Today's Market View - Aura Energy, Castillo Copper, Oriole Resources, and more...

SP Angel . Morning View . Monday 31 10 22

Metals pullback on disappointing Chinese PMI numbers

MiFID II exempt information – see disclaimer below

Zambian copper explorer – pre-IPO investor opportunity

• We are looking for investment into a private copper explorer with four highly prospective licences in Zambia, near major mines or significant exploration targets.
• One license is contiguous with First Quantum’s Sentinel copper and Enterprise nickel mines with whom they have a Technical Cooperation Agreement.
• Historic drilling on the licence includes 0.7% copper over 1m and 0.2% nickel over 3m. Geophysics in 2021 & 2022 advanced project toward identifying drill targets.
• A large licence with multiple copper targets. Samples from small artisanal mines assayed 15.8% copper, 0.57g/t gold and 4.87% copper, 18.3 g/t gold.
• A highly prospective licence acquired in 2022 on the Western Foreland trend which hosts the giant Kamoa-Kakula mine.
• IPO documentation has been prepared for listing when market conditions improve.
• All licences are 100% owned with Zambian partners significant shareholders in the company.

*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.

Aura Energy Ltd (ASX:AEE, AIM:AURA)* – September quarterly reaffirms that Tiris remains on track for initial uranium production in 2024 and to deliver an updated

Bluerock Diamonds PLC (AIM:BRD)* – Revised guidance predicts strong recovery through Q4 and 2023 following substantial waste removal

Castillo Copper Ltd (LSE:CCZ, ASX:CCZ)(CCZ LN) – Expanding exploration focus at the BHA project to include its REE potential

Culpeo Minerals Ltd (ASX:CPO, OTCQB:CPORF)* – Phase-2 drilling intersects over 250m of visible copper sulphide

Oriole Resources PLC (AIM:ORR) – Oriole completes £600,000 placing for advancement of Cameroonian gold assets

Orosur Mining Inc (AIM:OMI, TSX-V:OMI)* – Quarterly results reaffirms healthy cash position and exploration progress

Rainbow Rare Earths Ltd (LSE:RBW, OTC:RBWRF)* – Rainbow likely to fund rare earths project feasibility and development through US supported funds

Tesoro Gold Ltd (ASX:TSO, OTCQB:TSORF) – Initial sampling identifies new target near Ternera

China inks supply deal with Australian rare earth aspirant producer VHM Limited

• VHM Limited and Chinese importer Shenghe have signed a memorandum of understanding for a rare earth supply agreement.
• VHM is hoping to build a rare earth mine at its Goschen deposit.
• The deal will see Shenghe buy 60% of the mine’s output if its production levels hit the proposed 5mt/pa.
• Shenghe signed an offtake agreement with Peak Resources on Oct. 19th for 75-100% of the rare earths produced at its Tanzanian mine.

Copper prices slide as China factory data flashes warning signs for the top-consumer’s appetite

• Copper prices have fallen over 4% to $7,467/t over the weekend as traders digest weak Chinese factory data.
• Both China’s factory and services purchasing manager’s indexes fell into contraction as COVID curbs and the languishing property sector weigh on activity.
• A surplus in copper ore supply is pushing smelting fees over $100/t to 8-year highs – higher TC/RCs point to weakening demand and accelerating mine output. (Mysteel)
• Ore inventories at Chinese ports are currently almost 50% higher than last year, with inventories at Chinese smelters 13% higher. (Mysteel)
• Global copper inventories have fallen 17% over the past 10 days, however futures are showing easing backwardation in further sign of cooling demand for physical.
• A climbing dollar has also pressured greenback-denominated copper prices.
• Shanghai Futures show brokers remain net long Copper.
• China copper premium is expected to range from $150/t to $210/t vs $108/t this year and $88/t in 2021
• Kariba dam threatens grid power for mining an other infrastructure across southern Africa
• Kariba is down to just 11% of useable water for hydropower vs 34% a year ago.
• While many of Zambia’s copper mines use power from Kariba, we believe, most, if not all, have diesel gensets to back up their power supplies.

