SP Angel Morning View -Today’s Market View, Thursday 7th March 2024

Gold prices extend gains as dollar slides on dovish pivot expectations

MiFID II exempt information – see disclaimer below

Beowulf Mining* (BEM LN) – Project Director appointed for Kallak Iron Ore development

First Quantum (FM CN) – Refinancing following Panama shutdown

First Tin (1SN LN) – Taronga DFS testing shows tin recovery rates matching historic results

Strategic Minerals* (SML LN) – Improving sales outlook at Cobre as February delivers a six-year sales high

Zinnwald Lithium (ZNWD LN) – Operational Update

Gold prices press higher as Central Bank buying continues and yields slide

• Gold prices soared again to $2,160/oz, now up c.$130/oz over the past week.
• China has been a supportive buyer currently, with the PBoC adding 10t in January, buying for the 15^th consecutive month.
• We would say the primary driver in this recent rally is a continued decline in real yields, with inflation expectations continuing to cool, pushing buyers into gold from money market accounts and Treasuries.
• We note that physical ETF holdings remain flat, which could add some further bullish pressure to gold prices as retail investors look to get in on the action.
• Focus will be on tomorrow’s NFP payroll data, with a beat expected to throw some cold water on gold’s recent rally. Alternatively, a weaker-than-expected figure is likely to push gold closer to $2,200/oz in the spot market.
• ADP and JOLTs data came in line with expectations.
• The Fed continues to provide dovish commentary, with Powell hinting rate cuts would come before inflation fell below 2% target.
• Miners are rallying, with the GDX up 11% over the past five days.

Copper rallies on weak dollar and reports China smelters seek production cut

• Copper prices have rallied to $8,650/t on the LME.
• The move comes as the dollar weakness continues on expectations of looser monetary policy.
• Bloomberg reports 15 smelters have met in China, discussing tumbling TCRC fees which have hit 2013 lows on limited concentrate.
• China has been ramping up smelter capacity over the past three years, with the production cut set to come in to boost fees.

Spodumene price continues to climb as production cuts work to balance market

• SMM’s Australian Spodumene has increased to $1,010/t, up from $850/t where it hovered for most of January.
• Restocking is expected to be beginning for Chinese cathode makers following the Lunar New Year holiday.
• Various production cuts from lepidolite producers and Australian spodumene producers have been working to balance the market.
• Arcadium’s Mt Cattlin operations have moved to lower production in line with ‘cost optimisation plans.’
• Greenbushes is also seeing lower production this year, whilst Pilbara continues to expand and Sigma comes to market.

Economics

US – Jerome Powell, as expected, reiterated Fed plans to cut rates this year, although, the central bank will need to wait for more evidence on the pace of disinflation before acting.

• “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” Powell told the Congress.
• Nikki Haley exited presidential nominee race yesterday clearing the way for Donald Trump to face Biden at coming November elections.
• The decision followed super Tuesday results when Trump beat her in 14 of 15 Republican nominating contests.

China – February trade data beat estimates on strong shipments to BRICS economies.

• Outbound shipments to Brazil, Russia and India were up 33%, 12% and 11%, respectively.
• Exports to the US climbed only modestly (+2.6%) while shipments to the EU (-2.3%) and Japan (-10.4%) extended declines.
• Exports (%yoy YTD): 7.1 v 1.9 est.
• Imports (%yoy YTD): 3.5 v 2.0 est.

ECB – The policy announcement is due later today with expectations for the central bank to leave rates unchanged at a record 4%with policymakers likely to repeat that more evidence that inflation is under control is needed before a rate cut.

• Markets will be closely following any comments on timing for a potential first rate cut.
• Investors are expecting three or four rate cuts by the end of the year with the first one due in June, according to Reuters.

UK – The government announced a £10bn cut in labour taxes in an effort to garner support for falling Conservatives’ approval ratings ahead of the general elections.

• National insurance contributions were cut by 2pp.
• Additionally, Chancellor Jeremy Hunt widened access to child benefit payments, froze fuel duties, extended relief on alcohol and support for low income households, Reuters reports.
• Non UK domiciled tax regime to change from April 2025 allowing individuals to claim the status for four years, down from the current 15
• The budget is reported to have underperformed expectations of some lawmakers in the ruling party who called for a reduction in income tax.
• The government also introduced the British ISA allowing investors to allocate £5,000pa in UK listed businesses without paying tax on capital gains or income.

Currencies

US$1.0893/eur vs 1.0868/eur previous. Yen 147.85/$ vs 149.61/$. SAr 18.793/$ vs 18.870/$. $1.274/gbp vs $1.272/gbp. 0.659/aud vs         0.652/aud. CNY 7.199/$ vs 7.199/$.

Dollar Index 103.25 vs 103.67 previous.

