SP Angel Morning View -Today’s Market View, Friday 22nd December 2023

Gold climbs to $2,055 ahead of key US inflation data

MiFID II exempt information – see disclaimer below

Andrada Mining (ATM LN) – Reaping the benefits of expanded production from the Uis tin mine in Namibia

Atlantic Lithium* (ALL LN) – Neil Herbert buys shares in Atlantic Lithium

Bluejay Mining* (JAY LN) – Rod McIllree buys back into Bluejay

Core Lithium (CXO AU) – Strategic review of spodumene operations amid sliding costs

European Metals (EMH LN) – DFS update

Ferro-Alloy Resources (FAR LN) – Q4/23 operations struggle as commodity prices slump and production disappoints

Kodal Minerals* (KOD LN) – BUY , Target 0.97p – Interims highlight progress at Bougouni Lithium Project in Mali

Tungsten West (TUN LN) – Award of process plant permit seen as a prerequisite for funding a resumption of production at Hemerdon

Tetrataenite – Cosmic Metal Could Break China’s Rare Earths Grip

Iron-nickel alloy found in space now replicated in lab

• Tetrataenite, normally found in meteorites and known as a ‘cosmic magnet’ could revolutionise EV motors and wind farm generators.
• Scientists in Cambridge appear to have created Tetrataenite in the laboratory through the addition of phosphorus providing a potential solution to the use of rare-earth permanent magnets.
• The addition of phosphorous is reported to create the right atomic movement to form a tetrataenite magnet within a few seconds without taking millions of years in outer space.
• Experts are now testing the Tetrataenite material to see how well it works as a high-performance magnet.

China restricts Rare Earth processing technology exports

• China is looking to block the export of technology for the processing of rare earths.
• We suspect the move it largely irrelevant with a number of western companies already working on novel technologies for the separation and extraction of rare earths.
• Ionic Rare Earths, Mkango and Rainbow Rare Earths are already well advanced with novel processing technologies.
• Ionic and Mkango are already running trials on their magnet recycling plants which would reduce the effectiveness of any Chinese export ban.
• Mkango are ramping up a commercial-scale plant in Birmingham, UK.
• Ionic are working towards 24/7 operations at their Magnet Recycling Demonstration Plant in Belfast, Uk in January.
• Rainbow continue to test the front end of their Phalaborwa gypsum residue plant in Johannesburg which will feed the K-Tech CIC and CIX processes being demonstrated in Florida.
• We suspect the move is more designed to block Chinese companies from setting up new plants in Vietnam and Mongolia reducing the potential impact of the weaponisation of rare earths in future years.
• China will, hopefully, soon lose its ability to hold the world to ransom through the weaponisation of rare earths.

Gold ($2,055/oz) – Gold climbs to three-week highs as yields hold lower on resilient labour market as eyes turn to inflation data

• Gold prices have climbed again to $2,054/oz in the spot market.
• The move follows another rally in US Treasuries, which pushed the 30-year yield below 4% for the first time since July.
• The 10-year is holding 3.88%, down over 100bp since the historic sell-off in October.
• The dollar is holding near a five-month low as a result of lower yields.
• Traders are now pricing an 83% cut by the Fed by March, despite recent officials’ efforts to row back some of Powell’s dovish commentary.
• PCE will be of primary focus today, with economists expecting 3.4% yoy inflation and 0.2% mom.

Iron ore soars as inventories remain low and China cuts rates

• Iron ore prices rose to $138/t, up 3.5% after five of China’s largest banks slashed rates.
• Blast furnaces have been ramping up output but have limited inventory stockpiles of the key steelmaking ingredient.
• Global crude steel production has risen 3.3% in November, despite concerns of growth slowdown.
• Coking coal and coke both up 4%.
• China blast furnace capacity sits at 85% currently, however only 34% of these are making positive margins.

UK and EU agree to extend trade rules to avoid EV tariffs

• The European Union and Britain have agreed to give EV makers until the end of 2026 to comply with localised content rules.
• The extension from the previous 2024 deadline will save manufacturers and consumers up to £4.3bn according to the UK government.

Economics

China – Transaction property prices are seen falling between 10-30% from their peaks in 2021 despite official data showing the housing market remaining buoyant, FT reports.

