SP Angel Morning View -Today’s Market View, Wednesday 19th July 2023

Gold prices hold higher again as the market loses faith in a September rate hike

MiFID II exempt information – see disclaimer below

Ariana Resources (AAU LN) – Construction at 23.5%-owned Tavsan Mine begins

China Molybdenum (SHA: 603993) – COMC pays $800m to conclude Tenke Fungurume dispute with the DRC

Cornish Metals* (CUSN LN) –– Instillation of second submersible pump at South Crofty tin mine

Galantas Gold* (GAL LN) – High grade drilling results at the Kearny Vein

Leo Lithium (LLL AU) –- Trading halt pending result of correspondence with Mali government

Rio Tinto (RIO LN) –– Q2 Production Results as input costs fall

Versarien* (VRS LN) – Stephen Hodge, promoted to CEO from Chief Technology Officer

Yellow Cake (YCA LN) – Annual results as uranium holdings increase on improving demand

VOX Markets:  14/07/2023: https://audioboom.com/posts/8334912-john-meyer-on-china-s-deflation-plus-bushveld-minerals-empire-metals-strategic-minerals

*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.

Pre-IPO financing for High-Purity Alumina project

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

1. 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.

1. The project alumina has been shown to be suitable for Li-ion batteries, LED lighting and synthetic sapphire for smartphones and tablets,
2. The resource contains a JORC inferred resource sufficient for 10,000 – 20,000tpa of HPA >30 years
3. The process uses an innovative process flowsheet combining commercial proven technologies with recent metallurgical tests producing 99.995% alumina.
4. CRU estimate demand for HPA powder could reach 187,000t in 2028 from 19,000t in 2018.
5. CRU predict substantial demand growth led by Li-ion battery and LED production,
6. Price: High-purity alumina sells for ~$30,000/t today up from $24,000/t in 2018,
7. 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.

Gold prices hold higher again as market loses faith in a September rate hike

• Gold prices climbed to $1,985/oz overnight, with a weaker dollar and lower Treasury yields driving momentum.
• Traders are now betting that the US Fed will see its last hike next week, but the odds of a September hike are sliding rapidly.
• Treasury yields continue to slide, with the 10-year sitting at 3.755%, supporting non-interest-bearing bullion.
• Gold was supported yesterday by relatively uninspiring US retail sales but focus now turns to jobless claims data due tomorrow.

Copper prices fall as investors weigh China outlook and import premiums fall

• Copper prices are hovering around the $8,430/t level having weakened on weaker Chinese data.
• Yangshan import premiums have fallen 22% from their yearly highs reached a fortnight ago, suggesting buying appetite on the international market is waning.
• However, the reopening of Congolese flows and a rising supply from Russia is pushing Chinese analysts to raise import volumes to 310mt Cu.
• Traders are marginally net-long in Copper but bullish positions have been slashed consistently since China reopening hype overcame the market at the beginning of the year.
• Fund managers are neutral on copper at the moment, with commodity sector funds seeing outflows from retail and instutional managers of 11% in H1-2022. (Citi)
• Hisense air-conditioner sales jumped 50% yoy in some parts of southern China last week bringing on the total 528,000 aircon units sold in China to end June.
• Air-conditioning units work better with copper than aluminium and most other metals and we would always advise buyers to buy a copper-based unit.
• Chinese refined copper output rise 13.6% in June to 1.1mt, similar to May output according to the National Bureau of Statistics

Economics

US – Industrial production fell 0.5% in June vs -0.5% in May and -0.4% yoy in June vs 0.2% in May

• Manufacturing output pulled back 0.3% mom in June vs -0.3% mom in May and -0.3% yoy in June
• Capacity utilisation 78.9% in June vs 79.4% in May,
• Retail Sales (%mom): 0.2 v 0.5 (revised from 0.3) May and 0.5 est.
• Retail Sales ex Auto (%mom): 0.2 v 0.3 (revised from 0.1) May and 0.3 est.
• Business inventories rose 0.2% in May vs 0.1% in March
• NAHB housing market index at 56 in July vs 55 in June the highest level seen for a year despite rising mortgage costs

China – Evergrande report loss of $14.8bn for FY 2022 vs a loss of $66.4bn in 2021

• Evergrande’s debt liabilities to asset ratio has improved slightly to 132.6%
• Liabilities remain high at $335bn.
• Total asset value is recorded at $251bn
• Auditor fails to give opinion on going concern – who can blame them!
• Evergrande has 1.4m unfinished apartments in 1,300 projects at end 2020
• We expect some form of ‘soft’ support for the property sector to help new buyers into the market.
• China desperately needs to encourage its ‘Lay-Flat’ youth generation into the work place
• Two years of hard Covid lockdowns have not helped and with youth unemployment at record levels there is a danger a long-term unemployment culture could set in.
• The UK experienced this in the 90s as depicted in the film ‘The Full Monty’ featuring a group of unemployed steel workers in Sheffield.

