SP Angel Morning View -Today’s Market View, Thursday 20th June 2024

Copper prices strengthen as US market tightens again following short squeeze

MiFID II exempt information – see disclaimer below

Anglo Asian Mining* (AAZ LN) – BUY – AGM statement highlights challenging FY23 and reiterates growth strategy

Bluejay Mining* (JAY LN) – Proposed acquisition of White Flame Energy for prospective helium, white hydrogen and other industrial gasses licenses

ECR Minerals (ECR LN) – Interim results highlight north Queensland exploration

Gemfields Group (GEM LN) – Latest ruby auction attracts healthy demand

Kavango Resources* (KAV LN) – Drilling underway in Zimbabwe

Power Metal Resources* (POW LN) – Advancement of Tati Gold project, Botswana

Savannah Resources* (SAV LN) – BUY – $20m equity investment and strategic partnership with AMG Critical Materials

Sovereign Metals* (SVML LN) – STRONG BUY – Rail improvements enhance Kasiya’s logistics

Copper prices ($9,792) strengthen as US market tightens again following short squeeze

• Copper prices have climbed again to $9,792/t on signs market is tightening again on COMEX.
• The US exchange is trading at a premium of 7.4 cent per pound for spot contracts vs September delivery, in a sign of backwardation.
• However, this remains well below last month’s 29.25 cent backwardation, which pushed COMEX prices close to $11,500/t.
• This marks a disparity with Shanghai and London, where inventories are plentiful and trade at discounts to futures, or contango.
• Bloomberg reported yesterday that hedge funds continue to pile on bullish bets, despite the recent pullback.
• However, China is exporting at historically elevated levels, suggesting domestic supply remains weak.
• TCRCs are low, highlighting a lack of concentrate availability but also a mass rollout of smelter capacity.

Economics

China – Lenders kept one and five year loan prime rates unchanged at 3.45% and 3.95% for a 10^th consecutive month.

• The decision follows the central bank decision to leave its benchmark 1y medium term lending facility rate at 2.50% earlier during the month.

UK – The central bank is expected to keep rates flat at 5.25% with a policy announcement due later today.

• Inflation data released yesterday showed that headline gauge slowed to the BOE target of 2% for the first time in almost three years.
• On a less positive side core inflation continued strong at above pre-Covid levels with a May reading coming in at 3.5%.

Switzerland – The central bank unexpectedly cut rates for a second consecutive time to 1.25%.

• The franc dropped 0.4% against the € and 0.7% against the US$ following the decision.

Currencies

US$1.0734/eur vs 1.0729/eur previous. Yen 158.16/$ vs 157.75/$. SAr 17.991/$ vs 17.964/$. $1.272/gbp vs $1.272/gbp. 0.667/aud vs         0.667/aud. CNY 7.260/$ vs 7.257/$.

Dollar Index 105.34 vs 105.30 previous.

Precious metals:         

Gold US$2,343/oz vs US$2,331/oz previous

Gold ETFs 80.8moz vs 80.9moz previous

Platinum US$990/oz vs US$983/oz previous

Palladium US$919/oz vs US$900/oz previous

Silver US$30.37/oz vs US$30/oz previous

Rhodium US$4,625/oz vs US$4,575/oz previous

Base metals:   

Copper US$ 9,833/t vs US$9,779/t previous

Aluminium US$ 2,514/t vs US$2,511/t previous

Nickel US$ 17,490/t vs US$17,375/t previous

Zinc US$ 2,870/t vs US$2,871/t previous

Lead US$ 2,190/t vs US$2,235/t previous

Tin US$ 33,040/t vs US$32,385/t previous

Energy:           

Oil US$85.2/bbl vs US$85.1/bbl previous

• European energy prices were flat as EU natural gas storage levels gained 1.7% w/w to 74.1% full (vs 63.7% 5-Yr average) with all countries above 64% full and aggregate storage now at 841TWh.
• Ed Miliband confirmed that, if elected, Labour would lift the nine-year de facto ban on onshore wind in England.

Natural Gas €35.3/MWh vs €34.4/MWh previous

Uranium Futures $85.7/lb vs $85.7/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$106.6/t vs US$106.6/t

Chinese steel rebar 25mm US$531.7/t vs US$533.0/t

Thermal coal (1st year forward cif ARA) US$119.8/t vs US$119.8/t

Thermal coal swap Australia FOB US$134.8/t vs US$134.8/t

Hard Coking Coal Australia FOB US$326.0/t vs US$326.0/t

Other:  

