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

🔋Norilsk Nickel to cooperate with Rosatom on lithium project

🤝Nornickel and Rosatom are to consider setting up a JV in order to participate in a licence auction and develop the Kolmozerskoye lithium deposit in the Murmansk region, with further deep processing of lithium raw materials

⛏Kolmozerskoye is an untapped and unallocated Russian lithium ore deposit. It accounts for some 19% of domestic reserves, according to Nornickel. In 2021, Russia’s Federal Agency for Mineral Resources announced that the initial payment for obtaining a licence to develop the Kolmozerskoye field would be reduced from RUB 11bn to RUB 200mn

❗️We note that the development of domestic lithium deposits has become even more attractive since the suspension of exports from Chile and Australia. This project is an opportunity to substitute imports amid strengthening demand. Moreover, given Nornickel produces 8% of global nickel, the company might become a supplier of almost the full basket of battery materials

#lithium #nickel $GMKN

Ashinsky – the name we told you about earlier
 
📌Ashinsky Metallurgical plant (AMEZ) has reported its FY21 financials. 2H21 EBITDA grew 50% HoH and almost 5x YoY, supported by higher realised prices. On the back of robust EBITDA, the FCF yield for 2H21 reached 46%
 
💰The company turned net cash positive as of 31 December, and we expect the cash position to expand to a level roughly equal to AMEZ’s current Mcap by YE22
 
📈We also recap that AMEZ has 100% of its steel produced in EAFs, which makes it one of the lowest emitting producers in Russia. The company has robust FCF generation and a high share of domestic sales (c.90%), which mitigates sanctions risk. We therefore think the company looks interesting, despite small scale of its operations

🔋LG Energy plans to increase its annual battery production capacity by 160% to 520GWh in 2025 relative to the 200GWh the company plans for 2022

• This implies a 38% 2022-2025 CAGR

• The capacity increase might account for 45% of 2021 global battery manufacturing capacity and for 35% of potential EV battery demand in 2025

❗️Positive for long-term demand for battery metals: nickel, lithium and cobalt

#EV #nickel #lithium #cobalt

📌Teck Resources 4Q21 results

📈Teck Resources (TECK US) reported strong 1Q22 results: the company’s EBITDA more than tripled YoY, mostly due to the significant growth of coal segment EBITDA (up 5x YoY). Copper and zinc EBITDA were also strong, increasing 20% YoY and 60% YoY, respectively

⛏Teck’s main copper project, QB2, is 82% complete and on track to be launched in 4Q22, assuming no further COVID waves or other major disruptions. At the same time, the company’s production guidance remains unchanged

💰Teck announced dividends of CAD 0.125/sh (0.3% yield), and an additional USD 500mn share buyback (2% of the current market cap). Teck trades at 1.8x 1-y fwd EV/EBITDA on spot, generating 23% 1-y fwd FCF yield
 
#copper #zinc $TECK

🥇Global physical gold demand declined 13% YoY to 921t in 1Q22

· However, total gold demand was up 34% YoY due to strong ETF inflows (269t net inflow in 1Q22 vs. 170t net outflow in 1Q21)

· The decline in physical gold demand was mostly caused by the 20% YoY drop in bars & coins demand and a 29% YoY decrease in official sector demand

· Gold jewellery demand declined 7% YoY in 1Q22 (down 26% YoY and 8% YoY in India and Mainland China, respectively)

· Meanwhile, gold mine production increased 3% YoY in 1Q22
 
#gold

📌China plans to cut coal import tariffs to zero from the current level of 3-6%

· The import tariffs are to be lifted from 1 May 2022 to 31 March 2023

· Moreover, an analyst at the China Coal Transportation and Distribution Association sees a limited ability to expand capacity by the targeted 300mnt/a (sees 100mnt/a as achievable) due to safety and environmental regulations

❗️This might drive up China’s coal imports, which is positive for coal prices

📝China accounts for some 24% of total world coal imports 

#China #coal

⛏The output of the four biggest iron ore miners fell 2% YoY in 1Q22
 
· Producers claimed the reasons for the decline were unfavorable weather conditions in Australia and Brazil, COVID-related labour shortages and firm-specific issues. However, we note that the reduction also fitted a value over volume strategy
 
❗️Given the top four iron ore miners account for some 70% of the seaborne iron ore market, the production decline is supportive for iron ore prices

· All the above companies have capacity expansion plans; however, none of the firms have historically fulfilled them

