Picture the scene. You are the Chief Executive of a small cap AIM listed exploration company. Over the last few years you have experienced the turbulence of the Alternative Investment Market (AIM); the buffeting of the global economic crisis and the hot/cold attitude of mining and exploration investors.You started well enough, with a placing of £2.3million at 30p a share in May of 2006, providing the company a market cap of £9million - no mean feat for a tiddler.
Things got better as this tiddler started to forge Joint Venture (JV) partnerships with global players such as Anglogold Ashanti, Barrick Gold, Troy Resources and LGA Mineracao. They have now developed a portfolio of gold, silver and base metal prospects in highly prospective and exciting territories and evolved to a position where extensive exploration and development work became largely funded by its JV partners.
£3.5million raised in two share placings since listing, means that after three and a half years of exploration, the company expended just over £4million of investors’ money to build a hugely attractive portfolio and the company still had around £1.7million in the bank in late 2009 to fund activities for the foreseeable future.
I'll say it again, not too bad for a tiddler!
And an achievement for which you and your management should rightfully be proud. Perhaps? But then again with the share price currently standing at just 7.25p (closing mid on 16.12.09) that means your total market cap is just £4.3million. Or looked at another way, after all the progress made on the ground, the share price has been reduced to just 24% and the total market cap just 47% of what it was on its market debut.
Welcome to the world of Jeremy Martin, CEO Horizonte Minerals (AIM:HZM)
"Fortune favours the brave" as we resource investors often say. But the market doesn’t always reward the exploration brave for their efforts. Well not straight away at least;
The share prices of even the most exciting AIM stocks can languish at deplorably low levels for quite some time until something happens, investors start getting interested and then a rerating occurs.
Before we get too speculative let’s break down the portfolio and briefly examine the various prospects, partnerships and assets that might just make Horizonte worth more than its current market cap:
Tangara Gold (Brazil – JV with Troy Resources)
In December 2007 a joint venture agreement was signed with Troy Resources covering the Tangara Gold prospect. Horizonte had been exploring Tangara for some time and had built up some interesting results including one intersection of 35m at 2.5 grams per tonne (g/t) gold.
Troy took over exploration and agreed to pay a $200,000 signing payment and $100,000 every six months for the next three years. If they wish to advance the project into production and take 100% ownership (a decision they must make by December 2010) they have to pay a further $2million to Horizonte and then a net smelter return on production. All in, if successful, the JV could provide $15-20million total income to Horizonte.
Having already exceeded their minimum $2million spend, Troy continue to explore actively at Tangara. Disappointing recent drilling results in two areas led investors to suspect Tangara had become the proverbial ‘dead duck’, but that may not be the case. Tangara has multiple target areas and Troy seem keen to push ahead; not least because their Andorhinas Gold plant nearby will be hungry for new feed sources over the years to come and Tangara is perfectly placed to provide. Moreover before Troy took over, Tangara had produced positive results for Horizonte highlighting the prospectivity of the area, something which many are forgetting!
Falcao Gold Project (Brazil)
Like Tangara, Falcao was one of the three flagship prospects that the company identified on listing in 2006, the third being El Aquila (see below). Falcao is 175km away from Tangara and was the subject of a 1998 limited drilling campaign by BHP. They found interesting intersections including 9 metres from surface at 4.8 g/t gold.
Horizonte have recently undertaken extensive geochemical sampling and a mapping programme which means they are now are drill ready and according to the annual report have a number of third party companies who have expressed an interest in the project.
Falcao seems to be an exciting project and one that will hopefully secure yet another JV partner in the coming months who, in line with the final results, will help undertake a 3,000metre drill programme. It’s a good job then that the concession licences have recently been extended for another three years.
Anglogold Ashanti (New Exploration)
What would you say when the third largest gold producing mining company in the world, Anglo Gold wants to give you $5.3million (£3.3million) for new prospect identification and exploration...
Well the answer would be yes I suppose, which is exactly what happened to Horizonte in September this year. The amounts are staged with $900,000 in year one, $1.4million in year two and $3million in year three, subject to reasonable acceleration or post year one withdrawal terms and conditions.
Targets identified become 51% owned by Anglogold or 70% if further expenditure is incurred to take a target area through a pre-feasibility study.
This is an exploration war chest and partner many small cap exploration companies would love to secure; and Horizonte have done just that. There will no doubt be much more news to come from this partnership in the coming months and years.
El Aquila Silver/Zinc (Peru)
Located in the Cerro de Pasco mining district El Aquila is a JV ready silver zinc prospect. The final results released in April 2009 noted a resource estimate undertaken by external consultants SAMSA, based on a high 100 g/t Ag equivalent cut-off, showing the presence of 1.17 Mt grading 148.7 g/t Ag equivalent.
Horizonte also noted however the key to exploring El Aquila is at depth and requires a serious drill commitment. So the search for JV partners continues and the recent resurgence in the price of silver should help the company achieve that objective. Not to mention the presence of a number of other mines in the area together with an established infrastructure.
