SP Angel Morning View -Today’s Market View, Thursday 9th November 2023

China’s Deflation calls for more stimulus

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Cost of Sirius Minerals, Woodsmith polyhalite mine triples to US$9bn

European Metal Holdings (EMH LN) – Pilot plant tests validate LCP process flowsheet

Galantas Gold* (GAL LN) – Up to US$3.0m raise in convertible loan notes

Largo Inc (LGO CN) – $12m quarterly loss reported on weak production

MetalNRG (MNRG LN) – Soil sampling results from Gold Ridge, Arizona

Sylvania Platinum (SLP LN) – Leadership transition

Wishbone Gold* (WSBN LN) – Cottesloe diamond-drilling underway

Bear market – Is the bear market in junior equities on the turn?

• Junior, small cap, markets are in the midst of a crushing bear market caused by the withdrawal of funds from equities.
• In 2008 the market corrected following the collapse of Lehman Bros with many small private investors buying equities at bargain prices as institutions dumped stock into the market.
• Today, the financial environment is different but, perhaps, with certain similarities.
• Confidence is low and cash seems scarce caused by rising US and UK interest rates which have drawn funds out of equities.
• Many have been forecasting recession in the US, UK and Europe. Reality now looks somewhat better though parts of Europe now appear to be heading into recession.
• China is doing rather better with the expectation of CNY1tn of government support already lifting confidence and economic growth despite a fall off in new investment.
• Naysayers will point to the dangers of rising government debt and the potential collapse of Evergrande, Country Garden and property portfolios worldwide.
• Deflation in China gives a green light to policymakers for extra stimulus while ongoing inflation in the West looks may hold rates higher for longer.
• While Chinese stimulus should be good for metals, the US Inflation Reduction Act and other programs is also lifting demand offsetting much of the downside of higher rates.
• In the meantime the other BRICs nations continue to post strong performance due to lower debt levels.
• Fed, Chairman, Jerome Powell is speaking later today and may give further clues as to the direction of US economic activity

Uranium – NuScale Power, the first company with US approval for a small nuclear reactor design, is binning plans to build a power plant for a Utah power provides on rising costs, Bloomberg reports.

• Shares in the Company dropped more than 27% aft4er the close of regular trading on Wednesday.
• The Company said two years ago that it will be able to deliver power for $58/MWh, but that has been revised to $89/MWh.
• The Project was planned to go online in 2029 and was granted a $1.4bn cost sharing award with $232m of funding already disbursed.

Bitcoin – Bitcoin prices rise on potential for SEC to approve up to 12 Bitcoin ETFs

• The movement of funds into Bitcoin ETFs, potentially next year has the potential to draw funds away from gold which has been traditionally used as a store for value in volatile market conditions.

Titanium – Interlink to build titanium plant in Bahrain

• Interlink Metals and Chemicals is working to build a 4,000tpa titanium production plant in Bahrain for commissioning in mid-2025 (Argus media).
• Interlink are also building a ferro-titanium (FeTi) plant for scrap processing also for mid-2025.
• Bahrain has a free trade agreement with the US with tungsten not be subject to 15% duty.

Economics

China – Consumer inflation slipped into a deflationary territory for the second time in the last four months adding to expectations that the economy needs more stimulus, Bloomberg writes.

• CPI (%yoy): -0.2% v 0.0 September and -0.1 est.
• PPI (%yoy): -2.6 v -2.5 September and -2.7 est.

UK – Growth in rents is slowing down as tenants struggle to afford rising costs and refusing to pay record rents, the Royal Institution of Chartered Surveyors reports.

• Demand across the UK recorded the slowest qoq gain in October since 2021.
• Shortage of properties has allowed landlords to lift rents at a double digit pace previously.
• Tenants probably will have to shoulder a 4% increase in rent in the next year across the UK.

