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“Someone is sitting in the shade today because someone planted a tree a long time ago!”
It’s true of course and Mr Buffett certainly has a way with words but the reality is, in today’s world of high risk, most people simply don’t have the patience to wait for a tree to grow!
Long term value creation has not been the easiest of sells over the last 18 months, understandably so when there is the spectre for inherent value destruction hiding around every corner. But the market is for turning - and turning it is. This volte-face can create opportunity, provided one knows where to look and is willing and able to read the signs: which is not always an easy task when trudging through the mire of AiM miners and explorers right now.
Of course we are not talking about huge billboards signs with neon arrows pointing down from the sky; rather the steps individual companies are taking to build their business. If investors can find stocks making clear progress and building solid foundations now, at the bottom of the market cycle, then they stand a half decent chance of significant value appreciation in their natural resource portfolio.
A case in point being Alecto Minerals (LON: ALO): On 29th May 2013 the company outlined the terms of a proposed strategic alliance with Centamin plc. In outline, Alecto is proposing to form a joint venture that could see up to $14million invested by Centamin into ALO’s Ethiopian projects (Waya Bodu and Aysid-Meketel).
Given that Alecto’s current market cap stands at around £5m (358m shares at 1.4p mid), the size and significance of that transaction for the company should be readily apparent. Furthermore, Centamin is proposing to invest £250,000 at 1.6p per share (which is a 74% premium to the closing price the day before the announcement and represents a 15% premium to the current market price).
For any AiM company, incoming cash is obviously important; especially when it’s at a premium and at a time when the markets seem allergic to financing exploration companies at any price.
Through this deal Alecto would have a strong partner on board, funding and providing support for operating activities in Ethiopia. Though perhaps of more significance is the fact that it represents a stamp of approval for the work the company has done in securing attractive interests in country and by drawing in a third-party partner of such standing, also demonstrates a significant level of confidence to the market.
Until the announcement Alecto had been trending under the radar, even with something of a critical management development announced on 4th April 2013 when Professor Mike Johnson became the company’s Chairman. The Professor has a longstanding reputation in the natural resources business, having worked with a variety of international mining companies, he has an established technical skillset ideal for Alecto's current operating environments.
So in the last couple of months we have seen a well-known industry technical man taking the Chairmanship, followed by the announcement of a strategic alliance with a major partner covering their Ethiopian interests. Naturally some investors may wish to wait for final confirmation but with the share price now trading marginally below that which Centamin are willing to pay for their ALO shares, the market is clearly demonstrating a fair degree of confidence that the deal will get signed off.
So what can investors expect next from the company? Whilst the Ethiopian operations are the subject of this JV opportunity, the company has operations in Mauritania as well, so it will be interesting to see how they decide to move forward there.
The management certainly seem to be driven; having visited their offices on several occasions, the confidence and determination of the team is palpable. Though for us as investors, it is significant that Alecto is clearly desirous of material growth and development.
The JV with Centamin could be viewed as the culmination of a long process. But we think it may be that the journey is just beginning and we would urge readers to keep this stock on their monitor and watch for news flow over the coming months.
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