SP Angel Morning View -Today’s Market View, Thursday 1st February 2023

Fed reiterates dovish outlook but not expecting first rate cut in March

MiFID II exempt information – see disclaimer below

Arkle Resources* (ARK LN) – Drilling results from Inishowen, Donegal

Bushveld Minerals* (BMN LN) – Orion convertible loan refinancing completed

Ferro-Alloy Resources (FAR LN) – Revised Balasausqandiq Vanadium Project FS timing

Galileo Resources (GLR LN) – Additional targets identified in the Kalahari Copperbelt, Botswana

Gem Diamonds (GEMD LN) – Production volumes hold up at Letšeng while average prices come under pressure

Glencore (GLEN LN) – Stronger H2 production volumes across most commodities

Power Metal Resources* (POW LN) – Strategic investor cornerstones £1.3m financing

Sovereign Metals* (SVML LN) – STRONG BUY (Valuation 55p) – Extension drilling serves to highlight world-class scale of Kasiya rutile, graphite project in Malawi

South Africa – Solar instillations on domestic rooftops are helping prevent daytime load shedding across South Africa

• High levels of solar instillations are saving homeowners and businesses from daytime load shedding
• Private solar instillations are now generating > 1,300MW during daylight hours according to an article by Moneyweb.
• Eskom has now announced load shedding will be suspended between 10am and 4pm.
• Eskom reckons there is 5,200MW of rooftop solar enabling Eskom to cut daytime load shedding in recent days.
• Eskom also has access to 2,287.1MW of IPP independent power producer capacity.
• With so much surplus solar power Eskom will be looking at storage solutions for the additional power generated in the day to help through the evening
• IPP wind farms are also producing between 1,000 – 2,000MW with an all-time peak of 3,442MW.
• Coal fired generation managed 18,000-19,000MW helping to ease load shedding through the South African summer months.
• Despite this Eskom sees a 2,000MW shortfall till January 2025 causing ongoing Stage 2 load shedding but with >20,000MW of generation capacity out for maintenance and breakdowns higher levels of load shedding seem likely.
• Unplanned outages of 13,250MW are partially offset by 2,000MW from Kusile with nearly 8,000MW of capacity offline due to planned maintenance equating to close to 20% of capacity.

Economics

US – The Fed maintained its dovish outlook reiterating expectations for a rate cut this year, albeit, pushing back against market expectations for the first to come as early as March.

• The FOMC unanimously voted to leave rates unchanged at a 23-yea high of 5.25-5.50%, in line with expectations.
• The central bank acknowledged a good run of disinflation and barring any upside surprise the Fed is looking to cut rates later this year, just, not as early as March.
• “We’ve had six month of good inflation data and the expectation is of more to come… If inflation move back up, that would be a surprise at this point,” Powell said during the press conference.
• “Based on the meeting today, I don’t think likely we have a rate cut in March”.
• Market odds of a rate cut in March gone down to ~30% from north of 40% before the FOMC announcement.
• The US$ climbed and US equity markets pulled back following the news.

China – Private businesses activity continued to expand at an unchanged pace, according to the latest Caixin PMI numbers.

• “Overall, the manufacturing sector continued to improve in January, with both supply and demand increasing… Quicker logistics, increased procurement, and rising inventories reflected improved business confidence… However, employment remained in the contraction zone, price levels were subdued, and deflationary pressures persisted,” the report read.
• Caixin Manufacturing PMI: 50.8 v 50.8 December and 50.8 est.

Germany – Confirming regional data, nationwide inflation continued to slowdown through January coming in below market estimates.

