SP Angel Morning View -Today’s Market View, Thursday 26th September 2024

Metals extends gain on positive reaction to China fiscal stimulus

MiFID II exempt information – see disclaimer below

Andrada Mining (ATM LN) – Uis mine shows operational improvements in Q2

Anglo Asian Mining* (AAZ LN) – Interims reflect challenging period with most of processing capacities offline

AIC Mines (A1M AU) – Step-out drilling identifies further copper mineralisation at Jericho

Asante Gold (ASE CN) – US$100m raised for Ghana growth initiatives

Ferro-Alloy Resources (FAR LN) – Interim results and feasibility study update

Keras Resources* (KRS LN) – Interims highlight development of Phosul jv

Kodal Minerals* (KOD LN) – Kodal update on Bougouni project highlights mine and plant construction with very minor delays due to shipping and heavy rain

Phoenix Copper* (PXC LN) – Interim report highlights Empire PFS and longer-term underground exploration potential

Sovereign Metals* (SVML LN) – Annual report highlights Rio Tinto investment into Sovereign for Kasiya rutile and graphite project

Strategic Minerals* (SML LN) – Interim report confirms the priority of the Redmoor project

Teck Resources (TECK/B US) – Fire impact at zinc plant

Wishbone Gold* (WSBN LN) – WA Government support for exploration at Mosquito Creek

Iron ore prices strengthen further as China stimulus

• Iron ore prices are nearing $100/t following China’s stimulus roll-out this week.
• The steelmaking ingredient has risen alongside copper and other base metals, as traders restock in expectations of improved demand.
• South Korea has opened an anti-dumping probe on Chinese stainless steel, as trade barriers continue to prop up across the global economy.
• China dumps below market price amid weak domestic demand.

Copper ($9,900/t)extends gains on China optimism as Zijin looks to boost output from the DRC

• Copper prices have continued to climb as speculators position for renewed Chinese property demand after a downturn.
• Zijin is reportedly planning to support the expansion of Kamoa-Kakula to 1mtpa from the existing 600kt.
• Escondida produced 1.07mt in 2023 and Grasberg produced 750kt.

Gold ($2,668/oz) strengthens again as bull market continues on renewed ETF buying

• Gold prices have extended their rally, touching $2,670/oz.
• The metal is seeing renewed speculative buying, with ETF inflows now rising but remaining well below 2022 highs.
• China central bank purchases have cooled, and retail gold imports for Q3 suggests consumers are holding off now that prices have extended further.
• Silver has also rallied, up 1.5% today to $32.5/oz.

This is Why Gold is Rising and It Will Probably Continue:  https://www.youtube.com/watch?v=EsA7ICSVku8

• Podcast:  https://audioboom.com/posts/8547593-john-meyer-this-has-one-of-the-lowest-risk-profiles-i-ve-seen-for-a-long-time

Economics

China – Politburo pledged to add more fiscal stimulus just days after the central bank announced the largest monetary stimulus since the pandemic.

• The announcement also comes amid wider speculation that the nation is set to miss its around 5% GDP growth target for this year.
• Authorities vowed to “issue and use” government bonds to support state investment.
• No details on the size of the proposed fiscal stimulus have been provided.
• CSI 300 and Hang Seng are both up 4.23% and 4.16% this morning.

Saudi Arabia – One of top oil producers is looking to drop an unofficial price target of $100/bbl while increasing output and expanding its market share.

• The world’s largest oil exporter is eyeing to ramp up production from start of December even if it drops prices for a prolonged period of time, FT cites people familiar with discussions.
• Plans mark a major change from former Opec+ strategy to support prices by cutting output since November 2022.
• Although, higher supply from non Opec producers like the US and weak demand growth in China reduced the impact of the group’s production cuts.
• Brent is off 2% this morning trading around $71.4/bbl.

Currencies

US$1.1149/eur vs 1.1188/eur previous. Yen 145.13/$ vs 143.87/$. SAr 17.161/$ vs 17.256/$. $1.335/gbp vs $1.339/gbp. 0.686/aud vs         0.688/aud. CNY 7.020/$ vs 7.020/$.

