SP Angel Morning View -Today’s Market View, Friday 28th April 2023

Copper prices hover around six-week lows as China manufacturers slow buying

MiFID II exempt information – see disclaimer below

Atlantic Lithium* (ALL LN) – Quarterly reports highlights high level of exploration activity on Ewoyaa lithium project

Aura Energy* (AURA LN) – Quarterly report highlights increase near-term uranium potential in enhanced DFS on Tiris uranium project

Beowulf Mining* (BEM LN) – Grafintec Signs MoU for Sustainable Graphite Purification Technology

Celsius Resources* (CLA LN) – Q1/23 highlight MCB progress on course for the MPSA application

KEFI Gold and Copper* (KEFI LN) – Tulu Kapi Final Umbrella Agreement signed as the project moves closer to funding completion

Metals Exploration (MTL LN) – Strong production and FCF in Q1/23 help to drive debt levels lower.

Tertiary Minerals* (TYM LN) –Promising analytical results from historic drill hole at Mushima North, Zambia

Copper prices hover around six-week lows as China manufacturers slow buying

• Copper prices are hovering around $8,500/t, following an extended sell-off over a combination of disappointing Chinese data and global growth concerns.
• Reuters reports six major copper consumers, making copper plates, rods and strips for end users, note orders falling for Q2 yoy, pushing them to slash prices.
• Qiangda Tongcai, making 250t of copper products/month, notes orders fell 10% yoy for Q2.
• SMM data showing operating rates for rod production lines sliding to 64% in April vs 75% in March.
• Plate and strip manufacturing rates have fallen to 68% this month vs 77% in March.
• China’s construction season continues to disappoint, with housing completions falling 19.2% yoy by floor area for Q1.
• Air conditioning demand from China is providing some support in the lead up to summer, with units seeing production rates jump 6% yoy for Q1.
• MMG reports a 15% drop yoy for Q1 copper production at 58.6kt.

 Iron ore ticks higher following extended sell-off to sub-$100/t

• Iron ore prices have held above $100/t, with Singapore futures sitting at $102/t and Dalian futures at $104/t.
• Analysts note weak demand from steel mills owing to blast furnace maintenance but note buoyant inventories at mills.
• Coking coal fell 3.75% and coke slid 1.37% overnight.
• Steel product prices are also sliding.
• Boashan, China’s largest steelmaker, saw net profits slide 50% yoy for Q1 as iron ore prices held an average over $110/t for the quarter and demand from steelmakers suffered.

 Indonesian nickel flood set to push market into surplus (INSG)

• The International Nickel Study Group expects a nickel surplus of 239kt vs last year’s 105kt surplus.
• The group raised its 2023 forecast by 171kt.
• The jump follows weaker demand expectations and a flood of new production from Indonesia.
• Indonesia’s nickel mine output climbed 44% in Jan/Feb 2023. (INSG)
• Global demand jumped 6.3% in 2022 on the back of increased EV production, however stainless steel remains a primary driver for nickel demand.
• 17,137t of nickel was used for roads globally in EV batteries in February, a 19% mom jump and a 47% jump yoy. (Adamas)

 Economics

US – Fed expected to raise rates by 25bp next Wednesday

• Investors still looking for rates to peak in the next few months
• First Republic Bank expected to require support

China – Labour Day holiday starts tomorrow and runs to Wednesday next week

• First Covid-free holiday in China for three years
• Fourth China-Central Asia Foreign Minister’s Meeting started yesterday
• Qin called on all sides to stay focussed and to make Central Asia a land of win-win cooperation rather than a battlefield of geopolitical games. – fine words for a politician
• The minister spoke of fine words between President Xi and Ukraine’s President Zelenski
• The next China-Central Asia Summit will be held in May in Xi’an.

Europe – ECB expected to raise rates by 25-50bp

• 2.5m government employees in Germany to get a 5.5% wage increase raising inflationary pressures

 Deutsche Bank buys Numis Securities for £410m

Sumitomo to raise stake in Jefferies to 15%

• Consolidation in the banking and investment banking world continues as brokers struggle with falling commissions, IPOs and placings.
• Cenkos and FinnCap recently also agreed a £43m tie-up in a deal which we suspect will lead to significant cuts in the 230-strong workforce.
• Cenkos had a market cap of 32m and FinnCap was valued at £21m on 23^rd March. The Cenkos and FinnCap share prices have continued to slide since their announced deal.
• Pressure is being applied to politicians to relax strict regulations which appear to restrict UK pension funds to holding just 4% of UK equities.
• This is seen as a significant drawback to fund performance in an inflationary environment and to the funding of growth stocks.

