SP Angel Morning View -Today’s Market View, Friday 2nd June 2023

Weaker US$ helps metals higher ahead of the US NFPs numbers

MiFID II exempt information – see disclaimer below

Amur Minerals* (AMC LN) – Proposed all equity offer from Ascent Resources

Blencowe Resources (BRES LN) – Progress report on the Ugandan graphite project DFS

Gemfields Group (GEM LN) – Emerald auction achieves record high US$/carat prices

Tungsten West (TUN LN) – Commissioning of the refinery section at Hemerdon delivers tin and tungsten concentrate for shipping

We are just back from visiting gold and lithium mining projects in Ghana

• We visited Kumasi, Ewoyaa and Takoradi along with meetings with the government and sovereign wealth fund.
• It’s easy to get round though the roads suffer from large numbers of road humps to slow the traffic and a few more potholes than the country lanes in West Oxfordshire.
• The nation looks well placed to develop a very substantial lithium mining industry and remains supportive of its gold mines.
• Ghana signed a $3.2bn contract to rehabilitate the 210-mile rail line between Takoradi and Kumasi last year strengthening its potential for growth.
• The line formerly carried manganese, bauxite and raw cocoa but was worn out by years of heavy use and inadequate maintenance.
• Politically, expect a change in government next December when grass-roots dissatisfaction looks likely to re-elect former president John Mahama in December 2024.
• GDP growth slowed to 3.2% last year form 5.4% in 2021 driven by recovering gold exports combined with higher prices.
• GDP from mining accounted for ~7% of total GDP last year made up some 18% of exports in 2021. The key interest rate is running at 25.94%.
• Gold sales led exports with $6.6bn representing 29% of total exports at $23bn last year.
• The nation is busy reviving the formal gold mining sector through the development of four new large-scale gold mines in the next two and a half years.
• Rows of parked Chinese mining machinery highlight the eviction of many informal Chinese-led artisanal miners.
• We visited: Atlantic Lithium* (ALL LN), Goldstone Resources* (GLD) and CAA Mining* (private). More to follow in due course.

 Economics

US – Equity futures climb following the Congress approval of the debt ceiling legislation with the US$ index trading lower helping commodities.

• As expected, the Senate passed the debt ceiling bill yesterday with President Biden now due to sign off on the agreement.
• The next debt ceiling negotiations are not expected until July 2025, well after the presidential elections.
• Markets have largely judged the risk of a US default as resolved with attention shifting to other uncertainties, including Fed monetary policy, Bloomberg writes.
• US jobs report is out later today with the Fed to closely the pace of employment gains as the central bank prepares to pause its tightening cycle.
• NFPs (‘000): 195k est v 253k April.
• Unemployment Rate: 3.5% v 3.4% April.
• Av Hourly Earnings (%yoy): 4.4% v 4.4% April.

UK – Final manufacturing PMI released yesterday showed the sector recorded a 10^th consecutive month of declines in May dragged down by falls in exports over the last 16 months.

• Exporters blamed factors including a drop in orders from the US and mainland Europe and an increasing number of EU clients switching to local sup-pliers to avoid post-Brexit customs barriers and increased paperwork in exporting goods from the UK.

Namibia – Mines and Energy Minister Tom Alweendo calmed investors’ concerns down saying that the government is not considering nationalisation of any existing mines.

• Comments come after reports seen earlier this week that authorities were advocating for greater government control.
• Minister statement said the government would exercise its rights “in a balanced way considering the interests of both investors and the Namibian nations”, Bloomberg reports.

Currencies

US$1.0763/eur vs 1.0669/eur yesterday. Yen 138.94/$ vs 139.86/$. SAr 19.520/$ vs 19.863/$. $1.253/gbp vs $1.242/gbp. 0.661/aud vs 0.649/aud. CNY 7.076/$ vs 7.119/$.

Dollar Index 103.52 vs 104.40 yesterday.

Commodity News

Copper – The DRC surpasses Peru as the second largest copper exporter as shipments from the African nations more than doubled since 2018 versus a decline recorded by the latter.

• Congolese exports amounted to 2.4mt in 2022 compared to 2.2mtpa from Peru.
• The data reflects stagnant production in Peru over the last five years on the back of social unrest and political uncertainties constraining investment in South America.

Uranium – The US Senate Environment and Public Works Committee approved a bipartisan nuclear policy bill (ADVANCE) aimed at supporting development and deployment of new and advanced nuclear reactors.

• The bill lays the foundation for a more efficient regulatory system for licensing new reactors.
• Legislation will reduce licensing fees for advanced reactor technologies and expedite the regulatory process for new nuclear facilities.

