SP Angel Morning View -Today’s Market View, Monday 15th May 2023

Copper prices close to five-month lows on stronger US$ and muted Chinese demand

MiFID II exempt information – see disclaimer below

Caledonia Mining (CMCL LN) – Maintaining 75-80,000oz production guidance for 2023 despite slow start in Q1

Celsius Resources* (CLA LN) – £30m cash and shares offer from Silvercorp Metals in Canada

Critical Metals Plc (CRTM LN) – Operational update on Molulu copper/cobalt project in the DRC

Great Southern Copper (GSCU LN) – Funding for exploration at Especularita , Chile

Newmont Goldcorp Corp (NEM US) – Newcrest to back takeover deal in $17.8bn buyout

Scotgold Resources (SGZ LN) – £2m raise completed as Cononish continues to struggle

Solgold* (SOLG LN) – Reassessment of development options for Cascabel and Porvenir

Copper prices hold lower as Trafigura expects jump in Chinese imports going forward

• Copper prices have weakened as the dollar extends gains, up 1.5% over the past week.
• Copper hit its lowest level in over five months on Friday, sliding to $8,135/t, although prices have since stabilised around the $8,250/t mark.
• The dollar has climbed to a five-week high as the Euro weakens, weighing on greenback-denominated Copper prices.
• Commodity trading giant Trafigura expects a ramp up in imports of refined copper towards the second half of the year to China.
• Copper product imports fell 13% yoy in Q1 to China, the lowest Q1 levels since 2015.
• China’s copper inventories have jumped amid muted demand as Chinese refined copper production hit a record high of 1.05mt in March.

Gold -$2,020/oz – Prices hold firm despite dollar rally on sustained haven demand

• Gold prices have steadied around the $2,018/oz mark following three successive days of weakening.
• US consumer sentiment hit a 6-month low according to data released on Friday, supporting recession concerns and pushing inflows into gold.
• The debt limit debate continues in the background, with Biden set to meet with congressional leaders tomorrow to avoid default.
• Expectations of no rate hike in June have fallen from 95% to 83%, and US 10-year yields are holding around the 3.5% mark.

Iron ore jumps following sell-off as demand optimism surfaces

• Both Dalian and Singapore iron ore futures rallied this morning, climbing to $105/t.
• Iron ore had fallen 1.5% last week on continued pessimism from the Chinese steelmaking sector.
• Mysteel data suggests demand for steel products jumped 9% last week.
• Analysts expect the government to begin rolling out stimulus packages after disappointing data last week.
• Care and maintenance periods at several steel mills are reportedly coming to an end, with crude steel output ticking gradually higher.
• Coking coal and coke climbed 3.31% and 2.98% respectively.

Economics

US – Fed potential to hold interest rates to avert further distress in the banking sector

• Inflation is falling in the US and looks to be much less of a threat
• China is looking to export more goods at probably lower prices with a potentially deflationary impact on global goods prices
• If the Fed holds rates it will also signal to the market the interest rate cycle may have peaked

EU – European Commission forecasts headline inflation to come in higher than initially expected over 2023-24 amid a robust jobs market and stronger than expected economic growth

• CPI is expected to average 6.7% in 2023 and 3.1% in 2024, compared to 6.4% and 2.8% estimated, previously.

EU Ban on restart of Russian gas from pipelines where Russia has already cut supplies.

• The G7 and EU have banned gas imports from Russia via routes which have already been severed by Moscow.
• The ban doesn’t stop Russian gas exports through Ukraine, a trade which has continued throughout the Ukraine war.

Germany – The share of empty commercial property tripled to 12.3% as remote working increased compared to pre pandemic period.

• The measure tracked by Ifo Institute was 4.6% in 2019.
• The services industry is reported to run at 16.8%, up form 6.2%, with the levels in IT, advertising and market research, management consulting and pharmaceutical industries.
• Empty offices in manufacturing increased to 9.6% from 3.1%.

Turkey – Election result to force a run-off between President Erdoğan at 49% and his challenger Kemal Kılıçdaroğlu at 45% of the vote

• Erdogan has the edge due to his party’s alliance with other popular parties with >90% of the votes now counted.
• President Erdoğan reckons he has sufficient votes for an outright win, which requires >50% but that he will accept a runoff if required.
• Sinan Ogan, a third presidential candidate and a former member of the ultra nationalist Nationalist Movement party, the AKPs’ partner in parliament, had around 5%.
• Erdogan lead and expectations for the incumbent to remain in the office saw local stock exchange selling off and CDS rates on five year debt climbing.
• There is no doubt that Erdoğan is a very smart and wily politician.
• A second vote should take place on 28 May.

