SP Angel Morning View -Today’s Market View, Wednesday 3rd May 2023

Gold climbs to $2,016/oz as oil collapses on growth concerns and US banking fears

MiFID II exempt information – see disclaimer below

Amaroq Minerals (AMRQ LN) – Geophysical survey identifies additional exploration targets in southern Greenland.

Aura Energy* (AURA LN) – Aura raises A$10m in placement supported by Lind Partners and others

Chaarat Gold (CGH LN) – Production steady and guidance reiterated as convertible refinancing discussions continue

Serabi Gold* (SRB LN) – Working to replenish its mineral resource inventory at Palito and Sao Chico.

Versarien* (VRS LN) – Placing to fund work towards commercialisation of graphene in construction and leisure sectors

Oil prices slide to $75/bbl as global growth concerns mount

• Traders continue to turn bearish on oil as concerns over the impact of Central Bank interest rate hikes on global economic growth.
• Australia’s Central Bank surprised market participants with an additional 25bp hike yesterday, adding jitters to global growth sentiment.
• Weaker US labour market data yesterday also fuelled bearish sentiment.
• Cushing, Oklahoma has seen a build in crude inventories, and Russian flows rose to a 4m bbl/day rate last week.
• Trader flows saw $18bn in sales in oil markets in the run up to last week with $9bn in short positions, marking largest bearish flow since July 2022
• Oil price weakness has been exacerbated by a lack of liquidity owing to both the US banking crisis and holidays across Asia.

Gold – $2,016/oz – Prices bounce past $2,000/oz on concerns over US banking sector and debt ceiling

• Gold prices climbed as the US banking sector suffered another significant equity sell-off yesterday.
• Futures climbed to $2,025/oz.
• JP Morgan’s acquisition of First Republic failed to quell investor jitters, with PacWest falling 28% yesterday and Western Alliance Bancorp falling 15%. The Regional Banking Index fell 5.5%.
• The panic around US regional banks, despite relatively strong earnings reported for Q1, has supported gold by weighing on US Treasury yields.
• 10-year Treasury yields slid to August 2022 lows over concerns the Fed may be stuck between a rock and a hard place, restricted from notable rate increases going forward despite sustained inflationary pressures.
• The Fed is set to hike 25bp this evening around 6pm GMT.
• Traders will be focusing on Powell’s language as regards a hike in July or alternatively, pausing the rapid rate hike programme.
• The debt ceiling issue continues to bubble away in the background, with Biden set to meet with Republican and Democratic seniors on May 9^th following Yellen’s warning of default as early as June.

Copper prices weaken on recessionary concerns as traders await FOMC meeting

• Copper slid past $8,487/t overnight, before steadying around the $8,520/t mark.
• In line with oil prices, copper is usually considered a gauge of economic optimism on a global scale, with concerns mounting over demand prospects going forward.
• Codelco’s production fell 10.4% in Q1 yoy at 326kt, seeing a 73% drop in pre-tax profits.
• The Company’s copper production costs rose 34%, whilst sales prices fell 9.4%.
• Codelco’s CEO noted that ‘ deposits are running out’.

Tin – Tin production falls 18% to 3,970t in Q1 at Tima, Indonesia’s largest tin company (Reuters)

• Lower tin prices prompted a 26% fall in tin sales to 4,246t in Q1
• Tin prices have fallen 39% yoy to $26,573/t.

Iron ore slides in thin trading as Chinese steelmakers continue to suffer

• Singapore iron ore futures fell to the $100/t mark overnight whilst Chinese exchanges remained closed.
• Steel inventories remain buoyant, weighing on prices for new production and hitting demand for iron ore.

Posco plans $440m nickel plant investment in Indonesia

• Korean steel giant Posco is looking to invest $441m in a nickel refining plant in Weda Bay Industrial Park, Indonesia.
• Posco hopes the plant will produce 52kt of nickel matte pa, enough for 1m EVs.
• Production is anticipated to start in 2025.
• The move adds further confidence to Indonesia’s strategy of encouraging downstream processing and refining to maximise value from its substantial nickel reserves.

 Economics

US – The FOMC is due to release its monetary policy announcement later today with a 25bp hike widely expected taking the target range to 5.00-5.25%.

• The focus is on the Fed outlook with markets expecting the central bank to start cutting rates later in the year.
• News over First Republic takeover by JP Morgan failed to reassure investors with the US regional banks’ index posting a 5.5% drop in Tuesday.
• Recession fears and concerns over a potential contagion in the banking sector may see the Fed being more cautious regarding further monetary policy tightening.
• Non-farm payrolls are due later this week as well with estimates for a 180k in April compared to 236k in March.
• A slight pickup in unemployment rate is forecast (3.6% v 3.5%) with earnings growth rates expected unchanged (0.3%mom and 4.2%yoy).