Dollar Index 100.94 vs 100.39 previous

Precious Metals

Gold US$2,661/oz vs US$2,654/oz previous

Gold ETFs 83.5moz vs 83.5moz previous

Platinum US$1,004/oz vs US$982/oz previous

Palladium US$1,060/oz vs US$1,045/oz previous

Silver US$32.0/oz vs US$31.7/oz previous

Rhodium US$4,750/oz vs US$4,750/oz previous

Base metals:   

Copper US$9,886/t vs US$9,768/t previous

Aluminium US$2,552/t vs US$2,546/t previous

Nickel US$16,805/t vs US$16,645/t previous

Zinc US$3,031/t vs US$2,990/t previous

Lead US$2,119/t vs US$2,063/t previous

Tin US$32,200/t vs US$32,145/t previous

Energy:           

Oil US$71.7/bbl vs US$74.8/bbl previous

Natural Gas €37.0/MWh vs €36.2/MWh previous

Uranium Futures $80.8/lb vs $80.6/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$98.9/t vs US$96.4/t

Chinese steel rebar 25mm US$485.6/t vs US$485.7/t

Thermal coal (1st year forward cif ARA) US$120.0/t vs US$117.5/t

Thermal coal swap Australia FOB US$141.3/t vs US$140.8/t

Other:  

Cobalt LME 3m US$24,300/t vs US$24,300/t

NdPr Rare Earth Oxide (China) US$60,542/t vs US$60,977/t

Lithium carbonate 99% (China) US$10,043/t vs US$10,044/t

China Spodumene Li2O 6%min CIF US$740/t vs US$740/t

Ferro-Manganese European Mn78% min US$995/t vs US$995/t

China Tungsten APT 88.5% FOB US$335/mtu vs US$335/mtu

China Graphite Flake -194 FOB US$445/t vs US$445/t

Europe Vanadium Pentoxide 98% 4.6/lb vs US$4.6/lb

Europe Ferro-Vanadium 80% 24.55/kg vs US$24.55/kg

China Ilmenite Concentrate TiO2 US$321/t vs US$321/t

China Rutile Concentrate 95% TiO2 US$1,360/t vs US$1,361/t

Spot CO2 Emissions EUA Price US$62.9/t vs US$62.9/t

Brazil Potash CFR Granular Spot US$285.0/t vs US$285.0/t

Germanium China 99.99% US$2,725.0/kg vs US$2,675.0/kg

China Gallium 99.99% US$455.0/kg vs US$455.0/kg

Battery News

Canada weighs ban on Chinese-made software in EVs amid security concerns

• Canada is considering a ban on Chinese-made software in EVs due to concerns about overcapacity and national security threats from China. (Reuters)
• Finance Minister Chrystia Freeland emphasised that Canada takes the security risks posed by China seriously.
• Canada has already followed the US in imposing tariffs on Chinese EVs and this move would also follow US plans to protect local production against Chinese automakers.

Carmakers are accelerating EV sales to meet EU climate targets

• According to new analysis for Transport & Environment (T&E), battery EVs are expected to reach 20-24% market share by 2025.
• This predicted growth has been partly attributed to seven new fully electric models priced under €25,000 entering the market in 2024 and 2025.
• The report also highlights manufacturers’ reliance on hybrids, which are reaching the limits of their CO2 saving potential, are a short-sighted strategy for the climate and competing with Chinese BEVs.
• T&E’s analysis shows that increasing BEV sales is expected to be the main compliance strategy, accounting for 60% of the CO2 improvements needed to meet EU targets.
• The share of mild hybrids is also expected to almost double, from 19% to 37%, as manufacturers rely on hybrids for 20% of the CO2 reductions.

