Arc Minerals (ARCM) – Tier one copper/cobalt/gold. Bargain pricing!
Arc Minerals (ARCM) is an AIM listed exploration company. The company has two tier one assets, the Misisi gold project in the DRC (Arc own 71%) and Zamsort in Zambia (Arc own 66%).
It is primarily focused on the Zamsort project which may turn out to be globally significant. Arc has stated that the number of non-disclosure agreements with majors has increased from two to five and three majors have made site visits.
Despite progress on the ground, investor selling has caused the share price to slide (latest share price 3.3p ask, market cap £21 million). I believe that this is unjustified.
Management – high calibre
Arc Minerals was formerly called Ortac Resources, until new management were brought in who recognised the strength of the assets. The new team is highly experienced: Chairman Nick von Schirnding was a senior executive at Anglo American (AAL) and also CEO of Asia Resource Minerals (ARMS), a FTSE listed mining company. Don Bailey was head of mining operations for Rio Tinto (RIO) in Africa.
Recent placing – at a premium 4.5p
AIM exploration companies typically rely on discounted “bucket shop” placings to keep the lights on and do a bit more drilling. The quality of Arc’s projects recently attracted a European family office and a South African institution to offer a (then) 12.5% premium in order to secure nearly £2 million shares. Directors also subscribed with the chairman taking £100,000 – see the announcement.
Zamsort – Copper/Cobalt in Zambia
The Zamsort project licence covers circa 1,000km² in one of the most prolific regions of Zambia. The licence contains seven top targets from a previous joint venture:
(Source: Arc Minerals)
The company is in the process of delineating a maiden JORC resource. So far, every drill hole has intersected mineralisation with high grades of cobalt. Cobalt resources outside the DRC are rare and Zambia is a relatively attractive investment destination. In July, the Zambian minister of mines attended an Arc Minerals presentation in the UK, which I was fortunate to attend, and publicly endorsed the company and project.
To identify targets the company has commenced an Airborne Geophysical Programme (link).
Commercial Scale Demonstration plant – potential cash flow
When Arc took over the Zamsort project, it took over a nearly complete plant. It has spent ~$400k and hopes to start commissioning the plant by year end. No exploration company on AIM has the potential to self-fund exploration. The company is conservative in nature and has stressed that the plant may not be economic, although work at the plant is progressing well (link). It has plant expectations on its website. Former head of mining operations in Africa, Don Bailey, is responsible for the plant which I suggest increases the chance of success.
The following gives a speculative indication of monthly EBITDA from the plant at 50% throughput, I have reduced the copper percentage, conservatively, to reflect recent drill results:
- 17,500t/month, copper 0.5%, cobalt 0.2%
- Tonnes of Cobalt: 28 (assume 80% recovery),
- Tonnes of Copper: 70 (assume 80% recovery),
- Cobalt price per tonne: $50,000 – $3,000 processing costs = $46,000 margin
- Copper price per tonne: $6000 – $3,000 processing costs = $3,000 margin
- 28 tonnes * $46,000 = $1.2 million
- 70 tonnes * $3000 = $210,000
Total $1.4 million * 50% transportation and smeltering costs = $700,000 EBITDA per month
If the plant was able to run at capacity, unit costs drop and EBITDA increases dramatically.
Misisi Gold project
The Misisi Gold project is a three million ounce inferred resource in the DRC. The DRC is not the most attractive investment destination for many reasons. The resource is however valuable due to its size, grade (2g/t) and the resource is near surface making it suitable for open pit mining. Mining operations should be highly profitable and cash generative. Nick von Schirnding in a Proactive interview has stated that at worst the resource is worth $10 a gram – $30 million dollars (link). The company has signed multiple NDAs with interested parties and after elections in the DRC, a sale or JV in the new year would not be a surprise.
Nick von Schirnding hosted an investor call on Wednesday which you can listen to here.
Arc Minerals is unique on AIM in having top-tier management and projects, multiple NDAs with majors and the ability to generate free cash flow to plow back into exploration. I personally value the company at 6 pence per share with what is known today. I have recently added to what is the third largest holding in my portfolio. Irrespective of the declining share price and sentiment on AIM, I believe that at the PLC level the company will make significant progress over the next three to six months.
Disclosure: at the time of publication, the author holds a long position in ARCM.