SP Angel Morning View -Today’s Market View, Thursday 7th December 2023

Rio Tinto forecasts a 945% uplift in Lithium demand over the next 10 years

MiFID II exempt information – see disclaimer below

Cornish Metals* (CUSN LN) – Mine dewatering at South Crofty progressing alongside preparatory work for a resumption of mining

Eurasia Mining* (EUA LN) – Corporate and operations update

Gensource Potash (GSP LN) – 3D Seismic Program

Hummingbird Resources (HUM LN) – Raising US$30m for near mine exploration and growth

Power Metal Resources* (POW LN) 0.52p, Mkt cap £11m – Positive study results from Selta Project, Australia

Lihtium – Rio Tinto forecast a 945% uplift in Lithium demand over the next 10 years

• We suspect this is an understatement given Rios historical tendency to understate most things.
• Rio Tinto also state their focus is on metals in support of the energy transition (copper, lithium, nickel)
• They have target testing on 14 lithium projects based in Canada, USA, Australia, Chile. Brazil, Rwanda and Kazakhstan.
• The group is developing supply options as a partner of choice and see lithium as among the other minerals which will lead capex growth from 2026 alongside Simandou.

Lithium prices stop sliding as miners continue rally on hopes floor is near

• Lithium carbonate prices climbed slightly to $12,657/t this morning following an extended period of declines.
• Carbonate prices have fallen consistently since for the past three weeks.
• Guanzhoung futures jumped by 7% this morning to $13,450/t.
• Lithium producers in Australia rallied overnight, with Pilbara up another 5%.
• Chilean lithium exports to China reportedly fell 19% mom in November.
• Cathode producers are expected to begin restocking lithium products given the lower pricing environment.

Gold ($2,035/oz) strengthens as dollar index weakened by Japanese Yen rally

• Gold prices have moved higher overnight to $2,032/oz following a sharp rally in the Japanese Yen.
• BoJ Governor Ueda noted stronger wage hike prospects for next year, which fuelled bets on higher rates and supported the Yen.
• The Yen forms c.14% of the dollar index, with its rally weighing on the greenback.
• Gold prices have been anchored by recent strength in the dollar, despite US Treasury yields sliding to September lows.
• The 10-year rallied to 4.1% yesterday following a miss in ADP payroll numbers adding further fuel to expectations of a slowing labour market.
• Oil prices have supported these expectations, with crude hitting a six-month low on faster-than-expected gasoline builds in the US pointing to a weaker demand outlook.
• Focus turns to today’s jobless claims data and tomorrow’s nonfarm payroll data to further gauge the strength of the US labour market.

Iron ore prices press higher as steel prices climb and elevated imports stabilise

• Iron ore prices climbed again to $132.5/t.
• China steelmaker consumption of sintering fines remains strong at 577.8kt/day.
• November iron ore imports climbed to 103mt.
• Steel mill stockpiles are holding around January 2022 lows, however mill steel stockpiles are elevated on a seasonal basis.
• Stockpiles lowered towards the beginning of December as construction companies restock before an expected resurgence in construction in 2024.
• Scrap steel prices are on the rise in both the US and in Turkey. Rebar prices, HRC and wire rod prices all climbed c.1.5% overnight.

Copper – Chilean government sets target to raise copper output by 1.04mt to 5.4mt by 2026

• Finance Minister, Mario Marcel says the nation is looking to raise copper production by 1.04mt by 2026 (Reuters).
• Cochilco, an agency of the Ministry of Mines is targeting a 1% rise in production to 5.4mt in 2023 and 4.3% to 5.6mt in 2024.
• The government strategy appears to assume Codelco returns to 1.6mtpa from their current 1.25mt which seems unlikely given a lack of investment in state enterprise.
• There are two new mines with Teck’s Quebrada Blanca ramping up towards 316,000tpa and Capstone’s Mantoverde at 60,000tpa.
• Cochilco sees ~$74bn of new projects from 2022-2031 led by Codelco and other majors.
• The government is also looking to have three or four new lithium projects in development by 2026 according to the finance minister.
• The Chilean government is also looking to generate some two thirds of the nations power through renewable sources with a further 10-12 green hydrogen projects in development.
• Chile is a juxtaposition of Latin socialism alongside a more sensible senate which serves to modify the more radical and left-leaning ideas.
• For example, Chile appears to have chosen to joint venture new lithium projects rather than simply nationalise the licenses.
• Chile was getting increasingly close to China, buying and administering the Sinovac vaccine early on in the pandemic. We believe the vaccine had very poor efficacy failing to hold back the spread of Covid and suspect Chile won’t be relying so much on China again.

