By Dr. Michael Green
The latest announcement from Kazera should put pay to any remaining doubting Thomases. Laid out this morning for all the world to see was further evidence that the company’s economic future has rapidly become secure.
Investors awoke to cracking new on both the diamonds and the tantalum. Diamond production for the current production cycle (ending in January 2022) was in excess of 1,000 carats, which is a record representing way more than the previous high of 242 carats. If that was not enough, this latest batch contains a number of larger diamonds, the biggest being approx 13 carats as opposed to the largest stone previously being 3 carats.
Historically, diamond production had been restricted as the company’s 90%-owned subsidiary Deep Blue Minerals was not running the gravel separation process. In recent months, the company, along with MV5, have taken over control of the Muisvlak plant and have resolved this issue, and succinctly demonstrated by the record breaking diamond production from existing stockpiles.
Kazera’s management is now confident of being able to produce a regular and profitable number of diamonds in each cycle. It does look like the operational team on the ground has learnt a lot and now has growing experience of the most productive gravel areas. Focusing on such areas should allow the best returns to be achieved.
There was also no messing around either at the company’s Tantalite Valley mine in Namibia which is now operational and is on course to export its maiden concentrate imminently – in line with projections from the end of 2021 – a rare achievement amongst most AIM mining minnows.
This highly satisfactory result follows the entire refurbishment and a redesign of the plant by the company’s 100%-owned subsidiary, African Tantalum, with much help from DJ Drilling. The board are justifiably pleased to be able to report that there have been no operational delays this year. This is no mean feat as the plant was covered in a deep layer of silt resulting from heavy seasonal rains.
That said, the lack of water had always been a worry and so those heavy seasonal rains might have in the end been a bit of a blessing. News is that the company’s water recycling techniques, which were designed to achieve a minimum of 65% water reusage, have surpassed all expectations with 95% of water being recovered. The nuance in the RNS today is that the BoD is making clear the requirement for the $11m to fund the pipeline from the Orange River to the plant and that had mothballed production for so long under previous CEO Larry Johnson’s stewardship is no longer required. That is a major game changer for the company’s financing profile.
At the time, Kazera’s CEO Dennis Edmonds was quick to point out that “With both diamonds and Tantalum now contributing directly to the Company’s bottom line and HMS to come we can look forward to 2022 with confidence that the Company’s economic future is secure. Add to that Lithium and additional Tantalum and HMS possibilities and 2022 looks like being a very positive year. In addition, the Board is constantly evaluating new opportunities.” The latter sentence being an intriguing potential car marker for shareholders.
It does look as though everything is neatly falling into place. Moving ahead, the directors seem confident that diamonds will be a consistent source of revenue and profit generation through 2022.
Although tantalum production has already swiftly been ramped up to a level which is profitable, the team is not sitting on its laurels as a number of potential improvements at the processing plant have already been identified. These will be implemented over a period of time to ensure that down time of the plant is minimised. In fact, the board is more than happy to state that they are confident of maintaining a steady increase in production volumes of tantalum as 2022 progresses and see it being a major contributor to Kazera’s bottom line during 2022.
We have been getting quite excited about the Heavy Mineral Sands (HMS) potential. Here, the latest news is that the only objection holding up the granting of the Mining Permit for the HMS is thought to have little merit (by the company’s consultants) and the permit is expected to be received shortly.
In our mind there is little doubt that the granting of the Mining Permit could result in a further step change transformation of Kazera. Indeed, the HMS licence is a company maker in its own right. With its hands on the Mining Permit, Kazera can begin production from its 72,000tpa high-grade HMS project. Initially, unprocessed material will be sold and Kazera has well-developed plans to be generating additional profits of some US$300,0000 per month – expected within 6 months of receiving the Mining Permit. It gets better than that as waiting in the wings are international players seeking to get the chance to build a separation plant, allowing KZG’s production to be sold at a price uplift of around 600% more.
At the moment Kazera’s subsidiary WHM is waiting for the final grant of a Mining Permit over 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%. Apparently, 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. We reiterate once again that the NPV has been determined at around £150 million based on a 20% discount rate and prevailing FX rates – a glaring illustration of the valuation disjoint ref the current lowly market cap.
That big NPV(20) valuation is just for Walviskop however and there is one hell of a lot more here than simply Walviskop. Truth is that WHM is also in the process of applying for a Prospecting Right over an adjacent beach which apparently bears all the hallmarks of having similar characteristics to Walviskop – but is reckoned to be 34 times larger. To illustrate broadly, 34 x £150 million = £5.1 billion.
It does get better and better though as the by-product of the HMS operation – the sand gravels is expected to generate around 300 carats per month of additional diamond production. Importantly, beach diamonds tend to be bigger and better quality than those found inland and so we are talking about higher prices being paid at auctions. While inland diamonds typically attract prices around US$250 per carat, Kazera are fairly confident that they can sell these diamonds for more than US$750 per carat.
There is no doubt that rapid progress is being made right across each and every one of Kazera’s operations. We initiated coverage on Kazera with a Conviction Buy stance in August 2020 at 0.70p with a target price of 2.50p. At the current price of 1.25p, we are more than happy to confirm our Conviction Buy stance and will be releasing a new update note in the short term.
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