Is Georgian Mining a solid buy following difficult 12 months
An ongoing permit delay and collapse in commodity prices walloped Georgian Mining last year. With macro conditions now beginning to improve and the licensing issue approaching its conclusion, could the business soon shoot up from its current 5.7p share price?
Georgian Mining is a copper and gold exploration and resource development company focused on Georgia’s Tethyan Belt. The Tethyan is a well-known geological region that hosts many high-grade copper-gold deposits and producing mines. The firm controls a sizeable 860km2 licence area in the country through a 50:50 joint venture with a local Georgian explorer.
The company’s most advanced project is Kvemo Bolnisi East (KBE). This contains JORC resources of 2.3Mt at 0.85g gold and 3.15Mt at 0.82pc copper. KBE is found less than 7km to the north-east of the producing Madneuli mine and processing plant. These are operated by the Rich Metals Group (RMG), a production company run by Georgian’s local partner.
The business is also examining numerous prospects in the wider Kvemo Bolnisi area. This includes Gold Zone 3, where drilling is planned to investigate the relationship between mineralisation and established resources nearby. Another prospect in the area is Kvemo Bolnisi West, where historical drilling intersected polymetallic gold mineralisation at the same depths as Gold Zone 3.
Georgian’s second-most advanced prospect in its licence area is Tsitel Sopelu. The site is found 12km north-east of Madneuli and 6km east of KBE. It has a 3km by 1.5km footprint where outcropping oxide gold, base metal, and barite mineralisation is hosted within strongly silicified felsic volcanoes. Georgian said historical drilling had shown clear evidence of increasing gold grade with depth.
Other prospects in the firm’s JV portfolio include a base and precious metals project called Dambludi, a gold prospect called Tamarisi, and a site of copper mineralisation called Balichi.
Last year saw Georgian outline it plans significant steps to transition from an explorer into a mine developer and producer. This began in March with two pieces of big news.
Firstly, the company announced that its former chief operating officer Michael Struthers had been appointed chief executive. He replaced Greg Kuenzel, who moved into a new role as finance director. With 37 years of international operational mining experience, the business felt Struthers would be ideally suited to advancing KBE and fully developing the mineral potential on offer in the wider Kvemo Bolnisi (KB) project area.
The news came just days after Georgian signed a critical memorandum of understanding with RMG for KB. This stipulates that ore from KBE will be mined and then hauled and processed at one of RMG’s processing plants.
Importantly, the month also saw Georgian launched into a 2018 work programme. This was focused on developing gold oxides around KBE through an infill drilling programme for resource definition and further exploration in the KB areas. The company also said it would carry out additional test work and environmental and feasibility studies to achieve its target of starting a mining operation at Gold Zone 2. This would also see it carry out further testing and expansion of the JORC copper-gold resource beneath the oxides at Gold Zone 2 and another area called Copper Zone 1.
Unfortunately for Georgian’s shareholders, much of this planned work has been held up by an ongoing delay in the firm’s application to extend its exploration permit. The company holds a 30-year mining licence for the extraction of minerals in Georgia. However, this contains a requirement for separate staged permits for continued exploration at its named deposits and wider licence area.
In June, the firm announced in June that it had completed negotiations with the Mining Agency to extend the exploration permits before agreeing a final application. However, before this can become valid, it must be submitted to and approved by the Georgian government. Until this has occurred, the company has agreed to suspend fieldwork temporarily.
This process first received a setback in June, when Georgia’s Prime Minister resigned unexpectedly. This prompted a government reorganisation and a ‘settling in’ period where no progress was made in approving Georgian’s permit. Although approval has still not been granted, much progress has since been made.
Firstly, the process advanced considerably in September when Georgian announced that permit approval was imminent following a successful meeting with the country’s new minister of economy and sustainable development. Following this, in October, the company said the minister had endorsed the permit.
Finally, earlier this month, the business said the permit was included in a December cabinet meeting immediately before the government went on its Christmas recess. The company is now waiting for final approval, with chief executive Mike Struthers adding:
“We’re pleased the Resolution on the exploration permit was finally addressed at a Government session. During the meeting, there were minor points for clarification raised with the Mining Agency, which were satisfactorily addressed and we are now awaiting the final approval. It is our understanding that all of the Ministries have responded positively and there continues to be strong support for the application. We look forward to updating the market when we have further news.’
The combination of repeated licence delays and a rough period for commodity markets in the second half of 2018 has seen Georgian’s share price collapse from 16p to 5.5p over the last 12 months. It now has a market cap of just £6.5m despite boasting an extensive portfolio, a healthy £1.4m cash balance (as at 30 June) and a strong, and experienced management team.
With the licence looking set to pass imminently and commodity prices improving, two major blockages to the company’s progress and valuation look set to clear. If everything goes well, it will be able to return to its original plans with no fundamental changes to its investment case. Could these potential catalysts trigger a strong rally in Georgian’s shares? If you think so, then it may be worth taking advantage of current weakness before it is too late.
Blytheweigh Mining Show – Mike Struthers : Georgian Mining (June 2018)
The author does not hold shares but was remunerated