Japan – BOJ Governor pushed against building speculations that the central bank might unwind its yield curve control programme amid rising inflation.

• Governor Ueda said the bank will continue with the current monetary policy until inflation is continuously hitting its target.
• “We check the premise at every policy meeting and I would like to say that, unless the premise is shifted, the whole story will remain unchanged,” Ueda said at a press conference.
• The yen pulled back following dovish comments trading ~140.

UK – Inflation came in slower than expected with the rate coming down below 8% for first time in over a year.

• The pound is off this morning sliding sub 1.30 level as traders pared back expectations for higher benchmark rates.
• Two year sovereign bond yields pulled back below 5% trading around 4.9% this morning, down from a recent peak of ~5.6% reached in early July.
• Markets are now expecting rates to peak at 6% by the end of the year, down from a previous forecast for 6.5% to be reached in Mar/24.
• The next BOE decision is due 03 August with expectations for a 25bp hike.
• CPI (%mom): 0.1 v 0.7 May and 0.4 est.
• CPI (%yoy): 7.9 v 8.7 May and 8.2 est.
• Core CPI (%yoy): 6.9 v 7.1 May and 7.1 est.

Canada – Inflation fell to just 0.1% mom in June vs 0.4% mom in May and 2.8% yoy in June vs 3.4% in May

• PPI fell to -0.6% in June and -0.6% in May vs -5.5% yoy in June vs -5.7% yoy in May

European auto sales recorded an 11^th consecutive month of growth in June with new registrations increasing 19%yoy to 1.27m units.

• BEVs sales surged 55%yoy while registrations of diesel cars declined 10%.

European heatwave – Sardinia and Sicily expected to hit 46C today

• Spain reached 44C.
• Ground temperatures in Southern Spain recorded at >60C.
• Meteorologists expect Southern Europe to breach 48C later this week and for the heatwave to continue well into August.
• Forest fires from Spain to Switzerland are increasingly prevalent with woodland drying fast in the heat.

Russia/Ukraine – Russia stepped up missiles and “kamikaze” drones attacks on Ukraine in early hours of Wednesday that is believed to be a response for an explosion at the Crimea bridge.

• “It was the most hellish night,” spokesperson for Odesa’s military administration said.
• Ukraine reported that 337 out of a total of 63 missiles and drones aimed at “critical infrastructure and military facilities”, mainly in Odesa, were intercepted.
• Separately, a number of reports this morning show a destruction of one of ammunition depots in Crimea this morning with the administration announcing an evacuation of more than 2,000 people from nearby villages.

Olive oil – prices soar due to excess heat in Mediterranean.

Currencies

US$1.1233/eur vs 1.1270/eur yesterday. Yen 139.29/$ vs 138.28/$ SAr 17.848/$ vs 17.969/$. $1.296/gbp vs $1.310/gbp. 0.679/aud vs 0.683/aud. CNY 7.213/$ vs 7.174/$.

Dollar Index 100.11 vs 99.63 yesterday.

Commodity News

Precious metals:

Gold US$1,980/oz vs US$1,963/oz yesterday

Gold ETFs 92.0moz vs US$92.1moz yesterday

Platinum US$985/oz vs US$988/oz yesterday

Palladium US$1,314/oz vs US$1,303/oz yesterday

Silver US$25.06/oz vs US$24.94/oz yesterday

Rhodium US$4,350/oz vs US$4,350/oz yesterday

Base metals:   

Copper US$ 8,422/t vs US$8,496/t yesterday

Aluminium US$ 2,183/t vs US$2,257/t yesterday

Nickel US$ 20,950/t vs US$21,160/t yesterday

Zinc US$ 2,358/t vs US$2,404/t yesterday

Lead US$ 2,091/t vs US$2,094/t yesterday

Tin US$ 28,200/t vs US$28,480/t yesterday

Energy:           

Oil US$79.5/bbl vs US$78.4/bbl yesterday

• Crude oil prices edged higher as the API reported a 0.8mb draw in US crude oil and fuel stocks (vs 2.2mb draw expected) and data indicated falling Russian export volumes, in line with its proposed 0.5mb/d cut.
• Transocean announced a $518m contract for a 7^th generation high-specification rig to commence in late 2025 in the Gulf of Mexico, providing further evidence of the tightness in the ultra-deepwater rig market.

