SP Angel . Morning View . Thursday 02 12 21
Chinese steel prices rise on construction demand
Gold slides on strong US economic data and expectations of hawkish Fed
MiFID II exempt information – see disclaimer below
Anglo Asian Mining* (Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)) – BUY, 180p – Vejnaly Contract Area access granted
Ariana Resources (Ariana Resources PLC (AIM:AAU)) – Increased resource estimate at Kokkinoyia
BlueRock Diamonds* (Bluerock Diamonds PLC (AIM:BRD)) – Bluerock reports the sale of three gem quality diamonds for US$180,000
Beowulf Mining* (Beowulf Mining PLC (AIM:BEM)) – Letter to Swedish Minister of Enterprise and Innovation
Caledonia Mining* (Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL)) – Victoria Falls Stock Exchange listing
Empire Metals* (Empire Metals Ltd (AIM:EEE)) – Phase 2 Drilling Commences at Central Menzies
GoldStone Resources (AIM:GRL)* (GoldStone Resources (AIM:GRL)) – Gold export permit issued
Hummingbird Resources (Hummingbird Resources PLC (LSE:HUM)) – Yanfolila restarts
Liontown Resources (ASX:LTR) (Liontown Resources (ASX:LTR)) – A$450m equity raise to advance Kathleen Valley spodumene project
Power Metal Resources* (Power Metal Resources PLC (AIM:POW)) – high-grade intercepts at Silver peak project
Rambler Metals and Mining*+ (Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)) – Financing provides a solid platform for the long-term development plan at the Ming mine
Savannah Resources* (Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)) – BUY, 17.9p – 20% in Mutamba disposed of in a $9.5m cash deal
SolGold* (SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)) – Further drilling results from Tandayama-America
Gold slides on strong US economic data and expectations of hawkish Fed
Gold slides to $1,770/oz as traders ramp up bets on an accelerated Fed taper program.
Powell told Congress yesterday that inflation may persist into 2H22.
US non-farm payroll ADP data suggests an increase of 534k jobs in Nov, vs predictions of 506k.
The Fed is targeting maximum employment before a rate hike, resulting in gold losing appeal on strong US economic data.
Chinese steel prices rise on demand optimism
Shanghai rebar up 1.3%, HRC up 1.1%, stainless steel down 1.3%.
Consumption for 5 major steel products up 2.6% in China to 9.79mt. (MySteel)
Iron ore futures down 3.5%, 62% spot held strong at $105/t.
Coking coal futures down 2.9% and coke down 1.7%. (Reuters)
Global nickel consumption rises faster than output
Global nickel consumption hit 2.15mt – 108.5kt higher than total output of 2.04mt. (WBMS)
2020 saw refined nickel output 84kt higher than consumption.
LME nickel stocks in Sept. down 117kt from Dec. 2020.
Indonesia refined nickel output up 43% y-o-y to 287.9kt.
China refined nickel output up 81kt y-o-y.
Nickel prices hit $21,425/t in Oct – highest since 2014.
Dow Jones Industrials -1.34% at 34,022
Nikkei 225 -0.65% at 27,753
HK Hang Seng +0.55% at 23,789
Shanghai Composite -0.09% at 3,574
Economics
China – Chinese automotive output slows on the year
China’s car manufacturers are expecting an output of 2.47m units in Nov.
This marks an increase of 5.9% vs Oct but down 10.8% vs 2020.
The data stems from 13 leading automakers under the China Association of Automobile Manufacturers.
Evergrande resumes 10 projects as asset sale buys time with creditors
Evergrande has resumed development projects in 6 cities.
The developer has also pledged to fulfil its ‘responsibilities’ to homebuyers. (SCMP)
Evergrande has been selling its prize assets to fund the number of interest payments due this year and next.
3 alternative Chinese property developers plan to sell bonds to raise 18bn yuan to make key payments.
China home price growth fell by 0.36% from October. (China Index Academy)
DRC - DRC state cobalt unit looks to start acquisitions in January
The DRC’s state cobalt monopoly is looking to expand its projects by buying artisanal cobalt from January. (Reuters)
Cobalt demand is set to be strong with the rising dominance of EVs.
