SP Angel Morning View -Today’s Market View, Monday 12th June 2023

Gold prices little changed ahead of a series of monetary policy announcements

MiFID II exempt information – see disclaimer below

Celsius Resources* (CLA LN) – Celsius edges closer to mining license for MCB copper project in Philippines

Silvercorp Metals (0QZ2 LN)

Glencore (GLEN LN) – Glencore makes additional offer to acquire coal assets off Teck Resources

Teck Resources (TECK N)

Savannah Resources* (SAV LN) – BUY – 22.6p (from 17.8p) – New Scoping Study demonstrates outstanding Barroso Project economics

Sunrise Resources (SRES LN) – Bureau of Land Management approves drilling at the Pioche sepiolite project, Nevada

Tungsten West (TUN LN) – Collaboration with specialist fusion energy company

IGTV:  https://www.ig.com/uk/market-insight-articles/ev-metals-to-regain-momentum–despite-economic-uncertainty–sp-a-230606

VOX Markets Podcast:   https://audioboom.com/posts/8310999-john-meyer-on-china-s-mixed-manufacturing-figures-plus-atlantic-lithium-goldstone-res-anglo-asi

*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts. We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.

Economics

Monetary policy meetings will be dominating the newsflow this week with policy announcements expected from the Fed, the ECB and the PBOC, Bloomberg reports.

• Expectations are for three different announcements including a ‘hold’, a ‘hike’ (+25bp) and a ‘cut’ (-10bp), respectively, Bloomberg continues.
• The Fed will be able to see inflation data released on Tuesday ahead of the meeting with estimates for headline and core CPIs growth coming down in May.
• US CPI (%yoy): 4.1 v 4.9 April.
• US Core CPI (%yoy): 5.2 v 5.5 April.

China – The central bank may choose to cut rates on 1y medium term lending facility rate by 10bp to 2.65% on June 15, marking the first cut since Aug/22, Bloomberg internal estimates suggest.

• While the direct impact of a rate reduction may have only a modest impact, the indirect signal that the government is committed to supporting the recovery may provide a strong boost to the market and business confidence., Bloomberg adds.
• The PBOC may also decide to follow up with a cut in the reserve requirement ration in Q3/23 to ease lending market conditions further to support a recovery in the growth momentum.

Foreign investors sold US$7.2bn of funds from Chinese bonds in May (IIF data)

• The data marks the fifth consecutive month of outflows by foreign investors.
• In contrast foreign investors pumped $126m into Chinese equities in anticipation of stronger growth.
• The relative strength of the US dollar meant that the Chinese yuan fell around 3% against the US dollar for the year to 9 June.
• Yuan depreciation was down to fund outflows as well as weaker export sales.
• We expect the PBOC to adjust monetary policy to hold up a degree of its target growth.
• But regional and city authorities are financially constrained due to a collapse in land sales for new developments
• Beijing has stepped in with CNY10tn of support and is encouraging banks to increase credit to stimulate domestic demand.
• Checks are being done to ensure new funds are not being funnelled into property and investment and refinancing.
• Transport and logistics are being hit by lower demand for products for export markets and internally.
• EV sales are being stimulated with regional authorities expected to add incentives to increase sales.

Japan – Machine tool orders, a proxy for business capital investment, continued to pull back in May both domestically and externally.

• Orders dropped 22.2%yoy last month, following a -14.4% drop in April, and including 24.0% and 21.3% declines in local and foreign measures, respectively.

Currencies

US$1.0759/eur vs 1.0773/eur last week. Yen 139.53/$ vs 139.53/$. SAr 18.653/$ vs 18.848/$. $1.258/gbp vs $1.255/gbp. 0.676/aud vs 0.672/aud. CNY 7.144/$ vs 7.124/$.

Dollar Index 103.53 vs 103.47 last week.

Commodity News

Precious metals:

Gold US$1,961/oz vs US$1,964/oz last week

   Gold ETFs 93.9moz vs US$93.9moz last week

Platinum US$1,005/oz vs US$1,019/oz last week

Palladium US$1,318/oz vs US$1,359/oz last week

Silver US$24.15/oz vs US$24.41/oz last week

Rhodium US$6,200/oz vs US$6,200/oz last week

Base metals:   

Copper US$ 8,284/t vs US$8,410/t last week

Aluminium US$ 2,228/t vs US$2,279/t last week

Nickel US$ 21,250/t vs US$21,550/t last week

Zinc US$ 2,370/t vs US$2,424/t last week

Lead US$ 2,070/t vs US$2,053/t last week

Tin US$ 25,630/t vs US$26,300/t last week

Energy:           

