SP Angel Morning View -Today’s Market View, Thursday 25th January 2023

Metals rally as traders continuing buying following surprise China rate cut

MiFID II exempt information – see disclaimer below

Anglo Asian Mining* (AAZ LN) – Drill results at Xarxar support upcoming JORC copper MRE

Atlantic Lithium* (ALL LN) – Lithium, spodumene, offtake sale process moves forward for Ewoyaa funding

Aura Energy* (AURA LN) – Proceeds from the exercise of options to help resource expansion drilling at Tiris

Greatland Gold (GGP LN) – Decline development at Havieron approaching the top of the orebody with Feasibilty Study due later this year

Kavango Resources (KAV LN) – Gold exploration progress at the Hillside project, Zimbabwe

Mineral Resources (MIN AU) – Spodumene ramp up continues as CEO insists projects are still profitable

Rio Tinto (RIO LN) – Aircraft crash claims lives of four from the Diavik mine

Thor Energy (THR LN) – Alligator Energy investment in EnviroCopper

Mining equities appear to turn as industry prepares for Mining Indaba and 121 conference in Cape Town.

• After an unusually subdued start to the year for the small and mid-cap mining sector mining equities appear to be turning more positive.
• Lower valuations appear to be drawing new interest into the sector with a growing number of investors asking for recommendations and key stock ideas.
• Metals prices had struggled to gain as foothold on a lack of confidence with traders and Chinese manufacturers due to a worsening property market in China and low consumer activity / confidence.
• This week’s CNY1tn ($140bn) funding int the market by the Chinese authorities is a reaction to the challenge being faced but this appears to have restored an element of confidence.
• With so many traders and manufacturers destocking into a falling market it appears increasingly likely that new buying may return sooner than is normally seen after the Chinese New Year which starts on 10^th February and runs for 16 days.
• Chinese manufacturing largely shuts down for the first seven days of the new year holiday with a slow return to work thereafter.
• We hope the year of the Dragon will herald a more helpful Chinese administration which has so far failed to condemn Iranian-sponsored attacks on shipping in the Red sea. This is having a direct impact on the shipping of Chinese goods into Europe and the US.

Metals rally as traders continuing buying following surprise China rate cut

• Metals rallied across the board overnight as China optimism takes over after a seasonal lull.
• Tin rallied 1%, Copper hit monthly highs and iron ore pushed back to $135/t on the 62% Fe benchmark.
• The surprise 50bp RRR cut in China has seen buyers step into an illiquid market on expectations of a revival in construction activity.
• Premier Li Qiang called for further steps to support the economy, following the recent move to buy Chinese shares.
• Copper supply remains stretched by the lack of Cobre Panama, and Zambian copper output is reported to have fallen to 643kt in 2023 vs 764kt in 2022.
• Freeport management noted in their call that demand has surprised from China and the US, with the forecast surplus not materialising last year, stating ‘watch out for the copper price.’
• WoodMac now predicts a 100kt deficit in 2024 vs the 600kt surplus expected last year.
• Iron ore continues to strengthen having sold off from January highs last week, with customs delays at CHina’s Caofeidian port set to continue.
• Blast furnaces remain on maintenance approaching the Lunar New Year and steel margins are still thin.
• Coking coal and coke bounced 1.5% and 1.3% respectively.

Gold prices weaken as US PMIs show activity rebound, pushing Treasuries lower

• Gold prices have fallen to $2,017/oz, down from $2,040/oz last week.
• The move followed a sell off in the US Treasury market yesterday, with the 10 year yield rising to highs over 4.19%, up from December lows around 3.77%.
• This halted the dollar index’s weakness, weighing on gold prices.
• Focus turns to today’s jobless claims and tomorrow’s PCE data as traders look for clues over persistent inflation or weakening labour markets.

