SP Angel Morning View -Today’s Market View, Tuesday 13th February 2023

Copper rises as traders look for China to restart buying after Lunar new year holiday

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Collaboration with Finnish Metals

Future Metals (FME LN) – Identification of drill targets at Alice Downs in Australia

Imerys British Lithium (Private) – IBL working on lithium extraction from Cornwall granites

KEFI Gold and Copper* (KEFI LN) – Tulu Kapi funding completion nearing completion with project launch reiterated for H1/24

Neometals Ltd (NMT LN) – Disappointing results from lithium exploration in WA

China’s EV battery giants to work together on solid-state batteries

• Leading Chinese battery manufacturers and automakers will form an alliance to commercialise the production of solid-state batteries.
• The China All-Solid-State Battery Collaborative Innovation Platform (CASIP) was formed in January. (Nikkei Asia)
• The government-led alliance brings together CATL, BYD, and NIO among others to standardise and build a solid-state EV battery supply chain.
• CATL and BYD make up over 50% of global EV battery sales.
• The formation of CASIP will look to push China to be further dominant in the EV battery market by boosting research and development of next-gen batteries.
• Toyota has been teasing solid-state batteries for a long time and despite a recent “technological breakthrough” it is unlikely that we will see anything on the market until 2027/2028 at the earliest.

Economics

US – Inflation to be closely followed by markets today with estimates for headline and core CPIs to come in at 2.9% and 3.7%, respectively, down from 3.4% and 3.9% in December.

• Richmond Fed President Thomas Barkin, a voting FOMC member, said it was premature to believe that inflationary pressures are over.
• “Declaring victory at this point seems pretty bold,” Bostic said on Monday.
• “I think there’s a real risk that there will be continued inflationary pressure.”

Germany – A mixed set of business sentiment data released this morning with an improvement in outlook reported amid a continuing deterioration in current conditions.

• ZEW Survey Expectations: 19.9 v 15.2 January and 17.3 est.
• ZEW Current Situation: -81.7 v -77.3 January and -79.0 est.

UK – Stronger than expected employment and labour earnings numbers see the pound higher.

• Wages climbed more than forecast suggesting the labour market remains tight that in turn led investors to revise their expectations for the first BOE rate cut.
• Chances of a June rate cut gone down from ~74% to ~60%.
• Traders bet on 76 basis points of cuts in 2024, down from 84 basis points on Monday.
• The pound hit 1.2650 against the US$ on the news.
• Inflation data is due tomorrow providing another datapoint for monetary authorities to consider in shaping their policy outlook.
• Headline and core CPIs are expected to come in at 4.1% and 5.2%, respectively, up from 4.0% and 5.1% in December.
• Employment Change (3m/3m): 72k v 108k November and 50k est.
• Unemployment Rate: 3.8% v 3.9% November and 4.0% est.
• Weekly Wages (3m %yoy): 5.8 v 6.7 (revised from 6.5) November and 5.6.
• Weekly Wages ex Bonus (3m %yoy): 6.2 v 6.7 (revised from 6.6) November and 6.0.

Russia – Putin now locking up pro-war extremists

• Stress levels may be rising in the Russian government with the recent jailing of Igor Girkin, a former FSB officer.
• Girkin is seen as an extremist supporting the war who has been critical of Putin’s ‘cowardly mediocrity’.
• The move highlights Putin’s sensitivity to any sort of dissent or criticism.
• So far some 850 Russians have been prosecuted for anti-war activities with 160 imprisoned. These numbers may be set to rise fast.

South Africa – Semigration out of Johannesburg to Zoom towns continues

• While in Cape Town we heard further news on the semigration of skilled workers out of Gauteng / Johannesburg and into safer and more preferable zoomtowns.
• Many are also heading down to Cape Town, which is struggling to accommodate the new influx since Covid.

