SP Angel Morning View -Today’s Market View, Wednesday 26th June 2024

Chinese lithium producers rally sharply on reports major mine has gone on maintenance

MiFID II exempt information – see disclaimer below

Arkle Resources* (ARK LN) – Annual results as exploration plans progress

BHP Group (BHP LN) – Decarbonisation presentation highlights focus on steelmaking to reduce emissions

Golden Metal Resources (GMET LN) – Drilling Results from Pilot Mountain

Power Metals Resources* (POW LN)

Skeena Resources (SKE CN) – US$750m funding facility with Orion

SolGold* (SOLG LN) – Franco-Nevada advance $10m of short-term loan finance to SolGold during full $1.55bn financing discussions

Sovereign Metals* (SVML LN) – MoU with Palladium Group on development projects including $50m Growth Poles project

Thor Explorations* (THX LN) – Exploration results from Douta

Chinese lithium producers rally sharply on reports major mine has gone on maintenance

• Chinese lithium majors including Ganfeng, Tianqi and Sinomine rallied over 7% this morning on rumours of Chinese supply coming offline.
• Lithium producers have suffered heavily from the recent correction in carbonate prices.
• However, reports of a major hard rock lithium mine in China entering maintenance early has provided some optimism.
• Albemarle noted that current prices are unsupportive for new investment as it plans more auctions to boost pricing transparency.
• Inventory levels remain high and buyers are reportedly holding off purchases in expectations of persistent surplus.
• Exxon noted that EV demand growth is expected to remain strong and that it expects to have first lithium production in 2027.
• BloombergNEF expects lithium demand to increase c.3x by 2035 to 3.5mtpa LCE.

Gold ($2,315/oz) weakens as traders reduce positions before tomorrow’s inflation data

• Gold prices have fallen c.$20/oz over the past few days as yields tick higher on caution over Fed rate cuts.
• The market currently prices in a 60% chance of a rate cut in September.
• Fed official Bowman noted that there are several upside risks to inflation going forward.
• US Treasuries have weakened somewhat, with the 10 year yield rising to 4.275% from recent lows at 4.22%.
• The dollar remains strong against a basket of currencies, with the dollar index sitting near three month highs.

Temperatures in London are expected to reach 29C this afternoon on course for the hottest day this year.

• Globally, 2024 is on track to be the hottest year on record with Greece so far at the epicentre of Europe’s summer heat.

Economics

Eurozone – One of ECB Governing Council members suggested that expectations for two more rate cuts in 2024 are reasonable.

• The ECB should ensure that inflation returns back to 2% but should not overly dampen economic activity, Olli Rehn heading Finnish central bank said.
• “If you look at market data, it implies that there would be two more rate cuts so that we would end up at 3.25% by the end of this year and, with the terminal rate — somewhere around 2.25%, 2.50%… in my view, they are reasonable expectations.”

Germany – Consumer confidence weakened in July amid ongoing macroeconomic headwinds including strong inflation and high borrowing costs.

• GfK Consumer Sentiment (Jul/Jun/Est): -21.8/-21.0(revised from -20.9)/-19.5

Australia – Stronger than expected inflation for a third consecutive month in May boosts rate hike bets and send A$ higher.

• Yields on three years sovereign bonds jumped as much as 15bp to 4.08 in the biggest single day increase since April.
• The meeting is due 5-6 August with the policy rate currently at a 12 year high of 4.35%.
• CPI (%yoy, May/Apr/Est): 4.0/3.6/3.8

Myanmar – government still able to access weapons and money overseas (UN report on Reuters)

• Reports indicate growing unrest and military action disrupting the flow of tin and tungsten out of Myanmar.
• Unfortunately the government are reported to be still able to access weapons and funding from overseas according to a UN report.
• Sadly, we suspect the drugs trade is a major factor in the conflict which makes a resolution to the conflict all the more complex.

Currencies

US$1.0688/eur vs 1.0728/eur previous. Yen 159.89/$ vs 159.47/$. SAr 18.290/$ vs 18.099/$. $1.267/gbp vs $1.269/gbp. 0.668/aud vs 0.667/aud. CNY 7.267/$ vs 7.262/$.

