SP Angel Morning View -Today’s Market View, Wednesday 12th July 2023

Metals pick up on a weaker US$ ahead of closely watched US inflation data

MiFID II exempt information – see disclaimer below

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.

Bushveld Minerals* (BMN LN) – BUY, 15.8p – V shaped recovery (new note published today)

Kavango Resources (KAV LN) – Drill hole KSZDD003 drilled to 606m to test B1 conductor identified by electromagnetic survey

Neometals (NMT LN) – Glencore take or pay binding offtake agreement for VRP1 vanadium

Thor Explorations (THX LN)– Q2 production update highlighting robust performance and potential at newly acquired lithium licenses

Power Metal Resources* (POW LN) – Acquisition of Authier North lithium project and issue of equity for acquisition and professional advisory fees

Manufacturing summer shutdowns combined with ongoing economic weakness slow demand for metals in summer lull

• Demand for metals normally falls away in July as manufacturers prepare for summer shutdowns.
• This year appears particularly slow with factory shutdowns in China potentially being extended due to weak demand, slowing exports and weak consumer sales.

China Molybdenum (CMOG) resumes copper and cobalt exports from Tenke Fungurume in the DRC.

• Gecamines which holds 20% of the mine on behalf of the DRC state had been blocking exports.
• Tenke Fungurume is 80% owned by CMOG and accounts for 10% of global cobalt supply.

UK Small Cap – Baillie Gifford axes its UK small-cap fund

• Headlines over bank and fund capitulation normally spell the bottom of a market.
• We suspect and hope that today’s news on Baillie Gifford axing its British Smaller Companies fund is no different.
• While it might be considered rude to comment on the poor performance and heavy fund outflows of the fund Baillie Gifford’s policy of keeping analysts waiting outside company meetings was also pretty rude.
• Sadly for Baillie Gifford, we believe the more successful fund managers have moved on, though we believe their short-sighted, no-sell-side analyst policy in meetings still remains.

Economics

US – Inflation data is out this afternoon with monetary policymakers to watch the numbers closely for signs of slowing price pressures in the economy.

• Equities are trading higher with the US$ and Treasury yields pulling back on expectations for a moderation in headline and core inflation measures.
• CPI (%mom): 0.3 est v 0.1 May.
• CPI (%yoy): 3.1 est v 4.0 May.
• Core CPI (%mom): 0.3 v 0.4 May.
• Core CPI (%yoy): 5.0 est v 5.3 May.

Is there a second agenda behind Fed rate hikes

• Higher interest rates in the US serve to draw funds away from developing markets and into the US dollar
• While the US dollar is weakening this week we suspect this flow of funds is making life a little harder for the refinancing of instruments and companies elsewhere
• The US Q2 earnings season kicks off this week led by the banks. Will be interesting to see how well they are faring following the collapse of SVB and Credit Suisse.

China – Stronger than expected growth in June loans implies easing credit conditions following rate cuts during the month as authorities are looking to provide support to waning growth momentum.

• Aggregate Financing (CNY tn): 4.2 v 1.6 May and 3.1 est.
• New Yuan Loans (CNY tn): 3.1 v 1.4 May and 2.3 est.
• Total social financing CNY1,560bn vs CNY 3,000bn in May.

Japan – The currency has been gaining back some of its losses crossing the 140 mark on speculation that the central bank will change its monetary policy.

• Latest inflation data shows price pressures are building up in the economy with core measure (ex food and energy) hitting 4.3% in May marking the highest level in decades.
• Next inflation data release is on 21 July.
• On a separate note, core machine orders, a proxy for business investment, dropped sharply in May adding to a list of evidence of deteriorating global growth outlook.
• Core Machine Orders (%mom): -7.6 v 5.5 April and 1.0 est.
• Core Machine Orders (%yoy): -8.7 v -5.9 April and 0.1 est.

Germany – Inflation rose 0.3% in June vs -0.1% in May and 6.4% yoy in June vs 6.1% in May

Sweden – Sweden to join NATO as Turkey rescinds its veto

Currencies

US$1.1027/eur vs 1.1013/eur yesterday. Yen 139.60/$ vs 140.68/$. SAr 18.472/$ vs 18.687/$. $1.295/gbp vs $1.289/gbp. 0.669/aud vs 0.668/aud. CNY 7.191/$ vs 7.204/$.

Dollar Index 101.47 vs 101.76 yesterday.