 Currencies

US$1.0871/eur vs 1.0933/eur last week. Yen 135.84/$ vs 134.82/$. SAr 19.057/$ vs 19.456/$. $1.248/gbp vs $1.254/gbp. 0.668/aud vs 0.670/aud. CNY 6.953/$ vs 6.943/$.

Dollar Index 102.57 vs 101.97 last week.

Commodity News

Precious metals:

Gold US$2,022/oz vs US$2,012/oz last week

Gold ETFs 94.2moz vs US$93.8moz last week

Platinum US$1,068/oz vs US$1,095/oz last week

Palladium US$1,515/oz vs US$1,560/oz last week

Silver US$24.27/oz vs US$24.04/oz last week

Rhodium US$7,400/oz vs US$7,400/oz last week

 Base metals:   

Copper US$ 8,211/t vs US$8,255/t last week

Aluminium US$ 2,248/t vs US$2,223/t last week

Nickel US$ 22,105/t vs US$22,135/t last week

Zinc US$ 2,561/t vs US$2,543/t last week

Lead US$ 2,076/t vs US$2,099/t last week

Tin US$ 24,836/t vs US$24,895/t last week

 Energy:           

Oil US$73.8/bbl vs US$77.0/bbl yesterday

• Crude oil prices remain towards the bottom of their 2023 range as negative economic growth sentiment, backed up by downbeat demand indicators for diesel and fuel oil stocks, continues to outweigh tight supply dynamics.
• OECD commercial inventories have almost returned to their seasonal averages, only made possible by a massive drawdown of ~35% of the US SPR, which indicated that it may begin to restock in 3Q23.
• The US Baker Hughes rig count was down 17 units to 731 rigs last week (+17 y/y), with oil rigs down 2 to 586 and gas rigs down 16 to 141 units, and the estimated frac spread count down 12 units w/w to 282 (+4 y/y).
• UK Prime Minister, Rishi Sunak, defended investment in the domestic oil and gas industry last week commenting that the UK would need fossil fuels for the next few decades even as it moves towards net zero.

Natural Gas US$2.301/mmbtu vs US$2.152/mmbtu last week

Uranium UXC US$53.40/lb vs US$53.40/lb last week

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$103.8/t vs US$98.5/t

Chinese steel rebar 25mm US$537.8/t vs US$543.1/t

Thermal coal (1st year forward cif ARA) US$117.5/t vs US$131.0/t

Thermal coal swap Australia FOB US$160.0/t vs US$161.5/t

Coking coal swap Australia FOB US$245.0/t vs US$245.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$65,967/t vs US$66,163/t

Lithium carbonate 99% (China) US$27,294/t vs US$27,316/t

China Spodumene Li2O 5%min CIF US$3,990/t vs US$3,990/t

Ferro-Manganese European Mn78% min US$1,328/t vs US$1,327/t

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

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

Europe Vanadium Pentoxide 98% 7.6/lb vs US$7.8/lb

Europe Ferro-Vanadium 80% 32.25/kg vs US$32.25/kg

China Ilmenite Concentrate TiO2 US$332/t vs US$332/t

Spot CO2 Emissions EUA Price US$95.8/t vs US$93.3/t

Brazil Potash CFR Granular Spot US$385.0/t vs US$385.0/t

Battery News

Northvolt to invest billions of euros for German gigafactory

• Swedish battery manufacturer Northvolt will invest several billion euros to build a gigafactory in Germany
• The plant will supply around 1m EVs with battery cells every year, the lithium-ion battery maker and German government said in a joint statement last Friday.
• Northvolt and the state of Schleswig-Holstein had initially signed an MoU in March 2022 to develop a battery plant in the region but the company later said it was considering prioritise expansion in the US ahead of Europe due more favourable subsidies and lower energy costs.
• Construction could begin later this year and deliveries of Heide-made battery cells could begin in 2026, the company said.
• The decision is a big win for Europe’s push to develop batteries as it seeks to reduce demand on China.

