SP Angel Morning View -Today’s Market View, Thursday 8th June 2023

China cuts rates to fuel growth. Fed expected to support at least another hike this summer

MiFID II exempt information – see disclaimer below

Aberdeen Minerals (Private) – Drilling results from Aberdeenshire exceed expectations

Celsius Resources* (CLA LN) – Clarification of Namibian Government’s stance on minerals licences

First Class Metals (FCM LN) – Clarification of Namibian Government’s stance on minerals licences

Sovereign Metals (SVML LN) – Kasiya rutile and graphite project in Malawi steps forwards on excellent results from graphite fraction

IGTV:  https://www.ig.com/uk/market-insight-articles/ev-metals-to-regain-momentum–despite-economic-uncertainty–sp-a-230606

VOX Markets Podcast:   https://audioboom.com/posts/8310999-john-meyer-on-china-s-mixed-manufacturing-figures-plus-atlantic-lithium-goldstone-res-anglo-asi

*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.

Gold – $1,946/oz – Prices bounce off monthly lows as dollar rally cools and yields climb as central banks hike rates

• Gold prices bounced off of monthly lows at $1,938/oz, settling below the $1,950/oz level.
• Prices have been volatile in line with a sharp whipsaw in US Treasuries, with yields jumping from 3.6% to 3.8% this morning.
• Higher yields reduce the attraction of non-interest-bearing gold, with ETFs rebalancing physical gold holdings automatically as yields rise and fall.
• The sudden jump in yields followed the Bank of Canada’s surprise decision to resume its rate hiking programme, triggering bets the US may follow despite next week’s FFR set to remain unchanged.
• The BoC’s move followed a surprise hike by the Australian central bank.
• China continues to add to its gold holdings, with Central Bank buying a major tailwind behind gold prices over the past 18 months.

China’s yuan slides to six month low as economic data disappoints stronger dollar

• The CNY fell to a six-month low of 7.128 against the dollar.
• Stronger US Treasury yields have weighed on the Renmimbi, in addition to disappointing export data released on Tuesday.
• The weakness follows Beijing’s demands to China’s major banks for lower deposit rates to stimulate an economy suffering from a housing market slump.
• A weaker yuan reduces China’s commodity buyers’ purchasing power on the international market. 

Iron ore climbs higher as speculation continues over government stimulus package

• Iron ore continues to defy gravity, climbing to $111/t in Dalian markets and $110/t in Singapore, the highest level since mid-April.
• The steelmaking ingredient had been hit by a series of price cuts from steelmakers as China’s peak construction season disappointed.
• Whilst Beijing has reportedly called on banks to cut deposit rates to stimulate the economy, traders are betting on a wider, more substantial stimulus package to come.
• China iron ore imports climbed 6% mom in May to 96.2mt, shipments from Australia fell 3% in the final week of May, however.

Copper holds gains in line with base metals, Shanghai traders turn bullish

• Copper continues to hover around the $8,333/t level, having bounced off $7,900/t at the turn of the month.
• Base metals are recovering losses across the board, with zinc trading at a two-week high and aluminium and lead also rising.
• Chilean copper output is seemingly stabilising, with shipments suggesting volumes exported are rising, fuelling inventory levels currently at seven-month highs.
• Shanghai brokers have flipped to net-long positions in copper as optimism mounts over a government liquidity injection in China.
• The DRC is ramping up output, with production expected to overtake Peru in 2026/27 as Kamoa Kakula comes online.

Economics

China – Six largest lenders cut deposit rates that is expected to filter into lower borrowing costs and provide support to faltering growth outlook.

• Demand deposit rate was reduced by 5bp to 0.2% while three and five year time deposit rates were cut by 15bp to 2.45% and 2.50%, respectively.

Japan – Q1/23 GDP growth rate was revised higher on the back of better than initially estimated business spending as well as higher contributions from restocking.

