SP Angel Morning View -Today’s Market View, Monday 18th December 2023

Expect metals to run as Fed indicates lower rates on lower inflation

MiFID II exempt information – see disclaimer below

Antofagasta (ANTO LN) – Acquisition of a 19% interest in Peru’s largest base metals miner

Atlantic Lithium* (ALL LN) – MIIF lithium investment sets new benchmark for Ghana investment. £4.2m raised in placing

First Class Metals (FCM LN) – Spodumene visible in drilling at Zigzag, Ontario

Lucara Diamonds (LUC CN) – US$50m working capital facility extended again

Power Metal Resources* (POW LN) – Additional uranium exploration targets generated in the Athabasca Basin

Thor Energy (THR LN) – Consolidation of the Alford East and Alford West tenements, South Australia

Tungsten West (TUN LN) – A further £1.8m fundraising to help Hemerdon back to production

Equities take off in Risk Off trade as Fed indicates potential for three rate cuts next year

·        US appear to reckon they have tamed inflation indicating lower interest rates to come

·        We suspect some of the sudden and dramatic turnaround in equities will be from the closing of short positions.

·        We also expect the new year to see substantial new investment into equities as investors return to growth markets.

·        Equities often look six to nine months ahead with the Fed now giving a strong indication of where they expect the economy to be at that time.

Shipping companies reroute as Red Sea Houthi attacks intensify – disruption to shipping may disrupt just-in-time supply chains

• Two further Houthi-linked incidents have been reported in the Red Sea.
• A missile was fired off the coast of Yemen at a commercial ship, but hit the water.
• Major shipping companies AP Moller-Maersk, MSC Mediterranean, CMA and Hapag-Lloyd have all rerouted their vessels.
• Extended routes and delays raise the potential for inflationary pressures on higher rates.

Friedland suggests $15,000/t copper is new incentive price for mine development

• Friedland stated on Friday that ‘we probably need about $15,000/t, stable for a long period of time, before the industry can really gear up and build those giant mines.’
• Copper prices have strengthened to around $8,500/t.
• Expectations of a surplus have shifted next year, with analysts now seeing deficits on production cuts from Majors and sustained Chinese demand despite the construction slump.
• China copper imports hit their highest this year in November at 550kt whilst TCRC fees have fallen 25% this quarter on tighter concentrate supplies as Cobre Panama suspends production.
• Australia announced that copper and nickel are now strategic metals, opening the door to some $40bn worth of government funding.

Iron ore rally holds as China steel production to rise on strong exports and auto demand

• Iron ore prices are hovering around the $135/t mark as data suggests China steel output is set to rise for the first year in three.
• Data suggests November output at 76.3mt, taking 2023 output to 951mt. This was expected at 80.1mt.
• Beijing had previously capped production around the 1.01bnt mark, but an announcement earlier this year lifted the cap.
• China’s property sector accounts for c.35% of domestic steel demand, however floor sales by area are down nearly 8% yoy.
• Easing lending requirements and major support for rural developments has fuelled restocking by steelmills.

Economics

US – Figures indicate modest Q4 GDP growth.

• Empire State Manufacturing Index – -14.5 vs 2 expected and 9.1 previous
• Industrial Production  – 0.2% mom vs 0.3% expected and -0.9% previous
• Manufacturing Production – 0.3% mom vs 0.4% expected and -0.8% previous
• PMI Manufacturing – 48.2 vs 49.3 expected and 49.4 previous

• The Manufacturing PMI highlights ongoing caution in industry as orderbooks fall and manufacturers hold back on inventory and buying.
• PMI Services – 51.3 vs 50.6 expected and 50.8 previous
• PMI Composite rises to 51.0 from 50.7 marking a new 5-month high.
• Inflation indicators suggest US CPI is running at just above 2% following on from 3.1% yoy in November and 3.2% yoy in October
• Lower oil prices are helping to reduce inflation as are lower prices for goods and transport from China and lower orders from Manufacturers.
• Limited shipping through the Panama canal is holding LNG gas prices high in Asia and US West coast with prices at $15.5/MMBtu in Asia vs $11.3/MMBtu in Europe.
• Fortunately many Christmas shipments should have passed through the Panama canal before the drought started piling up ships on the East side

Lockheed Martin is suing a supplier over massive price hikes for titanium materials (supplychaindive.com)

• Howmet Aerospace, which sells titanium materials for the F-35 jet and other planes to Lockheed is disputing the allegations.
• Lockheed alleges Howmet tried to extract “a massive price increase” in order to continue selling under a contract.

