SP Angel Morning View -Today’s Market View, Thursday 20th July 2023

China eyes mortgage support to bolster faltering property sector

MiFID II exempt information – see disclaimer below

Beowulf Mining* (BEM LN) – Pre-Feasibility Study highlights strong potential of Graphite Anode Materials Plant

BHP (BHP LN) – Full year operational review as iron ore output hits record high

Metals Exploration (MTL LN) – FY23 guidance revised higher after record H1/23

Leo Lithium (LLL AU) – Suspension from Quotation pending release of announcement regarding correspondence from Government of Mali

Premier African Minerals (PREM LN) – Canmax and Zulu updates

SolGold* (SOLG LN) – New agreement with government of Ecuador on exploitation of the Cascabel copper project

Shanta Gold (SHG LN) – Record quarterly production as Singida reaches commercial production

Pre-IPO financing for High-Purity Alumina project

Li-ion batteries use a separator membrane made out of High-Purity Alumina

• High-Purity Alumina (HPA) is an inert chemical with high thermal stability. It gives good heat resistance and insulation making it ideal as a coating for separator membranes.
• The project alumina has been shown to be suitable for Li-ion batteries, LED lighting and synthetic sapphire for smartphones and tablets,
• The resource contains a JORC inferred resource sufficient for 10,000 – 20,000tpa of HPA >30 years
• The process uses an innovative process flowsheet combining commercial proven technologies with recent metallurgical tests producing 99.995% alumina.
• CRU estimate demand for HPA powder could reach 187,000t in 2028 from 19,000t in 2018.
• CRU predict substantial demand growth led by Li-ion battery and LED production,
• Price: High-purity alumina sells for ~$30,000/t today up from $24,000/t in 2018,
• The company looking to fund HPA studies, metallurgical work, working capital and listing costs

*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.

VOX Markets:  14/07/2023: https://audioboom.com/posts/8334912-john-meyer-on-china-s-deflation-plus-bushveld-minerals-empire-metals-strategic-minerals

*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts. We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate.

Base metals tick higher as traders cling to China stimulus hopes

• Copper prices edged higher towards $8,500/t, iron ore prices climbing 2% in China to $118/t.
• Brokers suggest base metal short positions from fund managers had hit extreme positions, with the uptick likely more technical than fundamental.
• China continues to emphasise consumption-based stimulus measures, rather than metals-intensive construction support.
• A strengthening yuan is also providing some support to Chinese buyers, who have been hit by an appreciating dollar against the renmimbi over the past few months.
• Nickel prices are also on the move, with rumours circulating that China has begun stockpiling the metal.

 Economics

China – Is China suffering a deflationary collapse as factory and office workers suffer increasing debt

China eyes mortgage support to bolster faltering property sector

• China is considering increasing the availability of mortgages to stimulate property investment.
• Broad support measures have been limited to data as policymakers are cautious of reviving the bubble they went so far to burst at the end of 2021.
• Expect more targeted, city-specific measures rather than widespread, uniform policy support for the sector.

Japan – Total exports rise 1.5% to $63bn in June

• Japan swings into trade surplus of $308mn in June,
• Imports slide 12.9%
• Fuel shipment value slid whilst export values rose 1.5%.
• Exports to US rise 11.7% in June
• Exports to EU rose 15%
• Exports to China fell 11%

UK – Average mortgage rates fall for first time in months

• Two and five year fixed rate mortgage deals have fallen
• Two-year deals have fallen to 6.79% from 6.81% on average
• Five-year deals have fallen to 6.31% from 6.33%
• BoE deputy guv. Says inflation remains much too high and expects the banks’s holdings of gilts and corporate bonds to fall by £100bn by October
• The BoE has almost totally ditched its portfolio of corporate debt.
• All we can say is, try buying a flat in London on that kind of rate with an average London salary?

Australia – Unemployment rate falls to 3.5% vs 3.6% mom and 3.6% expected.

Colombia – Mines and energy minister resigns amid investigations (Reuters)

• The Colombian Minister of Mines and Energy minister, Velez Torres, has unexpectedly resigned after two state bodies opened investigations against her.
• The attorney general’s office and the procurator general, which investigates public officials have opened preliminary investigations against Velez for the possible crime of influence peddling.
• Ms. Velez Torres has stepped down to prevent the investigations from impacting the government according to her letter of resignation.
• “The investigations relate to allegations that Velez in January pressured a migration official into allowing her underage son to leave the country without the permission required by law.”
• President Gustavo Petro, Colombia’s left-wing leader has replaced a number of cabinet officials this year including the finance, health, and interior ministers, after health reforms stalled in Congress.
• Other officials have also been ousted with ministers replaced for education, sports, and culture.

