SP Angel . Morning View . Friday 14 01 22
Inflation lifts gold while nickel and copper continue to gain
Altus Strategies* (Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)) – Revenue generating Newcrest royalties add to growth momentum
Castillo Copper (Castillo Copper Ltd (LSE:CCZ, ASX:CCZ)) – Proposed purchase of lithium assets abandoned in favour of the BHA project
Orosur Mining* (Orosur Mining Inc (AIM:OMI, TSX-V:OMI)) – Agreement to earn 75% of the Ariquemes tin project
Petropavlovsk (Petropavlovsk PLC (LSE:POG)) – KPMG forensic investigation report released
Power Metal Resources* (Power Metal Resources PLC (AIM:POW)) – Athabasca uranium project
Rambler Metals and Mining* (Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)) – Discovery of new high-grade mineralisation close to underground workings at the Ming mine
Scotgold Resources* (Scotgold Resources Limited (AIM:SGZ)) – December delivers record production with further ramp up guided for 2022 reaching Phase 2 in Q1/23
IGTV: IG Outlook 2022, China new year, winter Olympics may see metals prices soften: (12/01/2022): https://youtu.be/vNqDh74zW5I
VOX Markets: 12/01/22: https://audioboom.com/posts/8011559-john-meyer-on-china-s-factory-shut-downs-plus-news-from-bluejay-beowulf-atlantic-lithium
interactive Investors: FTSE 100 favourite stock: https://youtu.be/BomNRQJt-YA. 2022 outlook: https://youtu.be/SxMPiPEc_Rg
Three small-cap mining share tips for 2022: https://www.youtube.com/watch?v=9xvA_3UXXYQ&ab_channel=interactiveinvestor
*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.
Covid – new infections in Shanghai cause quarantine of >300 close contacts and testing for >30,000 people
The continuing appearance of new Covid infections demonstrates how hard it is for the authorities to contain the new variants, particularly Omicron
Can China manage to contain Omicron while allowing the majority of the population to travel over the Spring Festival?
Will Omricon escape the clutches of China’s strict covid testing and break out into the population at large.
The danger for China is that while Omricon is considered to cause milder disease, it can still be fatal for people with underlying health conditions.
Given the very substantial pollution suffered by many workers in China over many years coupled with high levels of heavy smoking and sparse healthcare then Omicron may prove to be rather more disruptive in China than in the UK where the traditional AstraZeneca vaccine and booster appears to have done a relatively good job.
Omicron coronavirus causes less severe disease than the delta strain even if unvaccinated or with no prior infection (Bloomberg)
Anecdotal and statistical evidence of hospitalisations appears to support the news.
Bloomberg base their news on a previously published South African study which has not been peer reviewed.
Gold - Record inflation sees gold set for best week since November
Gold has held around $1,826/oz, up 1.7% this week, marking its biggest weekly gain since Nov. 12th.
Gold has been propelled by the US CPI recording its highest yearly gain since June 1982.
China copper imports weaken in 2021 following record 2020
China unwrought copper imports fell 17.2% to 5.53mt vs 2020’s record high 6.68mt. (Reuters)
Imports remain at historically high levels, with 2020 a bumper year amid China’s rapid initial recovery from the pandemic.
Partially processed copper concentrate hit a record 2021, 7.6% higher than 2020 levels.
December 2021 saw the highest level of China copper imports since Oct. 2020 on a price arbitrage opportunity between international markets.
Nickel extends rally as supply shortages intensify
Nickel jumped another 1.3% to $22,465/t, its highest LME level in over a decade.
The LME spot nickel premium on 3-month futures hit its highest since 2007 on low inventories.
A potential export tax on various nickel products from Indonesia has added to the metal’s rally.
Diamond market – Retailers report strong sales for diamond jewellery (Rapaport)
E-commerce jewellery sales more than doubled from November to December
Global jewellers confirm strong 2021 sales with Birks holiday sales +16%; Chow Tai Fook 3Q sales +32%; Titan 3Q sales +36%; Pandora FY sales +23% to $1.4bn.
The outlook for the Chinese New Year is also looking good with record sales expected providing China does not shut down travel again.
Iron ore weakens on sliding China imports and rising stockpiles
Iron ore prices fell 1.4% to $126.30/t.