Dollar Index 105.85 vs 105.52 previous.

Precious metals:         

Gold US$2,314/oz vs US$2,326/oz previous

Gold ETFs 80.9moz vs 80.9moz previous

Platinum US$995/oz vs US$1,004/oz previous

Palladium US$953/oz vs US$991/oz previous

Silver US$28.92/oz vs US$30/oz previous

Rhodium US$4,725/oz vs US$4,750/oz previous

Base metals:   

Copper US$ 9,570/t vs US$9,678/t previous

Aluminium US$ 2,497/t vs US$2,512/t previous

Nickel US$ 17,245/t vs US$17,275/t previous

Zinc US$ 2,895/t vs US$2,852/t previous

Lead US$ 2,196/t vs US$2,167/t previous

Tin US$ 31,785/t vs US$32,735/t previous

Energy:           

Oil US$85.4/bbl vs US$86.0/bbl previous

• Crude oil prices were flat after the API reported an unexpected 0.9mb w/w build to US crude stocks, with market consensus anticipating a 3mb draw.

Natural Gas €35.1/MWh vs €34.7/MWh previous

• European energy prices were stable with French nuclear reactor operating levels rising 2% w/w to 66% of 61.4MW capacity and Gazprom reporting stable supply of 42.4mcm/d (~1.5bcf/d) via the Ukraine

Uranium Futures $83.1/lb vs $83.6/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$103.5/t vs US$102.6/t

Chinese steel rebar 25mm US$524.7/t vs US$526.7/t

Thermal coal (1st year forward cif ARA) US$118.8/t vs US$118.8/t

Thermal coal swap Australia FOB US$132.0/t vs US$132.0/t

Hard Coking Coal Australia FOB US$249.0/t vs US$249.0/t    

Other:  

Cobalt LME 3m US$27,150/t vs US$27,150/t

NdPr Rare Earth Oxide (China) US$49,817/t vs US$49,845/t

Lithium carbonate 99% (China) US$12,041/t vs US$12,048/t

China Spodumene Li2O 6%min CIF US$1,060/t vs US$1,060/t

Ferro-Manganese European Mn78% min US$995/t vs US$995/t

China Tungsten APT 88.5% FOB US$350/mtu vs US$350/mtu

China Graphite Flake -194 FOB US$470/t vs US$470/t

Europe Vanadium Pentoxide 98% 5.1/lb vs US$5.1/lb

Europe Ferro-Vanadium 80% 26.85/kg vs US$26.85/kg

China Ilmenite Concentrate TiO2 US$313/t vs US$313/t

China Rutile Concentrate 95% TiO2 US$1,411/t vs US$1,411/t

Spot CO2 Emissions EUA Price US$66.9/t vs US$66.9/t

Brazil Potash CFR Granular Spot US$310.0/t vs US$310.0/t

Battery News

VW to invest $5bn into Rivian

• The German automaker will invest up to $5bn in Rivian as part of a new JV to share EV architecture and software.
• Rivian shares surged 50%, potentially boosting the companies market value by $6bn.
• The investment will provide Rivian the funding necessary to develop its less expensive and smaller R2 SUVs that are set to roll out in early 2026 and its planned R3 crossovers.
• Rivian will also license its existing intellectual property to the JV and the R2 will be the first vehicle to use the software – VW vehicles, including its Audi, Porsche, Lamborghini and Bentley brands will follow.

Stellantis considers withdrawing UK production unless government acts to boost EV demand

• The European auto giant could halt UK production unless the government does more to increase demand for EVs.
• UK rules on EVs state that this year 22% of vehicles sold must be fully electric or face fines of around £15,000 per non-compliant vehicle.
• EU rules allow automakers to meet CO2 emissions reduction by selling a combination of hybrids and EVs.
• To avoid the fines, Stellantis may import fewer fossil-fuel models into the UK to hit the percentage target.
• Speaking at a conference held by the Society of Motor Manufacturers and Traders (SMMT) in London, Maria Grazia Davino told reporters that a decision on the future of the company’s UK production would likely come in “less than a year”.