Zambia prepares for electricity shortages on weather concerns

• Zambia has begun slashing exports and securing power from Mozambique in preparation of an El Nino disruption.
• The state utility firm expects ‘water levels in our reservoirs will definitely dwindle.’
• 86% of Zambia’s electricity comes from hydropower.

Mali government sees gold mining revenues rise 35% despite a 4% rise in gold output

• Mali’s Ministry of Mines reports a $1.3bn tax revenue for 2022, up 35% yoy.
• The ministry puts the rise down to improving efficiency from the collection services, alongside the termination of a number of tax exemptions made in 2021.
• Gold output rose 4% yoy.

Russia/Ukraine – Russia’s Ministry of Defence warned ships heading into Ukraine’s Black Sea ports will be considered as parties to the conflict and will be targeted by the military from today.

• The warning follows the exit of Russia from the year old grain deal.
• Ukraine and Russia are both among the world’s largest grain exporters.
• US futures jumped 8.5% yesterday marking the largest daily increase since the invasion, Reuters reports.

Currencies

US$1.1218/eur vs 1.1233/eur yesterday. Yen 139.50/$ vs 139.29/$. SAr 17.809/$ vs 17.848/$. $1.292/gbp vs $1.296/gbp. 0.682/aud vs 0.679/aud. CNY 7.185/$ vs 7.213/$.

Dollar Index 100.19 vs 100.11 yesterday

Commodity News

Precious metals:

Gold US$1,982/oz vs US$1,980/oz yesterday

Gold ETFs 91.8moz vs US$92.0moz yesterday

Platinum US$974/oz vs US$985/oz yesterday

Palladium US$1,302/oz vs US$1,314/oz yesterday

Silver US$25.15/oz vs US$25.06/oz yesterday

Rhodium US$4,150/oz vs US$4,350/oz yesterday

Base metals:   

Copper US$ 8,474/t vs US$8,422/t yesterday

Aluminium US$ 2,205/t vs US$2,183/t yesterday

Nickel US$ 21,395/t vs US$20,950/t yesterday

Zinc US$ 2,376/t vs US$2,358/t yesterday

Lead US$ 2,091/t vs US$2,091/t yesterday

Tin US$ 28,680/t vs US$28,200/t yesterday

Energy:           

Oil US$79.5/bbl vs US$79.5/bbl yesterday

Natural Gas US$2.635/mmbtu vs US$2.621/mmbtu yesterday

Uranium UXC US$55.75/lb vs US$55.40/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$112.6/t vs US$113.4/t

Chinese steel rebar 25mm US$524.4/t vs US$522.0/t

Thermal coal (1st year forward cif ARA) US$107.8/t vs US$101.0/t

Thermal coal swap Australia FOB US$139.0/t vs US$137.0/t

Coking coal swap Australia FOB US$229.0/t vs US$229.0/t

Other:  

Cobalt LME 3m US$33,420/t vs US$33,420/t

NdPr Rare Earth Oxide (China) US$62,633/t vs US$62,526/t

Lithium carbonate 99% (China) US$40,712/t vs US$40,552/t

China Spodumene Li2O 6%min CIF US$4,080/t vs US$4,080/t

Ferro-Manganese European Mn78% min US$1,116/t vs US$1,118/t

China Tungsten APT 88.5% FOB US$315/mtu vs US$315/mtu

China Graphite Flake -194 FOB US$675/t vs US$675/t

Europe Vanadium Pentoxide 98% 7.5/lb vs US$7.5/lb

Europe Ferro-Vanadium 80% 32.25/kg vs US$32.25/kg

China Ilmenite Concentrate TiO2 US$310/t vs US$308/t

Spot CO2 Emissions EUA Price US$96.3/t vs  US$95.3/t

Brazil Potash CFR Granular Spot US$345.0/t vs US$345.0/t

Battery News

Tesla looking to expand battery production in Germany

• Despite the recent shift in focus to scaling up production in the US, Tesla is planning extensive changes to its production at Giga Berlin.
• Tesla want to double current capacity to 100GWh of battery production and 1m cars per year which would put capacity above VW’s Wolfsburg headquarters.

