SP Angel Morning View -Today’s Market View, Wednesday 25th October 2023

China plans $140bn sovereign bond offering to support economic momentum

MiFID II exempt information – see disclaimer below

Last brick in the wall financing required for Graphite miner

• Management have already mined one year of production and has already commissioned the front section of the process plant
• Process plant almost ready to commission back end of plant to get to 98% Cg
• The team have already upgraded 20 tonnes of graphite to ~94% Cg with the material ready for the polishing mill
• Almost all the capital required has been spent to developing the mine and plant to this stage
• The company is now looking for a financial backer to fund:

• • Working Capital (WIP)
  • ‘spargers’ to fit into their flotation columns to improve recovery rates ($360,000)
  • a new Solar power plant for 1.5MW capacity (€3.5m). should put the mine in the lowest cost quartile

• A liquidity event is planned for the next 3-6 months
• The mine has all permits for full production and graphite export and is debt free

*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.

Arkle Resources* (ARK LN) – Prospective lithium pegmatite exploration licences secured on Ganfeng project border

Empire Metals* (EEE LN) – Diamond drilling progresses at Pitfield as core provides confidence in deeper and extensive mineralisation

Power Metal Resources* (POW LN) – Operational and Business update as portfolio development continues

GreenRoc Mining* (GROC LN) – Graphite mine PEA due next week

SolGold* (SOLG LN) – Cascabel and Ecuador exploration portfolio attracting widespread third party interest

Copper climbs as Beijing rolls out stimulus measures

• LME copper prices moved to $8,050/t whilst Shanghai prices jumped to $9,147/t, their highest in a fortnight.
• Beijing is issuing over a trillion in yuan bond coupons, to fund rebuilding disaster zones and upgrading infrastructure.
• Copper rod producers are seeing activity rates climb to two-year highs, supporting demand optimists. (SMM)
• Inventories remain high and futures are still in contango, suggesting that spot demand has yet to pick up.
• Majors continue to warn over CAPEX inflation, with Teck’s QB2 hit yesterday by cost overruns and Chile’s Cochilco warning of rising service costs.
• We see a higher incentive price, closer to $8,800-9,000/t as necessary for additional production to be brought online, with deficit expectations intensifying the longer prices remain at these levels.

Gold consolidates levels as Treasury yields slip on sell-off fatigue

• Gold prices are settling around $1,970/oz, following their 10% rally on the back of Hamas’ attack on Israel at the beginning of this month.
• Prices eased faster than expected in yesterday’s US data drop, supporting bets on cooling inflation.
• The US labour market remains in focus, with GDP numbers due tomorrow and the Fed’s key inflation gauge, the PCE Index, due on Friday.
• Investors are picking up attacking 5% yields across the curve, with buying supporting easing yields.

Lithium giant complains of manipulated lithium prices

• Management at MinRes, one of WA’s largest spodumene producers, complained on yesterday’s call that ‘market manipulation’ is a factor in current weak prices.
• They noted that ‘there is a lot of paper trading in the market right now’ and that the indices prices are weighing on earnings.
• Spodumene prices fell 30% qoq in Q3 to $1870/t sold by the Company from their Mount Marion operation.

Titanium demand rises as Aerospace sector ramps up production.

• Argus Media reports ‘Steeply rising orders and build rates in the commercial aerospace sector, alongside record military spending, will drive up titanium demand in the coming decade’.
• While titanium dioxide production for pain represents by far the largest single use for titanium feedstock new demand from aerospace is good news.
• Falling mine supply is serving to constrain available feedstock raising ilmenite concentrate prices since July to $314/t from $298/t in July for 46% TiO2 Fe2O3 8%max; Ex-VAT EXW China
• We suspect there is a degree of inventory building to safeguard from potential interruption to mine supply and logistics.
• Strandline Resources: We note new production from Strandline’s Coburn project in Western Australia which is targeting HMC production of 320,000tpa.
• Argus reports a preference for single-aisle is both driving and limiting demand owing to lower usage in single-aisle airframes compared with twin-aisles.
• Demand for single-aisle aircraft is now at record highs with an 80:20 mix between single and double aisle airframes.
• Military expenditure rose 3.7% in real terms to a record high of $2.24tn last year driven higher by the conflict in Ukraine in 2022 (Sipri).
• An F-22 has ~39% titanium content by weight with the V-22 and F-35 at 31% and 20%. These planes use more than the F-17, Typhoon or F-18 weigh in at 7-12% (Howmet Aerospace).

