VSA Morning Miner, 16/07/21
Ares Strategic Mining (CVE:ARS)
Ares Strategic Mining (CVE:ARS) has announced the completion of the lumps plant acquisition. The agreed deal had been announced in February this year with terms unchanged. The completion follows the company’s recent admission to trading on the CSE and delisting from the TSX-V.
The acquisition price of US$2m for the plant from the Mujim Group, which is effectively a strategic partner of Ares highlights the low capex nature of the company’s near term mining ambitions. The deal is payable in cash or shares at a price of C$0.56/sh; we had assumed a cash payment in our model. Thereafter Mujim Group will receive US$20/t to cover future technical updates and maintenance advice as well as US$10/t as an effective royalty for achieving production milestones.
The lumps plant doubles ARS production capability, in our view, taking output from around 70ktpa, in the earlier published mine plan (which did not include the lumps plant) to around 140ktpa with lumps being a premium fluorspar product and combined with the low impurities of the Lost Sheep Mountain fluorspar means that ARS will be able to achieve premium pricing, in our view generating free cash flow of US$30-40mpa. Our model reflects the potential of the published mine plan and the lumps plant.
With works having commenced at the industrial site and recent exploration progress which confirms significant upside in terms of the fluorspar inventory at the mine sites we continue to believe that the shares remain undervalued and the company is on track to commence production in the near term as the only US domestic fluorspar producer.
We reiterate our Buy recommendation and C$2.17/sh. target price.
Oliver O'Donnell, CFA, Head of Research & Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
Paul Renken, Senior Geologist | T: +44 (0)20 3005 5011 | E: prenken@vsacapital.com
VSA Capital Research | T: +44 (0)20 3005 5000 | E: research@vsacapital.com
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