SP Angel Morning View -Today’s Market View, Wednesday 31st January 2023

Copper pushes higher as China’s property collapse continues to fuel hopes of major stimulus

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Early signs of stability returning to the rough diamond market

Arkle Resources* (ARK LN) – New licences at Stonepark

Aterian plc* (ATN LN) – Azrar copper project shows 4.01% copper and 26.9g/t silver in sampling

Botswana Diamonds (BOD LN) – Prospecting licence in Eswatini

Galan Lithium (GLN AU) – A$19.5m equity placing to advance HMW Phase 1 development

GreenRoc Mining* (GROC LN) – Graphite passes battery test with top performance in conductivity in Li-ion cells in specific capacity

Hummingbird Resources (HUM LN) – FY23 production update and FY24 guidance

Power Metal Resources* (POW LN) – Drilling begins at Molopo Farms Project, Botswana

Rainbow Rare Earths (RBW LN) – Site visit presentation

Resolute Mining (RSG LN) – Continuing focus on cost reduction as company matches revised 2023 production guidance

Serabi Gold (SRB LN) – Licence renewal at Coringa

Sovereign Metals* (SVML LN) – Quarterly results as graphite material testing alongside Rio Tinto accelerates

Copper pushes higher as China property collapse continues to fuel hopes of major stimulus

• Copper prices have strengthened over $8,600/t on the LME, holding around November highs.
• Evergrande’s liquidation order this week has weighed on Chinese investor sentiment, fuelling bets on new stimulus measures.
• Hong Kong and Chinese stocks continue to sell off.
• Copper buyers in China remain cautious, with the Yangshan import premium down 50% since December.

Chinese lithium giants issue profit warnings as market considers to struggle with destocking

• Ganfeng and Tianqi Lithium both issued profit warnings last night, seeing stock prices down 7% and 8% respectively.
• Ganfeng said it expects net profits to fall 70-80% yoy in 2023 to US$590m.
• Tianqi expects profits to fall between 63-73%.
• Ganfeng notes the ‘cyclical nature of the lithium industry and the growth rate of end user demand slowing down,’ as the primary reason for the weak performance.
• The pair are dominant in the production of lithium carbonate and hydroxide used to make cathodes and electrolytes in EV batteries.
• However, EV sales are expected to grow at 20% in China in 2024, down from 30% last year but still strong.
• Lithium demand is expected to rise 27% in 2024, climbing to 1.23mt LCE. (Daiwa)
• Analysts expect a minor surplus in 2024, with supply expected to climb to 1.26mt.

Niger – >$100m of gold bullion seized in Addis Ababa en route from Niger to Dubai – General Tiani suspends all mining permits in Niger!!

• 1,400kg of gold worth >$100m has been seized in Addis Ababa en route from Niger to Dubai without any official documents.
• 82 Nigerians working at Niamey Airport in customs and in the police have also been dismissed and all mining permits in Niger have been suspended..

• Niger’s government has issued permits for $232m of investment in gold, coal, manganese, lithium and copper according to reports.
• The UAE imported 446t of gold last year worth around $15.1bn of gold from Africa in 2016 up from 67t ($1.3bn) in 2006 with much of the gold coming from informal and untaxed sources.

Rwanda – Rio Tinto signs MoU with Rwanda government to unlock mining potential

• Rio Tinto also recently signed a joint venture with Aterian plc for the exploration and potential development of their Lithium and Tantalum pegmatites in the country.
• Rwanda saw strong 45.6% yoy growth in tin, tantalum and tungsten prodiction alongside gold, lithium and gemstones with exports rising to $851.6m from January to September 2023.
• The government is targeting $1.5bn in mineral exports this year.
• The partnership follows a meeting between President Paul Kagame and the Rio CEO at the World Economic Forum in Davos this month.

AI – Strong growth in power demand from AI could cause data centres to draw power from coal and diesel generation

• Bloomberg report strong demand from data centres powering AI systems is causing environmental regulators to consider plans allowing for diesel generation to support facilities as power runs short.
• Data centres are competing with EVs and factories making Li-ion batteries in the Kansas City area requiring the authorities to suspend plans to close a coal-fired power plant.
• Power consumption at US data centres alone is forecast to jump to triple to 390tWh by 2030 according to Boston Consulting Group equating to ~7.5% of US estimated energy demand.

Economics

US – FOMC rate decision day with little surprises expected and the benchmark rate to be kept at 5.25-5.50%.

