SP Angel Morning View -Today’s Market View, Friday 23rd February 2024

Elliott’s new >$1bn venture into mining positions fund for upturn

MiFID II exempt information – see disclaimer below

Empire Metals* (EEE LN) – Gindalbie sidelined as Management focuses on Pitfield development

Kavango Resources* (KAV LN) – Drilling at Hillside shows promising visual core

Newmont (NEM US) – Asset sales following Newcrest takeover

Sibanye-Stillwater (SSW SJ) – Conclusion of review of SA PGM operations closes Simunye shaft at its Kroondal operation

Vulcan Energy Resources (VUL AU) – EIB contingent €500m financing

Elliott Management to invest >1bn in mining

• Elliott, the giant US activist fund that enjoys making governments pay up on their debt, has announced it plans to invest >$1bn in mining assets (FT)
• The group, which is perhaps best known for holding Argentina’s feet to the fire, is looking for under-financed mines to invest in.
• The strategy reminds us of the development of Xstrata which hoovered up under-capitalised and under-valued mid-tier assets with the backing of Glencore.
• The new venture called Hyperion, will be led by Sandeep Biswas who was formerly CEO of Newcrest Mining.
• Hyperion can buy into most of the sector including EV metals, base metals and precious metals.
• The investment strategy ranges from taking stakes in existing companies to acquiring single mines and full corporate takeovers.
• The group might also co-invest on larger transactions.
• We see this move and other new interest as marking the bottom of the current downturn in the mining sector.

Shopping list for Elliott

• SolGold* for its Cascabel project
• Sovereign Metals* world-class Kasiya rutile and graphite project
• Savannah* lithium project in Portugal
• Atlantic Lithium* – lithium mine in Ghana
• Cornish Metals*⁺ – restart of South Crofty tin mine in Cornwall.
• GreenRoc* for its graphite mine in Greenland

*SP Angel act as nomad and or broker. ⁺The analyst holds shares.

Lithium – Arcadium Lithium to slow production expansion as price slump hits

• Arcadium, the recently merged Livent/Allkem entity, is slowing CAPEX expansion.
• Spodumene production will be reduced from the Mt Cattlin project.
• Expansion investment will be slowed in order to boost efficiency in Quebec and Argentina.

Iron ore ticks higher as Australian producers brace for cyclone

• Iron ore prices have strengthened over $121/t following an 8% decline this week.
• Traders did limited buying this week, as steel margins remain weak and stimulus measures are yet to revive the property sector.
• Indian steel mills are reportedly calling for an export ban to limit Chinese buying of cheaper ore – exports are up 170% to 44mt last year. (Bloomberg)
• Australia’s iron ore hub in WA is expecting a cyclone to hit the Pilbara, seeing a clearing of vessels from ports.

Vale ordered to halt mining at two base metal mines in Brazil

• Vale has had environmental licences suspended from two base metal mines in Brazil.
• The Onca Puma and Sossego mines have raised concerns with nearby communities, and failed to comply with information requirements.
• Sossego produced 66.8kt Cu last year.
• Onca Puma accounted for 10% of Vale’s nickel output in 2023.
• Onca Puma had its licence suspended in 2021 as well.

Uranium – US Senate approves $2.7bn funding for uranium enrichment in the US

• The funding is part of a $95.3bn national security supplemental appropriations bill which includes funding for military assistance (Utilitydrive).
• The funding is to expand production of low-enriched uranium and high-assay low-enriched uranium in the US.
• The bill faces opposition in the US House of Representatives by Republicans.
• Low-enriched uranium which contains 3% to 5% of the fissile uranium-235 isotope, is the dominant fuel in domestic nuclear reactors with high-assay low-enriched uranium which contains 5-20% uranium-235 used in some advanced reactors due for commissioning over the next few years.