Currencies

US$1.0774/eur vs 1.0790/eur previous. Yen 149.58/$ vs 149.02/$. SAr 18.852/$ vs 19.014/$. $1.265/gbp vs $1.264/gbp. 0.652/aud vs 0.653/aud. CNY 7.194/$ vs 7.194/$.

Dollar Index 104.16 vs 103.97 previous.

Commodity News

Copper – Production in Peru registered a 12.7% growth in 2023 with exports in the first 11 months of last year up 19.7%yoy.

Zinc – China starts production at Huoshaoyun with capacity for 500,000tpa zinc and 100,000t of lead

Nickel – Tsingshan Group nickel production rose 27% to 1.12mt last year supported by strong growth in its Indonesian operations

Tin – Indonesian refined tin exports fell a whopping 99% yoy in January

Steel – US steel production slipped to 1.71mt (77.0% utilisation) last week vs 1,80mt (80.5% utilisation) a year earlier according to the American Iron and Steel Institute

Precious metals:

Gold US$2,025/oz vs US$2,026/oz previous

Gold ETFs 83.3moz vs 83.5moz previous

Platinum US$898/oz vs US$879/oz previous

Palladium US$907/oz vs US$866/oz previous

Silver US$22.87/oz vs US$23/oz previous

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

Base metals:

Copper US$ 8,313/t vs US$8,177/t previous

Aluminium US$ 2,248/t vs US$2,221/t previous

Nickel US$ 16,095/t vs US$15,970/t previous

Zinc US$ 2,336/t vs US$2,295/t previous

Lead US$ 2,025/t vs US$2,045/t previous

Tin US$ 27,480/t vs US$26,900/t previous

Energy:

Oil US$82.2/bbl vs US$81.5/bbl previous

• Crude oil prices remain elevated as Israel’s military ramp-up strikes in Gaza targeting the southern city of Rafah, with the Houthis also continuing their attacks on vessels in the Red Sea.
• The price of December 2024 carbon emission allowances under the European Union’s emissions-trading system fell below €60/ton CO2 for the first time in two years on the back of a ~20% fall in EU industrial activity.
• Arafura Rare Earths has signed gas sales agreements for the supply of ~26bcf of natural gas over three years starting 2026 from the onshore Mereenie gas field to the Nolans NdPr project in the Northern Territory, Australia.

Natural Gas €26.0/MWh vs €26.8/MWh previous

Uranium Futures $103.8/lb vs $101.9/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$128.1/t vs US$127.5/t

Chinese steel rebar 25mm US$569.9/t vs US$569.9/t

Thermal coal (1st year forward cif ARA) US$92.3/t vs US$93.8/t

Thermal coal swap Australia FOB US$123.5/t vs US$125.2/t

Coking coal swap Australia FOB US$310.0/t vs US$310.0/t

Other:

Cobalt LME 3m US$28,550/t vs US$28,550/t

NdPr Rare Earth Oxide (China) US$55,466/t vs US$55,466/t

Lithium carbonate 99% (China) US$12,303/t vs US$12,303/t

China Spodumene Li2O 6%min CIF US$1,000/t vs US$1,000/t

Ferro-Manganese European Mn78% min US$1,061/t vs US$1,063/t

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

China Graphite Flake -194 FOB US$565/t vs US$565/t

Europe Vanadium Pentoxide 98% 5.8/lb vs US$5.8/lb

Europe Ferro-Vanadium 80% 27.55/kg vs US$27.55/kg

China Ilmenite Concentrate TiO2 US$320/t vs US$320/t

Spot CO2 Emissions EUA Price US$60.5/t vs US$66.0/t

Brazil Potash CFR Granular Spot US$290.0/t vs US$290.0/t

Battery News

Romania signs letter of intent with Lockheed Martin for production of redox flow batteries

• The Romanian Minister of Energy has signed a letter of intent to produce the companies GridStar Flow (redox flow) batteries.
• Lockheed’s Gridstar Flow batteries provide long-duration energy storage using a mildly alkaline, aqueous electrolytes that are safe (non-flammable, noncorrosive, stable).
• The batteries have a 100% depth-of-discharge and minimal degradation, which gives them an approx. 20-year lifespan.

