SP Angel Morning View -Today’s Market View, Tuesday 23rd April 2024

Gold prices slide following profit-taking as traders look to US data

MiFID II exempt information – see disclaimer below

Anglo American (AAL LN) – Strong Q1 copper production with guidance maintained across all commodities except diamonds where production is being managed to address inventory build-up and a gradual recovery in demand

Aura Energy* (AURA LN) – Prospectus for ~A$18.3m fundraising

Bushveld Minerals* (BMN LN) – Vanchem reports record production in Q1/24 but weak vanadium prices risk operations getting suspended

East Star Resources (EST LN) – Initial resource estimate for the Verkhuba deposit, Kazajhstan

Kavango Resources* (KAV LN) – Gold assay results from Hillside project as Company looks to explore bulk mining prospects

Orosur Mining* (OMI LN) – Q3 Results highlight focus on Anzá gold project going forward

Power Metal Resources* (POW LN) – Drilling completed at Molopo Farms, successful interception of geophysical target

Sovereign Metals* (SVML LN) – Graphite expert consultant added to Kasiya development team

Gold prices slide following profit taking as traders look to US data

• Gold marked its worst sell-off in two years, falling to $2,300/oz.
• Analysts highlight an improving situation in the Middle East, with Iran downplaying Israel’s response.
• The dollar and US Treasuries remain near ytd highs, with the 10-year sitting at 4.63%.
• The sharp reversal in gold prices is likely primarily driven by momentum-based algorithmic funds or CTAs, which had been latching onto the sharp upswing in gold prices.
• Chinese buying fuelled by a sharp rise in activity in gold futures on the SHFE may also have eased, with a sell-off in base metals across the board supporting this thesis.
• Focus turns to the Fed’s preferred inflation gauge, the PCE

IEA forecasts EV sales to rise in 2024 despite difficulties in leading markets

• EV sales are expected to reach 17m, up from 14m in 2023, despite economic headwinds in some markets, according the International Energy Agency (IEA)
• Over 20% of cars sold globally are set to be electric in 2024.
• Affordability and charging infrastructure are still considered to be the key to future growth.

Korean lithium refiner Ecopro cuts output on slower than expected ramp up in demand for LFP batteries

• South Korean metals refiner Ecopro has cut production of lithium hydroxide mainly used for LFP chemistry EV batteries by 10% from a year ago, due to weaker than expected global demand ‘growth’ for EVs.
• The move supports our view that the market is shifting towards more NCM chemistries leaving slower growth in heavier and lower power density LFP battery chemistries.
• Ecopro could further reduce lithium hydroxide output by up to 20%, depending on the situation in the EV market.
• The company’s CEO Anthony Kim expects battery metals prices are unlikely to rebound until the second quarter of 2025.
• However, Kim notes that Chinese futures markets are showing signs of recovery in battery metal prices.
• The production cut by Ecopro highlights the impact of slowing EV demand on suppliers of key battery materials like lithium.
• It suggests EV demand growth may be moderating after years of rapid expansion, affecting the entire supply chain.

Dubai – following record rains, thousands of cars drowned, electric ones kept on driving

• Dubai experienced 142mm of heavy rainfall in 24 hours, equivalent to 1.5 years’ worth, causing major flooding.
• Videos from Dubai showed EVs navigating through accumulated water while gasoline-powered vehicles became inoperable.
• EVs such as Teslas and Porsche Taycans were able to continue driving through flooded areas up to 1m deep due to their lack of air intake requirements.
• The flooding highlights the potential advantage of EVs in extreme weather conditions compared to internal combustion engine vehicles.

