SP Angel Morning View -Today’s Market View, Wednesday 9th August 2023

Rare Earth prices rise on expectations of waning Chinese supply

MiFID II exempt information – see disclaimer below

Atlantic Lithium* (ALL LN) –  BUY – Directors buy shares in Atlantic Lithium

American West Metals (AW1 AU) – Latest drilling data from the Storm project

Caledonia Mining (CMCL LN) – Fatality at the Blanket mine

KEFI Gold and Copper* (KEFI LN) – Q2/23 operation update highlights Tulu Kapi construction ready status and ramp up of development activities in Saudi Arabia

Lucara Diamonds (LUC CN) – Karowe yields another 1,000+carat diamond

Peak Rare Earths (PEK AU) – Offtake agreements signed with Shenghe for Ngualla project

Polymetal (POLY LN) – DELISTED – Quarterly production results and operational update

Syrah Resources (SYR AU) – Offtake agreements signed with US downstream players to diversify marketing strategy

Copper prices bounce off July lows following disappointing China data

• Copper prices slumped to $8,300/t yesterday before rallying back to $8,450/t this morning.
• China’s weak trade data combined with a rally in US Treasuries to weigh on forward-looking copper demand sentiment.
• Chinese stimulus to support the flailing property market remains elusive.
• Copper-concentrate imports slid to a nine-month low in July.
• Disinflation concerns are also weighing on copper prices, with factory-gate prices slipping into deflation.
• 25% of China’s copper demand is building and construction, 13% is industrial and machinery, 16% is consumer goods whilst power/energy storage and transportation represent 17% and 11% respectively.
• However, Shanghai stocks continue to draw, providing some support to copper prices despite the seemingly-bleak demand outlook.

Gold prices slide to one-month lows amid US Treasury volatility

• Gold prices fell to $1,925/oz in the spot market yesterday, touching $1,930/oz this morning before weakening again.
• Traders continue to asset the outlook for US government bonds, with CPI data due tomorrow.
• The market is currently expecting another 20bp rise in US Core inflation rate mom, with a 3.3% rise in yoy as a result of base effects and rising oil prices.
• Philadelphia Fed President Harker stated he expects core PCE inflation to level out at the Fed’s target by 2025, falling below 3% in 2024 – he calls for the Fed to hold rates at current levels in September.
• US Treasuries rallied yesterday, with yields on the 10-year falling below 4%. Despite this, gold prices continued their downtrend, reflecting expectations of a further rise in real yields.
• Gold prices and real yields have historically held a tight correlation, with gold buyers put off by higher-yielding, risk-free US Treasuries in real as opposed to purely nominal terms.
• Gold ETFs continue their outflows as buyers turn to long-duration US Treasuries with the end of inflation in sight.

Economics

China – Consumer prices slipped into deflationary territory in July, although, the decline was a slightly lower than expected.

• The data describes a sharp contrast to strong inflationary pressures experienced in major Western economies and reflects waning local economic growth momentum.
• Weak CPI numbers follow significant declines in overseas and inbound shipments reported yesterday.
• CPI (%yoy): -0.3 v 0.0 June and -0.4 est.
• PPI (%yoy): -4.4 v -5.4 June and -4.0 est.

Germany – The government is expected to approve a €30bn top up to the Climate and Transformation Fund taking it to €212bn, Bloomberg reports.

• The fund is designed to help speed Germany’s transition to an emissions free economy and includes investments in semiconductor production and expansion of railway infrastructure, among other things.

Italy – The government trimmed down windfall tax initiative after a sell off in lenders on Tuesday that reduced banks’ market cap by $10bn, Bloomberg writes.

• The 40% levy on lenders’ extra profits announced by Deputy Prime Minister Matteo Salvini will now not exceed 0.1% of a firm’s assets and banks that have already increased deposit interest rates “will not have a significant impact as a consequence of the rule”, the finance minister said.
• Jefferies estimates that a cap approximately halves the hit on banks’ common equity tier 1 ratio, a key measure of financial strength of the Company.

Currencies

US$1.0974/eur vs 1.0985/eur yesterday. Yen 143.14/$ vs 142.85/$. SAr 18.922/$ vs 18.787/$. $1.277/gbp vs $1.276/gbp. 0.656/aud vs 0.653/aud. CNY 7.208/$ vs 7.213/$.

Dollar Index 102.34 vs 102.26 yesterday.

