SP Angel Morning View -Today’s Market View, Tuesday 16th May 2023

Copper continues to slide on weaker than expected China industrial production

MiFID II exempt information – see disclaimer below

Anglesey Mining (AYM LN) – Placing to raise £1m

Anglo Asian Mining* (AAZ LN) – BUY, 204p – CLICK FOR PDF– FY22 reflect lower gold production, FY23 guidance reiterated and 8c dividend maintained

Atalaya Mining (ATYM LN) – Production guidance remains intact following solid Q1 performance

Atlantic Lithium* (ALL LN) – Management reshuffle sees Keith Muller appointed as CEO with Len Kolff as head of Business Development

Mkango Resources* (MKA LN) – Consolidation of interest in HyProMag

Oriole Resources* (ORR LN) – CLICK FOR PDF –  Managem to continue Senala earn-in agreement

Copper extends losses as China continues to disappoint and funds rush to short

• Copper continued its grind lower overnight, settling around the $8,150/t mark.
• Chinese imports continue to slide, and inventories remain buoyant.
• Factory output in China slid in April, with manufacturers struggling from both international and domestic weakness.
• Copper imports to China have fallen 16% yoy to 700kt for Q1, with analysts suggesting April is also showing weakness.
• LME loadouts are also raising alarm bells, with 225t awaiting delivery reinforcing concerns over reduced demand.
• The fact that China is exporting 56% more copper in Q1 23 vs same period last year is raising alarm bells regarding the country’s domestic refined demand.
• Reuters reports funds have flipped bearish on copper since March, with short positions jumping 68% in three weeks and long positions sitting at half their February peaks.
• The positioning marks the largest bear positioning since August 2022. Analysts expect algorithm-based funds are currently adding to short positions following the sharp leg down over the past week. 

More M&A deals as bargain stock valuations bring buyers into new project companies

• Silvercorp’s offer to buy Celsius Resources is typical of an opportunistic offer to buy and advanced project which is on the verge of receiving its mining license.
• While copper mines and advanced projects are still popular with buyers there is insufficient funding for early stage copper exploration.
• This indicates to us that a significant shortage of copper mine supply will almost certainly develop in future years.

Gold – $2,006/oz – Prices await direction as Biden set to meet with officials over debt ceiling today

• Gold prices have eased lower, with spot holding around the $2,005/oz mark.
• The downwards pressure follows strength in the US dollar as the Euro weakened.
• Biden is set to meet with Republican House of Representatives speaker McCarthy today to avoid a default of the US government by raising the debt ceiling.
• Several US Fed members have also stated their expectations that the Fed won’t cut rates this year, supporting Treasury yields and weighing on gold.

Trafigura warns of zinc supply deficit as green transition accelerates

• Commodity trader Trafigura has warned of a 1.7mt pa zinc market deficit by 2030.
• Zinc stockpiles at the LME neared their lowest since 1975 in February. 

 Economics

China – Industrial Production rose 5.6% yoy in April though this is far short of earlier expectations for a 10.1% yoy growth rate

• While the market is disappointed by the April IP figure it is still higher than 3.9% yoy in March.
• The figures are hugely skewed due to the emergence of the Chinese economy following severe Covid lockdowns over the past two years.
• Fixed Asset Investment was also lower than expected at 4.7% YTD yoy vs 5.2%.
• Urban jobless came in at 5.3% vs 5.2%.
• Youth unemployment (age 16-24) rose to 20.4% from 19.6% and higher than the previous record of 19.9%.
• Growth of the ‘lay-flat’ generation is causing great concern among policymakers, though some of this may be Covid related.
• Evergrande EV business agrees $3.6bn restructuring with shareholder approval

China commodity output slows as economic recovery fails to lift off

• Chinese electricity output fell in March by 8.2%, followed by a factory sector contraction in April.
• Aluminium output weakened in March and steel output has been sliding despite traditionally peak seasonal demand.
• Gas output for March slid and coal mine production is also falling.
• Steel production for April slid below 93mt, down from March levels.

 US – NY Fed Empire State Business Conditions Index fell to -31.8 in May from 10.8 in April a fall of -42.6pts

• New orders fell to -28 in May from 25.1 in April a huge -53.1pt fall and wiping out a 46.7pt rise seen in April
• Shipments also fell -40.3pts to -16.4 in April
• Uni of Michigan consumer long term inflation (5/10years) expectation rose to a 12-year high of 3.2% with 4.5% expected in 2024.

