SP Angel Morning View -Today’s Market View, Wednesday 31st July 2024

Gold rallies as Middle East tensions escalate following assassination of Hamas leader in Tehran

MiFID II exempt information – see disclaimer below

Ariana Resources (AAU LN) – Mineralised porphyry identified at Hertica project in Kosovo

Bushveld Minerals* (BMN LN) – H1 production weighed down by funding constraints and maintenance stoppages

Condor Gold* (CNR LN) – Progress report on sale process with new interest emerging

Endeavour Mining (EDV LN) – Costs rise on power and production impacts whilst management team restructured

Ferrexpo (FXPO LN) – Production Report as cash healthy following resumption of Black Sea exports

Great Western Mining* (GWMO LN) – Processing mill begins initial operations

Kodal Minerals* (KOD LN) – Construction of Bougouni lithium project continues apace

Kore Potash* (KP2 LN) – Quarterly update

Rio Tinto (RIO LN) – Interim results highlight consistency, stability and growth

Sovereign Metals* (SVML LN) – Quarterly report highlights progress towards development of the Kasiya rutile and graphite project in Malawi

Sylvania Platinum (SLP LN) – Production miss on lower recoveries whilst cash position retained to fund growth plans

Gold ($2,420/oz) climbs on geopolitical tensions and US Treasury strength

• Gold prices have strengthened to $2,420/oz, having been as low as $2,355/oz last week.
• The move follows another step down in US Treasury yields, with the 10-year falling to 4.14%, down 60bp from highs reached in April.
• Tensions in the Middle East are also likely fuelling safe haven demand, with Hamas blaming Israel for the assassination of their leader, Ismail Hanyeh in Tehran.
• The BoJ’s surprise rate hike overnight weighed on the Us dollar, supporting gold.
• The Fed is expected to hold rates steady today, with traders pricing in a rate cut in September.
• Asian buyers are reportedly adding to gold holdings.

Copper ($9,160/t) bounces from key level as Chinese buyers step into the market again

• Copper prices climbed from yesterday’s lows of $8,925/t, supported by a weaker dollar and resumption of Chinese buying.
• Bloomberg reports that downstream buyers are cautiously stepping into the physical market again, following a period of elevated prices.
• Inventories have been decreasing steadily in a sign of improved appetite from fabricators.
• Speculators have also cut bullish bets by $20bn, according to Bloomberg, with analysts suggesting the May spike was partly driven by algorithmic funds.
• Copper bulls will be encouraged to see fast money exit the space, enabling a more demand-driven rally in the future.

Phytomining – offering potential for new source of production from metal rich soils

• Metalplant, Viridian Resources and Econik are using phytomining to produce nickel (Tomorrowsworldtoday)
• The companies are growing plants such as Odontarrhena decipiens which can accumulate up to 2% nickel in their biomass.
• Viridian reckon a 1,000Ha farm could produce 250-550t of nickel worth $3-7m..
• Metalplant reckons it can yield up to 400kg of nickel per Ha and is also using enhanced rock weathering to sequester carbon which could potentially lead to a carbon negative process.

Conclusion: While phytomining may not replace much of the world’s metal production it does offer potential for low-capex extraction of metal from soils and tailings dams with relatively little downside.

Reducing the levels of base metals in near surface soils may also serve to improve future crop quality and clean up the environment. Its use on tailings dams could form a useful part of future tailings rehabilitation with the added benefit of ongoing cash flow from the metal sales.

SP Angel rankings LSEG StarMine Award for most accurate forecasting in Reuters polls:

• No1 – Q2 Precious Metals and No2 – Q2 Base Metals. Our forecasting uses HI – not AI

SharePickers: Video: This has One of the Lowest Risk Profiles I’ve Seen For a Long Time: https://www.youtube.com/watch?v=0sT6ZZpMt6M

•         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 – Manufacturing continued to contract for a third straight month while services sector growth slowed down at the beginning of 3Q24, according to official PMI numbers.

• New manufacturing business orders dropped to 49.3 from 49.5 mainly on the back of worse declines in the domestic market; export orders also reported a contraction albeit at a slower pace.
• Both manufacturing and services sectors reported deflation in output charges reflecting weak end markets demand.
• Manufacturing PMI (Jul/Jun/Est): 49.4/49.5/49.4
• Services PMI (Jul/Jun/Est): 50.2/50.5/50.3
• Composite PMI (Jul/Jun/Est): 50.2/50.5/NA

New restrictions on exports of drone parts for military and civilian use

Japan – The central bank unexpectedly hiked rates to 0.25% from 0.10% and will half its bond buying as the BOJ launches normalisation of its monetary policy.

