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Update on Future Metal Holdings

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RNS Number : 3451M
Adamas Finance Asia Limited
16 September 2019
 

ADAMAS FINANCE ASIA LIMITED

(the "Company" or "ADAM")

Positive Progress and Update on Future Metal Holdings Limited

("Future Metal")

Adamas Finance Asia Limited (AIM: ADAM), the London quoted pan-Asian diversified investment vehicle, is pleased to provide an update on its investment in Future Metal, which was previously known as Hong Kong Mining Holdings. The Company holds an 85% shareholding in Future Metal, representing ADAM's largest investment by value in the portfolio.

 

The Company is pleased to report continued progress at Future Metal, which remains on track to restart production in 2019. Harmony Capital, the Investment Manager of ADAM, was instrumental in appointing a new manager and an experienced team in May 2018 following which various permits and licences have been applied for and awarded to Future Metal to enable production to restart, as confirmed by the Company on 4 September 2019.

 

Market Conditions: New Independent Market Study

Demand for Future Metal's products, namely dolomite for magnesium smelting and wall rock for construction materials, has risen noticeably in recent years. In particular, within China, there is a shortage of wall rock for construction materials as the country's urbanisation and improvements to infrastructure continue apace. Some operators have either lost their Mining Licence or have been forced to reduce the size of their extraction areas as a result of a change in mining/extraction policy and government tightening of environmental policies as previously stated. Additionally, Future Metal can leverage a convenient transport network to surrounding cities, leaving it well-positioned to efficiently deliver its products to nearby potential markets and customers in the future.

 

These market observations have been supplied in a recent independent market study commissioned by Harmony Capital on behalf of the Company from the China Market Research Centre ("CMRC"), a leading research agency in China.  The study involved CMRC gathering localised data from primary sources in order to estimate market demand and dynamics and to verify prevailing prices for Future Metal's products. The conclusions of the study, further strengthen the confidence of the directors of ADAM and Harmony Capital that Future Metal's products have a readily accessible market due to prevailing conditions, which include a shortage of supply, proximity to smelters and an early mover advantage in terms of compliance with strict environmental regulations, which are acting as a barrier to entry for existing competitors.

 

The Future Metal operation is best described as a quarrying operation, as it is an open pit mine, whose products are extracted by drill and blasting, which then require simple crushing and sorting prior to sale - more information on this process can be found on Future Metal's website (see below).

 

As previously announced, in March 2018 it was estimated that the Future Metal operation contained 113.4 Million Tonnes ("Mt") of ore reserve, based on a report by SRK Consulting at that time. The local management team has since configured processing plans to generate an initial total production capacity for dolomite of 300,000 Tonnes (or 300 Kt) per annum which is the current approved level of dolomite production from the Linfen Ministry of Natural Resources.

 

Anticipated Production Metrics

Based on data from independent external consultants (CMRC and SRK Consulting), substantiated by contracts with third party service providers or carefully estimated by Future Metal's management team, have provided an indication of expected levels of production, costs of production and product prices. These ranges are indicative of annual production at current levels of capacity at Future Metal once the business has commenced and reached full production:

 

Expected Production Quantities (per annum at full production):

·    Qualified Dolomite: 150-180 Kt

·    Unqualified Dolomite: 35-45 Kt

·    Wall Rock: 300-350 Kt

·    Total Rock Production: 485-575 Kt

 

Estimated Sales Prices (per tonne), net of Value Added Tax ("VAT"):

·    Qualified Dolomite: RMB 50-65 (USD 7.0-9.1)

·    Unqualified Dolomite: RMB 30-40 (USD 4.2-5.6)

·    Wall Rock: RMB 55-60 (USD 7.7-8.4)

 

Estimated Cost of Extraction (per tonne):

·    Contract Extraction Costs: RMB 21-28 (USD 2.9-3.9)

 

Other Costs (per annum):

·    Operating Expenses: RMB 4.0-5.7m (USD 0.6-0.8m)

·    Domestic Corporate Income Tax Rate: 25%

 

A RMB to USD exchange rate of 0.14 is applied to the above values.

 

Risk Controls

These production metrics are indicative and there is no guarantee actual production or prices will be in line with these numbers.

 

In addition to installing a manager and team onsite that have been selected by the Company for their expertise, Harmony Capital has appointed an international accounting firm, BDO, to maintain Future Metal's accounting records.  The BDO team is also responsible for control of the company's local bank account, processing of invoices, authorisation of payments and collection of sales receipts.  Furthermore, Harmony Capital's team of analysts conduct site visits on a monthly basis in order to verify progress as reported by the local management team. 

 

Financing

ADAM will continue to finance Future Metal and its subsidiaries through loan disbursements as previously disclosed in the Company's 2019 Interim Report.

 

John Croft, Chairman of Adamas Finance Asia Limited, commented:

"Much work has been undertaken and considerable progress made by Harmony Capital in returning the Future Metal operation to production and we remain on track to achieve this in 2019.  There are strong indications that there will be considerable demand for Future Metal's products, which have now been independently verified by a recently completed market study. I look forward to reporting on the restarting of operations at Future Metal before the year end."

 

Further details on the Company and its investments are available on:

·    The Company's website: www.adamasfinance.com 

·    Future Metal's website: www.futuremetalholdings.com  

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

Adamas Finance Asia Limited

+44 (0) 1825 830587


John Croft


 

WH Ireland Limited - Nominated Adviser

 

+44 (0) 20 7220 1666


James Joyce

James Sinclair Ford





VSA Capital Limited - Joint Corporate Broker 

+44 (0) 20 3005 5000


Andrew Monk

Andrew Raca






Pello Capital Limited - Joint Corporate Broker

+44 (0) 20 3700 2500


Tim Sohal






Maitland/AMO - Communications Advisor

+44 (0) 20 7379 5151


James Benjamin



Peter Hamid



 

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014

 

About Adamas Finance Asia

ADAM is a London quoted investment company focusing on delivering long-term income and capital growth to shareholders through a diverse portfolio of pan-Asian investments. It is committed to providing for investors attractive uncorrelated returns through a combination of capital growth and dividend income well diversified by national geographies and asset classes from the Asian Small and Medium Enterprise (SME) sector.

 

The Company's investment manager, Harmony Capital, which has a dedicated team with established expertise and broad networks across Asia, is focussed on the strategy of creating income and capital growth for shareholders. Harmony Capital is sourcing predominately private opportunities and continues to create a strong pipeline of income generating assets from potential investments in growth sectors across Asia including healthcare, fintech, hospitality, IT and property.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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Quick facts: Adamas Finance Asia Limited

Price: 23.5

Market: AIM
Market Cap: £20.66 m
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