Company News

Anglo American (AAL LN) 1,749p, Mkt Cap £23.4bn – Collaboration with Finnish Metals

• Yesterday, Anglo American announced an MoU with Finnish Minerals Group to collaborate on exploring “opportunities to further support Finland’s battery strategy”.
• Finnish Metals Group is described as a “company that manages the Finnish Government’s mining industry shareholdings and supports the development of the Finnish battery value chain”.
• Describing Finland as “a highly attractive investment destination and has a strong heritage in both mining and innovation”, Alison Atkinson, Projects & Development Director at Anglo American, said that the agreement “strengthens our commitment to Finland as well as to our Sakatti project, a true polymetallic orebody very much aligned to Finland’s and the EU’s critical minerals priorities”.
• Anglo American’s website https://finland.angloamerican.com/en/about-sakatti describes the Sakatti deposit, located 15 kilometers north of Sodankylä as “a rich multi-metal deposit with excellent exploration potential for metals of the future. In addition to important base metals such as copper, nickel and cobalt, the deposit also contains platinum, palladium, gold and silver”.
• The Measured and indicated resources at Sakatti are reported as 3.5mt at an average grade of 3.45% copper, 2.47% nickel and 2.49g/t PGE(3).

Future Metals (FME LN) 1.49p, Mkt Cap £6.75m – Identification of drill targets at Alice Downs in Australia

• Future Metals report the identification of multiple drill targets into sulphide mineralisation into their prospective Alice Downs Corridor project in north-western Australia.
• Alice Downs is around 12km from the company’s Panton PGM project.
• The targets are reported to structurally analogous to the nearby Copernicus nickel-copper mine in terms of ultramafic host rocks and in-situ mineralisation.
• Historical drilling at Eileen Bore shows:
  • 120m @ 0.73% Cu, 0.29% Ni & 0.86g/t PGM3E from 0m depth – Inc. 16m @ 1.0% Cu, 0.36% Ni & 0.99g/t PGM3E from 100m
  • 96m @ 0.70% Cu, 0.29% Ni & 0.78g/t PGM3E from 24m depth – Inc. 10m @ 1.08% Cu, 0.34% Ni & 1.04g/t PGM3E from 56m
• 3D modelling indicates down plunge mineralisation may remain open.
• Further targets show nickel-copper sulphides at surface.
• Drilling should start in the next couple of months is planned for early Q2 2024, targeting material extensions of known near-surface mineralisation.

Conclusion: Management are looking for the Alice Downes Corridor project to support the economic potential of the nearby Panton PGM project. Panton’s Scoping Study published on 7 December 2023 highlighted pre-production capex estimated at A$267m (US$174m) with a post-tax base case IRR of 21% and 31% assuming a 5-year PGM average. Drilling at Alice Downes may well improve forecast IRR estimates and other economic metrics for the project.

Imerys British Lithium (Private) – IBL working on lithium extraction from Cornwall granites

(Imerys holds an 80% stake in Imerys British Lithium)

• A report on Chemanalyst news indicates that Imerys British Lithium (IBL) have been working on the extraction of lithium from granite in Cornwall where the company claims to have already achieved significant milestones with the establishment of an operational pilot plant near Roche in 2022.
• They claim the facility has demonstrated efficacy in producing high-quality lithium carbonate, marking a significant step forward in IBL’s journey towards becoming a leading sustainable lithium producer on a global scale.
• Cornwall hosts granites enriched with lithium which dissolve into hydrothermal fluids underground which can be processed into lithium carbonate or lithium hydroxide.
• IBL is targeting production of 20.000tpa with potential to employ >300 in a process plant when at full capacity according to the report.
• There is no mention of the capital or operating costs of the project and we suspect funding for a development decision will remain elusive till lithium prices are someway above where they are today.
• While there are numerous pilot plants in operation we are not aware of any commercial DLE ‘Direct Lithium Extraction’ plants operating in the world today.

