Can the Arc Minerals bull-run continue?
Arc Minerals (LSE:ARCM) has been building strong momentum since May thanks to significant developments at its flagship project in Zambia and the backing of a couple of high-profile investors. Shares have more than doubled in value over the last few months to their current 4.45p, which gives the firm a market cap of around £24.2m, but with plenty of developments in the pipeline, there could still more to play for.
The arrival of chairman Nick von Schirnding in September last year marked the beginning of a new strategic chapter for Arc. It has shifted its focus primarily onto exploration in Africa and changed its name from Ortac resources in January, Joining Nick as a Non-Executive director is Brian McMaster infamous for his high impact and accelerated delivery in developing fertilizer assets in Brazil, shares in that company jumped five times higher over a short period.
As it stands, the company’s flagship asset is its 66pc interest in Zamsort, a privately-owned business developing the Kalaba copper-cobalt project in north-west Zambia. Kalaba’s licence covers nine of 30 high priority targets ranked by a previous JV in the area operated by Anglo American and is near First Quantum’s Sentinel and Kansanshi and Barrick’s Lumwana mines. The project has an existing near-surface estimated copper-cobalt oxide resource of 16.59Mt at 0.94pc copper and a historical exploration target of 150Mt, making it one of the largest projects of its type in Zambia.
To take advantage of the potential it believes is on offer, Arc has been consolidating its position in Zamsort over the last few months, most recently purchasing a further 5pc stake to bring its total stake to 66pc. As a result of this move, Zamsort is now owned by just one other party, Kopara Investments, with whom Arc has agreed a funding structure which will see the firms pay for work pro-rata to their shareholdings.
Progress at the site is on the horizon, with von Schirnding telling investors in May that production of copper and cobalt hydroxide is expected to begin within six months. Arc has already stockpiled 10,000 tonnes of screened ore, which it expects to process at a commercial-scale demonstration plant on site. Von Schirnding said the firm plans to spend around $500,000 on the development of the plant, which is expected to complete by the end of the year.
Arc is also in the process of building a new management team at Zamsort who will undertake a full assessment of current operations, interpret historical exploration data, and optimise its plant. The first step here came in late May, when the business hired Don Bailey, a former head of mining operation at Rio Tinto in Africa, South America, and Europe, as a non-executive director. Bailey, who also owns a 1.4pc stake in Arc, will lead the development of the processing plant.
A significant development for Kalaba came in May when Arc raised £2.5m by placing shares at 2.4p each to fund a new exploration programme at the site, while also increasing its stake in the project from 14pc to 49pc. Several of the company’s board members took part in the placing, with Von Schirnding contributing £100,000, and the news turned out to be a catalyst for a major share price re-rate throughout following weeks.
Arc announced that it had begun the exploration programme earlier this week, with a target of between 10-20 million tonnes. It has previously said it expects to spend between $1-$1.5m on near-term drilling and hopes to delineate a shallow oxide resource and establish a maiden mineral resource at Kalaba by year-end.
Mi casa, su casa
Arc’s other considerable asset is its 99pc stake in Casa Mining, a private firm that owns a 71.3pc stake in the 1.5Moz Akyanga gold project in the DRC. At the end of June, the business announced an updated mineral resource estimate for Akyanga, which suggested that deposit contains 3MMozs gold at 2.16g/t, nearly double previous estimates of 1.6MMoz. Von Schirnding conceded that the results ‘exceeded our most optimistic expectations’. The study also found that the Akyanga structure remains open in several directions, while geological indicators were found to suggest the Misisi corridor could deliver further growth in Arc’s mineral inventory.
Despite previously saying it would scale back investment in Casa, it will now begin a scoping study targeting a 150-200Koz pa, low-cost gold operation on the back of the results, which it aims to complete by year-end.
The bottom line
Arc’s strong newsflow has not gone unnoticed, with shares rising 40pc since the £2.5m placing in mid-May. It has no doubt been helped along by the appointment of Bailey, which sent shares soaring 30pc in one session, as well as a £500,000 investment from Scottish businesswoman Ann Gloag OBE. Gloag is the founder of international transport company Stagecoach Group and, with an estimated net worth of £1bn, one of Scotland’s wealthiest business magnates.
Alongside its efforts at Casa and Zamsort, Arc is also working to divest its non-core assets to operate more efficiently. These include its 100pc-owned Sturec Gold Project in Central Slovakia and its Haykota Copper-Gold project in Eritrea.
The only thing to keep an eye out for is Arc’s cash balance. Although it is funded for work at Kalaba thanks to May’s placing, the firm has not given any indication of its cash level in recent RNSs and has yet to put out results under its new moniker. With that in mind, it may be worth considering whether it is likely to have to raise at some point shortly to fund its work commitments at Casa- it is difficult to tell at this current point.
That being said, Arc has shown promise, and the fact that it has attracted high profile names like Gloag and Bailey and its Von Schirnding has a 3pc stake in the firm is definitely encouraging. With plenty of momentum and goodwill in the market, it will be interesting to see how shares perform throughout the rest of 2018, particularly seeing as it anticipates some major announcements by the end of 2018.
Nick von Schirnding, executive chairman of ARCM caught up with Andrew Scott following their investor evening in London.
The author does not hold share but was remunerated for this article