SP Angel Morning View -Today’s Market View, Thursday 14th March 2024

Copper extends gains on production cut optimism as hedge funds ramp up bullish bets

MiFID II exempt information – see disclaimer below

Arafura Rare Earths (ARU AU) –US$533m funding for Northern Territory mine and refinery

Beowulf Mining* (BEM LN) – Capital raise begins and prospectus released

Bushveld Minerals* (BMN LN) – SPR funds update

Gem Diamonds (GEMD LN) – Global economic pressures cut diamond revenues by 26% in 2023

Ionic Rare Earths (IXR AU) – Belfast magnet recycling plant update and Interims

Lucara Diamonds (LUC CN) – Updated Feasibility Study for Karowe Underground project

Pilbara Minerals (PLS AU) –Spodumene auction shows rising lithium price

Copper extends gains on production cut optimism as hedge funds ramp up bullish bets

• Copper prices are following gold higher as consumers come back from their new year break in China.
• LME copper prices rose to $8,900/t, highest in almost a year.
• Traders have been ramping up bullish bets on copper, with Bloomberg reporting a $15m trade on December $4.25/$4.75/lb calls.
• News out last night suggested 19 smelters have officially pledged to explore processing cuts amid sliding fees, delaying new project developments. (China Nonferrous Metals Industry)
• Miners have rallied on the news, with FQM up 12% and Glencore rallying 5%.
• However, China’s property market remains in the doldrums, with demand sought from alternate sources.
• An over capacity of smelting in China, combined with reduced flows of copper concentrates, recently cut the Fastmarkets TC index to its lowest ever level at 12.7, despite a number of the less efficient smelters being idled.
• But remember this excess capacity was built for a reason. Reason being the ongoing expansion of the Chinese economy, in particular its fast-growing EV industry.
• New demand is also coming through for AI data centres which will not only consume massive amounts of power but also allot of copper. Not sure many market observers were expecting that a few years ago.
• Data centre copper demand stood at 200kt in 2020 and is expected to grow to 240kt in 2030, although we expect this to be conservative.
• All this combined with falling production at Codelco in Chile and more expected disruption in Peru means the market looks set to tighten further so we can see why the algorithms, consumers and traders are buying.

Iron ore remains weak as Chinese steel producers slash output on weak prices

• Chinese iron ore prices have weakened to $105/t for the 62% Fe market.
• The steelmaking ingredient has been on the slide from its lofty $140/t levels.
• Bloomberg reports steel mills across Guangdong province are slashing output, with six Baowu mills cutting output by up to 50% as Rebar prices falling $70/t this month.

Gold shrugs off CPI data, regaining ground ahead of PPI reading today

• Gold prices have regained ground to c.$2,170/oz in the spot market, having weakened in the wake of hotter-than-expected CPI data.
• Yields have climbed to 4.2%, up from 4.07% last week, confusing analysts.
• Fed pivot hopes continue to take hold of the gold market, which saw a sharp rally on a lower dollar and sliding yields.
• However, the divergence suggests gold bulls remain optimistic of a dovish Fed come FOMC, targeting a slowdown in the labour market and inflation reaching target.
• PPI data today will be an additional catalyst, whilst the FOMC next week will provide more clarity on the Fed’s current thinking.

Economics

Currencies

US$1.0941/eur vs 1.0931/eur previous. Yen 147.86/$ vs 147.70/$. SAr 18.602/$ vs 18.689/$. $1.281/gbp vs $1.280/gbp. 0.662/aud vs 0.661/aud. CNY 7.191/$ vs 7.194/$.

Dollar Index 102.84 vs 102.93 previous.