Nissan to produce EVs for Dongfeng Motor by end of year

• Nissan will produce EVs for its Chinese JV partner Dongfeng Motor at its Wuhan factory by the end of 2024.
• Nissan is aiming to reduce fixed costs by increasing operating rate of the factory.

Company News

Arkle Resources* (ARK LN) 0.22p, Mkt Cap £1.3m – Annual results as exploration plans progress

• Arkle Resources report their full year results to 31^st December 2023.
• The Company is progressing various exploration assets across Ireland, Botswana and Zimbabwe.
• In Ireland, the Company’s 23% interest in Stonepark Zinc lies adjacent to Glencore’s Pallas Green zinc project and holds a JORC resource.
• Group Eleven, the Project’s majority partner, plans to begin drilling later this year, with Arkle planning to participate in the expenditure.
• At the Company’s Mine River gold project, the Company is building a 3D model of the supposed resource to support planned drilling programme.
• As regards Irish lithium, Arkle holds licences neighbouring Ganfeng’s Avalonia project.
• Pegmatites have been identified and four additional licences in the Aughrim area were secured.
• Ganfeng is planning to drill 40 holes at a depth of 235m next year.
• In Botswana, Arkle has secured two exploration licences over the Makgadikgadi Salt Pans covering 837sqkm.
• Initial exploration results over the Salt Pans showed brine indication up to 10m thick on the licence.
• Arkle will look to drill the lithium brines at shallow depths.
• In Zimbabwe, the Company is looking to form a joint venture partnership to progress spodumene exploration.
• The Company is capitalised for further exploration having recently raised £270k.

*SP Angel are Nomad and Broker to Arkle Resources

BHP Group (BHP LN) 2,282p, Mkt Cap £116bn – Decarbonisation presentation highlights focus on steelmaking to reduce emissions

• BHP have released a presentation on their decarbonisation plans to support their net zero ambitions.
• The Company said that it is uncertain that net zero targets will be met by 2050, but that its on track to meet its goal to cut Scope 1 and 2 emissions by 33% by 2030.
• BHP is focusing on reducing emissions for steelmaking and maritime decarbonisation.
• It is also rolling out investments in electric haul trucks with major investments at WAIO and Spence, alongside their other operations.
• Major emphasis in the presentation was on steelmaking emissions, with BHP now forming partnerships with 20% of global steel producers to cut emissions.
• The slides highlight BHP’s plans to produce iron ore suitable for Electric Smelting Furnace and Electric Arc Furnace steelmaking
• This will see investment into optimising the Company’s Pilbara ore for the DRI route.
• The Company is partnering with Rio Tinto, BlueScope and Hatch to explore electric smelting routes.
• Currently, DRI for EAF requires c.68% Fe ore, however BHP’s WAIO ore is dominated by 62% product.

Conclusion: Our main takeaway from BHP’s presentation on decarbonisation is the future role in steelmaking for high-grade iron ore products to feed the EAF industry. We see high-grade developers like Beowulf Mining* as well positioned to benefit from such demand transitions from their Gallok high-grade magnetite project in Sweden. BHP’s investment into upgrading their product from the Pilbara highlights expectations of persistent and elevated quality premiums, which Beowulf can take advantage of given their plans to produce a >68% Fe concentrate product.

*SP Angel acts as Nomad and Broker for Beowulf Mining

Golden Metal Resources (GMET LN) 27p, Mkt Cap £29m – Drilling Results from Pilot Mountain

Power Metals Resources* (POW LN) 19p, Mkt cap £20m

(Power Metals* holds a 51% stake in Golden Metal Resources)

1. Golden Metal Resources provided visual drilling results yesterday from its Pilot Mountain tungsten project.
2. The Company has drilled two diamond core drill holes over 550m from their 2000m programme.
3. Assay results are pending.
4. The first hole is targeting the Desert Scheelite zone to test extensions of the deposit to the north and south.
5. The hole observes scheelite, associated with tungsten mineralisation, and skarn alteration from 12.2m to 43m, and 65m to 152m.
6. The Company notes that ‘Extended intervals within this hole were observed to be very strongly mineralised.’
7. In the second hole, the Company is testing the Porphyry South magnetic anomaly target for the first time.
8. The drilling has intersected quartz monzonite porphyry structure from 22m depth to the end of the hole at 407m.
9. A porphyry expert is set to complete a detailed review of the hole and support plans for subsequent drilling.
10. The porphyry target’s magnetic anomaly stretches 1,200m east-west and 500m north-south.

