SP Angel Morning View -Today’s Market View, Wednesday 10th January 2024

Uranium equities rally as US Energy Department looks for supply

MiFID II exempt information – see disclaimer below

Aterian Plc* (ATN LN) – Update on JV with Rio Tinto in Rwanda as covered pegmatites identified

BeMetals (BMET CN) – Pangeni drilling results

Great Western Mining* (GWMO LN) – Processing mill site construction completed in Mineral County, Nevada

KEFI Gold and Copper* (KEFI LN) – Tulu Kapi funding and development update

Lucara Diamonds (LUC CN) – Agreement on amended US$220m debt package

West African Resources (WAF AU) – Guidance hit for 2023

VOX Markets:  

09/01/2024: What’s your exposure to clean energy? (youtube.com)

*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.

Uranium equities rally as US Energy Department looks for supply

• Australian and US uranium miners have rallied after the US Energy Department announced it has begun looking for contract bids.
• The Department stated intentions to use $500m to support domestic enriched uranium supplies.
• Paladin is up 9.4%, Bannerman up 6%, Boss and Deep Yellow both up 5%.
• Global Atomic has rallied 12%, whilst Nexgen and Uranium Energy are up 7% and 5% respectively.
• UK-listed Yellow Cake has rallied 4%.

Copper struggles as Yuan weakens against the dollar and demand remains muted

• Copper prices have weakened below $8,400/t following a slow start to the new year.
• The weakness follows a period of strength after analysts shifted their expectations of a surplus this year to a deficit.
• The metal has now weakened for a ninth straight session, in line with a weaker Yuan which has struggled against the dollar since the 29^th December highs.
• China stimulus is yet to be announced in any material detail and the pre-Lunar New Year restocking period seems priced in.
• Slowing manufacturing growth globally amid higher interest costs are expected to weigh on copper demand in 2024.
• Cobre Panama and Anglo American’s copper shortfalls have provided a supply-side floor to the metal’s price.
• Whilst a resumption of operations at Cobre looks unlikely, and near impossible before the May elections, signs of a restart may add downward pressure to prices.

Iron ore weakens as Arcelor Mittal increases steel prices

• Benchmark Chinese iron ore 62% prices have weakened to $137.5/t, down from recent highs of $141/t.
• Analysts have been calling for a moderation in iron ore prices given weak steel margins for Chinese mills.
• We note ArcelorMittal increased steel coil prices by €50/t yesterday to €800/t for HRC to European customers.
• EU supply is rumoured to be limited currently, with benchmark EU HRC prices climbing from €600/t in October to €692/t today.
• Brazilian shipments to China hit record volumes in December at 40mt, whilst port holdings in China have hit their lowest level since 2016.
• China steel demand remains weak, with maintenance levels from mills increasing as profit margins remain weak to negative.
• Brazilian shipments in January have been strong, up from 2023 levels marginally.

Ecuador – President Daniel Noboa who took office in November announced a 60 day state of emergency on Monday following a surge in prison violence and the apparent escape of one of gang leaders over the weekend.

• New president promised to close down on drug trade related violence while also upgrade prison security for jailed gang leaders.
• A rise in violence saw an invasion of a TV station yesterday with gunmen taking hostages before during a live broadcast.
• Police arrested all gunmen who took over television station with attorney general’s office working on site later collecting evidence.
• Two employees are reported to have been injured during the raid.
• Separately in southern part of the country seven police offices were kidnapped in three provinces with three officers freed late on Tuesday.

Economics

Eurozone – ECB vice president is warning of a possible economic contraction in Q4/23 implying a technical recession in the region.

• Although, the official added that the slowdown is unlikely to allow to avoid a temporary pick up in inflation.
• Rapid disinflation seen last year is likely to “slow down in 2024 and to pause temporarily at the beginning of the year”, FT writes.

Australia – Disinflation trend continued in November, albeit, the nation’s Treasury warned that inflationary pressures remain.

• The rate pulled back to 4.3%, down on 4.9% in the previous month.

Currencies

US$1.0939/eur vs 1.0944/eur previous. Yen 144.92/$ vs 144.05/$. SAr 18.673/$ vs 18.684/$. $1.271/gbp vs $1.273/gbp. 0.670/aud vs 0.670/aud. CNY 7.171/$ vs 7.160/$.

Dollar Index 102.55 vs 102.40 previous.