• Revised data also showed that the economy avoided technical recession in H2/22 with quarterly GDP growth rates increased to +0.4% from -0.1% previously.
• On a less positive side, consumer spending growth was revised lower (0.5% v 0.6%).
• GDP (%qoq, annualised): 2.7 (revised from 1.6) v 0.4 Q4/22 and 1.9 est.

Australia – The nation reported lower than expected trade surplus for May on the back of weaker iron ore and other metal exports.

• Although, on absolute levels shipments still remained healthy.
• Improving relations between Australia and China saw trade expanding nearly 20% between in the first months of the year.

Canada – The central bank raised rates overnight in an unexpected move for the first time since January this year.

• The rate has gone up by 25bp to 4.75% with markets now expecting another hike from the Bank of Canada next month.
• The bank embarked on the fastest tightening cycle in 2022 raising rates eight times since Mar/22 to a 15 high of 4.5% before pausing in Jan/23.
• The C$ climbed against the US$ following the announcement.

Today – I noticed for the first time, an unusual quietness to the traffic as I walked to the station

• The strangely quiet sound of passing electric cars, electric busses and even electric bicycles was only disrupted by a passing lorry with a traditional diesel engine.
• Normally I cycle to work, fighting my way across four lanes of noisy smog-filled traffic as I cross Park Lane towards the Dorchester.
• But today, I took the tube and as I walked to the station I noticed how quiet and how much cleaner the roads were.
• London without noisy, smoggy cars really is a much better, quieter, cleaner, and nicer place.

Currencies

US$1.0709/eur vs 1.0674/eur yesterday. Yen 139.86/$ vs 139.31/$. SAr 19.052/$ vs 19.202/$. $1.245/gbp vs $1.240/gbp. 0.667/aud vs 0.667/aud. CNY 7.132/$ vs 7.128/$.

Dollar Index 104.02 vs 104.30 yesterday.

Commodity News

Precious metals:

Gold US$1,946/oz vs US$1,955/oz yesterday

Gold ETFs 94.0moz vs US$94.0moz yesterday

Platinum US$1,030/oz vs US$1,036/oz yesterday

Palladium US$1,398/oz vs US$1,411/oz yesterday

Silver US$23.67/oz vs US$23.42/oz yesterday

Rhodium US$6,300/oz vs US$6,400/oz yesterday

Base metals:   

Copper US$ 8,323/t vs US$8,310/t yesterday

Aluminium US$ 2,227/t vs US$2,218/t yesterday

Nickel US$ 21,195/t vs US$20,950/t yesterday

Zinc US$ 2,375/t vs US$2,341/t yesterday

Lead US$ 2,028/t vs US$2,038/t yesterday

Tin US$ 25,595/t vs US$25,535/t yesterday

Energy:           

Oil US$77.2/bbl vs US$75.9/bbl yesterday

• Crude oil prices edged higher as the EIA reported that refinery utilisation surged 2.7% to 95.8%, the highest level since August 2019, resulting in a near 11mb build largely in crude oil product stocks.
• European energy prices edged higher despite EU natural gas storage levels rising 1.9% w/w to 70.5% full (vs 53.5% 5-year average), with strong builds in Germany and Italy contributing to aggregate storage of 795TWh.

Natural Gas US$2.313/mmbtu vs US$2.257/mmbtu yesterday

Uranium UXC US$54.60/lb vs US$54.60/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$108.9/t vs US$107.0/t

Chinese steel rebar 25mm US$524.4/t vs US$524.9/t

Thermal coal (1st year forward cif ARA) US$100.0/t vs US$104.3/t

Thermal coal swap Australia FOB US$142.5/t vs US$139.0/t

Coking coal swap Australia FOB US$226.0/t vs US$225.0/t

 Other:  

