SP Angel Morning View -Today’s Market View, Wednesday 8th November 2023

Stronger US dollar limits rise in copper prices

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Slow recovery in China and India’s import moratorium deliver severe cut to rough diamond sales

Rainbow Rare Earths (RBW LN) – US$50m option at Phalaborwa

Savannah Resources* (SAV LN) – State prosecutor statement comments

Versarien* (VRS LN) – Placing raises funds to extend runway ahead of potential asset sales

Xtract Resources (XTR LN) – Bushranger optimisation study

Copper – Unwrought copper imports into China rose 4.1% mom and 23% yoy to 404,414t

• Cu concentrate imports rose 11% yoy 2.31mt in October and 9% ytd to 22.64mt
• Shanghai Exchange stocks are 40,000t
• Codelco production declined 5.3% yoy in September
• Escondida (BHP) output rose 25% yoy to 107,300t

DRC – Truckers blocking exports of copper and cobalt in Kolwezi have gone on strike from last week.

• The strike are carried out by drivers mainly from Zambia and Tanzania and is impacting shipments from major mines operated by Glencore, CMOC and Ivanhoe Mines.
• Drivers are demanding an additional $700 per journey as danger pay, Bloomberg writes.

Tungsten – Interlink to build titanium plant in Bahrain

• Interlink Metals and Chemicals is working to build a 4,000tpa titanium production plant in Bahrain for commissioning in mid-2025 (Argus media).
• Interlink are also building a ferro-titanium (FeTi) plant for scrap processing also for mid-2025.
• Bahrain has a free trade agreement with the US with tungsten not be subject to 15% duty.

Economics

US – A number of FOMC members are speaking this week with policymakers likely to talk down market expectations for a rate cut after a rally in Treasuries.

• Minneapolis Fed President Neel Kashkari said that policymakers are yet to win the fight against inflation and will consider more tightening if need be.
• Dallas Fed President Lorie Logan said that all policymakers were surprised by latest strong GDP numbers and that despite some progress inflation trending toward 3% rather the Fed’s goal of 2%.
• Governor Michelle Bowman said the economy “remained strong” and she continues to expect the Fed will need to do more.

China – Car registrations climb 10.2%yoy to 2.03m in October marking the highest level in five months as carmakers ramped up promotions to lift sales before YE, Bloomberg reports.

• EVs including PHEV were up 37.5%yoy accounting for almost 40% of the total (767k).
• IMF raised GDP to 5.4% for 2023 from 5% and to 4.6% for 2024.
• Chinese foreign reserves fell to US$3.101tn in October vs US$3.115tn in September.

Portugal – PM Antonio Costa resigned yesterday following announcements of a launched investigation into alleged corruption in his administration’s handling of lithium mining and hydrogen projects permits.

• The government prosecutor reported yesterday that five people were detained as part of the investigation.
• Suspects included Vitor Escaria, PM’s chief of staff, Joao Galamba, Infrastructure Minister, and Nuno Lacasta, the president of the environment agency APA.
• President will now decide whether to allow former PM’s party that has a majority in parliament to form a new government or dissolve it and call a snap election.
• APA earlier this year issued lithium environmental approvals for local company Lusorecursos in Montalegre and Savannah Resources in Barroso.
• Savannah Resources issued a statement yesterday saying that the Company or any of its directors and employees are not targets of the investigation with its operations on site continuing unaffected by the investigation.

Germany – Construction PMI fell further to 38.3 in October vs 39.3 in September

EU – Construction PMI 42.7 in October vs 43.6 in September

Italy – Construction PMI 51.8 in October vs 49.8 in September

UK – Construction PMI 45.6 in October vs 45.0 in September

Australia – RBA raised official rates 0.25% to 4.35%.  

Currencies

US$1.0677/eur vs 1.0756/eur previous. Yen 150.64/$ vs 149.42/$. SAr 18.374/$ vs 18.169/$. $1.227/gbp vs $1.241/gbp. 0.644/aud vs 0.652/aud. CNY 7.279/$ vs 7.275/$.

Dollar Index 105.70 vs 105.44 previous.

Commodity News

Precious metals:

Gold US$1,968/oz vs US$1,987/oz previous

Gold ETFs 87.3moz vs 87.2moz previous

Platinum US$890/oz vs US$934/oz previous

Palladium US$1,025/oz vs US$1,129/oz previous

Silver US$22.54/oz vs US$23/oz previous

Rhodium US$4,500/oz vs US$4,150/oz previous

Base metals:

Copper US$ 8,222/t vs US$8,210/t previous

Aluminium US$ 2,272/t vs US$2,269/t previous

Nickel US$ 18,160/t vs US$18,135/t previous

Zinc US$ 2,594/t vs US$2,559/t previous

Lead US$ 2,182/t vs US$2,189/t previous

Tin US$ 24,690/t vs US$24,440/t previous

Energy:

Oil US$81.7/bbl vs US$85.7/bbl previous

Natural Gas €46.300/MWh vs €46.250/MWh previous

Uranium UXC US$74.00/lb vs US$73.00/lb previous

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$122.1/t vs US$122.4/t

Chinese steel rebar 25mm US$541.2/t vs US$540.0/t

Thermal coal (1st year forward cif ARA) US$109.5/t vs US$119.8/t

Thermal coal swap Australia FOB US$123.3/t vs US$124.5/t

Coking coal swap Australia FOB US$318.0/t vs US$318.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$70,478/t vs US$70,314/t

Lithium carbonate 99% (China) US$20,264/t vs US$21,101/t

China Spodumene Li2O 6%min CIF US$1,910/t vs US$1,990/t

Ferro-Manganese European Mn78% min US$1,030/t vs US$1,038/t

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

China Graphite Flake -194 FOB US$625/t vs US$625/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$313/t vs US$313/t

Spot CO2 Emissions EUA Price US$78.9/t vs US$82.4/t

Brazil Potash CFR Granular Spot US$335.0/t vs US$335.0/t

EV & Battery news

One in four new cars sold in UK in October were EVs

• New passenger car registrations in the UK increased by 14% yoy to 153,529 – the 15^th month of consecutive growth.
• Of these, 38,228 were EVs according to The Society of Motor Manufacturers and Traders (SMMT):
  • BEVs: 23,943 (15.6% share)
  • PHEVs: 14,285 (9.3% share)
• So far this year, more than 375,000 new passenger plug-in electric cars have been registered in the UK, up 35% from the same period last year.

UK to phase out hybrid cars by 2035

• The governments target to phase out ICE vehicles by 2035 will also include hybrid vehicles.
• This decision forms part of a more a broad effort by the British government to achieve net zero carbon emissions by 2050.
• Hybrid cars, which combine an IC engine with an electric motor, have long been considered a more environmentally friendly alternative to traditional gasoline or diesel cars.

India’s Hero MotoCorp to launch electric motorcycles in Europe

• The company plans to launch its electric motorcycles in the UK and other European markets, starting with Spain and France.
• Hero is India’s top motorcycle manufacturer, and will introduce its electric scooter brand VIDA V1 and begin commercial operations in the European markets by mid-2024.

Company News

Anglo American (AAL LN) 2,123p, Mkt Cap £29bn – Slow recovery in China and India’s import moratorium deliver severe cut to rough diamond sales

• Anglo American reports that, provisionally, the ninth De Beers sales cycle of 2023 realised US$80m and that the previously reported provisional sales of US$200m for the eighth sales cycle have now been confirmed.
• The outcome of the ninth sales cycle brings the year-to-date sales to approximately US$3.5bn, which we estimate is around US$1.9bn (35%) lower than the US$5.4bn of sales achieved during the first nine sales cycles of 2022.
• The US$80m provisional sales during the ninth cycle represents only around 18% of the US$454m achieved in the equivalent cycle of 2022.
• Al Cook, CEO of the De Beers Group, explained that the diamond “retail recovery in China remains slow … [and] … the voluntary import moratorium on rough diamonds into India will see extended Diwali holidays and factory closures in the world’s largest diamond cutting centre”.
• Mr. Cook said that “In recognition of these conditions, De Beers continued with reduced rough diamond availability in the ninth sales cycle of 2023. De Beers maintained support for its Sightholders with full purchase flexibility as the midstream re-establishes an equilibrium between wholesale supply and demand”.

Rainbow Rare Earths (RBW LN) 15p, Mkt cap £85m – US$50m option at Phalaborwa

• Rainbow Rare Earths has agreed an option with Techmet granting it the right to invest US$50m in the Phalaborwa project in South Africa in return for “between a 15% and 33% direct equity interest in the project”.
• Today’s announcement highlights that “TechMet’s extensive due diligence process has confirmed Phalaborwa’s potential to be one of the lowest cost producers of separated rare earth oxides in development, leading to economic resilience across all anticipated future pricing scenarios”.
• The Techmet investment would “fund a substantial part of the equity component required for the project financing”.
• Rainbow Rare Earths’ October 2022 Preliminary Economic Assessment was based around overall capital expenditure of US$295m “which is expected to be financed predominantly via debt” to deliver a base case NPV_10% of US$627m from the treating of 2.2mtpa over 14 years of phosphogypsum waste produced as “the byproduct of historic phosphoric acid production on the site”.
• “The TechMet Option is executable for three months following receipt of a credit approved term sheet for construction debt, which will define the total equity requirement for the project development”.
• CEO, George Bennett, welcomed Techmet’s continuing confidence in the project and said that its due-diligence studies of the project “validates the Company’s focus on the development of rare earths from secondary sources, as well as supporting the Company’s belief that Phalaborwa is a strong and unique project”.
• Expressing continuing support for the Phalaborwa project, Techet’s Chairman and CEO, Brian Menell, said it “has the potential to become one of the most environmentally friendly and lowest-cost rare earth projects anywhere in the world … [and that it] … provides a significant opportunity to fast-track production of the four most economically important rare earth elements which are essential for future supply chains for electric vehicles, wind turbines and other products vital to the energy transition and the global economy”.

