Today's Market View - Empire Metals, Mkango Resources, and more...

SP Angel . Morning View . Thursday 28 04 22

European gas crisis threaten smelters and manufacturers

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Ariana Resources PLC (AIM:AAU) – Western Tethyan Resources granted three licenses in Kosovo

Empire Metals Ltd (AIM:EEE)* – £1.7m fundraise

Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)* – Annual results reaffirm strong position ahead of DFS release

Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)* – Gold assays

Covid – US Fauci says Covid-19 pandemic phase is over as hospitalisations fall

• We are now in the Endemic phase of the Covid-19 outbreak.
• China may be in the ‘Han-demic’ phase of its Epidemic though many cases appear officially classed as migraines and other conditions.

Nickel – International Nickel Study Group estimates nickel demand will be 3.02mt this year rising from 2.78mt yoy.

• Nickel production is expected to run at a very modest 60,000t surplus this year though we believe this will be easily absorbed into new stock for expanding gigafactories and Chinese stimulus projects.

Copper - Lomas Bayas copper mine (80,000tpa) runs into environmental issues.

Dow Jones Industrials +0.19% at 33,302

Nikkei 225 +1.75% at 26,848

HK Hang Seng +1.17% at 20,180

Shanghai Composite +0.58% at 2,975

Economics

World – Global growth is slowing as high energy costs, disrupted logistics, Covid absenteeism and rising interest rates are slowing economic growth

• Ukraine conflict has hit consumer confidence
• Manufacturers are expected to show extreme caution in Europe on uncertain gas and power supplies
• High diesel prices are adding to transport costs
• Post-Covid wage inflation and high levels of job movement
• Product price inflation have raised margins for many manufacturers but higher input prices, energy and labour inflation are likely to erode margins again.

Shipping – Expect further disruption as Port logistics worsen worldwide

• Rotterdam is said to have hit container capacity extending unloading to 8 to 12 days exacerbated by truck shortage.

China - Industrial profits rose 8.5% ytd in March vs 5% in February

• The growth in profits was attributed to wider profit margins in the mining industry while tax cuts helped narrow the earnings gap between upstream and downstream firms
• In the first quarter, mining industry profit margins were at 24.53%, the highest since February 2019.

China prepares new stimulus to face ‘extreme conditions’

• China’s Politburo meets this week to set out where to strengthen critical infrastructure in preparation for extreme conditions, which may be translated as in preparation for conflict, sanctions and further lockdowns.
• Policymakers are coordinating stimulus for new development with a particular emphasis on national security as it moves to enhance critical technology and other infrastructure. (SCMP)
• This focus may be driven, in part, by the success of Western hackers on Russian systems in response to the war in Ukraine.
• The Central Financial and Economic Affairs Commission is looking to front-load construction and financing support while improving the security of infrastructure technology.
• The war in Ukraine has raised the risk of economic contagion in China making the stabilisation of the economy a greater priority along with strengthening of its technological infrastructure.
• Their meeting noted the comprehensive strengthening infrastructure development is of great significance to safeguard national security, smoothen the domestic economic circle, promote dual circulation, expand domestic demand, and push forward high-quality development.
• Food security and inflation is a major threat presented by the impending collapse of the Ukraine harvest while higher oil and gas prices are threaten the economics of smelting and manufacturing.
• Beijing is looking to advance six new mega projects but hesitant to launch an all-out stimulus with >70 major cities in some form of lockdown
• China is watching the war in Ukraine unfold and Ukraine’s humiliation of Russia and its Kleptocratic communist system.
• Some in China may also be preparing for a potential invasion of Taiwan or certain disputed islands in the South China Sea and with Japan.
• Beijing is also working to prevent a threatening collapse in its property market as happened in the US following the Sub-prime crisis.
• The state is working to support valuations and sales of large numbers of unfinished and unoccupied apartments following major debt problems at Evergrande and other property developers.
• While Xi Jinping has described decoupling with the world as unworkable this might not stop the CCP from invading Taiwan or taking control by some other method (little green men).
• President Xi has also proposed a China-led global security initiative to be based on the UN framework while renouncing unilateral action, confrontation and promoting non-interference and respect for sovereignty and territorial integrity.
• The statement seems at odds to China’s move on the Spratley Islands in the South China Seas and other expansionist claims.
• As always, we watch what China does and disregard much of what their say in official statement. China will do what China wants to do, regardless of how the West feels about it.

US – Rising interest rates caused pending home sales to fall 8.6% to 763,000 units last month, a 12.6% decline year-on-year

• Sales fell as soaring mortgage rates and prices reduced affordability, but the housing market remains supported by an acute shortage of previously owned properties.
• The 30-year fixed-rate mortgage averaged 5.11% during the week ended April 21, the highest since April 2010 and up from 5.00% in the prior week

Eurozone – ECB may raise interest rates in July from -0.5% as gas crisis hits European economies

• We suspect the ECB may need to push back expectations for a rate rise if Russia cuts off gas supplies into Germany and Italy
• We also suspect the Euro will weaken significantly as ECB rates lag behind US rate rises
• Seaborne LNG imports rose 72.8% yoy in Q1 accounting for 20.9% of global LNG imports vs Japan at 19.7% and China at 15.7%.

