Mining investment business Metal Tiger (LSE:MTR) has seen its shares drift down to 2.15p since the beginning of 2018, despite reporting steady progress at its 30pc-owned joint venture (JV) in Botswana. Following a successful pre-feasibility study (PFS) at the open pit of the JV’s T3 prospect, a detailed feasibility study will now be carried out ahead of expected production in 2020. With the JV also undergoing exploration beyond T3’s open pit to build up resources across its vast acreage, ValueTheMarkets.com asked Metal Tiger’s CEO Michael McNeilly about what the market may be missing.
Open pit opportunity
T3 is a copper and silver project based in Botswana’s Kalahari Copper Belt. It is 30pc-owned by Metal Tiger and 70pc-owned and operated by MOD Resources (ASX:MOD), an Australian copper miner where Metal Tiger has built up a c.6pc stake.
The JV partners recently completed a pre-feasibility study (PFS) on T3’s open pit, which has a mineral reserve of 21.4Mt containing around 218kt of copper. The PFS base case, which used a processing rate of 2.5Mtpa over a 9-year life of mine (LOM) at a copper price of $3.20 for the first 2 years and $3 thereafter (it’s actually $3.20 for the first 2 years and then 3$ flat thereafter) gave the open pit an NPV(8) of $281m. It also gave it annual free cash flow of $77m from production, all-in sustaining costs of $1.36/lb and payback 2.7 years from production. Copper in concentrate over the LOM is expected to come in at 203kt with average production of 23kt a year.
McNeilly told us that although the JV was happy with these figures, they were calculated using a conservative outlook: ‘The numbers on the T3 base case and expansion case are done with banks in mind. They use consensus copper price as forecasted by several banks. If you have a slightly more positive outlook on copper then obviously T3’s economics improve dramatically.’
Expected timeline of T3 Open Pit Development
As the timeline above shows, the JV partners will now carry out a detailed feasibility study, which is expected to complete early next year alongside the necessary environmental approvals. The firms then hope to carry out the design and construction of T3 in 2019 before production begins in 2020. For his part, McNeilly is confident going forward:
‘After the feasibility study, a decision is taken on whether to develop further. It seems clear to me, given the numbers, that this will be a mine- subject to suitable financing. Everything indicates that this should be pushed forward towards being developed- it should produce a very clean concentrate that should be in high demand.’
Two bites of the cherry
The open pit is planned to be a ‘starter mine’ on the road to establishing Metal Tiger and MOD’s JV as an operator in Botswana, with both businesses keen on the country as an operating jurisdiction. Botswana has a long-established mining industry, plenty of infrastructure, a supportive and stable government, and a favourable tax regime- copper royalties are c.3pc.
Land covered by Metal Tiger/MOD JV in Botswana
As the map above shows, the potential for significant expansion is no doubt there, with T3 representing just 0.1pc of the 7,500km2 held by the JV in the Kalahari Copper belt. McNeilly believes this potential for exploration is starting to draw in the market:
‘Any other region would have 10-15 participants exploring in an area of this size, but the JV covers most of the interesting ground along the structural corridor. Similar companies to ourselves and MOD are actually trading at a lower EV/Reserves value, but a lot of that is down to the market factoring in our exploration potential. None of these other firms have anywhere near our unique, district-scale potential.’
According to Metal Tiger’s latest presentation, its EV/Reserves value comes in at $276/t. Comparable organisations like Euromax Resources and Nevada Copper Corporation have respective ratios of $37/t and $97/t.
So how is the JV planning to build up this resource? For one, they are looking at increasing processing capacity at the open pit to 4Mtpa. They are also using infill drilling to upgrade some of the ore body’s 25.6Mt inferred resource to measured and indicated.
An expansion case was carried out on the ore body in the PFS, factoring in the increase of production to 4Mtpa from 2023 and the processing of 34pc of the inferred resource. At $3/lb copper, this model gave the open pit a 12.4-year life-of-mine, an NPV(8) of $402M, and annual free cash flow of $85M from production. All-in sustaining costs hit $1.46/lb with payback coming 3.3 years from production. Copper in concentrate over the life of mine would be expected to come in at 325kt with average annual production expected to hit 28kt.
