Category Archives: Mining

An open-cast coal mine

Rio Tinto plc looks attractive ahead of H1 earnings [video]

An open-cast coal mineBig mining stocks like Rio Tinto plc (LON:RIO) are poster boys for volatility, but in reality offer a solid long-term story that I believe is a good way for income investors to diversify into commodities.

Following up on this thesem, I recently contributed an article to the Motley Fool UK, taking a closer look at Rio’s current valuation in the context of its past earnings.

You can read the Motley Fool article in full here, and you may also be interested in a video I contributed to for spread betting giant IG’s new television service, IG Player.

The video piece takes a look at Rio’s prospects ahead of this week’s earnings announcement and highlights key areas that could provide earnings growth this year.

Sadly the video is no longer available!

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

Utah desert

TomCo Energy Plc Surges On Wastewater Permit News

Utah desertBack in September, I pointed out that TomCo Energy Plc (LON:TOM) should surge if its neighbour and JV partner Red Leaf Resources was successful in its application for a groundwater discharge permit.

The closing date for comments was 27 September, but approval took longer than I expected and was announced on Friday/over the weekend. TomCo has issued a RNS announcement this morning confirming the news, which should pave the way for TomCo’s permits to be approved in 2014.

TomCo shares are around 30% higher this morning, and while i don’t expect them to hold on to all of today’s gains, the news is positive for theTomCo as Red Leaf and its JV partner Total can now start a full-scale trial of the EcoShale technology, which TomCo also plans to use.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

Mwana Africa plc Reports Profitable Mining, But For How Long?

A tunnel in a gold mineAs I suggested might be the case in October, beleagured African multi-commodity miner Mwana Africa plc (LON:MWA) is now mining profitably.

The firm’s interim results, published on 11 December, show revenues up 7% to $65m and post-tax profits up 88% to $7.5m. Granted, these aren’t big numbers, but the company’s position has been transformed since the summer, when it was laid low by falling gold and nickel prices and a shortage of cash to complete the restart of its nickel mine.

Thanks to in part to hard work and cost cutting, but mostly to a large, dilutive, infusion of cash from the group’s Chinese backers, Mwana is now operating stably again and making money.

Costs down but not far enough?

The results were generally encouraging and showed positive cash flow from both of Mwana’s producing assets, the Freda Rebecca gold mine and the BNC Trojan nickel mine.

I was a bit concerned to see that costs had risen at Freda Rebecca, especially as Mwana says that this is down to “lower grade and lower recoveries”. The head grade was 2.3g/t for the six months to 30 September, down 17% from 2.77g/t for the same period last year. Although the firm says that recoveries started to improve towards the end of the period, the falling grade is a concern.

However, Mwana’s gold mining is still profitable, which is more than certain much larger companies can say. C1 cash costs came in at $887 per ounce (H1 2012/3: $797) and C3 all-in sustaining costs were $1,098 per ounce (H1 2012/3: $993).

Nickel and dime mining

One of the reasons Mwana was forced to make a cash call earlier this year was that it had run out of funds to complete the restart of its Trojan mine, after a sustained fall in nickel prices.

The price of nickel has descended from a high of more than $18,000 per tonne this year, but seems to have found support at $13,000/t, and is currently trading around $14,000/t, which gives Mwana an adequate but unspectacular operating margin, based on its C3 all-in sustaining costs of $12,770 per tonne.

Copper & gold exploration

The other strings to Mwana’s instrument are its 2.9Moz Zani Kodo gold prospect, and its Katanga Copper project, both of which are in the Democratic Republic of Congo (DRC).

The Katanga project has backing from Chinese copper firm Hailiang, and exploratory work is proceeding, but Mwana stopped work on Zani Kodo during the last half, due to cost cutting measures and the falling price of gold. Although Zani Kodo seems promising in principle, this decision suggests to me that Mwana isn’t confident that Zani Kodo can be mined profitably at $1,200 per ounce.

Still, Zani Kodo is very close to Randgold Resources’ Kibali gold mine, in the DRC, so perhaps it will attract a buyer based on ‘proximity bias’…

Moving in the right direction?

Mwana’s latest half-year results are better than I thought they might be, and suggest that the business can sustain itself profitably, as long as gold and nickel prices hold up at current levels.

