SP Angel Morning View -Today’s Market View, Friday 25th August 2023

US$ continues to strengthen ahead of Powell Jackson Hole speech

MiFID II exempt information – see disclaimer below

Sarn Helen Gold (Private, full EIS tax relief) – We are raising funds for Sarn Helen Gold a private Welsh gold exploration company

• Exploration is focussed on Pembrokeshire following alluvial gold to trace its source with 83 grains of gold so far recovered.
• Sarn Helen has spent £470,500 on exploration since 2019 following gold in soils and stream sampling over two field seasons .
• The team, led by Mike Armitage, ex SRK, is focussed around the historic, Dolaucothi gold mine which never ran out of ore.
• Boreholes contain gold mineralisation drilled near the Dolaucothi gold mine.
• Mineralisation looks similar to the Bendigo district of Australia from 3D modelling.
• Trenching plans to expose potential gold mineralisation at Brunant away from the mine.
• Peeblesshire prospect shows rock chip float samples of up to 7.95g/t.
• Management are looking for £150,000-200,000 to fund the 2023 filed season towards identification of sites for resource definition.

 *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.

Mkango Resources* (MKA LN) – Quarterly results describe progress at Songwe Hill

Petra Diamonds (PDL LN) – August sales tender hints at improvement to demand and prices for the rest of the year

Premier African Minerals (PREM LN) – Financing for the Zulu project as contractors agree to accept some payments in shares.

Xtract Resources (XTR LN) – Joint venture with Cooperlemon Consultancy to explore large scale exploration licenses in NW Zambia

SFO drops investigation against Rio Tinto

• The SFO report it has dropped its six-year investigation into allegations of corruption on the Simandou project in Guinea.
• The case centered around an alleged bribery scheme involving members of the Guinea government.
• The SFO also dropped a 10-year investigation against ENRC over alleged bribery on mining contracts in the DRC between 2009 and 2012.
• The US Securities and Exchange Commission dropped its case against Rio Tinto after Rios paid a $15m civil penalty to end the investigation.
• Many will ask why it has taken so long for the SFO to drop a case though the Australian Federal Police have not yet dropped their investigation.
• The SFO was recently defeated in a case against former executives at G4S over alleged bribery at Unaoil but did win $350m in its case against Glencore bribery for oil deals in Africa.
• The SFO appears to be clearing the decks in preparation for its new leader, Nick Ephgrave, former assistant commissioner at the Metropolitan Police who takes over next month.
• Lucky the case wasn’t taken up by the Russian authorities, otherwise the defendants might have met with some unfortunate accidents though we believe bribery and corruption is relatively acceptable in Russia these days.

Oslo Taxi picks Nio as first choice supplier for drivers

• Norwegian taxi company Oslo Taxi has chosen Nio Norway as the first choice of supplier for its drivers.
• After November 1, 2024, cabs operating in Oslo will not be allowed to emit internal combustion engine emissions.
• Nio was chosen in large part because its vehicles have replaceable batteries according to the report in Norwegian media outlet Bilnytt.no.
• In Scandinavia, Oslo Taxi and its subsidiaries own 13,000 vehicles, so there is a lot of potential for Nio with this agreement.
• Nio started sales in Norway in late 2021. 2023 has seen 347 Nio vehicles registered in Norway.
• We ask, why can’t the London GLC force the full conversion of all taxis in London to EVs?
• Surely this would improve air quality significantly faster than forcing residents in the expanded ULEZ zone to pay £12.50 a day for the privilege of the relatively short journeys they make.

Economics

China – Lifting of zero Covid policy may have led to ~2m excess deaths in the following two months of December and January in China, according to estimates by the US federally funded Fred Hutchinson Cancer Centre in Seattle.

• The estimate is based on a sample of mortality data published by some universities in China an internet searches.
• The study compares to official Chinese government estimates in January for 60k deaths from Covid-19 registered in hospitals since the zero Covid policy was abandoned a month earlier, Reuters reports.