 Currencies

US$1.1007/eur vs 1.1046/eur yesterday. Yen 135.81/$ vs Yen 133.70/$. SAr 18.388/$ vs 18.311/$. $1.248/gbp vs $1.247/gbp. 0.659/aud vs 0.662/aud. CNY 6.919/$ vs 6.918/$.

Dollar Index 101.77 vs 101.60 yesterday.

Commodity News

Precious metals:

Gold US$1,991/oz vs US$2,002/oz yesterday

   Gold ETFs 93.6moz vs US$93.4moz yesterday

Platinum US$1,082/oz vs US$1,097/oz yesterday

Palladium US$1,491/oz vs US$1,523/oz yesterday

Silver US$25.15/oz vs US$25.07/oz yesterday

Rhodium US$8,500/oz vs US$8,500/oz yesterday

Base metals:   

Copper US$ 8,577/t vs US$8,519/t yesterday

Aluminium US$ 2,321/t vs US$ 2,313/t yesterday

Nickel US$ 23,889/t vs US$ 23,610/t yesterday

Zinc US$ 2,638/t vs US$ 2,614/t yesterday

Lead US$ 2,115/t vs US$ 2,112/t yesterday

Tin US$ 25,754/t vs US$ 25,600/t yesterday

Energy:           

Oil US$78.5/bbl vs US$78.0/bbl yesterday

Natural Gas US$2.346/mmbtu vs US$2.308/mmbtu yesterday

Uranium UXC US$52.10/lb vs US$52.00/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$104.1/t vs US$103.8/t

Chinese steel rebar 25mm US$554.2/t vs US$552.8/t

Thermal coal (1st year forward cif ARA) US$134.0/t vs US$134.0/t

Thermal coal swap Australia FOB US$190.0/t vs US$188.0/t

Coking coal swap Australia FOB US$247.0/t vs US$247.0/t

Other:  

Cobalt LME 3m US$34,930/t vs US$34,930/t

NdPr Rare Earth Oxide (China) US$64,746/t vs US$66,486/t

Lithium carbonate 99% (China) US$22,762/t vs US$22,331/t

China Spodumene Li2O 5%min CIF US$4,090/t vs US$4,090/t

Ferro-Manganese European Mn78% min US$1,364/t vs US$1,361/t

China Tungsten APT 88.5% FOB US$325/mtu vs US$325/mtu

China Graphite Flake -194 FOB US$775/t vs US$780/t

Europe Vanadium Pentoxide 98% 8.4/lb vs US$8.5/lb

Europe Ferro-Vanadium 80% 33.75/kg vs US$33.95/kg

China Ilmenite Concentrate TiO2 US$340/t vs US$340/t

Spot CO2 Emissions EUA Price US$94.3/t vs  US$94.1/t

Brazil Potash CFR Granular Spot US$405.0/t vs US$405.0/t

Company News

Atlantic Lithium* (ALL LN) 32.6p, Mkt Cap £198m – Quarterly reports highlights high level of exploration activity on Ewoyaa lithium project

• Atlantic Lithium continue to work on the delineation and upgrade of the Ewoyaa lithium project in Ghana.
• JORC Resource:
  • 3.5Mt at 1.37% Li2O – Measured
  • 24.5Mt at 1.25% Li2O – Indicated
  • 7.4Mt at 1.16% Li2O – Inferred category.
  •  35.3mt at 1.25% Li2O – Total Mineral Resource Estimate
• Drilling 47,000m with assays done
• 2023 program: 20,000m auger drilling on broader Cape Coast Lithium Portfolio
  • 100m x 100m grid soil geochemistry survey over the Cape Coast licence ahead of target definition
  • Seismic
  • 10,000m of infill drilling
  • 2,000m of diamond core drilling for project studies including water monitoring, metallurgy and resource twinning of Reverse Circulation (“RC”) holes
  • Analysis of pegmatite drill intersections from stored pulps and retention samples for multi-element geochemistry to help define a feldspar Mineral Resource Estimate in support of future mine studies

