SP Angel Morning View -Today’s Market View, Thursday 16th November 2023

Gold shines as expectations for interest rates pull back

MiFID II exempt information – see disclaimer below

Arkle Resources* (ARK LN) – Placing backed by Management raises £215k to support lithium exploration

Andrada Mining (ATM LN) – US$25m funding to back expansion of the Uis mine and for exploration

Atalaya Mining (ATYM LN) – Well placed to achieve 2023 production guidance as it targets a broader investment audience on London’s Official List

Galan Lithium (GAL AU) – Glencore offtake and $70-100m funding facility

Golden Metal Resources (GMET LN) – Exploration progress in Nevada

Goldstone Resources* (GRL LN) – Default notice served

Great Western Mining* (GWMO LN) – Potential copper porphyry system identified at Huntoon Valley

Lucara Diamonds (LUC CN) – Further extension of US$50m working capital facility

Gold prices climb as Treasuries resume rally on cooling inflation whilst focus turns to labour market

• Gold prices have climbed back to $1,966/oz following a sell off amidst a jump in yields after stronger-than-expected retail sales.
• US jobless claims have been ticking higher and we expect claims to continue to rise, pushing the Fed to ease off earlier than expected.
• Deflationary pressures led by China and a slowing global growth after unprecedented hiking is calming inflation.
• We are looking for gold to break through $2,000/oz this year and potentially hit $2,250/oz next year as yields continue to move lower.
• The gold market is focused on Fed speakers today, Cook and Barr, alongside weekly jobless data.
• It’s all about the labour market, inflation, and yields, with the war premium seemingly fading following Hamas’ attack on Israel and the ongoing Middle Eastern escalation.
• We anticipate gold ETF buying to pick up following a year of outflows as investors take advantage of higher interest money market accounts.
• Central banks should continue to buy gold with China consistently adding to its gold reserves.
• Gold juniors have been beaten down by cost inflation and negative market sentiment – it would not surprise us if a retesting of $2,000/oz fuels a rally in depressed smaller cap equities.

Iron ore holds gains despite Beijing’s efforts to curb rally

• Iron ore prices have held around $129/t in Singapore, despite China’s main buying body trying to cool prices.
• China’s recent plans to provide $137bn in stimulus for low-cost financing to urban villages is fuelling the recent leg higher.
• However, key metrics are somewhat conflicting, with crude steel output falling to its lowest rate this year in October.
• China’s NDRC is stepping up its supervision of the market and has sent agents to the Dalian Commodity Exchange to examine the jump in prices.
• Steel stockpiles are up 6.7% in October in China.
• Elevated iron ore margins are fuelling a swathe of bids for spodumene assets in Australia, enabling Pilbara tycoons Gina Rhinehart and Chris Ellison to scoop up undeveloped lithium projects in a hit to downstream giants SQM and Albemarle.

Copper pushes higher despite 2024 surplus prospects as optimism in China resurfaces

• Copper prices climbed to September highs of $8,333/t today, with a dollar sell-off supporting buying.
• However, we note that metal sit in the most elevated levels of contango over the past two decades, highlighting a glut of physical supply.
• Cash metal is currently being sold at a $93/t discount to three-month futures.
• Sentiment at Asia Copper Week currently ongoing in Shanghai has been bearish, with industry players positioning for a surplus in 2024.
• Clean energy and EVs continue to support demand, however.
• The long-term prospects for copper remain exciting, and Mitsui noted their expectations of supply peaking in 2026, triggering wide deficits through the turn of the decade.
• Southeast Asia copper cathode demand is expected to rise at an annual CAGR of 10% between 2024-2027.
• Furthermore, Trafigura, a notorious copper bull in recent years, expects copper concentrate stockpiles to hit critical levels by 2025, forcing higher cost producers to smelters to slash production.
• Current copper market dynamics are presenting a confusing picture, with China boosting smelter capacity far beyond the availability of mined concentrate.
• This could force Chinese operators to start acquiring upstream copper mines to feed their current insatiable appetite for concentrate.
• Chinese smelters are in an advantaged position given their predominant state backing, low financing costs and access to subsidised energy from state-owned coal plants and hydro.