China installed 101.4GW of wind and solar capacity in H1 with solar overtaking hydro as China’s largest renewable power source

• Grid investment rose 7.8% yoy consuming around 18% of Chinese copper demand (from BHP results statement).
• Power source investment rose 54% yoy in H1 to CNY332bn ($45.5bn), with 64% of this invested into solar and wind.
• Solar installations up 154% yoy building on the installed capacity of 392.6GW in 2022 from 4.2GW in 2021
• China had 391GW of installed hydropower capacity in 2021
• China had 57GW of nuclear capacity installed at end 2022

Germany – Business sentiment weakens more than expected in August falling for the fourth consecutive month and hitting the lowest level in 10 months.

• IFO business climate index came in at 85.7 this month, down from 87.4 in July.
• Estimates were for a 86.7 reading.
• A drop was led by weak new orders with sentiment worsening across all sectors.
• The economy is struggling with weak foreign demand, high interest rates and stubbornly strong inflation.

UK – Energy prices to remain high this winter with the average annual bill around £600 higher than pre Russia/Ukraine war, FT reports.

• Energy regulator Ofgem said the new price cap will be £1,923 for the average household during October to December period this year.
• The end of government support programmes including a universal £400 energy bill support will further add to higher cost of living weighing on consumer demand.

Russia – A number of foreign companies trying to exit Russia are faced with heavy discounts for their assets from local buyers, Reuters writes.

• Reuters estimates that losses to date reached more than $80bn for foreign companies with Russian assets reflecting writedowns and lost revenues.
• Moscow demands a 50% discount on all foreign deals after consultants selected by the government value the business with a further minimum of 10% charged on sales proceeds in taxes.
• People familiar with the process say that deals are facing demands for additional discounts before the government approves the transaction.
• A financial market source working with companies seeking to leave Russia said the commission was sending some deals back, saying the valuation should be 20-30% lower.
• The approval process is led by a government commission that monitors divestment by foreign companies from so-called “unfriendly” countries (ie those that are involved in Russian sanctions).

Turkey – Lira strengthened on the back of a larger than expected 750bp rate hike by the central bank.

• The surprise move took rates to 25% marking their highest level since 2019.
• Estimates were for a 250bp move.
• The policy committee that includes three new members with a strong hawkish bias said it would tighten “as much as needed in a timely and gradual manner” to cool inflation that hit 48% last month.

South Korea – Central bank left rates unchanged at 3.5%

Indonesia – Central bank left rates unchanged at 5.75%

Currencies

US$1.0786/eur vs 1.0855/eur yesterday. Yen 146.03/$ vs 145.21/$. SAr 18.762/$ vs 18.568/$.  $1.258/gbp vs $1.270/gbp. 0.642/aud vs 0.646/aud.

CNY 7.289/$ vs 7.280/$.  Dollar Index 104.16 vs 103.49 yesterday.

Commodity News

Precious metals:

Gold US$1,914/oz vs US$1,921/oz yesterday

Gold ETFs 89.9moz vs US$89.9moz yesterday

Platinum US$942/oz vs US$931/oz yesterday

Palladium US$1,245/oz vs US$1,264/oz yesterday

Silver US$24.09/oz vs US$24.14/oz yesterday

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

Base metals:

Copper US$ 8,414/t vs US$8,405/t yesterday

Aluminium US$ 2,174/t vs US$2,168/t yesterday

Nickel US$ 21,175/t vs US$20,615/t yesterday

Zinc US$ 2,400/t vs US$2,362/t yesterday

Lead US$ 2,182/t vs US$2,183/t yesterday

Tin US$ 25,800/t vs US$25,900/t yesterday

Energy:

Oil US$83.9/bbl vs US$82.8/bbl yesterday

• US natural gas prices were flat as the EIA storage report detailed an 18bcf build to 3,083bcf last week, with storage levels decreasing to 20% above last year and 9.5% above the 5-year average.
• The return of Freeport LNG to operations resulted in the US averaging 11.6bcf/d of LNG exports in 1H23, up 4% y/y and placing it significantly ahead of both Australia (10.6bcf/d) and Qatar (10.4bcf/d) export volumes.
• Crescent Point is selling its North Dakota assets that produced 23.5kboe/d in 2Q23 to a private operator for $500 million in cash, which equates to over five years of the cumulative excess cash flow that was expected from the assets and will be used to pay down debt to an estimated $2.2bn at YE23 (1x adjusted funds flow).