Economics

US – Mixed economic data yesterday as jobless claims fall to the lowest level in five weeks while business activity expansion slows in February

Flash PMI numbers show pickup in manufacturing but slower growth in Services

• Continuing claims also dropped to the lowest in a month pointing to a resilient labour market.
• Composite PMI pulled back to the lowest in two months on the back of lower growth in the services sector that offset improvements in manufacturing.
• February PMI report highlighted a continued increase in employment although the pace of job creation was at the slowest in three months.
• On inflation, input prices rose at the slowest rate since October 2020 while the pace of final goods and services prices picked up during the month.
• Initial Jobless Claims (’000): 201 v 213 (revised from 212) previous week and 216 est.
• Continuing Claims (‘000): 1,862k v 1,889k (revised from 1,895k) previous week and 1,884k est.
• Flash Manufacturing PMI: 51.5 v 50.7 January and 50.7 est.
• Flash Services PMI: 51.3 v 52.5 January and 52.3 est.
• Flash Composite PMI: 51.4 v 52.0 January and 51.8 est.

China – Property prices for new and secondary houses continued to fall through January, albeit, the rate of declines slowed down.

• That was the first slowdown in 10 months.
• Separate data showed the number of foreclosed properties for sale climbed at a faster rate in January.
• New listings of foreclosed homes increased 48%yoy to ~100k units including residential, commercial and industrial real estate in January.
• Foreclosed residential properties were sold at an average discount of 23% in January, Bloomberg cited China Index Holdings numbers.
• New Home Prices (%mom): -0.37 v -0.45 December;
• New Home Prices (%yoy): -0.68 v -0.79 December.

Disappointing Lunar New Year vehicle sales indicate worsening domestic demand

• Retail sales of passenger vehicles may of 559,000 indicate a 43.5% fall mom and 15.7% fall yoy to 1.15m vehicles in February, according to the preliminary statistics released by the CPCA ‘China Passenger Car Association‘ (mysteel)
• However, sales remain 34% higher year-to-date on last year
• The Ministry of Housing and Construction is targeting work on ~100,000km of underground pipelines in city areas covering utilities over the next 5-10 years.
• China Development Bank issues CNY1.6bn loan for Shanghai shantytown renovation
• Guangzhou starts 319 projects with >CNY320bn investment in Q1 focusing on industrial construction, infrastructure, social welfare, and urban renewal, according to the major projects commencement ceremony held in China-Singapore Guangzhou Knowledge City (chinabayarea.org).
• Commercial banks in China also seen lowering seen lowering deposit rates by 10-60bp

Germany – Business confidence climbed in February, although, in absolute terms sentiment remains downbeat.

• “Its too early to say we are bottoming out… It’s a stabilisation at a low level,” IFO President said.
• Earlier, the government cut its economic growth estimates for 2024 to just 0.3% compared to 1.3% estimated as recently as the fall.
• Output contracted 0.3% last year on the back of weak global demand, high inflation, fallout from the loss of cheap Russian gas and a court decision curbing budgetary spending, Bloomberg reports.
• IFO Business Climate: 85.5 v 85.2 January and 85.5 est.
• IFO Current Assessment: 86.9 v 86.9 January and 86.8 est.
• IFO Expectations: 84.1 v 83.5 January and 84.0 est.

Zambia copper production estimated at 4-year highs despite drought

• Zambia’s mining ministry expects copper output to hit 841kt this year, highest since 2020.
• It produced 700kt last year, lowest since 2009.
• An ongoing drought has seen electricity curbs, owing to the 85% reliance on hydropower.
• First Quantum noted it doesn’t see continued impacts from the drought going forward.

Currencies

US$1.0827/eur vs 1.0883/eur previous. Yen 150.65/$ vs 150.13/$. SAr 19.234/$ vs 18.833/$. $1.267/gbp vs $1.271/gbp. 0.657/aud vs 0.659/aud. CNY 7.198/$ vs 7.186/$

Dollar Index 103.91 vs 103.48 previous.

Commodity News

Precious metals:

Gold US$2,020/oz vs US$2,033/oz previous

Gold ETFs 82.8moz vs 83.0moz previous

Platinum US$899/oz vs US$896/oz previous

Palladium US$966/oz vs US$968/oz previous

Silver US$22.64/oz vs US$23/oz previous

Rhodium US$4,525/oz vs US$4,550/oz previous

Base metals:

Copper US$ 8,546/t vs US$8,597/t previous

Aluminium US$ 2,193/t vs US$2,226/t previous

Nickel US$ 17,455/t vs US$17,140/t previous

Zinc US$ 2,393/t vs US$2,415/t previous

Lead US$ 2,083/t vs US$2,085/t previous

Tin US$ 26,225/t vs US$26,545/t previous

Energy:

Oil US$83.2/bbl vs US$83.4/bbl previous

Henry Hub Gas US$1.67/mmBtu vs US$1.73/mmBtu yesterday

• Crude oil prices edged higher after the EIA reported a smaller than expected 3.5mb w/w US crude build, offset by a 4mb distillate draw, as refinery utilisation remained flat at 80.6% due to seasonal maintenance and the continued outage at BP’s 435kb/d Whiting refinery in Indiana.
• US natural gas prices edged lower as the EIA reported a smaller-than-usual 60bcf w/w draw to 2,470bcf, with storage levels now 12% above last year and 22% above the 5-year average.
• Woodside has sold a further 15.1% of the 7.3Tcf Scarborough gas project (now 74.9% WI) to JERA, a Japanese utility JV, for $740m plus reimbursement of $660m for its share of development capex since 1 January 2022.
• Colombian state company Ecopetrol announced that the offshore Orca discovery is significantly smaller than expected, as determined by the drilling results of the highly anticipated Orca Norte 1 appraisal well.

Gas €22.8/MWh vs €24.1/MWh previous

Uranium Futures $98.0/lb vs $99.3/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$121.1/t vs US$117.4/t

Chinese steel rebar 25mm US$569.5/t vs US$570.7/t

Thermal coal (1st year forward cif ARA) US$91.0/t vs US$90.0/t

Thermal coal swap Australia FOB US$125.0/t vs US$124.3/t

Coking coal swap Australia FOB US$307.0/t vs US$307.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$52,789/t vs US$53,924/t

Lithium carbonate 99% (China) US$12,225/t vs US$12,246/t

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

Ferro-Manganese European Mn78% min US$1,066/t vs US$1,072/t

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

China Graphite Flake -194 FOB US$560/t vs US$560/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$322/t vs US$322/t

Spot CO2 Emissions EUA Price US$57.5/t vs US$57.8/t

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

Battery News

US conditionally approves $710m in loans for EV technology projects

• The US Department of Energy (DoE) has given preliminary approval for $710m in loans for EV technology ventures.
  • SK Siltron CSS will receive $544m in loans to expand its plant that produces high power silicon carbide wafers critical for EV drivetrains and electrical distribution systems.
  • American Battery Solutions have received conditional approval for $165.9m loan for its battery pack assembly plant.
• The department has spent $34.43bn, as of December 31, 2023 and has received applications for $263.1bn in loans, as of the end of January.
• The Biden administration has around $220bn in loan capacity to fund clean energy projects.

Stellantis to begin EV production at Luton plant from 2025

• Stellantis will begin production of all-electric medium vans at its Luton plant next year.
• Production of the equivalent internal combustion engine (ICE) vans will continue alongside the electric versions of 5 models for Stellantis’ Vauxhall, Opel, Peugeot, Citroen and Fiat brands.

China’s lithium chemical output jumped in 2023 on rising battery demand

• China produces 517,900t of lithium carbonate last year, up 31.1% from 2022, according to the lithium branch of the China Nonferrous Metals Industry Association.
• Production capacity of lithium carbonate reached 1.1mt last year, up 83.3% on the year.
• Lithium hydroxide output rose to 319,600 metric tons, up 30.1%.

POSCO breaks ground on fifth cathode materials plant in South Jeolla Province

• The cathode materials plant for nickel, cobalt and aluminum (NCA) batteries will make South Jeolla Province the world’s largest manufacturing cluster for cathode materials in terms of capacity.
• The factory is expected to produce 52,500t of cathode materials for 60kWh of EV batteries annually for Samsung SDI.
• The complex in Gwangyang will produce 142,500t from the five plants – the group currently operates the other four plants in Gwangyang with 90,000t of production capacity.
• POSCO are aiming for 1mt of cathode material production by 2030.

Company News

Empire Metals* (EEE LN) 10.3p, Mkt Cap £62m – Gindalbie sidelined as Management focuses on Pitfield development

(Empire holds 70% of Pitfield, Century Minerals, which is run by two geologists holds the other 30%. One of these geologists works for Empire.)