IG TV:              Gold and Copper. 10/04/2024:      https://youtu.be/KuGSbDqWglk?si=-8iikkOHxbbLSnPZ

Sharepickers TV:  Shortage of Copper. 19/04/2024:  https://www.youtube.com/watch?v=-LGCV1ccFOM

Podcasts: 19/04/2024  https://audioboom.com/posts/8493157-john-meyer-this-signifies-there-s-a-shortage-of-copper

    12/04/2024  https://audioboom.com/posts/8489836-john-meyer-dismisses-bulletin-board-rumours-of-dead-sheep-cows-in-mine-as-rubbish

*SP Angel almost invariably acts as nomad or broker or nomad and broker to companies mentioned in the above videos and podcasts. We speak more about these companies as we have a good understanding of their business and can talk with a greater degree of confidence. As ever, however, it should be noted that our views do not take into account the circumstances and needs of any particular investor or investor type. So enjoy the talks, but please do your own research, including other companies not mentioned by us but operating in the same areas, and get professional advice where appropriate. SP Angel acts as Broker/Nomad or both for Anglo Asian Mining, Kodal Minerals, Power Metals Resources.

Economics

Japan – Business activity growth hist an eight month high in April with inflation pressures on the rise.

• Inflation picked up on both costs and final goods fronts with higher material, energy and labour costs as well as weaker yen contributing to a pick up.
• Flash Manufacturing PMI (Apr/Mar /Est): 49.9/48.2/NA
• Flash Services PMI (Apr/Mar /Est): 54.6/54.1/NA
• Flash Composite PMI (Apr/Mar /Est): 52.6/51.7./NA

Eurozone – Business activity growth accelerated to the highest in 11 months helped by a pick up in the services sector.

• Manufacturing remained in contraction for thirteen months now with services posting an expansion for a third consecutive months.
• Both input costs and final goods prices growth accelerated in April with gains in the services sector more than compensating for declines in manufacturing.
• Outlook wise, business expectations cooled slightly but remained at the second highest level recorded over the past 14 months.
• The data suggests GDP to expand 0.3%qoq, matching the growth rate recorded in Q1/23.
• “Several factors indicate that the recovery in the private service sector, which dominates the entire economy, is poised to be sustained,” the report read.
• “The PMI figures are poised to test the ECB’s willingness to cut interest rates in June. Accelerated increases in input costs, likely driven not only by higher oil prices but also, more concerningly, by higher wages, are a cause for scrutiny. Concurrently, service sector companies have raised their prices at a faster rate than in March, fuelling expectations that services inflation will persist.”
• Flash Manufacturing PMI (Apr/Mar /Est): 45.6/46.1/46.5
• Flash Services PMI (Apr/Mar /Est): 52.9/51.5/51.8
• Flash Composite PMI (Apr/Mar /Est): 51.4/50.3/50.7

Germany

• Flash Manufacturing PMI (Apr/Mar /Est): 42.2/41.9/42.7
• Flash Services PMI (Apr/Mar /Est): 53.3/50.1/50.5
• Flash Composite PMI (Apr/Mar /Est): 50.5/47.7/48.4

France

• Flash Manufacturing PMI (Apr/Mar /Est): 44.9/46.2/46.8
• Flash Services PMI (Apr/Mar /Est): 50.5/48.3/48.9
• Flash Composite PMI (Apr/Mar /Est): 49.9/48.3/48.8

UK – The pound up this morning recovering some of its losses against the US$ on better than expected flash PMI data.

• A weakness in manufacturing sector that posted a two month low in April was more than offset by a rebound in services.
• Inflation pressures picked up during the month with costs rising at the fastest pace since May 2023.
• The pickup is attributed to an increase in in labour costs from a near 10% annual increase in the National Living Wage.
• Flash Manufacturing PMI (Apr/Mar /Est): 48.7/50.3/50.4
• Flash Services PMI (Apr/Mar /Est): 54.9/53.1/53.0
• Flash Composite PMI (Apr/Mar /Est): 54.0/52.8/52.6

Currencies

US$1.0688/eur vs 1.0658/eur previous. Yen 154.84/$ vs 154.62/$. SAr 19.207/$ vs 19.093/$. $1.237/gbp vs $1.237/gbp. 0.646/aud vs 0.643/aud. CNY 7.246/$ vs 7.243/$.

Dollar Index 106.10 vs 106.06 previous.

