SP Angel Morning View -Today’s Market View, Thursday 26th October 2023

Gold rises on risk-off trade on Country Garden US$ bond default

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Class action law suit in South Africa for claims of pneumoconiosis and chronic obstructive pulmonary disease from coal dust exposure

Azure Minerals (AZS AU) – Takeover offer from SQM

Bluejay Mining* (JAY LN) – AIMEX Artificial Intelligence project to evaluate Bluejay projects in Finland

CAA Mining* (Private) – CAA Mining commissioning GTS Drilling to work on Salt Pond-Makessim lithium project in Ghana

Cornish Metals* (CUSN LN) – Water treatment plant opens ahead of South Crofty dewatering

Filo Mining Corp ( FIL CN) – Resumed drilling programme intersects 212m @ 1.15% Cu

Future Metals Plc (FME LN) – Panton Resource Upgrade

Hummingbird Resources (HUM LN) – Yanfolila on course to hit FY23 guidance while Kouroussa underperforms

Ironveld Plc (IRON LN) – Equity fundraising to fund Rustenburg smelter as first shipments planned for November

Syrah Resources (SYR AU) – Update on China graphite export ban

Last brick-in-the-wall financing required for Graphite miner

• Management have already mined one year of production and has already commissioned the front section of the process plant
• Process plant almost ready to commission back end of plant to get to 98% Cg
• The team have already upgraded 20 tonnes of graphite to ~94% Cg with the material ready for the polishing mill
• Almost all the capital required has been spent to developing the mine and plant to this stage
• The company is now looking for a financial backer to fund:
  • Working Capital (WIP)
  • ‘spargers’ to fit into their flotation columns to improve recovery rates ($360,000)
  • a new Solar power plant for 1.5MW capacity (€3.5m). should put the mine in the lowest cost quartile
• A liquidity event is planned for the next 3-6 months
• The mine has all permits for full production and graphite export and is debt free

*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors).This offer is open to professional investors only and is not offered to retail investors.

Economics

US – New single family homes unexpectedly climbed in September to the strongest level since Feb/22, as lack of secondary market inventory drove demand for new builds despite high mortgage rates, FT reports.

• Sales came in at 759k in September, up from 676k in August and beating estimates for a 680k reading.
• The average 30-year fixed mortgage rate was 7.9% last week, the highest level since 2000, according to the Mortgage Bankers Association.
• Mike Johnson, a loyal ally of Donald Trump, has been elected Speaker of the House of Representatives as 220 Republicans supported his candidacy with no democrats backing his bid.

China – China returns to tried and tested infrastructure stimulus to prop-up economic growth

CNY 1 tn sovereign bond issue for reconstruction of flooded areas and improve infrastructure to better manager natural disasters

• Reconstruction to start in Q4 focussing on lifting and repairing dams for flood prevention
• A wise agronomist once told me that all floods are essentially down to man-made issues, which looks to be the cast in China with increasingly severe flooding in recent years.
• Given, China’s huge and rapid programs to dam rivers and divert water flows we are not at all surprised but we are shocked at the enormous extent of the problem.
• A series of new project announcement are expected in Q4 from the Ministry of Water Resources
• Country Garden debt default is a major issue for China and could lead to the nation’s largest financial restructuring / rescue.
• President Xi is balancing the need for growth against the threat of bond market disruption from defaulting property developers.
• Mortgage rates in largest 100 cities fell 2bp to 3.88% in October
• Vehicle sales rose 19% YoY to 1.21m u and +8% mom to the 22^nd of October
• Car sales are +3% yoy to 16.65m vehicles year-to-date driven higher by new EV sales

Japan – The yen recorded a sharp spike before sub 150 before returning on a weakening trend in a sign of a possible government market intervention.

• Previously, the Finance Minister highlighted that he is watching currency market moves with a continued sense of urgency.
• Deputy Chief Cabinet Secretary Hideki Murai followed warning that rapid currency moves were undesirable.
• The yen is trading around 150 against the US$, 13% down YTD making it the worst performing currency among its G10 peers.

ECB – The central bank is expected to keep rates unchanged for the first time in more than a year this afternoon.

• The deposit rate is expected to be left at 4% following 10 back-to-back increases previously.
• Expectations are for the ECB to keep rates elevated for prolonged period to pull inflation back down to the 2% goal.
• Headline inflation has been coming back since peaking at 10.6% in October last year and is currently at 4.3% (as of September).
• Core measure is at 4.5%, down from a peak of 5.7% recorded in March this year.