Rivian given go-ahead for $5b facility in Georgia, USA

• The Georgia Supreme Court has declined to hear an appeal contesting the legitimacy of Rivian’s expected property tax breaks for its new $5 billion EV facility in the state.
• Rivian first announced plans for the EV plant in December 2021, but has faced opposition from residents.
• Once fully operational, the facility will be capable of producing up to 400,000 EVs annually.
• Rivian’s incentive package is the second largest in Georgia state history, behind The Hyundai Motor Group’s $1.8b in similar benefits for its $5.5b, 3,000-acre EV assembly plant in Bryan County.

Company News

Beowulf Mining* (BEM LN) 1.55p, Mkt Cap £18m – Pre-Feasibility Study highlights strong potential of Graphite Anode Materials Plant

• Beowulf reports the results of its wholly owned Finnish subsidiary Grafintec’s initial PFS for a Graphite Anode Materials Plant in the GigaVaasa area.
• The plant is intended to produce Coated Spherical Graphite from third-party spherical graphite imports, a crucial and value-accretive part of the graphite anode materials chain.
• The study includes the initial stage of the process design and a preliminary review of the project economics.
• The study was completed by engineering consultancy RB Plant Construction and considers an industrial plant with total Coated Spherical Graphite capacity of 20ktpa.
• Highlights from the PFS as follows:
  • Post-tax NPV8 of $242m
  • Post-tax IRR of 39%
  • CAPEX of $117m
  • 2.4 year payback from commencement of operations.
  • Initial 10-year operating period with the potential for a lease extension.
  • Using a realised CSPG of $9,000/t..
  • Annual EBITDA of $79m.
• The company assumes an initial CSPG production cost of $5,064/t, although this is expected to be refined when Front End Engineering Design is completed.
• Going forward, Grafintec will look to complete further coating testwork at pilot plant scale, alongside further optimisation of the process design.
• In addition to moving to pilot plant scale, Grafintec is currently in the process of discussing cooperation agreements with technology partners, identifying raw material feedstock alongside ongoing discussions with battery cell manufacturers.
• Longer term, Grafintec is looking to establish itself as a fully-integrated, mine to CSPG producer.

Conclusion: Grafintec’s PFS results highlight the promising economics of the planned GAMP plant in the exciting GigaVaasa, with the Company moving further towards establishing itself as an integrated player in the graphite anode materials chain. The announcement follows the Company’s receipt of an extension of the advanced reservation at Plot 1 in the GigaVaasa area.

*SP Angel acts as Nomad and Broker to Beowulf Mining

BHP (BHP LN) 2,387p, £120bn – Full year operational review as iron ore output hits record high

• BHP reports its operational review for the year ended 30^th June 2023.
• Full year iron ore production rose 1% yoy vs 2022 to 257mt, guiding towards 254-264.5mt in FY24.
• WAIO production rose 1% and Samarco rose 11%, costs sitting at $18-19/t.
• The rise reflects ‘strong supply chain performance’  in Australia, impacts from earlier shutdowns owing to a fatality, and tie-in activity from their Port Debottlenecking Project.
• FY23 copper production rose 9% yoy to 1.716mt, guiding towards 1.72-1.91mt in FY24.
• Escondida copper production rose 5% to 1.055mt, Pampa Norte rose 3% yoy to 288kt, Copper South Australia (Olympic Dam, Prominent Hill and Carrapateena) rose 68% to 232kt.
• Copper costs: $1.25-1.45/lb @ Escondida
• BHP notes higher concentrate feed grades at 0.93% at Escondida, higher volumes at Copper South Australia seeing increased refinery production at Olympic Dam.
• Nickel production rose 4% yoy to 80kt, guiding between 77-87kt for 2024.
• Increased nickel volumes a result of improving mine performance at Mt Keith, inventory drawdowns enabling ramp up concentrate production and rising third party purchase.
• Exploration and evaluation expenditure rose 37% for the period yoy to $350m.
• Potash: Jansen project expecting first production in 2026 vs initial 2027 target, feasibility study due next year for Jansen Stage 2.

Conclusion: A year of record production at WAIO, Olympic Dam and Spence, with the integration of Oz Minerals following last year’s acquisition expected to increase Australian copper output by between 33-46% next year. BHP continues to shift towards ‘future facing commodities,’ with the company set to halt investments in met coal growth in Queensland and bring the Jansen potash project forward by a year. In terms of new investments, BHP has invested over the year in Kabanga in Tanzania, further funding of the Filo del Sol project in Argentina and Chile alongside projects in Serbia, Peru and the US. Inflationary pressures continue with unit costs raised to top end of guidance for Western Australia Iron Ore and Escondida.

