Before we start, can we ask your thoughts on the resource sector and how junior resource companies should react to market conditions?
I think now is a time for companies in our sector to take a good look at themselves. Sector conditions are the worst I think I have experienced in my resource investing career and that has to be a factor taken into careful consideration.
There is too much detachment by some companies from the realities of the private investor, from the people who are the last bastions of investment and support for junior companies. High board salaries that continue to get paid in times of sector crisis are not fair or appropriate. Board directors have bills to pay as do private investors, but salaries should be set at levels that provide recompense for services but not at levels that see boards richly rewarded when the value of shares in their companies are collapsing.
The resource sector generally is pressurised, that much is obvious. We are beginning to see positive moves in underlying commodities, notably the performance of gold and nickel are more than encouraging. We are yet to see the performance of the underlying commodities truly reflected in small-cap and junior equities. The detachment between commodity value and stocks is common during bottoming phases and often present strong buying opportunities in the market.
However for now the small junior companies have to crunch costs, be innovative, maintain communications and focus on the people who can sustain them on the market, principally the private investors who risk a lot by putting their faith on the line and buying shares in small resource companies.
One of the most important questions for investors is whether POW can deliver a strong share price return quickly. Is that feasible?
The ability to achieve share price performance is partly dependent on sector confidence which is very low at the moment, but I have been around long enough to know that periods of attrition do tend to lead quite quickly to very strong market phases so I am optimistic that we are not too far away from increased confidence and a better environment.
Global financial conditions, collapses, recessions and fear of depressions, can interrupt any recovery, but I feel confident that if that happens we are in one of the few sectors that should rise quite rapidly from any setback ass it did after the global collapse in 2008.
Importantly, the POW team and I are focused on delivering on our broad African portfolio including the recent acquisition of further key interests in Tanzania and Botswana, a jurisdiction in which I was previously involved in making a major discovery (T3, Metal Tiger plc).
I see POW entering a news-rich period, ensuring the market, shareholders and prospective investors are engaged with the robust commercial strategy we are currently developing.
The question now is what we do with all our projects, and in the near term, how we handle the impending opportunity to drill major nickel sulphide targets in Botswana and Tanzania. Success with either opportunity will affect the POW market value and provide the momentum needed for the delivery of a strong share price return.
Looking at the Botswana nickel project, what the ownership structure there?
The project in Botswana is the Molopo Farms Complex (“MFC”) project which is the single project held 100% by Kalahari Key Mineral Exploration Pty Limited (“KKME”), a Botswana private company with interests in three licences in south west Botswana and covering approximately 2,700 sq. km.
The deal POW struck with KKME in May 2019 was to invest cash to buy KKME shares, with the money being spent on exploration work. POW now hold 18.26% of KKME.
POW also have the right by 31.12.19 to earn into a 40% interest in the MFC project by committing to spend US$500,000 on the MFC project by 31.12.20, money which would be spent on drilling key MFC nickel sulphide targets.
The 18.26% KKME equity and the 40% direct project interest would give POW an effective project interest of 50.96% in the MFC project.
What is the reason for holding both an equity and project-level interest?
This dual approach was a structure I deployed at Metal Tiger, holding an equity stake in MOD Resources alongside a negotiated project interest (30%) in the project that yielded the T3 discovery and led to all the excitement in both MTR and MOD.
I have been asked a few times why take holding company equity and project stakes. The answer is that when you hold a partial project interest you have a degree of vulnerability. A large third party may come along and buy out the company (that’s happening now with MOD ironically), then you face a large partner holding a project stake that could outspend you and dilute you down. If you hold an equity stake you get the benefit of a big pay off on acquisition and can stand your ground for a lot longer to maintain your project stake if you want to.
There is a buzz building around the MFC project internally and externally. I have followed the project for 18 months and the signs internally are very good. The MFC team are stakeholders in KKME and have refused to take salaries, which is a good indicator of their confidence and commitment.
Through my time at Metal Tiger, I was exposed to the huge value proposition Botswana offered as a highly mineral-rich area in the world. I have been looking for the next big opportunity in Botswana, and KKME was in fact a company in which I personally invested well before my involvement in POW on the merit of the data, history and team that are involved with the opportunity. Some of the shareholders in KKME whom have been involved with the project were involved with Tier 1 mining companies such as Rio Tinto & BHP Billiton.
Was there a lot of historic work undertaken by the KKME-team before POW got involved and could you provide us an overview of the work completed since POW invested earlier this year?
Each stage of exploration has been very successful, from early planning (they have been active for 5 years now on the project), through the helicopter airborne electromagnetic work which defined 17 targets and now with ground geophysics defining 6 primary drill targets, each substantial in size and potential.
We have just received the geophysics report and extracts from that report is to be published on the KKME website in due course (https://www.kalaharikey.co.uk/).
