Resources Top 5: Red Hill’s $400m windfall proves small cap dreams can come true
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Here are the biggest small cap resources winners in early trade, Monday August 2.
Announced Friday, Red Hill Iron will sell its 40% interest in the 820 million tonne Red Hill Iron Ore Joint Venture (RHIOJV) to Mineral Resources (ASX:MIN) for a whopping $400 million in cash.
RHI investors loved the news, sending the stock up +270% in early trade.
Red Hill Iron listed on the ASX in 2005, trading at big volumes and at prices north of $6 per share. The share price then shrunk dramatically on the perception that the Red Hill Iron Ore Joint Venture (RHIOJV) “is a stranded project of modest grade and high impurities”, said chairman Josh Pitt in November.
The modest grade, high impurity part is true, but this project – a JV with Aquila Steel, part of China’s Baosteel Group — is also cheap to mine, and iron ore is booming.
Which leads us to this deal with $11.5 billion market cap MinRes.
Beside the $400m, MinRes will pay Red Hill Iron a royalty of 0.75% of revenue on all iron ore that is extracted and sold from the RHIOJV tenements and — if developed in association with the development of one or more of the RHIOJV tenements — over MinRes’ Bungaroo South tenement.
The sale does not include the other mineral rights over the RHIOJV tenements, which are retained by Red Hill Iron.
The transaction is subject to the approval of Red Hill Iron shareholders, with a vote to be held on 2nd September 2021. The RHI board “strongly recommends” the deal.
“The sale agreement is the culmination of a long process of engagement by which your board has sought to encourage the expedient implementation of a mining operation at Red Hill,” it says.
“To date the RHIOJV parties have been unable to reach agreement on a way forward.
“Our board believes that MinRes can provide the necessary impetus to get a mining operation underway.”
$236 million market cap Red Hill Iron is currently up 2,250% — from 17c to $4 per share – over the past 12 months.
$11.57m market cap Korab has a few irons in the fire, but the focus is the advanced ‘Winchester’ magnesium project in the NT, which it wants to develop as a quarry operation.
It recently received an unsolicited approach from an Aussie company which expressed an interest in its Winchester project.
“The parties are still discussing various potential transactions, including a potential sale of a part, or the whole of the Winchester project,” Korab says.
The company has also continued work to re-open the ‘Sundance’ gold mine, also in the NT, where it would treat rock stockpiled on mining leases at a processing plant owned by a third party. Discussions are ongoing.
Korab – which also pulled in a handy $326,000 profit for FY21 — is currently up 190% over the past 12 months.
(Up on no news)
Terramin is awaiting final approval of its Mining Lease Application (MLA) for the high grade 265,000oz ‘Bird in Hand’ (BIHGP) gold project in South Australia.
A feasibility study showed BIHGP would generate a post-tax net present value (NPV) of $141 million with an internal rate of return (IRR) of 80.5% over ~4 years of production.
NPV and IRR show the potential profitability of a project: the higher the numbers, the better.
The project would produce ~ 44,700 ounces of gold each year at an impressively low all-in sustaining cost of $959 per ounce.
“Terramin continues to engage with a number of parties which are interested in funding or investing in the project and is in receipt of a number of funding offers,” the company said last week.
“There is strong interest from offtake parties, streaming and royalty companies, financial institutions and other mining companies.”
The lithium project developer is in advanced negotiations with its technology partner to complete a definitive agreement at its ‘Kachi’ project in Argentina. At the date of this notice those discussions are “ongoing and incomplete”, the company says.
Last week, Lake announced the issue of bonus options to shareholders — one new option for every 10 shares held. The options will have an exercise price of 35c (LKE current share price 52c) and an expiry date of 15 October 2021.
If exercised, the option holder will receive one fully paid ordinary share in Lake Resources and one new option with an exercise price of 75c and an expiry date of 15 June 2022.
$500m market cap Lake is up 560% year to date, and 1,225% over the past 12 months.
(Up on no news)
Hardworking South American porphyry hunter Sunstone has assays pending from its Bramaderos gold-copper project in Ecuador.
Drilling at the ‘El Palmar’ project in northern Ecuador – where Sunstone has identified a “compelling” copper-gold porphyry target — is also expected to start soon.
The $48m market cap stock had $12.2 million in the bank at the end of FY21.