• Market focus would be on the commentary around the rate outlook and if the Fed grew more cautious since its last dovish address in December.
• Job openings, a proxy for labour demand, beat estimates in December with previous monthly data also revised higher.
• JOLTS Job Openings: 9,026k v 8,925k (revised from 8,790k) November and 8,750k est.
• Conference Board Consumer Confidence: 114.8 v 108.0 (revised from 110.7) December and 114.8 est.

China – Business activity picked up in January led by the services sector with manufacturing remaining in contraction, official PMI data showed.

• Although, growth in construction eased to a three month low.
• Authorities have been trying to ramp up stimulus to turn around waning confidence including both monetary and fiscal tools.
• Manufacturing PMI: 49.2 v 49.0 December and 49.3 est.
• Services PMI: 50.7 v 50.4 December and 50.6 est.
• Composite PMI: 50.9 v 50.3 December.

Germany – Unemployment unexpectedly dropped in January in a sign of resilience in the labour market despite a drop in GDP in Q4/23.

• Nationwide inflation number are out later today with regional data released so far pointing to a continuing trend in disinflation, a welcome news to the ECB.
• Estimates are for CPI (EU Harmonised) to come in at 3.0%yoy January, down from 3.7%yoy December.
• Unemployment Change (‘000): -2.0 v 2.0k (revised from 5.0k) December and 11.0k est.

France – Inflation cooled to the lowest since Russian invasion in Ukraine driven by a slowdown in the costs of energy, food and manufactured products, Insee agency data showed.

• Policymakers will focus on core inflation numbers that exclude more volatile components such as energy and food.
• Preliminary inflation numbers released today do not provide such a measure, Bloomberg writes.
• CPI (%mom, EU Harmonised): -0.2 v 0.1 December and -0.1 est.
• CPI (%yoy, EU Harmonised): 3.4 v 4.1 December and 3.6 est.

Australia – The A$ and government bond yields pull back on weaker than expected inflation numbers released for Q4/23.

• CPI (%qoq): 0.6 v 1.2 Q3/23 and 0.87 est.
• CPI (%yoy): 4.1 v 5.4 Q3/23 and 4.3 est.

Ukraine – Russia loses £40m Su-34 bomber in ambush highlighting the vulnerability of their airforce

Currencies

US$1.0811/eur vs 1.0817/eur previous. Yen 147.64/$ vs 147.51/$. SAr 18.730/$ vs 18.864/$. $1.268/gbp vs $1.269/gbp. 0.658/aud vs 0.660/aud. CNY 7.180/$ vs 7.178/$.

Dollar Index 103.66 vs 103.54 previous.

Commodity News

Precious metals:

Gold US$2,038/oz vs US$2,038/oz previous

Gold ETFs 84.0moz vs 84.1moz previous

Platinum US$924/oz vs US$931/oz previous

Palladium US$983/oz vs US$990/oz previous

Silver US$23.11/oz vs US$23/oz previous

Rhodium US$4,450/oz vs US$4,450/oz previous

Base metals:

Copper US$ 8,629/t vs US$8,577/t previous

Aluminium US$ 2,275/t vs US$2,256/t previous

Nickel US$ 16,435/t vs US$16,380/t previous

Zinc US$ 2,572/t vs US$2,565/t previous

Lead US$ 2,174/t vs US$2,175/t previous

Tin US$ 26,160/t vs US$26,220/t previous

Energy:

Oil US$82.6/bbl vs US$82.4/bbl previous

• Crude oil prices edged lower as the API reported a 2.5mb w/w draw (0.9mb draw exp) to US crude stocks.
• European energy prices pushed higher as LNG tankers continue to avoid the Red Sea transportation route and with French nuclear reactor operating levels also falling 1% w/w to 78% of 61.4MW capacity.