• The yen strengthened sharply recording a 1.6% move and nearly hitting 150.0 this morning.
• This compares to the rate of over 160.0 at the beginning of the month.
• Monthly bond purchases will be reduced to JPY3tn by 1Q26 compared to nearly double that pace seen currently.

Germany – Nationwide inflation numbers released yesterday afternoon confirmed earlier regional data showing a pickup in consumer prices growth through July.

• CPI (%mom EU Hamonised, Jul/Jun/Est): 0.5/0.2/0.4
• CPI (%yoy EU Hamonised, Jul/Jun/Est): 2.6/2.5/2.5

Industrial output of China’s non-ferrous metals industry up 10.8% yoy by value through the first half

• The value-added industrial output of mining and dressing enterprises rose 9.1%
• Smelting and processing rose 11.1% in value-added industrial output (China Nonferrous Metals Industry Association).
• The association sees the rapid development of lithium-ion batteries, photovoltaic products and EVs along with high-end manufacturing like high-speed trains, aerospace and the development of a new generation of emerging industries, including electronic information focused on AI as driving demand for non-ferrous metals.

Venezuela – Maduro cracks down on resistance to self-declared victory

• Maduro’s forces have made 750 arrests and are holding a key opposition leader.

Dubai – Temperatures rise to 42 ^oC this week but feels like it is over 60^oC with the humidity.

• Last year Dubai hit 50.1^oC in July but has only managed a measly 49.4 ^oC two weeks ago.

Currencies

US$1.0821/eur vs 1.0825/eur previous. Yen 152.15/$ vs 154.99/$. SAr 18.217/$ vs 18.384/$. $1.284/gbp vs $1.286/gbp. 0.651/aud vs 0.656/aud. CNY 7.226/$ vs 7.256/$.

Dollar Index 104.41 vs 104.65 previous

Precious metals:         

Gold US$2,417/oz vs US$2,390/oz previous

Gold ETFs 82.5moz vs 82.5moz previous

Platinum US$970/oz vs US$955/oz previous

Palladium US$918/oz vs US$906/oz previous

Silver US$28.57/oz vs US$28/oz previous

Rhodium US$4,650/oz vs US$4,650/oz previous

Base metals:   

Copper US$ 9,162/t vs US$9,023/t previous

Aluminium US$ 2,260/t vs US$2,242/t previous

Nickel US$ 16,465/t vs US$15,805/t previous

Zinc US$ 2,682/t vs US$2,647/t previous

Lead US$ 2,056/t vs US$2,044/t previous

Tin US$ 30,015/t vs US$29,070/t previous

Energy:           

Oil US$80.0/bbl vs US$79.5/bbl previous

Natural Gas €35.1/MWh vs €33.7/MWh previous

Uranium Futures $82.4/lb vs $82.3/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$98.0/t vs US$101.2/t

Chinese steel rebar 25mm US$502.8/t vs US$502.5/t

Thermal coal (1st year forward cif ARA) US$118.0/t vs US$118.0/t

Thermal coal swap Australia FOB US$138.8/t vs US$139.5/t

Coking coal Dalian Exchange futures price US$202/t vs US$198.6/t

Other:  

