Today's Market View - AfriTin Mining, Caledonia Mining, Firefinch, and more...

SP Angel . Morning View . Tuesday 05 07 22

Base metals tick lower on US dollar strength and Covid lockdowns on China east coast

MiFID II exempt information – see disclaimer below

AfriTin Mining Ltd (AIM:ATM, OTC:AFTTF) – Funding for Uis mine ‘Continuous Improvement Project’

Atalaya Mining (AIM:ATYM, TSX:AYM) – Drilling results from Masa Valverde

Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL) – Quarterly dividend

Firefinch Ltd (ASX:FFX) Suspended – 29m shares in Leo Lithium sold for A$13m

Rio Tinto PLC (LSE:RIO) – Guinea threatens to cut out Rio & partners from Simandou

Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)* – Feasibility study demonstrates post-tax NPV10 of $559m for Songwe Hill

Serabi Gold (AIM:SRB, TSX:SBI)* – Discovery of copper/moly/gold porphyry close to the Sao Chico mine in Brazil

China – Premier Li Keqiang is pushing $45bn of new infrastructure projects to restart economy

• The State Council is looking to promote new infrastructure projects including, highways, waterways, and port projects (SCMP)
• China plans to raise some CNY300bn (US$44.7bn) through the sale of bonds and other financial instruments to be issued by state-owned and policy banks which are responsible for financing economic and trade development, and state investment projects.
• Central government also plans to provide two-year interest subsidies to encourage lending for the projects.
• Projects are to be kick started with state plans to fund half with each project’s total investment with the state bridging infrastructure finance where local authorities are funding with special purpose bonds.
• Companies are being encouraged to create jobs and to hire more migrant workers while also expanding household consumption in smaller cities.
• The state is not looking to drive housing construction but remains focussed on reducing the impact of major financial problems and defaults in the sector as Evergrande restructures and other developers default.
• Policymakers are looking to avoid the creation excess liquidity and limit inflation in the economy to hold back inflation by using banks to provide much of the investment.

Rising demand in China should help the US and other economies which export into China.

• Airbus agreed to sell 292 aircraft to Chinese airlines this week providing significant support for the European economy.
• The easing of covid restrictions and lockdowns should enable the Chinese economy to catch up much lost economic activity, though many manufacturers continued to work, albeit at reduced levels, though the lockdowns.
• Recovery in China should be particularly good for other Asian economies selling into the region though high fuel and energy prices will limit household buying power.

New Covid lockdowns in the industrial east coast area said to be affecting >115m people as cases rise to Covid cases rose to 491 yesterday prompting whole city testing every three days

• This region is crucial to Chinese economic output and logistics with some 11 cities accounting for c. 15% of GDP according to Nomura (Asiafinancial.com).
• 1.7m have been locked down in Anhui province with fears that infections are spreading in neighbouring Jiangsu province

Nornickel boss eyes Rusal merger as sanctions weigh on both companies

• Vladimir Potanin has said he’s ready to discuss merging Norilsk Nickel with Rusal, Bloomberg reports.
• Potanin controls about 35% of Nornickel, a key producer of nickel and copper and the world’s biggest palladium miner – accounting for 40% of world supply.
• Potanin commented: “we received the proposal from the management of Rusal to discuss the merger with Norilsk Nickel as an alternative to extending the shareholder agreement”

Dow Jones Industrials Closed at 31,097

Nikkei 225 +1.03% at 26,423

HK Hang Seng +0.19% at 21,872

Shanghai Composite -0.04% at 3,404

Economics

Senior US and Chinese officials discussed US economic sanctions and tariffs amid reports the White House is close to rolling back some of the trade levies imposed by former President Trump, Bloomberg writes.

China – Private sector business activity bounced back into the expansionary mode in June after a series of restrictions in major cities was lifted.

• The Composite PMI climbed sharply to 55.3 from 42.2 in the previous month with both manufacturing and services posting over 50 readings.
• New orders grew at the fastest pace since Oct/21 and new export business expanded at the quickest rate for 19 months.
• Input cost inflation eased while final prices charged were unchanged.
• On less positive note, employment fell marginally with job shedding recorded at both manufacturing and service providers.
• Caixin Composite PMI: 55.3 v 42.2 in May
• Caixin Services PMI: 54.5 v 41.4 in May and 49.6 est.