Economics

US – Preliminary PMI numbers for October came in better than expected with business activity growth picking up to a three-month high.

• Demand conditions at manufacturers improved for the first time since April, while service providers recorded a slower drop in new orders.
• Interestingly, inflationary pressures pulled back with final goods and services prices measure easing to the weakest since June 2020, a very welcome development for the US Fed.
• Employment increased slightly led by service providers, as manufacturing firms registered a marginal drop.
• Earnings season is in a full swing with 81% of the 118 companies in the S&P 500 index that reported quarterly results so far have beaten market expectations.
• Nearly a third of S&P 500 companies are expected to release their results this week.
• PMI Manufacturing PMI: 50.0 v 49.8 September and 49.5 est.
• PMI Services PMI: 50.9 v 50.1 September and 49.9 est.
• PMI Composite PMI: 51.0 v 50.2 September and 50.0 est.

China – Lawmakers approved a plan to increase budget deficit ratio for 2023 with administration planning to issue CNY 1tn worth of sovereign debt in Q4/23.

• Fiscal deficit to GDP ratio has been revised to 3.8% for this year, up from 3%, as the government is planning to step up spending in an effort to support economic growth momentum.
• The last time China revised its budget mid-year was in 2008 around the global financial crisis, in the aftermath of the Sichuan earthquake and in the wake of the Asian financial crisis in the late 1990s.

Country Garden defaults on its dollar debt for the first time after failing to complete the payment within a grace period that ended last week, Bloomberg writes.

• Citicorp International, a bondholders’ trustee, must now declare principal and interest due immediately if holders of at least 25% of outstanding notes demand it.
• Missed payment involved a $15m interest on dollar bond due by the end of a 30-day grace period.
• Developer’s dollar notes are reported to be trading around 5 cents on the dollar down from near 80 cents in June.

Has China bet the farm on the rapid development of Electric Vehicle manufacturing?

• Every day brings new questions on how China manages its economy.
• Given the huge debts run up by Evergrande, Country Garden and other property developers, we wonder if China has bet its economic salvation on its ability to export millions of Electric Vehicles.
• Chinese companies have aggressively acquired lithium, cobalt and copper miners at huge costs outbidding all but the most determined of rivals leaving Western automotive manufacturers in the cold.
• China’s ability and intention to weaponise graphite should enable Chinese EV manufacturers to get ahead while their Western rivals struggle to get started.

Germany – Business sentiment ticked up in October, although, that is likely to do little to avert a contraction in the economy in the six months period to December.

• A contraction is attributed to the high energy costs, weak Chinese demand and higher interest rates.
• Ifo Business Climate: 86.9 v 85.8 September (revised from 85.7) and 86.0 est.
• Ifo Current Assessment: 89.2 v 88.7 September and 88.5 est.
• Ifo Expectations: 84.7 v 83.1 September (revised from 82.9) and 83.5 est.

Australia – Hotter than expected inflation in Q3/23 significantly raises chances of a 25bp rate hike before year end.

• The A$ climbed this morning following the release of inflation data and market odds of another rate increase before YE increased to ~80%, up from ~45% pre announcement.
• The rate is currently at 4.1% up from 0.1$ in early 2022 following a series of hikes over the last two years.
• CPI (%qoq): 1.2 v 0.8 Q2/23 and 1.1 est.
• CPI (%yoy): 5.4 v 6.0 Q2/23 and 5.3 est.

When / where is the next Bre-X?

• While the mining industry has cleaned up its act there are always criminals looking to take investors for a ride.
• Bre-X was a highly organised and sophisticated fraud the largest seen in the mining industry at the time of its $6bn collapse in 1997.
• The lithium sector looks ripe for another major fraud, and we are just wondering which Argentinian lithium company it is being perpetrated in?

Currencies

US$1.0584/eur vs 1.0661/eur previous. Yen 149.90/$ vs 149.41/$. SAr 19.100/$ vs 18.950/$. $1.215/gbp vs $1.226/gbp. 0.636/aud vs 0.637/aud. CNY 7.315/$ vs 7.306/$.

Dollar Index 106.36 vs 105.45 previous.

