SP Angel . Morning View . Wednesday 06 04 22
Climbing Covid cases in China weigh on growth outlook
MiFID II exempt information – see disclaimer below
Graphene / high-grade graphite purification – private financing opportunity
- We are inviting investors to finance a private company which produces high-grade graphite and graphene from low grade graphitic material. The company also sells:
- Paints: The company already sells a range of graphene paint products and is working on concrete modifiers.
- Concrete modifier: developing distribution network.
- Li-ion battery anodes: project in development in Warwick
- Machinery uses cavitation waves mixture of water and graphite making the process environmentally friendly along with no detrimental grinding impact on graphite particles.
*SP Angel’s role is limited to making introductions and interested parties should be aware that investment in a private company can present certain risks not present in listed companies (e.g. limited or no liquidity and no rules compelling disclosure of information to investors). This offer is open to professional investors only and is not offered to retail investors.
Empire Metals Ltd (AIM:EEE)* – Acquisition of three highly-prospective copper-gold projects in Australia
Hummingbird Resources PLC (LSE:HUM) – Kouroussa development update
Johnson Matthey PLC (LSE:JMAT) – £400m awarded by UK government for hydrogen research
Keras Resources PLC (AIM:KRS)* – Keras consolidated stake to full ownership of Diamond Creek phosphate mine
Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)* – FY21 results: well capitalised, DIA expected over coming months
Dow Jones Industrials -0.80% at 34,641
Nikkei 225 -1.58% at 27,350
HK Hang Seng -1.29% at 22,212
Shanghai Composite -0.06% at 3,281
Economics
US – Sovereign bond yields continue to climb ahead of March Fed meeting minutes and hawkish comments by Fed governors.
- 10y yields climbed to 2.6% as markets expect the Fed to aggressively raise interest rates this year.
- US consumer price inflation runs at a 40-year high while further escalation in the Russia/Ukraine war add to concerns over energy and other commodities inflation.
China – Services sector output dropped sharply amid the nation’s worst Covid outbreak since the start of the pandemic.
- Both latest private manufacturing and services sectors PMIs pulled back in March with the latter sliding the most.
- A separate report on spending over the just-ended Qingming festival break, a traditional Chinese holiday when people visit the tombs of their ancestors, point to weak data for April as well, Bloomberg reports.
- Visits to funeral and cemetery service organizations we down 74%yoy.
- Tourism revenue over the three-national holiday that ended yesterday was down 61% on the level reached during the same period in 2019.
- Caixin Services PMI: 42.0 v 50.2 in February and 49.7 est.
- Caixin Composite PMI: 43.9 v 50.1 in February
Germany – Factory orders slide more than expected in February marking the first drop in four months and reflecting a slowdown in overseas markets as well as the onset of the Russia/Ukraine war.
- Factory Orders (%mom): -2.2 v 2.3 (revised from 1.8) in January and -0.3 est.
- Factory Orders (%yoy): 2.9 v 8.2 (revised from 7.3) in January and 5.4 est.
Polyus controller Said Kerimov to be added to EU sanctions list
- Alexander Shulgin, the chief of Russian ecommerce platform Ozon, Boris Rotenberg, one of President Vladimir Putin’s closest business associates and Said Kerimov, who controls Russia’s largest gold miner Polyus are set to be added to the EU sanction list, the FT reports.
- Polyus is Russia’s largest gold miner, with sales of 2.74Moz of gold in 2021.
Currencies
US$1.0886/eur vs 1.0978/eur yesterday. Yen 124.00/$ vs 122.75/$. SAr 14.66888/$ vs 14.547/$. $1.306/gbp vs $1.314/gbp. 0.759/aud vs 0.764/aud. CNY 6.367/$ vs 6.363/$.
