SP Angel Morning View -Today’s Market View, Tuesday 5th September 2023

Chinese services sector growth falls to new low for the year on local and overseas demand concerns

MiFID II exempt information – see disclaimer below

Aura Energy* (AURA LN) – Häggån scoping study highlights way forward for potential future development

Andrada Mining (ATM LN) – Completion of debt financing for the Uis mine

Ecora Resources (ECOR LN) – Half year results as focus turns to copper and battery metals

Golden Metal Resources (GMET LN) – Chairman summarises progress on Nevada projects

KEFI Gold and Copper* (KEFI LN) – Ethiopia operational update

Rainbow Rare Earths (RBW LN) – Mintek front-end pilot plant produces REE rare earth sulphate from Phalaborwa ore in South Africa

Tungsten West (TUN LN) – Additional NEDs appointed

Gold prices hold steady in quiet Labor Day trading

• Gold prices weakened slightly following a quiet day’s trading over the US Labor Day holiday.
• The Dollar ticked up overnight against a basket of currencies, with both the yuan and the yen falling to one-week lows.
• US Treasuries remain weak, with the 10-year holding around 4.22%, weighing on gold prices.

Iron ore rally continues as confidence mounts over Beijing’s property support

• Iron ore prices have extended gains to $114/t and $117/t on the Singapore market.
• The move to April highs reflects confidence in the steelmaking sector in China following a sustained period of pessimism.
• This was reinforced by Country Garden avoiding default, although the sector is not out of the woods yet.
• Additional cities are scrapping mortgage restrictions, with Shenyang loosening measures to bolster property buying and development.

European automakers must accelerate low-cost EV plans to compete with China

• Around 820,000 EVs were sold in Europe in the first seven months of 2023 representing 13% of all vehicles sold.
• China’s share of the European market has more than doubled over the past two years, selling almost the same number of EVs in Europe in the first seven months of 2023 as they did in 2022.
• Chinese EV makers, including BYD, Nio and Xpeng are all targeting Europe’s EV market.
• Xpeng plans to expand into more European markets in 2024, and Zhejiang Leapmotor Technology announced five models for overseas markets, including Europe, over the next two years.
• At the German auto show in Munich, 41% of exhibitors are headquartered in Asia, with the majority from China.
• 8% of new EVs sold in Europe so far this year were made by Chinese brands, up from 6% last year and 4% in 2021 (Inovev auto consultancy).
• The average EV in China cost less than €35,000 in H1 ‘22 compared with around €56,000 in Europe.

Chinese EVs coming to London en-masse

• Maxus, a light EV delivery vehicle company (SAIC Motor, China)  is advertising today that buyers can save up to £31,500 through the Maxus ULEZ / OLEZ offer.
• In the details Maxis indicates:
  • £9,500 – £11,500 – ULEZ Scrappage Scheme for a van, pickup or light truck assuming you have a vehicle to scrap
  • £1,000 – £15,000 – MAXUS Conquest Support – (sounds more like part of an invasion plan than a grant)
  • £5,000 – OLEZ grant (we can’t see what an OLEZ grant is?)

Argentine authorities progress ex-Vale $1bn Rio Colorado potash project

• Argentine officials are progressing the selection process for bids for a $1bn investor to develop a Mendoza potash project.
• The project was held by Vale who invested $2.2bn into the project with 45% of the CAPEX spent before a potash price slump in 2012.
• Mendoza authorities report they have ‘completed the bid selection process’ and are moving ‘quickly in the final negotiation of the contract with the best qualified bidder.’
• The Rio Colorado project was taken into State hands following a series of negotiations with Vale.