• The Company announces the results of an assessment of its non-core projects.
• As a result of the assessment, Empire has decided not to extend the Gindalbie Tribute Agreement, due for expiry tomorrow.
• The decision reflects the Company’s focus on the Pitfield Titanium Project in WA, with Gindalbie not considered ‘a core project for Empire.’
• As regards Pitfield, the Company is seeking to develop the economic development of the Pitfield Project.
• Empire is targeting a maiden resource for Pitfield in 2024, followed by the construction of a demonstration plant in 2025.

*SP Angel acts as nomad and broker to Empire Metals

Kavango Resources* (KAV LN) 0.7p, Mkt Cap £9m – Drilling at Hillside shows promising visual core

• Kavango Resources provides an update on its exploration programmes at the Hillside Gold Project in Zimbabwe.
• The Company is completing IP over four prospects over 16km lines.
• The IP is intended to identify sulphide bodies relating to high-grade gold-bearing shear structures.
• The Company has also completed four diamond core holes over 1,306m over the four prospects.
• Core visuals are reportedly encouraging and assays are due following the granting of export permission.
• The Company intends to complete a further 1,400m of diamond drilling relating to the current IP survey.
• Management notes its confidence in the visual observation of the recent cores, encouraging them to carry on exploring Hillside.
• Drilling is also being planned at the Nara Project, with a geological mapping exercise ongoing.
• 90 auger holes have been drilling at the Nara tailings dump, with these currently being modelled with a resource consultant.
• Nara covers four historic underground mines, which produced at average grades of 9.8g/t.

*An SP Angel Analyst holds shares in Kavango

Newmont (NEM US) $31, Mkt Cap $35bn –Asset sales following Newcrest takeover

• Newmont reported FY23 results yesterday, producing 5.5moz Au and 891koz GEOs.
• Expects to produce 6.9moz in 2024.
• AISC at $1,444/oz and gold costs to sales per ounce up 13% to $1,050/oz, hit by labour costs and maintenance costs.
• $88m FCF reported following $2.7bn in CAPEX.
• $1.9bn in impairments, $1.5bn in reclamations and $464m paid in Newcrest transaction and integration costs.
• Adj. EBITDA of $4.2bn.
• The Company announced a major portfolio restructuring, targeting a portfolio ‘Tier 1’ assets (those producing >500koz GEO, >10yr Lom and bottom half of cost curve.)
• Newmont expects to sell/divest Akyem, CC&V, Éléonore, Porcupine, Musselwhite, and Telfer alongside Coffee and Havieron.
• The AFR reports Perseus is eyeing Newmont’s Akyem mine for a potential purchase, with MD Jeff Quartermaine stating he ‘would certainly look into Newmont’s process’ and is familiar with the asset.
• Perseus holds $642m in cash and is struggling to secure OreCorp’s Nyanzaga project from SilverCorp.
• Newmont’s share price fell 8% on the update, on the weak dividend, lower than expected 2024 guidance and higher costs.

Sibanye-Stillwater (SSW SJ) R2,010, Mkt Cap R57bn – Conclusion of review of SA PGM operations closes Simunye shaft at its Kroondal operation

• Sibanye has concluded a review of its SA PGM assets.
• The outcome of the review was to close the Simunye shaft, which ceased production in 2023, whilst lowering the cost structure and levels of production at the Rowland and Siphumelele shafts.
• The 4B shaft will operate as long as there are no net losses on a monthly basis.
• 47 employees and 805 contractors have been retrenched.
• The Group expects annual profits to fall up to 91% yoy on sliding PGM prices.
• $2.6bn worth of impairements were reported as a result of the slumping metal prices.
• Sibanye stated that all SA and Australian operations were profitable at Q4 end.

Vulcan Energy Resources (VUL AU) A$2.1, Mkt Cap A$379m – EIB contingent €500m financing

• The European Investment Bank (EIB) following preliminary due diligence proposed contingent financing for up to €500m.
• The proposal is contingent on completion of due diligence, credit approval and legal agreement as well as subject to EIB’s governing bodies approval.
• The EIB is the lending arm of the European Union and one of the largest climate finance providers.
• The Company is in financing discussions for the Phase 1 (24kt LHM) with estimated capex of €1.4bn that including financing and ramp up related costs comes up to €1.7bn and potentially requires €0.6bn in equity funding assuming 65%/35% debt/equity split.

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

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

*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.

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II – Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%