630 – The Weekend Podcast: 4 Reasons to put Asiamet Resources on your Watchlist

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630 – The Weekend Podcast: 4 Reasons to put Asiamet Resources on your Watchlist

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630 – The Weekend Podcast: 4 Reasons to put Asiamet Resources on your Watchlist

Asiamet-logo2

Asiamet Resources (ARS)
Share Price: 2.25p
Market Cap: 13.8m
Shares In Issue: 622m

Asiamet Resources is a junior company focussed on the exploration and development of its portfolio of large copper-gold deposits on the Indonesian islands of Kalimantan and Sumatra, adjacent to the key growth markets in Asia.

They have 3 projects focussing on copper and gold:

copper

1. Beruang Kanan Main (BKM)

2. Beutong

3. Jelai

The current focus is on bringing, Beruang Kanan Main (BKM) into a Feasability Study status, having completed a Preliminary Economic Assessment (PEA) in April 2016 (see below).

4 Reasons to put Asiamet Resources on your Watchlist:

From now on, every company I write about, I will evaluate against my system, where I use the acronym: C.A.S.H.

 

1. CASH

Cash 002

Previous Fund Raisings Have Been Aligned with Shareholders Interests 
As stated in their half year results to 30th June 2016 Asiamet Resources had $1,961,683 in cash and no debt. Over this period they lost $808,752.

They will need to raise more funds over the next twelve months to permit, construct and bring the Beruang Kanan Mine into production.

As you can read below (under the headings, “Shares” and “Head Honcho’s”) Tony Manini’s experience in the world of mining means he’s built up a valuable group of prosperous connections, who trust in his ability and judgment. It’s worth noting that many of these connections are based in Southeast Asia, within China and amongst wealthy Indonesian families, who has he’s been having several meetings with recently.

I have little doubt over his ability to raise future finance and judging be previous equity fundraises, they’re likely to be done with shareholders interests in mind.

Past placings have never been at a great discount to the current share price.

Their last placing was on 22nd April 2016, when they raised £1.5m at 3.1p, the share price on that day was 3.2p. The previous fundraise was on 30th October 2015, where they raised £1m at 1.4p. The share price on that day was 1.45p.

As you will see below CEO Tony Manini is also a significant shareholder, so his interests are aligned with other shareholders.

2 Assets

copper-001

Their Current Project Would be Profitable Even at Today’s Historically Low Copper Prices.

As mentioned above they have 3 assets all copper & gold. Apart from a brief outline, I’m only going to focus on Beruang Kanan Main (BKM) as it’s the first mine they intend to bring into production.

On the 5th April 2016, they published their Preliminary Economic Assessment (“PEA”) for BKM.

pea-summary

3 Points Worth Noting

1. Their After-Tax Net Free Cash Flow (incl. royalties) will be $387.5M. If you divide this by 8, which is the intitial life of the mine, this works out to an average of $48.4m worth of free cash flow every year.

2. Their life of mine all in operating costs are just US$1.49 per pound. Even at today’s historically low copper prices, this mine could still operate profitably (see below for a decription on the current copper market).

3. There’s significant potential for additional mineralization close to BKM.

pea-production

Since this PEA was released, in April, Asiamet have continued infill drilling to upgrade part of the BKM Resource to measured and indicated confidence levels with the aim of demonstrating a +10 year life.

They’ve also carried out further exploration work on high potential prospects BKS, BKW and BKZ where excellent targets for additional copper mineralization nearby BKM are demonstrated by strong surface and scout drilling results returned to date.

So the figures above will improve.

pea-cash-profile

In their latest Drilling/Production Report RNS, on October 12th 2016, they had completed 45 drill holes/4500 metres out of a planned 73 holes/6500 metres.

Just to put this in context, on the 7th July, 3 months after the PEA was published, they’d only completed 13 holes at 1585m.

So the annual free cash flow of $48.4m, as stated in their PEA, even though impressive, could soon be surpassed.

The other assets:

copper-and-gold

Beutong (40% with an option to own 80%)

Beutong’s Mineral Resource on a 100% basis comprises:

Measured and Indicated Resources
– 1.2BIbs Copper
– 0.4Moz Gold
– 5.7Moz Silver
– 20Mlbs Molybdenum

Inferred Resources
– 4.1BIbs Copper
– 1.7Moz Gold
– 14.9Moz Silver
– 112Mlbs Molybdenum

Simply put, Beutong has the potential to be 3 to 4 times bigger than BKM. Resource expansion, exploration drilling, project scoping and optimisation studies start in early 2017 but production here is around 3-5 years away.