Currencies

US$1.0540/eur vs1.0584/eur previous.Yen 150.56/$ vs149.90/$.SAr 19.226/$ vs19.100/$.$1.208/gbp vs$1.215/gbp.0.630/aud vs0.636/aud.CNY 7.319/$ vs7.315/$.

Dollar Index 106.78 vs 106.36 previous.

Commodity News

Precious metals:

Gold US$1,987/oz vs US$1,970/oz previous

Gold ETFs 86.6moz vs 86.5moz previous

Platinum US$903/oz vs US$884/oz previous

Palladium US$1,119/oz vs US$1,122/oz previous

Silver US$23.00/oz vs US$23/oz previous

Rhodium US$4,300/oz vs US$4,300/oz previous

Base metals:

Copper US$ 7,981/t vs US$8,040/t previous

Aluminium US$ 2,215/t vs US$2,208/t previous

Nickel US$ 18,125/t vs US$18,235/t previous

Zinc US$ 2,458/t vs US$2,459/t previous

Lead US$ 2,077/t vs US$2,102/t previous

Tin US$ 25,025/t vs US$25,110/t previous

Energy:

Oil US$90.0/bbl vs US$87.7/bbl previous

• Crude oil prices edged higher with the EIA reporting a 1.4mb w/w US crude build offset by a 1.7mb draw to distillate stocks as the fall refinery maintenance season continues to impact utilisation at 85.6%
• European energy prices fell as EU natural gas storage levels rose 0.6% w/w to 98.7% full (vs 90% 5-Yr average), with Bloomberg forecasting that Europe will end March 2024 at 44% full.
• Baker Hughes reported free cash flow of $592m during 3Q23, with management reporting positive momentum across its portfolio, especially in LNG where 2023 global demand is expected to grow 2% y/y to 410mtpa.
• Media reports that Shell plans to cut at least 15% of the workforce at its low-carbon solutions division and scale back its hydrogen business as part of the Company’s profit drive.

Natural Gas €50.300/MWh vs €50.000/MWh previous

Uranium UXC US$69.00/lb vs US$72.75/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$117.4/t vs US$116.1/t

Chinese steel rebar 25mm US$533.6/t vs US$533.9/t

Thermal coal (1st year forward cif ARA) US$133.0/t vs US$133.0/t

Thermal coal swap Australia FOB US$134.0/t vs US$135.0/t

Coking coal swap Australia FOB US$325.0/t vs US$325.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$69,818/t vs US$70,675/t

Lithium carbonate 99% (China) US$21,519/t vs US$21,804/t

China Spodumene Li2O 6%min CIF US$2,010/t vs US$2,010/t

Ferro-Manganese European Mn78% min US$1,017/t vs US$1,021/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$630/t vs US$630/t

Europe Vanadium Pentoxide 98% 6.2/lb vs US$6.2/lb

Europe Ferro-Vanadium 80% 26.25/kg vs US$26.25/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$314/t

Spot CO2 Emissions EUA Price US$83.1/t vs US$84.0/t

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

EV and Battery News

Surge in insurance premiums for EVs threaten wider adoption

• Providers have become hesitant to offer cover for EVs due to difficulties underwriting the cost of repair/replacement of components.
• Inflationary pressures have already seen motor insurance for all vehicles reach an all-time high.
• The average cost of insuring a Tesla Model 3 has risen from £874 in 2021 to £1367 this year. (Confused.com)
• The cost for insuring the MG4 rose from £554 in 2022 to £711 this year.
• John Lewis have temporarily withdrawn cover for EVs as its underwriters, Covea, reassess the cost of EV repairs.

Stellantis acquire 21% stake in Leapmotor

• Stellantis will invest $1.6bn to acquire a 21% stake in the Chinese automaker.
• The deal will give the legacy automaker a stronger foothold in China and allow the smaller Chinese manufacturer to expand globally.
• Legacy international carmakers are playing catch-up in the shift to EVs and the deal gives Stellantis access to Leapmotor’s advanced technology.
• We could see a new trend of legacy automakers taking minority stakes in Chinese firms as they look for a stronger foothold in the Chinese market.
• Volkswagen previously announced they had acquired a 4.99% stake in Xpeng earlier this year.

