African Battery Metals (LSE:ABM) has been on something of a roller coaster ride over the last few months. After its shares were suspended at the end of 2018, in the face of financial uncertainty, a successful refinancing programme allowed the company to return to trading in February with no debt and a healthy cash runway. Alongside this newfound financial security, the organisation has also undergone a significant management restructuring that has seen industry veterans Paul Johnson and Andrew Bell both become executive directors.

As it stands, African Battery’s shares sit at 0.4p to give the business a modest valuation of just £1.33m. In this two-part interview, Johnson talks us through Bell and his plans to build on this base by using the firm’s strong core offering to create value for both new and existing shareholders.

New beginnings

African Battery’s significant transition began in December last year with the suspension of its shares pending clarification of its financial position. In an accompanying statement, the company revealed that it had been unable to secure equity finance with its largest shareholders despite ‘protracted discussions’.

Following this considerable setback, the firm took a significant step forward at the end of January when it revealed a restructuring and refinancing package. This was centred around a £1m fundraise at 0.5p per share with two-year warrants attached. This would enable it to pay off all of its material creditors, leaving it debt free with a cash runway of at least 12 months. 

Critically, the arrangement also proposed that African Battery’s then-CEO Roger Murphy and executive director Matt Wood would step down from the firm’s board. Meanwhile, well-known AIM figures Andrew Bell and Paul Johnson would both join as executive directors and take part in the placing. Johnson is an experienced public company director who has previously served as chief executive of Metal Tiger, Metal NRG, and China Africa Resources. He has also been chairman of ECR Minerals and non-executive director of Greatland Gold, Papua Mining, and Thor Mining. Bell, meanwhile, has worked in the natural resources sector since the 1970s and is perhaps most recognised as chairman of Red Rock Resources and non-executive director of Jupiter Mines.

Johnson tells us that he and Bell’s engagement with African Battery arose from their long-standing interest in its operations. As a result of this awareness, the pair were keen to look at ways of fixing the firm’s financial situation as soon as they heard of its suspension:

‘African Battery has always had a healthy amount of interesting news flow,’ Johnson tells us. ‘When it announced that it had suspended, it seemed obvious to us to look into what problems existed and whether they were fixable. These days, AIM operating companies with some cash, no debt, and some potential forward momentum in operations can be highly valuable. We pretty quickly concluded that we could resolve the company’s issues, and felt that this represented a great opportunity.’

Johnson says he also feels that current market conditions represent an opportune moment to get exposure to battery metals. Indeed, once obscure materials like copper, cobalt, nickel, lithium, and manganese are now being hailed as the ‘new precious metals’ due to their use in the next generation of batteries. These have many applications, but their most notable us is arguably in electric vehicles (EVs).

Alongside supply-side limitations, many expect the anticipated, global shift towards EVs over coming years to lead to an explosion in the price of elements associated with their construction. For example, the market for cobalt alone is expected to double over the next four years and quadruple by 2028 due to an unsteady supply pipeline for the metal and its use in around three-quarters of EV batteries.

‘You just have to look at all the facts about battery metals like forward supply/demand dynamics and underlying factors that would drive demand to see an opportunity,’ Johnson explains. ‘There has not been growth in mining, exploration, project development, and new mines for these metals, and that is affecting supply. Meanwhile, as everyone knows, battery metal demand is increasing dramatically and is expected to continue rising.

This is really an unusual situation. We have actually got supply and demand factors that could hit prices positively at the same time. For example, do I think copper is going to stay at its current, depressed price forever? I doubt it. Likewise, nickel looks to be on a significant, overall, rising trend. I think we are set for an excellent growth period and this is the perfect place for us to be.’

Operational review

Several weeks after the refinancing was announced, Johnson and Bell’s proposals were passed by shareholders, prompting the pair’s appointment and the restoration of trading in African Battery’s shares. Since joining, the two executive directors have been busy completing a thorough strategic and operational review of the business.

On the financial side, this has seen them cut corporate costs to minimal levels and amend boardroom pay to ensure directors’ salaries are transparent and reflect both performance and African Battery’s cash position. Elsewhere, in early March, the business announced that it has now paid all material creditor balances through cash or share settlement. As such, it no longer has ‘material debt’ and substantial working capital.

Meanwhile, on the operational side, the pair are also conducting a review of each of African Battery’s existing project interests. To date, the company has committed to proceeding its 70pc-owned and operated Kisinka copper-cobalt project in the Democratic Republic of Congo (DRC). This decision followed a visit by Bell in February, which included meeting with project vendors and local technical advisers.

The company is now liaising with its geological team to prepare a next-stage exploration programme for Kisinka. This will be optimised using previous exploration data, and modifications have been made to earlier plans to maximise cost efficiency. Meanwhile, the organisation has now made all outstanding project payments to Kisinka’s vendor and completed all the changes required to comply with the DRC’s new Mining Act.

After reviewing historical data, African Battery has also committed to continuing its work in Cameroon. Through its subsidiary Cobalt Blue Holdings, the company holds four nickel cobalt licences in the country either adjacent to or within 50km of the Nkamouna/Mada project. This is the most significant undeveloped cobalt resource outside the DRC and has a NI 43-101 compliant resource of 323Mt at average grades of 0.21pc cobalt, 0.61pc nickel, and 1.25pc manganese. Cobalt Blue also holds two licence applications at Ntam Est and N'Gaoundere.

African Battery is now devising a forward work programme for Cobalt Blue’s assets that will prioritise the highest-profile targets as determined from work undertaken and reviewed to date. In an announcement, Johnson said the business would like to begin its work as soon as possible so it complete before heavy rains expected after June.

Bell and Johnson are now completing a review of African Battery’s final interest in Côte d’Ivoire. Through its subsidiary Regent Resources Interests, the business can earn into 70pc of the Lizetta II chrome, nickel, cobalt exploration licence in the country. An independent assessment of the project, which is based near the country’s commercial capital, has confirmed its potential to host cobalt, nickel, and chrome mineralisation of economic potential. It has also proposed an initial field programme consisting of historical data compilation, geological mapping, geophysical surveys, trenching, and RC drilling.

Johnson tells us that he and Bell are using a three-stage process to review African Battery’s existing portfolio:

‘The first stage of this process is to look at each project and its potential. Here, we want to work out if the asset can, on its own basis, engage the market, create value, and be a decent addition to African Battery’s portfolio. Then, if we do decide to proceed with a project, we will announce this to the market,’ he says. ‘Following this, the second stage is to review how best to take the project forward. We look at where we can spend the money in a way that creates the most value for shareholders. This could be on something like an exploration programme or a development programme. Once we have worked out the best approach possible, we will then announce this to the market. Finally, the third stage is to get on with the planned work and start taking the project forward.

Author: Daniel Flynn

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

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