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

Gold holds ground despite US bond yields hitting 16-year highs

MiFID II exempt information – see disclaimer below

CAA Mining* (Private) – Funding sought for drilling of Spodumene / lithium prospects in Ghana

(Agreement to earn into 85% on six lithium licenses through expenditure of $8m on licenses)

(CAA holds 70% in Lithium Resources Ghana Limited (LRGL) in return for spending US$4 m and US$2 million already spent to date)

• Spodumene identified in surface and petrographic studies on licenses to the north and east of Atlantic Lithium’s, Ewoyaa resource.
• Petrographic analysis shows spodumene as large euhedral and idiomorph crystals also large and small subhedral grains in samples.
• Work done:
  • Petrographic studies on auger chip samples and surface outcrop both show spodumene,
  • >8k metres of follow up auger drilling,
  • >1,500 auger samples analysed,
  • >5k soil samples collected,
  • Abasaa corridor,  15-20km east of Ewoyaa deposit generating geochemical footprint interpreted to be analogous with lithium mineralisation at depth,
  • $2 million already spent by CAA on exploration.
• Assays: Full field laboratory equipped with PXRF and LIBS, for quick lithium assays recently installed
• Livista Energy:  Cross-shareholding and JV with Livista, a lithium refiner with plans to process lithium in Ghana.
• Target: to prove an initial exploration target offering >10mt @ >1% lithium oxide
• Funding: CAA is looking to raise £0.5-1m in pre-IPO funds for drilling and expenses at a Valuation of £5.85m at 30p/s pre-new money

*Certain SP Angel Partners and employees own shares in CAA Mining. SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors).This offer is open to professional investors only and is not offered to retail investors.

Gold holds ground despite headwinds as yields climb to 16-year highs, lifting dollar

• Spot gold prices jumped back to $1,930/oz having hit $1,915/oz overnight.
• The dollar has climbed to six-month highs as buyers lured in by rising US Treasury yields.
• The 10-year yield hit its highest in 16 years, with Treasuries usually holding an inverse relationship with gold prices.
• PMI data due today will be closely watched for evidence of an economic acceleration, which has the potential to support hawkish Fed concerns.

Blencowe Resources (BRES LN) 5.5p, Mkt Cap £11m –Receipt of $5m grant from US to fund DFS at Orom-Cross graphite project

Gemfields Group (GEM LN) 13p, Mkt Cap £172m – Interims show no dividend on sliding emerald production at Kagem

Kodal Minerals* (KOD LN) 0.54p, Mkt Cap £93m – Kodal presses ahead with detailed engineering work for Bougouni lithium project

Sigma Lithium (SGML CN) C$48.2, Mkt Cap C$5.3bn – 22.5kt of lithium shipped to Glencore as partnership agreed

VOX Markets Podcast:   https://audioboom.com/posts/8368469-john-meyer-on-chinese-stimulus-plus-arc-bushveld-cornish-metals-empire-metals-tertiary-min

*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts. We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.

Economics

US – Weekly labour numbers came in better than expected yesterday providing more evidence that employment continues strong despite a series of Fed rate hikes during the latest tightening cycle.

• Weekly Jobless Claims: 201k v 221k previous (revised from 220k) and 225k est.
• Continuing Claims: 1,662k v 1,683k previous (revised from 1,688k) and 1,692 est.

China – PBoC fails to provide new stimulus as economy starts to show renewed growth

• China is rushing to hit the stimulus button through QE or through lower interest rates cuts as the economy starts to improve
• This may partly be down to the arbitrage with higher US interest rates even though China’s exchange controls work with a fairly tight hand.
• Shanghai police recently have detained five people for illegal trading of foreign exchange to reduce capital flight.

Japan – The central bank maintained its ultra-lose monetary policy, in line with expectations, pledging to keep supporting the economy until inflation consistently hits its 2% target.