China imports fell 18% in December vs November 21 and slid 4% over the year. (Bloomberg)
Imports fell as Beijing cracked down on steel production to limit carbon emissions.
Iron ore prices had been bolstered by Brazilian disruptions, with forecasts of easing rainfall also adding to the price decline.
Analysts point to a major cooling in China’s property development sector as the primary reason behind falling iron ore imports.
China port iron ore stockpiles are at their highest level since 2018 following major stocktaking before the Lunar New Year holiday.
Dow Jones Industrials -0.49% at 36,114
Nikkei 225 -1.28% at 28,124
HK Hang Seng -0.19% at 24,383
Shanghai Composite -0.96% at 3,521
Economics
US - PPI fell to 0.2% vs 0.8% and 9.7% yoy vs 9.6%
Core PPI pulled back to 0.5% vs 0.7% and 8.3% yoy vs 7.7% yoy - the figures suggest inflation is pulling back as predicted by policymakers.
This reduced the threat of larger interest rate hikes, give more room for ongoing stimulus programs and should help equities higher.
Most of the inflation seen is due to higher oil and energy prices. Their inflationary impact will wane and will also curb spending on other inflationary products thereby reducing their inflationary effect.
In reality real-world inflation, eg consumer spending, has been running higher than official figures for years with the PPI and CPI data is simply recording the cost of the basics
One Fed official reckons the US could go for four interest rate hikes this year potentially taking rates to somewhere between 0.75-1.5% by the year end.
US weekly jobless claims 230k from previous 207k.
China - Evergrande dodges first public onshore default with bondholder agreement
Evergrande has reached an agreement with domestic bondholders to delay payments on a $708m onshore bond. (WSJ)
The delay reflects Evergrande’s stronger credit position onshore vs with its international bondholders where it has received multiple default ratings.
Evergrande is yet to default on any of its $8.8bn worth of outstanding domestic bonds. (Wind)
Alternative developers including Fantasia have also defaulted on international bonds but not on domestic payments.
UK Covid – 3% of the UK workforce was signed off work in late December with 21% of companies suffering a rise in cancellations
That does not include unreported absences which we suspect were significantly higher during the ping-demic.
Rather unsurprisingly the hospitality sector was hit hard with 44% of businesses in this sector affected by cancellations according to ONS figures
Germany – Price adjusted GDP rose 2.7% in 2021 vs -4.6% in 2020 and 1.1% in 2019
Indonesia – 6.7 magnitude earthquake not likely to trigger a tsunami according to the Indonesian government
The earthquake was felt across Jakarta.
Ukraine – hit by massive cyberattack as Russia moves more troops into the region
Russia has so far denied that it plans to attack the Ukraine but may take unspecified military action if its demands on NATO are not met.
Brazil rains forecast to calm following major mining disruptions
Brazil’s National Institute of Meteorology forecasts an easing in precipitation in the major ore mining state Minas Gerais.
The heavy rainfall is expected to have peaked for the season, although railways are still being affected by storms.
Vale has had to suspend production at various iron ore mining facilities and major zinc producer Nexa Resources has had to slash production at its Vazante mine by 60%.
Chile continues to award new lithium contracts despite political opposition
The Chilean government has awarded 2/5 lithium contracts on offer to Chinese EV maker BYD and Servicios y Operaciones Mineras del Norte.
The contracts represent 1.8% of Chile’s total lithium reserves.
The decision was made by outgoing President Pinera with President-elect Boric looking to halt the process.
Chile is set to draft a new constitution, with mining and natural resources expected to be a major consideration.
Best joke of the year goes to:
Mastercard (NYSE:MA). Accepted across the world ….when your VISA isn’t - followed by a picture of Novak Djokovic
Australia has now cancelled Djokovic’s visa for a second time, so maybe he will be using his Mastercard to book a flight home.
Currencies
US$1.1470/eur vs 1.1324/eur yesterday. Yen 113.78/$ vs 115.76/$. SAr 15.318/$ vs 15.657/$. $1.374/gbp vs $1.358/gbp. 0.729/aud vs 0.719/aud. CNY 6.343/$ vs 6.374/$.
