Investors in the mining space know that the current multi-year downturn poses a generational buying opportunity for those with the capital and patience to endure through it. Prices have become so irrationally distressed that buyers can now pick up valuable assets for pennies on the dollar. That’s exactly what Arian Resources (ARC:CA) , and its deep-pocketed partner Sinomine, intend to do.
Readers may recall Equities.com’s previous coverage of the Arian story here and here. To summarize, the company is currently awaiting the feasibility study results of its Perlat project in Albania, which it has partnered with Sinomine on bringing to production, pending results. Arian and Sinomine have also agreed to pursue similar arrangements for future projects.
Recently, Arian CEO Zahir (Zip) Dhanani returned from a meeting with Sinomine in China, establishing a very clear set of criteria for the types of projects that Arian and Sinomine will pursue. This is a milestone moment for Arian as it now has a much more defined game plan in place to replicate the Perlat model. Considering the state of the junior mining space, the company is an astonishingly well positioned buyer sifting through a market undergoing what essentially amounts to an industry-wide fire sale.
“Given the difficulty in the mining space with respects to fundraising, our relationship with Sinomine puts us in a particularly advantageous position when compared to our peer group,” Dhanani said. “The benefits of the current downturn in the commodities cycle has made valuations very attractive and has created many distressed sellers looking to unload great projects. We see a lot of companies out there that possess advanced projects with large defined resources, but are unable to keep up with the cash burn that’s required to just even maintain the projects. So there’s an edge of desperation with these companies. They have these fabulous projects but are just not able to sustain them, even on a maintenance basis because of a lack of capital. So it really creates a lot of opportunities for us to acquire them at very reasonable levels.”
According to Dhanani, agreed-upon strategy prioritizes on advanced-stage projects that are capable of near-term production in China, Indonesia, various countries in Africa, the Balkans and other select jurisdictions. The criteria is also for high-grade gold, silver, copper and zinc deposits. However, that does not exclude any potential projects with promising long-term potential either.
“Since we are looking at multiple projects, we actually want to create a portfolio of opportunities with a mix of some near-term production potential and some quality projects that have the potential of significant long-term production that are just sitting there waiting to be taken over,” Dhanani said.
Sinomine has also agreed to cover due diligence expenses incurred during the process of identifying viable projects. This eliminates a potentially heavy burden from Arian, as these kinds of expenses often times amount to considerably high levels for a small company.
But like any window of opportunity, Arian’s remarkable opening won’t last forever, which is even more incentive to strike while the iron is hot. As bad as it has gotten, the resource sector will not stay depressed indefinitely. The key for Arian will be its ability fully maximize its various advantages during this time to fully reap the rewards when the next upcycle in the commodity markets hit.
“I don’t think anyone has seen this kind of despair in the commodity markets for quite some time, and certainly not in our generation,” Dhanani said. “It has absolutely immobilized players in this space and has left the field wide open in terms of opportunities for Arian. But the rest of this market is so badly beaten up and so badly undervalued that I don’t think it will take much for a vigorous rebound to take place once a bottom in gold has been reached. I don’t think it’ll take more than a year for a rebound to happen, and it probably will be sooner than that.”
“It’s really quite stunning for what is possible for a company like us,” Dhanani added. “Amidst the sea of doom and gloom in the junior mining space, where share prices have fallen as much as 95% for most juniors, we’re feeling very optimistic. With our partner that can bring capital to the table in Sinomine, we think we have a very good reason to feel that way.”
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