SP Angel Morning View -Today’s Market View, Friday 22nd March 2024

Gold prices cool from record highs as US manufacturing data strengthens dollar

MiFID II exempt information – see disclaimer below

Alba Mineral Resources (ALBA LN) – Update from Clogau Gold Project

Gemfields Group (GEM LN) – Trading statement for 2023

Glencore (GLEN LN) – Scrapping of coal production cap as met exposure grows

IMC Exploration Group (IMC LN) – Drilling results from Boley, Ireland

Kore Potash* (KP2 LN) – $530k convertible debt issued with a further $150k committed from Chairman

Largo Inc (LGO CN) – FY23 $32m loss booked on falling vanadium prices

Lifezone Metals (LZM US) – Processing licence received from Tanzanian government and $50m convertible bond issued

Gold prices cool from record highs as US manufacturing data strengthens dollar

• Gold prices pared gains following a rapid post-FOMC rise past $2,205, settling around the $2,160/oz mark.
• US PMI figures indicate inflation is not as well contained as some might hope, potentially deferring the pivot / first interest rate cut.
• Philadelphia manufacturing index beat expectations at 3.2, whilst the S&P US manufacturing PMI also surprised to the upside.
• Markets had likely been looking for some more hawkish data points, with yields bouncing and the dollar strengthening against a basket of currencies.
• Focus now turns to labour market data going forward, with gold traders focusing on signs of weakness in US hiring and its implications for the Fed cutting cycle.

Iron ore ticks higher as China stimulus optimism returns and steel mill margins improve

• Iron ore prices have bounced off sub-$100/t lows, climbing to $110/t in Singapore benchmarks.
• China’s Central Bank hinted at flexibility for additional easing yesterday, fuelling hopes of growth stimulus.
• Chinese analysts are noting that steel margins have bounced following several production cuts.
• Focus turns to industrial profits for China set to be reported next week.

Pioneer gold mine in Russia – ongoing efforts to rescue 13 miners trapped 120m underground in Russia

• Specialists have so far removed more than 3,100m3 of soil and pumped >1,200m3 of water according to the Moscow Times
• TASS reports 194,000m3 needs to be excavated, though how they can tell is anyones guess.
• A crew is also drilling a ~125m hole to contact the miners.
• Experts from Siberia’s Kuzbas mining region arrived on Wednesday to help with the rescue
• President Vladimir Putin “gave the order to take all necessary measures to save the miners.”
• The Pioneer mine is operated by UMMC.
• Rescuers are reported to be trying to work at “maximum speed” to get through “100-200 meters” every two hours.
• If this is really the case is sounds as if much of the access tunnel has collapsed and you really have to wonder what sort of safety considerations were in place.
• We have seen tunnel collapses in the past but nothing even remotely on this scale.

Economics

US – The economy continued to grow at robust pace in March, albeit, the latest data showed a pick up in inflationary pressures, according to PMI data.

• A slight drop in the pace of expansion was led by the service sector while manufacturing production increased at the quickest pace in almost two years.
• New orders grew at a slightly softer rate.
• Employment hit the strongest pace since the start of the year.
• Rate of inflation was the highest in just under the year with both manufacturing and services measures of price changes rising to the fastest in 13 and eight months, respectively.
• Preliminary Manufacturing PMI: 52.5 v 52.2 February and 51.8 est.
• Preliminary Services PMI: 51.7 v 52.3 February and 52.0 est.
• Preliminary Composite PMI: 52.2 v 52.5 February and 52.2 est.