Commodity News

Gold US$2,157/oz vs US$2,127/oz previous

Gold ETFs 82.3moz vs 82.3moz previous

Platinum US$911/oz vs US$887/oz previous

Palladium US$1,033/oz vs US$963/oz previous

Silver US$24.18/oz vs US$24/oz previous

Rhodium US$4,500/oz vs US$4,500/oz previous

Base metals:   

Copper US$ 8,586/t vs US$8,525/t previous

Aluminium US$ 2,242/t vs US$2,231/t previous

Nickel US$ 17,860/t vs US$17,650/t previous

Zinc US$ 2,519/t vs US$2,468/t previous

Lead US$ 2,090/t vs US$2,060/t previous

Tin US$ 27,445/t vs US$26,960/t previous

Energy:           

Oil US$82.7/bbl vs US$82.3/bbl previous

• Crude oil prices are broadly flat after the EIA reported a 1.4mb w/w US crude build, offset by ~4mb draws to both gasoline and distillate stocks, with refinery utilisation below par at 84.9% due to seasonal maintenance and the delayed restart of BP’s 435kb/d Whiting refinery in Indiana.
• European energy prices fell as EU natural gas storage levels fell just 1.5% w/w to 61.6% full (vs 44.5% 5-Yr average), with Germany still at 68% full and aggregate storage at 703TWh.
• The UK Energy Profits Levy on oil and gas company profits will be extended by a year until March 2029, which is expected to raise a further £1.5bn of tax revenues to help pay for a National Insurance cut in the Budget.
• The UK Government has committed £1bn in subsidies to this year’s annual auction, which offers renewable power developers a guaranteed price for their electricity.

Natural Gas €26.4/MWh vs €27.0/MWh previous

Uranium Futures $91.8/lb vs $92.5/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$116.0/t vs US$115.2/t

Chinese steel rebar 25mm US$562.7/t vs US$563.9/t

Thermal coal (1st year forward cif ARA) US$113.3/t vs US$110.0/t

Thermal coal swap Australia FOB US$139.3/t vs US$141.9/t

Other:  

Cobalt LME 3m US$28,550/t vs US$28,550/t

NdPr Rare Earth Oxide (China) US$49,454/t vs US$49,310/t

Lithium carbonate 99% (China) US$14,100/t vs US$14,099/t

China Spodumene Li2O 6%min CIF US$1,070/t vs US$1,070/t

Ferro-Manganese European Mn78% min US$985/t vs US$985/t

China Tungsten APT 88.5% FOB US$305/mtu vs US$305/mtu

China Graphite Flake -194 FOB US$540/t vs US$540/t

Europe Vanadium Pentoxide 98% 5.7/lb vs US$5.7/lb

Europe Ferro-Vanadium 80% 27.45/kg vs US$27.45/kg

China Ilmenite Concentrate TiO2 US$323/t vs US$323/t

Spot CO2 Emissions EUA Price US$58.9/t vs US$56.4/t

Brazil Potash CFR Granular Spot US$290.0/t vs US$290.0/t

Battery News

Porsche EV reportedly caused fire on vehicle transport ship

• The Felicity Ace went up in flames at the end of 2022.
• The vessel was transporting 3,965 vehicles from Germany to Rhode Island when it caught fire 200km off the coast.
• The 3965 vehicles were all Volkswagen Group cars including Audi, Porsche, Lamborghini and Bentley models.
• It has been reported that it was a Porsche Taycan with a lithium-ion battery that started the fire.
• Mitsui OSK Lines, the operator of the ship, is now suing VW, claiming the automaker did not inform them of the risks and precautions for transporting EVs.

Could diamonds be the answer to EV charging times?

• Researchers at Fraunhofer US have developed a wafer-thin nano-membrane from synthetic diamonds that can reduce local heat load by up to ten times.
• The nano-membranes have the potential to reduce the heat load of electronic components, thus increasing the energy efficiency, service life and road performance of EVs
• Diamond has a high thermal conductivity – four to five times that of copper. Currently, copper and aluminium are commonly used as heat sinks to reduce overheating.
• When used in charging infrastructure, the diamond membranes have also led to charging times five times higher than current average rates.

Company News

Beowulf Mining* (BEM LN) 0.85p, Mkt Cap £11m – Project Director appointed for Kallak Iron Ore development

• Beowulf provides an update on its Kallak Iron Ore Project.
• The Company has appointed Dmytro Siergieiev as Project Director for the Kallak Iron Ore Project.
• Dmytro speaks fluent Swedish, holds a PHD in Applied Geology and has worked for Sweco, engineering and architecture consultancy, since 2015.
• He led Sweco’s mine environment unit in his most recent role, overseeing a range of mine development, operation and permitting assignments.
• Dmytro will support the progression of the Kallak PFS and environmental work.

*SP Angel acts as Nomad and Broker to Beowulf Mining

First Quantum (FM CN) C$13.5, Mkt cap C$17.2bn – Refinancing following Panama shutdown

• The Panamanian Trade and Industry Minister expects the cost of closure of First Quantum’s mine at $800m.
• The Ministry is exploring ways to extract funds from the state budget.
• Panama is holding elections in May, with the First Quantum team in discussions with all leading candidates in a bid to reopen the mine.
• The Company expects to ship $200-300m worth of copper concentrate over the next few weeks.
• First Quantum is seeking $20bn in a free trade arbitration case from the Panamanian government.
• The Company recently recapitalised its balance sheet, redeeming in full c.$2bn worth of senior notes due in 2025 and 2026.