LG Energy Solution become latest EV big player to warn over slowing demand

• The Korean battery firm has warned of slowing revenue growth in 2024 due to global economic uncertainties affecting the outlook for EV sales.
• Automakers and suppliers have expressed caution over the demand for EVs due to high interest rates lifting financing costs, and sputtering growth in major economies.
• A recovery in demand from European manufacturers is also likely to be delayed as Chinese manufacturers launch cheaper EVs in the region.
• LGES is lowering production at its Poland factory in response to minimise costs.

Company News

Anglo American (AAL LN) 2065p, Mkt cap £27.6bn – Class action law suit in South Africa for claims of pneumoconiosis and chronic obstructive pulmonary disease from coal dust exposure

• The Daily Maverick reports that coal mining companies within the Anglo American Group may be subject to class-action law suits relating to coal dust exposure.
• The class action is focussed on the health impact of respiratory conditions such as pneumoconiosis and chronic obstructive pulmonary disease resulting from coal mine dust exposure.
• The class action follows a historic settlement for silicosis 2019 with 20 gold mining companies
• The settlement funded the Tshiamiso Trust with ZAR5 bn (£275m) to be disbursed over 12 years.
• While it is difficult to comment on the potential outcome or eventual settlement of the coal class action, a precedent has been set and we might expect a significant payout to support sufferers of ‘black lung’.
• In the US certified cases of black lung receive $650-1,300 a month for living expenses.
• A report from the US Government Accountability Office reviewed the viability of the federal Black Lung Disability Trust Fund, which paid out US$184m in benefits in fiscal year 2017 to 25,700 coal miners suffering from the fatal mine dust disease and their dependents.

Conclusion: Anglo American is going to have to work hard this year to overcome, lower metals prices, a collapse in sales at DeBeers and provisioning for potential claims to its South African coal subsidiaries.

Azure Minerals (AZS AU) A$3.5, Mkt Cap A$1.6bn – Takeover offer from SQM

• Azure Minerals, which holds the Andover spodumene project in WA, has received takeover offer from SQM for A$3.52/share.
• The implied fully diluted equity value of the takeover stands at A$1.63bn.
• The offer is a 44% premium to Azure’s closing price on Friday 20^th.
• The board has unanimously recommended the transaction in absence of a superior proposal.
• The Andover project is held 40% by Creasy Group, owned by Mark Creasy. Creasy also holds 13.2% of Azure’s equity.
• The Project holds an Exploration Target of 100-240mt @ 1-1.5% Li20.
• A Maiden MRE is expected next quarter and a scoping study due in 4Q24.
• Andover sits over 9km x 5km worth of pegmatite swarms, with a drilled strike length of 2,200m.
• Some of the project’s pegmatites stretch over 100m in width and the project is open along strike to the SW and NE and is open to over 400m below surface.
• Previous drilling showed true width intersections of 135m @ 1.42% Li20.

Bluejay Mining* (JAY LN) 0.75p, Mkt cap £8.9m – AIMEX Artificial Intelligence project to evaluate Bluejay projects in Finland

(Bluejay Mining holds 100% of the Hammaslahti and Enonkoski projects)

• Bluejay Mining have signed up to work with AIMEX, Artificial Intelligence in Mineral Exploration, project as an Industry Collaborator.
• AIMEX is a consortium of the GTK ‘Geological Survey of Finland’, the University of Turku, and the Finnish Environment Institute
• The group has €5.6m of funding from Business Finland to increase the international competitiveness of the Finnish exploration and mining industry.
• The AI system will integrate a broad spectrum of essential factors, such as mineral resource assessments, economic considerations, natural conservation areas, and land use constraints.
• Bluejay’s local subsidiary, FinnAust will contribute expertise and exploration data from the Hammaslahti copper-zinc-gold-silver and Outokumpu copper-nickel-cobalt-zinc-gold-silver projects.
• Further details on the Hammaslahti and Outokumpu projects are contained in the RNS press release. https://bluejaymining.com/investors/regulatory-news/

Conclusion:  Bluejay has been drilling and collating geophysical data on some complex and potentially valuable projects in Finland. The use of Artificial Intelligence combined with additional expertise may well help direct the team towards their next meaningful discovery.