China – Local government debt woes increase as local authorities start to default on hidden debt

• From October to December, almost all provincial-level regions on the Chinese mainland issued these special refinancing bonds, raising nearly CNY1.4tn (US$0.19tn) to repay hidden borrowings, according to analysts at Tianfeng Securities Co.
• The regions include heavily indebted Guizhou province, which topped the list with issuance of CNY226.4bn (US$31bn) (caixinglobal.com).
• Many regions plan to issue more bonds with planned issuances of >CNY100bn (US$13.8bn) likely according to Tianfeng.
• A government campaign to resolve hidden debt has tightened rules for new debt issuance and cut some localities off from their previous financing channels so they can not pay interest on hidden debt.
• The proceeds of special refinancing bonds cannot be used to make interest payments so authorities can not make interest payments on hidden debt.
• At least one his local government has stopped making all other payments, including those to project developers, to meet interest payments on outstanding LGFV special-purpose vehicle debt
• Some LGFV are defaulting on non-standard borrowings where debt isn’t subject to interbank markets or stock exchanges and more defaults will damage investor confidence in this market.
• China has some 18,000 LGFVs which can now only borrow new debt to repay the principal on outstanding debt, or to fund affordable housing, urban village renovation, and dual-use public facilities.

Railway from China to Europe sets new record for freight in January / February this year.

• 166 international trains ran with export trains rising 12.5% yoy as Red Sea issues caused more freight to move to rail.
• Guangdong to Europe takes 12 to 18 days by rail while ships going around the Cape take > a month.
• The number of international freight trains rose by 26.5% to 62 trains ran over the first two months with freight rising 45% to 6,810 containers worth 54.6%more at CNY1.881bn.

Taiwan – Central bank raised rates to 2% from 1.875%

Turkey – Central bank raised rates to 50% from 45%

Germany – Ifo Business Climate Index rose to 87.8 in March, from 85.7 previously and way ahead of 86.2 forecast

• Current Assessment Index rose to 88.1 from 86.9 and vs 86.8 forecast
• Expectations Index rose to 87.5 from 84.1 and vs 84.7 forecast.
• Germany’s manufacturing sector saw a marked turnaround to -10.0 from -17.1.
• Services sector also moved  to 0.3 from -4.0
• Trade sector saw rose  to -22.9  -30.8
• Construction sector fell to -33.5 from -35.4
• We wonder if Germany is slowly moving to produce more armaments to help Ukraine of if they are starting to catch up with China on EVs.
• Given the proficiency of Rheinmetall at making military equipment you would have thought Germany was well placed to help.

Switzerland – Central bank cut rates to 1.5% from 1.75%. The Swiss franc

UK – The pound is sliding against its peers following a dovish message from the central bank following the MPC meeting that left rates unchanged at 5.25% yesterday.

• The economy is “moving in the right direction” for the central bank to start cutting interest rates, Governor Andrew bailey said.
• No member voted for a hike with one supporting a cut.
• This compares to three voting in favour of a hike at the December meeting last year.
• Markets raised their bets for the first cut in as early as June fully pricing one in August for a total of three in 2024.
• The central bank will also be under political pressure to ease as Conservatives would be advocating for rate cuts amid struggling consumer spending and housing sector ahead of general elections expected some this year.

Brazil – Central bank cut rates to 11.75% from 11.25%

 Russia – Krasnoyarsk regions plans to close several prisons after inmates are sent to Ukraine

• Russia is reducing the cost of operating its prisons by sending many of their inmates to Ukraine.
• Two penal colonies are due to close this year with many more also expected to shut their doors.

Currencies

US$1.0808/eur vs 1.0915/eur previous. Yen 151.44/$ vs 151.17/$ previous SAr 18.976/$ vs 18.713/$ previous $1.258/gbp vs $1.278/gbp previous 0.652/aud vs 0.662/aud previous CNY 7.227/$ vs 7.199/$ previous

Dollar Index 104.38 vs 103.40 previous.