• Transaction data has been sourced from interviews with more than two dozen real estate brokers across the capital.
• Price drops are registered across a wide value spectrum from cheaper old apartments to more expensive properties in business centres.
• The government may be willing to misrepresent the data to instil confidence in the marketplace, but inaccurate statistics is likely to have completely opposite effect.

US – Lower than expected inflation reading released yesterday helped equity indices higher with US$ index continuing to slide lower.

• Jobless claims came in slightly below forecasts with less volatile four week average pulling back as well pointing to a continuing tightness in labour market.
• November PCE and core measure are out later today with market estimates for further evidence of slowing inflation (PCE/Core PCE 2.8%/3.3% est. from 3.0%/3.5%).
• Core PCE (%qoq): 2.0% Q3/23 v 2.3% estimated previously.
• Initial jobless claims rises to 205k, below expectations for 215k

UK – The pound is trading higher against the US$ this morning after better than expected November retail sales.

• To an extent, numbers reflect stronger spending during the Black Friday promotion season.
• Q3 GDP was revised down on the back of weaker than initially estimated consumer spending as well as a surprising drop in exports.
• Upgrades to government spending partly compensated for that.
• Retail Sales (%mom): 1.3 v 0.0 October (revised from -0.3) and 0.4 est.
• GDP (%qoq): -0.1 Q3/23 v 0.0 estimated previously.
• Consumer Spending (%qoq): -0.5 v -0.4 previously.
• Government Spending (%qoq): 0.8 v -0.5 previously.
• Business Investment (%qoq): -3.2 v -4.2 previously.
• Exports (%qoq): -0.6 v 0.5 previously.
• Imports (%qoq): -1.0 v -0.8 previously.

Currencies

US$1.1007/eur vs 1.0951/eur previous. Yen 142.31/$ vs 143.20/$. SAr 18.414/$ vs 18.227/$. $1.270/gbp vs $1.264/gbp. 0.678/aud vs 0.674/aud. CNY 7.138/$ vs 7.145/$.

Dollar Index 101.77 vs 102.33 previous.

Commodity News

Precious metals:

Gold US$2,050/oz vs US$2,036/oz previous

Gold ETFs 85.4moz vs 85.4moz previous

Platinum US$970/oz vs US$966/oz previous

Palladium US$1,214/oz vs US$1,203/oz previous

Silver US$24.47/oz vs US$24/oz previous

Rhodium US$4,425/oz vs US$4,425/oz previous

Base metals:

Copper US$ 8,626/t vs US$8,549/t previous

Aluminium US$ 2,290/t vs US$2,233/t previous

Nickel US$ 16,985/t vs US$16,695/t previous

Zinc US$ 2,584/t vs US$2,547/t previous

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

Tin US$ 25,105/t vs US$25,080/t previous

Energy:

Oil US$80.2/bbl vs US$79.9/bbl previous

• Angola announced that it would leave the Organization of the Petroleum Exporting Countries (OPEC) because membership was not serving its interests, according to oil minister Diamantino Azevedo.
• US natural gas prices bounced off lows as the EIA storage report detailed a 87bcf w/w draw (-84bcf expected) to 3,577bcf last week, with storage levels now 7.2% above last year and 8.5% above the 5-year average.
• YTD23 oil prices have averaged $82/bbl and $78/bbl, for Brent and WTI respectively, with gas prices averaging 102p/therm ($74/boe), €41/MWh ($75/boe) and $2.67/mmBtu ($15.5/boe), in the UK, EU and US respectively.
• TotalEnergies sold a 25.5% interest to Thailand’s national oil and gas company PTTEP in the 1.1GW Seagreen offshore wind farm for a consideration of £522m ($689m), which is equivalent to 13x expected forward EBITDA.
• In our view, 2023 should be remembered as the year in which M&A in the oil & gas sector finally made a comeback, as larger E&Ps used their balance sheets (and equity) to bulk up and expand their portfolios.