Gold slides towards seventh monthly decline as yields rebound and Dollar strengthens

• Gold has now fallen every month since its highs in March, down 20% to $1,636/oz.
• Despite strengthening last week on signs of dollar reversal, US 10-year yields have pressured gold prices this week.
• Yields rose 3.56% from last week, pushing gold prices down 1.7% over the same period.
• The shift comes as economists revise their expectations for longer and higher Fed interest rates amid signs of sticker inflation contributors.
• Bloomberg-surveyed economists expect the benchmark rate to hit 5% in March 2023.
• Focus turns to Friday, where the Fed are expected to announce a 75bp hike. This follows CPI data showing core inflation accelerated in September whilst consumer sentiment remained strong.
• The market is currently undecided whether Powell will turn to a 50bp hike in December, which we expect to be bullish for gold, or another 75bp hike.

Iron ore prices hit 3 year low as demand pessimism continues to intensify from China

• Iron ore prices fell 7% today in Singapore on another round of dire Chinese economic data releases.
• Chinese factory activity in October came in below estimates, compounding a downward spiral for the key steelmaking ingredient’s price.
• October is traditionally a strong seasonal demand month for China’s property sector, with this failing to materialise as Zero-Covid policy continues to weigh.

Dow Jones Industrials +2.59% at 32,862

Nikkei 225 +1.78% at 27,587

HK Hang Seng -0.98% at 14,718

Shanghai Composite -0.77% at 2,893

Economics

US – The FOMC will kickstart a two day policy meeting tomorrow with the announcement due Wednesday evening.

• A 75bp hike is priced in at the moment with markets to follow the Fed press release and comments closely for hints over the size of future rate increases.
• Richmond Fed manufacturing index collapsed -10 in October vs 0 in September – shows that rate hikes are having an impact
• Uni of Michigan consumer sentiment 59.9 in October vs 58.6 in September

China – Official October PMIs tracking performance of SOEs show a contraction in business activity in both manufacturing and services sectors weighed down by Covid related restrictions and ongoing property market crisis.

• That marks a weak start to the final quarter of the year and signalling further slowdown to the headline GDP.
• The country reported growth of 3.9% in Q3/22, ahead of expectations but still well below the official 5.5% target.
• Both Hang Seng and mainland equity indices are trading lower with the renminbi down 0.7% against the US$.
• Shanghai Disney Resort goes into lockdown with visitors told to await results of their Covid tests before they can be allowed to leave.
• People will need to test for Covid-19 three times in three days, local authorities said.
• Manufacturing PMI: 49.2 v 50.1 September and 49.8 est.
• Services PMI: 48.7 v 50.6 September and 50.1 est.
• Composite PMI: 49.0 v 50.9 September.

South Korea – Q3 advanced GDP rose 0.3% qoq vs 0.7% in Q2 and 3.1% yoy in Q1 vs 2.9% yoy in Q2

Japan - Unemployment 2.6% in September vs 2.5% in August

EU - Economic sentiment 92.9 in October vs 93.6% in September

• industrial sentiment -1.2 (-0.3),
• service sentiment 1.8 (4.4),
• consumer confidence -27.6 (-28.8).

Germany - Ifo business climate 84.3 held relatively steady in October vs 84.4 in September

• GfK consumer confidence -41.8 for November vs -42.8 for October

Brazil – Luiz Inacio Lula da Silva, 77, claimed a victory in presidential election on Sunday coming in ahead of incumbent rightwing leader Jair Bolsonaro by less than two percentage points.

• Lula served two terms as president between 2003 and 2010 before having been accused of corruption and serving time in prison, FT writes.
• Convictions were later annulled.
• Lula won 50.9% of the vote compared to 49.1% for Bolsonaro and is set to take office on January 1.
• Turnout is reported at high almost 80% for both rounds.

Hong Kong – The economy reported the third consecutive quarter of contraction and the worst drop since the second quarter 2020.

• GDP underperformed expectations significantly coming in at -4.5%yoy.
• The drop is attributed to local Covid related disruptions as well as weak trade data.
• Additionally, property sector has been under pressure from waning demand and higher interest rates.
• GDP (%yoy): -4.5 v -1.3 Q2/22 and -0.8 est.

Turkey - Economic confidence 97.1 in October vs 94.3 in September

• Business confidence 100.3 (99.9) and
• Capacity utilisation 76.9% (77.4%).

Russia/Ukraine – Russia rains rocket missiles o Kyiv and pulled out of a deal allowing Ukrainian grain shipments after an attack on its Black Sea Fleet in a Crimean port with 16 drones on Saturday.

