Can Chesterfield Resources win over the retail market?
At 4.5p Cyprus-focused exploration business, Chesterfield Resources is sitting considerably below its most recent 7.5p placing price. The fall has come despite the company acquiring an attractive series of prospects in Cyprus, a historically-successful mining jurisdiction that is now looking to re-establish itself.
Last week saw the market largely ignore Chesterfield despite the release of a highly attractive set of assay results that have prompted it to look at more than doubling its position in Cyprus. Here, we ask whether the company could prompt a re-rate in its shares by increasing efforts to make its story known to the retail market.
Chesterfield’s journey began in August 2017 when it listed as a cash shell to provide investors with a ‘leveraged play’ on forecasted copper demand growth. Because it is a very commercially-efficient electricity conductor, copper is expected to be the largest beneficiary of what Chesterfield calls the world’s ‘continuing electrification’.
Alongside the growth in the use of things like renewable energy equipment and electrical appliances, many expect copper prices to be boosted massively by an explosion in the use of electric vehicles (EVs). Indeed, according to Chesterfield, an average EV contains around 80-100kg of copper in its motors, batteries, and wiring. This is more than four times the amount held in an equivalent combustion engine car. And that isn’t even taking into account the volume of the metal that will be required to power associated EV charging infrastructure.
Despite this expected uptick in demand, few discoveries of the metal have occurred in recent years. Chesterfield hopes this will create a favourable supply/demand dynamic for prices, into which it can insert itself.
Following a period of suspension amid deal talks, Chesterfield returned to the market in July 2017 with the purchase of HKP Exploration for £500,000.
HKP focuses on exploring for natural resources in Cyprus. At present, its chief focus is a project called Troodos West, which covers 3,2111 hectares on the western side of Cyprus’s Troodos mountains. The asset is made up of seven prospecting permits that received government approval between January and March last year.
Meanwhile, as at the time of Chesterfield’s acquisition, HKP had applied for five prospecting applications covering 2,299 hectares on the northern side of the mountains. These make up the Troodos North project. Finally, HKP has applied for a further licence on the eastern side of the hills covering 480 hectares. This forms the Troodos East project.
The 100pc-owned licences include previously-operating copper mines in areas called Limni, Kinousa, Uncle Charles, and Evloimeni in Troodos West and Memi and Agrokipia in Troodos North and East. As a result, when making its acquisition, Chesterfield said it expects all of the project areas in HKP’s portfolio to be highly prospective for copper and/or gold. It also referred to the company’s experienced management team, which includes Horizonte Minerals’ chief executive Jeremy Martin.
Chesterfield has also highlighted Cyprus’s prospectivity as a mining jurisdiction. The country has a rich heritage in mining for copper and gold that was brought to a stop abruptly following the Turkish invasion in 1974. Things have not really got going again since. It also boasts a climate that allows for year-round operations, good infrastructure and plans to diversify its economy away from an over-reliance on tourism.
As executive chairman Martin French puts it: ‘Cyprus is well known in geological circles for its VMS (volcanic massive sulphide) deposits. These are typically relatively small but concentrated high-grade deposits (1.5%+ copper) surrounded by larger lower grade mineralised vein systems.’
Alongside news of the acquisition, Chesterfield also revealed a clear, three-phase work programme for HKP’s assets. A £2m placing carried out last year at 7.5p a share is partially funding the work.
The first phase will see Chesterfield carry out data collection and analysis to identify the most prospective areas in the HKP portfolio and prioritise field work. It will then carry out field studies involving geological and structural mapping, rock chip and trench sampling and ground geophysics. This will start at areas and prospects prioritised in phase one and aims to rank prospects and define field targets. Finally, the firm will drill targets identified in the second phase of work to establish mineral resources.
All-in-all, Chesterfield expects the programme to complete by June this year at a cost of c.£1.1m.
After a period of relative quiet, Chesterfield began a 4,000m diamond drill programme on multiple targets at Troodos West last September. Here, it said it does not expect to make a single massive discovery but instead identify a series of smaller deposits near each other. It hopes to combine these to create a relatively inexpensive centralised processing operation.
Its work began with seven exploratory holes at Evloimeni, a mineralised system with many historical drill results. The site is found 1,100m away from a deposit called Limni, where 8.1MMts at 1.1pc has reportedly been exploited. This work was designed to be instructive of the styles of mineralisation, alteration, and gold distribution at Troodos West.
