SP Angel Morning View -Today’s Market View, Thursday 15th February 2023

Lithium prices hit rock bottom as miners turn off expansion

MiFID II exempt information – see disclaimer below

Ariana Resources (AAU LN) – Dokwe project due-diligence

Atlantic Lithium* (ALL LN) – CEO and FD buy shares in Atlantic Lithium

Barrick Gold (GOLD US) – Q4 Production Results sees full year output at 4moz Au and 420mlb Cu

BHP (BHP LN) – BHP to impair its Nickel West operation and increase provisions for the Samarco dam failure

Power Metal Resources* (POW LN) – New uranium prospect secured in Athabasca Basin

Premier African Minerals (PREM LN) – £2.5m funding paves the way for resumption of production at the Zulu lithium project later this month

SolGold* (SOLG LN) – Interim report and update on pre-feasibility work at Cascabel

Iron ore – CITIC Pacific Mining plan to cut iron ore production by a third in dispute with Clive Palmer

• CITIC are blaming Clive Palmer for slashing iron ore production at the Sino iron ore mine to the south-west of Karratha.
• The mine which employs some 3,000 workers has run out of physical space and needs to expand into tenements which are mainly held by Palmer’s Mineralogy.
• Production will fall to around 14m wmt this year from 21m wmt in 2023. CITIC have invested >US$12bn in developing the Sion iron ore project.
• The mine paid A$182m in state royalties to WA last year with A$924m paid out since the mine started production.
• There is no word on what happens to production after 2024. CITIC really need reach a deal with Clive Palmer who is going to extract his pound of flesh.

Conclusion:  Don’t go short iron ore! The market for iron ore should tighten appreciably as Chinese blast furnaces look for new sources of feedstock. Replacing 7m wmt of iron ore is no easy feat.

Diamond – tin filled device developed to allow fast and efficient flow of quantum information

• A new diamond microchiplet has been developed at MIT where some of the carbon atoms are replaced with tin.(Mining.com)
• The device is reported to solve a paradox which has held back the arrival of large-scale quantum networks.
• “This is a critical step as it demonstrates the feasibility of integrating electronic and nuclear qubits in a microchiplet.
• This integration addresses the need to preserve quantum information over long distances while maintaining strong interaction with photons,”.
• Simples!

Lithium – Downstream lithium producer Wesfarmers warns unprofitable at current prices

• Wesfarmers, which is building the Kwinana lithium hydroxide plant in Australia alongside operating its retail business, expects supply tightness and a rebound in prices.
• The Australian group recently signed an 85kt hydroxide deal with LG Energy Solution.
• The Group has signed a second agreement with LG Energy to boost lithium concentrate supply to 85kt LCE for hydroxide production.
• The Company operates the Mt Holland lithium concentrator, expecting first commercial sales over the next few months.
• The Wesfarmers CEO stated that ‘given the strong demand that we are seeing in lithium, there could well be shortages of supply in the years ahead.’
• Elsewhere, Albemarle reported a loss in Q4 as weak lithium prices hit results.
• The integrated lithium producer lost $617m, vs a profit of $1.13bn same period last year.
• Much focus has been made of growing supply from Africa weighing on current prices. However, Bloomberg reports that state Zimbabwean miner Kuvimba is laying off 300 workers amid a decline in commodity prices.
• Australian spodumene producers continue to call for government support amid uneconomic pricing environment, with Liontown CEO Tony Ottaviano calling for royalty relief as seen in 2020.
• Liontown is reportedly in negotiations with offtake financers for its Kathleen Valley underground spodumene project, which saw a consortium of banks pull A$720m worth of funding last month.
• The financing was pulled after WoodMac updated their spodumene price forecasts to $950/t through to 2029.

Economics

China – Real Estate Market suffered a 64% drawdown in 2023 following a 81% drawdown from 2021-2022.

• Where has all the money gone?
• China started its move to urbanise the poverty-stricken rural peasant population and improve the health and wellbeing of the population as a whole
• But the grand urbanisation program was also used to stimulate the economy, meet CCP GDP targets and enrich CCP party officials who were able to buy prime development land at discounted prices off the state.
• Stimulation during the GFC further encouraged construction to overshoot normal national economic parameters with developers massively overleveraging on too many projects.
• The USSR bust their economy on over-production of steel, China started and pre-sold too many housing projects which it cannot afford to complete.