Conclusion: Governments are good at setting and missing targets with socialist governments leading the way in terms of unrealistic, rabble rousing, statements.

Fortunately, the nation has a plethora of good mining engineers but even these fine people will struggle to meet the government’s targets in the expansion of ever deeper and lower grade copper mines.

Copper supply is looking increasingly risky with Cobre Panama (1.5% global production) now closed, increasing protests in Peru and the potential for technical disruption in Chile. Add in the potential for further conflict in the DRC, Pakistan (Reko Dik) and other parts of Central Asia and the world could easily suffer a shortage of copper concentrates in fairly short order.

Mars – Curiosity just spotted a strange looking rock on Mars

• Any ideas are welcome https://twitter.com/i/status/1732428936989012450

Economics

US – ADP payrolls came in below estimates adding more signs to what appears to be cooling down labour market.

• The data is a welcome news for the Fed, although, key datapoint for this week remains NFPs and labour earnings due on Friday.
• ADP Employment Change (‘000): 103 v 106 October (revised from 113) and 130 est.

Biden administration pledges $6bn for high-speed electrified rail lines in the US

• The Biden administration will contribute >$6bn for the construction and electrification of two new rail lines in the West of the US (Associated Press).
• The federal government will contribute $3bn to a private $12bn Las Vegas to Los Angeles area route plus $3.1bn for a publicly-funded route connecting Los Angeles and San Francisco.

China – Weak trade data released this morning continue to highlight underwhelming state of local economy and global demand.

• Overseas shipments climbed more than expected in November, although, accounting for a low base comparison to Covid disrupted period in 2022 and a traditional pick up in exports towards year end ahead of the Christmas and holiday season abroad, headline numbers appear to be depressed.
• Imports unexpectedly dropped last month in a sign of struggling local demand.
• Exports (%yoy): 0.5 v -6.4 October and 0.0 est.
• Imports (%yoy): -0.6 v 3.0 October and 3.9 est.

Japan – The yen appreciated strongly on expectations that the central bank will step up monetary tightening and scrap the world’s last negative interest rate regime.

• The yen strengthened >2% trading at sub 145 this morning.

Germany – Following poor factory orders report, industrial production also underperformed in October extending a contraction in the sector to five months now.

• Industrial Production (%mom): -0.4 v -1.3 September (revised from -1.4) and 0.2 est.

UK – House prices reported the second consecutive monthly increase in November, according to Halifax data.

• Average home value climbed 0.5%mom to ~£284k leaving prices just 1% lower compared to last year.
• “The resilience seen in house prices during 2023 continues to be underpinned by a shortage of properties available, rather than any significant strengthening of buyer demand,” Halifax commented on the data.

Azerbaijan – President Ilham Aliyev is bringing forward presidential elections to February 7 next year from previously planned April 2025.

• Aliyev, 61, was last re-elected for a seven-year term in 2018.

Currencies

US$1.0778/eur vs 1.0778/eur previous. Yen 145.24/$ vs 147.06/$. SAr 18.975/$ vs 18.929/$. $1.257/gbp vs $1.260/gbp. 0.656/aud vs 0.659/aud. CNY 7.150/$ vs 7.158/$.

Dollar Index 103.87 vs 103.98 previous.