China and EU in talks to avoid EV tariffs amid trade tensions

• The EU and China are engaged in intense negotiations to prevent tariffs on Chinese EVs entering Europe. (Bloomberg)
• Both sides are exploring price undertakings, a mechanism to control export prices and volumes to avoid anti-subsidy tariffs.
• Talks will continue even if EU member states vote to impose tariffs soon, with a provision to keep negotiations open.
• Some EU countries, including Germany and Spain, have voiced opposition to the tariffs, while others like Italy and Denmark support them.
• A vote could result in duties as high as 35% from November for five years unless a qualified majority of member states block the move.
• China has criticised the probe as protectionist, offering incentives like investment in car plants and threatening tariffs on European goods.

US researchers find simple way to extend EV battery life up to 50%

• Researchers in the US have reportedly found a way to extend the service life of batteries by 50%, without interfering with the cell chemistry. (New Scientist)
• According to the researchers, the new manufacturing method can be applied by all manufacturers immediately, without needing to make significant changes.
• Using AI machine learning, the researchers identified that during the first charge of a battery, charging current played a crucial role in determining battery lifespan.
• By charging the battery with a high current, the first time it is charged, it can increase the number of charging cycles the battery can withstand.

Thailand sees auto sales tumble amidst soaring household debt

• Thailand’s $53bn automotive industry is facing an uncertain future as highly indebted domestic consumers struggle to finance purchases.
• Overseas buyers of its mainstay traditional vehicles are increasingly switching to electric alternatives which has forced the country to cut output and jobs.
• Production in Thailand’s automobile industry has been on a downward trend for the last year, sliding 20.6% in August.
• Domestic sales are also at a 14-year low on a 12-month moving average.
• Thailand does have plans to become the EV hub in SE Asia and has seen recent investment from a number of Chinese automakers (Great Wall, SAIC and BYD) to produce EVs in the country.
• By 2025, it expected that 30% of new vehicles sold in Thailand will be made by Chinese OEMs, and by 2030 50% of EVs made in Thailand will exported globally.
• These figures could accelerate following recent tariffs introduced on Chinese EVs in the EU and US.

Company News

Andrada Mining (ATM LN) 3.5p, Mkt cap £56m – Uis mine shows operational improvements in Q2

• In its Q2 operational review for the 3 months to 31^st August, Andrada Mining reports increased throughput, higher plant utilisation and improved recovery rates at its Uis tin mine in Namibia.
• The mine treated 243,528t of ore at an average grade of 0.161% tin during the quarter bringing FY 2025 YTD tonnage to 481,504t at an average grade of 0.140% tin (H1 2024-446,621t at a grade of 0.156% tin).
• Recovery rates for the six month period improved from 65% in H1 FY 2024 to 72% producing 462t of contained tin in concentrate at an average C1 cost of US$19,400/t and all-in-sustaining cost of US$28,328/t (H1 2024 – 454t of contained tin at a C1 cost of US$18,161/t and AISC of US$24,662/t).
• The company confirms that it also shipped around “15 tonnes of saleable tantalum concentrate at a grade of 10.8% Ta₂O₅ … during the Quarter” and that “Approximately five tonnes of petalite at a grade of over 4% Li₂O …[was] … supplied to a ceramic producer during the Quarter”.
• CEO. Anthony Viljoen, said the Andrada Mining continues “to improve operational performance as we optimise processes, indicated by the higher plant utilisation rates and contained tin tonnage”
• He also commented that “exposure of the higher-grade ore at Uis has enabled us to expedite the lithium bulk-sampling campaigns … [and that continuing] … testwork will inform the lithium integration circuit studies whilst securing the off-take agreements for the petalite concentrate. Importantly, the steady-state production and sale of tantalum concentrate has firmly established Andrada as a critical metals’ global supplier”.
• Mr. Viljoen also acknowledged the “continued support from our lenders as demonstrated by the finalisation of the Bank Windhoek funding agreement is an endorsement of our ability to implement and achieve our strategic objectives … [as well as] … the high-profile partnership announced earlier this month with SQM on Lithium Ridge alongside the recent drilling results at Brandberg West”.

