Within the space of a week or so Arc Minerals Ltd (LON:ARCM) has managed to divest itself of two significant but non-core assets: Casa, in the Democratic Republic of Congo, and Sturec in Slovakia.
Both had been prone to drag focus away from the company’s key undertaking, large scale copper exploration and small scale production in Zambia.
Both had demonstrated considerable potential in the past, but had run into considerable roadblocks in terms of the jurisdiction in which they were located.
And both have now at least been able to generate some value for Arc to help it along the way in its quest for major copper riches in one of the world’s most richly endowed copper regions.
The sale of Casa, a three million ounce gold project in the east of the DRC, is set to bring in US$1.8mln in cash as well as squaring off debts worth US$2.5mln more – for a gross consideration of $12.2m, while the sale of Sturec, which boasts a 1.3mln ounce resource, could bring in as much as US$8mln if the option that’s been sold gets exercised and certain other milestones are passed.
At a time when reasonably priced equity financing is extremely hard to come by, such a cash injection could end up having incalculable value for Arc as it moves ahead on the Zamsort asset in Zambia.
What was particularly noticeable about these transactions was that although this is a small exploration company that has just divested itself of almost 4.5mln ounces of gold or gold equivalent, the market was largely nonplussed, and even bid up the shares modestly on news of the second transaction.
For a company that’s now focussed on copper exploration that market insouciance tells you that almost no value was being placed on those ounces in the ground and that therefore a sale at anything better than a discounted price was the correct way forward.
Arc’s chief executive Nick von Schirnding certainly has no doubts that the company has taken the correct path.
The assets that Arc has now parted with, he says, served a clear purpose at given moments in the company’s development. While it held Sturec as a flagship the market capitalisation kept the company firmly in the microcap camp, with a valuation fluctuating around the £2mln mark.
The subsequent addition of Casa added scale and ambition and a certain amount of critical mass, but it wasn’t until the more recent acquisition of Zamsort that Arc really began to demonstrate to the market what it was capable of, and to achieve recognition accordingly.
The market capitalisation following the divestments and, it must be said, after a considerable period of weakness too, remains firmly above the £20mln mark, making Arc a ten-bagger in those most basic of terms.
More to the point, the company is now a clearly-focussed copper play, and as such can be valued accordingly, without the complexities of having to mix commodities and account for political risk in the DRC or permitting in Slovakia.
In a limited manner, production is already underway at Zamsort, which bodes exceptionally well for when and if the company can deliver up the sizeable resource it’s hoping for.
“I think we can get quite a lot of traction as a clean copper company,” says von Schirnding.
“We already have several non-disclosure agreements in place, but one potential partner said to us that having a gold project in the DRC was an issue.”
Two potential partners have or are about to visit the Zamsort operation and with that issue now resolved, and Arc’s own ability to fund work and therefore leverage a better joint venture deal much improved.
But what’s the real potential at Zamsort?
“We’re definitely onto something,” says von Schirnding.
“We haven’t hit the mega-type project the majors would jump at yet. But we’re looking. It could be tomorrow, it could be six months. We’re presenting ourselves to the majors, but we’re not going to race into the first type of earn-in opportunity we’re offered. Our game plan is to drill as much as we can. The idea is to put as much capital as we can into the asset and to eke out a high-grade large scale resource that becomes too tempting for a major to pass up on. We’ve got fourteen anomalies, and to date we are certain of three mineralised targets.”
Like every junior mining chief executive von Schirnding is chary of dilution. He believes the asset sales will help move the company along without inflicting any pain on shareholders. Also helpful will be the cash that comes in from the concentrate sales that are now underway.
Arc is now a cleaner, more straightforward company, with a clear desire to build its copper footprint, as the most recent increase in the stake at Zaco shows. As the exploration results begin to come in from the ongoing work, expect the market to start waking up to that fact.