Precious metals:

Gold US$1,977/oz vs US$1,955/oz yesterday

   Gold ETFs 94.2moz vs US$94.2moz yesterday

Platinum US$1,015/oz vs US$1,003/oz yesterday

Palladium US$1,396/oz vs US$1,381/oz yesterday

Silver US$23.88/oz vs US$23.34/oz yesterday

Rhodium US$6,650/oz vs US$6,900/oz yesterday

Base metals:   

Copper US$ 8,286/t vs US$8,195/t yesterday

Aluminium US$ 2,306/t vs US$2,251/t yesterday

Nickel US$ 21,600/t vs US$20,800/t yesterday

Zinc US$ 2,307/t vs US$2,284/t yesterday

Lead US$ 2,015/t vs US$2,012/t yesterday

Tin US$ 25,810/t vs US$25,600/t yesterday

Energy:           

Oil US$75.1/bbl vs US$72.9/bbl yesterday

• Crude oil prices followed equities higher yesterday and continued their run up this morning, following the overnight approval of a US Government debt ceiling deal in the Senate.
• The EIA reported a 4.5mb US crude inventory build last week, as well as a 1mb build to distillate and a 5.5mb build in other product stocks, with refinery utilisation surging 1.4% to 93.1%.
• A 23-nation OPEC+ ministerial meeting will take place this Sunday in Vienna, though market commentators are not expecting any change to the current output policy.
• The US EIA storage report detailed a 110bcf build to 2,446bcf last week, with storage levels now 29.5% above last year and 16.6% above the 5-year average, and gas production at record levels of 102bcf/d.

Natural Gas US$2.180/mmbtu vs US$2.270/mmbtu yesterday

Uranium UXC US$54.60/lb vs US$54.60/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$102.2/t vs US$99.3/t

Chinese steel rebar 25mm US$515.8/t vs US$507.9/t

Thermal coal (1st year forward cif ARA) US$98.0/t vs US$98.0/t

Thermal coal swap Australia FOB US$131.0/t vs US$136.0/t

Coking coal swap Australia FOB US$224.0/t vs US$224.0/t

Other:  

Cobalt LME 3m US$29,525/t vs US$29,525/t

NdPr Rare Earth Oxide (China) US$69,806/t vs US$70,095/t

Lithium carbonate 99% (China) US$40,626/t vs US$39,402/t

China Spodumene Li2O 6%min CIF US$4,030/t vs US$4,030/t

Ferro-Manganese European Mn78% min US$1,275/t vs US$1,264/t

China Tungsten APT 88.5% FOB US$323/mtu vs US$323/mtu

China Graphite Flake -194 FOB US$760/t vs US$760/t

Europe Vanadium Pentoxide 98% 7.1/lb vs US$7.1/lb

Europe Ferro-Vanadium 80% 31.75/kg vs US$32.05/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$313/t

Spot CO2 Emissions EUA Price US$83.0/t vs US$84.2/t

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

Battery News

Company News

Amur Minerals* (AMC LN) 0.2p, Mkt Cap £2.8m – Proposed all equity offer from Ascent Resources

Ascent Resources (AST LN) 3.6p, Mkt cap £6.0m

• The Company notes the announcement released by Ascent Resources with a non-binding indicative proposal regarding a possible share offer.
• Ascent is reported to have submitted a non-binding indicative proposal to the Board of the Company in Nov/22 to acquire all outstanding shares in an all equity deal.
• Ascent offered to issue 1 new Ascent share for every 21 Amur shares that based n the Ascent share price of 3.67 (the last business day immediately prior to the announcement) implies a 0.175p offer (ie £2.4m/$3.0m).
• Under the terms of the proposal, it is expected Amur shareholders would own ~28.6% of the enlarged group with Ascent shareholders holding the balance 71.4%.
• Ascent Resources is an AIM listed oil and gas exploration and development company holding a 75% interest in the Petisovci Gas Project in Slovenia.
• The Company are reviewing terms of the proposed transaction.
• The Company is currently in the process of paying out a 1.8p special dividend (~$31m) from Kun Manie Nickel Copper Project sale proceeds of $35m.
• The shares went ex dividend on 1 June.

*SP Angel act as Nomad and Broker to Amur Minerals

Blencowe Resources (BRES LN) 4.9p, Mkt Cap £10.3m – Progress report on the Ugandan graphite project DFS