However, Mwana’s margin of safety isn’t big enough for my liking, especially as I’m a gold bear in the near term. I will be looking for further evidence of cost-cutting, and some improvement in head grade and recoveries at Freda Rebecca over the next six months — otherwise Mwana’s situation could rapidly get worse, despite its current $9m cash balance.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

An open-cast coal mine

Altona Energy Plc Keeps The Faith, But Should We?

An open-cast coal mine

An open-cast coal mine, of the kind Altona Energy hopes to create in Australia, to fuel its CTL plant.

What a year it’s been for Altona Energy Plc (LON:ANR) — or rather, what a year it hasn’t been.

It hasn’t been a year in which the company started coal mining in China to generate free cash flow, and it hasn’t been a year in which it started exploratory drilling in Australia to provide the data needed for its Arckaringa coal-to-liquids/coal-to-methane project.

It has been a year in which the firm’s share price has dropped by almost 60%

As the firm’s Chairman, Christopher Lambert, described it in yesterday’s final results announcement, “2013 has been a frustrating period for everyone connected with Altona”.

The problem, it seems, is that Altona — which is completely dependent on its CNOOC, its Chinese JV partner — has collided with the immovable, opaque force of Chinese bureaucracy, and found it to be a painful experience:

We have worked diligently with CNOOC to progress the work programme.  However, we continue to be frustrated by the, often unexplained, delays.  Despite control of the project delivery being vested with CNOOC, as operator, the board has recognised that the CNOOC approach has created significant uncertainty and the lack of transparency is not sustainable.

Has it run out of money?

Strangely, no. Altona’s cash reserves were down to £679,000 at the end of June, but that problem was dealt with thanks to a £3.2m, two-stage placing agreed with a Chinese company called Wintask Group Limited, which in turn is owned by the Chairman of a privately-held Chinese company called Hailang Group, which has a number of industrial operations, and owns patents and technology relating clean-burning coal boilers.

The first stage of this placing took place today, with Wintask purchasing 59.7m new Altona shares at 1.4p each — a healthy premium to today’s closing price of 1.1p. The placing raised £835,000 for Altona before expenses, while the second, larger tranche of the placing will be subject to a shareholder vote, but is expected to complete by the end of the year.

Interestingly, news of the placement came alongside news that the firm’s Managing Director, Chris Schrape, is departing with immediate effect. He won’t be replaced for the time being, but Wintask will nominate a non-executive director to the board, thus altering the balance of voting rights. It’s understandable that Altona’s Chinese backers want to exert more influence over the firm, but it does make it clear the Altona, rather like Mwana Africa, is merely a UK-listed puppet, controlled by wealthy Chinese corporations.

Is there still an investment case for Altona Energy?

For private investors, I think the investment case is becoming slightly more unclear, although I remain convinced and plan to continue to hold my shares (see here for my original article explaining why I bought them)

Altona now has a market cap of around £6.5m, no trading income and no likelihood of any in the near future, unless the Duwa coal mine acquisition in China miraculously picks up pace  — unlikely, since the firm’s due diligence has found that it isn’t entirely clear who currently owns the mine…

Altona’s Chinese shareholders and JV partners clearly value having a UK-listed company to front the Australian Arckaringa project, and deal with the Australian mining authorities on their behalf. That’s understandable, on several levels, and it seems fair to assume that as a result, Altona will be kept afloat by Chinese money, until the project either comes to fruition, is sold, or is abandoned.

There’s every indication that the Arckaringa CTL project is a viable, valuable opportunity, but after gaining approval for a exploratory drilling programme in July this year, CNOOC has not yet even selected a drilling contractor (if you want a laugh, take a look at Altona’s original drilling schedule, published in July).

The completion of the Bankable Feasibility Study may yet be a year or so away, so private investors will need to have considerable patience and be prepared to continue being treated like the proverbial mushrooms.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

A tunnel in a deep mine

Restructured Mwana Africa plc Is Now Mining Profitably

A tunnel in a gold mineMwana Africa (LON:MWA) shareholders have had a torrid year. The African multi-commodity mining firm’s share price has collapsed and is 74% lower than it was at the start of the year.

As a shareholder, I’m regretting one of my more poorly-timed purchase decisions, but recent events and yesterday’s operational update confirmed that one of the core reasons for my original purchase — the firm’s solid Chinese backing — remains valid.