3. Jelai Gold Project

gold-002

Jelais isn’t core to Asiamet’s plans going forward and as announced in their recent presentation, “Corporate initiatives to realise value from the Jelai gold project”, are on going, which in layman’s terms probably means they intend to sell it. This would obviously bolster Asiament’s finances.

The conversion of the Beutong and Jelai licences, from exploration IUP’s to production IUP’s are underway and an annoucment should not be too far away. Approval of the IUP Production secures long term mining title valid for 20 years, extendable for two subsequent periods each of 10 years duration.

 

3. Shares
ars-significant-shareholders

They Have, “Skin in the Game”

skin-in-the-game

Tigers Realm Group hold 9.32% (see Head Honcos below).

Tony Manini is a founder of Tigers Realm Minerals and Tigers Realm Coal and has been Managing Director of Tigers Realm Metals Pty Ltd since its inception.

On the 1st September Tony Manini purchased 3,500,000 shares of the Company, privately, at a price of £0.012999 per share.

Following this purchase, Tony Manini now indirectly holds 14,579,618 (2.9%) common shares in the Company by way of 6,483,566 common shares held by Antman Holding Pty Ltd and 8,096,052 common shares held by A.J.M. Investco Pty Ltd

 

Asipac Group hold 3.37%
Asiapac Group is owned by Bruce Sheng. There’s very little on the internet about Bruce Sheng, other than the fact that he’s seems to be very wealthy.

Mr. Sheng has been in Australia for over 20 years and is the Chairman of the ASIPAC Group, a Melbourne based diversified investment group of companies with a primary focus on resources and property. ASIPAC is also the owner of an Australian Financial Services Licence and works closely with key high profile organisations in Australia and China.

 

Namarong Investments hold 3.26%.

Namarong Investments is the investment vehicle of Paul Little, an Australian businessman who was the managing director of Toll Holdings, a prominent Asian region integrated logistics provider.

He retired from that position on 1 January 2012 after 26 years service. Paul Little is one of the richest people in Australia, with an estimated net worth of $880 million in 2013.

Asiamet Directors Options

ars-options

As you can see above, the directors have lot’s of options, the nearest strike price is 3p, 35% above the current share price.

 

1. Head Honco’s
Tony Manini
Tony Manini and management have a track record of taking small exploration assets through development into production, a good example of this is with Oxiana Ltd.

Tony, along with Owen Hegarty, pioneered the entry and establishment of Oxiana’s businesses in six countries and was instrumental in the discovery and development of the Sepon copper and gold mines in Laos, the early stage acquisition and development of the Prominent Hill copper-gold mine in South Australia, several new brownfields discoveries at Golden Grove in Western Australia and discovery of the Okvau gold district in Cambodia.

They took Oxiana Ltd from a sub $20m MCap company in 2000 to a, diversified commodity producer which had a market cap of $6bn, 8 years later.

This was taken from Reuters dated, Wed May 23, 2007:

Over the past five years, Oxiana has yielded the best total shareholder returns of any company on the Australian Stock Exchange, enlarging its market capitalization to A$5 billion from A$20 million in 2000. Owen Hegarty says he’d like to see Oxiana’s market capitalization at A$10 billon by 2010.

oxiana-ltd

More recently, Tony was the Executive General Manager for exploration and business development at OZ Minerals Limited with responsibility for exploration, business development and strategic planning.

Owen Hegarty is Chairman of EMR Capital, Tony Manini is Executive Directors of the Investment Committee:

In early February 2015, EMR Capital raised a bigger-than-expected $450 million in commitments, saying spiraling commodity markets were creating opportunities in the sector.

They are currently closing the books on a 2nd round of funding, which is expected to raise around $750m.

emr-capital

Previous to Oxiana Tony worked with Rio Tinto for 14 years in various technical, commercial and management positions.

Tony is also co-founder, along with Owen Hegarty of the Tigers Realm Minerals Group involved in developing coking coal discoveries in Far Eastern Russia, copper and gold assets in Asia and the Americas, and uranium in Canada.

As I mentioned above Tony Manini’s experience in the world of mining means he’s built up a valuable group of prosperous connections, who trust in his ability and judgment.

oxiana-ltd-mcap

He stated to me in a podcast that he intends to do with Asiamet Resources, what he did with Oxiana, that is, take a small exploration and development company through to become a pan-Asian diversified commodity producer.

Tony Manini also mentions, the timing is right. He reckons this point in the copper cycle is almost the perfect time to be developing BKM.

