A green future for URA Holdings
“…Gravelotte was operational from 1929 to 2002 employing more than 400 sorters, it was reputed to be the largest emerald mine in the world during the 1960s. If the company can re-start production at Gravelotte as planned, then investors looking for natural resources opportunities may feel this is a small cap well worth watching this year…”
With its unexpected purchase of the Gravelotte Emerald Mine, once the largest in the world, South Africa-focused URA Holdings (LON:URAH) has been a point of light in this year’s gloomy small cap natural resources market, doubling its value over the past six months.
Since the acquisition the company has sustained its momentum through the publication of a maiden Mineral Resource Estimate (MRE) of 29 million carats of contained emerald, more than three times higher than expected, and a fund injection from, amongst others, its directors and Andrew Austin, the oil and gas dealmaker known for his successful RockRose Energy and Kistos ventures.
URAH is led by the same management team that heads up AIM-listed Lexington Gold, a North Carolina gold explorer frequently covered by TMS: CEO Dr Bernard Olivier and Non Executive Chairman Edward Nealon hold the same positions at Lexington. Mr Nealon is also a founder of several other LSE and ASX listed companies including, Aquarius Platinum, Sylvania Platinum and Tanzanite One. Dr Olivier is credited with returning TanzaniteOne to profitability in 2010 as well as returning 8p per share to Bezant Resource Plc shareholders following the establishment of a maiden JORC Resource, a transaction with Gold Fields Ltd.
URAH was readmitted to the Standard List of the London Stock Exchange in March 2022 with two exploration licences in Zambia prospective for graphite, coltan, niobium, lithium and rare earth elements, all ‘strategic minerals’ as defined in the US ‘final list of critical minerals’. The 1,284 km2 area covered by the licences includes the well known Njoka graphite deposit, defined through continued exploration since the 1930s. The prospects are analogous to mines in neighbouring Malawi and Mozambique, with deposits located at or close to surface, promising cost effective operations.
The Gravelotte opportunity
But by the company’s own acknowledgement its Zambian prospects have been overshadowed since an unanticipated opportunity arose shortly after its listing to purchase Gravelotte on very favourable commercial terms.
Located in South Africa’s Limpopo province, Gravelotte was operational from 1929 to 2002, with a total historic emerald production of nearly 113 million carats. Employing more than 400 sorters, it was reputed to be the largest emerald mine in the world during the 1960s. Certainly, the mine’s Cobra open pit was the biggest single emerald producing open pit in the region, its production touching 21 million carats combined during its mid-1960s peak. Gravelotte is close to other world-class mining operations including the Consolidated Murchison Mine, the oldest known antimony deposit in the world, and the Phalaborwa Copper Mine and refinery.
Previous owner Magnum Mining and Exploration had carried out extensive studies with the aim of establishing a resource and recommencing production, including work indicating that emeralds in commercial quantities were still present. Following management changes and a new acquisition Magnum’s focus changed to its substantial iron project in the US, and management decided to sell the Gravelotte project to URAH on the basis of its management team’s gemstones experience: the vast majority of the purchase price is paid from future emerald production and sales. URAH paid £100,000 in shares, committing to royalty payments of AUD$200,000 for each five million carats of emeralds produced, up to a maximum aggregate of AUD$2m. Following completion of the deal in February, URAH owns 76pc of the mine, the remainder being held for the benefit of the local community and workforce, in line with South African ownership requirements, an arrangement the company regards ‘in a positive light from an incentive point of view’.
By URAH’s own admission the purchase signalled an abrupt change in direction, Mr Nealon commenting that ‘this acquisition may appear a little out of line with our initial direction, which was the acquisition, exploration and eventual production of critical minerals’, but observing that ‘we have always indicated that we would be seeking opportunistic mining and mineral projects with a Southern Africa focus and the acquisition of Gravelotte fits very well into that policy.’ In brief, the URAH board decided that, on the terms offered, Gravelotte was simply too good an opportunity to turn down.
