SP Angel Morning View -Today’s Market View, Monday 18th March 2024

China IP rose 7.0% yoy in Jan/Feb with High-tech manufacturing investment in aerospace vehicles and equipment rising 33.1% yoy

MiFID II exempt information – see disclaimer below

Aura Energy* (AURA LN) – A$16m raised for the Tiris uranium project

BHP Ltd (BHP AU) – Contractors stood down at Australian nickel project

Caledonia Mining (CMCL LN) – Board appointment

Celsius Resources (CLA LN) (ASX HALT) – MCB copper/gold project mining permit

Golden Metal Resources (GMET LN) – Drilling plans for Pilot Mountain

Hummingbird Resources (HUM LN) – Kouroussa mining operations temporarily suspended on a dispute with main contractor

Perseus Mining (PRU AU) – Commitment to OreCorp takeover

South32 (S32 LN) – Suspension of manganese operations amid cyclone

Iron ore prices continue slump as steel stockpiles climb in China

• Mysteel iron ore prices fell to $101/t for their 62% index, whilst Singapore prices fell below $100/t.
• Steel mills have been slashing production in steel hub Guangdong, and reports suggest stockpiles have climbed to 13 month highs.
• Iron ore stockpiles sit at 12-month highs at 141mt.
• The China Iron and Steel Association is exploring options to control steel capacity.
• China home prices continue to slump, with February prices also declining.
• Coking coal and coke down 2.9% and 1.7% respectively.

Copper holds higher as speculators wade in, China stockpiles climb

• Copper prices have held over the $9,000/t mark, up nearly 6% over a week.
• The move followed the China Nonferrous association’s commitment to reducing new smelter capacity as fees fell to single digits (>$80/t last year)
• However, Shanghai copper stockpiles have climbed to Feb 2020 highs.

Gold eases from highs on stronger dollar as FOMC takes centre stage

• Gold prices have cooled from lofty recent highs to settle around the $2,150/oz mark.
• Traders are focusing on this week’s Fed policy meeting, with odds now pricing in a 55% chance of a rate cut in June.
• Yields and the dollar have climbed on the potential of a more hawkish message from Powell following some hotter-than-expected inflation data.
• Consumer prices have risen more than expected, likely forcing the Fed’s hand despite cooling manufacturing data.
• Bloomberg reports China continues to buy gold, with young people reportedly stockpiling gold beans amid concerns over deflation and sliding markets.

Economics

China – Economic data released this morning beat market estimates with growth in industrial production and investment picking up while the pace of expansion in consumer spending slowed down

Industrial Production rose 7.0% in January-February yoy ahead of the 4.3% yoy expected by ‘Wind’ according to the NBS ‘National Bureau of Statistics’

• Retail sales rose 5.5% yoy to (US$1,129bn) vs 7.4% in December and below 5.2% forecast by Reuters but down on 7.4% recorded in December.

• • Accounting for seasonality and other base effects the China’s retail recovery appears to be gaining traction.

• Price cutting, particularly in EVs is a new driver but a lack of consumer stimulus may see consumer demand slide later in the year.
• Fixed asset investment rose 4.2% yoy better than the 3.2% yoy expected and 1.2% higher than a year earlier.
• Excluding property fixed asset investment actually rose by 8.9% yoy highlighting the nation’s move to invest in other areas.

• • Investment in Infrastructure grew by 6.3% yoy
  • Investment in Manufacturing rose by 9.4% yoy – much of this will be in EV manufacturing.
  • High-tech manufacturing investment in optical and photographic equipment rose by 43.2% yoy
  • High-tech manufacturing investment in aerospace vehicle and equipment rose by 33.1% yoy
  • High-tech services investment in professional technical services rose 36.2%
  • High-tech services investment in information services rose 16.1% yoy

• Investment in property fell -9% yoy. Property investment also fell -9.6% yoy in 2023 as developers struggled to attract new buyers for finished and unfinished apartmenrts.
• Investment in infrastructure rose 6.3% yoy
• Manufacturing rose 9.4% yoy.
• Index of Services Production grew by 5.8% yoy
• Earlier this month, the central bank governor suggested that monetary authorities have tools to provide more stimulus if needed including a potential cut to the reserve ratio requirement.
• RRR was but by 50bp in January which was the largest cut in two years.
• China continues to focus on export-led growth while watching its national debt grow

• • China’s debt to GDP level rose 13.5% yoy to 287.8% in 2023
  • Household debt rose 1.3% to 63.5%
  • Nonfinancial corporates rose 6.9% to 168.4%
  • Government debt rose 5.3% to 55.9%.
  • At the end of September 2023, China recorded CNY17.104tn (US$2.38tn) in outstanding external debt

Russia – Vladimir Putin is on course to secure his fifth term with preliminary estimates pointing to a landslide victory with more than 87% votes in support.