The Enterprise Generale du Cobalt (EGC) was established to monopolise the artisanal mining sector in the DRC but is yet to buy any cobalt.
The EGC aims to buy 10kt of cobalt in hydroxide next year – a reduction from previous targets of 15,000.
The EGC plans to buy 25kt/pa of artisanal cobalt.
Long term shipping rates soar 121% y-o-y
Long-term ocean freight rates rose another 16.3% in November (XSI)
The move marks the second largest rate hike in history, following July’s 28.1% jump.
Soaring rates point to strong demand and maxed-out port capacity alongside supply chain disruption.
South Korea – Consumer prices growth came in stronger than forecast in November with the central bank revising its week old inflation estimates.
CPI climbed 3.7%yoy, up on 3.2% in October and 3.1% expected.
The Bank of Korea in a statement release said inflation may be “somewhat” higher than the 2.3% predicted November 25.
Turkey – President Erdogan replaced Finance Minister highlighting deepening rifts in the administration over the course of the monetary policy, Bloomberg reports.
Lutfi Elvan is leaving the administration a little more than 12 months on the job.
The lira weakened on the announcement trading extending YTD losses to ~45%.
Aluminium stocks tumble as Beijing limits smelter output
LME aluminium stocks hit 893kt - lowest since 2007.
China’s output peaked at 39.7mt in Feb, estimated at 38.5mt in Oct. (IAI)
The country has now imported 1.37mt in 2021.
Chinese smelters have been forced to limit output to reduce carbon emissions.
Prices peaked at $3,229/t but remain well above normal levels at $2,640.
Currencies
US$1.1317/eur vs 1.1351/eur yesterday. Yen 113.19/$ vs 113.35/$. SAr 15.922/$ vs 15.826/$. $1.332/gbp vs $1.3228/gbp. 0.711/aud vs 0.715/aud. CNY 6.373/$ vs 6.370/$.
Commodity News
Precious metals:
Gold US$1,772/oz vs US$1,783/oz yesterday
Gold ETFs 98.5moz vs US$98.5moz yesterday
Platinum US$942/oz vs US$950/oz yesterday
Palladium US$1,747/oz vs US$1,753/oz yesterday
Silver US$22.34/oz vs US$22.90/oz yesterday
Rhodium US$14,000/oz vs US$13,900/oz yesterday
Base metals:
Copper US$ 9,415/t vs US$9,555/t yesterday
Aluminium US$ 2,645/t vs US$2,656/t yesterday
Nickel US$ 19,980/t vs US$20,155/t yesterday
Zinc US$ 3,185/t vs US$3,201/t yesterday
Lead US$ 2,283/t vs US$2,290/t yesterday
Tin US$ 38,810/t vs US$38,835/t yesterday
Energy:
Oil US$69.9/bbl vs US$71.8/bbl yesterday
Oil prices fell once again after the Energy Information Administration reported an inventory draw of 900,000bbls for the week to 26 November
Fuel inventories, however, added a substantial amount
At 433.1MMbbls, crude oil inventories in the US remain below the five-year seasonal average
Last week’s inventory move compares with a modest build of 1MMbbls for the previous week and a 2.1MMbbl draw for the week before that
In gasoline, the EIA estimated an inventory increase of 4MMbbls for the week, which compared with a decline of 600,000bbls for the previous week and another draw, of 700,000bbls for the week before that
Gasoline production last week stood at an average of 9.6MMbopd, compared with 10.1MMbopd in the previous week
In middle distillates, the EIA estimated a stock build of 2.2MMbbls for the week to 26 November, which compared with a draw of 2MMbbls for the previous week
Middle distillate production last week averaged 4.9MMbopd, which compared with 4.8MMbopd for the week earlier
Refinery runs averaged 15.6MMbopd last week, which was almost unchanged on the previous week
OPEC+ meets this week to decide on future production quotas which will dictate volatility
Natural Gas US$4.234/mmbtu vs US$4.364/mmbtu yesterday
Europe’s benchmark natural gas price rose above €100/bbl of oil equivalent, ahead of a series of auctions for pipeline capacity that are seen as a test of Russia’s willingness to ease a supply crunch