Major Chinese property developer defaults on US$1bn offshore bond missing an interest and a principal repayment.

• The non-repayment was the first missed public offshore repayment for the Shanghai-based Shimao Group, Reuters reports.
• Shimao Group is the sixth largest issuer among Chinese developers with an outstanding $6.1bn in international bonds.
• The Company hired financial and legal advisers to help on the matter citing “market uncertainties over debt refinancing” and “challenging operating and funding conditions”.
• The Company previously reported that its property sales in the first five months of the year dropped 72%yoy.
• The group joins other three of top give issuers of eurobonds including Evergrande, Kaisa Group and Sunac China who previously defaulted on their dollar denominated debt.

HK – covid cases rise to 2,268 infections

• New HK leader John Lee likely to bring in new restrictions to protect residents despite no additional deaths
• The island of Macau has reportedly been largely covid free, though its public hospital is said to be severely stretched and is testing all residents. Casinos remain open, though largely empty.
• Macu has set up a temporary hospital next to the main casinos with c. 600 additional health workers to help with Covid.
• While Chinese statements on ‘Zero Covid’ indicate more lockdowns to come, we believe local officials to have adjusted this to a new ‘dynamic zero-Covid’ policy giving greater flexibility to officials to contain the virus without going for full monty lockdown.
• We suspect China is using HK as a test bed for how to manage Covid going forward

Growth at both Italy and Spain slowed down in June, but not as bad as markets expected, according to latest PMI data.

• In Italy, the pace of expansion was the weakest since January while growth in new business orders stalled and overseas demand fell for the second month in a row.
• Inflation continued strong with average charges levied by Italian firms climbing at the second fastest pace on record.
• In Spain, June delivered the weakest expansion in three months amid weak new domestic and export orders.
• Inflation across manufacturing and services sectors pulled back to a five month low.
• Italy Composite PMI: 51.3 v 52.4 in May and 50.7 est.
• Spain Composite PMI: 53.6 v 55.7 in May and 53.6 est.

Russia – Imports reported ~30%yoy drop in May following a ~40% fall in the preceding months reflecting a number of sanctions enacted post the invasion in Ukraine, according to Bloomberg data.

• The data was indirectly implied from numbers released by countries that account for around half of Russian imports since Russia stopped publishing its detailed trade data after the invasion.
• Turkey that has not joined the sanctions, saw exports to Russia jump to the highest since December as Russian importers aim to adjust logistics and source goods from outside sanction list nations.

South Korea – The central bank may go for a 50bp hike next week after inflation report showed the CPI hit the highest level since late 1990s.

• Rising wages, higher energy costs and the weaker Korean won add to inflationary pressures in Asia’s fourth largest economy.
• The BOK delivered five 26bp rises since last August to increase its benchmark rate to 1.75%, the highest in three years.
• CPI (%yoy): 6.0 v 5.4 in May and 5.9 est.

Australia – The central bank raised the cash rate by 60bp to 1.35%, in line with estimates and marking the third consecutive monthly increase.

• “Today’s increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic,” the Governor said.
• “The resilience of the economy and the higher inflation mean that this extraordinary support is no longer needed.”
• Inflation has been running over 5% in Q1/22 compared to the target band of 2-3%.

UK – Falling birth rate shows 7.6% fewer under-fours than a decade ago vs number of 90-year olds at an all-time high at 264,650 despite Covid

• There are now more over-65s (11.1m) than under-15s (10.4m), a dramatic reversal on 10 years ago.

Singapore - Cryptocurrency lender Vauld has stopped operations due to volatile market conditions.

Nuclear – Russia and China dominate nuclear reactor construction accounting for 87% over the past five years according to the IEA.