Cobalt LME 3m US$29,525/t vs US$29,525/t

NdPr Rare Earth Oxide (China) US$70,223/t vs US$70,278/t

Lithium carbonate 99% (China) US$42,120/t vs US$41,031/t

China Spodumene Li2O 6%min CIF US$4,090/t vs US$4,060/t

Ferro-Manganese European Mn78% min US$1,258/t vs US$1,254/t

China Tungsten APT 88.5% FOB US$320/mtu vs US$323/mtu

China Graphite Flake -194 FOB US$750/t vs US$755/t

Europe Vanadium Pentoxide 98% 7.1/lb vs US$7.1/lb

Europe Ferro-Vanadium 80% 31.75/kg vs US$31.75/kg

China Ilmenite Concentrate TiO2 US$309/t vs US$309/t

Spot CO2 Emissions EUA Price US$85.2/t vs US$85.0/t

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

Battery News

Analysts remain confident in EV market share growth, boosting lithium demand prospects

• BloombergNEF expects EVs to hit 44% of passenger vehicle sales by 2030 and 75% by 2040.
• EV sales expected to rise form 10.5m in 2022 to c.27m in 2026.
• Cumulative value of EV sales by 2030 expected to reach $8.8tn and $57tn by 2050.
• Lithium-battery demand forecast at 5.7TWh annually by 2035.
• Road fuel demand expected to peak in 2027 as EVs take market share.
• Lithium-ion batteries remain the primary technology, although sodium-ion and solid-state expected to see additional investment and adoption.

 Livista partners with Technip Energies for German lithium refinery

• Livista Energy has partnered with Technip Energies, an engineering and technology company specialising in a range of energy markets.
• Livista’s German plant is aiming to produce 40kt pa of LCE, with the aim to double capacity with additional feedstock.
• Technip will design the plant and provide cost estimates for the refinery.
• The groups are targeting initial production in 2026.
• Savannah Resources* holds the Barroso project in Portugal, one of the most advanced spodumene projects in Europe and has recently received a positive DIA as is currently updating its scoping study.
• Livista has an agreement with private company CAA Mining*, currently exploring for lithium-bearing spodumene in Ghana. Livista is looking to establish a conversion facility in Ghana alongside its German operations.

*SP Angel acts as Nomad and Broker to Savannah Resources, *SP Angel acts as Broker to CAA Mining

Tesla pushing Chinese suppliers for battery plant in Mexico

• Tesla has asked several Chinese supply chain companies to build factories in Mexico so it can replicate Giga Shanghai and its supply chain system for the US market.
• Tesla unveiled plans for a new gigafactory in Mexico on March 1^st for the production of next-generation cars.
• Low labour costs, and an established automotive industry make Mexico a key location for EV production. However, the supply chain for EV materials is not as established as Europe or the US and social and geopolitical risks are relatively high.
• On July 18^th 2022, Bloomberg reported that CATL was considering building a manufacturing plant in at least two locations in Mexico, possibly to supply Tesla and Ford.

 US EV maker Lucid to target Chinese market

• US luxury EV maker Lucid Group (LCID.O) is preparing to enter China, the world’s largest auto market.
• Lucid will sell imported cars in China while also considering local production in the country, according to an anonymous insider (Reuters)
• Head of China operations Zhu Jiang confirmed to Reuters that the company was preparing to enter the Chinese market, but declined to comment on any plans for local production.
• Last week Lucid announced plans to raise about $3b through a stock offering, nearly two-thirds of which will come from Saudi Arabia’s Public Investment Fund (PIF).

Company News

Aberdeen Minerals (Private) – Drilling results from Aberdeenshire exceed expectations.

• Aberdeen Minerals has reported results from its initial, 1,715m, seven hole diamond drilling programme on the Arthrath project in Aberdeenshire.
• The recent drilling, which follows up on past exploration by Rio Tinto during the early 1970s, intersected nickel-copper-cobalt sulphide mineralisation in all holes and confirms “the depth continuity of mineralisation 100 metres below the level of historical drilling”.
• Among the results reported today, which include “the longest hole ever drilled at Arthrath, AR007DD (400 metres)” are

