generation was up 2.2% YoY, with the growth rate decelerating from 9.6% YoY in 2mo22

❗️Positive for long-term uranium demand

#China #uranium

📌Who are the main players in the Rare Earth Elements market?

🧲As we noted earlier, Neodymium (Nd) and Praseodymium (Pr) are important elements, primarily used in high strength magnets. China dominates NdPr production, accounting for some 60% of global mine supply, followed by Australia (22%) and the USA (15%). Moreover, China is not only the largest producer of NdPr, but of all REEs; the majority of the rest of the world’s REE supplies, such as from the US (12%) and Myanmar (11%), are processed in China. As such, China’s share of processing has reached almost 90%. Leveraging its market dominance, the country exports some 90% of the world’s rare earth permanent magnets

📈This makes China an important market player. As China is an NdPr price setter, the key benchmark we look at is China’s domestic price. Since the beginning of 2020, NdPr prices are up more than 3.5x, supported by robust demand and supply concerns amid China’s domestic power shortage and export quotas last year

#rare_earth

📈Who are the major beneficiaries of high rare earth prices?

🧲There are two large-scale producers of REE outside of China: MP Materials (MP US) and Lynas Rare Earths (LYC AU). MP operates Mountain Pass, an asset in the US that has integrated rare earth mining and processing operations. Moreover, the company is on track to complete its Stage II project in 2022, which focusses on advancing operations from the production of concentrate to the separation of individual REEs, including NdPr oxide. LYC operates in Australia and Malaysia. The company plans to build a new Rare Earths processing facility in Kalgoorlie, Australia to process concentrate from its Australian mine

💰Both companies offer exposure to the high prospects of REE. While LYC looks more interesting, trading below MP at 9.5x 1-y fwd EV/EBITDA (3% 1-y fwd FCF yield), MP has higher production upside next years (2022-2023) given its projects. MP offers 3% FCF yield, trading at 11.8x EV/EBITDA on spot

#rare_earth

⛏️Norilsk Nickel – neutral 1Q22 operating results

📌Nornickel has reported overall neutral 1Q22 operating results. Nickel production from Russia feed grew 13% YoY due to low base of 1Q21. Pd and Pt output from own feed decreased 8% and 11% YoY, respectively, due to high base of 1Q21 

❗️Results came in line with the FY22 guidance – the company's run rate stood broadly at the 25% level for all 4 metals. The company reiterated FY22 guidance

$MNOD #nickel

📌CISA mills’ daily crude steel output increased 0.5% in the middle of April from the first ten days of the month

• However, this was 3.8% YoY lower

• CISA mills’ finished steel inventories rose 6.6% during the period (up 23.6% YoY), which might signal relatively weak steel demand amid COVID-19 restrictions in China

#China #steel

💍 The US National Retail Federation (NRF) expects Mother’s Day jewellery sales to grow 15% YoY

• According to NRF survey data, the share of consumers planning to gift jewellery increased to 41% from 34% in 2021

❗️This suggests that US downstream diamond demand remains strong

#diamonds

Tomtor – prominent Russian REEs greenfield
 
📝Russia has one big deposit of REEs and Niobium — Tomtor, which is one of the world's largest and highest grade REE projects. Tomtor is located in the north-west Yakutia; the shareholders of Tomtor are IST managment, with a 91% stake, and Polymetal, holding the remaining 9%
 
❗️Tomtor looks attractive compared with the 2 major REEs producers, Lynas Rare Earth (LYC) and MP Materials. While the total REE content in Tomtor’s 2P reserves is comparable with both names, the grade is 1.7x and 2.3x higher than LYC and MP, respectively. This high grade is to make Tomtor one of the lowest cost producers in the world once operations are commenced, despite severe weather conditions in the region
 
• However, there is no precise timeline for Tomtor development. The project is still at an early stage: Polymetal published Initial Ore Reserve estimate only a year ago

📌Russia has completed construction of a railway bridge over the Amur river to China

• The bridge could be put into operation in the coming months

• According to Interfax, the bridge will have a capacity of 20 - 24mnt/a

❗️Development of the rail network might provide better conditions for the redirection of Russia’s coal and metals exports to Asian countries

#global

📌Global central banks were net sellers of 4t of gold in March

• In February, global central banks' net purchases of gold reached 33t, according to restated data. Previously, Egypt’s purchase of 44t in February was not reported by the World Gold Council

• In March, the biggest seller was Kazakhstan, which sold 12t (vs. 5t in February)

• The biggest purchaser was Turkey, with 5t of gold purchases in March (vs. 22t in February)

❗️Slightly negative for gold prices

#gold