Power Metal Resources #POW – Company Q&A

The hole was angled at 60 degrees and was over 500m in length and passed between harder and softer rock as it descended.

The possibility of some deviation as we drilled makes it possible that we have missed by a few metres a steeply dipping target identified by geophysics.

The mudstones encountered could be generating a conductive anomaly but are likely to cover a greater areal extent as they are a known horizon in the Molopo Farms Complex of rocks, so this would be inconsistent with the areally restricted conductive anomaly identified from our geophysical work.

One possibility is that the geophysics took a gently dipping anomaly and a steeply dipping anomaly, the latter being our target, and modelled the two as being one.

It was more logical given the above to stop the hole at the target depth and move on to drill the next hole while analysing the core and doing down-hole geophysics.  If we had carried on drilling, we could have possibly drilled right past our target.

With the downhole geophysics we can look around and below the hole for 300m in each direction and so get a more accurate 3-D geophysical model and interpret the dip and orientation of the strata encountered in the drill core.

Unless results do not justify it, we will return to the hole and if necessary, deviate from it or drill deeper to test the assumed target.  

Each ultramafic complex has its own characteristics depending on the conditions that produced it. We are drilling a satellite ultramafic intrusive which is part of, and of similar age to, the Large Bushveld Igneous Province, as described on this page of the KKME website: https://www.kalaharikey.co.uk/mopo-farms-project/geology-of-the-molopo-farms-complex/ .

We have various work streams underway in respect of the Australia gold joint venture and it is a very proactive period for this important part of the Power Metal business.

Our immediate focus is the advancement of the technical project information and exploration planning in preparation for the launch of efficient and targeted ground exploration which can only commence on the grant of licence applications.

In parallel we continue to work on the potential listing of some or all of the interests on a North American stock exchange as announced to shareholders.

In all discussions our focus is rapid advancement of exploration and significant commitment by any potential partners to ground exploration where we believe considerable value can be added through proactive implementation of exploration programmes.

The potential listing could generate an asset of considerable value given the strategic nature of the ground under application in Victoria.  That valuation would increase, perhaps significantly, with the grant of licences and the ability to launch ground exploration to validate our geological propositions. There is clear evidence of significant gold mineralisation across the licence application footprint.

The question of whether we would specifically seek to distribute any listed activity gains from the Australia JV, or indeed from any other corporate transaction undertaken by Power Metal or its partners, is a little early to definitively answer at this stage.

It is fair to say that we are attracted to the distribution model, which allows shareholders to see a return from their investment in Power Metal in addition to the appreciation in Power Metal share value that commercialisation of our interests could provide.

There are many elements to consider in this including what is best to advance the projects, the approach of any partners to transactional structuring, positioning Power Metal to enable distributions and considering the taxation elements to seek distribution efficiency from a tax planning perspective.

There are many work streams to complete if Power Metal were to consider distributions, but they can be run concurrently, and they could include seeking the approval of shareholders at a General Meeting.

This is a complicated exercise as valuation depends on many factors including inherent geological and commercial potential, market conditions, granted or application status, historic and future spend and perhaps significantly the strategic significance of the JV interests.

We are developing valuation metrics, however for a real sense of valuation in the current market we can only look at recent transactions for similar interests and gain a feel for what might be achievable.

As stated previously a major factor for us is the commitment to significant ground exploration and financial investment to support that exploration work. We believe that proactive exploration stands a very good chance of identifying gold mineralisation and that will be a major uplift to any project valuation.

As you can see we are working with so many variables, but we know that having identified and built such an important and strategic land package in Victoria, we now have a duty to manage this professionally and seek the highest returns reasonably achievable from this unique opportunity.

The main objective is the pursuit of exploration and corporate transactions that will maximise the capital return from the opportunity.  Income wise, we will likely focus on royalty income streams from interests as and when we involve third parties in a project or projects.

It is increasingly clear that the Victoria Goldfields is a particularly attractive destination for gold exploration. 

The strategic nature of our Australia gold JV, with the size of land package assembled and the extent of prospectivity that’s evident from our published technical work, means that there will be interest and we have stated this previously.

