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Tern – As The Wheels Come Off This Remains A Stonking Sell says Nigel Somerville HERE
These days I’m generally not a fan of tiny natural resources companies and tend to avoid them as they rarely attract the positive sentiment and momentum that we have seen in the past, and most will never even come close to actually extracting anything from the ground. One exception I did make this year though was a company called Caerus Mineral Resources (CMRS), which I covered when it IPO’d and having chatted quite a bit with its chairman Michael Johnson prior to that. There were a few things that caught my attention, and not only that it had the potential to reach at least some level of copper production quite quickly and cheaply (although its operations are based in Cyprus, which is known more for its historical mining of the metal rather than present day operations). But I also liked that a lot of the pre-IPO money, including cornerstone investor EV Metals Group, came in at the same price as the company raised money at as part of its listing, and on top of that it seemed to be making real efforts to keep corporate costs as low as possible and not waste all of the money it had in the bank. The interims up to the end of June suggested that was actually happening, as although it recorded admin expenses of £414,000 for the six months, the majority of that related to its listing costs and those associated with raising funds at the IPO. That already set it aside from many of the lifestyle outfits listed on AIM, where either the pre-IPO money is in at tiny fractions of what the shares list at and can dump at almost any price and still make a profit, and/or the directors are awarding themselves remuneration packages of a size that you might more reasonably expect from a successful, established, profit-making company.
Since its IPO and my initial coverage from around the 13p level, it has seen its share price soar as high as around the 27p mark back in September, but has now pulled back pretty much all the way and sits at circa 14p to buy. During that time it also raised further funding to help accelerate its projects, with £1.44 million at 20p back in September, along with warrants at 30p, which I view as a decent price to have raised at when compared to the IPO not long before that. Despite the share price action it seems to have been making progress, not just with exploration and appraisal drilling of its prospects, but also in terms of potentially bringing some of these licences to production alongside a larger partner. It already has an option agreement in place with Jubilee Metals (JLP), which was recently extended for a further 18 months and where the focus is to try and work towards a joint venture on the Troulli-Kokkinapetra licence. I see this as a positive as Jubilee is a much larger company (£360 million market cap) and as part of the agreement would design, finance and execute the mine construction and processing plant, as well as operating it. Once Jubilee recovers all of its costs of getting a mine into production, assuming that ever happens of course, then after that profits would be shared between Caerus and Jubilee. Although that is further complicated by that Caerus recently signed a joint venture with Bezant Resources (BZT), whereby the two parties committed to spending an initial $1 million towards developing these licences to feasibility stage and eventually mine development, and where Caerus will be refunded (at a rate of 70% of net operating cash flow) for all exploration expenditure out of the Bezant share of profits, along with a 20% free carry on future costs. Exactly how all this works out in the future largely comes down to whether or not a JV with Jubilee goes ahead and on how many of the licences, plus of course the costs involved with getting to production, which will determine when any cash flow stream from the assets comes to Caerus.
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The most recent news from the company suggests that initial production could well be closer than some think, and potentially next year at the Troulli licence, with the latest drilling results potentially delineating an economically viable gold oxide zone, with intercepts of up to 1.4g/t, although that is still subject to confirmation by full lab analysis of the drill samples. The infill drilling also yielded evidence of a continuation of the sulphide zone , below the gold, and good copper mineralisation was found over extensive drill sections. In addition to the drilling, sampling of previously mined surface materials, which weren’t processed when the mine operated in the past, also yielded some very good, although also highly variable, copper concentrations of up to almost 18%. This does of course all need to be confirmed by a lab and there have been delays on that front, with a backlog of work, but typically it appears that the old stockpiles have copper grades in the 4-6% range, and in addition the results from the copper sulphide zone at shallow depth were a bonus that could greatly help with the project economics, given the lower costs of mining near the surface. We could of course look into every assay in great detail and wax lyrical about the grades, but on AIM there are hundreds of companies boasting good drill results or similar, yet they never seem to get any further than the exploration phase and occasionally exciting private investors with more results that look good on paper but don’t actually translate into anything. So, Caerus now needs to prove that it can actually use these promising results to create an economic mining operation, and it is already looking to take the first step by using the information from this ongoing drilling programme to create a JORC mineral resource in the first quarter of 2022, and it has already engaged Addison Mining Services to do so. The company does have a number of other licences in Cyprus as well, and recent sampling of tailings and waste dumps at Mala also produced significantly higher than expected gold and copper results, which will now be shared with Jubilee to determine whether Mala is also made part of the JV.
So, based on all of this, including the drilling/assay results and the relatively low cost of reaching production, plus the fact that Caerus has two potential joint venture partners, then barring any nasty surprises with the lab analysis and eventually further drilling and the JORC, I see a very good chance that this company will reach the production stage. If and when it does though, it will largely come down to the amount of cash flow that it actually gets from that, but with copper looking very strong for the coming years, things do look positive. The risk here of course is that all the metal found in the various promising drilling and sampling stays in place and is never actually produced, but I find it hard to see that given the current focus and demand for copper, and there are other companies listed on AIM that have created incredibly good businesses from the reprocessing of tailings (some of the PGM ones for instance such as Sylvania Platinum) - aside from the potential here to mine as well. So whilst I would certainly question why copper production pretty much ceased in Cyprus and none of these mines have been restarted in recent times, I would also take into account that the copper market is very different now, and there is no reason why small and mid-sized companies can’t re-start up some of these more economic operations and make a success of them. Although to quite what extent that happens is very hard to predict, given that the current market cap is just £9 million, production should see the share price well north of here and making new highs.
Filed under: Caerus Mineral Resources, Tern, Hurricane Energy, Titon, Rockhopper, Creightons
2021-12-21 13:36:53