• The United Kingdom, US, France and Canada accounted for just 10% combined.
• The IEA report sees Nuclear power as a significantly cheaper path to net-zero by 2050. If nuclear investment is not accelerated, reaching this target would mean an additional global cost of $500bn raising consumer electricity bills by $20bn a year to 2050.
• China is set to become the leading nuclear producer by 2030 according to the IEA with industry and consumers benefitting from lower cost power.
• Advanced economies have nearly 70% of global nuclear capacity with projects running over budget and behind schedule.
• The average age of nuclear capacity in North America and Europe is 38 years vs 15 years in India, and five years in China.

Peru – New 2.5% ‘Social Trust’ royalty proposed by PetroTal social initiative incorporated into the Block 95 License contract

• Perupetro has recently announced that it will formally include an addendum in the Block 95 Oil License Contract including the proposed 2.5% social trust, completing a major administrative step for this social initiative.
• The inclusion of the 2.5% royalty appears was one of the key demands being made by indigenous protestors whose demonstrations have constrained production from the Bretana oilfield during 1H22.
• The new, voluntary, royalty payment may provide a template for other resources companies facing social unrest in Peru.
• We suspect that companies should account for an additional 2.5% Social Trust royalty on operations in Peru going forward.

Currencies

US$1.0385/eur vs 1.0438/eur yesterday. Yen 136.25/$ vs 135.48/$. SAr 16.335/$ vs 16.311/$. $1.208/gbp vs $1.213/gbp. 0.682/aud vs 0.686/aud. CNY 6.698/$ vs 6.695/$.

US dollar continues to strengthen on market forecast of 85% chance of a second 75bp point rise in US interest rates

• Euro falls to lowest level since 2002 at below 1.0350
• Sterling continues to fall to 1.21
• The Yuan / Renminbi is holding steady at 6.7/USD having risen from 6.36 in April
• South African rand falls to 16.43

Commodity News

Precious metals:

Gold US$1,807/oz vs US$1,810/oz yesterday

Gold ETFs 104.0moz vs US$104.0moz yesterday

Platinum US$881/oz vs US$888/oz yesterday

Palladium US$1,930/oz vs US$1,951/oz yesterday

Silver US$20.02/oz vs US$19.84/oz yesterday

Rhodium US$13,450/oz vs US$13,800/oz yesterday

Base metals:

Copper US$ 7,895/t vs US$7,948/t yesterday

Aluminium US$ 2,437/t vs US$2,447/t yesterday

Nickel US$ 22,360/t vs US$22,800/t yesterday

Zinc US$ 3,078/t vs US$3,068/t yesterday

Lead US$ 1,934/t vs US$1,915/t yesterday

Tin US$ 26,060/t vs US$26,210/t yesterday

Energy:

Oil US$113.2/bbl vs US$111.8/bbl yesterday

Natural Gas US$5.716/mmbtu vs US$5.665/mmbtu yesterday

Uranium UXC US$51.25/lb vs US$51.25/lb last yesterday

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$113.7/t vs US$113.7/t

Chinese steel rebar 25mm US$650.1/t vs US$650.4/t

Thermal coal (1st year forward cif ARA) US$251.0/t vs US$251.0/t

Thermal coal swap Australia FOB US$374.0/t vs US$374.0/t

Coking coal swap Australia FOB US$285.0/t vs US$285.0/t

Other:

Cobalt LME 3m US$65,445/t vs US$65,445/t

NdPr Rare Earth Oxide (China) US$138,119/t vs US$138,547/t

Lithium carbonate 99% (China) US$68,015/t vs US$68,041/t

China Spodumene Li2O 5%min CIF US$4,500/t vs US$4,500/t

Ferro-Manganese European Mn78% min US$1,646/t vs US$1,696/t

China Tungsten APT 88.5% FOB US$327/t vs US$327/t

China Graphite Flake -194 FOB US$815/t vs US$815/t

Europe Vanadium Pentoxide 98% 9.1/lb vs US$9.1/lb

Europe Ferro-Vanadium 80% 36.25/kg vs US$36.25/kg

China Ilmenite Concentrate TiO2 US$362/t vs US$362/t

Spot CO2 Emissions EUA Price US$89.5/t vs US$91.1/kg

Brazil Potash CFR Granular Spot US$1,100.0/t vs US$1,100.0/kg

Battery News

• Lotus Cars raises £74m to go electric
• Lotus Cars has raised £74m to fund its transition to EVs.
• The sports car manufacturer has received £24m in support from owners Geely and Etika Automotive, with a further £50m from Santander.
• The funding is primarily for Lotus’s switch to EVs and the development of a new car body that will form the basis of models from 2026, including the cryptically named “Type 135”.
• Lotus described 2021 as a “year of transition” as it launched the £60,000 Emira sports car , billed as its last vehicle with an internal combustion engine, and retired its Elise, Exige and Evora models.
• From next year, it will begin producing the all-electric Evija sports car and the Eletre SUV.
• Lotus also plans to produce a range of SUVs from a new facility in Wuhan, China, built in conjunction with Geely – and is aiming to be making 100,000 vehicles a year, globally, by 2028.
• Production of Lotus sports cars will remain in Norfolk, with a target of about 10,000 vehicles a year – much higher than Lotus has ever achieved in the past.

BYD dethrones Tesla as world’s bestselling EV manufacturer

• Chinese automaker BYD, backed by Warren Buffet’s Berkshire Hathaway, has overtaken Tesla as the world’s biggest EV producer by sales.
• The Shenzen-based manufacturer sold 641,000 vehicles in H122 – up 300% yoy for the same period.
• Tesla has sold 564,000 in H122 citing supply chain issues and sales disruptions in China for a slow Q2.
• Tesla, along with several Chinese EV makers including Li Auto, Xpeng and Nio, were harder hit by the lockdowns than BYD, which benefited because most of its factories are not based in the regions and cities that suffered the most severe restrictions.
• BYD has also overtaken South Korea’s LG as the world’s second-biggest producer of EV batteries, now only behind compatriot CATL.

India’s Tata Motors aiming to sell 50,000 EVs this fiscal year

• Tata Motors will aim to sell about 50,000 EVs in the fiscal year, and 100,000 in the 2023/24 period, Chairman N Chandrasekaran said in a shareholders’ meeting.
• In 21/22, Tata Motors sold 19,105 EVs, a growth of 353% from the previous fiscal year.
• India wants electric models to make up 30% of total passenger car sales in the country by 2030, up from about 1% today, and e-scooters and e-bikes to account for 80% of total two-wheeler sales, up from about 2%.

Compass Minerals to supply lithium to LG Energy Solutions

• Compass Minerals has signed a non-binding memorandum of understanding (MOU) to supply battery maker LG Energy Solution (LGES) with battery-grade lithium up to 2032.
• Compass intends to supply up to 40% of its mined battery-grade lithium product from its lithium brine development project at its Ogden, Utah, solar evaporation facility from 2025.
• Per the terms of the MOU, Compass will supply at least 40% of its planned, annual phase-one production to LGES starting with an option to deliver up to an additional 40% annually of the company’s phase-two production once the project is at full scale.
• The US-based company expects to mine an annual commercial production capacity of 30,000-40,000t lithium carbonate equivalent (LCE) for the project, with an initial phase-one capacity of up to 10,000t LCE coming online by 2025.
• Compass is the first U.S.-based lithium producer to partner with the battery manufacturer as it looks to solidify its supply chain in North America to meet soaring demand for EVs, LGES said.

Company News

AfriTin Mining Ltd (AIM:ATM, OTC:AFTTF) 5.4p, Mkt Cap £61m – Funding for Uis mine ‘Continuous Improvement Project’

• Afritin reports that it has received conditional approval for an N$100m (~£5.5m) loan facility from the Development Bank of Namibia to supplement its existingStage II plans to increase the capacity of Uis from 840ktpa to 1mtpa and to improve recovery rates from 64% to 68%.
• The lending facility will also be used to reduce costs and “Promote business sustainability through enhancement of support infrastructure”.
• The loan will be for a ten-year period and following an initial 12 month interest and capital repayment holiday will attract interest at the “Namibian prime lending rate (currently 8.5%) plus 2.5% per annum”. There is a front-end fee of 1.5% due on the first drawdown of the facility.
• The Stage II project which is already underway “utilising existing cash resources of the Company … includes increasing the crushing capacity of the fines crushing section to ensure consistent feed to the concentrator, as well as removing potential stream and downstream delays that may affect production”.
• Afritin explains that “To ensure higher recovery of minerals, the intention is that the visibility of the plant operating parameters must be improved, and the rate of metallurgical sampling will be increased to enhance metal accounting”.
• Welcoming the proposed loan from the Development Bank of Namibia, CEO, Anthony Viljoen, said that “This new strategic financing partnership reinforces our commitment to developing long-term relationships within Namibia and ultimately will be to the benefit of the people of Namibia”.