Natural Gas €31.0/MWh vs €27.6/MWh previous

Uranium Futures $100.5/lb vs $99.7/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$134.2/t vs US$135.2/t

Chinese steel rebar 25mm US$572.5/t vs US$572.6/t

Thermal coal (1st year forward cif ARA) US$96.3/t vs US$96.0/t

Thermal coal swap Australia FOB US$120.9/t vs US$116.8/t

Coking coal swap Australia FOB US$312.0/t vs US$324.0/t

Other:

Cobalt LME 3m US$29,135/t vs US$29,135/t

NdPr Rare Earth Oxide (China) US$55,572/t vs US$55,587/t

Lithium carbonate 99% (China) US$12,048/t vs US$12,051/t

China Spodumene Li2O 6%min CIF US$1,000/t vs US$1,000/t

Ferro-Manganese European Mn78% min US$1,065/t vs US$1,055/t

China Tungsten APT 88.5% FOB US$305/mtu vs US$305/mtu

China Graphite Flake -194 FOB US$590/t vs US$590/t

Europe Vanadium Pentoxide 98% 5.8/lb vs US$5.8/lb

Europe Ferro-Vanadium 80% 29.05/kg vs US$29.05/kg

China Ilmenite Concentrate TiO2 US$317/t vs US$317/t

Spot CO2 Emissions EUA Price US$67.2/t vs US$67.2/t

Brazil Potash CFR Granular Spot US$292.5/t vs US$292.5/t

Battery News

Renault call off IPO for EV unit Ampere

• The automaker has called off the IPO of its EV and software subsidiary Ampere citing unfavourable market conditions.
• EV demand in Europe has weakened and European carmakers are facing stiffer competition from Chinese rivals.
• In September, Renault belived the IPO could be worth €10bn.
• Renault said it was committed to building Ampere as a separate business and will continue funding.
• Ampere is looking to reduce the cost of EVs by 40% for next-gen vehicles – there are four models planned for 2025 and seven more planned for 2031.

CATL forecast net profit growth of up to 48.1%, significant slowdown from 2022

• CATL expects 2023 net profit of between RMB42.5bn and RMB45.5bn ($5.92-6.34 billion), up 38.3-48.1% from 2022.
• CATL experienced a net profit gain of 92.9% in 2022.
• The battery maker has faced greater competition from smaller rivals and slowing demand in China.

Ligh-duty plugin vehicle sales top 1m in US for 2023

• Annual sales of EVs in the US have quadrupled between 2020 and 2023, and saw sales of 1m recorded for the first time in a calendar year in 2023.
• Plug-in hybrid vehicles accounted for 20% of plug-in sales.

Thailand predicts record EV production and sales for 2024

• The Federation of Thai Industry (FTI) expects the production of EVs to reach 1.9m units this year and sales of EVs to reach 190,000 units.
• The figures are up from 1.8m vehicles produced, AND 160,000 sold in 2023.

Company News

Anglo American (AAL LN) 1,881p, Mkt Cap £25bn – Early signs of stability returning to the rough diamond market

• Anglo American reports that, provisionally, the first De Beers sales cycle of 2024 realised US$370m and that the previously reported provisional sales of US$130m for the final sales of 2023 have now been confirmed at the higher level of US$137m.
• The provisional cycle 1 sales for 2024 are approximately 18.5% lower than the US$454m achieved in 2023.
• We estimate that the confirmation of the tenth sales cycle brings 2023 sales to US$3.6bn (2022 – US$5.8bn).
• Al Cook, CEO of the De Beers Group, explained that “Solid consumer demand for diamonds in the United States over the year-end holiday season has certainly helped to stabilise the industry and we are seeing polished diamond prices increasing again”.
• He also said that the improvements in the US taken with “the restart of rough diamond imports into India … has led to demand for rough diamonds increasing substantially in the first sales cycle of 2024”.
• He cautioned that “as the prospects for economic growth in many major economies remain uncertain, we expect that it may take some time for rough diamond demand to fully recover”.

Arkle Resources* (ARK LN) 0.43p, Mkt Cap £2m – New licences at Stonepark

• Arkle Resources, which operates the Stonepark zinc project alongside its majority partner Group Eleven, has been awarded new licences.
• The prospecting licence is surrounded by five licence blocks already held by the JV.
• The Company will target the prospective Coonagh Castle Fault, expected to be underlying the claim block.