Metals Exploration (MTL LN) 2.1p, Mkt Cap £43m – FY23 guidance revised higher after record H1/23

• Q2 production amounted to 24.2koz (Q1/23: 21.3koz) taking H1/23 total to a record high of 45.5koz (H1/2: 31.3koz).
• Stronger H1/23 production is attributed to better grades and gold recoveries.
• Record production coupled with high realised gold prices resulted in record gold revenues and FCF in Q1/23 and H1/23.
• H1/23 gold sales amounted to 46.2koz at an average realised price of $1,939/oz (H1/22: 30.7koz at $1,878/oz).
• AISC dropped to $1,110/oz (H1/22: $1,323/oz) on the back of higher production.
• H1/23 revenues and FCF came in at $89.6m and $41.9m (H1/22: $57.6m and $13.6m).
• The Company completed $20.8m in mezzanine debt repayments in Q2/23 taking net debt down to $48.3m (Q1/23: $64.4m) with cash balance at $1.0m as of H1/23.
• Operations are reported to have exceeded inhouse forecasts on head grade, throughput and recovery rates with the Company revising its FY23 guidance up.
• Upgraded FY23 guidance is for 78-81koz at $1,120-1,200/oz AISC (FY22: 68-72koz at $1,250-1,300/oz).

Leo Lithium (LLL AU) – A$1.14/s, Mkt cap A$1.1bn – Suspension from Quotation pending release of announcement regarding correspondence from Government of Mali

• Leo Lithium announced this morning that it was suspending its shares from ASX quotation pending the release of an announcement regarding correspondence from the government of Mali.
• The announcement is expected on or before next Thursday 27 July.

The company halted ASX share trading on Tuesday pending an announcement in relation to correspondence from the government of Mali relating to plans to produce Direct Shipped Ore.

• Leo Lithium are developing the Goulamina lithium project in Mali in a $170m jv Ganfeng Lithium. Goulamina is the world’s 5^th largest global spodumene deposit
• Management’s reported in June that mining had started and ore was being stockpiled on a DSO pad with DSO early revenue expected in Q4 this year.
• The mine and process plant is fully funded to Stage 1 first product. Ganfeng is the world’s largest producer of lithium metal and third largest producer of lithium products in the world.
• Mali’s military-led government is in discussions over proposed changes to its mining legislation which could see its interest in new projects rise to 35% from 20% (Reuters).
• The government currently holds a 10% free carry on all mines in Mali entitling the nation to 10% dividend payments.
• The proposal is for the new legislation to allow the government to buy an additional 20% within the first two years of commercial production, possibly through a newly created state mining entity according to a draft f the new proposed code seen by Reuters. The report also says, International investors would have to cede a 5% stake to locals according the document.
• We do not think the new legislation should apply to existing mining companies, but with governments, anything is possible.

Premier African Minerals (PREM LN) 0.4p, Mkt Cap £98m – Canmax and Zulu updates

• The Company is calling a special general meeting on 12 August as the Company is exploring options to secure short term funding.
• The Company received a notice of termination of the offtake and prepayment agreement from Canmax in late June demanding settlement of the ~$35m prepayment within 90 days.
• The team is disputing the notice of the termination with both parties reported agreed to seek to resolve the dispute in good faith by “friendly negotiation”.
• In case both parties are unable to resolve the dispute in 10 days, then either party may refer the case to arbitration in Singapore.
• Discussions are reported to remain ongoing.
• The Zulu Lithium Project remains in the state of Force Majeure announced on the 26 June with the status expected to remain in place for ~14 weeks.
• The plant is being modified with contractors (Stark International Projects) installing the UV sorters, a new frame to the mill and a hydro sizer over the past three weeks.
• The general meeting follows the AGM held in late June when shareholders voted down one of the special resolutions to disapply pre-emption rights challenging Company’s fundraising abilities.

SolGold* (SOLG LN) 16.4p, Mkt Cap £509m – New agreement with government of Ecuador on exploitation of the Cascabel copper project

• SolGold report the signing of a new agreement covering the future exploitation of the Cascabel copper project in Ecuador.
• SolGold and the Ecuadorean government have completed contractual negotiations and agreed upon a term sheet in preparation for the execution of the Exploitation Agreement for the Cascabel copper mine including the Alpala and Tandayama America deposits.
• Scott Caldwell, SolGold ceo, sees the agreement as a significant milestone.
• Key terms:
• LoM – Right to mine from the contract area covers 33 years
• Royalties: Advance royalty payment of $75m
  • $25m due upon the concentrator construction start date.
  • $25m a year after the first payment
  • $25m two years after the first payment
  • Royalties  to be deductible against the Government Royalty
• Corporate Income tax expected to be cut to 20% from 25% over the project life – on approval of the amendment of the Investment Protection Agreement y the government.
• NSR – the Mining Concessionaire, the State, and SolGold agreed a variable net smelter revenue royalty from 3% to 8% depending on the NSR returns on sales of copper, gold, silver, and any other marketable minerals.
  • 60% of the government royalties will be allocated to productive and sustainable projects through the municipal governments and parish councils of the communities of the Cascabel Project.