China – PBOC injected CNY50bn (~$7.05b) of seven-day reverse repos into the market 1.8%.

• CNY1.45tn injected into the market via the MLF ‘Medium-term lending facility’ at 2.5%
• Beijing set to suffer extreme cold this week with temperatures forecast to range from -5 to -17C
• Evergrande sold a 30% stake in Shanghai North Bund, a major project in Shanghai to state-owned China Everbright Group.
• The property sector continues to weaken
• New home prices continue to fall according to data from the NBS ‘National Bureau of Statistics’
• Property investment fell 9.4% yoy from January-November following a 9.3% yoy fall in January-October.
• FAI ‘Fixed asset investment’ grew 2.9% yoy from January to November
• 10 nonferrous metals output rose 7.1% yoy to 6.5mt in November
• 10 nonferrous metals output was 7.2%.ytd to 67.96mt

Germany – Business expectations – 84.3 vs 85.8 expected and 85.1 previous

• Current Assessment – 88.5 vs 89.5 expected and 89.4 previous
• Business Climate Expectations Index – 86.4 vs 87.8 expected and 87.2 previous
• PMI Manufacturing 43.1 in November vs 42.6 in October
• PMI Services 48.4 in November vs 49.6 in October
• PMI Composite 46.7 in November vs 47.8 in October

France – New regulations on the quantity of carbon emitted in making EVs appears designed to exclude Chinese cars from French subsidies

• Much Chinese power comes from coal, though the nation has been busy installing huge hydropower, wind and solar projects in recent years.
• PMI Manufacturing 42.0 in November vs 42.9 in October
• PMI Services 44.3 in November vs 45.4 in October
• PMI Composite 43.7 in November vs 44.6 in October

Argentina – President Javier Milei continues to plan for shock therapy despite rolling back on some of his more extreme ideas.

• Milei is still looking to scrap the peso which halved last week in the unofficial market after his election.
• Much of the nation has been working with the US dollar for many years with many professional Argentinian’s holding US dollar bank accounts, normally offshore.
• Milei has pledged to cut subsidies on energy and transport, to cut government spending, to halt to all new public construction projects and to act to curb street protests which are normally inspired by the Peronistas.
• Inflation is running at >140% this year.  Argentina owes $44bn to the IMF.

Bye Bye Bitcoin

• Bye Bye Bitcoin have you any fool.
• Yes sir, yes sir, three wallets full!
• One for FTX Sam Bankman-Fried,
• One for Silk Road’s Jimmy Zhong (stole $3bn bitcoin)
• And one for all the other fraudsters stealing Bitcoin wallets down the lane
• US and Chinese security and technology experts are racing to develop high-speed quantum computing which could easily hack into many more crypto accounts.
• Experts reckon anyone with access to one of these machines could, in theory, gain access to all crypto wallets and modern communication by 2025.
• Even the hackers will not be safe from the new technology and we suspect spies from N Korea and Russia will be working to steal the blueprints..

Currencies

US$1.0919/eur vs 1.0972/eur previous. Yen 142.39/$ vs 141.85/$. SAr 18.301/$ vs 18.196/$. $1.269/gbp vs $1.276/gbp. 0.672/aud vs 0.671/aud. CNY 7.131/$ vs 7.100/$. Dollar Index 102.47 vs 101.88 previous.

