INTRODUCTION
In the news: Almonty Industries (CVE:AII), Peninsula Energy (ASX:PEN) & Herencia Resources (LON:HER)
We are marketing Lewis Black, the President and CEO of Almonty Industries, in London next week. We are keen to set up one-on-one meetings and conference calls for our audience overseas. Almonty is currently acquiring Woulfe Mining with a view to becoming the third largest tungsten producer in the world and the leading one outside China (China produces around 80% of the world’s tungsten). The merging of Almonty and Woulfe Mining would imply a combined market share of some 40% of the ex-China market, so this is going to be a serious player. The group will have combined operations in the stable jurisdictions of Spain, Australia and (from Woulfe) South Korea. It would have a market cap of C$66m.
Almonty’s existing assets are Los Santos and Valtreixal in Spain and the Wolfram Camp mine in Australia. The company’s flagship production hub at Los Santos in Spain has delivered strong results since Almonty assumed ownership in 2011 and turned the asset around. It has been able to increase recoveries by 40%, deliver cost savings of 25% and increase contained tungsten by about 25%. As a result, Los Santos generated revenue of US$27.6m and EBITDA of US$17.9m for the 12 months ending 31 March 2015. This allowed the company to pay a dividend last year. A similar turnaround process is underway at the Wolfram Camp mine in Australia. These two assets currently produce more than 1,800tpa of tungsten.
The announcement of an agreement between Almonty and Woulfe came on 8 July 2015. Through this Almonty will acquire all of the outstanding common shares of Woulfe in an all-share deal by way of a court-approved plan of arrangement that is expected to close in early September 2015 (subject to the satisfaction of certain conditions, etc). The latest feasibility study for Woulfe’s Sangdong Tungsten Project in South Korea was published in July 2015. It demonstrated a highly robust project with a low-case pre-tax NPV8% (at US$15,000/t) of US$130m and a payback of 1.7 years on pre-production capex of US$62.7m. Sangdong is expected to produce 4,393tpa of WO3 concentrate over a 9.5-year LOM.
This is a unique company. Please let your RFC Ambrian representative know if you would like a meeting.
Peninsula Energy†† — Two Additional Uranium Sales Contracts — The ASX-listed company advancing uranium projects in Wyoming and South Africa has announced that it has entered into two new uranium sale and purchase agreements with major US power utilities. The contracts cover up to 1.935Mlb U3O8 and deliveries will commence in 2016. The base prices of the contracts were reported to be in line with the term contract prices for 1H15.
RFC Ambrian Comment: The signing of two more sales contracts with US utilities further helps the security of sales volumes at attractive prices relative to current uranium spot pricing. These two contracts take total volumes under sales contracts to 3.9Mlb U3O8. We estimate that the overall average base sales price of its current contract portfolio is around the mid-US$50s, a significant premium to the current spot uranium price of US$36/lb. Prices can be expected to increase over time as a result of the escalation clauses that are included in typical sales contracts.
We continue to expect that key catalysts for the re-rating of the company’s shares include the commencement of production at the Lance Project and the listing of its shares on the NYSE-MKT, which it is aiming to achieve during 4Q15. The current timetable is for the commencement of commissioning is by around the end of September, with the commencement of solution mining and uranium production then subject to the receipt of final production approvals from the State and Federal authorities. Submissions for these approvals were made on 23 July 2015 and the company is hopeful that approvals will allow production to commence by the end of October 2015 and first sales during 1Q16. We reiterate our Buy rating and target price of A$0.040; it is currently at A$0.027.
Herencia Resources† — High-grade Results from XRF Surface Sampling at Picachos — The AIM-listed company focused on multi-commodity exploration and development in Chile has released results from ongoing XRF surface sampling at its flagship Picachos Copper Project. Sampling was undertaken to the east of the 40M Shaft and Santa Rosa mine, with multiple new zones of surface mineralisation being identified.
A number of the new areas sampled lie within the proposed Picachos open pit, and at the 40M Shaft area surface mineralisation was detected immediately up-dip of deeper Cu mineralisation highlighted by prior drilling work. This indicates that the area of the planned open pit directly to the east of the 40M Shaft that had formerly been modelled as waste may in fact contain mineralised material. Values of up to 24.9% Cu were detected by the hand-held XRF sampling programme at the 40M Shaft area.
Coincident with the sampling programme, the company has undertaken a geological and structural mapping exercise. This has shown shallow copper mineralisation to extend over a strike length of 1,200m, from south of the 40M Shaft through Flor del Bosque to La Nipa. A similar structure has been identified stretching between Santa Rosa and the 40M Shaft East.
RFC Ambrian Comment: This information confirms the potential of the area to the east of the 40M Shaft Area to host mineralisation within the zone previously modelled as waste. If confirmed by drilling this would boost the project’s economics. While XRF surface sampling is a useful and cost effective method of determining the presence of mineralisation, it is worth noting that it should not be relied upon to give a representative indication of the overall grade of the area, and we await further work to provide quantitative estimates.
Currently the Picachos Project has a maiden JORC-compliant resource of 10.7Mt at 0.61% Cu and 5.6 g/t Ag, with a 0.1% Cu cut-off (containing 65,000t Cu and 1.0Moz Ag). The resource includes a higher-grade core of 3.4Mt at 1.12% Cu and 9.6 g/t Ag, with a 0.85% Cu cut-off (containing 38,000t Cu and 1.0Moz Ag), which is believed could underpin the first 3-5 years of open-pit mining at the site. The resource has only been estimated over a small portion of the Picachos tenements to date, with most drilling undertaken to a maximum depth of 100m, and mineralisation remaining open in all directions.
We continue to see the signature of the MOU with the Errazuriz Group as encouraging for Herencia, providing the opportunity to merge Herencia’s copper assets with Errazuriz’ nearby operating Tambillos mines. Tambillos comprises two underground operations and — importantly for Herencia — a 1Mt nameplate treatment plant with excess capacity. Synergies would be achieved through feeding lower-cost Picachos ore to the Tambillos plant, with the potential for plant expansion in the mid-term. The JV MOU was signed following original discussions over the option to toll treat Picachos ore from at the Tambillos plant. While the prospective terms are yet to be made public, the parties have announced their hope to finalise the agreement by end-2015. We consider that securing an in-country JV partner with processing capacity and added scale could represent a positive strategic move for Herencia; however, until terms are finalised it is not possible to determine the impact on the company’s value.