China’s Demand Recovery Surpasses Expectations, Hit Record In March Of 16 Mln BPD X

• China’s Demand Recovery Surpasses Expectations, Hit Record In March Of 16 Mln BPD
• Demand Is Expected To Eclipse Supply By Almost 2 Mln BPD In Second Half Of Year
• China Will Account For Nearly 60% Of Global Oil Demand Growth In 2023

 UK – Unemployment rises 0.1% to 3.9% in March qoq, payrolled employees falls 136k in April (-0.5%mom), earnings rose 5.8% (inc. bonus), average earnings exc. bonus up 6.7% 3moy

Currencies

US$1.0881/eur vs 1.0871/eur yesterday. Yen 135.81/$ vs 135.84/$. SAr 19.132/$ vs 19.057/$. $1.249/gbp vs $1.248/gbp. 0.668/aud vs 0.668/aud. CNY 6.965/$ vs 6.953/$.

Dollar Index 102.43 vs 102.57 yesterday.

Commodity News

Precious metals:

Gold US$2,007/oz vs US$2,022/oz yesterday

Gold ETFs 94.0moz vs US$94.2moz yesterday

Platinum US$1,063/oz vs US$1,068/oz yesterday

Palladium US$1,529/oz vs US$1,515/oz yesterday

Silver US$23.75/oz vs US$24.27/oz yesterday

Rhodium US$7,400/oz vs US$7,400/oz yesterday

Base metals:   

Copper US$ 8,194/t vs US$8,211/t yesterday

Aluminium US$ 2,261/t vs US$2,248/t yesterday

Nickel US$ 21,435/t vs US$22,105/t yesterday

Zinc US$ 2,512/t vs US$2,561/t yesterday

Lead US$ 2,078/t vs US$2,076/t yesterday

Tin US$ 24,890/t vs US$24,836/t yesterday

Energy:           

Oil US$75.2/bbl vs US$73.8/bbl yesterday

• Crude oil prices remain rangebound as the market looks for new data to support crude demand growth forecasts for this year.
• Both European energy prices and Northeast Asia spot LNG prices are trading below $10/mmbtu as suppliers try to spur greater gas use from industrial and power customers.

Natural Gas US$2.371/mmbtu vs US$2.300/mmbtu yesterday

Uranium UXC US$53.40/lb vs US$53.40/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$105.1/t vs US$103.4/t

Chinese steel rebar 25mm US$540.4/t vs US$537.8/t

Thermal coal (1st year forward cif ARA) US$119.0/t vs US$117.5/t

Thermal coal swap Australia FOB US$164.0/t vs US$160.0/t

Coking coal swap Australia FOB US$235.0/t vs US$245.0/t

Other:  

Cobalt LME 3m US$34,930/t vs US$34,930/t

NdPr Rare Earth Oxide (China) US$65,755/t vs US$65,967/t

Lithium carbonate 99% (China) US$30,078/t vs US$27,294/t

China Spodumene Li2O 6%min CIF US$3,990/t vs US$3,990/t

Ferro-Manganese European Mn78% min US$1,322/t vs US$1,328/t

China Tungsten APT 88.5% FOB US$325/mtu vs US$325/mtu

China Graphite Flake -194 FOB US$775/t vs US$775/t

Europe Vanadium Pentoxide 98% 7.5/lb vs US$7.6/lb

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

China Ilmenite Concentrate TiO2 US$329/t vs US$332/t

Spot CO2 Emissions EUA Price US$93.2/t vs US$95.8/t

Brazil Potash CFR Granular Spot US$380.0/t vs US$385.0/t

Battery News

China’s extension of Internal Combustion Engine sales period could hurt EV market

• China has extended the sales period for many ICE vehicles by six months.
• The move may have a significant impact on EV sales, though the EV market remains strong for now

UK continues to fall behind in EV battery race

• Under Brexit agreements, batteries for EVs must source at least 60% of their value from within the UK and Europe.
• This is to qualify for tariff-free trade from 2024 – a 10% tariff will apply if there is too much content from outside Europe.
• The UK is seeking to extend the 2024 deadline to avoid a situation where EVs traded between the UK and Europe are subject to tariffs, but petrol vehicles aren’t.
• A parliamentary meeting of the Business and Trade Committee highlighted the lack of effective planning around UK battery production and supply chains.
• The US and, increasingly, the EU are committed to securing the critical minerals needed for batteries, and the refining, processing and chemical plants required to produce them.
• According to the Faraday Institution, Europe has 30 battery gigafactories in the pipeline compared to the UK’s one.
• The Faraday Institution estimates that UK demand could require 10 new gigafactories by 2040 each with a capacity of 20GWh, compared to the UK’s total current capacity of 2GWh.
• The UK has failed to strike deals with established battery manufacturers to build in the UK or successfully develop start-ups (Britishvolt), which has left them lagging behind in the EV battery race.