Oil US$73.7/bbl vs US$75.8/bbl last week

Natural Gas US$2.255/mmbtu vs US$2.317/mmbtu last week

Uranium UXC US$55.50/lb vs US$55.50/lb last week

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$113.7/t vs US$111.3/t

Chinese steel rebar 25mm US$526.3/t vs US$528.0/t

Thermal coal (1st year forward cif ARA) US$107.0/t vs US$107.0/t

Thermal coal swap Australia FOB US$145.0/t vs US$145.0/t

Coking coal swap Australia FOB US$224.0/t vs US$224.0/t

Other:  

Cobalt LME 3m US$29,525/t vs US$29,525/t

NdPr Rare Earth Oxide (China) US$70,128/t vs US$70,263/t

Lithium carbonate 99% (China) US$42,763/t vs US$42,845/t

China Spodumene Li2O 5%min CIF US$4,090/t vs US$4,090/t

Ferro-Manganese European Mn78% min US$1,254/t vs US$1,255/t

China Tungsten APT 88.5% FOB US$320/t vs US$320/t

China Graphite Flake -194 FOB US$750/t vs US$750/t

Europe Vanadium Pentoxide 98% 7.1/lb vs US$7.1/lb

Europe Ferro-Vanadium 80% 31.75/kg vs US$31.75/kg

China Ilmenite Concentrate TiO2 US$309/t vs US$309/t

Spot CO2 Emissions EUA Price US$85.7/t vs US$85.8/kg

Brazil Potash CFR Granular Spot US$340.0/t vs US$345.0/kg

Battery News

Saudia Arabia signs $5.6bn deal with Chinese EV company

• Saudi Arabia’s Ministry of Investment has signed a $5.6b deal with Chinese EV maker Human Horizons to collaborate on the development, manufacture, and sale of vehicles, according to the Saudi state news agency.
• The investment was signed on the first day of an Arab-China business conference in Riyadh, with focus in sectors spanning technology, renewable energy, agriculture, real estate, metals, tourism, and healthcare.
• The Saudi plan is to develop a domestic EV manufacturing industry – Human Horizons manufactures EVs under the HiPhi brand in China.
• Human Horizons announced in March it would launch its premium HiPhi brand in some European markets this year as it looks to expand overseas.

Nio EV sales set to jump to 23,000-25,000 deliveries in Q2

• The ramp up in sales growth is symptomatic of the rapid expansion of new manufacturers in the EV space.
• Chinese vehicle sales rose 30% to 1.8m vehicles in May according to The China Passenger Car Association (CPCA)
• The CPCA said on Thursday that passenger vehicle sales in China totalled 1.76 million vehicles in May. For January-May, sales were up 4% year-on-year at 7.74 million cars.
• NIO have just announced a cut in price across their whole range by $4,200 as they look to increase sales.

BYD to build sodium-ion battery production base in Jiangsu

• The joint venture with a local conglomerate is the first step for the battery giant towards building capacity for a lithium alternative.
• The production base in Xuzhou Economic and Technological Development Zone in Jiangsu province will aim to be the world’s largest supplier of sodium battery systems for micro vehicles, according to the press release.
• There have been several rumours floating around that BYD’s sodium-ion battery would be in mass production in 2023.

Company News

Celsius Resources* (CLA LN) 1.28p, Mkt Cap £30.4m – Celsius edges closer to mining license for MCB copper project in the Philippines

Silvercorp Metals (0QZ2 LN) C$4.11, Mkt cap C$725m

(Celsius has agreed to sell a 30% economic ownership of MCB copper mine for US$43m implying a valuation of >$143m on consummation of the deal)

Click Link for SP Angel research report PDF note – MCB project NPV@8% US$463m, IRR of 34.3%

• Celsius Resources is closing in on the receipt of a mining permit for the MCB project on the island of Luzon approximately 320km north of Manila in the Philippines.
• The MCB project recently received the critical ECC ‘Environmental Compliance Certificate’ after which the MPSA ‘Mineral Production Sharing Agreement’ should be awarded.
• The MPSA  should enable the development of the MCB copper mine.
• MCB has a 338mt mineral resource grading 0.47% copper and 0.12g/t gold.
• Plant throughput of 2.25mtpa of ore should produce 16,000tpa of copper and 19,000oz pa of gold in concentrate over a 25-years mine life.
• The development of an underground mine should limit the surface footprint and lessen the environmental impact.
• Slivercorp offer:
• Silvercorp have offered to acquire all of the outstanding shares of CLA at a fixed price of A$0.03/s in exchange for consideration comprising 90% Silvercorp shares + 10% cash
• The deal offered Celsius Resources at A$56m or £30.2m at the time of the offer.
• Silvercorp also agreed to subscribe for A$5m at 0.8p/s as part of the deal to help advance the MCB project timelines.