Pararapa (Peru JV with Barrick Gold)
Signed in July 2008 this JV will provide Horizonte with a 100% interest in the Pararapa gold and silver project subject to the completion of certain exploration milestones. Per the interim results released in September a drilling programme is scheduled to commence at Pararapa shortly and the initial exploration work including soil grids and detailed mapping has recently been completed.
Here’s the interesting part; Pararapa is located in an historic mining district where AIM listed Hochschild currently operate two mines.
Lontra Nickel (Brazil JV with LGA Mineraco)
Should the exploration drilling prove up the resource, Lontra Nickel’s could conservatively be worth in the region of $60million to Horizonte (about 62p per share after currency translation at current rates). That’s according to comments from the CEO in an article last September when the ‘discovery’ was first announced.
Lontra is lateritic nickel, which traditionally has been second place to Nickel Sulphide resources which are easier and less costly to process. Yet, the consumption of resources around the world now make lateritic nickel the majority of remaining global resource; so lateritic deposits are coming into vogue.
There is work to do, including infill drilling to prove up to JORC resource standard in Q1 2010 and investigation of extraction/processing methods. But Lontra looks exciting especially with grades of up to 1.6% identified to date from drilling and the recent successful metallurgical tests.
Next step is a Lontra JORC in 2010 year when things could get very interesting as Lontra is situated close by Xstrata’s Serra da Tapa project.
Tucuma Nickel (Brazil JV with LGA Mineraco)
Complementing the Lateritic Nickel at Lontra, Horizonte last week announced a new Nickel Sulphide project located a short distance from Vale’s Onca Puma project.
This new project emerged from the grassroots exploration JV agreement with Horizonte’s Brazilian partner LGA Mineraco (LGA). This JV provides LGA funding to undertake grassroots exploration on Horizonte prospects and, from the Tucuma evidence, this JV is working as intended.
Horizonte are not hanging around here, and are currently developing drill targets for a programme to commence early next year. Another – “watch this space” development.
Things got better as this tiddler started to forge Joint Venture (JV) partnerships with global players such as Anglogold Ashanti, Barrick Gold, Troy Resources and LGA Mineracao. They have now developed a portfolio of gold, silver and base metal prospects in highly prospective and exciting territories and evolved to a position where extensive exploration and development work became largely funded by its JV partners.
£3.5million raised in two share placings since listing, means that after three and a half years of exploration, the company expended just over £4million of investors’ money to build a hugely attractive portfolio and the company still had around £1.7million in the bank in late 2009 to fund activities for the foreseeable future.
I'll say it again, not too bad for a tiddler!
And an achievement for which you and your management should rightfully be proud. Perhaps? But then again with the share price currently standing at just 7.25p (closing mid on 16.12.09) that means your total market cap is just £4.3million. Or looked at another way, after all the progress made on the ground, the share price has been reduced to just 24% and the total market cap just 47% of what it was on its market debut.
Welcome to the world of Jeremy Martin, CEO Horizonte Minerals (AIM:HZM)
"Fortune favours the brave" as we resource investors often say. But the market doesn’t always reward the exploration brave for their efforts. Well not straight away at least;
The share prices of even the most exciting AIM stocks can languish at deplorably low levels for quite some time until something happens, investors start getting interested and then a rerating occurs.
Before we get too speculative let’s break down the portfolio and briefly examine the various prospects, partnerships and assets that might just make Horizonte worth more than its current market cap:
Tangara Gold (Brazil – JV with Troy Resources)
In December 2007 a joint venture agreement was signed with Troy Resources covering the Tangara Gold prospect. Horizonte had been exploring Tangara for some time and had built up some interesting results including one intersection of 35m at 2.5 grams per tonne (g/t) gold.
Troy took over exploration and agreed to pay a $200,000 signing payment and $100,000 every six months for the next three years. If they wish to advance the project into production and take 100% ownership (a decision they must make by December 2010) they have to pay a further $2million to Horizonte and then a net smelter return on production. All in, if successful, the JV could provide $15-20million total income to Horizonte.
Having already exceeded their minimum $2million spend, Troy continue to explore actively at Tangara. Disappointing recent drilling results in two areas led investors to suspect Tangara had become the proverbial ‘dead duck’, but that may not be the case. Tangara has multiple target areas and Troy seem keen to push ahead; not least because their Andorhinas Gold plant nearby will be hungry for new feed sources over the years to come and Tangara is perfectly placed to provide. Moreover before Troy took over, Tangara had produced positive results for Horizonte highlighting the prospectivity of the area, something which many are forgetting!
Falcao Gold Project (Brazil)
Like Tangara, Falcao was one of the three flagship prospects that the company identified on listing in 2006, the third being El Aquila (see below). Falcao is 175km away from Tangara and was the subject of a 1998 limited drilling campaign by BHP. They found interesting intersections including 9 metres from surface at 4.8 g/t gold.
Horizonte have recently undertaken extensive geochemical sampling and a mapping programme which means they are now are drill ready and according to the annual report have a number of third party companies who have expressed an interest in the project.