• PFS results previously published (based on the previous 30.1mt at 1.26% Li₂O resource):
  • Throughput 2.0Mtpa
  • Production ~255,000tpa SC6 over a
  • Mine life 12.5
  • Total revenues >US$4.84bn,
  • Post-tax NPV₈ of US$1.33bn,
  • IRR of 224% over 12.5 years.
  • Capex: US$125m
  • Payback <5 months
  • Assumes a spodumene price of $1,359/dmt SC6% in the short term with US$1,200/dmt long term pricing
• Spodumene prices for SC5% min are currently at US$4,090/t CIF
• Cash: A$16.0m at end March including A$4.5m from the exercise of sell-down options.
• Management spent A$3.1m on exploration and evaluation cash expenditure on the lithium project through the quarter
• Piedmont funded A$1.2m in the quarter with A$3.2m reimbursed after end-March.

Conclusion:  Atlantic is well placed, well funded and well backed to continue to advance the Ewoyaa lithium project in Ghana. The company continues to advance its work towards the award of a mining license, hopefully later this year.

*SP Angel acts as Nomad to Atlantic Lithium

Aura Energy* (AURA LN) 13p, Mkt Cap £65m – Quarterly report highlights increase near-term uranium potential in enhanced DFS on Tiris uranium project

(Fully diluted market cap £74m assuming exercise of all 90m options at A$0.052/s. Aura share price A$0.23/s today)

(Aura holds 85% of the Tiris Uranium Project, Mauritania)  

• Aura Energy has published its quarterly report to end March 2023.
• The report highlights:
  • DFS (EFS) – enhanced for near-term production potential and for an overall 150% increase in uranium production
    • Production rate raised to 2.0 Mlbs pa U₃O₈ from 0.8 Mlbs pa U3O8 in steady-state production.
  • Mining Conventions signed with the Government of Mauritania for 30 years of financial stability for tax, royalties, and customs associated with the Tiris project
  • Front-End Engineering Design for the Tiris Uranium Project continues using the revised metrics outlined in the EFS.
• Management remain on target for a potential final investment decision in Q4 2023
• Export permit application for uranium in process.
• Transport and shipping protocols in the final preparation stages for permitting in next quarter.
• Häggån Project: Aura continues to support the Swedish government’s strategy to rescind the present ban on uranium mining in Sweden.
• Management progressing workstreams to allow grant of the exploitation permit for materials for power storage and generation.
• Tiris Project Update
  • Simple free dig, open cast mining,
  • Strong financial metrics delivered from the EFS, headlined by a 180% increase in the Base Case post-tax NPV of US$ 226M and IRR of 28%,
  • Aura forecasts 57% cash margins,
  • AISC of US$ 28.77 / lb U₃O_8,
  • 18-month construction time line
  • Capex US$87.9m + additional capex of US$90.3m,
  • Production 2.0 Mlbs pa U₃O_8,
  • Process enables quick increase to >2,000ppm U₃O₈
  • 76% of forecast production from Proved and Probable Reserves, and 24% from Inferred Mineral Resources
  • 30-year mine life
• The enhanced feasibility study is based on a 52% increase in Measured and Indicated Resources at the Tiris Uranium Project
  • Measured and Indicated Resources at Tiris Uranium Project to 29.6 Mlbs U3O8, 62.1mt grading 216 ppm U₃O₈ at a 100ppm grade cut-off.
• This Resource upgrade enabled the enhancement of the DFS to raise production to 2.0 mlbs pa U3O8
• FEED ‘front-end-engineering design’ work working towards a final investment decision in Q4.
• Häggån Project Update
• Swedish government debate on removal of uranium extraction ban translation available at auraenergy.com.au.
• The Swedish government has reiterated its support to lift the national ban on uranium mining.
• Aura is working with the government to progress work required to for an exploitation permit in 2024.
• Cash: A$4.4m at end march with A$1.2m of expenditure due on Tiris Project development costs and A$837k of corporate costs.
• Net operating cashflow and the investment in exploration and evaluation for the quarter of A$2.2m forecast
• At the current expenditure the Aura has sufficient cash for 1.97 quarters.
• The exercise of 90m listed options is expected to raise A$4.7m at an the exercise price of A$0.052/s. 30m of options are held by large shareholders.
• The directors anticipate that the existing funds and those received from the exercise of options will be sufficient to cover the operating activities and exploration and evaluation activities of the business.

