SP Angel Morning View -Today’s Market View, Wednesday 26th April 2023

Positive US corporate earnings lift risk sentiment

MiFID II exempt information – see disclaimer below

Alien Metals (UFO LN) –– Hancock ore reserve shows 1.9mt grading 60.2% Fe

Bluebird Merchant Ventures (BMV LN) – Kochang permitting a priority as efforts to reopen the old mine pick up post-Covid

Empire Metals* (EEE LN) – Exploration licence granted for Walton Copper-Gold-Lithium Project

Gem Diamonds (GEMD LN) – Letšeng diamond mine continues to deliver large, high value stones.

Kore Potash* (KP2 LN) – Q1/23 operational update highlights ongoing discussions with Chinese EPC partners on the Kola project

Sunrise Resources (SRES LN) – Resource drilling at the Pioche sepiolite project expected to start in June.

Thor Energy (THR LN) – Review of drilling at Alford East reports rare-earth assays.

Gold – $1,999/oz – Gold tests $2,000/oz mark as traders look for Fed clues debt ceiling concerns surface

• Gold prices have been bouncing around $1,990/oz and $2,000/oz as traders look for direction in the lead up to the FOMC meeting next week.
• Data yesterday showed US consumer confidence hit a nine-month low this month, with economists retaining their belief that a recession will hit the US this year.
• Friday’s personal consumption expenditures report will be in focus for gold market participants.
• Although a 25bp hike is all-but priced in, however traders will look to Jerome Powell’s language.
• Expect signals of a hike in June to provide a significant headwind to gold’s current rally, although the contrary would likely propel gold past recent highs.
• The market currently sees the chance of a June hike around a 20% possibility.
• Gold has also been supported by concerns over the debt ceiling debate in the US, with the deadline approaching.
• Analysts suggest that weak tax collections could move the point where the US Treasury is unable to pay its bills into June.
• US Credit Default Swaps have climbed to 2011 highs over concerns that the debt ceiling debate will not be resolved imminently.

Copper prices slide as inventories rise on weaker Chinese demand.

• Copper prices slid to $8,505/t, before climbing back to $8,610/t this morning.
• The move marked monthly lows for copper as traders continue to focus on China’s disappointing property investment and industrial output.
• LME inventories jumped 14% to their highest level in seven weeks, highlighting weaker physical demand.
• Traders are slashing bullish copper bets but remain net-long on the LME.

International Nickel Study Group boosts demand forecasts

• The INSG expects nickel demand globally to increase to 3.13mt in 2023 vs 2.96mt in 2022.
• However, it expects nickel output to increase to 3.37mt in 2023 vs 3.06mt in 2022.

Iron ore slides under $100/t as National steelmaker’s association raises alarms

• Singapore iron ore futures fell 2.5% to $99/t.
• China Iron & Steel Association, which represents the country’s top producers, stated in a note that ‘there has been a sustained and rapid decline in steel prices in the domestic market, posing severe challenges to the production and operation of steel enterprises.’
• With recent demand weakness, steel mills are suffering loss-making output.
• We remind readers that Beijing has been making concerted efforts to lower iron ore prices for several months, forming a centralised cartel to improve market control.
• China imports over 80% of its required iron ore supply.

 Economics

What are oil prices telling us (Brent oil US$81.0/bbl)?