Cobalt LME 3m US$27,150/t vs US$27,150/t

NdPr Rare Earth Oxide (China) US$49,929/t vs US$50,986/t

Lithium carbonate 99% (China) US$12,327/t vs US$12,609/t

China Spodumene Li2O 6%min CIF US$1,080/t vs US$1,080/t

Ferro-Manganese European Mn78% min US$995/t vs US$995/t

China Tungsten APT 88.5% FOB US$350/mtu vs US$355/mtu

China Graphite Flake -194 FOB US$470/t vs US$470/t

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.2/lb

Europe Ferro-Vanadium 80% 26.85/kg vs US$26.85/kg

China Ilmenite Concentrate TiO2 US$313/t vs US$313/t

China Rutile Concentrate 95% TiO2 US$1,412/t vs US$1,412/t

Spot CO2 Emissions EUA Price US$69.4/t vs US$69.4/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$310.0/t

Battery News

EU EV sales drop in May as German demand slumps

• New EV sales in the EU dropped 12% yoy for May.
• The decline was driven by poor sales in Germany, which saw a 30% decrease yoy.
• Germany has experienced poor EV sales since it ended subsidies in December 2023 – the country has seen a 16% decline YTD.
• The Netherlands, Sweden, Italy, Austria, Finland and Ireland also saw a significant drop in sales in May.
• Its not all doom and gloom, however, EV sales accounted for 48.3% of all new passenger vehicle registrations across the first five months of the year.

Tesla China sales down in second week of June

• Tesla China reported sales of 11,700 from June 10^th-16^th
• This was a slight decline from the opening week in June which saw 12,000 vehicles sold.
• Q2 ’24 is up 11.0% qoq, but -17.0% vs. Q4 ’23. YTD is at -5.2% yoy.

Tesla sees impressive battery capacity retention from latest results

• Tesla recently shared a chart presenting the average battery capacity retention per distance travelled of the Model 3 and Model Y cars with Long Range battery packs.
  • The average battery capacity loss of the Model 3/Model Y Long Range versions after 200,000 miles is 15% – 85% capacity retention.
  • The Model S/Model X cars averaged 12% capacity loss after 200,000 miles or 88% capacity retention.

Company News

Anglo Asian Mining* (AAZ LN) 71p, Mkt Cap £81m – AGM statement highlights challenging FY23 and reiterates growth strategy

BUY

• The Company released an AGM statement this morning highlighting challenges in FY23 while reiterating strong organic growth plans.
• FY23 production and earnings were affected by a temporary suspension of agitation leaching and flotation circuits at Gedabek operations.
• The Company has recently reported a technical due diligence of a tailings dam wall raise completion with all necessary documentation filed with authorities and permissions to start construction expected shortly.
• With 2-3 months of tailings capacity currently available, the team could potentially restart processing operations once tailings dam wall raise construction starts.
• The team remains focused on resuming operations at Gedabek, commissioning higher grade Gilar underground operation (Q4/24) while advancing its greenfield copper growth projects including Xarxar and Garadag.
• Additionally, the Company is looking closely to potentially resume operations at the brownfield Demirli copper/molybdenum operation once it is safe to do so.
• Anglo Asian portfolio of growth assets is forecast to see Group production expanding ~175koz AuEq in 2029 with copper accounting for ~90% of total output (FY22: ~58koz AuEq and 22% copper).

*SP Angel acts as Nomad and Broker to Anglo Asian Mining

Bluejay Mining* (JAY LN) 0.35p, Mkt cap £5.2m – Proposed acquisition of White Flame Energy for prospective helium, white hydrogen and other industrial gasses licenses

(Bluejay Mining holds 100% of the Hammaslahti and Enonkoski projects and all its Greenland prospects)

• Bluejay Mining report the conditional acquisition of 51% of the share capital of White Flame for £1.4m payable in Bluejay shares.
• Bluejay also have a 3-year option to acquire the remaining 49% of White Flame.
• The deal values White Flame at £2.75m.
• White Flame holds licenses on the East side of Greenland which are prospective for helium, hydrogen and other industrial gasses alongside natural gas and liquid hydrocarbons..
• Licenses are adjacent to Pulsar Helium’s Tunu project and cover 8,429sqkm.
• It is estimated that >$125m has been spent by ARCO and the Danish and Greenland governments on exploration in Jameson Land over the past 50 years.
• White Flame has flown around 1,800 line kilometres of seismic and other airborne surveys along with permeability and porosity studies.
  • “Work includes ±1800 linear km’s of seismic surveys, airborne surveys, permeability & porosity studies,
  • construction of the Constable Point airport as well as advanced production feasibility studies.”
• The basin has anomalous helium and white hydrogen occurrences, as well as working liquid-rich hydrocarbon reservoirs with potential resources estimated by management to contain in excess of +2.4 to 8.1  billion barrels of oil equivalent in place.
• The acquisition is conditional upon approval by Bluejay shareholders with a general meeting called for 10:00am on 10 July 2024 in London.
• Conclusion:  Bluejay continue to work towards the development of resources in Greenland> Today’s news gives Bluejay a number of highly prospective licenses covering helium, hydrogen and other industrial gasses. We believe work is relatively advanced on a number of prospects within the license area and look forward to consummation of the deal and further news on the potential for production of helium and hydrogen off the key prospects.