This is not something we have looked at so far, but as licenses are granted, we will investigate the evidence at surface where there has been previous mining activity, which may include small gold-bearing dumps or tailings.

As announced by the Company via RNS on 20 November 2020, the plan is to undertake mini-bulk sampling alongside other exploration techniques in December 2020.  That should tell us more about project mineralisation including the prospectivity for gold nuggets near surface.

We are also looking at the potential for other mineralisation and the potential bedrock source of the gold mineralisation that, as we have clearly established to date, exists near-surface.  The latter was also demonstrated during our January 2020 due diligence field trip where we identified gold nuggets during the digging and metal detecting of shallow pits at the project.

This is early stage exploration and the prospect of mining, although ultimately our principal objective, is something we must build towards with exploration.  If successful, that exploration will confirm gold mineralisation of a magnitude to support permit applications and associated studies that would be the precursor steps to the launch of mining operations.

Power Metal has a communications approach that articulates through regulatory news announcements the status and progress on all of our material project interests.  This includes Haneti which is a very material opportunity for the Company.

Power Metal, with our partners Katoro Gold plc have announced pre-mobilisation, mobilisation of drilling and intend to announce an update on full drill commencement as appropriate, including if possible images on our website photo gallery showing the drill in action at the drill location.

On a general level the junior resource sector has been experiencing challenging conditions for some time and in many cases, there has not been the financial capital around to pursue project acquisitions or impactful exploration activities.

Many great discoveries have, in our view, been made in scenarios where projects have not been able to attract sufficient project capital to enable progression of exploration.

Haneti is however a project that has received exploration capital over many years and has built to a position where the next stage is drilling.

Importantly Haneti now has two public companies working together to operate and finance drilling. 

Given the level of interest shown in the project, and in nickel sulphide exploration opportunities generally, it makes commercial sense all round to crack on with drill programmes which is what is happening at Haneti.

As with all our projects we push for the receipt of assay data as soon as possible.  With the Covid-19 restrictions around the world in 2020 the Company has not been in a position to accurately confirm timescales around the receipt of assay data from third parties. As soon as assay results are received and interpreted by the Company, an announcement will be made to shareholders.

We generated highly positive exploration findings from the summer due diligence sampling work including bonanza grade silver and significant copper and lead.  We await the assays from limited follow up drilling and sampling we were able to undertake in the short programme that we recently announced was curtailed by poor weather conditions.

Using the above and the historic exploration data available to us, we will, with our partners, determine the next exploration and corporate steps for the Silver Peak project.

We believe the Silver Peak project has great potential and now must identify the appropriate pathways for its development.

Absolutely. Power Metal is keen to push each project as hard as possible and we put a lot of work into drill programme design and implementation.  The weather hit us twice with storms damaging access and meaning our original programme with a larger rig could not go ahead.  Then the snow brought our man-portable rig operation to an abrupt and early conclusion.

We believe shareholders prefer a proactive approach to exploration and clearly, we pushed hard to get the Silver Peak drilling done whilst ensuring safety of operations at the site in the more challenging conditions.

We have operations around the globe in different jurisdictions and the DRC is one country that we believe investors perhaps do not fully understand or appreciate.  We think that will change.

The Company’s experience to date has been very positive however and suggests to us that there is real value to be created in the DRC, not least because of the immense metal prospectivity across the country.

Power Metal is pursuing a potential new copper-cobalt district at Kisinka which is situated near to Lubumbashi in the south-east of the country.

The quality of technical reports that we receive from operations at Kisinka is extremely good demonstrating the professionalism of our partners. 

Also, based on our experience the ability to secure licences and permits for operations is in many respects more straightforward than many jurisdictions where the process is more complex and takes longer.

Added to all this there are many international companies that are operating producing mines in the DRC including Ivanhoe’s Kamoa-Kakula under development now and which is expected to become one of the largest global producing mines.

The high-grade copper and cobalt from assays recently announced means that Kisinka is a key project interest and we are looking to commence follow on exploration as soon as possible. 

