SP Angel Morning View -Today’s Market View, Tuesday 11th July 2023

China offers more support for property developers

MiFID II exempt information – see disclaimer below

CAA Mining (private) – Moab Minerals considering 100% acquisition of CAA Mining

Moab Mining are considering the full acquisition of CAA Mining and not just their lithium mining assets as we reported yesterday

Chaarat Gold (CGH LN) – Xiwang equity investment update

Empire Metals* (EEE LN) – Pitfield petrography and mineralogical work confirms abundant ilmenite with hematite in substantial stratabound sedimentary deposit

Firering Strategic Minerals (FRG LN) – Auger phase II drilling at the Atex Lithium-Tantalum Project commences

Pre-IPO financing for High-Purity Alumina project

Li-ion batteries use a separator membrane made out of High-Purity Alumina

• High-Purity Alumina (HPA) is an inert chemical with high thermal stability. It gives good heat resistance and insulation making it ideal as a coating for separator membranes.

• The project alumina has been shown to be suitable for Li-ion batteries, LED lighting and synthetic sapphire for smartphones and tablets,
• The resource contains a JORC inferred resource sufficient for 10,000 – 20,000tpa of HPA >30 years
• The process uses an innovative process flowsheet combining commercial proven technologies with recent metallurgical tests producing 99.995% alumina.
• CRU estimate demand for HPA powder could reach 187,000t in 2028 from 19,000t in 2018.
• CRU predict substantial demand growth led by Li-ion battery and LED production,
• Price: High-purity alumina sells for ~$30,000/t today up from $24,000/t in 2018,
• The company looking to fund HPA studies, metallurgical work, working capital and listing costs

*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.

Base metals advance as complex follows US dollar slide.

• The US dollar fell to a two-month low on Atlanta Fed President comments that momentum is building in the ‘disinflationary trend’ with potential to see inflation back to 2% without having to do more.
• Metals appear to be largely following the US dollar though the Fed’s Mary Daly still sees inflation as too elevated and sees the need for further measures to counteract inflationary pressures.
• But the Fed’s Mester is still signalling the need for further rate hike to slow the economy.
• The move comes despite rising aluminium production in Yunnan, China as heavy rain refills hydropower dams.
• Codelco copper production fell 14% yoy in May prompting concerns for further tightness in the physical market in the short term
• EV production is reported to account for 1.2mt of copper or 4.7% of a total 25.6mt of global refined copper production in 2023

Toyota Li-ion battery claims and its implications alongside its benefits.

• Toyota claims to have made a technological breakthrough that will halve the size, weight and cost of batteries in its vehicles.
• This is very interesting news with profound implications.
  • First, halving the size and weight of a battery does not halve the size and weight of the ‘battery pack’ as it is unlikely to have the size and weight of the housing and related electronics.
  • Second, lower cost batteries may persuade consumers to opt for longer-range battery packs causing consumers to reverse some of the benefits.
  • Third, the ability to produce EV battery packs at significantly lower cost, size and weight will likely accelerate the transition by many drivers to EVs from combustion.
• Toyota also says it has simplified production of the material used to make the batteries.
• This is great news and is not unexpected. The processing and refinement of materials always benefits from further optimisation.
• Materials: given that most of the weight in a Li-ion battery is non-lithium materials we expect the breakthrough is likely to be more in graphite and nickel

Conclusion: Toyota’s claimed advance will not halve potential demand for lithium. If anything, we would expect it to solidify lithium demand growth while potentially cutting new demand for graphite and nickel.

Economics

US – More FOMC members are speaking out in support of further rate hikes to reach 2% inflation target.

• “We’ve made a lot of progress in monetary policy, the work that we need to do, over the last year… I would say we’re close, but we still have a bit of work to do,” Michael Barr, a voting Board member, said in a Bipartisan Policy Center meeting yesterday.
• “We’re likely to need a couple more rate hikes over the course of this year to really bring inflation back into a path that’s along a sustainable 2% path,” San Francisco Fed President Mary Daly (non-voting) said a the Brooking Institution in Washington.
• Cleveland Fed President Loretta Mester (non-voting) speaking at an event hosted by the University of California said that her view on monetary policy matches Fed’s median forecast for two more rate increases this year.

China – Authorities asked lenders to extend property loans issued to developers and that are due by the end of 2024 by one year in an effort to stabilise the real estate market, Bloomberg writes.