*SP Angel are Nomad and Broker to Arkle Resources

Aterian plc* (ATN LN) 0.84p, Mkt Cap £8.1m – Azrar copper project shows 4.01% copper and 26.9g/t silver in sampling

• Aterian report results from the Azrar copper project which now covers 99.3 km2 within the western Anti-Atlas Mountains in Mrocco.
• Azrar: Of the 41 samples at Azrar collected 11 graded >1% copper with 17 grading > 0.3 % copper.
• The best sample graded up to 4.01% copper and 26.9g/t silver from an 8 m thick carbonate bed with disseminated malachite.
• Three samples reported gold values of 0.50, 0.33 and 0.19 g/t gold.
• Earlier prospecting shows 3.79 % copper and 23 g/t silver in sampling by Aterian.
• The maximum width of this structure observed during fieldwork is 8 m and averages c.4 m.
• Azrar mineralisation is seen in fault-related breccia zones and late-stage quartz veins and hosted within carbonate and siltstone sedimentary sequences. Some abandoned artisanal workings have been identified across the Project with ores comparable to Tizert.
• Azrar also lies 30 km north of Aterian’s Tata copper project and 45km east of Managem’s Tizert Copper-Silver development project with good infrastructure in the area. Tizert hosts some 57mt of ore grading 1.03 % Cu and 23 g/t silver.
• The project is also one of 17 copper, silver and base metal projects held by Aterian, covering 897 km2 within current and historic mining areas.
• The high-grade copper sample is from a sedimentary-hosted copper target within previously mapped Adoudouian sediments, with additional mineralised quartz veins and fault-related breccia zones discovered on the new licences.
• Samples of ‘quartz veining’ on the new licence areas also show by-product gold reporting: 1.19 % Cu, 0.50 g/t Au and 1.22 % Cu, 0.33 g/t Au.
• A number of historic workings have been mapped within the newly awarded licence areas.
• Work Plan (Azrar):  further mapping and sampling of copper-gold veins and channel sampling across the copper-rich structure along with further exploration of the sedimentary-hosted copper potential within the Adoudoudian sedimentary sequence.
• Tata: the Tata Project also shows grades of up to 7.02 % copper in recent sampling, with copper mineralisation seen in two stratigraphic horizons and visible at surface.  The two mineralised sedimentary units have >18 km of strike.
• d’Azaghar Izazen: quartz veins up to 1m wide and quartz breccia-filled faults disseminated and fracture-filling pyrite, chalcopyrite and covellite reporting 1.81% copper with a sample from the brecciated fault zone reporting 0.69% copper.
• Here sedimentary-hosted copper mineralisation was observed >a 1km strike with grades of 1.21%, 0.57% and 0.54% copper.
• Samples from spoil material adjacent to old artisanal workings, up to 7 m deep and 2 m wide, show (1.19% Cu with 0.50 g/t Au and 1.22 % Cu with 0.33 g/t Au from quartz-specular hematite veins.
• The workings are sub-vertical shafts and pits, up to 7 m deep and 2 m wide, with veins up to 1.2m wide. Another vein sample collected 1.8 km south along the artisanal workings’ structural trend returned 0.54 % Cu and 0.19 g/t Au.
• Sample assays were done by ALS in Sevilla, Spain with no QA/QC due to early-stage nature of the exploration.

Rio Tinto signs MoU with Rwanda government to unlock mining potential

• Rwanda saw strong 45.6% yoy growth in tin, tantalum and tungsten prodiction alongside gold, lithium and gemstones in 2023.

Conclusion:  It is great to see positive results in early-stage exploration in a region where the government is friendly and there are known mineral concentrations.

*SP Angel acts as Broker to Aterian Plc

Botswana Diamonds (BOD LN) 0.48p, Mkt Cap £5.3m – Prospecting licence in Eswatini

• Botswana Diamonds reports that it is participating in a consortium, ‘Diamonds of Eswatini’, which has secured a prospecting licence over almost 4,000km² hosting the Dokowayo kimberlite in Eswatini, formerly known as Swaziland.
• Mining of the largest of the pipes at Dokowayo, the K1 pipe, is reported to have produced 720,222 carats of diamonds between 1986 and closure in 1996 with production including “fancy pink and Type IIA diamonds and the largest stone recovered was 146 carats”.
• Botswana Diamonds will hold a 30% interest in and be the consortium’s operator (“Nil consideration was payable by BOD for its 30% interest”) with King Mswati III of Eswatini and the Government each holding 25% with 15% held by Mr. Michelo Shakantu and 5% held by the Chandaria family’s Conros Corporation.
• Today’s announcement says that there are “significant tailings dumps on the property as well as a stockpile of unprocessed kimberlite. The kimberlite resource has been internally estimated at over 10 million tonnes (“Mt”) to a depth of 200m and the dumps are estimated to contain 2 Mt”.
• Initially, the consortium will “undertake an immediate, updated full desktop review and analysis of secondary sources. Following this, bulk sampling of the dumps and kimberlite stockpile is envisaged as the next step forward”.
• Chairman, John Teeling, welcomed the award of the licence explained that the Dokowayo kimberlite pipe “was last mined a long time ago and following breakthroughs in both exploration and mining technology we are excited about Dokowayo’s potential viability, especially seeing that Dokowayo is proven to contain both pink and Type IIA diamonds, which are greatly in demand and fetch amongst the very highest of diamond prices”.

