SP Angel Morning View -Today’s Market View, Wednesday 6th December 2023

China lithium stocks rally on prospects for market rebound

MiFID II exempt information – see disclaimer below

Tom Sinclair – obituary

• It is with great regret that we report the passing of Tom Sinclair after struggling with Long Covid
• Tom, was a former fund manager at Meridian, the Kazakhstan fund management group
• He later founded Frontier Mining which listed on AIM in London and developed the Naimanjal gold mine towards the North East of Kazakhstan.
• The company then went on to develop the Benkala copper mine again in Kazakhstan.
• He was also closely involved in the listing of Sunkar Resources and Max Petroleum.
• More recently Tom was based in Oman working closely on developing a brine potash project.

Ariana Resources (AAU LN) – Drilling results from Hizarliyayla, Turkey

Bushveld Minerals* (BMN LN) – $18.4m equity raise paves the way for completion of Orion loan refinancing

Empress Royalty (EMPR.V) – US$28.5m Facility

Galantas Gold* (GAL LN) – $3.0m raise update

Gemfields Group (GEM LN) – Latest ruby auction attracts healthy demand

Power Metal Resources* (POW LN) – Operational update from Molopo farms

Rio Tinto (RIO LN) – Africa’s largest integrated mine and infrastructure project at the $11.6bn Simandou project expected to deliver initial production in 2025

Lithium – China lithium stocks rally on prospects for market rebound whilst spot prices continue to fall

• Ganfeng has rallied 11% overnight, Tianqi up 7%, Tibet Mineral Development up 10%, Zhejiang Cobalt up 7% and Qinghai Salt Lake up 6%.
• Australian producers Pilbara Minerals, Pilbara and Allkem all staged rallies.
• The rally has come despite lithium carbonate prices slumping to below $13,000/t in the spot market and spodumene prices touching $1,380/t.
• Chinese analysts are noting that current lithium prices seem overextended to the downside, given their proximity to the upper quartile of the cost curve and expectations of imminent resocking.
• Fund managers are likely positioning in the expectation of a reversal in lithium prices going into the new year.
• The rally follows a swathe of bulge bracket banks initiating bearish calls on prices and the sector for 2024 on rising supply.
• Lithium carbonate prices have fallen to two-year lows in China.
• On the other hand, Q1 is historically a weak lithium carbonate season for consumption. However,  the rapid uptake of EVs and Li-ion battery demand is expected to muddy historical seasonality pictures.
• SMM reports several lithium refiners in China have been forced to halt production on negative margins.
• Short interest on the Guangzhou Futures Exchange is elevated and holds the potential for short covering.
• Chile’s Enami notes that lower prices are expected to hit supply growth, whilst demand growth remains intact.

Gold holds ground as global bond yields slide on growth slowdown wagers

• Gold prices strengthened to $2,035/oz this morning before sliding to $2,024.
• The dollar’s rally against a basket of global currencies has come despite another sharp move in the US Treasury market.
• 10-year yields fell to 4.17% yesterday, the lowest level since September 1^st.
• There has been substantial short covering in US Treasuries.
• The rally in Treasuries followed a disappointing JOLTs report, which supported further bets on rate cuts next year.
• Job openings fell to a 2 year low in October, with traders now looking to Friday’s nonfarm payroll data for further clues on the strength of the US labour market.
• A softer Euro has supported the dollar’s rally, with worrying German factory orders (down 3.7% mom vs 0.2% expected) supporting further ECB rate cut bets.
• ETF buying is continuing as lower yields push haven investors into bullion.

Vale expects tight iron ore going forward as prices hover around $130/t despite China property collapse

• Vale has dismissed the power of China’s new centralised iron ore buyer which is seeking ways to cool the steelmaking ingredient’s recent rally.
• CEO Bartolomeo expects ‘the rule of supply and demand’ to continue to dictate price movements.
• Iron ore has rallied 16% over the past six weeks.
• Vale expects steel production to rise to 2,260mt by 2040 from current levels of 1,900mt.
• The Group sees supportive fundamentals going into 2024, with limited scrap, rising flat steel production, high current BF utilisation and low inventories.
• It expects the recently announced support for urban village renovation to fuel further demand growth, and notes total construction has fallen only 2.6% in the first nine months of 2023.