Natural Gas US$2.621/mmbtu vs US$2.534/mmbtu yesterday

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

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$113.4/t vs US$112.7/t

Chinese steel rebar 25mm US$522.0/t vs US$525.5/t

Thermal coal (1st year forward cif ARA) US$101.0/t vs US$101.0/t

Thermal coal swap Australia FOB US$137.0/t vs US$134.5/t

Coking coal swap Australia FOB US$229.0/t vs US$225.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$62,526/t vs US$63,006/t

Lithium carbonate 99% (China) US$40,552/t vs US$40,773/t

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

Ferro-Manganese European Mn78% min US$1,118/t vs US$1,133/t

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

China Graphite Flake -194 FOB US$675/t vs US$675/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$308/t vs US$310/t

Spot CO2 Emissions EUA Price US$95.3/t vs  US$95.1/t

Brazil Potash CFR Granular Spot US$345.0/t vs US$345.0/t

Battery News

Jaguar Land Rover owner Tata Group to invest £4bn for battery plant in Somerset

• In a joint announcement with the UK government, Tata have announced it will invest £4bn to build a battery plant in the UK.
• The government has yet to detail the support it will provide as part of the deal.
• Tata’s choice of Britain is a big win for Prime Minister Rishi Sunak’s government, which had pledged to grow the economy and had set net zero goals including a ban on the sale of new petrol and diesel cars from 2030.
• Britain has so far found the shift from petrol and diesel vehicles to EVs difficult with the slow rollout of battery plants – the UK has one operational gigafactory at Nissan’s plant in Sunderland, while start-up Britishvolt fell into administration after it failed to secure enough funding for its ambitious plans.

Company News

Ariana Resources (AAU LN) 2.37p, Mkt Cap £27m – Construction at 23.5%-owned Tavsan Mine begins

• Ariana provides an update on its 23.5% stake in Zenit Madencilik San JV with Ozaltin Holdings and Proccea construction which holds the Kiziltepe and Tavsan and Salinbas projects in Turkey.
• The Tavsan project holds a JORC MII resource of 307koz Au and 1.1moz Ag.
• The local Kütahya Administrative Court has now approved the recommencement of construction activities at the Tavsan mine site.
• Large-scale, open-pit mining operations are expected to begin in H1-24.

China Molybdenum (SHA: 603993) CNY5.85, Mkt cap US$16bn – COMC pays $800m to conclude Tenke Fungurume dispute with the DRC

• China Moly will begin paying the $800m settlement tis year through to 2028.
• Gecamines will also receive $1.2bn in dividends over the Tenke project life span as of this year.
• The Company expects to continue to invest in the DRC and ‘expand co-operation in the new energy and other sectors,’ whilst ‘making a greater contribution to co-operation between China and Congo.’
• The annual cash payments to Gecamines will be a drop in the ocean when considering the size and scale of CMOC’s 80% stake in TFM’s operations.
• CMOC produced 254kt of Cu and 20.3kt of Co from TFM in 2022.

Cornish Metals* (CUSN LN) – 13p, Mkt cap £63m – Instillation of second submersible pump at South Crofty tin mine

Valuation 48p/s

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• Cornish Metals report the instillation of a second submersible pump ahead of its scheduled time line.
• The pump, situated into the historic New Cooks Kitchen shaft at the South Crofty tin mine.
• Management have installed a specialist high-head 950kW vertical submersible pump with a variable speed drive.
• The pump is from KSB in Germany, with the variable speed drive manufactured from Schneider Electric, supplied through Siemag Tecberg UK.
• Pump capacity is 25,000m3/d to the Mine Water Treatment Plant and should continue to run at this rate as the water level reduces in the mine.
• The current pump location is just below the 360m depth (equivalent to 195 fathom level in old money terms). Cornish tin mining levels were historically named in fathoms from the days of the Poldark era.
• Schneider and Siemag Tecberg are on site commissioning the variable speed drive in advance of commissioning the Mine Water Treatment Plant.
• Management expect the Mine Water Treatment Plant to start up in August.
• Cornish Metals recently reported high-grade assays in metallurgical drilling on the No.4, No. 8 and Roskear Lodes at the South Crofty.
• Results also confirmed visible tin mineralisation in all 28 drill holes showing typical widths and grades for tin mineralisation historically mined at South Crofty.
• We await results from drilling into the North Pool Zone and the Dolcoath lodes
• Ongoing metallurgical work should feed into the optimisation of the recovery process and confirm production and estimated recovery rates for the future Bankable Feasibility Study.