• Are Russian forces sabotaging their own equipment to avoid going to war in Ukraine?
• This weekend Russia accused Ukraine of a drone attack on its naval base in Crimea.
• Ukraine has officially denied the attack, but are the Russians sabotaging their own kit to avoid being sent to the front line.

Currencies

US$0.9917/eur vs 0.9948/eur last week. Yen 148.20/$ vs 147.03/$. SAr 18.272/$ vs 18.077/$. $1.156/gbp vs $1.152/gbp. 0.640/aud vs 0.642/aud. CNY 7.297/$ vs 7.246/$.

Dollar Index 111.12 / -0.8% on week

Commodity News

Wheat hits upper trading limit as Putin suspends Ukraine grain export deal

• Wheat prices jumped 6% as Russia’s Defense Ministry pulls out of a deal allowing the export of grain from Black Sea ports.
• The move followed a series of drone strikes against US naval vessels off Sevastopol.
• The suspension has been described as ‘indefinite’ by Russian officials.
• The combination of a soaring dollar and soaring wheat prices is a major concern for emerging markets reliant on food imports, with a further hike in costs expected to increase destabilisation.

Precious metals:

Gold US$1,638/oz vs US$1,653/oz last week

Gold ETFs 95.2moz vs US$95.3moz last week

Platinum US$932/oz vs US$955/oz last week

Palladium US$1,914/oz vs US$1,955/oz last week

Silver US$19.02/oz vs US$19.29/oz last week

Rhodium US$14,100/oz vs US$14,100/oz last week

Base metals:

Copper US$7,454/t vs US$7,614/t last week

Aluminium US$2,190/t vs US$2,248/t last week

Nickel US$21,930/t vs US$21,995/t last week

Zinc US$2,737/t vs US$2,872/t last week

Lead US$1,976/t vs US$1,858/t last week

Tin US$17,625/t vs US$18,080/t last week

Energy:

Oil US$94.7/bbl vs US$95.8/bbl last week

Natural Gas US$6.117/mmbtu vs US$5.793/mmbtu last week

Uranium UXC US$53.05/lb vs US$53.35/lb last week

Bulk:

Iron ore 62% Fe spot (cfr Tianjin) US$79.4/t vs US$81.4/t

Chinese steel rebar 25mm US$522.9/t vs US$537.6/t

Thermal coal (1st year forward cif ARA) US$225.0/t vs US$225.0/t

Thermal coal swap Australia FOB US$380.0/t vs US$370.0/t

Coking coal swap Australia FOB US$329.0/t vs US$322.0/t

Other:

Cobalt LME 3m US$51,955/t vs US$51,955/t

NdPr Rare Earth Oxide (China) US$90,645/t vs US$92,126/t

Lithium carbonate 99% (China) US$75,435/t vs US$75,840/t

China Spodumene Li2O 5%min CIF US$6,000/t vs US$6,000/t

Ferro-Manganese European Mn78% min US$1,225/t vs US$1,228/t

China Tungsten APT 88.5% FOB US$31.8/kg vs US$32.0/kg

China Graphite Flake -194 FOB US$875/t vs US$870/t

Europe Vanadium Pentoxide 98% 7.4/lb vs US$7.4/lb

Europe Ferro-Vanadium 80% 31.75/kg vs US$31.25/kg

China Ilmenite Concentrate TiO2 US$308/t vs US$310/t

Spot CO2 Emissions EUA Price US$78.4/t vs US$78.6/t

Brazil Potash CFR Granular Spot US$595.0/t vs US$610.0/t

Battery News

Company News

Aura Energy Ltd (ASX:AEE, AIM:AURA)* 15.5p, Mkt Cap £82m – September quarterly reaffirms that Tiris remains on track for initial uranium production in 2024 and to deliver an updated mineral resources estimate and the FEED study in the current quarter.

