Crusader Resources (LSE:CAS) listed on AIM last month with a spring in its step, putting to bed a period of uncertainty that saw the termination of a proposed merger between itself and fellow miner Stratex (LSE:STI). Under new MD Marcus Engelbrecht, who joined from Stratex in November after the merger terminated, Crusader is now using its IPO funds to realise value from its portfolio of wholly-owned gold assets in Brazil. We caught up with Engelbrecht to discuss Crusader’s 2018 work programme and the importance of having strong board experience and assets at each stage of development when trying to secure funding.
Stepping forward
Crusader’s most developed asset is Borborema, an operationally de-risked gold project in North-Eastern Brazil that has a JORC reserve of 1.61Moz gold at 1.18g/t and a 2.43Moz mineral resource estimate. The site has an overall NPV of $117.8m, with an internal rate of return of 31pc, based on all-in sustaining costs of $908/oz and a $1,300oz gold price. Borborema is currently in the pre-development stage but has been operationally de-risked through the completion of a pre-feasibility study and the approval of an environmental impact assessment.
Crusader is currently using part of the cash raised in its IPO to fund the completion of a bankable feasibility study (BFS) for the site by the end of this year. The BFS will include metallurgical testing and plant and mine optimisation and is being carried out for Borborema’s open pit, which is designed to produce 70,000oz gold per annum for up to 10 years.
By Q3 2018, it also expects to have secured an installation licence that will be required to get Borborema to a decision-to-mine stage. Once Crusader has completed the BFS and got all of the relevant permits, it will focus on getting funding for a 2Mtpa capacity processing plant, which is expected to cost around $93.4m to build, taking between 12-18 months. Engelbrecht told us the business has already made progress here:
‘We are working to bring this cost down, but from a funding perspective, we are probably looking at 60-70pc debt and the rest equity. For the equity part, it is likely that we will have to go out to the market and raise some more money at that point.’
‘Initial discussions have commenced with potential partners around debt funding, and two have already started due diligence. There is a lot of interest. Once we are in production, we will be making sufficient cash not only to fund aggressive exploration programmes but also to fund some more capital spending.’
Beyond the open pit, Engelbrecht told us Borborema has plenty of additional upside potential, with about 2.3Mt of oxide at surface and more along strike. Furthermore, he said that the heap leach potential of old dump material could provide a kicker for year one production. Overall, Engelbrecht tells us he sees Borborema as Crusader’s backbone going forward:
‘Borborema is a stable project that can be brought into production relatively quickly and cheaply compared to other sites around Africa and the globe. It is going to be producing $35m free cash flow for forever and a day. There is a minimal inherent risk in getting that project up and running. You can never say that an exploration project is low-risk, but the amount of exploration we have had that has had gold intercepts and how quickly we were able to prove it says something.’
The jewel in the crown?
Crusader also owns an advanced exploration stage asset called Juruena, situated in the highly prospective Alta Floresta belt, with a JORC mineral resource estimate of 261koz gold over three key prospects. Earlier this year, the business kicked off a focused, 30,000m exploration drilling programme at the site using funds from its IPO, with the hope of defining a more substantial resource and, ideally, an economic reserve. Despite Crusader still waiting on approval for Juruena’s environmental licence, Engelbrecht hopes to have completed an exploration programme and proved an economic reserve at the site by the time Borborema reaches production.
The $25m worth of exploration carried out by previous operators has already identified numerous structural trends and seven near-surface, consistently high-grade areas of gold mineralisation. With these sorts of high-quality deposits presenting themselves all across Alta Floresta, many major mining firms have set up camp in the area surrounding Juruena. These include names like Valeand Anglo American, which recently pegged more than 2m hectares creating speculation that it has found a large copper/gold porphyry. This potential led Engelbrecht to tell us that he believes Juruena could eventually turn out to be a ‘jewel in the crown’ for Crusader:
‘What is exciting for me is that every metre we drill has gold in it. We need to do some more drilling. In theory, we could go and right now put a cheap and dirty little underground operation there and probably pull out 20,000-30,000oz a year for a few years. But if we do that, we will contaminate the site, and it will be tough for us to focus on defining a major reserve. Dependant on our next raise, I am keen to get out there and do some drilling. There has been some interest from other companies to come in and look at this as well. We are open to other companies looking at it, and we will discuss those as they come.
Ticking every box
Crusader’s final gold interest is an early stage exploration asset called Novo Astro, located just 25km south-east of Juruena. The firm is yet to do advanced work at the site, but it has identified a 5km-wide, circular soil anomaly containing rock chip samples with significant gold indicators. Subject to the availability of funds, it hopes to carry out a structural review of the project and then a drilling programme.
Crusader’s ownership of Novo Astro ensures the business has a project in each stage of the development cycle. Engelbrecht told us this is invaluable when talking to potential funding partners and debt providers:
‘Having an asset at each stage of the development cycle puts us in a great position. We can show funding partners a path to cash flow as we move up the value curve. Once we have Borborema in production, Juruena will not be far behind. Hopefully, by then, we will have also bought Novo Astro forward too. We have a huge amount of blue sky potential.’
He also believes that the amount of experience on Crusader’s board will hold the company in good stead as it moves forward, given the ever-changing nature of debt providers’ business models. Engelbrecht himself has 33 years of experience in the global mining industry, having held various roles at BHP, including a stint as CFO of the group’s diamond and speciality products division. Crusader also recently appointed Andrew Vickerman as its non-executive chairman. Vickerman was a non-executive at Russian mining firm Petropavlovsk and spent 20 years working at Rio Tinto.
‘A lot of these debt providers have changed their business models over the last few years. For example, their covenants are lighter, they do not all require warrants, and they allow you to look at early redemption if you want to, without penalty. Nowadays, they are looking at the management team first and foremost to make sure they have someone who can deliver. They look for a history of value creation among senior management. Then they look at the project, and finally look at the upside,’ said Engelbrecht. ‘We think we have all of this.’
In the money
According to a recent update for its Australian listing, Crusader spent A$2.296m on operating activities in the first three months of 2018, leaving it with just A$452,000 worth of cash as at 31 March 2018. On first glance, this appears to suggest that the business is burning money unsustainably, but it is worth noting some factors first.
Firstly, this figure does not include the £2.4m raised in Crusader’s placing or the c.$6.43m of commitments it recently revealed it received over the first quarter for a placing. Furthermore, at the end of March, the company executed a convertible loan agreement with the Copulus group for $1.5m in exchange for shares. The move took Copulus’s total stake in Crusader to 14.8pc. Finally, the company is also looking at monetising its non-core interests in lithium assets across Brazil and Portugal.
With this in mind. Engelbrecht said Crusader has its work commitments and operations funded for the time being but is likely to have to go back out to the market before it reaches production:
‘Our current work programme is financed by the cash raise. Then we are going to have to go out and raise some more to take us into production. Once we finalise the BFS at Borborema, we will be looking to go out to the market again and raise some money for the build. Once we are in production, we will be making sufficient cash not only to fund aggressive exploration programmes but also to fund some more capital spending.
Below IPO price
Crusader Resources boasts strong board experience and a portfolio of gold assets in Brazil that span the entire value chain. Key value drivers this year are likely to be developments at Borborema, which could soon be a key revenue generator, and any news at Juruena, which, if Engelbrecht is correct, could be very exciting. Some will want to see more of Crusader before investing, but if you have faith in the firm’s prospects, then buying now at 2.5p a share – significantly below its 3p price at IPO – could be an opportunity.
