A pipeline of opportunities for Gunsynd
“…Looking for exposure to a bespoke set of ventures below the radar of mainstream metals funds? Looking for a critical and precious metals portfolio, cultivating a set of prospects encompassing copper, nickel, tin and gold, all drilling or preparing to drill? Then look closer at Gunsynd…”
As we reported in our roundup of companies to watch in 2023 small cap investment fund Gunsynd Plc (AIM:GUN) has spent the past year developing its critical and precious metals portfolio, cultivating a set of prospects encompassing copper, nickel, tin and gold, all drilling or preparing to drill.
GUN intensified that focus earlier this week by taking a 2.75pc holding worth £150,000 as part of a £1.1m raise undertaken by Aberdeen Minerals Ltd, exploring for Nickel-Copper-Cobalt deposits in North East Scotland. Aberdeen, which – subject to market conditions – is planning to join the AIM or Australian Stock Exchange (ASX) markets later this year, and is targeting ‘a district scale opportunity’ in a region that has attracted interest in recent years from majors including Rio Tinto and Inco.
Aberdeen’s initial airborne electromagnetic and magnetic geophysical surveys have identified a pipeline of opportunities, most notably at Arthrath, where a historical estimate of 17 million tonnes grading 0.21pc nickel and 0.14pc copper has been reported at one of several mineralised zones across a seven kilometre feeder dyke structure still largely untested by effective drilling. The company’s new capital will expedite plans for a diamond drilling programme to validate historical results and outline a JORC Exploration Target. Aberdeen is aiming to become one of the first domestic producers of transition metals. Last summer the Government published a Critical Minerals Strategy to help kick-start native nickel, copper and cobalt production.
Rincon Resources, Charger Metals and Eagle Mountain
The Aberdeen acquisition joins GUN’s existing range of metals interests, including significant holdings in Australia and the US.
The company has a 17pc stake in Rincon Resources (ASX:RCR), a gold and copper exploration company which listed on the ASX just over 12 months ago, raising AUD$6m to drill three wholly-owned prospects in Western Australia. The largest, South Telfer, comprises six exploration licences and two prospecting licences covering approximately 540km2 with a prospective 40km strike geology. A maiden drilling programme is underway at South Telfer’s Hasties Prospect, just south of Newcrest Mining’s Telfer Gold Mine, which has produced 27 million ounces of gold over the past 45 years. The first phase of the 5,000 metre programme, designed to confirm historical drilling results completed over 20 years ago by Newcrest, and test for extensions to known shallow copper-gold mineralisation, reported high-grades zones up to 17.4 g/t gold and 5.31pc copper with mineralisation open in all directions. Reinterpretation of existing geophysical aeromagnetic data at South Telfer’s Copper-Gold Project has defined a significant new target, ‘Mammoth’, the largest of three new targets defined over a strike length of 15km along the highly prospective Telfer-Westin Trend within the company’s underexplored Westin tenement area.
GUN has a 4.8pc holding in Charger Metals Limited, an Australian base metals and lithium exploration company with interests in three prospects in the country’s Western and Northern territories, holding 85pc and 70pc holdings in the North and Nickel-Copper-Cobalt-PGE projects at Coates (65km northeast of Perth), a 70pc interest in the Lake Johnson Lithium and Gold Project, and a 70pc stake in the Bynoe Lithium and Gold Project. Charger has published a drilling schedule for the Coates prospect, which encompasses a mafic intrusive complex within the Jimperding Metamorphic Belt (which also hosts the 17 Moz Gonneville Nickel-Copper-PGE Project owned by Chalice Mining Ltd, located 28km north-west).
GUN also has a 1pc interest in another copper and gold miner, Eagle Mountain (ASX:EM2), focused on the Oracle Ridge and Silver Mountain Projects in Arizona, situated within the compass of the Laramide Arc which hosts copper deposits mined by BHP, Rio Tinto, Freeport McMoRan and Hudbay. Eagle’s most recent JORC Mineral Resource Estimate (MRE) for Oracle Ridge, based on a 1pc copper cut-off grade, stated an updated figure of 17.0 Mt grading 1.48pc copper, 15.09g/t silver and 0.17g/t gold for 251,000t of contained copper, 8.2 Moz of silver and 93 Koz of gold. After raising AUD$16m Eagle Mountain commenced its first large diameter drilling in Oracle Ridge’s Talon area to collect samples for metallurgical test work which is necessary for future feasibility studies. Oracle’s underground mine is being refurbished in preparation for diamond drilling at Oracle.