Economics

US – Risk sentiment pulled back slightly yesterday with bond yields ticking up following the release of stronger than expected retail sales for October.

• Retail Sales (%mom): -0.1 v 0.9 September (revised from 0.7) and -0.3 est.
• Retail Sales ex Auto and Gas (%mom): 0.1 v 0.8 September (revised from 0.6) and 0.2 est.
• Retail Sales Control Group (%mom): 0.2 v 0.7 September (revised from 0.6) and 0.2 est.

US / China – Communication at top level seems to have been reinstated following the first meeting in a year between Presidents Biden and Xi in a hopeful sign of subsiding tensions between two countries.

• The meeting is reported to have focused on addressing the fentanyl crisis and a restoration of military communications, Bloomberg writes.
• Although, there was little evidence of progress on bigger issues like US curbs on microchip exports, tariffs or tensions in the South China Sea.
• The Biden / Xi reunion was all going so very well till Biden’s post meeting briefing where Biden said:
  • “Look, he is. He’s a dictator in the sense that he’s a guy who runs a country that is a communist country that’s based on a form of government totally different than ours,”
• Fortunately, Xi offered cooperation and reassurance during the dinner with the American business execs in San Fransisco.

China – Declines in property prices accelerated through October extending a negative run to five months now.

• Prices of newly build real estate resumed declines mid 2023 following a short relief in early part of the year on optimism from re opening of the economy following the end of Covid Zero policy.
• New Home Prices (%mom): -0.38 v -0.30 September.

Iceland – Volcanic eruption has potential to disrupt European airspace and even lower global temperatures depending on scale of ash cloud

• Scientists are preparing for a major volcanic eruption in Iceland at the Fagradalsfjall volcano under the town of Grindavik where the 4,000 residents have evacuated.
• A mass of magma appears to be pushing its way to surface indicating a near-term eruption.
• So far the magma mass has been identified within 800m from surface causing the ground to rise, thousands of earthquakes and cracks in buildings and roads.
• 10-mile long magma tunnels have formed beneath the local town. Earthworks are being raised to protect the geothermal power plant which supplies power to much of Iceland.
• The Blue Lagoon geothermal spa which hosts around 700,000 visitors a year has been closed
• An eruption in 2021 appears to have sparked a new eruptive phase which the boffins reckon could last centuries.

Currencies

US$1.0847/eur vs 1.0872/eur previous. Yen 151.39/$ vs 150.55/$. SAr 18.185/$ vs 18.217/$. $1.238/gbp vs $1.246/gbp. 0.648/aud vs 0.651/aud. CNY 7.254/$ vs 7.242/$.

Dollar Index 104.47 vs 104.12 previous.

Commodity News

Precious metals:

Gold US$1,966/oz vs US$1,972/oz previous

Gold ETFs 87.0moz vs 87.1moz previous

Platinum US$901/oz vs US$890/oz previous

Palladium US$1,044/oz vs US$1,026/oz previous

Silver US$23.54/oz vs US$23/oz previous

Rhodium US$4,350/oz vs US$4,350/oz previous

Base metals:

Copper US$ 8,252/t vs US$8,240/t previous

Aluminium US$ 2,224/t vs US$2,233/t previous

Nickel US$ 17,210/t vs US$17,490/t previous

Zinc US$ 2,608/t vs US$2,629/t previous

Lead US$ 2,245/t vs US$2,213/t previous

Tin US$ 25,220/t vs US$25,375/t previous

Energy:

Oil US$80.4/bbl vs US$82.5/bbl previous

• Crude oil prices fell with the EIA reporting a 3.6mb w/w US crude build offset by 1.5mb draws to both gasoline and distillate stocks as the fall refinery maintenance season continues to impact utilisation at 86.1%.
• European energy prices edged lower as EU natural gas storage levels fell just 0.2% w/w to 99.4% full (vs 89.3% or -0.7% w/w 5-Yr average), with Germany still 100% full and aggregate storage at 1,133TWh.
• The UK Government announced increases to maximum strike prices in next year’s Contracts for Difference (CfD) competitive auction: by 30% to £61/MWh for solar, by 66% to £73/MWh for offshore wind projects, by 52% to £176/MWh for floating offshore wind projects, and by 32% to £157/MWh for geothermal.