Kazakhstan – Lord Burnett of Maldon, the new chief justice of the AIFC ‘Astana International Financial Centre’ Court says the court had “attracted interest worldwide for its independent justice and strict adherence to the rule of law”,

• The AIFC Court was opened in January 2018 giving some 87 judgments in business disputes “providing a secure foundation to facilitate business and investment” according to Lord Burnett. (The Times)
• The court in Astana is described as having “world-class physical premises, complete with cutting-edge digital technology”.

Currencies

US$1.0703/eur vs 1.0677/eur previous. Yen 150.99/$ vs 150.64/$. SAr 18.554/$ vs 18.374/$. $1.228/gbp vs $1.227/gbp. 0.641/aud vs 0.644/aud. CNY 7.285/$ vs 7.279/$.

Dollar Index 105.62 vs 105.70 previous.

Commodity News

Precious metals:

Gold US$1,949/oz vs US$1,968/oz previous

Gold ETFs 87.3moz vs 87.3moz previous

Platinum US$870/oz vs US$890/oz previous

Palladium US$1,048/oz vs US$1,025/oz previous

Silver US$22.46/oz vs US$23/oz previous

Rhodium US$4,550/oz vs US$4,500/oz previous

Base metals:

Copper US$ 8,096/t vs US$8,222/t previous

Aluminium US$ 2,246/t vs US$2,272/t previous

Nickel US$ 17,855/t vs US$18,160/t previous

Zinc US$ 2,597/t vs US$2,594/t previous

Lead US$ 2,186/t vs US$2,182/t previous

Tin US$ 24,720/t vs US$24,690/t previous

Energy:

Oil US$80.1/bbl vs US$81.7/bbl previous

• European energy prices edged higher on colder weather as EU natural gas storage levels rose 0.3% w/w to 99.6% full (vs 90% 5-Yr average), with Germany now 100% full and aggregate storage of 1,136TWh.

Natural Gas €47.000/MWh vs €46.300/MWh previous

Uranium UXC US$74.00/lb vs US$73.00/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$124.3/t vs US$122.1/t

Chinese steel rebar 25mm US$542.0/t vs US$541.2/t

Thermal coal (1st year forward cif ARA) US$109.5/t vs US$109.5/t

Thermal coal swap Australia FOB US$126.5/t vs US$123.3/t

Coking coal swap Australia FOB US$318.0/t vs US$318.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$70,282/t vs US$70,478/t

Lithium carbonate 99% (China) US$20,247/t vs US$20,264/t

China Spodumene Li2O 6%min CIF US$1,860/t vs US$1,910/t

Ferro-Manganese European Mn78% min US$1,031/t vs US$1,030/t

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

China Graphite Flake -194 FOB US$625/t vs US$625/t

Europe Vanadium Pentoxide 98% 6.2/lb vs US$6.2/lb

Europe Ferro-Vanadium 80% 26.25/kg vs US$26.25/kg

China Ilmenite Concentrate TiO2 US$312/t vs US$313/t

Spot CO2 Emissions EUA Price US$79.1/t vs US$78.9/t

Brazil Potash CFR Granular Spot US$335.0/t vs US$335.0/t

EV & Battery market news

India proposes slashing EV import taxes for UK free trade deal

• New Delhi is considering a concessional tariff of 30% on 2,500 EVs imported each year from the UK for vehicles priced over $80,000.
• India is proposing reducing import taxes on some electric vehicles from the UK to cement a free-trade deal between the two countries by the end of the year.
• India currently levies between 70% and 100% on cars imported to the country.
• The adoption of EVs in India has been held back by the high costs if them.
• EV sales in India stood at 49,800 last year, just 1.3% of the 3.8m passenger vehicles sold

Second-hand EV prices fall in South Korea

• According to a Korean used-car trading platform K Car Co., prices of used EVs fell as much as 8.4% in the first seven days of this month.
• Used EVs’ average sale price fell 2% vs. gasoline vehicles’ 1.2% decline vs. 0.8% fall each for diesel vehicles and hybrid cars.
• According to industry experts, consumers are turning away from second-hand EVs partly due to weak charging infrastructure.
• The number of new EVs registered last month stood at 15,445 units, down 20.3% mom.
• Registrations for gasoline cars and hybrid vehicles increased 3.4% and 65.2%, respectively, over the same period.