• Turnout is estimated at more than 74% beating 2018 levels of ~68%.
• With 114m registered voters that would suggest more than 70m voting in support of incumbent President beating ~57m supporting 2020 constitution referendum changes that allowed Putting to run for another two terms and ~56m secured during last presidential elections in 2018.
• Higher support numbers are likely to be treated as an endorsement of current government policies including ongoing war in Ukraine, higher military spending and increasing economic isolation.
• No anti war candidate was allowed to register.
• Elections were held over three days, a measure that was introduced during Covid but has been left in place since then with critics arguing that multiday voting procedure is harder to monitor.

Currencies

US$1.0899/eur vs US$1.0881/eur previous. Yen 149.11/$ vs 148.72/$. SAr 18.835/$ vs 18.750/$. $1.273/gbp vs $1.274/gbp. 0.657/aud vs 0.655/aud. CNY 7.198/$ vs 7.197/$.

Dollar Index 103.5 vs 103.4 previous.

Precious metals:

Gold US$2,153/oz vs US$2,168/oz previous

Gold ETFs 81.8moz vs 81.8moz previous

Platinum US$928/oz vs US$942/oz previous

Palladium US$1,076/oz vs US$1,103/oz previous

Silver US$25/oz vs US$25/oz previous

Rhodium US$4,575/oz vs US$4,525/oz previous

Base metals:

Copper US$9,039/t vs US$9,022/t previous

Aluminium US$2,268/t vs US$2,274/t previous

Nickel US$17,923/t vs US$18,298/t previous

Zinc US$2,571/t vs US$2,581/t previous

Lead US$2,106/t vs US$2,141/t previous

Tin US$28,674/t vs US$28,065/t previous

Energy:

Oil US$86.1/bbl vs US$84.9/bbl previous

• Crude oil prices moved higher following Ukrainian attacks on Russian refineries and tough talk from the Israeli Prime Minister on the war with Hamas in Gaza.
• European energy prices surged on expectations for lower wind activity and continued outages at the Freeport LNG facility in Texas.
• The US Baker Hughes rig count was up 7 units to 629 rigs last week (-125 or 16% y/y), with oil rigs up 6 to 510 units (-79 y/y) and gas rigs up 1 to 116 units (-46 y/y) as Louisiana added 5 rigs to 43 units (-9 y/y).

Natural Gas €28.4/MWh vs €26.1/MWh previous

Uranium Futures $83.1/lb vs $83.0/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$101.1/t vs US$104.1/t

Chinese steel rebar 25mm US$556.4/t vs US$556.2/t

Thermal coal (1st year forward cif ARA) US$105.8/t vs US$105.3/t

Thermal coal swap Australia FOB US$130.0/t vs US$131.0/t 

Other:

Cobalt LME 3m US$28,550/t vs US$28,550/t

NdPr Rare Earth Oxide (China) US$48,810/t vs US$48,372/t

Lithium carbonate 99% (China) US$15,088/t vs US$14,942/t

China Spodumene Li2O 6%min CIF US$1,120/t vs US$1,120/t

Ferro-Manganese European Mn78% min US$985/t vs US$985/t

China Tungsten APT 88.5% FOB US$305/mtu vs US$305/mtu

China Graphite Flake -194 FOB US$535/t vs US$535/t

Europe Vanadium Pentoxide 98% 5.6/lb vs US$5.6/lb

Europe Ferro-Vanadium 80% 27.25/kg vs US$27.25/kg

China Ilmenite Concentrate TiO2 US$327/t vs US$327/t

China Rutile Concentrate 95% TiO2 US$1,452/t vs US$1,452/t

Spot CO2 Emissions EUA Price US$55.4/t vs US$55.4/t

Brazil Potash CFR Granular Spot US$297.5/t vs US$297.5/t

Company News

Aura Energy* (AURA LN) 9p, Mkt Cap £64m – A$16m raised for the Tiris uranium project

(Aura holds 85% of the Tiris Uranium Project, Mauritania with 15% held by ANARPAM, a Mauritanian Government entity.)