Natural Gas €46.400/MWh vs €48.900/MWh previous

Uranium UXC US$73.65/lb vs US$73.00/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$129.9/t vs US$128.0/t

Chinese steel rebar 25mm US$549.9/t vs US$549.5/t

Thermal coal (1st year forward cif ARA) US$110.8/t vs US$110.8/t

Thermal coal swap Australia FOB US$126.5/t vs US$126.5/t

Coking coal swap Australia FOB US$296.0/t vs US$296.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$70,028/t vs US$70,165/t

Lithium carbonate 99% (China) US$18,679/t vs US$19,268/t

China Spodumene Li2O 6%min CIF US$1,670/t vs US$1,690/t

Ferro-Manganese European Mn78% min US$1,045/t vs US$1,047/t

China Tungsten APT 88.5% FOB US$295/mtu vs US$295/mtu

China Graphite Flake -194 FOB US$625/t vs US$625/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$312/t vs US$313/t

Spot CO2 Emissions EUA Price US$85.3/t vs US$83.8/t

Brazil Potash CFR Granular Spot US$337.5/t vs US$337.5/t

EV & Battery News

Rare Earths – GM to partner with Niron Magnetics for sustainable EV motor magnets

• The automaker, along with Stellantis, joined Niron’s latest $33m funding round and plan to collaborate to develop permanent magnets without rare earths.
• Niron has developed the world’s first and only permanent magnet with automotive-grade power free from critical materials, including rare or heavy earth minerals.
• Niron’s Clear Earth Magnet® chemistry is built with iron nitride which is an abundant and affordable material.
• GM sees the magnets in EV motors as an excellent opportunity to reduce cost and environmental impact.
• The automaker plans to localise its EV supply chain in North America, including the production of motor magnets for EV.

France sees soaring EV sales in October

• In October, France recorded a 22% yoy increase in new passenger car registrations, totalling 152,383 vehicles.
• EVs have seen a 44% increase in registrations from the previous year, totalling 40,379 vehicles, according to data from L’Avere-France.
  • All-electric cars saw a 51% increase, 25,473 new registrations.
  • Plug-in hybrids saw a 34% increase with 14,906

US Department of Energy to boost battery development with further $3.5bn investment

• The DOE has announced a further $3.5bn in funding for companies to produce batteries and critical minerals.
• The Biden-Harris administration has a goal of lowering emissions to zero by 2050 and for half of all new cars sales to be electric in 2030.
• Lithium-ion batteries are the dominant battery type for EVs and clean energy storage.
• The DOE has estimated that demand for lithium batteries will increase by 10 times by 2030 and is committing investment to strengthen its supply chain.
• Biden’s Inflation Reduction Act (IRA) provides tax credits for US based battery production equal to $35/kWh for production of battery cells and an additional $10/kWh for battery modules.
• It also provides 10% credit on costs for mining critical minerals and producing battery materials such as cathodes and anodes.
• The IRA hopes to stimulate demand for EVs by providing up to $7,500 in tax credits for EV purchases, if automakers meet certain critical mineral conditions and manufacture a certain percentage of components in North America.

Rivian seeks to secure $15bn in debt for new EV plant

• The California based start-up is aiming to secure ~$15bn in debt to facilitate a new EV manufacturing plant in Georgia.
• Rivian has been planning the new plant since 2021.
• The plant is planned to produce 400,000 vehicles annually and will provide 7,500 jobs.