Commodity News

Precious metals:

Gold US$2,035/oz vs US$2,034/oz previous

Gold ETFs 86.1moz vs 86.0moz previous

Platinum US$897/oz vs US$907/oz previous

Palladium US$953/oz vs US$949/oz previous

Silver US$23.96/oz vs US$24/oz previous

Rhodium US$4,400/oz vs US$4,400/oz previous

Base metals:

Copper US$ 8,305/t vs US$8,412/t previous

Aluminium US$ 2,152/t vs US$2,160/t previous

Nickel US$ 16,435/t vs US$16,580/t previous

Zinc US$ 2,427/t vs US$2,448/t previous

Lead US$ 2,017/t vs US$2,046/t previous

Tin US$ 24,630/t vs US$24,590/t previous

Energy:

Oil US$74.9/bbl vs US$77.4/bbl previous

• Crude oil prices fell to their lowest levels since June as poor sentiment on OPEC+ quota cuts, non-OPEC supply growth and weak demand continue to drive the market.
• The EIA reported a 4.7mb w/w US crude draw offset by a 5.4mb build to gasoline and 1.2mb build to distillate stocks, as imports surged to 9.4mb and refinery utilisation increased total by 0.7% w/w to 90.5%.
• In response to media speculation, Woodside confirmed it is in discussions regarding a potential $52bn merger with Santos, which remain confidential and incomplete with no certainty that a transaction would take place. This combination would follow recent consolidation between Woodside and BHP and Santos with Oil Search.

Natural Gas €40.6/MWh vs €39.0/MWh previous

Uranium UXC US$81.0/lb vs US$80.3/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$132.5/t vs US$129.9/t

Chinese steel rebar 25mm US$578.5/t vs US$577.2/t

Thermal coal (1st year forward cif ARA) US$111.0/t vs US$109.0/t

Thermal coal swap Australia FOB US$141.3/t vs US$135.0/t

Coking coal swap Australia FOB US$322.0/t vs US$322.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$66,012/t vs US$66,089/t

Lithium carbonate 99% (China) US$12,657/t vs US$12,645/t

China Spodumene Li2O 6%min CIF US$1,380/t vs US$1,380/t

Ferro-Manganese European Mn78% min US$1,035/t vs US$1,035/t

China Tungsten APT 88.5% FOB US$300/mtu vs US$300/mtu

China Graphite Flake -194 FOB US$620/t vs US$620/t

Europe Vanadium Pentoxide 98% 6.1/lb vs US$6.1/lb

Europe Ferro-Vanadium 80% 25.25/kg vs US$25.25/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$314/t

Spot CO2 Emissions EUA Price US$75.0/t vs US$75.1/t

Brazil Potash CFR Granular Spot US$325.0/t vs US$325.0/t

EV & Battery news

EU to delay tariffs on UK EVs until 2027

• The European Commission has said it would support a delay to tariffs that were set to be brought in from January 2024.
• A 10% levy was set to be put on the export of vehicles that do not meet ‘rules of origin’ laws.
• The value of parts made in the UK or EU required to meet these rules was to be increased to 45%.
• The battery in an EV accounts for between 30-40% which effectively ruled out EVs using batteries from outside the region.
• The UK government, backed by automakers across Europe, has been arguing for the deferral of the tariffs, stating that it would heap excessive costs on the industry.
• Carmakers warned that they could be in line to lose €4.3bn between 2024 and 2027.
• Vehicle production would have also had to be cut by around 500,000 vehicles in that period.
• The EU has been reluctant to agree to an extension, which could be seen as reopening the Brexit agreement. Thierry Breton a European commissioner stating back in December he “did not want to reopen the Brexit trade deal, just to help the car industry.”
• A majority of the 27 EU member states must agree to the proposed delay, but it is believed that the decision is backed by at least 20 governments.

Tesla innovation to simplify vehicle wiring harnesses

• Wiring harnesses are the bane of many motor mechanics with separate wiring to control individual electronic components from a centralised system.
• Tesla’s new Cybertruck is using a new 48v system with gigabit ethernet cabling carrying data and power in the same cable.
• The innovation means many components can be daisy-chained via the same cable
• Tesla reckon they are able to reduce the total wiring in the Cybertruck by 77% using around half the copper.
• Given the Cybertruck weights 3t and your average EV uses more twice the copper of an Internal Combustion Engine vehicle the innovation has the potential to slightly soften the scale of our expected shortage of copper over the next ten years.