*SP Angel acts as nomad and broker to Bluejay Mining. The analyst has visited the historic Enonkoski mine site and holds shares in Bluejay Mining

CAA Mining* (Private) – 27.5p, Implied Mkt cap £5.3m – CAA Mining commissioning GTS Drilling to work on Salt Pond-Makessim lithium project in Ghana

• CAA Mining are working to define lithium in hard rock spodumene resource close to the coast of Ghana near Altantic Lithium’s Ewoyaa lithium mining project.
• Management have recently defined spodumene mineralisation through an extensive auger drilling program and via chip sampling from outcropping pegmatites
• The CAA Mining team are commissioning GTS Drilling, a subsidiary of Geodrill Ltd, to start work on their Salt Pond-Mankessim lithium project in Ghana.
• We recently witnessed a GTS Drilling rig working on the Ewoyaa project.
• Petrographic analysis of drill chip samples has identified:

1. Spodumene 10% – lath-shaped lepidolite with albite and spodumene sandwiched between quartz grains chip samples,
2. Spodumene 45% – large well-formed crystals of microcline and spodumene and these crystals are highly fractured with the spodumene filling the cracks in the microcline.
3. Spodumene 25% – with long tabular grains of spodumene
4. Spodumene 50% – large equant to long bladed crystals of spodumene are intergrown with quartz and sometimes has embedded sigmoidal to equant quartz grains.
5. Spodumene 55% – highly altered and only slightly fractured with tiny flakes of muscovite grains particularly distributed in the spodumene and albite
6. Spodumene 75% – very large crystals of spodumene are intergrown with albite

• The team have set up a local laboratory for rapid LIBS and XRF analysis for lithium and its indicator elements in spodumene.
• The laboratory is essential for the rapid analysis of exploration samples including drill chippings from the RC rig. This should avoid analysis of non-lithium bearing samples from the drilling.
• Management is led by Douglas Chikohora, a geologist with over 40 years of experience who formerly worked for Cluff Resources Plc and Cluff Gold Plc and has worked in Ghana for many years including leading a team which built the Ayanfuri Gold Project, now called Edikan and operated by Persius Mining.
• Douglas is well acquainted with the workings of the Minerals Commission and is supported by Will Slack, Francis Agezo and Dr John Arthur (SRK) who recently stepped away from his board role.
• The MIIF Sovereign wealth fund is investing US$32.9m into Atlantic Lithium and has expressed potential interest in investing in CAA Mining.
• The Ghana government recently granted a full mining exploitation license to Atlantic Lithium* (ALL LN) for the development of the Ewoyaa lithium mine.
• CAA Mining has spent around £2.3m on exploration including auger drilling and the establishment of local infrastructure and licenses in Ghana.
• Gold: The company also holds an option to acquire a gold project with about 300k oz resource in the Takwa mining district of Ghana.

Conclusion: We are excited by the petrographic results and prospective nature of the ground to be drilled. We look forward to the results.

* SP Angel acts for CAA Mining. SP Angel analysts and staff hold CAA Mining shares. As a private company, CAA Mining is considered higher risk and unsuitable for most retail investors.

Cornish Metals* (CUSN LN) – 10p, Mkt cap £51m – Water treatment plant opens ahead of South Crofty dewatering

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• Cornish Metals reports the successful commissioning and opening of the water treatment plant (WTP )at the historic South Crofty mine in Cornwall.
• The plant will process up to 25,000m³ of water pumped from a depth of 360m in the New Cook’s Kitchen shaft prior to discharge of treated water into the Red River.
• Cornish Metals explains that “Dewatering the mine and treating the water will have a positive effect on water quality in the Red River, which currently receives untreated mine water as a legacy of past mining activities” in an area with a long and distinguished mining history in which the South Crofty mine, which first “started production in the sixteenth century” features prominently.
• The de-watering is expected to start during the week of October 30^th and take approximately 18 months to complete.
• The company explains that “water discharged from South Crofty powers a hydro-turbine that generates up to 15% of the power consumed by the WTP … [and that it is investigating other opportunities to exploit the hot, treated water] … which is a steady 25^oC all year round and has the potential to heat at least 800 homes in the local area”.
• CEO, Richard Williams, acknowledged the hard work of the team and its suppliers and local contractors in completing the project and preparing for the dewatering of the mine, and confirmed that preparatory planning and work is “underway for the re-accessing of the mine, which will take place in parallel with mine dewatering”.