Cobalt LME 3m US$26,625/t vs US$26,625/t

NdPr Rare Earth Oxide (China) US$50,441/t vs US$50,099/t

Lithium carbonate 99% (China) US$11,002/t vs US$11,233/t

China Spodumene Li2O 6%min CIF US$940/t vs US$940/t

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

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

China Graphite Flake -194 FOB US$465/t vs US$465/t

Europe Vanadium Pentoxide 98% 4.9/lb vs US$4.9/lb

Europe Ferro-Vanadium 80% 25.95/kg vs US$25.95/kg

China Ilmenite Concentrate TiO2 US$316/t vs US$315/t

China Rutile Concentrate 95% TiO2 US$1,391/t vs US$1,385/t

Spot CO2 Emissions EUA Price US$66.4/t vs  US$66.4/t

Brazil Potash CFR Granular Spot US$297.5/t vs US$297.5/t

Germanium China 99.99% US$2,125.0/kg vs US$2,105.0/kg

China Gallium 99.99% US$435.0/kg vs US$435.0/kg

Battery News

Volvo reconsiders full electrification due to EV sales slump in key markets

• Volvo is reportedly reconsidering its plan to fully electrify its vehicle lineup by 2030 due to a slump in EV sales in major markets like the US and China.
• Instead the company will pivot to hybrids and focus on updating its SPA1 platform which supports its mild- and plug-in hybrids.
• CEO Jim Rowan has emphasised a continued commitment to EVs but acknowledged that global electrification will take time.
• As a result, Volvo will continue investing in plug-in hybrids and mild hybrids, which remain popular among customers.
• Despite a decline in overall US sales and BEV sales, demand for Volvo’s plug-in hybrids rose by 75%.

China EVs seize record 11% share in Europe ahead of tariffs

• Chinese EV brands captured a record 11% market share in Europe in June, driven by a surge in registrations before new EU tariffs took effect. (Bloomberg)
• SAIC Motor led the push, with its MG4 hatchback seeing significant volumes, contributing to over 23,000 Chinese EV registrations – a 72% increase from May.
• The EU’s provisional tariffs, imposing additional charges on imported Chinese EVs, including a 38% charge on Saic and 17% on BYD, are expected to impact future sales.
• Despite these tariffs, BYD showed notable consumer engagement, aided by a marketing campaign during the European Football Championship.
• June marked the third-highest month for EV registrations in the region, with a total of 208,872 units.

UK used car market expected to see strong growth for rest of the year

• Second hand vehicle resale platforms Auto Trader and BCA are both expecting the UK used car market to grow in 2024.
• According to Auto Trader’s latest market analysis, the used car market is set to perform well in the latter half of 2024, with sales expected to rise by 5% YoY to approximately 7.6m transactions.
• Trade buyers beginning to recognise that many EVs now appear to be good value in comparison to their internal combustion engine (ICE) equivalent, and are significantly more affordable as second hand than new.
• Autotrader expects that by 2028 around 33% of all under five-year-old used cars will be electric, up from around 15% by the end of 2024.

Jones Bros to build battery storage system in Wales

• Civil engineering firm Jones Bros has begun construction of a 230MW battery in Uskmouth, South Wales.
• The project is one of the largest in the UK and is being led by Quinbrook Infrastructure Partners and E.ON.
• The 230MW battery is expected to be operational in the first quarter of 2025 and will be a key contributor to achieving the country’s net zero targets by 2050.

Is Tesla Semi truck revolutionising logistics?

• Tesla’s Semi has a 900kWh battery which could power the average US home for a month – the average US home uses around 877kWh per month.
• The Tesla Semi battery pack represents a significant step forward in the electrification of heavy-duty transportation, but there are still some challenges to overcome.
• Tesla are working on its Megacharger network that can support the size of these batteries, but the deployment of this network is a work in progress.

Company News

Ariana Resources (AAU LN) 2.35p, Mkt Cap £41m – Mineralised porphyry identified at Hertica project in Kosovo

• Ariana Resources reports that its 76% owned Western Tethyan Resources has identified a copper/gold/molybdenum porphyry at its Hertica project, Kosovo.
• Early-stage exploration, including 1,390m of diamond drilling and sampling “across the Cecelia-Popova-Lluzhan licence package has defined potential for porphyry and epithermal mineralisation”.
• Float sample results reported in today’s announcement include samples containing 19.55g/t gold and 684g/t silver; 12.75g/t gold and 28.4g/t silver and 12.35g/t gold and 22.9g/t silver.
• The company confirms that “2,000 metres of exploration trenching is now underway at Slivova to test the significantly anomalous Dzemajl target identified from soil sampling”.

Conclusion: The identification of copper/gold/molybdenum mineralisation in early exploration of the Hertica project in Kosove is being followed up with trenching.  We await the results with interest.