Precious metals:         

Gold US$2,170/oz vs US$2,159/oz previous

Gold ETFs 81.8moz vs 81.9moz previous

Platinum US$943/oz vs US$932/oz previous

Palladium US$1,064/oz vs US$1,056/oz previous

Silver US$25.00/oz vs US$24/oz previous

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

Base metals:   

Copper US$ 8,908/t vs US$8,739/t previous

Aluminium US$ 2,267/t vs US$2,274/t previous

Nickel US$ 18,230/t vs US$18,495/t previous

Zinc US$ 2,577/t vs US$2,579/t previous

Lead US$ 2,163/t vs US$2,156/t previous

Tin US$ 28,345/t vs US$27,560/t previous

Energy:           

Oil US$84.3/bbl vs US$82.3/bbl previous

• Crude oil prices moved higher after the EIA reported a 1.5mb w/w US crude draw, boosted by a 5.6mb draw to gasoline stocks, with refinery utilisation levels increasing 1.9% to 86.8% as the maintenance season tapers.
• European energy prices edged lower as EU natural gas storage levels fell just 1.5% w/w to 60.1% full (vs 42.9% 5-Yr average), with only France below 50% full and aggregate storage at 686TWh.
• Shell announced it now targets a 15-20% reduction in carbon intensity from its energy products sold in 2030 versus a 2016 baseline, compared to a target of 20% by 2030 and 45% by 2035 in the 2021 energy transition strategy report, which is due to the Company withdrawing from the supply of energy directly to homes in Europe.

Natural Gas €24.9/MWh vs €25.3/MWh previous

Uranium Futures $83.1/lb vs $89.0/lb previous

Uranium Spot $91.0/lb vs $91.0/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$105.5/t vs US$108.8/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

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

Battery News

Chinese EVs now some of the safest globally

• A recent study from Compare the Market Australia have ranked two of BYD’s EVs as the safest available.
• The BYD Seal and BYD Dolphin took first and second place respectively.
• “The BYD Seal and Dolphin demonstrated high safety scores against the strictest 2023 testing criteria from Australasian and European safety authorities, in addition to universally standard safety assistance systems globally,” said Adrian Taylor, Compare the Market’s Executive General Manager of General Insurance.
• 32 EV models were examined for the study across Australia, New Zealand, Germany, UK, US and Canada

Researchers develop ‘highest power density in the world’ for EV wireless charging

• Oak Ridge National Laboratory (ORNL) researchers wirelessly charged a light-duty passenger EV at 100kW with 96% efficiency.
• ORNL is funded by the US Department of Energy and its technology uses polyphase electromagnetic coupling coils with rotating magnetic fields that boost the power.
• The technology reaches power densities 8-10 times higher than conventional coil technology and can increase battery charge state by 50% in under 20 minutes.

Waymo starts autonomous taxi service in Los Angeles

• Waymo has been testing its Level 4 autonomous ride-hailing service in Los Angeles since late 2022, and will offer the service officially from today.
• Most autonomous features on current vehicles (Tesla Autopilot, etc.) are Level 2 of the SAE driving automation levels.
• Los Angeles is now the third city that Waymo operate in, after San Francisco and Phoenix.
• The company has plans to begin operation in Austin later this year.
• 50,000 Angelenos have signed up for the service so it is expected that there might be quite a wait before some users are able to experience the service.

Company News

Arafura Rare Earths (ARU AU) A$0.26, Mkt Cap A$622m –US$533m funding for Northern Territory mine and refinery

• Arafura Rare Earths announced yesterday it had received financing support for its Nolans Project from the Government.
• The US$533m debt financing package includes US$125m senior debt facility from the Commonwealth Government’s Critical Minerals Facility, A$150m from the Northern Australian Infrastructure Facility.
• The Export Finance Australia group will also provide a standby liquidity facility up to US$200m to manage CAPEX blowouts and OPEX during ramp up.
• The Company will use the debt package to support a ‘significant equity raising’ to begin construction, commissioning and first production of NdPr from Nolans.
• Arafura holds offtake agreements with Hyundai and Kia, alongside Siemens Gamesa Renewables, for 53% of its 85% target of annual production committed.
• The Company raised its CAPEX estimate late last year to A$1.7bn.
• Gina Rhinehart holds a 10% stake in Arafura.
• The Company has received a A$30m grant from the Australian government.

Beowulf Mining* (BEM LN) 0.75p, Mkt Cap £9m – Capital raise begins and prospectus released

• Beowulf has begun its Swedish Depository Receipts Rights issue today.
• The subscription period will run until 28^th March 2024.
• The Company is looking to raise a net amount of c.£8m, split £6.3m in SDRs and £1.6m in UK issue.
• Funds will be used to advance the Kallak high-grade magnetite iron ore project, alongside the Grafintec Anode Material Plant project.