Conclusion: Andrada Mining reports operational improvements at Uis as well as continuing work on the lithium and tantalum potential.

Anglo Asian Mining* (AAZ LN) 90p, Mkt Cap £103m – Interims reflect challenging period with most of processing capacities offline

BUY

• Revenue amounted to $13m (1H23: $20m) as lower sales on the back of a temporary suspension in Gedabek agitation leaching (AGL) and flotation (FLO) circuits were partly compensated by higher realised prices.
• Bullion gold sales totalled 6.0koz at $2,174/oz (1H23: 10.5koz and $1,939/oz).
• Copper concentrate sales amounted to $1m (1H23: $10m) from the sale of 0.3kt (1H23: 6.6kt).
• Cash costs amounted to $15m (1H23: $26m) reflecting both lower processed and mined volumes.
• The Company did not report AISC during the period arguing that unit costs were not meaningful given most of operations remaining on care and maintenance during the period.
• EBITDA was -$2m (1H23: $8m).
• Net loss came in at -$4m (1H23: $1m).
• Net CFO was $3m (1H23: $1m).
• Capex totalled $7m (1H23: $10m) as underground development continued during the period despite AGL and FLO remaining offline.
• Net debt closed at $17m (YE23: $13m) including $8m in cash as the Company drew on additional debt during the period.
• FY23 production guidance reiterated at 15.0-19.0koz GEO including14.0-16.0koz gold and 250-850t copper.
• No dividend announced for 1H24 as operations remain FCF negative pending AGL and FLO restart.
• Operationally, tailings dam wall raise by 2.5m that commenced in August is targeted for completion in November.
• The second raise for 3.5m to be completed 2H25 giving Gedabek additional two/three years of production.
• AGL restart is planned imminently while FLO to resume operations in November.
• Underground development at Gilar is ongoing with first production reiterated for 4Q24.
• The team completed ~1,200m (82% of total) of production decline and over 500m (67%) of ventilation tunnel to September 19.
• Underground development encountered softer rock conditions than anticipated and required more shotcrete and steel reinforcement.
• Water was also recorded with pumps installed and already in operation.
• Surface infrastructure is now complete with a heavy equipment maintenance workshop in place.
• At Demirli, access to the property was obtained with a series of visits carried by senior management and directors.
• Environmental, tailings dam and other studies are currently underway to fully evaluate the property.
• A drill programme of the remaining resource is also being planned with a small team now stationed permanently at the Demirli Contract Area.

Conclusion: Weak results reflect challenging operating environment with AGL and FLO remaining offline pending tailings dam wall raise construction permits. Regulatory approvals were secured in August with construction having started shortly after that and first 2.5m raise due for completion in November. AGL is restarting imminently followed by FLO in November. The Company has done well in limiting cash burn during the period, although, capital spend came in higher than we would have expected as the team progressed with underground development at Gilar. The latter is set to pay dividends later in the year with first ore from Gilar reiterated for 4Q24. Expect a strong recovery in production driving robust FCF generation helped by high gold and copper prices in FY25. Near term growth is further strengthened by recently secured access for brownfield Demirli Copper Mine with a potential to more than double the Group top line, something, that we feel is currently completely discounted by the market.

AIC Mines (A1M AU) A$0.36 Mkt Cap A$201m – Step-out drilling identifies further copper mineralisation at Jericho

• Australian copper producer AIC has extended mineralisation 500m north at their Jericho resource.
• The Company reported:
  • 5m at 3% Cu and 0.2g/t Au from 434m
  • 3.65m at 1.55% Cu from 258m
  • 2.8m at 2.66% Cu from 131m
  • 7m at 2% Cu from 165m
• Drilling at Jericho South returned
  • 2.4m at 1.66% Cu from 101m
  • 1.7m at 1.96% Cu from 344m
• Infill drilling is ongoing at the Matilda Shoot project, with the Company reporting initial drilling from the 30 year programme has confirmed grade ad geometry.
• Company expects these extension results ‘have the potential to materially increase the mine life at Jericho and also improve the mining schedule in the early years of the operation.’