• CPI (%mom, EU Harmonised): -0.2 v 0.2 December and -0.2 est.
• CPI (%yoy, EU Harmonised): 3.1 v 3.8 December and 3.2 est.
• The former head of Germany’s main domestic intelligence agency has been placed under observation as an alleged right-wing extremist who inspired a group suspected of plotting a military coup

France is pushing the UK government to provide loan guarantees on the Hinkley Point nuclear power station to EDF the French state nuclear contractor

• The loan guarantees would enable EDF to obtain better rates on project financing but would also leave the UK government on the hook if EDF went under.
• The rise in cost of the 3.2GW reactor to £31-34bn with the first start date pushed back to 2029.
• President Macron has called on Europe to take responsibility for its own defence and increase support for Ukraine “whatever the cost”, arguing it cannot outsource its security to “big powers” such as the US
• The statement is rich considering the very substantial shortfall in defense spending by France and Germany over the past decade

UK – The MPC is expected to hold rates at 5.25% for a fourth straight month at its first meeting of 2024 this midday.

• The policy announcement will be released along new economic projections that are expected to show sharp declines in UK inflation in the coming months, FT reports.

UK Bankruptcies hit 30-year high last year according to the UK Insolvency Service

• 25,158 insolvencies were registered in 2023 the highest number since 1993 as rising costs and higher interest rates collapsed many small businesses.
• Compulsory liquidations and administrations rose on 2022 but held slightly lower than pre-pandemic levels.
• 82% were CVLs Creditors’ voluntary liquidations, 11% were compulsory liquidations, 6% administrations and 1% were CVAs company voluntary arrangements
• Begbies Traynor, insolvency experts, saw a 25% ruse in Red Flag reports and reckon >47,000 businesses started this year on the edge of collapse.

Currencies

US$1.0783/eur vs 1.0811/eur previous. Yen 146.76/$ vs 147.64/$. SAr 18.756/$ vs 18.730/$. $1.265/gbp vs $1.268/gbp. 0.652/aud vs 0.658/aud. CNY 7.184/$ vs 7.180/$.

Dollar Index 103.72 vs 103.66 previous.

Commodity News

Precious metals:

Gold US$2,040/oz vs US$2,038/oz previous

Gold ETFs 84.0moz vs 84.0moz previous

Platinum US$915/oz vs US$924/oz previous

Palladium US$969/oz vs US$983/oz previous

Silver US$22.73/oz vs US$23/oz previous

Rhodium US$4,450/oz vs US$4,450/oz previous

Base metals:

Copper US$ 8,524/t vs US$8,629/t previous

Aluminium US$ 2,247/t vs US$2,275/t previous

Nickel US$ 16,080/t vs US$16,435/t previous

Zinc US$ 2,485/t vs US$2,572/t previous

Lead US$ 2,143/t vs US$2,174/t previous

Tin US$ 25,640/t vs US$26,160/t previous

Energy:

Oil US$80.6/bbl vs US$82.6/bbl previous

• Crude oil prices edged lower after the EIA reported a 1.2mb w/w US crude build, offset by a 2.5mb draw on distillate stocks, as refinery utilisation fell 2.6% to 82.9% and US production rebounded to 13mb/d.
• European energy prices were stable as EU natural gas storage levels fell 2.9% w/w to 70.6% full (vs 57.6% 5-Yr average), with Germany reporting levels at 75% full and aggregate storage at 805TWh.
• Neptune Energy announced completion of the sale of the company’s assets outside of Germany to Eni International and Vår Energi.

Natural Gas €30.1/MWh vs €31.0/MWh previous

Uranium Futures $101.3/lb vs $100.5/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$128.7/t vs US$134.2/t

Chinese steel rebar 25mm US$571.9/t vs US$572.5/t

Thermal coal (1st year forward cif ARA) US$96.3/t vs US$96.3/t

Thermal coal swap Australia FOB US$118.0/t vs US$120.9/t

Coking coal swap Australia FOB US$312.0/t vs US$312.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$55,537/t vs US$55,572/t

Lithium carbonate 99% (China) US$12,040/t vs US$12,048/t

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

Ferro-Manganese European Mn78% min US$1,062/t vs US$1,065/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% 5.8/lb vs US$5.8/lb

