SP Angel Morning View -Today’s Market View, Thursday 18th January 2023

Uranium prices continue to rise as nukes struggle to source supply

MiFID II exempt information – see disclaimer below

Atalaya Mining (ATYM LN) – Production for Q4 and 2024 production guidance

BHP (BHP LN) – Quarterly report as nickel continues to drag and coal guidance lowered

Centamin (CEY LN) – Production report as guidance met and costs lower

Chaarat Gold (CGH LN) – Karator maiden mineral resource

Cornish Metals* (CUSN LN) – BUY – 48p/s – Update shows good progress in new resource drilling, feasibility study work and mine dewatering

Ferrexpo (FXPO LN) – Interim dividend declared as pellet demand strengthens

Kore Potash* (KP2 LN) – Quarterly update highlights progress on EPC related work ahead of financing proposal for Kola

Phoenix Copper* (PXC LN) – Empire Open-Pit project PFS nears completion

Strategic Minerals* (SML LN) – Major client returns with order for 30,000t of magnetite

Gold prices extend fall as retail sales push US rate cut expectations back

• Spot gold prices have weakened to $2,010/oz, higher than lows of $2,003/oz hit yesterday.
• The downward trend has been supported by a repricing in interest rate cut expectations.
• Traders now expect <60% chance of a 25bp cut in March vs last week’s expectations of c.80%.
• The move was triggered by stronger-than-expected retail sales in the US, which pushed 10-year Treasury yields to 4.1%, up from lows of 3.77% in December.
• The dollar paused its rally from late-december lows yesterday, providing some temporary respite to gold prices.

Copper weak on strong dollar and disappointing China economic data

• Copper has held below $8,300/t on the back of a stronger dollar, which increases the cost of Chinese imports.
• China demand continues to disappoint, with property activity continuing to dwindle and demand growth in 2024 expected to remain depressed.
• Weaker TCRC fees are raising the prospect of reduced supply from China’s rapidly expanding smelter capacity, with reduced concentrate availability from Cobre Panama.

China graphite exports expected to remain weak through Lunar New Year

• Shanghai Metals Market reports natural graphite exports are set to remain low through February.
• SMM surveys a range of producers, who have reportedly received approval for exports from the Chinese government.
• However, these approvals are reported to suffer delays and exports aren’t expected to accelerate through the next month.
• Prices remain depressed after China flooded the market in 2023 with synthetic product and battery maker restocking has yet to pick up.

Economics

US – Retail sales climbed at the fastest pace in three months in December signalling consumer sentiment resilience.

• Treasury yields climbed and US stocks pulled back as investors pared expectations on Fed rate cuts for this year.
• Retail Sales (%mom): 0.6 v 0.3 November and 0.4 est.
• Retail Sales Control Group (%mom): 0.8 v 0.5 (revised from 0.4) November and 0.2 est.
• Industrial Production (%mom): 0.1 v 0.0 (revised from 0.2) November and -0.1 est.

Australia – The A$ briefly dipped on the release of weaker than expected employment numbers in December.

• Payrolls fell 65.1k last month ending four months of gains and boosting bets on the RBA rate cut.
• Employment Change (‘000): -65.1 v 72.6 (revised from 61.5) November and 15.0 est.
• Unemployment Rate: 3.9 v 3.9 November and 3.9 est.

Currencies

US$1.0885/eur vs 1.0874/eur previous. Yen 147.81/$ vs 147.81/$. SAr 19.006/$ vs 19.030/$. $1.269/gbp vs $1.266/gbp. 0.655/aud vs 0.655/aud. CNY 7.196/$ vs 7.197/$.

Dollar Index 103.31 vs 103.38 previous.