Asante Gold (ASE CN) C$1.5 Mkt Cap C$654m – US$100m raised for Ghana growth initiatives

• Asante gold has raised US$100m in a private placing at C$1.5/share.
• The Company reports that funding will be used for ‘growth and development initiatives at the Bibiani and CHirano mines, as well as acquisition opportunities and refinancing of liabilities..’
• Asante expects to produce 283koz Au in 2025 and 449koz in 2026.
• Asante’s Bibiani mine holds 3mtpa processing capacity, with options to expand to 4mtpa.
• As of 2023 it held 2.5moz in M&I resource at 2.36g/t Au and reserves of 1.95moz at 2.2g/t Au.
• Company is planning to boost production from the underground section.
• Chirano holds a 3.6mtpa plant, with total reserves of 1moz at 1.76g/t Au and M&I resources of 2.1moz at 1.63g/t Au.

Ferro-Alloy Resources (FAR LN) 5.8p Mkt Cap £29m – Interim results and feasibility study update

• Ferro-Alloy, vanadium operator in Southern Kazakhstan provides interim results to 30^th June 2024.
• The Company is progressing a feasibility study on the Balasausqandiq vanadium deposit, now expecting to publish results during 2Q25.
• The group plans to increase Phase 1 process plant to 1.65mt throughput.
• They are also working on reagent optimisation to reduce OPEX, alongside site selection for a tailings storage facility.
• Operationally, Ferro-Alloy saw lower production in 1H24 than 1H23, as a result of lower vanadium and molybdenum grades.
• 1H24 production at 169t of vanadium pentoxide vs 173t same period last year.
• 14t of moly produced vs 21t last year, whilst nickel production rose to 72t vs 61t last year.
• Total revenues reported at $2.1m vs $3.3m same period last year, with an overall loss of $3.99m vs $1.53m same period last year.
• The Company has commissioned two new drying ovens to gain beter pricing for vanadium pentoxide, and is exploring options to produce vanadium pentoxide flake.
• Company highlights ‘exceptionally low’ vanadium prices,  impacted by slowing Chinese construction and Russian product flowing into China at a discount.
• Cash as of 20^th September stood at $1.1m, with debt of $12.4m.

Keras Resources* (KRS LN) – 2.75p, Mkt cap £2.21 – Interims

(Keras holds 100% of the Diamond Creek phosphate mine in Utah, USA)

• Keras Resources has published its interim report to end June 2024
• The team concluded the jv with PhoSul Utah LLC and the acquisition of a new site 8 miles north of Delta in Utah for along with the transfer and construction of all processing infrastructure from Spanish Fork.
• The new integrated processing facility cold commissioned in June with hot commissioning completed by end June.
• The 2024 mining season started with ~7,500t due to be mined this year.
• The new jv and facilities with PhoSul® should enable faster and greater growth in sales for the organic rock phosphate.
• Revenue rise to £556k from £397k yoy from the sale of organic rock phosphate from the Diamond Creek mine in Utah, USA.
• Revenue from the manganese operations came to £29,000 for advice to the Togo government which has taken over control of the Nayéga manganese mining project in Togo.
• Production costs rose to £440k from £44k
• Administrative expenses fell to £492k from £686k as management up moved to develop new facilities to feed the new jv with Phosul.
• Finance costs of £80k fell from £106k.
• There was a positive £82k gain foreign exchange translation vs £29k yoy.
• The total comprehensive loss came to £354k vs £226k yoy.
• The company has £1.5m of promissory and convertible notes repayable in 2028.

Conclusion:  We expect Keras to report a substantial uplift in sales from here on through the direct sale of organic rock phosphate and via the new jv with PhoSul® in the US.