Conversely, US natural gas futures fell to their lowest levels in nearly three months yesterday as warmer-than-expected winter forecasts sent prices tumbling
Outside of modest increases in LNG feed gas demand, the sharp move higher Friday occurred despite notable further deterioration in the fundamental picture for natural gas
European prices continue to hold up on last week’s news that Germany's energy regulator has suspended the approval process for the Nord Stream 2 pipeline last week
Vladimir Putin continues to exert pressure on Europe with declining gas flows amid the onset of the Northern Hemisphere winter
Uranium UXC US$46.6/lb vs $47.25/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$103.3/t vs US$102.4/t
Chinese steel rebar 25mm US$748.8/t vs US$749.0/t
Thermal coal (1st year forward cif ARA) US$105.5/t vs US$121.0/t
Thermal coal swap Australia FOB US$155.0/t vs US$142.8/t
Coking coal swap Australia FOB US$266.0/t vs US$302.0/t
Other:
Cobalt LME 3m US$66,150/t vs US$65,800/t
NdPr Rare Earth Oxide (China) US$134,554/t vs US$134,645/t
Lithium carbonate 99% (China) US$29,735/t vs US$29,127/t - Executives call for EV makers to boost relationships with lithium suppliers
Albemarle and Livent Corp executives emphasised the need for EV makers to ink deals with lithium producers to guarantee supply. (Reuters)
Lithium for EVs requires custom orders owing to its storage challenges.
Global lithium demand is expected to hit 3mt by 2030 vs 2020’s 320kt market.
China Spodumene Li2O 5%min CIF US$2,310/t vs US$2,260/t
Ferro-Manganese European Mn78% min US$1,896/t vs US$1,900/t
China Tungsten APT 88.5% FOB US$313/t vs US$313/t
China Graphite Flake -194 FOB US$6800/t vs US$665/t
Europe Vanadium Pentoxide 98% 8.1/lb vs US$8.1/lb
Europe Ferro-Vanadium 80% 32.55/kg vs US$32.55/kg
China Ilmenite Concentrate TiO2 US$385/t vs US$385/t
Spot CO2 Emissions EUA Price US$86.4/t vs US$84.2/t
Battery News
Company News
Anglo Asian Mining* (Anglo Asian Mining PLC (AIM:AAZ, OTC:AGXKF)) 111p, Mkt Cap £127m – Vejnaly Contract Area access granted
BUY – 180p
The Government of Azerbaijan granted access to the Zangilan district hosting the Vejnaly Contract Area for the Company after deeming the area safe.
The management team will be travelling to the area early this month to inspect the site and assess the scope of refurbishment works and the potential of the area.
The area hosts the Vejnaly deposit with some historical mining and small scale processing carried previously.
Existing stockpiles will be surveyed and sampled.
Accessible underground mine adits will be surveyed and GPS mapping of locations to be carried out.
Existing camp facilities will be assessed for future refurbishment works to allow employees to be based in the contract area.
The team is planning to launch exploration and processing of existing stockpiles from Vejnaly in due course.
Authorities are ramping up development of infrastructure in the region including a construction of an international airport (exp 2022) with a power substation having been recently opened in the district.
Conclusion: The team will be visiting the Vejnaly Contract Area (300km2) in the Zangilan region early this month after the government granted access to the property. Some historical mining has been carried in the area that is a well endowed region with the active Kapan polymetallic underground mine located only 25km across the border with Armenia. We have not included any value for Vejnaly in our target price implying further potential upside as the team assesses economic potential of the property.
*SP Angel act as Nomad and broker to Anglo Asian Mining
Ariana Resources (Ariana Resources PLC (AIM:AAU)) 4.15p, Mkt Cap £44m – Increased resource estimate at Kokkinoyia
Ariana reports an updated, JORC (2012) compliant mineral resources estimate for the Kokkinoyia project in Cyprus.
The project is wholly owned by Venus Minerals which is itself 50% owned by Ariana Resources.