• Reporting on what it describes as a period of significant progress during the three months ending 30th September, Aura Energy highlights the progress at its Tiris uranium project in Mauritania.
• Among other milestones, the company reports that its programme of resource upgrade drilling at Tiris “proceeded on schedule, with targeted completion in Q4 CY22” and delivery of a revised mineral resources is expected in the current quarter.
• The Front-End-Engineering Design (FEED) study for the Phase 1, 800,000lbs of annual U3O8 production is also expected this quarter with a first stage engineering design study “confirming design assumptions for the leaching, ion exchange and purification plant”.
• Management restructuring resulted in the appointment of David Woodall as Managing Director and CEO with the acting CEO, Dr. Will Goddall assuming the Chief Operating Officer role.
• Dr. Goodall confirmed that the progress made keeps the project on course “to move to production in 2024”. He summarised by explaining that “Overall, at the end of the Quarter, Aura had delivered on initial, yet significant milestones for the development and expansion of Tiris and remains strongly positioned to continue to drive the Project towards production”.
• As has been described previously, the Tiris project is a shallow deposit with free-digging ore which can be simply upgraded via screening which allows 80% of the material to be discarded at an early stage of treatment while retaining around 90% of the contained uranium.
• In a separate announcement today, Aura Energy confirms that its AGM is to be held on 29th November with a hybrid format allowing both in-person and virtual attendance.
• In his Chairman’s Letter to shareholders in the company’s annual report, Philip Mitchell also focuses on efforts to expedite the development of the Tiris uranium project which, he explains, is capable of helping address a growing international appetite to feed the expanding appetite for nuclear power.
• He cites “The supply constraints of critical minerals, and the changing geopolitical environment … [which] … have caused both governments and regulators around the world to recognise that nuclear energy is a vital component of the energy mix. It is one of the few sources of safe, base load power that delivers a low carbon footprint at a reasonable cost, and importantly the nuclear fuel cycle is diversified and not dependent on geopolitically constrained providers”.
• In August 2021, the Tiris resource was upgraded by 10% to 56m lbs of contained U3O8 and a further 10,000m of infill drilling is underway to upgrade the proportion of ‘Measured and Indicated’ resources which could expand the 800,000lbs pa production rate described in the 2019 Definitive Feasibility Study.
• Aura Energy aspires to expand production to 3-5m lbs annually within 5 years and significant future resource expansions would, in our view, be a prerequisite for such expansion. Hence further exploration across northern Mauritania, as discussed by Mr. Mitchell, provides an opportunity to build production growth.
• Although the August 2021 revision of DFS capital costs to US$74.8m places the Tiris project as one of the world’s low-cost uranium developments, Aura Energy is continuing to optimise the project ahead of making the final investment decision during Q1 2023 with the objective of initial production in 2024.
• As well as looking for capital cost efficiencies, further operating cost reductions are sought with the potential to produce by-product vanadium seen as a fruitful avenue to generate further savings.
• Mr. Mitchell explains that the production focus of Aura Energy’s board includes the recent appointment of former Rio Tinto, Fortescue Metals Group (ASX:FMG), Newcrest Mining and Ivanhoe Mines executive, David Woodall, as Managing Director and CEO.
• As well as Tiris, Aura Energy’s wholly-owned Häggån Project in Sweden hosts a ‘significant’ uranium and vanadium resource as well as nickel, zinc and molybdenum which are described as a “significant opportunity” for shareholders.

Conclusion: Aura Energy reports further progress in its plans to bring the Tiris uranium project to initial production in 2024 and to tap the increasing global appetite for nuclear energy to accelerate low-emission power generation and to limit reliance on geopolitically volatile energy sources. Among near term progress, the company expects to deliver an updated mineral resource estimate and further engineering studies for Tiris during the current quarter.

*SP Angel acts as Nomad and Broker to Aura Energy

Bluerock Diamonds PLC (AIM:BRD)* – 5.5p, Mkt cap £2.3m – Revised guidance predicts strong recovery through Q4 and 2023 following substantial waste removal

