SP Angel Morning View -Today’s Market View, Friday 3rd November 2023

US labour numbers in the spotlight as Fed keeps rates unchanged

MiFID II exempt information – see disclaimer below

We are looking for investors for a private exploration opportunity on a newly discovered copper / moly porphyry system in South-East Asia

• Annamite Resources has an ongoing joint venture with a Rio Tinto and is currently drilling its principal copper porphyry in Hinherb District, Laos
• >2,000m in 9 holes already drilled with intersections of visible chalcopyrite and molybdenite both disseminated and in B-veins
• Positive indications of grade at shallow depths. Total funding $2.34m to date. Current implied valuation $4.4m. Best drill result:
  • 60m grading 0.4% copper, 0.2% gold plus molybdenum from 24m eg. below the leached cap
  • 3m grading 0.51% copper, 9.2g/t gold, and 49g/t silver from 64m down hole
  • 2m grading 0.3% copper, 6% zinc and 9g/t gold, 40 g/t silver from 33m down hole related to a massive pyrite-magnetite-sphalerite-chalcopyrite vein
• Annamite also has two gold and silver epithermal structures with low capital potential.
• The projects are within 100km of the capital near the border with Thailand.
• The company is led by Chris Goss and Didier and Didier Fohlen ex IFC. See more info at: https://www.annamite-resources.com/

*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.

Critical Metals plc (CRTM LN) – Results highlight transition to copper production at Molulu in the DRC

First Quantum Minerals (FQM LN) – First Quantum expects to continue operations at Cobre Panama as it aims to resume negotiations over new terms.

Huntsman Corp (HUN N) – Hunstman suspending its plant in Conroe UPEC ‘ultra-pure ethylene carbonate’ project in the US

China is distorting the production and cost base of many metals and commodities

• Western producers, project juniors and explorers are effectively in competition with the world’s second largest economy.
• China has and is applying many forms of subsidy, be it low energy costs, lax environmental controls, low-cost capital and sometimes technology.
• Chinese companies continue to undermine Western producers through aggressive undercutting on price and sometimes overproduction.
• In past decades, the game was for China to suddenly cut back on its offtake for a few months and wait for the producer to go bust through the catastrophic loss of revenue.
• More recently, the game has changed in favour of buying syndicates as in iron ore or simply undercutting western projects and producers on price.
• Despite the rivalry, western explorers and miners continue to compete, largely because China lacks many of the minerals it needs and partly because China also lacks large numbers of experienced geologists required to find and evaluate new projects.
• There is little doubt that if China were to adhere to western norms miners, juniors and explorers would have a more level playing field and more positive environment in which to operate.
• But Chinese manufacturing will continue to require much mineral feedstock and we suspect will continue to acquire many more miners so to control as much as it can.

Nyrstar, owned by Trafigura are to close two zinc mines in Tennessee this month due to low prices and rising costs

• The news prompted a brief $200/t rally in zinc prices.

Economics

US – Apple earnings come ahead of expectations, albeit, weak holiday quarter outlook sees shares trading lower pre-market.

• Bleak sales forecasts in China as the Company is caught between rising tensions between Washington and Beijing and rising competition from Huawei also added to challenges.

Founder of failed FTX crypto exchange, Sam Bankman-Fried was found guilty on all counts of fraud and conspiracy and is facing decades in prison following a month long trial.

• FTX once valued at more than $30bn filed for bankruptcy November last year following a crash in the crypto market over 2022 and a $8bn funding gap that was discovered once clients started to pull money out of the exchange.

China – Business stagnates in October following nine months of growth.

• New business growth slowed to a ten month low while employment dropped slightly driven by a steeper rate of job losses in the manufacturing sector.
• Caixin Manufacturing PMII (released Wednesday): 49.5 v 50.6 September and 50.8 est.
• Caixin Services PMI: 50.4 v 50.2 September and 51.0 est.
• Caixin Composite PMI: 50.0 v 50.9 September.
• NDRC ‘National Development and Reform Commission’ statement says they are looking to expand consumer demand, promote investment, and stabilize fundamentals of foreign investment and foreign trade.
• We are not sure the proposed crucifixion of Evergrande offshore bond holders announced yesterday is going to support this cause but there is always room for change.
• The NDRC also says ‘the motivation of business entities continues to increase’. Is this a return to the capitalist growth model, or is this just a wish by China’s communist leaders?
• We reckon it will take more than simple statements to rejuvenate the entrepreneurial spirit of the tech sector.

Germany – Trade data came in weaker than expected in September with both exports and imports registering a decline.