Japan – The economy unexpectedly slipped into a recession as Q4/23 GDP posted a 0.1%qoq contraction versus a 0.2%qoq growth expected.

• Private consumption was a miss with a downwards revision to the previous quarter (-0.2 v -0.3 (revised from -0.2) December and 0.0 est.).
• Business investment also contracted during the quarter (-0.1 v -0.6 (revised from -0.4) December and 0.2 est.).
• Following a contraction, the economy is reported to have now slipped into a 4^th place in US$ terms with Germany overtaking it and becoming the 3^rd largest.
• Weak GDP data complicates the central bank monetary policy that remained in an accommodative mode since 2007.
• The yen continued to trade above the 150 level.
• GDP (%qoq): -0.1 v -0.8 (revised from -0.7) Q3/23 and 0.2 est.

ECB – President Christine Lagarde continued to resist calls for early interest rate cuts, although, highlighting progress on bringing inflation expectations lower.

• “We do not wat to run the risk that (cuts) would be reversed, which would be a waste of everything that we’ve done and would lead us to having yet more measures,” she told the European parliament yesterday.

UK – The economy contracted more than expected in Q4/23 with two quarterly declines implying it is now in a technical recession.

• GDP dropped 0.3%qoq compared to a 0.1% drop in the previous quarter and a 0.1% contraction forecast.
• Negative reading was driven by a marginal drop in personal spending as well as negative contribution from net trade.
• Sector wise, declines were reported in all three main categories including services (-0.2%), production (-1.0%) and construction (-1.3%).
• Over 2023, the economy expanded just 0.1%, following a 4.3% increase in 2022, marking the weakest annual growth in real GDP since the financial crisis in 2009 (excl Covid hit 2020).
• The pound was trading lower at 1.2555 this morning following the announcement.

South Korea – The government will provide KRW76tn ($57bn) in financial support to strategic sectors in the form of loans and debt guarantees, FT writes.

• KRW26tn will be offered for key industries such as semiconductors and batteries.
• KRW15tn of cheap policy loans from state owned Korea Development Bank for technology development.
• Commercial banks will also offer mid-sized companies KRW15tn of financial support through various programmes.

Australia – Employment numbers came in weaker increasing bets the central bank may bring rate cuts forward.

• The economy added just 500 jobs in January versus 25k forecast and jobless rate ticking up to 4.1%, up from 3.9% in December.
• The currency dropped to 64.8c with 3y bond yields falling 12bp on the announcement.
• Inflation data is due next week ahead of the central bank meeting March 18-19.
• Employment Change: 0.5k v -62.7k (revised from -65.1k) December and 25.0k est.
• Unemployment Rate: 4.1% v 3.9% December and 4.0% ext.

 Currencies

US$1.0733/eur vs 1.0699/eur previous. Yen 150.04/$ vs 150.47/$. SAr 18.997/$ vs 19.161/$. $1.255/gbp vs $1.255/gbp. 0.650/aud vs 0.647/aud. CNY 7.194/$ vs 7.194/$.

Dollar Index 104.63 vs 104.91 previous.

Commodity News

Precious metals:

Gold US$1,995/oz vs US$1,989/oz previous

Gold ETFs 83.2moz vs 83.3moz previous

Platinum US$899/oz vs US$876/oz previous

Palladium US$963/oz vs US$868/oz previous

Silver US$22.57/oz vs US$22/oz previous

Rhodium US$4,325/oz vs US$4,325/oz previous

Base metals:

Copper US$ 8,241/t vs US$8,207/t previous

Aluminium US$ 2,241/t vs US$2,211/t previous

Nickel US$ 16,450/t vs US$16,270/t previous

Zinc US$ 2,335/t vs US$2,301/t previous

Lead US$ 2,042/t vs US$2,007/t previous

Tin US$ 27,340/t vs US$27,290/t previous

Energy:

Oil US$81.1/bbl vs US$83.0/bbl previous

• Crude oil prices fell after the EIA reported a large 12mb w/w US crude build, offset by 6mb in product draws, as refinery utilisation fell to 80.6% due to the continued closure of BP’s 435kb/d Whiting refinery in Indiana.
• European energy prices remain depressed as EU natural gas storage levels fell 2.1% w/w to 66.2% full (vs 50.8% 5-Yr average), with Germany reporting levels at 71.8% full and aggregate storage at 755TWh.