Germany - GfK consumer confidence fell to a record low of -26.5 for May vs -15.7 for April

• The war in Ukraine and high inflation have dealt a severe blow to consumer sentiment.

Singapore - lifted pandemic restrictions yesterday.

Russia - Gazprom refusal to export gas to Poland and Bulgaria highlights weaponization of energy to punish nations which refuse to pay roubles for gas and oil

Italy – Eni prepares to open rouble accounts to pay for Russian Gas despite EU warning not to buy gas in roubles

• The President of the European Commission has warned European companies not to pay for gas in roubles as Russia turns off taps to Poland and Bulgaria.
• Germany
• Gazprom PJSC turned off the taps to Poland and Bulgaria on Wednesday in a dramatic escalation of the standoff between Russia and Ukraine’s European allies. Moscow was making good on a threat to cut supplies if payments weren’t made in local currency, and attention now turns to how Germany and Italy — the biggest European buyers of Russian gas — will respond.

Turkey – FY inflation forecast raised to 42.8% on energy prices

• The Turkish central bank rose its year-end inflation forecast to 42.8% to 23.2% in January.
• Governor Kavcioglu said he expected consumer inflation to slow to 12.9% next year and 8.3% in 2024.

Currencies

US$1.0538/eur vs 1.0621/eur yesterday. Yen 130.21/$ vs 127.85/$. SAr 15.925/$ vs 15.813/$. $1.256/gbp vs $1.257/gbp. 0.714/aud vs 0.715/aud. CNY 6.594/$ vs 6.556/$.

Commodity News

Precious metals:

Gold US$1,884/oz vs US$1,898/oz yesterday

Gold ETFs 106.7moz vs US$106.8moz yesterday

Platinum US$924/oz vs US$918/oz yesterday

Palladium US$2,287/oz vs US$2,236/oz yesterday

Silver US$23.26/oz vs US$23.50/oz yesterday

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

Base metals:

Copper US$ 9,849/t vs US$9,890/t yesterday

Aluminium US$ 3,118/t vs US$3,104/t yesterday

Nickel US$ 33,465/t vs US$33,125/t yesterday

Zinc US$ 4,257/t vs US$4,217/t yesterday

Lead US$ 2,288/t vs US$2,347/t yesterday

Tin US$ 39,800/t vs US$40,970/t yesterday

Energy:

Oil US$104.7/bbl vs US$106.1/bbl yesterday

• Oil prices continue to see-saw on the potential impact of Chinese lockdowns on global demand and Western restrictions on Russian supply.
• The EIA reported a modest 0.7mb build in US crude stockpiles for last week, while both gasoline and middle distillates inventories each fell by ~1.5mb with refineries’ operable capacity at 90.3%.
• European energy prices fell as buyers consider options to maintain gas supplies from Russia without violating Western sanctions.
• US gas prices rose after the Energy Department announced it would issue two orders allowing for the export of an additional 0.5bcf/day of LNG from projects in Texas and Louisiana.

Natural Gas US$7.315/mmbtu vs US$6.930/mmbtu yesterday

Uranium UXC US$53.40/lb vs $54.20/lb yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$140.2/t vs US$139.0/t - Iron ore prices continue to rebound on Chinese growth rhetoric

Iron ore futures climbed for a third straight day on Thursday following China’s comments that it is determined to stabilise growth after the fallout from the covid crisis.

Prices slumped 10% on Monday but have since rebounded, closing 3% higher today on the Dalian Exchange and rising 0.8% in Singapore to $142/t.

Chinese steel rebar 25mm US$765.9/t vs US$770.1/t

Thermal coal (1st year forward cif ARA) US$225.0/t vs US$238.0/t - China cuts coal import tariffs to zero to increase supply

The import tariff will be cut from the 1st of May 2022 to 31st March 2023 in order to help guarantee energy supplies.

Current tariffs range from 3% to 6% depending on the type of coal.

Chinese coal imports are currently down 24% this year due to soaring prices.