Economics

China – Disappointing set of services PMIs released this morning showing the sector grew at the slowest pace this year in August

• Weaker figures were driven by slowing new business orders with overseas demand recording the first drop since December 2022.
• Inflation rate pulled back coming at the weakest level since April in a further sign of muted consumer spending.
• Although, on a positive side, employment reported another increase and business confidence around the 12 month outlook remained positive.
• A sharper deceleration in the services sector compared to a pick up in manufacturing meant that composite PMI measuring performance of private businesses pulled back.
• “The internal and external economic environments are becoming increasingly complex, adding to the urgency and necessity of implementing relevant supportive policies,” Caixin concludes.
• Caixin Services PMI: 51.8 v 54.1 July and 53.5 est.
• Caixin Composite PMI: 51.7 v 51.9 July.

Country Garden is reported to have paid coupons on two dollar bonds within their grace period avoiding a default earlier today, Bloomberg writes.

ECB – Inflation expectations remained elevated in July supporting another 25bp rate hike at the coming meeting, according to the data provided by the central bank.

• Expectations for the next 12 months failed to come down staying at 3.4% while estimates for three years outlook ticked up 0.1pp to 2.4%.
• Previously, Christing Lagarde said that the Governing Council will either extend or pause the ECB’s monetary tightening policy.
• Markets are currently pricing in a 25% chance of a 25bp hike at the 14 September meeting.

Australia – In line with expectations, the central voted to keep rates unchanged at 4.10% while reiterating that further tightening may be required, Bloomberg reports.

• “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will continue to depend upon the data and the evolving assessment of risks,” Lowe said in his post-meeting statement.
• Markets are now expecting rates to have peaked with first rate cuts not expected before H2/24.
• Given that the central bank is considered to have now reached the end of its tightening cycle the currency sold off 1.2% against the US$ marking the biggest move in a month.

Currencies

US$1.0762/eur vs 1.0806/eur yesterday. Yen 146.96/$ vs 146.34/$. SAr 19.257/$ vs 18.780/$. $1.258/gbp vs $1.263/gbp. 0.637/aud vs 0.647/aud. CNY 7.296/$ vs 7.267/$.

Dollar Index 104.45 vs 104.05 yesterday.

Commodity News

Precious metals:

Gold US$1,936/oz vs US$1,943/oz yesterday

Gold ETFs 89.8moz vs US$89.8moz yesterday

Platinum US$945/oz vs US$961/oz yesterday

Palladium US$1,217/oz vs US$1,226/oz yesterday

Silver US$23.61/oz vs US$24.11/oz yesterday

Rhodium US$4,100/oz vs US$4,100/oz yesterday

Base metals:

Copper US$ 8,398/t vs US$8,466/t yesterday

Aluminium US$ 2,187/t vs US$2,210/t yesterday

Nickel US$ 20,950/t vs US$20,785/t yesterday

Zinc US$ 2,454/t vs US$2,475/t yesterday

Lead US$ 2,194/t vs US$2,218/t yesterday

Tin US$ 26,370/t vs US$25,935/t yesterday

Energy:

Oil US$88.6/bbl vs US$88.6/bbl yesterday

• Global energy prices were broadly unchanged overnight as the market awaits news this week on further OPEC+ supply cuts and the outcome of Chevron’s negotiations with LNG unions in Australia.

Natural Gas US$2.658/mmbtu vs US$2.704/mmbtu yesterday

Uranium UXC US$58.50/lb vs US$58.25/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$114.3/t vs US$114.3/t

Chinese steel rebar 25mm US$532.3/t vs US$534.2/t

Thermal coal (1st year forward cif ARA) US$125.0/t vs US$125.5/t

Thermal coal swap Australia FOB US$159.0/t vs US$159.0/t

Coking coal swap Australia FOB US$261.0/t vs US$261.0/t

Other:  

