Our review of Iron Ridge Resources comes after weeks of lobbying by investors, IRR certainly has a following and why wouldn’t it, shares in the company change hands at 41p up from 14p in the last month. Much of the explanation has come from the company owning a number of highly lucrative assets which the board believe will yield multiples of today’s valuation, below I take an overview of Iron Ridge to better understand the story.
Iron Ridge Resources IPO’d in 2015 right about the time Iron ore prices slid towards a 10 year low point, naturally this handicapped the company from the off which meant IRR had to quickly diversify by bolting on blue sky upside onto its Gabonese Iron project. There is no doubt that the Iron ore potential with the scale of its assets could be decent so with a recent relief rally in Iron then one must rationalise why the substantial rise in Iron Ridge’s price? Indeed the Iron ore reversal has blown the wind into the sails of the company, however, there appears much more to this than just an Iron price $20 higher today than on it’s admission day.
Iron Ridge quickly moved to advance its Nickel project whilst reassuring punters that the primary focus would remain to be Gabon however in the current climate the market needed tangible progress from a potentially profitable asset base. By the end of it’s maiden year the company had appointed personnel to help advance its Iron assets, diversified into (in-house) nickel assets whilst delivering decent early stage cut data on its Bauxite project which at the time was buoyant. By the summer of 2016, the company had conceded that the Iron price was not conducive with profitable mining nor was it worth attempting to push a square peg into a round hole so the company conducted a strategic review.
The short-term solution was to complete a $3.5m investment into Teckton minerals Pte which would give the company exposure to a major new gold discovery in Chad (central Africa) the numbers produced by Teckton were such that the appeal came by the virtue of the metrics they reported their data. Parts per million versus parts per billion (grams) is certainly an interesting twist on results and whilst one cannot discount the future potential of the assets the common theme so far is ” early stage operations ” which was rapidly enhanced through the autumn and winter as IRR secured lithium acreage in Ghana along with lithium & gold acreage in Cote d’Ivoire, these were acquisitions of tenements and acreage (Parcels of land) which hold Non-jorc compliant artisanal workings or virgin land. Thus in short a basket of possibilities that will need extensive work completion before you can apply a clear development pathway to profitability.
The company has subsequently advanced via a joint venture partner in West Africa which is leading Iron Ridge into a new phase of expansion of its gold assets etc, much of the opportunity in West Africa has come from the obsessed focus on Oil & Gas, In 2007 Ghana chalked up a world-class oil discovery in the Jubilee field. Oil & gas quickly became the go-to place for employment leaving mining rights and operations baron. One of the main hurdles to overcome in the West African oil boom was the critical need to enhance the region’s infrastructure (Roads, Rail and Ports) which intern has thrown open the gates of opportunity for those mining speculators such as Iron Ridge Resources. The testament of time will prove whether IRR are going through the motions or genuinely converting a lucrative eye for opportunity.
The value in Iron Ridge Resources is more obvious from its original listing prospectus where the company aimed to exploit potentially world-class Iron Ore assets in Gabon, however, the uplift in the value of nickel coupled to the frenzied interest in early stage Lithium (soon to be cobalt) presents an opportunistic exposure, the historic gold counterbalance to the dollar reaffirms the companies interest in the West African precious metal space. IRR was dealt a tough hand when listing on aim which meant the board had to be holistic in their outlook, changing tack by following an acquisitive drive in bulking up the business’s asset base (in hot sector commodities) allowing the company to speculate through a vein of heavy news flow. In reality, the company has spent half of their war chest on early-stage operations which of course will need further financial attention, the current cash position is approx £4m at the end of 2016 which means they can chip away at the rocks a little longer enabling speculators to talk about tomorrow in the today. Investors rarely understand the work required in validating an operation enough to attract industry majors or securing reserve-based lending. On the upside, the company has industry rich partners and financial backing, in addition, the early stage projects look pretty interesting, yet quoting a price to extract gold is not sufficient to draw investors in. Most HNW punters want to see AISC (All in sustainable costs) giving a clear pathway to profitability if not they simply will not carry the risk on their books. The very small free float means that liquidity events (pressure) make driving a price higher a little easier. Assuming the company keeps the wind in its sail with positive validation of their assets, backed by strong commodity prices then one can assume IRR could incrementally grow stronger. However investors ignoring the early stage (most assets) project needs, coupled with the change of direction being born out of terrible timing for Iron ore, one has to ask how much of this is momentum based versus actual tangible value.
My feeling is Iron Ridge Resources holds a plethora of possibility where one small breakthrough will act as the catalyst to further market support yet the £85m valuation looks a tad high given the amount goodwill priced in. The company has already announced plans to conduct an extraordinary general meeting which will remove pre-emptive rights from the articles of association 6.3 which were put in place to ensure the major shareholders could govern the amount of dilution by way of new issue stock, finally the board also seeks to award an additional £90,000 in bonuses to its members, again not bad for all involved eh!