The new estimate “is based on a detailed review of all available drill data acquired between 1950s-1980's, as well as nine diamond drillholes drilled in 2021” and results in an indicated and inferred resource of approximately 12.3mt at average grades in the range of “0.31 to 2.25% Cu and 0.27 to 0.57 g/t Au across multiple zones of mineralisation at Kokkinoyia”.
The majority of the resource (9.87mt at an average grade of 0.34% copper with 0.27g/t gold) is contained within the indicated and inferred “Low Grade Copper Domain” where approximately 40% of the resource tonnage is classed as indicated.
An additional, inferred “High Grade Copper Domain” is reported to contain approximately 0.79mt at at an average grade of 2.25% copper.
Pointing out that this represents a 240% increase on previous estimates, Managing Director, Dr. Kerim Sener, explained that the new estimate had also delivered expectations that “as we had predicted, the Kokkinoyia deposit contains a substantial amount of gold, in association with copper and zinc”.
Dr. Sener said that “The fact that the deposit contains a substantial tonnage of mineralised material across several domains beyond what was already understood from the historical work bodes well for future exploration and resource drilling”.
He also alluded to the recent resources estimate at Apliki saying that “Venus will now be looking into the potential to integrate a part of the Kokkinoyia Sector with the planned Apliki Copper Mine development project as a means to fast-tracking this deposit into production “.
BlueRock Diamonds* (Bluerock Diamonds PLC (AIM:BRD)) – 37p, Mkt cap £5.2m – Bluerock reports the sale of three gem quality diamonds for US$180,000
BlueRock reports the sale of US$180,000 worth of gem-quality diamonds as part of the November diamond tender in Kimberley, South Africa.
The three stones were 7.6cts, 7.6cts and 6.5cts with a respective values of $8,900/ct, 8,000/ct and 8,100/ct
The sale of the three larger stones has elevated the November tender average to US$496/ct.
This should raise the overall price per carat for the Kareevlei mine to $488/ct for the year by our reckoning.
We estimate the mine should see total sales for the year of over $9m.
The total value of the Kareevlei mine production for the year should be close to $10.5m for the year assuming all goes well through December.
This should result in substantially higher sales in the first quarter with around $2-2.5m worth of stones due to be sold in the first auction of the new year assuming no further material disruption to the mine and process plant.
*SP Angel act as nomad and broker to BlueRock Diamonds
Beowulf Mining* (Beowulf Mining PLC (AIM:BEM)) 7.4p, Mkt cap £61.4m – Letter to Swedish Minister of Enterprise and Innovation
Beowulf has sent a letter from its CEO, Kurt Budge, to Sweden's Minister of Enterprise and Innovation, Karl-Petter Thorwaldsson, following positive comments by the new Swedish Prime Minister about the need for more mines in Sweden and Minister Thorwaldsson about 'taking action' in the matter of Kallak.
Karl-Petter Thorwaldsson was announced as Minister of Trade and Industry this week, and called for better dialogue between politics and business about what needs exist and how these should be prioritized.
Mr Thorwaldsson has previously worked for steel group SSAB, where he closely followed the company's transition to fossil-free steel.
Concerning the Kallak deposit, Mr Budge comments: “If now, after 15 years of investment, defining a significant iron ore resource, from which a market-leading iron concentrate can be produced, which can ensure the integrity of a developing fossil-free supply chain for steelmaking in Norrbotten, and creating a business opportunity that can positively transform a rural community, that approval is not given, then this would be a damning message to send to investors.”
We recommend reading the company’s submission to the Minister in full, found here: https://www.investegate.co.uk/beowulf-mining-plc--bem-/rns/letter-to-minister-of-enterprise-and-innovation/202112020700063024U/
*SP Angel acts as nomad and broker to Beowulf Mining
Caledonia Mining* (Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL)) 965p, Mkt Cap £118m –Victoria Falls Stock Exchange listing
Caledonia Mining confirms that it has now issued 619,783 shares, which we estimate represents approximately 4.9% of the enlarged capital of the company “against which the same number of depositary receipts have been issued to Zimbabwe investors” to progress its previously announced listing on the Victoria Falls Stock Exchange.