Conclusion:  We feel confident Celsius will be awarded an MPSA for the MCB copper mine within weeks and this might enable better terms for Celsius shareholders in the offer by Silvercorp.  We also believe some investors may be selling Silvercorp shares and recycling funds into Celsius to regain exposure to Sivercorp plus the 10% cash component.

We believe the London listing of Celsius Resources (CLA LN) may be used for the new SpinCo to retain and advance the Sagay (Philippines) and Opuwo (Namibia) projects.

*SP Angel acts as broker to Celsius Resources

Glencore (GLEN LN) 435.6p, Mkt cap £52bn – Glencore makes additional offer to acquire coal assets off Teck Resources

Teck Resources (TECK N) US$42.51, Mkt cap US$22bn

• Glencore is offering an alternative offer to Teck Resources shareholders.
• The alternative offer might also help from a regulatory perspective given Glencore’s dominance in the trading of certain metals.
• Glencore acquires the Teck coal assets it also plans to demerge the demerge the combined coal mining operations, once Glencore has sufficiently ‘delevered’.
• Glencore expects the deleveraging process to take 12-24 months.
• The new proposal offers to buy Teck’s coking coal business for an undisclosed valuation.
• The combined group would produce >100m of thermal coal and 30mt of coking coal.
• Glencore offered US$23bn for Teck Resources in April, in cash and shares including US$8.2bn in cash for its coal business .
• Glencore is still keen to pursue its original offer to acquire the whole of Teck Resource.
• Pierre Lassonde, a Canadian investor is also reported to have been assembling a consortium of investors to bid for Teck’s coal business.

Savannah Resources* (SAV LN) 4.9p, Mkt Cap £83m – New Scoping Study demonstrates outstanding Barroso Project economics

BUY – 22.6p (from 17.8p)

• The Company released an updated Scoping Study on the flagship Barroso Lithium Project having just secured the DIA and ahead of previously guided early H2/23 deadline.
• Scoping Study highlights outstanding project economics including:
• NPV8% (post tax) and IRR (post tax) of $953m and 77% with a 1.3y payback period using an average of $1,464/con SC5.5 price ($1,597/con SC6.0 price), compared to $241m and 49% estimated in the 2018 Scoping Study (using $685/con price assumption).
• The project is expected to benefit from higher prices in 2026-27 (~$2,500/con) before an expected pull back in prices to ~$1,250/con longer term levels for later years.
• An open pit operation is expected to run for ~14y delivering 20.5mt at 0.96% (diluted from 1.06%) to the processing plant.
• Conventional flotation plant is designed to run at 1.5mtpa compared to 1.3mtpa assumed in the 2018 Scoping Study accommodating larger mineral resource base.
• Updated MRE stands at 28.0mt at 1.05% Li2O (~725kt LCE), double the estimate used in the 2018 Study of 14.0mt at 1.07% Li2O (~370kt LCE).
• Also, higher confidence Measured and Indicated category now stands at 18.4mt accounting for 66% of the total resource, up on 51% in 2018.
• Metallurgical recoveries assumed at 73%.
• Annual production estimated at ~191ktpa SC (~25ktpa LCE), ~400ktpa in ceramic by-products and ~100ktpa low grade bulk pegmatite concentrate.
• TCC including transportation to local port and government royalty (4%) estimated at $483/con (ex by-products) and $350/con (incl by-products).
• By products account for only ~8% of gross revenues.
• Development capex estimated at $280m (including ~20% contingency), up on $136m estimated previously mostly reflecting inflation since 2018 as well as project design changes including increased scale of the operation.
• Additionally, the Company included $49m in sustaining capex and $102m in rehabilitation costs covering environmental restoration costs as per the positive DIA decision.
• Annual revenues and EBITDA levels estimated at ~$300m and ~$200m, respectively, assuming spodumene concentrate prices more in line with consensus long term averages and significantly below current ~$4,000/con.
• Next major milestones include final permits and DFS completion (both H2/24) with discussions over potential strategic partnerships and offtakes to run in parallel.
• Final Investment Decision and start of construction in 2025 with first production targeted for mid-2026.

Conclusion: The Company released a new Scoping Study earlier than expected updating economics to reflect a nearly doubled resource base since the last study, adjustments to project design and environmental remediation work as well as costs inflation and new lithium price environment. We view the updated study as a more robust project economics estimate based on a conservative set of assumptions while continuing to offer outstanding investment returns. On a conservate side, the study includes a significant provision for environmental impact mitigation initiatives (>$100m), development and LOM sustaining capex (ex closure/rehabilitation) revised by >120% on cost inflation as well as design changes and +15% capacity expansion (1.5mtpa, up from 1.3mtpa), C1 costs (incl mining, processing and G&A) up ~45%, metallurgical recoveries used 73% vs 80% previously and royalties of 4% vs 3% before. All that is more than offset by stronger lithium price outlook compared to the previous study with current assumptions using ~$2,500/con in 2026-27 (first two years of operation) before prices pulling back towards longer term ~$1,2500/con levels, significantly below current $4,000/con. Prices are estimated to average ~$1,500/con over the life of mine.

