This week saw AIM resources firm Thor Mining (LSE:THR) receive a £300,000 investment from Metal Tiger (LSE:MTR), further enabling it to ramp up activity at three of its key sites ahead of schedule. The investment is the latest in a series of significant cash injections for Thor, which altered its strategy last year to focus on commercialising its assets in response to thriving tungsten and copper markets. With a current market cap of just £19m, it is possible the market is seriously underestimating the value of its resource base. Publicly available assessments of its projects suggest it already controls at least $1.8billion worth of metals. At 3p a share, Thor certainly looks attractive.
Aggressive expansion
Thor Mining has an interest in a number projects spread across the US and Australia. Metal Tiger’s investment bolsters the company’s already strong cash position. In November, Thor said the $1.3m it raised from an October placing and subsequent warrant conversion meant it had enough funds to operate until 2019. That placing was the catalyst for change in Thor’s strategic focus from exploration to commercial development of its assets, through building project resource. The company’s ultimate goal is to generate significant shareholder value from this approach.
Since then, Thor has secured an additional £594,537 from warrant conversion and, of course, Metal Tiger’s £300,000. This puts the company in an even more robust financial position, with enough cash to last way into 2019. Specifically, the capital will be employed to advance Thor’s two key Tungsten projects – Molyhil and Pilot Mountain – and its copper project Kapunda.
Unique metal
In terms of resource size, Thor’s primary focus is currently on the tungsten market, which is experiencing something of a revival. Tungsten is a rare metal used to strengthen steel. It has a wide variety of applications including machinery and defense applications.
China was traditionally the largest producer of the metal but has cut back its production as part of plans to become more environmentally friendly. As tungsten cannot be replaced by another metal, China’s withdrawal and a depletion of stockpiles in Europe has led to a spike in its price. Prices rose from around $25.25kg to $30.25kg in 2017 alone.
Demand from the US, which continues a drive to strengthen its military, is also helping. What’s more, many of the regulations in the US, which may have previously led to permit delays, look set to disappear under President Trump.
A fall in supply and rise in demand mean the big metal firms are more interested in tungsten projects than they have been for the last decade. As a result, the prospects for Thor’s Pilot Mountain site in Nevada have possibly never looked better.
Desert prospects
Pilot Mountain is wholly owned by Thor and contains tungsten, copper, silver, and zinc at four primary tungsten deposits. It has a whopping inferred and indicated resource of 11.73mt (million tonnes) comprising 32,720 tonnes of tungsten trioxide at a grade of 0.3pc. It also contains 14,300 tonnes of copper and 192 tonnes of silver.
As it is located just 250km from the city of Reno, the site has plenty of supporting infrastructure. This means production costs would be relatively low at an estimated $8 a kilo.
Thor claims it has been encouraged by potential off-takers and financiers to move towards feasibility and development at the site. But with just a portion of Pilot’s resource having been tested, the firm continues to carry out scoping and feasibility upgrade work to demonstrate value not currently recognised in the market.
At current prices, it is estimated that Pilot’s combined resources are worth around $1.3bn (£910m) dwarfing the current market value. This week’s fundraise could help accelerate activity which will help shareholders see the true value of the company’s resources. Currently, most of the resources are in the indicated category, which can be utilised for feasibility studies for mining purposes. At this stage in the cycle, when many mining companies have under-invested in stock replenishment over recent years, this could create conditions much larger firms start to swoop for assets. This has happened in past cycles and if history repeats itself the pace of transactions could drive shareholder returns.
Down Under
Thor’s other tungsten asset is Molyhil, based in Northern Australia 320km east of Alice Springs, which also containts molybdenum. Like Pilot Mountain, production costs at the Australian project are expected to be low at between $10 and $11 per kilo, which includes the costs of providing a power source and flying miners into a remote area.
Earlier this month, Thor upgraded its ore reserve for the site and extended mine life by 17pc to seven years. Excitingly, it also found that significant blocks of the resource could warrant a subsequent underground mining operation after open pit mining has concluded. Who knows where total reserves will end up?
The site is now ready to go into production with 3.5m tonnes of ore reserve containing 10,200 tonnes of tungsten trioxide.
Although Molyhil’s tungsten reserves might be smaller than Pilot Mountain’s and not share the same domestic demand, they are still estimated to be worth around $300m (£211m). The project’s molybdenum is valued at $170m ((£119). These are not figures to be sniffed at, especially when compared to the Thor’s £18m market cap.
As with Pilot Mountain, the additional cash and new strategy will help Thor increase awareness of its prospects in the market. Molyhil could well pique the interest of tungsten companies and – in turn – investors when its mine life hits 10 years. Although the project probably needs to be developed further to attract interest, the company might no be that far off achieving this.
Shiny prospects
Thor’s other chief asset is the historic Kapunda copper mine in South Australia.
Copper is a robust global market where strong demand from electric and hybrid motor vehicles is adding to demand. Constrained supply growth has also pushed up prices, with a deficit of additional mining capacity coming online over the last two years. No large mines are expected to commence production in the near future, exacerbating the potential for disparity between supply and demand.
The copper price ended 2017 at its highest level in almost four years, up 30pc over the 12 months to $7312/tonne. Copper analysts at Goldman Sachs expect prices to reach as much as $8000/tonne by 2022.
Aussie opportunities
To capitalise on this growth, Thor is acquiring a 60pc investment in Australian copper development company Environmental Copper Recovery (ECR). ECR holds rights to earn up to a 75pc interest in Kapunda’s mineral rights and claims. Kapunda was Australia’s first copper mine and is located in South Australia, 90km north of Adelaide.
As announced in August, Thor will invest a maximum of $1.8m over three years (at least $300,000 in each of the years) via convertible loan notes in return for the stake.
The copper at Kapunda can be accessed through in-situ recovery, a low-cost approach also known as leaching. Solutions are pumped into the mine to dissolve the copper. It is then taken out in solution, processed and extracted.
Thor is about publish a leachable resource estimate to give an indication of the volume of copper that can be extracted. If resources are in line with expectations of 45,000 tonnes it could be another big winner for the firm at current copper prices. By using such a process, the low cost of retrieving copper could mean that margins might be be quite dramatic if the company finds enough resource. This might create a number of commercial options for Thor including possibly employing a third party contactor to conduct the leaching or working with an experienced joint venture partner. Either way, this could open up a significant revenue stream for the company.
Value play
Thor’s prior focus on exploration and the extended Bear Market in resource stocks caused the company’s share price to languish for years. The firm’s recent switch to focusing on commercialising its assets has seen shares rocket from around 0.8p to highs of 3.5p within a few months.
Looking at the reserve estimates of the company’s three sites – this piece has not even covered the company’s lithium and gold interests – it is clear that the potential value of the metal under Thor’s control presents a great amount of possible upside. Whether Thor decides to leach Kapunda itself or receives an offer for Molyhil or Pilot Mountain, the firm is operating in two booming metal markets – copper and tungsten.
As a result, any positive news flow could trigger a great increase in Thor’s valuation, as the market finally catches on to the size of its holdings.