Company News

Arkle Resources* (ARK LN) 0.4p, Mkt Cap £1.7m – Placing backed by Management raises £215k to support lithium exploration

• Arkle announces it has raised £215k before expenses through the placing of 61,428,571 at 0.35p.
• The funds will be used to progress the Lithium exploration programme announced yesterday at the newly acquired Aughrim licence block.
• Funds will also be used to support general corporate activities.
• Directors John Teeling and James Finn subscribed for a combined 42,857,143 shares.

*SP Angel are Nomad and Broker to Arkle Resources

Andrada Mining (ATM LN) 5.9p, Mkt cap £93m – US$25m funding to back expansion of the Uis mine and for exploration

• Andrada Mining reports the receipt of US$25m in funding from “funds advised by Orion Resource Partners”.
• The funding, which “will be used to increase tin production at the Company’s Uis Tin Mine” in Namibia comprises:
  • Royalty funding of US$12.5m allocated for increased production up to 2,000tpa of tin production at Uis; and
  • US$2.5m in equity funding through the issue of approximately 30.5m new shares at a price of 6.39p/share; as well as
  • A four-year US$10m convertible loan note which “accrues interest at 12% per annum”
• The tin royalty carries “staggered rates starting at 5.13%. An annualised contained tin production between 1 600 tpa to 2 000 tpa will decrease the rate to between 4.50% and 3.61% as determined by interpolating on a linear basis. Ultimately the rate will reduce to 0.86% with the achievement of certain milestones based on tonnage”.
• The company explains that the equity and loan notes will “be utilised for further exploration drilling programmes which are important in determining the extent of the lithium mineralisation within the Uis, Lithium Ridge and Spodumene Hill mining licence areas” as well as for additional metallurgical test work.
• CEO, Anthony Viljoen, said that the partnership with Orion “will not only enable the expansion of tin production up to 2 000 tpa, but will also allow us to accelerate our wider lithium and tin development surrounding our Uis mine”.

Conclusion: The news of the funding package follows yesterday’s announcement of the renewal of offtake contracts for tin and tantalum concentrates from the Uis mineContract renewals for the tin and tantalum concentrates from the Uis mine.

Atalaya Mining (ATYM LN) 310p, Mkt Cap £432m – Well placed to achieve 2023 production guidance as it targets a broader investment audience on London’s Official List

• Atalaya Mining reports production of 12,500t of copper at an all-in sustaining cost of US$3.24/lb during the three months ending 30^th September bring YTD production to 38,900t of copper at a cost of US$3.07/lb.
• In 2023, the company expects to the lower end of its production guidance range of “53,000 to 54,000 tonnes at cash costs of $2.80 to $3.00/lb copper payable and AISC of $3.00 to $3.20/lb copper payable”.
• The company says that with EBITDA of €19.1m during the quarter and of €59.2m so far this year it has a “Strong net cash position of €66.8 million following recent dividend payment and investments in the 50 MW solar plant, E-LIX Phase I and exploration”.
• At Proyecto Riotinto in Andalucia, highlights the award of modified permit agreements which “allows for the expansion of tailings capacity and the mine footprint at Riotinto and represents an important step towards developing regional deposits such as San Dionisio and San Antonio … [which are] … a key component of the integrated mine plan”.
• In the wider Riotinto area, three core drilling rigs are deployed on step-out drilling at the Mojarra trend at Masa Valverde to test “coincident fix loop electromagnetic (“FLEM”) and airborne gravity gradiometry (“AGG”) anomalies … [and to complete] … metallurgical and infill drilling at the Masa Valverde deposit”.
• Atalaya Mining reconfirms its commitment to developing the Proyecto Touro in Galicia, northwest Spain, which has “the potential to become a new source of copper production for Europe”.
• The company says that “Running parallel with the ongoing Touro permitting process, the Company continues to focus on numerous initiatives related to the social licence, including engaging with the many stakeholders in the region”.
• Among its wider efforts in the region, it “continues to successfully restore the water quality of the rivers around Touro and is operating its water treatment plant, which is addressing the legacy issues associated with acid water runoff from the historical mine, which closed in 1987”.
• Exploration of the company’s other Spanish project include the deployment of rigs to drill at the “Guijarro-Chaparral gold-copper project and the La Hinchona copper-gold” targets at Proyecto Ossa-Morena and also at Proyecto Tiotinto Este.
• Commenting on the recently announced proposal to transfer the company’s listing from AIM to London’s main Official List and to move its corporate domicile to Spain from Cyprus, CEO, Alberto Lavandeira, said that “these measures could broaden the Company’s appeal to new institutions at a time when investor interest in copper and the related energy transition thematic continues to accelerate”.
• In our opinion, building on its successful rejuvenation of the historic mine at Riotinto and as it expands its copper footprint in Spain Atalaya Mining’s plan to broaden its investment audience through a move to the Official List heralds a new chapter for the company and the wider Spanish mining industry.