Falcao seems to be an exciting project and one that will hopefully secure yet another JV partner in the coming months who, in line with the final results, will help undertake a 3,000metre drill programme. It’s a good job then that the concession licences have recently been extended for another three years.
Anglogold Ashanti (New Exploration)
What would you say when the third largest gold producing mining company in the world, Anglo Gold wants to give you $5.3million (£3.3million) for new prospect identification and exploration...
Well the answer would be yes I suppose, which is exactly what happened to Horizonte in September this year. The amounts are staged with $900,000 in year one, $1.4million in year two and $3million in year three, subject to reasonable acceleration or post year one withdrawal terms and conditions.
Targets identified become 51% owned by Anglogold or 70% if further expenditure is incurred to take a target area through a pre-feasibility study.
This is an exploration war chest and partner many small cap exploration companies would love to secure; and Horizonte have done just that. There will no doubt be much more news to come from this partnership in the coming months and years.
El Aquila Silver/Zinc (Peru)
Located in the Cerro de Pasco mining district El Aquila is a JV ready silver zinc prospect. The final results released in April 2009 noted a resource estimate undertaken by external consultants SAMSA, based on a high 100 g/t Ag equivalent cut-off, showing the presence of 1.17 Mt grading 148.7 g/t Ag equivalent.
Horizonte also noted however the key to exploring El Aquila is at depth and requires a serious drill commitment. So the search for JV partners continues and the recent resurgence in the price of silver should help the company achieve that objective. Not to mention the presence of a number of other mines in the area together with an established infrastructure.
Pararapa (Peru JV with Barrick Gold)
Signed in July 2008 this JV will provide Horizonte with a 100% interest in the Pararapa gold and silver project subject to the completion of certain exploration milestones. Per the interim results released in September a drilling programme is scheduled to commence at Pararapa shortly and the initial exploration work including soil grids and detailed mapping has recently been completed.
Here’s the interesting part; Pararapa is located in an historic mining district where AIM listed Hochschild currently operate two mines.
Lontra Nickel (Brazil JV with LGA Mineraco)
Should the exploration drilling prove up the resource, Lontra Nickel’s could conservatively be worth in the region of $60million to Horizonte (about 62p per share after currency translation at current rates). That’s according to comments from the CEO in an article last September when the ‘discovery’ was first announced.
Lontra is lateritic nickel, which traditionally has been second place to Nickel Sulphide resources which are easier and less costly to process. Yet, the consumption of resources around the world now make lateritic nickel the majority of remaining global resource; so lateritic deposits are coming into vogue.
There is work to do, including infill drilling to prove up to JORC resource standard in Q1 2010 and investigation of extraction/processing methods. But Lontra looks exciting especially with grades of up to 1.6% identified to date from drilling and the recent successful metallurgical tests.
Next step is a Lontra JORC in 2010 year when things could get very interesting as Lontra is situated close by Xstrata’s Serra da Tapa project.
Tucuma Nickel (Brazil JV with LGA Mineraco)
Complementing the Lateritic Nickel at Lontra, Horizonte last week announced a new Nickel Sulphide project located a short distance from Vale’s Onca Puma project.
This new project emerged from the grassroots exploration JV agreement with Horizonte’s Brazilian partner LGA Mineraco (LGA). This JV provides LGA funding to undertake grassroots exploration on Horizonte prospects and, from the Tucuma evidence, this JV is working as intended.
Horizonte are not hanging around here, and are currently developing drill targets for a programme to commence early next year. Another – “watch this space” development.
So summarising then........
- Bursting at the seams with projects in gold, silver and base metals;
- Well funded, low cash burn & JV partners funding majority of exploration work;
- JV partners that would be on any small cap explorers ‘Blue Chip’ hit list;
- Market cap of just £4.3 million if you deduct estimated cash of £1.7m, enterprise value £2.6m
Example Risks
- Exploration work fails to identify economic deposits;
- Country/Regulatory risk;
- Financial risk (sufficiency and stewardship of working cap & investment cap in particular);
- Commodity price exposure;
- Key person exposure (risk of losing key members of the team).
Company information:
- Country/Regulatory risk;
- Financial risk (sufficiency and stewardship of working cap & investment cap in particular);
- Commodity price exposure;
- Key person exposure (risk of losing key members of the team).
Company information:
© miningmaven 2009
Note: this summary represents the views and opinions of miningmaven, has been prepared for information and educational purposes only and should not be considered as investment advice or a recommendation to buy, sell or hold shares.Readers are advised to do their own extensive research before buying any shares and small cap exploration stocks, should always be viewed as high risk.Investors should also seek the advice of their investment adviser or stockbroker, as they deem appropriate.
The author owns shares in Horizonte Minerals plc.
Note: this summary represents the views and opinions of miningmaven, has been prepared for information and educational purposes only and should not be considered as investment advice or a recommendation to buy, sell or hold shares.Readers are advised to do their own extensive research before buying any shares and small cap exploration stocks, should always be viewed as high risk.Investors should also seek the advice of their investment adviser or stockbroker, as they deem appropriate.
The author owns shares in Horizonte Minerals plc.
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