Commodity News

Precious metals:

Gold US$1,930/oz vs US$1,934/oz yesterday

Gold ETFs 90.8moz vs US$90.9moz yesterday

Platinum US$907/oz vs US$918/oz yesterday

Palladium US$1,224/oz vs US$1,239/oz yesterday

Silver US$22.85/oz vs US$23.18/oz yesterday

Rhodium US$4,100/oz vs US$4,100/oz yesterday

Base metals:

Copper US$ 8,443/t vs US$8,434/t yesterday

Aluminium US$ 2,214/t vs US$2,215/t yesterday

Nickel US$ 20,965/t vs US$21,055/t yesterday

Zinc US$ 2,480/t vs US$2,467/t yesterday

Lead US$ 2,132/t vs US$2,125/t yesterday

Tin US$ 27,285/t vs US$27,545/t yesterday

Energy:           

Oil US$86.1/bbl vs US$84.8/bbl yesterday

• Crude oil prices moved higher after Ukraine threatened to target Russian transit and ports in the Black Sea, which currently facilitates the export of ~2mb/d or about one third of its overall crude exports.
• European energy prices strengthened as warmer temperatures look set to return to northern Europe, though LNG prices continue to hover around the $10-$11/mmBtu level.
• The Norwegian government has approved a plan for the electrification of Equinor’s Hammerfest LNG facility in northern Norway by 2030 that will switch power supply from gas generation to the renewables dominated grid.

Natural Gas US$2.795/mmbtu vs US$2.715/mmbtu yesterday

Uranium UXC US$56.25/lb vs US$56.25/lb yesterday

Bulk:   

Iron ore 62% Fe spot (cfr Tianjin) US$99.7/t vs US$101.9/t

Chinese steel rebar 25mm US$519.3/t vs US$521.5/t

Thermal coal (1st year forward cif ARA) US$123.0/t vs US$123.0/t

Thermal coal swap Australia FOB US$145.0/t vs US$144.0/t

Coking coal swap Australia FOB US$236.0/t vs US$236.0/t

Other:  

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

NdPr Rare Earth Oxide (China) US$65,971/t vs US$65,572/t

Lithium carbonate 99% (China) US$34,338/t vs US$35,004/t

China Spodumene Li2O 6%min CIF US$3,560/t vs US$3,610/t

Ferro-Manganese European Mn78% min US$1,048/t vs US$1,049/t

China Tungsten APT 88.5% FOB US$310/mtu vs US$310/mtu

China Graphite Flake -194 FOB US$675/t vs US$675/t

Europe Vanadium Pentoxide 98% 7.6/lb vs US$7.6/lb

Europe Ferro-Vanadium 80% 31.85/kg vs US$31.85/kg

China Ilmenite Concentrate TiO2 US$311/t vs US$311/t

Spot CO2 Emissions EUA Price US$91.2/t vs US$90.5/t

Brazil Potash CFR Granular Spot US$352.5/t vs US$352.5/t

Battery News

China’s EV efforts frustrated by bureaucracy

• China already has a globally dominant position in the EV and battery market, but startups are being frustrated by a strict licensing regime in China.
• The strict licensing regime has seen EV rollouts from search group Baidu, smartphone maker Xiaomi and ride-hailing service Didi all stalled.
• The new regime, set by the Chinese Ministry for Industry and Information technology, has seen only two approvals for EV production granted since the start of the year.
• Industry insiders say that regulators have tightened approvals to tackle growing overcapacity and several EV company failures that have left people with vehicles that cannot be repaired or serviced.
• The rules enforced by China’s state planner and the Ministry of Industry and Information technology has seen the plans of startups stopped in their tracks:
  • Billion-dollar startup, backed by US investment group Coatue has been almost bankrupted and was forced to lay off most of its work force after failing to receive an EV production licence.
  • Search group, Baidu, had its EV partnership with Geely put on hold after difficulties securing the right licences.

Ghana warming to EVs to tackle climate change and air pollution

• Ghana has imported over 17,000 plug-in EVs between 2017 and 2021, a senior Lecturer at the University of Ghana, Dr Ernest Agyemang, has revealed.
• He added that the Hybrid Plug-in vehicles “will help address some of the climate change issues as it was identified as the largest source of air pollution in the country”.
• There is a growing official and public recognition about the need to reduce CO2 emissions and role that traditional internal combustion engine (ICE) vehicles play in air pollution.
• In November 2022, the Ministry of Transport announced that it would begin stakeholder consultations on an EV Policy as part of Ghana’s broader strategy to reach net-zero emissions in the transportation sector.  That strategy envisions that the main means for road transport would be EVs, Compressed Natural Gas (CNG) vehicles and hydrogen vehicles.
• Accra currently has a PM2.5 concentration which is 7.2 times the WHO annual air quality guideline.