• Normally a lower oil price tells us the global economy is slowing?
• Have Chinese and Indian traders bought so much Russian oil at discounted prices that the world is now awash with Russian oil?
• Is the European $60/bbl price limit on Russian oil having some effect?
• OPEC: the market is surprised that OPEC cutbacks are failing to support oil prices
• EVs: are oil prices falling due to the rapid take up and use of EVs?
• In the US, PHEVs travelled 19.1bn miles last year out of a total 755bn miles driven in the US last year
• High EV usage may be reducing oil consumption by more than expected as new vehicles are driven more than the older fleet and new EVs potentially doing a greater mileage
• Global EV sales accounted for 13-14% of total passenger vehicle sales in 2022 vs 8.3% in 2021 (BEVS at 9.5%, PHEVs at 3.5%)
  • China’s market share stood at 27%,
  • Europe at 20.8%,
  • USA at 7.2%,
  • Norway at 71% BEV
• Inflation: Lower oil prices are good for reducing inflation
• Interest rates: Lower inflation should enable policy makers to ease off on interest rate hikes
• Ukraine: Lower oil prices are also starving Russia of funds for its war in Ukraine. The average cost of production in Russia is around $44/bbl with Indian and Chinese traders demanding hefty discounts to global oil prices for shipping Russian crude and oil products.

Conclusion: Lower oil prices are hugely beneficial right now in the effort to reduce inflation and interest rates. While many may see this as an indication of slower global GDP growth we are conscious that the marginal fall in demand caused by increasing EV use, combined with slightly slower economic growth and more efficient logistics / distribution networks may be having a greater impact on demand and therefore prices.

US – A mixed set of data released yesterday with an improvement in the housing market reported as new home sales climbed more than expected in March while on a less positive front consumer confidence pulled back this month.

• New home sales unexpectedly increased in March to the highest in a year as many homeowners are hesitant to list their homes in the current rate environment and buyers are increasingly turning to the new home market, Bloomberg reports.
• Consumer sentiment hit the lowest since July driven by more pessimistic economic outlook.
• “While consumers’ relatively favourable assessment of the current business environment improved somewhat in April, their expectations fell and remain below the level which often signals a recession looming in the short term,” Conference Board commented on the data.
• Separately, reports from big tech including Microsoft and Alphabet beating estimates helped the sentiment with equity futures trading higher this morning.
• New Home Sales (%mom): 9.6 v -3.9 (revised from +1.1) February and -1.3 est.
• Conference Board Consumer Confidence: 1001.3 v  104.0 (revised from 104.2) March and 104.0 est.

China – Investors shun China as equities and yuan weaken as property market fails to revive

• China’s equity index is headed for its worst April since 2004.
• The offshore yuan hit a seven-week low against the Dollar.
• The Chinese property sector remains weak, with new home starts falling 29% yoy in March vs a 9% yoy slide in Jan-Feb.
• Total real estate investment in China fell 5.9% in March vs 5.7% in Jan-Feb. (Bloomberg)
• Local government land sale proceeds fall 27% in Q1 vs a 23% decline in 2022, in further signs developers are limiting their acquisitions despite relative bargains vs pre-pandemic levels.
• More positively, outstanding loans to real estate sector climbed 6.4% yoy in march vs 5.7% in February and 4% in December.
• Furthermore, defaults shrank to $8.4bn worth of missed payments in Q1 vs $16.2bn in Q1 22.

Germany – Consumer sentiment outlook improved in May to the highest in over a year, although, on absolute levels remained quite low weighed down by high borrowing costs and ongoing inflationary pressures.

• GfK consumer Confidence: -25.7 v -29.3 (revised from -29.5) April and -28.0 est.

France – Consumer Confidence: 83 v 82 (revised from 81) March and 81 est.

Australia – The currency trades lower after inflation data showed core measure slowed down in Q1/23 supporting the case for a rate pause next week.

• Trimmed mean CPI, the RBA’s preferred measure of inflation, slowed to 6.6%yoy coming in below estimates.
• Ten consecutive hikes seem to have been effecting in gaining traction with slowing down the inflation rate with policymakers expected to leave the rate unchanged at 3.6% this month.
• CPI (%yoy): 7.0 v 7.8 Q4/22 and 6.9 est.
• Trimmed Mean CPI (%yoy): 6.6 v 6.9 Q4/22 and 6.7 est.

Currencies

US$1.1024/eur vs 1.1038/eur yesterday. Yen 133.56/$ vs 134.22/$. SAr 18.309/$ vs 18.218/$. $1.246/gbp vs $1.247/gbp. 0.662/aud vs 0.668/aud. CNY 6.919/$ vs 6.913/$

Dollar Index 101.60 vs 101.46 yesterday.

