SP Angel Morning View -Today’s Market View, Monday 26th February 2024

Chinese lithium carbonate capacity rises 83.3% to 1.1mt

MiFID II exempt information – see disclaimer below

Aura Energy* (AURA LN) – Swedish Government inquiry could reinvigorate the uranium potential at Häggån

Jubilee Metals Group (JLP LN) – H1 performance growth with FY production guidance for chrome expected to be exceeded

Oriole Resources* (ORR LN) – Exploration update from Mbe as trenching programme looms

Savannah Resources* (SAV LN) – Resource focused Phase 1 drilling completed with mineralisation intersected outside the current MRE at NOA and Reservatorio

Sovereign Metals* (SVML LN) – Sustainable farming initiative in Malawi

Tertiary Minerals* (TYM LN) – Updated JV structure with local partner

Lithium – China experienced surge in lithium production in 2023

• China saw a surge in production through 2023 on the back of strong demand for EV batteries
• Lithium carbonate production rose 31.1% to 517,900t in 2023
• China’s production capacity has now risen 83.3% to > 1.1mt as the nation gears up to meet strong anticipated growth in production and demand.

Lithium smelters ordered to halt work in Jiangxi as Australian spodumene price climbs

• Lithium smelters in China’s lithium hub Jiangxi are reportedly halting production amid environmental inspections.
• SMM reports smelters unable to ‘properly handle lithium slag will be restricted from starting operations.’
• However, reports suggest major producers are continuing production.
• February lithium carbonate in China produced from lepidolite has reportedly fallen 33% mom, reflecting the downtime over the Lunar New Year holiday.
• Platts Australian spodumene price climbed to $870/t over the weekend, having hovered around the $850/t for most of the ytd period.
• Zimbabwe continues to encourage miners to provide plans for this year’s production, despite the likely uneconomic price environment.

Uranium prices slide as production expected to rise 12% in 2024

• Uranium prices have fallen below $100/t following a sharp rally into the turn of the year.
• The rally had followed a series of production guidance cuts from major producers Cameco and Kazatomprom.
• However, GlobalData expects production to rise by 11.7% to c.60.3kt in 2024.
• Ramp ups from Kazakhstan and McArthur River are driving the increase.
• Output is expected to grow 4% annualised to 2030, climbing to 76.8kt.

 Economics

Sticky inflation looks likely to keep interest rates higher for longer driving funds out of bonds and back into equities

• The High street continue to decline as department stores go the way of the dinosaurs and so much more is sold online
• Commercial property writedowns likely to hurt investors as companies downsize along with adoption of new working practices

US – US and European equity futures are trading slightly off this morning ahead of a busy week in terms of economic numbers.

• Among major economic data due this week are Durable Goods Orders and Consumer Confidence on Tuesday, Q4 GDP Second Reading on Wednesday, Headline and Core PCE as well as Weekly Jobless Claims on Thursday.
• Both PCE measures are expected to continue slowing down in January with headline and core numbers coming down to 2.4%yoy (from 2.6%) and 2.8% (from 2.9%), respectively.
• New York Fed President John Williams said in an interview on Friday the central bank is likely to cut rates later this year, although, there is no immediate need for a move.
• A number of Fed speakers this week are likely to reiterate Williams message, Bloomberg reports.

US – Fed may or may not cut rates ahead of the US Presidential election

Probabilities for first Fed interest rate cut

• 31 July – 85.5% was ~100% two weeks ago before the US inflation report
• 12 June – 65.5% was ~100% before the rise in US employment in January
• 1 May – 24% was ~95% last May
• 20 March – 3% was ~ 90% at start of the year

China – Official manufacturing and services PMIs are due this Friday with expectations for a slight deterioration in the business activity growth pace.

House price index fell -0.7% yoy vs -0.4% in December

• Foreign direct investment -11.7% year-to-date and -8% yoy
• Moody’s withdraws credit ratings from 10 property developers and one a major bad-debt managers, China Great Wall Asset Management.
• Ratings agencies seem to excel at kicking businesses hardest when they are down.

Iron ore – China importing record tonnages iron ore

• Is this iron ore being ordered in anticipation of new growth in residential and infrastructure expansion
• Or is this for steel for EVs, shipbuilding and military expansion?

