Power Metal Resources’ (LSE:POW | FRA:2M5) business model may have been overlooked before, but now is the time to sit up and take notice of its impressive potential.
Speaking last week, chief executive Paul Johnson walked Mining Maven through the firm’s “dual model approach”, which involves using spin-offs to help fund other projects and increase working capital.
Right now, Power Metal has nine projects in its portfolio, with plans to spin out some and develop others internally.
In a glowing research note, First Equity analyst Jason Robertson recently gave the firm a buy rating, highlighting that there was “enough quality of prospective projects and assets within the group to form the basis for at least five or six separately listed companies”.
This echoes Johnson’s comment that, when looking at Power Metal, “you're effectively buying five or six exploration companies in one wrapper”.
Johnson explained that the firm’s approach, which involves handing over project responsibility in exchange for shares and warrants, is “designed to generate its own working capital”. Power Metal can then sell shares in spin-offs in order to bring in more funds for the projects it develops internally.
And Power Metal has some seriously high-calibre projects in its war chest.
For example, it has a 49.9% stake in a JV, known as Red Rock Australasia, which is focused on Australia’s sought-after Victoria goldfields. Gold projects in Victoria are attracting sizeable interest at the moment after the “remarkable discoveries” made at depth in the state’s Fosterville mine. The JV partners plan to list core Red Rock Australasia assets through a Canadian IPO.
Elsewhere, Power Metal has also earned a 35% interest in the Haneti project in Tanzania. This is prospective for nickel, platinum-group-elements (“PGE”), cobalt, copper, gold, and lithium, and drilling is already underway.
Meanwhile, another powerful asset for the firm is the Molopo Farms Complex (“MFC”) project in southwest Botswana, where it is targeting nickel, copper, and PGEs. Power Metal has secured a 40% direct interest in the MFC project by spending $500,000. It also holds an 18% stake in the company that owns the MFC, Kalahari Key Mineral Exploration. Combined, these give Power Metal a 50.8% effective economic interest in the project.
Johnson explained that, when it comes to choosing projects, Power Metal focuses on “great diversification across commodities, jurisdictions and types of geology”. Spreading operations across North America, Africa, Australia, offers “inherent protection against geopolitical risk, operation risk, and financing risk,” he added.
Johnson also stressed the importance of “large-scale” projects, with the scale being Power Metal’s “predominant focus” when it comes to new project acquisitions. That can be from a corporation or an exploration perspective.
The chief executive has also made a unique vow not to conduct heavily discounted financing, a commitment that is made possible thanks to funds from spin-offs.
“Yes, we’re on a public market and we can raise money if required, but I’ve given a commitment that we will not do heavily discounted financing,” Johnson promised.
The company’s share price is down 15% year-to-date, but up more than an incredible 850% on a one-year basis at 2.49p.
This only adds to Power Metal’s appeal, as the current dip is likely to be temporary given the company’s strong and diverse project interests.
Moreover, Johnson’s pledge on financing gives shares an edge in the small-cap mining space, where heavily discounted placings are par for the course.
He pointed out that investors are often frustrated when they buy a share at 3p on the market, only for a company to turn around the next day and announce a 2p financing. Thanks to its dual-model approach, Power Metal avoids this and helps shares keep hold of their value.
When factoring in this aspect, as well as potential upsides from its projects, it’s hard to argue that Power Metal’s £28.5 million market cap is an accurate reflection of value.
Not only does Power Metal have gold investments at a time of high prices and strong safe-haven demand, but it also has investments in battery metals like nickel, cobalt, and lithium during a worldwide electrification boom. In the US alone, the Biden administration is rolling out a $174 billion plan to drive electric vehicle adoption and development.
On top of that, the company is focusing on scale, meaning that newer projects are likely to get bigger and more impressive over time. This can only spur Power Metal on to greater heights.
Author: Anna Farley
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