Commodity News
Precious metals:
Gold US$1,827/oz vs US$1,827/oz yesterday
Gold ETFs 97.9moz vs US$97.9moz yesterday
Platinum US$984/oz vs US$979/oz yesterday
Palladium US$1,872/oz vs US$1,899/oz yesterday
Silver US$23.25/oz vs US$23.18/oz yesterday
Rhodium US$16,400/oz vs US$16,400/oz yesterday
Base metals:
Copper US$ 9,975/t vs US$9,946/t yesterday
Aluminium US$ 2,969/t vs US$2,959/t yesterday
Nickel US$ 22,665/t vs US$21,960/t yesterday
Zinc US$ 3,594/t vs US$3,537/t yesterday
Lead US$ 2,375/t vs US$2,334/t yesterday
Tin US$ 40,750/t vs US$41,200/t yesterday
Energy:
Oil US$84.9/bbl vs US$84.5/bbl yesterday
Oil futures ticked higher early trading today on a weaker dollar although an imminent release of crude reserves from top importer China capped price gains
Crude prices turned positive as the dollar heads for its largest weekly fall in more than a year
China plans to release oil reserves around the Lunar New Year holidays as part of a plan coordinated by the US with other major consumers to reduce global prices
China agreed in late 2021 to release an unspecified amount of oil depending on price levels
The US Energy Department confirmed earlier this week that it had sold 18MMbbls of strategic crude oil reserves to six companies, including Exxon and a unit of refiner Valero Energy (NYSE:VLO)
China has also posted in 2021 its first annual decline in crude oil shipments in two decades as Beijing clamped down on the refining sector and drew down massive inventories
There were also concerns about fuel demand at the world's second-biggest oil consumer as the highly transmissible Omicron coronavirus variant has spread to the northeastern city of Dalian
China has suspended some international flights and stepped-up efforts to rein in a virus outbreak at Tianjin
Many cities, including Beijing, have also urged people not to travel during the Lunar New Year holiday, which could cool demand for transport fuel during a peak travel season
Natural Gas US$4.126/mmbtu vs US$4.704/mmbtu yesterday
US natural gas futures will end the week materially higher as temperatures drop and forecasts call for more winter weather ahead
The contract for February delivery advanced 14.3% on Wednesday to settle at US$4.857/mmbtu, hitting the highest level since November
The European weather model has also shifted “decidedly colder”, a development that was “clearly capturing market sentiment” in early trading today, according to Bespoke Weather Services
Concerns that Nord Stream 2 pipeline will not operate this winter season comes as the new German chancellor Olof Scholz said his government would do everything possible to make sure natgas flows continue through Ukraine and not the latest Russian to German undersea pipeline
Last month, German energy regulators suspended Nord Stream 2's certification process
The US has also sanctioned companies affiliated with the pipeline's construction
On top of the geopolitical uncertainties, mixed with tight natgas supplies across Europe, some of the lowest in a decade, a new 14-day weather forecast shows cooler than average weather, which will boost natgas demand
Uranium UXC US$46.50/lb vs $46.50/lb yesterday
Bulk:
Iron ore 62% Fe spot (cfr Tianjin) US$129.6/t vs US$131.5/t
Chinese steel rebar 25mm US$747.7/t vs US$744.9/t
Thermal coal (1st year forward cif ARA) US$93.0/t vs US$93.0/t
Thermal coal swap Australia FOB US$178.0/t vs US$178.0/t
Coking coal swap Australia FOB US$410.0/t vs US$408.0/t
Other:
Cobalt LME 3m US$70,500/t vs US$70,500/t
NdPr Rare Earth Oxide (China) US$142,276/t vs US$142,309/t
Lithium carbonate 99% (China) US$49,265/t vs US$49,140/t
China Spodumene Li2O 5%min CIF US$2,690/t vs US$2,690/t
Ferro-Manganese European Mn78% min US$1,830/t vs US$1,830/t
China Tungsten APT 88.5% FOB US$315/t vs US$315/t
China Graphite Flake -194 FOB US$805/t vs US$805/t
Europe Vanadium Pentoxide 98% 8.8/lb vs US$8.8/lb
Europe Ferro-Vanadium 80% 33.25/kg vs US$32.85/kg
China Ilmenite Concentrate TiO2 US$390/t vs US$389/t
Spot CO2 Emissions EUA Price US$91.3/t vs US$93.0/t
Brazil Potash CFR Granular Spot US$810.0/t vs US$830/t
Battery News
BP calculate that for the US and EU to reach net-zero by 2050 fossil fuels must fall to 20% from 85% of total global energy use.