Eurozone inflation rises to 7% in April

• Inflation data released yesterday showed little in the way of an upside surprise but continued to remain sticky.
• The ECB is likely to proceed with a 25bp hike on Thursday rather than option for another more aggressive move.
• CPI (%mom): 0.7 v 0.9 March and 0.7 est.
• CPI (%yoy): 7.0 v 6.9 March and 6.9 est.
• Core CPI (%yoy): 5.6 v 5.7 March and 5.6 est.

 France – Derating of French debt as doom-loop of borrowing at higher prices raises costs prompting for full-blown sovereign debt crisis.

• President Macron may be stuck between a rock and a hard place as protests over public sector pensions and pay.
• Reform is tough in France at the best of times, but while the reform is relatively minor it is considered by experts to be long overdue (The Telegraph).
• French government debt has risen to 112% of GDP vs 129% in the US and 227% in Japan, though the UK is not far behind at 100% and Germany at 66%
• French 10-year bond rates are now close to 3%

 Turkey – Consumer prices inflation slowed to 43.7% in April from 50.5% in March marking the first sub 50% reading since Jan/20.

• The central bank left the benchmark rate unchanged at 8.5% last month with the next meeting due later this month in between the first round (14 May) and potentially final round (28 May) of elections.

 Currencies

US$1.1041/eur vs 1.0997/eur yesterday. Yen 135.90/$ vs 137.60/$. SAr 18.431/$ vs 18.374/$. $1.252/gbp vs $1.250/gbp. 0.667/aud vs 0.671/aud. CNY 6.913/$ vs 6.913/$.

Dollar Index 101.61 vs 101.94 yesterday.

Commodity News

Precious metals:

Gold US$2,016/oz vs US$1,982/oz yesterday

Gold ETFs 93.6moz vs US$93.5moz yesterday

Platinum US$1,069/oz vs US$1,054/oz yesterday

Palladium US$1,436/oz vs US$1,462/oz yesterday

Silver US$25.31/oz vs US$24.80/oz yesterday

Rhodium US$8,200/oz vs US$8,650/oz yesterday

Base metals:   

Copper US$ 8,520/t vs US$8,648/t yesterday

Aluminium US$ 2,350/t vs US$2,358/t yesterday

Nickel US$ 25,185/t vs US$24,025/t yesterday

Zinc US$ 2,614/t vs US$2,626/t yesterday

Lead US$ 2,151/t vs US$2,147/t yesterday

Tin US$ 26,500/t vs US$26,075/t yesterday

Energy:           

Oil US$75.2/bbl vs US$79.6/bbl yesterday

Natural Gas US$2.233/mmbtu vs US$2.319/mmbtu yesterday

Uranium UXC US$52.10/lb vs US$52.00/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$102.2/t vs US$102.2/t

Chinese steel rebar 25mm US$553.5/t vs US$553.5/t

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

Thermal coal swap Australia FOB US$190.0/t vs US$184.5/t

Coking coal swap Australia FOB US$245.0/t vs US$245.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$62,876/t vs US$62,876/t

Lithium carbonate 99% (China) US$23,344/t vs US$23,344/t

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

Ferro-Manganese European Mn78% min US$1,364/t vs US$1,359/t

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

China Graphite Flake -194 FOB US$775/t vs US$775/t

Europe Vanadium Pentoxide 98% 8.3/lb vs US$8.3/lb

Europe Ferro-Vanadium 80% 33.25/kg vs US$33.25/kg

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

Spot CO2 Emissions EUA Price US$95.6/t vs US$93.9/t

Brazil Potash CFR Granular Spot US$390.0/t vs US$390.0/t

Battery News

Honda and GS Yuasa to invest $3bn for battery development

• According to a report in Nikkei newspaper, Japanese automaker Honda Motor Co Ltd and battery maker GS Yuasa Corp will invest over 400 billion yen ($2.99 billion) to produce batteries for EVs and homes.
• The companies will build a new battery plant in Japan, targeting production capacity of 20GWh.
• Japan’s Ministry of Economy, Trade and Industry will provide a subsidy of about 150 billion yen, the newspaper report added.