Company News

Caledonia Mining (CMCL LN) 1,015p, Mkt Cap £205m – Maintaining 75-80,000oz production guidance for 2023 despite slow start in Q1

• Caledonia Mining has previously reported the production of 16,141oz of gold during the three months to 31^st March, including 16,036oz from its Blanket mine in Zimbabwe and 105oz from its Bilboes project which delivered its first gold from oxide mineralisation late in the quarter.
• Operating data for April and into May suggests that technical challenges experience during the quarter at Blanket are now resolved and the company is maintaining its previously issued production guidance of 75-80,000oz for 2023.
• Lower gold revenues from Blanket of US$29.3m (Q1 2022 – US$35.1m) and increased production costs of US$16.1m (Q1 2022 – US$13.7m) contribute to a reduced post-tax profit from Blanket of US$5.0m compared to the US$12.3m achieved during Q1 2022 and lower EBITDA of US$11.3m (Q1 2022 – US$19.5m).
• At Bilboes, Caledonia Mining is “reviewing the commercial viability of the low margin oxides mining activities, which includes assessing the scope to mine and process oxide material from the recently acquired Motapa property, which is immediately adjacent to Bilboes”.
• “Approximately 217 ounces of gold were produced from the Bilboes oxide mine in April; a further approximately 338 ounces of gold was contained in material that was deposited onto the leach pad in April and is expected to report to production in May”.
• Caledonia Mining confirms that the “feasibility study on the Bilboes sulphide project should be completed in Q1 2024”.
• The company also reports the commissioning of its 12.2MW solar power plant at the Blanket mine during February 2023 and says that it is “generating slightly more power than anticipated” which is expected to help deliver cost reductions and maintain the company’s cost guidance for the year of between US$770-850/oz on mine-cost for production from the Blanket mine.
• Caledonia Mining confirms that it has re-started deep drilling at the Blanket mine “with the objectives of upgrading inferred mineral resources and identifying new resources thereby extending the life of mine”.
• According to a Technical Report prepared by the consultants Minxcon Consulting, issued in May 2022, at 31^st December 2021, the Blanket mine contained inferred resources of approximately 5.1mt at an average grade of 3.17g/t gold amounting to approximately 550,000oz.

Conclusion: Caledonia Mining is maintaining its 2023 guidance despite a slow start in Q1.  We look forward to the results of the feasibility study for the Bilboes sulphide project later in the year and to results from the deep-drilling at the Blanket mine which aims to firm up over 500,000oz of inferred gold resources.

*SP Angel mining analysts have visited Caledonia’s mining operations in Zimbabwe

 Celsius Resources* (CLA LN) 1.3p, Mkt Cap £18.3m – £30m cash and shares offer from Silvercorp Metals in Canada

(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%

• Celsius Resources has announced that it has secured a non-binding term sheet offer from Canadian-listed Silvercorp Metals to acquire Celsius Resources.  The term sheet provides exclusivity to Silvercorp Metals for a one month period from 2^nd May.
• “Silvercorp proposes to acquire all of the outstanding shares of CLA at a fixed price of A$0.03 per share in exchange for consideration comprising 90% Silvercorp shares + 10% cash” valuing Celsius Resources at A$56m or £30.2m which the company describes as “a 76% premium to the 20-day volume weighted average price of Celsius shares as of the close of trading on the ASX on 11 May 2023 (86% premium by similar reference to the trading price on AIM)”.
• Today’s announcement says that in addition, Celsius Resources and Silvercorp have “executed a binding subscription agreement for A$5 million at a subscription price of A$0.015 (GBP 0.008¹), to be primarily used as interim funding for its Maalinao-Caigutan-Biyog Copper-Gold Project (“MCB Project”) in the Philippines” and that Celsius Resources’ other projects at Sagay in the Philippines and at Opuwo in Namibia will be distributed to existing Celsius Resources’ shareholders with a view to listing on either the ASX or on AIM.
• Silvercorp Metals is described as a profitable mining company which has been mining “silver, lead, zinc deposits in China for 17 years and engages in the acquisition, exploration and development of resource projects globally with a focus on the sustainable, profitable, and long-term production of precious and nonferrous metals such as silver, gold, lead, and zinc”.
• On 13^th April, Silvercorp Metals reported that in “Fiscal 2023, the Company produced approximately 6.6 million ounces of silver, 4,400 ounces of gold, 68.1 million pounds of lead, and 23.5 million pounds of zinc, representing increases of 8%, 29%, and 6%, respectively, in silver, gold, and lead, and a decrease of 12% in zinc compared to the prior year”.
• Silvercorp Metals (SVM CN) is valued on the TSX at approximately C$830m or C$4.7/share having retraced from a recent high of around C$5.5/share in mid-April.
• M&A strategy: Silvercorp have a stated M&A strategy to acquire mines targeting >50m of free cash flow worldwide and are looking for incubation investments for growth with Celsius fitting well into this strategy.
• Silvercorp already run a mine which looks technically similar to the MCP mine plan offering management expertise and synergies.
• Celsius Resources’ Chairman, Julito Sarmiento, welcomed the offer from Silvercorp Metals which he described as a “positive step and timely development for Celsius … [from a company which he said] … shares Celsius’ corporate values and our vision to develop mining projects in a sustainable, inclusive and responsible manner”.
• MCB copper project permitting: We are looking forward to Censius receiving their ECC ‘Environmental Compliance Certificate’ permit shortly.
  • DMPF: This should enable the issuance of the  DMPF ‘Declaration of Mine Permit Feasibility for which all work has been done.
  • Celsius have an agreement with the local Indigenous communities
  • MPSA – Mineral Production Sharing Agreement (Mining permit) to be issued on verification of the ECC, DMPF and indigenous agreements