• Exports (%mom): -2.4 v -0.1 August (revised from -1.2%) and -2.0 est.
• Imports (%mom): -1.7 v -0.3 August (revised from -0.4) and -0.1 est.

Israel – The House or Representatives approved a $14bn new aid package for Israel with the bill facing a resistance in the Democrats controlled Senate and the White House as it failed to include Ukraine and other foreign policy programmes, FT reports.

Currencies

US$1.0629/eur vs 1.0598/eur previous. Yen 150.35/$ vs 150.45/$. SAr 18.403/$ vs 18.443/$. $1.220/gbp vs $1.217/gbp. 0.644/aud vs         0.643/aud. CNY 7.315/$ vs 7.319/$..

Dollar Index 106.09 vs 106.41 previous.

Commodity News

Precious metals:

Gold US$1,988/oz vs US$1,986/oz previous

Gold ETFs 87.2moz vs 87.2moz previous

Platinum US$928/oz vs US$934/oz previous

Palladium US$1,119/oz vs US$1,114/oz previous

Silver US$22.66/oz vs US$23/oz previous

Rhodium US$4,200/oz vs US$4,250/oz previous

Base metals:

Copper US$ 8,200/t vs US$8,168/t previous

Aluminium US$ 2,237/t vs US$2,239/t previous

Nickel US$ 18,100/t vs US$17,995/t previous

Zinc US$ 2,503/t vs US$2,525/t previous

Lead US$ 2,141/t vs US$2,116/t previous

Tin US$ 24,130/t vs US$24,005/t previous

Energy:

Oil US$87.3/bbl vs US$85.9/bbl previous

• Crude oil prices edged higher on a weaker dollar and as traders positioned themselves going into the weekend in expectation of an escalation of hostilities in Gaza.
• US natural gas prices edged higher as the EIA storage report detailed a large 79bcf build to 3,779bcf last week, with storage levels decreasing w/w to 8.4% above last year and 5.7% above the 5-year average.
• EOG reported strong 9M23 results enabling the Company to increase its dividend by 10% and make a total cash return to shareholders of $4.1bn, which represents c.75% of the estimated full-year 2023 free cash flow.
• Flotation Energy and Vårgrønn have signed exclusivity agreements for two floating offshore UK wind developments that will provide up to a total of 1.9GW renewable power to oil and gas platforms and the grid.

Natural Gas €48.700/MWh vs €47.850/MWh previous

Uranium UXC US$74.00/lb vs US$73.00/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$122.3/t vs US$120.9/t

Chinese steel rebar 25mm US$536.3/t vs US$535.4/t

Thermal coal (1st year forward cif ARA) US$118.0/t vs US$118.0/t

Thermal coal swap Australia FOB US$128.5/t vs US$127.0/t

Coking coal swap Australia FOB US$323.0/t vs US$333.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$69,923/t vs US$69,888/t

Lithium carbonate 99% (China) US$21,120/t vs US$21,110/t

China Spodumene Li2O 6%min CIF US$2,010/t vs US$2,010/t

Ferro-Manganese European Mn78% min US$1,026/t vs US$1,023/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$625/t vs US$625/t

Europe Vanadium Pentoxide 98% 6.2/lb vs US$6.2/lb

Europe Ferro-Vanadium 80% 26.25/kg vs US$26.25/kg

China Ilmenite Concentrate TiO2 US$311/t vs US$311/t

Spot CO2 Emissions EUA Price US$82.2/t vs US$83.1/t

Brazil Potash CFR Granular Spot US$342.5/t vs US$342.5/t

EV & Battery News

Chinese electric truck maker Windrose seeking US IPO in 2024

• Windrose Technology Inc. has started preparatory work for an IPO in the US next year, as it plans the commercial roll-out of its first vehicle.
• The company is looking to raise at least $200m and is currently raising $100m in a pre-IPO round.
• Windrose plans to start delivering its trucks, which it sees as an eventual rival to Tesla Inc’s Semi, to customers in 2024.
• The company says its trucks can drive 600km carrying a full payload, with batteries that can charge to 65% in 35 minutes.
• It already has 1,000 orders in the US and 500 in China.
• Windrose is also developing a hydrogen fuel cell truck on a shared platform with its EV.