KEFI Gold and Copper* (KEFI LN) 0.67p, Mkt Cap £33m – Tulu Kapi funding completion nearing completion with project launch reiterated for H1/24

• The Company provides an update on Tulu Kapi funding discussions following several days of meetings with senior representatives of project stakeholders.
• All parties in the funding syndicate are expected to seek final approvals from respective committees for the proposed transaction this month.
• This follows conditional final credit committee approval from the lead lender earlier this year.
• The Ethiopian Federal Government reaffirmed its equity capital investment ($40m including federal and regional contributions).
• Contractors in the syndicate reaffirmed their intention and readiness to sign final documentation.
• Project launch is reiterated for H1/24.
• Some low cost launch preparations have already started allowing for a smooth ramp up of project development in time for the first drawdown.
• $320m project capex breakdown (excluding the mining fleet provided by the contractor and historical expenditures of ~$100m) has been refined to:
  • $190m in debt from lead lender Southern and Eastern Africa Trade and Development Bank and co-lender Finance Corporation;
  • $40m for KEFI subsidiaries equity from the federal and regional authorities;
  • $70 in equity risk notes repayable in cash or equity at KEFI’s election from year 4;
  • $20m in subsidiary level equity ranking product linked funding with discussions launched and expected to be finalised shortly.
• The Company also highlights an improving investment sentiment with a number of companies remobilising exploration and related activities in the region including Allied God, Sunpeak, Akobo Gold and privately-owned conglomerate Midroc.

Conclusion: The Company reiterated project launch for H1/24 as $320m funding discussions are nearing completion and final committee approvals. Securing funding will be a major rerating catalyst as the team is aiming to start development at the first internationally financed FS stage project in Ethiopia. Regional mining related investment sentiment is improving with a number of companies remobilising exploration and related activities teams on site.

*SP Angel acts as Nomad and Broker to KEFI Gold and Copper. The analyst has previously visited the Tulu Kapi gold mine. A SP Angel corporate finance partner recently attended a meeting of finance partners in Addis Ababa.

Neometals Ltd (NMT LN) 8p Mkt cap £50m – Disappointing results from lithium exploration in WA

• Neometals reports that resampling and assaying of historic drill core, originally drilled for nickel exploration between 1994 and 2009, at its Spargos project southwest of Coolgardie, WA, has failed to show significant lithium values in 11 of the 12 holes sampled.
• The announcement also confirms that recently collected surface and rock chip samples of pegmatites in the area also failed to show significant lithium mineralisation and that “Collation and reprocessing of historic … geophysical data … did not identify sites for potential pegmatite intrusions”.
• The company concludes that after reviewing “the reprocessed imagery, assay results and whole rock geochemistry, Neometals has concluded that the ESGB … [Eastern Side of the Greenstone Belt] … has a low chance for Lithium-Caesium-Tantalum … pegmatite prospectivity”.
• On a more positive note, however, the company says that “a previously unexplored greenstone belt has been identified west of the main Spargos project … [over an] … 8km strike length … on a structural splay off the Ida fault which is untested for lithium, nickel and gold mineralisation … [which] … provides an opportunity for future limited exploration”.
• Expressing disappointment at the results from the reinterpretation of the historic information, Managing Director, Chris Reed, explained that “Given the current market conditions for both nickel and lithium, further exploration activities have been placed on hold pending a strategic review of the Project. Our core focus remains our Primobius Lithium Battery Recycling JV and the installation of a turn-key recycling plant for a leading German carmaker”.

Conclusion: The results from Spargos serve as a reminder of the uncertainty inherent in mineral exploration where testing of promising targets sometimes disappoints.

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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