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Companies establishing worthwhile projects need to embark on the costly process of taking them towards production before the mining boom runs out of steam or the economic consequences of the ‘credit crunch’ shut the door. With the share prices of many now well below their peaks, some chief executives even profess to be worried that they will be picked off before the value of their projects has been recognised.
‘All of them are looking to do things,’ reflects broker Seymour Pierce’s sector sage, Charles Kernot. ‘It is a case of waiting for someone to jump.’

It has become commonplace for large mining companies nowadays to let the juniors do much of the exploration they once would have done themselves before either bidding for them or taking a major slice of their projects. But there can be many a slip twixt cup and lip.

Toronto-quoted and Congo-focused Katanga Mining, which recently merged with AIM-quoted Nikanor to create an African copper and cobalt group valued at the equivalent of £1.4 million, is poised to raise hefty sums by floating on the London Stock Exchange. Observers say several large mining groups are taking a keen interest in the enlarged company and do not expect it to remain an independent quoted entity for long.

CAMEC’s Congo tie-up
Central African Mining & Exploration Company (CAMEC), headed by controversial entrepreneur Phil Edmonds and an unsuccessful former suitor of Katanga, has agreed a joint venture with the family of Israeli diamond trader Dan Gertler (a player in the Katanga-Nikanor episode) to develop Congo prospects, notably the Mukondo Mountain and Luita copper and cobalt deposits. The agreement would give the Gertlers’ Prairie International vehicle 39.9 per cent of CAMEC, which is raising £43 million at 60p on the strength of it, conditional upon the approval of the joint venture by the Congolese authorities.

Among the big-league players, deals on the table or being mooted to create huge new multi-billion mining giants have already held stock markets in rapt fascination for months and provoked protests about the creation of pre-war-style mineral cartels. BHP Billiton’s £70 billion plus struggle for diversified iron ore, aluminium, copper and uranium producer Rio Tinto has prompted China’s state-owned Chinalco to join forces with US aluminium group Alcoa to pay £7 billion for a 12 per cent Rio stake.

The £34 billion Anglo-Swiss Xstrata combine has seen off the acquisitive ambitions of Brazilian mining giant Vale, but no-one rules out the possibility of a deal with another group at some stage. Speculation perennially returns to £6 billion Chile-focused copper miner Antofagasta and its controlling Luksic family, while late last year Canadian group Yamana Gold moved from AIM to the Full List after clinching the £1.8 billion acquisition of Meridian Gold.

There have been some stirrings among the smaller groups. Last year, AIM-quoted Mwana Africa, whose boss Oliver Baring also chairs Ridge Mining, bought control of SouthernEra Diamonds for £31 million, having already snapped up gem minnow Gravity Diamonds. Late in 2007, Severstal, the vehicle of Russian steel magnate Alexei Mordashov, acquired Kazakhstan and Russia-focused gold and molybdenum counter Celtic Resources for £162 million.

In the frame
Others now find themselves in the frame or at least potentially so. Weatherley International, at 24p, an AIM-quoted copper miner and smelter with operations in Namibia, followed the £5.7 million sale of its blast furnace and slag dumps to potential AIM candidate Emerging Metals with the news of an approach from an unnamed company. Advisers say talks are continuing.

Fallen AIM star Coal International, now 24p, whose key operation is at Maple Creek in Virginia, announced in January that it too had received an approach. This is thought to be part of the corporate restructuring at 34 per cent holder Cambrian Mining, which is seeking to restore its fortunes under more professional top management.

This process has seen Cambrian’s own shares nearly double since December to 96p (still only half their 2005 peak) and helped lift Western Canadian Coal, another company in the same stable, to 154.5p, five times its 2005 low. Elsewhere, bombed-out British Columbia-focused Pan Pacific Aggregates, dogged by delays to its planned Schelte Peninsula operations, followed a short-lived near doubling of its rock-bottom share price to 3.38p the other day by revealing talks with an unnamed party about a ‘potential acquisition’.

Attractive targets
Several companies are now facing the challenge of financing projects that they claim would justify much higher stock market ratings than they presently enjoy, thus making them potentially attractive targets. If platinum continues to command historically high prices for reasons more fundamental than production delays caused by South African electricity shortages, fans of nickel and platinum group metals player Ridge Mining suggest it could be in this quandary.

