SP Angel Morning View -Today’s Market View, Monday 17th June 2024

Auto growth in China continues as NEVs maintain strong sales

MiFID II exempt information – see disclaimer below

Cornish Metals* (CUSN LN) – Sale of Nickel King property for C$1m cash plus C$7m in future stock

Kavango Resources* (KAV LN) – Botswana drilling to start this week

KEFI Gold and Copper* (KEFI LN) – Annual accounts

Auto growth in China continues as NEVs maintain strong sales

• China’s auto market maintained strong growth in the first five months of this year, strengthened by the new energy vehicle (NEV) sector and auto exports increasing.
• Sales in China rose by 8.3% yoy to nearly 11.5m units from January to May according to the China Association of Automobile Manufacturers.
• May sales alone reach 2.42m units.
• NEV sales were up 32.5% compared to same period last year, up to 3.93m units.

EV sales – Increasing sales of EVs into developing nations driven by pollution, power costs and expected reliability

• The West believes it is the only major market for Electric Vehicles but we are seeing increasing sales of EVs into many developing nations where cities are beset with far worse pollution than London or NY.
• Mexico, Indonesia, Brazil, Turkey, Russia, Malaysia, Philippines, India all have cities with far worse pollution. They mostly have lower electrical power costs as well.
• Chinese EV component manufacturers are also moving to set up alliances with Western manufacturers and to develop manufacturing facilities outside China to help evade tariffs and possible sanctions.
• While it is difficult to see these nations replacing the potential demand from Europe and the US they do provide markets in which to sell Chinese EVs
• India is fast developing its own EV manufacturing base and is already well protected through high tariffs on the import of Chinese EVs.
• China is now producing six out of every 10 EVs sold worldwide and we suspect will still sell plenty of vehicles into the EU despite the new 38% EV tariff barrier.
• The new tariffs, while helping to protect EU jobs will hit consumers and perpetuate Europe’s inefficient and overly unionised vehicle manufacturing sector.
• US tariffs (now 100%) on Chinese EVs may provide the US with some protection but US consumers were not buying Chinese EVs anyway so it feels a bit irrelevant.
• Certain manufacturers are waiting to see how battery technology develops with Ford and Mercedez pulling back on their EV ambitions though they risk losing market share to new rivals.

The US Treasury is considering lifting sanctions off Dan Gertler, in exchange for selling three royalties to the DRC government, FT reports.

• Under the proposal, the Treasury will provide Gertler with “special” license to sell royalties and grant him a “general” license to regain access to the US financial system.
• The value of royalties is not revealed but FT cites US officials who expect it to be somewhere around US$300m.
• Gertler owns ~2.5% royalty on Kamoto and Mutanda mine, owned and run by Glencore, as well as a similar royalty stream from a third copper cobalt project, called Metalkol and owned by Euraisan Resources Group.
• Gertler is estimated to have received $120m in royalty payments in 2023 that he received n euros to avoid the US sanctions.
• The article argues that the deal may create more opportunities for US friendly companies to access metals such as copper and cobalt.

Sharepickers TV:  AI Needs Resources! No Metals, No EV Cars!:   https://audioboom.com/posts/8524591-john-meyer-ai-needs-resources-no-metals-no-ev-cars

Video:    https://www.youtube.com/watch?v=ZCXZqBK8rTM

IG TV:  Copper and gold 10/04/2024:      https://youtu.be/KuGSbDqWglk?si=-8iikkOHxbbLSnPZ

121 Mining Investment Conference investment Leaders panel: https://youtu.be/OWEASjgXiME?si=ZPzQT-1SnUhXRo0g

*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts. We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate. SP Angel acts as Broker/Nomad or both for Anglo Asian Mining, Kodal Minerals, Power Metals Resources.

Economics

China – Economic data released this morning provides a mixed take with growth in industrial production and investment slowing down while consumer spending seen coming in stronger than expected.