Company News

Anglesey Mining (AYM LN) 1.65p, Mkt Cap £5.9m – Placing to raise £1m

• Anglesey Mining is proposing to raise up to approximately £1m through the placing of additional shares at a price of 1.5p/share.  The new shares carry warrants to subscribe for additional shares at a price of 2.5p/share within 18 months and warrants are issued on the basis of 1 warrant for every 2 shares issued in the placing.
• The new funds are to be used to progress drilling of the Northern Copper Zone at Parys Mountain on Anglesey and to advance the permitting and environmental at social impact work at the historic mine site as well as to start “baseline studies for the Grängesberg Iron Ore Mine in Sweden”.
• The company explains that the “Issue Price represents a discount of approximately 28.57 per cent. to the Closing Price of 2.10 pence per Ordinary Share on 15 May 2023 … [and confirms that] …  John Kearney as director of the Company has also indicated his intention to subscribe for new Ordinary Shares as part of a separate subscription”.
• Further support from existing shareholders is implied by the statement that “in accordance with its rights under the Juno Investment Agreement, Juno has also indicated its intention to convert debt for equity by way of direct subscription for up to 16,500,000 new Ordinary Shares, capped at pro-rata ownership level”.
• The company’s 2022 Annual Report confirms that the Bermuda registered company, “Juno Limited (Juno)… holds 21% of the ordinary share capital”.

Anglo Asian Mining* (AAZ LN) 113p, Mkt Cap £129m – FY22 reflect lower gold production, FY23 guidance reiterated and 8c dividend maintained

BUY – 204p (from 202p)

CLICK FOR PDF

• Revenues amounted to $85m (FY21: $92m) reflecting lower gold sales.
• Gold bullion sales (ex PSA) totalled 34.9koz at an average realised gold price $1,783/oz (FY21: 39.6koz at $1,799/oz).
• Gold bullion net revenue amounted to ~$62m (FY21: ~$71m) accounting for ~74% of the total.
• Copper/gold concentrate sales were 12kt generating net revenues of $22m (FY21: 11kt and $21m) driven by higher production at the flotation circuit.
• Production was 57.6koz GEO (FY21: 64.6koz) coming at the upper end of the guidance range.
• Lower production reflected weaker processed gold grades at the Gedabek leaching circuit.
• Production included:
  • 43.1koz gold (FY21: 48.7koz);
  • 2.5kt copper (FY21: 2.6kt copper);
  • 182koz silver (FY21: 155koz).
• AISC (ex PSA) averaged $1,064/oz (FY21: $843/oz) reflecting lower production and inflation in operating costs.
• EBITDA came in at $26m implying ~31% margin (FY21: $29m and ~32%).
• PBT and PAT were $8m and $4m (FY21: $13m and $7m) due to lower gold sales during the period.
• FCF amounted to -$4m (FY21: $12m) largely reflecting changes in working capital and lower CFO ($13m v $26m FY21) as well as an increased capital spend ($17m v $14m).
• The Company spent ~$5m on exploration at Xarxar and Garadag, new licenses secured in July 2022, during the period.
• Development works at Gilar and Zafar continue with capital expenditure dedicated to two new underground operations expected to be $17-20m over 18 months to Jun/24.
• After accounting for ~$9m paid in dividends and ~$3m invested in Libero Copper closing cash balance stood at $20m (FY21: $37m) with no debt on the balance sheet apart from $3m in lease liabilities (FY21 $3m).
• The Company has access to AZN55m ($32m) revolving credit facility with International Bank of Azerbaijan as a source of additional liquidity yet undrawn.
• The BOD recommended FY22 final dividend of 4USc taking total for the year to 8c, equivalent to ~6% dividend yield (FY21: 8c).
• FY23 guidance reiterated at 30-32koz gold and 4.1-4.3kt copper, equivalent to 50-54koz GEO or 10.3-11.2kt CuEq using $1,800/oz and $8,500/t gold and copper prices.

Conclusion: FY22 reflect lower gold production and sales driving earnings lower and unit costs higher due to a fixed cost component in operating expenses. Reported costs came in only slightly ahead of our estimates (SPAe EBITDA $28m and AISC (by-product basis) ~$1,010/oz) with FY22 results largely neutral to our outlook. A slight upwards adjustment to the target price reflects higher than we anticipated balance of unrecovered costs at the Gedabek CA recorded for PSA purposes that essentially carries the minimum 12.75% government share of production for longer.