And renewable energy power generation must rise to 60% from 4%
LG Energy Solution planning US battery JV with Honda
The South Korean battery manufacturer has initiated plans, for a JV with Japan's Honda, for battery manufacturing in the US, according to a report in Korea.
The potential JV could cost up to $3.4bn and have an annual capacity of up to 40GWh, enough for 600,000 EVs.
LGES plans to invest a total of 5.6 trillion won in North America by 2024 to secure production capacity of over 160 GWh by 2025 in the region, according to a company filing.
"We are discussing various ways to cooperate with automakers, including establishing joint ventures, but nothing has been decided," LGES said in a statement, when asked about the speculation. Honda declined to comment.
Company News
Altus Strategies* (Altus Strategies PLC (AIM:ALS, TSX-V:ALTS, OTCQX:ALTUF)) 59p, Mkt Cap £69m – Revenue generating Newcrest royalties add to growth momentum
CLICK FOR NOTE
Altus acquired a gold focused portfolio of cash paying royalties in Australia and Cote d’Ivoire from Newcrest Mining in a $24m cash deal in December 2021.
The portfolio includes:
50.0% interest in the 4.5% net smelter return (NSR) royalty on the open pit Bonikro gold mine in Cote d’Ivoire operated by Allied Gold (capped at 560koz from the PB5 zone);
80.1% interest in the 2.5% NSR royalty on the underground Ballarat gold mine in Australia (VIC) operated by Shen Yao Holdings, a Singapore listed company;
80.1% interest in the A$10/oz gold production royalty on the underground South Kalgoorlie Operations (SKO) gold mine in Australia (WA) operated by Northern Star;
80.1% interest in up to 15 development and up to six exploration stage assets across Australia (WA, QLD, NSW, NT, SA) and owned by a suite of well known operators including Northern Star, Goldfields, Zijin, Evolution, BHP, JX Nippon, and Silver Lake.
In aggregate, the deal is estimated to generate ~$5.0mpa on average post tax attributable to Altus over the 2022-28 period using $1,900/oz gold price (~$4.2mpa on more conservative Altus gold price assumptions, see Appendix).
The deal diversifies the royalty cash flow stream between operations (four mines from late 2022), commodities (Cu/Au) and jurisdictions (Africa/Chile/Australia) while adding scale to the portfolio more than doubling ~$4mpa currently earned from the 0.418% Caserones NSR royalty acquired in Sep/21.
The consideration is covered by the proceeds from the completed £19.8m/$26.1m placing of 36.9m new shares (~31.5% of the enlarged share capital) at 53.5p.
The fundraise was well supported by existing and new shareholders with La Mancha investing £6.9m and maintaining its 35% interest and Altus directors and officers putting in ~£0.5m including £0.35m from Steven Poulton, CEO.
Conclusion: The Company delivers strong growth momentum adding new revenue generating royalties and expanding its portfolio of assets to 33 royalties and 27 projects interests across nine countries and nine commodities. The deal adds scale to royalty revenue stream, increases exposure to gold, expands geographical reach into a tier-1 jurisdiction and offers further upside from a series of >20 development/exploration projects led by globally recognised mining groups.
The deal adds $36m to the valuation implying an attractive 0.7x P/NPV acquisition multiple. In contrast to the $34m Caserones transaction that was ~85% debt funded, the Newcrest acquisition is a 100% equity deal involving a fair amount of dilution.
We revised our NAV and target price to $182m and 111p (from $140m and 125p) to account for the Newcrest royalty portfolio value contribution as well as post raise, a higher number of shares outstanding (117m) reiterating our BUY recommendation.
Castillo Copper (Castillo Copper Ltd (LSE:CCZ, ASX:CCZ)) 1.63p, Mkt Cap £22m – Proposed purchase of lithium assets abandoned in favour of the BHA project
Castillo Copper reports that, as a result of a new geological report on the East Zone of the BHA cobalt-copper-zinc project at Broken Hill in New South Wales, it has elected to concentrate on developing the BHA project in preference to pursuing the proposed purchase of lithium exploration projects at Picasso and Litchfield which have now been dropped.