• BlueRock Diamonds reported Q3 ore, grade and diamond production on Friday.
• The company produced 22.5% more ore at 195,848t yoy in the third quarter. This was also 29% higher than in Q2.
• Grades fell, somewhat disappointingly to 2.63cpht vs 4.81cpht yoy maintaining the 2.6cpht seen in Q2 as the mine focussed on the movement of waste and stockpiles resulting in a fall in the quality of ore being processed.
• Diamond production rose to 5,145cts in Q3 from 3,570cts in Q2 but was lower than the 7,682cts seen in Q3 2021.
• Carats sold rose to 5,475cts from 2,699 in Q2 and but was lower than the 6,887cts sold in Q3 2021.
• The average price per carat fell to $513/ct from $576/ct in Q2 and from $554/ct yoy due to a lack of larger stones for sale.
• We believe sales value should be generally higher this year despite a recent pullback in per carat diamond values.
• For BlueRock, the mining of good quality fresh ore makes all the difference with certain phases of kimberlite within the diamond pipes carrying a higher proportion of larger and more valuable gem-quality diamonds.
• BlueRock’s ceo, Victor Dingle, warns us that lower grades will continue for at least two more months as the mine strips more waste and stockpiles are still being moved.
• Forex: The South African rand has fallen to 18.3 vs the US dollar following a period of prolonged and relative strength in recent years. This is good news for local miners who sell in US dollars.
• Inflation: South Africa’s inflation eased to 7.5% in September from 7.6% in August but is still higher than the SA reserve bank target of 3-6%. The reserve bank forecasts inflation of 6% this year and 5.6% through 2023.
• 2022 Guidance revised:
• Production: 600-700,000t vs 620-670,000t previously
• Diamond production: 20,000-22,000 vs 20,000-24,000cts – not much of a downgrade but disappointingly not an upgrade
• Grade: 2.96-3.2cpht vs 3.25-3.5cpht – the downgrade in grade is disappointing
• Value per carat: $500-570/ct from $500-600/ct – this may reflect some softening in the market
• Revenue: $10-12.5m vs $10.0-14.4m
• 2023 Guidance revised:
• Production: 900-1,000,000t vs 875-970,000t .
• Diamond production: 35,000-41,000cts – unchanged.
• Grade 3.7-4.1cpht vs 4.0-4.3cpht – we wonder if this reflects the challenges of grade control with the pushback
• Value per carat: $500/ct – appears relatively conservative compared with this year’s auction prices.
• Revenue: $17.5m - $20.5m - unchanged.
• Convertible loan note negotiations continue on deferring of repayment to allow the company additional cash headroom as it continues to develop the Kareevlei diamond mine.

Conclusion: Teichmann’s new management team are working hard to iron out remaining issues in the mine and process plant. The team’s revised guidance still sees a 64-75% increase in revenue next year as the mining rate increases though they are more cautious on the expected grade

We see this as positive affirmation of the potential of the mine to achieve substantially higher diamond production in the fourth quarter and through next year.

*SP Angel acts as nomad and broker to Bluerock Diamonds. The analyst holds shares in BlueRock Diamonds.

Castillo Copper Ltd (LSE:CCZ, ASX:CCZ) 1.08p, Mkt Cap £14m – Expanding exploration focus at the BHA project to include its REE potential

• Castillo Copper reports that following a reinterpretation of geophysical information gathered in the early 2000s and in 2017, it has generated drill targets at its Iron Blow prospect in the BHA East project area which it considers may host rare-earth element (REE) mineralisation.
• Its retrospective analysis also includes assays from historic drill core held in the Geological Survey of New South Wales’ core library where hole DD90-IB3 showed intersections of:
• 8m at an average grade of 1,460ppm TREO (Total Rare Earth Oxide) from a depth of 150m; and
• 12m at an average of 297ppm TREO from 199m depth as well as 6.4m averaging 290ppm from 189m and 4.8m averaging 311ppm from 232m depth.
• The company says that “there is still untested diamond core from DD90_1B3 at the core library … [and] … the geology team are planning for this to be fully re-assayed for REEs”.
• Castillo Copper describes 9 holes it is planning to drill to depths of between 140-160m to follow up the targets at Iron Blow which is located NW of the current drilling at the Fence Gossan project within its BHA East Zone project at Broken Hill, New South Wales.
• Managing Director, Dr. Dennis Jensen, explained that “Re-assaying the historical diamond drill core for REEs has been a game changer that significantly enhances the Iron Blow Prospect's exploration potential. More significantly, the geophysical interpretations deliver prime targets, which potentially host mineralisation, for drill testing”.

