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3 Further Reasons To add Armadale Capital #ACP to your Watchlist

THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

ARMADALE CAPITAL #ACP

SHARE PRICE: 2p
MARKET CAPITALISATION: £4.89m


Armadale Capital plc is an AIM listed investment company focussed on resource projects in Africa. Its primary interest is the high grade Mahenge Liandu Graphite Project in Tanzania.

The deposit is one of the highest grade large flake deposits globally after the recent upgrade to 51.1Mt at 9.3% TGC, including 38.7Mt Indicted at 9.3% and 12.4Mt Inferred at 9.1% TGC.


TO READ MY PREVIOUS BLOG POST ON ARMADALE CAPITAL #ACP

3 FURTHER REASONS TO ADD ARMADALE CAPITAL #ACP TO YOUR WATCHLIST

HIGH VALUE, HIGHLY EFFICIENT & LOW COSTS

On Tuesday 27 March, Armadale announced the results of their Scoping Study, which demonstrated, “highly robust and compelling economics”

A Pre Tax NPV of US$349m (£248M) 0r 50 times the size of the company.

NPV is the ‘net present value’ of all the cash inflows (profit) less the outflows (investment) year-by-year, over the whole of a project’s life, with each cash flow ‘discounted’ at a rate chosen to reflect the perceived risk – Master Investor.

Generally, an investment with a positive NPV will be profitable, and an investment with a negative NPV will result in a net loss – Investopedia

The discount applied is 10% and the after tax NPV is $239m (£170m)

The Internal Rate of Return Delivered a Pre-tax IRR of 122%.

This is a very impressive return.

By way of explanation the Rate of Return is a term used generally to describe the return we receive on an investment.

So if we bought shares for £100 and received £10 a year in income from them, our rate of return would be 10%.

Internal is added to show that the company is only considering internal investments and projects (specficially here the Mahenge Liandu Graphite Project) as opposed to investments they might make outside of its own business – Miningman

The after tax IRR = 89%.

Low Operating Cost of US$408 Per Tonne

The scoping study used an average basket price of US$1,271 per tonne and stated a production average of 49,000tpa of high quality graphite.

These figures are stated as conservative but even if we round them down again, the results are still impressive.

Lets say the costs are $500 per tonne (as opposed to the $408 stated) and the sale price is $1000 per tonne (as opposed to the $1,271 stated). This would generate:

$49m (£35m) of revenue per year (7 times the value of the company)

$24.5m (£17.46m) of free cash flow per year (3.5 times the value of the company).

As I previously mentioned these figures are, “considered very conservative and allows for significant upward improvements as potential off take agreements negotiated”

 

LOW DEVELOPMENT CAPEX

One of the biggest hurdles to any junior explorer is securing funding to develop their mine. The more the company has to raise, the bigger the hurdle.

Armadale’s scoping study shows, the maximum drawdown during the construction of the Project is US$34.9m and the after-tax payback period is 1.2 years”.

With economics this strong it’s entirely reasonable to expect them to achieve this and as stated in the release the company, “will commence negotiations with identified strategic funders and offtake partners”.

 

MINE LIFE

On 19th March Armadale Capital announced, “31 Year Mine Plan Completed for Mahenge Liandu Graphite Project”.

It also stated the results, “were used to generate a mining schedule focusing on high grade near surface mineralisation. The first seven years of production show exceptionally high graphite grades averaging 15.5% Total Graphitic Carbon with an average grade of 12.5% over the life of mine.

The deposit is one of the highest grade large flake deposits globally after the recent upgrade to 51.1Mt at 9.3% TGC, including 38.7Mt Indicted at 9.3% and 12.4Mt Inferred at 9.1% TGC.

There remains significant scope to further improve returns, with staged expansions as the current mine plan is based on approximately 25% of the total resource. The deposit remains open to the north south and down dip, meaning there is significant potential to increase the resource further, with further drilling planned for later in 2018

Results to feed into a feasibility study to progress the Project to a decision to mine early in 2019 – in the interim Company will commence negotiations with identified strategic funders and offtake partners.”