Commodity News

Precious metals:

Gold US$2,011/oz vs US$2,023/oz previous

Gold ETFs 84.6moz vs 84.6moz previous

Platinum US$891/oz vs US$893/oz previous

Palladium US$928/oz vs US$927/oz previous

Silver US$22.59/oz vs US$23/oz previous

Rhodium US$4,550/oz vs US$4,500/oz previous

Base metals:

Copper US$ 8,288/t vs US$8,267/t previous

Aluminium US$ 2,184/t vs US$2,188/t previous

Nickel US$ 16,095/t vs US$16,080/t previous

Zinc US$ 2,457/t vs US$2,498/t previous

Lead US$ 2,057/t vs US$2,080/t previous

Tin US$ 25,400/t vs US$25,105/t previous

Energy:

Oil US$78.1/bbl vs US$77.2/bbl previous

Natural Gas €27.9/MWh vs €29.2/MWh previous

Henry Hub Gas US$2.91/mmBtu vs US$2.83/mmBtu yesterday

• Crude oil prices edged higher despite the API reporting a 0.5mb w/w build (2.4mb draw exp) to US crude stocks, as the market factored in OPEC oil demand growth forecasts of 2.2mb/d in 2024 and 1.8mb/d in 2025.
• European energy prices edged lower as EU natural gas storage levels fell 4.6% w/w to 78% full (vs 66.6% 5-Yr average), with Germany reporting levels above 83% full and aggregate storage at 889TWh.
• Shell has taken a final investment decision (FID) to develop the offshore UK Victory gas field via a single subsea well tied back 16km to the Greater Laggan Area system with peak production of 150mmcf/d. Reabold announced it will receive £4.4m as a final tranche payment from Shell over the coming days.
• Maha Energy has acquired an effective 5% interest in 3R Petroleum for $69m and proposed strategic changes to the Company, which should carve out its onshore assets to be merged with those of PetroReconcavo.

Uranium Futures $105.8/lb vs  $104.0/lb previous

*We have updated our uranium pricing. We now include daily futures pricing provided by NYMEX/CME. We source from Bloomberg.

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$125.1/t vs US$128.8/t

Chinese steel rebar 25mm US$572.5/t vs US$572.9/t

Thermal coal (1st year forward cif ARA) US$100.3/t vs US$104.3/t

Thermal coal swap Australia FOB US$125.8/t vs US$127.0/t

Coking coal swap Australia FOB US$321.0/t vs US$317.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$55,786/t vs US$55,647/t

Lithium carbonate 99% (China) US$12,019/t vs US$12,019/t

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

Ferro-Manganese European Mn78% min US$1,061/t vs US$1,060/t

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

China Graphite Flake -194 FOB US$590/t vs US$590/t

Europe Vanadium Pentoxide 98% 6.0/lb vs US$6.0/lb

Europe Ferro-Vanadium 80% 28.75/kg vs US$28.75/kg

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

Spot CO2 Emissions EUA Price US$70.6/t vs US$70.5/t

Brazil Potash CFR Granular Spot US$295.0/t vs US$295.0/t

Battery News

Rental companies begin fleet restructure due to EV repair costs and poor resale value

• Automaker Stellantis has won an order for 250,000 vehicles from rental firm Sixt.
• Stellantis will deliver a mix of combustion-engine, plug-in hybrid and battery electric vehicles from its Alfa Romeo, Chrysler, Citroen, Fiat, Jeep, Opel, Peugeot, Ram and Maserati brands.
• Sixt said in December it would phase out Tesla vehicles, in part because the EV-maker’s price cuts had depreciated the value of its used cars.
• Recently rival rental company Hertz announced that it was restructuring its fleet and selling 20,000 EVs due to high expenses related to collision and damage.
• Sixt plans on having a fleet of 90% by 2030 and Hertz is still optimistic of having 25% of its fleet as EVs by end of 2024

BYD launch three new models and announce plans to build new $1.3bn EV factory in Indonesia

• The Chinese automaker continues its global expansion strategy, launching three of its models in Indonesia.
• In another development, Indonesia’s Coordinating Minister for Economic Affairs, announced at the launch event that BYD plans to invest $1.3bn to build an automotive factory in Indonesia.
• The factory will be BYDs fifth outside of China and is expected to have an annual capacity of 150,000 vehicles.