The review of the East Zone “discovered numerous areas anomalous for cobalt-copper and zinc mineralisation delineated from surface / down-hole assays … [which] … enabled numerous zones anomalous for cobalt-copper-zinc mineralisation to be delineated”.
The company highlights the cobalt potential of the East Zone and says that “there are 108 drill-holes with at least one 1m or 2m assayed sample values >200ppm Co, with the highest up to 9,500ppm Co” and that it is working on “a suitable geological model and estimating a mineral resource to the standard of the JORC 2012 Code”.
“Within the East Zone, the primary geological target is the Thackaringa style of cobalt mineralisation”.
Castillo Copper points to the NSW Government’s encouragement of the development of the State as a “major global supplier and processor of critical minerals and high-tech metals” which the company describes as a “major policy shift … [which] … could result in a critical minerals hub being established in the state's central west”.
Today’s announcement confirms that “the Board and companies, which hold the Litchfield and Picasso Lithium Projects, have mutually agreed to unwind the Option Agreement. As part of the break agreement terms, the A$50,000 deposit has been returned to CCZ”.
Outlining its future plans, Castillo Copper plans to progress mineral resource estimation at BHA and “Formulate surface geophysical surveys then develop inaugural RC drilling campaigns to test priority targets for cobalt-copper-zinc mineralisation” while also advancing geological modelling and resource estimation of the ‘Big One’ project in Queensland and continue geophysical exploration at the Mkushi project in Zambia.
Orosur Mining* (Orosur Mining Inc (AIM:OMI, TSX-V:OMI)) 14.25p, Mkt Cap £25m – Agreement to earn 75% of the Ariquemes tin project
Orosur Mining reports that it has signed a joint venture agreement with Meridian Mining to earn a 75% interest in the Ariquemes tin project in Brazil through a phased investment of US$3m over four years.
“The region was identified by Meridian following extensive conceptual work, with later regional work confirming the Project's potential. An extensive database of historical and recent exploration data is available and has been reviewed by the Company”.
Initial expenditure of US$1m over two years will earn Orosur Mining a 51% interest with further spending of US$2m over the next two years earning a further 24% interest.
“Following this point, the two parties would jointly fund the Project on a pro-rata basis or dilute to a net smelter royalty”.
Orosur “will immediately commence desktop exploration work, data compilation, regional targeting, formulation of exploration plans and budgets and logistical planning” and senior management and technical personnel are expected to “be on site in the coming days to commence the process”.
At this stage, Orosur Mining is disclosing few details of the project, but it says that “The Ariquemes project comprises a large collection of granted tenements and applications, totalling almost 3,000km2, in Rondônia State, western Brazil” and that the project represents “he dominant land position in the Rondônia Tin Province, one of the world's most significant tin regions”.
Conclusion: We look forward to further information on the Ariquemes project following the company’s forthcoming site visit.
*SP Angel act as Nomad and Broker to Orosur Mining
Petropavlovsk (Petropavlovsk PLC (LSE:POG)) 17.1p, Mkt Cap £675m – KPMG forensic investigation report released
The Company published KPMG final report on its forensic investigation into certain historical transactions carried by the Company, IRC Ltd and its subsidiaries under the previous management.
The investigation focused on but was not limited to a period of three years to Aug/20.
The Report has identified a number of potential issues with historical transactions and payments involving the Group with an estimated value of ~US$302m.
Highlighted issues included potentially undisclosed related parties and conflicts of interest among the Group’s counterparties in a number of transactions.
That included inflating costs of mining licenses through pre-acquisitions, expenses paid by the Company potentially for the benefit of entities related to senior management, former investments where value may have been diverted to the benefit of senior management among others.
The Company will continue to review the KPMG findings together with legal counsel and take any appropriate action available to it with regards to the content of the report.