Cobalt LME 3m US$33,420/t vs US$33,420/t

NdPr Rare Earth Oxide (China) US$70,857/t vs US$68,804/t

Lithium carbonate 99% (China) US$26,794/t vs US$26,902/t

China Spodumene Li2O 6%min CIF US$2,910/t vs US$2,910/t

Ferro-Manganese European Mn78% min US$1,039/t vs US$1,043/t

China Tungsten APT 88.5% FOB US$305/mtu vs US$310/mtu

China Graphite Flake -194 FOB US$650/t vs US$655/t

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

Europe Ferro-Vanadium 80% 31.25/kg vs US$31.25/kg

China Ilmenite Concentrate TiO2 US$312/t vs US$313/t

Spot CO2 Emissions EUA Price US$89.5/t vs US$90.1/t

Brazil Potash CFR Granular Spot US$355.0/t vs US$355.0/t

Battery News

Magna Steyr could build Chinese cars in Europe

• Magna International is in talks to produce EVs for Chinese brands in Europe as they expand in the region.
• The Austrian-Canadian supplier has been producing cars for BAIC at a joint-venture facility in China.
• The supplier’s Magna Steyr manufacturing facility in Austria has spare output capacity although they could look for a new facility, according to Magna Europe President Uwe Geissinger.

Opel to offer €25,000 EV by 2026

• Stellantis-owned carmaker Opel will offer an EV at a price of about €25,000 without incentives from around 2026.
• Opel has set a target of selling only EVs by 2028.

Tesla calls on Australian government to support battery industry with tax credits

• Tesla has called on Australia to become ‘more than a dig and ship nation,’ calling for a US IRA style investment into Australia’s battery manufacturing industry.
• The Tesla chair called on Australia to ‘leapfrog us into capturing the most valuable parts of the battery supply chain.’
• Three lithium refineries are currently in development in Australia, although Tesla’s chair suggests this should be 30 to ‘compete on the world stage.’ (Bloomberg)

Company News

Aura Energy* (AURA LN) 14.88p, Mkt Cap £88m – Häggån scoping study highlights way forward for potential future development

(Aura holds 85% of the Tiris Uranium Project, Mauritania)

• Aura Energy report details of their recent Scoping Study on the Häggån project in Sweden
• The Häggån project is looking to produce Vanadium and Sulphate of Potash providing exposure to a critical metal as well as a key agricultural fertilizer.
• SoP is an excellent potassium fertiliser in agriculture and makes a useful addition to any future mine plan
• Uranium could also be extracted depending on the prevailing legislative environment.
• Scoping study – key parameters:
  • Resource at 65mt represents under 3% of Haggan’s 2.0bnt estimated MRE Mineral Resource Estimate
  • Scoping Study to underpin application for a 25-year Exploitation Permit
  • Throughput:  3.5mtpa – Base Case scenario proposes mining the high-grade zone at ~5.9mtpa
  • Vanadium production:  10,400tpa V2O5 high-quality vanadium flake
  • SoP fertilizer production:  217,000tpa sulphate of potash (SOP) by-product for sale as fertiliser
  • Mixed sulphide product: 3,000tpa
  • Capex: US$592m
  • NPV base-case:  US$380 – $1,231m
    • Assumes:  V2O5 price of between US$7.0/lb and $13/lb, SOP price of US$650/t K2O, a Nickel price of US$20,000/t, Mo price of US$51,000/t and Zn price of US$2,500/t, with 70% payability for base metal units
  • NPV base-case:  $756 – $1,606m including uranium production
    • Assumes:  V2O5 price of between US$7.0/lb and $13/lb, SOP price of US$650/t K2O, U3O8 price of US$65/lb, a Nickel price of US$20,000/t, Mo price of US$51,000/t and Zn price of US$2,500/t, with 70% payability for base metal units. Subject to anticipated Swedish legislative change
  • IRR:  26-47%
  • Operating cash flow of between US$140 – 270mpa
  • Payback:  1.5 to 2.0
• Uranium: Aura’s Chairman notes:  The Swedish Government acknowledges that for Sweden’s clean power system to function, a large part must be readily dispatchable, and nuclear power is the only non-fossil option. I noted Sweden’s Minister of the Environment’s comments to the Times of London on 18 August  “She said that while wind and solar power would be important, the country also needed massive volumes of nuclear-generated electricity because output can be reliably dialled up or down to keep the power supply steady through the peaks and troughs of renewable generation”
• Funding:  Pre-development funding of approximately US$15m is required to convert the Mineral Resources to an Ore Reserve and to complete a Prefeasibility and a Feasibility Study.
• Aura might look to finance Häggån via a number of different options including royalties, streaming, offtake and partial sale.
• Drilling: Further drilling will be done to advance the definition of the Häggån resource through infill drilling and prove the presence of significant quantities of vanadium, potash, uranium, and base metals.
• PFS: The enlarged resource / reserve should build on the project economics from the current scoping study which utilises less than 3% of the total Mineral Resource Estimate in the mining plan.
• Cutoff grade: The proposed mine uses a 0.2% V2O5 cutoff grade.
• Resource: Häggån has a global Mineral Resource Estimate of ~2bnt grading 0.3% V2O5, containing 13.3bn lbs V2O5, at a 0.2% V2O5 cutoff is located in Jämtland, central Sweden.
• The mine plan contains 77% Indicated and 23% Inferred mineral resources over the life of the Project with the first 5 years of mining based on 88%  indicated.

