Joel’s Resource Report – to infinity and beyond! #EUA #KRS #CAI #HUM

Joel’s Resource Report – to infinity and beyond! #EUA #KRS #CAI #HUM

Eurasia Mining – To infinity and beyond

  • Share price: 1.065p
  • Market cap: £26.5 million

Eurasia Mining (EUA) is an AIM listed mining company with assets in Russia. In the Ural Mountains, they own one of the largest alluvial PGM assets in the world where they currently produce platinum. The also own the Monchetundra project which is a primarily palladium deposit. I previously covered Eurasia for Cube last year.

Eurasia came out with an RNS on Thursday that caused the shares to soar by 100%. I confess to having immediately seen the RNS in which they announce the sale of the company’s mining assets and yet I didn’t buy any shares – based on the price action, that was a mistake!

Unlike many other readers of that RNS, I viewed the news as disappointing and an admission that Eurasia’s EPC (engineering, procurement and construction) partner has effectively reneged on the deal that was signed – if they hadn’t, then why sell the assets?

More positively, Eurasia appear to have found 13 Moz’s down the back of the sofa – Eurasia’s 26th September RNS states “The resource was calculated by the state funded research group Rosgeologia in 2017 and comprises Ni – 298,000 t; Cu – 229,000 t; Co- 11,300 t; Pt – 18.5 tonnes/594,000 oz; Pd – 55 tonnes/1.7moz; Au – 7.6 tonnes/0.24moz; Ag – 185 tonnes/6moz. Eurasia has not verified this resource, and therefore it cannot be relied upon, but it is provided an indicative of potential in the area”. My best guess is that Eurasia have added all their resources together and converted them into PGM ounces.

Fair value?

A 15 Moz resource could be worth many multiples of Eurasia’s market cap, and I would view Eurasia shares at these prices as an option on the possibility of a sale. I (personally) view the location of Eurasia’s assets in Russia as a negative for many European/American buyers and it’s therefore a good sign that the two banks who are working to sell the assets (and are only paid on a successful sale) are Russian and Chinese. So my valuation of Eurasia would be based on the probability that I feel they have of making a deal.

I intuitively believe Eurasia Management would accept an offer in the region of £200m (c. 8 pence per share, ignoring dilution from warrants for this ball parking exercise).

Therefore at current prices, I would need to believe Eurasia have a roughly 1/8 chance of sale occurring to buy the shares. And it’s possible that Eurasia may receive an offer substantially higher than this. I hope that Eurasia find a buyer at many multiples of the mcap – if Eurasia (effectively) inject a few hundred million into AIM, all small cap investors will likely enjoy some of the benefits. I’d expect any buyer to do a decent amount of due diligence and I’d therefore hope Eurasia might have an offer in the next 6 – 12 months.

Keras Resource – misunderstood and undervalued

Keras Resources (KRS) is AIM listed mining company which owns an 85% steak in the Nayega Manganese Project in Togo as well as shares in ASX listed Calidius Resources which are planned to be distributed to shareholders in November via a special dividend. At 0.5 pence (ask), Keras is valued at £12.5 million.

Calidus Resources – Western Australia’s next gold producer?

Calidus was effectively spun out of Keras; hence Keras’s large shareholding. Keras own 723,750,000 Calidus shares currently worth £10 million.

At an ask of A$0.027, Calidus is valued at A$55 million

Calidus have produced a YouTube video summarising the Warrawoona Gold Project in Western Australia:

(Source: Calidus)

Calidus is funded well into next year as they recently raised A$9 million at a premium to the share price today. Calidus was able to raise cash from institutional shareholders on the back of excellent PFS figures.

At lower gold prices than today A$2000/oz (current Aussie gold price ~A$2200), the Warrawoona project has an NPV of A$234 million (8% discount rate), an IRR of 56% and a capital cost of A$95 million.

