It looks set to be a bumper few months for Power Metal Resources PLC (AIM:POW), and for a number of separate but related reasons.
The most obvious is that the various spin-out vehicles that Power Metal has been meticulously putting together over the past couple of years are now finally inching their way towards their own independent listings.
The exact timings have yet to be revealed, but know that First Development Resources, First Class Metals and Golden Metal Resources are on their way, and a fourth vehicle, the 49.9%:50.1% joint venture New Ballarat Gold Corporation is coming along behind.
Precisely what valuations get attributed to these vehicles at what point is also an open question, but a successful round of pre-IPO funding is already in the bag for First Development, which now boasts a handy little kitty of £1.125mln, following on from the £750,000 pre-IPO raise for Golden Metal in December last year.
So, although the market might be tough, there is appetite out there for the right vehicle with the right assets. In the case of First Development, exploration ground in the hot area of Western Australia known as the Paterson Province helped things along, as did the familiarity of UK investors with the stand-out company in the area, Greatland Gold.
Each vehicle seems to be crafted differently, with a single jurisdictional focus, and features that will appeal across the spectrum of junior resource investing from early stage to advanced propositions. Power Metal’s chief Paul Johnson has been active in the junior mining markets for many years now, and knows well enough how the game is played and how best to ensure each proposition receives appropriate attention.
Will he get all three majority-owned vehicles away this autumn? – perhaps not, but the smart money says that by Christmas there’ll be multiple, new companies vehicles in which Power Metal has a major stake.
Now, fast forward some months into 2023 and assume that all three vehicles – First Development, First Class and Golden Metal – are trading independently, with Power Metals still retaining a major equity component in all three.
What would their individual market capitalisations be? Perhaps not stratospheric, given the speculative nature of exploration, but bear in mind that Golden Metal holds the largest undeveloped tungsten resource in the USA, and First Class has a highly attractive portfolio of gold and base metals assets in the Schreiber-Hemlo district of Canada, one of the most prospective exploration addresses in the world.
However the market goes about valuing the new companies, the effect on the Power Metal balance sheet is likely to be very positive.
And that brings us on to another reason why the coming months look highly propitious.
Paul Johnson believes that we are now very close to a bottoming out of the resources market, and that a sharp uptick is on the way. Johnson’s no fortune-teller, and he doesn’t know precisely when. He also doesn’t know if there’ll be further falls before the uptick starts, although that seems possible. But what he does know is that timewise, it’s near.
He’s been through these cycles before, of course, dating back to the time when he put together the winning portfolio that put Metal Tiger on the path to success more than ten years ago. And he’s a very meticulous watcher not only of the broader trends, but also of the minutiae of how the markets work. If you’re not prepared to put in the time to understand the mechanics of markets, he believes, you shouldn’t be committing hard cash at all.
But if you are, then Power Metal Resources is certainly worthy of consideration, given the broad and diverse nature of its portfolio. This is no accident. Johnson believes the coming uptick will be powered by an unprecedented level of demand for metals driven by the greening of the global economy, and coupled by the inability of existing supply to meet that demand. In short, he says, the mining industry has overpromised, and the upcoming shortfall will be met with higher metals prices.
Those already positioned in these metals, as Power Metal Resources is, will likely do very well.
And how well positioned is Power Metals?
Well, it has operational projects and investments spanning three continents and covering ten commodities including gold prospects in Australia, the USA and Botswana; lithium in Canada, Tanzania and Australia; and uranium interests in Canada and Australia.
That’s quite a mix, and ought to cover all the bases fairly well. If certain commodities don’t perform quite as well as Johnson expects, there’s plenty of other upside elsewhere in the portfolio.
In the medium term, it looks as though the core exploration portfolio inside Power Metal will be quite heavily weighted towards uranium. The bull case there? – simply that the Western world’s reliance on Russian oil and gas has been shown to be short-sighted, and various countries are now scrambling to reactivate their nuclear programmes. Oh, and that much of the world’s current uranium supply is controlled by Russia and Kazakhstan.
So what will Power Metal look like in a years’ time? The straightforward answer is that whatever happens it’ll likely be substantially different. But if the mining equities markets have taken off by then, as Johnson suspects, the most striking difference is likely to be the valuation itself.