Häggån Mineral Resource Statement (2019)

• Metals:  While the team are currently focussed on the value of the vanadium contained there is significant value in the potassium, nickel, zinc, molybdenum, and uranium contained.
• SoP sulphate of potash and Uranium could become significant value drivers for the future particularly if Sweden elects to allow uranium mining and processing in-country and overturns its current ban on mining the metal.
• Uranium: is not included in this scoping study due to the current uranium mining ban in Sweden.
• The uranium resource uses a cut-off grade of100ppm the uranium resource runs at 800mlbs grading 115ppm within 2.35bt total resource.
• Permitting:  Aura are looking to advance the permitting process in Sweden using the scoping study to engage with the national and local government and indigenous Sami (reindeer) people.
• Aura now plans to progress with independent baseline flora, fauna and water studies and infill drilling for a new PFS which will include geotechnical, hydrogeological preliminary pit design scheduling  and metallurgical test work.

Conclusion: Aura has bided its time with the Häggån. The government is now seen as taking a more pragmatic approach to advancing mining projects, particularly where they help to fulfil the green energy and agricultural agenda. We look forward to further positive feedback on the potential to expand the scale and scope of the project.

*SP Angel acts as Nomad and Broker to Aura Energy

Andrada Mining (ATM LN) 7p, Mkt cap £108m – Completion of debt financing for the Uis mine

• Andrada Mining confirms that it has completed its N$100m (~US$5.8m) debt financing with the Development Bank of Namibia and that it expects the funds to be available this week.
• The 10-year senior debt facility incurs “no interest or capital repayments for the initial 12 months after execution and interest will accrue at the Namibian prime lending rate (currently 11.5%) plus 2.5% per annum”.
• Funds are ring-fenced for use on the Uis mine in Namibia where “modular expansion of the crushing and tin concentration circuits during the third quarter of FY 2023, resulted in approximately 70% increased capacity”.
• The company explains that the “primary objective of the expansion was to increase production tonnage to reduce costs through economies of scale … [and acknowledges that the] … enhanced plant performance has revealed bottlenecks that need to be eliminated to ensure that the increased output and higher production rates are sustainable … [and to] … maximise the tin concentrate recovery rate”.
• Andrada Mining is targeting a reduction in operating costs of “up to 10% … [through the implementation of] … efficient supply chain management … [and maintaining an] … inventory of critical spares … [which] … will reduce costs by eliminating emergency procurement”.
• Welcoming the completion of the financing, which he described as “an essential component of the overall funding and development strategy … [Chief Executive, Anthony Viljoen confirmed that the] … proceeds will be used to implement the improvements at Uis Mine which will enhance the plant’s productivity and output”.
• The improvement plans, known as C12, are “targeted to increase the plant throughput to greater than 1Mtpa … [and] … maximise the tin recovery rate up to c69% by improving the visibility of plant operating parameters to operational staff, and by enhancing metal accounting through an increased rate of metallurgical sampling”.