*SP Angel acts as Nomad and Broker to Aura Energy

Beowulf Mining* (BEM LN) 2p, Mkt Cap £24m – Grafintec Signs MoU for Sustainable Graphite Purification Technology

• Beowulf’s 100% owned Grafintec has signed an MoU with Thermal & Material Engineering Center (TMEC) from Ukraine to form a JV.
• TMEC’s propriety state-of-the-art purification technology requires less energy and removes the need for hazardous chemicals for the purification of graphite.
• Grafintec will look to apply TMEC’s technology for natural flake and secondary source graphite for the development of graphite anode materials.
• Grafintec is developing a new graphite anode materials plant in the GigaVaasa area in Finland and is hoping to conclude a PFS on the plant by May 2023.
• Grafintec will own 51% of the JV as per the MoU.

*SP Angel acts as Nomad and Broker to Beowulf Mining

Celsius Resources* (CLA LN) 0.8p, Mkt Cap £15m – Q1/23 highlight MCB progress on course for the MPSA application

(Celsius has agreed to sell a 30% economic ownership of MCB copper mine for US$43m implying a valuation of >$143m on consummation of the deal)

Click Link for SP Angel research report PDF note – MCB project NPV@8% US$463m, IRR of 34.3%

• The Company continued to prepare for the hydrogeological and geotechnical drilling that would be used in a more detailed mine plan at the MCB Copper Gold Project in Philippines.
• Documentation and approvals for the application for a Mineral Production Sharing Agreement are being secured.
• The team entered into an initial binding agreement with local companies to fund ~$43m for a 30% economic interest in the MCB Project and comply with the 60% Filipino legal ownership as a requirement for an MPSA application.
• Assay results from shallow drill holes confirmed the presence of higher-grade copper-gold mineralisation at surface with selected results including:
  • 51.3m @ 0.93% copper and 0.06g/t gold from 7.7m in drill hole MCB-042
  • 101.5m @ 0.90% copper and 0.18g/t gold from 9m in drill hole MCB-043
  • 131.1m @ 0.93% copper and 0.23g/t gold from 11m in drill hole MCB-044
• Further drilling will be carried out on possible extensions of these higher-grade zones that may improve the proposed production schedule.
• The Company spent A$0.3m on exploration primarily relating to the development of the MCB Copper Gold Project as well as ongoing metallurgical testwork at the Opuwo Cobalt Project.
• Closing cash balance stood at A$3.1m.

*SP Angel acts as broker to Celsius Resources..

KEFI Gold and Copper* (KEFI LN) 1.0p, Mkt Cap £40m – Tulu Kapi Final Umbrella Agreement signed as the project moves closer to funding completion

• The Company signed the Final Umbrella Agreement for the Tulu Kapi Gold Project in Ethiopia.
• The agreement was signed in Addis Ababa with the ceremony attended by a number of senior Ethiopian state officials, the UK trade envoy, the Ambassadors to Ethiopia for Britain and for Australia, as well as representatives of project funding partners.
• The agreement finalises all funding syndicate roles and terms precedent to final formal approval being granted.
• The signing of the agreement follows finalisation of the project financing plans with the project principal lenders led by Eastern and Southern Trade and Development Bank.
• Lenders issued conditional funding approval subject to the Ethiopian Government’s formal confirmation of the remaining outstanding terms including clarification of the details of capital controls.
• The $320 development capital costs is envisaged to be covered using up to $245m from co-lenders ($140m senior debt, $50m mezzanine debt and $55m convertible like instruments) with the remaining $75m coming in the form of equity commitments including $28m from the Federal and Regional Governments, regional investors (incl $15m from a British multination industrial group) and KEFI.
• KEFI estimates that the potential exercise of existing warrants will complete the required equity requirement leaving the Company with an economic interest of 70-80% in the project.
• The Company has 893m warrants with an exercise price of 1.6p and ~190m warrants and options most with an exercise price of 0.8-2.6p outstanding that may potentially gross ~$22m.
• In the meantime, negotiations with the government are continuing to secure final approvals preparing for full construction start to coincide with the next dry season at Tulu Kapi starting in Oct/23 ahead of full production in 2025.
• The Company is planning to hold a general meeting with its shareholders in Jun/23 to approve the final funding proposal and syndicate as outlined in the Final Umbrella Agreement.

