Joel’s Resource Report – why I’m still holding #ARCM
At the time of writing the author holds a long position in Arc Minerals
My portfolio performance continues to be about as inspiring as eating a… I shouldn’t say! One of the shares that’s taken a tanking recently is AIM-listed Arc Minerals.
Arc Minerals is an AIM-listed copper explorer with assets in Zambia which I covered for Cube back in February when the shares were 6.8 pence.
At present at 4 pence to buy, Arc’s market cap is £42 million:
Last week, Arc announced an update on the exclusivity agreement with Anglo American which has now lapsed:
Timeline of events leading to the ending of the exclusivity agreement:
- 14th July 2020 – 6 month Exclusivity Agreement with Anglo American – permitted to conduct a technical review which, if satisfactory, may result in an extension of the exclusivity and the negotiation of a commercial transaction.
- 7th December 2020 – Anglo American completes technical review
- 13th January 2021 – Anglo American satisfied with technical due diligence – exclusivity period extended for 180 days and negotiations for a commercial transactions commence
- 9th July 2021 – exclusivity period ends without a transaction
- No commercial transactions – all investors would’ve loved to have seen Anglo invest tens if not hundreds of millions for a minority stake – at this stage they likely declined to do so.
- Value of assets called into question – Anglo have spent a year reviewing Arc’s assets and should be well placed to assess their value – the fact that a transaction couldn’t be closed at this stage isn’t entirely positive
Positives and why I still hold
- Discussion continue with Anglo – as indicated in the recent RNS
- Arc has been approached by number of interested groups to commence discussions regarding a potential commercial transaction
- A superior deal could be secured with one of these groups
- Or the discussions can be used to strengthen Arc’s negotiation position increasing the chance of a superior deal
- Arc would’ve been foolish not to speak to other groups to ensure the optimal outcome for shareholders unless the Anglo American deal was perfectly structured and management were convinced it was the best possible offer on the table
- Additional drilling results over this or next year could re-rate the shares, upside potential and therefore the price for a transaction
- Arc is fully funded until the end of 2022 and they recently did a small fund raise at 6.5 pence
Arc held an investor call back in May, here’s the clip:
In summary, I can understand why investors were disappointed a transaction couldn’t be reached. That being said with the company cashed up, drilling and with multiple interested parties I’m happy to remain invested even if the excitement of a deal landing in the very near term now appears slim. Till next week!