• Loans due by the end of 2024 are estimated account for around 30-40% of developers’ total debts.
• Separately, top state run financial newspaper reported this morning that the government is likely to adopt more property supportive policies along with measures to boost confidence.
• Earlier, people familiar with the matter said in June that considered measures included reducing down payments in some non-core neighbourhoods of major cities, lowering agent commissions on transactions, and further relaxation of restrictions for residential purchases.

Deflationary potential as weak consumption drives down factory prices

• Factory gate prices fell at their fastest rate in over seven years last month fuelling concerns over deflation
• A PBoC advisor is reported as suggesting China shift focus to consumption from investment and loosen urban residency rules to support spending by migrant workers.
• CPI fell yesterday to 0.0% yoy in June while core inflation slowed to 0.4% from 0.6% in May.
  • Non-food prices fell -0.6% vs 0% May.
  • Cost of transport collapsed by -6.5% vs -3.9% in May.
  • Food prices rose 2.3% vs 1.0%due to a recovery in prices of fresh vegetables and eggs.
  • Pork prices dropped 7.2% June as farms replenished herds after African swine fever.
  • Fresh vegetable prices rose by 10.8% due to heatwaves followed by floods
• Vehicle sales rose just 0.1% yoy in June vs 27.9% in May as consumers took a more cautious approach to big ticket spending.
• China’s holding of US Government Debt fell to US$868.9bn in April from $1033.8bn in Jan 2022
• China’s Foreign Exchange reserves rose to US$3.193tn with <US$0.9tn held in US dollars
• Has China been harvesting profits from a strong US dollar or trying to undermine the currency as it promotes international settlement in Yuan / CNY?
• Does this represent the loss of a major buyer in US government bonds or perhaps new potential to sell more treasuries into the East?

Germany

• ZEW Survey Expectations: -14.7 v -8.5 June and -10.6 est.
• ZEW Survey Current Situation: -59.5 v -56.5 June and -62.0 est.

UK – The pound hits the highest in over a year as strong growth in labour earnings in May put pressure on the central bank to maintain restrictive monetary policy.

• While growth in wages continues to run high, more up to data shows that employment pulled back in June which may be a sign of easing labour market.
• Monthly Employment Change: -9k v 20k (revised from 23k) May and 23k est.
• Employment Change (3m/3m): 102k v 250k April and 85k est.
• Unemployment Rate: 4.0% v 3.8% April and 3.8% est.
• Av Weekly Earnings (%yoy): 6.9 v 6.7 (revised form 6.5) April and 6.8 est.
• Weekly Earnings ex Bonus (%yoy): 7.3 v 7.3 (revised from 7.2) April and 7.1 est.
• UK mortgage costs hit highest level for 15 years at with two-year average deals at 6.66%.

South Africa – Hepatitis A infections in Cape Town

• We know of one life-long Cape Town resident who has contracted ‘Hepatitis A’ despite no foreign travel in recent years.
• Assumption is that increasing ‘load shedding’, is compromising the water supply with poorly or untreated water now spreading infection.
• Cholera, diarrhoea, dysentery, hepatitis A, typhoid and polio may become more prevalent as South Africa’s water utilities gradually fail.

Currencies

US$1.1013/eur vs 1.0951/eur yesterday. Yen 140.68/$ vs 142.39/$. SAr 18.687/$ vs 18.837/$. $1.289/gbp vs $1.280/gbp. 0.668/aud vs 0.665/aud. CNY 7.204/$ vs 7.235/$.

Dollar Index 101.76 vs 102.42 yesterday

Commodity News

Precious metals:

Gold US$1,931/oz vs US$1,925/oz yesterday

   Gold ETFs 92.1moz vs US$92.2moz yesterday

Platinum US$934/oz vs US$912/oz yesterday

Palladium US$1,247/oz vs US$1,243/oz yesterday

Silver US$23.21/oz vs US$23.10/oz yesterday

Rhodium US$4,000/oz vs US$4,000/oz yesterday

Base metals:   

Copper US$ 8,437/t vs US$8,317/t yesterday

Aluminium US$ 2,191/t vs US$2,148/t yesterday

Nickel US$ 21,005/t vs US$20,725/t yesterday

Zinc US$ 2,397/t vs US$2,357/t yesterday

Lead US$ 2,071/t vs US$2,054/t yesterday

Tin US$ 28,200/t vs US$28,040/t yesterday          

Energy:           

Oil US$78.2/bbl vs US$77.8/bbl yesterday

• Crude oil prices were stable as the US Energy Department reported purchasing 3.2mb of oil at a price of ~$72/bbl for September delivery, which was notably lower than the $95/bbl average sales price of last year’s SPR drawdown.
• European natural gas prices extended declines this week as fuller-than-usual storage facilities continue to offset cooling demand from hot weather on the Continent.
• US utility Dominion Energy has agreed to sell its 50% stake in the 1.8bcf/d Cove Point LNG project in Maryland to Berkshire Hathaway for $3.3bn, with the proceeds anticipated to be utilised for repaying debt.
• Centrica announced an $8 billion sale and purchase agreement for 1mtpa of LNG from Delfin Midstream for 15 years, which will deliver 14 LNG cargoes per year off the coast of Louisiana commencing in 2027.

