SP Angel Morning View -Today’s Market View, Wednesday 20th March 2024

Shenzhen exports and imports by private companies rose 72.4% yoy through January & February

MiFID II exempt information – see disclaimer below

Beowulf Mining* (BEM LN) – Capital raise update as Directors pledge £218k

Kenmare Resources (KMR LN) – Results show lower ilmenite production on grade decline

Sibanye Stillwater (SBSW US) – incident at Rustenburg suspends shaft production

East Star Resources (EST LN) – New porphyry copper exploration target in Kazakhstan

Kodal Minerals* (KOD LN) – New NED from Fosun Resource Group appointed

Sovereign Metals* (SVML LN) – Sovereign ships 30t of ore from Kasiya rutile / graphite project in Malawi

Sierra Rutile (SRX AU) – Takeover offer from Gerald Group subsidiary as global mineral sand supply dwindles

Strategic Minerals* (SML LN) – Expansion of exploration area in Cornwall

Versarien* (VRS LN) – Versarien raises £615,000 following agreement with Montana Química in Brazil to use graphene inks

Copper eases from 11-month highs as stocks rise and China smelters near agreement

• Copper prices have fallen below $9,000/t on a jump in LME inventories.
• Bloomberg reports China smelters are set to discuss setting a ‘floor price’ for TCRC fees in their quarterly meeting next week.
• The Group has been considering maintenance periods, capacity reduction and production cuts amid rockbottom fees on a combination of low concentrate supply and smelter overcapacity.
• Smelter capacity for Jan/Feb period increased 11% yoy in China to 37kt/day.

Lithium carbonate prices hold higher as market balance persists

• Lithium carbonate prices are hovering around $15.5k/t for battery grade and $14.9/t for technical grade.
• Spodumene prices have climbed to $1,190/t in China and %1,100/t in Australia and $1,030/t in Brazil. (SMM)
• Analysts suggest converters are holding steady on purchases following the recent spike in pricing.
• Platts reports traders suggest 30% of converter product requirements are under contract, meaning 70% needs to be bought on the spot market.
• Reports of a battery-grade carbonate purchase of $16k/t have surfaced, although analysts suggest this is outside the current market range.
• Platts also reports that market participants expect NMC and LFP cathode production to increase this month following a period of destocking.

Economics

US – Fed policy rate day with markets to focus on comments around the pace of potential easing post the first rate cut currently expected in July.

• The committee will also release its rates dot plot as well as economic projections for GDP, employment and inflation.
• December inflation projections were revised lower for PCE and core PCE to both average 2.4% in 2024, down from 2.5% and 2.6% estimated in September 2023.
• December dot plot guided for three rate cuts for the benchmark rate to come down to 4.50-4.75% from current 5.25-5.50%.
• The decision comes on the back of stronger than markets forecasts for inflation and employment data released year to date.

The US will provide Intel with nearly $20bn in grants ($8.5bn) and loans ($11bn) to help expand semiconductor manufacturing at facilities in Arizona and Ohio.

• The federal help will support more than $100bn in US investments from the Company.
• Intel is the first Company to secure a preliminary funding deal for advanced chipmaking facilities, Bloomberg writes.
• Funds are sourced from the 2022 Chips and Science Act that set aside $39bn in grants and $75bn in loans and guarantees to support US chip makers.
• The goal is reported to produce one fifth of the global advanced logic chips by the end of the decade.
• TSMC and Samsung are expected to expand in the US as well tapping into Chips Act funds.

NAHB housing index rose 51 in March vs 48 in February

• Housing starts rose 10.7% to 1.521m units in February vs a fall of -12.3% to 1.331m units in January
• Building permits rose 1.9% to 1.518m units vs -0.3% at 1.489m units

China – Chinese lenders leave rates unchanged, in line with estimates, amid a series of policy rate announcements by other world central banks.

• 1y Loan Prime Rate: 3.45% v 3.45% before and 3.45% est.
• 5y Loan Prime Rate: 3.95% v 3.95% before and 3.95% est.

Shenzhen foreign trade rises 45% yoy in January-February to CNY 675.18bn (US$94bn) including exports and imports which are now at an all-time high, driven by a stronger private economy.