Conclusion: Its good to see Techmet taking a close interest in the Phalaborwa project. Techmet’s eventual equity stake will be in accordance with a formula dependent on the overall NPV of the project at the DFS stage. We have to hope the estimated NPV will be sufficient to persuade other investors to come in to finance the rest of this US$295m South African project.

Savannah Resources* (SAV LN) 2.7p, Mkt Cap £50m – State prosecutor statement comments

BUY – 21.1p

• The Company released a statement relating to a corruption investigation regarding government officials that led to a resignation by PM Antonio Costa yesterday.
• Investigation is related to:
  • A project for a hydrogen energy production plant in Sines;
  • The data centre construction project developed in the Sines Industrial and Logistics Zone;
  • Lithium exploitation concessions ‘in the Romano (Montalegre) and do Barroso (Boticas)’.
• Savannah confirmed that investigating officials visited its offices in Portugal and the team fully cooperated with the agents.
• The team reports that the Company and any of its directors or employees are not targets of the investigation.
• Additionally, the Company reported that its operations on the ground continued unaffected.

Conclusion: Corruption allegations regarding grant of lithium licenses in northern Portugal is set to challenge investors’ confidence in the region in the short term but will ultimately help accountability of state officials and create a more pro-business environment.

We have no reasons to doubt the integrity of the team and the company as Savannah has gone through a comprehensive environmental approval process and has always taken a transparent approach to dealing with government officials and local communities. While potential changes in APA (the environmental agency) management may delay the permitting process, the Company is reporting that operations continue unaffected so far.

*SP Angel acts as Nomad and Broker to Savannah Resources

Versarien* (VRS LN) 0.32p, Mkt Cap £1.06m – Placing raises funds to extend runway ahead of potential asset sales

• Versarien which has a number of graphene products entering into commercial production reports the raising of £454,882 at 0.275p.
• Management are busy working though the sale process for a number of non-graphene related, non-core assets as part of their restructuring.
• The asset sales are expected to bring in significant cash resources to support the ongoing commercialisation of Versarien graphene products.
• Versarien is committed to maintaining and strengthening the Company’s scientific teams.
• Management are focussed on developing the Cementene™ and other construction products alongside graphene inks in textiles with Graphene-Wear™  (Gnanomat graphene inks).
• This should enable Versarien to develop into a light manufacturing operation with a series of licences to third parties.

Conclusion:  The teams close working ties with a number of international brands and their understanding of how to incorporate graphene into manufacturing processes should help to bring in new contracts.

*SP Angel acts as Nomad and Broker to Versarien

Xtract Resources (XTR LN) 1.08p, Mkt Cap £9.2m – Bushranger optimisation study

• Xtract Resources has reported the completion of its optimisation study of the Bushranger copper gold project in New South Wales.
• The study examined a range of extraction rates from 5mtpa to 25mtpa for the 512mt resource at the Racecourse Prospect where shallow copper mineralisation averages 0.22% on a copper equivalent basis.
• The study identified a 20mtpa mining rate as generating the “highest post tax NPV8 of AU$363m (NPV10 – AU$265m) processes ore above 0.10% CuEq at 20mtpa with a sale price of US$11,000/t”.  The study envisages a capital investment of A$1,159m.
• We note, however that the optimum case above uses an assumed copper price of US$11,000/t which is well above the prevailing levels of ~US$8,200/t.
• The company says that “Due to its large size and grade, conditions are expected to be excellent for the efficient and productive mining of the deposit … [but that] … An annual production rate of 20mtpa is required to generate a positive post tax NPV8”.
• Xtract Resources also says that “The economic recovery of all metals (copper, gold, silver) from low grade ores (<0.2% Cu) is pivotal for the economic viability of the project”.
• Executive Chairman, Colin Bird, explained that “The outcomes generated from the mining study are a solid start to understanding the economics of mining the Project’s mineral resources and show there is considerable upside possible through optimisation of plant capacity, capital costs, operating costs and metallurgical recoveries, along with potential incorporation of alternative ore pre-concentration methods”.
• He also commented that “Larger deposits require significantly more capital expenditure and as such warrant considerable study and due diligence at an early stage of project development when optimisation can radically change a Project’s fortunes. We are at this stage and with this in mind, the Company will continue with its studies working towards the ultimate mine and operating plan that provides the best scenario for development of the Bushranger resource”.
• In our opinion, the optimisation study sets the framework for any future development by helping to identify the key issues driving the project economics.  At current prices, it appears that Xtract Resources will need to identify opportunities to trim both the capital and operating costs and enhance the metallurgical performance.

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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