Republicans push back against Biden administration EV targets

• The Republican-led House of Representatives have voted to stop the Biden administration from enacting stringent vehicle emissions regulations that would result in 67% of new vehicles being electric by 2032.
• “While EVs may play a large role in the future of the auto industry, Washington should not discount other technologies like hydrogen, hybrids, and the internal combustion engine,” said Republican Tim Walberg.
• The US Environmental Protection Agency had proposed the 2027 to 2032 standards would cut emissions by 56% compared to the 2026 requirements.
• A group representing major automakers had called for significantly softening requirements, saying the EPA proposal was “neither reasonable nor achievable.”
• The voted passed with 221 votes to 197.

Nio to spin off battery production unit

• EV maker Nio has plans to spin off its battery manufacturing unit as it seeks to become profitable. (Reuters)
• The nascent battery unit, led by senior manufacturing engineers, will seek external investors as early as the end of this year.
• The company which has a market value of $12.4bn, currently buys all its batteries from CATL and CALB Group.
• Nio had plans to manufacture its own in-house batteries, but in order to become profitable sooner it will continue to source batteries from other suppliers.

Company News

Cornish Metals* (CUSN LN) – 10.5p, Mkt cap £54m – Mine dewatering at South Crofty progressing alongside preparatory work for a resumption of mining

Valuation 48p/s

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• Cornish Metals reports better than expected progress on pumping water from the historic South Crofty tin mine in Cornwall and confirms that it remains on schedule to complete dewatering within 18 months.
• Pumping started in early November following the commissioning of the water treatment plant enabling discharge of clean water into the Red River, and it is encouraging to hear that the treated water is “having a positive effect on the water quality of the river downstream of the discharge point”.
• The water level is reported to have fallen to ~155m below surface by 5the December.
• At the time that Cornish Metals announced the commissioning of the water treatment plant, on October 25^th, it said that “Raw mine water is being pumped from a depth of 360 metres in New Cook’s Kitchen shaft” although today’s announcement indicates that the “rate of drop … [in the water level] …is expected to decline reflecting more underground workings at the deeper levels of the mine”.
• Treated water is used to run a 75kW hydro-turbine prior to discharge providing “up to 20% of the power consumed by the WTP”.
• CEO, Richard Williams, describing the dewatering as an important milestone said that “it is pleasing to see the water level in the NCK shaft dropping faster than expected over the last month”.
• He confirmed that Cornish Metals remains “focussed on our objective to complete the dewatering of South Crofty within 18 months”.
• On a recent site visited hosted by the company, visitors were able to see progress of the dewatering at first hand and also to see progress of the underground mine refurbishment including of the New Cooks Kitchen Shaft, originally installed in 1906, and the associated surface infrastructure including the head frame and, winder.
• During the visit, management described how resumption of mining, potentially by late 2026, would effectively be from a new mine beneath the historic working area allowing modern mining methods and that utilisation of underground voids left by the historic mining activity would provide capacity for mine and plant waste disposal obviating the need for surface tailings disposal.

Conclusion: Dewatering the flooded workings at South Crofty is progressing better than expected and the company remains on track to complete the dewatering within 18 months.

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

Eurasia Mining* (EUA LN) 1.5p, Mkt Cap £41m – Corporate and operations update

• The team remains in discussions with interested parties based in Hong Kong and Russia regarding a potential sale of its Russian PGM assets.
• Although, the Company highlights that no terms or binding agreement have been reached yet.
• At West Kytlim, the team is keeping operations in a sale ready state with no production expected on site in 2024 to limit a cash burn of the Group.
• Unsold concentrate from 2022 mine season (no production recorded in 2023) is held in secure storage off site with discussions regarding the sale of it ongoing.
• Closing cash balance stood at £0.5m with all US Treasury notes now sold as of 30 November; the Company is debt free and held £3.5m in unsold concentrate in its inventories as of 30 June.
• The team is not expecting any major capital expenditure in 2024 with current cash reserves expected to last until the end of Q1/24.
• Dispute with former adviser Gowling WLG over unpaid invoices amounting to £0.1m is ongoing with management hoping to reach a satisfactory conclusion in due course.