Europe Ferro-Vanadium 80% 28.75/kg vs US$29.05/kg

China Ilmenite Concentrate TiO2 US$319/t vs US$317/t

Spot CO2 Emissions EUA Price US$68.1/t vs US$67.2/t

Brazil Potash CFR Granular Spot US$292.5/t vs US$292.5/t

Battery News

CATL to build own offshore wind farm

• The Chinese battery giant has won approval for its own 800MW offshore wind farm.
• The Fujian Provincial Development and Reform Commission have approved the $1.8bn project, near the city of Ningde.
• The project will also incorporate battery energy storage.
• CATL will begin its foray into renewables on the back of soaring profits for 2023 – up 48% to $6.3bn.
• In March of last year, Chinese President Xi Jinping voiced concern over the rapid expansion of the EV market in China, raising questions over profitability.
• The group’s full year earning are expected to beat analyst expectations.

Samsung SDI begins shipping of solid-state ‘Dream Battery’

• Samsung SDI began sample production at its solid-state battery pilot line (S-line) in the second half of last year.
• According to vice president of the Samsung SDI Large Business Division, Park Jong-sun, the company started delivery of its first samples to customers towards the end of Q4 ’24.

Company News

Arkle Resources* (ARK LN) 0.43p, Mkt Cap £1.9m – Drilling results from Inishowen, Donegal

• Arkle Resources has released results from a 4-hole, 220m, exploration drilling programme at its Inishowen prospect in Co Donegal.
• The programme investigated the “Meeneragh target which was found during the previous trenching campaign” with holes 23-MR-13 and 14 drilled from the same collar location at angles of 45⁰ and 70⁰ and holes 23-MR-15 and 16 “drilled 50 metres along strike” at similar angles also from a shared collar location.
• The results reported today show:
  • An intersection of 1.20m at an average grade of 0.52g/t gold from a depth of 23.50m in hole 23-MR-13; and
  • An intersection of 8.00m at an average grade of 0.30g/t gold from a depth of 33.00m in hole 23-MR-14, including a section of 2.05m from 33.00m depth which averaged 0.51g/t and a second interval of 1.55m from 39.45m depth at a grade of 0.65g/t gold; and
  • An intersection of 0.80m at an average grade of 1.65g/t gold from a depth of 33.00m in hole 23-MR-15; and
  • An intersection of 0.60m at an average grade of 0.31g/t gold from a depth of 53.20m in hole 23-MR-16.
• Hole 14 suffered “significant core loss … [of undisclosed magnitude and possibly due to faulting, which may mean that] … the grade is under represented”. On the actual information, however, it appears that the upper and lower intercepts in hole 14 are separated by an interval of 4.40m which averages less than 0.1g/t gold.
• The company explains that if the core loss was the result of soft material known as fault gouge being washed out during the drilling process the “grade may have been reduced … [and says that future] … drilling is expected to use triple-tube in order to limit the core-loss”.
• Chairman, John Teeling, said that the “discovery of gold mineralisation in multiple holes along strike demonstrates that the main vein continues northwards as predicted but will now require further drilling to truly evaluate its potential”.
• He said that the company was “not deterred by the lower grades in this recent drilling campaign as this is typical in these types of systems and we expect grades and widths to fluctuate along strike”.

Conclusion: Recent drilling at Inishowen extends the known mineralised trend although drilling issues related to poor core recovery in some of the mineralised sections will need to be addressed in future drilling work to gain a clearer picture of the geological and grade continuity.

*SP Angel are Nomad and Broker to Arkle Resources

Bushveld Minerals* (BMN LN) 1.8p, Mkt Cap £33m – Orion convertible loan refinancing completed

• The Company completed outstanding Orion unsecured convertible debt refinancing for a total of $47.1m.
• As previously disclosed, the total would be replaced by:
• $4.7m (10%) new equity at 3p;
• $14.1m (30%) new convertible loan note with a 12%pa interest, 3.99p conversion price and maturing on 30 June 2028;
• $28.3m (60%) secured term loan with a 6.0% plus the greater of 3m SOFR (5.3% at the moment) and 3.0% and repayable in three tranches ($7.1m by 30 June 2024, $8.5m by 30 June 2025 and $12.7m by 30 June 2025).
• The refinancing also includes an additional royalty of no more than 0.264% of Bushveld’s gross revenues with the rate coming down by 80% at the term loan maturity.
• The Company and Orion previously agreed to extend the former outstanding convertible loan by 31 January 2024.