Precious metals:         

Gold US$2,310/oz vs US$2,357/oz previous

Gold ETFs 81.4moz vs 81.3moz previous

Platinum US$913/oz vs US$927/oz previous

Palladium US$1,003/oz vs US$1,013/oz previous

Silver US$26.95/oz vs US$28/oz previous

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

Base metals:   

Copper US$ 9,699/t vs US$9,876/t previous

Aluminium US$ 2,634/t vs US$2,663/t previous

Nickel US$ 19,140/t vs US$19,090/t previous

Zinc US$ 2,780/t vs US$2,829/t previous

Lead US$ 2,157/t vs US$2,189/t previous

Tin US$ 32,600/t vs US$34,950/t previous

Energy:           

Oil US$87.3/bbl vs US$86.0/bbl previous

Natural Gas €29.0/MWh vs €29.7/MWh previous

Uranium Futures $89.4/lb vs $89.3/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$117.2/t vs US$117.6/t

Chinese steel rebar 25mm US$516.5/t vs US$516.1/t

Thermal coal (1st year forward cif ARA) US$118.5/t vs US$121.9/t

Thermal coal swap Australia FOB US$138.5/t vs US$143.0/t

Hard Coking Coal Australia FOB US$326.0/t vs US$326.0/t

Other:  

Cobalt LME 3m US$27,830/t vs US$27,830/t

NdPr Rare Earth Oxide (China) US$53,686/t vs US$53,289/t

Lithium carbonate 99% (China) US$15,112/t vs US$15,117/t

China Spodumene Li2O 6%min CIF US$1,240/t vs US$1,240/t

Ferro-Manganese European Mn78% min US$972/t vs US$972/t

China Tungsten APT 88.5% FOB US$325/mtu vs US$323/mtu

China Graphite Flake -194 FOB US$485/t vs US$490/t

Europe Vanadium Pentoxide 98% 5.0/lb vs US$5.0/lb

Europe Ferro-Vanadium 80% 26.25/kg vs US$26.25/kg

China Ilmenite Concentrate TiO2 US$328/t vs US$329/t

China Rutile Concentrate 95% TiO2 US$1,415/t vs US$1,415/t

Spot CO2 Emissions EUA Price US$68.9/t vs US$68.9/t

Brazil Potash CFR Granular Spot US$305.0/t vs US$305.0/t

Battery News

China’s state planner warns intensified EV price war on oversupply

• China’s state planner NDRC warns of an intensified price war among EV and hybrid automakers in 2024 due to oversupply issues.
• Over 110 new EV models are expected to launch this year out of 150 total new car models, intensifying market competition.
• While demand for new energy vehicles is estimated at 2.1m units in 2024, top EV brands BYD, Aito, and Li Auto plan to increase deliveries by 2.3m units, signalling oversupply.
• BYD, Denza have cut prices by between 7.15% to 9.7% on five models in April compared to early 2024, following Tesla’s price reductions.
• Li Auto has also implemented price cuts on four of its EV models amid the intensifying competition.

Australian electric car vs electric motorcycle sales projections for 2024

• The projected revenue of Australia’s EV market in 2024 is expected to reach US$3.3bn.
• Australia’s EV market is forecasted to grow at a 17.05% annual rate from 2024-2028, reaching US$6.2bn by 2028.
• The Commonwealth Scientific and Industrial Research Organisation (CSIRO) predicts EV prices will reach parity with petrol/diesel cars in Australia within the next 2-3 years, removing a major barrier to adoption.
• Electric motorcycle sales lag behind EV sales in Australia, even including e-bikes and e-scooters.
• The Australian e-bike market is valued at US$65.42m, with a projected 8.52% annual growth rate through 2029.
• Prices of true electric motorcycles significantly exceed petrol bike prices, limiting adoption.
• Limited range and lack of charging infrastructure also contribute to consumers sticking with petrol motorcycles for now.

Macquarie’s US$1.5bn EV fleet financing platform

• Macquarie’s, the Australian investment bank has set up a new EV financing platform for India that will focus 95% of its USD 1.5bn of funds on commercial EV fleets.
• The platform, called Vertelo, will offer financing, fleet management and charging infrastructure solutions.
• If the platform is even half as successful as Macquarie’s withdrawal of dividends from Thames Water, it will be a highly successful enterprise!

