Questions Share Talk put to Paul Johnson, CEO of Power Metal (POW.L) Q&A

Here is a list of the questions we put to Paul Johnson, CEO of Power Metal, and we got a great response, please read on.

    • How would you describe your business management approach?
    • How would you counter the argument that you have too many projects in your portfolio?
    • Your business objectives are focused on a major metal discovery, how can you make that happen?
    • You are an accountant with a money focus, so how do you finance this growing portfolio?
    • What are you striving for commercially, what’s the end-game?
    • Notwithstanding the end-game, what would you say to investors holding Power Metal shares right now about how they should approach their investment in the Company?

How would you describe your business management approach?

I think a bit of context would be helpful. In February 2019 we refinanced and restructured the then African Battery Metals plc (name changed June 2019 to Power Metal Resources plc). That involved a £1m financing, a change of board management and an opportunity to reset business strategy.

After a strategic review of existing projects we started to broaden the spectrum of business interests, an acquisitive approach that has continued for 30 months to the present time.

We adopted early on a collaborative management style where all of our current project interests see us working alongside local teams in country and leveraging off their local expertise.

This hub and spoke managerial style has proved fortuitous,with the onset of COVID-19 restrictions severely limiting overseas travel we have largely been able to continue multi- jurisdictional operations, albeit slowed in some instances because of local restrictions.

The volatility in the financial markets over the period since early 2019 has proved to be a significant advantage for the Power Metal business enabling us to build our portfolio on reasonable terms, and with some stand-out interests.

As the business model is now more advanced it’s easier to articulate what we have done and how we have built our business to be in my view a powerful entity now, on first discovery and thereafter.

Inspection of our regulatory news shows a wide scale expansion of our project base across three major metal discovery continents of North America, Africa and Australia.

We have been deliberate in our acquisition approach to focus in these areas and select a project portfolio that covers the key commodities across a range of geological environments and geopolitical back drops. This portfolio construction has been quite deliberate, and having taken place over circa 30 months, undertaken in a measured fashion.

It is our job to manage the challenges that come with all projects to maximise project level efficiency. If we accept each project has the potential to under and over-deliver, our portfolio driven approach shields and protects us from excessive risk caused by overreliance on any specific project. It also exposes us to the upside that comes with demonstrable exploration or corporate success with any of our business interests.

How would you counter the argument that you have too many projects in your portfolio?

In part I wouldn’t disagree, for one junior listed company, we have a lot of projects.

I believe that all of our current projects have the potential to deliver major metal discoveries, but I also accept that it’s highly unlikely they all will. The question is why we have a portfolio as sizeable as we do.

If I can turn to a footballing analogy, the England football manager was able to take 26 players in his squad for the Euro 2020 football championship, despite only 11 comprising a team and taking to the field at any one time. The additional 15 provided managerial optionality, both in terms of game strategy and resilience against underperformance due to, amongst other factors, player fitness and ability to perform at any specific time.

For Power Metal, we don’t have players as such and instead a broad spread of projects and therefore we have in-built optionality and flexibility as we advance our portfolio forward. Our portfolio is larger than perhaps we need to deliver our business objectives, but certainly gives us more shots on goal.

I think we have 6 or 7 junior resource companies in one wrapper – Power Metal Resources plc, and although the spin-out approach will reduce that, it’s still a big operation.

We handle such an immense operation, and portfolio, carefully. In the main it’s down to the relentless work and commitment of the plc team and our partners in-country.

But there are other factors that play a part including the role of the central plc and the issue of economies of scale.

Each listed company has core costs and managerial time requirements, often related to maintenance of their listing.

The normal junior resource model is to have a small number of early-stage projects in one listed wrapper and there a disproportionate amount of money and managerial time that go maintaining the plc and less into advancing projects.

Power Metal, therefore, has a strategic and financial advantage with only one core plc at the moment so we cover corporate plc costs and managerial time commitments comfortably, and specifically, our financial resources can be largely expended on project advancement.

The greater the proportion of financial and time resources we spend on projects the greater the value creation that possible within our project portfolio. And that’s whether we are investing in projects which will be held long term within Power Metal or building the value of projects we intend to form part of spin-outs into new vehicles.

Your business objectives including making a major discovery – how do you make that happen?

If you look at this commercially there are a number of major hurdles to overcome to get to the point of discovery, firstly the quality of projects in the portfolio.

We have preferred to secure projects that are less popular and less expensive, and you can see that permeating our business model where we have taken ground positions and exploration projects before an area becomes popular (e.g. Australia Victoria Goldfields, Canada Hemlo-Schreiber, Botswana Kalahari Copper-Belt, Australia north Paterson, etc).

When you can buy into quality projects before the commercial herd, you could be in for a long wait but ultimately sat on highly valuable strategic interests. Fortunately, and perhaps fortuitously, we have done well with timing and the herds are already massing in regions around many of our interests.

After consideration of the projects, any junior resource company needs recognition by the market and investors in general. We are making good steps forward with recognition and need to keep up the momentum with regulatory news and supporting material to help our shareholders assess and appreciate the geological propositions.