US Government’s EV plan to hit roadblock as auto industry faces $10tn shortfall

• The automobile industry in the US needs $10tn worth of critical metals through 2050, to keep up with ambitious EV goals, according to Wall Street analysts.
• The US government is investing as much as $325bn into the Green Energy Plan.
• Under the Inflation Reduction Act (IRA), Biden has offered tax credits of $7500 per customer buying the EV car and a $3,750 credit on batteries and accessories.
• The shortfall in rare earth minerals is a potential roadblock the manufacturers and government plans, and it’s why automakers are racing to secure a long-term supply of these metals.
  • Ford has signed 11-year contracts in multiple continents to secure lithium supplies.
  • GM has invested $650m into the largest lithium project in the US.
  • Tesla could spend $1bn building a lithium refinery that could supply one million vehicles.

Global EV battery sales increased by 54% in H1 2023

• The global sales of EV batteries increased by 54% in the first half of this year, exceeding 300GWh, according to Counterpoint Research.
• Chinese battery suppliers maintained their dominant position in the EV battery market, accounting for nearly two-thirds of the total market share.
• The three major South Korean manufacturers account for approximately 25% of the market share.
• New battery suppliers, such as ACC, Verkor, Northvolt, and E4V, are expected to secure a substantial presence within the battery supply chain.
• Automakers like Tesla, Volkswagen, BMW, Mercedes-Benz, and Stellantis are developing in-house cell and pack manufacturing capabilities, which will intensify competition in the battery supply chain.

Recent increase of fires on vessels transporting EVs prompts increased safety regulation calls

• The process of transporting an EV to market via cargo shipments is facing renewed scrutiny.
• A recent string of fires on vessels carrying EVs has prompted regulators to draw up new rules due to the safety risks posed.
  • A fire onboard a ship in the Atlantic Ocean that resulted in the loss of $155m of Volkswagen vehicles.
  • More recently, a fire on the boat carrying nearly 500 EVs off the Dutch coast claimed the life of one crew member, with 22 others injured.
• The United Nation’s International Maritime Organization said member states will be exploring the creation of additional precautions for shipping companies that transport vehicles powered by lithium-ion batteries.
• Shipowners have also indicated they are looking to redesign car carriers, upgrade fire prevention measures and mitigate the threat to lives and global trade posed by the batteries.

Company News

Anglo American (AAL LN) 2,067, Mkt cap £28bn – Cost of Sirius Minerals, Woodsmith polyhalite mine triples to US$9bn

• Anglo American report a significant rise in expected cost of construction of the Woodsmith polyhalite mine in Yorkshire according to an article in the Times today.
• Estimates have risen to US$9bn from $2.9bn as estimated by Sirius in 2017.
• While we have seen some capital cost inflation across the mining sector this does not account for the full scale of the increase in capital costs.
• The recent HS2 cost enquiry recently highlighted the issue of consultants low-balling cost estimated to persuade their paymasters to sign off on the project.
• While there could have been some low-balling on some of the capital numbers we blame the inexperience and ineptitude of the former Sirius Minerals directors.
• Anglo American are hugely experienced and know that a cheap and shoddy project is a false economy.
• For example, reports indicate the shaft being sunk by Sirius was not even straight requiring remedial action under the new Anglo team.
• The development of the Woodsmith mine shows the UK is open for business and UK government agencies are largely supportive of new industrial and mining developments.
• While Sirius Minerals management appeared misguided in many ways the project’s $400m rescue by Anglo American and $9bn of capex should now result in one of the world’s largest fertilizer producers.
• Anglo estimate revenue of $2.5bnpa with a pre-tax profit margin of 50% on the sale of SOP Sulphate of Potash.