*SP Angel acts as Nomad and Broker for Power Metals

Skeena Resources (SKE CN) C$5.85, Mkt Cap C$531m – US$750m funding facility with Orion

• The Company secured a funding package of US$750m with Orion Resource Partners for the wholly owned Eskay Creek Gold/Silver Project.
• The facility along with US$44m in cash held as of Q1/24 more than covers pre-production capex of US$528m for the project.
• Skeena is expected to deliver first gold in H1/27.
• The facility includes:

• • $100m equity investment;
  • $200m gold stream with an option to buy back 2/3s of the amount in 12m after start of commercial production;
  • $350m in senior secured loan with 1% standby fee and no break fee;
  • $100m overrun facility in the form of an additional gold stream.
• Timeline wise, the team targets completing permitting by the end of 2025 with start of construction works in 2026.
• Updated Feasibility Study released late 2023 guided for 320kozpa AuEq (70% gold) at $300/oz AISC (net of silver by-products) over 12y LOM generating US$1,460m and 43% in post tax NPV5% and IRR.
• An open pit operations is expected to feed 3.0-3.5mtpa processing plant producing gold/silver concentrate.
• Mineral reserves and resources are estimated at 39.8mt at 3.6g/t for 4.6moz and 50.7mt at 3.42g/t for 5.6moz AuEq (~75/25% gold/silver mix), respectively.

SolGold* (SOLG LN) 9.23p, Mkt Cap £276m – Franco-Nevada advance $10m of short-term loan finance to SolGold during full $1.55bn financing discussions

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• SolGold report that management discussions on a significant potential funding package for the Cascabel Project are progressing as first mentioned on 14 May.
• Last month, Solgold reported it was in discussion with potential financiers for the US$1.55bn development of Cascabel
• Management report Franco-Nevada Corp. has provided a US$10m loan facility to SolGold by way of interim funding to support SolGold’s ongoing operations as discussions regarding the longer-term Financing advance.
• The $10m loan facility carries a 12%pa interest rate and matures on 19 July so it really is very short term in its nature.

• • SolGold state that “that, with the exception of the Loan Facility, it has not entered into any new agreements regarding such a transaction, and there can be no assurance that any discussions that have taken place will result in such agreements. Given that SolGold is presently in discussions, the Company does not intend to comment further unless otherwise required pursuant to applicable securities laws and regulations.”

• Solgold recently signed an EC ‘Exploitation Contract’ for the Cascabel project with the Government of Ecuador giving tenure for 33 years plus potential for renewal for the full life of mine.
• The initial mine life is 28 years but is likely to extend beyond this.
• Cumulative discounted benefits to the government are at least 50% on the PV of the cumulative sum of taxes, including corporate income taxes, royalties, labour profit sharing paid to the State, non-recoverable VAT, and any previous sovereign adjustment payments.
• Solgold has agreed to pay an advance US$75m on royalties with the first $25m due upon the concentrator construction start date followed by $25m paid on the first and second anniversaries of this date.
• Royalties vary from 3-8% depending on the respective prices of gold, silver and copper.
• PFS:

• • NPV8%: US$3.2bn post-tax
  • IRR of 24% post-tax

Production:

• • 123,000tpa – copper
  • 277,000ozpa – gold
  • 794,000ozpa – silver.

• Proven and Probable ore reserve: ~540mt
• 85% of the reserve tonnage is within the high-confidence, ‘Proven’ classification of the CIM reporting codes.
• Grade:  

• • 0.60% copper – 3.2mt of contained copper
  • 0.54g/t gold – 9.4moz of contained gold
  • 1.6g/t silver – 28moz contained silver

• Measured and Indicated: 3.01bnt (0.52% cu eq.) indicates longer than 33-year mine life
• Grade:

• • 0.35% copper
  • 0.28g/t gold
  • 0.94g/t silver

• Throughput: Ramp-up: two years to:

• • 12mtpa of high-grade ore averaging 1.5% on a cu eq. basis
  • 24mtpa in year 6.