Conclusion: Atalaya Mining appears well-positioned to achieve its 2023 production and cost guidance as it seeks to broaden its investment appeal to larger investors

Galan Lithium (GAL AU) A$0.75, Mkt Cap A$265m – Glencore offtake and $70-100m funding facility

• The Company signed a binding term sheet with Glencore for offtake for up to 100% of its Phase 1 lithium chloride at HMW and a potential secured prepayment facility for US$70-100m.
• The offtake is for 100% of HWM production valid over a five year period from the start of Phase 1 commercial production estimated at 5.4ktpa LCE in the form of lithium chloride concentrate (6% Li).
• The agreement is not contingent on Galan securing an export license for its lithium chloride.
• The price payable will be referenced to a mutually agreed lithium carbonate price index over a quotational period less a marketing fee, discount and penalties.
• The prepayment facility is subject to Glencore’s due diligence with the drawdown to become available once the offtake documentation is signed.
• Galan is expecting first pond fill to start in Q1/24 for first production in H1/25.
• Phase 1 DFS released earlier in July guided for a $118m project to deliver 5.4ktpa LCE at ~$4,000/t opex generating $460m and 36% in NPV8% and IRR (both post tax) using $20,252/LCE lithium chloride price.
• Phase 2 DFS announced in October envisages ramping up operations to 21ktpa LCE at an incremental capex of $310m with expanded project generating ~$2.0bn and 43% in NPV8% and IRR (both post tax) using $22,841/LCE lithium chloride prie.
• HMW hosts 0.8mt LCE at a high grade of 864mg/L in reserves and 6.6mt LCE at a high grade of 880mg/L in total resource.

Golden Metal Resources (GMET LN) 7.75p, Mkt Cap £6.6m – Exploration progress in Nevada

(Power Metal Resources (POW LN) 0.76p, Mkt cap £15m holds 62% of Golden Metal Resources)

1. Reporting on its year ending 30^th June, which saw the company’s AIM admission in May 2023, Golden Metal Resources reports a pre- and post-tax loss of US$0.85m and a closing cash balance of US$1.37m.
2. Highlighting the operational progress during the year, the company reports the identification, from geochemical and sampling work, of “a significant copper system” at its Garfield project in Nevada.
3. The company also identified potential “Carlin-type gold targets“ at depth on the Golconda Summit project in Nevada where geochemical results “suggest the presence of a “feeder zone” and therefore the possibility that a Carlin-type gold system may exist within the Golconda Summit Project at depth”.
4. Power Metal Resources also welcomes the increasing recognition by the US Government of the importance of critical and strategic metals and points to potential “Federal funding for the accelerated and enlarged development of our Pilot Mountain tungsten project, in the context of tungsten being listed by the US Government as a critical mineral used for defence and other industrial applications”.
5. High-resolution induced polarisation geophysical surveys at Pilot Mountain identified “five high-priority un-drilled exploration targets … proving the exploration potential at Pilot Mountain and the possibility of significantly increasing the size of the in-ground resources during future drilling campaigns”.
6. The company also reminds its investors that, in July, it staked potential lithium brine opportunities in the Kibby Basin of Nevada.

