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Action on the Way - (FAM)
30/1/2017 (119264)

Action on the Way

At home in the heart of Kent, peering out over the orchard at night and pondering temperatures of minus seven, it is easy to appreciate why the management of FinnAust Mining (FAM) has been busy doing the business in the heart of London and waiting on lab work in Australia. It is cold enough here, never mind out on the coast in the north west of Greenland, where the permafrost means there is no chance of doing much. The waters become navigable maybe in May, and it is possible to work onshore earlier than that. Right now, though, there is much to be done elsewhere.

In the next six weeks, chief executive Rod McIlree ought to be able to make the most crucial announcement yet, producing the first JORC-compliant mineral resources estimate for the flagship ilmenite recovery project at Pituffik in Greenland. There are no guarantees in this game, but all involved are clearly highly confident that they are sitting on a substantial asset which could be established as one of the lowest cost, highest grade titanium projects in the world.

At this stage, all we have is estimates from interested parties. Do look at the video at https://www.youtube.com/watch?v=SKgETC0kMAA&feature=youtu.be. A little heavy on the lyrical and light on hard facts, it still gives you a fair idea of what FinnAust is about. The black sand is ilmenite, just waiting to be picked up off the beaches. It easily becomes titanium dioxide and is used the world over in making white paint brighter, in plastic and in coating paper. In a refined form it makes an increasingly valuable lightweight metal used in aircraft and such.

There has been a supply surplus depressing the price, but that has gone now, and the price is rising - and widely predicted to continue to rise - as important mines face diminishing production. Earlier this month the company suggested that market research indicated global sulphate feedstock deficits from 2018 onwards, and with global stocks lower, that should provide support for ilmenite prices. See also my report 'Rising Prices for FinnAust' on November 18. You can find it by putting FAM in the box at bottom left of the front page.

Owning ilmenite is good these days, and ilmenite which does not required hundreds of millions of capital spending on a mine is especially good. FinnAust's ilmenite is found along an 80km stretch of coastline, with large accumulations on raised beaches, on the active beaches on the sea side of the frontal dunes, and in the relatively shallow beaches (the drowned beaches) some distance into the sea. These are natural accumulations of black sand winnowed by time - who knows what there is in the original source rock still?

This black sand has some remarkably high grades, and is 90% ilmenite in one area. One beach has lower tonnage, but grades of 75%, while there is another area with large tonnage at grades down to 15%. More than 500 holes have been drilled with the estimated average grade in the region of 30%. This looks remarkable, given that most of the main mineral sand producers elsewhere operate with grades close to the average for major producer Kenmare Resource at 3%.

It is not clear just how much of the Pituffik potential might be covered by the initial resource estimate. Samples are being evaluated in laboratories, and grades appear to be at least as high as visual estimates determine. Simple processing - a shaking table and spirals - could produce a saleable ilmenite concentrate, though the company could achieve a higher price by installing a magnetic separation plant, and eventually might go on to purify further to achieve yet higher prices. In any event, the unusually high grades ought to allow premium prices.

The plan has been to keep equity dilution to a minimum, and to take full advantage of simply being able to lift the sand off the beach and transport, some to Europe and North America, and more to China, though China transport costs are higher. This is all being done with as little spending as possible. Machinery required in the coming work season is being bought nearly new at cheap rates, and bulk sampling should start this summer.

It looks as if the company will be supported by experienced mining and shipping operators in the initial phase, sacrificing margin to them to keep the initial spend in check. FinnAust has three high grade projects in Finland which have a mix of base metal deposits, and it is likely that these will be sold at some stage to realise valuable cash to help support Pituffik. There are also two polymetallic projects in Greenland. These were cheap opportunistic purchases, and do not figure prominently in company thinking right now.

The project has fallen behind the original schedule in recent months, but the action is about to start again. Titanium Industry Global Advisory (TIGA) has been retained as marketing adviser, most notably bringing in TIGA managing director Bruno Cavalancia, a former senior man at Kenmare. He will help guide FinnAust towards identifying end-users and commercialising Pituffik.

Early March should bring the resource estimate, and the summer should see proof of concept bulk sampling and work towards an exploitation application. Maiden commercial production is expected in the first half of 2018.

There are still many moving parts - risks - attached to any attempt to value FinnAust. Assuming there are no obstacles to permission to exploit the resources, margins will be impacted by the average grade of ilmenite, the (relatively simple) work which needs to be done in processing it before sale, finding buyers, the ilmenite price, and the weather.

Climate change has helped reveal the Pituffik opportunity, and the working weather window appears to be opening gradually. It could vary from two to five months, between June and October for mining, with an extra margin for other work. It is possible, however, to work 24 hours a day for much of the time, so perhaps a stockpile could be built for use outside the mining window.

Those seeking to assess the value of the company will be able to make a clearer estimate once the resource statement is published - though that is unlikely to cover the full potential, and there could be yet more available should Greenland extend the mining licence. The ilmenite occurrence does not appear to be repeated elsewhere in Greenland.

The most widely available broker estimate thus far comes from broker S P Angel, and suggests a target price of 15p. But that is before the resource estimate. Other price estimates in the same area are in the background, but the resource news is likely to be the key to any short-term up-rating. All calculations, it should be noted, assume that FinnAust will acquire the near 40% of Blue Jay Mining which it does not own on the terms already agreed, effectively with directors McIlree and Greg Kuenzel.

The market rating - and broker estimates - is taking an extremely cautious view at this stage. Calculations apply a significant discount because of the early stage nature of the venture, uncertainty over the ilmenite price, the cost of the project, and so on. By halving assumptions and halving again, the conventional, conservative assessment of the price comes tumbling down.

The resource statement, incomplete as it might be, will remove one layer of investor risk. That could clear the way for a significant advance in the current price, with further gains as the company works its way towards actual production next year. Once that starts, costs can be reduced as cash flow eases financial constraints and allows more direct investment. FinnAust is clearly a gamble, but the odds on the price multiplying several times over in the next couple of years look attractive. The shares have been recommended here several times since October at prices slightly above the current 6.9p to 7p quote.

I have a holding in FinnAust.


  More on (FAM)
Previous Stories
Mike on (FAM)
6/3/2017 Another view of FinnAust.
2/3/2017 Setting it straight on FAM.
22/2/2017 Shorts down and stumbling.
20/2/2017 Getting ready to run at FinnAust.
10/2/2017 Buyer in for FAM.
30/1/2017 Getting the resource together.
9/12/2016 FinnAust in funds.
22/11/2016 Good news at FinnAust.
18/11/2016 Bullish ilmenite report should help FinnAust.
11/11/2016 A gamble on the way up.
24/10/2016 Gamble in Greenland.
14/10/2016 A global great?
5/10/2016 A cool cold gamble.


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