Economics

Inflation – So many central banks hold out a lofty 2% inflation target

• In China the PBoC has been gently loosening monetary controls to avoid persistent deflationary pressure while wary of the potential for a sudden inflationary run.
• While the US is able to hold higher rates to dampen inflation as component manufacturing re-shores back into the US creating jobs and an unexpected positive level of economic activity.
• Europe, unfortunately, is stuck in a land of high energy prices and uncertainty as Russia continues to attack Ukraine with missiles and foot soldiers.
• We are now being warned the UK may need to invoke military ‘conscription’ in future years to hold back Russia in a potential rerun of WWII.
• But good inflation is able to inflate away government debt as witnessed in 1973 when the oil shock stoked a national Winter of Discontent.
• So is the BoE running a balancing act between 2% inflation and an acceptably higher level without risking degeneration into a full Weimar republic.
• Vlad the bad and his chums in China and Iran would love to see the pound, euro and US dollar fall into inflationary spirals as they march into new territories.
• Fortunately, NATO appears to remain a step ahead of Vladimir and is quietly eroding Russian military capacity along the Ukrainian front while taking out key military counters which will take Russia decades to replace.
• While financial markets and most others would love to see a quick end to the conflict, victory may involve the steady removal of Russia’s ability to invade anything larger than a sweet shop in Georgia.
• Traders in India and China are happy trading Russian oil and metals for the arbitrage, while the West needs these commodities to prevent runaway inflation.
• Allowing these traders to extract their pound of flesh also helps to limit the prices paid for Russian commodities.
• In essence, the situation, as bad as it may be, should allow a raft of central banks to tolerate higher inflation rates for longer enabling the destruction of national debt while enabling ongoing underlying growth.
• China has been busy stepping into the gaps left by closing energy-intensive European smelting and refining output and into the manufacturing of goods once made in Ukraine.
• More worrying is the ongoing promotion of manufacturing capital expenditure in China, and particularly the flood of Electric Vehicles coming to our shores.
• Given the importance of Automotive manufacturing to the UK, European and US economies this is arguably a more serious economic threat than many other issues.

US – PMI

• Manufacturing PMI – 50.3 vs 48.7 expected and 47.9 previous
• Composite PMI – 52.3 vs 50.9 previous
• Services PMI – 52.9 vs 51 expected and 51.4 previous

UK – PMI

• Services PMI: 53.8 vs 53.2 expected and 53.4 previous
• Manufacturing PMI: 47.3 vs 46.7 expected and 46.2 previous
• Composite: 52.5 vs 52.2 expected and 52.1 previous

Germany –Ifo Business Climate index fell to 85.2 from 86.3 in January below expectations.

• The Current Assessment Index fell to 87.0 from 88.5 again below expectation.
• Expectations Index fell to 83.5 from 84.2 also fell below expectation.

• Manufacturing rose to -16.0 from -17.4.
• Services fell to -4.9 from -1.7.
• Trade fell to -29.7 from -26.7.
• Construction fell to -35.9 from -33.5.
• Sentiment among German companies is so bad the economy is stuck in recession.

Currencies

US$1.0887/eur vs 1.0872/eur previous. Yen 147.78/$ vs 147.64/$. SAr 18.910/$ vs 18.879/$. $1.272/gbp vs $1.271/gbp. 0.657/aud vs 0.659/aud. CNY 7.167/$ vs 7.164/$.

Dollar Index 103.26 vs 103.29 previous.

Commodity News

Precious metals:

Gold US$2,013/oz vs US$2,029/oz previous

Gold ETFs 84.3moz vs 84.3moz previous

Platinum US$902/oz vs US$906/oz previous

Palladium US$960/oz vs US$960/oz previous

Silver US$22.74/oz vs US$23/oz previous

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

Base metals:

Copper US$ 8,542/t vs US$8,530/t previous

Aluminium US$ 2,218/t vs US$2,258/t previous

Nickel US$ 16,535/t vs US$16,280/t previous

Zinc US$ 2,586/t vs US$2,562/t previous

Lead US$ 2,150/t vs US$2,181/t previous

Tin US$ 26,610/t vs US$26,400/t previous

Energy:

Oil US$80.5/bbl vs US$79.9/bbl previous

Natural Gas €29.2/MWh vs €27.5/MWh previous

Uranium Futures $103.9/lb vs $105.5/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$135.3/t vs US$131.9/t

Chinese steel rebar 25mm US$573.8/t vs US$574.2/t

Thermal coal (1st year forward cif ARA) US$95.3/t vs US$93.0/t

Thermal coal swap Australia FOB US$121.8/t vs US$123.0/t

Coking coal swap Australia FOB US$324.0/t vs US$321.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$55,951/t vs US$56,044/t

Lithium carbonate 99% (China) US$12,069/t vs US$12,074/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$1,060/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% 5.9/lb vs US$5.9/lb