Natural Gas US$2.512/mmbtu vs US$2.474/mmbtu yesterday

Uranium UXC US$58.25/lb vs US$57.00/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$112.3/t vs US$111.0/t

Chinese steel rebar 25mm US$515.6/t vs US$516.2/t

Thermal coal (1st year forward cif ARA) US$128.8/t vs US$128.8/t

Thermal coal swap Australia FOB US$155.5/t vs US$159.0/t

Coking coal swap Australia FOB US$252.0/t vs US$252.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$67,502/t vs US$67,858/t

Lithium carbonate 99% (China) US$27,783/t vs US$27,816/t

China Spodumene Li2O 6%min CIF US$3,170/t vs US$3,170/t

Ferro-Manganese European Mn78% min US$1,041/t vs US$1,037/t

China Tungsten APT 88.5% FOB US$310/mtu vs US$310/mtu

China Graphite Flake -194 FOB US$667/t vs US$672/t

Europe Vanadium Pentoxide 98% 7.5/lb vs US$7.6/lb

Europe Ferro-Vanadium 80% 31.75/kg vs US$31.75/kg

China Ilmenite Concentrate TiO2 US$309/t vs US$310/t

Spot CO2 Emissions EUA Price US$93.2/t vs US$93.8/t

Brazil Potash CFR Granular Spot US$360.0/t vs US$360.0/t

Battery News

Stellantis considers Chinese EV partnership

• Stellantis is considering collaborative opportunities with Chinese EV maker Zhejiang Leapmotor Technology.
• The potential strategic move is aimed at growing Stellantis’ footprint in the Chinese automotive market.
• Beijing’s decision to limit the export of two crucial metals used in semiconductor and EV manufacturing has prompted companies from Western countries to either seek or establish alternative supply chains or look for partnership in China.
• Other automakers, including Volkswagen have also displayed interest in the possibility of forming a partnership with Leapmotor.

US could see resurgence in hybrid EVs

• Ford is the latest of several top automakers, including Toyota and Stellantis, planning to build and sell hundreds of thousands of hybrid vehicles in the US over the next five years. (Reuters)
• The companies are pitching hybrids as a bridge for retail and commercial customers who are seeking more sustainable transportation but may not be ready to make the leap to a full EV.
• Consumer demand for pure electrics has not accelerated as quickly as expected, so automakers are looking for alternatives.
• S&P Global Mobility estimates hybrid sales will more than triple over the next five years, accounting for 24% of US new vehicle sales in 2028, with sales of pure electrics at about 37%.
• It is estimated that hybrids will account for just 7% of US sales this year, and pure electrics 9%, with internal combustion engine (ICE) vehicles taking more than 80%.

Company News

Mkango Resources* (MKA LN) 10.25, Mkt Cap £26m – Quarterly results describe progress at Songwe Hill

• In its report for the 3- and 6-months ending 30^th June 2023, Mkango Resources reports a quarterly loss of US$1.09m (Qtr to June 2022 – loss of US$1.98m) bringing the H1 loss to US$1.65m (H1 2022 – loss of US$4.21m).
• The company confirms that during the quarter it “continued to focus on advancing all aspects of its rare earths’ Mine, Refine, Recycle strategy”.
• As it progresses its Songwe Hill rare-earths project in Malawi the company reports a 30^th June cash balance of US$4.55m following the $4.2m placing of additional shares priced at 12.5p/share in February.
• The company’s July 2022 Definitive Feasibility Study for the Songwe Hill project describes an initial capital investment of US$277m (exclusive of contingency) delivering an after tax NPV_10% and IRR of 31.5% over an operating life of 18 years.
• Mkango Resources describes progress at Songwe Hill, including the approval, in January, of the Environmental Social Health Impact Assessment by the Malawi authorities and continuing discussions with the Government “regarding the Mine Development Agreement”.
• The report also confirms the £2m convertible loan investment ($2.4m) in Mkango by Cotec which, on conversion would take Cotec’s “position in … [Mkango’s 90% owned rare-earths recycling business] … Maginito to 20.6%”.
• In addition, the wholly-owned Polish subsidiary, Mkango Polska, is working with Poland’s largest chemicals company, to develop a rare-earths separation plant at Pulawy.
• The company also describes exploration of its other licence areas in Malawi, including sampling and trenching of radiometric anomalies at its Thambani uranium licence and of follow up exploration based on the 2016 airborne geophysical survey.