The issue has raised approximately US$7.8m and the listing of the “depositary receipts on the VFEX is expected to occur today with trading also commencing today”.
At the time of the announcement of the Zimbabwean listing on 29th November, CEO, Steve Curtis, described the support from Zimbabwe investors as “extremely encouraging and reinforces our belief that this listing is an important milestone, welcoming new shareholders, with a mutual desire for investment in Zimbabwe”
Following the VFEX listing, Caledonia Mining has approximately 12.76m shares in issue.
*SP Angel mining analysts have visited Caledonia’s mining operations in Zimbabwe
Empire Metals* (Empire Metals Ltd (AIM:EEE)) 1.28p, Mkt cap £4.3m – Phase 2 Drilling Commences at Central Menzies
Empire reports that it has commenced Phase-2 RC drilling at the Central Menzies Gold Project in Western Australia, over which Empire holds an option to acquire a 75% interest.
1,360m of drilling has been planned, with a focus on testing the 500m long Nugget Patch gold trend where gold mineralisation was identified during the initial RC drilling programme in September 2021.
A programme of 13 RC holes for a total of 1,360m is planned, with nine RC holes to be drilled at Nugget Patch, for 1,080m and a further four holes will be drilled at Teglio for 280m.
At Nugget Patch, previous drilling did not adequately test the targeted shear zone below the near surface, strongly weathered zone. This programme is targeting a down-dip position at or below the base of weathering to test for high-grade primary gold mineralisation on 80m spaced sections.
At Teglio prospect, with additional holes aimed at confirming historic high grade gold intersections closely associated with the main workings, plus additional work testing a strong gold-in-soil anomaly recently defined by Empire some 300m northwest of the previous drilling.
Nugget Patch and Teglio are located some 2-3km southeast and along strike from the >300,000oz Au high-grade Yunndaga deposit and with a similar geological setting.
*SP Angel acts as nomad and broker to Empire Metals
GoldStone Resources* (GoldStone Resources (AIM:GRL)) 11.9p, Mkt Cap £54m – Gold export permit issued
GoldStone reports that the Ghanaian Ministry of Lands and Natural Resources has approved the Company's permit application to export, sell or dispose of the gold produced from its mining operation on the Homase Mine.
The Licence is valid for one year and allows the Company to manage the export of gold in a timely manner with the offtake partner.
Earlier this week, the company reported that it successfully completed its first commercial gold pour at the Homase Mine.
The Company’s first smelt and gold pour produced gold bars weighing in total 14.46kg (464.90 Troy ounces).
Following the pause of operations announced 17 September 2021, the Company will now be recommencing mining operations and is currently formulating a revised production schedule.
*SP Angel acts as broker to GoldStone Resources
Hummingbird Resources (Hummingbird Resources PLC (LSE:HUM)) 15.3p, Mkt Cap £60m – Yanfolila restarts
The Company reported yesterday operations at the Yanfolila Mine restarted following a brief stoppage announced on 29 November.
The national Mali Government cleared illegal roadblocks restoring public order in the region.
The team assesses the impact of the disruption on production and costs as the mine ramps up the run rate.
The Company will provide a more detailed update once the assessment is complete.
Liontown Resources (Liontown Resources (ASX:LTR)) A$1.6, Mkt Cap A$3.1bn – A$450m equity raise to advance Kathleen Valley spodumene project
The Company secured commitments for a fully underwritten placing raising ~A$450m at A$1.65/sh.
Additionally, the Company is launching a rights issue (SPP) of up to A$40m at the same price as the placing.
The placing price represents a 14% discount to the closing price of A$1.92/sh on 30 November, the day before the announcement of the deal.
Assuming a full take up of the rights issue, the Company will have ~A$514m in cash allowing to further progress development of the 100%-owned Kathleen Valley spodumene project in Western Australia.
Under the DFS released in Nov/21, the Kathleen Valley is expected to run at 2.5mtpa (open pit + underground) delivering ~500ktpa spodumene concentrate with a 4mtpa expansion planned in Y6 to deliver ~700ktpa with a ~23 year mine life.