*SP Angel acts as Nomad and Broker to Cornish Metals. An SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals.

Galantas Gold* (GAL LN) 17p, Mkt Cap £18m – High grade drilling results at the Kearny Vein

• The Company released assay results from a drill hole completed at the Kearny Vein of the Omagh Gold Project.
• 1.7m at 19.8g/t gold including 0.4g/t at 72.4g/t gold.
• True width is estimated at 1.1m.
• The hole was drilled from the underground platform helping the team to save on drilling costs.
• The hole represents the most northerly intersection in the latest underground drill programme confirming continuity of mineralisation outside the main Kearny Vein.
• The Company is planning a new surface drilling programme targeting dilation zones at the Joshua Vein that main potentially host higher widths and higher grade mineralisation.

Conclusion: Drilling from the underground platform at the Kearny Vein confirms continuity of the vein in the northern direction with high grade mineralisation confirmed in latest assay results.

*SP Angel act as Broker to Galantas Gold

Leo Lithium (LLL AU) – SUSPENDED- Trading halt pending result of correspondence with Mali government

• We believe Leo Lithium quietly started production and we speculate it might look to start shipping crushed spodumene DSO material from Goulamina shortly.
• There was no press release to announce the start of production but this hasn’t stopped the government from stepping in.
• The company’s first announcement stated there was a ‘Pause in Trading’ from the ASX, then announced a full ‘Trading Halt’ accompanied by the following statement:

1. The Company seeks the trading halt pending an announcement in relation to correspondence from the government of Mali relating to plans to produce Direct Shipped Ore.
2. The Company requests the trading halt continue until the earlier of the Company releasing an announcement, or the commencement of normal trading on Thursday, 20 July 2023.
3. The Company is not aware of any reason why the trading halt should not be granted.

• It’s not entirely normal to start production without a press release or possibly without informing the national government.
• Leo Lithium are developing the Goulamina lithium project in Mali in a $170m jv Ganfeng Lithium.
• Management’s June reported that mining had started and ore was being stockpiled on a DSO pad with DSO early revenue expected in Q4 this year.
• Management claimed the mine was 25% complete in June with 1,000 workers on site with an opportunity to export ore 6-9 months in advance of spodumene.
• The mine and process plant is fully funded to Stage 1 first product.
• Goulamina is the world’s 5^th largest global spodumene deposit

Conclusion: We speculate and suspect the Government of Mali is querying if all permissions have been granted for the export of spodumene DSO. The early export of ore from Goulamina would indicate how desperate Ganfeng is to acquire more feedstock for processing in China. Strong ongoing demand for lithium-rich spodumene concentrates indicates that relatively little new lithium is coming from DLE ‘Direct Lithium Extraction’ on brine projects around the world.

Rio Tinto (RIO LN) – 5,095p, Mkt cap £82.6bn – Q2 Production results show rising iron ore output and sliding mine input costs