• The BOJ maintained its short-term interest rate target of -0.1% and that for the 10-year bond yield around 0%, Reuters reports.
• Authorities also left unchanged an allowance band of 50bp set either side of the yield target as well as a new hard cap of 1.0% announced in July.
• “We have yet to foresee inflation stably and sustainably achieve our price target – that’s why we must patiently maintain ultra-loose monetary policy,” GovernorUeda said at a briefing after the decision.
• The currency continued to slide edging close to its previous lows of nearly 150 hit in late 2022.
• CPI (%yoy): 3.2 v 3.3 July and 3.0 est.
• CPI ex Food and Energy (%yoy): 4.3 v 4.3 July and 4.3 est.
• Manufacturing PMI: 48.6 v 49.6 August.
• Services PMI: 53.3 v 54.3 August.
• Composite PMI: 51.8 v 52.6 August.

Eurozone – Business activity continued to fall in September, albeit, at a slightly lower pace, according to regional preliminary PMI numbers.

• Business activity has now been in contraction for four months with new orders reported to have dropped at the sharpest rate in almost three years.
• Demand in manufacturing and services has been falling with both domestic and overseas orders pulling back.
• New export orders declined even more quickly that total new business.
• Soft demand translated into weaker final goods’ inflation with the lates rate coming at the lowest level since February 2021.
• Employment growth recorded was the joint-second slowest in the current 32-month series of increases.
• Manufacturing PMI: 43.4 v 43.5 August and 44.0 est.
• Services PMI: 48.4 v 47.9 August and 47.6 est.
• Composite PMI: 47.1 v 46.7 August and 46.5 est.

Germany

• Manufacturing PMI: 39.8 v 39.1 August and 39.5 est.
• Services PMI: 49.8 v 47.3 August and 47.1 est.
• Composite PMI: 46.2 v 44.6 August and 44.7 est.

France

• Manufacturing PMI: 43.6 v 46.0 August and 46.1 est.
• Services PMI: 43.9 v 46.0 August and 46.0 est.
• Composite PMI: 43.5 v 46.0 August and 46.0 est.

UK – A series of weaker than expected economic data released this morning after a surprise move by the BOE to leave rates unchanged announce yesterday.

• The central bank left rates at 5.25% compared to market expectations for a 25bp hike, thus, ending a run of 14 consecutive rises.
• The decision was secured in a narrow 5-4 win for those who opted to wait and see if previous rounds of tightening were enough to bring inflation down to target levels.
• Retail sales and flash PMI numbers point to further economic slowdown with Composite PMI hitting a 32 month low and business activity in a contraction for a second consecutive month.
• Flash PMI data also showed a drastic drop in the rate of inflation to the weakest since Feb/21 reflecting a combination of weak demand and lowest cost inflation.
• A turnaround in the labour market was also recorded with the rate of job losses at its fastest since October 2009 (excluding the pandemic lockdown period).
• “A major concern in the inflation outlook has been wage growth, but with the survey now signalling the sharpest fall in employment since 2009, wage bargaining power is being eroded rapidly,” the report reads.
• “With the Bank of England having had sight of the survey data prior to its latest policy decision, the worrying signals from the survey of heightened recession risk and cooling inflationary pressures are likely to have added to calls to halt rate hikes.”
• GfK Consumer Confidence:-21 v -25 August and -26 est.
• Retail Sales (%mom): 0.4 v -1.1 (revised from -1.2) July and 0.5 est.
• Retails Sales (%yoy): -1.4 v -3.1 (revised from -3.2) July and -1.2 est.
• Manufacturing PMI: 44.2 v 43.0 August and 43.2 est.
• Services PMI: 47.2 v 49.5 August and 49.4 est.
• Composite PMI: 46.8 v 48.6 August and 48.7 est.

Ukraine – The first large ship loaded with grain left the Ukrainian Black Sea port of Chornomorsk since Moscow quite a deal in July threatening any vessels in the region to be potentially treated as military targets.

• 17.6kt of Ukrainian wheat are reported to have set sail for Egypt after a smaller one carrying 3kt shipped earlier this week.
• The news follows reports that wheat prices fall to a near three year low on exceptionally strong crop in Russia.
• Wheat futures are trading at $5.75 per bushel compared to peak levels of more than $13 in the wake of Russia’s invasion of Ukraine last year.