Conclusion: The successful commissioning of the water treatment plant at South Crofty and the planned start of dewatering next week keeps plans to de-water the old mine within 18 months on track and in line with completion of a feasibility study on a resumption of mining which expected to be completed by the end of 2024.

*SP Angel acts as Nomad and Broker to Cornish Metals. An SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals.

Filo Mining Corp ( FIL CN) C$18.2, Mkt Cap C$2.4bn – Resumed drilling programme intersects 212m @ 1.15% Cu

• Lundin-backed Filo, which holds the Filo del Sol Project in Argentina, provides assay results from three new holes.
• Highlight intersections include:
  • 1,368m @ 0.56% CuEq.
  • 1,518m @ 0.48% CuEq.
  • 992m @ 0.63% CuEq.
• The drilling intersected a new high=grade zone near Bonita, with the first time the Project has hit consistent 1% CuEq grades excluding the Aurora zone.
• Filo continues to hit extensive copper mineralisation in its high-sulphidation copper porphyry project.

Future Metals Plc (FME LN) 1.9p, Mkt cap £8m –Panton Resource Upgrade

• Future Metals provides an updated JORC MRE for its Panton PGM project in Australia.
• The total resource is 92.9mt @ 2g/t PdEqfor 6moz PdEq
• This consists of Reef +High-Grade dunite containing 37.2mt @ 3.3g/t PdEq for 3.9moz PdEq.
• The Company expects to finalise a scoping study this quarter to extract the reef and high-grade dunite mineralisation.

Hummingbird Resources (HUM LN) 9.4p, Mkt Cap £57m – Yanfolila on course to hit FY23 guidance while Kouroussa underperforms

• At Yanfolila (Mali), gold production amounted to 18.4koz taking YTD output to 69.5koz.
• AISC averaged $1,651/oz during the quarter with YTD coming in at $1,298/oz.
• Gold sales totalled 18.6koz at an average realised price of $1,918/oz with ~1.8koz of gold held in inventory as of Q3/23.
• FY23 gold production reiterated at 80-90koz at AISC under $1,500/oz.
• At Kouroussa (Guinea), operations remain in a ramp up stage with 1.0koz produced during the quarter following the first gold pour in June 2023.
• Mining operations recorded a series of challenges during the ramp up process primarily driven by seasonal wet weather, equipment commissioning, and the recruitment and training of local and national Guinean personnel.
• Processing plant is expected to reach nameplate capacity in Q4/23.
• H2/23 production guidance was cut to ~10koz, down from 30koz.
• Net debt position closed at $123m including $138.0m in gross borrowings, $15.1m in cash and $3.4m in gold inventory.

Conclusion: Robust production at Yanfolila set the Company on course to meet its 80-90koz guidance. On a less positive note, slower than expected ramp up at Kouroussa on the back of challenges on the mining side see the team cutting its guidance for the newly commissioned mine to 10koz, down from 30koz.

Ironveld Plc (IRON LN) 0.26p, Mkt cap £9.4m –Equity fundraising to fund Rustenburg smelter as first shipments planned for November

• Ironveld PLC has raised £450k via a cash subscription for 162m shares at 0.278p – a 23.5% premium to the mid-price yesterday.
• The commitment was made by the Company’s largest shareholder, Tracarta Ltd. John Wardle will take the role of Executive Chairman.
• An additional £550k in orders has been secured from other existing shareholders.
• The funds will be used to support the operations at Rustenburg smelter, providing a ‘larger working capital buffer,’ despite the undrawn Directors’ loan facility.
• The Company expects first product will be shipped from the Ipace DMS Magnetite JV from next month.

Syrah Resources (SYR AU) A$0.67, Mkt cap A$455m – Update on China graphite export ban

• Syrah comments on China’s decision to ban graphite exports of graphite products from 1^st December.
• The Company expects to benefit from ‘near-term uncertainties’ of China supply.
• Temporary export controls for high purity, high density synthetic graphite products will be banned permanently, whilst export controls will be issued on natural, spherical and expandable graphite.
• Syrah expects ‘increased inventory purchasing by ex-China natural graphite buyers to mitigate near-term disruptions.’
• Syrah expects higher prices and an acceleration in commercial offtake agreements.
• The Company also expects to continue selling Balama’s natural graphite products to China.

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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