Today's Morning View - US$ index at two year high ahead of US inflation data later today

SP Angel . Morning View . Tuesday 12 04 22

US$ index at two year high ahead of US inflation data later today

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MiFID II exempt information – see disclaimer below

Altus Strategies* (ALS LN) – Agdz mining license secured

Caledonia Mining* (CMCL LN) – Record Q1 gold production from the Blanket mine, Zimbabwe

GoldStone Resources (AIM:GRL)* (GRL LN) – Ramping up at Homase – Link to yesterday’s note

Oriole Resources (ORR LN) – £403,000 HMRC rebate

Rambler Metals & Mining* (RMM LN) – Virtual presentation of Q1 operational results

URU Metals* (URU LN) – High-grade gold discovered in drilling beneath Zebediela nickel PGM project

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:
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• 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.

Dow Jones Industrials -1.19% at 34,308

Nikkei 225 -1.81% at 26,335

HK Hang Seng +0.91% at 21,401

Shanghai Composite +1.46% at 3,213

Economics

China – Strict Shanghai lockdown puts other Chinese cities on edge

• All residents in Shanghai have been in a strict lockdown since last Tuesday as Covid cases surge and the government doubles down on its ‘Zero covid’ strategy.
• Residents have been left without food or medicine, leading to protests and general unrest.
• Shanghai is the most populous city in China and thought to contribute 3.5% of the country’s total GDP.
• It is thought that now over 70 of China’s largest 100 cities are suffering some sort of lockdown.
• Panic buying is sweeping through cities, with officials in the southern port city of Guangzhou urging residents to stop excess purchasing as a local paper suggested shortages were imminent.

US – Inflation data is due later today with estimates for a further pickup in both headline and core measures highlighting ongoing inflationary pressures as economies reopen and high commodity prices on Ukraine/Russia war related effects.

• CPI and Core CPI are estimated to come in at 8.4% and 6.6% in March, up on 7.9% and 6.4% in February, respectively.
• Equity indices pulled back and sovereign bond yields climbed on Tuesday seeing the US$ index higher over 100 mark, the highest since H1/20.

Germany – Economic sentiment weakened further in April that does not come as a surprise amid the ongoing war in Ukraine since late February that saw energy prices rising strongly since then.

• Although, the positive takeaway from the release is that the drop was not as bad as expected.
• “The expectations and assessments of the economic situation are currently similar to those at the beginning of the COVID-19 pandemic in March 2020,” the report read.
• ZEW Survey Expectations: -41.0 v -39.3 in March and -48.5 est.
• ZEW Survey Current Situation: -30.8 v -21.4 in March and -35.0 est.

UK – Unemployment rate dropped to 3.8% in the three months to February marking levels last seen in pre-pandemic 2019, although, the drop came on the back of a falling workforce participation.

• Separately, strong growth in earnings and record number of openings show tight state of the current labour market suggesting the BoE to continue pushing through with monetary policy normalisation.
• Vacancies climbed to 1.29m with four in every 100 jobs unfilled.
• Real earnings were still down 1%yoy as inflation outpaced a pick up in wages which is likely to weigh on consumer spending moving forwards.
• Employment Change: 35k v 174k (revised from 275k) in February and 125k est.
• Unemployment Rate: 3.8% v 3.9% in January and 3.8% est.
• Weekly Earnings ex Bonus (%yoy): 4.0% v 3.8% in January and 4.0% est.

Currencies

US$1.0860/eur vs 1.0893/eur yesterday. Yen 125.59/$ vs 125.32/$. SAr 14.557/$ vs 14.662/$. $1.301/gbp vs $1.301/gbp. 0.743/aud vs 0.743/aud. CNY 6.368/$ vs 6.374/$.

Commodity News

Gold prices climb ahead of US inflation data

• Gold prices rose for the fifth straight day on Tuesday, as investors anticipate that March’s inflation reading will reaffirm that price increases are elevated and persistent.
• Consumer prices are expected to rise 8.4% in March, according to a Bloomberg survey of economists.
• Gold remains well-supported as its traditional role as an inflation hedge, while uncertainty in Ukraine is also lending support to bullion.
• Markets are also assessing comments from the US Fed, with Charles Evans, Chicago Fed President, commenting that an accelerated pace of interest-rate increases to combat inflation is worth debating.
• Mr Evans is regarded as one of the US central bank’s more dovish policy makers.
• Gold prices are highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar.

