Phoenix Global Mining (LSE:PGM) has a portfolio of assets, which include a multi-metal mine with in-ground resources worth nearly £800m and a new project in the booming cobalt market. Last week, the metal firm reported that all the samples taken at its new Bighorn and Redcastle projects in Idaho contained cobalt, an electric car battery metal that saw its value increase by more than 100pc in 2017. This puts the projects in line with Phoenix’s major Empire Mine in Idaho, which contains huge pit reserves of copper and precious metals with the potential for vast amounts of further resources. This week saw Phoenix’s share price fall from 4.8p to 4.4p after the market expressed disappointment at a set of results from two scout drill holes which went below the oxide zone at Empire. But this could provide an opportunity.
With Phoenix’s experienced management pursuing a rapid development schedule this year across both its copper and
cobalt sites, and with early cash generation on the horizon, its shares may now be primed to rally.
Empire strikes back
Phoenix plans to fast track Empire back into production. It has an 80pc interest in the site and wants to mine 7,000 tonnes of copper cathode a year by 2020.
The first step towards this has been developing Empire’s shallow oxide pit into a low cost production operation with a 10-year initial mine life. It is hoped that the pit’s production revenues will fund additional development and exploration to extend the mine life further.
In November, Phoenix reported that the total copper resource of Empire’s oxide pit had risen to 19.4m tonnes, 50pc higher than historic calculations. A $1m infill drilling also revealed that total contained copper rose by a third to 90,547 tonnes. At current copper prices of around $7000 a tonne, this would be worth around $634m (£447.4m).
Furthermore, the programme found 51,925t of zinc, 165,686 ounces of gold, and 6.4m ounces of silver in the pit. This is the first time the three metals have been added to Empire’s inventory, and they can be drilled at no additional cost. At current prices of $3500 per tonne for zinc, $1360 per ounce for gold and $17.38 an ounce for silver, this bonus resource would be worth roughly $518 (£366m) on the market.
Early cash flow
According to Phoenix’s Consulting Geologist, just 5pc of Empire’s potential ore system has been explored. If accurate, this could be an opportunity to increase significantly the pit’s resources through phased exploration.
Chief executive Dennis Thomas told us that Phoenix will be able to generate early production cashflow from this 5pc for a ‘very modest capital investment’. He hopes that this will enable it to begin paying dividends to shareholders earlier than otherwise possible.
But the early cash will also help fund the second phase of Empire’s development. This will see Phoenix drill beyond the pit to focus on deeper, higher-grade sulphide exploration and development.
Phoenix is currently carrying out an initial exploration programme. Work has already begun and in October the first of two diamond drill holes targeting the sulphides began. A second started in November.
There been very limited exploration of these sulphides, but they have historically yielded ore grades of up to 11.4pc copper. Gold, silver, zinc and tungsten have also been found at this depth. The directors believe that using previously unavailable modern drilling techniques to explore here will present significant upside and provide multiple revenue streams.
‘Mining more high-grade copper alongside other types of metal from Empire sulphides is really exciting for us. The last shipment that went from Empire in 1942 was a tungsten shipment and that is what we will be testing for over the coming months. Tungsten is three times the price of copper. At the end of the previous life of the mine some of the sampling results were very high grade,’ said Thomas.
Earlier this week, Phoenix revealed that two scout drill holes had confirmed the skarn structure and presence of the larger sulphide zone at Empire. The holes intersected intervals of significant copper, gold, silver, zinc, lead, and tungsten at depth.
Despite Phoenix finding what it was looking for in the sulphide zone, the market seemed perturbed by the release, and the firm’s shares fell from 4.8p to 4.4p.cAccording to Thomas, the disappointment could be put down to a number of factors, including a lack of understanding of where the project will go from here. For his part, the results are ‘as good a start as we could have got’.
‘These two holes have gone gone down, all four different types of scarn were hit and they were mineralised most of the way down. So as far as we are concerned that’s an absolute win situation. We have seen exactly what we want to see, we have zinc, copper, gold, silver, lead, and tungsten at depth, which is very exciting. These are just two holes in what could be a very large ore body. We now know that mineralisation is down there,’ he said.