Commodity News

Precious metals:

Gold US$1,970/oz vs US$1,975/oz previous

Gold ETFs 86.5moz vs 86.6moz previous

Platinum US$884/oz vs US$902/oz previous

Palladium US$1,122/oz vs US$1,136/oz previous

Silver US$22.83/oz vs US$23/oz previous

Rhodium US$4,300/oz vs US$4,750/oz previous

Base metals:

Copper US$ 8,040/t vs US$8,003/t previous

Aluminium US$ 2,208/t vs US$2,174/t previous

Nickel US$ 18,235/t vs US$18,255/t previous

Zinc US$ 2,459/t vs US$2,434/t previous

Lead US$ 2,102/t vs US$2,119/t previous

Tin US$ 25,110/t vs US$25,015/t previous

Energy:

Oil US$87.7/bbl vs US$90.5/bbl previous

• Crude oil prices edged lower as the API reported a smaller w/w 2.7mb draw (vs -1.5mb/d expected) on US crude stocks last week, with most traders focused on any signs of escalation in the Gaza conflict.
• Halliburton reported free cash flow of over $500m during 3Q23, which it used to repurchase ~$200m of stock and pay down $150m in debt, with management predicting a long duration to the current upcycle.

Natural Gas €50.000/MWh vs €49.600/MWh previous

Uranium UXC US$69.00/lb vs US$72.75/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$116.1/t vs US$112.7/t

Chinese steel rebar 25mm US$533.9/t vs US$534.8/t

Thermal coal (1st year forward cif ARA) US$133.0/t vs US$133.0/t

Thermal coal swap Australia FOB US$135.0/t vs US$140.0/t

Coking coal swap Australia FOB US$325.0/t vs US$325.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$70,675/t vs US$71,314/t

Lithium carbonate 99% (China) US$21,804/t vs US$21,559/t

China Spodumene Li2O 6%min CIF US$2,010/t vs US$2,010/t

Ferro-Manganese European Mn78% min US$1,021/t vs US$1,029/t

China Tungsten APT 88.5% FOB US$300/mtu v US$300/mtu

China Graphite Flake -194 FOB US$630/t vs US$630/t

Europe Vanadium Pentoxide 98% 6.2/lb vs US$6.2/lb

Europe Ferro-Vanadium 80% 26.25/kg vs US$26.25/kg

China Ilmenite Concentrate TiO2 US$314/t vs US$314/t

Spot CO2 Emissions EUA Price US$84.0/t vs US$84.6/t

Brazil Potash CFR Granular Spot US$340.0/t vs US$340.0/t

EV / Battery News

Toyota unveils 1000km Lexus EV as electrification plans ramp up

• Toyota has unveiled a Lexus concept car with a roughly 1,000km range that it aims to roll out by 2026.
• It is part of the Japanese automaker’s strategic pivot to EVs reliant on advanced battery technology.
• Toyota have been slow adopters of EVs, preferring to split their focus between EVs, hydrogen vehicles and other biofuels.
• The LF-ZC concept car, which debuted at the Japan Mobility Show, uses “prismatic, high-performance” batteries that achieve around twice the range of conventional EVs.
• Toyota announced in June an ambitious plan to ramp up in battery EVs, including the launch of the next-generation lithium-ion batteries that offer longer ranges and quicker charging.
• The company says it has achieved a “breakthrough” in overcoming problems previously identified with the durability in solid-state batteries and aims to sell vehicles powered by solid-state batteries by 2027 or 2028.
• Toyota has committed to having battery EVs account for 100% of global sales of the luxury Lexus brand by 2035.

Stellantis enters battery recycling JV with French nuclear fuels firm Orano

• Automaker Stellantis will enter a joint venture with Orano to recycle used EV batteries and scrap materials from its gigafactories in Europe and North America.
• The deal will give Stellantis additional access to the cobalt, nickel and lithium necessary for electrification and the energy transition, the announcement said.
• The joint venture will produce materials also known as ‘black mass’ or ‘active mass’, which will be refined so that it can be re-used in batteries.
• Orano’s technology allows the recovery of all materials used in lithium-ion batteries, with recovery rates of metals that can go above 90%.
• Production will start in the first part of 2026.

