SP Angel Morning View -Today’s Market View, Wednesday 3rd January 2024

Iron ore continues to rise as traders look to restocking amid China growth optimism 

MiFID II exempt information – see disclaimer below

Goldstone Resources* (GRL LN) – Gold loan standstill agreement and corporate update

Ionic Rare Earths (IXR AU) – Grant of Provisional Mining Licence for Makuutu Project, Uganda

Katoro Gold (KAT LN) – Clarification sought on payments for the Imweru gold project, Tanzania

Mkango Resources* (MKA LN) – Maginito/CoTec US JV signed

Iron ore continues to rise as traders look to restocking amid China growth optimism

• Iron ore prices hit $140/t for the benchmark Chinese index overnight, their highest level since August 2021.
• Singapore prices closer to $142/t – highest since June 2022.
• Stronger factory activity has supported buying, with the Caixin PMI showing the fastest growth in seven months.
• XI Jinping noted over the weekend that China could continue its economic recovery in 2024, triggering hopes of more stimulus.
• Mills are expected to restock supplies in advance of the February Lunar New Year holiday.
• Steel prices are climbing in China, however analysts suggest that margins are still weak or negative, meaning there is not ample room for price increases downstream.

Gold weakens on stronger dollar and higher US Treasury yields

• Gold prices have fallen from recent highs of $2,070/oz to $2,055/oz this morning.
• The move follows a weaker US Treasury market, with the 10-year climbing back over 3.40%, >20bp higher than last week.
• The market has reduced wagers of a rate cut in March over the past week, now pricing in  a 67% chance of a hike.
• Close attention will be paid to the Fed’s December meeting minutes tomorrow, with non-farm payrolls set to follow.
• Expect a beat in payroll data to further support the dollar and weigh on gold, whilst signs of weakness will provide a further catalyst to gold’s upside.

Economics

US

• Manufacturing PMI at 47.9 vs 49.4 previous and 48.2 expected
  • Survey reports Q4 saw factories cut employment at fastest pace since 2009.
  • Suppliers noting spare capacity and slashing input purchases.
  • Noted a minor uplift in raw material and factory gate selling price inflation.
• Atlanta Fed GDPNow Q4 at 2% vs 2.3% expected and 2.3% previous

UK

• Grocery inflation fell from 9.1% in November yoy to 6.7% in December

Germany

• Unemployment at 5.9% in December, in line with expectations vs 5.8% in November.

Currencies

US$1.0954/eur vs 1.1029/eur previous. Yen 142.60/$ vs 141.40/$. SAr 18.585/$ vs 18.357/$. $1.265/gbp vs $1.275/gbp. 0.675/aud vs         0.683/aud. CNY 7.144/$ vs 7.132/$.

Dollar Index 102.17 vs 101.43 previous.

Commodity News

Chinese automakers to reach record sales in 2023 but could be in for disappointing 2024

• The continuing price war is squeezing profitability and there is increased competition in the market for new energy vehicles.
• Domestic and export deliveries jumped 10.8% to 26.94m units through November.
• The China Association of Automobile Manufacturers expects full-year sales to exceed 30m vehicles.

Canada details new EV mandate

• Before Christmas, Canada’s Environment minister announced new regulations to phase out petrol and diesel vehicles by 2035.
• The regulations will be implemented gradually:
  • By 2026: At least 20% of new vehicles sold must be electric or plug-in hybrids.
  • By 2030: This requirement increases to 60%.
  • By 2035: All new vehicles sold must be zero-emission.

Precious metals:

Gold US$2,061/oz vs US$2,073/oz previous

Gold ETFs 85.6moz vs 85.6moz previous

Platinum US$984/oz vs US$992/oz previous

Palladium US$1,086/oz vs US$1,107/oz previous

Silver US$23.50/oz vs US$24/oz previous

Rhodium US$4,425/oz vs US$4,425/oz previous

Base metals:

Copper US$ 8,502/t vs US$8,565/t previous

Aluminium US$ 2,310/t vs US$2,385/t previous

Nickel US$ 16,600/t vs US$16,650/t previous

Zinc US$ 2,604/t vs US$2,642/t previous

Lead US$ 2,064/t vs US$2,062/t previous

Tin US$ 25,220/t vs US$25,540/t previous

Energy:

Oil US$75.4/bbl vs US$78.2/bbl previous

Natural Gas €31.4/MWh vs €32.8/MWh previous

Uranium UXC US$82.30/lb vs US$81.45/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$141.8/t vs US$137.8/t

Chinese steel rebar 25mm US$579.6/t vs US$580.4/t

Thermal coal (1st year forward cif ARA) US$94.5/t vs US$99.7/t

Thermal coal swap Australia FOB US$124.5/t vs US$136.9/t

Coking coal swap Australia FOB US$317.0/t vs US$317.0/t

Other:

Cobalt LME 3m US$29,135/t vs US$29,135/t

NdPr Rare Earth Oxide (China) US$61,938/t vs US$62,047/t

Lithium carbonate 99% (China) US$12,108/t vs US$12,129/t

China Spodumene Li2O 6%min CIF US$1,120/t vs US$1,150/t

Ferro-Manganese European Mn78% min US$1,057/t vs US$1,064/t

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

China Graphite Flake -194 FOB US$610/t vs US$610/t

Europe Vanadium Pentoxide 98% 6.0/lb vs US$6.0/lb

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

China Ilmenite Concentrate TiO2 US$316/t vs US$316/t

Spot CO2 Emissions EUA Price US$83.7/t vs US$84.2/t

Brazil Potash CFR Granular Spot US$290.0/t vs US$290.0/t

Company News

Goldstone Resources* (GRL LN) SUSPENDED – Gold loan standstill agreement and corporate update

