Market Commentary - Metals Team, October 2021

Market Commentary - Metals Team, October 2021

17 November 2021

Amati Strategic Metals team conduct their first mine site visit 

We are pleased to announce with the lifting of travel restrictions, the ASMF managers were able to get back into the field to conduct due diligence on their investment and search for new investment ideas.

During the last week of October Amati visited the Iberian Pyrite Belt in Andalucia, Southern Spain. The volcanic-hosted massive sulphide (VMS) belt is a prolific mining district, hosting mining of copper, zinc, gold and silver dating back to 1000BC.  Today the 250km long belt hosts 7 large operating mines, including the Proyecto Riotinto copper mine of Atalaya Mining (ATYM.L).


Georges Lequime and Mark Smith at the open pit and 15Mtpa processing plant of the Proyecto Riotinto copper mine of Atalaya Mining.

The purpose of the trip was to check on the operational efficiency of the recently expanded mine to a nameplate capacity of 15Mtpa, producing over 55,000t of copper per year at all-in sustaining cost (AISC) of $2.20/lb copper, for the next 12 years.  In actual fact performance over the recent quarters has demonstrated the ability of the plant to operate at 16Mtpa, thus creating the opportunity to process ore sourced from regional deposits, not currently in the 186Mt reserve base.

The geological perspectivity of the district offers potential to expand the ore inventory from surrounding polymetallic copper-zinc VMS deposits, thereby extending the life of the mining operation. Atalaya continues to expand its regional land package and exploration efforts to target potential satellite deposits within trucking distance of the mill. We estimate over 140Mt of resources has already been delineated.

These polymetallic ore types need to be processed via hydro-metallurgically (leaching) means , as concentrate smelting has a high carbon foot print and is costly due to transport charges and refining penalties. Atalaya is pioneering a new electrochemical extraction process, involving the application of a single step catalyst and electrolysis to produce a finished chemical product and or metal. This ‘E-Lix System’ could prove invaluable to unlocking value from the inventory existing orebodies and new discoveries along the Iberian Pyrite Belt.

We also reviewed the geological progress made by Pan Global Resources Inc. The company recently made a near surface discovery of copper-tin along a strike length of 1km, and 300m of dip extent.  The La Romana deposit at La Escancena is hosted in stockwork, semi-massive and massive sulphides, with chalcopyrite the main copper sulphide and cassiterite as the only observable tin mineral.  The orebody is up to 20m in thickness and up to 1.0% CuEq in grade. We are waiting for further metallurgical test work and drill results here.


Fund strategy and methodology

During October our specialty metal investments performed well, in particular our graphite investments played ‘catch-up’ to the outperformance of the lithium stocks. As highlighted in our September factsheet, the market largely forgot about the importance of anode graphite in the electric vehicle battery make up, rather choosing to focus on the lithium, nickel and cobalt metals.  

After a particular difficult period for gold equity investors over the summer months, precious metal stocks started to recover in November with the broader North American gold indices up 4.5-9.0%. The move largely went unnoticed as the S&P 500, the Dow and Nasdaq were up 6.9%, 5.8%, and 7.3% respectively. Investor appeal for the sector has suffered since the vaccine-breakthrough announcements last October with gold and silver prices having drifted either sideways or downwards. This is despite the industry reporting record profits and valuations sitting at record lows.

The divergence of the relationship between the gold price and real interest rates (represented in this case by the 10-year TIPS) suggests a high degree of confidence in the transitory nature of the high inflation numbers that we are currently seeing, as well as a gradual increase in interest rates over the next two years. However, we disagree with this assumed thesis.  The persistent nature of inflation coupled with softening nominal rates is leading to the closure of this gap once again, (in line with historical trends), with renewed upward momentum in the gold price.

There also seems to be a revival in M&A activity in the gold sector, with Newcrest Mining announcing a US$2.8 billion deal to acquire Toronto-listed Pretium Resources.  At the time of writing, Golden Star Resources (3.73% of the fund) has also been bid for in an all-cash offer, valuing the company at US$470m, or a 24.1% premium to the close on 29th October, 2021. We continue to hold the stock in case a counter-bid emerges, and then we will look to redeploy the cash at closing of the deal. We believe that this could be the start of a trend which increases the investment appeal of many of the small and mid-cap precious metal positions in the Fund.