Natural Gas US$2.662/mmbtu vs US$2.654/mmbtu yesterday

Uranium UXC US$55.65/lb vs US$55.60/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$105.3/t vs US$107.5/t

Chinese steel rebar 25mm US$520.7/t vs US$520.5/t

Thermal coal (1st year forward cif ARA) US$116.0/t vs US$120.0/t

Thermal coal swap Australia FOB US$137.0/t vs US$140.3/t

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

Other:  

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

NdPr Rare Earth Oxide (China) US$61,079/t vs US$61,852/t

Lithium carbonate 99% (China) US$41,992/t vs US$41,811/t

China Spodumene Li2O 6%min CIF US$4,080/t vs US$4,090/t

Ferro-Manganese European Mn78% min US$1,107/t vs US$1,101/t

China Tungsten APT 88.5% FOB US$315/mtu vs US$315/mtu

China Graphite Flake -194 FOB US$705/t vs US$705/t

Europe Vanadium Pentoxide 98% 7.5/lb vs US$7.5/lb

Europe Ferro-Vanadium 80% 32.25/kg vs US$32.25/kg

China Ilmenite Concentrate TiO2 US$303/t vs US$302/t

Spot CO2 Emissions EUA Price US$92.9/t vs US$92.1/t

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

Company News

CAA Mining (private) 27.5p, Mkt cap £5.2m implied – Moab Minerals considering 100% acquisition of CAA Mining

Moab Mining are considering the full acquisition of CAA Mining and not just their lithium mining assets as we reported yesterday

• Malcolm Day, md, of Moab Mining is reported to be considering a 100% acquisition of CAA Mining.
• Day says “we are looking at increasing out investments in CAA Mining in the next few months”. “We’[d] like to increase [our stake] to 100%.” (The Africa Report)
• Moab recently acquired a 15% stake in CAA Mining for US$1m (£750,000).
• Earn in: CAA Mining is party to an earn-in agreement to acquire up to 85% of Lithium Resources Ghana Ltd., which holds six prospecting licences covering an area of 730km2 in the south of Ghana for $8m.
• CAA Mining are currently auger drilling to test for spodumene and indicator minerals under relatively shallow cover.
• Drilling: The Auger drilling program will be shortly followed with an RC drilling program to test for lithium grade and depth.
• CAA Mining’s licenses are to the north and east of Atlantic Lithium’s Ewoyaa project on which Atlantic recently published a highly encouraging DFS.
• The licenses are close to the town of Mankessim on the main coastal road connecting Accra to Takoradi giving the prospects good access to infrastructure.
• Livista Ghana: CAA Mining also hold shares in Livista Ghana, the lithium refinery company which is in planning for a lithium refinery in Germany and is considering a site for lithium processing in Ghana. CAA Mining hold 10% of Livista Ghana. Livista hold around 8.64% of CAA Mining.
• Cash: CAA Mining currently  have around £1m of cash in the bank following the issuance of £750,000 worth of shares to Moab for 27.5p/s.
• CAA Mining have invested $0.5m to date into exploration and preparatory infrastructure on licenses
• CAA Mining is run by Douglas Chikohora, a geologist who formerly worked with Cluff Gold.
• Ghana: The government of Ghana is highly supportive of its mining industry with a significant proportion of the population involved in gold mining.
• Mineral exports make up around 36% of Ghana’s total official exports in 2021 though we understand much gold has been smuggled to Dubai.
• Refining: Lithium refining is more complex and specialised than for gold with refining processes adjusted to match the specific metallurgical characteristics of each lithium feedstock.
• The faster Ghana moves into lithium mining, the more secure its position will be with new Western refineries going forward.

Conclusion: Ghana is moving quickly towards the mining and provision of lithium for refining. Atlantic Lithium is backed by Piedmont which is forecast to produce 30,000t of Lithium Hydroxide in 2026 and 60,000tpa in 2027.

Moab’s investment is expected to enable CAA Mining to continue with the prospecting campaign and present results from its tests around September.