Investment case remains unchanged as the Company offers an attractive exposure to strong growth profile (>175koz GEO / 35ktpa CuEq by 2028 from three Contract Areas), increasing share of copper production and strong management team. Current market value completely discounts the growth upside and reflects only Gedabek value, that on our estimates accounts for only ~50% of our risked NAV.

*SP Angel acts as nomad and broker to Anglo Asian Mining

Atalaya Mining (ATYM LN) 334p, Mkt Cap £480m – Production guidance remains intact following solid Q1 performance

• In its Q1 financial results, issued yesterday, Atalaya Mining reported a “Positive financial performance” with EBITDA of €24.4m (Q1 2022 – €26.7m) and profit of €11.1m (Q1 2022 – €18.3m).
• Net cash at 31^st March 2023 amounted to €55.3m and net cash generated prior to financing during the period amounted to €3.6m (Q1 2022 – €20.7m).
• The financial performance reflects the production of 12,139kt of copper in concentrate (678t more than in Q1 2022) at an all-in-sustaining cost of US$3.12/lb “despite the decision to bring forward plant maintenance activities into Q1 2023”.
• Received average copper prices of US$4.00/lb were lower than the US$4.50/lb but increased sales volumes of 12,501t of contained copper in concentrates (Q! 2022 -10,304t)  improved revenues to €91.2m (Q1 2022 – €86.3m).
• Atalaya Mining says that it “remains on track to achieve the full year 2023 guidance it announced in March 2023 as part of its 2022 Annual Results, including copper production guidance of 53,000 to 55,000 tonnes of copper at cash costs of $2.80 to $3.00/lb copper payable and AISC of $3.00 to $3.20/lb copper payable”.
• Commenting on the performance, CEO, Alberto Lavandeira, said that the company’s “operational performance was consistent with expectations and significantly reduced electricity prices have helped to deliver lower AISC and solid EBITDA for the period.”
• He observed that “We remain conscious of the ongoing input cost inflation that is affecting the mining sector, but we believe these pressures will provide support to the copper price over the medium and longer term”
• In a separate announcement issued today following publication of the company’s 2022 Sustainability Report, Mr Lavandeira confirmed Atalaya Mining’s commitment to operating in “in a safe and responsible manner, with a focus on positively impacting our nearby communities … [and on collaborating] … with local municipalities via the Fundación Atalaya Riotinto, which supports and sponsors initiatives related to education, health, the environment and culture”.
• He specifically referenced “investments in projects that reduce our external water consumption and initiated construction of our 50 MW solar plant for self-consumption, which will lower our GHG emissions. We are also studying further renewable energy options, such as the installation of wind turbines at Riotinto”.

Conclusion: Atalaya Mining confirms its 2023 production guidance following a solid Q1 operational and financial performance with lower power costs expected to be supported by the development of Atalaya Mining’s own renewable energy projects.

Atlantic Lithium* (ALL LN) 33.1p, Mkt Cap £201m – Management reshuffle sees Keith Muller appointed as CEO with Len Kolff as head of Business Development

• Atlantic Lithium report the appointment of Keith Muller as CEO and Len Kolff as head of Business Development and Chief Geologist.
• Muller joined Atlantic Lithium in November as Chief Operating Officer alongside Roux Terblanche who came in as Project Manager for the Ewoyaa lithium Project.
• Len Kolff, has acted as ceo since the passing of Vince Mascolo in March 2021 and will focus Business Development and on resource discovery and definition as Chief Geologist.
• Muller has a background in hard rock lithium mining and processing with direct experience of operating a lithium mine at Mt Cattlin which has some many similarities to Ewoyaa and specifically in using Dense Media Separation for spodumene processing. Muller is also a non-executive director of Bulletin Resources who is a junior explorer in Australia with a focus on lithium.
• Muller will lead the company through construction and into production and is in the process of establishing the Ghanaian team that will build and operate the mine.
• Len Kolff, who was key in the initial discovery and evaluation of Ewoyaa we will continue to use his experience and expertise to expand the existing resource and discover new opportunities in Ghana and beyond.
• Atlantic is backed by Piedmont which has pledged US$103m towards the development of the Ewoyaa lithium project and holds 50% of the offtake at market prices.
• Ewoyaa PFS shows exceptional economics at 255,000tpa of 6% Li2O spodumene concentrate from a 2mtpa throughput over a 12.5-year operation:
  • LOM revenues >$4.84bn,
  • NPV8 of US$1.33bn Post-tax,
  • IRR of 224%
  • LoM 12.5 years
  • Capex $125m
  • Payback <5 months
  • C1 cash operating costs $278/t of 6% spodumene concentrate per tonne of 6% lithium spodumene concentrate FOB, after by-product credits
  • EBITDA $248m pa average
  • Based on the former 18.9mt at 1.24% Li2O ore reserve
  • Assumption: spodumene price of $1,359/dmt SC6% with US$1,200/dmt long term pricing
• JORC Resource Ewoyaa:
  • 3.5Mt at 1.37% Li2O – Measured
  • 24.5Mt at 1.25% Li2O – Indicated
  • 7.4Mt at 1.16% Li2O – Inferred category.
  •  35.3mt at 1.25% Li2O – Total Mineral Resource Estimate