Precious metals:

Gold US$1,957/oz vs US$1,944/oz yesterday

Gold ETFs 106.1moz vs US$106.1moz yesterday

Platinum US$982/oz vs US$986/oz yesterday

Palladium US$2,437/oz vs US$2,509/oz yesterday

Silver US$25.18/oz vs US$24.77/oz yesterday

Rhodium US$19,200/oz vs US$18,900/oz yesterday

Base metals:

Copper US$ 10,221/t vs US$10,223/t yesterday

Aluminium US$ 3,274/t vs US$3,273/t yesterday

Nickel US$ 33,290/t vs US$32,780/t yesterday

Zinc US$ 4,313/t vs US$4,241/t yesterday

Lead US$ 2,394/t vs US$2,380/t yesterday

Tin US$ 43,400/t vs US$43,625/t yesterday

Energy:

Oil US$101.2/bbl vs US$100.4/bbl yesterday

Natural Gas US$6.789/mmbtu vs US$6.285/mmbtu yesterday

Uranium UXC US$63.70/lb vs $63.50/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$152.5/t vs US$152.9/t

Chinese steel rebar 25mm US$793.6/t vs US$795.66/t

Thermal coal (1st year forward cif ARA) US$230.0/t vs US$230.0/t

Thermal coal swap Australia FOB US$297.0/t vs US$278.0/t

Coking coal swap Australia FOB US$415.0/t vs US$415.0/t

Other:

Cobalt LME 3m US$82,000/t vs US$82,000/t

NdPr Rare Earth Oxide (China) US$135,827/t vs US$140,456/t

Lithium carbonate 99% (China) US$71,054/t vs US$71,797/t

China Spodumene Li2O 5%min CIF US$2,840/t vs US$2,840/t

Ferro-Manganese European Mn78%$2,156/t vs US$1,985/t

China Tungsten APT 88.5% FOB US$343/t vs US$343/t

China Graphite Flake -194 FOB US$825/t vs US$825/t

Europe Vanadium Pentoxide 98% 11.7/lb vs US$11.9/lb

Europe Ferro-Vanadium 80% 55.75/kg vs US$56.25/kg

China Ilmenite Concentrate TiO2 US$398/t vs US$397/t

Spot CO2 Emissions EUA Price US$85.1/t vs US$79.3/t

Brazil Potash CFR Granular Spot US$1,250/t vs US$1,250/t

Battery News

Honda allocated $40bn budget to spend on EVs over the next decade to catch up with its ambitious targets and rivals.

• The second largest carmaker in Japan is planning to launch 30 EV models by 2030 and run at 2m units per annum as well as end sales of petrol and diesel cars by 2040.
• The Company currently has just one EV model on the market, the Honda e.

UKs battery storage pipeline almost doubled over the last year

• According to RenewableUK, the total pipeline of UK battery storage projects stands at 32.1GW, up from 16.1GW this time last year.
• Growing demand for technologies to balance the grid have become more necessary as the energy sector is increasingly dominated by intermittent renewables.
• Operational battery storage project capacity has grown by 45%, from 1.1GW to 1.6GW.
• 10.4GW of battery storage projects has secured planning consent, 7.7GW has been submitted for planning approval, and another 10.9GW is currently in development but has yet to be submitted for planning consent.
• Development has largely been driven by legislation in December 2020, which allowed local councils to decide on whether to go ahead with projects with a capacity of over 50MW in England and over 350MW in Wales.

Honda plans $64bn investment and 30 new EV models by 2030

• Honda has announced it plans to spend $64bn on research and development over the next decade on electrification.
• Last year, Honda revealed that it intends to shift all its car sales to electric and fuel cell vehicles by 2040.
• The Japanese automaker also announced that it will aim to introduce 30 new EV models globally by 2030, with a production volume of 2m vehicles per year.
• Honda will also invest $343m into building a demonstration line for solid-state batteries – the company plans to use their own solid-state technology in EVs by the end of the decade.