Company News

Anglo American (AAL LN) 2,111.5p, Mkt Cap £28.9bn – Strong Q1 copper production with guidance maintained across all commodities except diamonds where production is being managed to address inventory build-up and a gradual recovery in demand

• Reporting its Q1 production results for the three months to 31st March 2024, Anglo American highlights increased copper and steel-making coal production stable iron-ore and nickel output and declines in diamond and platinum group metals output compared to Q1 2023.
• Copper output grew by 11% to 198,000t (Q1 2023 – 178,000t) “reflecting higher throughput at Quellaveco, despite the impact of planned lower grades, as well as the benefit of higher grades and throughput at Collahuasi and El Soldado” in Chile.
• The company confirms expectations of full-year 2024 copper output in the range 730-790,000t at a cost of ~US1.57/lb.  The Company also indicates that it expects copper output from its Peruvian operations, including Quellaveco, to be “weighted to the second half of the year … [while] … Production in Chile will be weighted to the first half of the year”.
• “Steelmaking coal production increased by 7% to 3.8 million tonnes, primarily driven by the Aquila underground longwall operation and the Capcoal open cut operation. This was partly offset by lower production at the Dawson open cut operation”.
• The company says that “During the quarter, Moranbah and Aquila underground longwall operations experienced challenges with difficult strata conditions. Grosvenor underground operation experienced some delays while managing gas levels”.
• Steel-making coal guidance for 2024 remains intact in the range 15-17mt with cost guidance also maintained at ~US$115/t.
• Iron ore output for the quarter of 15.14mt matches the 15.08mt of Q1 2023 with the Kumba operations contributing 9.28mt (Q1 2023 – 9.43mt) and the South American operations of Minas Rio delivering 5.87mt (Q1 2023 – 5.65mt).
• Iron-ore production guidance for 2024 is maintained in the range 58-62mt with “Kumba 35-37 million tonnes; Minas-Rio 23-25 million tonnes” with unchanged cost guidance of US$37/t including US$38/t for Kumba and US$35/t for Minas Rio.
• “Nickel production was broadly flat at 9,500 tonnes … [Q1 2023 – 9,700t] … as lower throughput at Codemin was largely offset by the higher grades”.
• Nickel production and cost guidance for 2024 remains unchanged in the range 36-38,000t at a cost of ~US$6.00/lb.
• Production of platinum group metals (PGMs) in concentrate declined by 7% to 834,000oz (Q1 2023 – 901,000oz) “reflecting expected lower volumes from Kroondal … and lower production at Amandelbult”.
• The company explains that following the disposal of the Kroondal mine in Q4 2023 its “Own mined production decreased by 14% to 504,300 ounces … [and that production] … at Amandelbult decreased by 16% to 127,100 ounces, driven by lower recoveries and plant equipment breakdowns”.
• “Production at Mototolo decreased by 10% to 61,900 ounces, as a result of lower throughput reflecting mining equipment breakdowns and challenging ground conditions as a section of the mine reaches its end of life” while output at the Unki mine at “62,800 ounces … [was] … in line with the same period of last year”.
• Anglo American says that refined PGM production “was flat at 628,000 ounces … [and that] … Eskom load-curtailment had no impact on production during the quarter”.
• PGM “Production guidance for 2024 for metal in concentrate and refined production is unchanged at 3.3-3.7 million ounces. Production remains subject to the impact of Eskom load-curtailment”.  Cost guidance is also maintained at ~US$920/PGM oz.
• Diamond production from De Beers, declined by 23% to 6.9m carats (Q1 2023 – 8.9m carats) as production adjusted to “higher than average levels of inventory in the market and the expectation for a gradual recovery in rough diamond demand”.
• Production from the mines in Botswana was 28% lower at 5m carats (Q1 2023 – 6.9m carats) “driven by intentional lower production at Jwaneng and a short-term change in plant feed mix at Orapa to process existing surface stockpiles”.
• Diamond output in Namibia “was broadly unchanged at 0.6 million carats” while output in South Africa “decreased by 19% to 0.6 million carats, due to the continued depletion of lower grade surface stockpiles prior to the planned ramp-up of underground operations at Venetia over the next few years” with Canadian output 4% lower at “0.6 million carats, due to planned treatment of lower grade ore”.
• The company is reducing its diamond production guidance “to 26-29 million carats (previously 29-32 million carats) in response to the higher than average levels of inventory in the market and the expected gradual recovery in rough diamonds through the rest of the year”.
• Anglo American explains that “Demand for rough diamonds began to recover during Q1 2024 following improved demand for diamond jewellery in the United States over the year-end holiday season. The flexibility for rough diamond allocations offered by De Beers in 2023, combined with the voluntary import moratorium on rough diamonds into India in Q4 2023, has helped improve the industry’s balance between wholesale supply and demand”.
• Anglo American explains that there is continuing “uncertainty around economic growth prospects has led to a continued cautious purchasing approach by Sightholders and the recovery in rough diamond demand is expected to be gradual through the rest of the year”.