Commodity News

Precious metals:

Gold US$2,020/oz vs US$2,038/oz previous

Gold ETFs 85.8moz vs 85.7moz previous

Platinum US$953/oz vs US$962/oz previous

Palladium US$1,180/oz vs US$1,116/oz previous

Silver US$24.02/oz vs US$24/oz previous

Rhodium US$4,425/oz vs US$4,400/oz previous

Base metals:

Copper US$ 8,541/t vs US$8,574/t previous

Aluminium US$ 2,265/t vs US$2,236/t previous

Nickel US$ 16,900/t vs US$16,930/t previous

Zinc US$ 2,532/t vs US$2,524/t previous

Lead US$ 2,088/t vs US$2,088/t previous

Tin US$ 25,135/t vs US$25,290/t previous

Energy:

Oil US$77.0/bbl vs US$76.6/bbl previous

• The US Baker Hughes rig count was down 3 units to 623 rigs last week (-153 or 20% y/y), with oil rigs down 2 to 501 units (-119 y/y) and gas rigs unchanged at 119 units (-35 y/y) and miscellaneous rigs up 1 to 3 units.
• Thyssenkrupp Nucera announced that order intake more than halved in FY23 and it expects to make an FY24 operating loss, citing start-up costs for the alkaline water electrolysis division that will drive its future growth.

Natural Gas €33.2/MWh vs €34.7/MWh previous

Uranium UXC US$82.30/lb vs US$81.45/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$134.7/t vs US$135.0/t

Chinese steel rebar 25mm US$582.5/t vs US$585.4/t

Thermal coal (1st year forward cif ARA) US$99.5/t vs US$102.0/t

Thermal coal swap Australia FOB US$143.0/t vs US$143.0/t

Coking coal swap Australia FOB US$322.0/t vs US$322.0/t

Other:

Cobalt LME 3m US$29,135/t vs US$29,135/t

NdPr Rare Earth Oxide (China) US$62,963/t vs US$63,103/t

Lithium carbonate 99% (China) US$12,410/t vs US$12,466/t

China Spodumene Li2O 6%min CIF US$1,380/t vs US$1,380/t

Ferro-Manganese European Mn78% min US$1,048/t vs US$1,053/t

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

China Graphite Flake -194 FOB US$610/t vs US$615/t

Europe Vanadium Pentoxide 98% 6.1/lb vs US$6.1/lb

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

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

Spot CO2 Emissions EUA Price US$76.0/t vs US$76.4/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$322.5/t

EV & Battery News

VinFast to work with Marubeni to recycle EV batteries

• Vietnamese EV maker VinFast has signed a memorandum of understanding with Japan’s Marubeni Corp to recycle used EV batteries.
• VinFast will supply the used batteries and Marubeni will repurpose into them into affordable Battery Energy Storage Systems.

Chinese EV maker Nio to launch cheaper Firefly brand in Europe in 2025

• The automaker will launch its Firefly brand in Europe in 2025, according to president Lihong Qin.
• Chinese EV makers are looking for ways to expand into Europe as demand in China slows.
• Nio currently competes with EVs offered by premium carmakers like BMW and Mercedes-Benz with prices from around $42,000.
• The company has been facing expanding losses as the price war started by Tesla weighed on its profitability.

Nio street tests new 150kWh semi solid-state battery and achieves 1044km range

• CEO William Li livestreamed a test of the companies new 150kWh semi solid-state battery while driving the Nio ET7 large sedan.
• In the 14-hour trip, Li and his co-driver reached 1044km with 3% battery capacity remaining.
• Li also revealed during the livestream that in previous testing the battery had set the record for distance mass-produced EVs when achieving 1145km on one charge.
• Beijing-based battery maker WeLion New Energy Technology developed the 150kWh which was announced on Nio Day 2020.
• The single cell has an energy density of 360Wh/kg, while the whole pack has a 260Wh/kg density.
• Nio claims the battery has super cooling efficiency as the cooling is six times stronger than ordinary batteries.