ECB – Consumer inflation expectations rise to 3.3% for 2025

• The ECB Consumer Expectations Survey raised inflation expecttaions by 0.1% to 3.3% in January with 2.5% ext. for three years forward.
• The survey also expects GDP growth to come in at -1.1% vs -1.3% previously with unemployment falling to 10.6% from 10.8%.

Ukraine – President Zelenskyy told attendees of a conference in Kyiv on Sunday that the country will need the $60bn aid within a month to be able to resist Russian forces.

• Long awaited package stuck in the US Congress was about military not financial support with a certain type of equipment that the country will struggle to find elsewhere President said, FT writes.
• He offered an example of US made Patriot air defense systems that helped to protect key cities from Russian attacks.

UK – GfK consumer confidence -21 in February vs -19 in January

Competition regulator investigating house builders for sharing commercially sensitive information.

• The construction sector is ripe for investigation with allegations of the sharing of commercially sensitive information with competitors.
• Maybe the government would like to kill off the sector with some MiFID II type regulation?

Turkey – Business confidence improving 101.5 vs 100.9

Egypt – President Abdel Fattah el-Sisi has reiterated his country’s ‘categorical rejection of the displacement of Palestinians to Egypt in any shape or form.’

Zambia – Zambia signs debt restructuring deal with China and India

• The Zambian President plans to resume talks with private creditors to resolve >$13bn of external debt (FT).
• Zambia had agreed outline terms on $6.3bn of debt with official lenders last year till China objected.
• The deal with private investors on ~$4bn in US dollar bond claims should now be able to pass through.
• The president should now have more time to attend to cleaning up more local matters.

Burkina Faso – At least 15 killed and two injured following an attack on a Catholic church in Essakane village of Oudalan Province in north eastern Burkina Faso on Sunday.

• A church official indicated the gunmen were suspected Islamist militants, according to BBC.
• The authorities have been fighting Islamist groups linked to al-Qaeda and Islamic State with insurgents reported to have taken more than a third of Burkina under control now.

Niger – Western leaders are lifting sanctions on Niger months following a 2023 coup.

• Land and air borders will be reopened, the suspension of trade will be lifted and Niger will regain access to its accounts in the regional central bank “with immediate effect”, Bloomberg cites Ecowas Commission.
• Sanctions were lifted on “humanitarian considerations” and ahead of preparation for a return to democracy.
• Niger missed three bond payments defaulting on its over $600m debt since the coup with lifted sanctions aimed at helping the nation in refinancing talks.
• Earlier Niger’s new leaders refused to hand over power and cut nation’s ties with France and its West African neighbours.

Argentia – First budget surplus of $620.85m reported in January due to budget cuts

• First budget surplus since August 2012

Currencies

US$1.0835/eur vs 1.0827/eur previous. Yen 150.62/$ vs 150.65/$. SAr 19.347/$ vs 19.234/$. $1.267/gbp vs $1.267/gbp. 0.654/aud vs 0.657/aud. CNY 7.198/$ vs 7.198/$.

Dollar Index 103.90 vs 103.91 previous.

Commodity News

Precious metals:

Gold US$2,034/oz vs US$2,020/oz previous

Gold ETFs 82.8moz vs 82.8.0moz previous

Platinum US$897/oz vs US$899/oz previous

Palladium US$979/oz vs US$966/oz previous

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

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

Base metals:

Copper US$ 8,497/t vs US$8,546/t previous

Aluminium US$ 2,178/t vs US$2,193/t previous

Nickel US$ 17,271/t vs US$17,445/t previous

Zinc US$ 2,414/t vs US$2,393/t previous

Lead US$ 2,086/t vs US$2,083/t previous

Tin US$ 26,383/t vs US$26,225/t previous

Energy:

Oil US$80.4/bbl vs US$83.2/bbl previous

• Crude oil prices pulled back over the weekend on hopes for Israeli-Hamas ceasefire talks, despite the US and UK launching a fourth wave of military strikes on Houthi targets on Saturday.
• The US Baker Hughes rig count was up 5 units to 626 rigs last week (-127 or 17% y/y), with oil rigs up 6 to 503 units (-97 y/y) and gas rigs down 1 to 120 units (-31 y/y) but the overall count broadly unchanged since October.
• Media reported that ExxonMobil is considering a sale of its position in Argentina’s Vaca Muerta shale formation for $1bn, further evidence of the Super Majors increasing their focus on portfolio optimisation.
• QatarEnergy announced plans to expand current LNG production capacity by 85% to 142mtpa by2030 through development of the North Field West expansion project.