Copper – Major Chinese smelters have agreed Tc/Rcs ‘treatment and refining’ charges with miners US$80/t down from US$88/t

• The recent construction of much Chinese smelting capacity has likely created overcapacity with the global market.
• Anglo American and Freeport McMoRan are reported to have settled at the $80/t, 8c/lb level. Antofagasta recently agreed $80/t with Jiangxi Copper
• We see this news as indicating higher copper prices to come as smelters is struggle to secure sufficient copper concentrates restricting their output.
• Industrial relations and an element of disorder in Peru and Panama alongside Chile’s declining contribution makes the supply of copper concentrates more uncertain.
• Zambia looks increasingly attractive for copper explorers in this environment.

Economics

US – Job openings fell in October to the lowest level since early 2021 highlighting the gradual cooling of the labour market.

• Although the data refers to the state of the market from two months back, the reading is a welcome news for the Fed.
• More up to date labour numbers are due this Friday including NFPs, unemployment rate and wages.
• JOLTS Job Openings (‘000): 8,733 v 9,350 September (revised from 9,553) and 9,300 est.

China – Moody’s downgrades credit outlook to Negative from Stable

• Beijing will have to support debt-laden local governments and state firms, posing risks to the country’s fiscal and institutional strength (Asia Financial).
• The move reflects evidence the authorities will have to provide further support for provincial governments and parastatal companies risking China’s fiscal, economic and institutional strength.
• The cut stems from lower medium-term economic growth and poor sales in the property sector.
• Moody’s confirmed China’s A1 long-term local and foreign-currency issuer ratings
• The agency expects China GDP to run at 4.0% in 2024 and 2025.
• Moody’s say their downgrade reflects “increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector”.
• Government support appears to have been only modestly beneficial indicating further stimulus will be required.
• Moody’s expects GDP to average 3.8% from 2026 to 2030. While this may be lower than government targets, this still represents huge growth in economic activity for the world’s second largest economy.
• If the US or Europe was to see 3.8% GDP growth we would really be in for a bull market.
• India, the world’s fifth largest economy is also expected to average GDP growth of 6.3% from 2023 to 2030.
• Indonesia, which ranks seventh in the world on GDP based on purchasing power party is forecast to grow at around 5% till 2030.
• Mexico, Turkey and Brazil are all expected to see significant growth over the next few years.

Germany – Industrial orders unexpectedly dropped in October in a reminder of fragile state of demand for manufacturing goods.

• Factory Orders (%mom): -3.7 v 0.7 September (revised from 0.2) and 0.2 est.

UK – Construction sector continued to contract with the pace of decline accelerating through November reflecting the impact of higher interest rates.

• Construction PMI dropped to 45.5 last month, down from 45.6 in October.
• “A slump in house building has cast a long shadow over the UK construction sector and there were signs of weakness spreading to civil engineering and commercial work during November,” S&P Global commented on the data.

Angola – US commits >$1bn in finance for Angola’s Lobito rail corridor from President Biden’s flagship PGI fund

• $250m is scheduled for investment this year (Freight news)
• Investments also include work on >180 rural bridges, 4G and 5G connectivity, mobile money applications, connecting 500MW solar power to the grid and the largest ever rail investment in African history.
• The investment should help Angola become a net food exporter by 2027 while strengthening regional food security.
• $900m approved for renewable projects by Sun Africa (USA)
• $363m approved by Acro Briz (USA) to build metal bridges in 18 provinces of Angola.
• Any improvement to the railway should benefit Pensana which is planning on exporting REE concentrate material to the UK from its mine in Angola
• Many other commodity companies.

