Mineral & Financial Investments invests in junior mining companies
Owns 75% share of Portugal's Lagoa Salgada project
Also runs a 'tactical portfolio' for short-term investments
Focus on Portugal zinc project
In the space of six months the mineral resource at the Lagoa Salgada zinc project in Portugal has doubled from around 10mln tonnes to nearly 21mln tonnes.
That’s a rapid rate of progress in anyone’s book, and testament to the way Mineral & Financial Investments Ltd (LON:MAFL) has been able to get things moving there by cutting a deal that is favourable for both MAFL and Ascendant Resources Inc (TSE:ASND).
Under the terms of that deal Ascendant can earn in to up to 80% of Lagoa Salgada if it successfully takes the project through the end of the feasibility study stage and makes staged payments to Mineral and Financial of US$6mln, of which US$250,000 has already been received. What’s more, Mineral & Financial will have a free carry into production.
Along the way Ascendant will have made cash payments to Mineral & Financial totalling US$6.9mln in cash plus US$1.65mln in Ascendant shares.
The share payment results in MAFL owning 2.9% of Ascendant. It should be noted that Ascendant’s production increased 38% in 2018 to 91.4 million pounds of zinc-equivalent metal in 2018 and that it is guiding towards 2019 production of between 90mln pounds and 110mln pounds of zinc equivalent, at an all-in sustaining cost of US$0.97 per pound of zinc equivalent production.
It’s a nice position to be in, given that the resource is likely to grow and grow, and the capital outlay required from Mineral & Financial is zero.
The project is certainly in the right address to encourage belief in such an outcome. The Iberian Pyrite Belt hosts several world-class mines already, including Lundin Mining’s (TSE:LUN) Neves-Corvo mine, and Aljustrel, a major producer of base metals owned by local Portuguese company MTO SGPS.
The nearby Aljustrel mine is representative of a mineralised system which can host ore bodies exceeding 200ln tonnes. With even a fraction of that size of deposit very possible within Lagoa Salgada, it would be quite something for Mineral and Financial to hold a stake with a free-carry to production.
“The last drilling program left the geological team with indications that an additional massive sulphide deposit zone may located to the the east of the LS-1 South sector, The next drill program will likely attempt to confirm this hypothesis” explains chairman Jacques Vaillancourt.
In July, as part of plans to spend US$5.2mln drilling just over 15,000 metres, Ascendant said it had drilled 15 holes and anticipated updating the resource estimate by the end of the third quarter this year and delivering a preliminary economic assessment by year end.
The results with multiple holes included significant length intercepts of greater than 20% zinc equivalent (Zn Eq) mineralization and as high as 30.14% Zn over 12.2m.
M&FI chairman Jacques Vaillancourt said: “The north zone represents the vast majority of the current mineral resource estimate, yet Ascendant's management is highly confident it can expand and upgrade this deposit as well as the central and south zones."
Ascendant are, Vaillancourt said, “very optimistic” with the exploration potential on the 8 km gravity anomaly in the northern portion of the property and are applying the same diligence and strategy as successfully applied elsewhere.
“With the 2019 program exceeding our expectations thus far, we look forward to additional results to come over the summer months as well as providing an updated Mineral Resource in the third quarter."
Vaillancourt, a veteran Canadian financier, said earlier in the year he was was confident of the potential of the resource: “Nothing we’ve done has dissuaded us of the potential here. Indications so far suggest we could be on the cusp of a world-class asset.”
The market, true to form, has been somewhat slow to recognise the true potential both of Lagoa Salgada and the Ascendant transaction, but even allowing for that Mineral and Financial shares are trading at around 50% higher than where they were before Christmas last year.
With Ascendant spending significant amounts on Lagoa Salgada, adding that spend to the carrying costs will make for an interesting total valuation for Ascendant, and the read-across for Mineral & Financial could be quite substantial.
Already the shares are trading at a significant discount. With £750,000 in cash and a further £1.6mln in tradeable investments, plus the Lagoa Salgada stake the net asset value per share rang in at just over 12.5p at the last update, in February.
That’s a sizeable discount on a balance sheet that already carries some built-in discounts and may allow for significant share price uplift in the not too distant future.
One trigger may be a new valuation from Ascendant and Vaillancourt said M&FI will “possibly raise the valuation in our own NAV” but was not committing to anything just yet.
Exposure to gold
In the meantime, the Mineral and Financial investment portfolio has been boosted by the addition of new exposure to gold, and Vaillancourt and his chief operating officer Jamie Lessor continue to seek out new opportunities.
One of several ongoing projects is the evaluation of a potential opportunity in Latin America which may allow for Mineral and Financial to hold a secured short-term convertible bond with a “double-digit” coupon on a potential gold producer. Additionally the company is evaluating some base metal opportunities in South America and Africa.
In June, M&FI took an interest in Golden Sun Resources Ltd, a group that’s advancing the Costa Rica based Bellavista mine into production later this year, with loan notes bought that mature in April 2024 and they carry 20% interest per year.
Watch for news on that, for updates from other investee companies like Cap Energy and Cerrado Gold, and in particular for further news from Lagoa Salgada, where the potential for further upside remains significant.