SP Angel Morning View -Today’s Market View, Friday 15th December 2023

China industrial output growth of 6.6% leading copper prices higher

MiFID II exempt information – see disclaimer below

Arkle Resources* (ARK LN) – Lithium brine licences secured in Botswana

Bushveld Minerals* (BMN LN) – Southern Point Resources takes over sales and marketing and acquires 64% in Mokopane

Griffin Mining Ltd (GFM LN) – JV Director Confined

Mkango Resources* (MKA LN) – Talaxis representative resigns from Board to pursue new role

SolGold* (SOLG LN) – Revised PFS for Cascabel expected early in 2024

Copper ($8,600/t) – China industrial output growth of 6.6% to lead copper prices higher

• We expect copper prices to break $9,000/t either by the year end or early in the new year
• We see a developing deficit in copper concentrates and metal production as overturning the current surplus and leading prices higher next year

Gold prices ($2,040/oz) hold higher as Treasury yields continue to slide on Fed pivot hopes

• Gold prices have held their ground at $2,040/oz following Wednesday evening’s blockbuster rally.
• The sharp move higher was triggered by a dovish FOMC meeting which pushed yields lower as traders ramped up rate cut expectations.
• Gold prices have been supported by lower government bond yields, with the US 10 year sliding to 3.9%.
• Yields have fallen 100bp since highs reached in mid-October.
• The US dollar has weakened in line with yields, holding at August lows.

Palladium ($1,158/oz) jumps 15% as UK sanctions Russian metal

• Palladium, which had fallen c.40% this year, jumped 15% this morning to $1,150/oz., Bloomberg reports.
• The move followed an announcement by the British government that it would target Russian metal with new sanctions.
• The sharp move also reflected significant short covering following the extended period of weakness.

Iron ore ($135/t) defies bearish expectations as best performing industrial metal this year

• Iron ore prices are holding around $135/t, despite consistent concerns over China’s property market.
• China boosted iron ore exports by 3.4% in November and 3.9% in October respectively on a yoy basis.
• Iron ore inventories are hovering around eight year lows at ports, with traders restocking in advance of the Lunar New Year quiet period.
• Fortescue noted ‘strong, robust demand’ coming from China’s steelmaking sector.
• However, lending data in China disappointed overnight, and analysts are pointing to low steelmaking margins.
• Beijing lifted caps on steelmaking this winter, triggering the second largest output year on record at over 1bnt.

Economics

China – Industrial output rises 6.6% yoy marking strongest expansion since February 2022

• Retail sales rose 10.1% yoy – remember this is against very low retail sales during the strict Covid lockdown this time last year
• FAI, Fixed Asset Investment rose 2.9% year-to-date yoy as foreign investors shun Chinese investment and critical component manufacturing reshores back to the US and Europe

EU – HCOB S&P Manufacturing PMI  – 44.2 vs 44.6 expected

• HCOB Composite PMI- 47 vs 48 expected
• HCOB Services PMI – 48.1 vs 49 expected

UK – Composite PMI – 51.7 vs 50.9 expected

• Manufacturing PMI – 46.4 vs 47.5 expected
• Services PMI  –  52.7 vs 51

US – Continuing Jobless Claims –  1,876k vs 1,887k expected

• Retail sales – 0.2% vs -0.1% mom expected
• Export price index – -0.9% vs -0.1% expected

Japan – Manufacturing PMI at 47.7 vs 48.3 previous an 48.2 expected

• Services PMI – 52 vs 50.8 previous

Currencies

US$1.0970/eur vs 1.0896/eur previous. Yen 141.84/$ vs 141.66/$. SAr 18.194/$ vs 18.602/$. $1.276/gbp vs $1.263/gbp. 0.671/aud vs 0.671/aud. CNY 7.100/$ vs 7.134/$.

Dollar Index 101.89 vs 102.72 previous.

Commodity News

Precious metals:

Gold US$2,040/oz vs US$2,039/oz previous

Gold ETFs 85.7moz vs 85.5moz previous

Platinum US$962/oz vs US$947/oz previous

Palladium US$1,116/oz vs US$1,019/oz previous

Silver US$24.17/oz vs US$24/oz previous

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

Base metals:

Copper US$8,600/t vs US$8,530/t previous

Aluminium US$ 2,236/t vs US$2,172/t previous

Nickel US$ 16,930/t vs US$16,775/t previous

Zinc US$ 2,524/t vs US$2,504/t previous

Lead US$ 2,088/t vs US$2,063/t previous

Tin US$ 25,290/t vs US$24,945/t previous

Energy:

Oil US$76.6/bbl vs US$74.9/bbl previous

Natural Gas €34.7/MWh vs €35.0/MWh previous

• European energy prices were steady as EU natural gas storage levels fell 2.6% w/w to 90.1% full (vs 79.6% 5-Yr average), with all countries reporting levels above 87% full and aggregate storage at 1,027TWh.
• US natural gas prices rose as the EIA storage report detailed a 55bcf w/w draw to 3,664bcf last week, with storage levels now 7.2% above last year and 7.6% above the 5-year average, and US dry gas production reaching a record 104.9bcf/d during November.

