Juniors with strong growth potential win investors’ pockets despite little support from commodity prices

The notion that the junior mining and exploration sector has lost out to the cannabis and tech sectors in the competition for the speculative investment dollar – and that there is no coming back – has been shot down in recent days.
22nd November 2019
Barry FitzGerald

The notion that the junior mining and exploration sector has lost out to the cannabis and tech sectors in the competition for the speculative investment dollar – and that there is no coming back – has been shot down in recent days.

Big capital raisings in comparison to market caps have been popping up across the junior space and outside of gold, it has been kind of unusual because as yet, there has not been much in the way of support from commodity prices.

But this is not a call that there is a boom on with spec money flooding back in to the junior space as a punt that the cashflow joy being experienced by the major miners from their iron ore heavy portfolios is somehow going to wash down in to the junior space.

It’s not a boom call because the capital raisings that are getting away are doing so because they are for well understood and quality plays where there is a clear expectation of there being leverage to the upside, with or without the help of commodity prices, although that would be nice.

Juniors that can’t tell such stories will continue to struggle, and rightly so.

Making the case this week are three examples across three different commodities in three different parts of the world and at three different scales – Mincor’s (MCR) $35 million raising, ioneer’s (INR) $40m raising, and Meteoric’s $7m raising.

MINCOR (MCR):

Mincor’s lightly discounted 60c-a-share placement was notable on a couple of fronts, not the least of which was Andrew Forrest’s privately-held Minderoo putting up its hand for $7.2m of the stock to take its previously non-disclosed stake to 6.17%.

Independence Group (IGO), which had previously sold the mothballed Long mine at Kambalda to Mincor, put up its hand for $2m of stock, taking it to 4.41%.

The placement is being followed by a $5m share purchase plan, with the $35m in total to fund early work on Mincor re-establishing itself as a producer of sulphide nickel from its portfolio of Kambalda mines/deposits.

The timing of the capital raising was notable too in that instead of waiting as most would have until the release of its definitive feasibility study in the March quarter next year as a prelude to financing talks, Mincor decided to get ahead of the curve.

“We will be able to be in a much stronger position to negotiate a competitive funding package and expect to be in a position to move seamlessly from the DFS through to a formal decision to mine without delay,” Mincor MD David Southam said.

Mincor’s Kambalda portfolio now includes the Cassini discovery where the resource was recently increased to 50,400t of nickel. It’s a lot of high-grade nickel ($A1.04 billion in-situ) and the expectation is that there is a lot more to come.

That in-situ value – which really should be ignored - is based on nickel’s latest price of $US6.49/lb. That is down by 23% from the peak this year of $US8.44/lb in early September.

So clearly, subscribers to the raising, including Forrest, are believers in the thematic that there will be a shortage of the preferred nickel sulphide to meet the growing demand for the increasingly nickel dense lithium-ion batteries needed to power the EV revolution.

Batteries are currently just a sub-set of nickel demand, which stainless steel currently dominates. But the EV revolution and the battery storage of renewable energy is a fast-growing additional market for the metal.

IONEER (INR):

It would be nice to think that ioneer’s (INR) underwritten $40m raising at 20c a share signalled that sentiment towards new lithium developments had turned for the better.

But the reality is that ioneer’s Rhyolite Ridge project in Nevada is as much as about “Made in America” lithium as it is about boron.

The raising was being handled by Goldman Sachs and Ord Minnett and included a $20m uptake by the private equity group Centaurus Capital to take its ioneer holding to 7.8%.

It was a recent research note on ioneer by Ords which suggested that Rhyolite Ridge could be a Jadar killer, a reference to Rio’s yet-to-proceed project in Serbia which, like Rhyolite Ridge, comes with both lithium and boron.

Ords expects the $600 million Rhyolite Ridge project - subject to financing - to start commercial production in 2023, producing 21,000tpa of lithium carbonate and 218,000topa of boric acid over a 30-year-plus mine life.

Because there is 10t of boric acid ($700/t) for each 1t of lithium ($8000/t), Ords reckons the project's economics are “highly compelling” in that the boric acid revenue could make the project the lowest-cost lithium producer around.

Ords also suggested Rio was Rhyolite Ridge’s “potential owner in the long term” for strategic reasons around Rio needing to protect the oligopoly it shares with Turkey in the boron market from its operation in California.

Time will tell on all that. In the meantime, ioneer will use the funds to complete its DFS in the March quarter next year and to advance detailed engineering work, all ahead of a final investment decision to proceed.

METEORIC RESOURCES (MEI):

Meteoric is pulling in $7m from a placement at 5c to accelerate exploration at its Juruena and Novo Astro gold projects in Brazil.

High-grade hits have previously been reported at Juruena while over at the nearby Novo Astro, the first ever drilling at project where garimpeiros have been swarming for years is underway, with first results expected late this month.

Bustling Tolga Kumova visited the projects earlier this month and must have liked what he saw. He put his hand up for a $1m of the placement.

TIETTO MINERALS (TIE):

The suspected terrorist attack on a convoy of buses ferrying workers in eastern Burkina Faso to the Canadian-owned Boungou gold mine sadly left 39 dead.

It served as a stark reminder that security for foreign operators anywhere in West Africa has to be given the highest priority.

The mine remains shuttered by its owner Semafo, which has been punished on the Canadian market, with the deadly attack wiping some 30% off its market value.

But it would be wrong to think that West Africa should be avoided all together. It is actually made up of 370m people spread over 16 countries, all of which come with various security risks that can be dealt with given the appropriate focus.

So while Semafo is suffering, investors are continuing to back foreign operators in the broader West Africa for the simple fact that it is hard to ignore from a prospectivity perspective.

That came through load and clear in the ability of ASX-listed Tietto Minerals (TIE) to pull in $17m from a placement at 26c a share to fund more resource growth at its Abujar gold project in Côte d’Ivoire.

The scale of the raise goes to the scale of the opportunity, which goes to the point made in today’s first item – its only juniors without a decent project on their hands that can’t raise funds.

In keeping with West Africa’s prospectivity, Tietto has been able to grow Abujar from an open-pit resource of 1.7Moz in April to 2.15Moz more recently. That is very much the start of the story, with the placement to be used to grow the existing resource and to start testing other targets along a 70km stretch of prospective rocks.

Some smart local and Canadian names got behind the placement and can look forward to a strong newsflow from Tietto’s 4-rig drilling program. In anticipation of that, the shares have edged higher to 30.5c for a market cap of $101m.

Euroz, which was a co-lead manager to the placement, has a 50c price target on the stock.

Analyst Jon Bishop said Tietto has the “capacity to establish a standalone gold camp of scale and with substantial brown and green field exploration upside.”

“As we have seen with successful West African explorers, where a standalone development scale resource is defined, enterprise value to resource metrics will ‘gap-up’.  We view that the current pace of activity can achieve this for Tietto within the next 1-2 years.”

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