Beyond this, the firms are carrying out resource drilling to assess the potential for an underground mine and are also looking at deeper and wider drilling around the T3 open pit. Regional mineralised significant structures such as domes and thrusts are drill tested at depth and along strike. Last month, the Botswana Department of Environmental Affairs approved the environmental plan for a drilling campaign on the T3 Dome. Drilling begins this month, with four rigs in addition to the three rigs currently drilling at T3, targeting ten high-priority targets that could contain satellite copper deposits.
The JV has also located widespread copper and zinc soil anomalies at JV licences T4 and the T20 dome, which are both on the map A sizeable airborne electromagnetic survey has been carried out over these areas and last month saw the JV lodge an environmental application with Botswana’s government to drill the T20 dome. If granted, the permit will allow for the drilling of new and existing targets and open up an additional 697km2 of underexplored and prospective Kalahari copper belt for drilling.
‘If you believe in the district-scale potential of the Kalahari and that there are other deposits out there then we have barely scratched the surface. Minimal exploration has been carried out, but there is nothing to indicate that there will not be more copper deposits out there and we have numerous drilling sites,’ said McNeilly.
Funding growth & minimising dilution
When looking at how Metal Tiger will continue to fund its share at Botswana, it is important to remember that the company also has an asset trading division. The arm regularly makes strategic investments in undervalued companies. For example, earlier this year, Metal Tiger bought an 11.2pc stake in fellow AIM resources firm Thor Mining (LSE:THR) as well as a 4.2pc stake in Connemara Mining Company (LSE:CON). The business has said it will reinvest returns towards developing Botswana, minimising shareholder dilution.
A strong investor base also backs Metal Tiger. Institutional investor Exploration Capital Partners, a fund of Sprott Global, is its most prominent backer with a 9pc stake. Meanwhile, non-executive director Terry Grammer owns 6.2pc of shares and chairman Charles Hall owns 2.9pc.
McNeilly said Metal Tiger has enough cash and liquid assets to carry out work in Botswana over the next year. Beyond this, he is very clear about the binary way things could pan out:
‘We need to hold on to that 30pc for as long as possible, either until production or some consolidation- those are the only two ways this project will go. Currently, the JV would like to see this asset through to production, whilst locating many other deposits. If other commercial deposits are identified, then you begin to prove district-scale potential and it makes one question how many more commercial copper deposits could be out there? . It is at this point that the major firms’ ears will prick up and they may or may not make a move. If the district-scale potential is there, then someone will have to have it in my opinion and this is very exciting.’
Value in Thailand
A final point to consider before deciding on Metal Tiger’s suitability as an investment is its Joint Venture (JV) over two lead-zinc-silver mines in Thailand. The mines, Song Toh and Boh Yai, have an NPV(10) of $45.9m with a payback period of 4.7 years and a scheduled LOM of 14 years with significant potential to extend. Metal Tiger was planning to float the assets but decided to postpone earlier this year after encountering delays in getting government designation as a mineral deposit area. Until granted, the JV cannot develop the resource.
Going forward, this means all the corporate and legal work necessary for an IPO/spin-off is primarily completed, and the majority of technical and permitting workstreams have already been carried out. McNeilly told us Metal Tiger has also cut down costs in Thailand until it decides what to do next, adding:
‘I think Thailand is one of those projects where it has been hard yards. It costs us very little to maintain, and we can decide on whether to push forward with it once we get the green light and we can justify spending money on it again. Until then, we have cut it down to the point where it barely costs us a thing.’
The final call
With all this in mind, McNeilly considers Metal Tiger to be undervalued at its current 2p share price and £21.4m market cap: ‘What will move the needle over the next few months will be exploration success in Botswana and any progress in Thailand. The market is giving very little – if any – value to our Thai assets. Metal Tiger is trading at a significant discount to the attributable intrinsic value of the T3 project alone. We have a strong balance sheet and liquidity to meet our required funding requirements at T3. We have a good balance of technical and financial people and a very experienced board to see through our assets to their best potential.’