Commodity News

Precious metals:

Gold US$1,936/oz vs US$1,931/oz yesterday

   Gold ETFs 92.1moz vs US$92.1moz yesterday

Platinum US$933/oz vs US$934/oz yesterday

Palladium US$1,253/oz vs US$1,247/oz yesterday

Silver US$23.15/oz vs US$23.21/oz yesterday

Rhodium US$4,200/oz vs US$4,000/oz yesterday

Base metals:   

Copper US$ 8,350/t vs US$8,437/t yesterday

Aluminium US$ 2,169/t vs US$2,191/t yesterday

Nickel US$ 21,000/t vs US$21,005/t yesterday

Zinc US$ 2,359/t vs US$2,397/t yesterday

Lead US$ 2,064/t vs US$2,071/t yesterday

Tin US$ 28,010/t vs US$28,200/t yesterday         

Energy:           

Oil US$79.5/bbl vs US$78.2/bbl yesterday

• Crude oil prices strengthened on signs that Russian crude oil exports were falling, even as the API announced that US crude stocks increased by 3mb last week, versus expectations for a 0.2mb draw.
• European energy prices fell to the lowest level in a month as the giant Norwegian Troll field is set to return to full production capacity on Thursday after extended seasonal works.
• US natural gas prices edged higher on forecasts for record temperatures in the Southwest, as the EIA’s monthly Short-Term Energy Outlook also reduced its average FY23 gas production estimate by 0.4bcf/d to 102.35bcf/d.

Natural Gas US$2.721/mmbtu vs US$2.662/mmbtu yesterday

Uranium UXC US$55.40/lb vs US$55.65/lb yesterday 

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$106.4/t vs US$105.3/t

Chinese steel rebar 25mm US$521.7/t vs US$520.7/t

Thermal coal (1st year forward cif ARA) US$108.5/t vs US$116.0/t

Thermal coal swap Australia FOB US$135.0/t vs US$137.0/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$59,794/t vs US$61,079/t

Lithium carbonate 99% (China) US$42,065/t vs US$41,992/t

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

Ferro-Manganese European Mn78% min US$1,108/t vs US$1,107/t

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

China Graphite Flake -194 FOB US$695/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$304/t vs US$303/t

Spot CO2 Emissions EUA Price US$93.0/t vs US$92.9/t

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

Battery News

Company News

Bushveld Minerals* (BMN LN) 3.1p, Mkt Cap £39m – V shaped recovery

BUY – 15.8p

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• We release an updated valuation on the Company accounting for the latest FY23 guidance with current upstream business (Vametco/Vanchem) accounting for ~65% of Group NPV, a potential brownfield expansion to 8ktpa accounting for further ~25% with the balance attributed to Bushveld Energy, a nascent downstream business unit.
• FY23 guidance is for 4.2-4.5ktV (FY22: 3.8ktV) at $26.1-27.0/kgV (17 USDZAR FX) as production ramps up at Vanchem Kiln 3 supported by better-quality third-party feed and the electricity curtailment solution with the local municipality.
• We err on a conservative side estimating 4.2kt FY23 and 4.4kt FY24 due to deteriorating power generation situation in SA, while leaving room for upgrades to our valuation should operations surprise on the upside.
• New management focused on key immediate priorities including Vanchem ramp up to design 2.6ktpa rates (FY23 guidance 1.5-1.8kt; FY22: 1.1kt) and operational stability, Orion convertible note refinancing and Bushveld Energy carve out.
• Orion convertible loan note ($45m) and a recently flagged requirement for additional funding over the next 12 months is expected to weigh on share price momentum in the short term.
• Strong volatility in vanadium prices YTD driven by a change in sentiment as strength of a post Covid rebound in China underperformed expectations and local property market continued to struggle while Western economies pressed on with monetary tightening as inflation proved to be stickier than envisaged.
• We assume prices to consolidate around $35/kgV through the remainder of the year, before recovering towards $40/kgV levels in 2024 onwards led by stimulus measures in China and easing of monetary tightening cycle in Europe / the US.

Valuation: We value portfolio of upstream and downstream assets at ~$280m equivalent to 15.8p target price and reiterating BUY recommendation. Valuation is predominantly driven by upstream business unit that in turn is strongly leveraged to vanadium prices and USDZAR exchange rate, exacerbated by strong cost inflation in the sector. Near term rerating catalysts are vanadium price and FX changes, operations performance and debt refinancing.

