It’s a fact that not many junior mining companies will make it to the big time but in this blog I explain why I believe Blencowe could
As junior resource investors we are presented with literally hundreds of potential investment opportunities whether they be oil and gas or junior mining companies. Picking potential winners is not easy but if you back the right company at the right stage, returns can be life-changing.
Sadly a high portion of these so called early stage resource investment opportunities are designed such that the investor, particularly retail like you and I, will never see any meaningful return.
Yes you can trade said names and jump in on popularity windows and some do just that successfully, but the reason why most resource stocks do not make any meaningful long-term returns for shareholders is they are designed to be ‘life style’ companies and by that I mean supporting the life-style of the board and/or connected third-parties!
For example, a certain popular nickel mining company that had an asset in Russia spent the last 10 years going through the motions of scoping study to DFS etc whilst continually raising large amounts of cash via discounted dilutive placings and death spiral CLN’s (the CLN holders creamed loads of money selling stock at a no risk discount!) – did the board care? No, the CEO for example at my last look paid himself around £400k in salary and bonus!
Said company finally sold the asset returning a dividend of 1.8p per share to shareholders. Ultimately those who had invested in the company at a far higher price got back a pittance due to the continuous dilution. The chart below tells the sorry story, but the point here is, this is an example of a life style company one where the only winners are the board and the city investors who got the CLN deals!
I can name countless other junior resource stocks that have or will likely fail, so what differentiates a junior resource stock and in our case mining resource stock.
By the way it’s not all doom and gloom, I covered Horizonte Minerals a few years back when it traded at c.2p and the company went on to multi-bag for shareholders and finally achieve project finance that should see the company become a full scale mining company eventually paying handsome dividends! Another one, Afritin Mining I covered is making great strides forwards choosing the path of organic growth and one I believe will also become one of the major tin mining companies globally.
So here are a few things I consider differentiates the winners and increases chances of success:
Quality Asset – high product quality/grade with significant scale and JORC Resource, a potentially globally significant resource.
Management Team that can deliver, have done so before and who are importantly aligned and controlling share dilution with the ability to attract high quality investors.
Technical Approach: a quality development process culminating in a detailed DFS that can be taken to potential financiers and stands up to the highest level of scrutiny, or alternatively,
Organic Growth: a company that can raise Capex for a smaller-scale mining operation and grow the business organically, re-investing cash flow into the scaling up of the business.
How Blencowe shapes up currently…
Blencowe’s Orom-cross graphite project in Uganda is increasingly looking like a top tier asset with a JORC Resource of 24.5m tonnes @ 6% TGC (just 2% of overall est. resource). The results of test work to date further back up the quality of the project and we should see final results from the larger-scale bulk testing in the coming weeks.
A quality DFS is critical to Graphite mine funding
A DFS or Definitive Feasibility Study can come in different shapes or sizes depending on what outcome is required, but it should essentially culminate in all the mining studies being completed to a level where firm economic numbers are known and answer all questions that potential financiers need answered including any risks.
Some companies will simply produce a ‘desk-top’ DFS and minimal metallurgical studies, proof of concept processing etc spending a modest amount, say $1m or so. These don’t really cut the mustard and particularly with graphite project funding, probably won’t result in project financing.
Blencowe know this and this is a clear differentiator. I believe they are planning to spend over $5m on their DFS and hoping to attract a good portion of that finance from the US Government (DFC) see my previous blog whereby Blencowe have already met the DFC’s investment criteria.
In a recent catch-up I had with Mike Ralston CEO, he explained that it is absolutely critical to ‘prove-up’ your product and demonstrate this at scale and this is precisely why as part of the DFS, Blencowe have a 100 tonne bulk testing programme underway in China.
Results thus far have been extremely positive with a recent trip by the COO and Ugandan in country mining officials to a China processing facility. We should get the final results in the coming weeks.
Successful test results will further support off-take contracts and the company said this week that off-take negotiations are already happening.
So Blencowe really are ticking all the boxes now with the project quality being validated by extensive testing, a Management Team that appear to have all the right connections and an understanding of the technical approach that should culminate in a DFS fit for purpose, namely, that of obtaining final project finance which could well eventually also come from the DFC given their high interest in graphite projects in Africa.
Blencowe is in that early stage sweet-spot similar to where I covered Horizonte Minerals and looks like it could offer similar returns if they keep delivering as they have.
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Disclaimer
Research materials prepared based upon my own analysis and research. Accuracy cannot be guaranteed and research notes should not be taken as investment advice. Please always do your own research.