Company News

Antofagasta (ANTO LN) 1,626p, Mkt Cap £15.9bn – Acquisition of a 19% interest in Peru’s largest base metals miner

• Antofagasta reports that it has bought a 19% interest in Compañia de Minas Buenaventura (Buenaventura) in the market.
• Buenaventura, is described as “Peru’s largest, publicly traded precious and base metals company and a major holder of mining rights in Peru”.
• Today’s announcement says that, following the acquisition of the holding, Antofagasta and Buenaventura have “entered into discussions to develop a framework of collaboration for the benefit of Buenaventura and its stakeholders, including with respect to strategic, operational and financial matters, including a proposal for Antofagasta to be represented on the board of directors of Buenaventura”.
• Antofagasta says that the investment “has been funded from internal funding sources” and is consistent with its “strategy of prioritising exploration and investment in the Americas”.
• Chairman, Jean-Paul Luksic, explained that the “investment demonstrates the significant potential we see in Buenaventura’s asset portfolio … [and that Antofagasta is] … excited by the prospect of working together with Buenaventura to realise that potential”.

Conclusion: Antofagasta is deploying its financial strength to expand into Peru through its investment in Buenaventura building a S American focussed producer.

*An SP Angel mining analyst has previously visited a number of Antofagasta’s copper mines

Atlantic Lithium* (ALL LN) 23.7p, Mkt Cap £144m – MIIF lithium investment sets new benchmark for Ghana investment. £4.2m raised in placing

(Ewoyaa Ownership: 40.5% Atlantic, 40.5% Piedmont, 6% MIIF Sovereign Wealth fund, 13% government of Ghana)

• MIIF, Ghana’s Sovereign Wealth Fund says its investment into the Ewoyaa project and Atlantic Lithium is a game-changing benchmark which should guide Ghana’s future investments in mineral resources.
• The fund is investing a total of $32.9m with $27.9m covering all Atlantic Lithium’s tenements in Ghana representing a 6% stake and $5m for a 3.06% stake in Atlantic Lithium.
• This level of funding is unprecedented in Ghana and sets a new standard in Ghana’s participation in mineral projects.
• “The participation of MIIF in the lithium space and the mining sector should be the new norm for Ghana.
• Critically it demonstrates how the government along with its Sovereign Wealth fund is willing to support start-up companies and new mines in the region de-risking the venture to some degree for investors.
• According to Edward Koranteng, CEO at MIIF the discovery of lithium provides an opportunity to make Ghana a battery manufacturing hub in view of the presence of other critical minerals such as iron ore, manganese and graphite.
• “The prospect of lithium birthing allied industries in Ghana and creating forward integration into an electronic batteries market that will serve the African market through AfCTA opens value chain opportunities and jobs for Ghanaians on the back of Ghana’s local content laws. In line with Ghana’s local content laws, all contract mining activities must be undertaken by Ghanaian companies and about fifty-six mining inputs are mandated to be procured strictly by Ghanaian companies.
• The discovery of lithium also provides impetus to make Ghana the EV capital of sub-Saharan Africa. This is premised on the Government of Ghana’s Automobile Development Plan which has seen nine car assembly plants established in Ghana since 2018 with Ghana likely to overtake South Africa in 2024 for the number of car assembly plants.”
• Ewoyaa has the capacity to supply lithium to >1.4m EVs with potential for substantial expansion.
• The production of lithium also comes with industrial by-products such as Feldspar which is used for fibre glass and ceramics. The development of lithium in association with the likes of graphite and feldspar creates value chain and industrial opportunities for Ghanaians. These minerals also expand the royalty base for MIIF which can be further channeled into additional equity and value creating opportunities across all mineral types”. Mr Koranteng indicated that MIIF and Atlantic have begun talks on the development of feldspar to feed the growing Ghanaian ceramics industry with the support of the University of Mines and Technology in Tarkwa.
• Financial Benefits to MIIF
• Mr Bubune Sorkpor, Chief Investment Officer of MIIF says such investments are about seizing opportunities. “MIIF saw an opportunity of undervalued shares especially for a company whose flagship project is regarded in the top ten globally”.
• Sorkpor points out that Assore’s offer for the company valued the business at $691.6m vs MIIF’s investment at a valuation of US$465m.
• Placing: Atlantic Lithium report the raising of £4.2m at A$0.44/s (23.35p/s).
• “Proceeds will enable the completion of the activities agreed under the grant of the Mining Lease for the Project, key items of early works and permitting-related Project expenditure, for further extensional drilling to support the delivery of an upgraded Mineral Resource Estimate for the Project in Q3 2024, and for working capital purposes.”..