• The city’s exports rose 53.1% to CNY 441.44bn
• Shenzhen imports also rose 31.9% to CNY 233.74bn
• Exports and imports by private companies rose 72.4% yoy through January-February to CNY 483.6bn and now account for 71.6% of total import and export value for the city.
• Foreign-funded firms’ imports and exports rose 1.8% yoy to CNY 159.18bn making up another 23.6% of Shenzhen total trade
• China state-owned companies foreign trade rose 12% to CNY 31.46 bn.
• ASEAN is Shenzhen’s largest trading bloc with imports and exports rising 58.1% yoy to CNY 106.92bn while the city saw substantial growth in imports and exports with Belt and Road connected countries.
• Shenzhen imports and exports to the following nations made up 74% of the total:

• • South Korea – 62.6%,
  • Japan – 40.4%,
  • India – 65.1%, ,
  • Australia – 109.9%,
  • Chile – 3.5%,
• Exports of both mechanical and electrical products rose 30.2% to CNY 295.5bn representing 67% of Shenzen total exports.

Japan – Industrial production fell -6.7% in January vs -1.2% in December and fell -1.5% yoy in January vs -1.0% yoy in December

• Capacity utilisation was 78.5%.
• We suspect increasing competition from China in vehicles and optical devices is responsible

Eurozone – ECB President Lagarde does not want to commit to more cuts beyond the likely June move.

• “Our decision will have to remain data dependent and meeting-by-meeting, responding to new information as it comes in… this implies that, even after the first rate cut, we cannot pre-commit to a particular rate path,” Lagarde said during a conference in Frankfurt.
• Markets focus on the quantum of potential rate cuts through 2024 with the first move almost fully priced in for June, Bloomberg reports.
• Estimates are currently for 3-4 cuts during the year.

EU – Inflation rose 0.6% in February vs -0.4% in January and 2.6% yoy in February vs 2.8% in January

UK – The pound is off this morning on the back of slower than expected inflation reading.

• Both headline and core measures continued to slowdown through February.
• The headline measure fell to the lowest level in two and a half years.
• CPI (%mom): 0.6 v -0.6 January and 0.7 est.
• CPI (%yoy): 3.4 v 4.0 January and 3.5 est.
• Core CPI (%yoy): 4.5 v 5.1 January and 4.6 est.

Zimbabwe – The government is no longer keen to defend the currency and is working on a new exchange rate potentially backed by gold, according to Bloomberg.

• People have little confidence in the currency anyway with the US$ accounting for ~880% of all economic transactions in the country, according to the national statistics agency,
• The Zimbabwean fell against the hard currency every single day this year and is estimated to have lost 68% in 2024 alone.

Currencies

US$1.0857/eur vs 1.0843/eur previous. Yen 151.47/$ vs 150.45/$. SAr 18.953/$ vs 19.023/$. $1.270/gbp vs $1.269/gbp. 0.652/aud vs 0.651/aud. CNY 7.200/$ vs 7.199/$.

Dollar Index 103.98 vs 103.91 previous.

Precious metals:

Gold US$2,157/oz vs    US$2,149/oz previous

Gold ETFs 82,245,023.4moz vs 82,255,084.6moz previous

Platinum US$894/oz vs US$902/oz previous

Palladium US$988/oz vs US$999/oz previous

Silver US$24.86/oz vs US$25/oz previous

Rhodium US$4,700/oz vs US$4,725/oz previous

Base metals:

Copper US$ 8,938/t vs US$9,057/t previous

Aluminium US$ 2,277/t vs US$2,267/t previous

Nickel US$ 17,570/t vs US$17,630/t previous

Zinc US$ 2,507/t vs US$2,507/t previous

Lead US$ 2,084/t vs US$2,086/t previous

Tin US$ 27,250/t vs US$27,945/t previous

Energy:

Oil US$86.8/bbl vs US$86.7/bbl previous

Natural Gas €28.2/MWh vs €29.1/MWh previous

Henry Hub Gas US$1.74/mmBtu vs US$1.73/mmBtu yesterday

• Energy prices were broadly unchanged with the API reporting a 1.5mb w/w draw to US crude stocks (+0.7mb exp) and French nuclear reactor operating levels reported down 2% w/w to 67% of 61.4MW capacity.
• Freeport LNG’s CEO said that the facility would increase its production capacity by 10% to 16.5mtpa following repairs that are due to be concluded in early May.