Company News

Atlantic Lithium* (ALL LN) 18.2p, Mkt Cap £111m – Directors buy shares in Atlantic Lithium

BUY

(Piedmonth can earn into up to 50% of the Ewoyaa lithium project through the expenditure of around 70% of the project capex)

• Atlantic Lithium report the buying of shares by two directors this morning.
• Neil Herbert, Chairman, bought 290,000 shares at 17.2p for £49,880
• Amanda Harsas, Finance Director and Company Secretary also bought 150,000 shares at 17.19p for £25,785 and 50,000 shares at A$0.35c for A$17,500.
• Atlantic Lithium shares have pulled back on press reports in Ghana relating to proposed ‘Green metals’ legislation:
• Press reports are speculating over:
  • Proposal for an increase in the 10% free carry required by the Ghana government on all mining projects,
  • Royalty to be on some sort of sliding scale according to the underlying metal price,
  • Concentrates to be refined in Ghana.
• Green metals include bauxite, cobalt, copper, lithium, graphite, manganese and nickel.
• We believe any increase in the 10% free carry will be limited to a few percent.
• Gold royalties are currently 5% on all gold production with all gold doré and concentrates required to be refined in-country.
• Peak royalty rates are likely to be higher than for gold at high lithium prices giving the government of Ghana a degree of upside potential.
• We believe miners will be permitted to export lithium concentrates till a refinery is built in Ghana.
• Livista, a European refinery company, is currently considering a site which it has been offered close to the port of Takoradi for the construction of its first non-European lithium refinery.
• We recently visited Takoradi with Livista and have also recently met with the government and Ghana Sovereign wealth fund which manages Ghana’s gold royalties.
• Recommendation: Atlantic’s recently published DFS outlines an IRR of 105% and an NPV8 of US$1.5bn.
• This assumes a lithium concentrate price of US$1,587/t over the first few years with $1,200/dmt long term pricing for SC6% FOB Ghana Port.
• We view the calculated project economics as offering exceptional upside potential with relatively low technical mining risk.

Conclusion:  Uncertainly over tax and royalty regimes is always unsettling for shareholders.  While the Ghanaian government is emphasising on value addition in country in long term we are also sure they understand the need for speed in lithium project development.  We reckon a new fiscal regime will be settled shortly and we look forward to the issuance of the necessary mining licenses over the Ewoyaa project later this year.

*SP Angel acts as Nomad to Atlantic Lithium. Two mining analysts from SP Angel recently visited the Ewoyaa mine site in Ghana and drove onto Takoradi to check the quality of the road to port and see the infrastructure for the potential new Livista refinery site. Our intrepid analysts also visited the Ministry of Minerals Commission and MIIF, the Ghana Minerals Income Investment Fund.

American West Metals (AW1 AU) A$0.355, Mkt Cap A$120m – Latest drilling data from the Storm project

• In a release to the ASX, American West Metals has published drilling results from another hole at the Storm copper project on Somerset Island in northern Canada.
• Following release of results from diamond drill holes ST23-01 and ST23-02 earlier this month, the company has released results from hole ST23-03 which is located around 1.7km south of the previous holes of the programme and tested “a high-priority, near-surface MLEM conductor, as well as a gravity anomaly proximal to the Southern Graben Fault at depth”.
• As with the previous two holes of the current programme, results from ST23-03 do not yet include assays and although the company cautions that “Visual estimates of mineral abundance should never be considered a proxy or substitute for laboratory analyses where concentrations or grades are the factor of principal economic interest”, drill-core photographs included in the announcement  Two-Exceptional-New-Copper-Discoveries-at-Storm.pdf (americanwestmetals.com) show sulphide mineralisation in two horizons.
• An upper mineralised zone showed “76m of visual strong breccia to massive copper sulphide (chalcocite, bornite and chalcopyrite) between 32m and 108m downhole” with a deeper horizon of “2m of visual breccia and dense vein style copper sulphide (chalcocite, bornite and chalcopyrite) between 273m and 275m downhole”.
• The company says that the “new zone of near-surface copper has been named ‘Thunder’”.
• Commenting on the drilling, Managing Director, Dave O’Neill, said that the upper, 76m wide, intersection in hole ST23-03 produced “one of the best intersections ever seen at the Project”.
• He also said that ST23-03 “has also – for the first time – intersected copper sulphides within the deeper horizon close to the southern graben fault, confirming the presence of the sediment-hosted system in new and untested areas”.
• Describing the broader significance of the new deeper level intersection, he said that it “confirms the prospectivity of the whole area around, and to the south of the southern graben fault. With every wide-spaced hole encountering the same mineralised unit at depth”.
• American West Metals confirms that “Diamond drilling continues on high-priority copper targets”.
• American West Metals is earning an 80% interest in Aston Bay’s* 100% owned Storm Copper and Seal Zinc Projects located on western Somerset Island with staged expenditure of C$10m over 7 years.