Natural Gas €23.1/MWh vs €22.8/MWh previous

Uranium Futures $98.0/lb vs $99.3/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$121.2/t vs US$121.1/t

Chinese steel rebar 25mm US$569.5/t vs US$570.7/t

Thermal coal (1st year forward cif ARA) US$91.0/t vs US$90.0/t

Thermal coal swap Australia FOB US$125.0/t vs US$124.3/t

Coking coal swap Australia FOB US$307.0/t vs US$307.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$52,789/t vs US$53,924/t

Lithium carbonate 99% (China) US$12,225/t vs US$12,246/t

China Spodumene Li2O 6%min CIF US$1,000/t vs US$1,000/t

Ferro-Manganese European Mn78% min US$1,066/t vs US$1,072/t

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

China Graphite Flake -194 FOB US$560/t vs US$560/t

Europe Vanadium Pentoxide 98% 5.8/lb vs US$5.8/lb

Europe Ferro-Vanadium 80% 27.55/kg vs US$27.55/kg

China Ilmenite Concentrate TiO2 US$322/t vs US$322/t

Spot CO2 Emissions EUA Price US$57.5/t vs US$57.8/t

Brazil Potash CFR Granular Spot US$290.0/t vs US$290.0/t

Battery News

Albermarle and BMW sign long-term lithium supply agreement

• As part of a multi-year agreement, the chemical producer will supply BMW with battery-grade lithium for EVs from 2025.
• According to Albermarle, the agreement is ‘one of the company’s largest ever globally’ in terms of volume and value.
• The companies will also collaborate on the development of more energy dense lithium batteries as part of the agreement.
• This is the second supply agreement between the two companies, but the first to include shared research opportunities.

India’s EV boom to push high-end tech hiring

• India’s EV revolution has sparked a surge in hiring with vehicle makers investing in R&D, material and data sciences, mechatronics, battery design and robotics programming.
• India currently has 400EV manufacturers employing 11m people.
• It is predicted that the EV sector in India will employ 50m people by 2030.

Calls for US to block Chinese auto imports from Mexico

• The Alliance for American Manufacturing has called on the US government to block the import of low-cost Chinese autos and parts from Mexico, warning they could threaten the viability of American car companies.
• The Biden administration had attempted to slow China’s dominance in the auto market by introducing new legislation that prevented China-made EVs qualifying for tax credits.
• Chinese manufacturers have used a loophole setting up facilities in Mexico to take advantage of the US-Mexico-Canada trade agreement.
• US lawmakers have now urged the Biden administration to hike tariffs on Chinese-made vehicles and investigate ways to prevent Chinese companies from exporting to the United States from Mexico.

Company News

Aura Energy* (AURA LN) 12.25p, Mkt Cap £77m – Swedish Government inquiry could reinvigorate the uranium potential at Häggån

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

• Aura Energy reports that the Swedish Government has initiated an inquiry which could lead to the lifting of the current ban on uranium mining.
• The inquiry, which is due to report on 15^th May, “will investigate the regulatory changes needed to make uranium extraction legal, and analyse whether mining of uranium should be allowed”.
• The possibility of overturning the ban on uranium mining, which has been in force since 2018, could have important implications for the prospects of Aura Energy’s Häggån project “in the county of Jämtland … [which] …contains Mineral Resources of approximately 800 million lbs of U3O8” and which also contains vanadium as well as sulphate of potash (SOP), zinc, nickel and molybdenum.
• Aura Energy explains that “Approximately 14 percent of the known value of the asset is uranium … [and that] … Including uranium into the previously published scoping study… [released in September 2023] increased the Project NPV by 37% at a uranium price of US$ 65/lb U3O8 from the previously stated range of between US$ 456 million to US$ 1307 million”.
• The company explains that “Sweden currently uses 2.4Mlbs U₃O₈ annually in their three nuclear reactors and has committed to building two additional nuclear reactors by 2035, Häggån has the potential to supply a significant portion of Sweden’s nuclear fuel requirements”.
• Commenting on the developments in Sweden, Managing Director & CEO, Andrew Grove, said that “Releasing the value of uranium within the Häggån Project has a significantly positive economic impact on an already robust project”.
• He added that the “Swedish Government’s stated aim aligns well with the ability to mine domestic uranium, reducing foreign dependency and strengthening domestic and European energy supply. It is of course essential that uranium is mined in a way that does not threaten the local environment or water supply, and I am certain that we will be able to demonstrate that within the framework of the Swedish permit process”