With a series of rerating catalysts ahead (permitting, DFS, FID, offtakes and strategic partnerships, start of construction, first production), we see the study as confirming highly undervalued status of Savannah and one of the best lithium plays in the market.

Reiterating, the investment case is based on a low technical risk associated with a conventional hard rock / milling / flotation flowsheet, the largest spodumene deposit in Europe with a potential to grow the MRE further (exploration target points to a potential 40-70% growth in the resource), 100% of future spodumene available for offtake contracts, good infrastructure including, roads, ports and access to local power supply with high share of renewables in the generation mix (~60% v <40% EU wide) as well as a strategic location of the project offering a secure and low in carbon footprint long term lithium supply next to the second largest EV end market.

We reiterate our BUY recommendation with an upgraded price target of 22.6p (from 17.8p) adjusting our valuation for higher operating and development costs as well as higher spodumene concentrate prices (flat $1,500/con SC).

*SP Angel acts as Nomad and Broker to Savannah Resources

Sunrise Resources (SRES LN) 0.1p Mkt Cap £4m – Bureau of Land Management approves drilling at the Pioche sepiolite project, Nevada

• Sunrise Resources reports that the US BLM has approved the drilling of 24 auger drill holes to test the Pioche sepiolite deposit.
• The drilling, scheduled to take place during July will be undertaken by Tolsa USA, which has an option to acquire the project for US$1.25m, will test the sub-horizontal mineralisation to depths of around 50 feet (~15m) over an area of approximately 2.5×2.0km.
• Tolsa USA is a subsidiary of the world’s largest sepiolite producer, the Spanish company Tolsa SA.
• Commenting on the announcement, Sunrise Resources’ Executive Chairman, Patrick Cheetham, welcomed the permitting approval for drilling and explained that the “Pioche Sepiolite Project has come a long way since our initial discovery thanks to Tolsa’s ongoing commitment and enthusiasm for the Project”.
• Sepiolite is a specialised magnesium silicate clay mineral, also sometimes known as meerschaum, and its uses include products for the absorption of industrial spillages and in waste treatment and for pet litter and as an “adsorbent carrier for chemicals and pesticides and in animal feeds as a binder and carrier for nutrients and growth promoter”.

Conclusion: We await the results of Tolsa’s drilling later in the year.

Tungsten West (TUN LN) 3.5p, Mkt cap £5.9m – Collaboration with specialist fusion energy company

• Tungsten West has announced a strategic collaboration with an Oxfordshire-based fusion energy company, Oxford Sigma, to help establish a supply chain for tungsten which is described as a “key component” in the development of a fusion as a “potentially … near-limitless source of carbon-free energy for the future”.
• Today’s announcement explains that tungsten is “required for radiation shielding and plasma-facing components within fusion energy devices … [and that collaboration between Tungsten West and Oxford Sigma ] … will provide a mutual combination of skills and assets in order to secure the source of raw tungsten material in the UK”.
• The announcement provides context by explaining that “over US$5 billion of private investment worldwide” is being deployed to commercialise fusion energy but that “without a viable commercial pathway for the supply of tungsten from raw materials to the fusion community, the commercialisation of fusion energy faces significant delays”.
• Welcoming the agreement with Oxford Sigma, Neil Gawthorpe, CEO of Tungsten West, said that “as we progress to production at Hemerdon, we are in a position to supply tungsten globally”.
• The Hemerdon deposit is one of the larger and more advanced tungsten deposits globally providing it the resource base for the 27-years mine life envisaged in the updated pre-feasibility study released in January.  We imagine that long-term continuity of supply from a source hosted in a western jurisdiction will reassure the developers of a long-term technology for energy security currently investing over US$5bn.
• Dr. Thomas Davis of Oxford Sigma explained that “Most of the approaches to fusion that Oxford Sigma develops depend on large quantities of raw tungsten for various applications (radiation shielding, plasma-facing components, and liquid metal resistance coatings). By collaborating with Tungsten West, the door is open to secure this critical material supply to ensure that the country, and the world, can deploy the fusion reactors of the future”.

Conclusion: Tungsten is already regarded as a ‘Critical’ or ‘Strategic’ Mineral by many jurisdictions including the EU, UK, US, Australia, and Japan – the emergence of its role in fusion energy development reinforces the argument.

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

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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.

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