Conclusion: We look forward to the assay results from the latest drilling to provide insight into the grade characteristics of the deeper level mineralisation encountered and also of the shallower Thunder Zone.

*SP Angel has previously raised funds for Aston Bay Minerals

Caledonia Mining (CMCL LN) 885p, Mkt Cap £171m – Fatality at the Blanket mine

• We are saddened to learn from an announcement yesterday of the tragic death of a mineworker at Caledonia’s Blanket gold mine in Zimbabwe.
• The accident, which occurred on 7^th August, involved an employee of a contractor at the mine and “related to the maintenance of trackless equipment”.
• The unfortunate accident is a stark reminder of the inherent risks of mining and we express our condolences to the colleagues and family of the victim.

*SP Angel mining analysts have visited Caledonia’s mining operations in Zimbabwe

KEFI Gold and Copper* (KEFI LN) 0.6p, Mkt Cap £30m – Q2/23 operation update highlights Tulu Kapi construction ready status and ramp up of development activities in Saudi Arabia

• The Company released Q2/23 update highlighting development progress at its precious and base metal projects in Ethiopia and Saudi Arabia.
• The latest project pipeline development plant includes:
  • 2023 launch Tulu Kapi open-pit in Ethiopia for first production end-2025;
  • 2024 launch Jibal Qutman Gold open-pit in Saudi Arabia for first production end-2025;
  • 2025 launch of the Hawiah Copper-Gold open-pit in Saudi Arabia for first production 2027; and
  • 2026 and thereafter launch of underground mine development at Tulu Kapi and at Hawiah for first production two years later.
• In Ethiopia, the Company is awaiting final credit committee and board approvals from lenders and project investors regarding the $320m debt/equity Tulu Kapi Gold Project capital commitments.
• Project funding and deployment of capital is expected in coming months with preparation for community resettlement at Tulu Kapi planned for Q3/23 and construction start in Q4/23.
• The Company expanded on site team under MD Theron Brand with the Tulu Kapi development execution team now being assembled within the local subsidiary TKGM and Lycopodium.
• Separately, the team is reporting it launched administrative proceedings with regards to adjacent to the Tulu Kapi Project exploration licenses.
• During an overhaul of the title regulatory system in 2022, these licenses appear to be over staked by a separate entity registered in Hong Kong.
• In Saudi Arabia,
• At Jibal Qutman, the team is focused on DFS related work with MRE infill, metallurgical and geotechnical drilling completed during the quarter.
• Preliminary metallurgical work indicates recoveries around 90% and 69-74% for oxide and sulphide material.
• A substantial share of the initial accommodation and works compound at sit e is completed.
• DFS is expected to be completed in coming months paving the way for a mining license application and development works commencing in 2024.
• GMCO is running one of the largest exploration camps in the country holding 15 exploration licenses and six drilling rigs running on site.
• Drilling is mainly focused on infill programmes along with some step out drilling.
• At Hawiah, ongoing drilling is focused on upgrading and expanding the existing resource at the VMS project as well as adjacent license areas.
• The Company is well funded following an equity placing for £7.2m mid-2023 supporting closure of the Tulu Kapi Project funding and start of development works.