Company News

Atalaya Mining (ATYM LN) 316p, Mkt Cap £440mn – Production for Q4 and 2024 production guidance

• Atalaya provides Q4 production results and gives guidance for 2024.
• The Company mined 14.9mt of ore in 2023, same as 2022. It guides towards 19mt ore mined in 2024.
• 15.8mt ore milled in 2023 at an average copper grade of 0.38% Cu for 51,667kt produced.
• The Company guides for 15.3-15.8mt milled in 2024 at an average grade of 0.39-0.41% Cu for production between 51-53kt.
• Grades were impacted over the year by intense rainfall limiting access to high grade areas of Cerro Colorado, pushing the use of low-grade stockpiles.
• Higher ore throughput and recoveries limited the impact of lower grades on full year production.
• Copper inventories on site stood at 6.7kt at the end of Q4.
• Net cash reported at €55.7m at the time of reporting.
• Atalaya will report operating cost and CAPEX guidance alongside its 2023 annual results.
• The Company expects the addition of its 50MW solar plant and the production of first copper cathodes at the E-LIX Phase 1 plant to reduce costs and support margins.

BHP (BHP LN) 2,364p, Mkt Cap £120bn – Quarterly report as nickel continues to drag and coal guidance lowered

• BHP provides their quarterly update for Q4.
• The Company’s copper production fell 4% qoq to 437.4kt on reduced output from Escondida and Pampa Norte.
• Guidance for FY24 retained at 1.72-1.91mt Cu.
• Iron ore production up 2% qoq to 65.8mt and full year guidance retained at 254-264.5mt.
• Met coal production down 2% qoq at 5.7mt and full year guidance lowered from 28-31mt to 23-25mt.
• Met coal production has been hit by BMA performance, with low starting inventories and key maintenance.
• Thermal Coal production up 7% qoq and full year guided towards the upper end of 13-15mt. Up 36% for the FY period yoy.
• Nickel production down 3% qoq and full year guidance unchanged at 77-87kt.
• The Company notes that they are ‘evaluating options at Nickel West to mitigate the impacts of the sharp fall in nickel prices.’
• Unit cost guidance:
  • Escondida guided at $1.3-1.6/lb.
  • Spence guided at $2-2.3/lb.
  • WAIO guided at $17.4-18.9/t.
  • BMA guided at $110-115/t on lower volumes following the divestment of Daunia and Blackwater.
• Investment into the Jansen Stage 2 potash project continues, currently approved at US$4.9bn.
• 62km of exploratory drilling as been drilled beneath Olympic Dam, with supportive grades over 1% Cu noted over 2km strike and 1km depth.
• Net debt stood at $12.5-13bn.

Centamin (CEY LN) 92.6p, Mkt Cap £1bn – Production report as guidance met and costs lower

• Centamin provides a quarterly production report and guides for 2024 gold production.
• The Company achieved production guidance of 450koz, towards the lower end of their 450-480koz guidance.
• 2024 guidance set at 470-500koz.
• The group reported annual revenue of US$892m from an average gold price of US$1,948/oz.
• Annual cash costs reported at $895/oz, in line with their $840-990/oz guidance.
• AISC reported at US$1,172/oz vs guidance of $1,250-1,400/oz.
• Cost guidance for 2024 set at C1 $700-850/oz and AISC of $1,200-1350/oz.
• CAPEX for the year at $204m vs guidance of $272m, supported by lower diesel prices, the deferral of payment for grid power project to 1Q24 and an alternative equipment rebuild schedule.
• Reserves increased to 3.5moz vs 3moz targeted at the beginning of the year, supported by increased reserves at Sukari and 1.9moz worth of reserves declared at Doropo.
• The Company held $153m of cash and total liquidity of $303m.
• Going forward, Centamin is targeting a DFS completion date for Doropo mid-2024, Sukari 50MW grid connection in 2H24 alongside accelerated waste-stripping programme completed mid 2024.

Chaarat Gold (CGH LN) 5.9p, Mkt Cap £42m – Karator maiden mineral resource

• Maiden JORC compliant mineral resource estimate for the Karator Project is released this morning.
• MRE stands at 6.7mt at 0.96g/t for 207koz including 2.5mt at 0.96g/t for 77koz in the Indicated category.
• The estimate used a 0.2g/t cutoff grade and $1,900/oz gold price.
• The project is located just 2km from the Tulkubash Gold Project (647koz at 0.87g/t in Reserves and 1,011koz at 0.87g/t in Total Resource) with ore likely to be processed at the single treatment facility.
• The mineralisation is reported to be extended ~1,000m along strike, 30-80m wide and ~150-250m deep.
• Not much in the way of metallurgy tests have been completed on the project but given its close proximity to Tulkubash it is not unreasonable to expect similar gold recovery results (70-75%) from conventional crushing and ore stacking for cyanide leaching.
• The plan is to continue drilling at the project aiming to both infill the existing resource as well as expand the mineral inventory followed by technical studies including metallurgical, geotechnical, and hydrogeological test works for a potential inclusion of new tonnages into the Tulkubash mine plan.