• Advance royalty will be deductible against the lesser of 50% of the royalties payable or 10% of the total advance royalty payment made until the advance royalty is settled in full
  • “According to current legislation, the Exploitation Agreement also provides that the Government of Ecuador’s share of cumulative discounted benefits derived from SolGold’s Cascabel Project will not be less than 50%.
  • Each year, to the extent that the Government of Ecuador’s cumulative benefit falls below 50%, the Company will be required to pay an annual sovereign adjustment.
  • The Government of Ecuador’s benefit will be calculated as the present value of the cumulative sum of taxes paid, including corporate income taxes, royalties, labour profit sharing paid to the State, non-recoverable VAT and any previous sovereign adjustment payments.
  • To the knowledge of the Company, no mining company operating in Ecuador with a similar sovereign adjustment clause in its exploitation agreement has made a payment to the government pursuant to such clause.
  • Based on the economic assumptions included in the Project’s financial model, it is not expected that the Company will be required to make any such payments after the commencement of commercial production at the Cascabel Project.”
• The Term Sheet also includes a mechanism for correcting any economic imbalance for the Mining Concessionaire as a result of changes in taxes, laws and regulations in place at the date of the signing of this Agreement. The provision removes a significant amount of uncertainty for the economic regime governing the Project in the future.
• The Term Sheet also develops various investor protection rights, ensuring the protection of the investment including, among other things, a dispute resolution mechanism through international arbitration.
• The Mining Concessionaire will be solely responsible for making pertinent technical and economic decisions in the design, construction and operation of the Cascabel Project as specified in the Term Sheet.
• SolGold through its local subsidiary must apply to change Cascabel’s official status from exploration exploitation in the coming months.
• Management have up to six months after this to execute the Exploitation Agreement with the Government of Ecuador and register this with the Mines Registry for public availability.

Conclusion:  The agreement with the government of Ecuador sets out the financial terms governing the project. Now this is done we can look forward to further news on the potential financing of this multi-billion dollar copper project.

*SP Angel acts as Financial Advisor to SolGold

Shanta Gold (SHG LN) 10.7p, Mkt Cap £114m – Record quarterly production as Singida reaches commercial production

• Quarterly production climbed 92%qoq to 29.4koz including:
  • 19.4koz at NGLM (+26%qoq);
  • 10.1koz at Singida following first gold pour in 30 March and commercial production declared in two months on 1 June.
• NLGM performed slightly better than internal forecasts on the back of improved equipment availability, better power reliability, consistent grades mined in the Luika UG stopes as well as consistent ore development grades.
• NLGM AISC averaged $1,181/oz (Q1/23: $1,429/oz) reflecting higher production as well as cost savings recorded both in underground and open pit operations.
• Singida operations surprised on the upside delivering better gold recoveries (~98% v 91% budgeted).
• Operations benefited from higher than average gold grades sourced from a six month stockpile prepared ahead of commissioning with production expected to normalise moving forward.
• The plan reached commercial production in early June after recording 30 consecutive days of nominal nameplate capacity of 1ktpd with plant availability and utilisation exceeding 90% and 95%, respectively.
• Quarterly EBITDA estimated at $23.2m (Q1/23: $7.5m) helped by nearly doubling of production as well as slightly better realised gold prices.
• VAT receivable reduced to $31.0m from $32.0m as of Q1/23 with ~$23m of that relating to the legacy period from 2017-2020.
• Net debt reduced to $8.7m, down from $19.0m as of Q1/23.
• Singida AISC averaged $736/oz.
• FY 23 guidance is for 90-98koz including:
  • NLGM for 66-72koz at $1,200-1,300/oz AISC (H1/23: 35koz at $1.268/oz);
  • Singida for 24-26koz at $1,300-1,400/oz AISC (H1/23: 10koz at $736/oz).

Conclusion: Production jumps on full quarter contribution from recently commissioned Singida with operations across the Group beating internal estimates. With no hedging contracts in place, the Company monetised 100% exposure to stronger gold prices and a nearly doubling in production helping to significantly reduce net debt position.

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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