Commodity News

Precious metals:

Gold US$1,999/oz vs US$1,996/oz yesterday

Gold ETFs 93.4moz vs US$93.3moz yesterday

Platinum US$1,101/oz vs US$1,092/oz yesterday

Palladium US$1,517/oz vs US$1,537/oz yesterday

Silver US$25.06/oz vs US$25.16/oz yesterday

Rhodium US$8,100/oz vs US$8,000/oz yesterday

Base metals:   

Copper US$ 8,610/t vs US$8,714/t yesterday

Aluminium US$ 2,351/t vs US$2,365/t yesterday

Nickel US$ 23,385/t vs US$24,265/t yesterday

Zinc US$ 2,629/t vs US$2,663/t yesterday

Lead US$ 2,108/t vs US$2,128/t yesterday

Tin US$ 25,750/t vs US$26,260/t yesterday

Energy:           

Oil US$81.0/bbl vs US$82.8/bbl yesterday

• Crude oil prices edged lower with the broader market even as the API reported a 6.1mb draw in US crude oil and fuel stocks (vs 1.7mb draw expected).
• The Morning Energiser will now be taking two weeks break to re-energise with some Namibia-based hiking, resuming daily commentary on Monday 15^th May.

Natural Gas US$2.254/mmbtu vs US$2.235/mmbtu yesterday

Uranium UXC US$51.00/lb vs US$51.00/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$100.8/t vs US$102.3/t

Chinese steel rebar 25mm US$552.8/t vs US$555.1/t

Thermal coal (1st year forward cif ARA) US$134.0/t vs US$134.0/t

Thermal coal swap Australia FOB US$188.0/t vs US$184.0/t

Coking coal swap Australia FOB US$247.0/t vs US$286.0/t

Other:  

Cobalt LME 3m US$34,930/t vs US$34,930/t

NdPr Rare Earth Oxide (China) US$66,486/t vs US$67,630/t

Lithium carbonate 99% (China) US$22,331/t vs US$22,061/t

China Spodumene Li2O 5%min CIF US$4,090/t vs US$4,090/t

Ferro-Manganese European Mn78% min US$1,361/t vs US$1,363/t

China Tungsten APT 88.5% FOB US$325/mtu vs US$325/mtu

China Graphite Flake -194 FOB US$780/t vs US$780/t

Europe Vanadium Pentoxide 98% 8.5/lb vs US$8.5/lb

Europe Ferro-Vanadium 80% 33.95/kg vs US$33.95/kg

China Ilmenite Concentrate TiO2 US$340/t vs US$341/t

Spot CO2 Emissions EUA Price US$94.1/t vs  US$95.6/t

Brazil Potash CFR Granular Spot US$405.0/t vs US$405.0/t

Company News

Alien Metals (UFO LN) – 0.43p, Mkt cap £25m – Hancock ore reserve shows 1.9mt grading 60.2% Fe