Natural Gas €34.6/MWh vs €35.3/MWh previous

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

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$138.2/t vs US$134.7/t

Chinese steel rebar 25mm US$580.6/t vs US$580.7/t

Thermal coal (1st year forward cif ARA) US$99.8/t vs US$98.5/t

Thermal coal swap Australia FOB US$138.5/t vs US$138.5/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$29,135/t

NdPr Rare Earth Oxide (China) US$61,641/t vs US$61,574/t

Lithium carbonate 99% (China) US$12,118/t vs US$12,105/t

China Spodumene Li2O 6%min CIF US$1,340/t vs US$1,340/t

Ferro-Manganese European Mn78% min US$1,062/t vs US$1,057/t

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

China Graphite Flake -194 FOB US$610/t vs US$610/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$316/t

Spot CO2 Emissions EUA Price US$75.8/t vs US$75.4/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$310.0/t

EV & Battery news

Scotland’s dreams of becoming battery hub dashed as AMTE set to enter administration

• The firm, known for its lithium-ion and sodium-ion battery cells, had plans for a £190m gigafactory in Dundee
• It promised to create 215 jobs locally and an additional 800 in the supply chain.
• AMTE have struggled to raise funds to continue operations and it has been announced by the board that “the company has insufficient funds to continue trading”

Red Sea attacks to lead to delays in Geely’s European EV shipments

• Chinese automaker Geely has warned that its European EV sales are likely to be delayed by due the ‘situation’ in the Red Sea.
• Yemeni militants have been targeting vessels, forcing ships to take longer more expensive routes.
• Geely said that most of the shipping firms it uses to export its EVs to Europe have plans to go around the Cape of Good Hope to avoid the Suez Canal. (Reuters)

BYD to announce Hungary battery plant

• According to the FT the Chinese EV and battery maker will build a new factory in Hungary to produce EVs and batteries.
• BYD already has an electric bus factory in the country, but the company wants to build a passenger car plant to gain a strong foothold in the European market.
• The BYD plant would be the first large-scale car factory in Europe by a new Chinese brand.

Company News

Andrada Mining (ATM LN) 5.35p, Mkt cap £82m – Reaping the benefits of expanded production from the Uis tin mine in Namibia

• Andrada Mining reports a year-on-year doubling of tin concentrate and metal production from its Uis mine in Namibia during the 3 months ending 30^th November.
• Concentrate output rose to 346t (Q3 2023 – 145t) with the contained metal increasing from 87t to 202t.
• Cash Costs (C1) of US$18,917/t were “within management guidance of between USD17 000 and USD20 000 per tonne of contained tin … [although] … All-in sustaining cost (“AISC”) at USD 30 452 was slightly above management guidance of between USD25 000 and USD30 000 per tonne of contained tin”.
• In addition, the lithium pilot plant produced 10t of “on-specification saleable lithium concentrate” and is expected to “ramp up to 250 tonnes per month … [during] … Q1 CY2024”.
• Exploration of the area surrounding at the Lithium Ridge prospect showed “significant lithium mineralisation along a 6km strike length” with all holes intersecting lithium bearing pegmatites.
• The company confirms that its programme of metallurgical testing for the production of battery grade lithium hydroxide is continuing along with testing of material from Lithium Ridge and Spodumene Hill.
• Acknowledging the operational improvements, Andrada Mining’s CEO, Anthony Viljoen, said that “We aim to further enhance cost efficiencies by increasing tin production through the CI2 project. The tin royalty will provide the necessary funding to produce up to 2,000 tonnes of contained tin per annum, positioning Andrada as a major global supplier”.
• He also confirmed the initiation of “an exploration programme at Brandberg West, with the potential to expand our portfolio to include tungsten and copper”.

Conclusion: Andrada Mining’s expanding production at the Uis mine and moves to produce lithium alongside an expanding exploration effort suggests a busy 2024 lies ahead for the company.

Atlantic Lithium* (ALL LN) 21.55p, Mkt Cap £131m – Neil Herbert buys shares in Atlantic Lithium

(Ewoyaa Ownership: 40.5% Atlantic, 40.5% Piedmont, 6% MIIF Sovereign Wealth fund, 13% government of Ghana)

• Neil Herbert, executive Chairman at Atlantic Lithium has bought a further 160,500 shares in Atlantic Lithium for £34,716.
• The purchase takes his stake to 7.8m shares representing 1.24% of the company.
• Herbert has been highly active in negotiations with the Ghana government in the run up to the award of the mining license and funding from the MIIF sovereign wealth fund.
• Keith Muller is busy preparing the ground for the development of the DMS process plant. Len Kolff is active working on the exploration and development of new resources at Ewoyaa and on new areas for potential future development.

