We spoke with Power Metal Resources plc (AIM: POW) Chief Executive Officer Paul Johnson to catch up on developments at Power Metal.
The market seems to be dismissive of resource exploration companies at the moment. What is your take on this?
I think this is what gives our sector the ability to deliver outsized returns for investors.
The junior resource sector is highly cyclical, it runs up, then down, then up again. I learnt long ago to avoid the mistakes that come in periods of peak emotions, over confidence at highs and depleted confidence at lows. So as a private investor, I am frustrated to a degree but mainly undaunted, it’s a patience game to the big returns.
As CEO, what concerns me the most is that the value of what we are doing at POW is judged almost entirely by our share price. As we are in the depths of a market low at the moment, one might wrongly assume a low level of performance within our overall business. This could not be more wrong, we have added considerable value to POW within the last year through positive exploration results across various projects, significant progress across multiple company spin-outs, as well as various exciting property acquisitions. Therefore, as CEO, all I can do is continue to drive underlying value for the business, regardless of market conditions, knowing that the share price will eventually be reflective of the progress the business has made during this time period. Shareholders don’t pay me to complain, but to get on with the job.
So you feel the market undervalues POW at the moment and what’s your response if you consider that to be the case?
I do, and ultimately I take responsibility for that as Chief Executive Officer. What matters is what we do notwithstanding general market conditions.
Three years ago I saw an opportunity for us to acquire and build our project portfolio out, while valuations for the better properties were reasonable and certain plots of high-value ground were available for staking. Once acquired, we made a commitment to undertake early-stage exploration across all ground acquired in order to increase our geological knowledge and the inherent value of each project. Today I can say we have done that with targeted exploration across all 15 project packages. The inherent value of most of our projects has increased substantially as a result of this work.
The main goal now is to demonstrate this value enhancement project by project, which is already starting to happen with the planned IPOs. For example, the valuation for a specific project package can be established following completion of a pre-IPO financing – with further crystallisation of this value following a successful IPO financing (at the early stage Pre-IPO level our holdings in planned IPOs First Class Metals, Golden Metal Resources and First Development Resources have a combined value of c. £7,000,000 from just 20% of our project packages across the business.)
You seem determined to build your balance sheet, what are the factors that drive this?
This is true – we are extremely determined to build the POW balance sheet, and its already happening. From our audited accounts at 30 September 2020 POW’s total assets were c. £2.7million. The last reported unaudited total assets at 28 February 2022 from our last quarterly report were c. £11million. So in the space of 17 months we have seen an increase of over 300%. Naturally, we are focused on continuing this trend.
A strong balance sheet gives a junior resource company optionality including funding extensive exploration across various projects and a return of value through distributions to shareholders. It also emboldens your public financial self-sufficiency which is helpful in any capital market.
Can you summarise what project interests you are looking to secure value from through spin-out disposals?
We summarised some of this in our announcement on 1 June 2022:
– Disposal of the Company’s Schreiber – Hemlo interests in Ontario, Canada, into First Class Metals plc (“FCM”) in September 2021. Power Metal currently has a 36.3% interest in the issued share capital FCM, which secured Pre-IPO financing in September 2021 and is seeking a planned listing this quarter.
– Golden Metal Resources plc (“GMT”) focused on exploration and development interests in Nevada, USA, currently 83.13% Power Metal owned. GMT secured Pre-IPO financing in December 2021 and is seeking a planned IPO listing this quarter.
– First Development Resources, currently 82.78% Power Metal owned (62.12% following completion of the pre-IPO financing announced 1 June 2022) focused on Australian exploration interests and seeking a listing in Q3 2022.”
We continue to work on the potential spin-out listing of other business interests. This includes our Victorian Goldfields joint venture with Red Rock Resources plc (LON:RRR) held through New Ballarat Gold Corporation plc (“NBGC”) where we hold a 49.9% interest.”
In addition we have a number of other work streams underway in respect of other project packages where we are seeking disposal/spin-out value generation. There will be separate announcements on each project package as material developments occur.
After the main spin-out disposals have been achieved what lies ahead for the business, do you continue with acquisitions or begin to focus on what you have left in the portfolio?
That’s a great question and one we have partly answered publicly by saying we are not currently looking for acquisitions, unless exceptional opportunities arise (and we mean exceptional) or to further diversify our uranium focused interests.
Any specific developments we would of course announce to market, however the business strategy and implementation thereof has run and will likely run like this:
Feb 19 to Dec 21 – acquire projects to build the portfolio, undertaken exploration work to build value across all projects.
Sept 21 to date (and continuing) – secure value crystallisation from the portfolio across all project packages suited for spin-out disposals including through the IPO route.
Going forward – increasingly focus on remaining interests to narrow down project spend and market attention on a more limited but acutely valuable POW project portfolio. All this supported by a substantial balance sheet providing financial self-sufficiency for the business. We have been quite vocal about our wish to build POW uranium interests and continue to work on this quite actively.
So far we haven’t touched on exploration discoveries, what is the company’s approach to making those discoveries and how is that progressing?
Yes, that’s central to everything we do. The disposals in all forms will give POW a holding in the recipient vehicles who will be independent of POW with their own management, strategy, operations, drive and importantly financing. That independence means a project package can receive dedicated attention and financing allowing them to better hunt for the discoveries (or in the case of Golden Metal Resources to build on the existing substantial “discovery” at Pilot Mountain in Nevada, USA.).
For project packages that leave the POW business we reduce ongoing financial obligations, but remain highly levered to possible upside through significant share and warrant holdings within the respective spin-out companies.
For projects we retain, we use our in-house capability to drive those projects forward confidently – always ensuring that we articulate to the market the potential of each project, the work programmes underway and the outcomes we seek. That focused exploration work on our retained projects, supported by our growing balance sheet, gives us multiple opportunities to drive significant value for our shareholders.
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