Phoenix is also benefitting from a particularly robust copper environment. After crashing to just over $4,000 a tonne in early 2016, copper prices rose to their highest level in four years in Q4 2017. Prices currently sit around $7000 a tonne and Goldman Sachs expects this to rise above $8,000 by 2022.
Aside from strong global growth and integration of renewable energy, copper prices have been lifted by demand in China. The world’s largest copper consumer has seen a crackdown on the import of scrap copper and uptake in the use of copper wire.
The booming electric car market is also boosting demand. Electric cars use around four times as much copper as conventional cars and the metal is also needed for electric car charging networks.
There has also been a drop in supply across the copper market. Political turmoil has hit many of the world’s largest copper producers. For example, labour negotiations are disrupting supply in Chile and Peru.
Thomas believes supply has also been hit by lack of major new copper mines coming into production following 2016’s ‘wall of supply’. This could give Phoenix a chance to prosper. He said:
‘It takes an average of 30 years to bring a porphyry major copper mine into production. Because the copper industry was in the doldrums for so long, there is simply not the acceleration in supply that we are seeing in demand. As Empire is a historic mine it can capitalise on this.
‘Furthermore, the US is a strong and supportive place to operate. Trump’s corporation tax cuts are encouraging a more inward looking focus in the US and Idaho has a strong mining history, giving us access to local mining culture, laws and infrastructure. There are a lot of knee jerk reactions but copper prices cannot do anything in the long term but go up in price.’
In October, Phoenix added two copper-cobalt properties to its portfolio. The projects are based in Idaho, north of the Empire Mine, at a previously producing area near to the town of Cobalt, in close proximity to projects being advanced by Canadian junior miners.
Bighorn Property consists of 29 claims acres while Redcastle Property consists of 30 claims. Phoenix staked and filed the properties for an annual fee of $155 per claim. It has dedicated a budget to the sites from its existing cash resources.
Earlier this month, Phoenix reported that 46 samples taken across the two sites all showed cobalt mineralisation above detection limits. As a result, Phoenix plans to begin a focused drilling programme later this year.
So why has Phoenix done this?
Quite simply, the sites give it access to the booming cobalt market at a very low cost. As the claims are in perpetuity, the business can begin work whenever it wants to, as long as it pays the bills.
Cobalt prices increased from $25,000 a tonne to $62,500 over the 12 months to October 2017. They have only continued to rise further, now sitting at around $80,000 a tonne. Demand is expected to grow four times over by 2020.
Like copper, a lot of the growing demand for cobalt is coming from the electric car market. The metal is a key component of the batteries used in these vehicles. Volkswagen recently attempted to secure at least five years of cobalt supply, for example.
Only a handful of key mining firms supply cobalt and most of the world’s supply currently comes from the Democratic Republic of Congo, one of the world’s poorest countries. It is here that Thomas told us Phoenix’s cobalt assets will stride ahead.
‘We are in a highly developed environment and we are not going to have anyone shutting us down or try to take out assets from us. Nor are we likely to be majorly hit by political instability or hostile working conditions,’ he said.
Projects aside, Phoenix has enough cash to complete its current workload and boasts a rapid development schedule. This could provide plenty of newsflow to trigger a positive share price movement. The firm has plenty of upside potential in the rapidly growing copper and cobalt markets and could soon find plenty of value in the precious metals space.
What’s more, it benefits from operating in a low-risk, mining-friendly jurisdiction in a developed country and having a board of directors and senior management team with experience building mines around the world. Thomas, for example, has 47 years of operational experience and was previously chief executive of Delta Pacific Mining.
Management also has a lot of skin in the game, and owns nearly 14.7pc of Phoenix’s shares. This ensures their interests are aligned with shareholders.
Phoenix is not currently producing, and lost £564,559 over the six months to June 2017. But this is what could make it a good punt. It is currently modestly valued compared to its peers on AIM with a market cap of just £11.4m.
With cash flow due to come from early production at the Empire mine, Phoenix’s current 4.4p share price could be a good entry point before the ball really starts to get rolling and the firm shows its full potential.