SP Angel Morning View -Today’s Market View, Wednesday 9th October 2024

Open season on Mining M&A as Rio Tinto takes out Arcadium

MiFID II exempt information – see disclaimer below

Adriatic Metals (ADT1 LN) –Update following regional storm

Allied Gold (AAUC CN) – C$192m equity raise

Central Asia Metals (CAML LN) – Q3 operations update

Cleantech Lithium (CTL LN) – £2.5m equity raise

Cornish Metals* (CUSN LN) – New ceo to drive South Crofty tin mine forward

Lundin Gold (LUG CN) – Quarterly production results

Newmont Gold (NEM CN) – Sale of Akyem mine in Ghana to Zijin for up to $1bn

Power Metal Resources* (POW LN) – Saudi Arabia and Oman JV agreement updates

Rio Tinto (RIO LN) – $5.85/share offer for Arcadium Lithium

Arcadium Lithium (ALTM US)

Sovereign Metals* (SVML LN) – Ian Middlemas buys 400,000 shares in Sovereign Metals

Gold ($2,616/oz) sells off amid higher Treasury yields as focus shifts to inflation

• Gold prices have fallen from record highs as traders take profits after rate cut expectations cooled.
• Traders slashed expectations of Fed rate cuts for the remainder of the year after US Nonfarm payroll data showed a stronger-than-expected economy.
• 50bp of cuts are now priced in this year, vs 75bp a fortnight ago.
• US Treasuries sold off, with the 10 year climbing to 4.05%, having touched 3.66% in the run up to the FOMC meeting.
• CPI is due today, with traders likely concerned about an uptick in inflation, weighing on gold’s appeal.
• Momentum traders are also likely taking profits after gold’s sharp rally in Q3 which saw it hit record highs of $2,670/oz,
• China Central Bank buying has cooled, whilst retail investors turned to stocks following Xi’s push to support the equity market.
• Middle East tensions continue but easing oil prices suggest concerns over further escalation between Iran and Israel are cooling.

KoBold Metals raises US$491m of targeted $527m with the latest fundraise targeting a $2bn valuation

• KoBold Metals is a private exploration company claims to combine AI with geological expertise
• The Company was founded in 2018 and is backed by a series of billionaire investors including Gates, Ma and Bezos.
• Management are involved in a series of exploration assets worldwide including the Mingomba Copper Project in Zambia which is one of more advanced projects in the portfolio.
• The Company holds a 80% stake in the Mingomba copper project which is estimated to host an undefined ~247mt at 3.64% copper.

M&A – Open season for M&A hunters in the mining sector

Recent agreed mergers and acquisitions:

• Rio Tinto have agreed to buy Arcadium for US$6.7bn.
• BHP and Lundin Mining are buying Filo Corp for its copper project in Argentina for C$4.1bn
• ISO Energy are buying Anfield Energy for its near-term uranium production int eh US for $126.8m
• Coeur is buying SilverCrest Metals for shares implying a total equity value of $1.7bn.
• Zijin Mining are buying the Akyem gold project in Ghana for $1bn
• Energy Fuels recently acquired Base Resources for the rare earth content within its Toliara project in Madagascar for US$240m.
• QC Copper and Gold, now called XXIX has announced the acquisition of Cuprum Corp.

Companies to watch for their acquisition potential:

• Sovereign Metals* – Rio Tinto are invested into and working with Sovereign on the potential future development of the Kasiya rutile and graphite project
• DeGrey Mining⁺ holds one of the world’s largest undeveloped gold projects
• Atlantic Lithium* – Assore Group has previously offered to acquire Atlantic for the Ewoyaa lithium project in Ghana
• Allied Gold – looks vulnerable due to funding constraints
• Resolute Mining – Management have successfully derisked the Sayama gold mine in Mali.
• Aura Energy* – for its substantial uranium project in Mauritania
• Condor Gold* – Condor has a well defined and attractive gold project in Nicaragua

*SP Angel act as nomad and or advisor. ⁺ A member of the SP Angel mining team holds shares 

Economics

US – Hurricane Milton is advancing towards the Florida peninsula expected to hit west coast Wednesday night.

• The hurricane is rated Category 5 storm with winds said to reach 160mph.
• Florida was set to start free evacuation shuttles in Pinellas, Pasco and Hillsborough counties Tuesday.
• Officials warned against trying to ride out the storm in evacuation areas.
• “I can say this without any dramatization whatsoever: If you choose to stay in one of those evacuation areas, you are going to die,” Tampa Mayor Jane Castor said.
• Milton comes less than two weeks after Hurricane Helene damaged homes across the west coast.