Bushveld Minerals* (BMN LN) 0.5p, Mkt Cap £12m – H1 production weighed down by funding constraints and maintenance stoppages

• Q2 production amounted to 838mtV (2Q23: 840mtV) taking 1H24 output to 1.7ktV (1H23: 1.8ktV).
  • 1H24 Vametco production amounted to 905mtV, -23%yoy, reflecting a 25d kiln maintenance shutdown in January/February with further losses recorded in March due to equipment failure.
  • Although the operation hit 217mtV in May as the team aims to debottleneck the operation on course to reach a 240mtV per month target by 4Q24.
  • 1H24 Vanchem production was 789mtV, 28%yoy, with output contracting ~35% in 1Q24 on maintenance closures in May and June.
• 1H24 C1 cash costs averaged $27.9/kgV (1H23: $26.6/kgV) including:
  • Vametco cash costs averaged $32.8/kgV, +33%yoy, reflecting lower production and higher cost inflation.
  • Vanchem cash costs amounted to $22.3/kgV, -26%yoy, on the back of stronger production as well as reallocation of some costs into idle plant categoery (excluded from C1 calculation) during planned maintenance shutdown.
• 1H24 sales totalled 1.6ktV (1H23: 2.1ktV).
• Divestment of a 100% interest in Vanchem that was earlier approved by shareholders is expected to be agreed by regulators by the end of October.
• FY24 guidance is for 3.8-4.0ktV t $26.7-27.1/kgV C1 cash costs (FY23: 3.7ktV at $26.6/kgV) on 100% basis for both Vametco and Vanchem, with Vanchem disposal expected to reduce the amount by ~400mtV reflecting its most of 4Q24 contribution.
• The team is in discussions on disposal of its interest in CellCube, an Austrian vanadium redox flow battery manufacturer, as well on a potential transfer of ownership of the BELCO electrolyte asset to its JV partner, Industrial Development Corporation.
• The transfer is expected to involve a notional amount including the total liabilities of BELCO and guarantee provided by Bushveld for ~R29m ($1.5m).
• Vanadium market remained weak with FeV prices in the US largely flat at $28.6/kgV but down in both Europe and China at $26.8/kgV and $21.9/kgV.

Conclusion: H1 production reflects available funding constraints and planned maintenance stoppages with stronger production and lower costs guided for H2 supported by liquidity provided by both SPR and Orion. Vanchem disposal is now expected to close in late October. Vanadium prices remained weak thorugh 2Q24, although, with new rebar quality standards introduced in 2018 in China becoming enforceable from late September we would expect the sentiment to turn.

*SP Angel act as nomad and broker to Bushveld Minerals

Condor Gold* (CNR LN) 23p, Mkt Cap £42m – Progress report on sale process with new interest emerging

(Condor Resources holds 100% of the La India gold mining project)

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• Condor Gold has provided a progress report on the proposed sale of its assets in Nicaragua which was announced in November 2022.

• The company confirms that it has non-disclosure agreements (NDAs) in place with eleven companies and that it “remains in receipt of five non-binding offers and three site visits have been completed … [and that an] … additional formal expression of interest has been received in the past 3 weeks”.
• The assets are centred on the La India project where the company has a fully permitted development project and an ‘Indicated’ mineral resource totalling over 1moz of gold with a further resource of over 1moz classed as ‘Inferred’ as well as important potential to add resources through further exploration in the broader area surrounding the project.
• The project offers “potential production of 150,000 oz gold per annum, in major Gold Districts, with the land and a new SAG Mill package” in an advanced near-term project with an estimated 18 month construction time.
• Condor Gold highlights that its 2022 feasibility study for the open pit development at La India used a US$1,600/oz gold price and that gold prices have exceeded US$2,400/oz “in recent weeks”.
• We note that in the company’s October 2024 study, sensitivity analysis showed that the base case after-tax NPV_5% of US$87m at a gold price of US$1,600/oz increased three-fold to US$263m at a gold price of US$2,200/oz.
• Higher gold prices may justify some re-optimisation of the mine plan which could provide additional attractions to potential purchasers.

Conclusion: Condor Gold’s sale of its assets in Nicaragua is proving to be a protracted process but recent strength in the gold price seems to be attracting further and continuing interest.  The La India project is at an advanced stage and provides opportunities for early development which could offer additional attractions to potential acquirers.  We await developments with interest.

*SP Angel acts as a broker to Condor Gold

Endeavour Mining (EDV LN) 1,735p, Mkt Cap £4.3bn – Costs rise on power and production impacts whilst management team restructured

• Endeavour produced 470koz over 1H24 at an AISC of $1,237/oz.
• AISC guided towards top of range for FY24, with production guided in line.
• Ity production expected above top end, whilst Sabodala-Massawa expected to miss guidance.
• AISC impacted by grid power availability in Côte d’Ivoire and Burkina Faso alongside higher royalties impacted by higher gold prices.
• Group AISC up from $1,080/oz in same period last year, where production stood at 612koz Au.
• Operating cash flow over 2Q24 at £258m, with net debt of $835m following growth ramp up.
• Company realised an average gold price of $2,167/oz over first half of this year.
• $100m in dividends paid over the first six months of the period, alongside $56m worth of share buybacks.
• Future growth project in Tanda-Iguela, with an Assafou PFS due by year-end.
• Company today announces a new shareholder returns programme of $435m over the next two years, suggesting additional buybacks and dividends may also be on the cards.