As announced 20 November 2020 the Company is working on setting up a ground magnetic survey and a ground electromagnetic survey, to detect both low magnetic and chargeable lithologies and indicate structures and faulting and areas of carbonate rocks, in order to generate precise drill targets with our in-country partners. 

The Company will make a further announcements to the market as appropriate in respect of the proposed programme at Kisinka.

As announced in the Company’s ‘Project Portfolio Update’ on 5 October 2020 the Company is awaiting the results of a soil sampling programme.  An update on that programme, its findings and the next steps will be released to the market once results have been received and interpreted.

Plans remain on track and we have been putting in place the steps to achieve our listing objective.

We will provide an update on this to the market as appropriate.

We have a portfolio of early stage project interests, albeit some are in a more advanced stage with drill programmes running.  It is more difficult to ascribe valuations to earlier stage projects.

A similar situation exists on discovery, where the full extent of a project’s valuation will only be developed as projects are progressed and more is understood about the scale and type of mineralisation.

To a certain extent the involvement of third parties on project earn-in or joint ventures can assist with an assessment of likely value also.

In addition, project spinouts especially involving compensation in marketable assets such as listed equity will also help the developing value assessment.

As soon as we can start to attribute specific values to project interests and investments we will seek to do so.

The Company actively assesses any new opportunities it is presented with although it has to be said we have already noted a rise in vendor expectations regarding project valuations. 

We are of the belief that we would not have been able to assemble our current portfolio of projects on the same terms today given the stronger natural resources environment.

We were given a tremendous opportunity by the difficult market conditions of 2019/2020 and now shareholders have the advantage of a portfolio constructed in challenging markets, as those same markets move into what we believe will be a stronger phase.

We want to develop the Company around clear themes, demonstrating consistency and clear strategic rationale.  Therefore, we think it’s wise to follow the overall business structure of precious metals in North America and Australia and base metals in Africa. 

Whilst the management of a number of projects is a challenge, the Company ensures that it is adequate staff and management time available for each project as appropriate. The Company is also enhancing management oversight to ensure regular engagement of London plc with the project management and operational teams running each of our interests.

We also have support with back office including financial accounting and compliance through an external provider.  In addition, we have assistance to manage and coordinate our extensive external communications.

We will bring in further bespoke managerial resources as our business expands and our working capital grows. 

It depends on the nature and type of transaction undertaken.  Where needed we will of course apply our management time and other resources to assist. 

However, our focus is on ensuring any spin outs or similar are into wrappers or deal structures that come with experienced management able to deal holistically with the commercial challenges without relying too heavily on Power Metal central resources.

This is absolutely vital especially as our business expands its active operations in the field. We already have a keen focus on health and safety, environmental and community protection and that will continue.

We seek to follow best practice across the above areas and generally from a corporate governance perspective reflective of the resources available to a smaller company. 

To add further weight to this we are currently reviewing a number of trade associations from whom we can secure further support on best practice. 

We expect to join trade associations in the near term to further demonstrate our desire to remain proactive in this area.

By way of example our Australian JV has just employed a community relations and environment officer as its second employee showing the high priority we give to these matters.

The answer revolves around more than just the absolute amount of working capital we hold and also includes how we spend our money, the level of fixed financial commitments and our access to additional working capital sources.  The latter point we deal with in the next question so for now we will focus on the matters of spending and financial commitments.

We are quite keen on the control of spending and have our main areas of spend under control.  Much of a junior resource company spend falls into central overhead and exploration spend. When corporately acquisitive, then acquisition costs can also be material.

For central overheads the direct costs in relation to the exchange listing and advisors surrounding that are largely fixed and need to be budgeted for. We pay our central costs promptly and carry almost no trade creditors for any material periods.  We have no material debt.

Much central cost in junior resource companies relates to director salaries and expenses.  At Power Metal, we believe against our peers in the sector we are modestly paid and have very little outlay for director personal expenses.

The aim for us (as holders beneficially interested in approximately 14% of the Company’s issued share capital) is to see money invested in the ground to make exploration and commercial progress including major metal discoveries. 

If we do that our shareholdings may rise considerably in value and the financial returns from that would be way more beneficial to directors than excessive board salaries in the early stages of the Company’s development.