Saudi Arabia – Developing Saudi / China political and commercial trade accord will inevitably end in tears.

• China continues to strive to become self-sufficient and is moving away from oil consumption / imports just as fast as it can so Saudi Arabia will need to develop new forms of exports to restore balance to its balance of payments deficit with China.
• Saudi doesn’t have much more than oil and gas to sell to China just now, though it is keen to develop nascent tourist and mining and refining industries.
• The Kingdon is keen to develop EV manufacturing in-country but we reckon this could be one sure way to spend the nation’s wealth without guarantees of solid returns in our view.

Currencies

US$1.0665/eur vs 1.0643/eur previous. Yen 148.38/$ vs 148.30/$. SAr 18.887/$ vs 18.844/$. $1.228/gbp vs $1.232/gbp. 0.643/aud vs 0.641/aud. CNY 7.300/$ vs 7.304/$. Dollar Index 105.50 vs 105.52 previous.

Commodity News

Precious metals:

Gold US$1,926/oz vsUS$1,928/oz previous

Gold ETFs 88.7moz vs 89moz previous

Platinum US$931/oz vs US$927/oz previous

Palladium US$1,277/oz vs US$1,269/oz previous

Silver US$23.69/oz vs US$23/oz previous

Rhodium US$4,100/oz vs US$4,100/oz previous

Base metals:

Copper US$ 8,232/t vs US$8,256/t previous

Aluminium US$ 2,229/t vs US$2,235/t previous

Nickel US$ 19,230/t vs US$19,340/t previous

Zinc US$ 2,541/t vs US$2,497/t previous

Lead US$ 2,189/t vs US$2,183/t previous

Tin US$ 25,515/t vs US$25,970/t previous

Energy:

Oil US$93.7/bbl vs US$92.4/bbl previous

• Crude oil prices edged higher after Russia announced a temporary ban on fuel exports of gasoline and diesel to global markets with immediate effect in order to stabilise prices on its domestic market.
• US natural gas prices fell after the EIA storage report detailed a 64bcf build to 3,269bcf last week, with storage levels decreasing to 14.3% above last year and 5.9% above the 5-year average.
• Media sources report that Waldorf Production (private) s considering a potential sale, which reportedly comes in response to the financial impact of the UK Energy Profits Levy.

Natural Gas €38.700/MWh vs €36.220/MWh previous

Uranium UXC US$65.50/lb vs US$62.10/lb previous

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$118.1/t vs US$121.8/t

Chinese steel rebar 25mm US$538.4/t vs US$537.3/t

Thermal coal (1st year forward cif ARA) US$128.0/t vs US$129.7/t

Thermal coal swap Australia FOB US$159.8/t vs US$164.0/t

Coking coal swap Australia FOB US$324.0/t vs US$313.0/t

Other:  

Cobalt LME 3m US$33,420/t vs US$33,420/t

NdPr Rare Earth Oxide (China) US$71,370/t vs US$71,467/t

Lithium carbonate 99% (China) US$21,301/t vs US$21,289/t

China Spodumene Li2O 6%min CIF US$2,370/t vs US$2,440/t

Ferro-Manganese European Mn78% min US$1,035/t vs US$1,033/t

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

China Graphite Flake -194 FOB US$645/t vs US$645/t

Europe Vanadium Pentoxide 98% 6.6/lb vs US$6.6/lb

Europe Ferro-Vanadium 80% 29.25/kg vs US$29.25/kg

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

Spot CO2 Emissions EUA Price US$87.3/t vs US$87.2/t

Brazil Potash CFR Granular Spot US$355.0/t vs US$355.0/t

Battery News

Tesla proposes battery storage factory in India

• Tesla has submitted plans to make and sell battery storage systems in India.
• The automaker has sought several incentives to set up a battery storage factory, Indian officials conveyed these would not be available, but would help create a fair business model through subsidies.
• Last year, India had its worst power crisis in over six years due to coal transportation problems.
• Delays to adding coal and hydropower capacity have increased the risk of nighttime power cuts.
• Tesla have also been in discussion to set up a new EV gigafactory to build an EV priced around $24,000.
• Prime Minister Narendra Modi has been directly involved in discussions.

