Anglesey Mining Research Notes

Anglesey Mining Research Notes:

None of the following should be viewed as financial advice.

Anglesey Mining (AYM) are a FTSE Main Market listed mining company with a market capitalisation of £9.5m with exposures to three high grade mining/exploration projects in Wales, Canada and Sweden:

- Parys Mountain 

- Labrador Iron Mines 

- Grangesberg 

Parys Mountain:

This is a site that has seen a lot of historic drill work with regards to the deposits of zinc, lead, copper, silver and gold.

Anglesey Mining have planning permission for a 1,000 tonne per day mine, which was granted in 1988, reviewed in 2006 and remains current.

In 1990 Kilborn Engineering completed an independent feasibility study of the project that confirming technical and economic viability of a 1,000 tonne per day (~350,000 tonnes per year) mining and milling operation.

This study was based on a mineable reserve of 1,963,000 tonnes at a grade of 6.43% zinc, 1.30% copper, 3.32% lead, 75 grams of silver and 0.51 grams of gold per tonne and a mine life of seven years.  

In July 2007, Micon International produced a scoping study demonstrating the viability of mining the White Rock area at 500 tonnes per day with a capital expenditure requirement of only £15m and with operating costs of £30.25 per tonne mined.

All of the above doesn't take into account the unexplored prospective areas to the east of these resources.  

A new scoping study for Parys is expected within the next couple of weeks, which will likely improve on the grades suggested by Kilborn Engineering and the 2007 Micon scoping study.

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Labrador Iron Mines:

Labrador Iron Mines commenced mining and shipping from the James Deposit in 2011 but is currently suspended while they await working capital and development financing. This means that existing rail transportation networks, deep water ports, shipping facilities and planning permission are all in place.

On December 14, 2016, the Company’s Plan of Arrangement was sanctioned by the Court, marking the final legal milestone in the Company’s restructuring process. 

Grangesberg:

Anglesey holds a direct 6% interest in Grangesberg and a right of first refusal over a further 51%.

Extensive existing infrastructure is currently on site and nationally. This means that there's strong potential for sales within Sweden’s domestic markets saving costs regarding handling and shipping.

In September 2014 an NI 43-101Technical Report was prepared by Roscoe Postle Associates Inc (“RPA”) showing a compliant resource estimate for the Grangesberg Mine of 115.2 million tonnes at 40.2% Fe in the indicated category and 33.1 million tonnes at 45.2% Fe in the inferred category.

Overall Investment Analysis:

For me there are several factors that make Anglesey Mining attractive and while the three projects are all attractive for me in particular the Parys Mountain project has the most short term excitement unrepresented in the current share price of the company.

All of the projects are in geographical regions that show high levels of political stability, meaning that no discounts need be applied to Anglesey Mining with regards to potential unaccounted risks. 

In addition all of the projects are either close to being mined or in the case of Labrador Iron Mines suspended from mining while additional capital is being raised. 

The low level of GBP/USD in addition to the generally rising price of metals would only add to the net margin expressed in GBP as the minerals are sold in USD then converted back to GBP. 

Profitability of the Projects:

The most important factor for me here is the potential underling profitability of all of these projects to Anglesey Mining.

Using only Parys Mountain as an example:

As of this week the 6.228MT of total ore would be worth £1091m using spot prices (Zn=£412m; Cu=£336m; Pb=£171m; Ag=£86m; Au=£84m), with an estimated cost of extraction of ~£187m

This would give a positive gain to the balance sheet of £904m, which if represented fully in the current number of shares in the company would give an equivalent share price of £5.23 per share or eighty times the current share price at 6.5p.

Personally, I believe that the soon expected scoping study of Parys Mountain that's currently being finished (all of the metallurgical work is apparently completed) will illustrate a large value gap in the company. This will all be in combination with the low free float in the number of shares meaning that we could likely expect a very fast rise here on the release of said scoping study.

My personal fair value share price here is in the 15-25p range - dependant on what more comes from the new scoping study at Parys or the other interests Anglesey hold.

Dekeloil Research Notes:

NB: I don’t have a licence to distribute financial advice and therefore none of the below should be viewed as a recommendation to buy/sell stock.

General Information:

DekelOil is a low cost producer of palm oil in West Africa, with a market capitalisation of ~£28.5m. 

Feedstock for the Mill comes from several co-operatives and thousands of smallholders, with Dekeloil also owning nearly 1,900 hectares of its own plantations and a world-class nursery with a 1 million seedlings a year capacity. 

Most recently, Dekeloil has acquired the remaining 14.25% of their previously joint owned Ayenouan project, making them the sole 100% owner of the project.

In addition, recent investments have been made in Ayenouan in order to increase the margins of the project by at least 0.5%, increase storage capacity (thus allowing better price hedging) and a reserve boiler to mitigate potential breakdown risks.

Results Overview:

2015 FY (in thousands of Euros)

Revenues: 23,436

Cost of Revenues: (17,998)

Gross Profit: 5,438

General and Administrative: (2,518)

Operating Profit: 2,920

Net Income: 118

For the 2015 Full  year results, it is worth bearing in mind that at that point they only owned 51% of the Ayenouan project, as opposed to the 100% they own now. 

Analysis:

Most importantly for me has been Dekeloil’s full buyout of the Ayenouan project. The third quarter results (of which they had 85% ownership at the time of publication) suggest that revenues and production are set for another record year with Executive Director Lincoln Moore saying: “we remain on course to report another record full year performance in terms of CPO production.”.