Turning to exploration spending, for the vast majority of our project spend, our exploration outgoings are flexible and generally entirely at our volition.  This means we can spend if we wish to, but curtail exploration spend across our business if we wish to, for whatever reason.  That spend control is important.

Equally for new acquisitions we have always been controlled and not overly exposed ourselves with heavy acquisition terms.  We have used cash as part of acquisition terms but only modestly as cash is king in our sector. 

Generally, where possible we have also used our shares for new acquisition vendor payments.  So far that model has worked well to preserve cash and acquire opportunities on reasonable terms (with shared upside for vendors who hold interests in Power Metal stock and benefit as the shares increase in value).

It’s difficult to be precise on future working capital sources but we do have some degree of expectation subject of course to market conditions and buoyancy in the junior resource sector.

Power Metal could undertake financings and the Board are confident that money could be raised as required.  This has been amply demonstrated by the £2.7m raised in financings since February 2019 and, save for the initial restructuring in February 2019, Power Metal financings in December 2019 and July 2020 were conducted at the then market price. 

Discounted financings are not what Power Metal seeks to undertake as that we consider that potentially damaging for shareholder value and confidence in general.

Ideally, we are seeking to build our working capital to become financially self-sustaining.  This would mean that we would not need to undertake financings unless we chose to do so on strong terms or to value-adding institutional investors.

Warrant exercises have provided a considerable amount of additional working capital.  The amount raised through warrant exercises since August 2020 has enabled the company to be aggressive with its exploration and corporate plans.  In essence each warrant exercise provides us with funds to accelerate our operational activities.

Alongside the above we have a strategic investment portfolio that is growing in value and should that continue, it would provide a source of further working capital should this be needed for operations.

The area where we feel considerable working capital could be generated is from spinouts or other similar commercial transactions where we exchange some of our direct ownership of an interest for mainly cash or shares in other entities. 

If those entities are liquid listed vehicles, then the effect is to have an asset easily translatable into cash when and if needed to fund our own operations.

Power Metal receives an exercise form from a warrant holder and checks the validity of this to an underlying warrant register. If acceptable this exercise is reconciled to a receipt of cash into the Company’s bank account.

For all valid exercises we secure board approval to issue equity, prepare a market announcement and an AIM admission form for the new equity to be admitted to trading on AIM.

The end result is a market announcement confirming the warrant exercises and cash received.

The new shares are generated by the registrar and admitted to trading on AIM thereafter. 

The warrant exercises increase the issued share capital with such information provided in the requisite market announcement at the time and the increased amount of shares is updated to the Company’s website AIM Rule 26 page on the Investors’ section of the site accordingly.

Details of all warrants issued by the Company can be found in regulatory announcements released by the Company and within the Company’s Financial Report and Accounts.

Additionally, the Company will be adding to its new website in due course a full schedule of all financial instruments including all warrants and options held generally by investors and also those held by the board of directors. 

This schedule will include all final exercise dates and any special terms including accelerators whereby the company can elect to expedite the use of warrants by holders and if not used, cancel the remainder warrants although, as noted above, all such information can be found within the relevant announcements made by the Company.

Power Metal is generally seeking capital returns where an increase in the value of projects is secured through exploration or corporate structuring.

In some cases that value may be crystallised through a disposal of some or all of a project interest for cash or shares in an acquiring company.

In respect of any disposals we are also keen on longer term consideration that could be described as “revenue” including royalties from interests disposed where Power Metal would receive payments should an interest enter production. 

Royalties can be a highly valuable source of income or revenue over the longer term so potentially could become a valuable part of our business asset base.

In addition, royalty income streams can be sold for material cash sums, providing optionality to Power Metal on how value should be crystallised.

There are of course institutions of all shapes and sizes, with varying business rationales and many are not suitable partners for our company.

We are open to reputable and recognised institutional investment but are also comfortable without it. 

Well regarded institutional finance can increase investor confidence in Power Metal, however we are well funded presently and are entirely comfortable with our access to future working capital as outlined in some detail above.

The Company intends to undertake this exercise once the website update has been completed.  

Yes, we expect our brokers will provide updated research to the market as they deem appropriate.