Steered by formidable platinum miner Terence Wilkinson, Ridge, in which Chinese mining giant Zijin holds 20 per cent, awaits an imminent feasibility study on its Sheba’s Ridge project in South Africa’s Bushveld. The project could hold up to 1.4 million tonnes of low-grade nickel and 534,000 tonnes of copper. Industry leader Amplats has 36 per cent and development finance group IDC 26 per cent. The company expects its 50 per cent-owned Blue Ridge project to start producing at an annual rate of 125,000 of platinum, rhodium, palladium and gold later this year and, with nearly £15 million cash in December, suggests Blue Ridge’s capital cost could be £100 million.

Ridge argues that the expected costs of $558 (£279) an ounce imply £60 million annual cash flow, pay back in less than two years and a net present value of £340 million, against a £108 million AIM tag. This is before counting in the much larger Sheba’s Ridge, which the company suggests could yield 24,000 tonnes of nickel, 11,000 tonnes of copper and 390,000 oz of platinum group metals a year for 20 years at a capital cost of around £600 million.

At 118.5p, Ridge, which began its AIM life as West African niobium play Cluff Mining, is still barely half its original float price, despite a near fivefold recovery from its 2005 low. After early setbacks, changes of direction and other problems, the company still needs a South African Black Economic Empowerment partner for Sheba’s Ridge, which should be ready to produce in 2012/13, roughly when, it says, the power shortage is expected to be over.

The company’s founder, Algy Cluff (who successfully sold a previous African mining venture, Cluff Resources, to Ashanti Goldfields), now heads another West Africa-oriented AIM miner, Cluff Gold, which expects to start producing before June from Kalsaka in Burkina Faso at an initial annual rate of 40,000 oz, with similar prospects at Angovia in Côte d’Ivoire. Cluff, whose shares have risen from 39.5p three years ago to 95p, recently raised £12.8 million at 88p for various gold projects, including Baomahun in Sierra Leone, and Cluff has spoken of impressive likely cash flow.

Fans of tightly held Firestone Diamonds, at 147p, suggest its promising Tsabong kimberlite field in Botswana and other prospects in the same region should attract a bidder, although its project partners might not enthuse.

Value dilemmas
Ridge Mining is one of several companies that have decided to list their shares additionally in Toronto, Johannesburg or on the Australian exchange in the hope that these markets will rate their projects more highly and so avoid the need for ‘give-away’ funding deals. Meanwhile, Mexico-focused Arian Silver hopes to add a producing silver mine and a tailings operation to augment its existing silver, lead, zinc and copper projects, but feels its modest 16.25p AIM price, which has halved in two years, is too low to justify using paper.

Chief executive officer Jim Williams suggests assay results this summer could show as much as 230 million oz of silver equivalent, with low open-pit production costs of $12.5 a tonne.

With silver at around $20 an ounce, that would be impressive for a company valued at about £20 million, but for now Arian must content itself with a modest imminent share placing to keep the show on the road and finance planned acquisitions with the proceeds and borrowing.

A similar dilemma presents itself to Andrew Wollett, head of zinc mining and tailings treatment concern ZincOx, who nine years ago had to agree to sell his previous company, Reunion Mining, at a key stage in its financing cycle at a less than optimal price. Now, he has raised £61 million to fund the AIM-quoted company’s majority-owned Jabali mine in Yemen, with a finance package including a bond linked to the zinc price, and another £20.4 million equity for its Ohio-based recycling operation.

The recycling operation looks distinctly promising and needs £85 million, which Woollett sounds confident of raising, perhaps with the aid of finance from smelters in exchange for off-take deals from the recycling. But, with ZincOx down from 427.5p last July to 193.75p, he is all too aware of the temptation the company could now offer to a long-term corporate bargain hunter.

Another company looking ahead to production, from Meekatharra in Western Australia, is Down Under AIM counter Mercator Gold, which hopes to mine 200,000 oz of gold in 20 months from its Surprise pit. It is also targeting 120,000 oz a year from Paddy’s Flat as from September 2009, rising to 150,000 oz annually. The company claims a gold resource of 2.4 million oz at fairly low grades. With cash costs at around $500 an ounce against a $920 gold price and a share price of 67.5p against 106p in 2005, Mercator hopes a listing on the Aussie exchange next month will ease funding.

Yorkshire-based Angus & Ross says it has received ‘an encouraging response’ from potential suppliers of the £25 million needed to reopen Greenland’s Black Angel zinc, lead and silver mine and start production this year. Chairman Robin Andrews says Black Angel could be capable of producing 230,000 tonnes of high-grade ore annually for four years, generating earnings of £48 million over that period. The company’s shares, at 12.5p (half their 2006 level), value the whole business at £18 million.
Guessing who will jump first and when is the sport of the moment.

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