DRC – Election to be held on 20 December

• The DRC is due to hold a General Elections on 20 December with simultaneous elections for the President and almost all of the members of the National Assembly
• Almost all of elected members of the 26 provincial assemblies, and, for the first time under the new constitution, members of a limited number of commune (municipal) councils.
• Six more elections will follow next year, five of which are indirect.
• Elections will not be held in Kwamouth near Kinshasa due to intercommunity violence and in Masisi and Rutshuru in the East of the DRC due to ongoing armed conflict.
• Félix Tshisekedi, the current president has vowed the elections will be transparent and democratic in an interview with the FT in Kinshasa.
• The EU Brussels observer mission has been cancelled with European diplomats stating the DRC has impeded permission for election monitors using satellite communications.

Currencies

US$1.0785/eur vs 1.0866/eur previous. Yen 147.02/$ vs 146.86/$. SAr 18.927/$ vs 18.701/$. $1.261/gbp vs $1.267/gbp. 0.659/aud vs 0.664/aud. CNY 7.157/$ vs 7.137/$.

Dollar Index 103.98 vs 103.38 previous.

Commodity News

Precious metals:

Gold US$2,034/oz vs US$2,037/oz previous

Gold ETFs 86.0moz vs 85.8moz previous

Platinum US$907/oz vs US$914/oz previous

Palladium US$949/oz vs US$979/oz previous

Silver US$24.29/oz vs US$25/oz previous

Rhodium US$4,400/oz vs US$4,400/oz previous

Base metals:

Copper US$ 8,412/t vs US$8,399/t previous

Aluminium US$ 2,160/t vs US$2,171/t previous

Nickel US$ 16,580/t vs US$16,375/t previous

Zinc US$ 2,448/t vs US$2,425/t previous

Lead US$ 2,046/t vs US$2,080/t previous

Tin US$ 24,590/t vs US$23,775/t previous

Energy:

Oil US$77.4/bbl vs US$78.7/bbl previous

• Crude oil prices slumped towards 2H23 lows as the API reported a 0.6mb build to US crude stocks last week, despite Saudi and Russian officials declaring their support for an extension to supply cuts past the end of 1Q24.

Natural Gas €39.0/MWh vs €39.1/MWh previous

Uranium UXC US$81.0/lb vs US$80.3/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$129.9/t vs US$129.8/t

Chinese steel rebar 25mm US$577.2/t vs US$577.7/t

Thermal coal (1st year forward cif ARA) US$109.0/t vs US$111.5/t

Thermal coal swap Australia FOB US$135.0/t vs US$135.5/t

Coking coal swap Australia FOB US$322.0/t vs US$322.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$66,089/t vs US$66,204/t

Lithium carbonate 99% (China) US$12,645/t vs US$13,367/t

China Spodumene Li2O 6%min CIF US$1,380/t vs US$1,410/t

Ferro-Manganese European Mn78% min US$1,035/t vs US$1,038/t

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

China Graphite Flake -194 FOB US$620/t vs US$620/t

Europe Vanadium Pentoxide 98% 6.1/lb vs US$6.1/lb

Europe Ferro-Vanadium 80% 25.25/kg vs US$25.25/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$315/t

Spot CO2 Emissions EUA Price US$75.1/t vs US$75.3/t

Brazil Potash CFR Granular Spot US$325.0/t vs US$325.0/t

EV & Battery news

Tesla China-made sales slip 18% yoy

• Sales of Tesla’s China-made EVs were down 17.8%, to 82,432 cars, in November from the same month last year according to data from the China Passenger Car Association.
• Competition in the EV space in China has grown drastically over the last year.
• Chinese automaker BYD, saw passenger vehicle sales top 300,000 vehicles for the second consecutive month, up 31% yoy.

Ford to collaborate with Xcel Energy to install 30,000 EV charging ports across US

• The JV will seek to install the charging ports by 2030
• The financial details of the partnership have not been revealed.