*SP Angel acts as nomad and broker to Mkango Resources

Petra Diamonds (PDL LN) 70.9p, Mkt Cap £138m – August sales tender hints at improvement to demand and prices for the rest of the year

• Petra Diamonds has announced that its first diamond sales tender of FY 2024, which was deferred from June until mid-August due to “a temporary slowdown in the market for rough diamonds as a result of elevated inventory in the mid-stream”, resulted in the sale of 696,194 carats realising US$79.3m.
• As inferred when the sales tender was deferred, the August sales were larger than the 468,817 carats sold in May.
• The company says that “although demand was more muted than we had expected in exiting the summer holiday period. Average prices for both Cullinan Mine and Finsch benefited from an improved product mix, while like-for-like prices declined by 4.3% compared to our most recent tender … which closed in May 2023”.
• The company says that it did see the “expected seasonal improvement in demand was evident for higher quality +10.8ct stones with solid prices realised, including US$82,630 per carat for a 20.9 ct yellow diamond from Cullinan Mine that sold for US$1.7m.”
• The improved demand for these larger diamonds “was offset by slower demand for 2-10 carat size ranges with like-for-like prices down by c. 14% compared to Tender 5. Demand in smaller categories remains resilient, with like-for-like prices increasing between 1-2%”  compared to the tender in May.
• Compared to the May 2023 sales, average prices for diamonds from the Cullinan mine improved to US$113/carat (May 2023 – US$99/carat) while those from the Finsch mine improved to US$116/carat (May 2023 – US$81/carat).
• Petra Diamonds says that the “balance of price movements is attributable to product mix, with both Cullinan Mine and Finsch benefiting from improved overall quality compared to … [the tender in May] … after normalising for the withdrawn parcels, partly offset by the lack of Exceptional Stones in this period compared to US$5.6 million sold” in May.
• The company expresses confidence that as “we enter a seasonally stronger period which includes Diwali, Thanksgiving, Christmas and the Chinese New Year, we remain optimistic that jewellery demand will improve and provide some support to prices over the balance of the calendar year”.

Conclusion:  Petra’s results show values at $113/ct on average vs an average price of $198/ct reported for Tender 1 on 13 September 2022 on the sale of $103m of stones.  The fall in sales reflect the damage being done by competition from cheap Lab Grown Diamonds which we thoroughly recommend if you want to risk buying a stone made by Norinco as part of China’s PLA weapons program.

Premier African Minerals (PREM LN) 0.4p, Mkt Cap £89m – Financing for the Zulu project as contractors agree to accept some payments in shares.

• Following the report earlier this week on the operational progress of its Zulu Lithium project in Zimbabwe Premier African Minerals has confirmed a £4m placing and subscription to finance the project where the company “is targeting revenue generating production by November 2023”.
• The placing comprises an additional 1,143m shares at a price of 0.35p/share. Based on the company’s AIM Rule 26 disclosures on its website, we estimate that the additional shares represent ~ 4.9% of the enlarged equity.
• The company explains that the largest remaining costs relating to the Zulu development are related to the payments due to its contractors. Both the mining contractor and “the Zulu design, procurement, installation, and commissioning contractor … [have agreed] … to collectively accept payment of a limited number of future invoices until the end of December 2023 … in new ordinary shares of the Company at the closing middle market price on the day prior to settlement”.
• CEO, George Roach, said that the combined effect of the funding and the arrangement with the contractors is “expected to see Zulu pass through the current interim remedial situation and allow the Company to reach target nameplate production at Zulu”.

Conclusion: Agreement with the contractors combined with today’s funding aims to see the Zulu project achieve its nameplate capacity and start generating revenue by November. We await further news with interest.