Madrid-Barajas airport to get 120MW solar park

• Aena, the state-owned operator of 46 airports in Spain has commissioned a 120MW solar park to be built at Madrid-Barajas airport.
• Aena launched its Photovoltaic Plan last year, with the goal of supplying all its airports with 100% renewable energy by 2026

Company News

Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)* 55.0p, Mkt Cap £65m – Agdz mining license secured

BUY – 111p

• The Agdz Cu-Ag project has been granted a ten year license covering 34km2 of prospective ground in eastern Anti-Atlas of Morocco.
• The project hosts four significant Cu-Ag prospects discovered by the team including:
• The 2.80km long Makarn prospect, with results up to 8.00 % Cu and 448 g/t Ag
• The 2.00km long Amzwaro prospect, with results up to 4.82 % Cu and 189 g/t Ag
• The 0.15km long Minière prospect, with results up to 13.05 % Cu and 12 g/t Ag
• The 0.70km long Daoud prospect, with results up to 2.71 % Cu and 152 g/t Ag
• Agdz is one 14 Moroccan assets that are currently under a potential vend-in and royalty generation transaction with Eastinco Mining and Exploration.
• Altus will vend in its portfolio of Moroccan assets into Eastinco in exchange for
• 25% interest in enlarged Eastinco share capital
• Warrants for up to an additional 10% of Eastinco
• Altus will be granted varying royalties on 14 licenses in Morocco as well as a royalty on Musasa tantalum mine in Rwanda.
• The deal is subject to Eastinco completing its admission to the LSE Standard List.

*SP Angel acts as Nomad and Broker to Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)

Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL)* 1140p, Mkt Cap £143m – Record Q1 gold production from the Blanket mine, Zimbabwe.

• Caledonia Mining reports production of 18,515oz of gold at its Blanket mine in Zimbabwe during the 3 months ended 31st March 2022.
• The company says that this is a record Q1 performance for the mine and represents a 40% increase on the 13,197oz produced during Q1 2021.
• Full year production guidance for 2022 of 73-80,000oz is confirmed.
• Commenting on the performance, which he described as “ahead of our expectations”, CEO, Steve Curtis, said that it “reflects the increased capacity at Central Shaft.”

Conclusion: The benefits of the successful completion of the 5 year long, US$67m, Central Shaft project at the Blanket are shown in the delivery of record Q1 gold production. The new shaft secures the mine’s future and underpins a planned 80,000oz pa production from the mine into the 2030s.

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

GoldStone Resources (AIM:GRL)* 10.5p, Mkt Cap £46m – BUY – Ramping up at Homase – Link to yesterday’s note

BUY – TP:15p

• Valuation: GoldStone are ramping up their operation at Homase, following the identification and rectifying of mining and processing bottlenecks, with run rates planned to accelerate to 2ktpd. We forecast a gradual improvement in the recovery reflecting the strong progress made by management rectifying agglomeration issues as well as improving leach kinetics as time progresses which is typical in operations such as this.
• The valuation of Homase bears reference to GoldStone’s internal production schedule for the calendar years 2023 and 2024. Beyond this, we expect GoldStone’s open pit operations producing 25,000oz of gold per annum for an additional three years. These forecasts were derived from conversations between SP Angel & GoldStone Resources management.
• We view the mine life assumption as conservative given the size of GoldStone’s license area on the Homase trend and the intention to mine to a depth of 80m from an initial 30m. We expect additional ounces to be mined from the four pits spanning 4.4km along the strike of the current JORC resource which sits within the 8km mineralized Homase Trend. Given the current resource only accounts for roughly half of the total mineralized trend, we expect GoldStone’s upcoming exploration programme to add ounces as fast as they are depleted as a result of the existing mining operation.
• We estimate Homase to generate ~$22.9m in Free Cash Flow this calendar year, enabling the company to make its modest debt repayments and embark on its CY22/23 exploration campaign. We have reduced our discount rate from 10% to 7.5% given the perceived risk-reduction in transitioning from a developer to a producer.
• Our valuation does not include any upside from the historic Akrokeri mine, which previously operated from 1904 to 1909 and produced 75,000oz at a recovered average grade of approximately 24g/t.
• We maintain our BUY recommendation with an updated 15p NAVPS reflecting the latest gold price/production/costs estimates and current LOM, while highlighting the significant scope for rerating as the company delivers on its LOM extension plan and ramps up production from current defined assets.