Conclusion: Anglo American highlights increasing copper production during Q1.  Production guidance is maintained for all major commodity groups except diamonds where production is being adjusted in response to downstream inventories and expectations of a gradual recovery in demand through 2024.

Aura Energy* (AURA LN) 9p, Mkt Cap £65m – Prospectus for ~A$18.3m fundraising

• Aura Energy has issued a prospectus to raise an additional ~A$18.3m at a price of A$0.18/share.
• The funding, which is to be put to shareholders for approval at a meeting on 21^st May, involves the placing of options over ~90m shares at a price of A$0.18/share plus an additional A$2m (~11m shares) at the same price via a Share Purchase Plan (SPP).
• The additional funds are to help fund pre-development of the Tiris uranium project in Mauritania where the company expects to make a final investment decision this year with initial production in 2026 as well as to progress its Häggån Project in Sweden.

*SP Angel acts as Nomad and Broker to Aura Energy

Bushveld Minerals* (BMN LN) 0.6p, Mkt Cap £13m – Vanchem reports record production in Q1/24 but weak vanadium prices risk operations getting suspended

• Group Q1 production amounted to 855mtV (Q1/23: 943mtV) reflecting a 25 day maintenance at Vametco.
• C1 cash costs averaged $28.4/kgV (Q1/23: US$25.9/kgV) on the back of lower production during the period.
• Sales totalled 880mtV (Q1/23: 1,028mtV) with prices remaining at low levels amid weakness in more traditional steel related markets.
• Sales into premium markets including aerospace application, specialty alloy and chemicals attracting higher prices continued to be prioritised.
• Q1 prices averaged $28.4/kgV in the US, a drop on $31.6/kgV achieved in Q4/23.
• London Metal Bulleting and Asian Metals prices averaged $27.9/kgV and $24.1/kgV, respectively, compared to $26.6/kgV and $24.2/kgV in Q4/23.
• Vametco production amounted to 357mtV (Q1/23: 682mtV) on a 25-day planned kiln maintenance during months of January and February.
• C1 cash costs jumped to $32.8/kgV (Q1/23: $22.8/kgV).
• A further 10-day maintenance is planned for Q3/24.
• Vanchem production totalled 498mtV (Q1/23: 261mtV) on the back of better ore feed and overall plant efficiencies.
• Production hit a record monthly rate of 200mtV in March.
• C1 cash costs came back due to stronger production to $25.3/kgV (Q1/23: $34.1/kgV) with unit costs averaging $19.3/kgV in March.
• An annual 23-day maintenance shutdown is expected in May/24.
• Commenting on financial position, the Company said that the closing cash balance as of 21 April was $2.2m.
• The Company started legal proceedings against Acacia Resource regarding $3.5m in equity placing proceeds that were supposed to be transferred before 28 February but have not arrived yet.
• Additionally, the Company was informed by the South African Competition Tribunal that the approval for the sale of a 50% stake in Vanchem and 64% interest in Mokopane to SPR for a total of $25m that was previously expected to be granted in February is unlikely to be secured before July.
• Coupled with a continuing weakness in vanadium prices that are now 15% lower than budgeted levels, the Company is working with its stakeholders to source further funding that unless it is secured in the coming weeks the team may have to suspend operations.

