The downturn in the resources markets left many junior miners reeling following a protracted boom in basic materials, driven by demand in countries such as China, India and Brazil. That rampant economic expansion has now normalised and market prices for metals has consequently fluctuated significantly causing mining companies, large and small, to adjust their strategies. Many of the mining ‘majors’ have almost completely stripped back exploration activities as they struggle to make unwieldy production portfolios work. Whilst junior exploration companies have also suffered during the commodities downturn a new breed of company, with better levels of cost-control and operational focus is now emerging, looking to position themselves as credible suppliers of new projects. Increasingly, market commentators are seeing a turn in the commodities cycle following concerns over falling production and restrictive metals ‘cartels’. Already iron ore has seen strong rises in spot price this year, following a long period in retreat.
Ferrum Crescent (AIM, JSE, ASX: FCR) is a good example of an ambitious company that has recently seen significant changes to its management, strategic approach and cost base. A recent restructuring has seen a board-level shakeup as the company seeks to focus on low-cost exploration assets in popular commodities. The company’s recent option over and planned near term acquisition of two lead-zinc projects in Spain will enable the refocused management team to unlock a wealth of pre-existing information at minimum cost which the team believes could yield exciting results as they seek to apply their own exploration methodology. The company also retains its existing significant interest in a high-grade magnetite deposit in northern South Africa, located near the Kumba mine and existing infrastructure. This Australian junior is now well positioned to make the most out of the downturn in the minerals and metals markets as an acquirer near the bottom of the cycle and capitalise on any forthcoming recovery.
When RGN caught up with newly-appointed executive chairman Justin Tooth in London we discussed Ferrum’s new appointments, the latest on its South African Moonlight Project, what stage it has reached with its potential acquisition of the Spanish lead-zinc projects and what the future looks like for the company.
Tooth joined Ferrum late last year in a non-executive capacity and assumed the role of executive chairman at the end of March though he has a longstanding relationship with the firm as an adviser. Tooth had acted as the principal corporate broker when founding chairman, Ed Nealon, of Aquarius Platinum fame, secured a listing for Ferrum on AIM in 2010.
“I conducted the AIM IPO for the company as a broker and, despite the subsequent downturn in the global iron ore price, I am still a believer in the Moonlight story. Our flagship project is not just another stranded iron ore asset in Africa but rather a realisable source of high-grade material, near existing infrastructure. The potential future Moonlight product can be blended with low-grade iron to secure supply for a steel manufacturer for a significant time period. It’s a really good story in a niche product required in the region and the data supporting it has all been compiled” he explained.
Tooth has spent the last 20 years in investment banking management roles, broadening his skillset in equity sales, business development and corporate finance. The refocused growth strategy for Ferrum will require a sharp mix of all three.
“I’m bringing that corporate finance skillset plus fresh leadership, but clearly we will be using the very best expert consultants as do most junior mining companies for their specific technical skills. Our ground work on Moonlight has now largely been completed and our recent option over the Iberian lead-zinc assets represents a new focus for activity and opportunity to create shareholder value swiftly. I have put a more streamlined system in place for the company and our planned exercise of the option in the near term will enable us to utilise the mass of pre-existing data on these additional projects to cost effectively build the story towards a successful outcome.”
The tri-market listed company’s first project was the Moonlight deposit in the Waterberg district of the Limpopo province, north of Johannesburg, South Africa. It is a highly prospective deposit, a mining right has been granted and there is up to an estimated 25-year mine life. The company owns 97 per cent of the project which has a JORC 2012 compliant resource estimate of more than 300 million tonnes, with preliminary metallurgical testing demonstrating the potential for 68-70 per cent iron ore concentrate.
Furthermore, Moonlight has excellent existing infrastructure both in terms of getting to the site and exporting the future product to market. Arcelor Mittal SA has a large steel manufacturing plant less than 200km away and one development option is to use a slurry pipeline to get the product to the plant for domestic use whilst another option indicated by the pre-feasibility study could be to use the nearby Richards Bay port to export high quality pellets internationally.
“The infrastructure round the project is good. You can drive straight on to the project site, as indeed I did recently which is a great advantage in Africa.
“Our potential future product from Moonlight is a premium one since our material can beneficiate easily to 68-70 per cent. Fe and is low in deleterious elements. Africa and the Middle East has a great need for steel and, no matter what people say about the Chinese market, we are still of the opinion that for such a high quality pellet product, we can see viable interest anywhere that needs blended material.”