• Rio Tinto reports its Q2 production results.
• Pilbara iron ore production increased 3% for the quarter yoy to 81.3mt, rising full year shipment expectations to the upper range of the previous 320-335mt projection.
• Pilbara iron ore unit cash costs unchanged at $21-22.5/t.
• Bauxite production fell 5% for the quarter yoy to 13.5mt on heavier rainfall at Weipa and equipment downtime. Guiding to lower end of full year production range of 54-57mt.
• Aluminium production up 11% for the quarter yoy to 0.8mt as the Kitimat smelter ramps up, full year guidance unchanged at 3.1-3.3mt.
• Mined copper production fell 1% in Q2 yoy as Oyu Tolgoi ramps up, yet Kennecott’s concentrator is running at reduced rates, balancing production ramp up alongside maintenance-related delays at Escondida.
• Mined copper production guidance remains unchanged at 590-640kt.
• Rio reduces its refined copper guidance from 180-210kt to 160-190kt and raises its copper C1 cost guidance from $1.6-8/lb to $1.8-2/lb owing to extension costs at Kennecott.
• Titanium dioxide slag production up 4% to 303kt, but full year production guidance expected at the lower end of the 1.1-1.4mt guidance range owing to weak market conditions and furnace investigations in Quebec.
• Currently reviewing the Rincon lithium project CAPEX estimate and schedule in Argentina owing to ‘cost escalation.’
• Working capital increase of $900m in H1 owing to ‘a build in blasted and mine stocks in the Pilbara,’ lower dividends from Escondida, lower payables and higher spares and stores.
• Input costs: (all in nominal terms) from H2 2022 to H1 2023
  • A decrease in caustic soda costs from $595/t to $432/t
  • A decrease in natural gas costs from $7/mmbtu to $2.6/mmbtu
  • A decrease in brent oil costs from $93.8/bbl to $79.2/bbl.
• Rio ramped up exploration and evaluation expenditure by 94% to $710m in H1 2023 vs H1 2022 on increased output in Argentina and Simandou. ($112m of this attributable to battery materials).
• Rio Macro Outlook:
  • China
    • Drag to growth from slowdown in factory activity but improving consumption
    • Persistent headwinds from steel demand, steel prices and mill profitability
  • US
    • Growing US economy but slowing labour market and expect recession later this year.
    • Constraints from tighter lending to limit consumer spending, hiring and business investment.
    • Service sector inflation to pressure Fed.
  • EU
    • Weak manufacturing activity and core inflation
    • Slowing manufacturing output and new orders but expanding services sector.
    • Tapering down in manufactured goods inflation.

Versarien* (VRS LN) 1.3p, Mkt Cap £3.5m – Stephen Hodge, promoted to CEO from Chief Technology Officer

• Versarien plc has promoted Stephen Hodge to be the new CEO at Versarien.
• Dr Hodge was appointed to be Versarien’s Head of Research in July 2018 and to the board as its Chief Technology Officer in 2021.
• Previously Hodge was the Principal Engineer at Cambridge Graphene Limited which supplies graphene inks and other graphene materials and is a subsidiary of Versarien.
• Stephen has worked as a post-doctoral research associate at the Cambridge Graphene Centre, a research centre attached to the Department of Engineering at the University of Cambridge, and in the Department of Chemistry at Imperial College London, where he also completed a PhD in Nanomaterial Chemistry.
• Stephen is also Chairman of the Technical Working Group within the Graphene REACH registration consortium.
• Last year Dr Hodge was awarded the Royal Society of Chemistry Rising Star in Industry Award ‘for strategic leadership in developing greener solutions and advocating for global regulations related to the physical and toxicological testing of graphene’.
• Neill Ricketts resigned from the Board from 14 July 2023 and is no longer a Director of the Company.

• Versarien recently raised £650,000 of new funds at 1p/s for working capital and as a bridge to finance the company ahead of expected funds from asset sales.
• Chris Leigh, CFO and Stephen Hodge, the new CEO both participated in the fund raising.

Conclusion:  Stephen Hodge has been instrumental in the development of Versarien’s advanced materials technology and in progressing its commercial relationships. Stephen is well placed to advance the development and commercialisation of Cementene™ and Graphene-Wear™.

*SP Angel acts as Nomad and Broker to Versarien

Yellow Cake (YCA LN) 417p, Mkt cap £825m – Annual results as uranium holdings increase on improving demand

• Yellow Cake, which holds physical uranium to offer investors exposure to spot prices, reports its annual results to March 31^st.
• YCA reports a 4% increase in their U₃O₈ holdings to $952m following a jump in physical holdings from 15.8mlb to 18.8mlb.
• They report a $103m loss after tax for the year owing to a 12.5% fall in uranium prices.
• The Company’s NAV stands at £4.23/share at the time of reporting vs £4.42/share in 2022.
• YCA raised £62m in a placing to fund the purchase of 1.35mlb of U₃O₈ through their ‘2022 Kazatomprom option.’
• The Kazatomprom option will take YCA’s physical holdings over 20mlbs.
• YCA management notes increasing nuclear energy demand, with China’s five-year plan expected to add 40% increase in nuclear capacity by 2025.
• On the supply side, management suggests that prices currently remain too low for an economically viable new project to be developed, constraining supply-side dynamics.

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 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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