Looks like the stock market is giving away free money today. Stock watchers got a sharp reminder this morning about the sort of big premium that potential investors are now prepared to pay to get involved in the Kazera growth story.
The management is focusing on securing a long-term financing solution for the company. Truth is, there are not one but two financing opportunities that are being progressed. One of which has already been disclosed which involves an investor providing €9,130,000 to fund the development of the Tantalite Valley mine (TVM) and the building of the Orange River pipeline.
Opportunity number two comes from a second Namibian investor who, following completion of due diligence by both parties, has signed agreed initial terms to subscribe $11 million for 290,576,383 shares in the company. Basically, either transaction would look to happen at a price of around 2.7p per share and give the investor a 29.34% stake in the company (at the current time). At the share price of 1.475p, that equates to an 86% premium.
If that wasn’t enough, the latest announcement brought news of the appointment of a joint CEO as well as an updated on the TVM and diamond production. Dennis Edmonds, the Director who looks after the Alexander Bay activities which involves both the diamond and the Heavy Mineral Sands (HMS), has been appointed as Joint Chief Executive effective immediately. This is due to the growing importance of the South African activities and the considerable constraints on travel caused by Covid. This is a smart move as Dennis is a savvy stock market operator and his appointment at the helm should be to the benefit of all shareholders. As largest shareholders we would expect much more communication of the Company’s strategy going forward.
At the tantalite mine, there was cracking news that new end-users are signalling interest in pursuing off-take agreements. Certainly, tantalum assay results have attracted the interest of two large end users and negotiations are now progressing for long term supply. At the mine, DJ Drilling has completed repairing the road networks which means that they should now be back to full operational capability. In addition, the capacity of the government approved tailings dam is being increased to allow for higher production.
In South Africa, diamond production remains ongoing, with several batches being sent to auction since Kazera acquired Deep Blue Minerals and meaningful cash flow is now being generated. There is no doubt that with production increasing and the focusing on larger carats should shortly not only allow this diamond operation to be cash flow positive, but also the whole company.
Apparently, negotiations with the government concerning Kazera’s HMS interests are progressing well. Things have advanced so much that now the government has asked the company to take the next step of posting Notices to advise the local community of its Mining Permit application. Already, these Notices have now been distributed with initial feedback from the local community being very positive. The company also expects that the application for a Prospecting Licence will soon follow the same path.
This latest announcement drew comments from the Joint Chief Executives. On the tantalite, Larry Johnson pointed out that “Our focus remains on finding a financial solution for the creation of the Orange River pipeline, which, once completed, will support the restarting of production from our Tantalite Mine. Whilst we await completion of one of these financing solutions, DJ Drilling and Kazera have turned our attention to making sure that the Mine is ready to restart operations and that our road networks and equipment currently on site are ready.”
Whilst on matters concerning the diamond ops, Dennis Edmonds chipped in that ““Recent progress in South Africa will shortly see our Diamond Mine becoming cash flow positive. The progress made for our Mining Permit is also very exciting. Both of these opportunities add significantly to the value of our Company and from which we can look to deliver growth to shareholders.”
We have never had any doubts about the quality of the asset which is a demonstrably high-grade tantalum project in Namibia. So far, commercial production has been elusive at the mine due to a lack of water. A 13km pipeline from the Orange River neatly solves this problem, coupled with some plant upgrades which are all now going to get funded.
The impressive progress on the ground in South Africa seems to be matched with developments in Namibia. Matters seem to be hotting up at this world-class tantalum play with compelling news concerning the financing for the Orange River Pipeline and now that offtake agreement(s) could soon be in place.
We initiated coverage on Kazera with a Conviction Buy stance in early August 2020 at 0.70p with a target price of 2.50p. Given the magnitude of the potential investment going into Kazera and the fund’s use with Ta and Lithium supply/demand profiles offering a fantastic risk/reward structure going forward, we struggle to find a more compelling AIM small cap mining opportunity at present. Coupled with the rapidly growing potential of both the diamonds and the HMS we will shortly be doing a full update note revisiting our target price for the stock, which, we point out, had been highly risked. As largest shareholders holding just under 30%, today’s news fills us with renewed confidence and we anticipate a sharp re-rating in the short term.
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