Ferrexpo (FXPO LN) 60p, Mkt Cap £360m – Production Report as cash healthy following resumption of Black Sea exports

• Ukrainian high grade iron ore producer Ferrexpo produced 3.7mt of iron ore products over the first six months of the year.
• This comprised of 3.3mt of pellets and 0.4mt of concentrate.
• Total sales increased 85% yoy vs same period last year, with revenue increasing 64% to $550m.
• C1 costs up 11% over the period to $79/t, whilst underlying EBITDA increased 24% to 80m.
• Selling and distribution costs increased to $148m over the period vs $74m same period last year on the back of increased sales volumes through Black Sea ports.
• Net cash flows from operations fell 30% to $56m, with CAPEX investments of $55m over the period.
• CAPEX focus has been on near term value creation, with long term development projects reconsidered.
• Net cash at end of period of $112m.
• 80% of the Company’s sales fed into Europe, with 2% to MENA and 18% to Asia, with the increase following the resumption of exports through Black Sea ports.

Great Western Mining* (GWMO LN) 0.05p, Mkt Cap £4m – Processing mill begins initial operations

1. Great Western Mining’s environmental permit becomes effective today.
2. This enables their JV precious metal processing mill to begin gravity separation of stockpiled spoil heaps and tailings.
3. The Company will now file the second permit for chemical leaching.
4. Now that the permit has become effective, the mill can begin testing for optimal recoveries.
5. GWM will now begin bulk transportation arrangements.

Conclusion: Great Western’s processing mill permit becomes effective today, marking a pivotal moment for the Company’s route to cashflow generation. The team will now begin testing to optimise the mill for maximum recoveries, whilst also beginning the permitting process for the leaching stage of the mill.

SP Angel act as Broker to Great Western Mining, an SP Angel Analyst has visited Great Western’s Nevada claim blocks.

Kodal Minerals* (KOD LN) 0.53p, Mkt Cap £108m – Construction of Bougouni lithium project continues apace

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 report the Bougouni project remains on track to produce spodumene concentrate by the end of 2024.
• Hainan Mining is funding the construction of Bougouni along with related costs up to $100m to own a 51% stake in the project joint venture.
• A short delay to the delivery of the DMS plant and crushing circuit has occurred with the ship rerouted to Freetown to offload urgent humanitarian cargo before stopping at Abidjan.
• The ship is also carrying structural steelwork for the Bougouni site.
• A second shipment with the rest of the process plant including initial consumables and spare parts should arrive in Abidjan in a few days.
• The shipment also includes a chemical laboratory and site equipment.
• Auxin Mining Services and Enterprise Générale Traoré et Fréres are making good progress in the development of the Ngoualana open pit.
• Bambara Resources along with GZB Mali (Chinese) have completed all major footings for the DMS plant in readiness to receive steelwork for erection.
• Overburden including free-dig oxide waste material is being removed this month to give access to hard-rock spodumene in August.
• Blasting is expecting to start in September for the preparation of a run-of-mine stockpile ahead of plant commissioning.
  • “The final remaining major shipment is currently enroute from China, carrying the power plant, as well as other minor outstanding sub-critical piping and electrical items.”
• ESG:  KMUK, Kodal’s local jv subsidiary donated two tractors to the Kola-Sokoura and Ngoualana villages in March 2024 with local praise and appreciation.
• KMUK’S staff attended the school ceremonies on the final day before the start of school holidays for the Kola-Sokoura School awarding gifts of encouragement to the best performing students and to the teacher.
• Lithium prices: remain supressed at US$930-940/t for 6%min CIF China having fallen from US$1,350/t three months ago.
• Chinese battery materials processors are currently restocking inventory following their summer slowdown but are cautious in their buying due to some uncertainty over sales outside of the main sales festivals.
• We expect spodumene prices to find new support as lower grade lepidolite is shunned in preference for better quality spodumene concentrates.