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

China Ilmenite Concentrate TiO2 US$317/t vs US$318/t

Spot CO2 Emissions EUA Price US$69.3/t vs US$65.9/t

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

Battery News

China’s nuclear plans would see 147GW of capacity added by 2035

• By the end of 2025, China plans to reach 70GW gross nuclear capacity – as of December 2023, it has 53.2GW capacity from 55 operational reactors. (World Nuclear Association)
• It currently has 27.7GW of nuclear capacity under construction.
• In the longer term, China plans to build approx. 150 large nuclear reactors to add 147GW by 2035.
• As of December 2021, China had 245.6GW of capacity in its pipeline – more than the rest of the world combined.
• The addition of the 150 nuclear reactors in the 15-year period will raise Uranium demand from 25M lbs/yr to over 100M lbs/yr by 2035.

GM to invest $1.4bn in Brazil by 2028

• The automaker announced that it will invest $1.4bn in Brazil by 2028 to boost ‘sustainable mobility’.
• GM did not provide further details on the investment, but earlier this month, the company said it intended to launch six vehicle models in Brazil this year.

China NEV sales already see signs of slowing as 2024 sees slow start

• Sales of NEVs in China were down 21% mom for the first three weeks of January.
• NEV sales increased 84% in 2022, but data from China Passenger Car Association shows a 25% growth across 2023.
• The steep decline in interest in NEVs has automakers braced for a ‘discount war’ on unprofitable EV models.

Company News

Anglo Asian Mining* (AAZ LN) 55.3p, Mkt Cap £63m – Drill results at Xarxar support upcoming JORC copper MRE

• Anglo Asian provides an update from its recent drilling programme at its Xarxar project in Azerbaijan.
• The Company is currently preparing a JORC Mineral Resource Estimate for the Xarxar deposit, set to be published by the end of March 2024.
• Independent geologists from Mining Plus UK visited site in September as part of the JORC process.
• Following the release of the MRE, the Company will execute additional infill and extension drilling alongside met testwork and geometallurgical modelling as it progresses towards a mine plan.
• 52 drill holes were completed, 34 being surface core, 12 being RC and 6 being underground core over a total combined length of 16,794m.
• The Company built a 500m long portal for exploration purposes, this will be used for bulk samples for test processing.
• The Company reports that 50/52 holes intercepted a minimum intercept thickness of 10m at a minimum 0.1% Cu and a maximum 5m internal waste.
• Highlight intercepts from the drilling programme (0.1% COG) include:
  • 22XDD001: 45m at 0.45% Cu from 47m
  • 22XDD001: 149m at 0.44% Cu from 99m
  • 22XDD002: 147m at 0.95% Cu from 163m
  • 22XDD003: 210m at 0.52% Cu from 88.2m
  • 22XDD004: 28m at 0.78% Cu from 8.7m
  • 22XDD005: 191m at 0.43% Cu from 170m
  • 22XDD006: 226m at 0.35% Cu from 104m
  • Click Link for Full Table
• Given the structure of the mineralisation, the Company expects to use an open pit finishing at 200m depth.
• As regards processing, conventional flotation and bacterial heap leaching are being considered alongside testing in-situ recovery methods.
• Mineralisation at Xarxar is reportedly oxide-dominant, with secondary sulphides.

Conclusion: Anglo Asian continue to build on their strategy to progress towards a mid-tier copper producer, developing their greenfield Xarxar copper asset in Azerbaijan. The release of the maiden JORC MRE for the project will be an important milestone in their strategy and we look forward to this in March. Further infill drilling will further derisk the asset and support progress towards a mine plan and subsequently production.

*SP Angel acts as nomad and broker to Anglo Asian Mining

Atlantic Lithium* (ALL LN) 20.12p, Mkt Cap £127m – Lithium, spodumene, offtake sale process moves forward for Ewoyaa funding

• Atlantic Lithium report the progression of their spodumene offtake process to the assessment of indicative proposals from a number of interested buyers.
• Management are looking to sell the right to buy the remaining 50% of available offtake to a group to fund the remaining capital cost of the Ewoyaa mine.
• We do not currently expect Atlantic to come back to the market for more equity funding for the Ewoyaa project and we see the recent fall in lithium carbonate and spodumene prices as largely irrelevant from an offtake perspective.
• Ewoyaa is one of just a few new, permitted, lithium-in-spodumene mines where first production should be available in 2025.
• Atlantic refer to strong interest from a number of parties including OEMS, battery gigafactories, traders and chemical processors.
• Negotiations have now moved towards the fielding of binding offers from a number of preferred parties.
• Yesterday, Atlantic reported the the completion of a $5m equity subscription by the MIFF, the Ghana’s Sovereign Wealth Fund at 20p/s.
• The $5m equity subscription is part of MIIF’s total committed $32.9m strategic investment into the company.