Conclusion: The Company signs the Final Umbrella Agreement with government officials and representatives of capital providers present confirming all funding syndicate roles and conditions precedent to final formal approval being granted. The project benefits from a stronger gold price environment and a much improved local security situation following a peace agreement reached between the Ethiopian government and Tigrayan forces.

*SP Angel acts as Nomad and Broker to KEFI Gold and Copper

Metals Exploration (MTL LN) 1.8p, Mkt Cap £38m – Strong production and FCF in Q1/23 help to drive debt levels lower.

• Gold production climbed to 21.3koz (Q1/22: 14.8koz) reflecting higher grades and stronger gold recoveries.
• The plant treated 546kt at 1.30g/t recording 93.4% gold recoveries (Q1/22: 507kt at 1.02g/t and 89.0%).
• Cash costs came down helped by stronger output averaging $1,170/oz AISC (Q1/22: $1,311/oz).
• Gold sales amounted to 21.4koz at an average realised price of $1,887/oz (Q1/22: 15.7koz at 1,898/oz).
• Free cash flow came in at $17.8m (Q1/22: $8.2m).
• Strong FCF generation during the quarter allowed to drive net debt position lower that ended the quarter at $69.0m (FY22: $81.1m).
• The team is working with its mezzanine debt providers to change the status of outstanding liabilities to secured that will help to nearly half the interest rate from 15% to 7%.
• Exploration works are ongoing to delineate new resource in the vicinity to current operations with no material gold discoveries to report so far.
• The operation has ~4 years remaining on the latest mineral reserve estimate.

Tertiary Minerals* (TYM LN) 0.16p, Mkt cap £3.1m –Promising analytical results from historic drill hole at Mushima North, Zambia

• Tertiary Minerals has received assay results from a drill hole completed by Roan Consolidated Mines in 1975 at the Company’s Mushima North Copper Project.
• The RKN800 was a vertical drill hole targeting anomalous copper values in soils.
• Results include:
  • 33m @ 0.24% Cu from 122-155m
  • Including 9m @ 0.43% Cu from 140m and 1m at 1.14% Cu from 147m.
• Importantly, the hole ended in mineralisation of 0.19% Cu from 154-155m .
• Geologically, the hole intersected a dipping succession of fractured and hornfelsed siltstones and sandstones which showed calcite veining alongside pyrite and minor chalcopyrite.
• The hole also shows highly anomalous arsenic mineralisation, with an average of 770ppm over the 33m interval.
• As a result of the arsenic anomaly, Tertiary will now look to analyse the drill core samples for gold via fire assays.
• Furthermore, the drillhole lies on the border of an untested gravity anomaly which had been targeted by BHP using the Falcon gravity system in search of IOCG deposits similar to that at Olympic Dam in South Australia.
• Mushima lies less than 20km to the east of the Kalengwa Mine, an historic mine holding 1.9mt at 9.44% Cu – Zambia’s highest grade copper deposit.

Conclusion: The historic drill core for Mushima North provides Tertiary with promising results of clear copper mineralisation over wide intervals. Mushima’s proximity to a major gravity anomaly identified in 2005, providing encouraging incentives for further exploration. Tertiary is reviewing a detailed report from BHP on the anomaly and we look forward to additional updates.

*SP Angel acts as Nomad and Broker to 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 – [email protected] – 0203 470 0490

Simon Beardsmore – [email protected] – 0203 470 0484

Sergey Raevskiy –[email protected] – 0203 470 0474

Sales

Richard Parlons –[email protected] – 0203 470 0472

Abigail Wayne – [email protected] – 0203 470 0534

Rob Rees – [email protected] – 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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