The next stage for the Moonlight project is to complete a bankable feasibility study. In October 2015, Ferrum secured and announced Ovation Capital via its sister company, Business Venture Investments, as a BEE compliant funding partner which has agreed to fund the completion of the BFS over the next two to three years.
“The current agreement [with Ovation] is that they will earn-in by fully funding and completing the requisite BFS workstreams, for up to a 43 per cent. equity interest in the project. We estimate that a BFS on this type of project should cost between US$12-15 million.”
Tooth’s near term target at Moonlight is to reassess how best to monetise the asset through such collaborative partnerships or other farm-in arrangements in order to drive the project’s development and realise shareholder value.
Ferrum’s latest development has been securing an option to purchase GoldQuest Iberica, S.L. and its Spanish lead-zinc exploration projects.
On 12th April the company announced the completion of its requisite due diligence investigations on the Spanish assets. The desktop study covered the Toral and Lago sites and indicated that there is a significant opportunity to prove up significant projects with strong economics in a politically stable country with existing world class infrastructure.
The purchase agreement will see Ferrum take 100 per cent. ownership of the primary focus Toral drill target. A 2012 NI 43-101 resource estimate reported by Micon International Co. Limited, together with the vendor’s analysis, indicates that Toral contains approximately 2.3 billion lbs of zinc equivalent at a grade of 12.1 per cent. and Tooth believes that such historical data is open to positive reinterpretation.
“Although there will be a need for some infill drilling, we believe that a reassessment of the existing data could provide an uplift in the resource and we will also need to bring it into JORC 2012 codification.”
This area of Spain is very attractive in terms of its policies on mining projects. Tooth is very positive about the operational environment in Spain and the zinc market as a whole.
“It’s a well understood mining jurisdiction with a lot of mining companies already in situ. In the project areas, the local provincial governments are highly enthusiastic with regard to job creation and exports generally,” he said.
“We are extremely enthusiastic about the potential in the zinc market and believe that the Spanish provinces of León and Galicia, in particular, are well positioned for such large potential and exciting projects to be attractive and highly manageable, not just in a deliverable sense but also in an economic return sense.”
Dr. Evan Kirby, a highly regarded metallurgic expert, was recently appointed to a non-executive role with the company and Merlin Marr-Johnson was taken on in an advisory role as a geologist with specific Spanish expertise.
Marr-Johnson’s expertise will be integral as the company proceeds in the near term with exercising its option and completing its purchase of the holding company for the Spanish lead-zinc projects.
“Evan has built a whole series of mines and Merlin has studied and worked as an exploration geologist in various Spanish speaking countries, successfully discovering and developing projects. We therefore now have a team in place that has the natural capacity to define economically viable assets in a cost effective manner. We shall not be drilling for the sake of it, but rather at every point in the exploration and development journey will be asking ourselves ‘How does this next piece of work add value?’. We intend to create rapidly a highly commercial zinc package, located in a politically stable region, well-suited to companies looking to build-out new production or finance it.”
Tooth appreciates the important work that Ferrum’s key partners have completed in positioning the company to where it is now. Beaufort Securities have provided valuable research and sales support in the stock market. Most of its international legal representation comes from Allen & Overy, which Tooth describes as mission critical, while the newly appointed Spanish project manager Marr-Johnson is a consultant from the Tavistock Communications Group. In addition, Mowbrai Ltd’s founder Laurence Read is a key strategic adviser.
For Tooth, Ferrum has acted in a dynamic way to alleviate the issues caused by difficult financial conditions and some historic bulk minerals inertia. He believes that the company has been forced from necessity to become more efficient and strategic in its operational focus.
Looking to the future, Ferrum is now well positioned to capitalise on its prospects. It has an experienced management core, inherent value with enormous potential in the Moonlight deposit and, via its option, the potential to acquire additional projects in the known high grade zinc areas of Toral and Lago including an existing resource with uplift potential at Toral.
“In our case, we have seriously reduced our cash burn rate and better aligned our management structure for our future requirements. I’m a great fan of the zinc market and there are a number of other investment houses driving a new bullish consensus for zinc.
“For a company like Ferrum owning a highly accessible, and what we believe to be an economically mineable zinc deposit, the valuation uplift potential can be very impressive,” concluded Tooth. The company’s shares have certainly started to show some signs of life, following two small equity raises completed this year in order to facilitate their refocused strategy. Despite the company’s very low valuation base caused by the painful years of the iron ore apocalypse, its new found energy and anticipated news flow are expected to drive a real recovery in that value.