*SP Angel act as Broker to GoldStone Resources

Keras Resources PLC (AIM:KRS)* 0.08p, Mkt cap £5.19m – Diamond Creek receives regulatory approval ahead of Spring marketing programme

(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 has provided an update for its Diamond Creek organic phosphate mine in Utah, where the annual inspection and site visit from the Utah State mining and environmental departments resulted in the mine receiving all ongoing approvals in line with the project's licence obligations.
• The team will now commence the annual rehabilitation on the access roads and start trucking the approximately 5,200 tons of run-of mine phosphate rock remaining from last year’s mining campaign to the Spanish Fork processing facility.
• An additional 1,500 tons of blasted ore will similarly be excavated and hauled from the pit to Spanish Fork during the early summer months.
• Last week, Keras reported that it had consolidated its ownership of Diamond Creek for US$3.2m.
• We expect the mine to do substantially better this year under the sole management of Keras.
• 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.

*SP angel acts as nomad and broker to Keras Resources

Oriole Resources PLC (AIM:ORR) 0.38p, Mkt cap £7m – £403,000 HMRC rebate

• Oriole Resources reports that it has received a rebate of £403,000 from HMRC in relation to its exploration work during 2021. The rebate follows earlier payments from HMRC amounting to £145,000 for work undertaken between 2016-2018 and £165,000 relating to 2019.
• Oriole Resources says that the “successful Claim demonstrates that the Company qualified for the R&D tax relief by performing research work on potential areas of mineralisation in order to build the geological data necessary to assess the economic feasibility of future mining operations in those areas”.
• CFO, Bob Smeeton, confirmed that “We made significant progress on our projects in Cameroon during 2021, with three phases of drilling at Bibemi and preliminary exploration work at our district-scale Central Licence Package. With £1.78 million of direct research investment into the projects in 2021, its pleasing to receive an R&D rebate of this quantum within a few months of the year end”.

Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)* – 29.5p, Mkt cap £47m – Virtual presentation of Q1 operational results

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NPV Valuation: 168p/s

• In a well-attended virtual presentation, which attracted over 100 participants yesterday afternoon, Rambler Metals described its Q1 operational results, its progress in the turnaround of its Ming mine/Nugget Pond operation in Newfoundland and outlined its expectations for the balance of 2022 and beyond.
• The presentation is available on the company’s website at PowerPoint Presentation (ramblermines.com) dated 11th April 2022.
• The company described the success of its continuing drilling programme in outlining additional mineral resources and confirmed that it expects to release an updated mineral resources estimate during the current quarter.
• Also, during the current quarter, the company plans to initiate an NI-43-101 feasibility study to formalise its development plans and, presumably, incorporate the impact of the updated mineral resources estimates and operational improvements in the mine and plant.
• Rambler Metals emphasises the under-explored character of the mineralisation at the mine and the quality of the mineralisation encountered in the recent drilling commenting that internal plans envisage a potential mine life in excess of 20 years.
• Operationally Rambler Metals, stresses the significance of having now achieved 4 sources of underground ore production in underpinning the sustainability of its 1,350tpd ore production goal.
• The establishment of over 17,000t of ore in surface stockpiles and the build-up of developed ore inventories underground should also help ensure ore availability to the mill at the required levels.
• In response to a question, Rambler Metals said that over 95% of the ore it plans to produce this year is now fully developed which, in our view, provides confidence in the achievability of near-term production targets.
• The company also discussed modifications to its mining methods, which, with the initiation of using underground waste to backfill stopes underground “only days away”, will cut out the need to transport waste to surface and free up existing capacity for ore haulage.
• Rambler Metals explained that, since January 2021, it had spent approximately US$37.4m on the implementation of its plan, including US$19.4m of underground development and US$8m on the purchase and repair of equipment as well as funding other initiatives including the diamond-drilling programme and additional tailings capacity.
• Rambler Metals explained that cash constraints last year had led to the shelving of plans to purchase and relocate the Duck Pond mill to the Ming mine site, but the company outlined that it was re-opening studies for the installation of ore-sorting to upgrade ore feed to the mill.
• In view of the long resource life expected for the mine, Rambler Metals explained the logic of relocating milling at the mine site which as the company has previously explained, would eliminate the costs of ore haulage to the Nugget Pond mill site.
• Other relatively near-term projects include an upgrading of the power supply and roll-out of the underground back-fill project.
• The company again confirms its plans to produce 7,000t of copper in 2022, more than doubling the 3,417t produced in 2021.