In its interim results in September, the firm said it expected to begin publishing its first assay results in November. It planned to follow this will a steady stream of results every few weeks until Spring 2019, when it also expected to be granted exploration approval in Troodos North and East. However, the first assay results for Troodos West did not arrive until the beginning of February.
Despite the delay, the results were very strong. Indeed, they identified additional gold potential alongside the primary target of copper and showed the potential for deposits in two separate styles of mineralisation. Most importantly, however, the release boasted strong assay grades, with highlights including (lifted from last week’s RNS):
- 18DS01 – 18.90m @ 1.29 g/t Au, 13.18 g/t Ag, 0.62% Cu and 0.49% Zn from 45.10m:
o Incl. 2.4m @ 2.99g/t Au and 1.80% Cu from 49.00m
o Incl. 6.4m @ 1.47 g/t Au and 1.10% Cu from 56.00m
- 18DS02 – 11.10m @ 1.29 g/t Au, 7.42 g/t Ag, 0.18% Cu and 0.42% Zn from 81.05m
- 18EV01 – 27.93 m @ 0.97 g/t Au from 13.20m
- 18EV02 – 29.80 m @ 1.10 g/t Au, 0.28% Cu from 8.75m
o Incl. 11.50m @ 1.9g/t Au from 11.30m
o Incl. 6.10m @ 1.25% Cu from 25.30m
- 18MV05 – 20.20m @ 0.89 g/t Au from 56.00m
- 18MV06 – 3.75m @ 2.28 g/t Au, 17.82 g/t, Ag, 2.36% Cu and 0.47% Zn from 90.65m
- 18MV06 – 10.45m @ 3.83 g/t Au, 24.11 g/t Ag, 0.14% Cu and 1.12% Zn from 100.00m
The figures were so good that they even prompted Chesterfield to announce plans to submit new applications that will more than double its mineral exploration land package in Troodos. It will also increase the size of its exploration team in the country significantly this year following the recent appointment of Frist Quantum Minerals veteran Michael Parker as chief operations officer.
French added: ‘The team is making very good progress with the 2019 programme and has already identified a large new target south of our drill area Troodos West. We are also pleased to announce that three new prospecting permits have just been granted at our Troodos North location on the other side of the mountain range. This will open up a new area for multiple target development. We anticipate more permits to be granted in the vicinity in the near future. The Company has been prudent in its expenditure, and so remains well funded for the continuation of our drill campaign which will be focussed on making a commercial discovery this year.”
Despite their prospectivity, the results were met with a shrug by the market. Chesterfield’s shares even fell 4.7pc on the day of their release and now sit at 4.75p, well below their placing price.
The problem, as it stands, appears to be a lack of communication from the business. Despite boasting strong assets, the firm has been notably restrained when it comes to revealing details about its story and what it has been doing over the last couple of months.
Although one obviously has to factor in the H2 2018 commodity bear market over H2 2018, this approach appears to have been to the company’s detriment. Indeed, its shares have declined from 7.8p since last August and have demonstrated high levels of volatility on relatively small trades.
Chesterfield’s approach can perhaps be explained by the two following paragraphs from French in Chesterfield’s interim results last September:
‘At the time of writing, Chesterfield’s shares were trading at around 6.5-7p, slightly down from the recent 7.5p placement (although it should be noted that those investors also received a free half warrant). This is against a backdrop of a particularly weak market for junior mining stocks because of global uncertainties, such as the trade war.
Once the company starts to report assay results, we believe this will be the appropriate time to start telling our story and increasing the awareness of the stock in the market. We are also keen to attract some retail investors to the stock, and so provide more liquidity.’
Given that the firm has now released its first assay results, this is encouraging – especially with macro conditions looking (touch wood) marginally healthier than they did at end-2018. Could it be that the firm will now begin to properly communicate its potential to the market?
Perhaps so. According to its last RNS, Chesterfield will be presenting its plans at both the 121-mining event in Cape Town and the PDAC conference in Toronto. A series of presentations will also be made in the UK.
Importantly, it certainly seems like those in the know have been won over by Chesterfield’s assets – the company boasts an unusually high amount of boardroom experience for its £2.9m market cap and French owns more than a 5pc stake.
If Chesterfield can generate some proper retail interest then it will be very interesting to see where shares go If you are an early believer in the business, then its current market cap could provide an exciting buying opportunity.
You can see some of our footage pre, the drilling campaign in August 2018