Other strategic metals interests
GUN has a cluster of other strategic metals interests. Last year the company confirmed its track record of investing in early stage nickel projects by agreeing heads of terms with Metals One to farm into the Black Schist Projects focused on the Kainuu Schist Belt of eastern Finland, which contains existing inferred resources of 28.1 Mt nickel-zinc-copper-cobalt (Ni-Zn-Cu-Co), and is close by and analogous to Talvivaara, one of the largest nickel mines in Europe, and supplier to the Renault Group. GUN has agreed to provide funding to Metals One of £1m for the development of the Project, conditional on Metals One being admitted to AIM, and the company’s simultaneous acquisition of Finnaust Mining Northern OY, which holds the Projects. Permit applications have been submitted for three prospects: Paltamo, which contains a JORC exploration target of 16-24 Mt of Talvivaara type ore containing 0.18-0.27pc Ni, 0.09-0.13pc Cu, 0.01-0.02pc Co and 0.33-0.50pc Zn; Rautavaara S, containing a JORC (2012) inferred mineral resource of 28.1 Mt of Talvivaara type ore at a grade of 0.19pc Ni (53,800t), 0.10pc Cu (27,900t), 0.01pc Co (3,400t) and 0.38pc Zn (180,000t); and Rauta 9-11, where an application has been made to extend the permit. The partners already have access to legacy geophysical, geological, and geochemical data covering large areas of the belt as well as historical geophysical surveys and diamond drilling. GUN’s investment will contribute to an 18-month work programme targeting resource expansion, subject to Metals One’s admission to AIM.
Last year GUN also took a stake in First Tin Limited (LON:1SN), a development and exploration company with a licence to establish sustainable tin production and processing at the Tellerhäuser Mine in Saxony, Germany. The mine is furnished with an extensive infrastructure from past investment and exploration expenditure. Definitive Feasibility Studies are underway at Taronga and Tellerhäuser.
Another of GUN’s strategic metals holdings, Pacific Nickel Mines (ASX:PNM), has entered into a non-binding indicative term sheet with Glencore for a three-year, $22m Pre-Export Finance Facility, and an offtake arrangement for its Kolosori Project to extend for at least four years. Pacific Nickel has 80pc interests in two nickel projects at Kolosori Project and Jejevo – both located on Isabel Island in the Solomon Islands – with a collective JORC MRE of 21.7 million tonnes at 1.35pc nickel. Pacific Nickel is now focused on the key steps to achieve commercial nickel laterite direct shipping ore cargoes from mid-2023.
Commodities: is the cycle turning?
As we noted in the introduction to our end-of-year natural resources review, mining shares presented investors with a particularly frustrating paradox through a frustrating 2022. ‘Future-facing commodities’ like copper, nickel, cobalt and lithium are fundamental for the electrification, renewables and storage necessary for the energy transition, and to meet the ongoing semiconductor supply logjam. But metals remain a cyclical trade, highly sensitive to immediate global economic conditions, making 2022 a particular poor year for speculative small cap ventures.
As we enter 2023 it’s important to keep the big picture in view. Copper stocks stuttered through 2022, but demand for this absolutely critical transition metal is forecast to double, or even triple, in the next few years. An EV can use three times the amount of copper as a combustion engine and renewable energy projects tend to need five times as much of the metal as traditional gas, coal and nuclear power plants. But very few substantial new mines are being built. Demand could soon outstrip demand by nine million tonnes a year, a shortfall that would require 30 new mines comparable to Anglo American’s major new Quellaveco mine in Peru. Visible copper stocks are running at record lows. The IEA estimates that soaring EV battery demand will require 50 new lithium projects, 60 nickel mines and 17 cobalt developments by 2030. But current investment is running at nowhere near the scale required. Since 2015 EBITDA enjoyed by the mining majors has more than doubled but expansionary capital has been depressed: growth investment was at less than a tenth of earnings last year compared to the fifth or higher routinely seen during the commodities boom of the 2000s.
The tough economic environment hasn’t helped, but there are deep structural reasons for under-investment. Opening up new deposits is becoming more technically and politically challenging: tough environmental regulations mean it can now take decades rather than three or four years to secure approvals and permits. And the industry is still reverberating from the aftershock of the last super-cycle. The China-driven 2009-2012 boom was followed by the 2013-2016 bust. The big miners have adopted a post-crisis mantra of ‘value over volume’, returning money to shareholders in the form of dividends or buybacks rather than investing in painstaking – it typically takes 15 years or more to develop a mine – risky projects that could deliver metal into a downturn.
Mining small caps, then, provide a critical role in taking the risks necessary to open up new mines, seeding opportunities on behalf of the big companies with the financial firepower to turn them into operating mines. And early trading in 2023 has hinted at a commodities rally. The green shoots are tender, but the lifting of Covid-19 restrictions in China, by far the world’s largest commodities consumer, is sparking higher copper, steel and aluminium prices. Benchmark copper prices passed $9,000 per tonne last week for the first time since June, and iron ore, the key ingredient in steelmaking, has risen by 50pc. Gold has also recovered somewhat, picking up 15pc since November to almost $1,900 per troy ounce, its highest level since April, boosted by expectations that the US Federal Reserve will slow the interest rate rises that have undermined the value of the precious metal, which unlike bonds earns no regular returns.
GUN’s stock suffered last year along with most of the rest of the small cap natural resources sector, its share price drifting down from just over 2p last May to around 0.4p at the time of writing, taking its market cap to around £1.78m. But though making selective acquisitions GUN has kept its power dry: the company hasn’t raised money since 2020 and is still funded for the future with cash as at 31 July 2022 of £0.824m (2021: £1.071m). It continues to diversify with interests in markets extending well beyond the natural resources sector, including gaming platforms, premium spirits and wines, medical cannabis and mental health. With exposure to a bespoke set of ventures below the radar of mainstream metals funds, and extended by this week’s investment in Aberdeen Minerals, GUN is worth following in 2023, a year during which the commodities cycle is likely to turn again as global economic conditions gradually brighten.