Indeed, China’s involvement could yet be the firm’s saving grace, as it has ensured the departure of two of Mwana’s most overpaid and underperforming directors, former FD Donald McAlister and Chairman Oliver Baring (I commented on the synchronicity of Baring’s departure and the arrival of new funding in a previous post).

The level of remuneration received by Mwana’s board is pretty shocking, considering the size and lack of profitability of the company, but that aside, let’s look at its chances of becoming a profitable mining business.

What’s new?

Back in August, Mwana was very nearly down and out. Its plan for the Trojan nickel mine was unviable, the company was out of cash, and the price of gold seemed to keep falling.

Luckily, that’s all changed. Sort of, anyway.

Firstly, Mwana tapped its Chinese backer, China International Mining Group Corporation (CIMGC) and CIMGC’s Chairman, Ning Yat Hoi, for a total of $6m through two equity raises. That was enough to meet immediate requirements and provide the funding needed to implement a revised plan for Trojan, that will see the firm mine only the higher-grade ore reserves, and thus become able to mine and sell nickel concentrate at a profit.

On the gold front, Freda Rebecca has returned to full capacity, and according to yesterday’s update, gold production rose to 17,536 ounces during the last quarter, up by 19% on the previous quarter.

The cost question

Of course, any fool (relatively speaking) can dig metal out of the ground. The challenge, as gold miners all over the world are currently finding out, is to do so profitably.

Yesterday’s update from Mwana suggests that the firm is also making good progress in this regard, and that both of its producing assets are now profitable at a mine-specific level. Here are the third-quarter average sale prices and C3 total costs for Mwana’s Trojan nickel mine and Freda Rebecca gold mine:

  • Average gold sale price: $1,330/oz
  • Gold C3 total cost: $1,053/oz
  • Average Nickel sale price: $13,787/tonne
  • Nickel C3 total cost: $10,390/tonne

It remains to be seen whether these promising figures can translate into profitable operation at a corporate level, but it’s promising, nevertheless, and suggests that the company’s management are working hard to justify the commitment shown to them by CIMGC.

Exploration assets

Apart from Mwana’s two producing mines, which desperately need to become profitable, the company also offers shareholders the two dangling carrots that are its key exploration assets, the Zani-Kodo JV gold prospect and the Katanga Copper JV, both of which are in the Democratic Republic of Congo (DRC).

Zani-Kodo Gold

Earlier in October, Mwana issued a resources update for its Zani-Kodo gold resource, increasing the JORC compliant gold resource by 13% to 2.975Moz and 2.43g/t, with a cut-off grade of 0.5g/t.

Zani-Kodo is not all that far from Randgold Resources’ Kibali mine, but whether Zani-Kodo shares Kibali’s potential for high-volume, profitable expoitation is not yet clear, although that’s clearly Mwana’s hope. Further work is being undertaken to expand the JORC compliant resource base, and this remains a reasonably promising work-in-progress that could yet become a big winner, depending on whether it can profitably be developed.

In my view, a gold price of $1,000 per ounce (as used by Randgold) should be the benchmark for any new gold mine, as anything more than this smacks of blind optimism, if not outright deception.

Katanga Copper JV (DRC)

The Katanga Copper prospect is being backed by another Chinese Company, the Zheijiang Hailiang Company, which is a large copper processor looking for its own source of supply.

Mwana says that most of the first round of surveys and geological mapping has been completed, and that a phase 2 work programme begun in July, which will include a certain amount of drilling, as well as further soil sampling and surveying activities (see here for full details). As with Zani-Kodo, this could one day be a big win, but it’s not something that small shareholders can rely on.

Is Mwana a hold?

Mwana’s share price has hardly reacted to any of the good news its released in the last two months.

This is a reflection both on the current state of the market and on the considerable future uncertainty that remains, especially for small shareholders who want a short-medium term financial return, rather than to secure a commodity supply, as is probably the priority for Mwana’s Chinese investors, who effectively control the firm (in itself, a risk for UK private investors).

Overall, I think that Mwana’s management is making decent progress and has a better-than-even chance of succeeding, on so I’m going to continue to hold and see what transpires when Mwana publishes its half-year results early in 2014.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

Utah desert

TomCo Energy Plc Update Lifts Stock Ahead Of Key Permit News

Utah desertTomCo Energy Plc (LON:TOM) is up 22% so far this year, and has risen a whopping 51% since I first wrote about the stock in early July, which just goes to show how volatile micro cap natural resources stocks can be!