Ecora Resources (ECOR LN) 106p, Mkt cap £274m – Half year results as focus turns to copper and battery metals

• Royalty and streaming company Ecora provides its financial results for the six months ending 30^th June 2023.
• Streaming and royalty related revenue stood at $43m for the period vs $93m for the same period 2022.
• EPS stood at $0.09 vs $0.28 for same period last year.
• The Company reports a loss before tax of $10m vs last year’s profit of $130m over the same period following weaker royalty and metal streaming revenue and a write down on the Kestrel asset due to depletion.
• Cobalt revenue from Voisey’s Bay fell 78% to $3m vs $14m same period last year.
• Voisey’s Bay income is expected to accelerate from
• Copper revenue from Mantos Blancos rose 6% to $3.3m.
• Vanadium revenue from Maracás Menchen fell 15% to $1.7m.
• Uranium revenue from Four Mile fell 25% to $600k.
• Ecora secured a royalty over the Vizcachitas project in Chile for $20m, reflecting the Company’s shift towards copper.
• A slowdown in met coal prices reflected a 55% reduction in contributions from Kestrel at $32m.
• The Company notes a 50% decline in cobalt prices yoy, following a glut of supply from Indonesia and easing supply chain disruptions from the DRC.
• Going forward, Ecora is committed to transitioning away from reliance on Kestrel revenue.
• In terms of growth, Ecora holds a 2% NSR royalty over West Musgrave, where BHP is ramping up to first production in 2H25, expecting 35kt of nickel and 41kt of copper and LOM at 24 years.
• Ecora holds a 2% royalty over the Santo Domingo copper project, where Capstone is looking to begin construction in 2025 and production in 2027, producing 118ktpa Cu and 5.1mtpa by products.

Golden Metal Resources (GMET LN) 8.6p, Mkt Cap £7.3m – Chairman summarises progress on Nevada projects

(Power Metal Resources (POW LN) 0.73p, Mkt cap £15m holds 62% of Golden Metal Resources)

• In an open letter to shareholders Golden Metal Resources’ Chairman, David Ovadia, has summarised progress at its projects in Nevada.
• Soil sampling over the wholly-owned Garfield project identified two anomalous copper zones “coincident with historical rock sampling results which returned up to 2.6% Cu and 5.53% Cu in the two key areas”.
• Mr. Ovadia also highlighted the Golconda Summit gold project where rock sampling detected anomalous levels of arsenic and alteration patterns typically “associated with Carlin-type gold systems”.
• He said that the exploration “results suggest the presence of a “feeder zone” and therefore the possibility that a Carlin-type gold system may exist within the Golconda Project at depth”.
• The letter also comments on progress at the Pilot Mountain tungsten project where five additional exploration targets have been outlined by a “high-resolution induced polarisation (IP) survey” offering “the possibility of significantly increasing the size of the in-ground resources during future drilling campaigns”.
• He also reports on the staking of claims in the Kibby Valley of Nevada covering potential lithium bearing brines near Pilot Mountain.
• Readers are advised that “Technical updates across our project portfolio are expected alongside various commercial updates in due course”.

KEFI Gold and Copper* (KEFI LN) 0.56p, £28m – Ethiopia operational update

• The Company continues to work closely with Tulu Kapi funding syndicate partners to close on project financing ahead of the start of development works later this year.
• In particular, syndicate lenders held meetings with the team finalising details with the central bank with regards to capital controls which is one of the final details remaining before completion of the Tulu Kapi funding.
• Separately, other project finance syndicate members met with the Ethiopian Ministry of Mines following the release of a draft new Mining Proclamation that is being compared to the current project assumptions.
• Field teams are meeting with local communities ahead of the of resettlement programmes.
• Development schedule reiterated with start of construction Q4/23 for first production targeted by the end of 2025.
• Grade control drilling is planned in 2024 once construction is launched with step out drilling expected in 2024-25 to test down dip extensions to support underground operation feasibility study aimed to be released in 2025.
• Project funding amounting to $320m split was refined by the syndicate including:
• $190m provided by senior and subordinated lenders;
• $90m covered by Equity Risk Notes representing a mix of nonconvertible instruments with repayments linked to future revenues as well as  convertibles that would be converted into Kefi shares;
• $40m in equity at a subsidiary level including commitment from the state agencies and regional investors.
• Outside of Ethiopia, the team is planning to sequentially de-risk and launch Jibal Qutman Gold Project and Hawiah Copper Gold Project as follows:
• DFS, permitting, funding and launch of development works at Jibal Qutman in 2024;
• DFS, permitting, funding and launch of development works at Hawiah in 2025.
• The Company will be holding an online investor webinar to discuss its development plans this Friday.

