Joel’s Resource Report – Investor Event Q&A #KRS #CAI

Joel’s Resource Report – Investor Event Q&A #KRS #CAI

At the time of writing, the author is long KRS.

A different resource report from me this week. I’ve just attended a Keras/Calidus investor event.

Keras Resources (KRS) own a manganese project in Togo that will shortly become cash generative. Keras also own over 30% of Calidus Resources (Australia:CAI) which will be divested to Keras shareholders. Calidus own the Warrawona gold project in Western Australia which is progressing through feasibility. I’ve previously covered both companies for Cube.

Yesterday, Keras released an RNS detailing next steps for their manganese project. Highlights include:

  1. “Keras and SGM have subsequently met with the Togolese Ministry of Mines and are pleased to announce that the ancillary documentation related to the Exploitation Permit is expected to be concluded by year end allowing commercial production to commence in the first quarter of 2020.”
  2. “Initial operations will be based upon shipping of ore to smelter end users, however, Keras believe that there is potential to add significant value by the production of manganese sulphate for the fertiliser and battery market as a second stage development. As a result, Keras has appointed Perth based Simulus Engineers to conduct a Scoping Study on the potential to develop such a refinery for the Nayega Project.”
  3. Commercial Production
    i) Operations expected to commence at nameplate capacity of 6,500 tonnes per month (‘tpm’) of saleable manganese ore in Q1 2020, targeting the detrital and laterite ore horizons
    ii) Construction of an additional 70 tonnes per hour (‘tph’) scrubbing and screening plant to commence in Q2 2020 with steady state production of 17,200tpm planned for Q3 2020 subject to securing expansion capital
    iii) Expansion capital is expected to be funded through offtake agreements.

In summary, without further dilution, Keras should be generating cash next quarter and has two plans to increase value by producing more manganese and looking at producing a higher value product. Excellent news and I’m amazed that the share price hasn’t responded!

Calidus also released further positive drilling intercepts. By increasing the resource size, Calidus financially de-risks the project and increases its value.

The below are not exact quotes but are taken from my questions, hastily written notes and interpretation of what was said.

Keras Resources Questions

1. Manganese Revenue calculations – how do we calculate them?

Company’s answer:

Take 37% (standard manganese percentage per tonne) * 100 * price per DMTU (can be taken from jupiter mines website) = price per tonne.

My calculations:

37% * 100 *$3.5 (what I view as a sustainable price) * 17200 (phase 1 upgraded tonnes per month) = $2,227,400 monthly revenue.

$2,227,400 * 12 months = $26 million revenues per annum

Note my revenue calculations do not take into account production or transportation costs and I’ve used higher manganese prices as I believe current pricing to be too low for many producers. I am predicting cash flows yet the DFS/BFS and operating costs are required.

2. Will the definitive/bankable feasibility be released?

Yes, phase 1 feasibility study will be released.

3. Might the company who paid $1.5m for the pilot test work be interested in financing the project?

Potentially, we’re talking to multiple potential financiers.

4. Given Togo has taken years to issue the mining licence what makes you think they’ll stick to the newly agreed timeline?

The highest authority granted us the degree which is chaired by the president. Largely a formality/paperwork to be done. Expected by year end, it’s the wet season in Togo at the moment so timelines suit.

5. You have other exploration licences in Togo is there a plan to do anything with them?

Our priority is on near term cash generative opportunities.

6. You’ve mentioned dividends in recent rns’s but will you consider share buybacks instead?

Absolutely.

Calidus Resources Questions

1. Mine plan only uses 50% of the resource, will this be increased in the bankable feasibility?

Yes – we’re moving ounces into a higher confidence category and they will then be included.

2. Will you look to increase mine throughput if the resource supports it?

Yes, our mine plan allows for another ball mill to be installed. There’s also the option of trucking in higher grade ore from satellite deposits.

3. Do you have a resource upgrade target in mind, for example 2Moz?

Irrelevant – at this stage that just adds life of mine years. Better to utilise free cash flow from operations to extend life of mine at a later date.

4. The project economics are fantastic, have you been in discussion with financiers?

Yes we’re speaking to a number of financiers, a CFO will be hired next year to ensure we get the best possible finance deal. The project economics mean that dilution can be minimised as the project can support a lot of debt.

5. You own $1.5m in a company called Pacton Resources, why?

We bought some tenaments for $20k and Pacton Resources got excited about the possibility of conglomerate gold. We were given $1.5m for the right to any conglomerate gold. We may look to divest given the right conditions.

6. Will you open offer for the equity portion of the cash required to build the mine?

ASX rules make it non ideal to do this. It’s something we’ll look at but letting an institution in would likely be easier.

7. Are you talking to institutional investors about the opportunity?

Absolutely – the capital structure is an issue for them. Shortly after the Keras Calidus distribution takes place we’ll reduce the numbers of shares in issue. This’ll make the shares more palatable to institutions.

Summary

Keras Resources is a soon to be producer and free cash flow producer, in 12 months the company will be unrecognisable, after many false dawns I think the company still needs to prove and demonstrate the value in Togo. I have no doubt they will.

Calidus Resources have what I belive to be one of the best gold projects I’ve ever seen. It’s highly financable, in a stable jurisdiction, requires low capex and the NPV will rocket when the feasibility study comes out.

In short, I’m highly bullish and a happy shareholder in KRS!

 

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COMMENTS

Wordpress (4)
  • comment-avatar

    Joel, thanks for that write up, seems pretty accurate to me. I’ve left my thoughts on LSE BB. What is your Twitter handle for me to Follow you? I’m pablo2 @paulbryce4

  • comment-avatar

    Got it anyway, @JMHDeakin – following you

    • comment-avatar

      Thanks for the feedback Pablo – glad you found Joel on Twitter! G

    • comment-avatar

      Thanks pablo – I guess you also saw I followed on you Twitter :-), great to meet you on Wednesday.

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