Conclusion:  Construction of the Bougouni project continues to progress towards first production at the year end.

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

Kore Potash* (KP2 LN) 2.1p, Mkt Cap £88m – Quarterly update

• The Company provided an update on its discussions with PowerChina regarding the EPC contract for the Kola Potash Project in the Republic of Congo.
• The Company met senior PowerChina officials in Beijing in May 2024 and again in Dubai in July 2024, where both parties satisfactorily resolved all outstanding commercial points.
• The agreements are now with lawyers to finalise the contract.
• Once completed, both parties are expected to set a date for signing ceremony following which the agreement will be made public.
• FCF amounted to $0.8m during the quarter with $0.5m in capitalised costs all of which was directed towards Kola Study.
• The Company had $1.0m in cash and no debt as of 2Q24 end with ~$1.2m raised in July to cover working capital needs as the team finalises discussions with Chinese parties over the Kola EPC agreement.
• Further $60k was conditionally raised with David Hathor, Chairman of the Company.
• Under the agreement with PowerChina, Kore is paying a total of $5m for additional engineering works that PowerChina needed to complete before finalising the EPC contract and agreeing to completion and performance guarantee.
• The Company made two payments of $1.0m each in August and November 2023 with the balance expected to be made available in two tranches in 12 months from date of the execution of the EPC contract.

Conclusion: EPC contract discussions with PowerChina continue with the Company funded to cover near term working capital needs following a ~$1.3m equity raise in July.

*SP Angel acts as Nomad and Broker to Kore Potash

Rio Tinto (RIO LN) – 5,032p, Mkt cap £62bn – Interim results highlight consistency, stability and growth

1. Reporting a 14% increase in net earnings to US$5.8bn (2023 – US$5.1bn), Rio Tinto emphasises its commitment to stable profitable growth and its ambition to deliver 3%pa compound growth in copper equivalent output between 2024-2028.
2. Chief Executive, Jakob Stausholm described growth plans as having reached “an inflection point … with a step change from our aluminium business and consistent production at our Pilbara iron ore operations”.
3. He described “considerable growth in cash flow from the ramp-up of the underground copper mine at Oyu Tolgoi, and more value to come as our Simandou investment and Rincon lithium project proceed at pace”.
4. Underlying EBITDA from operations of US$12.9bn is dominated by the US$8.8bn contribution of the iron ore business (2023 – US$9.8bn of a total US$12.7bn) mirrored by iron ore earnings, on an underlying basis, of US$ 5.2bn (2023 – US$5.8bn).
5. The reduction in iron-ore’s EBITDA is attributed to “lower realised prices ($0.2 billion) and lower shipments, which were impacted by a train collision in May”.
6. Copper operations contributed a further US$1.8bn of EBITDA and US$0.5bn of earnings with the aluminium business adding a further US$1.6bn to EBITDA and US$0.6bn to underlying earnings.
7. Rio Tinto has declared an interim dividend of US$1.77/share (2023 – US$1.77/share) amounting to US$2.9bn.
8. Net debt has increased by around 20% to US$5.01bn compared to the US$4.2bn at the beginning of the year with a “net gearing ratio (net debt to total capital) … [of] … 8% at 30 June 2024”.
9. The company expects 2024 “exploration and evaluation expense (excluding Simandou … [where exploration expenses are being capitalised] …) to be around $1.0 billion”.
10. As the business evolves “In the coming years, we expect to spend (on a cash basis) around $1 billion per year on closure activities as we advance our closure activities at Argyle, Energy Resources of Australia (ERA), the Gove alumina refinery and legacy sites”.
11. Outlining some of the major capital growth projects Rio Tinto outlines a further US$0.5bn of the budgeted US$1.3bn investments in its Western Range Iron Ore JV in the Pilbara with China Baowu Steel and an outstanding US$5.3bn of the US$6.2bn Simandou iron ore project in Guinea.
12. A further US$0.9bn of the US$1.1bn project “to expand the low-carbon AP60 aluminium smelter at the Complexe Jonquière in Quebec … [is expected to increase] … capacity by approximately 160,000 metric tonnes of primary aluminium per year by the end of 2026”.
13. As well as the continuing development of the US$7.06bn underground copper project at Oyu Tolgoi in Mongolia where a further US$0.7bn is to be spent to lift production to ~500,000tppa of copper from 2028 Rio Tinti is expanding the open pit at Kennecott’s mine in Utah where US$1.1bn of the US$1.8bn south-wall pushback remains to be spent.
14. Also at the Kennecott mine in Utah, Rio Tinto is investing US$0.5bn to develop the North Rim Skarn underground mine “to deliver around 250,000 tonnes of additional mined copper over the next 10 years alongside open cut operations”.
15. Longer term projects include the Rincon Lithium project in Argentina, expected to produce 3,000tpa of battery grade lithium as well as the Jadar underground lithium borate project in Serbia and further iron ore developments in the Pilbara at Rhodes Ridgewhich is expected to produce around 40mtpa of iron ore with initial production “expected by the end of the decade”,
16. Rio Tinto continues to press for approvals to develop the Resolution underground copper project in Arizona which it says “has the potential to supply up to 25% of US copper demand”.