Commodity News

Precious metals:

Gold US$2,036/oz vs US$2,034/oz previous

Gold ETFs 84.9moz vs 85.1moz previous

Platinum US$935/oz vs US$949/oz previous

Palladium US$987/oz vs US$994/oz previous

Silver US$23.05/oz vs US$23/oz previous

Rhodium US$4,400/oz vs US$4,400/oz previous

Base metals:

Copper US$ 8,374/t vs US$8,412/t previous

Aluminium US$ 2,256/t vs US$2,233/t previous

Nickel US$ 16,175/t vs US$16,265/t previous

Zinc US$ 2,535/t vs US$2,523/t previous

Lead US$ 2,078/t vs US$2,072/t previous

Tin US$ 24,330/t vs US$24,490/t previous

Energy:

Oil US$77.7/bbl vs US$76.8/bbl previous

• Crude oil prices remain rangebound as negative sentiment following Saudi Arabia cutting its official crude prices were offset by concerns regarding continued attacks in the Red Sea and shutdowns of a Libyan oilfield.
• European energy prices continue to trade lower on the back of milder weather and ample gas storage, which ended 2023 at a record 996TWh (+30% 10-year average) across the EU and UK.
• US natural gas prices surged on forecasts for colder weather later this month increasing heating demand and increases the risk of supply disruptions from frozen infrastructure.

Natural Gas €31.0/MWh vs €30.7/MWh previous

Uranium UXC US$91.00/lb vs US$82.30/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$137.5/t vs US$137.9/t

Chinese steel rebar 25mm US$576.7/t vs US$578.1/t

Thermal coal (1st year forward cif ARA) US$103.5/t vs US$102.5/t

Thermal coal swap Australia FOB US$134.5/t vs US$130.0/t

Coking coal swap Australia FOB US$317.0/t vs US$317.0/t

Other:

Cobalt LME 3m US$29,135/t vs US$29,135/t

NdPr Rare Earth Oxide (China) US$56,197/t vs US$57,964/t

Lithium carbonate 99% (China) US$12,062/t vs US$12,082/t

China Spodumene Li2O 6%min CIF US$1,000/t vs US$1,030/t

Ferro-Manganese European Mn78% min US$1,067/t vs US$1,067/t

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

China Graphite Flake -194 FOB US$600/t vs US$600/t

Europe Vanadium Pentoxide 98% 6.0/lb vs US$6.0/lb

Europe Ferro-Vanadium 80% 27.25/kg vs US$27.05/kg

China Ilmenite Concentrate TiO2 US$317/t vs US$315/t

Spot CO2 Emissions EUA Price US$77.8/t vs US$78.7/t

Brazil Potash CFR Granular Spot US$302.5/t vs US$302.5/t

Battery News

Silicon anode start-up gets $22mn in funding to scale up production in Europe

• The European Investment Bank (EIB) will provide $22mn to US-based silicon start-up, GDI, to help scale up production for EV batteries at a factory in Germany.
• GDI says its anodes provide 30% more energy density and charge times of just 15 minutes for EVs versus graphite anodes.
• GDI expects that it will produce enough silicon anodes for mass-produced EVs by the end of the decade.
• The company has also been in talks with most major EU and US automakers regarding its silicon anode technology.

Company News

Aterian Plc* (ATN LN) 0.89p, Mkt Cap £8.6m – Update on JV with Rio Tinto in Rwanda as covered pegmatites identified

• Aterian announces an update on its lithium-focused joint venture with Rio Tinto in Rwanda.
• Rio’s Rwanda Programme Manager Sandy Walker notes that ‘exploration activities are safely underway and we look forward to seeing the results of the data currently being collected.’
• Rio Tinto is leading the exploration programme and Aterian is supporting them.
• The Group is targeting a maiden drill programme in 2024.
• The JV agreement sees Rio hold the option to invest US$7.5m over two stages to earn up to a 75% interest in Aterian’s HCK licence, targeting hard-rock lithium.
• An initial $3m spend over two years will take Rio’s interest to 51%, whilst a US$4.5m commitment over three years will increase their interest to 75%.
• Exploration activities include licence-wide surface mapping, targeting lithology and structural data.
• Infill mapping has now been completed over several of the Venture’s targets.
• 74 soil samples have been taken over 27 sites at 40m spacing.
• The group has completed a ground-based magnetic survey over the hole HCK-1 licence a 100m spacing.
• Initial orientation radiometric lines have supported the identification of covered pegmatites. This trial has now been extended to the west of the Mwogo River – completion expected early this year.

Conclusion: It is positive to read both Rio Tinto’s encouraging update on exploration activities at the JV licence in Rwanda, alongside the comment that initial radiometric work has uncovered several covered pegmatites. The lithium prospective HCK licences are reported to be showing encouraging preliminary data and we look forward to the JV’s progression towards a maiden drill programme this year.