Conclusion: The Uis plant delivered record Q1 performance in the three months to 31st May and. assuming that the conditional N$100m loan facility proceeds as planned, the continuing programme to expand processing throughput and improve recovery rates is well placed to build a platform for further expansion.

Atalaya Mining (AIM:ATYM, TSX:AYM) (ATYM LN) 307.5p, Mkt Cap £429m – Drilling results from Masa Valverde

• Atalaya Mining has reported drilling results from the initial 22 exploration holes completed on the Campanario Trend at its Masa Valverde project located around 28km south of its 15mtpa capacity processing plant at Proyecto Riotinto in southern Spain.
• The company explains that the Campanario Trend is “one of several mineralised zones” at Proyecto Masa Valverde (PMV) and that it continues “working on defining the potential shallow mineral resource in the short term which to date has only been drill tested in approximately 10% of the entire mineralised structure”.
• Among the results highlighted today are:
• A 35.20m long intersection from a depth of 77.80m in hole CA-15 which averaged 0.70% copper, 1.53% zinc, 1.39% lead and 65.20g/t silver including a higher grade section of 10.10m at an average grade of 1.27% copper, 3.32% zinc, 1.87% lead and 77.17g/t silver from 92.00m depth; and
• An 18.10m long intersection from a depth of 43.20m in hole CA-21 which averaged 1.19% copper, 0.08% zinc, 0.32% lead and 36.66g/t silver which includes a section of 4.80m averaging 3.85% copper, 0.16% zinc, 0.86% lead and 95.34g/t silver from 43.20m depth
• The Campanario Trend is described as a “five kilometre north-west trending mineralised corridor, located one kilometre north of the Masa Valverde and Majadales VMS deposits .… characterised by the presence of numerous small historical workings and coincident soil geochemical and geophysical anomalies”.
• In April this year, Atalaya Mining released mineral resources estimates for the neighbouring deposits within the PMV at Masa Valverde and Majadales showing
• An indicated resource of 16.9mt at an average grade of 0.66% copper, 1.55% zinc, 0.65% lead, 27g/t silver and 0.55g/t gold at Masa Valverde which also contained inferred resources of 73.4mt at an average grade of 0.61% copper, 1.24% zinc, 0.61% lead, 30g/t silver and 0.62g/t gold; and
• An inferred resource of 3.1mt at an average grade of 0.94% copper, 3.08% zinc, 1.43% lead, 54g/t silver and 0.32g/t gold at Majadales.
• The company confirms that it has four drilling rigs working on the €10m PMV exploration project and that it “expects to complete a PEA for PMV by the end of the year”.
• Historical mining activity along the Campanario Trend between 1876-1917 is reported to have produced “0.22 million tonnes at 1.5% Cu from six main mining areas situated from the east to the west: Cruz Infante, Cibeles, Campanario, California, Descamisada and Descamisada Oeste. Drilling to date by Atalaya has focused around the historical Campanario workings which, by size, are the most important along the Campanario Trend”.
• Atalaya Mining explains that the “geometry of the mineralised zones varies down dip from steeply dipping to moderately dipping to the north-north-east and may include several parallel lenses of massive and semi-massive sulphides, with individual true thicknesses varying from 1-2 metres up to 20-25 metres”.
• Commenting that the results “highlight the significant exploration potential of the Iberian Pyrite Belt”, CEO, Alberto de Lavandeira, explained that Atalaya Mining believes “these initial results will … have a positive impact on future development scenarios and project economics”.
• In our opinion, the identification of relatively high grade mineralisation in relatively close proximity to the Riotinto plant offers Atalaya Mining the opportunity to blend this material with the existing run-of-mine ore from Riotinto which typically grades around 0.4% copper.
• Although blended feed from PMV will need to be metallurgically compatible with the existing lower grade feedstock, the opportunity to enhance the overall economics offers a realistic enhancement opportunity for overall economic returns.