Natural Gas €25.2/MWh vs €25.0/MWh previous

Uranium Futures $102.3/lb vs $103.0/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$128.6/t vs US$128.4/t

Chinese steel rebar 25mm US$569.9/t vs US$569.9/t

Thermal coal (1st year forward cif ARA) US$91.5/t vs US$91.5/t

Thermal coal swap Australia FOB US$123.0/t vs US$124.0/t

Coking coal swap Australia FOB US$310.0/t vs US$310.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$55,466/t vs US$55,466/t

Lithium carbonate 99% (China) US$12,303/t vs US$12,303/t

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

Ferro-Manganese European Mn78% min US$1,057/t vs US$1,054/t

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

China Graphite Flake -194 FOB US$565/t vs US$565/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$320/t vs US$320/t

Spot CO2 Emissions EUA Price US$59.4/t vs US$59.5/t

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

Battery News

BYD continues global push for EV dominance

• South America – BYD will launch its $20,000 Seagull EV, to be named the Dolphin Mini overseas, in South America by end of February.
• Mexico – BYD have started feasibility studies for a second EV assembly plant in Mexico according to Nikkei.
• Indonesia – Last month the company announced it will invest $1.3bn to build an EV factory in Indonesia. The plant will be the companies sixth overseas, after Brazil, Hungary, Mexico, Thailand and Uzbekistan.
• BYD overtook Tesla in sales last quarter and is continuing to push for greater sales for 2024.

Indonesia project 100GWh EV battery production by 2027

• Currently the country has 10GWh of production capacity, enough for 170,000 EVs annually.
• Investment Minister Bahlil Lahadalia estimates that the country will have an annual production of 100GWh by 2027.
• Indonesia will expand its production to 20GWh in 2024.

Penso Power and BW Energy Storage Systems to build first battery in Italy

• UK renewables company Penso Power will build 365MW of battery energy storage system (BESS) in Italy with JV partners BW ESS.
• The JV will work with local ACL Energy who have a pipeline of 5GW utility-scale BESS projects across Italy.

PE firm Ardian take FID on Finnish battery project

• French PE firm Ardian have taken a Final Investment Decision over the construction of a 38.5mw battery storage system in Finland.
• The Group will develop the project with Lappeenrannan Energia, a Finnish municipal group.
• The Project will be installed near the South Karelia gas plant, providing one hour storage capacity from 2025.
• The Group is looking to enhance wind and solar power assets with energy storage.

Company News

Ariana Resources (AAU LN) 1.73p, Mkt Cap £19.8m – Dokwe project due-diligence

• Ariana Resources reports progress on its ‘due-diligence’ on Rockover Holdings’ 1.3moz Dokwe gold project in Zimbabwe.
• Ariana Resources, which “currently holds circa 2.1% of Rockover” and is discussing the potential for further collaboration, has now completed 1,222m of diamond drilling “with two holes drilled at Dokwe North and two holes drilled at Dokwe Central”.
• The work includes the examination of “over 15,000m” of historical core drilling.
• Metallurgical and structural geological consultants are looking at “the Dokwe project metallurgy and potential process routes … [and] … improving our understanding of the controls on gold mineralisation”.
• Commenting on the progress, Managing Director, Dr. Kerim Sener, said that “Based on our assessment of the project to date, including recent geological observations from drilling, we are pleased to report that our confidence in the opportunity has only grown”.
• He said that “there are very few >1Moz gold projects globally with straightforward metallurgy, which are at a feasibility stage of development and have more than 95% of their JORC Mineral Resources in the Measured and Indicated categories”.
• Commenting on relations with Rockover’s team, Dr. Sener said that their “programme was professionally conducted … [and they] … worked collaboratively with our site team in Zimbabwe”.

Conclusion: We look forward to further news on Dokwe as Ariana Resources’ work progresses

Atlantic Lithium* (ALL LN) 19.16p, Mkt Cap £123m – CEO and FD buy shares in Atlantic Lithium

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

• Atlantic Lithium report the purchase of 100,000 shares in the company by CEO, Keith Muller taking his stake to 200,00o shares or 0.03%.
• Amanda Harsas, FD, has also bought another 100,000 shares raising her stake to 4.5m shares or 0.69% of the company.