Conclusion: Completed Orion convertible loan refinancing is a positive news taking off immediate liquidity pressures off the business, offering fresh capital to address its operational bottlenecks and signalling confidence in the business outlook from its major backer.

*SP Angel act as nomad and broker to Bushveld Minerals

Ferro-Alloy Resources (FAR LN) 6.8p, Mkt Cap £31m – Revised Balasausqandiq Vanadium Project FS timing

• The main fieldwork is now complete with the DFS on the Balasausqandiq Vanadium Project guided to be released in early Q4/24.
• Revised completion timing (delayed from April 2024) is attributed to unforeseen longer lead times from technical consultants relating to the tailings facility design as well as capacity constraints at sample testing laboratories.
• The SGS completed metallurgical work involving hydrometallurgical process (crushing/grinding/leaching/filtration/precipitation/ion exchange).
• Adjusting for engineering estimates and scale up considerations by Tetra Tech based on the SGS results, overall recoveries are expected around 87.3% compared to 75-80% recorded at vanadium-containing titaniferous magnetite ore projects.
• The team believes there is scope to improve recoveries further to above 90% with further operational optimisation.
• Equipment specification, costings and plant layout optimisation are ongoing, with Tetra Tech expecting to complete this work during Q2 2024.
• Phase 1 is envisaged to run at 1.1mtpa producing 5.6kt V2O5 (for reference, Largo is ~11kt and Bushveld is ~7kt) along with saleable quantities of molybdenum and uranium.
• Further treatment of the vanadium leach residue will recover the carbon by-product.
• Separately, the Company issued $5m in a third tranche of bonds under its existing $20m exempt offer bond programme.
• Debt carries a 11% fixed coupon and is due on 30 July 2026.
• The proceeds from the sale of the Third Tranche will be used to continue the development of the Balasausqandiq project, including front-end engineering.

Galileo Resources (GLR LN) 1.15p, Mkt Cap £13.4m – Additional targets identified in the Kalahari Copperbelt, Botswana

• Following Galileo Resources’ announcement earlier this week that a recent geochemical survey had identified “three strong copper targets” on its wholly-owned exploration licence in the southeastern margin of the Kalahari Copperbelt in Botswana, the company reports today that it has identified two further targets.
• The company explains that its new “geochemical targets occupy a similar geological setting (‘the Galileo Fold’) to that drilled by Khoemacau Copper Mining (‘Khoemacau’) coincident with the Mowana Fold axis and Zones 5 and 9 mineralisation together with the recently announced drill intercepts by Arc Minerals (‘Arc’) on the adjoining Virgo Project”.
• Anomalous geochemical results are said to be “associated with the plunge nose of the Galileo Fold structure”.
• This setting would appear consistent with the structural context of other mineralisation identified within the 800km long Kalahari Copperbelt where the lithological boundary between the Ngwako Pan Formation and the underlying D’Kar Formation are also regarded as an important factor in localising the mineralisation.
• Chairman and CEO, Colin Bird, said that “In the coming months we will undertake further work to pin down drilling targets in this exciting area”.
• We reiterate our conclusions to the earlier announcement that the Kalahari Copperbelt is gaining increasing recognition as companies such as Sandfire Resources moves ahead with development of its 3.2mtpa Mothae open pit mine and Khoemacau Copper progresses it’s Zone 5 underground mine at Boseto. Early stage geochemical results in the area and close to other exploration projects is encouraging.

Conclusion: The identification of additional exploration targets in the Kalahari Copperbelt needs follow up exploration and we look forward to further news as the work progresses.