*SP Angel acts as Nomad to Atlantic Lithium. Two mining analysts from SP Angel recently visited the Ewoyaa mine site in Ghana and drove onto Takoradi to check the quality of the road to port. Our analysts also visited the Ministry of Minerals Commission and MIIF, the Ghana Minerals Income Investment Fund.

Bluejay Mining* (JAY LN) 0.60p, Mkt cap £7m – Rod McIllree buys back into Bluejay

(Bluejay Mining holds 100% of the Hammaslahti and Enonkoski projects)

• Bluejay Mining report Rod McIllree, who was just reappointed as a non-executive director of Bluejay Mining this week, has bought 10,000,000 shares in Bluejay at 0.53p.
• Rod is joined by Troy Whittaker as a NED and also as Chief Operating Officer with Eric Sondergaard appointed as Managing Director.
• Rob Edwards, Bo Stensgaard and Peter Waugh have all stepped down from the board with immediate effect.
• Mike Hutchinson, a NED and former Chairman has been reappointed Non-Executive Chairman.

Conclusion:  It is good to see Rod McIllree putting cash into the business albeit at a particularly low valuation. There is substantial exploration potential in the base metal exploration in Finland and the Disco nickel project in Greenland.

Kangerluarsuk in Greenland has formerly returned grab samples of >40% zinc and allot of sulphide material and is seen as a priority target.

Dundas, while the Dundas project has been suspended for the time being, there is still potential for the future mining of this particularly clean ilmenite in a beneficial capital and operating cost environment.

*SP Angel acts as nomad and broker to Bluejay Mining. The analyst has visited the historic Enonkoski mine site and holds shares in Bluejay Mining

Core Lithium (CXO AU) A$0.26, Mkt Cap A$548m – Strategic review of spodumene operations amid sliding costs

• Core Lithium today announced it has begun a strategic review following an 80% decline in spodumene concentrate prices.
• Core is exploring options to reduce costs and increase productivity.
• Potential solutions include prioritising ore mining alongside a possible temporary suspension of mining operations.
• The Company will continue to process ore from stockpiles, however BP33 works have been suspended.
• BP33 is Core’s underground development at the Finnish project in Australia, described as their ‘potential long life cornerstone asset of the operation.’
• Alongside weak market conditions, Core notes above average rainfall reducing output.
• Going forward, sales of concentrate ‘will be subject to market conditions.’
• Core’s most recent quarterly update showed C1 costs of $1,282/t of spodumene.
• Core has been struggling with low recovery rates of 50% as a result of finer-than-expected spodumene.
• The stock fell 20% in Australian trading.

European Metals (EMH LN) 21p, Mkt Cap £29m – DFS update

• The Company is expecting the Cinovec Lithium Project DFS to be ready in Q1/24.
• Consultants are reported to require more time to complete capital and operating cost estimation and project implementation scheduling.
• Preliminary feedback also points out that further development of areas relating to engineering, commercial and strategic elements across mining, processing, procurement and logistics will have a considerable impact on both capital and operating costs.
• The flowsheet is expected to remain unchanged while extension to the DFS completion period is not forecast to impact the overall project timeline.

Ferro-Alloy Resources (FAR LN) 5.2p Mkt Cap £25m – Q4/23 operations struggle as commodity prices slump and production disappoints

• Ferro Alloy provides an update on its Kazakhstan operations.
• The Company released an operations update at its expanded pilot processing plant at the Balasausqandiq deposit in southern Kazakhstan.
• The team updates that Q4/23 revenue and margins will come at significantly reduced levels than initially forecast.
• Primary revenues from the plant stem from vanadium, molybdenum, and nickel, which have all suffered major price declines this year.
• The reason being a drop in prices for all commodities produced at site as well non-homogeneous nature of processed concentrates sourced from external third-party sources.
• Current concentrates are also reportedly requiring ‘different processing procedures,’ causing a reduction in output.
• Falling prices mean concentrates were procured at higher prices earlier in the year that will further weigh on profitability.
• The Company provides an illustration of a drop in prices from the start of September to mid December for vanadium oxide (-31%), ferro molybdenum (-22%) and nickel (-18%).
• The team, also reiterate their focus on completion of the feasibility study for the Balasausqandiq deposit targeted for release around Apr/24, but now delayed due to longer lead times and ‘service provider constraints within the industry.’
• The Company will provide an updated timing once service providers confirm their timetable.

