Barry FitzGerald: Small companies, huge resources. We’re on safari…
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Garimpeiro went looking during the week for junior resources companies with small market caps despite having projects with huge resources.
The market caps of the chosen juniors might not yet fully reflect their underpinning resources bases, but such is the scale and quality of the deposits, it has to be assumed that recognition in the form of a major market re-rating will eventually come their way.
There are some examples in Australia. But Garimpeiro is feeling more adventurous and has headed off to Africa to come up with two names, MRG Metals in the mineral sands space, and Genmin in iron ore.
MRG Metals (ASX:MRQ): Trading at 0.4c for a market cap of $7.8 million.
Its market cap is as small as they come in the junior exploration sector, yet the company has more than 2 billion tonnes of ilmenite-dominant mineral sands (compliant resource estimate and exploration target) under its belt in Mozambique.
MRG’s Corridor project covers three large-scale deposits which are in the same part of the world that Western Mining Corporation – taken over by BHP in 2005 – once held ambitions to spend $US2.5 billion (dollars of the day) to become a big time minerals sands producer at its Corridor Sands project.
A recently released preliminary economic assessment of MRG’s Corridor project indicated an initial 26-year project costing $US239m to develop could generate an internal rate of return of 21%, with the net present value put at $US258m.
That was all very interesting for a company with MRG’s tiny market cap. But it was also clear that the economics of the project could be substantially improved in the preliminary feasibility study stage.
It is world scale stuff and the market for ilmenite – naturally occurring titanium dioxide – has been on the move of late as its critical properties across pigment, welding rods, titanium metal and other applications comes into sharper focus due to depletion at existing operations.
Financing a development of Corridor is a big ask at this stage although it has to be thought that the sheer scale of the resource and the advanced status of the project has got to have MRG on the offtake and/or acquisition radars of the industry’s big players.
MRG recently secured an option on a potential “starter’’ project in Mozambique, the Jangamo deposit (65Mt at 4.2% heavy minerals). It is much smaller than Corridor but could generate sweet returns while the bigger project gets moved along to a final investment decision.
It is also worth noting that MRG recently added an early stage rare earths and uranium exploration to its hunt in the African nation. It could be argued that those alone justify the company’s modest market cap.
Genmin (ASX:GEN): Trading at 20.5c for a market cap of $87 million. It is planning to become a 5mtpa iron ore producer from its Baniaka project in southeast Gabon.
That’s just for starters as Baniaka has a resource base of 760mt tonnes of high-grade ore (101mt tonnes in reserves) from just a small section of the prospective ground Genmin controls.
All going well, there will be a final investment decision in the second quarter of 2023 which could lead to first production in the third quarter of 2024.
That would put Genmin streets ahead of Fortescue which is spending up big to prove up a 1 billion tonne resource at its Belinga project in northeast Gabon.
Fortescue executive chairman Andrew Forrest talked up Belinga’s potential at the group’s recent annual meeting. “It is going to be a large, high-grade deposit,’’ he told shareholders.
Genmin’s Baniaka has an existing infrastructure edge over Belinga which comes through in the low capital intensity for the initial 5mtpa project, priced at $US200.8m.
The figure comes from the recently released preliminary feasibility study which arrived at a net present value estimate for the initial project of $US391m, an internal rate of return of 38%, and a 2.7 year capital payback.
Plonk Baniaka in the Pilbara and Genmin’s market cap would be a multiple of what it is today.
But it is not in the Pilbara and Genmin has to move the project through to the starting stalls to capture a market re-rating.
It has got private equity resources specialist Tembo Capital on board as a 60% shareholder, and the mighty Anglo American is doing due diligence on helping out with debt financing and offtake.
Iron ore’s recent recovery to more than $US100/t has got to be helping Genmin’s cause.
It should also be remembered that China, the world’s biggest consumer of iron ore, is out and about in Africa looking to reduce its dependence on Pilbara iron ore.
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