China – Authorities will hold a briefing Saturday morning on stepping up countercyclical initiatives of fiscal policy to promote high quality economic development.

• Minister of Finance is set to speak at the event.

Germany

• Exports (%mom, Aug/Jul/Est): 1.3/1.7/-1.0
• Imports (%mom, Aug/Jul/Est): -3.4/5.3(revised from 5.4)/-2.0

Currencies

US$1.0964/eur vs 1.0979/eur previous. Yen 148.45/$ vs 147.67/$. SAr 17.612/$ vs 17.476/$. $1.308/gbp vs $1.307/gbp. 0.673/aud vs 0.672/aud. CNY 7.064/$ vs 7.057/$.

Dollar Index 102.65 vs 102.43

Precious Metals

Gold US$2,614/oz vs US$2,638/oz previous

Gold ETFs 83.5moz vs 83.5moz previous

Platinum US$955/oz vs US$965/oz previous

Palladium US$1,024/oz vs US$998/oz previous

Silver US$30.6/oz vs US$31.2/oz previous

Rhodium US$4,725/oz vs US$4,725/oz previous

Base metals:   

Copper US$9,756/t vs US$9,727/t previous

Aluminium US$2,561/t vs US$2,582/t previous

Nickel US$17,725/t vs US$17,560/t previous

Zinc US$3,054/t vs US$3,103/t previous

Lead US$2,079/t vs US$2,109/t previous

Tin US$32,835/t vs US$33,245/t previous

Energy:           

Oil US$78.0/bbl vs US$79.5/bbl previous

• Crude oil prices fell after the API reported a massive 10.9mb w/w build (+1.9mb exp) to US crude stocks following significant weather-related disruptions in the US last week.
• The EIA trimmed its 2024 global oil demand growth forecast to 0.9mb/d due to downward revisions to demand in China, as well as reducing the 2025 forecast to 1.3mb/d primarily because of downward revisions to demand in OECD countries. The EIA also lowered its average 2025 Brent forecast m/m by $7/bbl to $78/bbl.
• The IEA expects renewables to generate close to half of global electricity by 2030, with China on course to account for almost 60% of all renewable capacity installed worldwide by the end of this decade.
• The SPA Energy team has transferred to Cape Town for the Africa Oil Week conference, please feel free to contact us if you would like to catch up over a coffee while we are in town (other beverages are available).

Natural Gas €38.6/MWh vs €39.8/MWh previous

Uranium Futures $83.3/lb vs $83.1/lb previous

Bulk:   

Iron Ore 62% Fe Spot (cfr Tianjin) US$105.1/t vs US$105.6/t

Chinese steel rebar 25mm US$506.8/t vs US$501.9/t

Thermal coal (1st year forward cif ARA) US$126.0/t vs US$126.8/t

Thermal coal swap Australia FOB US$149.8/t vs US$150.3/t

Other:  

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

NdPr Rare Earth Oxide (China) US$61,725/t vs US$60,655/t

Lithium carbonate 99% (China) US$10,405/t vs US$10,416/t

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

Ferro-Manganese European Mn78% min US$985/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$319/t vs US$320/t

China Rutile Concentrate 95% TiO2 US$1,324/t vs US$1,325/t

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

Brazil Potash CFR Granular Spot US$277.5/t vs US$277.5/t

Germanium China 99.99% US$2,825.0/kg vs US$2,775.0/kg

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

Company News

Adriatic Metals (ADT1 LN) 183p, Mkt cap £600m –Update following regional storm

• Adriatic notes that the Vares Processing Plant operations continued as planned despite severe storms in country.
• Water management issues at both Rupice and Vares were reported.
• The Company reports that a rail line connecting Sarajevo to Ploce Port was damaged.
• As a result, concentrate will be trucked to Ploce Port until repairs are complete.
• Adriatic notes that concentrate had been trucked in both Q2 and Q3.