• Aura Energy reports that investors have committed to raise ~A$16.2m for the development of its Tiris uranium project in Mauritania through the issue of around 90.2m shares priced at A$0.18/share.
• Aura Energy says that it will also “offer eligible shareholders on 15 March 2024 … the opportunity to participate in a Share Purchase Plan … of up to A$2 million through the issue of approximately 11.1 million fully paid ordinary shares subject to shareholder approval”.
• “The Placement also includes the offer, to be made pursuant to a prospectus, of three (3) free attaching options to subscribe for a Share, exercisable at $0.30 and expiring 2 years from the date of issue, for every four (4) Placement Shares issued under the Placement”.
• The new shares represent approximately 12.5% of the enlarged capital.
• Manging Director, Andrew Grove, explained that the new funds “will help Aura accelerate advancing the Tiris Uranium Project towards FID this year and continue exploration to demonstrate the significant resource growth potential of the area”.
• Mr. Grove “has committed to investing A$100,000 via a subscription for 555,556 Aura shares, on the same terms as the Placement”.
• In a separate announcement today, Aura Energy reports a loss of A$3.0m for the six months ended 31^st December 2023 (2022 – loss of A$3.3m). and a closing cash balance of A$5.9m.
• The announcement highlights the company’s 28^th February announcement of its FEED (Front-End Engineering Design) Study for the Tiris Project where average annual production of 1.9m lbs of U3O8 over a 17 year mine life is expected to generate an after-tax NPV8% of US$366m and IRR of 34% from an initial investment of US$230m.
• The company confirms that it expects a Final Investment Decision (FID) on the Tiris Project “late in 2024 for an 18-month construction timeline to first production”.

Conclusion: The additional funding for the Tiris project should aid the project as it moves towards a final investment decision later this year and progresses exploration to expand the resource base,

*SP Angel acts as Nomad and Broker to Aura Energy

BHP Ltd (BHP AU) 2,200p, Mkt cap £111bn – Contractors stood down at Australian nickel project

• BHP has announced it has stood down 25% of its contractors at $1.1bn West Musgrave project.
• The move follows a $3.6bn write down of its nickel business last month.
• The Group had previously suggested it could halt construction work entirely at West Musgrave.
• The project is currently just over 20% complete.
• BHP has been lobbying the West Australian government alongside Andrew Forrest for price bifurcation in nickel markets on the LME.
• BHP is considering shifting the West Musgrave strategy to export concentrate to international smelters as opposed to using their Kalgoorlie smelter.
• Production is currently forecast for 2027, but that may be delayed following the ongoing review.

Caledonia Mining (CMCL LN) 810p, Mkt Cap £155m – Board appointment

• Caledonia Mining reports the appointment of a Johannesburg-based, Zimbawean, accountant, Tariro Gadzikwa as a non-executive director.
• Ms. Gadzikwa “started her career at PwC in Zimbabwe and subsequently worked in the Johannesburg, Baltimore and London offices, where she provided audit and financial advisory services including financial due diligence and strategy development to medium and large corporates in Zimbabwe, South Africa, the US and UK”.
• She subsequently served as CFO of Efora Energy prior to founding MWJ Consulting “an advisory firm specialising in financial reporting and due diligence for listed and private equity clients within the mining, oil and gas and energy sectors”.
• Welcoming her the Board, Caledonia Mining’s Chairman, John Kelly, said that her “significant board experience and particular expertise in audit, risk management, corporate finance and finance strategy development … will add further depth to the Board’s considerable experience in Southern Africa”.
• Caledonia Mining also reports that its former Chief Executive, Steve Curtis, who assumed a non-executive role upon his retirement in June 2022 has decided not to offer himself for re-election and will leave the Board at the next AGM.
• Mr. Kelly acknowledged Steve Curtis’ “contribution to the Board in a non-executive capacity since stepping down as Chief Executive Officer … [and said that he was] …pleased he has agreed to remain a consultant to Caledonia, where management can continue to benefit from his experience and insight”.

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

Celsius Resources (CLA LN) 0.78p, Mkt Cap £17m (ASX HALT) – MCB copper/gold project mining permit

Click Link for SP Angel research report PDF note – MCB project NPV@8% US$463m, IRR of 34.3%

BUY

• Celsius Resources reports that the Philippines Department of Environment and Natural Resources has awarded a 25- year mining permit for the company’s Maalinao-Caigutan-Biyog (MCB) Copper-Gold Project in the Philippines.
• The permit, which is described as “the first copper project to be approved in the Philippines in the last fifteen years” is renewable for a further 25 year tenure.
• Acknowledging the work of the company team in securing the mining permit, Managing Director, Peter Hume, said that the “grant of the MCB mining permit marks the progression of Celsius from being known as an exploration company to a mineral resource developer, and eventually a mine operator”.
• Mr. Hume said that now the permit had been secured “the Company will proceed with finalising funding options for the Project”.
• The MCB Project, which is located ~300km north of Manila, hosts a ‘Measured’ resource of 47mt at an average grade of 0.59% copper and 0.19g/t gold and a further ‘Indicated’ resource of 249mt at an average grade of 0.44% copper and 0.11g/t gold. Additional ‘Inferred’ resource amount to 42mt at an average grade of 0.52% copper and 0.11g/t gold.
• A 2021 study envisaged an underground mine at the project processing 2.28mtpa of ore over a 25 years mine to produce an average of around 16,000tpa of copper and 19,000oz pa of gold in concentrate with production weighted towards the initial 10 years of the project
• The study described an initial investment of US$253m delivering a post-tax NPV8% of US$464m and an IRR of 31%.  The study was based on lower commodity prices than currently prevail with an assumed copper price of US$4:00/lb and a gold price of US$1,695/oz.