*SP Angel acts as nomad and broker to Keras

Kodal Minerals* (KOD LN) 0.53p, Mkt Cap £108m – Kodal update on Bougouni project highlights mine and plant construction with very minor delays due to shipping and heavy rain

BUY – Target 0.97p

(Hainan Mining holds a 51% stake in KMUK which holds the Bougouni Lithium Project in Mali with Kodal holding 49%. The Mali government has the right to a free carry on 10% of the project and an option to acquire a 10% stake)

• Kodal Minerals have updated the market on progress at the Bougouni project in Mali.
• Construction continues with DMS process plant and fabricated steel arriving after its long voyage from China and some minor delays caused by the availability of and rerouting of the ship via Sierra Leone.
• Transport out of Abidjan Port and across the boarder into Mali appears to be working well with >160 semi-trailer truck loads delivered to Bougouni taking an average of seven days, including customs clearance.
• Management reckon the capital cost should remain at the US$65m target though Hainan Mining have contributed $100m into the jv account to allow for potential cost overruns and working capital etc.
• Commissioning is scheduled for late December and we reckon first shipments should leave in Q1 2025.
• Mining at the Ngoualana pit is said to be ahead of schedule with pre-stripping of free-dig material largely complete allowing the start of production of pegmatite ore for inventory building.
• Kodal is in discussion with the Government of Mali for the transfer of the Bougouni Mining licence and will hopefully agree on adoption of the new 2023 mining code in October.
• Drilling:  2,000 samples from diamond drill holes are being tested to extend the lithium resources and confirm previous results.
• Rainy season: unusually heavy rain has had a minor impact to construction with >90% of the civil construction works now done.
• A shipment of mainly electrical equipment is due to arrive mid-November with the last shipment of power plant, transformers and associated materials due shortly after that.
• Production: Phase 1 125,000tpa to be followed by Phase 2 at 350,000tpa of 5.5% spodumene concentrate.
• Shipping: the team expect to contract ships for ~25,000t shipments every 1-2 months to ensure steady cash flow.
• Drilling indicates the spodumene is of high-grade and unusually good quality.

*SP Angel acts as financial advisor and broker to Kodal Minerals. The analyst holds shares in Kodal Minerals.

Phoenix Copper* (PXC LN) 10.25p, Mkt Cap £30m – Interim report highlights Empire PFS and longer-term underground exploration potential

Phoenix holds 80% of the Empire mining property in Idaho)

CLICK FOR PDF

• Phoenix Copper’s interim results for the six months to 30^th June report a loss of US$1.10m (2023 – loss of US$0.63m) and a closing cash balance of US$2.72m with long and short term debt of US$4.14m and US$2.68m respectively.
• The report highlights the completion of a US$3.52m Placing, Subscription and Retail Offer in January and the US$80m corporate copper bond issue completed in June to support the development of the Empire open-pit mine in Idaho.
• Operational highlights include the completion, in April, of the project’s mineral reserve estimate comprising ~11mt at an average grade of 0.49% copper, 0.32g/t gold and 14.34g/t silver, including ~7.5mt at an average grade of 0.49% copper, 0.38g/t gold and 14.42g/t silver classified at the highest ‘Proven’ reserve category.
• The reserve estimate underpins the company’s pre-feasibility study (PFS) released earlier this month describing open pit mining at Empire recovering a total of ~41,000t (90mlbs) of copper, 40,000oz of gold and 1.76moz of silver at a life-of mine cash cost of US$2.44/lb of copper equivalent and all-in-sustaining cost of US$3.15/lb over an 8-year mine life.
• The PFS envisages an initial capital investment of US$62.6m and life of mine capital of US$83.9m generating an after tax NPV_7.5% of US$73.8m and an IRR of 40.2% (Pre-tax NPV_7.5% of US$87.9m and IRR of 46.4%) at a copper price of US$4.45/lb (~US$ 9,800/t), gold price of US$2,325/oz and a silver price of US$27.25/oz.
• Sensitivity analysis presented in the study show that a 10% increase in copper price to US$4.90/lb (US$10,900/t) generates a 29% higher after tax NPV7.5% of US$94.9m.
• We observe that current metal prices are ~US$9, 700/t for copper, over US$2,600/oz for gold and over US$31/oz for silver and that SP Angel’s long term price projections are US$11,000/t for copper, US$2,450/oz for gold and US$30.63/oz for silver.
• Over the 8 years mine life, a total of 18.8mt of waste will be removed at an average stripping ratio of 1.69:1.
• The company also describes continuing exploration work at its Navarre Creek gold prospect, located around five kilometres west of the Empire mine, where despite “the workload required of the Empire mineral reserves statement and the PFS … [a second phase of drilling] … will be conducted as resources permit”.
• Chairman, Marcus Edwards-Jones credited the technical team for “delivering the PFS, which, despite significant price increases in steel, diesel and processing chemicals, shows attractive returns at current metal prices”.
• Reflecting the long underground mining history at Empire during the first half of the 20^th century, Mr. Edwards-Jones expressed the company’s “view that the true value of the Company will be underpinned by the high grade underground deposit, which is open at depth and along strike, potentially spread over many kilometres”.
• CEO, Ryan McDermott, expressed optimism that as “the regulatory authorities looked closely at our operating plan application two years ago … in due course the plan … [described in the PFS] … will be approved” by the regulatory authorities.
• Mr. McDermott confirmed that pending that decision, “we will complete the necessary engineering and continue to source the plant and equipment required to bring the mine into production. We will also be stepping up the exploration and development of the Empire sulphide vein system, now that we have a milling design capable of processing that material”.