 *SP Angel act as nomad and broker to Bushveld

Kavango Resources (KAV LN) 0.58p, Mkt cap £4.87m – Drill hole KSZDD003 drilled to 606m to test B1 conductor identified by electromagnetic survey

• Kavango Resources report the drilling of the KSZDD003 drill hole to 606m depth to test the B1 conductive target in the Kalahari Suture Zone, Botswana.
• The hole passed through a sedimentary sequence and two intrusive bodies thought to be of Karoo age as also seen in in the previous drill hole at KSZDD002.
• Examination of the drill hole shows the thicker carbonaceous material, contains coincident graphite and pyrite rich bands, with minor pyrrhotite veining.
• This is the most probable conductive source with no visible nickel or copper sulphides as hoped for.
• Sadly, while geophysics provide good data for directing drilling it can only give indications for potential mineralisation. In this case the conductors appear to be graphite and pyrite rich layers with some pyrrhotite veining with no prospect for tangible value.
• The team will now move on from their work on the Kalahari Suture Zone and redeploy to the Kalahari Copper Belt and a new Zimbabwean gold opportunity.
• Drilling will resume on easier targets in the second half on the new targets.
• “Kavango will now also finalise the prospectus for completion of the £4.6million investment from Purebond that will move ahead on the terms agreed in May.”.

Conclusion:  It is a great shame that Kavango’s drilling has not supported the theory of a Bushveld-style igneous complex under in the Kalahari Suture Zone. It was a good geological theory supported by some highly experienced geologists but, more positively, the team have learned much from their geophysical surveys and drilling and are well prepared for their next campaign.  We look forward to better results in the second half on shallower targets with other indicators for potential mineralisation.

Neometals (NMT LN) 28.5p, Mkt Cap £158m – Glencore take or pay binding offtake agreement for VRP1 vanadium

• Novana signed a binding offtake agreement with Glencore for 100% of vanadium products from Vanadium Recovery Project.
• Novana is 100% subsidiary of Recycling Industries Scandinavia AB (RISAB), a VRP1’s JV company, that is in turn owned by Neometals (72.5%) and Critiaml Metals (27.5%).
• Under the agreement, Novana will exclusively sell vanadium to Glencore at the price tied to prevailing market prices.
• The agreement is valid for an initial period of 5 years from the commencement date (1 January 2026 or earlier) that can be automatically extended in 2-year increments unless Novana or Glencore elect not to renew the agreement.
• Glencore will also provide technical expertise during the VRP1 development stage using its understanding of vanadium processing.
• The team highlighted that take or pay agreement with one of the industry leaders in the space significantly de-risks the project allowing the Company to move towards potentially securing project finance.

Thor Explorations (THX LN) 20.3p, Mkt Cap £130m – Q2 production update highlighting robust performance and potential at newly acquired lithium licenses

• In Nigeria, Segilola produced 23.1koz (Q2/22:23.8koz) during the quarter.
• Processing plant performed well with 255kt at 2.99g/t treated and 94% recoveries reported.
• FY23 guidance for 85-95koz reiterated.
• Exploration work is focused on diamond and RC drilling of identified high grade quartz vein style mineralisation targets at Igala and Ayelle prospects (15km from Segilola).
• In Senegal, Douta Project PFS work is ongoing with completion expected by YE.
• ESIA related work is continuing.
• Metallurgical and geotechnical drilling programmes were completed with metallurgical samples delivered to the laboratory.
• Additionally, the Company highlights the acquisition of lithium exploration license area in south west Nigeria.
• The over 500sqkm land package covers both known lithium bearing pegmatite deposits and a large unexplored prospective pegmatite rich belt.
• An initial 5,000m drill programme utilising three RC drilling rigs is ongoing at the priority target (Location 6, the site of the largest spodumene-lepidolite pegmatite in Nigeria).
• Visual inspection of the drill core confirmed intersection of pegmatites in five holes averaging 20m true thickness over 150m of strike with samples having been dispatched for analysis

Power Metal Resources* (POW LN) 0.66p, Mkt cap £14m – Acquisition of Authier North lithium project and issue of equity for acquisition and professional advisory fees

• Power Metal Resources reports the acquisition of the Authier North Lithium Project in the prolific Val’d’Or mining camp, ~45km NW Val-d’Or and ~500km NW of Montreal, Canada.
• The company is completed its earn-in agreement with Eagle Ridge Mining through the payment of C$25,000 and C$75,000 worth of shares to the vendor at 0.7p/s.
• The vendor has waived the year 2 and 3 exploration commitments of C$50,000 and C$100,000.
• The 1% NSR will remain in place.
• Ownership of the Properties will be held through Power Metal’s UK subsidiary, ION Battery Resources Limited and its local operating subsidiary in Canada.
• Power Metals is also settling £25,000 to SP Angel and £40,000 to another advisor in lieu of fees.

*SP Angel acts as Nomad and Broker for Power Metal 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 – 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                                                            

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35-39 Maddox Street London

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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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