Uranium Futures $85.8/lb vs $85.5/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$107.1/t vs US$104.4/t

Chinese steel rebar 25mm US$546.0/t vs US$548.5/t

Thermal coal (1st year forward cif ARA) US$110.3/t vs US$110.0/t

Thermal coal swap Australia FOB US$125.3/t vs US$128.0/t

Other:

Cobalt LME 3m US$28,550/t vs US$28,550/t

NdPr Rare Earth Oxide (China) US$47,920/t vs US$47,990/t

Lithium carbonate 99% (China) US$14,932/t vs US$14,932/t

China Spodumene Li2O 6%min CIF US$1,190/t vs US$1,190/t

Ferro-Manganese European Mn78% min US$985/t vs US$985/t

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

China Graphite Flake -194 FOB US$510/t vs US$515/t

Europe Vanadium Pentoxide 98% 5.2/lb vs US$5.3/lb

Europe Ferro-Vanadium 80% 26.45/kg vs US$26.75/kg

China Ilmenite Concentrate TiO2 US$327/t vs US$327/t

China Rutile Concentrate 95% TiO2 US$1,451/t vs US$1,452/t

Spot CO2 Emissions EUA Price US$59.6/t vs US$59.6/t

Brazil Potash CFR Granular Spot US$305.0/t vs US$305.0/t

Battery News

Australia saw huge rise in EV sales across 2023

• Sales of EVs in Australia topped 98,000, up 120% across 2023. (Australia Electric Vehicle Industry Recap 2023)
• There are now over 180,000 EVs on Australian roads.
• The same report also showed that charging infrastructure has also increased massively, up 75% yoy.
• EVs still only account for 1% of vehicles on Australian roads.
• The Australian EV Council has an ambitious target of 1m EVs by 2027, if Australia are to be on track to achieve its 2050 zero emissions target.

US automakers see growth in hybrids as EV sales slow

• Sales of hybrid vehicles in the US increased five times quicker than pure EVs in February. (Morgan Stanley)
• It is believed that North American output of hybrids, may climb to as much as 20% of total light-vehicle production by 2025, compared with 14% for EVs.

Ford delays electric SUV plans to focus on affordable compact-SUV

• Ford is believed to be working on a whole line of affordable EVs to fend off the threat of Tesla and Chinese rivals, with the first model expected to debut in 2026.
• Amongst the line up Ford will roll out a small utility vehicle, a compact SUV and, potentially, a vehicle to be used for ride-hailing. (Bloomberg)
• As Ford looks to create a new low-cost EV platform, plans for its three-row electric SUV have been delayed.
• It is believed the new platform will be built on lithium-iron phosphate (LFP) batteries which are around 30% cheaper than other lithium batteries.

Company News

Beowulf Mining* (BEM LN) 0.75p, Mkt Cap £8.7m – Capital raise update as Directors pledge £218k

• Beowulf provides an update on its ongoing Capital Raise.
• Board and Senior Management have committed to subscribe for £218k in shares.
• CEO, Ed Bowie, has subscribed for £70k worth of shares and Grafintec MD Rasmus Blomqvist has subscribed for £64k.
• The capital raise began last week and will run until 28^th March.

Conclusion: It is a reassuring vote of confidence from Beowulf’s management to participate in the ongoing and underwritten capital raise. Funds will be used to continue to develop and optimise the high-grade iron ore concentrate Kallak project in Sweden, alongside the Grafintec Graphite Anode Materials plant in Finland. We look forward to further updates.

*SP Angel acts as Nomad and Broker to Beowulf Mining

Kenmare Resources (KMR LN) 302p Mkt cap £270m – Results show lower ilmenite production on grade decline

• Kenmare Resources, mineral sands producer in Mozambique, provide their preliminary annual results.
• The Company reports $220m in EBITDA, commits to a total 56c/share dividend for the year, with final dividend payable in May.
• Mineral product revenue fell 12% on a 10% decline in product prices and a 3% reduction in shipments.
• Total Heavy Mineral Concentrate for the period stood at 1.45mt, with lower grades and mining rates weighing on production.
• Ilmenite production guided for 950kt-1,050kt in 2024, vs 986kt in 2023.
• Costs increased 4% on the back of higher fuel costs and impacts of the 1Q23 lightning strike.
• Cash operating costs per tonne increased 15$ to $209/t, impacted by a 9% decrease in production.
• Net cash at year end stood at $20.7m.
• The Company completed a buy-back of 5.9% of outstanding shares in September 2023.
• A Revolving Credit Facility of $200m was also agreed post-period, supporting planned CAPEX requirements.

Sibanye Stillwater (SBSW US) $4.14 Mkt cap $2.9bn – incident at Rustenburg suspends shaft production

• Sibanye reports a surface infrastructure incident at its Siphumelele shaft.
• An Ore collector bin has damaged a surface ore conveyor belt system.
• No injuries reported, however the Company is assessing the impact to annual production.
• Siphumelele was forecast to produce 54k 4Eoz, equivalent to 3.5% of Sibanye’s South African PGM operations.

