Pembridge Resources (LSE:PERE) is a mining investment company, with an experienced private equity and mining management team. Just over three weeks ago Pembridge announced a placement and subscription to raise up to £2.5million at 1.6p per share. This represents a 39.6% discount to the company’s closing price on 16 June 2017, when it went into suspension on AIM. The deal is subject to shareholder approval, but assuming this is given then Pembridge will re-list on the London Stock Exchange’s main board on 21 August 2017. Private investors can invest in this deal through the Teathers App, now available on both Android and iOS devices.
Pembridge’s investment strategy is simple. The company believes it has identified a number of orphaned mining projects of potential, which have been denied access to sufficient working capital during the prolonged bear market. In the words of Pembridge’s directors they believe, “an opportunity exists for the company to take advantage of current asset and project valuations in this stage of the mining cycle.”
This makes intuitive sense, if you believe the recent rally in the resource market is sustainable and marks the beginning of a new uptrend.
Cyclical recovery can be a slow process. The catalyst is often a rebound in commodity prices, followed by an across the board rise of the major mining stocks. Junior mining and exploration plays usually lag this initial move, as it takes time for the industry to regain confidence and repair battered balance sheets. However, those juniors with attractive fundamentals can experience multiple returns in value, once cash starts flowing through the sector.
Larger mining companies have to replenish dwindling reserves. This is self-explanatory. That need is particularly acute today, after the global lack of investment in exploration over the last five or six years. During this period many small-scale mining and exploration companies went to the wall. Those that have been able to survive and continue development at some point will start to draw interest from their larger peers. The trick for investors now is being able to spot such opportunities before they attract the interest of the big players.
Pembridge’s board believes it has the right blend of skills and experience to do just this. It believes it has identified “projects available for investment that may require not only cash but also technical and financial expertise.” This is interesting because it suggests that Pembridge might be able to earn its way into some of the opportunities it invests into.
If Pembridge’s value to investees goes beyond financial investment, this is an obvious endorsement of the company’s management team. It also will mean that Pembridge is able to secure larger stakes in its targets, beyond its available funds to invest. Assuming these targets’ performance meets expectations, this should reflect well in Pembridge’s underlying value.
The structure of Pembridge’s placement and subscription suggests the board has prepared the company for such success. As part of the deal to investors Pembridge is offering 1 for 1 warrants, exercisable at 3.2p up until 08 August 2019. This means that if Pembridge’s share price trades above 3.2p over the next two years, then investors who invest in Pembridge now will be able profit further by exercising their warrants. Pembridge will benefit from this by receiving new funds, as its reward for successfully implementing its strategy and delivering shareholder value.
Stock specific risks
The company will be subject to typical exploration and development risks. There is no guarantee the company will be able to further define economically viable resources.
Commodity prices will fluctuate, which could affect the economic feasibility of the company’s projects.
The company’s strategy depends on their ability to gain or maintain projects and licences. Inability to do so could prevent implementation of the firm’s strategy and/or halt operations.
The company is subject to political risk which could have negative consequences on their ability to operate.
Private investors can participate in the Pembridge deal at 1.6p per share, receiving 1 for 1 warrants (exercisable at 3.2p until 08 August 2019), via the Teathers App. The Teathers App is available in Google Play and the App Store.