Conclusion: Rambler Mines’ presentation describes significant advances to improve the resilience of its operations over the last year, including progress in building the mineral resource base, establishing mining infrastructure to increase ore production to the planned 1,350tpd rate on a sustainable basis and implementing measures to mitigate any disruption to future ore production.

*SP Angel act as Nomad and Broker to Rambler Metals & Mining)

URU Metals Ltd (AIM:URU)* - 365p, Mkt cap £6m – High-grade gold discovered in drilling beneath Zebediela nickel PGM project

BUY

(URU Holds a 74.82% stake in Zeb Nickel (TSX-V:ZBNI, OTC:ZBNIF) Corp which holds the Zebediela Nickel project in South Africa – URU remains as the technical operator of the Zebediela Project)

• URU Metals reports the discovery of high-grade gold zone underneath nickel and pgm mineralisation at Zebediela in an apparent up-dip extension of Ivanplat’s Platreef geology.
• Results:
• 28.32m grading 9.05g/t gold,
• inc. 10.86m grading 12.21g/t
• inc. 10.64m at 11.25g/t
• 33.81m grading 1.67g/t gold inc.
• 4.81m grading 5.07g/t
• The results appear to confirm both grade and continuity of the mineralization in the historical resource, as well as the presence of higher-grade Ni-PGE bearing Critical Zone lithologies beneath and adjacent to the historical resource.
• Zebediela has a 1.5bnt (NI43-101) nickel resource grading 0.25% in the Lower Zone lithologies containing an estimated 3.96mt of in-situ nickel and a potential grade of 0.431% nickel on the last set of drill assays.
• The indicated resource runs at 485.4mt grading 0.245% Ni and an ‘inferred resource of 1,115mt at 0.248% Ni at a cut-off grade of 0.1% Ni.
• There is also Ni-PGE mineralization in the Critical Zone lithologies and now gold mineralization adjacent to and below the Lower Zone.
• Phase 2 drilling into the Penge Iron Formation to test for Ni-PGE mineralization shows intersections of Ni-PGE mineralization in Critical Zone rocks.
• URU has drilled 14 holes (4,901m) in Phase 1 and Phase 2 with nickel PGM mineralisation grading up to 1.7% shown in the last set of assays with 13 holes indicating economic value
• 0.71 g/t 3PGE+Au (58% pd) and 1.7 % nickel from 260m
• 6.4 g/t 3PGE+Au (89% pd) and 0.39% nickel from 72m
• 2.13 g/t 3PGE+Au (61% pd) and 0.47% nickel from 214m
• 1.27 g/t 3PGE+Au (45% pd) and 0.69% nickel from 320m
• The results look similar to Ivanhoe Mines’ Flatreef project which lies down dip from Zebediela
• Drill hole Z028 intersected the probable equivalent of the Upper Critical Zone hosting similar mineralization to Ivanhoe’s Flatreef with a mineralized interval near the base of the Critical Zone which could possibly be correlated with the T2 Main Mineralized Zone at Ivanplats (TSX:IVP) as well as two minor mineralized intervals between the upper and lower mineralized zones.
• URU plans to drill >30,000m of exploration this year to complete a PEA next year.
• The new drilling plans to prove the continuity and extent of the gold mineralization alongside the Ni-PGM mineralization.
• The presence of this high-grade gold mineralization will likely improve the overall project economics, especially when combined with the higher-grade Ni-PGE mineralization found in Critical Zone rocks.
• Ivanhoe recently secured $300m in streaming finance alone for the Platreef project highlighting the value of the contained metals with $200m for gold and $100m for PGM streams.

Conclusion: Combining the value of the nickel and PGM mineralisation appears compelling at today’s metals prices. We expect a degree of consistency from Phase 2 drilling with added gold grades.

The presence of high-grade gold adjacent to and below the Critical Zone adds a further economic dimension to the potential mine plan. We await further results with interest.

*SP Angel acts as Nomad and Broker to URU Metals

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

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

SP Angel

Prince Frederick House

35-39 Maddox Street London

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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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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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