*SP Angel act as Nomad and Broker to Eurasia Mining

Gensource Potash (GSP LN) 0.5p, Mkt cap £22m – 3D Seismic Program

• Gensource Potash, exploring for potash in Saskatschewan, provides an update from its Vanguard North 3d Seismic program.
• The program is intended to develop a better regional understanding of the existing asset at Tugaske.
• The programme is also intended to expand on the dataset developed at the project.
• The Company will aim to use the results to enlarge the defined Resource and Reserve in a new NI 43-101 Report.
• Gensource is currently in discussions with various institutions for project financing for Tugaske towards construction.

Hummingbird Resources (HUM LN) 10.6p, Mkt Cap £75m – Raising US$30m for near mine exploration and growth

• Hummingbird Resources has announced an equity placement of up to US$30m via an issue of ~210m shares priced at 11.2625p/share.
• The placement which is expected to fund growth and increased exploration is “underwritten by a partially conditional US$25 million investment by the Company’s largest shareholder and strategic investor CIG SA” which would then own around 43% of the company.
• “In addition to the Placement, the Company will offer shareholders the opportunity to subscribe for shares at the same price as the Placement through an open offer to be launched in due course”.
• The planned US$5m of exploration “will be directed towards increased exploration activities at the Yanfolila and Kouroussa Gold Mines” aimed at “high-probability targets aimed at increasing Resources to Reserves for the Group” which would extend the mine’s lives.
• A further US$2m will be used for optimisation of the 2022 Definitive Feasibility Study (DFS) for the Dugbe gold project in Liberia with an emphasis on reducing the capex and optimising “power usage … [and improving] … metallurgical recovery rates … [as well as] … additional exploration activities”.
• “The remainder of the proceeds will be used to strengthen the Company’s balance sheet through deleveraging and operational initiatives”.
• Today’s announcement confirms that the Yanfolila mine in Mali is expected to achieve its FY2023 production guidance of between 80-90,000oz at all-in-sustaining costs below US$1,500/oz and that the Kouroussa mine in Guinea “continues to progress towards full scale commercial production in early FY-2024”.
• Overall, Hummingbird Resources “is on track to produce c.200,000 oz in FY-2024”.

Conclusion: Hummingbird Resources has the support of its principal shareholder in the raising of an additional US$30m to expand its near-mine exploration and optimise the DFS for the Dugbe project.

Power Metal Resources* (POW LN) 0.52p, Mkt cap £11m – Positive study results from Selta Project, Australia

• Power Metals provides an update on First Development Resources, in which it holds a 58.59% interest.
• The Company has commissioned a desktop study using geophysical and geographical information systems at Selta in the Northern Territory, Australia.
• The study has presented several priority targets across the project, which hosts potential for a variety of mineralised opportunities.
• The study used historical exploration datasets, open-file company and government datasets, surface geochemical sampling results from prior campaigns and previous drilling data.
• The Company believes the area identified for REE mineralisation potential bears similarities to Arafura’s nearby Nolans Project.
• This ionic clay type REE mineralisation potential at the new Ingallan target will now be the Company’s primary priority for future exploration programmes.
• There is also believed to be potential lithium-caesium-tantalum pegmatites to the south and east.
• Additionally, there holds potential for skarn-style mineralisation, hosting possible tungsten, molybdenum tin and silver, as seen at the eastern lying Molyhill Project, owned by Thor Energy.
• FDR will look to begin by completing ground-based exploration work at Ingallan with rock chip sampling, geochemical surveying and then potential RC drilling.

Conclusion: First Development Resources, in which POW holds a majority interest, has made strong progress in identifying targets for future exploration work in a cost-effective manner. The desk-based study has made use of a wealth of historical data and has supported the Company’s aims of delineating priority targets. Ionic clay rare earth element potential is an exciting development for the Company and will warrant further exploration work. Whilst the IPO process for the spin-out Company has been delayed by difficult market conditions, it is good to see the Group progressing exploration work in advance of the expected public listing.

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

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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