Conclusion: A Swedish Government inquiry, due to report in May, could remove restrictions on uranium mine development and help clear obstacles to the development of the company’s Häggån project.

*SP Angel acts as Nomad and Broker to Aura Energy

Jubilee Metals Group (JLP LN) – 5.2p, Mkt cap £155m – H1 performance growth with FY production guidance for chrome expected to be exceeded

• Announcing interim results for the six months period ending 31^st December 2023 Jubilee Metals reports increased production across all its operations and improved financial performance across revenue, EBITDA and profit after tax.
• Revenues were 18% higher at £74.7m (H1 2023 -£63.1m), driven by a 46% rise in the contribution of chrome, to £51.9m) and by a 24% increase in copper, to £6.3m, more than offsetting a decline of 27% from PGMs to £16.5m.
• “Group cost of production increased by 24.4% to £60.7 million (H1 FY2023: £48.8 million) predominantly due to an increase in our chrome feed purchases and higher logistical costs of PGM tailings materials processed”.
• Copper output in cathode and concentrates increased by almost 50% to 1,683t (H1 2023 – 1,149t) while chrome concentrate production rose 7.4% to 118,189t (H1 2023 – 668,809t) and PGM production was 11.2% higher at 20,244oz (H1 2023 – 18,208oz).
• As a result, revenues increased 18.4% to £74.7m (H1 2023 – £63.1m) and after-tax profit was 7% higher at £4.4m (H1 2023 – £4.1m).
• Chief Executive, Leon Coetzer, explained that Jubilee Metals’ “strong production performance, supported by the continued expansion of our copper and chrome operations, was able to offset a significant reduction in PGM metal prices to deliver growth in both revenue and earnings”.
• Jubilee Metals’ Munkoyo Project near Sable in Zambia “is progressing to schedule with the first feed material from this exciting copper resource expected to be delivered to Sable during Q4 FY2024”.
• At the ‘Waste Rock Project’ in Zambia, “Jubilee is finalising project details, including detailed drilling and processing trials, with a completion target of mid-March 2024, emphasising cost-effective and sustainable mining solutions”.
• Looking forward, the company is concentrating on expansion through modular growth with “Upgrading the Sable refinery and the Roan concentrator to increase production capacities, with Sable’s capacity expansion to 16 000t and Roan’s to 13 000t of copper units per annum”.
• Copper production guidance for FY 2024 remains unchanged at 5,850t with PGM expectations also unchanged at 42,000oz.
• The company says that chrome production is “expected to exceed guidance” of 1.45mt of concentrates

Conclusion: After 6 months, Jubilee Metals is maintaining its FY 2024 production guidance for copper and PGMs and indicating that current chrome production guidance of 1.45mt is likely to be exceeded.

Oriole Resources* (ORR LN) 0.32p, Mkt cap £13m – Exploration update from Mbe as trenching programme looms

• Oriole Resources announces an exploration update from its Mbe licence in Cameroon, where it is building on positive gold outcrop and pit samples.
• The Company is currently working alongside global mining contractor BCM International, who are earning in through $4m in exploration expenditure.
• Oriole has received $550k from BCM as part of its $1m signature payment over Mbe, expecting to receive the remaining $450k by the end of the month.
• Structural mapping of various pits has been completed and infill soil sampling has now begun over a 100m x 25m spacing grid across the 3km target..
• This will support the team’s understanding of gold distribution and constraints of the anomalism.
• They are intended to support the trenching programme planned for 2Q24.
• Infill soil sampling will also be completed over 100m x 50m across the separate 12.5km soil anomalism.