As we move along the discovery pathway with our exploration work, our larger more diversified business model could at times mask the progress being achieved. It is fair to say the release of high grade results or large-scale anomalies stands out in smaller more focused companies and draws investor interest.

For example:
– 24 g/t gold over 7.6m near-surface, or
– 14,937g/t silver from channel sampling, or
– A 25-year granted production licence for a copper-cobalt project, or
– 12km copper-silver anomalies just down the road from other major discoveries, or
– One of the largest licence footprints in an area of geological significance.

Shareholders of Power Metals may note that the above actually come directly from Power Metal’s existing portfolio and from announcements we have already released to the market. They are summarised in more detail below with dates of the relevant market announcements:

Quality projects and recognition of their value ultimately attracts capital, notably in the regions where interest grows as highlighted above. That capital includes on market buying, access to market financings, project-level investment and institutional support.

Having a strong balance sheet to invest in projects is also important to the discovery potential of any portfolio, and we cover this in a question below so more there.

With quality projects, market recognition and financial capability to explore, we can circle back to the question – how do you make discoveries happen?

Discoveries are commonly and quite rightly perceived as coming through drilling and there is much excitement as the drills turn and whilst awaiting results.

There can be overconfidence and pent up excitement based on the premise that drilling should lead to an immediate discovery. Undeniably some can, and the chance of success depends heavily on the preparatory build-up as pre-drilling exploration refines understanding and drill targeting.

Much drilling though lends significant advantage to the exploration company by providing evidence of sub surface geology that can be matched with above or at-surface exploration work to refine geological understanding and potentially allow follow on drill programmes to be focused on enhanced areas of potential discovery.

At Power Metal in Q4 2020, we began to orient our work to more of an extensive exploration focus and have undertaken three drill programmes at Silver Peak (Canada), Molopo Farms (Botswana) and Haneti Nickel Project (Tanzania).

The results have been fortunate and positive with high-grade silver from Silver Peak, significant nickel at Molopo Farms and confirmation to proceed to deep diamond drilling at Haneti.

In fact, Power Metal has 7 projects with drilling already highlighted in regulatory announcements as one of the next major steps for project development, and there may well be more as further work is undertaken and next steps announced. See below:

The table shows the extent of planned activity, particularly for those investors who like to drill programmes running.

Considering the number of upcoming drill programmes planned, and the exploration activities across other projects not listed in the above table, I feel very positive that we have multiple opportunities to make the major metal discoveries we seek.

You are an accountant with a money focus, so how do you finance this growing portfolio?

The amount you have to finance a portfolio depends on the underlying ownership structure and commitments.

Many of our projects are joint ventures where we share the costs with partners. That helps keep costs manageable. Also the underlying transaction terms we agree on new acquisitions have always been carefully controlled.

We have regularly published our working capital position to demonstrate where we are as a business and underlying financial robustness. For reference the last publicly announced working capital position (including cash and listed investments only) was £2.57million announced 26 May 2021.

Power Metal have been able to go to the markets to raise additional capital which is the normal financing route for junior exploration, although our preferred approach is to aim for financial self-sufficiency by building our own “balance sheet” strength.

Going forward we have multiple potential streams of incoming working capital which include but are not limited to: exercise of remaining financing and transactional warrants, potential returns from investments we hold and through the planned spin out of certain interests.

What are you striving for commercially, what’s the end-game?

To deliver a major return on capital for our shareholders (which of course I would say as I am the currently largest notified shareholder in the company – so getting the share price as high as possible is a personally driven objective).

To do this we push hard for that first major metal discovery, and then when successful we use that first discovery to drive our wider business forward, going for real scale and growth.

We don’t rely solely on exploration success, however confident we are, and we seek to grow our “balance sheet’ through corporate activity including disposals, joint ventures and spin outs, as well as growth of our underlying listed investment portfolio.

So the end-game is pretty straightforward, to have a large resource exploration powerhouse that has delivered multiple discoveries and corporate value events.

Notwithstanding the end-game, what would you say to investors holding Power Metal shares right now about how should they approach their investment in the Company?

Glad to have you as a shareholder.

It’s not my position to give investment advice, and particularly not with regard to Power Metal – the CEO position does make me biased to a degree apart from anything else.

That said I think we have created one of the best pound for pound resource exploration companies in London. I think we are sat with numerous major value drivers in the balance of 2021 and it’s my job as CEO to deliver success.

You can see what we are driving for above and through our news updates to the market to date. At the end of the day the question for all shareholders and investors considering a position is can I and my team deliver.

If shareholders can hold follow the story and watch as developments transpire I believe we can do something quite unique in the coming months and years.

Paul Johnson (Chief Executive Officer)

+44 (0) 7766 465 617

Notes to Editors:

Power Metal Resources plc (LON:POW) is an AIM listed metals exploration and development company seeking large scale metal discoveries.

The Company has a global portfolio of project interests including precious, base and strategic metal exploration in North America, Africa and Australia. Project interests range from early stage greenfield exploration to later stage exploration prospects subject to drill programmes.

The Board and its team of advisors have expertise in project generation, exploration and development and have identified an opportunity to utilise the Company’s position to become a leader in the London market for investors wishing to gain exposure to proactive global metals exploration.

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