At the same price as a year ago, is VAST not clearly in a much stronger position?
“…there are grounds for suggesting that, at this price, VAST has entered value territory. Perhaps it is now possible to peer through the clouds to look again at a share that – at this price – may only have one way to go with solid operational progress and money in the bank…”
Vast Resources (AIM: VAST) continues to travel a tough road in pursuit of its ambition to establish itself as one of the largest polymetallic producers in Romania, and a major player in the re-emergence of the mining industry in Tajikistan.
The company’s value has been knocked back over the past few years in the face of tough market conditions and its struggle to prove the value of previously producing copper, zinc, silver, and gold mines in Romania, Tajikistan, and Zimbabwe. But with solid operational progress this year, and money in the bank, perhaps VAST is now worth a fresh look.
VAST consolidates its presence in Romania
VAST’s flagship asset is its wholly owned, producing Baita Plai Polymetallic Mine in Transylvania’s Apuseni Mountains, host to Romania’s largest polymetallic mines. The company has committed significant investment to delineating the full potential of the mine’s resources and increasing present production.
Baita Plai’s current Reserve & Resource Report states a total in-situ mineral resource of 15,695 tonnes copper equivalent, sustaining a mine production life of three to four years. But ongoing drilling indicates potential for a significant upgrade, suggesting a JORC compliant exploration target of 11.65 to 12.65 million tonnes, at 0.98-1.69pc copper, 0.23-0.57pc lead, and 0.17-0.62pc zinc.
VAST is upgrading the mine to support mechanised mining, including the introduction of long-hole stopping and a second milling circuit. Final results for the year ended 30 April 2023, published earlier this week, demonstrated continued return on investment, milled production increasing from 38,108 metric tonnes to 60,750 metric tonnes.Another update last month reported further progress, ongoing drilling and underground development highlighting ‘mineral rich areas in new locations that were not part of the current mine plan’.
VAST has a second significant Romanian asset, the Manaila Polymetallic Mine, currently under care and maintenance with a view to being brought back into production with the support of new investors. The company is working to optimise Manaila’s production profile through the application of X-Ray Sorting Technology to reduce transportation and production expenses, and it has been granted a licence allowing it to re-examine the exploitation of the mineral resources within the larger Manaila Carlibaba licence area, which currently contains a JORC-2018 compliant Indicated Mineral Resource of 3.6 million tonnes grading 0.93pc copper, 0.29pc lead, 0.63pc zinc, 0.23 g/t gold and 24.9 g/t silver with Inferred Mineral Resources of 1.0 million tonnes grading 1.10pc copper, 0.40pc lead, 0.84pc zinc, 0.24 g/t gold and 29.2 g/t silver.
The company is further invested in Romania through its 29.41pc stake in the Blueberry Polymetallic Gold Project located at Baia de Aries in the country’s ‘Golden Quadrilateral’, where historic work has demonstrated prospectivity for gold and polymetallic minerals. A drilling programme is underway in support of a maiden JORC resource, and regulatory requirements are being worked through in advance of application for an exploitation licence.
New interests in Tajikistan
VAST also has significant interests in Tajikistan, notably a joint venture granting an effective 12.25pc royalty over all sales of non-ferrous concentrate and any other metals produced from the country’s Takob Mine processing facility. The partners have entered into an offtake contract with commodity giant Trafigura for the sale of the project’s bulk concentrates.
The agreement envisages monthly production of approximately 7,000 tonnes of ore containing no less than 1.5-2pc lead, 1.2-1.4pc zinc and 27pc fluoride. Historically the mine contained 30 g/t silver and 1-2 g/t gold in situ. Steady state production of a 95pc minimum fluorite concentrate has already been achieved, satisfying a major performance condition of the contract. The first commercial shipment of lead/zinc concentrate to Trafigura has just been confirmed, with further shipments planned.
VAST has also executed an MoU with Open Joint Stock Company TALCO to process tailings produced at Takob, following visible signs of lead, zinc and precious metals, including gold, silver and platinum group metals during the initial soil sampling phase: initial surface survey results indicate potential for 1 to 3.3 million tonnes.
Another MoU gives the company a 10%n interest in 13the Aprelevka gold mines in Tajikistan’s Tien Shan Belt containing a combined Total of Existing Resources, Exploration and Prospecting Licences Non JORC Compliant of 35,339,419 tonnes, 1,834,585 gold oz and 25,619,548 silver oz.
Financial foundations
VAST continues to put in place financial foundations for expansion. Sluggish copper prices have prevented the company from reaping the full benefit from higher product sales, but revenues held steady at $3.7m as compared with $3.8m last year. And it succeeded in reducing costs, with administrative and overhead expenses down 14pc to $3.9m (2022: $4.5m) largely due to a significant cut in payroll costs achieved through the elimination of expatriate employee headcount and labour optimisation. Losses were also down, to $10.5m as compared to $15.5m.
The company’s cash reserves, which stood at $0.53m at the end of the period, have been supercharged by two recent placings: VAST raised £1,701,000 in July, and another £1,819,350 last month. ‘Based on current strategy and updated expectations’ the company says it ‘does not believe it will need to raise further equity funding for the foreseeable future.’
VAST’s financial position is complicated by an $7.4m owed to Mercuria Energy Trading SA and Alpha A&T though a historic asset backed debt facility. But the company has been able to continue to extend terms for resettlement of the claim. And, beyond the prospect of further monetisation of its Romanian and Tajikistani assets, VAST has security in the form of the recovery of a historic parcel of 129,400 rough diamonds held in custody at the Reserve Bank of Zimbabwe, granted following a High Court Order in the company’s favour. The recovery is currently passing through the legal process.
Outlook
VAST’s value has been in doldrums for some time, down 35pc this year to just 0.145p at the time of writing, close to its lowest ever level, leaving its market cap at £6.85m. The company’s price has been overcome by the downturn in the small natural resources sector, flatlining copper prices, and the failure of its narrative to make an impression on a sceptical market.
But there are grounds for suggesting that, at this price, VAST has entered value territory. Copper prices have fallen 4pc this year – down to around $8,000 a tonne – as the global economy has continued to stutter. Copper’s fundamentals, however, remain exceptionally strong. The world’s largest copper producers continue to warn that far more mines need to come online to meet projected demand for the metal, used in everything from electrical wiring and household appliances to heavy infrastructure. S&P Global forecasts that demand for the ‘metal of electrification’ will double by 2035, predicting a ‘chronic gap’ between supply and demand.
It’s a megatrend from which VAST is well positioned to benefit as it ramps up production at Baita Plai, and works towards a significant extension of the mine’s resource. In Manaila it has another copper-rich mine, and it has significant interests in other metals courtesy of the Blueberry Polymetallic Gold Project and a growing suite of ventures in Tajikistan, with its stake Takob mine complemented by its newly acquired interest in the Aprelevka gold resource. The company is flush with new cash after this year’s placings, and its diamond interests in Zimbabwe provide further security.
VAST’s investment case is complex, woven from several strands, and has been obscured by unfavourable market conditions over the past couple of years. But perhaps it is now possible to peer through the clouds to look again at a share that – at this price – may only have one way to go.
Follow the company on Twitter @vast_resources
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