*SP Angel acts as Broker to Aterian Plc

BeMetals (BMET CN) – C$0.095, Mkt cap C$16.8m – Pangeni drilling results

• In an announcement to the Canadian market yesterday, BeMetals reported results from its cored drillhole, D22-C1 at the Pangeni copper target in Zambia.
• The hole, which was drilled at an angle of 60⁰ towards the NW, intersected four mineralised intervals:
  • Interval 1 intersected 3.35m at an average grade of 0.44% copper from a down-hole depth of 105.81m; and
  • Interval 2 of 4.05m at an average grade of 0.40% copper from 237.95m depth; and
  • Interval 3 of 18.10m at an average grade of 0.70% copper from 260.00m depth and including 4.00m from 260.00m depth averaging 1.04% copper and 4.60m averaging 0.89% copper from 272.00m depth; and
  • Interval 4 of 3.84m at an average grade of 0.48% copper from 284.50m depth.
• BeMetals confirms that “the D22-C1 drill intersection is open along the interpreted strike of the geological units to the southwest and west as well as both up and down dip beneath the Kalahari sand cover”.
• The company also explains that “Some 400 metres along strike to the northeast of the D22-C1 intersection, previously reported drill hole D2-C1 returned a zone of 14.05 metres at 0.37% copper. Further interpretation, and potential future drilling, will determine if these two intersections can be linked”.
• The intersection in hole D22-C1 “reveals an interpreted zonation of the copper sulphide minerals from a narrow but meaningful interval of high-tenor chalcocite through chalcopyrite plus bornite and chalcopyrite only to chalcopyrite plus pyrite. This mineral zonation can be taken as evidence for a robust mineralizing system and, in combination with existing and future drill intersections, could provide vectors towards feeders for the D-Prospect mineralization”.
• Pangeni is located approximately 130km southwest of the “westernmost copper mine of the Domes Region” in the Zambian Copperbelt; First Quantum Minerals’ Sentinel mine.
• Results from two additional holes, D14-C1 and D11-C1 at Pangeni are pending.
• In addition to the results from Zambia, BeMetals also reports the completion, during 2023, of 2,725m of drilling at its Kato gold project in Japan as well as “an initial 449 metres of scout drilling in two holes at the Todoroki gold/silver project”, also in Japan.
• Results from the drilling at Todoroki are still awaited but, at Kato, BeMetals reports:
  • An intersection of 4.10m at an average grade of 0.56g/t gold and 4.37g/t silver from a depth of 313.20m in hole KT23-21; and
  • Multiple intersections of gold mineralisation in hole KT23-22 including intersection of the Kamitake Vein over 6.67m at an average grade of 0.76g/t gold and 3.84g/t silver from 199.68m depth and of 3.70m at an average grade of 0.72g/t gold and 3.80g/t silver from 213.00m depth; and
  • An intersection of 0.50m at an average grade of 0.85g/t gold and 25.80g/t silver from a depth of 123.50m in hole KT23-23 which the company says was “Drilled outside Kato corridor and did not intersect any significant mineralization”.
• As well as the operational details, BeMetals confirms that, on “January 8, 2024 … [it] … closed an additional C$2 million of … [unsecured convertible debenture] … funding with strategic investor B2Gold Corp. (“B2Gold”), as previously disclosed on August 1, 2023”.
• “Prior to completion of the Offering, B2Gold held 33,276,115 common shares of BeMetals, representing approximately 18.8% of the outstanding common shares of BeMetals … [and if the convertible debenture converts in full B2Gold would hold] … approximately 27.4%” of the company.

Conclusion: BeMetals’ recent drilling at Pangeni has identified copper mineralisation which remains open laterally to the west and southwest as well as at depth around 130km southwest of the most westerly copper mine in the Zambian Copperbelt. We await further news as the exploration progresses.

Great Western Mining* (GWMO LN) 0.05p, Mkt Cap £2.7m – Processing mill site construction completed in Mineral County, Nevada

CLICK FOR PDF

• Great Western provides an update on its 50/50 JV Western Milling, where it is building a processing mill for precious metals.
• The Company announces the construction of the mill site is complete.
• The mill will begin processing 35tpd initially before looking to ramp up to 200tpd.
• All gravity separation processing equipment is on site and a generator is in place. The generator will be replaced as operations ramp up by three-phase power locally available.
• The Federal BLM Department has granted approval via a permit for the transportation of material to site from the Company’s various waste heap locations.
• The commencement of processing activities will begin upon receipt of environmental permits. The Nevada Department of Environmental Protection has advised the Group that ‘the completion of the application has high priority.’
• Western Milling will submit a permit application for the stage-2 contained leaching process following its receipt of gravity separation approval.