*SP Angel acts as Nomad to Atlantic Lithium. Two mining analysts from SP Angel recently visited the Ewoyaa mine site in Ghana and drove onto Takoradi to check the quality of the road to port. Our analysts also visited the Ministry of Minerals Commission and MIIF, the Ghana Minerals Income Investment Fund.

Aura Energy* (AURA LN) 12.5p, Mkt Cap £76m – Proceeds from the exercise of options to help resource expansion drilling at Tiris

(Aura holds 85% of the Tiris Uranium Project, Mauritania with 15% held by ANARPAM, a Mauritanian Government entity.)

• Aura Energy confirms that the exercise of ~82.5m listed options has raised A$4.3m which will help fund further drilling to extend the Tiris East uranium project in Mauritania.
• The company explains that “Lind Partners being a substantial shareholder of the Company will provide $2.2 million of funding, pursuant to the Option Funding Agreement, and will be paid a sub-underwriting commission of 3% on such amount and a Commitment Fee of 8% of such amount”.
• In addition to the resource at Tiris, which currently stands at 113mt at an average grade of 236ppm U₃O₈, (58.9m lbs of contained U₃O₈) the company has published an Exploration Target for Tiris East of 30-60mt at grades between 120-240ppm U₃O_8.
• Chairman, Philip Mitchell, explained that Aura Energy’s “current exploration program is targeting expansion of our mineral resource towards 100 Mlbs U₃O₈, a globally important threshold. Reaching this target will reconfirm Tiris’ potential as a near-term low-cost producer, as established by our March 2023 Enhanced Definitive Feasibility Study – with the additional benefit of significantly increased scale”.

Conclusion: Additional funds from the exercise of options provide capacity for further drilling to help Aura Energy expand its resource base towards its 100m lbs U₃O₈ ambition.  We await the results of the expansion drilling with interest.

*SP Angel acts as Nomad and Broker to Aura Energy

Greatland Gold (GGP LN) 7.75p, Mkt Cap £389m – Decline development at Havieron approaching the top of the orebody with Feasibilty Study due later this year

• Greatland Gold reports that the main decline at its 30% owned Havieron gold copper project in the Paterson region of WA has now passed 2,110m which, we estimate, leaves a further ~690m to go before it reaches the top of the Havieron orebody beneath the Permian age cover rocks.
• The decline is now approaching the lower confined aquifer (LCA) unit which is “the third and final aquifer through which the decline passes, and a pause in development is currently underway to allow depressurisation of the LCA”.
• Managing large volumes of water can be a key challenge in underground mining and we are wholly supportive of the prudent approach to water management in this case, even with its potential to extend the project completion times.
• The company also confirms that it is continuing work on the Feasibility study “with several value enhancing options being assessed to maximise value and de-risk the project”.
• In previous announcements the company has indicated that it expects the Feasibility Study to be completed during the September quarter of 2024.
• Greatland Gold also highlights the previously announced revised mineral resource estimate, announced in December, which disclosed a 29% increase in the contained gold content to 8.4moz of gold equivalent compared to the pre-existing March 2022 estimate.
• ‘Indicated’ resources rose by 32% to 5.0moz on a gold equivalent basis incorporating the contribution of copper.
• A 3D representation of the deposit included in today’s announcement shows that it remains open at depth with the mineralisation extending around 1,200m vertically beneath approximately 420m of post-mineralisation cover.
• The diagram suggests that the ‘Inferred’ portion of the resource is predominantly located towards the northeast of the deposit.
• The company also explains that it is “engaging constructively on various aspects of the Havieron joint venture” with Newmont Mining “as its Havieron joint venture partner during the quarter, following the successful completion by Newmont of its acquisition of Newcrest Mining Limited”.

Conclusion: We await the feasibility study for Havieron with interest and for its insights into plans to develop the project.