*The analyst holds shares in CAA Mining. Two SP Angel analysts recently visited CAA’s licenses in Ghana

*CAA Mining is a private company. The share price indicated reflects the company’s last placing for $1m at 17.5p

Chaarat Gold (CGH LN) 8.5p, Mkt Cap £58m – Xiwang equity investment update

• The Company reports that terms and conditions of the potential equity investment of $250m from Xiwang International Company is unlikely to be met in full before the original target date of 30 July.
• Both parties are now in discussions over a new target date for completion of the deal.
• Under the deal announced in early June, Xiwang is considering to invest $250m in new equity in the Company at a price of 20p/sh taking Xiwang holding to a controlling stake of 60% in Chaarat.

Empire Metals* (EEE LN) 2.46p, Mkt Cap £12.4m – Pitfield petrography and mineralogical work confirms abundant ilmenite with hematite in substantial stratabound sedimentary deposit

• New work undertaken by Empire Metals shows the Pitfield titanium mineral discovery to be hosted within a large-scale stratabound sedimentary deposit on the Western edge of the Yandanooka Basin.
• The work appears supportive of potential for a meaningful resource of titanium with hematite along with smaller quantities of rutile, leucoxxne and other titanium oxide minerals.
• The minor presence of magnetite and trace titanomagnetite should be beneficial from a processing and sales perspective. For example, hemo-ilmenite is currently processed by Rio Tinto RTIT Quebec.
  • “Pitfield appears to belong to a new class of soft sedimentary rock type titanium deposits that are stratabound and hosted within a layered succession of clastic sedimentary beds.“
• The deposit appears to have substantial scale with geophysics indicating a 40km by 8km magnetic anomaly and a potential depth of 6km though this is clearly way beyond any form of economic resource limit.
• Titanium minerals are regarded as a “critical” resource and titanium is on the strategic “critical minerals list” in many countries including the United States, the European Union, Japan and Australia.
• It is interesting to note the presence of other palaeoplacer heavy mineral sands deposits in the Eneabba Region of the Perth Basin, with some of these lying alongside the Western margin of the Yandanooka Basin.
• Sheffield Resources has defined a resource on its Yandanooka heavy mineral sands project, which lies just a few kilometres west of the Pitfield tenements, of 71.75Mt grading 2.6% heavy mineral with some 1.84mt  million tonnes of contained heavy mineral. Sheffield Resources has a market capitalisation of A$200m (£104m).
• The previously discovered, Yandanooka mineral deposit was drilled by RGC Ltd and then by Iluka Resources Ltd between 2003 and 2006 and is 5km x  1.7km wide, between 2m and 20m thick, and is interpreted to be a dunal-style HM Sands deposit situated along an Eocene palaeo-shoreline.
• The geological setting indicates the ilmenite and rutile at other heavy mineral sands deposits in the region may have come from erosion of the primary stratabound titanium deposit at Pitfield.
• Previous work by Iluka Resources and Sheffield, identified high-quality ilmenite (>55% TiO2) and rutile (>95% TiO2) indicating the potential for good quality titanium mineralisation at Pitfield.
• See RNS press release for magnetic anomaly maps of the Pitfield prospect.

Conclusion: Geology is like detective work following up on the trails of clues around a crime scene. For Pitfield, recent drilling has identified the rock type and mineralisation, the magnetic anomaly suggests the scale and the known mineralisation of nearby deposits indicate the quality potential of the titanium and rutile contained.

*SP Angel acts as nomad and broker to Empire Metals. An SP Angel analyst holds shares in Empire

Firering Strategic Minerals (FRG LN) 6.4p, Mkt Cap £6m – Auger phase II drilling at the Atex Lithium-Tantalum Project commences

• The Company commenced Phase II auger drilling programme at the flagship Atex Lithium-Tantalum Project in Cote d’Ivoire.
• The team completed 300 holes for a total ~1,340m of drilling (~4.5m deep holes) since late June.
• Drilling is focused on six initial targets identified on received soil samples and detailed geological mapping.
• Drilling so far confirmed some of the previously mapped and interpreted pegmatite traces as well as extensions to some of these pegmatites.
• No assays from drilling have yet been available with a total of 78 samples having been prepared and ready to be sent to the lad in Ghana for pXRF and LIBS testing.
• A total of ~1,810 holes is planned over estimated ~10,900m of drilling.
• Firering develops the project under the $18.6m investment agreement with Ricca Resources, a spin out of Atlantic Lithium, announced in late 2022.
• Under the agreement, Ricca will commit $18.6m to earn up to 50% in the Project in four phases, ultimately, delivering a FS on the Atex Project.

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 employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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