Calidus is in the process of completing additional drilling to add additional mine life for its feasibility study. Expected project progress is as follows:

(Source: Calidus)

Calidus shares trade at about a 75% discount to the project’s NPV at slightly lower gold prices than we have today. I believe this modest discount (90% is more common!) reflects the quality of the project, the chance that it gets funded (highly likely) and likelihood for better numbers in the full feasibility study given additional drilling. Drill results so far bode well for my predictions.

Keras’s Nayega Manganese Project – Togo

Keras own 85% of Nayega Manganese Project in Togo. More information is available on Keras’s website, and project highlights include:

(Source: Keras)

Shallow open-pit operations have the advantage of being cheap to produce from. A major producer of manganese-based alloys paid Keras $1.5 million to fully fund a bulk sampling project. I view the transaction as extraordinary and indicates that the producer wants Keras’ manganese. There are pictures of the bulk sampling in action on twitter.

Keras is in a position to produce 38% Manganese at a rate of 6,500 tpm without additional capex.

Financial calculation:

  • 6,500 tonnes per month * $3.3 (37% DMTU) * 12 months = $257,000 per month

($3.3 price taken from here, DMTU – dry metric tonne unit)

Hardly exciting numbers I agree – it’s worth bearing in mind that manganese pricing is variable depending on the product and off-take agreement. The reason I’m excited about prospects in Togo is from 27th September RNS:

The Nayega bulk sample plant has the capacity to produce 75,000 tons per annum of beneficiated manganese; on receipt of the exploitation permit, Keras plans to expand and improve the plant to add more value and increase production.  The intention is to fund this in conjunction with an offtake agreement rather than equity”.

I believe that the company who paid $1.5 million to fund Keras’s bulk sample will offer Keras an off-take agreement which will allow Keras to dramatically increase production and cashflow. Put another way I don’t think that another company spent $1.5 million just to buy a couple of hundred grand worth of manganese each year!

What Togo could actually be worth needs to be properly communicated and explained to the market and I look forward to future RNS’s that I believe will begin to explain this.

Keras special dividend calculations

For eligible shareholders, currently anticipated as those on the register 19th November, for every 3.44229 Keras shares held shareholders will receive 1 Calidus share. For a shareholder who buys 200,000 shares at a cost of £1100, Calidus shares would be worth approximately £770:

For the reasons mentioned above I believe that Calidus share are worth owning especially over the next year where many value catalysts exist.

Assuming that all Calidus value were immediately discounted from the Keras shareprice, Keras’ market cap would be £1100 – £773 = £327 / 200,000 = 0.001635 per share * no of shares (1,859,000,000) = £3 million. I believe that if/when Keras’s Togo Licence is delivered, a mining company which has the potential to be cash flow positive, without further dilution, should be valued at more than £3 million – it’s up to the company to demonstrate value now.

Calidus and Keras are holding a joint investors event in London 6th November for potential and existing investors – more details here.

Hummingbird Resources – back on the right path

Hummingbird Resources is AIM listed gold mining company with a producing gold mine in Mali and a 4.2 Moz resource in Liberia. A year ago I covered Hummingbird Resources and detailed why I’d taken the difficult decision to sell my shares. Whilst it was a difficult decision the share price is back to about the level when I sold out and base on Enterprise Value the company is actually more expensive due to the additional debt on the balance sheet.

More positively Hummingbird has just produced excellent Q3 figures from what should be the most challenging quarter (it’s the rain season):

(source: Hummingbird)

If Hummingbird has sorted its operational issues out, which it appears to have done it’ll be interesting to see what the company does with excess cash flow – once the balance sheet is sorted out. There’s upside available from Liberia which shareholders effectively get for free. The company needs to do something with the Liberia asset for its value to be realised – I hope to see a JV which the company has hinted at. I’ll be keeping an eye on Hummingbird to see if it can deliver operationally over the next couple of quarters.

That’s it from me. I hope you’re enjoying the weekend!

 

At the time of publication the author holds a long position in KRS.

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