An extensive metallurgical test work program completed for the DFS has confirmed ability to produce a low impurity 6-6.5% Li2O concentrate while also producing a ~12 Ta2O5 concentrate onsite.
The deposit hosts 68.5mt at 1.34% Li2O for 2,270kt LCE in mineral reserves and 156mt at 1.4% Li2O for 5,400kt LCE in total resources.
Development capital cost estimated at A$473m.
The project generates A$4.2bn and 57% in NPV8% (after tax) and IRR (after tax), respectively.
The study used an average price of US$1,392/t SC6 FOB Australia ($1,422/t SC6 CIF China).
Final Investment Decision is expected in Q2/22 with first production potentially in 2024.
The team is also studying the option of the Downstream Integrated Refinery for production of LiOH from the Kathleen Valley feed.
Power Metal Resources* (Power Metal Resources PLC (AIM:POW)) 1.6p, Mkt Cap £21.5m – high-grade intercepts at Silver peak project
Power Metal reports that it has received overlimit assay results from its recently completed 2021 diamond drilling exploration programme on the Silver Peak Project in British Columbia, Canada.
A total of 19 short, cored drill holes were completed as part of the Phase I programme, and overlimit assays were completed on all copper, antimony and lead results which returned >10,000 ppm (1%) from the original laboratory results.
The overlimit results reported include individual results up to 7.76% copper (Cu), 9.45% lead (Pb), and 8.63% Antimony (Sb).
Updated highlight intercepts which are now calculated as AgEq* and include Cu, Sb and Pb results:
0.9m of 4,649g/t AgEq from DDH21-1 (including 0.3m of 10,649g/t Ag, 2.28% Cu, 6.53% Sb, and 5.53% Pb)
0.76m of 10,131g/t AgEq from DDH21-2 (including 0.35m of 12,373g/t Ag, 3.44% Cu, 9.45% Sb, and 8.63% Pb)
1.75m 3,072g/t AgEq from DDH21-7 (including 0.25m of 17,016g/t Ag, 4.10% Cu, 8.26% Sb, and 6.05% Pb)
1.52m of 3,244g/t AgEq from DDH21-8
2.44m of 1,306g/t AgEq from DDH21-12
2.43m of 2,068/t AgEq from DDH21-13
2.59m of 1,740/t AgEq from DDH21-15
The high-grade Cu, Sb and Pb results led to an average increase in grade of 18.8% from Ag to AgEq for the calculated intervals.
Paul Johnson, CEO of Power Metal Resources PLC (AIM:POW) commented: "The bonanza grade silver results from Silver Peak are further strengthened today with the overlimit analysis demonstrating significant copper, antimony and lead grades and increasing the average silver equivalent grade considerably.”
“Overall, the results are highly impressive and demonstrate the incredibly silver rich veins at Silver Peak. Without question this is an important asset for Power Metal and our partners, particularly in a world where high quality silver projects are hard to secure."
*SP Angel acts as nomad and broker to Power Metal Resources
Rambler Metals and Mining*+ (Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)) 34.5p, Mkt cap £45m – Financing provides a solid platform for the long-term development plan at the Ming mine.
(Rambler owns 100% of the Ming Copper-Gold Mine)
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Rambler Metals & Mining has announced the closing of its previously announced debt and equity financing and reports that it has agreed with NewGen Resource Lending amended terms for the third tranche of the Loan Note.
The company explains that the third tranche has been amended “from US$7.8 million to a higher total of $8.0 million comprising US$3.0 million debt plus US$5.0 million in equity … [and] … the total Loan Note has now decreased from US$22.0 million to US$17.3 million”.
The company also clarifies that the “equity financing of US$5.0 million will be completed in two tranches through the issuance of a total of 10,716,964 ordinary shares … at a price of 35 pence per share, being a 4.5% premium to the closing mid-market price on 1 December 2021, to two Canadian institutions with over US$1 billion assets under management, respectively”.