A few key takeaways from Auto Shanghai 2023

• China’s first major motor show since Covid restrictions were lifted.
• VW ID.7 will have a range of 435 miles according to the German automaker.
• Polestar reveal new Polestar 4 coupe-SUV with a targeted range of 372 miles.
• MG reveal electric roadster, the Cyberster, which they are targeting to be on UK roads by summer 2024.
• Lexus to bring its MPV (Multi-Purpose Vehicle), the Lexus LM, to Europe, aiming to challenge the Mercedes V-Class in the chauffeur-driven MPV market.
• Zeekr, the Chinese premium EV manufacturer owned by Geely, will be introducing its cars into the European market by the end of 2023.

Company News

Amaroq Minerals (AMRQ LN) 42.5p, Mkt Cap £111m – Geophysical survey identifies additional exploration targets in southern Greenland.

(Formerly AEX Gold (AEXG LN))

• Amaroq reports that a helicopter based airborne geophysical survey over its Nanoq, Siku and Jokum’s Shear gold exploration projects in southern Greenland has identified promising targets west of Nanoq and at Jokum’s Shear.
• The company says that its initial interpretation of the geophysics supports “the Company’s view that a c. 25km prospective gold corridor exists between the two projects, transecting the Siku licence”.
• Vice-President of Exploration, James Gilbertson, explained that “Nanoq represents yet another positive target identified across the prospective Nanortalik Gold Belt, with potential for near-term resource development”.
• He said that “Importantly, these results do not just provide a geological rational for the high grade intersections we already hold at the project, but also identify further gold targets, expanding Nanoq’s potential”.
• Historical exploration at Nanoq, conducted during the 1990s “defined a series of strongly mineralised folded quartz veins that outcrop on surface. The folded nature is important as it provides favourable gold traps and this duplication of mineralisation results in a more substantial mining target”.
• Analysis of exploration data at Nanoq shows that the “Highest grade intersections/samples received at Nanoq correspond to observed trap sites at the confluence between E-W and SW-NE structures”.
• “The Jokum’s Shear, project is an early stage gold exploration target where gold mineralisation is found in a northeast-trending shear zone system””.
• Amaroq Minerals says that its regional studies “indicated the existence of a ~25km long controlling structure linking Nanoq to the Jokum’s Shear project to the South West”.
• Further detailed processing and interpretation of the results is continuing.
• The company confirms that its “primary effort in 2023 will be focused on the development of the Nalunaq deposit … [but that] … it is Amaroq’s intention to build on these results at Nanoq and develop further mineral resources for the Company at the first opportunity”.

Aura Energy* (AURA LN) 10.18p (A$0.19c), Mkt Cap £62m – Aura raises A$10m in placement supported by Lind Partners and others

(Fully diluted market cap £73m assuming exercise of all 90m options at A$0.052/s. Aura share price A$0.19/s today)

(Aura holds 85% of the Tiris Uranium Project, Mauritania)  

• Aura Energy reports the raising of A$10m through the placement of 54.05m new shares at A$0.185/s.
• Shares were placed with Lind Partners, a controversial, New York based, alternative investment group.
• The funding also follows Aura’s recent quarterly statement which says, “The directors anticipate that the existing funds and those received from the exercise of options will be sufficient to cover the operating activities and exploration and evaluation activities of the business.”
• Other investors were also said to have been introduced through the funding.
• Funds are to be used to ‘continue our development planning works on the Tiris Project ensuring that it is ready for development when the uranium market signals and to enable ongoing efforts to identify additional, higher grade, low-cost resources in the Tiris Zemmour region of Mauritania.’
• The Aura Energy team are also looking to complete their work towards the potential granting of an Exploitation Permit at the Häggån, vanadium / uranium project in Sweden.
• Funds will also be used to cover general corporate costs, offer related costs, and general Working Capital.
• SPP ‘Share Purchase Plan’ Details:
• Aura is also offering ‘eligible’ shareholders, with addresses in Australia or NZ, the opportunity to buy A$1m worth of shares at a 23.6% discount ($0.185/s).
• ‘Eligible Shareholders can apply for Shares under the SPP in increments of $2,500 up to $30,000. Applications for Shares under the SPP must be for a minimum of $2,500.’  
• Shares: Aura will have 612,851,587 shares following the issue of the 54,054,055 New Shares. A further 5.4m new shares are likely to issued by way of the new SPP ‘Share Purchase Plan’.