The firm released a positive update today and closed modestly higher, but I expect to see a much bigger movement in the firm’s share price in the next month or so, when a key permitting decision is due for TomCo’s JV partner and direct peer, Red Leaf Resources.

Today’s update from TomCo confirmed that it has been granted a Small Mine Permit by the Utah Division of Oil, Gas and Mining to carry out trial mining next year. In addition, work on its Large Mine Permit application is progressing well, with its submission to the Utah Division of Oil, Gas and Mining expected before year end.

The update also said that TomCo has begun drilling to gather the data required for its application for a ground water discharge permit. This is a key permit, which if refused, could derail the whole project. TomCo’s drilling is expected to take a month to complete and the results are not expected before the end of the year.

However, we should get an insight into what to expect at the end of this month or perhaps in October. The Utah Division of Water Quality issued a draft ground water discharge permit to Red Leaf Resources in August and is currently soliciting public comments on its application (full details here).

The deadline for comments is September 27, so at some point after this, we should find out whether the permit will be confirmed, withdrawn or have conditions imposed on it. The outcome of this decision is likely to be predictive for TomCo, as the two companies’ licence areas are very similar and almost adjacent, and both companies are applying to use the same EcoShale technology and generate similar types of discharge.

Watch out for any news or sudden share price movements later this month — it’s unclear (to me) when the outcome of the Red Leaf permit will be known, but information may leak gradually into the UK market as a decision nears.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

A tunnel in a deep mine

Mwana Africa plc Bounces As Chinese Backers Fund Cash Shortfall

A tunnel in a gold mineMwana Africa plc (LON:MWA) shareholders saw the value of their shares plunge to little more than 1p recently, after the company announced that despite making good operational progress with its assets, it needed to raise some cash to stay in business beyond the end of October.

As I suspected might happen, Mwana’s Chinese backers have come to the rescue. In a news release this morning, Mwana announced that it had raised $3.2m from a subscription of 130,254,717 new shares by two existing shareholders, China International Mining Group Corporation (CIMGC) and CIMGC’s chairman, Mr Ning Yat Hoi, who is also a non-executive director of Mwana.

Markets welcomed the news and the shares were up by 12% shortly after markets opened, consolidating recent gains triggered by a firmer gold price and leaving Mwana’s share price up by 58% over the last month, albeit down by 63% on the year to date.

Musical Chairs?

On Monday, Mwana announced that its Chairman, Oliver Baring, had resigned with immediate effect. On Tuesday, the firm announced Baring’s replacement, Mark Wellesley-Wood, a mining engineer with a strong finance background, and plenty of experience in South Africa.

My first thought following Baring’s sudden departure was that his presence was impairing the company’s fundraising efforts, and today’s news suggests that may have been true, given that Mwana’s news release suggests that the subscription letters for the new shares were signed on the 3rd, the day after Baring’s resignation.

What next?

The investment case for Mwana is still far from clear, and it remains intensely vulnerable to further falls in the price of gold. The Freda Rebecca gold mine should be cash flow positive as long as gold doesn’t drop much below $1,200, and the firm’s revised plan for its BNC Trojan nickel mine may also help generate some cash flow, although Mwana has been cagey about the precise numbers, which worries me.

However, despite several promising undeveloped assets, Mwana remains short of cash and admitted in today’s announcement that any further development of its projects “will be done through project level funding ” and that it “is actively considering whether there will be further equity issuance within its existing headroom.” 

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

Fifty pound note

Mwana Africa plc Will Mine Higher-Grade ‘Massives’ To Save Trojan Nickel Mine

Mwana Africa plc (LON:MWA) has issued an update on a new plan for its loss-making Trojan nickel mine this morning, which could — in a best-case scenario — cut the mining cost per tonne of nickel by up to 36%.

The problem, as you’ll recall, is that the falling price of nickel over the last two years has made the mine uneconomical — and to make matters worse, Mwana has pretty much run out of cash anyway.

Why didn’t they do it before?

The new plans seems fairly simple:

The Trojan mine plan has been revised to target the higher grade zones of the ore body, known as “massives”, following the recent fall in the nickel price.