Rambler Metals “will also issue 535,848 agent warrants over ordinary shares in the Company in connection with the equity financing. The number of warrants represent 5% of the total number of shares issued in the equity financing. The exercise price of the warrants is 35 pence and the warrants expire in 4 years from the date of issue”.
Conclusion: Rambler Mines has now completed the financial measures required to progress the turnaround of the Ming mine in Newfoundland where it is building on recent progress towards its 1,350tpd ore production and processing target to deliver long-life mine with a 20 year life.
*SP Angel act as Nomad and broker to Rambler Metals & Mining.
Savannah Resources* (Savannah Resources PLC (AIM:SAV, ETR:SAV, OTC:SAVNF)) 3.9p, Mkt Cap £66m – 20% in Mutamba disposed of in a $9.5m cash deal
BUY – 17.9p
The Company agreed a deal with Rio Tinto following the strategic review of the Mutamba mineral sands project in Mozambique.
Rio Tinto paid $9.5m in cash to Savannah in regards of the termination of the Consortium Agreement.
Savannah and Rio owned the Mutmaba project under the Consortium Agreement signed in Oct/16 under which Savannah had an option to progressively earn into the asset taking its current 20% interest to 35% (upon completion of the PFS) and ultimately 51% (upon completion of the FS).
Rio Tinto will take full responsibility for the Mutamba project including Jangamo 9228C, Dongane 9229C and Ravene 9229C mining concessions hosting 4,280mt at 3.85% THM (60% Ilmenite).
Savannah will transfer its in-country team to Rio Tinto.
Following the transaction, Savannah will have only an interest in its regional subsidiary and Mining Concession 9735C hosting 65mt at 4.20% THM (60% ilmenite) that it intends to divest in due course.
The sale provides immediate access to $9.5m that will be directed towards development of the flagship Barroso Lithium Project in Portugal that is currently going through the permitting process.
Conclusion: The Company secures $9.5m in cash sale proceeds exiting non-core mineral sands assets in Mozambique and directing all focus on the flagship Barroso Lithium Project in Portugal. Disposal proceeds for an effective 20% interest in the Mutamba project mostly covers aggregate Savannah’s investment (~$10m). While the value secured is lower than what we had in our NAV estimate of $17m (NPV10% (after tax) $215m adjusted for a 0.4x risk factor and 20% SAV’s interest), the project was a non-core asset accounting for 7% of the Group’s value and a shortfall in deal proceeds versus our estimates amounting to just 0.3p/share. Ultimately, we view the transaction as a positive as Savannah secures nearly $10m in a straightforward cash deal while avoiding potential future capital commitments for Mutamba project development and allowing management to direct its focus entirely towards the flagship lithium project. The Company is well funded to complete the Barroso DFS (exp 2022) with ~$10m in sale proceeds coming on top of £9.7m in cash as of Jun/21.
We adjusted our SAV valuation for the transaction replacing risk adjusted Mutamba NPV with $9.5 in cash while applying higher long term spodumene prices to the Mina do Barroso NPV ($1,000/t vs 2018 Scoping Study Base Case price of $685/t SC6 CFR China). At $1,000/t SC6 price, MdB NPV8% (post tax) comes in at $691m that on a risk adjusted basis (0.6x multiple) translates into $415m (17.5p/sh contribution) yielding 17.9p updated target price. Although that may still prove to be conservative given the tightness in the spodumene market as implied by unprecedented spot market prices. Mt Cattlin (Orocobre) concentrate prices averaged $779/dmt (SC5.7 CIF China) in Q3/21, +120% on Q1/21, with spot prices for Pilbara Minerals concentrate 10,000dmt and 8,000dmt shipments in July and September attracting $1,400/t and $2,500/t (both SC6.0 CIF China), respectively. Orocobre, for instance, is talking to its offtakers to lock in $1,650/t (SC6.0 CIF China) for ~39kt delivery in Q4/21 (c.65% of quarterly Mt Cattlin production) and ~25kt shipment in January while Pilbara Minerals is reviewing prices with its customers aiming for $1,650-1,800/t levels (SC6.0 CIF China). Separately, Roskill spodumene price forecasts used in the latest Kathleen Valley FS (Liontown Resources, Nov/21) referred to an average of $1,422/t (SC6 CIF China ) for the 2024-2041 period starting at +$1,100/t in 2024-25 and climbing past $1,400/t in 2030-31 reflecting strong spodumene market fundamentals.
