“For us, this is a big game-changer,” says Nick von Schirnding of Arc Minerals Ltd (LON:ARCM).
Arc has just moved to acquire an additional 35% of Zamsort Ltd, a company that controls the Kalaba copper-cobalt project in Zambia. Combined with a convertible loan note for 5% more, that takes Arc’s total holding to 54%, and it could go higher if further purchases took place.
“We now have two projects under our control,” continues von Schirnding, “and a significant exposure to cobalt.”
WATCH: Arc Minerals takes control of Zamsort in 'game-changing' deal
The other project comes through Arc’s 91.4% of CASA Mining, a company that in turn has a 71.25% interest in 1.5mln ounces of gold at Akyanga in the Democratic Republic of Congo.
But while Akyanga is still some way from a production decision, Kalaba is another matter entirely.
There, Arc is just six months away from delivering saleable product from a commercial scale demonstration plant.
And for a company that has spent years juggling development projects, that’s likely to make a huge difference.
For one thing, sentiment will surely improve now that equity fundraisings won’t periodically be required just to keep the lights on. When shareholders are tapped, it’ll be for value accretive reasons only.
But more significant than that is the position Arc has now secured for itself in one of the most prospective copper mining provinces in the world, the ‘Domes’ area of the famous Copperbelt.
The wider exploration footprint of Kabala includes nine of the thirty high priority targets identified by Anglo American and Equinox when they ran a joint venture that encompassed this same ground in the late 1990s.
“It’s definitely an exciting footprint,” says von Schirnding.
Discoveries in Zambia
Investors interested in how discoveries of this kind in Zambia play out might care to cast their minds back to the end of the last decade when Colin Bird’s Kiwara Resources sold out to First Quantum for US$260mln.
Kiwara’s Kalumbila project is now First Quantum’s Sentinel mine, slated to produce 220,000 tonnes of copper this year, and with a mine life stretching out at least 15 years.
More to the point though, it’s just to the south of Arc’s Kalaba project sitting on the other end of the 100 kilometre by 40 kilometre geological structure known as the Kabompo Dome.
When Colin Bird was working up the area it was fairly new in the consciousness of exploration geologists. Now, it’s well established. And the only reason more work hasn’t been done on the 1,000 square kilometres of ground Zamsort has under licence is that the project has till now been held up by the complexity of its ownership structure and a shortage of available funds.
Markets now open to exploration
After a long hiatus, markets are now open to exploration companies and ideas once more, but because of a separate four square kilometre production license within the wider exploration ground, the funding risk is anyway likely to be reduced.
Arc is paying just over 102mln shares for the 35% of Zamsort it’s buying from Terra, so existing cash resources won’t be depleted by the deal.
For that money it gets control of an existing plant, currently in the final stages of production, 10,000 tonnes of screened ore grading 3.5% copper that’s ready for processing, plus a non-JORC resource amounting to 16.59mln tonnes at 0.94% copper.
Von Schirnding reckons Arc can put the Kalaba plant into production for as little as US$500,000, and that it will generate significant revenue thereafter.
How much depends on how much more of that near-surface oxide ore the company can identify. Historical exploration targets put the total at least 150mln tonnes.
But there could be more.
Accordingly, Arc now plans to have a closer look at the ground it now controls.
“There could be some near-term wins from drilling inside the production license,” says von Schirnding.
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But there are also plans afoot to have a look at the wider ground. After all, the potential of the targets that have already been identified is significant. Of Anglo’s historical thirty targets, the seven best lie on Arc’s ground, and it’s worth noting that First Quantum’s now-producing Sentinel mine was ranked much lower, at 22.
So, verification of targets with geochemistry will likely be followed by drilling.
How that gets funded remains an open question. There’s the upcoming cashflow of course. But that may not cover the scale of Arc’s exploration ambitions.
“We have to be tactical how we fund this,” says von Schirnding. “There’ll be no shortage of partners for this project if we want them.”
He has his own routes into family offices and private equity groups. But it’s likely that as Arc consolidates as a two project company the company will weigh its options carefully.
After all, as important as it is to get funded, it’s also important not to give away too much upside.
“This could be worth multiples of what it is today,” says von Schirnding.
Next stop, cash flow