Silly Stuff - (JAY)
30/9/2020
(119264)
Silly Stuff
Look – this is silly. If Bluejay Mining (JAY) has the capacity to make profits in excess of $40m a year, say £32m in sterling, why is the market value of the company £82m with the shares at 8.4p, up 0.5p today?
Sorry if this is getting repetitive, but the story does not change. And the investment opportunity has not gone away – the prospect of substantial capital gains in the next 12 months looks very much alive. For what it is worth, the brokers agree. S P Angel has a target price of 24.7p, Hannam & Partners was at 20p early in the year, First Berlin (don’t know much about them) at 21.8p. Depending on how long a view you are ready to take, all look conservative as Jay shifts from potential to the start of revenues and profits.
The market barely believes it, but Jay is about to swing into action, with a surge of significant news in the months to come. That should be reflected in the share price, which has been a source of frustration for the past twelve months. It topped 10p last October, but slipped below 4p in May, rallying slowly to 8.4p now, still way down from the glory days of 26p in the first half of 2018. It had fewer assets then, and was fresh from rumours of an abortive deal with Rio Tinto. Now it has powerful new friends, and a range of deals in prospect.
The basic strength – the vast ilmenite deposit at Dundas in north western Greenland – remains. It looks more attractive than ever. In the interim statement today, chairman Mike Hutchinson mentions that there is currently up to 785m tonnes of independently verified JORC resources that should add many decades of mine life past the current projected eleven years.
That 785mt in Jay’s licence area might be only half of the story. There is almost certainly much more. Let it rest. There is enough there to outlive current Jay shareholders. The current ilmenite price is $230 to $250 tonne, and rising in the last year or two. What Jay has is top quality and might command a $10 per tonne premium, but take a conservative line and assume it is worth just $200 tonne. The noughts get confusing, but that makes the notional value of the resource (so far) at over $150bn.
All being well, Jay is about to be granted a permit by the Greenland government to exploit this vast pile. We know that because Jay has been tip-toeing through the regulations, working with the local government and promising to behave properly, for years. Less than a week ago, the head of the Greenland government told the parliament that it expected to grant Jay an exploitation permit before the end of the year.
It has been evident for some time that the permit could come in October. There was a clear signal that all was going well when the Greenland government took a modest share stake in Jay earlier this year. So Jay is on the brink of gaining access to ilmenite worth a fortune.
Extracting and monetising it is easy by mining standards. No need to dig a pit deep into the bowels of the earth, just use a few machines to shunt it about and pick it up of the surface of the shore, some of it in shallow water, and then to refine it in simple style and load it easily onto ships to take it away. Nothing too complicated.
As today’s statement reported, there is a memorandum of understanding with a multinational trading firm – apparently Asia-based - to take between 250,000 to 300,000 tonnes a year, up from talk of 200,000 earlier. There are negotiations with a number of other leading players for them to take more. The plan is to sell between 390,000 and 490,000 tonnes a year in the initial phase. There is still the possibility of selling some to Rio Tinto, and a pilot processing plant has been set up near Quebec with a smelter test planned for what appears to be a rolling date next year.
Such sales will be massively profitable. The sums are complicated by what form the funding for the initial plant takes, but in normal operation there should be a profit margin of $110 per tonne at current prices, maybe more. Assume 400,000 tonnes and a $100 margin and you have $40m (£32m) profits a year. That is in the early phase. There have been suggestions of 640,000t by year four. Previously, under different circumstances, there were projections of production rising to 1m tonnes fairly quickly.
Previous projections have put the capital cost of setting this in motion at some £245m. We have already heard from McIllree about the lavish nature of that plan. He has been hacking away at it, switching to more local operators, and will have reduced that aignificntly.
It is possible that he might have to resort to a small share issue as part of a fund-raising, but he is strongly averse to issuing equity. He knows he can get a variety of grants to help with capital costs, and the multinational bulk buyer on hand has been discussing the possibility of contributing funds to get things started. Creative financing ought to do it.
The interims show that Jay has funds enough for all else, with £7m cash and another £1.6m close at hand. There was a first half pre-tax loss of £1.16m, and spending has been cut back sharply all round.
All of this Dundas action is about to come to the boil in the next few month. The grant of the exploitation permit is the big one, and looks all but guaranteed. That sets it all in motion. It is likely to trigger the offtake agreement with the unnamed multinational, which in turn could bring details of how that production is to be financed, triggering details of other loans and grants from various government-related sources (this is not just financially modest Greenland alone, but Denmark is sitting on its shoulder and the Common Market could be there too). Everything suddenly clicks into place.
And when it does, it could move quickly. No-one is counting on production in 2021, but a small amount might be possible. The whole thing could then swing into bigger production in 2022.
The Dundas story alone sounds pretty good. But you also have major licences at Disko, where there is evidence of a variety of metals sufficiently attractive to have mining giant Anglo-American pegging out licences all around, and possibly ready to do a deal with Jay. This prospect is a global monster, far too big for Jay to handle. It would be nice to get a little deeper in, then pass it over to Anglo while keeping a small part for a free ride. That, please note, is pure speculation on my part. But whatever happens, it seems there is already tens of millions of Disko value for Jay.
The new Thunderstone gold and other metal prospects seem promising, and have attracted the nearby attention of French group Orano. The gold could be related to the discoveries which are spurring recent market debutante AEX. Jay appears to want to keep the multi-metals prospect at Kangerluarsuk to itself, and it shows great promise. There are prospects in Finland which seem increasingly interesting and could be worth lowish tens of millions.
None of these assets outside Dundas appears to be accorded any value by the market, yet could cover at least the current market value of the company. Maybe that cautious attitude is fair enough, but deals on one or two of them could demonstrate that they do add real value, and maybe one could come quite soon.
It all makes a bumper bundle to wrap up and try to sell to the American investors. There are moves afoot to gain a listing for the shares on one of the lesser US markets, backed by quite a powerful US brokerage. Trump has helped put Greenland in the spotlight, both as a strategic military play and as a source of metals. Touting Jay shares around US investors as the prime way of buying into the nascent valuable metals store that is Greenland might just spark real interest. Watch this space.
Jay is not quite there yet as a certified treasure trove of valuable metals, but it is close. There ought to be lots of news between now and Christmas, and it all ought to be good. Hold tight.
I have a holding in Bluejay.
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