Precious metals:

Gold US$2,166/oz vs US$2,205/oz previous

Gold ETFs 82.2moz vs 82.5moz previous

Platinum US$907/oz vs US$911/oz previous

Palladium US$1007/oz vs US$1,025/oz previous

Silver US$25/oz vs US$25.58/oz previous

Rhodium US$4,700/oz vs US$4,600/oz previous

Base metals:

Copper US$8,898/t vs US$9,026/t previous

Aluminium US$2,294/t vs US$2,311/t previous

Nickel US$17,291/t vs US$17,600/t previous

Zinc US$2,506/t vs US$2,557/t previous

Lead US$2,045/t vs US$2,071/t previous

Tin US$27,230/t vs US$27,775/t previous

Energy:

Oil US$85.6/bbl vs US$86.6/bbl previous

• US natural gas prices were stable after the EIA reported an unseasonal 7bcf w/w build (+5bcf exp) to 2,332bcf.
• The UK Government has granted a development consent order (DCO) for the HyNet North West CO2 pipeline, which will allow the transport of up to 10mt CO2 per annum to permanent storage in Eni’s depleted natural gas reservoirs located under the seabed in Liverpool Bay, with FID expected by September 2024.

Natural Gas €26.7/MWh vs €27.3/MWh previous

Uranium Futures $85.8/lb vs $88.5/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$107.1/t vs US$106.2/t

Chinese steel rebar 25mm US$544.2/t vs US$546.0/t

Thermal coal (1st year forward cif ARA) US$109.3/t vs US$110.3/t

Thermal coal swap Australia FOB US$124.8/t vs US$125.3/t

Other:

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

NdPr Rare Earth Oxide (China) US$47,921/t vs US$47,920/t

Lithium carbonate 99% (China) US$15,071/t vs US$14,932/t

China Spodumene Li2O 6%min CIF US$1,210/t vs US$1,190/t

Ferro-Manganese European Mn78% min US$985/t vs US$985/t

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

China Graphite Flake -194 FOB US$510/t vs US$510/t

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.2/lb

Europe Ferro-Vanadium 80% 26.45/kg vs US$26.45/kg

China Ilmenite Concentrate TiO2 US$327/t vs US$327/t

China Rutile Concentrate 95% TiO2 US$1,452/t vs US$1,451/t

Spot CO2 Emissions EUA Price US$59.6/t vs US$59.6/t

Brazil Potash CFR Granular Spot US$305.0/t vs US$305.0/t

Company News

Alba Mineral Resources (ALBA LN) 0.08p, Mkt Cap £6m – Update from Clogau Gold Project

• Alba provides an update from its Clogau project.
• The Company has received approval to begin bulk sampling and trenching at the CLogau Waste Tip.
• 40 samples have now been processed at Alba’s processing plant in the Llechfraith, aiming to produce a concentrate.
• The Company have sent composites of these concentrates to a third-party refining facility.
• Airborne geophysical surveys continue over the Company’s primary regional gold target at Clogau.

Gemfields Group (GEM LN) 12.6p, Mkt Cap £152m – Trading statement for 2023

• Gemfields reports a trading statement for the year ending 31^st December 2023.
• The Company reports a net loss of $2.8m for the year vs a net profit of $74m in 2022.
• Gemfields recorded a loss on the write down of its Sedibelo PGM asset interest from $28m to $4m.
• The Group’s core assets, Kagem and MRM generated revenues of $90m and $151m respectively.
• Management notes strong demand for coloured gemstones, with 2023 being the second highest auction revenue in the Company’s history.
• Fabergé recorded revenues of $15.7m vs $17.6m the year prior.
• EPS, excluding the Sedibelo write down, stood at 1.5 cents per share.

Glencore (GLEN LN) 434p, Mkt Cap £52bn – Scrapping of coal production cap as met exposure grows

• Glencore updated its ‘climate action transition plan’, which suggested its coal production cap was no longer necessary.
• The Company introduced the cap in 2019, with the cap set at 150m – Glencore produced between 100-115m over the next four years.
• Glencore is set to finalise its acquisition of Teck’s Elk Valley Resources coking coal division, which will produce c.26mt this year.
• However, Glencore has reiterated it will not be building new greenfield thermal coal operations.

IMC Exploration Group (IMC LN) 1.85p, Mkt Cap £13m – Drilling results from Boley, Ireland

• IMC reports assay results from a drillhole at its Boley Project in Wexford, Ireland.
• The drillhole was intended to extend a high-grade intercept from historical drilling, with the new hole drilled 150m to the NE.
• The hole intercepted grades of 1m at 5.8g/t Au, and 1m at 1.1g/t Au across two separate zones.
• The Company suggests these upper and lower zones remain open along strike and to depth.
• The 5.8g/t metre was intercepted at 90m depth and the second intercept was intercepted at 140m depth.