Commodity News
Precious metals:
Gold US$1,917/oz vs US$1,929/oz yesterday
Gold ETFs 105.9moz vs US$105.9moz yesterday
Platinum US$969/oz vs US$986/oz yesterday
Palladium US$2,251/oz vs US$2,301/oz yesterday
Silver US$24.24/oz vs US$24.65/oz yesterday
Rhodium US$19,300/oz vs US$19,500/oz yesterday
Base metals:
Copper US$ 10,384/t vs US$10,557/t yesterday
Aluminium US$ 3,453/t vs US$3,471/t yesterday
Nickel US$ 33,350/t vs US$33,760/t yesterday
Zinc US$ 4,266/t vs US$4,337/t yesterday
Lead US$ 2,411/t vs US$2,425/t yesterday
Tin US$ 44,215/t vs US$43,665/t yesterday
Energy:
Oil US$107.0/bbl vs US$108.5/bbl yesterday
Natural Gas US$6.082/mmbtu vs US$5.843/mmbtu yesterday
Uranium UXC US$60.70/lb vs $59.770/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$162.8/t vs US$163.9/t
Chinese steel rebar 25mm US$808.3/t vs US$803.4/t
Thermal coal (1st year forward cif ARA) US$220.0/t vs US$191.0/t
Thermal coal swap Australia FOB US$259.0/t vs US$259.0/t
Coking coal swap Australia FOB US$405.0/t vs US$440.0/t
Other:
Cobalt LME 3m US$82,000/t vs US$82,000/t
NdPr Rare Earth Oxide (China) US$145,289/t vs US$145,374/t
Lithium carbonate 99% (China) US$74,058/t vs US$74,101/t
China Spodumene Li2O 5%min CIF US$2,810/t vs US$2,810/t
Ferro-Manganese European Mn78% min US$2,161/t vs US$2,179/t
China Tungsten APT 88.5% FOB US$340/t vs US$340/t
China Graphite Flake -194 FOB US$825/t vs US$825/t
Europe Vanadium Pentoxide 98% 12.0/lb vs US$12.0/lb
Europe Ferro-Vanadium 80% 57.25/kg vs US$58.25/kg
China Ilmenite Concentrate TiO2 US$398/t vs US$398/t
Spot CO2 Emissions EUA Price US$85.0/t vs US$85.7/t
Brazil Potash CFR Granular Spot US$1,250/t vs US$1,250/t
Battery News
CATL’s first overseas battery plant gets approval to start production
- Chinese battery giant Contemporary Amperex Technology Company (CATL) has received a battery cell production license for its first overseas plant, in Germany.
- German regulatory authorities granted CATL the approval for the commissioning of the new plant for an initial capacity of 8GWh, with the first cells expected to roll off the production line later this year.
- CATL will invest €1.8bn into the plant with the hope of reaching a final capacity of 14GWh.
BHP purchase power from first Western Australian wind farm for greener nickel production
- Mining giant BHP will purchase 12 years of power from Enel Green Power’s Flat Rocks Wind Farm to cut emissions from processing nickel for EV batteries.
- In 2015, BHP’s WA nickel operations were deemed too burdensome, but the growing market for high-quality nickel products to make lithium-ion batteries has justified further investment.
- Tesla signed a nickel supply agreement with BHP, last year, and want all their inputs to have the lowest carbon intensity possible to add to the environmental credentials of their cars.
- In February, BHP also signed a contract for 50% of the power output of the 132MW Merredin solar farm.
- BHP expects the renewable energy to reduce the Scope 2 emissions from its nickel division’s power purchases by nearly 60% from 550,000t a year currently.
Iron ore giants target ‘zero emission shipping route’ for export out of Australia
- A group of mining and shipping companies are currently exploring the development of a clean shipping route between Australia and East Asia, Bloomberg reports.
- The group consisting of BHP, Rio Tinto, Oldendorff Carriers and Start Bulk Carriers have signed a Letter of Intent to assess the viability of a green corridor.
- International shipping accounts for 3% of global carbon emissions, equal to the output from the sixth largest polluting country.
- The group intends to jointly assess green ammonia supply to fuel the vessels.
- Without efforts to decarbonise, the sector’s emissions could increase by 50% by 2050 based on the projected expansion of seaborne trade.
Company News
Empire Metals Ltd (AIM:EEE)* 1.4p, Mkt Cap £4.4m – Acquisition of three highly-prospective copper-gold projects in Australia
LINK TO FEBUARY 2022 FLASH NOTE
- Empire Metals announces that it has acquired a 70% interest in three highly prospective Australian-based copper-gold projects from Century Minerals.