Conclusion: Rio Tinto is maintaining its interim dividend at US$1.77/share and describes its growth projects as at an inflection point as it allocates US$1bn to exploration and a similar amount to closing old operations

Sovereign Metals* (SVML LN) 35p, Mkt Cap £203m – Quarterly report highlights progress towards development of the Kasiya rutile and graphite project in Malawi

(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 and have now exercised their option to raise their state to 19.8%)

STRONG BUY – Valuation 55p

• Sovereign reports ongoing progress at the Kasiya ‘world-class’ scale rutile and graphite project in Malawi.
• Trial mining, processing and rehabilitation work is ongoing with financial and technical support and involvement from Rio Tinto.
• Optimisation of the key technical processes is ongoing led by results from the ongoing trials.
• The trial pit demonstrated the viability of dry mining at Kasiya. The test pit will be backfilled and data from the rehabilitation test pits will also be collected.
• Graphite: Material from the pit is to be run through a trial process plant for additional bulk samples for graphite product qualification.
• Spheronisation yields show up to 68% with further scope for optimisation and a 99.99% loss-on-ignition. Testwork is reported to show superior quality, low impurity graphite for battery anodes.
• Four independent laboratories have produced high-grade graphite concentrate from Kasiya concentrates averaging over 97% TGC ‘Total Graphite Content’ with flotation recoveries >90%.
• The results show a 1.44% TGC on run-of-mine Kasiya ore which upgrades to >55% TGC concentrate without crushing or milling. The graphite has exceptionally low levels of sulphur vs typical hard-rock graphite peers.

• Mkango Resources** recently signed a Mining Development Agreement with Malawi assuming a 5% gross revenue royalty and 10% free carry. Mkango will pay a 30% corporate tax and is exempt from customs and excise duties.
• This is similar to Sovereign’s PFS assumptions and we believe Malawi will benefit substantially from the ESG work being done along with taxes, employment and new infrastructure development.

Conclusion:  Today’s report highlights the time, effort and expertise being put into the Kasiya project along with the benefits of the work being done. More projects would benefit from the level of expertise, consideration and optimisation being input into this project.

*SP Angel act as Nomad and broker to Sovereign Metals. The analyst has recently visited the Kasiya mine site. **SP Angel act as Nomad and broker to Mkango Resources*

Sylvania Platinum (SLP LN) 55p, Mkt Cap £144m – Production miss on lower recoveries whilst cash position retained to fund growth plans

• Sylvania report their 4Q24 production and financial results.
• The Company produced 17koz 4E PGMs and 22koz 6E PGMs.
• Plant feed increased 3% qoq whilst feed head grade fell 4% to 1.98g/t.
• Dump operations weighed down by February 2024 strike, with operations now normalised.
• Recoveries fell 2% qoq to 52%.
• Weaker recoveries on ore mix caused miss of FY24 production guidance at 72.7koz 4E (74-75koz expected).
• Average 4E gross basket price up 6% qoq to $1,303/oz, whilst reported all-in cost up 1% to $1,161/oz.
• Group EBITDA down 10% to $2.85m, with net profit up 9% to 2.75m.
• CAPEX for the period up 51% to $5.3m
• Cash balance for the period at $97.8m.
• Company reports that Thaba JV project on schedule, with PGM beneficiation plants progressing in line with plans – commissioning expected March 2025.
• Mooinooi and Millsell operations expected to support steady state capacity, with focus on boosting recoveries.
• Volspruit scoping study due August 2024.
• Cash position to fund expansion, JV initiations, optimisation of current operations and exploration/asset diversification.

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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