 

How does this fit in with my research model C.C.A.S.S.H ? You can read more about it by clicking here 

The sections are colour coded, green means positive, black means neutral, red means negative.

CAPITALISATION:

It’s a micro cap, which I like as it more likely to double. A sub £5m market cap, creating another £5m of value, shouldn’t be that difficult.

CHART:

Never Chase a price or buy a spike.

On 2nd November 2017 ACP hit a 52 week low of 1.05p. Since then it has bounced and within one month it was nearly double at 1.95p. Since this time even though the share price has been above the 200 day moving average it hasn’t spike and has been trading in a range between 1.75p – 2.25p.

ASSETS (CASH):

On 20th October 2017, Armadale announced a, “financing facility with a consortium of high net worth individuals to provide up to £400,000 to support the continued development of the Mahenge Liandu Graphite Project in Tanzania and completion of a Feasibility Study in H1 2018.

SHAREHOLDERS:

As far as I’m aware none of the directors hold any skin in the game, which is disappointing considering, “the deposit is one of the highest grade large flake deposits globally”. 

SIGNIFICANT MILESTONE:

On 23rd November 2017 Armadale Capital released an RNS entitled, “Appointment of Study Manager and Development Update”, the company stated:

Completion of an initial scoping study is expected early 2018. On completion Armadale will move directly into a feasibility study which is expected be completed in the first half of 2018.

On 29 January 2018 they announced an, “Exploration Update and Licencing Applications Commence at Mahenge Liandu” where they stated, “Social and environmental studies have commenced marking the first step in the application process for mining lease approvals from the Tanzanian Government”

HEAD HONCHOS:

The comany has undergone a board re-shuffle and strategy re-alignment and even though the new board seem to be hitting goals ahead of schedule, there doesn’t seem to be a big team. The only person who comments in any of the RNS’s is Nick Johansen, stated as a, “Director”.

On their website, Nick is described as a, “Non-Executive Director” and doesn’t even have a picture of him but apparently, “Mr Johansen is a solicitor in a Darwin based law firm which has extensive mining experience, ranging from junior exploration to producinon across a range of commodities. He is also an expert on environmental regulation. Prior to forming his own legal practice in March 2015, he worked for Ward Keller, a Darwin based law firm with whom he completed his Graduate Diploma of Legal Practice at Australian National University. He also holds a BA in economics from the University of Adelaide.”

The other person mentioned on the website is, Emmanuel Steve Mahede also a Non-Executive Director, “an experienced manager of natural resource projects, often in a CEO capacity. With a BEng from University of Western Australia and an MBA from Murdoch University in Perth, WA., he has 35 years’ experience in project management and business. Born in Tanzania, he keeps in close contact with business there and is Patron of the Tanzanian Community in Western Australia Inc.. He is also Chairman of the Mahede Foundation, which is a charity providing educational assistance to disadvantaged Tanzanian children.”

I feel I don’t know enough about them or their track records to judge their ability but it’s nice to see Emmanuel was born in Tanzania and is the Chairman of a charity there.

As you can read in my previous blog, Graphite is the largest input raw material into a lithium ion battery. There is 10-30 times more graphite than lithium, in an lithium ion battery and because of losses in the manufacturing process, it actually takes 30 times as much graphite to make the batteries.

And according to Benchmark Mineral Intelligence, demand for graphite is set to increase by over 200% in the next four years as global cell production surges on the back of maturing pure electric vehicle demand and the inception of the utility storage market.

On the supply side China, the biggest producer is expected to gradually turn from being the single largest exporter of the mineral to an importer while the battery sector in the country develops.

So there’s seems to be shortening supply, increasing demand and this should be amplified as electric vehicles gain more traction over the next 5 – 10 years.

Aside from the anonymity of the directors and the lack of skin they have in the game, having a graphite deposit regarded as, “one of the highest grade large flake deposits globally”, backed up by a scoping study with such impressive economics should bode well for Armadale Capital, especially when you consider they are only valued at just below £5m.

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THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

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THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

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Mentioned in this post

ACP
Armadale Capital