The occurrence of the massives enables higher grade ore to be mined and thus reduces the cost per tonne of nickel produced.  The table below shows the difference between the original mine plan and the revised forecast mine plan on a three year basis.

Three questions come to mind:

  1. Why didn’t they plan to do it this way originally? Were they really blinded by volume over profitability?
  2. How much extra (if any) will it cost to mine the high-grade ore without mining the lower grade ore?
  3. Will the revised mining plan enable the mine to break even at current nickel prices or simply reduce the losses it will incur until the price of nickel rises?

Mwana’s announcement this morning failed to address any of these questions.

The firm’s recent results provided no information about the costs of the Trojan mine, except that it is not profitable at a nickel price of $13,600 per tonne, but (by implication) would be at the April 2012 nickel price of $18,000 per tonne.

36% cost reduction?

If we assume that the mining costs per tonne of ore will remain broadly similar under the new arrangement, then the new plan could reduce the cost of a tonne of nickel by up to 36% in 2014, providing impressive gains in nickel production:

Trojan Mine Plan
Revised Mine Plan Original Mine Plan
Year to Jul-14 Jul-15 Jul-16 Jul-14 Jul-15 Jul-16
Ore Milled (kt) 857 858 904 820 869 869
Grade (Ni %) 1.18 1.27 1.08 0.76 0.98 0.92
Contained Nickel (t) 10,057 10,835 9,746 6,209 8,485 8,020

(Table courtesy of Mwana Africa)

Mwana says it is already in discussion with Zimbabwean banks to raise the necessary debt financing to meet Trojan’s revised mining plan, which should improve mine owner BNC’s cash flow. 

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

An open-cast coal mine

Altona Energy Plc Says Methanol Production Could Give 18% Revenue Boost

An open-cast coal mine

An open-cast coal mine, of the kind Altona Energy hopes to create to mine its Arckaringa coal resources in Australia.

Micro cap coal-to-liquids firm Altona Energy Plc (LON:ANR) released an interesting announcement this morning.

The firm suggested that it could generate an 18% increase in future annual revenue from its Arckaringa coal resources in Australia, by replacing one of three planned 15,000 bopd coal-to-liquid (CTL) trains with a 6,200 methanol tonne per day coal-to-methanol (CTM) train.

This would have the significant added advantage of enabling Altona to reuse a large proportion of its CO2 emissions, for which it would otherwise have to pay tax or fund a carbon capture and storage scheme.

Today’s announcement is backed by a technical feasibility study produced by ‘the UK branch of a leading international engineering firm’ and Altona now says it will submit the report to its Chinese joint venture partner, CNOOC, for its consideration.

According to Altona, global methanol demand has risen in recent years, especially in Asia, where methanol is increasingly used as a fuel additive and feedstock for a wide range of high value products, including acetic acid, Di-Methyl Ether, formaldehyde, olefins and gasoline. Methanol prices are now averaging $400 per tonne, and Altona’s management believe that by using its coal to produce both methanol and synthetic petroleum products, it could increase future revenues and create an natural hedge against future oil and gas price volatility.

Good and bad?

Today’s announcement was a mixture of good and bad news, in my view.

On the one hand, dynamic, opportunistic thinking is necessary when you are a small company dealing with a large project in a complex and sometimes volatiles commodities market. If methanol production delivered the promised benefits, it could prove to be a masterstroke.

On the other hand, I’m slightly concerned that Altona’s management are making it up as they go along. Altona and CNOOC are beginning work on a Bankable Feasibility Study for the Arckaringa development and will soon need to commit to a definite proposed plan of development.

CNOOC’s response to the CTM report will be interesting, as China’s primary goal in making overseas investments in natural resources companies appears to be to secure future supplies of key commodities, rather than pure speculation.

It seems reasonable to assume that CNOOC has a good understanding of the Asian commodities market, and may — as the project’s primary funding source — have a more conservative viewpoint, too.

Markets liked it

Whatever CNOOC think, investors liked the idea of a CTM plant boosting future revenues. Altona’s share price was up by 50% at one point this morning and looks likely to end the day up by around 25%, at about 1.5p.

Now It’s Time To Deliver

I look forward to further feedback on the CTM from CNOOC, but in the meantime there are two important events on the horizon for which the company has committed to a timescale.