Allied Gold (AAUC CN) C$3.1, Mkt Cap C$981m – C$192m equity raise

• The Company raised C$192m issuing 62m new shares at C$3.1.
• This implies a ~7% discount to the closing price on 01 October, the day before the announcement of a planned equity raise.
• Proceeds will be used for optimisation and growth initiatives at Sadiola in Mali as well as development efforts at Kurmuk in Ethiopia.
• The Company is planning to update the market on completion of project funding for the Kurmuk Gold Project before 3Q24 results are out.
• Kurmuk is a $500m development project planned to deliver 240kozpa at <$950/oz AISC over 10y LOM.
• The deposit is estimated to host 2.7moz in reserves and ~3.4moz in resources.
• Maiden production is targeted for 2026.

Central Asia Metals (CAML LN) 191p, Mkt Cap £331m – Q3 operations update

• Kounrad produced 3.6kt (-1%yoy) copper taking 9M output to 10.2kt (9M23: 10.4kt).
• Sasa zinc production came in at 4.8kt (-7%yoy) with 9M at 13.8kt (9M23: 14.9kt).
• Sasa lead production was at 6.9kt (-2%yoy) with 9M at 19.7kt (9M23: 20.8kt).
• The Paste backfill Plant continued to operate consistently while the Dry Stack Tailings Plant remains on track with dry commissioning starting last month.
• These initiatives extend the life of existing tailings storage facility ensuring Sasa’s planned life of mine extends to at least 2039.
• Kounrad guidance reiterated for 13-14kt copper.
• Sasa production is expected to come in at the lower end of the FY24 guidance for 19-21kt zinc and 27-29kt lead.

Cleantech Lithium (CTL LN) 11p, Mkt Cap £21m – £2.5m equity raise

• The Company raised £2.5m issuing 22.7m new shares at 11p to advance the Laguna Verde Lithium Project in Chile.
• The price represents a 23% discount to the Tuesday closing price.
• Additionally, the Company is issuing 1.4m broker warrants exercisable at the placing price for five years.
• The raise was carried following the need to delay the planned listing on the ASX.
• The delay was previously reported to have been driven by procedural matters that the Company is addressing.

Cornish Metals* (CUSN LN) 7.1p, Mkt Cap £37m – New ceo to drive South Crofty tin mine forward

CLICK FOR PDF

• Don Turvey formally appointed as CEO and an executive director following approval of a UK work visa.  Turvey is relocating to Cornwall from South Africa to be close to the South Crofty tin mine.
• Turvey will work alongside COO, Owen Mihalop, a mining engineer who has been with the project for many years.
• Don Turvey is a mining engineer formerly with Billiton with more than 40 years’ experience including senior roles in production, project execution, business development, and minerals resource management.
• Ken Armstrong has returned to his previous non-exec director role with Patrick Anderson also returning to his role as non-executive chairman of the board.
• SP Angel key metrics:
  • Capex US$177m est.
  • Post-tax NPV_8% of US$268m est.
  • Assumption US$35,000/t for tin
• Cornish Metals PEA highlights:
  • Production: 4,700tpa tin.
  • Post-tax NPV@8% US$201m est.
  • IRR 29.8% est.
  • AISC cost US$13,660 /t est.
  • Total after-tax cash flow of US$626m est.
  • 3-year payback
  • Assumption US$31,000/t for tin
• Funding: Cornish Metals reported, in August, the sale of non-core royalty assets for US$4.5m in cash and of the Nickel King exploration project, also in Canada, for a total consideration of C$8.0m.
• The group has a cash balance of C$6m at end June
• Looking ahead, The company continue to refurbish the New Cook’s Kitchen shaft and to dewater the South Crofty tin mine.
• Tin pricing:  A recent rise in tin inventories has softened prices with sluggish spot market transactions due to slow restocking in China and despite the impact of storms in Myanmar and ongoing conflict in the region.
• LME week base metal poll ranked tin just behind copper as the metal with the most upside potential for 2025.
• There is no primary tin production in Europe or North America, with around two-thirds of the tin mined today coming from China, Myanmar and Indonesia.
• Tin is classed as a Critical Mineral by the UK, American, and Canadian governments

*SP Angel acts as Nomad and Broker. An SP Angel analyst formerly worked in the South Crofty tin mine in the 1980s and holds shares in Cornish Metals

Lundin Gold (LUG CN) C$31, Mkt cap C$7.6n – Quarterly production results

• Lundin Gold report production results form Fruta Del Norte in Ecuador.
• The mine produced 122koz, processing 425kt at an average feed grade of 10.3g/t Au.
• Recovery rates reported at 86.8%, up from 86.5% same period last year.
• Average gold price reported at $2,615/oz, up from $1,913/oz same period last year.
• Company reiterates guidance of 450-500koz for 2024.