Goldstone Resources* (GRL LN) SUSPENDED – Default notice served

• The Company has been served the formal default notice by its secured creditor, Asin Investment Management Services, yesterday.
• The team now has 14 business days from the date of the notice ending at midnight on 4 December to pay the amount due.
• Outstanding amount due under the Gold Loan is ~2.4koz that is including accrued interest.
• The creditor is willing to cooperate with the Company to resolve the matter without enforcement action and the Board is in ongoing discussions with the creditor to achieve such a resolution.
• Loan security is over the Company’s Akrokeri-Homase Gold Project..

*SP Angel acts as broker to Goldstone Resources

Great Western Mining* (GWMO LN) 0.052p, Mkt Cap £3m – Potential copper porphyry system identified at Huntoon Valley

CLICK FOR PDF

• Great Western provides an update on its Huntoon Valley copper exploration programme in Nevada.
• The Company’s recent field work programme has suggested the potential for a previously unidentified copper porphyry system.
• The field programme targeted a large area of granite outcrop with over 100 localities bearing visible surface copper oxide mineralisation.
• The team has collected over 135 soil samples across a large area of outcropping granite and has subsequently staked 19 claims to the west of the area.
• The Huntoon Valley already hold’s GWM’s M2 JORC copper resource at Black Mountain, and the company has been exploring for larger deposits in the area.
• Subsequently, the Company engaged copper porphyry expert Dr Lawrence Carter.
• Dr Carter wrote his PHD on copper porphyries and the neighbouring Yerington district and is internationally recognised as an expert in the field.
• Dr Carter spent a week assessing the site, writing an extensive assessment of its potential for hydrothermal porphyry-style mineralisation. Click the link for the full report: PDF
• The report concludes that the recent field evidence ‘is suggestive towards a large subcropping porphyry-style magmatic-hydrothermal system.’
• Dr Carter advises the GWM team to utilise geophysical surveys at the project to identify zones of subcropping disseminated sulphide mineralisation.
• The report highlights other local projects bearing similar geological components, including VR Resources New Boston Project, Sierra Nevada Gold’s Blackhawk Project and GMR’s Pilot Peak project.
• There is also suggestion that the team’s previously identified Skarn-style mineralisation at the M2 Resource and M4 prospect form part of a larger, mineralised magmatic-hydrothermal system.

Conclusion: Although early days for the Huntoon Valley Project, today’s announcement marks a major step forward for Great Western in their hunt for large-scale copper mineralisation. Porphyry expert Dr Carter’s assessment of the West Huntoon licence is a key vote of confidence in the Company’s belief that the project holds potential for an unidentified copper porphyry system. We remind readers that whilst the Company’s JV processing mill will be a useful source of revenue, Great Western’s primary ambition is making a discovery of economic potential in the underexplored and highly prospective Mineral County. The team is currently conducting a study of geochemical signatures of the granites.

*SP Angel act as Broker to Great Western Mining, an SP Angel Analyst has visited Great Western’s Nevada claim blocks.

Lucara Diamonds (LUC CN) C$0.35, Mkt Cap C$159m – Further extension of US$50m working capital facility

• Lucara Diamonds reports that its lenders have agreed an extension of its US$50m senior working capital facility until 15th December.
• The extension follows an earlier “extension granted by the Lenders on October 31, 2023 … [which] … was due to expire on November 15, 2023”.
• Lucara “also announces that it has fully drawn the $15 million liquidity support guarantee provided by its largest shareholder, Nemesia S.a.r.l. … and issued 450,000 common shares as consideration for this funding”.
• The company explains that its “debt package consists of two facilities (the “Facilities”), a project finance facility of $170 million to fund the development of an underground expansion at the Karowe Mine (the “Project Loan”), and the WCF which is used to support ongoing operations. Presently, $90 million is drawn from the Project Loan and $35 million is drawn from the WCF”.
• “The terms of the WCF extension do not permit further draws from either the Project Loan or the WCF. The CORA … [cost overrun reserve account] … balance is currently $18.4 million”.

Conclusion: The extension of the senior working capital facility and support of the major shareholder seems like an interim step and we look forward to news of a more permanent, longer-term, solution and news of progress on the underground mine development at Karowe.

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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