• In its interim results statement, issued today, in which it reports a pre- and post-tax loss of £486k, Blencowe Resource outlines progress on the Definitive Feasibility Study (DFS) for its Orom Cross Graphite Project in Uganda.
• The Project hosts shallow open-pittable graphite mineralisation containing an indicated and inferred JORC resource of 24.5mt at an average grade of 6% total graphite, which the company has previously characterised as having “a low strip ratio and free dig operations, thereby ensuring lower operating and capital costs”.
• The DFS is expected to take “around 12 months to complete … dependent on pre-qualification test work being completed as a means to ultimately deliver binding offtake contracts”.
• Parallel workstreams for the DFS include:
  • “work in-country to complete all work necessary to build and operate the mine, including all remaining licenses and permits”; and
  • Pre qualification testing of a 100t bulk sample shipped to China in January to produce a “96% concentrate … [which] … will be then processed to a series of 99.9% products, both expendable’s (large flakes) and SPG (spheronised, purified graphite) (smaller flakes) … [which can then be available ]… to end user OEMs to conduct their own testing in their own facilities, to ensure Orom-Cross end product meets their standards and expectations”; as well as
  • “further metallurgical test work in USA to provide evidence (bench-scale testing) that the 96% concentrate it will deliver at Orom-Cross will be suitable for upgrading to the 99.9% end products sought after by the market, and how this us best achieved”. Results of these tests are “expected soon”; and
  • Evaluation of “a number of different potential funding options to secure the right partnerships for funding both the DFS and the project implementation”.
• Commenting on other projects, Blencowe Resources confirms that it has “walked away from the previously announced nickel exploration earn-in deal with SIPA Resources as it was considered more advantageous to concentrate on delivering the Orom-Cross graphite project into production”.

 Gemfields Group (GEM LN) 15.75p, Mkt Cap £179m – Emerald auction achieves record high US$/carat prices

• Gemfields reports that an auction of high-quality emeralds from it 75% owned Kagem mine in Zambia, which took place in Bangkok and on-line between 15^th May and 1^st June, has realised a record average price of US$165.55/carat.
• All of the 35 lots on offer, totalling 264,000 carats, were sold realising US$43.7m.
• Compared with the previous auction, held in November 2022, which sold 401,000 carats of the 426,000 on offer at an average price of US$76.78/carat, the recent auction attracted 69 bidders (previously – 50 bidders) although the company advises that as the “specific auction mix and the quality of the lots offered at each auction vary in characteristics such as size, colour and clarity on account of variations in mined production and market demand … the results of each auction are not always directly comparable”.
• Gemfields’ Managing Director of Product & Sales, Adrian Banks, described the wider market context for emerald sales by explaining that “In our last auction of November 2022, we saw the market normalise appreciably when compared with the exuberance of the first half of 2022. We are delighted today to see the market rebound sharply once again, underpinning the step-change in market pricing which we reported in 2022”.

Tungsten West (TUN LN) 3.5p, Mkt cap £5.6m – Commissioning of the refinery section at Hemerdon delivers tin and tungsten concentrate for shipping

• Tungsten West reports that as part of commissioning the refinery section of the process plant, it has treated around 50t of residual pre-concentrate material generated by the previous operator and “other legacy material that does not require re-processing” of the Hemerdon tungsten tin mine in Devon’
• As a result, it has produced “four lots of material for sale, two of tungsten concentrate and two of tin concentrate. This material was shipped to an off-taker on 31 May 2023”. Today’s announcement does not detail the size of the shipments.
• The company explains that it undertook the commissioning under “the requisite temporary environmental permit from South Hams District Council … [and that it] … continues to work closely with the Environment Agency and Devon County Council, to secure the final permit for operating the MPF,  … [Mineral Processing Facility]… and to ensure the planning process continues to run smoothly”.
• Chief Executive, Neil Gawthorpe, welcomed the “interim recommencement of operations at the Hemerdon mine . … [and said that] …  This small-scale production of tungsten and tin is a mere indication of what can be achieved once the mine is fully re-opened”.
• He also said that “The success of the recommissioning of the dry section of the refinery has also provided us with valuable insight into the future operating parameters”.
• In addition to the news of the commissioning work, Tungsten West describes the progress of its cost reduction programme at Hemerdon which it says is “nearing completion … [and on] … its conclusion, management forecast a 42% reduction in headcount via redundancy and resignations” and an equivalent reduction in monthly payroll costs.
• Tungsten West explains that the “one-off cost associated with the cost reduction programme is forecast to be minimal and mostly comprised of contractor project suspension fees”.
• Capital expenditure “for the front-end re-build has been scaled back to existing capital commitments for equipment purchase and low-frequency noise trial work. Refurbishment work within the plant has also halted until the permitting and funding processes are complete”.
• In April the company announced plans to raise £5m of interim funding via a Convertible Loan Note and an additional £2m of equity funding to help resume production at Hemerdon although the company also said that “The funds raised from the Placing will not be sufficient to see the Company through to cash generation. The intention of this Placing is to fund the business through the planning and permitting process and completion of the required Project funding”.

Conclusion: The processing and shipment of tungsten and tin concentrates generated during commissioning of the refinery section at Hemerdon demonstrates the technical viability of the plant modifications implemented by Tungsten West. We await news on the progress of the permitting, the interim funding, and of the scale of the Project funding.

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

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 ([email protected]).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expec