A MRE of ‘major international significance’
URAH spent much of last year beginning the process of upgrading the site’s historic infrastructure, but expects that only modest investment will be necessary to bring the mine back into production, the major requirement being the purchase of optical sorters to replace the labour-intensive hand sorting of the past. The company also commissioned a maiden JORC (2012) MRE, which reported late last year, stating a total formal estimate of 29 million carats of contained emerald, more than three times higher than anticipated. The MRE indicated the site’s Cobra Deposit at 1.2 Mt @ 6.4 g/t for 19.4 million carats of contained, and its Discovery Deposit at 0.7 Mt @ 5.7 g/t for 9.6 million carats. It went on to identify 12 additional JORC exploration targets totalling between 168 million carats and 344 million carats.
Announcing the MRE the company said the estimate ‘at this historically major mine area is of major international significance … the establishment of a maiden JORC resource estimation of this magnitude for the Gravelotte Emerald Mine is a truly exceptional achievement. The combined JORC mineral resource of 29 million carats of contained emeralds far exceeded our expectations.’ Using the average price of $9 per carat achieved by Gemfields (AIM:GEM) in September 2022 for their lower commercial grade emeralds, URAH indicated the total contained in situ JORC resource – excluding the 12 additional targets – could have an estimated value of around $261m: a conservative estimate given that Gravelotte has historically produced higher value coloured emeralds than those mined in Zambia.
The company added that the resources so far explored or reviewed are ‘generally close to surface and exploitable through open pit operations’, although ‘historical drill hole data suggests that further exploration is warranted at depth.’ URAH is currently refurbishing and upgrading the mine’s facilities, which, ‘although disused for many years, remain in a reasonably good state of repair and consist of housing facilities for senior staff, operational buildings, security fencing and some mining equipment.’
The company’s most recent final results, for the year ended 31 December 2022, stated a loss of £1,012,000 (2021: £289,000) before tax, and net assets of £1,263,000, figures drawn up before completion of the Gravelotte acquisition. URAH undertook a placing last month to raise £330,000 for the critical equipment required to restart mining operations. The fundraise was notable for including a £50,000 convertible note loan with Austin Acquisitions Limited, Andrew Austin’s personal investment company, which URAH believes ‘speaks highly of confidence in our strategy and plans.’ URAH is using the funds to place an order for an optical or laser sorter tailored for the mine’s requirements. The ‘new equipment will take some time to manufacture and commission but will … enable the Company to bring Gravelotte quickly back into production.’
Surging demand, straitened supply
URAH hopes the restarted mine will significantly broaden the world’s supply of emeralds, 75pc of which are currently mined in Zambia, Columbia and Brazil. Prices have risen in recent years due to increasing demand and the lingering effect of production disruption caused by the pandemic. Demand for gemstones is being driven by the emergence of prosperous new Asian customers, developing markets for customised high-end jewellery, increasing online sales, and a trend to view high-end coloured gemstones as high-value safe-haven investments.
Covid restrictions disrupted emerald mining, production, and the traditional emerald supply chain, forcing steep price rises. Last March Bloomberg reported that a Zambian emerald had sold at a record price of just over $1m, and that other gemstones were selling at unprecedented prices: ‘In 2003 a Belperron amethyst cuff sold for $28,680; in 2021 that same cuff went for $87,500. In 2012 a 6.7-carat Kashmir sapphire auctioned for $206,500; last year a similarly sized one was bought for $550,000.’ By last summer the industry was recovering its momentum, the number of global jewellery events taking place ‘the strongest indicator that the industry is returning to its pre-pandemic rhythm.’ But many of the gems on display have been sourced long before the outbreak of Covid-19, highlighting ‘the precarious nature of the supply chains for colour gemstones.’ Each gemstone – of which there can be myriad sources – has its own idiosyncratic supply chain, each of which was disrupted in different ways during the pandemic. One gemstone procurer told the Financial Times that the ‘demand for gemstones is greater than the supply and the top quality stones are becoming more and more scarce … It was like this prior to Covid, but the lockdowns didn’t help. It is a miracle to find a stone of the right quality.
Outlook
The omens, then, look very good for URAH if the company can re-start production at Gravelotte as planned. Unsurprisingly, its share price has shown signs of taking off this year, doubling to 2.5p since January, increasing its market cap to £3.88m. After reviewing the company’s smooth progress – so far – towards re-opening the mine, investors looking for natural resources opportunities may feel this is a small cap worth well watching this year, currently available at a price that seems likely to go only one way.
To view the latest URA Holdings presentation then click here.
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