Conclusion: Interim results highlight the recently released PFS for Phoenix Copper’s Empire open-pit mine development and that work is continuing to bring the mine into production once regulatory approvals are in place.  Work is also stepping up to assess the longer term potential of the deeper sulphide mineralisation which underpinned much of Empire’s historic mining during the 20th century.

*SP Angel acts as Nomad to Phoenix Copper

Sovereign Metals* (SVML LN) 34.6p, Mkt Cap £213m – Annual report highlights Rio Tinto investment into Sovereign for Kasiya rutile and graphite project

(Sovereign currently holds 100% of the Kasiya project. Malawi has 10% free carry right. Rio Tinto acquired an initial strategic interest of 15% for A$40m mid 2023 and has recently invested a further A$19.2 to move up  to 19.9%)

STRONG BUY – Valuation 55p

• Sovereign Metals have released their annual report for the year to end-June 2024.
• Rio Tinto have invested A$60m into the company since July 2023 alongside substantial support in technical mining, social and environmental expertise.
• The team have a strong focus on environmental and social considerations
• This is particularly important considering the scale and world-class nature of the rutile and graphite deposit.
• Sovereign and its consultant experts have been helping local farmers increase crop yields, even through drought conditions with their planned processes seen as improving ground conditions for local farmers after mining.
• Financials: Pre-tax losses rose to A$18m from A$5.8m yoy. The 2023 loss was pared by a gain of A$9.5m on the demerger of NGX Limited
• Exploration costs rose to A$14.8m vs A$10.6m yoy adding as would be expected.
• A handy gain of A$0.5m was also seen on exchange rate differences.
• Sovereign have made strong progress over the past year with the support of Rio Tinto.
• The company has been trialling and testing a number of mining and processing techniques with positive reports.
• Directors salaries add up to A$2.01m vs A$1.4m yoy with total compensation of A$3.7m vs A$2.9m yoy including share based payments, bonuses and pension contributions.
• The rise reflects new additions to the board with increased activity on trial mining and feasibility study work

Conclusion:  Steady progress is leading towards the publication of the Kasiya project DFS next year. The winding down of two rutile producers next year will lead to a shortage of this form of titanium feedstock making Kasiya a highly-sought after project. Rio Tinto will then need to decide if it wants to be the operator of the Kasiya project and potentially acquire more of the company.

*SP Angel act as Nomad and broker to Sovereign Metals. The analyst has recently visited the Kasiya mine site. We highly recommend the Malawi coffee beans sold in Lilongwe airport.