Conclusion: Initial exploration drilling along the Campanario Trend provides the possibility of an additional higher grade ore source relatively close to Atalaya Mining’s 15mtpa plant at Proyecto Riotinto. We await the PEA for the PMV project area, due later this year, with interest.

Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL) 920p, Mkt Cap £117m – Quarterly dividend

• Caledonia Mining has declared a quarterly dividend of 14US¢/share maintaining the increased level which was announced in October 2021. Payment is due on 29th July.
• CEO, Mark Learmonth, said that “Gold production so far this year has been strong” and confirmed 2022 gold production guidance is being maintained in the range of 73-80,000oz
• Caledonia Mining also highlights that it is continuing to “to evaluate investment opportunities in Zimbabwe and elsewhere … [as part of its strategy] … to evolve our business in Zimbabwe and de-risk it from being a single asset producer”
• Caledonia Mining confirms that its strategy is “focused on becoming a multi-asset gold producer” as a means to “grow the business and de-risk it from being a single asset producer”.

Firefinch Ltd (ASX:FFX) Suspended – 29m shares in Leo Lithium sold for A$13m

• The Company sold 28.6m shares in recently listed Leo Lithium through a block trade on Monday at A$0.455/sh for A$12.9m.
• The remaining 210.9m shares or ~18% of total outstanding ae subject to escrow for two years (23 June 2024) and are not permitted to be sold except in limited circumstances.
• On Monday, Firefinch highlighted working capital constraints related to its Morila gold operations in Mali.
• The Company reported lower than guided production in June quarter (13.3koz v 17-20koz exp.) and withdrew its production guidance.
• Highlighted challenges included poor equipment availability due to ECOWAS sanctions (that were lifted yesterday), cost inflation as well as government decision to suspend the offset of royalties and certain taxes against its VAT credit claims (~US$25m as of mid-2022) meant to help official finances amid enacted sanctions.

Rio Tinto PLC (LSE:RIO) – 4,734p, Mkt cap £80bn – Guinea threatens to cut out Rio & partners from Simandou

• The government of Guinea has offered a stark warning to Rio and a Chinese-backed consortium, commenting that it is willing to find new partners unless deadlines are adhered to.
• Simandou is a high-grade iron ore project, divided into four blocks and controlled by the Winning Consortium, Rio Tinto and Chinalco.
• Mining Minister Moussa Magassouba commented: “What remains clear, Simandou will be developed with or without Rio Tinto and Winning Consortium Simandou,” “Responsible companies, sufficiently wealthy, financially and technically capable, are waiting.”
• The comments came after Guinea ordered both Rio and the consortium to halt activity in the country, citing their failure to reach a deal on collaboration.
• The minister claimed Rio and the consortium are resisting a government demand for the state to hold a 15% - share a condition he said was non-negotiable.

Mkango Resources Ltd (AIM:MKA, TSX-V:MKA, OTC:MKNGF)* 21.25p, Mkt Cap £46m – Feasibility study demonstrates post-tax NPV10 of $559m for Songwe Hill