European Metal Holdings (EMH LN) 31p, Mkt Cap £64m – Pilot plant tests validate LCP process flowsheet

• European Metals Holdings reports that pilot plant scale testing of the LCP (Lithium Chemical Plant) for its Cinovec project in Czechia has demonstrated the production of “Exceptionally clean battery grade lithium carbonate (>99.9%) produced with single-stage purification (bicarbonation) of crude lithium carbonate”.
• The company says that the pilot plant testing, which was conducted at the ALS Laboratory in Perth, demonstrates the capacity to produce material which exceeds “battery grade (99.5%) in the carbonate precipitation step without any additional processing … [confirming the] … industrial viability of the LCP process flowsheet”.
• The announcement confirms that the testing “processed ore fully-representative in all respects of the run-of-mine for the first seven years of mining planned at Cinovec, including average grade and expected rock-type mix from the bulk mining”..
• Executive Chairman, Keith Coughlan, welcomed the test results and said that the “Lithium Carbonate produced by the simplified flowsheet has the ability to be a major contributor to the EU’s lithium security”.
• He also commented that the project “is well positioned to be a major supplier of battery grade lithium products to the strategically important European car industry“.
• The test results will be integrated into Definitive Feasibility Study currently underway “which remains on-track for completion in the current quarter”.
• European Metals Holdings describes the >400mt Cinovec ‘Measured & Indicated’ resources as Europe’s “largest hard rock lithium deposit … and the fifth largest non-brine deposit in the world”..

Galantas Gold* (GAL LN) 13p, Mkt Cap £15m – Up to US$3.0m raise in convertible loan notes

• The Company is raising up to US$3.0m in non-brokered private placement through unsecured convertible notes.
• Each note is convertible for three years after closing date at C$0.35, representing a 25% premium to yesterday’s price.
• The Company can force a conversion if the price goes above C$0.70 for 10 consecutive trading days.
• Notes will carry a 10% interest rate to be paid in cash on an annual basis with the rate adjustable based on a gold price.
• Interest rate shall increase by 1% pa for each $100/zo in which the average gold price exceeds $2,000/oz mark over an annual reference period.
• Closing date is expected on or about November 30.
• Proceeds will be used for exploration and development, working capital and for general corporate purposes.

Conclusion: The US$3.0m raise will be directed towards its development stage Omagh Gold Project in Northern Ireland and exploration stage Gairloch Project in Scotland with convertible nature of issued to potentially limit dilution to shareholders.

*SP Angel acts as Broker to Galantas Gold

Largo Inc (LGO CN) C$3.0, Mkt Cap C$192m – $12m quarterly loss reported on weak production

• The Company released Q3/23 earnings reporting a $11.9m loss (Q3/22: -$2.6m) on the back of lower sold volumes.
• YTD loss increased to $19.1m (9M/22: $13.4m profit).
• The Maracas Menchen Mine produced 2.2kt V2O5 equivalent during the period and sold 2.4kt V2O5 (Q3/22: 2.9kt and 2.8kt).
• July and August production were negatively impacted as a result of the chemical plant operating at limited capacity due to the accident in the evaporation section of the plant in July 2023.
• In addition, September production was negatively impacted by low availability of the crushing circuit, as well as by a lower grade of ore mined and plant recoveries.
• YTD production amounted to 6.9kt V2O5 equivalent (9M/22: 8.4kt).
• FY23 annual guidance reiterated for 9.0-11.0kt production at $4.85-5.65/lb in cash costs ex royalties.
• Realised prices averaged $8.34/lb V2O5 (Q3/22: $8.80/lb).
• Commenting on market demand, the Company highlighted soft conditions during the quarter, primarily due to adverse conditions in the Chinese and European steel sectors.
• However, strong demand from the aerospace sector continued.
• Cash costs excluding royalties came in at $5.44/lb (Q3/22: $4.86/lb) reflecting lower production.
• Ilmenite by-product production circuit construction was completed with 350t produce in August and 700t in September.
• Ramp up is expected to be completed Q4/23.