• Alien Metals have worked up a JORC mineral resource for their Hancock iron ore project in the Pilbara, Western Australia.
• Hancock Iron Ore
  • Probable Ore Reserve           1.9Mt at 60.2% Fe 
  • Mining Inventory  4.2Mt at 60.5% Fe, inclusive of Reserves
  • Previous JORC inferred resource was 10mt at 60.4% Fe
• JORC Mineral Resource Estimate at a 58% cut off grade:
  • Indicated Resource 1.7Mt at 61.0% Fe , and
  • Inferred Resource   7.4Mt at 60.1% Fe
  • Global Resource      9.1Mt at 60.3% Fe
  • Indicated Mineral Resources of 1.7mt at 61.0% Fe
• The report estimates 71% of the combined resource at Ridges C and E is now classified as Indicated Mineral Resource material with further potential to increase the resource on unexplored ridges
• Drilling has intersected Judy’s Reef and is ongoing at the Sirius Extension to add further to future resources
• Management expect there will be sufficient availability at the Port Headland Utah Point ship loading facilities to coincide with mining.
• Alien recently updated the terms of the Brockman and Hancock Range projects to an option to acquire a 90% interest.
• Capex est. $30m may be reduced by ±US$10m on significant savings initiatives in the Scoping Study. This will  be impressive if the savings are able to more than offset inflation.
• Burnt Shirt Pty Ltd, consultancy to complete JORC and other studies on the Hancock project.
• Munni Munni (PGE) 100% ownership
• Drilling shows potential for new PGE ‘Platinum Group Element’ target reefs in Elizabeth Hill area layered ultramafic complexes
• Elizabeth Hill (silver):
• Elizabeth Hill is the site of a former high-grade silver mine with Alien Metals refurbishing the headframe for exploration
• The Elizabeth Hill site has an estimated pre-JORC resource of 4.05moz at 200g/t silver with one drill hole showing 52m grading 22.6oz/t (640g/t)
• Iron ore prices have dips below $100/t as National steelmaker’s association raises alarms as China improves buying power through the creation of a buying cartel, China Mineral Resources Group.
• China Iron & Steel Association, which represents the country’s top producers, stated in a note that ‘there has been a sustained and rapid decline in steel prices in the domestic market, posing severe challenges to the production and operation of steel enterprises.’

Conclusion: Alien appears to making steady progress at Brockman and Hancock with potential to cut the $30m capex requirement. We look forward to further news from Alien on the development of the Brockman and Hancock projects.

Bluebird Merchant Ventures (BMV LN) 1.4p, Mkt Cap £9.7m –Kochang permitting a priority as efforts to reopen the old mine pick up post-Covid

• In its Annual Report for the year to 31^st December 2022, issued today, Bluebird Merchant Ventures reports a loss of US$1.5m and a year-end cash balance of ~US$36,000.
• In his statement to shareholders Chairman, Jonathon Morley-Kirk welcomes the lifting of Covid19 restrictions in South Korea and confirms that the company is continuing to progress its 3 main projects at Kochang and Gubong in South Korea and at its Batangas gold project in the Philippines.
• He expresses frustration that further information has been required to progress the Moutain Temporary Use Permit (MTUP) for the Kochang project as “we were advised by our lawyers and permitting consultants that all legal requirements had been covered in our c.800-page submission”.
• “Due to the requests for further information at Kochang, we have now sought an extension of the MTUP application in process at Gubong” to ensure that similar issues to the environmental and community consultation measures raised in connection with Kochang do not delay Gubong.
• He explains that community consultation is underway at the Batangas project in the Philippines where the change of government has made “resource development … very much in vogue”.
• He confirms that “a great deal needs to be done during 2023 to make up for the lost time and achieving our objectives of advancing our South Korean and Philippine projects”.
• Chief Executive, Colin Patterson, confirms that the company remains “focussed on bringing Kochang and Gubong back into production … which is where our expertise lies”.  He also says that the “the immediate community at Kochang has been highly supportive and eager for us to commence work as soon as the necessary permits are finalised as they recognise the benefits the development of a mine will bring”.

Empire Metals* (EEE LN) 2.25p, Mkt Cap £11m – Exploration licence granted for Walton Copper-Gold-Lithium Project

• Empire has been granted its Exploration Licence for the Walton Copper-Gold-Lithium-Project in WA, where the Company holds a 70% interest.
• Walton lies on the Yerilgee greenstone belt within the Southern Cross domain, whose larger greenstone succession hosts VHMS systems including Golden Grove and the Perrinvale Project.
• The Yerilgee belt is formed of a sequence of high-magnesium basalts, ultramafic volcanic rocks, sedimentary rocks and granites.
• Alongside VHMS prospectivity, the Company sees potential for the licence to host orogenic gold, common in the Yilgarn craton.
• To date, minimal shallow surface exploration has been conducted, and Empire will look to begin surface soil/auger sampling, alongside geological mapping over the June-July period.
• Empire’s management sees the licence as highly prospective for gold, base metals, and lithium discoveries.
• The Company has issued 5,611,863 in consideration of the Project acquisition announced in April 2022.