Newmont Gold (NEM CN) C$53, Mkt cap C$60n – Sale of Akyem mine in Ghana to Zijin for up to $1bn

• Newmont reports that it plans to sell its Akyem operation to Zijin Mining for up to $1bn in cash.
• The Company will receive $900m upon closing and an additional $100m upon certain conditions.
• Newmont is working to divest its non-core assets, but is retaining interests in the Ahafo project in Ghana.
• The current reserves stands at around 1.1moz grading 1.35g/t, but don’t include the underground potential.
• Zijin reports that underground inventory at Akyem is closer to 2.7moz based on Newmont’s filings.
• Zijin has reported plans to boost gold output to 3.5moz by 2028 from 2.2moz in 2023.

Power Metal Resources* (POW LN) 16.5p, Mkt cap £18.35m – Saudi Arabia and Oman JV agreement updates

• Power Metals provide an update on their ongoing discussions in the Gulf.
• The Company announces that their agreements with Alara Resources and Awtad Copper for earn-in agreements is in final review.
• Both parties expect the signing of a formal and legally binding agreements in the coming days, although no certainty can be ascribed.

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

Rio Tinto (RIO LN) 5,300p, Mkt cap £86bn – $5.85/share offer for Arcadium Lithium

Arcadium Lithium (ALTM US) $4.2, Mkt cap $4.5bn

• Rio Tinto today announces a $6.7bn offer for Arcadium Lithium, a 90% premium to the closing share price on 4^th October, when Reuters leaked the news.
• Arcadium reported plans to double LCE capacity by the end of 2028 from current levels of 75kt.
• Rio CEO Stausholm states that the acquisition is a ‘counter-cyclical expansion aligned with our disciplined capital allocation framework, increasing our exposure to a high-growth, attractive market at the right point in the cycle.’
• Rio expect a 10% lithium demand CAGR to 2040, seeing supply deficits starting to emerge in 2030.
• Rio emphasises Arcadium’s ‘best-in-class DLE technology’ and high margin assets.
• Arcadium holds four lithium brine assets, three hard-rock spodumene assets, five hydroxide facilities and three lithium specialities facilities.
• The combined resource base is set to boost Rio’s LCE reserves by 9mt (excludes Rincon).
• The Group are expecting the transaction to complete in mid-2025.
• Rio emphasises their existing footprint in Canada, where Arcadium has its planned integrated spodumene capacity, noting their strength at hard-rock development, relations with the Cree and existing logistics capability.
• In Argentina, Rio emphasises the opportunity for DLE and improving environment from the Incentive Regime for Large Investments promoted by Milei.

Conclusion:  The Rio team is keen to stress the counter-cyclical nature of this investment given previous criticisms of overvalued acquisitions. We see this as justified given the significant sell-off in lithium prices over the past year and subsequent pressure on Arcadium’s share price. The Group have a strong portfolio of growth projects, both in brines, spodumene and downstream facilities. We note Rio’s eagerness to emphasise the appeal of Arcadium’s DLE assets, and the opportunity to both compliment Rincon and create opportunities elsewhere. DLE production remains limited from Western producers, with China utilising various technologies domestically with reportedly low recoveries. Rio’s blessing should provide some confidence in the investment community over the long-term fundamentals of the lithium sector.

Sovereign Metals* (SVML LN) 35p, Mkt Cap £219m – Ian Middlemas buys 400,000 shares in Sovereign Metals

(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

• We note the news today that Ian Middlemas, non-executive director and former Chairman of Sovereign metals has bought another 400,000 shares in Sovereign Metals for A$283,414.
• The purchase increases Ian Middlemas’ stake to 16.5m shares representing 2.8% of the company.

Conclusion:  Rio Tinto’s offer to buy Arcadium for US$6.7bn represents a 90% premium on the shares before the news of the deal became public and signals a new environment for acquisitions in the sector with the majors moving to build production in target areas.

While no direct approach has been made by Rio Tinto on Sovereign the close involvement of its engineers and ESG experts serves as extended due diligence indicating an approach is likely.

Sovereign’s Kasiya project is a world-class scale rutile and graphite project and we suspect Rio Tinto would not be keen to see such a valuable source of rutile fall into other hands while the recovery of graphite as a co-product also offers a second income stream for refined Li-ion battery anodes.

*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.

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.

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II – Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return