East Star Resources (EST LN) 1.5p, Mkt Cap £3.3m – New porphyry copper exploration target in Kazakhstan

• East Star Resources announces that it has secured a second exploration licence covering a copper porphyry target in Kazakhstan where the company is already working on resource definition at a copper target in the Rudny Altai volcanic-massive-sulphide (VMS) belt.
• The new 121km² licence, known as the ‘Snowy Project’ is being funded initially by “a US$500,000 grant from the BHP Xplor programme”.
• The project area “shows historical soil anomalies indicating its potential prospectivity for a copper porphyry deposit” with a “6km long and 3km wide silica lithocap located ~150km north of the large Kounrad open pit copper mine and smelter”.  The company reports that Kounrad hosts “~800Mt @ 0.62% Cu and up to 0.76g/t Au”.
• BHP Xplor’s “grant will be directed towards licence costs, field programmes, desktop evaluation work, and staff and administrative costs in the execution of the work plan. The programme will be managed by East Star with input from BHP and a wider team of experts”.
• Explaining the background to the Snowy Project, East Star Resources’ Technical Director, Chris van Wijk, said that the project “was subjected to an initial site visit in September 2023 and we were able to confirm several zones of hydrothermal alteration near to a very large silica lithocap which was identified from satellite imagery”.
• He confirmed that the company is “looking forward to starting our planned programme of geological mapping and soil sampling to advance this project as well as continuing to generate other prospects within our area of interest as part of our BHP Xplor-backed programme”.
• The initial exploration will “consist of confirmatory geological mapping and broadly spaced soil samples combined with Terraspec analysis. The results of this exploration will enable the Company to confirm or negate the prospectivity of the system through analysis of the metal zonation patterns and the clay species within the soils” and, presumably, assess an appropriate future exploration plan.

Conclusion: The support of BHP’s Xplor programme is facilitating an expansion of East Star Resources’ copper exploration in Kazakhstan.  We await results with interest.

Kodal Minerals* (KOD LN) 0.46p, Mkt Cap £91m – New NED from Fosun Resource Group appointed

BUY – Target 0.97p

(Hainan Mining holds a 51% stake in KMUK which holds the Bougouni Lithium Project in Mali with Kodal holding 49%. The Mali government has the right to a free carry on 10% of the project and an option to acquire an additional 10% stake)

• Kodal Minerals reports the appointment of a new NED from Fosun Resource Group
• Lei Teng also known as David Teng is president and vice chairman of Hainan Mining Co Ltd. He is also an accountant.
• David’s appointment to the board related to the US$117.75m funding by Haiana and its UK-incorporated subsidiary Xinmao Investment Co. Limited
• Xinmao and Hainan Group hold 14.72% of Kodal Minerals.
• Kodal’s Bougouni  project is held under KMUK where 49% owned by Kodal and 51% by the Hainan Group.
• Bougouni capex US$65m est.
• Production to start Q4 2024 est. depending on local license transfer
• Funding is available for further exploration and infill drilling programmes to increase the Bougouni JORC resource which currently stands at 31.9mt grading 1.06% lithium oxide.

*SP Angel acts as financial advisor and broker to Kodal Minerals.

Sovereign Metals* (SVML LN) 24.22p, Mkt Cap £138m – Sovereign ships 30t of ore from Kasiya rutile / graphite project in Malawi

(Sovereign currently holds 100% of the Kasiya project. The government has a right to a 10% free carry in the project)

• Sovereign Metals report the production and shipping of 30t of rutile and graphite ore from its Kasiya project in Malawi..
• The material is to be used as representative samples for the first ten years of expected production and is to be tested in bulk laboratory scale test work
• The samples will be used to optimise the technical elements of PFS including pumping and tailings characteristics along with dewatering.

*SP Angel act as Nomad and broker to Sovereign Metals.

Sierra Rutile (SRX AU) A$0.1 Mkt cap A$33m – Takeover offer from Gerald Group subsidiary as global mineral sand supply dwindles

• Sierra Rutile, mineral sands producer in Sierra Leone, has received an unsolicited takeover offer.
• The Company has received an on market takeover bid from PRM Services.
• The offer stands at A$0.095/share in cash.
• PRM Services currently holds 11.5% of Sierra Rutile stock.
• Management of SRX have recommended shareholders take no action in relation to the bid and will provide shareholders with an update in due course.
• PRM Services is a company associated with metals trader Gerald Group, which is also developing an iron ore concentrate project in Marampa.
• Mano Group, a mining contractor working for Sierra Rutile before suspension, has also been acquiring stock in the Company this year.