First Tin (1SN LN) 4.65p, Mkt Cap £12m – Taronga DFS testing shows tin recovery rates matching historic results

• First Tin reports that test work on material from its Taronga tin project in New South Wales has delivered improved gravity recovery rates.
• The testing, which forms part of a Definitive Feasibility Study (DFS), showed recoveries from low grade material “blasted from the old Newmont adit in the North zone, with a head grade of 0.11% Sn” of 71.5% to a 69.8% tin concentrate.
• Testing on a sample from drill core averaging 0.13% tin also showed recovery of 72.5% to a 60.1% concentrate.
• The company says that the recovery rates achieved in these tests “are close to those obtained by previous work conducted by Newmont and Aus Tin”.
• Additional test work, including plans for testing of the “fine tin circuit will … …be examined later”, is continuing.
• CEO, Bill Scotting, said that optimisation work “by our team in Australia and the ALS Laboratory have successfully shown the deposit has a recovery of over 70% through the gravity circuit, confirming the previous Newmont testwork”.
• In a December 2023 presentation on the company’s website, First Tin describes the Taronga deposit, which hosts a ‘Measured & Indicated’ resource of 71.9mt at an average grade of 0.12% tin, as the “fifth largest undeveloped tin reserve globally” and alludes to a “significant upgrading effect from simple coarse crush, jig and spiral processing”.

Strategic Minerals* (SML LN) 0.25p, Mkt Cap £5m – Improving sales outlook at Cobre as February delivers a six-year sales high

• Strategic Minerals reports that monthly sales from it Cobre magnetite operations in New Mexico reached a six-year high of 4,898 tons during February.
• The company confirms that it expects quarterly sales of around 13,000t from Cobre “after March 2024” and that revenue for 2024 is currently expected to be “circa US$3.5m”.
• Strategic Minerals explains that as “a portion of SMG’s clients are fertilizer companies, who seasonally increase demand in February and March, the 6 year high tonnage sales augurs well for the remainder of the year”.
• The company also says that “the tonnage sales for the past three years show how lean 2023 was and how the Company believes that sales are now on track to be maintained at significantly higher levels than over the past three years”.
• In anticipation of maintaining higher sales levels, the company has acquired “a new Caterpillar 320 Trackhoe … to ensure production, at these renewed higher levels, can continue during difficult weather conditions, particularly around the Winter/Spring period”.
• Welcoming the improving sales outlook, Managing Director, John Peters, applauded the efforts of “Cobre’s revamped management line up … [and said that] … Discussions continue with another potentially large client at Cobre but, due to recent increases in activity, such discussions are now focussed on future years supply.”

Conclusion: Improving sales outlook and a potential new large customer at Cobre could see the operation deliver revenues of ~US$3.5m in 2024.

*SP Angel acts as Nomad and Broker to Strategic Minerals

Zinnwald Lithium (ZNWD LN) 6.7p, Mkt Cap £32m – Operational Update

• The Company updates on progress at its integrated Zinnwald Lithium Hydroxide Project in Germany.
• The team continued mineral processing, calcination and hydrometallurgical test work run by Metso and IVR-FIA.
• Pilot scale mineral processing involving comminution and a rougher-scavenger wet magnetic separation was completed in December last year at the GTK pilot facilities in Outokumpu, Finland.
• Results confirmed bench scale results including a standard front end flowsheet, expected Li recoveries of ~80% with a mass pull of 18% and same flowsheet applicable to different ore types.
• Zinnwaldite concentrate was tested for Metso’s proprietary alkaline leaching at its facilities in Pori, Finland.
• Bench scale tests involving calcination and leaching showed that no additives needed in calcination and sub 1,000C temperatures can be used delivering Li recoveries to solution of above 95%.
• Further pilot scale testwork is planned to test initial results.
• FS completion is being postponed to late 2024 from H1/24 expected previously.
• Timing may potentially be revised further and is beyond Company’s control is the availability of pilot testing facilities.
• The team is planning to apply to the EU Commission for a “strategic” project designation under the Critical Raw Materials Act (CRMA) as soon as the application process is launched.
• The designation is expected to provide access to potential project EU funding aimed at increasing self sufficiency of the region in critical minerals and technologies.
• Near term development plans include ongoing metallurgical testwork, continuous advancement of hydrogeological drilling campaigns, and detailed mining planning along with permitting and commercial initiatives.
• The Company had €12.3m in cash (Jun/23: €19.7m) and no bank debt.
• The project hosts 227mt at 0.48% Li2O for ~2.7mt LCE in total resource including 194mt at 0.48% for ~2.3mt LCE in the Measured&Indicated category.

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

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

*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.

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II – Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%