Culpeo Minerals Ltd (ASX:CPO, OTCQB:CPORF)* A$0.11, Mkt cap A$7.6m – Phase-2 drilling intersects over 250m of visible copper sulphide

• Culpeo reports that it has intersected 250m of visible copper sulphide mineralisation in the first hole of P2 drilling at Lana Corina, from 250m to 400m downhole.
• The P2 programme will consist of 9-10 holes for approximately 5,000m, focusing on the known high-grade mineralisation, testing the near surface breccia targets and initial drill testing of district targets.
• Highlights from the Phase-1 programme include:
• 104m @ 0.74% Cu & 73ppm Mo in CMLCD001 from 155m
• 257m @ 0.95% Cu & 81ppm Mo in CMLCD002 from 170m
• 173m @ 1.05% Cu & 50ppm Mo in CMLCD003 from 313m
• 89m @ 1.06% Cu & 145ppm Mo in CMLCD005 from 302m
• 113m @ 0.60%Cu & 122ppm Mo in CMLCD009 from 331m
• The company expects to receive initial assay results in three to four weeks.

*An analyst at SP Angel holds shares in Culpeo Minerals

Oriole Resources PLC (AIM:ORR) 0.12p, Mkt cap £3.35m – Oriole completes £600,000 placing for advancement of Cameroonian gold assets

• Oriole Resources has raised £600k in an equity placing, including £32k worth of subscriptions by certain Directors.
• 500,000,000 new ordinary shares will be issued at a price of 0.12 per share.
• Oriole will utilise the funds for developing its Cameroonian assets, in particular the Bibemi orogenic gold project and its Central License Package (CLP) project.
• Oriole delivered a JORC-compliant Exploration target at Bakassi Zone 1, Bibemi, which highlights 6-8mt with grades ranging from 1.5-1.7g/t.
• The Company will now look to develop Bibemi towards a maiden Mineral Resource.
• The funds will also enable the Company to expand its greenfield exploration programme at its underexplored Central License Package, also in Cameroon.
• The Company aims to prioritise targets identified at the Eastern CLP, with work focused on low-cost mapping, rock-chip sampling, ground based geophysics and infill soil sampling.

Conclusion: We look forward to following Oriole’s progress in their exploration efforts in Cameroon, with the funds offering the opportunity to continue to expand the Bibemi project and develop a drill target identification for the CLP in Q4 next year.

*SP Angel act as a broker to Oriole Resources

Orosur Mining Inc (AIM:OMI, TSX-V:OMI)* 11.25p, Mkt Cap £21m – Quarterly results reaffirms healthy cash position and exploration progress

The Anzá project is currently operated by Minera Monte Águila (MMA). MMA is itself a 50/50 JV between Newmont Corporation and Agnico Eagle Mines Limited. MMA have the option to earn-in up to 65% of Anza, with Orosur owning 35%.

• Orosur has released its unaudited results for the three months ended August 31, 2022.
• Administrative expenses rose to US$407k vs $320k over the same period last year.
• Exploration expenditure rose to $63k vs nil.
• Orosur’s net cash position at the end of the period was $3.6m.
• Orosur made strong progress at its Anza project in Colombia during the quarter, completing a drill programme at the central APTA target, and shifting focus to Pepas and Pupino.
• Post period, the Company announced assay results from the Pepas including 150m @ 3g/t Au from surface.
• A number of other holes at Pepas have been completed and are awaiting assays, with several additional holes underway.
• Orosur’s partner, Monte Aguila, informed the Company that it had met its expenditure of US$4m for the year and affirmed its intention to progress to Phase 2 of the exploration agreement.
• The company intends to continue exploration progress at Anza in Colombia as well as progressing its Ariquemes tin project in Brazil, and its El Pantano gold/silver project in Argentina over the coming quarters.

Rainbow Rare Earths Ltd (LSE:RBW, OTC:RBWRF)* 9.94p, Mkt cap £52m – Rainbow likely to fund rare earths project feasibility and development through US supported funds

BUY – Valuation 60p

CLICK FOR PDF

(Rainbow hold 70% of Phalaborwa with 30% to be held by Bosveld Phosphates) (Neodymium Nd, Praesidium Pr, Terbium Tb, Dysprosium Dy) Rainbow holds 100% of the Gakara mine and associated licenses in Burundi)