Kore Potash* (KP2 LN) 0.48p, Mkt Cap £20m – $530k convertible debt issued with a further $150k committed from Chairman

• The Company is raising $530k through convertible loan notes to fund operations ahead of an EPC contract signing for the Kola Potash Project in the Republic of Congo.
• Previously, the team reported the delivery of the EPC Proposal and completion of draft EPC contract.
• The team is in negotiations with SEPCO/PowerChina regarding final version of the contract aiming to sign full EPC documentation by the end of April 2024.
• Convertible notes are zero interest but are convertible at 0.38p and will be converted immediately after publication of FY23 accounts planned on or about 28 March.
• Additionally, David Hathorn, Company’s Chairman, will be subscribing for $150k new shares at 0.38p once FY23 results are released.

*SP Angel acts as Nomad and Broker to Kore Potash

Largo Inc (LGO CN) C$2.3, C$145m – FY23 $32m loss booked on falling vanadium prices

• The Company released Q4 and annual financial results for its Maracas Menchen Mine in Brazil.
• Revenues amounted to $199m (FY22: $229m) reflecting lower realised prices (-8%yoy)and sales volumes (-7%).
• Realised V2O5 equivalent prices averaged $8.66/lb during the year (FY22: $9.38/lb).
• Sales totalled 10.4kt (including 0.9kt of purchased material) V2O5 equivalent (FY22: 11.1kt).
• Lower production driven by lower processed grades as well as general inflation saw unit costs 16% up on the year at $5.74/lb, including royalties (FY22: $5.04/lb).
• Adjusted EBITDA dropped to $12m (FY22: $42m).
• Net loss amounted to $32m (FY22: -$2m).
• CFO pre and post working capital was $5m and $21m, respectively (FY22: $21m and $3m).
• FCF came in at -$42m (FY22: -$57m)
• Net debt stood at $33m (FY22: $17m net cash) including $43m in cash and $77m in debt outstanding.
• The Company reiterated its focus on reducing costs and meeting production guidance amid the current period of low vanadium prices.
• Vanadium market continue to remain challenging with V2O5 prices averaging $6.46/lb in Q4/23 (Q4/22: $8.25/lb) and $6.53/lb as of December 31 last year (Dec/22: $9.44/lb).
• The average benchmark price in Europe was $6.05/lb as of mid March this year.
• Weakness is attributed to adverse conditions in the Chinese and European steel industries, although, strong demand from the aerospace sector continued.

Lifezone Metals (LZM US) $7.9, Mkt Cap $620m – Processing licence received from Tanzanian government and $50m convertible bond issued

• Lifezone Metals provides an update from its ongoing development of the Kabanga Nickel Project in Tanzania.
• The Company has received a ‘multi-metal processing facility licence’ from Tanzanian authorities for refining nickel, copper and cobalt.
• The Kahama refinery lies 340km SW of Kabanga.
• Lifezone is looking to process product from Kabanga, an undeveloped nickel sulphide deposit, using proprietary Hydromet Technology in Tanzania.
• A DFS for the project is due in 3Q24.
• Additionally, Lifezone announced it has signed a subscription agreement for $50m worth of convertible debentures led by Harry Lundin and Rick Rule.
• The notes will be issued at a rate of SOFR + 4% PA over a 48-month term.
• The conversion price will be the lesser of a 30% premium to a trailing period VWAP or $8/share.
• Mandatory conversion could occur if Lifezone’s share price holds 50% higher than the conversion price for 15 trading days over a 30 day period.
• BHP holds 17% of Kabanga Nickel, having invested an additional $50m in 2023.
• Kabanga holds 44mt at 2.57% NiEq in Measured and Indicated, alongside 17.5mt at 2.79% inferred NiEq.

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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