Golden Metal Resources (GMET LN) 14.5p, Mkt Cap £13.2m – Drilling plans for Pilot Mountain

• Golden Metal Resources reports that following the recently announced £750,000 investment, it is planning to drill its Pilot Mountain tungsten project in Nevada to follow up priority targets identified during its 2022/23 geophysical work.
• Pilot Mountain currently hosts an ‘Indicated & Inferred’ resource of 12.5mt at an average grade of 0.27% tungsten trioxide with copper silver and zinc and the company says that it is “believed to be the largest and most advanced undeveloped tungsten resource located in the USA”.
• The company expects to receive drilling permits in ~six weeks and says that one of its key targets will be “the untested Porphyry South target as it may represent the porphyritic intrusive body … that could be responsible for the skarn-type mineralisation found at Pilot Mountain”.
• Golden Metal Resources confirms that in conjunction with testing the exploration potential of Pilot Mountain it will evaluate “the development and extraction of the currently defined Mineral Resources at Pilot Mountain”.
• The company comments that “There is currently no domestic United States mined tungsten production, and tungsten is classified as a strategic mineral by the United States Geological Survey … [so that] … the Pilot Mountain Project hosts a key energy and defense metal deposit located on US soil during a time of increasing need for resource domestication”.

Conclusion: The recent funding from a strategic investor is accelerating the company’s exploration of the Pilot Mountain tungsten project in Nevada with drilling expected to start in around six weeks..

Hummingbird Resources (HUM LN) 7.6p, Mkt Cap £65m – Kouroussa mining operations temporarily suspended on a dispute with main contractor

• Corica Mining Services, a principal mining contractor at the Kouroussa Gold Mine in Guinea, temporarily suspended mining operations as of 17 March dur to contractual disputes.
• The Company reports the suspension is a clear breach of the contract.
• The team highlighted that Corica has previously failed to meet contract volumes on delays to equipment mobilisation, commissioning and overall performance.
• The Company gave Corica a notice to return to work by Tuesday 19 March, failing which the Company will have the right to find an alternative minign contractor.
• Operations are currently processing low grade stockpile as well as ores mined by a supporting mining contractor (appointed in H2/23) but at a significantly reduced rates since the supporting contractor runs one fleet compared to four contracted with Corica.
• As a result, the Company reports that unless mining operations resume at full capacity it will not be able to reach commercial production.
• Commercial production was targeted for Q1/24 previously.
• Given a significant effect of current suspension on projected cash flows the team is in close contact with its primary lender, Coris Bank International.
• The team will provide a further update in due course.
• The Company held ~$140m in net debt as of YE23 including $7.9m in cash (inclusive of $5.5m received pre YE23 from the latest $28.1m equity raise) and $148m in gross debt.
• $77m of outstanding debt is due for repayment in FY24 with another $61m in FY25.
• Kouroussa was projected to account for ~60% of FY24 production guidance or 90-115koz of 165-200koz forecast for the Group.

Perseus Mining (PRU AU) A$2, Mkt cap A$2.8bn – Commitment to OreCorp takeover

• Perseus Mining, who recently took a 19.9% stake in OreCorp, provides an update.
• OreCorp holds the Nyanzaga Gold Project, with reserves of 40mt at 2g/t for 2.6moz, LOM production of 234koz over 10.7 years at an AISC of US$954/oz.
• OreCorp is currently under offer from SilverCorp, which management has accepted.
• Perseus announces today that it has received Tanzanian Fair Competition Commission approval.
• The Tanzanian government will gain a 20% free carry in the Nyanzaga gold project, vs 16% currently owed.
• They also state they are willing to provide OreCorp an unsecured working capital debt funding package, noting that OreCorp need $26m in additional cash by June.
• Furthermore, Perseus have stated they will not accept Silvercorp’s offer.
• Silvercorp’s current bid is primarily in shares, whilst Perseus are offering cash.

South32 (S32 LN) 154.6p, Mkt cap £7.2bn – Suspension of manganese operations amid cyclone

• South32 has temporarily suspended operations at its Groote Eylandt Manganese project amid Cyclone Megan.
• The Company reports that initial inspections have shown structural damage to the wharf.
• The team continues to assess the full impact of the damage and its impact to sales volumes.
• GEMCO is a top 3 manganese producer globally.

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.

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 (tim.jenkins@spangel.co.uk).

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%