Next thing is for us to work with the POW advisers and liaise with the KKME team to discuss the findings. We have the option to earn into the 40% direct project interest and have to formally make that decision. In parallel there is environmental work to complete, gravity survey work and drilling contractor selection.
POW have confirmed to the market a positive overview of the ground geophysics and it is unquestionable that so far, project wise, all is progressing extremely well. There is a great degree of interest in the project area, and the area is host to some very well know companies.
Turning to the Tanzania nickel project, what’s the plan there?
In Tanzania POW again have secured an equity stake in the holding company Katoro Gold (LON:KAT) and a direct project interest in the Haneti nickel project. The dual equity and project stake has been acquired for the same commercial reasons as outlined with KKME Botswana above.
By way of summary:
- POW currently holds 10,000,000 shares which currently represents 5.90% of Katoro Gold’s issued share capital. In addition, POW also currently holds 10,000,000 warrants in Katoro Gold exercisable at 1.25p (2,500,000 warrants expiring on 15 March 2022 and 7,500,000 warrants expiring on 15 May 2022).
- POW also has a 25% interest in Katoro Gold’s Haneti nickel project in Tanzania, with a right to increase its interest to 35% by a payment to Katoro Gold of £25,000 in cash by 15 May 2020.
I have been following the Haneti project for around 5 years, maybe a little longer. The principal target now is the nickel sulphide target below the laterite, though Haneti is a polymetallic deposit highly prospective for nickel, copper, PGMs, gold, lithium, niobium and rare earths.
It is now time for both KAT & POW to collectively collate all the existing data and to create/structure a program that will isolate key targets and to start exploiting this substantial area.
The Haneti projects sits within Katoro Gold plc, however prior to mid-2018 it was held by Kibo Energy plc (LON:KIBO).
Kibo did some work on the project, resulting in the publication of an airborne geophysical interpretation in July 2015 (https://www.investegate.co.uk/kibo-mining-plc–kibo-/rns/haneti-geophysics-final-report/201507130800058082S/).
Kibo’s focus in recent years has been the advancement of its energy business, as marked by the change of name from Kibo Mining to Kibo Energy in August 2018. The energy projects of that business are substantial and worthy of focus, and reflecting this the Haneti project was sold into Katoro in mid-2018.
I have discussed the Haneti project with various advisers over the years and the central feedback seems to carry two themes;
- To drill the major nickel sulphide targets below the laterite and get the answer to the exploration question of whether Haneti hosts a major nickel sulphide deposit.
- To draw out the full extent of this very large licence package that holds polymetallic status and could host a number of material exploration and development opportunities.
It’s a big opportunity for POW to have a direct and indirect project exposure to Haneti and something we intend to work very hard on in the future with our partners, Katoro.
The holding company of Haneti, Katoro Gold, being listed on AIM in London, means that other investors can also participate in the story with a direct investment in its shares.
Why is POW so focused on identifying Nickel Sulphide targets?
The continuing emphasis on nickel sulphide targets is deliberate. Nickel as a commodity is strengthening, with supply challenges worldwide and evidence of increasing demand, including in respect of growing utilisation of nickel in battery technologies.
The last nickel boom I recall was 2007 when nickel prices reached US$50,000/tonne, today they are sat around US$18,000, so quite a way to go to reach the last nickel boom highs. I remember the reaction of shares focused on nickel during and following the nickel boom period. It was dramatic and the building potential of nickel now makes a focus on nickel projects by resource juniors quite a valid business proposition.
Nickel deposits come as laterites and sulphides and the attractiveness of the latter is well established, with sulphides being easier to process than laterites making nickel sulphide deposits very highly valued. Find a large nickel sulphide deposit and the company is transformed and the lives of shareholders potentially transformed.
How do you sum up the business proposition for POW at this point in the resource cycle?
POW is a public company where the fundamental key metric for success is delivering a strong and growing share price performance for shareholders. We must try to do that no matter what market conditions and I determined a long time ago that the only way to ensure shareholders have the chance of large upside, at any time, is by opening up POW to large scale discovery potential in attractive commodities with robust fundamentals.
POW has four active operational projects that could deliver that, and in the nearer term our focus is likely to be on the drill related activities for nickel sulphides in Botswana and Tanzania.
It’s an exciting time to be on the POW board and driving the company forward. If I can follow the success of Metal Tiger and be involved in the discovery of another major metal deposit it will be a truly fantastic experience. I remember watching the Metal Tiger share price rise from 0.5p to 6.5p in 2 years and the excitement that brought in the company and the way the lives of many shareholders were positively affected.
In a closing note I would like to thank the POW shareholders for their interest in the company and their investment, especially in current conditions. As a company we have to focus on creating a strong business for shareholders and each team member must apply their relevant skills to maximise the company’s position. There is simply no other way.