$RIO $BHP $VALE $FMG #iron_ore

⛏How do iron ore producers look at spot
 
💰Among top four iron ore producers Brazil’s VALE looks the most attractive, trading at 2.4x 1-y fwd EV/EBITDA on spot (below its peers) and generating 21% 1-y fwd FCF yield. VALE benefits from robust nickel prices (nickel segment – 8% of Vale’s 2021 revenue) and other business segments
 
💰BHP trades above VALE, however, slightly below FMG and RIO at 3.5x EV/EBITDA, benefiting from other business directions(copper - 23% of revenue, coal - 13% and nickel - 2%). BHP offers 14% FCF yield and 10% dividend yield
 
💰FMG is the only producer among top four with the full exposure to iron ore. FMG and RIO trade slightly above 4x EV/EBITDA, exceeding peer multiples

#iron_ore $VALE $BHP $RIO $FMG

⛏IRC – the big winner from the bridge over the Amur
 
🎢As we noted earlier, construction work on the bridge over the Amur river to China is finally over. One of the main beneficiaries of the bridge is IRC (1029 HK) -- a small-scale iron ore mining company with operations in the Jewish Autonomous Region of Russia
 
🚢Prior to the bridge's construction, transport of iron ore concentrate to China was complicated, with volumes going to Vladivostok, whence there were subsequent shipments to China. Now this process can be simplified
 
💰This might result in a USD 15/t transportation cost reduction, which, given the scale of IRC's sales, is equal to some USD 30mn from 2023 onward, or 17% of spot EBITDA. IRC now trades at 1.1х 1-y fwd EV/EBITDA at spot, a с.50% FCF yield. The likely reduction in its transportation costs, coupled with its attractive valuation, makes IRC an interesting story, in our view

#iron_ore $1029

📌China’s nickel pig iron (NPI) output fell 1% YoY in March, with the rate of decline decelerating from February’s 6% YoY

· In 1Q22, the country’s NPI production was down 5% YoY

· According to the CRU, the NPI output curtailments might have continued in April due to disruptions in nickel ore deliveries amid COVID-19 lockdowns

· China’s stainless steel output was down 1% YoY in March (vs. 10% YoY decline in February). The CRU expects the country’s stainless steel production to decrease in April due to weak domestic industrial activity

#China #nickel

📌Global manufacturing PMIs continued to decline in April

• US ISM manufacturing PMI dropped to 55.4 in April from 57.1 in March. This was below the Bloomberg consensus estimate of 57.6

• Eurozone Markit Manufacturing PMI fell to 55.5 in April (vs. 56.5 in March), slightly above the Bloomberg survey median of 55.3

• In April, the China's official PMI was down to 47.4 from 49.5 in March (in line with the Bloomberg consensus expectations). China's Caixin manufacturing PMI decreased to 46.0 (vs. 48.1 in March), below the Bloomberg consensus forecast of 47.0

❗️China PMIs below 50 suggest weakening manufacturing sector activity in the country amid COVID-19 lockdowns. Meanwhile, EU and US PMI’s remained above 50, which might imply continuing momentum in manufacturing there

#PMIs

📌 Chile’s copper output decreased 6% YoY in March

• The decline might have been caused by reduced ore processing due to water availability issues

❗️Given Chile accounts for 28% of global copper supply, this might slightly support copper prices

• In addition, Chile’s authorities rejected an environmental permit application for Anglo American’s Los Bronces expansion project (c.0.6% of global copper supply). If the decision remains negative after the appeal, this might slightly constrain long-term copper supply

#copper #Chile

💎Petra Diamonds has reported sales of USD 86mn for Tender 5 of FY22 (ending June) vs. USD 141mn for Tender 4

• At Tender 5, the company sold 636kct (vs. 735kct at Tender 4)

• Tender 5 LfL rough diamond prices decreased 23.7% relative to Tender 4 (March 2022) but were 3.2% above the Tender 3 level (December 2021), with the balance of price movement attributable to the product mix. However, we note that the prices received by small miners are relatively more volatile than those of large ones. Therefore, such price dynamics were not observed for Alrosa and De Beers

• According to Petra CEO Richard Duffy, the price decrease was attributable to seasonal factors and geopolitical uncertainty

• Nevertheless, the company noted strong demand across all size and quality categories

#diamonds $PDL

🚘Global EV sales (passenger cars and light-duty vehicles) increased 61% YoY in March, with the growth rate decelerating from 91% YoY in February

• In the US & Canada, and EV sales rose 30% YoY in March (vs. the revised 47% YoY growth in February)

• The share of BEVs in total EV sales increased to 76% in March from 72% in February

❗️Growing EV sales are supportive for the demand for battery metals: nickel, lithium and cobalt

#EV #nickel #lithium #cobalt