Within the backdrop of rising palm oil prices (see chart below) and a now fully developed 100% working interest in the project, the net margin to Dekeloil should significantly increase in the next full set of results, but more importantly in the following quarterly updates, where we should begin to see this feed through into the underlying performance of the company.

Palm Oil Chart:

Moreover, selling produce in euros, they have been not only hedged against the weakened pound, but will be a beneficiary, as they have many administrative costs denominated in pounds sterling. Also now the company is in a state of gross and operating profit having been reached, the dilution risk here as a prospective shareholder seems low and I like the way the company is currently re-structuring its debts to achieve a lower level of interest due.

The move in palm oil of +18.7% since October and the move of only +3.5% in Dekeloil is a major indicator to me that the wider market has not acknowledged fundamental changes in the business in favour of Dekeloil.

Overall, the implied margin growth and thus expected profit increase from having ownership over 100% of the Ayenouan project suggest to me that the current market capitalisation of £28.5m undervalues the forward growth of the business. In addition, the upward trending prices do not 

Starcom Systems Financial Analysis

None of the information below should be viewed as financial advice.

Data:

Financial information prior to the FY 2014 results was not included due to a move from accrual accounting to cash accounting and some figures in this report have been rounded for ease of use.

Starcom Report in USD	Revenue/Million USD	Recurring SAS Revenues/Million USD	Operating Loss/Million USD	Operating Loss As A % of Revenue	Cash Used in Operations/Million USD	Cost of Sales/Million USD
Yr End December 2014	5	1.3	2.9	58.00	0.831	2.49
Six months to June 2015	2.64	0.793	0.691	26.17	0.261	1.48
Yr End December 2015	5.1	1.6*	1.6	31.37	0.4	1.9**
Six months to June 2016	2.5	0.845	0.613	24.52	0.2	1.55
Yr End December 2016	-	-	-	-	-	-

*1.18m Revenues after cost of sales and administration expenses.

** Does not include a 1.1m decrease in inventories.

Analysis:

While the data collected above is useful for achieving a comparative understanding of Starcom’s historical performance year on year, it’s significantly more useful to analyse this data in acknowledgment of the company’s more recent achievements. 

The below quotes are taken mainly from the 2015 FY results:

• “we remain cautiously confident that second half revenues should comfortably exceed the first half and therefore that annual revenues will exceed last year’s"
• “The Company is hopeful that it will return to profitability during the year ending 31 December 2016 by converting its strengthening pipeline into growing sales across the product range.”
• “the recurring income flowing from the Company's SAS monthly fees is also expected to grow, and should reach nearly a third of the total revenues. This is a stable and high margin source of income for the Company that is gradually becoming the foundation for covering most of the overheads of the business.”
• Raised £150,000 in late November in response to “investor demand” and £300,000 in mid October.
• Collaboration deal agreed with SATO for North American market.
• New contract signed with Pinnacle for Kenyan market.
• New product launches for: Helios Hybrid, Watchlock Pro and Kylos Air.

Cash Position:

The use of only £200,000 cash in the six month period to June 2016 is a clear indication that major savings initiatives have taken place in the company, which will ultimately assist in making the company profitable in the near term.

Moreover, having raised a total of £450,000 (of which £150,000 was to meet investor demand) in October and November, it suggests that the likelihood of another raise in the short term is very low, which will support investor morale at these levels. Furthermore, the time gap between now and the placing of the shares suggests that any flippers of the placing are likely out of the stock now.

Revenues:

Recurring SAS revenues amounted to $1.6m in in the FY of 2015 and with these representing a very high margin product to the company, their growth in tandem with regular sales places upwards pressure on the overall product margins of the company (38% as of H1 2016).

In fact, the break down at the end of the 2015 FY report suggests that the SAS products had a profit margin of 73.8%, which is expected to only grow now that the system is fully in place and requiring less investment.

Revenue from sales moved up inline with expectations in FY 2015 ad with an evermore diversifying sales base to work from these are expected to both continue and expand at a faster rate as collaborations with SATO pay off. 

In addition to this, the publicly available data from Gurtam.com suggests that ~150 units have been sold in December via the Russian distributor for Starcom. Moreover, in July there were approximately 1,000 registered units online via Gurtam and this figure is now ~2150, illustrating the major push up we should hopefully see in SAS recurring revenues and pure sales revenues.

Operating Losses and Cost of Sales:

The operating loss year on year from 2014-15 was down 45%, in part due to a significantly reduced cost of sales, which fell 24%, but also due to major savings being made on general and administrative expenses, including a saving of $200,000 in management salaries.

Interestingly the operating loss as a percentage of revenues in FY 2014 was 58%, compared to 31.37% in FY 2015 and more recently 24.52% in H1 2016. This suggests that the move to profitability could come very soon, as it’s clear that losses are being absorbed at a faster rate as the company progresses.

Moreover, this fits in with the company’s expectation that “it will return to profitability during the year ending 31 December 2016”.

Summary:

• A more than 50% reduction of cash in operations  between FY 2014 and FY 2015 suggests that the BOD are making significant progress in reducing the company’s outgoings and that they stand a good chance of meeting their expectations of reaching profitability by the end of 2016.
• Rising high margin SAS revenues will feed through into the overall sales margin for Starcom, pulling their overall margin significantly higher as more units come online.
• Compared to FY 2014, FY 2015 saw a 45% drop in operating losses, suggesting that at the current rate of business growth, a move to profitability should occur soon (bar black swan events).

For a relative valuation compared to other companies in the same sector, I would direct people to work I’ve done previously on price to sales ratios:

https://twitter.com/ProAIMTrader/status/778126679898263552