• Property remains a drag with price declines for new and secondary properties accelerating in May while investment and residential property sales contracted at double digit pace.
• Overall headline numbers pointed to a still weak recovery with market commentators calling for the need of more stimulus, Blomberg reports.
• Industrial production rises 5.6% yoy in May vs 6.7% yoy in April and versus 6.3 estimate
• Equipment production grew at 7.5% yoy
• High-tech manufacturing jumped 10% yoy
• Fixed asset investment rose 4.0% yoy for the year-to-date a bit slower than expected vs 4.2 in April
• Property development investment fell -10.1% yoy for the year-to-date vs -9.8% in April and -10.0% expected
• New House Prices (%mom, May/Apr/Est): -0.7/-0.6/NA
• Used House Prices (%mom, May/Apr/Est): -1.0/-0.9/NA
• Retail sales rose by 3.7% yoy ahead of the expected 3.0% as China wakes to the realisation that it needs greater internal consumption.

UK – Inflation numbers are due later this week (Wednesday) with estimates for a pullback in both headline and core annual CPIs.

• CPI data will be followed by the central bank rate decision on Thursday with expectations for no change from current 5.25%.
• Separately, Rightmove property price index showed real estate prices were unchanged in June from the previous month (0.0% v 0.8% May) with annual change at 0.6% reflecting still high mortgage rates and strong inflation weighing on borrowers’ finances.
• CPI (%mom, Est/Apr): 0.4/0.3
• CPI (%yoy, Est/Apr): 2.0/2.3
• Core CPI (%yoy, Est/Apr): 3.5/3.9

Serbia may greenlight the Jadar Lithium Project as early as next month, FT reports.

• The turnaround might come two years after Belgrade called off the project on environmental grounds.
• President Alexander Vucic said that “new guarantees” from Rio Tinto and the EU may finally have addressed Serbia’s concerns over environmental standards.
• Vucic will also be looking to secure the necessary commitments from EU leaders for related downstream business investment including battery manufacturing and EV production in Serbia.
• Expectations are for business and political leaders to come to Belgrade next month for a formal announcement on the project.
• “If we deliver on everything, (the mine) might be open in 2028… (supplying) enough for 17% of EV production in Europe – approximately 1.1m cars,” Vucic said in an interview to FT.

Currencies

US$1.0706/eur vs 1.0710/eur previous. Yen 157.54/$ vs 158.02/$. SAr 18.348/$ vs 18.491/$. $1.268/gbp vs $1.272/gbp. 0.661/aud vs 0.661/aud. CNY 7.256/$ vs 7.256/$.

Dollar Index 105.58 vs 105.48 previous.

Precious metals:         

Gold US$2,319/oz vs US$2,310/oz previous

Gold ETFs 81.0moz vs 81.0moz previous

Platinum US$952/oz vs US$955/oz previous

Palladium US$896/oz vs US$888/oz previous

Silver US$29.17/oz vs US$29/oz previous

Rhodium US$4,560/oz vs US$4,560/oz previous

Base metals:   

Copper US$ 9,668/t vs US$9,776/t previous

Aluminium US$ 2,498/t vs US$2,542/t previous

Nickel US$ 17,315/t vs US$17,600/t previous

Zinc US$ 2,783/t vs US$2,824/t previous

Lead US$ 2,151/t vs US$2,160/t previous

Tin US$ 32,270/t vs US$32,825/t previous 

Energy:           

Oil US$82.6/bbl vs US$82.5/bbl previous

• The US Baker Hughes rig count fell by 4 units w/w to 590 rigs last week (-97 or 15% y/y), with oil rigs down 4 to 488 units (-64 y/y) and gas rigs flat at 96 units (-32 y/y) as both Texas and Louisiana lost 2 rigs each.

Natural Gas €35.3/MWh vs €35.3/MWh previous

Uranium Futures $86.5/lb vs $86.0/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$107.6/t vs US$106.7/t

Chinese steel rebar 25mm US$534.8/t vs US$536.1/t

Thermal coal (1st year forward cif ARA) US$120.5/t vs US$122.6/t

Thermal coal swap Australia FOB US$135.0/t vs US$136.0/t

Hard Coking Coal Australia FOB US$326.0/t vs US$326.0/t

Other:  