*SP Angel acts as Nomad and Broker to Beowulf Mining

Bushveld Minerals* (BMN LN) 1.7p, Mkt Cap £33m – SPR funds update

• The Company received a further ~US$3.0m in a form of an unsecured interest free loan from Southern Point Resources.
• This takes total amount loaned out to $12.5m, equal to the equity subscription commitment from December 2023.
• The loan will be settled once SPR provides $12.5m subscription funds in the UK that will cancel out the outstanding loan or through an alternative SA reserve bank approved settlement structure.
• The Company remains in discussions with SPR regarding finalisation of the subscription agreement.

Conclusion: The Company has now received full $12.5m that SPR committed to as part of the December 2023. While the monies are in the form of an interest free loan as both parties are working through legalities to complete funds for shares deal in the UK, importantly, funds were made available to the Company in South Africa to cover working capital needs and progress maintenance works at Vametco and Vanchem.

*SP Angel act as nomad and broker to Bushveld Minerals

Gem Diamonds (GEMD LN) 10.2p, Mkt Cap £13.5m – Global economic pressures cut diamond revenues by 26% in 2023

• Reporting on what describes as a year impacted by high inflation, rising interest rates and a global economic slowdown, Gem Diamonds has announced an attributable loss of US$2.1m for 2023 (2022 – US$10.2m profit).
• Revenues declined by 26% to US$140.3m (2022 – US$188.9m) while EBITDA, on an underlying basis, fell to US$15.2m (2022 – US$43.7m) despite “the implementation of numerous cost containment measures”.
• CEO, Clifford Elphick, attributed the weaker financial results to “a decrease in revenue because of lower diamond prices”.
• He described a relentless focus “on cost control measures, enhanced operational efficiencies, rigorous evaluation of capital projects and the deferment of non-essential longer-term projects”.
• Among the cost pressures, Chairman, Harry Kenyon-Slaney commented on “the fact that Letšeng is reliant on South African grid electricity supplier Eskom, which is currently plagued with poor operating performance leading to frequent load shedding … [which] … resulted in a sharp rise in our use of more expensive diesel-powered generators”.
• Operationally, “Letšeng performed well … especially in the second half of the year, with ore throughput in the plants being steady and consistent” treating 5mt of ore during the year to recover 109,656 carats of diamonds (2022 – 106,704 carats).
• Looking towards the future, Mr. Kenyon-Slaney said that “With the Letšeng open pit mine progressing deeper every year, the Board carefully considered the future development of Letšeng’s orebodies during 2023. An underground study carried out during the year indicated that underground mining of the Satellite pipe is not currently an economically viable option and we therefore continue with optimising open pit mining at Letšeng”.
• Consideration of underground mining at both the Main and Satellite pipes “may be revisited when macro-economic and diamond market conditions improve”.
• Commenting on the outlook for the rough diamond market, Gem Diamonds says that it is “cautiously optimistic that prices will stabilise and that there will be some growth towards the end of 2024 … [and that in] … the medium to long term, rough diamond prices should be supported by favourable demand and supply fundamentals, with a projected further decrease in natural rough diamond supply”.
• The company also publishes an updated mineral resource estimate for the Letšeng mine.  The new estimate, which is reported to the Canadian standards incorporates “Three phases of additional diamond core drilling: 2017-2020 (31 drillholes, 8 386 metres), 2021-2022 (24 drillholes, 8 640 metres) and 2022-2023 (8 drillholes, 2 235 metres)” resulting in:

• • An ‘Indicated’ resource of 75.5mt at an average grade of 1.86 carats per hundred tonnes (cpht) containing 1.41m carats with an average value of US$1.484/carat.
  • The ‘Indicated’ resource of the Main pipe is 57.6mt at a grade of 1.68cpht containing 0.97m carats valued at US$1,211/carat;
  • The ‘Indicated’ resource of the Satellite pipe is 17.9mt at a grade of 2.44cpht containing 0.44m carats valued at US$2,088/carat; plus
  • An additional ‘Inferred’ resource of 24.6mt at an average grade of 1.77cpht containing ~0.44m carats of diamonds valued at US$1,356/carat with approximately 86% (0.37m carats) in the Main pipe and the balance (59,100 carats) in the Satellite pipe.