• Spodumene prices for SC6% min are currently at US$3,990/t CIF indicating a very substantial operating margin

Conclusion:  Atlantic are developing their team towards the publication of their new DFS this quarter and the receipt of a mining license for Ewoyaa.

*SP Angel acts as Nomad to Atlantic Lithium

Mkango Resources* (MKA LN) 11p, Mkt Cap £25m – Consolidation of interest in HyProMag

• The Company reports that Maginito will increase its ownership in HyProMag from 42% to 100%.
• As a consideration, HyProMag will receive £1m in cash, £1m (9.7m at 10.3p) in Mkango shares and a further £3m payable in four contingent milestone tranches (cash or shares).
• Cash component of the consideration will be funded from the recent £1.5m investment by CoTec.
• Mid-March CoTec invested £1.5m in Maginito for a 10% equity stake valuing Mkango subsidiary at £15m.
• Following the consolidation of the interest, Maginito will hold a 100% interest in HyProMag and 90% interest in HyProMag GmbH, assuming a conversion of previously announced convertible loan.
• HyProMag founding Directors and management agreed to provide support and work closely with Mkango and Maginito to scale up and roll out Hydrogen Processing of Magnet Scrap (HPMS) technology.
• The transaction is conditional on authorities’ approvals and is expected to be closed in Q3/23.
• Contingent part of the consideration is subject to HyProMag delivering on certain production milestones in the period through to Jun/26.
• ~10m consideration shares will be subject to a one year lock up.

Conclusion: Maginito (90% owned by Mkango) is consolidating its interest in HyProMag that uses a patented HPMS process to recycle rare earth containing magnets. HyProMag was founded in 2018 out of University of Birmingham by a group of experts in the field of rare earth magnetic materials, alloys and hydrogen technology. HyProMag is currently developing a £4.3m short loop recycling facility with an initial capacity of 100tpa NdFeB at Tyseley Energy Park in Birmingham with first production planned for 2023. Additionally, HyProMag is developing a similar sized facility in Germany through its 90% owned (assuming HyProMag GmbH convertible loan conversion) subsidiary HyProMag GmbH with first production planned in 2024. The deal secures access to the patented HPMS technology and technical expertise of the team with the consideration structured to match derisking of the HPMS process and delivery of production targets valuing HyProMag in the range between £6m (assuming 50% of contingent consideration coming through) and ~£9m.

*SP Angel acts as nomad and broker to Mkango Resources

Oriole Resources* (ORR LN) 0.2p, Mkt cap £5.7m – CLICK FOR PDF –  Managem to continue Senala earn-in agreement

• Oriole Resources announces that Managem Group, which acquired IAMGOLD’s west African assets, has taken control of the AGEM, which operates the earn-in agreement for the Senala Project.
• Oriole currently holds a 41.65% interest in the project.
• Managem holds the option to acquire up to a 70% maximum interest in Senala by 28^th Feb 2024, on a conditional $8m spend (an additional $4m).
• The exploration team is currently updating the litho-structural model to integrate several data collections.
• The Team is also set to complete a 2,000m diamond drilling programme over nine holes across Faré. This is expected to commence later this year.
• A drill rig has been secured and the programme will target primary mineralisation below the oxidation base.
• Oriole’s CEO, Tim Livesey, highlights the recent purchase of Chesser Resources by Fortuna Silver at a 95% premium for $60m.
• Chesser held 762koz Au in resources at its Diamba Sud project, with the takeover highlighting renewed appetite for projects in the Kédougou-Kéniéba gold district.

Conclusion: Managem’s decision to resume exploration efforts at Senala is an encouraging development following their acquisition of IAMGOLD’s assets in Senegal, Mali, and Guinea for $282m. The Oriole team remain confident in potential to expand the maiden resource at Faré South, with additional targets also presenting encouraging opportunities to the new management team.

*SP Angel acts as Broker to Oriole 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 – [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 employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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