Conclusion: It is interesting to see Gerald Group make an unsolicited, on market takeover bid for Sierra Rutile. The Company has been hit in recent months by a combination of weak rutile prices and a dispute with the Sierra Leone government over tax and royalties going forward. The Company’s Sembehun Area 1 JORC reserves hold three years further mine life, with additional deposits across the asset offering potential for another 13 years. Titanium dioxide mine supply continues to dwindle, with analysts expecting demand growth of rutile products to exceed supply in the medium term.

*An SP Angel mining analyst has previously visited Sierra Rutile’s rutile mine in Sierra Leone

Strategic Minerals* (SML LN) 0.28p, Mkt Cap £4.5m – Expansion of exploration area in Cornwall

• Strategic Minerals has announced agreement with the Duchy of Cornwall to expand its prospecting area in east Cornwall’s Tamar Valley by ~64. km² to ~88km².
• The expansion, which extends the company’s existing exploration area at its Redmoor project towards the north and east, provides an “exclusive exploration period of 3 years, effective from 1^st April 2024, with an option to extend further”.
• Initial exploration work will “focus on a desktop review prior to the continuation of the low-cost, high-impact, regional exploration and targeting program, following on from the activities undertaken as part of the successful Deep Digital Cornwall Project”.
• Welcoming the near quadrupling of its exploration area, Strategic Minerals’ Chairman, Alan Broome, explained that its wholly-owned subsidiary, Cornwall Resources (CRL), “regional presence has been significantly strengthened with the addition of these prestigious mineral rights in areas that historically supported active mining within the Tamar Valley Mining District”.
• Mr. Broome said that the expansion of its exploration holdings “further underwrites the Company’s strategy to be part of, and benefit from, the resurgence of mining activity in the UK and directly contribute to the deliverability of the UK’s Critical Minerals Strategy and Cornwall’s ambition to be a world-class region for metal mining and georesources”.
• Following ~14,000m of drilling at Redmoor, in 2019 the company announced an ‘Inferred’  mineral resource of 11.7mt at an average grade of 0.56% tungsten trioxide, 0.16% tin and 0.5% copper and has subsequently identified further exploration targets within its original land package.
• The additional land announced today “includes historically productive mines, key exploration areas and other sources of metals … in the historically productive mining region, known as the Tamar Valley Mining District”.
• Strategic Minerals explains that the expanded area includes mineral rights “adjacent to CRL’s Redmoor Sheeted Vein System, adds the historically mined areas to the immediate north, including Redmoor Mine, Kelly Bray Mine, Holmbush Mine and other lodes, collectively the Redmoor Consolidated Mines, into CRL’s operating area. This allows for more effective exploration at Redmoor, and the possibility of building resources in Redmoor’s immediate proximity”.

Conclusion: The additional exploration footprint in the historic Tamar Valley mining area provides Strategic Minerals an opportunity to build upon the mineral resources already defined at Redmoor and we look forward to further news as the exploration moves from initial desktop evaluation to on-site exploration work.

*SP Angel acts as Nomad and Broker to Strategic Minerals

Versarien* (VRS LN) 0.14p, Mkt Cap £1.33m – Versarien raises £615,000 following agreement with Montana Química in Brazil to use graphene inks

• Versarien has raised £615,000 through the placing of 492,000,000 new shares at 0.125p/s
• Proceeds are to be used for corporate and working capital as management make progress in turning the business around.
• Versarien recently sold their South Korean assets together with an exclusive licence agreement with MCK Tech for the use of five patents for £604,000 with £60,400 already paid and £543,600 due by 31 July.
• The plant lost £771,690 in the 18 months to 30 September 2022 highlighting its cash drain on the company. The plant assets were carried on the balance sheet at £844,151.
• Versarien’s mature businesses, AAC Cyroma Limited and Total Carbide Limited, continue to be marketed for sale with discussions ongoing.
• Versarien recently reported agreement with Montana Química LTDA, a Brazalian -based multinational for the use of certain formulations of graphene inks to be manufactured and sold in South America.
• Montana makes paints, wood preservatives and other wood finishing products including stains and varnishes.
• Montana are paying £50,000 for know-how and technical assistance, including training plus £25,000 on manufacturing and an effective 5% of the total sales revenue earned from products manufactured using Versarien’s intellectual property and know-how subject to minimum Royalty payments of £25,000pa.

Conclusion:  Versarien appear to be turning a corner through the commercialisation of its graphene inks and the sale of its loss-making assets. While it has taken an age for graphene to find new formulas for commercial application we are beginning to see graphene enhancing more and more applications. We look forward to new contracts for Versarien’s Cementene™ concrete modifier along with a range of other products once management have achieved their turnaround targets.

*SP Angel acts as Nomad and Broker to Versarien

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%”

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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

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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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