There is absolutely no question that the junior mining space has suffered through some of the toughest years in recent memory. While most players in the space are struggling to survive, those that can position for the eventual price recovery stand to benefit tremendously. In some cases, this presents opportunities that come around maybe once in a generation-if you're lucky.
For most investors, finding companies that have rock-bottom capital expenditures with viable projects and the wherewithal to withstand current market conditions is easier said than done. But while these companies may be hard to find, that isn't to say that they don't exist.
Take for example Arian Resources (ARC:CA) , which currently owns 100% of a world-class high-grade copper project in Albania, an increasingly open and business-friendly country. The company's Perlat project, located in Northern Albania, holds 5 million tons of copper at 2.12%. To put that in context, it's widely cited fact that the average grade of copper ores in the 21st century is below 0.6% copper. The mine also holds gold, silver, and zinc credits. This is a former producing mine, which produced 582,000 tonnes of copper at 1.8%, and has over 179,000 meters of drilling done on the property.
But what really sets Arian apart when it comes to Perlat is the company's formal partnership with Sinomine Resource Exploration Co., Ltd., the largest exploration mining companies in China. As part of the agreement, Sinomine originally agreed to produce a pre-feasibility report. However, on their own accord, Sinomine upgraded to a full feasibility study. Arian's partnership will allow Sinomine to own a majority of the project by funding it all the way to production. The deal would eliminate any capex requirements for Arian while still positioning the company to reap the rewards of the project. Sinomine is also a major shareholder in Arian, having invested about $ 1 million.
"Fundamentally, we've seen that in the last three years mining has become a very difficult space to be in because the windows to financing have been shut," said Zahir (Zip) Dhanani, CEO and Chairman of Arian. "Having a relationship that we have with Sinomine gives us a significant advantage over other juniors as we are not in the same boat as them. We don't have to raise a significant amount of capital or dilute our shares because Sinomine will be buying directly into the project. So our ability to navigate through these difficult times is quite unique for a junior."
Sinomine went public in December 2014 on the Shenzhen Stock Exchange, raising US$37 million and is expected to make a production decision within the next 30 to 60 days. So with a well-capitalized partner with access to capital from China potentially financing the entire operation, Arian can now focus on achieving the next steps toward production. It's important to note that Perlat is fully permitted to mine, so there's no red tape around the project either. Once the production decision is made, it would take about 18 months to go into commercial production.
If successful, this could be the first of several more of these favorable arrangements for Arian.
"Under an Option and Investment Agreement Arian has signed with Sinomine, this will be the first of other projects that we would develop with them," Dhanani said. "We are basically geared to act as the palm of the partnership that would identify projects and, where they meet certain production criteria, bring them to Sinomine,who would do a feasibility study and put it into production. We have a potential pipeline of projects, several of which we have identified and are working with the Chinese on to basically emulate the model of Perlat."
Obviously, finding viable projects requires an experienced team with the right background and access to strategic relationships. To that end, Arian has assembled a fine team to do so. To start off, Dhanani has nearly two decades of venture capital and business development experience and has held various senior level executive positions. The rest of the management team and advisory board all bring significant value to company, as detailed on the company's website here.
Interestingly, Hollywood celebrity Jim Belushi also serves as a consultant to Arian. Belushi, who was born to Albanian immigrants and has been granted an honorary citizenship, is an ardent supporter of investing in opportunities in Albania, as evidenced by the video here.
Albania has signed a Foreign Investor Protection Agreement with Canada in 2013, as Canadian companies are the largest investors in Albania in the mining, oil & gas, power and transportation sectors. "Right now, the production decision is the key milestone for us, and then financing of the project by Sinomine," Dhanani said. "There are two key pieces of news that the company will be going out to the market. Once we've got a positive feasibility study, we'll be working on structuring a deal with Sinomine. When the financing is in place to take it into production, I believe construction should start shortly after the development process of the property."
He added that with such a relatively low cash run rate, no expenditure is required on Arian's part for the heavy lifting. Again, the company's in a very advantageous position that allows them to focus primarily on identifying projects with a short timeline to production.
"If we can start with Perlat and put out other projects like it, we can become a significant cash generator with minimal layouts," Dhanani said. "Our cash layout is unlike most mining companies in the junior space because it will be minimal. Sinomine would basically fund anything they like to production and we would retain a minority position in this and all future projects that we do with them, which gives us a huge competitive advantage rather than others juniors in the space."
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