Strategic Minerals* (SML LN) 0.2p, Mkt Cap £2.7m – Interim report confirms the priority of the Redmoor project

• Strategic Minerals’ report for the 6 months to 30^th June shows a profit of $0.67m (2023 – $0.04m) and a cash balance of $0.28m.
• The improved profitability is attributed to recovering demand at its Southern Minerals magnetite tailings operations in New Mexico with “the return of Cobre’s major client after a 14-month hiatus”.
• Incoming non-executive Chairman, Charles Manners, confirmed that “the Board believes that the second half Cobre sales for 2024 may outperform H1 2024 sales”.
• Mr. Manners commented that “Whilst the current improvement in the Company’s profitability is a welcome development, cash flow from this profitability is not substantial enough to fund significant progress at LCCM or Redmoor … [and confirmed the company’s view that] … the strategic nature of tungsten, as a critical mineral, in the current political climate will make Redmoor the key focus of the Company moving forward.”
• During the first half of the year, Strategic Minerals work at Redmoor has “directed much of their time to concluding lengthy mineral rights agreements … [leading to a fourfold increase in] … CRL’s minerals rights, seeking grant funding, both from the Shared Prosperity Fund and other sources”.
• Strategic Minerals also says that re-examination of “previous 2017 and 2018 drill core in a cost-efficient manner … [is expected to] … significantly strengthen and add calibre to Redmoor’s existing JORC (2012) compliant mineral resource estimate”.
• The current MRE at Redmoor is an ‘Inferred’ resource of 11.7mt at an average grade of 0.56% tungsten trioxide, 0.16% tin and 0.50% copper and we note recent announcements from the company, in August, have identified additional mineralised structures beyond the envelope of this resource.
• Managing Director, John Peters, explained that Strategic Minerals “continues to seek funding for the Redmoor Tungsten and Tin Mine through government-based grants or joint venture”.
• At Leigh Creek (LCCM), “the Company has worked with several parties who have expressed an interest in acquiring/investing in LCCM. At the time of writing, there are two parties in our data room actively reviewing the LCCM project”.
• Mr. Peters, confirmed that Strategic Minerals “continues to pursue investment in the Leigh Creek Copper Mine by way of either joint venture or outright sale”.

Conclusion: A recovery in the fortunes of its Cobre operation in New Mexico has lifted H1 profitability. Strategic Minerals has clarified that its longer term focus will be the expansion of its Redmoor tin/tungsten project in Cornwall where continuing work to reassess the 2019 drilling results has identified additional, previously unrecognised mineralisation.  We await further results from this review with interest.

*SP Angel acts as Nomad and Broker to Strategic Minerals

Teck Resources (TECK/B US) $51 Mkt Cap $26bn – Fire impact at zinc plant

• Teck reports it has shut down one of four sections of the Trail Operations’ Electrolytic Zinc Plant.
• No injuries were reported and no environmental impacts are anticipated.
• Production continues from the remaining three sections of the plant, with lead and other product production also continuing.

Wishbone Gold* (WSBN LN) – 0.38p, Mkt Cap £1.2m – WA Government support for exploration at Mosquito Creek

• Wishbone Gold reports that it has secured an A$55,000 contribution from the Western Australia Government’s Exploration Incentive Scheme to help fund a geophysical programme at its Mosquito Creek project in Nullagine region around 260km SE of Port Hedland.
• The technical details of the geophysics to be used and the likely timetable for the work have not been disclosed at this stage but the company says it will be applied at the Crescent East lithium and gold project “where gold nuggets over 2kg have already been found”.
• The company confirms that it has “successfully utilised the EIS at its Cottesloe project. It offers up to a 50 per cent refund for innovative exploration drilling projects, capped at specific amounts”.

*SP Angel acts as Broker to Wishbone Gold

No.1 in Base Metals: SP Angel mining team awarded No 1. ranking for Base Metals forecasting in LSEG Quarterly Starmine Award for Reuters Polls Q1 2024

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

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

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

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

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