Cobalt LME 3m US$27,150/t vs US$27,150/t

NdPr Rare Earth Oxide (China) US$49,753/t vs US$49,755/t

Lithium carbonate 99% (China) US$13,162/t vs US$13,162/t

China Spodumene Li2O 6%min CIF US$1,080/t vs US$1,100/t

Ferro-Manganese European Mn78% min US$995/t vs US$995/t

China Tungsten APT 88.5% FOB US$357/mtu vs US$357/mtu

China Graphite Flake -194 FOB US$470/t vs US$470/t

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.2/lb

Europe Ferro-Vanadium 80% 26.85/kg vs US$26.85/kg

China Ilmenite Concentrate TiO2 US$316/t vs US$316/t

China Rutile Concentrate 95% TiO2 US$1,413/t vs US$1,413/t

Spot CO2 Emissions EUA Price US$69.4/t vs US$69.4/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$310.0/t

Battery News

Morocco – Chinese company to build $1.3bn Gigafactory in Morocco

• The factory plans to produce 20GWh of Li-ion batteries and will be located in Kenitra, Morocco around 20km north of the capital Rabat.
• Gotion High-Tech which supplies VW plans to increase the scale of the investment.
• The factory is reported generate 2,300 highly skilled jobs with 17,000 direct, indirect and induced jobs in total.
• Gotion has 11 gigafactories in total with 300GWh capacity by 2025. 100GWh of this is planned to be outside China.
• VW holds a 26.5% stake in Gotion acquired for $1.1bn.

Calls for US import ban on Chinese EVs and battery materials on claims of forced labour camps

• Letters to US Department of Homeland Security outline claims of new evidence connecting CATL and Gotion supply chains to forced labour camps and call for an immediate import ban.

BMW electric Mini to be hit with highest EV tariff from EU according to sources

• According to a source familiar with the matter, BMW’s Chinese-made all-electric Mini is set to be hit by the highest EV tariff of 38.1% under the EU’s provisional plans.
• Production of the eMini, which is a joint venture BMW and China’s Great Wall Motor, began late last year, shortly after the EU launched its probe.
• Companies seen as cooperating with the EU were subject to lower tariffs of 17.4%-21%,
• The JV, in early stage of production, was unable to fulfil the European Commission’s survey to the level of detail required to be classed as a company cooperating with the investigation.

Tesla Model Y confirmed as bestselling car in 2023

• Global car sales figures have shown that the Tesla Model Y was the top selling car in 2023 (JATO Dynamics)
• The SUV topped sales for the year with 1.22m units sold.
• The Model Y has made history, becoming the first ever pure EV to lead the European and global market for sales.

Leapmotor begins EV production at Stellantis plant in Poland

• Leapmotor International is a JV between the Chinese EV maker and the European giant, following Stellantis’ acquisition of 20% of Leapmotor back in October 2023.
• Stellantis is partnering with Chinese battery manufacturer CATL and Leapmotor and other Chinese companies to produce EVs and batteries in Europe.

• Stellantis aims to leverage cost-cutting expertise from Chinese partners without triggering new EU tariffs.
• Stellantis produces cars under 14 brands, including Fiat, Chrysler, Jeep, and Peugeot.
• The partnership is part of Stellantis’s strategy to enhance European production and remain competitive against cheaper Chinese imports.

Semi-solid battery producer WeLion sees installations up 31%

• In May, China saw 482.9MWh of semi-solid batteries installed, up 30.9% from 369.0MWh in April, with WeLion the sole contributor.
• WeLion supplies EV maker Nio and the 482.9MWh could be used to make 3,200 150kWh battery packs.

LS Power’s Gateway battery storage facility fire burns for 11 days

• A fire broke out at LS Power’s Gateway project, burning for 11 days, prompting evacuation orders, road closures, and a shelter-in-place order for a nearby state prison due to the risk of toxic fumes.
• It took six days to contain the fire, involving about 50 firefighters and hazardous materials teams.
• The Gateway project, which began operations in August 2020, was once the largest battery energy storage project in the world.
• The Electric Power Research Institute (EPRI) has investigated battery storage safety and published guidelines to address these issues, noting that incident rates have decreased as designs and practices have improved.

Ford ends controversial EV program, shocking dealers

• Ford announced the end of its Model e certification program last week with some dealers seeking reimbursement for their investments.
• Dealers had to choose between two certification levels, requiring investments of up to $500,000 and $1.2 million.
• Roughly half of Ford’s dealers had adopted the program and invested significantly in EV infrastructure.
• Dealers who did not invest in the original program can now sell Ford EVs without the previously required upgrades.
• Ford aims to lower entry barriers for dealers and increase support for customers.
• The program was introduced on September 14, 2022, to give Ford an edge over EV startups like Tesla.
• Customer satisfaction scores for Ford’s EV business have improved significantly.