*SP Angel acts as Nomad and Broker to KEFI Gold and Copper

Rainbow Rare Earths (RBW LN) 16.90p, Mkt cap £102m – Mintek front-end pilot plant produces REE rare earth sulphate from Phalaborwa ore in South Africa

• Rainbow Rare Earths reports first production of mixed rare earth sulphate in pilot plant trials at Mintek in Johannesburg.
• The front-end pilot plant test work produced ~3kg of a 58% mixed REE rare earth sulphate validating its recovery from the Phalaborwa phosphogypsum
• The product is reported to contain Neodymium, Praseodymium (NdPr), Dysprosium (Dy) and Terbium (Tb) and should be saleable as a commercial product.
• Recoveries calculated to be ~65% in line with PEA expectations
• The REE sulphate product can now be used for further testing for the K=tech back-end pilot plant in Florida which is designed to separate the critical rare earth elements in metal oxide form.
• Rainbow management estimate 60% payability on the separated rare earth oxides though we believe payability levels have been significantly lower historically.
• The Mintek pilot plant is scheduled to run for four months processing 35t into 350kg of REE sulphate to further optimise recoveries, reagents and costs.
• K-Tech technology proposes to use a CIX circuit for loading RE Elements onto cation resin before a CIC ‘continuous ion chromatography’ process for the separation of specific REE metal oxides.
• Cost:  examination of the process flowsheet suggests a relatively simple process with relatively low cost, though much will depend on recovery rates, yields, acid, reagent and energy consumption.
• Rainbow’s PEA / scoping study indicates an average cost of US$33.86/kg of separated REE oxide making this the lowest cost REE project in the West .
• The study indicates a potential ~75% margin depending on the cost of financing and near-term price forecasts of: Nd US$110/kg; Pr US$112.50/kg; Dy US$340/kg; Tb US$1,875/kg.

Conclusion:  The Mintek pilot plant work de-risks the Phalaborwa project to some degree through the production of a potentially saleable REE sulphate. The real challenge now lies in the processing of the Phalaborwa REE sulphate through K-Tech’s CIX and CIC processes which, if successful, could potentially transform the strategic balance of REE production towards the West and away from China.

Tungsten West (TUN LN) 3.75p, Mkt cap £7m – Additional NEDs appointed

• Yesterday, Tungsten West announced the appointment of an additional three non-executive directors; Mr. Guy Edwards, Mr. Adrian Bougourd and Mr. Kevin Ross.
• Mr. Edwards is a former CEO at the quarry company, Aggregate Industries and “is currently Integration Director of AIM-listed SigmaRoc PLC and co-founder of sustainability startup company XEROC Ltd”.
• Mr. Bougourd “is part of the Developed Markets team at Lansdowne Partners” and a former analyst at Perry Capital “who has spent 20 years analysing and advising companies in the industrial and cyclical space across the globe”.
• Mr. Ross “has held numerous COO roles for operating and development companies in Greece, Australia and Canada … and is currently the COO of Montage Gold Corp, which is developing a large-scale gold project in Cote d’Ivoire”.
• Chirman, David Cather welcomed the appointments and said that their “wide range of expertise across the aggregates and mining industries, capital markets, financing, and company and project development will add further value, guidance and support to the Tungsten West team as it continues to progress Hemerdon towards production”.
• Mr. Cather confirmed that Tungsten West “remains focused on working towards the final permit approvals for the Project”.

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 employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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