Xtract Resources (XTR LN) 1.5p, Mkt Cap £12.8m – Joint venture with Cooperlemon Consultancy to explore large scale exploration licenses in NW Zambia

• Xtract Resources report a new joint venture agreement with Cooperlemon Consultancy Limited for the exploration of large scale exploration licenses in Northwest Zambia.
• The licences in the Western Foreland geological district which hosts the Kamoa Kakula copper mine run by Ivanhoe Mining in the DRC.
• The licenses cover 107,000ha and also include the Central Fold and Thrust Belt geological features in Northwest Zambia.
• Despite limited exploration, management see scope for the discovery of potentially high-grade Kamoa-style mineralisation at depth and lower grade bulk tonnage at or near-surface.
• Initial fieldwork will start in September to work up some potential drill targets.
• The earn-in deal enables Xtract to earn a 65% interest in the jv through the expenditure of US$2m over two years in Phase 1.
• Phase 2 requires expenditure of US$3m by Xtract who will also operate the exploration program. It does not state if this raises Xstract’s stake in the jv.
  • In the event that either or both of the licences advance to a point where they are commercially viable and suitable for development then the licences will be moved to a corporate entity to be owned 75% by Xtract and 25% by Cooperlemon, and it will be the responsibility of the newly formed corporate entity to raise all capital for mine development and future operations.
• If the project or company is sold within Phase 1 then Xtract will be deemed to hold 55% of the jv.
• Geology, location and prospectivity (according to Xtract)
  • The style of mineralisation and associated geology and structure responsible for the Kamoa-Kakula deposit operated by Ivanhoe Mines in the neighbouring Democratic Republic of the Congo (“DRC”), is believed to extend across the border into North-West Zambia where the Licences are located. Ivanhoe Mines Kakula Mine is reported to be the world’s highest -grade copper mine with reported deep high-grade (>5% Cu) copper mineralisation.
  • The geology of the Licence areas is dominated by the Western Foreland succession (Kamoa-style mineralisation) and the neighbouring Lufilian Fold Thrust Belt that plays host to lower grade bulk tonnage near-surface mineralisation. The Licence areas transgress the projected Western Foreland – Thrust Belt boundary and, although historically underexplored, are therefore considered by the Board to be strongly prospective.
  • Kamoa-style mineralisation requires the architectural domain known as the Western Foreland, along with the presence of diagnostic lithology that includes a reduced diamictite horizon marking the boundary of reduced – oxidised strata and structures resulting from growth faults including grabens and stratigraphic thickening.
  • African Pioneer Plc, which has an interest in four licences in North West Zambia three of which are adjacent to the Licences, recently reported that its partner’s (First Quantum Minerals) exploration had confirmed the presence of mineralisation with diagnostic regional geological and architectural similarities apparently consistent with Kamoa-Kakula deposit mineralisation located in the DRC and with apparent similarities to that needed to facilitate the large scale deposition of high-grade copper mineralisation of the Kamoa Kakula type..
• Discoveries in Zambia in recent years include:
  • Sentinel in 2014 with 1bnt grading 0.51% copper just 40km away from Kalaba (Arc Mineral, Zamsort asset) and is producing >190,000tpa of copper.
  • First Quantum Minerals acquired the Sentinel (Kalumbila) project from Kiwara in 2010 for US$260m. Kiwara had an estimated resource at Kalumbila of 1.38bt grading 0.78% copper. The resources was later adjusted by FQM to 1.027bt grading 0.51% copper. Last year the mine reported an new resource of 0.88bnt grading 0.53% copper following production of 223,656t of copper in 2018.
  • Lumwana:  Lumwana is 100km to the east and had reserves of around 678mt grading 0.49% copper and is producing >116,000tpa of copper.
  • Barrick Gold bought Equinox, for its Lumwana assets in 2011 for $7.8bn post construction with 322mt of copper ore grading 0.73% copper.
  • Kanshanshi: 200km to the east hosting 1.4bnt grading 0.64% copper resource, developed by First Quantum Minerals.
• Kamoa-Kakula: part of the reason for so much interest in the West of Zambia is the relatively recent Kamoa-Kakula copper/cobalt discovery to the north and across the border in the DRC.  Kamoa-Kakula is the world’s fastest growing major copper mine and is destined to become one of the world’s most profitable copper mines.  The mine is held in a jv between Ivanhoe Mines (39.6%), Zijin Mining Group (39.6%) and the DRC (20%).

Conclusion: There is good potential for a number of significant copper discoveries towards the West of Zambia. Arc Minerals*, BE Metals, Zamare* Tertiary Minerals* are all exploring for copper and cobalt in the region. We are hopeful that Arc Minerals will sign a potential $100m exploration jv with Anglo American this year following an extensive and long-running due diligence program by Anglo.

*SP Angel act for Arc Minerals*, BE Metals, Zamare* Tertiary Minerals*

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 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.

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