Conclusion:  Silvercorp’s non-binding offer looks lowly valued and opportunistic given the unusually low valuation of Celsius versus our estimated NPV@8% of US$463m. If Celsius receive their ECC and MPSA permits for the MCB project over the next few weeks we would look for investors to ask Silvercorp to significantly raise their offer.

*SP Angel acts as broker to Celsius Resources.

Critical Metals Plc (CRTM LN) 25.5p, Mkt cap £14.8m – Operational update on Molulu copper/cobalt project in the DRC

• Critical Minerals provides an operational update for its copper/cobalt asset in the DRC.
• To date, 6.5kt of oxide ore have been mined at an average Cu grade of 3%.
• The Company is targeting high-grade sulphide zones, which will become mineable once the dewatering process is complete.
• The team is looking to drill through to the sulphide zones in June, with an eye on expanding a JORC-compliant resources.
• A current programme of mapping, geophysics and IP is set to end in May, which should support the drill programme.
• Critical Metals also reports potential ore buyers have visited the site, with sales expected to coincide with the completion of road and bridge works.
• The Company noted the seasonal heavy rains have lasted longer than usual, delaying repairs to the road and bridge.

Great Southern Copper (GSCU LN) 2.4p, Mkt Cap £2.7m – Funding for exploration at Especularita , Chile

• Great Southern Copper reports that it has raised £1m to fund further exploration of the Especularita licences in Chile where it has identified high-grade copper mineralisation in outcrops and in waste dumps from previous artisanal mining at the Teresita and Victoria prospects.
• The new funds consist of a £0.5m placing of approximately 41.7m new shares at a price of 1.2p/share and a £0.5m convertible loan from the company’s principal shareholder, Foreign Dimensions Pty which is described as “the trustee of the Colin and Imelda Bourke Family Trust, the beneficiaries of which are members of the Bourke family”.
• The “loan is unsecured, will not accrue interest and will automatically convert into a maximum of 41,749,995 ordinary shares at 1.2p each (together with an equivalent number of 2.4p warrants) once the Company has the relevant shareholder authorities in place and a prospectus has been published”.
• Shares issued as a result of the loan conversion “will be locked in, subject to customary exemptions, for a period of 12 months from conversion”.
• The funding, which took place at “a 17 per cent premium to the volume weighted average share price over the previous 20 trading days” was “oversubscribed, supported by existing, institutional, and new investors, with all the Directors of the Company participating in the placing”.
• Welcoming the support from new and existing shareholders, CEO, Sam Garett, said that the company is “in the process of preparing multiple high-grade Cu-Au prospects for drill testing” at Especulrita.
• He explained that none of the targets have been drilled before “despite strong evidence of high-grade Cu and Au at surface” and also commented that “In addition, regional exploration efforts are continuing at both the Especularita and San Lorenzo projects to identify potential for large-scale low to medium grade Cu-Au deposits”.

Conclusion: We look forward to results from the planned drilling at Especularita following the injection of additional funds.

Newmont Goldcorp Corp (NEM US) US$51, Mkt Cap US$36.4bn – Newcrest to back takeover deal in $17.8bn buyout

• Newmont edges closer to acquiring Newcrest after the Company stated it would back Newmont’s A$26.2bn deal.
• The deal will now have to gain approval from shareholders of both companies, alongside regulatory approval.
• The takeover would double Newmont’s gold output vs Barrick.
• Newcrest shareholders are currently set to receive 0.4 Newmont shares/Newcrest share vs the previous 0.38 offer.
• Newcrest will also be enabled to pay a special dividend of $1.1/share.
• Newcrest’s Chairman believes the transaction ‘will combine two of the world’s leading gold producers, bringing forward significant value to Newcrest shareholders through the recognition of our outstanding growth pipeline.’
• The Newcrest shareholder meeting is set to be held in September or October. The Australian FIRB will need to approve the deal.