• Mkango has released the results of the definitive feasibility study for the Songwe Hill Rare Earths, Malawi.
• The results demonstrate a post-tax NPV US$559m and an IRR of 31.5%, using a 10% discount rate.
• The study assumes mining will commence in February 2025 with average production of 5,954t of TREO in the first five years of production.
• The TREO is expected to contain 1,953tpa of neodymium and praseodymium oxides, and 56tpa of dysprosium and terbium oxides in a mixed rare earth carbonate grading 55% TREO.
• Mining at Songwe will be conventional open-pit mining using contract miners feeding mills, flotation and hydrometallurgy plants on site in Malawi to produce a Mixed Rare Earth Carbonate (MERC).
• The MERC produced from Songwe is expected to obtain an average realised selling price US$32,816 per tonne for the first full five years of production based on pricing estimates from Adamas Intelligence.
• Mkango reports that the product will be exported largely via existing infrastructure.
• Financial summary of DFS:
• LOM post-tax nominal cash of $2.08bn
• Post-tax NPV10 of $559m
• EBITDA of $215m per year
• Post-tax 31.5%
• Payback period from project start (assumed Mar 23) of 5 years.
• Capex of $389m
• Operational summary of DFS:
• Average yearly ore mined of 1.48mt at an average 1.16% TREO
• Life of mine: 18yrs
• Average strip ratio of 2.2
• Yearly flotation plant feed of 1mt
• Flotation TREO concentrate grade of 11.6%
• TREO recovery to concentrate of 74%
• Average yearly flotation concentrate feed of 74,000t
• Average yearly carbonate production (dry basis) of 10,826t

Conclusion: The completion of the DFS is a key milestone for Mkango, testament to the hard work of the board and management team. Songwe joins a small group of rare earth projects globally that have been progressed to the DFS stage and we expect this to hold the company in good stead when looking to finance development of Songwe. The demand outlook remains compelling for rare earths and more so the western supply chain of critical minerals, with Chinese Praseodymium-Neodymium prices robust as ever despite the recent wider pull back in metals prices. We expect material news on the proposed Pulawy Rare Earth Separation Project to be a positive rerating event for Mkango, allowing them to increase their margins and payability even further beyond this study.

*SP Angel acts as nomad and broker to Mkango Resources

Serabi Gold (AIM:SRB, TSX:SBI)* 41p, Mkt Cap £31m – Discovery of copper/moly/gold porphyry close to the Sao Chico mine in Brazil

• Serabi Gold (AIM:SRB, TSX:SBI) reports that its initial three-hole diamond drilling programme at the Matilda prospect, located around 5km WNW of its Sao Chico mine, has intersected “a Cu-Au-Mo porphyry system”.
• The company says that “Anomalous mineralisation was encountered along the entire length of each hole with average grades of each hole over 0.2% copper equivalent (CuEq)”.
• Among the intersections reported today are:
• An intersection of 234.20m at average grade of 0.26% CuEq in hole 22-MT-001 including higher grade sections of 7.55m averaging 0.52% CuEq from 27m depth, 21m averaging 0.44% CuEq from 113m depth and 19.08m averaging 0.51%CuEq from 215.12m depth and open at depth; and
• An intersection of 210.57m averaging 0.20% CuEq in hole 22-MT-002 including higher grade zones of 19.40m averaging 0.51% CuEq from 38.25m depth, 4.45m averaging 0.57% from 77.30m and 2.75m averaging 0.73% CuEq from 193.85m depth; and
• 250.75m averaging 0.23% CuEq in hole 22-MT-003 which included 37.05m at an average grade of 0.37% CuEq from 43.40m and 22.90m averaging 0.47% CuEq from 127.10m depth.
• The drilling target was “the high grade portion of a 2.5km by 1.2km Cu-Au soil geochemical anomaly although the area with the highest magnetic signature remains untested”.
• The company says that the Matilda target is one of five targets it has identified based on multi-element geochemical anomalies “along the margins of a 40km magnetic high” and that its follow-up work will “initially focus on higher definition of magnetics and soil geochemistry to help target the next drilling programme”.
• Describing the exploration success at Matilda and elsewhere and the “excellent progress with the development of Coringa … [as well as] … improved production from the Palito Complex” CEO, Mike Hodgson, said that “This is a very promising time for Serabi”.
• We comment that the discovery at Matilda remains in its early stages with only three holes completed so far but there seems to be indications of improving grades at depth and open-ended mineralisation in hole 001 which are encouraging.

Conclusion: At this stage, it is too early to establish the economic viability but the discovery of a mineralised porphyry close to its operations at Sao Chico provides Serabi Gold with a promising follow-up target and we await further news with interest.

*An SP Angel analyst has visited the Serabi’s gold mining operations in Brazil

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

W1S 2PP

*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

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049. The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP. SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II - Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%