Kodal Minerals* (KOD LN) 0.39p, Mkt Cap £79m – Interims highlight progress at Bougouni Lithium Project in Mali

BUY – Target 0.97p

(Hainan Mining holds a 51% stake in KMUK which holds the Bougouni Lithium Project in Mali with Kodal holding 49%. The Mali government has the right to a free carry on 10% of the project and an option to acquire a 10% stake)

• Kodal Minerals has had a transformational year with the recent receipt of $100m from Hainan Mining for investment in to the Bougouni Lithium Project in Mali.
• The project is now fully financed through development.
• Hainan Mining also subscribed for $17.75m worth of shares giving Hainan a 14.7% holding in Kodal.
• Stage 1 of development, for the DMS plant is in progress with access road upgrades and construction nearing completion and clearance of site for the proposed processing plant development commencing.
• Engineering design of the DMS modular units is complete with DRA Global managing the process.
• The team are now ordering long lead items and are building the team in Mali for the construction and future operations of the Bougouni mine.
• The MRE ‘Mineral Resource Estimate expanded to 31.9mt grading 1.06% Li2O at Bougouni following the addition of 10.6mt @ 1.06% Li2O following just 3,230m of drilling.
• Kodal reports a £509,000 loss for the six months to end September vs a £491,000 loss a year earlier
• Cash balances now stand at £11.2m ($14.2m)
• Valuing the jv company on its estimated cash flow shows :
  • Sales of >$1bn of revenues over 4 years .
  • NPV $420m at a 7% discount rate on a post-tax basis.

Assumptions:

• • Price: $2,080/t for 5.5% spodumene concentrate.
  • Production of 120,000tpa
  • Trucking: 10 trucks carrying 350t per day at a cost of under $100/t.
• Valuation: Kodal’s 49% of $420m is estimated to be worth some $206m (£165m) at a spodumene concentrate price of $2,080/t.
• Adding in the $17.75m of cash in Kodal along with the added dilution realises a valuation 0.70p/s.
• If we apply a 25% discount to the NPV valuation we get 0.97p .

*SP Angel acts as financial advisor and broker to Kodal Minerals.

 Tungsten West (TUN LN) – 1.2p, Mkt cap £2.4m – Award of process plant permit seen as a prerequisite for funding a resumption of production at Hemerdon

• In its results for the six months to 30^th September, Tungsten West reports a loss of £9.1m, capital expenditure of £2.8m and a closing cash balance of £1.4m.
• Operational highlights include the production of 50t of tungsten/tin concentrate from ‘legacy’ material derived from the previous period of operation at the Hemerdon mine in Devon and the submission of the application of the Mineral Processing Facility Permit following the completion of trials to address the issue of low-frequency noise generation from the plant which was experienced by the previous operators.
• A successful submission of the application for the processing plant and its subsequent grant is seen as a necessary pre-condition “to source the funds required to complete the Project”.
• The company confirms that its “focus is now on permitting, funding and compliance activities”.
• “A cost reduction programme … [including] … a number of redundancies … was initiated in April 2023 with the objective of reducing both capex and opex until permitting and funding activities have been completed”.
• Interim funding “to raise approximately £7 million via placing a Convertible Loan Note” was initiated in April.
• The company is also aiming to produce a secondary aggregate product as a by-product of its mining and in December received approval for the necessary additional vehicle movements beyond the pre-existing cap of 50 per day.
• Tungsten West highlights tungsten’s role as a ‘Critical Mineral’.  We regard the Hemerdon deposit as one of the western-world’s larger sources of tungsten and expect a successful resumption of production to be welcomed by western-world consumers of the commodity in a market dominated by China.

Conclusion: Securing the necessary approvals for the processing plant at Hemerdon represents a critical milestone for a resumption of production and we hope for news of this to be forthcoming in 2024.

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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