Uranium UXC US$82.30/lb vs US$81.45/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$135.0/t vs US$134.4/t

Chinese steel rebar 25mm US$585.4/t vs US$582.7/t

Thermal coal (1st year forward cif ARA) US$102.0/t vs US$102.0/t

Thermal coal swap Australia FOB US$143.0/t vs US$144.5/t

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

Other:

Cobalt LME 3m US$29,135/t vs US$29,820/t

NdPr Rare Earth Oxide (China) US$63,103/t vs US$62,807/t

Lithium carbonate 99% (China) US$12,466/t vs US$12,407/t

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

Ferro-Manganese European Mn78% min US$1,053/t vs US$1,046/t

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

China Graphite Flake -194 FOB US$615/t vs US$615/t

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

Europe Ferro-Vanadium 80% 26.25/kg vs US$26.25/kg

China Ilmenite Concentrate TiO2 US$316/t vs US$315/t

Spot CO2 Emissions EUA Price US$76.4/t vs US$75.9/t

Brazil Potash CFR Granular Spot US$322.5/t vs US$322.5/t

EV & Battery news

Zeekr develops in-house battery with 500km range and 15-minute charge time

• According to Zeekr, its new Golden Battery is the world’s first mass-produced 800V LFP ultra-fast-charging battery with 83.7% volume utilisation rate and a maximum charging power of 500kW.
• Regular LFP batteries have a volume utilisation rate of 66% and the Golden Battery is the first to exceed 80% utilisation volume.
• CATL’s flagship Qilin Li-ion batteries have just reached 72% volume utilisation
• Zeekr who are owned by Geely, will use the battery in their new Zeekr 007 that will start delivering in China from January 1^st.

New EV cash incentives toughen market for Chinese-made cars in France

• France has published a new list of vehicles that will be eligible for government cash incentives.
• 65% of EVs sold in France will be eligible for the scheme.
• The list of models eligible for the scheme favours those built in France and the rest of Europe over those manufactured in China.
• The French government offers buyers a cash incentive of between €5,000 and €7,000 as it seeks to get more EVs on the road, at a total cost of €1bn per year.
• French Finance Minister Bruno Le Maire praised the new rules’ incentive for automakers to reduce their carbon footprint.

Company News

Arkle Resources* (ARK LN) 0.38p, Mkt Cap £1.7m – Lithium brine licences secured in Botswana

• Arkle announces it has been awarded two new exploration licences in the Makgadikgadi salt pans in Botswana.
• The licences cover 312 and 525sqkm respectively.
• The region remains highly underexplored for lithium.
• The licence package compliments Arkle’s lithium licences in Ireland and Zimbabwe.
• Arkle will focus on utilising available data and conducting early-stage field programmes to identify drill targets.
• Brines account for 39% of global lithium production, dominated by SQM and Albemarle in the Atacama.

*SP Angel are Nomad and Broker to Arkle Resources

Bushveld Minerals* (BMN LN) 2.25p, Mkt Cap £43m – Southern Point Resources takes over sales and marketing and acquires 64% in Mokopane

Valuation – under review

• Bushveld Minerals report agreement to sell 64% of the Mokopane chromite mine to Southern Point Resources for $3.7m.
• Southern Point Resources has a right of first refusal on ore mined at Mokopane mine for use at Vanchem. (Mokopane grades 1.80% V2O5 in-magnetite)
• Conditions:
  • Southern Point Resources acquisition of 50% of Vanchem
  • Waiver of pre-emptive rights by minority shareholders in Mokopane
  • Legal due diligence by Southern Point Resources
  • Consent from the Minister of Mineral Resources and Energy on the change of control at Mokopane on mining and prospecting licence and approvals from the South African Competition Commission.
• The deal is part of a series of transactions whereby Southern Point Resources is investing US$69.5-US$77.5m into Bushveld and related group companies.
• Cost cutting:
• Bushveld is cutting costs hard with ~40% of head office impacted saving some ~$1.5mpa
• Production guidance: Group production still expected to be within 3.7-3.9ktV guidance for the year despite some impact from early kiln relining at Vanchem due to repeated refractory failures.
• Definitive sales and marketing agreement with SPRF ‘Southern Point Resources’
  • SPRF will carry out all marketing and sales of Vanadium product, produced at both the Vametco and Vanchem plants on an exclusive basis.
  • SPRF will also sell and market vanadium electrolyte from Bushveld’s BELCO
  • SPRF will provide a working capital facility of US$25-30m to replace existing working capital facilities. This is payable to Vametco and Vanchem on 85% of the potential sales value of its product output (mainly vanadium)
• SPRF marketing fees:

• 3.75% of the total revenue,
• 5% on achieved sales above US$40/kgV for V2O5 Flake (equates to $9/lb V2O5 and $9/lb V2O5 for Chemical products + premium on chemical products above the V2O5 Flake price).
  • The total Marketing fee shall not exceed 5% of the gross realised price for any such sale of finished product.
  • The new marketing agreement will run for three years from termination of existing marketing and sales agreements and is extendable by a further three years at SPRF’s discretion.
  • SPRF marketing and sales arrangement will replace existing marketing and sales arrangements as and when they expire between June 2024 and June 2026.

Conditions:

• SPRF subscribing for shares, which will not exceed 29.9% of the issued share capital of Bushveld Minerals.
• Orion Mine Finance providing its final consent.

Vanadium Nitride prices have picked up in China to CNY133,500 from a year low of CNY128,500/t through November.

Chinese steel producers have just recorded their second highest every year of production with 80mt produced in November up 4.6% vs the 5-year average helping to drive iron ore prices back up to $135/t.

China is expected to produce some 1.0260bn of steel this year representing some 55% of the global market driven by rising steel exports and rapid growth in EV and ICE vehicle production.

We would expect the reconstruction of Ukraine to consume substantial steel demand when the conflict is settled and for the restart of some mothballed European steel furnaces to help drive vanadium demand.

Conclusion:  Investors should feel relieved to see confirmation of the deal with Southern Point Resources. While there remain some conditions, we see the financial restructuring as enabling Bushveld to focus on raising production, reducing costs, and advancing the electrolyte plant to fill new Vanadium Redox Flow Battery storage units.

*SP Angel act as nomad and broker to Bushveld Minerals

Griffin Mining Ltd (GFM LN) 78p, Mkt Cap £150m – JV Director Confined

• Griffin Mining reports it has been notified by Beijing officials that a director of their 88.8% owned subsidiary has been placed under hotel detention.
• Shengchang Jin, director of the Hebei Hua Ao Mining subsidiary majority-owned by Griffin, is being investigated.
• The Company notes the detention stands whilst ‘The Committee investigates his actions in relation to his employment as the CEO of Zhangjiakou Yuanrun Enterprise Management Consulting Service Co.’
• Mr Jin is CEO of the minority stakeholder in Griffin’s subsidiary.
• Griffin notes that the investigations ‘do not concern HHA’s operations or any relevant statutory licences issued by the government.’

Mkango Resources* (MKA LN) 12p, Mkt Cap £36m – Talaxis representative resigns from Board to pursue new role

• Mkango reports the resignation of Stephen Motteram from the Mkango Board.
• Stephen held the position of Talaxis Nominated Director.
• He is stepping down from the Board role following his resignation from Noble Resources to take a new role.
• Management thanks Stephen for his time as Director.

*SP Angel acts as nomad and broker to Mkango Resources

SolGold* (SOLG LN) 7.67p, Mkt Cap £230m – Revised PFS for Cascabel expected early in 2024

• In an announcement reminding shareholders to participate in the forthcoming AGM on 20^th December, released yesterday, Solgold disclosed that it expects to release a pre-feasibility study describing a phased development of its Cascabel project in Ecuador “early in the first quarter of 2024”.
• The new study aims to ameliorate the risks of developing the 2.6bn tonne deposit at Alpala in Ecuador at a lower capital cost than was described in the 2022 feasibility study which envisaged expenditure of an initial US$2.7bn to generate an after-tax NPV of US$2.9bn and IRR of 19.3% over a 27-year mine life.
• Yesterday’s announcement also confirmed that the project had been granted environmental licences to “carry out certain underground activities at specified areas within the Cascabel concession”.

Conclusion: We look forward to the release of the revised PFS for the Cascabel project and to insights into both the technical aspects of the project and into management’s strategy for the development of a major copper/gold resource at a time of increasing recognition of the pressures on copper supply

*SP Angel acts as Financial Advisor to SolGold

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%