*SP Angel acts as nomad and broker to Bluejay Mining. The analyst has visited Dundas in Greenland and the Hammaslahti and Enonkoski projects in Finland.

ECR Minerals (ECR LN) 0.28, Mkt Cap £5.2m – Interim results highlight north Queensland exploration

• ECR Minerals, an Australian focussed mineral explorer, reports results for the six months to 31^st March and provides a commentary on the status of its exploration programmes in Victoria and Queensland.
• The company reports a loss of £0.45m (2023 – £0.72m loss) and a closing cash balance of £0.12m following “Two fundraisings completed in September 2023 and March 2024 … [which raised] … almost £1.2 million in aggregate”.
• The company points to cost saving measures which have included the closure of its London office “with a projected annual saving of over £50,000” as well as the sale of Australian assets for A$420,000.
• The principal focus has been on the exploration of the Lolworth project in northern Queensland where “the project has now been initially explored by stream sampling” identifying early-stage gold, niobium/tantalum and rare-earth element opportunities.
• Follow-up exploration is expected to include trenching and reverse-circulation drilling of the more promising targets as well as “further reconnaissance for niobium and gold in streams over the eastern tenements where geological mapping suggests the presence of pegmatite intrusion that covers approximately 45km²”.

Gemfields Group (GEM LN) 12.6p, Mkt Cap £147m – Latest ruby auction attracts healthy demand

• Earlier this week, Gemfields reported that a sale of mixed – quality rubies from its 75% owned Montepuez mine in Mozambique held in Bangkok between 3^rd-18^th June realised US$68.7m.
• The company confirms that 94 of the 97 lots (217,044 carats) offered were sold at an average price of US$316.95/carat.
• Commenting that “This auction marks the 10^th anniversary of Gemfields’ first auction in June 2014 of rubies from the Montepuez”, Adrian Banks, Managing Director of Product & Sales, said that “While the industry is currently facing some headwinds, arising in part from a softening in China, we hope this result provides good comfort to other stakeholders in our sector”.
• Mr. Banks also expressed satisfaction that this auction has “crossed the milestone of an average selling price of USD300 per carat at this auction”.

Kavango Resources* (KAV LN) 1.35p, Mkt Cap £22m – Drilling underway in Zimbabwe

• Kavango Resources has reported that drilling at its Hillside gold project in Zimbabwe has started in a campaign to follow up the results from the Prospect 2 target where hole BR DDD-001 intersected gold mineralisation beneath an historic mine and area of artisanal mining.
• The company plans a further two holes to test the “strike continuation of the mineralisation intersected in BRDD001” which, in April, reported an intersection of 7.2m at an average grade of 9.95g/t gold from a depth of 50.61m and a deeper intersection of 2m at an average grade of 2.12g/t gold from 86m depth.
• CEO, Ben Turney, said that the “next phase of discovery drilling at Hillside is extremely important for Kavango … [and will] … test the projected 162m strike extent that we’ve mapped from surface, based on known historic and artisanal mine workings”.
• The drilling will be testing an induced-polarisation (IP) geophysical anomaly which “clearly maps the sulphide zone to the artisanal gold workings that have also been intersected in our drill hole. This is a powerful exploration tool that will enable us to map gold associated sulphides both down-dip and along strike ahead of future drilling”.

Conclusion: We look forward to results from the new drilling at Hillside as it tests the significance of IP anomalism in an area of artisanal mining.

*An SP Angel Analyst holds shares in Kavango

Power Metal Resources* (POW LN) 19p, Mkt cap £21m – Advancement of Tati Gold project, Botswana

• Power Metal Resources provides an update on the Tati Gold Project in Botswana.
• The Company has entered a share option agreement with Tuscan Holding, a Botswana based company.
• Tuscan is privately funded and acquired
• The Option Agreement enables POW to retain a 25% interest free carried to production, via a Botswana based entity.
• The agreement covers Tati’s Cherished Hope Mine, an historic producer.
• POW will retain a right 100% of the prospecting licences excluding those held by TGR.
• Tuscan will now conduct a 730-day evaluation and prospecting period, which will aid their decision to produce an MRE suitable for a feasibility study.
• The work programme includes lidar/photogrammetry, a 60m deep shaft to assess underground working, and drilling to a feasibility-level consistency.
• The agreement will be binding on the exercise of the option agreement.
• Construction of any mining operation will first be self-financed by TGR, with additional finance requirements sought by loan facilities.
• if equity funding is required for construction, TGR, split 75% Tuscan and 25% POW, will be funded on a pro-rata basis.

