By Dr. Michael Green
All the pieces look to begin to be fitting together quite neatly at Ironveld. Investors awoke to the news this morning that the actual funding to start mining and production at the company’s magnetite project in South Africa might soon be in the bag. There is no doubt that this has all the makings of being, as the company itself relays, a “transformational” move.
It is only a couple of months ago that Ironveld was able to announce a new strategic partnership with Inclusive Investment Group (IIG) which will see something like £2.7 million being potentially invested in the company, with IIG taking a 36% stake. Back then we pointed out that this move would see IIG becoming Ironveld’s largest shareholder and use its extensive proven African connections to secure the larger scale funding to develop the company’s flagship project.
IIG is not hanging around and has already made an application to a major South African funding institution for ZAR240 million (US$14.4 million) of project development funding for the company’s near-term high purity iron, vanadium and titanium project in South Africa. So, moving ahead there is the realistic possibility of a larger project financing for Ironveld which would allow the company to progress the necessary workstreams and move into mining and production at this project.
The total funding agreed to be provided by IGG of US$3.2 million (£2.6 million) is made up of £1.85 million in equity at 0.42p per share and the remainder by way of a loan. At the same time, the company entered into an agreement concerning the granting of an option to subscribe for these shares. Following completion of the subscription IIG will become Ironveld’s largest shareholder at just under 50%.
Obviously with COVID-19 stalking the planet, timings are in the lap of the gods. The option was due to expire on 17th June 2020. The impact of the restrictions means that matters are going to take a little while longer, which does not look like a big deal given how productively the company has been working with IIG. Ironveld has agreed to IIG’s request that the timetable for the potential option will be exercised in line with the proposed project financing, which means that the exercise period for the option has been extended until 30th September 2020. In the meantime, IIG has agreed to provide a Bridge Loan Facility of up to ZAR3.70 million (US$200,000) unconditionally, to fund Ironveld through to the anticipated financing and exercise of the option.
Up until the announcement of this strategic partnership with IIG in late-March 2020, the stock market had fallen out of love with Ironveld. Over recent times there seemed to have been little progress being made and with rapidly dwindling funds the share price was very much under the weather.
IIG is an investment vehicle, founded by Mcebisi Jonas and Monwabisi Twantwa in South Africa, which is well-positioned at the forefront of securing development for South Africa’s coming wave of battery and strategic metals projects. Mcebisi Jonas is the current Chairperson of the pure-play emerging markets mobile telecommunications group MTN and importantly was a former Deputy Finance Minister of the Government of South Africa from 2014-16.
The truth is that Ironveld has a hugely exciting asset. The company is involved in an undeveloped and unique project located on the Northern Limb of South Africa’s Bushveld Complex. The project has a JORC-compliant resource of 56.3Mt grading at 68.6% Fe2O3, 14.7% TiO2 and 1.12% V2O5. Apparently, it is the first project in that country which is capable of producing three economic revenue streams which are high purity iron, vanadium and titanium; and already offtake partners have been secured.
This project comes with near, medium and long term opportunities where cash flow and earnings could rapidly build to a crescendo. In the near term there is the opportunity of acquiring an existing 7.5MW smelter which could be in production and generating an early cash flow within 12 months, which includes a 6-month programme of refurbishment of this mothballed plant. A quick start looks possible as Ironveld already has an MOU in place to acquire this smelter supported by IIG’s US$16.7 million funding application. Phase 1 production at current prices equates to an annual revenue of something like US$28 million. It might be quite small scale but could be highly profitable with open pit mining using a simple truck and shovel operation.
In the medium term there is the opportunity to construct a new 15MW smelter which would allow mining and production to double, that is Phase 2. Importantly, the 7.5MW smelter plan allows for proof of concept ahead of building its own 15MW smelter. There is no doubt that robust cash flows support efficient financing of project development. This is just the start as the long-term objective (Phase 3) is to add four 75MW smelters to process the large resource at the project.
CEO Martin Eales sums up the larger financing deal succinctly – “In recent weeks we have been working very productively with IIG and the potential for a larger project financing for Ironveld is becoming much more realistic. If successful, the financing will allow the Company to progress various workstreams and transition to mining and production at our magnetite project, marking a transformative milestone for Ironveld.”
The stage looks clearly set for Mcebisi Jonas and Monwabisi Twantwa to begin to bring their powerful African connections into play. One has got to wonder what plans the pair of highly successful entrepreneurs ultimately have for this quoted entity with a clear South African focus. Align Research will shortly initiate full research coverage on Ironveld where we will be outlining the sort of value that this transformational funding could unlock. At the current market cap we believe the shares a Buy.
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