• Costs:
• US$0.25/lb on a net basis after precious metals by-product credits
• AISC US$0.69/lb
• Capex: $1.55bn
• Sustaining capital: US$2.57bn of sustaining capital during its life.
• February PFS described capital cost savings of ~US$1.2bn on pre-production capital on previous studies through the phasing of development plus US$0.75bn of savings in the life of mine capital.
• This added an extra 10% to the NPV

Conclusion:  Franco-Nevada’s $10m loan facility will hopefully buy time for SolGold management to agree on the full $1.55bn pre-production capital financing to start the Cascabel project in Ecuador.

*SP Angel acts as broker to Solgold

Sovereign Metals* (SVML LN) 31.7p, Mkt Cap £172m – MoU with Palladium Group on development projects including $50m Growth Poles project

(Sovereign currently holds 100% of the Kasiya project. The government has a right to a 10% free carry in the project. Rio Tinto acquired an initial strategic interest of 15% for a $40.6m with an option to increase it to 19.99% within 12 months from 17 July 2023)

STRONG BUY – Valuation 55p

• Sovereign reports the signing of an MoU with The Palladium Group a US-based international development entity operating in Malawi.

• • “Palladium implements several development projects, including the Feed the Future Malawi Growth Poles Project, which invests in local rural communities to advance sustainable, climate-smart, and inclusive wealth creation.
  • Sovereign and Palladium will collaborate around Sovereign’s Kasiya Project to provide key agricultural inputs, training, technologies, and financing to develop and integrate smallholder farmers into the emerging high growth agriculture value chains.
  • A central pillar of the MoU and partnership is Sovereign’s existing Conservation Farming Program, which aims to promote tried and tested improved small-scale agricultural practices, and the creation of community support and mentorship networks.”

• Sovereign already runs a series of initiatives to support local communities.
• Sovereign’s existing Conservation Farming Program which helps to improve crop yields is a core part of the MoU and partnership with Sovereign.

• • “Sovereign and Palladium are already collaborating to provide Purdue Improved Crop Storage (PICS) bags to beneficiaries of Sovereign’s Conservation Farming Program. PICS are non-chemical, hermetically sealable bags that reduce post-harvest losses by 20-30% caused by poor storage of grains.”

Conclusion:  Sovereign are working towards international best practice in terms of community relations and local assistance. The Palladium collaboration should support this and as the Sovereign team work towards the publication of a new DFS this year. We also await news on Rio Tinto’s potential election to raise its stake to 19.99% in July at a cost of $18.8m (eq. A$54.5/s).

*SP Angel act as Nomad and broker to Sovereign Metals. The analyst has recently visited the Kasiya mine site with no ill effects in this site visit.

Thor Explorations* (THX LN) 16p, Mkt cap £100m – Exploration results from Douta

• Thor Explorations reports assay results from step out drilling at their Douta Project in Senegal.
• The programme was intended to extend the Makosa East prospect, which runs parallel to the main Makosa trend.
• The main priority was to boost the oxide component of the resource.
• The current resource stands at 20.2mt at 1.3g/t Au for 875koz indicated and 24.1mt at 1.2g/t Au for 909koz inferred.
• RC drilling yielded highlights of:

• • 24m at 3.53g/t Au from surface
  • 12m at 1.4g/t Au from 33m
  • 9m at 2.74g/t Au from 15m
  • 8m at 1.13g/t Au from 16m.

• The Company will continue drilling the 15,000m programme over the coming months with the aim of releasing a PFS for Douta in 2H24.
• Thor owns 70% of the project via a JV with IMC, which holds a 30% free carried interest until the announcement of a probable reserve.

*A member of the SP Angel research team holds shares in Thor Explorations.

No.1 in Base Metals: SP Angel mining team awarded No 1. ranking for Base Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q1 2024

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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