Conclusion: Quarterly update highlights tight working capital position with operations may potentially going into suspension amid ongoing weakness in vanadium prices and a delay in securing funds from Acacia and disposal of its interests in Vanchem/Mokopane to SPR. The Company will need to repay ~$7m on 30 June due to Orion under the latest convertible loan note refinancing completed in February. Operationally, Vanchem recorded 200mtV production in March, ahead of targeted 180mtV cruising rate, taking total for the quarter to record ~500mtV. Vametco production was affected by a 25-day maintenance break with operations effectively running for two full months during the quarter only ~120mtV per month. No 2024 guidance is provided given uncertainty around securing necessary funding.

*SP Angel act as nomad and broker to Bushveld Minerals

East Star Resources (EST LN) 3.9p, Mkt Cap £7.7m – Initial resource estimate for the Verkhuba deposit, Kazajhstan

• East Star Resources has announced an inferred mineral resource estimate for its Verkhuba copper deposit in the Rudny Altai mineral belt of Kazakhstan.
• The JORC compliant inferred resource, which is reported at a copper-equivalent (CuEq) cut-off-grade of 0.86%, incorporates the results of 1,048m of drilling by the company last summer as well as historical drilling providing a total of “111 diamond core drillholes … representing a total of 46,616m of drilling”.
• The resource totals 20.3mt at an average grade of 1.16% copper, 1.54% zinc and 0.27% lead.
• East Star Resources says that “the planned 2024 drilling programme is intended to progress the open pit development concept through to a stage where economic feasibility can be demonstrated, and a mining licence application process can begin”.
• CEO, Alex Walker, commented that with a minerals resource of “over 20Mt, Verkhuba is in the top third of this style of VMS deposit globally. With … the prospect of a low capex, open pit development, we believe the Deposit to be of considerable value”.
• As previously announced, “East Star is in the process of receiving offers from strategic partners for a potential joint venture, farm-out, or sale of Verkhuba. The Company expects to provide an update on this in the coming months, as well as further details on its exploration plans across its copper exploration strategies”.

Conclusion: Definition of an initial, inferred, resource at Verkhuba collates historic and recent drilling and provides a base for follow-up drilling aimed at identifying resources amenable to open-pit mining and progressing an economic assessment and mining licence applications.

Kavango Resources* (KAV LN) 1.3p, Mkt Cap £17.6m – Gold assay results from Hillside project as Company looks to explore bulk mining prospects

• Kavango Resources provides drill results from their recent programme at the Hillside Prospect 2 gold project.
• The team recently drilled Hole BRDD001, a scoping hole aimed at testing mineralisation below various artisanal workings.
• The hole was drilled over 400m, with highlights including:
  • 7.2m at 9.95g/t Au from 51m, including 1.6m at 31.6g/t Au.
  • 2m at 2.12g/t Au from 86m.
• The drilling intercepted a very deformed zone, where the above gold was hosted.
• An IP survey has identified various anomalies believed to be a series of anastomosing shears over 700m in width.
• Management is planning on testing these shears through exploration drilling to test the potential for bulk-mineable gold.
• The southern end of the deformation zone has been drilled and assays from the NSDD001 hole are expected soon.
• Kavango believes the drilling today intercepted the gold-bearing shear zones that the IP survey also identified, suggesting the technique has the ability to work well in the region.
• Down dip and along strike drilling is now being planned to further evaluate Prospect 2.
• Kavango will explore bulk sample recovery methods given artisanal reports of higher recovered grades from the coarse, untested nugget mineralisation.

*An SP Angel analyst holds shares in Kavango

Orosur Mining* (OMI LN) 4.4p, Mkt Cap £10m – Q3 Results highlight focus on Anzá gold project going forward

• Orosur today report their Q3 financial results for the period to February 29^th 2024.
• Orosur is working to regain 100% control of its Anzá project from the MMA JV.
• This consideration will likely include a 1.5% NSR royalty and cash payments of up to $15m relevant to certain production thresholds.
• The Transaction is expected to be completed by the end of May 2024.
• The Company will terminate its JV agreement over the Ariquemes tin project in Brazil as it looks to prioritise exploration expenditure.
• Argentina and Nigeria will continue to see investment, with lithium prices recovering form Q1 lows.
• Orosur remains well capitalised at US$1.65m as of today’s announcement.