Conclusion: Karator maiden mineral resource adds oxide ounces to the Tulkubash project potentially extending its six year mine life.

Cornish Metals* (CUSN LN) 9.62p, Mkt cap £52m – Update shows good progress in new resource drilling, feasibility study work and mine dewatering

BUY – 48p/s

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• Cornish Metals update highlights 31.6% increase in the indicated mineral resource at the South Crofty lower mine as reported last September.
• Dewatering of the mine down to 257m the NCK ‘Cooks Kitchen’ shaft collar. Dewatering is targeting 360m (195 fathoms in old money) this year.
• The team will then refurbish the old pumping station to maintain low water levels and dewater the deeper levels.
• Drilling: The team expect to complete a 14-hole (9,000m) Wide Formation exploration drill programme.
  • Infill drilling will start to better define the underground resources.
  • Completion of metallurgical drilling
• Metallurgy: XRT ‘X-Ray Transmission’ ore sorting testwork shows better than expected results – this could materially cut capex and opex costs.
• Drum winders installed for shaft operation.
• Drilling to determine more resource at the nearby Wide Formation target.
• Feasibility Study: All feasibility study components due to complete in the first half with the exception of the infill drilling.
  • A new PEA’ Preliminary Economic Assessment’ should provide guidance in H1 ahead of the feasibility study.
  • We would expect the feasibility study to be complete towards the end of the year
• Feasibility work includes underground mine design and optimisation. A mine ventilation study, underground infrastructure design and hoisting analysis.
• Feasibility Study level engineering design for the paste backfill plant, hydrogeology, environmental, social, market and closure studies; and underground drilling options review.
• Wide Formation Target Exploration Drilling
• The 14-hole (9,000m) drill programme at the Wide Formation target in the Carn Brea South exploration area started a four months ago to test the geometry and the continuity of tin mineralisation within the Wide Formation target.
• Drill assays due soon with the two drills are around half-way (4,700m) through the drill programme to test ~2,500m along strike.
• The Great Flat lode and Wide Formation mineralisation structures have been intersected where expected;

• Valuation:  NPV5% of US$404m and IRR of 35.1% assuming a tin price of US$30,000/t. Adding a potential US$79m from warrants and options to our NPV EST. gives an implied value of 48p/share on a fully-diluted 766m shares in issue.

*SP Angel acts as Nomad and Broker. The SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals.

Ferrexpo (FXPO LN) 78p, Mkt cap £466m – Interim dividend declared as pellet demand strengthens

• Ferrexpo has announced it intends to issue an interim dividend of 3.3 US cents.
• The Company’s balance sheet has been bolstered by an improved pricing environment for its high-grade iron ore pellets.
• Management comments that their ‘year end financial position is stronger than at the start of the year.’
• They comment that they intend to restart a second pellet line in order to ‘meet export demand.’
• Production in Q4 fell 50% mom and 33% for the full year on a yoy basis.
• The group’s cash position as of 31 December was US109m, an increase of $3m yoy with no debt.