Gem Diamonds (GEMD LN) 10.05p, Mkt Cap £15.7m – Production volumes hold up at Letšeng while average prices come under pressure

• Gem Diamonds reports that production of 32,142 carats of diamonds during the final quarter of 2023 brought output for the full year to 109,656 carats (2022 – 106,704 carats).
• Sales of 104,520 carats during the year realised an average price of US$1,334/carat (2022 – 107,498 carats sold at an average price of US$1,755/carat) underlines the widely recognised challenges experienced in the rough diamond market last year.
• Gem Diamonds comments that the “number of large diamonds recovered at Letšeng were similar to that in the prior year, however the decrease in prices achieved in 2023 negatively impacted overall revenue achieved during the year”.
• The company says that the highest price it achieved was “US$33,745 per carat for a 117.09 carat white diamond which sold for US$4.0 million … [and that] … six diamonds sold for more than US$1.0 million each, generating revenue of US$13.8 million during the Period”.
• Subsequently, a 295 carat white diamond was recovered from the 70%-owned Letšeng mine in Lesotho “and is scheduled to be sold in Q1 2024”.
• The Letšeng mine produced 5 diamonds larger than 100 carats in 2023 (2022 – 4 diamonds) and a total of 196 diamonds larger than 20 carats (2022 – 199 diamonds).
• The mine has an established track record of producing large, high-value white diamonds with notable previous discoveries including the 1,109 carat ‘Lesedi La Rona’, discovered in 2017 and thought to be the world’s second largest diamond as well as the 910 carat ‘Lesotho Legend’ recovered in 2019, and understood to be the fifth largest gem quality diamond ever discovered, which realised US$40m when sold in Antwerp.

Conclusion: A fall of over 20% in average diamond prices from the Letšeng mine in 2023 underlines the scale of the challenge facing the rough diamond supply chain

Glencore (GLEN LN) 428p, Mkt cap £51bn – Stronger H2 production volumes across most commodities

• Glencore reports its 2023 production in line with revised guidance expectations with a stronger second half performance.
• Copper production fell 5% to 1,010kt compared to the 1,058kt achieved in 2022, slightly missing its mid year guidance of 1,040kt.
• The company says that lower copper output reflects the disposal of the Cobar copper mine “and lower copper by-product production” with production ~5% lower in the African copper division and 7% lower at Antamina.
• Copper guidance for 2024 is in the range 950-1,010kt with costs expected to rise “reflecting increased inflation across key operating regions”.
• Cobalt production declined by 6% over the year to 41,300t (2022 – 43,800t) and is expected to fall in the range 35-40,000t in 2024.
• Zinc production declined by 2% to 918,500t compared to 938,500t in 2022, slightly below the indicated level of 950kt issued at mid-2023 and “the 2022 disposals of South American zinc operations (27,300 tonnes) and the closure of Matagami (17,300 tonnes), offset by stronger production from Kazzinc (Zhairem) and Antamina” which produced 156,600t of zinc in concentrates.
• Guidance for 2024 zinc output is in the range 900-950,000t with costs expected to increase reflecting similar inflationary pressures to copper.
• Nickel production declined by 9% to 97,600t (2022 – 107,500t) “owing to higher third-party production at INO and Murrin Murrin maintenance … somewhat offset by a more consistent production performance from Koniambo” with expectations for 2024 in the range 80-90,000t.
• “Attributable ferrochrome production of 1,162,000 tonnes was 326,000 tonnes (22%) lower than 2022, mainly due to planned additional smelter downtime during the 3-month high electricity demand winter season, a period of elevated power prices. Q4 2023 production was 133,000 tonnes (85%) higher than Q3 2023, as the smelter portfolio progressively restarted”.
• Ferrochrome guidance for 2024 is in the range 1.1-1.2mt
• “Coal production of 113.6 million tonnes was 3.6 million tonnes (3%) higher than 2022, reflecting higher productivity in South Africa and a year over year easing in certain external factors that constrain capacity, such as wet weather and blockades”.
• Coal production guidance for 2024 is between 105-115mt “excluding any incremental volumes from the recently announced acquisition of a 77% interest in Teck’s steelmaking coal business, currently going through its various approval processes”.
• Chief Executive, Gary Nagle, said that Glencore expects “to report a FY 2023 Marketing Adjusted EBIT result of approximately $3.5 billion, largely repeating H1’s run-rate”.