*SP Angel acts as Nomad and Broker to Orosur Mining

Power Metal Resources* (POW LN) 14.5p, Mkt cap £16m – Drilling completed at Molopo Farms, successful interception of geophysical target

• Power Metal Resources provides an update from their drilling at the Molopo Farms nickel/PGE target.
• The Company drilled a diamond hole to a final depth of 833m, intersecting the targeted geophysical super conductor.
• The Company believes the superconductor is a sulphide-mineralised carbonaceous mudstone unit at depth.
• Assay results are expected in the coming months.
• Visual analysis highlights dominant pyrrhotite sulphide veins within the carbonaceous mudstone.

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

Sovereign Metals* (SVML LN) 25.75p, Mkt Cap £141m – Graphite expert consultant added to Kasiya development team

(Sovereign currently holds 100% of the Kasiya project. The government has a right to a 10% free carry in the project. Rio Tinto acquired an initial strategic interest of 15% for a $40.6m with an option to increase it to 19.99% within 12 months from 17 July 2023)

STRONG BUY – Valuation under review following Energy Fuel’s offer of @US$241m for Base Resources

• Sovereign Metals report the appointment of Dr Surinder Ghag as Chief Technology Officer to the Kasiya Rutile-Graphite Project in Malawi.
• Dr Ghag is an expert metallurgist and was instrumental in developing an environmentally friendly and commercially viable method for purifying graphite in work with CSIRO, the Commonwealth Scientific and Industrial Research Organisation.
• Mineral sands expertise: Dr Surinder Ghag has also worked on process engineering on a number of Australian mineral sands operations.
• EV battery anode qualification: Dr Ghag will be looking to produce a graphite product that is suitable for EV battery anode qualification.
• Previously test work has indicated potential for use in lithium-ion batteries with high purity and high crystallinity being the key features.
• Spheronisation and purification test work is presently underway with a leading German graphite laboratory.
• Kasiya’s graphite is interleaved with rutile in the deposit in sedimentary layers which may be distinctly mined as one of the world’s lowest operating cost on a by-product basis.
• Sovereign Metals is working to produce a large sample of flake graphite for further project testing.
• Pricing (current prices):
  • Rutile sells for US$1,421-1,464/t vs ilmenite concentrates at ~$380-405/t in port in China
  • Graphite: prices range from ~US$388 – $1,193/t FOB in China – Kasiya plans to produce a range of graphite products with a weighted average price of $1,290/t estimated in the PFS
• Resource:  
  • Rutile: Kasiya is the world’s largest rutile deposit and holds 18mt (1.8bnt @ 1.01%) of contained rutile on its JORC resource estimate.
  • Reserves: 538mt grading 1.03% rutile and 1.66% graphite for 8.9mt of contained graphite on ~30% of the total mineral resource
• 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
• Assumptions:
  • Rutile (average LoM) US$1,484/t
  • Graphite (average LoM) US$1,290/t – 96% “high purity, high crystallinity and high value coarse-flake graphite product”.
  • “bulk sample test-work from Kingfisher pit representing the first 3 years of mining which in general is also broadly representative of the +200 mesh products in the overall Kasiya Ore Reserve.”
• Rutile Production:
  • Sovereign Metals, Kasiya project: 222,000tpa with a 96% product grade
  • Base Resources, Toliara project plans to produce 6,000-9,000tpa of rutile from a 2.6mt MRE with 1.0% rutile content along with Monazite.
• Valuation: Taking 33% of the Kasiya NPV@10% gives £331m. Dividing this by the fully diluted number of shares and options gives a value of 55p/s.
• Cash stood at A$39.4m at end-December

Conclusion:  The appointment of Dr Ghag sounds like a good hire considering his range of expertise.

Energy Fuels Inc’s agreed offer of around US$241m for Base Resources gives a substantially higher implied valuation for the Kasiya project than is currently seen in the market.

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

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

W1S 2PP

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

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

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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%