*SP Angel act as Nomad to Savannah Resources
SolGold* (SolGold PLC (LSE:SOLG, TSX:SOLG, OTC:SLGGF)) 23.05p, Mkt Cap £553m – Further drilling results from Tandayama-America
Solgold has released additional drilling results from its Tandayam-America (TAM) deposit which lies within its Cascabel licence area in northern Ecuador and approximately 3km north of its flagship Alpala project and where, in October, the company announced an initial mineral resources estimate of 233m indicated tonnes at an average grade of 0.23% copper and 0.16g/t gold (reported as 0.33% copper equivalent CuEq) and an additional inferred tonnage of 197mt at an average grade of 0.27% copper and 0.20g/t gold (0.39% CuEq).
Solgold reports that it has now completed approximately 26,000m of drilling in 33 holes at TAM “equating to an additional c.4,000m of resource extension and geotechnical drilling completed since the recent release of the TAM maiden MRE on 19 October 2021” and that “drill holes 30-33 … [are] … currently underway utilising four diamond drilling rigs”.
The company clarifies that “Holes 1-19 were drilled for resource definition in the central, north, west portions of the deposit. Holes 20, 21, 22, 27, 30 and 32 were drilled specifically for geotechnical purposes, targeting the proposed west wall of the potential pit design. All remaining holes focus on resource extension to the growing underground resources”.
Among the results highlighted in today’s announcement are:
A 568m wide intersection at an average grade of 0.27% copper and 0.36g/t gold from a depth of 234m (reported as 0.50% copper equivalent – CuEq) in hole 24 which includes 220m, from 300m depth at an average grade of 0.32% copper and 0.61g/t gold (0.71% CuEq); and
A 156 wide intersection at an average grade of 0.18% copper and 0.29g/t gold from a depth of 214m (reported as 0.37% CuEq) in hole 23 which includes 48m, from 274m depth at an average grade of 0.43% copper and 0.72g/t gold (0.92% CuEq); and
A 455.7 wide intersection at an average grade of 0.18% copper and 0.12g/t gold from a depth of 206m (reported as 0.26% CuEq) and open at depth in hole 19 with the wider intersection including 304m, from 244m depth at an average grade of 0.23% copper and 0.13g/t gold (0.31% CuEq) as well as 48m from 486m depth at an average grade of 0.31% copper and 0.19g/t gold (0.43% CuEq)
The company says that the recent results “bode well for future resource growth in the southeast quarter of the open pit resource area and particularly in the east and southeast depth extensions of the potential underground resource area where the highest-grade mineralisation encountered thus far remains open”.
Solgold also says that “the additional resources being identified at TAM provide a strategic fit towards the development of the Cascabel property as a whole”.
TAM’s open-pittable resources comprise 201m indicated tonnes at a grade of 0.33% CuEq plus an additional 61.8m inferred tonnes at a grade of 0.44% CuEq and, potentially including “a higher-grade near-surface zone containing 10.6Mt @ 0.41% CuEq and 5.2Mt @ 0.45% CuEq”.
The drilling of six holes specifically for geotechnical information in “the proposed west wall of the potential pit design” suggests that Solgold is actively considering an early stage open-pit development at TAM as part of the wider development strategy for the Cascabel licence, including Alpala.
Given the potential lead-time for large scale underground development at Alpala the acceleration of a cash flow generating open pit at TAM seems a prudent avenue of investigation although any decision will need to be driven by considerations of economics and practical engineering.
Conclusion: Recent drilling at Tandayama-America provided scope for expansion of the initial 233mt indicated resource estimate announced in October. With over 200mt potentially amenable to open-pit mining and the inclusion of geotechnical drilling at this stage leads us to infer that an accelerated open-pit development is under consideration as part of a wider development strategy for the Cascabel project area.
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