Mano River Resources Charts A New Course In Gold, Iron Ore And Diamonds, Backed By Russian Money
By Alastair Ford
minesite.com
These days, says Luis da Silva, “you have to fight that bit harder for every dollar that you try to raise”. There are plenty of people out there who are finding this out the hard way right now, either watching as their companies gradually slip away from them – what price Cambridge Mineral Resources anybody? – or else biting the bullet and accepting financing terms that would have been unthinkable two years ago – well done to Metals Exploration and Freegold Ventures for facing up to new realities. Luis da Silva has been working hard too, to fund Mano River, the company he joined back in February 2007, and which he took charge of in October of the same year. But the issues he’s been facing are slightly different. That’s because since early 2008 Mano River has been cosying up to a rather wealthy Russian partner - Severstal. The Severstal financing of Mano River has been complex, tough to negotiate, and has its own quirks, but when all’s said and done it has left Mano, one of the Aim market’s venerable old-timers, looking rather more secure than some of its arriviste peers.
Severstal is, as Luis is at pains to point out, one of the most transparent of the Russian conglomerates to London eyes, due to the listing on the London stock exchange of its GDR. Thus we can work out in fairly easy back-of-the-envelope fashion that the man pulling the strings at this giant integrated mining and steel concern, Alexey Mordoshov, is sitting on theoretical losses that have racked up to around US$20 billion since the credit crunch began. Ouch! - that mighty financial pain explains why not quite all of the US$12.5 million that Severstal is due to pay Mano River in return for its 61.5 per cent stake in the Putu Range iron ore project in eastern Liberia has come through yet. Additionally it explains why only US$11 million of the US$30 million that Severstal agreed to pump into the local holding company for Putu Range is in. Prudent cash management on the part of Severstal is the way Luis da Silva characterizes it. He has no doubt that the rest of the money will come through on schedule. Which means December 2010 for the remaining US$4.2 million that’s owed to Mano directly, and, as and when it’s required for the remaining US$19 million earmarked for Putu Range. At the moment in any case, the US$11 million already in has been lent back, for some obscure reason, to a Cypriot subsidiary of Severstal.
Such is the complexity of the Russian way of doing business, but Luis da Silva has no complaints. Severstal came in as a shareholder when the idea of this deal was first disclosed to market back in May, taking an initial 6.3 per cent stake in Mano exchange for US$4 million. In light of what was, and is, to follow, it’s understandable that Luis da Silva says “we wanted them to be the major shareholder”. Severstal took the shares at 10p each, which, if you take a look at a Mano share price graph, shows that the Mano boys, Luis and his chairman Guy Pas, timed this deal very sweetly indeed. Mano shares briefly punched as high as the 12p in the weeks after the deal was announced in May. But they’ve been on a downward trend ever since, following the rest of the world’s economy into the doldrums. But no matter, or at least no call for alarm. Severstal stuck with the company, and stuck to their word, even if there has been a small amount of juggling with the location and the scheduling of the funding for Putu Range.
After all, as Luis explains, Putu Range is a project that will need a company like Severstal to get it into production. A working number for the likely capital expenditure required is around US$1.5 billion. That’s a little out of Mano’s league, but given that Severstal posts yearly earnings in the US$5 billion range, certainly not out of the question for Severstal. There’s more to it than that though. Although buying into Putu Range was Severstal’s first African deal, this is nonetheless a company that knows its iron ore. “It is”, says Luis, “a company that is used to dealing with magnetite, as opposed to haematite”. What’s more, at around 40%, the grades at Putu Range are much higher than the magnetite grades that Severstal is used to working with. From that perspective Putu Range ought to be a walk in the park for Severstal. The Russians take over management of the project later in the summer, though Luis emphasizes that nothing will be rushed, and that development will take two to three years at least.
Still, it’s a great result for a company that starved the market of good news for years, especially given that most analysts ascribed minimal or zero value to Putu Range, on the thinking that it was just a hametite cap, and economically borderline. Money’s now flowed into Mano River, Putu Range has been given a nominal US$50 million valuation and Mano is now carried all the way through to feasibility. It’s also well funded to turn its hand back to what it always said it was doing in the region – looking to explore for and to mine for diamonds and gold. To that end, says Luis, Mano will secure new funding for 63 per cent owned subsidiary Stellar Diamonds, with the aim of taking the Kono joint venture with Petra Diamonds into production this year. Meanwhile on the gold side, with a measured and indicated resource of 1.5 million ounces based around the New Liberty project in Liberia to work off, Luis and the rest of the Mano board are currently weighing up options. “We’d like to think we’d be in a position to double the number of ounces we have”, says Luis, but if other targets in the vicinity come up trumps it may turn out that New Liberty may not be the best specific location for a mine after all. A decision on where to drill next will be taken sometime during the current quarter.
All of which leaves Mano River with a nice presentational problem. Does it tell the market that it is an iron ore company, with secondary interests in gold and diamonds? Or does it position itself, as might be thought wise in the current commodities pricing environment, as a gold company with a nice free carry on a potentially huge, but long-term iron ore property, and not bother to talk about the diamonds at all? Working out where the focus was in Mano was always one of the problems the market had with the company in the past. But now, with the Severstal deal moving to the next stage, and the gold properties reaching for an interim two million ounce target, those presentational issues may simply drop away, as the market reverts to doing what it does best – following the money. For now, Mano has plenty enough money to keep all its interests on the go - certainly enough to ride out this year’s market. But come the next round of funding in a year or two, and a decision will really need to be made. At that stage investors may finally work out what the long-term future holds for Mano. In the meantime, ahead of any research from new broker Evolution, there may just be a bit of a historic discount working against the shares. Watching how the venerable Charles Kernot, Evolution’s new star analyst, values the company as it develops will be an interesting exercise. |
