From diamonds to gold – small cap explorer Tectonic has big plans, but first it needs some quick cash
Minerals explorer Tectonic Gold reckons it’s onto something at its Specimen Hill gold mine in North Queensland.
But before it can expand the asset, the company is looking to make money from diamonds first.
The UK-listed company has entered into a joint venture at a South African-based diamond field.
Tectonic expects the diamond project will be cashflow positive by the middle of this year, freeing up funds which can be allocated to Specimen Hill.
But before it gets the JV up and running, the company is after some quick capital — around £250,000 ($466,000) for equipment and staff costs.
It all adds up to an interesting narrative in the life of a small-cap mining explorer, where as ever, cashflow remains king.
Tectonic views Specimen Hill as a promising intrusive‐related gold systems (IRGS).
The company says it has developed an advanced level of knowledge around IRGS — a specific type of gold deposit found in certain tectonic belts around the world.
It recently completed a 10-hole drilling program at the site in October 2018, which revealed grade mineralisation in excess of 35 g/t.
But in order to maximise the potential of the site, Tectonic will need more resources.
“The problem is, we’re a four-million pound company by market cap and now we’re sitting on an asset that’s just too big for us,” Tectonic MD Brett Boynton told Stockhead.
“We need to put $5-10 million of drilling into this thing. So we looked around for a cash-flow producing asset, and one of our shareholders highlighted an asset in South Africa.”
That asset is in the Alexkor diamond fields, which is controlled by the South African government and has been in operation since 1928.
Tectonic has partnered with VAST Mineral Sands Pty Ltd, which has a concession to mine three allocated Alexkor sites.
The government offers concessions to mining companies which then bring the concentrate to government-controlled processing facilities. Revenue from the diamond sales are then split 80:20 with the concession holder.
The areas at the site allocated to VAST require more advanced equipment to mine economically, and the company has brought Tectonic on board in return for a $US650,000 buy-in of Tectonic stock.
The project is expected to produce 900 carats per month, and the resulting diamond sales will allow Tectonic to generate the cashflow it needs to expand operations at Specimen Hill.
To get the JV up and running though, the company needs some bridging capital — around £250,000 – largely to finance up-front costs for equipment and staffing.
“We’ve budgeted £250,000 for startup capital for the first 3-4 months,” Boynton said.
“So that’ll fully fund the first cycle of diamond sales, then after that we should be cashflow positive.”
For now, the company is busy drumming up support from an array of different sources.
“Through contacts with our broker, we’ve been introduced to a couple of private investors who said ‘right we’ll cornerstone this, we’ll put in £100,000,” Boynton said.
“The principals involved with the company, including directors, will also add some capital. And then we’ll look to syndicate the rest.”
That process will involve various strategies. For starters, Tectonic’s primary broker in the UK will look to leverage its network to generate some interest.
And the company itself has a list of around 200 emails for current retail shareholders “who’ve been with us from the start”, Boynton said.
“The biggest shareholder out of our immediate group, they’re unlikely to put cash in but they do other things, like they’ll help us with equipment finance down the track.”
“Their view is they want to see some momentum in this, and then they’ll build a larger position.”
Ultimately, Tectonic has a minimum target to raise a further £100,000 from various sources to launch the JV, and the next few months are crucial.
It plans to be cashflow positive by September, which will provide the momentum to switch from London’s secondary NEX exchange to a listing on the more liquid London Stock Exchange.
If all goes to plan, Tectonic hopes to be back drilling at Specimen Hill by the end of the year.