*SP Angel acts as Nomad to Atlantic Lithium. Two mining analysts from SP Angel recently visited the Ewoyaa mine site in Ghana and drove onto Takoradi to check the quality of the road to port. Our analysts also visited the Ministry of Minerals Commission and MIIF, the Ghana Minerals Income Investment Fund.

First Class Metals (FCM LN) 6p, Mkt cap £5m – Spodumene visible in drilling at Zigzag, Ontario

• First Class Metals provides an update from its 10 hole, 450m diamond drilling programme at the Zigzag project.
• The Company note that spodumene has been intersected over nine holes.
• 50m of pegmatite intersections have been hit.
• Downhole pegmatite thickness was reported to c. 5m.
• Channel sampling had provided intersections up to 2.36% Li over 5.5m, with previous drilling also showing lithium intersections at 1% Li20 over 6m.
• The Company notes that visible spodumene has been identified ‘in all holes.’
• The Company awaits assay results in 1Q24.

Lucara Diamonds (LUC CN) C$0.40, Mkt Cap C$182m – US$50m working capital facility extended again

• Lucara Diamonds reports that its lenders have agreed a further extension of its US$50m senior working capital facility until the earlier of 31st December or the conclusion of discussions between the two parties.
• The latest short-term extension follows earlier deferrals announced on 31^st October and on 16^th November.
• The company explains that its debt consists of “two facilities … [consisting of] … a project finance facility of $170 million to fund the development of an underground expansion at the Karowe Mine (the “Project Loan”), and the WCF which is used to support ongoing operations”.
• Today’s announcement clarifies that “Presently, $90 million is drawn from the Project Loan and $35 million is drawn from the WCF”.
• It also says that the lenders have agreed “a deferral of the requirement to place $52.9 million in a cost overrun reserve account (the “CORA”) to the earlier of the conclusion of discussions with its Lenders or December 31, 2023”.  The Cost Overrun Account balance is currently US$18.5m.
• The comment that under the terms of the extension agreement the company is not permitted “further draws from either the Project Loan or the WCF” may suggest the application of increasing pressure by the lenders.

Conclusion: The most recent extension of the senior working capital facility and restrictions on further drawing from the project loan facility is, presumably, having an impact on the underground mine development at Karowe.  We await news of a more permanent resolution.

Power Metal Resources* (POW LN) 0.84p, Mkt cap £18m – Additional uranium exploration targets generated in the Athabasca Basin

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• Power Metal Resources reports the identification of additional uranium anomalies in the Athabasca Basin.
• The Company has completed an Unmanned Aerial Vehicle magnetic geophysics at the Clearwater and Cook Lake Projects.
• The Survey has returned two high-priority targets at both prospects respectively.
• At Clearwater, the previously identified Toots Lake target has been extended by 800m, whilst a new target area, the Nesbitt Fault Target has been identified.
• The project area is considered to hold similar magnetic lineament structures to the Beaverlodge district deposits in northern Saskatchewan.
• At Cook Lake, two priority target areas have been identified at the project, in line with historical radiometric anomalies and previousky identified elevated uranium-in-lake sediment samples.
• Results from Kernaghan Durrant Lake, Reitenbach and E-12 properties are now due.

Conclusion: Power Metals continues to generate targets for further uranium exploration via cost-effective geophysics and historical data. Further priority targets in the Athabasca Basin support the progress towards a spin-out IPO of the Company’s Uranium Energy Exploration assets, whilst retaining attractive uranium prospects in the Power Metal exploration portfolio.

