In a deal that progressed with remarkable smoothness since initial terms were signed in the middle of the northern hemisphere summer, Equatorial Mining and Exploration PLC, a company that had hitherto been sparking only modest interest with its coal project in Nigeria, has acquired the Kuaka tantalum project in Rwanda.
Along the way Equatorial has also managed to raise almost £2mln, funds which allowed it to complete on the purchase of Kuaka in mid-October, and to put it in a position to commence operations almost immediately.
The deal represents the first manifestation of a broader strategy that Equatorial’s chief executive Charles Bray is seeking to implement.
“What we’re looking to do is go to proven and already profitable mines and increase their productivity,” he says.
And in Rwanda, and particularly in the tantalum space, there are myriad opportunities that are crying out for the specialist touch that the team at Equatorial can bring.
Kuaka is a case in point.
It’s been operated historically by artisans on a fairly large scale, and has thus a track record of production and processing that’s tried and tested.
But the Rwandan government tightened the rules on artisanal mining significantly two years ago, primarily with safety and environmental concerns in mind, so it’s no longer quite so easy for the artisans go in and start generating cash flow.
In short, the tantalum mining business in Rwanda is about to be transformed from a semi-professional business into a fully professional business, and Equatorial Mining is the company to do it.
Bray reckons there are around 450 significant artisanal mining operations in Rwanda, and while not all will meet the parameters of Equatorial Mining, there’s surely enough there to keep him busy with dealflow and expansion for a good while yet.
How the market will view this Rwandan opportunity remains to be seen, as there is very little in the way of precedent for a junior mining company capitalised in the West successfully working in country.
Bray loves it there, but for investors who are looking for more something more tangible, Kuaka will be the real test.
On paper, it looks highly attractive.
Equatorial has spent around US$1mln on a 20 tonnes per hour wash plant, a tipper, a backhoe and a few other bits of kit, which will allow it to start mining and processing almost immediately. The ore is free-dig, meaning there’s none of the complexities of drilling and blasting.
Even though not all the kit has arrived, mining has already commenced, and site preparation work is well underway.
It should all lead to the creation of an operation that ought to be able to deliver revenues of between US6mln and US$7.5mln per year fairly quickly, generating a gross profit, Bray reckons of around 40%.
On those numbers, it’s easy to see why the old Nigerian coal assets hold little interest for him, and why, in such tough markets, he was able to raise significant sums of money for an operation in a country few people have any experience of.
Rwanda, though, is no longer the strife-torn country that dominated TV screens around the world in the 1990s. It’s had stable government for several years now under President Kagami, it’s joined the Commonwealth, and it’s now looking to the future, past the notorious genocide of 1994.
Some effects still linger of course, including a somewhat macabre dynamic in the mining space: most of the people who knew where the country’s major gold deposits were were killed.
And this speaks to the wider opportunity which Equatorial is addressing. There are two other serious mining operators in Rwanda, one Chinese and one Macedonian, but all told, as far as those in the European and North American capital markets are concerned, Equatorial has first mover advantage.
The focus will remain on tantalum for now, as this is where the company’s expertise lies, and moreover the opportunities are extensive. Bray reckons he has a hundred attractive targets that he and his team are looking for.
If any of them can measure up to the potential standard of Kuaka and deliver revenues of upwards of US$6mln, then the company could be looking at rapid growth and further opportunities.
At the moment it’s listed on the NEX exchange, but don’t expect that situation to last much longer. Junior mining companies with serious cashflow are few and far between these days. If Equatorial Mining joins their ranks it would make obvious sense for it to graduate very soon to a bigger and more liquid market.