Company News

Blencowe Resources (BRES LN) 5.5p, Mkt Cap £11m –Receipt of $5m grant from US to fund DFS at Orom-Cross graphite project

• Blencowe reports it has received a $5m grant from the Development Finance Corporation, a US Government entity.
• The funding will support a DFS on the Orom-Cross graphite project.
• $1m will be paid immediately.
• The DFC has been established by the Biden administration to secure a reliable critical minerals supply chain to the US.
• Blencowe hopes the DFS will see a greater NPV than the PFS delivered last year at $482m.
• Orom-Cross is believed to host 2-3bn tonnes of graphite by management, although it currently holds a JORC resource of 24.5mt @ 6% GC.
• Bulk samples have been sent to China as part of the DFS process.

Gemfields Group (GEM LN) 13p, Mkt Cap £172m – Interims show no dividend on sliding emerald production at Kagem

• Gemfields reports its six month results for the period to 30^th June.
• The Company saw revenue slide to $153.6m vs $193m last year.
• EBITDA fell to $73m vs $105m last year.
• Earnings per share for the period fell to $0.8/share vs $3.7/share same period last year.
• The group’s cash balance fell to $62m vs $82m last year.
• The decline in revenue reflects sliding production at Kagem emerald mine with lower quality and quantity reported.
• Sliding gemstone prices and weak production saw Gemfields withdraw from the November emerald auction.
• The new Montepuez ruby mine is expected to come into production in 1H25, with constructions starting on a new processing plant.
• The Board will not issue an interim dividend, reflecting the sliding production

Kodal Minerals* (KOD LN) 0.54p, Mkt Cap £93m – Kodal presses ahead with detailed engineering work for Bougouni lithium project

(Kodal / Hainan jv deal long-stop date to 30 September 2023)

• Kodal Minerals technical team were in Mali this week to meet with Hainan Mining representatives on the Bougouni project.
• The team met with the Director General of the Mali DNGM to discuss progress and the start of the site development.
• Kodal has now submitted formal Notification for a phased development of the Bougouni project including:
  • Phase 1 – DMS ‘Dense Media Separation plan at Ngoualana for faster production of spodumene concentrates,
    • DMS plant design close to completion for US$100m funding drawdown
  • Phase 2 – flotation plant development for better resource recovery and longer mine life.
    • Including: large-scale flotation design review and metallurgical testing to support the expansion of the Boumou deposit alongside the existing  12.2Mt @ 1.10% Li2O resource at Sogola-Baoulé.
• Kodal has completed full registration of the new mining company, Le Mines de Lithium de Bougouni SA, held by Kodal Mining UK Limited. This will hold the Mali lithium assets.
• ESG:  Kodal has an environmental permit for the project with ongoing supplemental studies. These studies also support preparation of the notification to the DNGM.
• The Kodal team plan to upgrade local access roads next month at the end of the rainy season using local contractors which will help the local community in collecting the harvest alongside aiding access to Ngoualana for site development.

Conclusion:  Its good to hear Kodal are pressing ahead with engineering planning and local infrastructure development. We look forward to the day when the $100m is transferred into the joint venture company for the development of the Bougouni lithium project.

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

 Sigma Lithium (SGML CN) C$48.2, Mkt Cap C$5.3bn – 22.5kt of lithium shipped to Glencore as partnership agreed

• Sigma has agreed terms with Glencore for lithium from the Grota do Cirilo Project in Brazil.
• The Company sold 22.5kt of its ‘Triple Zero Green Lithium’ to Glencore.
• Glencore will pay 50% prepayment in advance of shipping at a 9% premium of the LME lithium hydroxide.
• 25% of Grota’s output is currently secured by LG Energy Solution.
• Grota is targeting 130kt production in 2023.
• Sigma recently put itself up for sale and notes it is in discussions with a number of potential buyers.

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%