It’s a telling indication of the state of the mining market, as well as the nature of the opportunity, that almost half the current £5mln market capitalisation of Erris Resources plc (LON:ERIS) can be accounted for by cash.
Time was, in the last mining boom, that a company with the kind of portfolio that Erris boasts would have been worth ten times that.
But although the mining sector in general is beginning to move out of a six or seven year bear market, the picture in junior exploration is still patchy.
In the case of Erris, the company’s original listing at the end of last year was well enough supported, especially since Osisko Gold Royalties (TSE:OR) is a major cornerstone shareholder. Osisko, says Erris’s chief executive Merlin Marr-Johnson, “wants to see its 1% royalty on Abbeytown and the Swedish projects grow in value and are typically long-term and supportive shareholders of those companies where it owns royalties.”
But even so, it’s important to keep ahead of events.
Marr-Johnson is cognizant that a recent spell of weakness in the Erris share price has a been partly because the company has been “feeding news in” rather than producing results.
Thus, Erris’s joint venture partner in Sweden, the US$2bn company Centerra Gold (TSE:CG) has selected the company’s Brannberg project to undertake initial exploration on, but drilling isn’t scheduled there until the summer.
Thus 2,750 metres of drilling is due to take place at the Klippen project, also in Sweden, also to be funded by Centerra. But the results of that won’t be due for some time yet.
And thus, although drilling is underway at the Skreen zinc project in Ireland, again, as yet, there are no results available to give the market a steer.
But patience is a virtue in mining, as skilled resources investors know too well, and it won’t be long now before all these projects do start generating news and data.
At that point the Erris share price could really start to move and, if one set of good news follows another, really gain some traction.
“The aim is to feed the market through a discovery of some kind or another,” says Marr-Johnson.
He’s not surprise at the lack of traction junior explorers are getting at the moment. His track record as a mining chief executive and as a fund manager at Blakeney gives him a broad platform of experience in which to put current market conditions into context.
“I’ve seen it so many times,” he says. “Market disinterest at first, and then when the results start coming through you create value through that discovery process and growing an envelope of known mineralisation.”
The market in general may want to see more advanced assets. But no one can argue against a new discovery, especially if it’s supported by the likes of Osisko or Centerra.
At Erris, Marr-Johnson is riding the twin horses of Swedish gold and Irish zinc. Both these propositions are quite familiar in the mining industry. Sweden is a well-known mining jurisdiction, particularly for iron ore, but also for gold, as Erris founder and major shareholder David Hall well knows.
As a director of Minmet, Hall masterminded the restart and subsequent sale of the Bjorkdal mine in Sweden, not too far from where Erris holds its current ground.
And Ireland has long been established as one of the premier zinc destinations in the world, and has played host to some major mines, including Navan, Lisheen and Galmoy.
Erris’s Abbeytown project is also a former mine, although on a smaller scale, which means there are brownfield opportunities for evaluation as well as regional targets for exploration. For access reasons – particularly heavy rain this winter - drilling started at one of the regional targets, the Skreen prospect, 15 kilometres east of Abbeytown and drilling there is ongoing. Work at Abbeytown itself and also on a new swathe of properties in Galway is being planned.
Since taking over the project, Erris has developed a new geological thesis that fits with the more recent thinking that there is no simple ‘Irish Type’ of zinc deposit. Rather there is a spectrum of genetic models, albeit with the common factors of being zinc-rich, roughly the same age, and in Ireland. Marr-Johnson therefore feels that for both the brownfields and greenfields exploration the final geological model for Abbeytown will emerge as work progresses
All this work is being undertaken under the auspices of Erris’s experienced exploration team. Indeed, this team may end up being Marr-Johnson’s ace in the hole.
“Institutions have got us on their radar screens because we’ve got a team of geologists who are capable of making major discoveries,” he says.
“We said we were going to make a discovery. We’ve got multiple assets in zinc and gold and with fully-funded work programmes. We hope that somewhere in there we hit the big one.”