- Two of the projects are in Western Australia, Pitfield and Walton, while the Stavely Project is located in Victoria.
- The acquisition increases Empire’s exploration license area from 9.5 km2 to 1,728 km2.
- Terms: Empire has agreed to acquire a 70% interest in the three projects for a cash payment of A$100K and the issue of 16,835,588 new ordinary shares in Empire apportioned equally between each Project and issued upon the grant of the relevant Tenement comprising each Project.
- Empire has planned and agreed to spend a minimum of A$1.4m on exploration within 24 months of the date of acquisition, and this may be extended by a further 12 months should either the Walton or Stavely tenements not be granted within 12 months of acquisition.
- Empire has also agreed to pay Century performance-based payments, either in cash or shares at empire’s election, based on exploration drilling results and the establishing of a resource.
- Pitfield Project lies long the boundary of Western Yilgarn province, controlling the position of the Neoproterozoic Yandanooka basin, with the Neoproterozoic era being globally important for copper mineralisation – including the copper belt of southern Africa and the Paterson province of Western Australia.
- The emerging Calingiri copper deposits held by Caravel Minerals Ltd (ASX:CVV) are also localised along this major structure some 150km to the south.
- About 25% of the project area is exposed/weathered Proterozoic rocks of the Yandanooka Group where the known copper prospects are located.
- Geochemical sampling that followed up government geophysical surveying has confirmed that a previously identified magnetic anomaly associated with alteration s is host to extensive copper anomalism, extending south from Baxters and with greater than 150ppm Cu in soils identified over a strike length of 7km.
- The anomaly remains open to the south and east including over 10km of this high-intensity magnetic feature within the project which is yet to be explored.
- Stavely Project lies upon the highly prospective but poorly explored Cambrian Stavely Arc, 280km north-west of Melbourne.
- The Stavely Arc is preserved as multiple structurally dismembered, fault-bound, poorly exposed volcanic belt segments under shallow transported cover, where porphyry intrusions and associated mineralisation occur.
- The area is highly prospective for a range of arc-related mineral systems, such as porphyry, epithermal, and volcanic-hosted massive sulphide systems – however only 2% outcrop while the remainder lies under shallow cover and is essentially unexplored.
- The project sits along strike from the recent greenfield discoveries made by Stavely Minerals, including drilling that intersected 32m @ 5.88% Cu, 1.0g/t Au, 58g/t Ag.
- Stavely Minerals have since reported an Inferred Resource of 28Mt @ 0.4% Cu for 110kt contained Cu.
- Walton Project is located in the under-explored Yerilgee greenstone belt comprised of a sequence of high-magnesium basalts, ultramafic volcanic rocks, sedimentary rocks and granites including iron formations.
- The belt hosts the Golden Grove VHMS system, and a number of other emerging VHMS prospects such as Cobre Ltd (ASX:CBE)’s Perrinvale Project and Arrow Minerals Strickland Project.
- Cobre’s drilling at Perrinvale, which lies to the north of Walton, intersected massive sulphide mineralisation at shallow depth, including 6m grading 8.93% copper, 3.1 g/t gold, 3.52% zinc, 30g/tsilver and 0.14% cobalt.
- No relevant previous exploration has been undertaken on the project and it is proposed to complete surface soils/auger geochemistry to help identify copper, gold and lithium targets.
Conclusion: Empire’s acquisition this morning should excite shareholders, as it massively increases the company’s exploration footprint in some highly-prospective areas. Management is certainly active, having only last week released drill results from its 1,600m campaign programme at Gindalbie Gold Project in Western Australia. We look forward to seeing further results from Gindalbie as well as the adjacent Eclipse project, along with developments from the newly acquired copper-gold assets.
*SP Angel acts as Nomad and Broker to Empire Metals
Hummingbird Resources PLC (LSE:HUM) 14.5p, Mkt Cap £57m – Kouroussa development update
- The Company released a development update at the Kouroussa Gold Mine in Guinea.
- Development and construction works continue on track with first gold pour expected by the end of Q2/23.
- Mine camp for construction personnel is now operational.
- Foundation concrete and steel reinforcements work is progressing for the CIL tanks installation with structural, mechanical and piping works to follow.