*SP Angel acts as nomad and broker to Empire Metals. The analyst holds shares in Empire.

Gem Diamonds (GEMD LN) 27.4p, Mkt Cap £37m – Letšeng diamond mine continues to deliver large, high value stones

• Gem Diamonds reports that it produced 27,744 carats of diamonds from its Letšeng mine in Lesotho during the 3 months to 31^st March with sales of 25,687 carats generating US$36.7m revenue.
• The company explains that 7 individual diamonds were sold for prices in excess of US$1m each representing revenues of US$11.1m and that the “highest price achieved during the Period for a white diamond was US$34 441 per carat for a 58.07 carat Type IIa white diamond”.
• On a per carat basis, a 6.63 carat pink diamond achieved a price of US$282,889/carat which Gem Diamonds describes as “the third highest dollar per carat achieved for a Letšeng rough diamond”.
• Gem Diamonds confirms that a “122 carat Type II white diamond was recovered at Letšeng during the period and will be sold in Q2 2023”.

Conclusion: Gem Diamonds’ Letšeng mine continues to yield large, high value stones with seven individual diamonds realising in excess of US$1m during Q1.

Kore Potash* (KP2 LN) 0.7p, Mkt Cap £25m – Q1/23 operational update highlights ongoing discussions with Chinese EPC partners on the Kola project

• Discussions with PowerChina and SEPCO are ongoing regarding finalisation for the Engineering, Procurement and Construction contract terms for the Kola Potash Project in the ROC.
• One of discussion points refers to the provision of EPC contract guarantees including performance and retention bonds supporting the completion of construction and the operating performance of Kola by SEPCO’s parent company, PowerChina.
• PowerChina is now reported to be actively involved in the process to finalise terms as well as reviewing project design and planned construction schedule as part of the due diligence.
• PowerChina has not yet provided kore Potash with the timeline for completion of its review and internal approval processes.
• Summit Consortium representing a group of advisors, investors and engineering/construction companies reiterated its commitment to provide financing proposal for the full capital cost of Kola within six weeks of agreeing of EPC contract terms.
• Separately, the Company released an updated PFS on the smaller scale DX Project in January incorporating the latest set of drilling and interpretation of geophysical data.
• New reserves estimates for the project estimated at 9mt at 35.7% KCl for 3mt KCl contained (down from 18mt at 41.7% KCl for 7mt previously).
• 4.8mt MOP produced over 12 year life of mine (down from 12.1mt over 30y in the Nov/20 PFS).
• Planned annual production rate remains unchanged at 400ktpa using selective solution mining of high grade sylvinite seams.
• Updated study uses flat $450/MOP price reflecting higher spot prices ($422/MOP average previously).
• Largely reflecting shorter life of mine, NPV10% (post-tax) dropped to $275m, down from $412m (on 90% attributable basis).
• Closing cash balance stood at $3.8m and no debt (Q4/22: $5.0m).

Conclusion: Discussions with Chinese EPC partners are ongoing and are key to finalising the terms and moving on to the funding stage with Summit Consortium having reiterated its commitment to provide a capital solution to the full Kola Potash Project capex within six weeks of agreeing the EPC contract.