Power Metal Resources* (Power Metal Resources PLC (AIM:POW)) 1.58p, Mkt cap £22.7m – Athabasca uranium project
Power Metal Resources confirms that it has compiled historical exploration data for its wholly owned uranium exploration properties covering approximately 412km2 of the Athabasca Basin in northern Saskatchewan into a fully digitised database which “will allow the Company to begin planning various 2022 exploration initiatives across the Portfolio”.
The company also confirms that it is preparing a data room to facilitate third parties interested in conducting due diligence reviews of the projects.
Power Metal Resources illustrates the scope of its data by describing one of its properties at Tait Hill where it has compiled “high-resolution airborne magnetic, electromagnetic, and radiometric” information highlighting “multiple northwest-southeast trending magnetic high features” and where subsequent mapping showed that the geophysical anomalies “correspond to uranium-rich granite and pegmatitic dykes”.
CEO, Paul Johnson, confirmed that “Although selective, the seven properties are clearly attracting some interest and we are looking at potential commercialisation options alongside planning for proactive 2022 exploration programmes”.
*SP Angel acts as Nomad and Broker for Power Metal Resources
Rambler Metals and Mining* (Rambler Metals and Mining PLC (AIM:RMM, TSX-V:RAB)) 36.75p, Mkt cap £53m – Discovery of new high-grade mineralisation close to underground workings at the Ming mine
(Rambler owns 100% of the Ming Copper-Gold Mine)
CLICK FOR PDF
Rambler Metals & Mining reported yesterday afternoon that recent underground drilling from the 510 level of its Ming copper mine in Newfoundland of a sparsely drilled area of the mine has identified a new zone of high-grade mineralisation in the Lower Footwall Zone (LFZ).
The new zone, to be known as the LP East Zone (LPEZ) lies “outside of the “low-grade” shell of the interpreted Lower Footwall Zone” and is located “east of the main LFZ zone”.
The zone was originally discovered in a 42m long intersection averaging 2.07% copper between 33m and 75m in hole R21-510-01 and includes a 7m wide section between 33-40m at an average grade of 4.64% copper.
Hole R21-510-01also includes two 4m wide sections each averaging 2.45% copper between 62-66m and 69-73m respectively.
Follow-up drilling of a further six holes to “further define the extent of the mineralization”included:
A 13m wide intersection between 44-57m in hole R21-510-02 at an average grade of 1.52% copper, including 2m averaging 3.43% copper from 44m. Hole -02 also encountered 5m at an average grade of 1.76% from 29m.
A 5m wide section between 22m and 27m in hole R21-501-03 averaging 1.84% copper; and
23.92m averaging 3.44% copper in hole R21-510-04 which also intersected 5.64m averaging 2.31% copper; and
31.09m at an average grade of 2.87% copper between 16.91m and 48.00m in hole R21-510-05; and
16m averaging 1.88% copper between 20m and 36m in hole R21-510-06; and
14m averaging 1.54% copper from 21m to 35m in hole R21-510-7
The LPEZ zone is currently defined over a “vertical height of approximately 100 meters (“m”) and a horizontal width of approximately 80 m” although the “recent drilling has shown significant potential to continue expanding the zone both up and down plunge”.
Rambler Metals says that hole R21-510-07 “is particularly encouraging as it demonstrates the new potential for mineralization outside of even the low-grade limit of the modelled LFZ resource shape” and the company confirms that it “will continue to drill this zone and explore for others like it during 2022”.
President and CEO, Toby Bradbury explained that the “diamond drilling completed throughout 2021 has now infilled all production areas for the next 18 months, giving us some breathing room to test exploration targets in addition to continuing the on-going infill drill program”.
He also explained that although the new LPEZ mineralisation is located outside the “the previously interpreted high-grade shell of the LFZ … [it] … is very close to current workings … [and] … has the potential to add flexibility and optionality to the near-term production profile of the mine for minimal capital development time and cost”.
Conclusion: The Ming mine has a track record of expanding its resource base faster than it depletes it. The discovery of previously unrecognised mineralised zones close to existing mine infrastructure at the Ming mine, as a result of the drilling programme, continues to highlight the resource expansion potential which we look forward to seeing reflected in future mineral resources estimates.
*SP Angel act as Nomad and broker to Rambler Metals & Mining.