Company News

Critical Metals plc (CRTM LN) 17.3p, Mkt Cap £10.6m – Results highlight transition to copper production at Molulu in the DRC

• Critical Metals plc report results for the year to end June 2023.
• The company has transformed into a copper producer in the DRC with 51 personnel employed on a contractual basis in the DRC with just two expats overseeing the operation.
• Critical Metals has increased its indirect holding Molulu to 70% from 40%
• Pre-production began in January targeting 10,000t per month of copper oxide ore though this was hampered by seasonal rains and the need for more groundwork and river bridging.
• Management are now focussing on higher-grade sulphide ores below the oxide zone following the discovery of an 8.3% copper sulphide ore sample.
• Copper ores are often subject to a degree of enrichment close to surface in the DRC and it will be interesting to see how the Molulu mine develops.
• The team have rehabilitated the road connecting the property to several ore buyers’ processing plants saving >US$50,000 in external contractor costs.
• Larger 40-50t tipper trucks have now replaced the more traditionally used 25t trucks for greater volume and efficiency.
• A copper ore offtake agreement is being delivered into and deliveries will continue for the remainder of 2023.
• Management now have the option to rent or buy a previously operating copper cathode/cobalt hydroxide process plant that is on care-and-maintenance to raise margins on the processing of Molulu ore.
• Funding: Critical Metals plc raised £600,000 at 25p/s on 30 May and a further £1.3m also at 25p/s plus the signing of a US$3m ‘non-dilutive’ debt facility.
  • On 18 September 2023 the Company entered into a non-dilutive finance agreement. The debt term is for 9 months from the date of execution of the agreement for the first US$500,000 instalment, with a committed further tranche of US$500,000 available at the Company’s election following the satisfaction of the funding conditions (being committed sales for the existing stockpiles). The Company also has the ability to request further funds are available up to the maximum utilisation of US$3 million.
  • The key funding terms are:

–       15% fixed coupon for the term;

–       The second tranche is available for 150 days after the first tranche;

–       Repayable at any time at the election of the Company;

–       Personal guarantee from Russell Fryer by way of the pledge of his ordinary shares in the Company; and

–       Grant of 2,000,000 warrants over ordinary shares in the Company.

• Cash: The company appears to have held cash of £411,696 at end June with a total of £394,033 of borrowings at the time
• The company also boosted their team through the appointment of Lloyd Kirtley as DRC field Manager, and John Greeff as Mine Manager plus an additional geologist.
• Results to end June:
  • Revenue:  Nil
  • Expenditure: £2.66m
  • Finance costs: 0.4m .
  • Total loss: £2.7m.
  • The Company has taken advantage of section 408 of the Companies Act 2006 and consequently a profit and loss account has not been presented for the Company.
  • The Company’s loss for the financial period was £1,758,868 (2022 : £661,743)..
• Drilling: recent drilling shows “high grade copper mineralisation of 13.02%, 6.77% and 5.42% from 10.80 meters to 15.83 meters deep” although it is unclear in the announcement the width and depths of the individual reported copper grades.
• The initial drilling is focussed on “three areas identified by mapping and geophysics analysis completed earlier in the year … [and] … consists of 1000 meters of drilling the oxide zone and is aimed to increase the understanding of the Molulu Project, identify other potential targets and increase the mineral resource”.

Conclusion: The expanded team at Molulu are working to get to and then further exceed the 10,000t/month copper ore target. Working in the DRC has many challenges and the lessons learnt on the early days of operation should stand the company well in its further expansion.

First Quantum Minerals (FQM LN) C$15.72, Mkt cap C$11bn – First Quantum expects to continue operations at Cobre Panama as it aims to resume negotiations over new terms.

• Lawmakers backtracked on a plan to repeal a mining license earlier this week leaving the decision to the supreme court, Bloomberg cites a person close to the Company.
• Congress on Thursday excluded an article in a mining bill that would have annulled a mining license for Frist Quantum and passed a revised bill that declares a moratorium on new permits for metal mining.
• Environmentalists, labour unions and others have held mass protests since congress on October 20 passed a new contract with First Quantum issuing a mining license for 20 years, with the option to extend that for a further 20 years.
• The issue has been further exacerbated by pre-election tensions with the nation set to go to the ballot May 5.

Huntsman Corp (HUN N) US$23.25, Mkt Cap US$4.1bn – Hunstman suspending its plant in Conroe UPEC ‘ultra-pure ethylene carbonate’ project in the US

• A flood of Chinese exports have recently collapsed prices of UPEC by 75% causing Huntsman to suspend their project in an announcement on their Q3 earnings call.
• Restarting the UPEC project in Conroe, Texas, should take 12 months with targeted capacity of 20,000tpa.
• Huntsman remains the sole producer of ultra-pure ethylene carbonate in the US.

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                                                            

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35-39 Maddox Street London

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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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