$10,600 EV by the same designer as a $3m hypercar

• Joachim Nordwall, former design director for Koenigsegg, known for designing the $3m hypercar Jesko, has created a new EV, the Luvly O.
• Luvly O is an EV designed by Nordwall for Swedish EV manufacturer Luvly, priced at €10,000, aiming to provide affordable, sustainable, and safe transportation.
• Luvly O addresses sustainability concerns by minimizing battery size through lightweight design. The vehicle’s body is made from a single lightweight material that is easy to recycle.
• The EV emphasizes simplicity in design and production. The company has streamlined assembly processes, enabling vehicle parts to be distributed to microfactories in flat packs, reducing emissions and pollution.
• The car features an innovative two-battery swap system, making charging convenient. It can be charged anywhere, and the minimalist design includes an intuitive interface for easy communication with the vehicle.
• Luvly claims their production methods result in energy savings of “up to 80%” during production and operation of the vehicle.
• The Luvly O has a range of 100km (62 miles), making it suitable for urban and short-distance travel, particularly in European cities. However, there are limited prospects for Luvly O in the United States.

Clean energy is officially ‘unstoppable’ now

• The International Energy Agency (IEA) forecasts a greener global energy landscape by 2030, with significantly increased use of EVs and renewables.
• The IEA states that renewables will constitute 50% of the world’s electricity mix, and solar panels alone will generate more electricity globally than the entire US power sector.
• Renewable energy, particularly solar and wind, is becoming cheaper than fossil fuels, leading to reduced demand for coal, oil, and gas, which is expected to peak this decade.
• Governments plan to deploy around two-thirds more renewable energy by 2030 than in previous years, according to energy think tank Ember.
• Electrification efforts are essential, with electric heat pumps expected to outsell fossil fuel boilers globally by the end of the decade, and EVs making up one in five cars sold in 2023.
• The IEA report suggests the need to triple global renewable energy capacity and increase investments in clean energy in developing economies.
• Despite advancements, the world is still on track to reach approximately 2.4 degrees of global warming this century.

Japan’s to trial wireless EV charging at traffic lights

• Researchers in Japan are conducting a pilot program in Kashiwa City, Chiba Prefecture, to embed wireless charging technology into road surfaces, allowing electric vehicles to charge at traffic signals.
• EVs waiting at traffic lights equipped with the necessary technology can wirelessly receive a 10-second charge, adding approximately 1 km (0.6 miles) of range.
• Successful trials could lead to implementation at all traffic signals in the city, potentially adding 10-20 miles of extra range, depending on the number of red lights encountered.
• Unlike previous wireless charging methods that require precision parking over specific charging plates, this system integrates charging coils directly into the road surface.
• The pilot program runs from the current month until March next year, with companies like Bridgestone, Mitsui Fudosan, ROHM, and NSK partnering with the University of Tokyo for research and testing.
• Despite the potential benefits, current wireless charging technology is in its early stages, with existing systems being clunky and slow. Challenges include infrastructure installation and road works.

Company News

Arkle Resources* (ARK LN) 0.5p, Mkt Cap £2m – Prospective lithium pegmatite exploration licences secured on Ganfeng project border

• Arkle announces the acquisition of a new lithium exploration block on the Wicklow/Wexford border in Ireland.
• The Company has secured four licences prospective for lithium and rare earth elements alongside gold and platinum.
• The total licence spend was €3k and Arkle is required to spend €10k in exploration costs over the next 24 months.
• The licences were secured owing to their potential for lithium-bearing pegmatites, lying contiguous to Ganfeng Lithium’s JV to the west.
• The licence package covers c.126m² in total and management believes it is ’prime ground which has never been explored for lithium.’
• Exploration programmes are expected to be announced ’in the near future.’
• There is a pre-NI 43-101 resource at Aclare House of 570kt @ 1.5% Li20.
• Avalonia drilling in 2018 showed narrow intersections of up to 2.78% from 50m.

*SP Angel are Nomad and Broker to Arkle Resources

Empire Metals* (EEE LN) 4p, Mkt Cap £22m – Diamond drilling progresses at Pitfield as core provides confidence in deeper and extensive mineralisation

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(Empire holds a 70% interest in the Pitfield prospect 313km north of Perth, WA)

• Diamond drilling at Pitfield is reportedly two thirds towards completion.
• Two holes have been drilled, one near Mt Scratch where previous RC drilling identified titanium mineralisation, and one 30km to the south.
• The first hole is showing similar titanium mineralisation throughout ‘the entire length of the hole.’
• Mineralisation at Mount Scratch reportedly remains open at depth and along strike.
• At the second hole, 30km south, similar stratabound titanium mineralisation is reportedly showing, contained in coarser sedimentary host rocks.
• Assay results are pending and the Company is currently logging and sampling the drill core.
• Alongside drilling, the Company is executing field activities, mapping and rock chip sampling over the significant gravity high anomaly noted in the airborne gravity survey.
• A 6,000m RC campaign over 40 holes is set to begin this quarter, drilling over the entirety of the magnetics anomaly.

