Investor deep dive
Baker Steel Resources eyeing valuation uplifts in four significant investments
Completion of investment into Azarga Metals Corp
BAKER STEEL RESOURCES TRUST LIMITED
(Incorporated in Guernsey with registered number 51576 under the provisions of The Companies (Guernsey) Law, 2008 as amended)
15 April 2019
Completion of Previously Announced
US$3M investment into Azarga Metals Corp
· Baker Steel Resources Trust Ltd ("BSRT" or "the Company") is pleased to report that it has completed the previously announced agreement to invest into Azarga Metals Corp ("Azarga Metals") (AZR.CN)
· The Company will invest US$3m into TSXV listed Azarga Metals via an 8% secured convertible loan due 31st Dec. 2022, convertible at C$0.14/share ("the Convertible Loan")
· The first tranche of US$1m of the US$3m Convertible Loan has been drawn, with the second tranche of US$2m to be drawn no later than six months from now
· Azarga Metals to mainly use the Convertible Loan proceeds to undertake a second-phase drilling and exploration programme with the objective of increasing the existing resource estimate of its 100%-owned Unkur Copper-Silver Project, Russia
· Existing positive Preliminary Economic Assessment ("PEA") on Unkur (post tax net present value at 8% discount rate of US$147.5m)
· 13.490 million 2-year warrants have been issued to BSRT with an exercise price of C$0.17/share ("Warrants")
· BSRT has received an option to acquire a 2% net smelter revenue royalty on the Unkur Project from Azarga Metals for US$5m
· Investment values Azarga Metals at US$9.0m on a pre-money basis
· Unkur Project currently has a NI 43-101 compliant resource of 724 million pounds of copper and 76.8 million ounces of silver (M oz) equating to total silver equivalent resources at Unkur of 182 M oz (compared with the Prognoz Silver project with silver equivalent resources of 256 M oz)
· Trevor Steel has agreed to join the Board of Azarga Metals
If BSRT's interest in the Convertible Loan was fully converted into equity the Company would hold approximately 29.9% of the enlarged share capital of Azarga Metals (rising to approximately 36.6% if the Company exercises all the Warrants).
The Convertible Loan is repayable in cash at 31st December 2022, if not converted into common shares of Azarga, and is secured on the shares of Azarga Metals BVI, the holder of 100% of the Unkur Project.
BSRT, has the right to appoint one director to the board of Azarga Metals, increasing to two directors should BSRT's ownership be over 20% of Azarga Metals. Trevor Steel has agreed to join the Board.
BSRT has the option to acquire a 2% net smelter royalty ("NSR") from Azarga Metals on the Unkur project for US$5m. The vendors of the Unkur project to Azarga Metals retained a 5% NSR on future metal sales. If BSRT exercises its option the vendors are obliged to cede 2% of their 5% NSR to Azarga, such that BSRT will take up its 2% royalty under option from Azarga.
Azarga Metals intends to use the bulk of the proceeds of the Convertible Loan to undertake a 2nd phase drilling and exploration programme at its Unkur Copper-Silver Project, with a view to more than doubling the drilling undertaken by it to date. There is a reasonable expectation that the existing Inferred Mineral Resource estimate for Unkur of 62 million tonnes at 0.53% copper and 38.6g/t silver, containing 328,600 tonnes of copper and 76.8 million troy ounces of silver (0.56 Mt of copper equivalent) can be significantly increased. Azarga Metals holds an Exploitation Permit issued by the Russian government authorities which is valid until 2039.
Azarga Metals completed a positive PEA in 2018 envisaging an open pit operation with an 8-year mine life producing 13.2kt of copper and 3.7M oz of silver per year, at a C1 cash operating cost of US$38 cents per pound of copper (net of silver as a by-product credit) and resulting in an estimated pre-tax net present value of US$206.3M (post-tax US$147.5M) at an 8% discount rate and internal rate of return of 28.9%, with pre-production capex of US$186.6m. Any significant increase in the Resource is anticipated to lead to a further improvement on the initial positive PEA results. The project benefits from good existing infrastructure such as grid power, road access and nearby rail and is located around 20km from Udokan, one of the world's largest copper development projects.
STATUS OF UNKUR COPPER-SILVER PROJECT
The Unkur Copper-Silver Project is a sediment-hosted stratiform copper-silver deposit in the Zabaikalsky administrative region of eastern Russia (relatively near the China-Russia border). The copper-silver bearing horizon has been traced, from historic drill holes, trenches and outcrop, for a length of about 5 km northwest-southeast in the southwest limb of the Unkur Syncline. Unkur was initially explored during the 1960s through 1980s.Various non-NI 43-101 resource estimates were prepared during that time including a 'prognostic' resource estimate of 143 million tonnes at 0.77% copper and 68.3 g/t silver (historic resource estimates were prepared before Azarga Metals acquired an interest in the project and they have not been reviewed by a Qualified Person in the context of NI 43-101 and so cannot be considered as a current Mineral Resource).
Azarga Metals acquired the Unkur Copper-Silver Project in mid-2016 and then embarked on a successful initial exploration programme. In 2016-2017, Azarga completed 16 diamond core drill-holes at Unkur for 4,580 cumulative linear meters. A maiden NI 43-101 Resource was published in April 2017 and then in March 2018 the Resource was enlarged and a PEA was undertaken and filed at the end of August 2018.
The Unkur Copper-Silver Project remains open in both directions along strike and at depth. It is believed there is potential to at least double the size of the existing mineralised envelope with a second phase drilling programme. Azarga plans to re-commence physical exploration at Unkur in the late summer of 2019. If Azarga's resource development objectives are met or exceeded, the subsequent phase would be to complete an enhanced PEA or pre-feasibility study for Unkur.
Further details on Azarga Metals are available on its website www.azargametals.com
Further details of the Company and its investments are available on the Company's website www.bakersteelresourcestrust.com
Baker Steel Resources Trust Limited +44 20 7389 8237
Numis Securities Limited +44 20 7260 1000
David Benda (corporate)
James Glass (sales)
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