- Long lead items including apron feeders, jaw crusher, SAG mill, cyclone cluster and agitators have been ordered.
- Power plant and mining contractor agreements are in the final stages of negotiation and are expected to be signed soon.
- Separately, the team reported assay results received from the 2021 24,000m infill drilling programme.
- The latest batch included results from ~9,900m with the final ~3,600 remaining outstanding.
- Results show wide high grade intersections at open-pittable depths including:
- 3m @ 18.63 g/t from 27m (KRC1953);
- 7m @ 2.98 g/t from 36m (KRC2003);
- 11m @ 5.62 g/t from 64m (KRC2036);
- 3m @ 34.84 g/t from 51m (KRC2041);
- 1m @ 47.60 g/t from 152m (KRC2042);
- 9m @ 4.55 g/t from 34m (KRC2044);
- 2m @ 9.65 g/t from 120m (KRCD1886);
- 8.6m @ 6.31 g/t from 107.6m (KRCD1891);
- 7m @ 9.83 g/t from 101m (KRCD1896);
- 12.6m @ 5.11 g/t from 66.45m (KRCD1898).
- The team expects to release an updated Group wide Mineral Resources and Reserves update in Q2/22.
Johnson Matthey PLC (LSE:JMAT) £19.3, Mkt Cap £3.6bn – £400m awarded by UK government for hydrogen research
- The UK government has given a loan to Johnson Matthey for sustainable technology development.
- The funding is the biggest single investment for a UK company researching hydrogen-based energy and re-usable technology of its kind - with an aim to help tackle climate change and reach net-zero.
- Hydrogen is currently onw of the front-runner tehcnologies seen as viable to power HGVs and trains.
- JM recently pulled out of their plans to enter the battery technology industry, using their expertise in catalytic converters, to focus on hydrogen technology.
- The financing is being provided by HSBC, Sumitomo Mitsui Banking Corporation and Bank of America (NYSE:BAC), with the government backing it via UK Export Finance.
- International Trade Secretary, Anne-Marie Trevelyan, said: “Investments in Hydrogen technologies will blast domestic energy production higher than ever - securing the future supply of cleaner energy at home and helping us to export abroad. This will make for a healthier, wealthier future for the UK while protecting the planet.”
Keras Resources PLC (AIM:KRS)* 0.08p, Mkt cap £5.19m – Keras consolidated stake to full ownership of Diamond Creek phosphate mine
(Keras holds 100% of the Diamond Creek phosphate mine in Utah, USA. Keras holds an 85% interest in Societé General des Mines which holds the Nayéga manganese project in Togo)
- Keras Resources has consolidated its ownership of the Diamond Creek organic phosphate mine in Utah, USA for US$3.2m.
- The $3.2m consideration is to be paid in four equal annual instalments of $0.8m starting 1st July 2022 and finishing 1st July 2025.
- The price to be paid includes the repayment of loans to the seller of $1.8m
- We expect the consideration to be paid out of cash flow from the Diamond Creek phosphate mine
- The deal resolves a degree of friction between Keras management and the seller and avoids potential costly legal action in the US between the two parties.
- The mine reported a loss of US$24,187 for Keras’ 49% stake last year largely due to the suspension of operations over actions by the former mine management.
- Keras management have been on site on a regular basis maintaining management, relations with key contractors.
- The team have also been making sales from the inventory of processed material to ensure business continuity.
- Inventories include 4,000t of processed material and >10,000t of run of mine ore.
- We expect the mine to do substantially better this year under the sole management of Keras
- The team have “a 3-month window to explore financing options before the first tranche is due and have already initiated discussions with key customers to look at funding solutions.”
- Outlook: The outlook for phosphate and potash fertilizers is extremely positive in the current global environment.
- Rock phosphate prices have jumped 77% to ~$175/t from ~$99/t over the past 12 months climbing steadily since April 2021 according to indexmundi.
- We expect rock phosphate prices to continue to hold high levels due to a global shortage of fertilizer raw materials and a lack of grains out of Ukraine.
- Sanctions against Russia and Russian restrictions on fertilizer raw materials looks likely to reduce crop yields in the West causing fertilizer prices to continue to rise.
