Angus & Ross May Be In The Ninety Percent Club, But It’s Suddenly Attracting The Attention Of The Bulls
By Alastair Ford
minesite.com
Why did Angus & Ross shares jump by nearly 300 per cent last week, when all the company did was announce an off-take agreement on the future production of lead and zinc concentrates from its flagship Black Angel mine in Greenland? As you might expect, the agreement, with Swiss-based commodities trader MRI Trading, links the price of the concentrates in question to the LME price, with various provisos allowing for treatment charges. Well and good. But at the current prices for lead and zinc such an agreement, though it may well be valid for the life of the mine, looks all but academic. Nicholas Hall, Angus & Ross’s chief executive, fairly concedes that Black Angel needs a sustained zinc price of US$1,500 a tonne if it’s ever to get off the ground. At the current US$1,200 per tonne price Black Angel looks dead in the water.
But it turns out - to the surprise of some - that the market doesn’t quite see it in those terms. For one thing Angus & Ross is a fully paid up member of what’s become known as the 90 per cent club – those companies that have seen 90 per cent or more of their market values wiped out since the height of the recent boom. This club has a dispiritingly large number of members, the majority of whom are perfectly decent and respectable miners. Angus & Ross surely falls into this category. It may have flailed around a bit in its early years, accumulating properties here and there, some of which remain on the books as legacy assets just awaiting the right moment for a sale. But lately the focus has been firmly on Black Angel, an old zinc mine that Angus & Ross wants to start up again. A few months into 2006 the market thought this idea merited an Angus & Ross share price of around 27p. Now the company trades at around 2p.
That’s a lot of value being discounted out of an asset that’s still the same over a relatively short period. But take an even shorter period, and the re-rating in the other direction is even more remarkable, at least in percentage terms. This time last week the shares were trading at a mere 0.5p. Then the company released its announcement about the MRI off-take agreement, and around 10 million shares changed hands during the next couple of days. That amounts, very roughly, to around five per cent of the shares on issue. Nicholas Hall concedes that the company had anticipated that the MRI agreement would be price sensitive, but not that it would be quite that price sensitive. Still, you can’t second guess the markets, even if markets do try to second guess companies. One reason why Nicholas Hall was particularly cautious is that Angus & Ross is in the process of re-scheduling its US$12.5 million debt to investment fund Cyrus Capital Partners. This will no doubt involve the issue of some equity, as Cyrus’s original warrants were set at 20p, but it wouldn’t have looked too good if company and fund had nailed down an equity issuance only to witness a significant share price rise on the MRI news. If they had gone down that route and the price had risen by as much as it did there would have been howls of protest.
Still, so much for hypotheticals. What the MRI news demonstrated to the market was firstly that Angus & Ross was still alive. And secondly, that it was kicking. Or to put it another way: with the off-take in place, the company can now re-negotiate its debt, and whether or not it’s a sign that times are changing yet again, or whether it’s just specific to Angus & Ross, Nicholas Hall isn’t at all concerned about the re-scheduling. He’s actually bound by a confidentiality agreement, so can’t be specific, but the following gives a clear idea of where he thinks Angus & Ross is heading: “The support we’re getting from Cyrus is tremendous. With Cyrus as part of our team, we will exploit successfully the Black Angel mine”. Not much room for doubt there. As far as the project goes, there has been some re-jigging of plans, under the watchful gaze of technicians from Wardop and SGS. The idea now is to site a mill inside the old mine and to ship the concentrates down in a cable car. Contrary to what some malicious naysayers in the market might be whispering, Nicholas Hall says that the cable car is “fit for purpose”, and that it is being built by one of the world’s leading cable car companies. Some work on said cable car may get done this summer, depending on available finance.
The other factor that helped move Angus & Ross shares so significantly was that in some quarters a certain bullish sentiment about the outlook for zinc is beginning to be discernible. This is evident amongst the brains and the brawn at Ocean Equities, where analyst Simon Gardner-Bond has had a favourable view on the metal for at least a couple of months now. Angus & Ross’s own literature likes to cite research from Canadian investment company Octagon Capital, which argues that 2009 will be the year of the zinc miner. Nicholas Hall points out that if Octagon’s projections for the zinc price turn out to be correct, then by the fourth quarter of this year, Black Angel will clearly be economic. It can operate, he emphasizes, at costs of around US$1,000 per tonne. But this is before financing costs are taken into consideration. To get the thing built will mean that the zinc price needs to be sustained at around US$1,500, as we said at the beginning of this article. The buyers of those 10 million shares clearly think this is a proposition that’s not out of this world, as to Cyrus and MRI. Who are we to argue with such positivity at a time like this? |