Air New Zealand buys all-electric plane as it seeks to lower emissions

• Air NZ has ordered an all-electric five-seater ALIA plane from US company BETA Technologies.
• The airline has a firm order for one ALIA and options for two more, as well as rights for another 20 aircraft, it said in a statement.
• As part of NZ’s net-zero emissions by 2050 plan, Air NZ wants to conduct a zero-emissions commercial flight by 2026.
• When successful, it would start replacing its 50-seat De Havilland Canada Dash 8 Q300 turboprops that fly short domestic routes, with lower-emissions aircraft from 2030.
• The global aviation industry is relying on the development of sustainable aviation fuel as well as next-generation aircraft that use electric, hybrid and hydrogen propulsion technologies.

Company News

Ariana Resources (AAU LN) 2.25p, Mkt Cap £25.2m – Drilling results from Hizarliyayla, Turkey

• Ariana Resources has announced results from its Hizarliyayla prospect located 9km SE of its Salinbas project in northeastern Turkey.
• The results come from 10 drillholes (6,006m) drilled since December 2022 to test soil geochemical anomalies and clay alteration zones containing “pervasive disseminated pyrite, silica, and minor gold at surface”..
• The company says that although the holes were initially expected to drill to between 2-300m depth, “most holes intercepted far more alteration and mineralisation than expected. These holes continued to a maximum depth range of 400-800 metres, with the deepest hole being HZR010, which was drilled to 797 metres”.
• “All holes intercepted sporadic intermediate sulphidation (Ag-Pb-Zn±Au) type breccia and vein mineralisation which is typically encountered in the periphery of porphyry-style mineralisation” and the company highlights high-grade results including:
  • A 4.9m wide intersection at an average grade of 2.85% zinc, 0.96% lead and 30.17g/t silver from a depth of 158.5m in hole HZR-001; and
  • A 2m wide intersection at an average grade of 1.17g/t gold and 52.03g/t silver from a depth of 333m in hole HZR-003 which also contains 3.4m at an average grade of 1.08g/t gold and 7.11g/t silver from 202m depth; and base metals intersections including
  • A 1.3m wide intersection at an average grade of 0.75% copper from a depth of 49m in hole HZR-003; and
  • A 1m wide intersection at an average grade of 2.8g/t gold and 5.26g/t silver from a depth of 72.5m in hole HZR-006; and
• In addition, Ariana Resources says that the drilling campaign produced wider mineralised intersections including:
  • 24.4m at an average grade of 0.34g/t gold and 2.88g/t silver from 182.3m depth in hole HZR-003; and
  • 36.4m at an average grade of 0.17g/t gold and 1.18g/t silver from 186.3m depth in hole HZR-002 which also intersected 29.2m at an average grade of 0.12g/t gold and 1.61g/t silver from 293.3m depth.
• Managing Director, Dr. Kerim Sener, said that Ariana Resources recognises that Hizarliyayla represents a zone of mineralisation and alteration which lies on a potential extension of the Hot Maden system, separated by about 8 kilometres and developed along similar structure”.
• We understand that when it was acquired by Sandstorm as a result of its takeover of Mariana Resources in a transaction valued at ~£167m, the PFS stage Hot Maden deposit contained a resource of around 7.1mt at an average grade of 12.2g/t gold and 2.3% copper.
• Dr. Sener said that “We are presently underway with an Induced Polarization (“IP”)/Resistivity geophysical survey at Hizarliyayla, which has been designed for maximum depth resolution. The survey will aid the definition of deep drilling targets ahead of a future drilling programme, which we will aim to conduct in 2024”.
• He said that the “geophysical survey is currently on hold due to winter weather conditions and will recommence in spring 2024”.

Conclusion: Initial drilling results from Hizarliyayla are being followed up with a programme of geophysics to help define deeper targets for drilling in 2024.