Thermal coal swap Australia FOB US$317.0/t vs US$318.5/t

Coking coal swap Australia FOB US$465.0/t vs US$465.0/t

Other:

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

NdPr Rare Earth Oxide (China) US$129,2288/t vs US$130,389/t

Lithium carbonate 99% (China) US$65,592/t vs US$66,415/t

China Spodumene Li2O 5%min CIF US$3,510/t vs US$3,490/t

Ferro-Manganese European Mn78% $2,0922/t vs US$2,108/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% 11.4/lb vs US$11.4/lb

Europe Ferro-Vanadium 80% 46.25/kg vs US$46.25/kg

China Ilmenite Concentrate TiO2 US$378/t vs US$382/t

Spot CO2 Emissions EUA Price US$86.0/t vs US$88.6/t

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

Battery News

Lucid stock falls before recovering on Saudi order

• Lucid stock fell sharply early in the week on increasing geopolitical fears and weak tech earnings.
• The stock began to recover on the announcement that Saudi Arabia has placed an order for up to 100,000 Lucid electric vehicles – 50,000 firm orders with a further option to buy an additional 50,000 vehicles.
• The deal is a ten-year deal with an initial 1000 to 2000 vehicles yearly starting in 2023, increasing to between 4000 and 7000 vehicles a year by 2025.
• The deal is part of Saudi Arabia's Vision 2030 plan to transform Saudi Arabia and provide a more diverse and sustainable economy.

Fortescue’s ‘Infinity Train’ could be operational within two years

• Fortescue Metals says its zero emission “Infinity Train” could be operational on its private rail network within two years.
• Key technologies for the project came with the $221m purchase of Williams Advanced Engineering in March 2022.
• The infinity train proposes to use the height of Fortescue’s iron ore mines (up to 600m above sea level) and the weight of its load (34,000 tonnes) to provide “regenerative power” to its battery electric locomotives.
• The idea is that it will generate enough power on its downhill journey to take the trains to the port and charge the batteries so they can return the empty trains up hill to the mines – saving up 82m litres of diesel a year.

QuantumScape considers iron-based cathode to ease battery supply chain issues

• QuantumScape (QS), the solid-state battery startup backed by Volkswagen AG and Bill Gates, said its ability to use iron-based chemistries instead of nickel for battery components could help it mitigate soaring costs for raw materials as it tries to scale its technology.
• “We’re ‘cathode-agnostic’ with our architecture, so we can switch from nickel to iron,” QS CEO Jagdeep Singh said. “When you couple iron-based cathodes with our lithium-metal anode, you get a 50% increase [in energy density],” he added, making them a “viable alternative” to nickel.
• While the technology is promising, QuantumScape still needs to demonstrate it can manufacture its new battery on a mass scale.

Company News

Ariana Resources PLC (AIM:AAU) 4.15p, Mkt Cap £47.4m – Western Tethyan Resources granted three licenses in Kosovo

(WTR is 75% owned by Ariana Resources)

• WTR have been granted three licenses covering a total of 239km2 and located in the vicinity of the Stanterg Mine, historically the largest Pb-Zn mine in Europe.
• Historical and the initial reconnaissance work on the projects conducted by WTR have returned results including:
• Stream-sediment sampling up to 10 g/t gold
• Boulder sampling up to 19.55 g/t gold and 684 g/t Ag
• Vadar Minerals is currently drilling a 3,400m programme at the Mitrovica licence, firstly on the Wolf Mountain zinc-lead-silver targets before attention is turned to the Majdan Peak gold prospect.
• Drilling has been funded by a £1m investment in Vadar Minerals by Beowulf Mining*, increasing the Company’s ownership in Vadar from 51.4% to 59.5%.
• Wolf Mountain: Drilling will follow on from previous drilling and trenching at Wolf Mountain which tested the depth extension and lateral continuity of mineralisation associated with widespread gossanous hydrothermal breccias.
• A 2020 IP survey identified a series of exceptionally high IP anomalies located on distinct northwest trends and were well supported by soil and rock sample anomalies.
• The 2022 programme will now target potential higher-grade feeder structures which could produce economic results.
• Madjan Peak: This highly prospective target is defined by a blanket of advanced argillic alteration typical of high sulphidation epithermal systems.
• Rock and soil sampling programmes have identified widespread and significant Au anomalies of over 11g/t in rock samples and <0.36 g/t in soils, with the company previously commenting that an extensive gold anomaly was identified over an area approximately 1400m x 700m.
• Results from 3D IP surveys have delineated prominent anomalies which are clearly associated with soil and rock anomalies at shallow depth.
• The scale and size of the anomaly, together with coincidental multi-element anomalies and extensive hydrothermal alteration, are comparable to significant high-sulphidation epithermal gold deposits within the region.

*SP Angel acts as Nomad and Broker to Beowulf Mining

Empire Metals Ltd (AIM:EEE)* 1.95p, Mkt Cap £6.7m – £1.7m fundraise

LINK TO FEBUARY 2022 FLASH NOTE

• Empire has raised £1.7m through the placing of 85,000,000 at a price of 2p per share.
• The net proceeds of the Placing will be primarily used to accelerate the drill programmes initially scheduled for Q3 and Q4 at Eclipse and Gindalbie as well as further regional exploration activities across the recently acquired copper-gold projects at Pitfield, Stavely and Walton.