Conclusion: The completion of the mill site construction is a major milestone for the Great Western team and their JV partner Muletown Enterprises. Despite delays out of the Company’s control, including adverse weather and supply chain disruptions, the Group has now established an operation capable of processing the wealth of gold and silver pre-mined material from high-grade historical workings in the area. The Group now awaits a permit from the NDEP for gravity separation, which is expected and has high priority in the Department. In the meantime, the Company is progressing its recently discovered porphyry target at the Huntoon Valley, where the team is currently conducting a study of geochemical signatures of the granites.

*SP Angel act as Broker to Great Western Mining, an SP Angel Analyst has visited Great Western’s Nevada claim blocks.

KEFI Gold and Copper* (KEFI LN) 0.6p, Mkt Cap £30m – Tulu Kapi funding and development update

• The Company received confirmation of conditional final credit committee approval for $190m of the $320m Tulu Kapi project capex.
• The confirmation follows previously announced exemptions and government guarantees including foreign exchange repatriation waivers and commitments to provide permanent security protection.
• The team is preparing detailed definitive documentation for signing of all project funding syndicate participants.
• In addition, KEFI is now mobilising an onsite team to engage with community ahead of the start of relocation programme and commencement of development works.
• Full project launch including funding drawdown is targeted for H1/24.

Conclusion: The team is progressing with having all ready to go once final funding approvals are secured with project economics helped by strong gold price environment.

*SP Angel acts as Nomad and Broker to KEFI Gold and Copper

Lucara Diamonds (LUC CN) C$0.39, Mkt Cap C$178m – Agreement on amended US$220m debt package

• Lucara Diamonds reports that it has agreed a US$220m debt package with a syndicate of 5 banks, headed by the African Export-Import Bank, which, in conjunction with the expected cash flows from the existing open pit Karowe diamond mine in Botswana, leaves the mine’s underground expansion project fully funded.
• The development of the underground operation at Karowe is expected to extend the mine’s life into the 2040s.
• The newly agreed debt package comprises a US$190m project finance facility, increased from the previous US$170m level as well as a US$30m working capital facility (previously US$50m).
• Todays’ announcement confirms that the adjusted “repayment schedule aligns with the expected cash flow from the underground production profile, where we are set to process the most valuable ore from the underground expansion in the first three years of operations”.
• It also confirms that the project loan will attract interest at a rate of LIBOR plus “6.5% annually from Rebase Date to the Project Completion, 6.0% annually from Project Completion to June 30, 2029, and 7.0% annually thereafter” while interest on the working capital facility is paid at LIBOR plus “6.5% annually for the period commencing from the date of the amendment to Projection Completion, 6.25% from Project Completion to June 30, 2029, and 7.25% annually thereafter”.
• The company confirms that US$125m of the project finance has been drawn already and that it has also drawn US$15m of the working capital facility.  The “balance in the cost overrun reserve account (the “CORA”) stands at $33.6 million”.
• Lucara Diamonds’ principal shareholder, Nemesia “has agreed to enter into a shareholder guarantee and an amendment to the shareholder standby undertaking, in favor of the Lenders of up to $63.0 million in aggregate … which will support the UGP expansion if the projected cash flows from Karowe operations, combined with funds available from the Project Loan, are insufficient”.
• Describing the agreement on the amended facilities as “a significant step in our company’s exciting transformation”, CEO, William Lamb, said that it shows “the exceptional quality of the Karowe asset. The adjusting repayment schedule aligns with the expected cash flow from the underground production profile, where we are set to process the most valuable ore from the underground expansion in the first three years of operations”.
• He also acknowledged the continuing support of the company’s major shareholder “who has provided interim funding and guarantees … [which leaves] … the underground expansion project … fully funded”.

Conclusion: Completion of the protracted discussions on the Karowe debt leaves the underground expansion, which secures the mine’s future into the 2040s, fully funded.  In our view, aligning the repayment profile with the mine’s expected cash generation should provide a robust solution provided that the mine delivers as expected, and the rough diamond market meets the company’s pricing expectations.

West African Resources (WAF AU) A$0.95, Mkt Cap A$980m – Guidance hit for 2023

• West African Resources reports a production update from its Sanbrado Gold Operations in Q4.
• The Company reports gold production up 4% for the quarter to 58koz.
• 2023 gold production at 226.8koz.
• 2023 gold sales at 225koz.
• Undeground production over the quarter decreased to 100kt mined at 7g/t for 22.6koz.
• Open-pit production up 54% at 1,356kt mined at 1.2g/t for 53.8koz, with lower strip ratios at M5 south driving the increase.
• 857kt ore milled over the quarter at a head grade of 2.2g/t and recovery of 94%.

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%