This week saw Regency Mines (LSE: RGM) become debt free for the first time since 2011, just weeks after announcing a re-focused strategy that will see it ramp up activity in the booming battery metals market. The firm repaid in full the $1m convertible loan taken out last year to refinance an existing facility and fund its expansion. Having just raised an additional £100,000 through the Teathers App, can Regency recapture the market’s attention as it did a year ago?
Now that it is financially secure, Regency can focus fully on the further development of its interests in battery metals, metallurgical coal, and coal bed methane. ValueTheMarkets.com caught up with chairman Andrew Bell to discuss where the future lies.
Regency is in the process of refocusing its primary strategy towards its nickel and cobalt assets. These are two key electric battery metals and Regency hopes to capitalize on the surge of investor interest there has been in this area over the last year. As part of this drive, the company will step up activity at Mambare, its chief nickel and cobalt mining exploration asset, based in Papua New Guinea.
Mambare has already proved its upside potential, with Regency achieving a resource of 1.5m tonnes of nickel and 146,000 tonnes of cobalt by testing just 3pc of the mineralised plateau at the mine.
Nickel prices have noticeably rallied since, hitting $14,040 a tonne earlier this week, a gain of more than 55pc since June. But Regency’s shares have not yet reflected this.
Obviously, this inactivity can at least partly be put down to the fact that Regency is still establishing itself in the nickel market. But Bell believes some investors are wary of nickel because it has just emerged from a sustained bear market. He disagrees with this view, and argues that the recent break-out could be here to stay as it is driven by strong, long-term demand from both the stainless steel and electric battery markets.
‘For the first time after a bear market, which has lasted for nine years, you can actually see nickel prices breaking out and looking good. We think this rise is real. Electric batteries are now 80pc nickel, up from 33pc nickel in the past. This means that there has been a big switch towards the metal, which the market is yet to catch up to. This demand is likely to create supply bottlenecks, as nickel isn’t particularly easy to find. Two thirds of it goes into stainless steel and the other third has to meet electric battery and other use demand. All these areas are growing strongly,’ he said.
‘We think everything is moving in the right direction. We have a very clear idea of what the next steps are at Mambare and we are talking to contractors and a partner there. After years where we were not able to do much at the site because the market price did not allow it, we now have a tremendous opportunity.’
Decisions, decisions at Rosa
Regency also recently reminded markets that it is still engaged in due diligence talks around increasing its ownership of the Rosa coal mine located in Alabama to 100pc. It has been given the option to buy the 80pc of Rosa’s owner that it does not already possess for £250,000.
Rosa has so far failed to deliver cash flow anticipated last spring. This has been a major contributor to Regency’s flagging share price performance during the second half of 2017. However, the firm has previously said that purchasing the whole mine will allow it to advance operations and take advantage of high prices for specialist and metallurgical coal.
Alongside this, Regency has entered into a memorandum of understanding with privately owned mining company Legacy Hill Resources for co-operation in structuring, financing and acquiring US coal investments.
Bell said that while Rosa offers plenty of potential it will require more management input and operational control from Regency to work. Even so he remains optimistic and seems conscious to let the newsflow now do the talking.
‘Our decision now is deciding whether we going to put it together and make it work. Will this be an effective use of our management capabilities as a standalone? For now, the big picture in the coal market for us is our co-operation agreement with Legacy Hill Resources. We are working quite rapidly on that, but it is a long due diligence process,’ he said.
‘We have been discussing whether putting Rosa on as a bolt on in a joint venture could work. Legacy Hill Resources is assisting us with the due diligence on the Rosa Mine. It is focused on adding value for shareholders through efficient mining operations, and has been seeking out opportunities in the coal sector. We are at the point where we have to start making decisions, but those decisions don’t depend on us alone because we need to know that we have the right partners to make it work. We expect we may have something to say on Rosa soon.’
Now that Regency has removed all debt from its balance sheet, Bell said it will be easier for the market to understand where the firm is travelling. He believes this is something that could eventually trigger a re-rating of its share price.
‘Now the balance sheet is looking good and we have cash, our strong financial position backs up what we are doing and our prospects. The market has clear visibility of what we are doing. We ourselves have been taking part in recent placings, reflecting our belief in Regency’s prospects. The significant turnaround in the company’s financial position in itself should justify a re-rating,’ he said.
Alongside this healthier financial position, Bell said the growing interest in battery metals and, in turn, Regency’s Mambare asset is also opening up further opportunities.
‘Now that activity at Mambare has suddenly opened up, people have started to come to us to discuss things. We are getting presented with many new ideas and are continuing to monitor that. After being on the back foot we are now on the front foot. The battery metal market is moving so rapidly that it is impossible for us to say what the next few months will bring, but we have a good springboard now and it is up to us to proceed carefully. Things are undoubtedly moving in the right direction and there are plenty of ways we could spend money if we chose to. We just have to do the most effective thing in order to get the share price up,’ he said.
At 0.55p on the offer investors can buy Regency at the same price as the recent placings, though admittedly without receiving the warrants. A debt free and well-financed Regency is a more attractive proposition and with the huge apparent potential at Mambare, it is easy to see how sentiment towards this company could turn quite spectacularly. Although last year’s disappointment about Rosa is still lingering, if Bell is able to deliver significant news then a substantial rerate could well be on the cards.