*SP Angel acts as Nomad and Broker to Empire Metals

Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)* 20p, Mkt Cap £43m – Annual results reaffirm strong position ahead of DFS release

• Mkango reported a net loss after tax of US$9.7m vs US$4.1m last year, reflecting an increase in mineral project expenditure as the company continues to add value across areas of its business.
• The company’s cash position at the end of the period (31 Dec 2021) was $4.4m, compared to $6.2m at 30 Sept 2021 and $4.9m at Dec 2020.
• During the year, Mkango has made strong progress at both its Songwe Hill project in Malawi and its Pulawy rare earth separation plant in Poland.
• The Company also increased its interest in HyProMag from 25% to 41.6%, which also established a subsidiary in Germany to roll out commercialisation of Hydrogen Processing of Magnet Scrap (HPMS) technology in Europe during the period.
• HPMS is a hydrogen-based process which is used to extract NdFeB magnets from electrical products such as hard disk drives.
• Mkango acquired 100% of both Songwe Hill and Magnito during the period, bringing the two entities in line with to its existing wholly owned interests in Mkango Polska, and three other exploration licences in Malawi, which includes the exciting Mchinji exploration project.
• The transaction, according to the company, provided greater transparency for investors while increasing ownership of Maginito to 100% provides greater exposure to HyProMag and the rare earth recycling market, which the board expects to have substantial growth potential.
• The DFS for the Songwe Hill project is nearing completion and is a key milestone and de-risking event for the company.
• All pilot test work has been completed, with the final stage of hydrometallurgical piloting at ANSTO successfully producing rare earth carbonate grading 55% TREO eq.
• The rare earth carbonate produced at Songwe Hill will feed Mkango’s proposed Pulawy separation plant development in Poland.
• Mkango continues to advance discussions with off takers and financiers capable of providing project finance.

*SP Angel acts as Nomad and Broker to Mkango Resources

Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)* 28p, Mkt Cap £45m – Gold assays

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NPV Valuation: 168p/s

• Rambler Metals & Mining report results of gold assays from last year’s underground drilling program at the Ming mine in Newfoundland in Canada.
• Gold grades in the Lower Footwall Zone typically range from 0.1-0.5g/t with the 2021 gold assays reporting in line with these expectations.
• Assay results also show a halo of gold mineralisation deeper within the Lower Footwall Zone deposit which also coincides with higher copper grades as the mine deepens.
• Ming North Zone ranges between 0.4-10g/t averaging around 1.5g/t. Copper and gold grades also increase with depth in the Ming North Zone.
• The new grades will be added to the new mineral resources .
• Lower Footwall Zone Drilling Program
• R21-620-08
• 35.71m grading 1.68% Cu with 0.08 g/t gold in the Lower Footwall Zone
• inc. 12.00m grading 3.00% Cu with 0.15 g/t Au
• R21-620-09
• 14.00m at 2.23% Cu with 0.19 g/t Au
• inc. 6.00m at 3.12% Cu with 0.19 g/t Au
• R21-620-09B
• 24.00m at 2.44% Cu with 0.10 g/t Au
• inc. 5.00m at 3.98% Cu with 0.09 g/t Au
• R21-620-10
• 20.60m at 1.80% Cu with 0.07 g/t Au
• inc. 5.30m at 2.98% Cu with 0.12 g/t Au
• R21-620-11
• 27.50m at 3.30% Cu with 0.08 g/t Au
• R21-620-12
• 23.00m at 2.13% Cu with 0.11 g/t Au
• R21-620-13
• 28.70m at 2.42% Cu with 0.13 g/t Au
• R21-620-14
• 18.79m at 1.69% Cu with 0.05 g/t Au
• R21-620-17
• 15.00m at 2.16% Cu with 0.08 g/t Au
• Ming North Zone Drilling Program
• R21-785-01
• 25.44m at 2.06% Cu with 1.06 g/t Au in the Ming North Zone
• R21-785-02
• 15.75m at 4.97% Cu with 1.94 g/t Au, including
• 10.75m at 6.51% Cu with 2.39 g/t Au
• R21-785-12
• 12.00m at 2.90% Cu with 5.68 g/t Au
• R21-785-17
• 11.00m at 4.32% Cu with 4.71 g/t Au and
• 48.59m at 6.30% Cu with 1.85 g/t Au

Conclusion: Intersections widths and grades for copper and gold in the Ming North Zone look really good while gold grades in the Lower Footwall Zone act as a useful biproduct to offset rising fuel and energy costs. The results indicate better run-of-mine grades to come for both metals offering potential for a significant increase in margins.

*SP Angel act as Nomad and Broker to Rambler Metals & Mining. The analyst holds shares in Rambler Metals & Mining.

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

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Sales

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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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