Conclusion:  Atlantic has seen an unusual number of director share purchases reported indicating great confidence by the board in the future development of the Ewoyaa lithium project.

*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.

BHP (BHP LN) 2,352.5p, Mkt Cap £120bn – BHP to impair its Nickel West operation and increase provisions for the Samarco dam failure

• BHP reports that its results for the 6 months to 31^st December 2023, to be released on 20^th February, will include “an impairment of the carrying value of the Nickel West operations and West Musgrave project (Western Australia Nickel) and an increase to the provision for the Samarco dam failure”.

• CEO, Mike Henry, said that “This is an uncertain time for the Western Australia nickel industry and we are taking action to address the current market conditions. We are reducing operating costs at Western Australia Nickel and reviewing our capital plans for Nickel West and West Musgrave”.

• “BHP will recognise a non-cash impairment charge of approximately US$2.5 billion (post tax) (approximately US$3.5 billion pre-tax) against the carrying value of Western Australia Nickel”.
• “BHP will also recognise an income statement charge of US$3.2 billion (post tax) (approximately US$3.1 billion pre-tax) in relation to the Samarco dam failure. BHP Brasil’s provision for the Samarco dam failure will be US$6.5 billion as at 31 December 2023”.
• The company explains that “Significant uncertainty remains around the resolution of the Federal Public Prosecution Office Claim and the Framework Agreement obligations, and there is a risk that outcomes may be materially higher or lower than amounts reflected in BHP Brasil’s provision for the Samarco dam failure”.

Barrick Gold (GOLD US) US$14, Mkt cap US$25m – Q4 Production Results sees full year output at 4moz Au and 420mlb Cu

• Barrick produced 1,054koz in Q4 vs 1,039koz qoq.
• AISC reported at $1,364/oz for the quarter, up from $1,255/oz qoq.
• Copper production at 113mlb for the period at AISC of $3.12/lb ($6,880/t)
• Adjusted profit of $0.27/share for the period.
• Cash position fell to $4.15bn from $4.26bn qoq.
• Debt grew to $578m from $514m qoq.
• AISC for gold in 2024 forecast between $1,320-1,420/oz.
• Company reports it has added 29moz in reserves since 2019 on an attributable basis.
• First gold production at Porgera resumption targeted this quarter, with Cortez reaching its highest annual output in four years.
• The Company has authorised a $1bn share buyback programme over the next 12 years, having repurchased $424m shares in its 2022 programme.
• CEO Bristow stated he is ‘not interested in working on any sort of peacemal discussions’ for First Quantum’s assets, but suggested that ‘maybe something can be done’ in the future. (Reuters)
• Bristow also suggested that the Company would consider buying back debt when possible, with the majority of its outstanding bonds maturing in 2033.

Power Metal Resources* (POW LN) 0.92p, Mkt cap £20m – New uranium prospect secured in Athabasca Basin

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• Power Metal Resources provides an update from their uranium exploration activities in Canada’s Athabasca Basin.
• The Group has acquired the Richards Lake Uranium property, covering 31km^2. . Staking the project cost a total of C$1,865.
• The project area is surrounded by ALK Resources, ATHA Energy and Sykharbour Resources, all seeking uranium discoveries.
• East-west trending electromagnetic geophysical conductors have been noted on the property, which lies 14km south of the Fond du Lac uranium deposit.
• POW now holds eight uranium properties, over a combined total area of 1,043km^2, all in the Athabasca Basin.

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

Premier African Minerals (PREM LN) 0.29p, Mkt Cap £89m – £2.5m funding paves the way for resumption of production at the Zulu lithium project later this month

• Premier African Minerals reports that it has raised £2.475m through the issue of 900m new shares at a price of 0.275p/share to fund its Zulu lithium project in Zimbabwe to first production.
• We estimate that the additional shares represent ~3.2% of the enlarged company.
• The company says that the proceeds will fund:
  • “Final payments related to the thickener purchase and installation,
  • Final payments related to the ball mill and associated hydrosizers, transport and installation thereof,
  • Plant operating spares and reagents,
  • Mining costs, and
  • Day to day operating expenses including diesel”
• The company confirms that commercial production is expected to resume “in late February with first shipments expected in March 2024.”
• CEO, George Roach, said that the “placement assures Zulu of plant startup, subject only to suppliers meeting their obligations and undertakings. This has and remains Premier single most important objective at this stage”.
• Hea also said that “Early indications are that subsequent working capital finance will be available from commercial lenders at Zulu when production is underway as Zulu must begin to fund its operations without the assistance of Premier once commercial production has commenced”.