- Disruption to Russian wheat exports and a reduced Ukrainian grain harvest has the potential to exacerbate a shortage of basic food stuffs into the Middle East, Asia and the West.
- Keras’s Diamond Creek mine was selling organic rock phosphate for $260/t for rough crushed and prosized #10 mesh, rising to $300/t (Bulk) and $420/t (50lb bags) for #350 mesh for hydroponics.
- The mine also sell granulates for $360/t (bulk) and $450/t (50lb bags).
- Keras had provided US$625,000 of working capital to the Diamond Creek joint venture by end-September last year.
- Nayéga Manganese Project, Togo; a local country manager was recruited last year to accelerate approval of an exploitation permit. There appears to be no real reason why this permit is being held up and we see the excessive delay on the mine permit as a very bad sign for anyone looking to do business in Togo.
Conclusion: Consolidation of full ownership of the Diamond Creek mine allows Keras to raise production and provide better service to buyers in the US. Higher rock phosphate prices driven by strong demand for fertilizers combined with global shortages caused by the Russian invasion of Ukraine should enable Keras to sell everything the mine can produce this year. The deal comes at an opportune time and we expect to see a substantial increase in sales, prices and margins from this mine going forward.
SP Angel act as Nomad and Broker to Keras Resources
Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)* 5.0p, Mkt Cap £84m – FY21 results: well capitalised, DIA expected over coming months
BUY – 17.9p
- The Company released FY21 highlighting major operational and corporate developments.
- At the flagship Barroso Lithium Project, the team reported that environmental regulator (APA) declared project EIA in conformity with guidelines (Apr/21) while the Public Consultation has also been completed (Jul/21).
- Calling of early general elections in Portugal in early Nov/21 delayed the environmental permit review process although the results saw the centre-left Socialist party taking majority seats in the parliament and securing the mandate to push through initiatives to promote growth and attract investments.
- On the back of reduced political uncertainty, the Company reports that relevant cabinet appointments following snap elections were completed in Mar/22 and the Environmental Impact Declaration (DIA), a major milestone in the EIA approval process, is expected to be secured in coming months.
- DFS wise, the Company finalised the process flowsheet while fieldwork scope was somewhat limited given Covid-related restrictions and the ongoing EIA review process.
- The Company expects the DFS to be completed over 12 months following the approval of the EIA
- The team reports strong interest with regards to potential offtake and project funding on the back of strong spodumene pricing and market outlook.
- Spodumene prices climbed over 6x last year with prices in China reaching ~$2,800/t for standard SC6 compared to ~$400/t at the end of 2020.
- EBIT amounted to -£3.5m (2020: --£2.5m) including £3.3m in administration costs (2020: -£2.6m) as the Company expanded it team for the Barroso Lithium project development.
- Net Income totalled -£3.5m (2020: -£8.3m) with 2020 figures reflecting a loss recorded on the disposal of the Oman copper assets.
- Closing cash balance stood at £13.0m reflecting a £10m equity raise and £6.5m in proceeds from the disposal of the Company’s interest Mutamba mineral sands project disposal late last year.
- The Company is largely debt free, except for £1.1m in leases outstanding.
Conclusion: The Company remains well positioned to capitalise on the latest surge in lithium demand as the team is progressing the Barroso Lithium Project through the EIA approval process. The Company has £13m in the bank helped by the disposal of its interest in the Mutamba mineral sands project late last year focusing now exclusively on the lithium project development. The team expects the DIA, a major milestone to the EIA approval process, to be secured in the coming months followed by the completion of the DFS over 12 months after that paving the way for the start of construction in 2023. We believe once EIA approval hurdle is cleared, offtake agreements and project funding proposals will follow shortly reflecting strategic location of the project, attractive environmental credentials of the future spodumene source, low technological risk and strong project economics amid tight lithium market outlook.
*SP Angel act as Nomad to Savannah Resources
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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
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486
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.
Sources of commodity prices
Gold, Platinum, Palladium, Silver - BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel - Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt - LME
Oil Brent - ICE
Natural Gas, Uranium, Iron Ore - NYMEX
Thermal Coal - Bloomberg OTC Composite
Coking Coal - SSY
RRE - Steelhome
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite - Asian Metal
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