Kore Potash* (KP2 LN) 0.6p, Mkt Cap £25m – Quarterly update highlights progress on EPC related work ahead of financing proposal for Kola

• PowerChina, a parent of SEPCO engaged for an EPC contract for the construction of the Kola Potash Project, continues to work on additional  design and engineering works.
• Specific design areas included the underground mine, mineral processing jetty and transhipment operations, energy transportation and storage, conveyor systems and material handling.
• These works are estimated to cost more than $10m with Kore’s contribution capped at $5m with the balance to be covered by PowerChina.
• Two payments $1m each were already made in August and November with remaining instalments contingent on the Company completing further fund raises and PowerChina/SEPCO delivery of the EPC contract.
• Payments are planned to be made in two tranches 12 months from date of the execution of the EPC contract.
• Additional designs and engineering reviews are expected to help PowerChina to provide performance guarantees the Company was after from the EPC team.
• EPC contract is expected to be completed by the end of January followed by signing of the contract by the end of February.
• Debt and royalty financing proposal from the Summit Consortium is planned to be provided within six weeks of EPC contract signing.
• Closing cash balance stood at $1.6m following an equity raise of $2.5m in October/November and recording a $0.3m cash outflow from operations (mostly admin) and $1.7m in exploration and evaluation expenses.
• David Hathorn, Chairman, assumed the role of interim CEO following resignation of Brad Sampson with the Company not planning to appoint a new CEO until after the receipt of the financing proposal for the construction as the team tries to minimise the cash burn.
• Andrey Maruta joined the Company as non-board CFO in December.

*SP Angel acts as Nomad and Broker to Kore Potash

Phoenix Copper* (PXC LN) 14.7p, Mkt Cap £18m – Empire Open-Pit project PFS nears completion

Phoenix holds 80% of the Empire mining property in Idaho)

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• Phoenix Copper reports that its Empire Open-Pit copper, gold and silver project PFS is nearing completion.
• The Company expects to release the final PFS report by 2Q24.
• The study will enable management to make necessary amendments to the Plan of Operations as they progress permitting alongside financing.
• To date, PFS work has included comprehensive met test work, geological models, mine design and mineral processing design.
• Currently, the study suggests oxide flotation and tank leach tails processing will support optimal recoveries and cash flow generation for the project.
• Over this quarter, the Company is completing additional sample composites and processing studies, expected to be complete before Q2.
• As regards exploration, Phoenix has increased its project footprint at the Navarre Creek gold exploration project and will look to conduct further drilling this year.

Conclusion: The delivery of the PFS for the Empire open-pit project will mark a major milestone for the Company and we look forward to it with anticipation. Management suggests the PFS will include oxide flotation and tank leaching for optimal results, an alternative approach to the initial 2018 PEA which included heap leaching and SX-EW electrowinning. We expect the delivery of the PFS to shore up financing options, as the Company continues to progress bond financing to limit shareholder dilution.

*SP Angel acts as nomad to Phoenix Copper

Strategic Minerals* (SML LN) 0.18p, Mkt Cap £3.53m – Major client returns with order for 30,000t of magnetite

• Strategic Minerals reports the return of a major client with an initial order for 30,000t of magnetite from the Cobre operation in New Mexico.
• Cobre has provided revenues and supporting cash flow for many years but suffered an approximate halving of sales last year on the absence of the major client.
• While reduced sales were partially offset by higher magnetite prices Cobre revenues still fell by around 35% in 2023.
• Management are also in talks with another group for similar volumes to the major client.
• This could result in a significant uplift in sales to potentially over 70,000tpa of magnetite with a sales value of over $6m for the year.
• Given the low-cost nature of the Cobre operation this should result in significant operating profit for the operation.
• The Cobre has also seen some management changes with Tim Klumker taking over from the former president..
• Cash: Strategic Minerals currently holds US$0.107m in cash at end December. The new Cobre sales should improve this position quickly depending on the timing of receipts.
• Redmoor and Leigh Creek Copper Mine: Work continues to make progress.
• At Redmoor the team are talking to the Cornwall and Isles of Scilly Good Growth Team on grant funding from the Shared Prosperity Fund.
• Field work at Redmoor contributed to the Camborne School of Mines-led ‘Deep Digital Cornwall’ (DDC) project last year with an ongoing review of the data.
• The Redmoor team started work last year on the ‘Target 1’ area which “contains Tin-Tungsten and Copper-Lead-Zinc soil anomalies located near a previously identified granite upwelling.

Conclusion: 2024 should be transformational for Strategic Minerals with significant new revenue and cash flow from the Cobre project in the US and ongoing progress at Redmoor in the UK and Leigh Creek Copper in South Australia.

*SP Angel acts as Nomad and Broker to Strategic 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 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.

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