Conclusion: We look forward to further news as the exploration moves from desk top analysis into bulk sampling.

Galan Lithium (GLN AU) A$0.4, Mkt Cap A$161m – A$19.5m equity placing to advance HMW Phase 1 development

• The Company is raising A$19.5m at A$0.46 per share in new equity to progress its 100% owned Hombre Muerto West Phase 1 project in Argentina.
• The placing price represents a ~15% discount to the previous close.
• New funds will be directed towards remaining HMW Phase 1 development costs, exploration and resource work and general corporate overheads/working capital.
• The HMW project hosts 6.6mt LCE at 880mg/L in total resource (87% of the total is Measured&Indicated category) with the team planning to produce an intermediate product (lithium chloride) and a binding offtake and financing agreement (subject to due diligence) in place with Glencore.
• The project is estimated to produce 5.4ktpa LCE in a lithium chloride concentrate at Phase 1 with first production expected in H1/25.
• Phase 2 is expected to bring this up to 21ktpa LCE in 2026.

GreenRoc Mining* (GROC LN) 2.6p, Mkt Cap £3.8m – Graphite passes battery test with top performance in conductivity in Li-ion cells in specific capacity

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• GreenRoc have been running tests on material from the Amitsoq graphite mine in Greenland.
• Uncoated graphite material from the mine was spheronised and coated onto a copper anode for performance testing in a Lithium-ion cell.
  • “The results of the programme reported a first discharge specific capacity after battery formation and condition of 369 mAh/g.
  • This is close to the theoretical maximum achievable value of 372mAh/g, which is considered a good result. In subsequent cycles, the charging capacities achieved were also considered good for uncoated spherical graphite.”
• “The Amitsoq graphite anode performed well against all studied parameters, was very stable and had no signs of damage or loss of capacity after several cycles of both short and intensive charging.”
• The cells also show no signs of damage or loss of capacity after several cycles of both short and intensive charging, important criteria for use as anode material in EV batteries.
• The first discharge specific capacity came in at 369 mAh/g which is really close to the theoretical maximum achievable value of 372mAh/g, a great results by any standards, particularly for an uncoated material.
• Charging capacities achieved were also considered good in subsequent cycles for uncoated spherical graphite.
• In tests with a long charging times of 3-10 hours, the discharge performance was very good with near 100% Coulombic Efficiency.
• Differential capacity measurements showed staged intercalation of Li-ions both during charging and during discharging demonstrating good crystallinity within the graphite. Long cycle life correlates with stable graphite crystallite size.
• Active Anode Material Processing Plant:
• The company also aims to become a vertically integrated producer of active anode material using graphite concentrate from its Amitsoq mine.
• A feasibility study is being part paid for by a £260,000 grant from the UK’s Automotive Transformation Fund with results due in May.
• GreenRoc representatives recently visited several leading manufacturers of spheronisation equipment and graphite process plants in China last week.
• The Chinese manufacturers visited are able to provide both complete and modular graphite processing lines and have extensive experience delivering equipment to graphite processing plants within China.
• “The next stages of the FS include the design of a pilot and full scale processing plant, estimation of production rates, energy requirements and consumables, a full discounted cash flow model for the full scale processing plant and integrating a dynamic risk model.”
• GreenRoc Amitsoq graphite mine PEA by SLR Consulting
  • NPV8 US$235m pre-tax, US$179m post-tax
  • IRR 31.1% pre-tax, 26.7% post-tax
  • Production: 77,000tpa
  • Cg grade: 94% grade
  • Revenue: US$89m pa
  • Opex: US$577/t of 94% Cg concentrate
  • Opex: US$121/t of milled ore grading 21.3% Cg
    • Mining US$53.9/t
    • Processing US$24.5/t
    • G&A: US$32.7/t
    • Shipping: US$10/t
  • Capex: US$131m inc. a 25% (US$26m) contingency
  • Total gross revenue less Capex, Opex and other costs and charges US$36 mpa
  • Price assumption: US$1250/t at 94% Cg concentrate average basket price.
  • Life of Mine: 22 years
  • Throughput: 400,000tpa at full mining rate after two years of ramp-up.