• • A 90m intersection at an average grade of 0.28% nickel, 0.18% copper and 0.02% cobalt from a depth of 184m in hole AR007DD; and
  • An 89m wide intersection at an average grade of 0.22% nickel, 0.17% copper and 0.02% cobalt from a depth of 95m in hole AR001DD; and
  • A 44m wide intersection at an average grade of 0.30% nickel, 0.29% copper and 0.03% cobalt from a depth of 98m in hole AR002DD, including 12m averaging 0.45% nickel, 0.44% copper and 0.04% cobalt; and
  • 15m at an average grade of 0.42% nickel, 0.28% copper and 0.05% cobalt from a depth of 39m in hole AR003DD

• The Arthrath project is described as “the largest known nickel deposit in the UK … [and] … is classified by Aberdeenshire Council in its Local Development Plan as an important mineral safeguarded site, where other forms of development should not generally be allowed, to protect mineral deposits from sterilisation. It is located 6 kilometres north of the town of Ellon and is easily accessible year-round by road infrastructure”.
• Aberdeen Minerals has “retained CSA Global (a division of ERM), an independent mining industry consultancy, to prepare a maiden Mineral Resource Estimate and / or Exploration Target in accordance with the JORC Code 2012”.
• Commenting on the results of Aberdeen Minerals’ maiden drilling programme, Chief Executive, Fraser Gardiner, described it as “a resounding success … [and said that the] … levels of mineralisation have exceeded our expectations and we are strongly encouraged by the evidence supporting an exploration model of increasing sulphides and corresponding metal grades at depth. It is now apparent that historical drilling only scratched the surface which makes us very excited about the mineral potential at the project and surrounding district”.

Celsius Resources* (CLA LN) 1.38p, Mkt Cap £30.4m – Clarification of Namibian Government’s stance on minerals licences

(Celsius has agreed to sell a 30% economic ownership of MCB copper mine for US$43m implying a valuation of >$143m on consummation of the deal)

Click Link for SP Angel research report PDF note –

• Celsius Resources has highlighted a statement from Namibia’s Ministry of Mines and Energy clarifying that, contrary to some press reports suggesting otherwise, “the Namibian Government has no intention of seizing any stake from existing mineral or petroleum license holders and remains committed to uphold the sanctity of existing contracts”.
• The company confirms its “understanding that the Namibian government will not be taking a minority stake in CLA’s Opuwo Cobalt Project … [and says that it is looking forward to] … further developing the … Project”.
• The statement from the Ministry, which is attached to Celsius Resources’ announcement, quotes Article 100 of Namibia’s Constitution which says that the “Land, water, and natural resources below and above the surface of the land and in the continental shelf and within the territorial waters and the exclusive economic zone of Namibia shall belong to the State if they are not otherwise lawfully owned”.
• The Government statement says, however, that “the Namibian people have a legitimate expectation of having a share of ownership in the exploration and mining of our countries’ natural resources …[and says that it is] … Cognizant of the fact that many Namibians might not have individual capacity or the requisite resources to realize these rights or expectations in their individual capacities, it would be just that the Government acquire these rights on their behalf. The Government will exercise these rights in a balanced way considering the 2 interests of both investors and the Namibian nation.”
• “The Ministry would like to reiterate this is normal practise in Namibia especially in the petroleum and mining sectors and we should maintain such practise in the interest of all our stakeholders”.

*SP Angel acts as broker to Celsius Resources

 First Class Metals (FCM LN) 1.38p, Mkt Cap £30.4m – Exploration plans in Ontario

• First Class Metals has outlined its exploration plans for its portfolio of projects in Ontario which include lithium, rare-earth minerals and gold targets.
• At the Zigzag lithium project 60km NE of Armstrong, samples from an old trench contained spodumene and the company reports assays of up to 10,000ppm lithium and up to 198ppm tantalum.
• Follow up exploration is planned with the intention of bringing “the Zigzag property to drill ready status this season”.
• At the Mckellar polymetallic project, located 25km from Marathon, there are historical indications of “gold, silver, and base metals as well as a diatreme with reported anomalous REE” (rare-earth elements).
• Following the completion of discussions with “relevant First Nations” the company plans “to apply for an Exploration Permit with “ systematic sampling of the diatreme … prior any drilling to accurately define an initial a programme, if warranted”.
• The company says that a review of historic geological data from the old Sunbeam, Roy and Pettigrew gold mines “has significantly increased not only the understanding of the geology and the potential of the property but also increased the enthusiasm of the company to focus on bring this property to drill ready status” which it hopes will be achieved.
• Earlier stage gold exploration is also required for the North Hemlo and Esa Gold projects

