It’s not often that I take much notice of the smallest mining companies at the lower end of the market, but every now and again one gets my attention as being worthy of taking a look at if you want to take a bit of a punt on shares in something more speculative than the popular producers. That has been the case with a company called Caerus Mineral Resources (CMRS) which has just listed and looks interesting at its current market cap of around £6.5 million at a share price of 13p. I’m not invested myself, although I did have the chance to take part in the IPO, as I tend to stick to producers or those which I believe are about to reach that stage or sell on their assets, but I have chatted to the chairman Michael Johnson, and for those who do like to take a risk on this type of outfit I definitely think it is worth a look as I’ve been impressed by what I’ve heard from him and the plans that the company has to move forward.
Of course, you can argue that any similar sized miner has directors extolling the virtues of the assets that it may or may not have in the ground, and that most don’t end up being the success that investors expect them to be but there are also some exceptions. The focus for Caerus is copper in Cyprus, along with the gold that is found alongside that, and it believes that it is entering the market at the right time. I certainly can’t argue with that, given that copper prices are riding high at over $4/lb, and expected to see further increases in the future. In terms of the geographical location, Cyprus isn’t exactly known for its copper production these days, apart from the Skouriotissa mine, but at one time it produced large amounts of the metal and it is even named after the island (Cuprum in Latin). But in recent times there has been very little activity, as copper prices were generally too low to make it worthwhile, plus the conflict and subsequent splitting up of the country meant that some of best areas that had been owned by Cyprus Mines ended up straddling the border. Interest in copper has definitely returned now though, and the economics are likely to be very different at current and expected future prices, and whilst it remains speculative, I wouldn’t be at all surprised to see more widespread copper production once again resume in Cyprus in the future after a 40 year break.
Caerus owns 12 licences on the island, including previously discovered resources and abandoned mining operations – such as at North Mathiatis where there are plans for a heap leach project to take advantage of the 3Mt of copper oxide in dumps there, and where the current licence is expected to convert to a mining licence this year. That would provide cash flow for its other projects, for work to prove up JORC compliant resources. In terms of its cash resources to actually carry out the work it is planning, and the potential for further near term dilution for investors at this stage which is always a concern with earlier stage companies in this sector, following its IPO, which was over-subscribed and resulted in more funds than originally planned having been raised, the company has £2.4 million of working capital, and its plans involve spending £1.75 million of that on various work over the next 18 months. Since the founding of the company – 3.5 million shares with a 24 month lock-in were issued to the founders and directors – further cash was raised via the issue of 5.9 million shares at an undisclosed price, followed by a second pre-IPO fundraise where EV Metals Group became a cornerstone investor via the purchase of 10 million shares at 10p. Further shares were issued at 10p as part of an acquisition of assets (from New Cyprus Copper PA Ltd), as well as the 22.5 million share IPO, meaning that the bulk of the 50.4 million total shares in issue were at 10p, and of those almost half are subject to a 24 month lock in.
The company also seems to have a very clear budget for the next 18 months, with just £250,000 of the £1.75 million total earmarked for corporate costs, and the rest being allocated to drilling (at least 5,000m), plus assays, mapping and sampling, and test work. Of course, whether that is actually stuck to remains to be seen, but I like the fact that it has given a very clear strategy, and if it can stick roughly to that then investors are unlikely to get any sudden nasty shocks like a discounted placing. The fact that it has EV Metals on board as well bodes well I think, as it must see potential, as well as likely be looking to maintain its stake via any funding that is needed in the future – there will of course be a need for more cash at some point, but if the company is at a more advanced stage by then and it happens at a higher price then there is nothing to worry about and it is a normal part of the process towards actually producing a revenue stream from its licences, via the heap leach project and the processing of existing lower grade stockpiles of ore. At such an early stage, and having only just listed, all you can really do is decide whether or not you think it has potential and is worthy of investment. Obviously if the company doesn’t stick to its plans and budgets, then that would set off alarm bells for me and make me reconsider my view. But I think that there is enough going on that it will attract some interest as and when there is operational news, and given the relatively low free float, you’re unlikely to get in much cheaper (if some of the IPO investors sell, and you can, then even better!), barring any bad news. So, I would view it as a speculative buy at around 13p, with potential for the copper market to continue strengthening, and the possibility of renewed interest in Cyrpus itself as a possible source of the metal. Plus there is the added bonus that it has the potential to generate at least some revenue in the nearer term to go some way towards funding the work on the more attractive and potentially lucrative targets.
Filed under: Caerus Mineral Resources, Julie Meyer, Time Out, Tavistock, Biome, Ferrexpo
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