Bushveld Minerals* (BMN LN) 2.6p, Mkt Cap £38m – $18.4m equity raise paves the way for completion of Orion loan refinancing

BUY – Target Price Under Review

• The Company raised $18.4m (£14.6m) through an issue of 486m new shares at 3p.
• The issue price represents a ~30% to the closing price of 2.3p following the announcement of updated terms of the Orion refinancing deal.
• The placing is conditional on shareholder approval at the planned AGM on or around 27 December.
• SPR is subscribing for ~331m shares worth $12.5m with an option to subscribe for up to ~40m additional shares at the same price through to 28 February 2024.
• Acacia Resources is subscribing for ~93m shares and a number of Directors are buying ~3m shares in total.
• Equity raise proceeds along with $25m SPR commitment for 50% interest in Vanchem and all of Company’s 64% interest in Mokopane will be directed to:

• Company’s 64% interest in Mokopane) include:
  • Vametco
    • $12.6m sustaining capex;
    • $5.9m tailings facility expansion;
    • $0.8m other.
  • Vanchem
    • $11.7m sustaining capex;
    • $0.1m other.
  • $10.0m working capital and repayment of previously advanced interim working capital facility (~$8m)
  • $0.8m transaction fees

• Separately, the Company launched the up to £2.0m PrimaryBid Offer aiming at retail investors who are willing to invest a the same price (3p) that a larger placing was closed at.
• The offer will be open until 1pm 11 December, unless, it becomes oversubscribed before then.

Conclusion: The $18.4m equity raise, subject to a shareholder approval to be sought later in the month, launches the refinancing and restructuring process in the Group. Once completed, the transaction allows ~$47m Orion convertible refinancing to come through shoring up the Group’s balance sheet and providing fresh capital to address existing bottlenecks and reach higher production rates.

*SP Angel act as nomad and broker to Bushveld Minerals

Empress Royalty (EMPR.V) C$0.3, Mkt Cap C$36.6m – US$28.5m Facility

• Empress Royalty reports that it has agreed a US$28.5m ‘Accordion Credit Facility’ with the Nebari Gold and Nebari Natural Resources Credit Funds.
• “The Credit Facility will replace the existing US$15M facility that the Company currently has in place with Nebari Natural Resources Credit Fund I LP … [and Empress Royalty] … expects to initially drawdown approximately US$3.5M … the proceeds of which will be used to repay the existing facility and associated costs and provide working capital”.
• On closing of the Facility, which is secured against the assets of Empress Royalty, it “will issue to Nebari, a total of 3,104,513 common share purchase warrants … of which 2,535,633 which will replace the share purchase warrants currently issued and outstanding in connection with the Initial Facility. Each Bonus Warrant is exercisable into one common share for a period of three years from the Initial Loan and will be priced at $0.31”.
• The Facility attracts “interest at a rate of 7.5% per annum plus 3-month Term SOFR … [and an] … arrangement fee of 2.0% of each draw made under the Credit Facility is payable on closing, together with reimbursement of Nebari’s costs for each draw made”.
• The announcement explains that “the accordion feature … of the Credit Facility allows the Company to drawdown additional amounts under the Credit Facility for future investments”.

Galantas Gold* (GAL LN) 14p, Mkt Cap £16m – $3.0m raise update

• The Company extends expected completion date off the proposed private placement of up to $3.0m to the week of December 11.
• The Company is raising up to US$3.0m in non-brokered private placement through unsecured convertible notes.
• Each note is convertible for three years after closing date at C$0.35.
• Proceeds will be used for exploration and development at Omagh and Gairloch, working capital and for general corporate purposes.