• The Company agreed a standstill agreement with its creditor, Asian Investment Management Services (AIMSL), regarding the outstanding gold loan agreement.
• The standstill agreement will be valid through to 29 June 2024 with AIMSL agreeing to temporarily defer repayment of the outstanding amount and enforce any security against the Company.
• AIMSL agreed not to start insolvency proceedings with both parties to discuss a new repayment plan for the loan starting from the expiry of the standstill period or earlier.
• The Company agreed to seek further funding to cover capex to increase its gold production while all revenues from any potential gold sales to accrue at the subsidiary level, Goldstone Akrokeri Ltd, and not to be transferred to the Company without the prior consent of AIMSL.
• The Company will also seek to raise additional funding to provide working capital for operational development as well as cover outstanding payables to qualify for a going concern and facilitate publication of the 2022 annual and 2023 interim accounts.
• The Board is targeting to complete such arrangements by the end of February.
• The standstill agreement may be terminated should shares in the Company get delisted from the AIM market.
• Separately, Angela List will assume the role of Chair of the Board.
• Bill Trew will become a non-executive director.
• AIMSL has been granted the right to nominate one non-executive director to the Board.
• New operational management team procured by Nguvu Mining, controlled by Angela List and which is a ~12% shareholder in the Company, is planned to be brought in and mobilised at site as soon as possible.

*SP Angel acts as broker to Goldstone Resources

Ionic Rare Earths (IXR AU) A$.025p, Mkt Cap A$105m – Grant of Provisional Mining Licence for Makuutu Project, Uganda

• Ionic reports its mining licence has been provisionally granted by the Ugandan Directorate of Geological Survey and Mines (DGSM).
• The approval is dependent on receipt of formally signed documents and gazetting, although these are considered a formality.
• IonicRE has agreed with its local partners to increase its interest in Makuutu to 94%.
• The Company is currently progressing the Makuutu Demonstration Plant, expecting to produce an initial Mixed Rare Earth Carbonate for 1Q24.
• Makuutu holds a MRE of 532mt at 430ppm TREO-CeO2.
• The Project’s Stage 1 DFS suggests an NPV8 of A$580bn pre-tax and a post-tax IRR of 32.7% over a 35-year mine life and $121m development CAPEX.
• Management has also applied for renewal of exploration licences contiguous to the asset, with the aim of updating the MRE this quarter.

Katoro Gold (KAT LN) 0.13p, Mkt Cap £1.0m – Clarification sought on payments for the Imweru gold project, Tanzania

• Katoro Gold reports that its’ joint-venture partner for the development of the Imweru gold project in Tanzania, Lake Victoria Gold (LVG) “has to date not provided any proof of payment of the agreed Capital Contribution, payable on or before 31 December 2023 , commensurate with the Agreement” announced on 7^th March 2022.
• The company confirms that it “has subsequently formally engaged with LVG on this matter and is awaiting their response”.
• The March 2022 announcement, explained that LVG would earn an 80% interest in the joint-venture and accept responsibility for 100% of the funding and that the joint venture would “reimburse Katoro for previous expenditures in the amount of € 792,000 on or before 31 December 2023”.
• The same announcement reported a “JORC code compliant, mineral resource for Imweru and … [the adjacent deposit at] … Imwelo consists of 11.6 Mt at a grade of 1.38 g/t for 515,110 oz Au and 4.7 Mt at 1.92 g/t for 291,600 oz Au respectively and probable reserve for Imwelo consists of 1.4 Mt at 2.2 g/t for 97,394 oz Au”.
• In the 2022 announcement of the JV with LVG, Katoro Gold said that it had decided to cancel a proposed sale of the Imweru project citing the “administrative process to finalise registration of the sale transaction, and therefore trigger ongoing milestone payments due to Katoro, was subsequently indefinitely delayed due to unforeseen statutory barriers related to the transfer of ownership at project level”.

Conclusion: The future joint-venture development of the Imweru project appears uncertain pending clarification of the financial arrangements between Katoro Gold and LVG.

 Mkango Resources* (MKA LN) 9.5p, Mkt Cap £26m – Maginito/CoTec US JV signed

• Maginito (79.4%/20.6% Mkango/CoTec) and CoTec Holdings formed a previously announced 50/50 JV to roll out Hydrogen Processing of Magnet Scrap (HPMS) recycling technology in the US.
• The newly formed HV, HyProMag USA, is part of the Company’s growth strategy to commercialise innovative recycling solution that is less power and reagent intensive compared to a more traditional ‘long loop’ or ‘indirect’ magnet recycling route.
• HyProMag has sublicenced the HPMS technology to HyProMag USA.
• Near term goal is to complete a bankable feasibility study based on a hub and spoke model using three HPMS recycling vessels and one magnet manufacturing facility.
• The team initiated a ‘request for proposal’ process from leading EPCM providers and ordered three HPMS reactors to expedite the development of the US project.
• FID to follow results of the feasibility study.
• Maiden JV revenue is targeted for 2025/26.

Conclusion: The formation of the JV marks another step in the Company’s strategy to grow the use of HPMS recycling technology providing a more efficient and low in carbon footprint solution to rare earth magnet recycling. The technology is reported to use ~90% less energy compared to full chain production from mining to alloy and ultimately magnet potentially demonstrating strong economic and environmental benefits. HPMS is set to unlock value in the part of the supply chain that is currently overlooked (<5% of REE magnets are currently recycled, mostly in China) addressing security of REE magnets supply in the West (China produces ~95% of REE magnets). The Company delivered first production at the commercial scale HPMS facility at the Tyseley Energy Park in Birmingham last month as the team aims to de-risk the recycling technology and is currently looking to scale up operations by mid-2024.

*SP Angel acts as nomad and broker to Mkango Resources

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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