Conclusion:  GreenRoc is making great progress towards becoming one of Europe’s next producers of graphite and graphite anode material. The test work appears to show exceptional results demonstrating the quality of the graphite and its suitability as Li-ion battery anode material.

*SP Angel acts as broker to GreenRoc Mining

Hummingbird Resources (HUM LN) 9.2p, Mkt Cap £73m – FY23 production update and FY24 guidance

• Yanfolila produced 14.4koz taking total for the year to 84.0koz (FY22: 80.6koz) within the 80-90koz annual guidance.
• AISC averaged $1,701/oz in Q4/23 seeing FY23 averaging $1,361/oz (FY22: $1,782/oz) meeting guidance for sub $1,500/oz.
• Komana East high grade underground mine development is ongoing with ~165m advanced through the end of FY23 and commercial production expected later this year.
• Kouroussa produced 6.1koz through H2/23 since commissioning in June last year.
• Ramp up was slower than expected due to challenges with fleet mobilisation and commissioning as well as delays in the recruitment and training of mining staff.
• Processing plant performed well and operated consistently at nameplate capacity through Q4/23.
• Mining operations were temporarily suspended in December/January following a fire at Guinea’s main fuel depot with fuel deliveries reinstated in late January allowing to restart mining.
• Mining operations are expected to ramp up to full capacity over the coming weeks.
• Kouroussa is expected to reach commercial production later in Q1/24.
• Group wide, the Company sold 82.6koz at an average realised price of $1,928/oz (FY22: 80.4koz at $1,782/oz) generating $34.5m EBITDA.
• FY24 group guidance is for 165-200koz at AISC below $1,500/oz including:
  • 75-85koz at AISC below $1,500/oz at Yanfolila;
  • 90-115koz at ASIC below $1,500/oz at Kouroussa.
• Closing net debt position stood at $140.4m (FY22: $128.7m) including $7.9m in cash (inclusive of $5.5m received pre YE23 from the latest $28.1m equity raise).
• The Company hedged 60koz over the first three quarter of FY24 with forward pricing and cost collars with an average floor price of $2,000/oz and upside of up to $2,150/oz.

Conclusion: The Company face a challenging H2/23 as ramp up at Kouroussa underperformed expectations, although, Yanfolila operations output came in line with guidance helping the Group to deliver ~$35m in EBITDA. Immediate focus is on reaching commercial production at Kouroussa that is guided for Q1/24 with the newly commissioned operation in Guinea expected to contribute more than half of guided 165-200koz production in FY24.

Power Metal Resources* (POW LN) 0.98p, Mkt cap £22m – Drilling begins at Molopo Farms Project, Botswana

• Power Metal Resources provides an update on its Molopo Farms Complex Project in Botswana, targeting PGEs and nickel.
• A priority drill target was generated from a geophysical conductor last year, encouraging further drilling.
• The anomaly raises the potential of a strong, steeply dipping feeder zone.
• Drilling contractors have now been mobilised to site, with drilling expected to start in the next few days.
• Power Metals holds an 87.7% interest in Molopo Farms via a private Botswanan company.

*SP Angel acts as Nomad and Broker for Power Metal Resources

Rainbow Rare Earths (RBW LN) 13.65p, Mkt cap £86m – Site visit presentation

• Rainbow is showing analysts and advisors around the Mintek Pilot plant in Johannesburg and the Phalaborwa project in the Limpopo province.
• The presentation shows the same capex and opex numbers as published in the PEA in October 2022.
• The presentation shows pictures of laboratory testwork done by K-Tech in Florida on acid titration and rare earth sulphate water leaching.
• Mintek are working on pilot scale leach optimisation, fluorine ion exchange, silica precipitation, rare earth fluoride precipitation and impurity removal.
• CMS are working on leach optimisation, impurity removal, locked cycle testing of leach circuits and water and bleed stream neutralisation.
• Mintek appear to have produced a mixed rare earth carbonate from the pilot plant in Johannesburg verifying the front end of the flow sheet.
• This has been optimised to work with the parameters set by K-Tech.

