By Dr. Michael Green
As 2021 draws to an end, Kazera Global has taken the opportunity to look back at its successes and mark investors’ cards about what is in store for 2022 . We believe a highly compelling vehicle is being crafted, in no small way down to Kazera’s CEO Dennis Edmonds who has swiftly started to power the company towards success in the short period he has been at the helm. As largest shareholder, we believe the company’s prospects are night and day compared to the previous direction under Larry Johnson’s stewardship with a renewed focus on developing the word class tantalum resource and moving into actual production.
This morning, investors received a welcome early Xmas present, learning that diamond production for the current production cycle (ending in January 2022) is already more than 750 carats, with 1,000 carats being targeted for the entire cycle. It does look as though the level of production has been stepped up a gear or two, with the previous highest diamond production being 242 carats over a production cycle – that’s a 300% increase. On top of that, the market learnt that the Tantalite Valley Mine (TVM) is now in the final phase of testing, with tantalum production on schedule to begin imminently.
We welcome this solid news on Tantalite Valley Mine which has been on care and maintenance for far too long. To get the processing plant working once again has required extensive work and the operation will be based on using the water supplies that are currently available. The return to mining and tantalum production looks as though it will be quite swift, with the first shipment to the company’s off-take partner expected by the end of this month and then a steady increase in production during 2022.
Moving ahead, Kazera also set out the forward strategy. Now having cleared the start-up hurdles of two of the mining operations, the company looks forward to significantly positive cash flows from the combined operations during 2022. Cash being generated is being earmarked for Namibia, to identify further reserves and process the lithium and other minerals. This cash will also finance the upgrading of the processing plant and sinking more boreholes to provide additional water to step up production – a virtuous circle.
It also seems like full speed ahead for the Heavy Minerals Sands (HMS) project as the Mining Permit is finally expected to be granted literally within weeks. Apparently, even if it doesn’t arrive by Dec end 2021 then the board expects to receive it early in the New Year. This is a game changer and a spotlight on the bonkers undervaluation at present. Kazera has well-developed plans to be generating additional profits of some US$300,0000 per month within 6 months of receiving the Mining Permit. Ex diamond revenues and the massive potential at TVM, this base profit level should justify an 8 times earnings multiple and a base and a commensurate market cap of around £20m – some 3 times the current level. This is an indication of where we see true value commencing.
More importantly, the board believes that such numbers could be improved massively by further by getting a third party to build and operate a HMS separation plant. To that end, Kazera is in discussions with a number of interested parties and is also pursuing an application for a Prospecting Right over an area which is something like 34 times larger than the current site.
At the time, Dennis Edmonds, CEO provide a valuable insight commenting that “2021 has been a very good year for the Company, despite the difficulties we have had to overcome. With minimal cash we have succeeded in getting both our diamond and tantalum operations into commercial production and next year we look forward with increased confidence on building upon that foundation. Apart from the material growth of revenues, we see major upsides from proving up further resources at Tantalite Valley and developing our lithium resources – an area currently and forecast to be in extremely high demand as the global economy continues its transition to Net Zero and increased electrification. We are also enormously excited by the opportunity to finally commence mining Heavy Mineral Sands. My thanks go to all the people who have gone the extra mile to get the Company to the stage at which we now are. I believe that 2022 will be a transformational year in the fortunes of Kazera.”
To hark at the sort of value that may be created at Kazera, we once again highlight this. At the moment the Mining Permit which Kazera is waiting to be granted covers a 5-hectare beach sand deposit at Walviskop which has a JORC Indicated Mineral Resource of 3.11Mt of Valuable Heavy Minerals at a grade of 61.2%. The predominant Valuable Heavy Minerals are garnet (30.29% of Run of Mine (ROM)) and ilmenite (27.54% of ROM). Also present are zircon and rutile, which haven’t been included in the economic modelling. The NPV has been determined at around £150 million based on a using a very tough 20% discount rate and prevailing FX rates. So that figure has been well and truly risked.
The NPV(20) valuation is however just for Walviskop and there is one hell of a lot more here than simply that asset. As mentioned above, Kazera is in the midst of applying for a Prospecting Right over an adjacent beach which bears all the hallmarks of having similar characteristics to Walviskop but 34 times larger. It’s not hard to see why partners in this aspect of the company’s operations are chomping at the bit to get involved.
There is no doubt that rapid progress is being made right across each and every one of Kazera’s operations. We also make exceptionally clear from conversations with management that the plans and progress they have set out today do not require any external funding. The namibian investors that came forth earlier in the year but have yet to produce the money are now superfluous to the company’s own requirements and this means less dilution for shareholders going forward.
We initiated coverage on the company with a Conviction Buy stance in August 2020 at 0.70p with a target price of 2.50p. At present we are just about to conclude a detailed note that fully risks all the company’s operations reflecting their respective states of development. At the current price of 1.05p, we are more than happy to be the largest shareholders here and have no hesitation in reconfirming our Conviction Buy stance.
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