• China has just signed a new REE supply deal with VHM Limited, an Australian rare earth project company which holds the Goschen deposit.
• The deal will see Shenghe buy 60% of the mine’s output if its production levels hit the proposed 5mt/pa. Shenghe also has an offtake agreement with Peak Resources.
• US government funding targeting critical materials and battery related raw materials.
• We believe the Biden Administration are accelerating investment in new energy projects through ongoing investment into mineral projects in the US and overseas.
• While some of these funds are being distributed directly by the US government funding is also being distributed via a number of US private equity and other investment funds.
• The US, Australia, EU and UK have all recently commented on funding support for critical minerals.
• Iluka’s funding from Australia and the US Government of MP Materials (Mountain Pass) and others are highly visible.
• The EU and US are keen to develop new sources of raw material supply along with new mid stream development.
• In terms of RE prices, NdPr seems to be tracking sideways at the moment – commentary I’ve seen points to Yuan:US x-rate and covid lock downs in China being the short term focus –
• The Biden Administration recently approved a $2.8bn package to boost domestic the EV battery supply chain and we believe further funding are also being challenged through a number of respected investment funds to accelerate the feasibility and later construction of critical minerals projects.
• The latest funding round saw 20 manufacturing and processing plants awarded grants for minerals by the US Energy Department including:
• Albermarle Corp (ALB.N) - $149.7m for hard-rock lithium processing in North Carolina.
• Piedmont Lithium (PLL.O) - $141.7m for lithium processing facility in Tennessee.
• Talon Metals (TLO.TO) - $114.8m for nickel processing plant in North Dakota for ore mined in Minnesota.
• Ascend Elements (Private) - $316.2m for construction of a battery parts plant.
• Lilac Solutions (Private) - $50m for a Direct Lithium Extraction (DLE) demonstration plant.
• Cirba Solutions (Private) - $75m for expansion of an Ohio battery recycling plant.
• Syrah Technologies (Subsidiary of Syrah Resources (SYR.AX) ) - $219.8m for the expansion of a graphite processing plant in Louisiana.
• Rainbow’s recent PEA on the Phalaborwa project shows significant value:
• NPV@10% of US$627m
• IRR of 40%
• Two year payback on reasonably conservative REE prices.
• Rainbow is also collaborating on a number of other phosphorgypsum sources for the application of the REE extraction process using K-Tech developed CIX ‘Continuous Ion Exchange’ and CIC ‘Continuous ion Chromatography’.
• Rare earth pricing:
• Adamus Intelligence see a major shortage of neodymium and praseodymium due to a lack of rare earth sources and the inability of producers to raise production.
• Argus Metals refer to limited availability of metal oxides in the spot market with manufacturers not wanting to pay premium prices in case covid lock downs or foreign exchange movements with a ‘wait and see’ approach.
• PrNd Mischmetal $110-112,000/t FOB China – prices have picked up from a low of $104 in September
• Dysprosium Oxide $319-324,000/t FOB China – prices recently dipped lower
• Terbium Oxide $1,840-1,870,000/t FOB China – prices have picked up in China since a low of $1,840,000/t in August.
• Cash: Rainbow have around US2.4m of cash in the bank and is not currently considering the issue of new equity.
• Rumours of Rainbow’s going financial concern are unfounded

Conclusion: We see Rainbow’s Phalaborwa project as an important and highly significant game changer for Western REE production from phosphorgypsum residues.

We are confident that new funding for the project and more important the K-Tech technology being used will attract substantial interest from multilateral and other critical materials funds

*SP Angel acts as financial advisor and broker to Rainbow Rare Earths

Tesoro Gold Ltd (ASX:TSO, OTCQB:TSORF) A$0.034, Mkt cap A$30m – Initial sampling identifies new target near Ternera

• Tesoro reports that initial sampling at the Animas Viejas target has identified widespread outcropping gold mineralisation approx. 35km north of the Ternera Gold Deposit.
• Tesoro currently has a mineral resource of 30.5 Mt @ 1.12g/t Au for 1.1Moz of gold at 0.3g/t Au cut-off, defined by 148 drill holes – though the company is expecting to increase this given recent step out and infill drilling.
• Mapping and sampling at Animas Viejas has defined a prospective area of 7km x 2km, with highlights:
• 2m @ 2.78g/t Au
• 2m @ 2.33g/t Au
• 2m @ 1.72g/t Au
• 2m @ 1.28g/t Au
• Geological studies have identified an extensive system of intrusive dyke swarms of similar composition to the El Zorro Tonalites which host the majority of gold mineralisation at Ternera, especially when affected by later faulting and alteration.
• We look forward to further results from Animas Viejas as Tesoro begin to delineate targets for drill testing.

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.





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%