Kavango Resources (KAV LN) 0.65p, Mkt cap £8.8m – Gold exploration progress at the Hillside project, Zimbabwe

• Kavango Resources reports that it is preparing drilling of a fourth target at the Hillside gold project in Zimbabwe and that it is awaiting permission for the export of samples from diamond drilling of three other targets for assaying.
• The latest hole is planned to test “a number of possible gold-bearing structures … [at around 250m depth] … adjacent to a historic narrow vein-hosted high-grade gold mine that was subject to near-surface mining”.
• The old mine “reportedly produced at an average recovered grade of 13g/t gold at various times from 1910 until recently”.  Historic workings were “limited to the near-surface oxide zone, at shallow depths” and Kavango Resources plans to test “a highly prospective greenstone gold target, located in a shear zone in granites and extending across the contact margin”.
• The company is also testing geochemical samples from augur drilling of the “largest tailings dump at the Nara Project” and is awaiting export clearance for samples from geochemical testing “over … [the] … entire Nara area”.
• Further geochemical work is planned for the Leopard Project.
• Chief Executive, Ben Turney, described Zimbabwe as offering “enormous, unrealised potential in … [its] … goldfields … [and expressed hope that] … Kavango’s success will help illustrate what is possible in this exciting, heavily underexplored gold province”.

Conclusion: Further gold exploration drilling in Zimbabwe is planned with a hole next to an historic mine aiming to test the deeper potential beneath near-surface oxide hosted workings.

Mineral Resources (MIN AU) A$60, Mkt Cap A$12bn – Spodumene ramp up continues as CEO insists projects are still profitable

• Australian lithium and iron ore producer MinRes provided their quarterly production report overnight.
• Iron ore shipments increased 23% qoq to 4.8mwt at an average quarterly realised price of US$119m against the 62% Platts benchmark.
• The realisation of benchmark prices increased from 87% last quarter an 60% at points in 2022.
• Iron ore unit costs at Yilgarn stood at $72/t and $49/t FOB at Pilbara.
• The Group, which operates the Wodgina, Mt Marion and Bald Hill spodumene projects, insists they all remain profitable at current prices.
• Production from Mt Marion increased 52% qoq to 60kt SC6 equivalent shipped.
• Average price received from Mt Marion stood at US$738/t for the 4.2% SC product produced – Company notes this would have been US$1,071/t if not for the change in reference price formula.
• Mt Marion costs expected to fall to $330/t FOB on a product basis by July.
• Bald Hill spodumene sold at US$979/t over the quarter.
• Wodgina production increasing to 65kt with costs expected to fall to c.A$550/t by September.

Rio Tinto (RIO LN) – 5,519p, Mkt cap £69bn – Aircraft crash claims lives of four from the Diavik mine

• Rio Tinto confirms that yesterday’s plane crash near Fort Smith in Canada’s NWT claimed the lives of four of its team from the Diavik diamond mine plus two of the aircraft’s crew.
• The aircraft was “on its way to Diavik”.
• A further member of the Diavik team “survived the crash and received treatment in hospital”.
• Chief Executive, Jakob Stausholm, who is travelling “to the Northwest Territories to be with our team and to offer our full support … [confirmed that Rio Tinto] … will be working closely with authorities over the coming days, weeks and months, to support their efforts to understand the full facts of what has happened”.
• Mining companies take the health and safety of their employees incredibly seriously due to the inherent risks of operating in what can be dangerous and remote environments.
• Western listed companies undoubtedly lead the way in their safety procedures and compliance, but even so, it is devastating for a company when lives are lost.

Thor Energy (THR LN) 1.85p, Mkt Cap £5.2m – Alligator Energy investment in EnviroCopper

• Thor Energy reports that Alligator Energy has completed the first phase of its investment in its specialist in-situ recovery (ISR), EnviroCopper associate, which was announced in December.
• Alligator Energy has “made the initial investment of ~$0.9M for a 7.8% interest in ECL”.
• Under the terms announced in December, Alligator Energy has the option “to further invest to acquire up to 50.1% of the company”.
• Today’s announcement describes the “South Australian Government’s copper strategy targeting 1Mtpa of copper production in the State provides a positive backdrop to the potential for ISR copper”.
• Managing Director, Nicole Galloway Warland, said that Alligator Energy’s investment “will further support ECL’s mission to develop smarter, lower-cost, and more environmentally friendly copper projects, and this will benefit the development of Thor Energy’s copper ISR projects in South Australia”.
• Alligator Energy’s investment dilutes Thor Energy’s holding in ESR to 26.4%.

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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