ENK (AIM/PLUS/ASX: ENK) is an emerging mid-tier nickel laterite producer focused on growth with assets in Turkey, the Philippines and Albania.
ENK has developed an innovative, low cost, environmentally sensitive heap leach technology, which offers a competitive edge over conventional nickel laterite processing.
UPDATE: ENK shares boosted as Caldag sale frees up cash for Acoje nickel project
UPDATE: Adds further broker comments from Fairfax Securities and Evolution Securities
Shares in nickel mine developer ENK Plc (LON:ENK, ASX:ENK) shot up 20 per cent on the open today as it unveiled a deal to sell its non-core Caldag project for about £25 million (US$40 million).
In Turkey, Caldag was put on care and maintenance last December after the company experienced persistent delays in getting a forestry permit. Following a strategic review at that time ENK - formerly known as European Nickel – refocused its efforts on the Acoje project in the Philippines.
ENK has made rapid progress on Acoje since then. Now with this fresh £25 million cash injection the company will be able to complete the bankable feasibility study, which is on-track for mid-2012, without seeking any additional funding from shareholders.
Investors were quick to buy up the stock on this morning’s open, as the stock hit a high of 17 pence a share, but this early enthusiasm has ebbed slightly in subsequent trading. At 9:00 am ENK shares were changing hands at 15.5 pence each - up 1.25p or 8.8 per cent.
Meanwhile analysts were also keen. “On the assumption that the sale will be successfully concluded, we believe that the time is now right to get into this stock,” said Shore Capital analyst Yuen Low.
Repeating a ‘buy’ recommendation Evolution Securities analyst Louise Collinge said that the deal was ‘extremely positive news’. “Not only does this draw a line under the whole Turkish business, it provides the group with US$40m which should easily fund the Acoje bankable feasibility study,” the analyst said.
She added: “Years of perseverance in Turkey had demonstrated that it was going to be impossible to progress Caldag to production due to the perpetual permitting hurdles which the company faced.
“We believe that the group has done well to agree to sell Caldag for US$40m which should easily fund the Acoje BFS and alleviate any market concerns on tightness of cash.”
Reflecting on ENK’s position now that Caldag will be sold and the Acoje BFS is fully funded, Collinge said that there is ‘significant upside’ in the Acoje project and this is not being reflected in the current share price.
Fairfax Securities analyst John Meyer said: “The deal allows ENK to move on and leave the problems of permitting Caldag in Turkey to a local group.
“We understand from discussions in Turkey on a recent business trip that the issues around the issuance of the Caldag forestry permits may be complex. The location of the project along with the very large number of trees to be felled and some strong local opposition mixed with other politics have stalled the project for many years.
He added: “The fact that a local Turkish group are willing take on the project is interesting but should not raise suspicions in our view.”
As part of today's deal with a private Turkish company a US$6 million deposit will be paid to ENK, by 13:00 tomorrow, and the remaining US$36 million will be paid upon closing the deal – which may be subject to shareholder approval.
The proceeds, which equates to around £25 million (9.6 pence a share), represent more than half the group’s current market value of £37 million, or 14.25 pence a share. ENK also confirmed that Caldag had a net book value of US$50 million.
"This transaction brings immediate value to shareholders and removes the costs associated with keeping Caldag on care and maintenance,” said managing director Rob Gregory.
“The sale outcome will provide the funds required, without the need to raise additional equity, to allow ENK to complete the Bankable Feasibility Study on its Acoje nickel laterite project in the Philippines which is targeting first production in 2013."
Once up and running Acoje is expected to produce 24,500 tonnes of contained nickel and 930 tonnes of contained cobalt a year. At the moment the Acoje has a 10 year mine life however, according to ENK, the current resource drill programme should significantly lengthen the life of mine.
The 3,000 metre drill programme is expected to run until the end of September, at which point the drill teams will then move on to exploration work on the Zambales deposit. Here the company has an opportunity to add presently undrilled ore to the Acoje resource.