*SP Angel acts as Nomad and Broker to Aura Energy

Chaarat Gold (CGH LN) 7.4p, Mkt Cap £51m – Production steady and guidance reiterated as convertible refinancing discussions continue

• Kapan plant throughput amounted to ~182kt (Q1/22: ~178kt) including 162kt (Q1/22: 151kt) of Kapan ore.
• The Company drew on existing stockpiles amid weaker mining rates.
• Mined tonnage came in at 134kt at 3.03g/t (Q1/22: 164kt at 3.04g/t) as mining operations focused on underground infrastructure development extending decline and cross cuts new parts of the orebody.
• GE production amounted to 13.9koz including 12.4koz from own ore (Q1/22: 15.0koz and 12.2koz).
• GE sales were 11.2koz at an average realised gold price of $1,898/oz (Q1/22: 12.3koz and $1,853/oz).
• AISC costs that exclude TC/RC and other charges (~$145/oz) and calculated on produced ounces basis averaged $1,397/oz (Q1/22: $1,352/oz).
• Higher costs are attributed to general inflationary pressures as well as stronger Armenian dram that appreciated almost 20% from Q1/22.
• Kapan reported a $3.2m on mine level (Q1/22: $7.6m).
• Net debt stood at $49.7m (Q4/22: $51.9m) including ~$30m in convertible loan notes (~35p conversion price) that expire in July 2023.
• The team remains in discussions with its bondholders and other parties regarding a potential refinancing/restructuring.
• Exploration is ongoing at the East Flank area where drilling chambers were established, and four HQ drill holes were completed in Q1/23 for a total of 800m.
• The team is planning a ~13,400m programme over 40 drill holes until the end of 2024 as part of the MRE definition drilling.
• 2023 guidance reiterated at 50-55koz from own sources with additional 5-10koz produced from third party ore.

 Serabi Gold* (SRB LN) 28.5p, Mkt Cap £20.8m – Working to replenish its mineral resource inventory at Palito and Sao Chico.

• In its annual results for 2022, released today, Serabi Gold reports an operating profit of US$2.2m (2021 – US$13.1m) and EBITDA of US$8.8m (2021 – US$19.1m).
• After a provision of US$1.2m for historic tax debts which it is owed in Brazil the company reports an after-tax loss of US$1.0m (2021 – US$9.9m profit) and an end-of-year cash balance of US$7.2m.
• The result reflects the production of 31,819oz of gold at a cash cost of US$1,322/oz and an all-in-sustaining cost of US$ 1,615/oz which exceeded the company’s published production guidance of 30.,000oz.
• After mine development expenditure of US$3.6m, including the development of the new Coringa operation, net cash outflow from operations amounted to US$7.1m (2021 – inflow of US$9.4m).
• CFO, Clive Line, explained that the “past twelve month period was always planned to be a year of investment as the Group continued its work on the development of the Coringa project that had started midway through 2021”.
• Mr. Line highlighted “steady quarter on quarter improvements in cash costs and AISC as the year progressed … despite the heavy investment on underground drilling the cost of which has been taken as an operating expense during 2022, the general headwind of costs inflation affecting key consumables such as cyanide, mill liners and grinding materials as well as rising costs of diesel and electricity”.
• He also commented that 2022 was also a year in which “we needed to push ahead with rebuilding the mineral resource inventory particularly for the Palito deposit” following the Covid 19 pandemic.
• Resource replenishment saw the commitment of US$2.1m to drilling in support of new mineral resource estimates for the Palito and Sao Chico deposits which are expected “before the end of the second quarter of 2023”.
• He said that there has been a “strong start to the year with production from Coringa being especially pleasing … [and that a] … strong gold price is helping cash flow”.
• Serabi Gold expects to produce between 33,500-35,000oz of gold in 2023 with 8,005oz already reported during the first quarter of 2023.

Conclusion: We look forward to the revised estimates for Palito and Sao Chico later in the current quarter as Serabi Gold replenishes mineral resources inventories depleted during the Covid19 pandemic.

*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil

Versarien* (VRS LN) 1.21p, Mkt Cap £2.8m – Placing to fund work towards commercialisation of graphene in construction and leisure sectors

• Versarien reports the placing of 42.5m new shares at 1.25p to raise £531,624.
• The placing is part of the board’s ‘Turnaround Strategy’ which aims to preserve the appropriate ‘intellectual property’ while significantly reducing operating costs to allow time to commercially deliver in its target markets.
• A new strategic roadmap and financial plan will be announced in the coming weeks.

Conclusion: Versarien is focussing on a smaller number of targeted graphene products which shows commercial promise. The incorporation of graphene inks into clothing and graphene in shoes should grow into meaningful orders for Versarien graphene while the development of graphene in concrete modifiers will hopefully also lead to a new and valuable business line for the group.

*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%”

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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