“We think that it’s a very good time in the cycle to be building,” he says. “Consultants are short of work. The price of things has come down. It’s a good time actually to be doing what we’re doing. The mining business is counter-cyclical and this is the time to catch the up-cycle when it comes.”

resources-price-cycle-001

(click to enlarge)

Asiamet will be a low cost producer, which is a very important factor. As mentioned above, the current global average cost per mined copper pound is $1.38 (ARS = $1.28) which puts a floor under copper prices. By adding the cost of debt issued to develop the mines, few miners are profitable at levels below $2 per lb.

In Summary:

C – Cash

Asiamet possess cash and will have few probems raising more cash, at decent levels, to see the BKM project through to becoming copper producer.

A – Assets

As an asset studies on BKM so far demonstrate excellent potential for developing a robust, low strip ratio, low capital intensity copper project with low operating costs, strong cash flow generation capacity and significant upside potential through further Resource growth.

S – Shares

Not only do the management have significant skin in the game but also do some big names in Australia, including Paul Little and Bruce Sheng, who has valuable connections in China. By the way Tony is a regular visitor to China, with connections of his own there. When you consider that China accounts for 40% – 50% of global copper consumption, this can only be seen as a major positive.

H – Head Honchos

Not only has Tony Minani done this type of thing before, he’s also connected to people who also done it, via EMR Capital and Tiger Realm.

 

Copper

copper-003

Currently it’s price is lingering around multi year lows at $2.20 per lb. In 2010 / 11 it was trading above $4 per lb.

The following text is a summary taken from an article at SeekingAlpha.com entitled, “This Metal Offers The Best Risk Reward Potential… And Has A Minimum 50% Upside Potential”. I highly recommend you reading the entire article.

Currently copper is in oversupply.

As the easy to find copper has been already mined, miners need to go further and deeper to find economical projects at satisfying grades. Copper grades have been declining for a long time and are expected to decline further.

copper-grades

Lower copper grades mean higher mining costs which will translate into higher copper prices eventually. The current global average cost per mined copper pound is $1.38 which puts a floor under copper prices. By adding the cost of debt issued to develop the mines, few miners are profitable at levels below $2.

In the short to mid-term, copper prices are expected to be volatile due to a balance in demand and supply, but sometime in the next few years copper is expected to enter into a supply gap. A normal business downturn in China might postpone this, but the long-term trend is clear and set.

World Bank expectations are that copper prices will double in the next decade.

Current Perspective

copper-supply-deficiate

Currently, miners are managing to save a lot on costs while increasing production which could further push prices downwards. Goldman Sachs forecasted copper prices to go as low as $1.8 per pound as copper enters the eye of the supply storm. It is very unlikely that average quarterly prices will go below $1.8 as this would make more than half of global production unprofitable.

The CEO and President, Richard Adkerson, of the world’s biggest copper producer Freeport-McMoRan spoke recently about the copper market (25th October 2016).

“The recent growth in global copper output is unsustainable now that most of the new projects have been completed and copper prices have remained low. These long periods of low prices will impact future supply,”.

He referred to a recent report from UK commodity research firm Wood MacKenzie forecasting a 4 million mt decline in output over next several years. Adkerson noted that current output from the top 10 global copper mines totals about 5.5 million mt. “To replace 4 million mt would be a significant challenge for the industry,” he said.

copper-tubing

The following text is a summary of an article from Reuters, entitled, “Renewable energy, electric cars to boost copper demand”. I highly recommend you reading the entire article.

Sweeping changes towards producing more renewable energy and electric vehicles coupled with a growing world population will boost the demand for copper in the coming years, a conference heard on Friday.

“Decarbonisation generally favors copper,” said Ashley Brinson, executive director of the Warren Center think tank in Sydney.

In Asia alone, technological factor together with surging demographic growth is predicted to lead to an additional 30.8 million tonnes of copper demand by 2030, he told a seminar in London sponsored by industry group the International Copper Association (ICA).

The global copper industry is set to produce 22.5 million tonnes of copper in 2016, up 3.6 percent on last year’s output, according the ICA.

electric-cars

The energy and transport sectors will also be major drivers of copper demand.

“Renewable energy resources require four to 12-times as much copper as traditional fossil fuel-based power generation,” said Jean-Sebastien Jacques, chief executive of global mining group Rio Tinto, a major copper producer.

Growing demand for solar power generation capacity by 2030 will require between 7 and 10 million tonnes of copper, said Jacques, who is also the president of the ICA.

And a growing market share for electric cars will also boost demand for copper.

“With 90 or more kilos of copper used in a full electric vehicle – three to four times more copper than used in a gas-powered car – it is clear to see the positive impact the use of electric vehicles could have on copper demand,”.

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