*SP Angel acts as Nomad and Broker for Power Metal Resources

Thor Energy (THR LN) 1.55p, Mkt Cap £4.0m – Consolidation of the Alford East and Alford West tenements, South Australia

• Thor Energy reports that its’ 30%-owned, EnviroCopper, which is working on the Alford East project for the potential in-situ recovery of copper has reached agreement with Andromeda Metals which holds the adjacent Alford West property to acquire its licence thereby consolidating in-situ copper targets on the Yorke Peninsula, South Australia,
• Andromeda Metals receives ~203,000 EnviroCopper shares “5% of the current ECL capitalisation … plus A$50,000 in cash” for its Alford West tenements plus a “deferred consideration as a 10% share of any successful mining operations”.
• “Once a mining lease is granted, Andromeda will receive a further cash payment of A$150,000 with royalty payments from operating cash flow”.
• Welcoming the agreement which “allows ECL to actively pursue In-Situ Recovery copper investigations at the Alford West Project area whilst considering new discoveries across the tenement … [Managing Director, Nicole Galloway Warland, explained that as] … the Alford Copper Belt extends through both Thor’s Alford East project, and the Alford West area, all investigative activities are a positive advancement to the In-Situ Recovery assessment of the area”.
• In a separate announcement issued today, Thor Energy confirms that EnviroCopper has benefited from an A$0.9m investment by Alligator Energy to secure an initial 7.8% interest in the company “with the exclusive option to make further staged strategic investments to increase its ownership in ECL to 50.1%”.
• The shares issued to Andromeda Metals and the Alligator Energy investment dilute Thor Energy’s interest in EnviroCopper to 26.5%.

Conclusion: Consolidation of the Alford East and Alford West areas into a single holding with potential for in-situ recovery of copper seems a pragmatic solution to the future evaluation studies. We look forward to further news as investigation of the expanded area advances.

Tungsten West (TUN LN) – 1.3p, Mkt cap £2.5m – A further £1.8m fundraising to help Hemerdon back to production

• Tungsten West has announced that it has raised a further £1.8m of interim funding via a Convertible Loan Note (CLN), bringing the total raised in three tranches of CLNs to £8.75m
• The additional funds will “support the Company as it continues to progress its activities in permitting, updating its Feasibility Study, and associated financing” to resume production at the Hemerdon tungsten mine in Devon.
• The company confirms that it “will require further funding via an additional Tranche D under the existing CLNs, or other instrument, in Q1 2024 to complete the Feasibility Study and allow the Company to complete its main financing round”.
• Tungsten West also says that, following CLN holders’ approval to release their security over some of the company’s assets it is “exploring the sale of certain assets”.
• Work is continuing with the Environment Agency on securing a permit for the processing plant (MPF) and in particular “to significantly reduce low frequency noise (“LFN”) from the MPF. The Company believes that it has provided solutions which will mitigate LFN and now awaits a decision on a draft permit in the New Year”.
• Tungsten West says that once the permit has been secured it “will be able to complete an updated Feasibility Study leading to a financing round in H2 2024 which will enable the Company to recommence production of tungsten and tin”.
• Today’s announcement also confirms that on “6 December 2023, Devon County Council approved the Company’s Section 73 application to vary the tonnage cap associated with the existing permission for 50 truck movements per day from the site, in order to facilitate the sales of secondary aggregates. Further to this the Company received positive news relating to test work carried out on its secondary aggregate products, showing them to be superior, in several applications, to other materials available locally”.
• The company says that, although it will be “subject to an updated Feasibility Study and subsequent financing, the Company envisages that mining operations should restart in H2 2025”.
• In our view, the Hemerdon deposit is one of the western world’s larger and longer life deposits of the important strategic mineral, tungsten. A successful re-starting of production provides potential to help underpin stable western world supply of a material currently dominated by Chinese sources.

Conclusion: Additional CLN finance helps Tungsten West continue its plan to resume tungsten production at Hemerdon in H2 2025.  Environmental Agency approval for the processing plant, completion of the revised feasibility study and the finance to implement it remain significant milestones to be achieved.  We look forward to further news on progress.

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

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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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