 Sovereign Metals (SVML LN) 22.7p, Mkt Cap £104m – Kasiya rutile and graphite project in Malawi steps forwards on excellent results from graphite fraction

• Sovereign Metals report ‘excellent’ results from test work on the graphite fraction of the Kasiya project for Lithium-ion batteries.
• Test work by an independent German industrial mineral specialist across crystallinity and purity shows the graphite to have:
  • Near perfect crystallinity – the more perfect the flakes/crystals, the better the electrical conductivity and battery performance.
  • Above benchmark >99.95% Cg purity achieved along with very low sulphur content due to the saprolite host rock and very low levels of critical impurities.
  • No critical impurities or deleterious elements commonly found in other natural graphite sources
• Test work is ongoing to work out the optimal process concentrate grade and purification process
• Demand for graphite anodes for Li-ion batteries grew by 46% last year vs a more modest 14% rise in natural flake graphite supply.
• Synthetic graphite made from heating and refining oil, petroleum coke, coal-tar pitch to around 1800°C
• Pricing:
• Prices for synthetic graphite vary from $7,7000-8,800/t on Reuters or even $7,000- 20,000/t for CSPG ‘Coated Spherical Graphite’ according to various sources including Anzaplan and Westwater Resources. Coating is done by chemical vapor deposition to create a smooth surface.
• There are three main coated spherical graphite specifications, which differentiate between grid storage, EVs and hybrid vehicles/consumer electronics with prices varying according to specification.
• Kasiya project:
• Kasiya is a very unusual if not entirely unique deposit where rutile (titanium) has been trapped in a sedimentary basin and where algae, organic matter, has formed within the basin environment, has heated to >650°C and subject to high >13kbar pressure and transformed into layers of high-grade graphite.
• ‘Fully ordered graphite, mostly free of natural defects, such as that from Kasiya has the best electrical conductivity attributes of all natural graphite types and thus shows excellent suitability as feedstock for lithium-ion battery anodes. The other obvious and more easily observed attribute of fully ordered graphite is the shape, where hexagonal flakes indicate perfect or near-perfect crystallinity’
• The combination of the two minerals in a near-surface environment in such high-grades appears exceptional and unique. The deposit also offers a much lower carbon footprint than most other deposits.
• Carbon footprint:  Current estimates indicate production of flake graphite concentrate at Kasiya to generate 0.2t of CO2 eq. rendering giving the project the world’s lowest carbon footprint according to Minviro.
• This is thought to be up to 60% lower than other graphite projects and potentially three times less polluting than proposed Tanzanian natural hard-rock graphite production and potentially six times less polluting than Chinese natural graphite production.
• Kasiya resource:
  • Indicated: 1.2bnt grading of 1% rutile and 1.5% graphite
  • Inferred: 0.6bnt grading 0.9% rutile and 1.1% graphite

Conclusion:  Sovereign has an exceptional and unique rutile and graphite resource. The team are working on production of a bulk sample and towards the qualification of graphite products for EV markets while optimising the flowsheet to raise grades and purity. Further test work on micronisation, spheronisation and coating of the graphite material is ongoing.

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 – [email protected] – 0203 470 0490

Simon Beardsmore – [email protected] – 0203 470 0484

Sergey Raevskiy –[email protected] – 0203 470 0474

 Sales

Richard Parlons –[email protected] – 0203 470 0472

Abigail Wayne – [email protected] – 0203 470 0534

Rob Rees – [email protected] – 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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