*SP Angel acts as nomad and broker to Empire Metals

Power Metal Resources* (POW LN) 0.65p, Mkt cap £13.5m – Operational and Business update as portfolio development continues

• Power Metal provides a summary of its objectives and business interests.
• The Company’s primary business objectives are completing transactions with third parties for JVs, acquisitions or engagement to progress projects.

• • Cost effective exploration is key and will be funded by opportune project disposals.
  • Expand POW’s shareholder base into new investor groups.
  • Identify new jurisdiction opportunities, for example Saudi Arabia and Oman.
  • Exploration and value generation.

• At the Athabasca Basin, the Company is currently completing its 2023 exploration programme and is working towards more conclusive targets.
• At the North Wind lithium project, assay results are due from sampling programmes.
• At Molopo Farms, the Company is working towards targeting a new major conductor prospective for nickel/platinum.
• At Tati Gold, publication of 2023 exploration efforts is due.
• At the Wallal Project, the Company is looking to drill the ‘magnetic bullseye target,’ bearing similarities to the Havieron Project.
• Discussions are ongoing for third party involvement at Tati and Molopo Farms.
• The First Development IPO process is ongoing, and the team are waiting for more ‘normalised market conditions.’

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

GreenRoc Mining* (GROC LN) 3.60p, Mkt Cap £5.3m – Graphite mine PEA due next week

• GreenRoc Mining have announced they will be presenting results of their Amitsoq PEA ‘Preliminary Economic Assessment’ next Thursday.
• Investors are invited to register using the following link
• GreenRoc Resource Estimate and parameters for upcoming PEA:

• • 400,000t of ore output for
  • ~80,000t of graphite concentrate

• Total Resource: 23.05mt grading 20.41% Cg at a cut-off grade of 0% Cg JORC inferred.

• • 1.26mt of Measured Resource @ 22.05% Cg,
  • 6.12mt Indicated Resource @ 21.04% Cg from 2.04mt – a 200% increase over the 2022 MRE,
  • 15.67mt Inferred Resource @ 20.04% Cg from 6.24mt – a c.150% increase over the 2022 MRE,

*SP Angel acts as broker to GreenRoc Mining

 SolGold* (SOLG LN) 8.16p, Mkt Cap £243m – Cascabel and Ecuador exploration portfolio attracting widespread third party interest

• Solgold has issued an announcement describing current operations and initiatives following the consolidation of Cornerstone Resources’ interests which leave it with full ownership of the 2.6bn tonnes ‘Measured & Indicated’ resources at the Cascabel copper/gold project in Ecuador.
• Solgold confirms that it has continuing discussions with a number of interested parties and that it has secured “Over 20 active CAs … [and that] … over 5 site visits …  [have] … already … [been] … conducted”.
• The discussions include both the Cascabel project and / or “SolGold’s Ecuadorian exploration portfolio”.
• The company also confirms that following the raising of “US$86 million raised through the 2022 royalty investment by Osisko Gold Royalties Ltd and equity financing, which included Jiangxi Copper Company Limited … [its] … Work plans … [are] …funded for FY 2024 … [and that it will need no additional financing] … in the near-term”.
• CEO, Scott Caldwell, emphasised the alignment of the interests of senior management with those of shareholders explaining that management had made meaningful personal investments in Solgold and that both the CEO and CFO were receiving a low “annual base salary of US$200,000 … [with] … equity compensation tied to higher share prices … ensuring full alignment with shareholders”.
• Commenting on its continuing focus on cost reduction and containment, Solgold confirms that it has reduced its staffing levels by almost 70% to “282 in September 2023 … [from] … 894 in FY 2022”.
• Solgold highlights the Exploitation Agreement with Ecuador’s Government which provides an initial 33-year agreement at Cascabel with renewal opportunities as well as a reduction in the project’s tax rates to 20% from the previous 25% level.
• Mr. Caldwell emphasised his confidence in the quality of the Cascabel asset and confirmed his view that “Cascabel will one day become a multigenerational mine and a substantial contributor to the Ecuadorian economy”.

Conclusion: External interest in both the Cascabel project and Solgold’s exploration portfolio in Ecuador endorses the quality of the assets and we look forward to news of possible corporate developments as well as to the revised PFS early in 2024.

*SP Angel acts as Financial Advisor to SolGold

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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