1.) Altona said that it would complete due diligence on its acquisition of a producing coal mine in China within three months of June 27 — so we should expect something in September/October 2013. Successful acquisition of a coal mining asset is important for two reasons, in my view:

  1. It should supply Altona with some positive cash flow it can use to fund its operations.
  2. It demonstrates that the firm is able and willing to continue delivering against its original plan — and that its relationship with the Chinese authorities remains strong.

2.) The second item on the horizon is the start of the Arckaringa test drilling program, which will consist of seven boreholes totalling 1,678m of drilling, plus related testing. Altona expects fieldwork to be underway by October and completed early in the first quarter of 2014.

Successful completion of the coal mine acquisition and the drilling program should provide a major confidence boost for investors, in my view, and I would expect to see further movement in the share price if these two goals are accomplished.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.

A tunnel in a deep mine

Mwana Africa plc Issues Results: Operational Progress Marred By Looming Cash Call

A tunnel in a gold mineJust over a week ago, I said that I would reserve judgement on Mwana Africa plc (LON:MWA) until I saw some more recent financials.

Today, the company published its final results, which were a very mixed bag indeed.

Top-line financials were broadly positive, with one exception:

  • Revenues up 34% to $109.2m
  • Pre-impairment profit of $0.5m
  • Statutory loss of $43.5m, thanks to the $43.7m impairment charge on BNC, which operates the group’s Trojan nickel mine — of which more in a minute

Good news is golden

Full-year gold sales from Freda Rebecca were slightly better than I expected, and came in at 65,350 ounces for the year, a 37% increase on 2012. The mine generated $42.8m of operating cash flow and $36.7m of pre-tax profits.

C1 cash costs fell by 13.6% to $897 per ounce and encouragingly, C3 total costs dropped by 9.5% from $1,231 per ounce to $1,115 per ounce, which is below gold’s June low of $1,180/oz and comfortable below the current price of $1,320/oz.

On the exploration front, Mwana managed to increase the JORC compliant gold resource of its Zani-Kodo project to 2.6Mozs, up by 30% from February 2012.

All of which is good — so now for the bad news.

What about the bad news?

If you own shares in Mwana, you will probably have noticed that the firm’s share priced fell by 25% yesterday, thanks to the firm’s admission that it may soon run out of money.

The underlying problem is that the price of nickel has fallen from $16,500/tonne at the end of last year to around $13,600/tonne at present. At this price Mwana’s BNC Trojan nickel mine is not profitable and thus cannot secure the funding it needs to complete the redevelopment of the mine. The company says it is looking at other options that may be more viable, but in the meantime has impaired almost the complete value of BNC to reflect the uncertainty over the viability of this asset.

At the end of June, Mwana had $5m cash on hand, which it said would enable the firm to continue operating until 31 October 2013. This is based on the assumption that gold production will average $5,955 oz/month, the gold price will average $1,250/oz and other cost-cutting measures will be completed in-line with current plans. These seem reasonable assumptions, but the big question is how and if Mwana will manage to raise some more cash. A rights issue? Debt seems unlikely, given the current weakness of its cash flow situation.

It it the end?

Mwana’s share price has fallen by 75% so far this year. Despite this, its production and exploration assets are not bad — and in isolation, the Freda Rebecca gold mine should remain viable, even at current gold prices.

The company’s 2.6Moz Zani Kodo gold project has promise and may attract investment by virtue of its proximity to Randgold Resources’ Kibali mine, while Mwana’s $25m deal with Zheijiang Hailiang Company to explore 28 of its Katanga copper licences in the DRC is also promising.

Mwana says that discussions to secure the necessary funding are “at an advanced stage” and the Board has a “reasonable expectation” that they will be successful — but of course, like any distressed borrower, the terms won’t be as favourable as they would be at other times.

Finally, hanging over all of this is the threat posed by Zimbabwe’s indigenisation policy, which requires the transfer of 51% of mining operations to local interests. Mwana sold 15% of Freda Rebecca to a Zimbabwean investor last year, but that’s as far as things have gone — so potential uncertainty remains about how and if the indigenisation requirements will be met.

Whether Mwana will overcome these obstacles to realise some value from its assets is uncertain. There’s a real possibility that it may do, but it’s definitely a risky bet at the moment.

Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.