Scotgold Resources (SGZ LN) 18p, Mkt Cap £13m – £2m raise completed as Cononish continues to struggle

• The Company closed an oversubscribed placing for £1.5m that in addition to £0.5m raised through the subscription agreement with other shareholders grossed £2.0m at 15p.
• The Company received excess applications for a total of 10.8m shares compared to the maximum number of a total of 10.1m open offer shares.
• Operationally, the Company reports on progress of mining operations at the high grade Cononish gold/silver mine.
• Mining along the developed 115m ore drive delivered ~2,000t over April.
• Grades averaged 4g/t, which is around half of what was expected as announced earlier in April, reflecting both internal and external dilution.
• The team is in the process of completing the production and geological reconciliation at which point it will have a better understanding of the factors behind lower than expected grades.
• Separately, development of the next 445 Level continued preparing for the next stope mining area.
• Looking back at Q1/23, the plant treated 4.5kt of ore at 5.4g/t producing 0.8koz of gold (Q4/22: 9.0g/t and 1.8koz).
• The team reiterated uncertain outlook which is contingent on the quantity and grade of ore delivered by mining operations.
• The Company reported that the National Park monitoring officer completed a scheduled visit to the site at the end of April with no major queries or concerns recorded during the review.

Conclusion: The Company raises £2.0m to help shore up the balance sheet as the Cononish is going through a ramping up process. Operational challenges remain with the underground mine delivering lower than expected grades as the team is planning to complete more drilling and geological reconciliation as to reasons behind the underperformance.

Solgold* (SOLG LN) 18.1p, Mkt Cap £542m – Reassessment of development options for Cascabel and Porvenir

• In its quarterly results for the three months ended 31^st March, 2023, Solgold highlights the completion of its merger with Cornerstone Capital which consolidates full ownership of the flagship Cascabel project and other exploration projects in Ecuador.
• The company explains that cash resources of US$48.1m are expected to “last beyond June 2024” while restructuring progresses and management evaluates “a phased approach to the development of Cascabel with the intent to reduce upfront capital and shorten the development schedule”.
• The strategic review is evaluating “a wide range of financing and strategic options to secure additional funding, including, but not limited to, selling a direct or indirect stake in the Cascabel project, selling other assets of the Company, or any other transaction, which may, or may not, dilute existing shareholders”.
• While this assessment is underway Solgold “has paused all detailed engineering and economic studies” at Cascabel although exploration elsewhere in Ecuador has focussed on “the Helipuerto, La Hueca, Machos, Porvenir, and Rio Amarillo regional exploration projects … [and drilling] … has continued at the Moran, Aguinaga prospects and Tandayama-America deposit at Cascabel”.
• Solgold explains that as a result of “the current capital cost landscape and the ongoing assessment of value-enhancing opportunities … [it] … has deferred the Cascabel Definitive Feasibility Study and the Porvenir Preliminary Economic Assessment”.
• The Cascabel review includes “an extensive review of potential options to mitigate project risk, optimize efficiency and maximize overall project value. These measures include fine-tuning the design of the Alpala underground mine, refining production rates at both the mine and mill, incorporating open pit resources, enhancing the process plant design, improving metallurgical recovery, increasing gold recoveries, reducing capital and operating costs, exploring hydropower initiatives, and optimizing project execution strategies”.
• In our view, the consolidation of Cascabel through the merger with Cornerstone Capital provides Solgold an opportunity to review the optimum project development at a time of capital cost inflation for major projects and Solgold is prudent to take the opportunity to consider how it can deliver the most efficient project development in both technical and financial terms.

Conclusion: A temporary deferral of the DFS at Cascabel and PEA for Porvenir while Solgold assesses the most appropriate project development routes seems prudent in today’s industry-wide capital cost environment for major projects. We await the outcome of Solgold’s assessments with interest.

Time taken on project optimisation normally pays in risk reduction and financial benefits. We reckon plant capital costs are falling since the shock of the Ukraine war, while fuel and other energy costs are also coming down. Taking time to reassess the Cascabel and Porvenir projects looks to be a good move while ongoing exploration might also produce more options for future development.

*SP Angel acts as Financial Advisor to SolGold

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%”

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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 employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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