MetalNRG (MNRG LN) 0.05 pence, Mkt Cap £0.7m – Soil sampling results from Gold Ridge, Arizona

• MetalNRG reports that results from soil sampling at its Gold Ridge prospect in Arizona are supportive of the possibility that the area hosts an “un-discovered gold/base metal system”.
• The results show “gold, silver, arsenic, lead and zinc mineralisation related to the Apache Pass Shear Zone … [as well as a new] … gold, copper, lead and zinc anomalous trend parallel to the APSZ in the adjacent southern Precambrian block”.
• The company says that the largest geochemical gold anomaly revealed by the survey is within “the historic areas of exploration within the APSZ … [and that it] … may be displaced northward at the eastern end of mining”.
• Silver anomalies also “highlight the APSZ and the western flank of the Mascot Stock” and apparently show a similar northward displacement to the gold anomalies.
• Anomalous copper “highlights a radial zone about the Mascot Stock …[with a] … large, secondary copper anomaly is located west of the Dives Mine in an area with no historic prospecting”.
• Executive Director, Rolf Gerritsen, confirmed that “there is follow up work to be carried out … [but that] … there is a real gold and indeed wider opportunity at Gold Ridge”.

Sylvania Platinum (SLP LN) 67.5 pence, Mkt Cap £178m – Leadership transition

• Sylvania Platinum has announced that its long-serving Chairman, Stuart Murray, is to relinquish the role at the end of this year to concentrate on his other business interests.
• Mr. Murray, who has chaired the company for “a decade” is to be replaced as Chair by non-executive director and Chair of the Audit Committee, Eileen Carr.
• Ms Carr, who received the unanimous support of Sylvania’s Board of Directors, has “over 35 years of professional expertise within the global resources sector” and currently serves as non-executive chair of Oriole Resources*.
• Welcoming her appointment Ms Carr said that she looked forward to “to building on the remarkable legacy that Stuart leaves behind …  [which sees Sylvania Platinum] … in an exceptionally sound financial and operational position”.
• Expressing his appreciation for Stuart Murray’s contribution, CEO Jaco Prinsloo, said that he had “guided the Company through some difficult times”.
• Mr. Prinsloo congratulated Eileen Carr on her appointment and expressed confidence that her stewardship Sylvania Platinum “will not only continue to innovate but also experience sustained growth and success”.

Wishbone Gold* (WSBN LN) – 2.1p, Mkt Cap £5.4m –Cottesloe diamond-drilling underway

See link for recent note: CLICK FOR PDF

• Wishbone Gold reports that diamond drilling is underway at its Cottesloe project in the Paterson Region of WA, where it is exploring for sedimentary exhalative mineralisation similar to the nearby Nifty deposit.
• The target lies within a “basinal syncline of the Broadhurst Formation … [consisting of] … a package of carbonaceous shales and siltstones with known pyritic horizons” where previous rotary air blast and reverse circulation drilling “has confirmed extensive anomalies in the oxidized zone”.
• Chairman, Richard Poulden, highlighted the potential of the project “given its geological setting … [and said that] … we are eager to see the assay results”.
• The company recently announced results from its pre-collar reverse circulation drilling programme Cottesloe where hole 23CTRC005 intersected a 78m wide mineralised interval from a depth of 12m with an average grade of 0.14% zinc and 243ppm cobalt including a 6m wide intersection, from 50m depth, at a grade of 0.35% zinc and 1300 g/t cobalt.

Conclusion: We look forward to results from the deeper diamond drilling phase of the drilling at Cottesloe where initial reverse-circulation drilling demonstrated the expected geological environment.

*SP Angel acts as a Broker for Wishbone Gold

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The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020

Analysts

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Sales

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Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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