1. October 2022 Management PEA and in-house financial modelling:

Assumes: Basket price US$137.92/kg

NdPr prices are quoted at around $55.57/kg vs $110/kg previously. Dysprosium oxide has fallen from $320/kg a year ago to $270/kg today. Terbium oxide has fallen from $1,000/kg to ~$850/kg

• Capex: $295.5m – very much lower than other REE metal oxide extraction plants
• NPV: $627 – $1,027m on base case, current and forecast pricing assumptions
• IRR: 40-51% on same basis
• Payback: 1.7-2.4 years
• Operating costs: $33.86/Kg separated magnet rare earth oxides
• Operating margin: 75 – 81% on base case vs current pricing assumptions
• Throughput: 2.2mtpa
• Life of Mine: 14.2 years
• Sensitivity: low operating costs indicate the project is not overly sensitive to +/- 10% capex or opex changes

Conclusion:   Rainbow is going to have to work hard to justify the capex required for the Phalaborwa process plant with NdPr prices more than halving alongside significant falls in Dysprosium and Praseodymium and a likely increase in operating costs due to increasing power and labour costs in South Africa.  While the K-Tech work is impressive we suspect the critical CIC and CIX processes will need to be trialled in a significantly larger pilot plant before banks are willing to finance a full scale plant in South Africa.

Moreover, given, South Africa’s recent accusation of war crimes by Israel, the financing of larger-scale and critical minerals projects in the region is likely to become significantly more difficult.

Resolute Mining (RSG LN) 22.4p, Mkt Cap £477m – Continuing focus on cost reduction as company matches revised 2023 production guidance

• Resolute Mining reports 2023 production of 330,994oz of gold at an all-in-sustaining cost (AISC) of US$1,470/oz (2022 – 353,069oz at US$1,498/oz) meeting the lower end of revised guidance issued in October indicating 2023 production of 330-340,000oz (previously 350,000oz) at a maintained AISC of US$1,480/oz.
• The sulphide mining operation at Syama in Mali contributed 151,526oz at an AISC US$1,390/oz (2022 – 164,582 at US$1,410/oz), while the oxide mine operation at Syama delivered a further 59,891oz at US$1,631/oz (2022 – 62,165oz at US$1,801/oz).
• The company describes 2023 as “a challenging year for the Syama oxide operation as the quality and quantity of the oxide Ore Reserves, as expected, have been diminishing over the past two years” and says that “reduction in oxide ore is the rationale for the Phase 1 expansion to replace these oxide ounces with higher margin sulphides from the recently discovered high grade (2.9 g/t) Syama North pit from 2025”.
• The Mako mine in Senegal produced 119,847oz at an AISC of US$1,373/oz (2022 – 129,425oz at US$1,318/oz) which, although lower than the previous year due to expected higher rate of waste stripping, “beat the 117,000 oz guidance”.
• The company’s 2024 production guidance is for 345-365,000oz of gold production with AISC in the range US$1,300-1,400/oz).
• In 2024, Syama is expected to produce 205-215,000oz at costs in the range US$1,400-1,500/oz with Mako contributing the remaining 140-150,000oz  at between US$1,100-1,200/oz.
• Capital expenditure in 2024 is expected to fall in the range US$115-145m with US$90-110m at Syama and US$15-20m at Mako and a further US$10-15m on exploration.
• Managing Director/CEO, Terry Holohan, confirmed that the “key focus for 2024 is to continue the sustainable reduction in costs across the Group, deliver the Syama Phase I Expansion and progress a near-mine satellite resource to extend the Mako mine beyond 2026”.
• Today’s announcement highlights the recently announced initial 403,000oz mineral resource estimate for the Tomboronkoto project in Senegal as well as near-mine exploration at Syama North to “extend and upgrade the open pit potential” and where an updated resources estimate of 2.7moz of gold was announced in September.
• The company reports a net balance of cash and bullion of US$85.2m at 31^st December 2022, comprising US$67.6m in cash and US$17.6m in bullion and borrowings of US$71.2m “comprising $25.0 million on the Term Loan Facility and $46.2 million on the overdraft facilities in Mali”.

Conclusion: Resolute has met its revised 2023 production guidance and is expecting to increase 2024 production by around 15-35,000 oz of gold to between 345-365,000oz.

Serabi Gold (SRB LN) 39p, Mkt Cap £30m – Licence renewal at Coringa

1. Serabi Gold reports that it has secured a three-year renewal of its trial mining licence at the Coringa mine in Brazil.