Power Metal Resources* (POW LN) 1.23p, Mkt cap £26m – Strategic investor cornerstones £1.3m financing

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• Power Metal Resources reports the issue of 130,000,000 new shares at 0.1p/s representing a 3.09% premium to the mid-market close
• No warrants were issued as part of the funding.
• The Financing was cornerstoned by UK-based high net worth investors and a strategic Saudi Arabian investor.
• Power Metals has just mobilised drill contractors to site on its Molopo Farms Complex Project in Botswana where the team are targeting nickel and platinum group metals.
• Management are targeting a geophysical conductor which was identified last year where they see potential for a steeply dipping feeder zone of some sort.
• Drilling contractors have now been mobilised to site, with drilling expected to start in the next few days.
• Power Metals holds an 87.7% interest in Molopo Farms via a private Botswanan company.
• The team are also working to better define a number of uranium anomalies in the Athabasca Basin, Canada.
• A UAV magnetic survey at the Clearwater and Cook Lake Projects shows two high-priority targets at both prospects extending the Toots Lake target by 800m at Clearwater.
• Results from Kernaghan Durrant Lake, Reitenbach and E-12 properties are now due.

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

Sovereign Metals* (SVML LN) 24p, Mkt Cap £132m – Extension drilling serves to highlight world-class scale of Kasiya rutile, graphite project 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 definition of new extensions to the rutile and graphite mineralisation at the Kasiya project in Malawi.
• Recent hand auger drilling has identified a further 8km extension of mineralisation to the south which remains open along strike and at depth
• Kasya is the largest natural rutile deposit at 1.8bnt 1.0% rutile and 1.4% graphite JORC and second largest flake graphite deposit in the world according to its JORC resource with the two other principal rutile mines likely to close this year.
• The current Probable Ore Reserve stands at 538mt grading 1.03% rutile and 1.66% graphite for 8.9mt of contained graphite representing <30% of the total mineral resource and is 10mt tonnes larger than Sierra Rutile’s Sembehun resource and and 17.3mt than at Base’s Kwale mine which is due to close in December.
• The feasibility is working on the use of low-cost hydro, monitor, mining to wash the high-grade sedimentary material into the process plant for further washing and concentration.
• Management are working with Rio Tinto on optimising the mining and process flow sheets alongside permitting with a Malawian Interministerial Committee on the >201sqkm license area.
  • Note the key differences between Rutile and Ilmenite is that rutile grades >95% TiO2 while Ilmenite grades 30-60% TiO2.
  • Rutile currently sells for US$1,443/t vs Ilmenite at US$319/t. Base Resources forecast a rutile price of US$1,369/t for 2025-2030/t and $1,259/t from 2031-2034. The TZMI rutile inducement price:  $1,117/t from 2035
• PFS results:
  • Throughput:
    • Stage 1 – 12,000,000tpa,
    • Stage 2 – 24,000,000tpa
  • Rutile Production: 222,000tpa with a 96% product grade
  • NPV (8%) post-tax US$1,605m ,NPV (10%) post-tax US$1,205m
  • IRR of 28% ungeared
  • Mine life: 25 years – given the scale of the overall resource the mine life could extend to >60 years making this a multi-generational mine
  • EBITDA: US$415mpa, Revenue: US$16bn over 25 years, Payback: 4.3 years

Conclusion:  The results re-confirm the world-class scale of the Kasiya deposit with the strike now stretching over 37km. Rio Tinto is currently working alongside Sovereign Metals as a strategic investor. Given the developing shortage of Rutile in global markets we would be surprised to see Sovereign remain as an independent entity beyond 2025.

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

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

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Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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