*SP Angel acts as Broker to Galantas Gold

Gemfields Group (GEM LN) 13p, Mkt Cap £149m – Latest ruby auction attracts healthy demand

• Gemfields reports that a sale of mixed – quality rubies from its 75% owned Montepuez mine in Mozambique held between 20^th November – 5th December realised US$69.5m sales.
• The company confirms that “All 97 lots (comprising 239,591 carats) offered for sale were sold … [at an average price of] … USD 290.02 per carat”.
• Gemfields says that “The ‘Low Ruby’ category was not offered at this December 2023 auction given that approximately 703,000 carats were sold at the commercial quality ruby auction in September 2023”.
• Adrian Banks, Managing Director of Product & Sales, said that ruby prices have gone “from strength to strength in recent years and our final auction of 2023 has further endorsed that trend”.
• Mr. Banks said that the latest auction “has shown that the demand and pricing for rough rubies is decidedly healthy”.
• He also said that the auction revenues for 2023 amounted to the second highest in the company’s history at US$242m and that “This auction also takes Gemfields past the milestone of USD 2 billion in cumulative emerald and ruby auction sales”.

Power Metal Resources* (POW LN) 0.5p, Mkt cap £11m – Operational update from Molopo farms

• Power Metal Resources provides an update from its Molopo Farms Complex project in Botswana, where it is exploring for Nickel and PGMs.
• Power, as previously announced, has identified a strong conductor dipping over several kilometres in length.
• The team believes the conductor lies in a zone hosting potential nickel sulphides within a larger mafic/ultramafic complex.
• POW will now look to begin drilling the target in 1Q24.

*SP Angel acts as Nomad and Broker for Power Metal Resources

Rio Tinto (RIO LN) – 5,532p, Mkt cap £68bn – Africa’s largest integrated mine and infrastructure project at the $11.6bn Simandou project expected to deliver initial production in 2025

• Rio Tinto has issued a progress report on the 2.8bn tonne Simandou iron ore project in Guinea which it describes as “the world’s largest untapped high-grade iron ore deposit”.
• The project is being progressed jointly by Rio Tinto “in partnership with CIOH, a Chinalco-led consortium, Winning Consortium Simandou …  (WCS), Baowu and the Republic of Guinea”. Rio Tinto holds a 53% interest in the Simfer consortium with CIOH holding the remaining 47%.
• “First production from the Simfer mine is expected in 2025, ramping up over 30 months to an annualised capacity of 60 million tonnes per year (27 million tonnes Rio Tinto share)” over a 26-year mine life.
• Today’s announcement says that the “mine will initially deliver a single fines product before transitioning to a dual fines product of blast furnace and direct reduction ready ore”.
• Rio Tinto’s share of the $11.6bn cost to develop the mine, and associated rail and port infrastructure is expected to be $6.2bn, including $2.7bn for the mine, $1.9bn for a 70km rail spur to the mainline and associated port as well as $1.6bn for “Port and rail infrastructure including an approximately 552 km trans-Guinean heavy haul rail system, comprised of a 536 km mainline and a 16 km WCS rail spur”.
• The company says that $5.7bn of its capital commitment to the project remains “to be spent from 1 January 2024“.
• In an updated mineral resource and reserve estimate published today, Simandou is reported to contain a ‘Proven’ ore-reserve of 273mt at an average grade of 66.4% iron, with low levels of impurities (1.0% silica, 1.2% alumina and 0.07% phosphorous) plus an additional ‘Probable’ reserve of 1.23bn tonnes at an average grade of 65.0% iron with additional ‘Measured and Indicated’ resources of 613mt at an average grade of 66.4% iron.
• The wider Simandou project, including the associated infrastructure is described as the “largest greenfield integrated mine and infrastructure investment in Africa … [including] … more than 600 kilometres of new multi-use rail together with port facilities … [which] … will be co-developed by the Republic of Guinea, Simfer and WCS”.
• When it is “complete, all co-developed infrastructure and rolling stock will be transferred to and operated by the Compagnie du Transguinéen (CTG) joint venture, in which Simfer and WCS each hold a 42.5% equity stake and the Guinean State a 15% equity stake”.

Conclusion: The 60mtpa Simandou iron ore project in Guinea is expected to deliver initial production on 2025.

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

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Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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