• The renewal allows “the transport of up to 50,000 tonnes of ore per annum from Coringa, to be processed at … [Serabi Gold’s] … Palito Complex” and “Serabi is now permitted to install the planned crusher and ore sorter, the latter expected to be operational by Q4-2024”.

1. Serabi Gold takes the opportunity to confirm its 2024 production guidance range of 38-40,000oz of gold compared to its 2023 output of 33,153oz, including a contribution of 8.822oz from Coringa.
2. CEO, Mike Hodgson said that the “agreement reached in July 2023 with the indigenous communities has been a pivotal moment in permitting success at Coringa … [and the renewal of] … the existing licences”.

Conclusion: Licence renewal at Coringa, where development of a 30-35,000oz pa mine is a pivotal part of Serabi Gold’s growth strategy to build a 100,000oz pa multi-mine company, reflects constructive relations with the local communities.

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

Sovereign Metals* (SVML LN) 24p, Mkt Cap £125m – Quarterly results as graphite material testing alongside Rio Tinto accelerates

(Sovereign currently holds 100% of the Kasiya project. The government has a right to a 10% free carry in the project)

STRONG BUY – Valuation 55p

• Sovereign Metals reports its quarterly update for the period to 31^st December 2023.
• The Company continues to progress their Kasiya rutile-graphite project alongside their strategic investor Rio Tinto.
• The Company are currently conducting various test work programmes and field activities as they look to optimise the asset following the encouraging PFS.
• 60t of ore has been extracted, targeting production of 600kg of natural graphite, to conduct product qualification and test work aimed at the lithium-ion battery anode sector.
• Rio and Sovereign are focusing on supplying spherical purified graphite to the anode market.
• This will include purification to 99.95% Ct, micronisation, spheronisation and carbon coating.
• Kasiya’s graphite benefits from high purity and high crystallinity.
• Offtakers will be provided with both raw flake graphite products and the final CSPG product.
• Frank Eagar has been appointed as MD and CEO.
• Going forward, Sovereign is working towards optimising the DFS, building on its low-cost rutile-graphite PFS reported last year.
• Management will look to continue recruiting a strong execution team amid project development.
• Sovereign remains well capitalised, holding A$39.4m at the end of the reporting period.
• Rutile Production:
  • Sovereign Metals: 222,000tpa with a 96% product grade
  • Base Resources:
    • Kwale:  35,000-41,000 of rutile next year from 62,000-73,000t in 2023.
    • Toliara:  6,000-9,000tpa of rutile from 2.6mt MRE with 1.0% rutile content
• Pricing:
  • Rutile sells for US$1,908/t
  • Ilmenite is priced at US$340/t
  • Base Resources forecast a rutile price of US$1,369/t for 2025-2030/t and $1,259/t from 2031-2034
  • TZMI rutile inducement price:  $1,117/t from 2035
• PFS results:
  • Throughput:
    • Stage 1 – 12,000,000tpa,
    • Stage 2 – 24,000,000tpa
  • NPV (8%) post-tax US$1,605m ,NPV (10%) post-tax US$1,205m
  • IRR of 28% ungeared
  • Mine life: 25 years – given the scale of the overall resource the mine life could extend to >60 years making this a multi-generational mine
  • EBITDA: US$415mpa, Revenue: US$16bn over 25 years, Payback: 4.3 years
• Valuation: Taking 33% of the NPV@10% gives £331m. Dividing this by the fully diluted number of shares and options gives a value of 55p/s.
• Recommendation:  We recommend Sovereign Metals as a Strong Buy due to the significant difference in value between its shares and the NPV@10%.

*SP Angel act as Nomad and broker to Sovereign Metals.  

No.1 in Copper:  “The winner of the 2020 Fastmarkets Apex contest for copper was the team at SP Angel comprising John Meyer, Sergey Raevskiy and Simon Beardsmore, with an accuracy score of 93.8%”

No1. In Gold:  “SP Angel’s trio took the top spot for the gold price prediction throughout the year, with an accuracy score of 97.59%”

The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020

Analysts

John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490

Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484

Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk – 0203 470 0474

Sales

Richard Parlons –Richard.Parlons@spangel.co.uk – 0203 470 0472

Abigail Wayne – Abigail.Wayne@spangel.co.uk – 0203 470 0534

Rob Rees – Rob.Rees@spangel.co.uk – 0203 470 0535

Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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