SolGold* (SOLG LN) 6.49p, Mkt Cap £212m – Interim report and update on pre-feasibility work at Cascabel

• In its interim report for the six months to 31^st December, Solgold reports a loss of US$21.9m (2022 – US$17.7m loss) as it works to complete a revised feasibility study for a phased development of its Cascabel project in Ecuador.
• The company confirms a 31^st December cash balance of US$12.8m and reduced administrative expenses of US$5.9m (2022 – US$14.1m).
• The pre-feasibility study, which is nearing completion, aims to “reduce the initial capital required to commence operations … [at the 2.6bn tonne deposit, by adopting] … a phased development approach”.
• The previous, March 2022, pre-feasibility study described the investment of US$2.7bn of pre-production capital to develop a 30-year underground mine treating 25mtpa of ore generating an after-tax NPV8% of US$2.9bn and IRR of 19.3% with a further US$2.1bn of additional capital required over the life of the mine.
• We note that the 2022 study already adopted a more conservative development strategy to that which had been described in the Preliminary Economic Assessment (PEA) of March 2019 which had envisaged a 50mtpa project at a pre-production cost of ~US$2.4bn and overall capital cost of over US$10bn over a 55-year life.
• Elsewhere on its portfolio of Ecuadorian exploration project, Solgold confirms “encouraging mineralized intersections at the porphyry copper-gold target of the Porvenir Project, called Cacharposa” and says that drilling completed since October 2021 “should support the conversion of a large portion of the deposit into the measured and indicated categories, as well as significantly increasing the resource tonnage in both the measured and indicated categories, as well as the inferred category”.
• In December 2021, the company announced an initial, open-pittable, ‘Indicated’ resource for Cacharposa of ~397mt at an average grade of 0.35% copper and 0.14g/t gold (reported as 0.37% on a copper equivalent basis) with an additional ~97mt classed as ‘Inferred’ at an average grade of 0.29% copper and 0.12g/t gold (0.37% CuEq).
• The same announcement in 2021 also clarified that “Open pit optimisation results further identify an internal, higher-grade, potentially open-pittable zone, containing 181.3Mt grading 0.52% CuEq (0.37% Cu, 0.23g/t Au)”.
• Today’s announcement also confirms the previously announced “discovery at the La Florida target within the Blanca-Nieves Project … [located ~10km north of Cascabel] … of high-grade epithermal quartz vein floats. Assay results from rock samples included values of up to 276g/t Au and 141 g/t Ag, signalling potential for a Au-Ag bonanza zone … [and comments that the] … proximity of the La Florida target to the Cielito target evidences a potential interconnection between the target areas”.
• Solgold also highlights “the identification of a promising porphyry Cu-Au-Mo target within the Espejo Project, based upon recent exploration with rock sampling assays yielding mineralisation that may represent a cluster of porphyry systems warranting drill testing”.
• Solgold also explains that it has written-off ~$8.2m against its Australian exploration assets in expectation that, following “communications from the Queensland Government Department of Resources … [which indicated that] … four licences would not be renewed”.
• We look forward to publication of the revised pre-feasibility study for Cascabel to gain deeper insights into the proposed development and welcome the evolution of the more risk averse project development strategy.
• The incorporation of the drilling completed at Cacharposa since October 2021 into an updated mineral resource estimate, when it is released, should also help to clarify the value and technical characteristics of another of the company’s more advanced projects in Ecuador.

Conclusion: We look forward to the release of the updated Cascabel pre-feasibility study for technical insights into the project and details of the risk amelioration measures for the project’s development as well as the steps proposed for reducing the capital expenditure.  Given the complex nature of the project we consider that time taken at this stage in assessing the best way to develop Cascabel should aid the overall project delivery.

*SP Angel acts as Financial Advisor to SolGold

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%”

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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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