• The updated mineral resource includes ‘Probable’ reserves of 63.2mt at an average grade of 1.84cpht containing ~1.17m carats of which approximately 69% is contained in the Main pipe, a further 30% in the satellite pipe and the balance in ore stockpiles.

Conclusion: Global economic challenges dented Gem Diamond’s financial performance in 2023 although the company is cautiously optimistic of a gradual recovery of rough diamond prices later in 2024.  Updated mineral reserve estimates show the Letseng mine reserves contain around 0.44m carats within an overall resource of 1.4m carats.

Ionic Rare Earths (IXR AU) A$0.02, Mkt A$82m – Belfast magnet recycling plant update and Interims

• The Company commenced operations at the Belfast magnet recycling Demonstration Plant following latest upgrades.
• The facility is designed to recycle NdFeB permanent magnets to high purity separated magnet REOs.
• To date, five tonnes of permanent magnets from the seven tonne magnet have been processed to intermediate REE products.
• The next stage would involve separation of NdPr/DyHo into NdPr oxide as well as Dy and Ho oxides to be passed to partners under the collaboration agreement with Less Common Metals and Ford.
• The Company is talking to a number of new parties to secure alternative feed stream for recycling production campaigns.
• Separately, the Company released interim results through to Dec/23.
• Loss for the period amounted to A$14.2m with nearly half of that (A$6.9m) relating to exploration related costs at the Makuutu Rare Earths Project in Uganda.
• The Company had A$4.5m in cash and no debt (except for A$0.5m in leases) following a A$6.8m equity raise during the period.
• The Company raised further A$2m in new equity in January for working capital needs, to progress Belfast demonstration plant activities as well as Makuutu greenfield mining project.

Lucara Diamonds (LUC CN) C$0.34, Mkt Cap C$156m – Updated Feasibility Study for Karowe Underground project

• Lucara Diamonds has released an updated feasibility study for its underground mine development at Karowe in Botswana.
• The new study, which replaces the 2019 study envisages pre-production capital expenditure of US$683m and a total of US$906m over the mine’s 15 year life producing 6.8m carats of diamonds from the processing of a total of 52.2mt of ore, including 535mt from open-pit sources.
• Underground production is focussed on “the South Lobe of the AK06 kimberlite” delivering 2.7mtpa of ore from “Extraction of approximately 400 vertical metres of the South Lobe” between the base of the open pit at around 300m below surface to a depth of 700m.
• The announcement confirms that 3½ years of the planned 8 years preproduction period has “already been successfully completed”.
• Lucara Diamonds also confirms that the project is now fully financed following a restructuring of its financing in January this year and now comprises a “project finance facility (“Project Loan”) of $190.0 million (previously $170.0 million) to fund underground development, and a $30.0 million (previously $50.0 million) senior secured working capital facility (the “WCF”) which is used to support ongoing operations along with operating cash flow from the Karowe open pit”.
• President & CEO, William Lamb, described Karowe as “a world-class mine, and … [said] … we look forward to continuing to recover large, exceptional diamonds from the South Lobe”.

Pilbara Minerals (PLS AU) A$4.2, Mkt Cap A$12.6bn –Spodumene auction shows rising lithium price

• Pilbara completed an auction of spodumene concentrate from their Pilgangoora project yesterday.
• The Company sold 5000t of SC5.5 CIF at US$1,106/t contracted for the December quarter.
• In SC6 equivalent, tis represents $1,200/t, including freight costs.
• Pilbara states that its forecast production for CY24 is mostly allocated, following several additional offtake agreements with Chinese buyers.

Conclusion: The auction price reported by Pilbara reflects a clear rise from prices reported in January of $850/t FOB in Australia. Downstream buyers continue to secure supply and the fact that this specific consumer has locked in prices at a premium for December suggests market players expect spodumene prices to climb higher.

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%