Conclusion: Power Metals’ management continues to execute their strategy of value creation through spin-offs and value-accretive deals. Today’s Tati Gold agreement is reflective of this successful strategy, enabling POW a free-carried option towards a Feasibility Study at the Botswanan Project. Tuscan is an experienced player in Southern African gold and drilling and lidar evaluation will support a better understanding of the historic producer. We look forward to updates from the work programme and the potential for the option to be executed.

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

Savannah Resources* (SAV LN) 4.5p, Mkt Cap £82m – $20m equity investment and strategic partnership with AMG Critical Materials

BUY – 18.3p (from 20.8p)

• The Company entered into a strategic partnership with AMG Critical Materials whereby its wholly owned subsidiary, AMG Lithium, invests $20m (£16m) in new equity at 4.7p, a 17% premium to last closing price.
• AMG Critical Materials is an Amsterdam Euronext listed specialty metals company (Mkt Cap €538m) with >$1.6bn in turnover, ~3,600 employees and a diverse geographical presence.
• The group includes three units including AMG Lithium, AMG Vanadium and AMG Technologies.
• AMG Lithium runs a hardrock spodumene Mibra mine in Brazil currently in expansion from 90ktpa to 130ktpa as well as developing LHM refinery in Germany with first 20ktpa train commissioning in 2024 and a potential expansion for up to 100ktpa.
• AMG Vanadium covers recycling of spent oil refinery catalysts and power plant residues for production of vanadium products, manufacturing of custom titanium master alloys and coating materials for aerospace, energy, autos and special metals industries as well as production of specialised chromium metal and alloys.
• AMG Technologies offers advanced metallurgy technologies, energy storage solutions as well as mineral processing operations in graphite, antimony and silicon metal.
• The £16m investment takes the Company through FS (late 2024), permitting (H1/25) and to a Final Investment Decision (mid-2025).
• Under the agreement:
• AMG binding offtake for 45ktpa SC from the project (~25% of forecast 190ktpa) for 5 years at market prices;
• Option to increase and extend the offtake to 90ktpa for 10 years should AMG present “full project financing solution” and the Company accept it;
• AMG has the right to have a Director on the Board provided it maintains a shareholding above 10%.
• AMG and Savannah also agreed to study joint construction of a feldspar/spodumene pilot plant in Portugal and a potential Spodumene to Carbonate refinery in Portugal or Spain.
• AMG will hold ~343m shares representing ~16% of the enlarged share capital.
• Shares will have a lock in period of up to 24 months followed by a 12 month period for a potential orderly disposal of shares.

Conclusion: The Company has done well in bringing in AMG as an equity and strategic partner and negotiating an equity investment at a premium. Apart from providing required funding to finish FS and permitting related workstreams taking the Company to FID while minimising dilution, the deal acts as a validation of the team and attractive project economics. The Company is set to benefit from AMG expertise in upstream and downstream lithium processing as the project is getting closer to the start of development works. The binding offtake also covers only 45ktpa of planned 190ktpa output with majority of Barroso lithium production remaining available for a potential offtake assisting with future project funding negotiations.

Our change to target valuation reflects dilution from new shares issued to AMG while reiterating strong potential upside for Savannah shares with major near term rerating catalysts remaining intact including FS, permitting and project funding completion.

*SP Angel acts as Nomad and Broker to Savannah Resources

Sovereign Metals* (SVML LN) 29p, Mkt Cap £163m – Rail improvements enhance Kasiya’s logistics

(Sovereign currently holds 100% of the Kasiya project. The government has a right to a 10% free carry in the project. Rio Tinto acquired an initial strategic interest of 15% for a $40.6m with an option to increase it to 19.99% within 12 months from 17 July 2023)

STRONG BUY – Valuation 55p

• Sovereign Metals reports efforts by the Malawi Government to upgrade a section of the railway which crosses its Kasiya rutile project area and will improve access to the deep-water export port at Ncala in Mozambique.
• Work on the “399km Nkaya-Mchinji section of … [the] … railway”, which is expected to be completed by the end of 2024, includes upgrading of bridges and other improvements and should increase permitted maximum axle loadings from the current 15t to 18 t increasing freight capacity.
• Sovereign Metals confirms that export via the rail line to Ncala, which requires construction of a 6km rail spur from its planned process plant, is its preferred route to market and that it “provides significant capital and operating cost savings to Kasiya”.
• Welcoming the upgrade to rail infrastructure Managing Director, Frank Eager said that it “re-affirms Kasiya’s logistics solution with sufficient rail capacity, enhanced reliability and a direct connection to the deep-water export Port of Nacala. … [and] … is a demonstration of the country’s commitment to achieving its major economic development goals which include developing the mining industry and increasing Malawi’s export market”.

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

No.1 in Base Metals: SP Angel mining team awarded No 1. ranking for Base Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q1 2024

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  – 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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