Scotgold Resources* (Scotgold Resources Limited (AIM:SGZ)) 77p, Mkt Cap £46 – December delivers record production with further ramp up guided for 2022 reaching Phase 2 in Q1/23
BUY – TP under review
Q4/21 production totalled 1.5koz gold and 7.2koz silver as the Company ramped up operations at the high grade Cononish operation in Scotland.
December month delivered the record production since commissioning in Nov/20 pouring ~0.7koz.
Processing plant achieved 2.5kt throughput rate in December on course to hit Phase 1 planned 3ktpm rate.
In total, the plant treated ~6.2kt during the quarter as underground development and production was negatively impacted in November by Covid-19 related issues for explosives affecting the pace of blasting and ore extraction.
The issue has been rectified since then as demonstrated by record December output.
Q4/21 gold concentrate shipments totalled ~232t generating £2.6m in sales.
At the mine, the team is planning to access the second cut and fill stope in Q2/22 and switch to a cheaper long hole stoping in Q3/22.
At the processing plant, the Company is implementing a number of low-capex optimisation initiatives including expansion of the tailings thickener allowing to increase plant throughput.
The team expects to reach 4.0ktpm processing rate by the end of Q2/22 and increase to 4.5ktpm by Q4/22 representing Optimisation Phase Production plan allowing for a gradual ramp up to Phase 2 6.0ktpm throughput rates.
Phase 2 or 6.0ktpm production rate is expected to be reached by the end of Q1/23.
The team is completing due diligence work as to whether an ore sorter installed between the existing crusher unit (already designed for 6ktpm) and the mill (3ktpm) could upgrade the mill feed to match the existing milling capacity.
Apart from savings on equipment costs, installation of an ore sorter would reduce fine tailings generated from the processing plant, which is a constraint to the expansion of Cononish's Reserves.
The alternative is to install a further Mill and downstream processing capacity as per the original Phase 2 mine plan upgrade.
Updated production guidance is for 1.4-2.2koz in Q1/22 before reaching 16.0-17.5kozpa rate in Q2/22 and ultimately Phase 2 23.5kozpa rate by the end of Q1/23.
During the ramp up phase, the Company agreed a restructuring of the outstanding £7.5m Bridge Barn loan as well as agreed an additional £0.5m facility provided by Mrs Jane Styslinger a related party of Non-Executive Director Mr Bill Styslinger.
A new £5.0m loan is provided by Bridge Barn, a company owned by Nathaniel le Roux (Scotgold NED and major shareholder holding >40% interest in the Company), to repay £4m along with accumulated interest.
The loan is repayable by 01 Jan/25, carries a 9% interest to be paid quarterly and takes total outstanding debt to Bridge Barn to £8.5m with terms of the remaining £3.5m of the facility remaining unchanged.
The restructuring allows the Company to avoid repayment of £4m (plus accumulated interest) that were due in May/22 and Oct/22 offering more financial flexibility.
An additional £0.5m facility (3 year loan, 9% interest to be paid quarterly) has been agreed to cover working capital as Cononish ramps up.
Ultimately, the Company is commenting on the potential to improve on the current 8.5y life of mine at Cononish subject to more drilling investigating the extension of the resource along strike and down dip.
Conclusion: The team continues to ramp up production at Cononish as optimisation in the mine and the processing plant deliver record output in December. Phase 1 (3ktpm) almost completed with processing rates expected to reach 4ktpm in Q2/22, 4.5ktpm in Q4/22 (16.0-17.2kozpa) and ultimately 6ktpm by the end of Q1/23 (23.5kozpa) driving unit costs lower and growing cash flow generation rates. In the meantime, the Company agreed a restructuring of the outstanding Bridge Barn on similar terms provides Scotgold more financial flexibility during the ramp up year.
*SP Angel act as Nomad and broker to Scotgold Resources. A number of SP Angel analysts have visited the Cononish gold mine
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
Joe Rowbottom – Joe.Rowbottom@spangel.co.uk - 0203 470 0486
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.
Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
LME
Oil Brent
ICE
Natural Gas, Uranium, Iron Ore
NYMEX
Thermal Coal
Bloomberg OTC Composite
Coking Coal
SSY
RRE
Steelhome
Lithium Carbonate, Ferro Vanadium, Tungsten, Spodumene, Ferro-Manganese, Graphite
Asian Metal