*SP Angel acts as Broker to Oriole Resources

Savannah Resources* (SAV LN) 1.9p, Mkt Cap £34m – Resource focused Phase 1 drilling completed with mineralisation intersected outside the current MRE at NOA and Reservatorio

BUY – 21.1p

• The Company completed the first phase of its current two phase drilling programme at the Barroso Lithium Project, Portugal.
• The first phase was designed by upgrade the resource at Noa, Reservatorio, Pinheiro and Grandao to Measured&Indicated category to be used in the maiden Reserves estimation as part on the ongoing DFS.
• The first phase included ~3,200m of drilling across 39RC and 3 diamond drill holes.
• Assay results received to date include 25 holes (23 at NOA and 2 at Reservatorio) of 42 holes completed.
• Selected intersections include:
• Reservatorio
  • 41m @ 1.21% Li2O from 159m in 23RESRC038
  • 40m @ 1.17% Li2O from 70m in 23RESRC045
• NOA
  • 8m @ 1.34% Li2O from 21m in 23NOARC036
  • 7m @ 1.16% Li2O from 16m in 23NOARC037
  • 11m @ 1.22% Li2O from 13m in 23NOARC040
  • 13m @ 1.12% Li2O from 31m in 23NOARC041
  • 9m @ 1.18% Li2O from 0m in 23NOARC044
• At Reservatorio drilling results confirmed extension of the mineralisation at depth with a number of good grades returned over wide intervals.
• At NOA drilling confirmed the continuity of mineralisation in infill holes as well as intersected mineralisation on strike along NW extension beyond the current resource that will be followed up at a later stage.
• Assay results from the first phase will be used to finalise plans for the second phase of drilling.
• Drilling rigs are currently engaged for geotechnical and metallurgical drilling.

Conclusion: Resource drilling completed with the remaining of assays to be released in due course and drilling currently collecting geotechnical and metallurgical data as part of the ongoing DFS. Assay results released to data covered drilling at Reservatorio (15% of total MRE) and NOA (3%) with infill drilling confirming continuity of the mineralisation with a number of holes showing extension of mineralisation beyond current MRE envelope boding well for future potential growth in the resource (28mt at 1.05% Li2O) and Barroso’s life of mine.

*SP Angel acts as Nomad and Broker to Savannah Resources

Sovereign Metals* (SVML LN) 22.6p, Mkt Cap £127m – Sustainable farming initiative in Malawi

(Sovereign currently holds 100% of the Kasiya project. The government has a right to a 10% free carry in the project)

STRONG BUY – Valuation 55p

• Sovereign Metals report the commissioning of a new conservation Farming Program in Malawi as part of its sustainability initiatives.
• The initiative relates to the development of the Kasiya rutile and graphite project around Lake Chilwa.
• Local farmers are to be trained in sustainable farming to raise maize crop yield, reduce soil erosion and improve long term food security.
• Around a quarter of Malawians are subject to food insecurity with ~80% of the population involves with smallholder farms making this a priority for the nation.
• First Quantum minerals have previously implemented a similar program in Zambia with >7,000 farmers by 2022 with a 67% increase in crops from 2020-2022.
• The program teaches:
  • minimum soil disturbance, such as no-till farming,
  • maintenance of a permanent soil cover, such as cover crops or crop residues and
  • diversification of plant species, such as crop rotation.

Conclusion:  Its good to see Sovereign continuing the good work done by First Quantum in Zambia. First Quantum were always very practical in the way they developed their local initiatives using their expertise to help local people around their mine  sites develop their own farms, businesses and infrastructure. The communities are so socially enriched by First Quantum that related staff wear their High-Viz jackets on nights out.

*SP Angel act as Nomad and broker to Sovereign Metals.  

Tertiary Minerals* (TYM LN) 0.08p, Mkt Cap £2m – Updated JV structure with local partner

• Tertiary has signed a new JV with its local Zambian partner Mwashia Resources.
• The Agreement will consolidate their Jacks, Mukai and Mushima North exploration licences into a new Zambian company.
• The Newco will be owned 90% by Tertiary’s Zambian subsidiary, in which Tertiary has a 96% interest, and 10% by Mwashia.
• The updated JV relieves Tertiary of its expenditure obligation for Mukai and Mushima North.
• Management sees the new arrangement as a simpler model and opens up alternative joint venture approaches from third parties.

*SP Angel acts as Nomad and Broker to Tertiary Minerals

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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