*SP Angel acts as Nomad and Broker to Kore Potash

Sunrise Resources (SRES LN) 0.1p Mkt Cap £3.8m – Resource drilling at the Pioche sepiolite project expected to start in June

• Sunrise Resources has provided a progress report on its Pioche sepiolite project in Lincoln County, Nevada following the acquisition of additional ground, which was announced earlier this year, more than doubling the extent of the project area.
• The company says that it plans to start a detailed topographic survey next month and that resource definition drilling is due to start in June.
• The drilling will be conducted by Tolsa, the world’s largest producer of sepiolite, a specialised magnesium silicate clay mineral, also sometimes known as meerschaum, using a drilling rig from its Wyoming bentonite operations, as part of Tolsa’s evaluation under an “an option to purchase the Pioche Project for US$1.25 million no later than 28 December 2023”.
• Sunrise Resources confirms that “Testwork on several one-ton bulk samples collected from the previously reported trenching programme is progressing satisfactorily in Tolsa’s laboratories in Spain”.
• Managing Director, Patrick Cheetham, welcomed the acceleration of exploration at Pioche and said that “We understand that the results of all work programmes to date are positive, and we look forward to seeing the results of Tolsa’s drilling programme in due course”.

Thor Energy (THR LN) 0.33p, Mkt Cap £7.2m – Review of drilling at Alford East reports rare-earth assays

• Thor Energy reports that a review of drilling undertaken in 2021 at its Alford East copper/gold project in South Australia has shown the presence of rare-earth elements in 8 of the 9 holes drilled in “kaolin altered copper rich oxide zones of IOCG style mineralisation”.
• The mineralisation is reported to remain “open over a ~5km trend as none of the remaining historical drilling at Alford East … [and a] … full geochemical review of the historic drilling is now underway to access … [assess?] … the lateral extent of the REE potential within the Alford Copper Belt, to generate drill targets and to fully assess the economic potential of this discovery”.
• Among the results highlighted in today’s announcement are:
  • An intersection of 16.8m at an average grade of 0.17% TREO (Total Rare Earth Oxides)and 0.5% copper from a depth of 91.4m in hole 21AED-001; and
  • An intersection of 11.6m at an average grade of 0.17% TREO and 0.26% copper from a depth of 30.4m in hole 21AED-002; and
  • An intersection of 13.1m at an average grade of 0.14% TREO and 0.5% copper from a depth of 42.8m in hole 21AED-004; and
  • An intersection of 36.7m at an average grade of 0.16% TREO and 1.6% copper from a depth of 6.3m in hole 21AED-005; and
  • An intersection of 29m at an average grade of 0.1% TREO from 20m depth in hole 21AED-006, including 6.1m averaging 0.12% TREO and 0.1% copper from a depth of 81m; and
  • An intersection of 15m at an average grade of 0.1% TREO and 0.12% copper from a depth of 13m in hole 21AED-007; and
• The Alford East project is located on the Yorke Peninsula in South Australia “within a structurally controlled, north-south corridor consisting of deeply kaolinised and oxidised troughs within metamorphic units on the edge of the Tickera Granite” and currently has an inferred mineral resource estimate of 125.6mt at an average grade of 0.14% copper.
• Thor Energy “is earning up to 80% interest from unlisted Australian explorer Spencer Metals”.
• Commenting on the identification of rare-earths in the project, Managing Director, Nicole Galloway-Warland said that the results so far compare “very favourably in terms of depth, thickness and grade to its peer group in the fledgling Australian REE sector”.
• She confirmed that “Priority drill programme design is underway in conjunction with detailed geochemical reviews of the historic drilling … [and said that] … this discovery has significant potential to be a large deposit based on the ~5km lateral extent of the north-south trending, structurally controlled troughs hosting IOCG mineralisation”.

Conclusion: Thor Energy’s identification of rare-earths at Alford East adds a new dimension to the project which currently hosts a low-grade inferred copper resource of 125.6mt at an average grade of 0.14% copper.  Further drilling is planned, and the prospective area currently remains open along a 5km long lateral trend.

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 – [email protected] – 0203 470 0490

Simon Beardsmore – [email protected] – 0203 470 0484

Sergey Raevskiy –[email protected] – 0203 470 0474

Sales

Richard Parlons –[email protected] – 0203 470 0472

Abigail Wayne – [email protected] – 0203 470 0534

Rob Rees – [email protected] – 0203 470 0535

Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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