*SP Angel acts as Nomad and Broker to KEFI Gold and Copper

Lucara Diamonds (LUC CN) C$0.37, Mkt Cap C$168m – Karowe yields another 1,000+carat diamond

• Lucara Diamonds reports that it has recovered a 1,080-carat diamond from its wholly owned Karowe mine in Botswana.
• The Type IIA white gemstone is the fourth diamond larger than 1,000 carats recovered from Karowe which also produced the 1,109 carat ‘Lesedi La Rona’ diamond in 2015, the 1,758 carat ‘Sewelo’ diamond in 2019, and an 1,174-carat stone in 2021.
• The latest discovery comes from “direct milling of ore sourced from the M/PK(S) unit of the South Lobe” at the mine and CEO, Eira Thomas, explained that “As we progress mining deeper in the open pit and transition to underground mining, exclusively in the South Lobe, the preponderance of large, high value stones is increasing, consistent with the resource model”.
• She clarified that the trend for the increase of larger diamonds at depth “underpins the strong economic rationale for investing in the Underground expansion that will extend the mine-life out to at least 2040”.

Peak Rare Earths (PEK AU) A$0.52, Mkt cap A$137m – Offtake agreements signed with Shenghe for Ngualla project

• Peak Rare Earths announces it has signed a binding offtake agreement with Shenghe for the Ngualla Rare Earth project.
• The offtake agreement includes 100% of rare earth concentrate, min.50% of intermediate and final rare earth products over 7 years.
• The agreement is conditional and is subject to Peak shareholder approval.
• The groups have also signed a non-binding MoU to support ‘integrated development’ and provide a funding solution to the project.
• This provides Shenghe the opportunity to subscribe for a non-controlling equity interest in the Ngualla Project, supporting the project’s funding requirements.
• As a result of both agreements, the project is expected to be completed by early 2026 following a FID at the end of May 2024.
• A subsidiary of Shenghe already owns a 19.8% interest in Peak, alongside a 7.75% interest in MP Materials.
• Shenghe is China’s largest importer of rare earths.
• Peak Rare Earths is run by Russell Scrimshaw, formerly Chairman at Sirius Minerals which started the development of the Woodsmith polyhalite mine in North Yorkshire, UK.
• Sirius Minerals was acquired by Anglo American for £405m following Sirius’s expenditure of $1.4bn on the project according to Mining.com.

Conclusion: Whilst a number of developing rare earth miners are emphasising their desire to explore ex-China offtake partnerships, Peak’s agreement with Shenghe reflects the current market structure where China dominates the refining of the crucial permanent magnet minerals. Executive Chairman Russell Scrimshaw stated that the alternative to a Chinese deal would be to ‘wait and twiddle our thumbs’ as the Western refining industry remains in its nascent stage.

Polymetal (POLY LN) – DELISTED – Quarterly production results and operational update

• Polymetal’s AuEq production grew 22% yoy in Q2 to 423koz.
• Output over the first six months of this year grew 3% to 764koz AuEq.
• The ramp up is explicable by improved production performance at the Nezhda and Albazino mines in Russia.
• Kazakhstan production for the first six months of this year was 213koz.
• Poly is reiterating guidance of 1.7moz AuEq this year, with 1.2moz from Russia and 500koz from Kazakhstan.
• Revenue rose 34% yoy to $581m.
• Poly’s net debt currently stands at $2.39bn with the majority of that in Russia following sanctions-related sales disruptions.
• Poly is suffering from sales disruption on eastward-running trains from Kyzyl in Kazakhstan.
• The Company has redomiciled to the Astana International Financial Centre in Kazakhstan.

Syrah Resources (SYR AU) A$0.65, Mkt cap A$445m – Offtake agreements signed with US downstream players to diversify marketing strategy

• Syrah Resources announces it has signed an MoU with Samsung SDI for natural graphite active anode material.
• Syrah is developing the Vidalia AAM facility in the US, and Samsung SDI is a primary producer of lithium-ion batteries.
• The Companies will look to finalise an offtake agreement for up to 10ktpa AAM from Vidalia from 2026.
• Vidalia currently holds a DFS for 45ktpa AAM capacity, with an FID expected later this year.
• Syrah recently announced natural graphite offtake agreements with two US AAM producing/aspiring producers.

Conclusion: The Company’s combination of natural and downstream offtake agreements highlights management’s desire to diversify their access to graphite markets. Syrah was forced to suspend production at Balama in May and June as a result of a glut of Chinese synthetic graphite flooding the market, with the Company now exploring routes to diversify its supply chain towards ex-China downstream buyers.

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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