Company News

Cornish Metals* (CUSN LN) 6.7p, Mkt Cap £35 – Sale of Nickel King property for C$1m cash plus C$7m in future stock

CLICK FOR PDF

• Cornish Metals has announced the sale of the 4,000 hectares of exploration properties at Nickel King and Opescal Lake projects in the Northwest Territories, Canada.
• The agreement, with Northera Resources, envisages a C$1m payment in cash plus C$7m in shares “Upon completion of a go public transaction by Northera, resulting in a listing of securities on the TSX Venture Exchange, or other stock exchange”.
• Interim CEO, Ken Armstrong, explained that selling “Nickel King aligns with Cornish Metals’ objective to focus its efforts on advancing its 100% owned and fully permitted South Crofty tin project, in the UK, towards a construction decision”.
• Mr. Armstrong also highlighted the continuing “exposure to any future exploration success at Nickel King, as Northera works to recommence exploration activities at the Nickel King Property” as a result of the potential share listing of Northera Resources.

Conclusion: The disposal of exploration assets in Canada emphasises Cornish Metals’ focus on the rejuvenation of the historic South Crofty mine.

*SP Angel acts as Nomad and Broker. An SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals

Kavango Resources* (KAV LN) 1.5p, Mkt Cap £21m – Botswana drilling to start this week

• Kavango Resources reports that it will start a 5,000m drilling programme to test priority shallow targets in the Kalahari Copper Belt in Botswana.
• The company says that it has identified 15 priority targets in its “located above interpreted, doubly-plunging fold structures over gravity highs where associated faulting is thought to be favourable for trap site development” for copper/silver mineralisation.
• The targets are relatively shallow at depths between 150-350m below surface.
• Chief Executive, Ben Turney, described the programme as “the most sophisticated drill campaign ever undertaken by Kavango”.
• He described how, having assembled “a wide ranging and comprehensive data set over Karakubis” the results were “compared … with what is known about major discoveries elsewhere on the Kalahari Copper Belt” to select specific targets.

• The Kalahari Copper Belt is gaining increasing attention following recognition that the contact zone between the D’Kar and Ngwako Pan Formations hosts economic copper/silver mineralisation including at the T3 deposit of Sandfire Resources and at Khoemacau Mining’s Zone 5 deposit where, in February 2023, mining reached the targeted 300,000tpm rate.

Conclusion: We look forward to results from the drilling at Karakubis as the drilling progresses.

*An SP Angel Analyst holds shares in Kavango

KEFI Gold and Copper* (KEFI LN) 0.6p, Mkt Cap £39m – Annual accounts

• The Company released FY23 results this morning.
• The focus remains on signing off $320m Tulu Kapi project funding allowing to start development works in October and launching first production mid-2026.
• In Saudi Arabia, partner funded drilling programme targeting both growing and improving confidence of existing resources at Hawiah and Jibal Qutman as well as testing regional exploration targets.
• Loss for the year amounted to £7.9m (FY22: -£6.4m) largely reflecting £3.4m in admin costs (FY22: £2.4m) as well as a share of costs at the Saudi JV of £5.0m (FY22: £2.8m).
• Cash flow wise, CFO before working capital totalled -£3.5m (FY22: -£2.9m) with an increase in payables helping it to reduce to -£1.9m (FY22: -£3.2m).
• Project related capital spend amounted to £3.3m (FY22: £5.2m).
• Closing cash balance stood at £0.2m with £2.1m in debt as of Dec/23
• The Company raised £5.5m in new equity at 0.6p in March 2024 to progress Tulu Kapi project funding discussions as well as cover a share of outstanding bills and working capital bridging finance.
• KEFI’s interest in its Saudi JV (Gold and Minerals Limited) has gone to 24.75% as the partner is covering project related expenditures as the team is trying to minimise cash burn before finalisation of Tulu Kapi project funding.

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

No.1 in Base Metals: SP Angel mining team awarded No 1. ranking for Base Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q1 2024

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                                                            

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.

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SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%