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Tectonic Gold Plc (TTAU)
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Wednesday 29 March, 2023
Tectonic Gold Plc
Unaudited Interim Results to 31 December 2022
Wednesday, 29 March 2023
Tectonic Gold Plc
Half-year Report to 31 December 2022
29 March 2023
TECTONIC GOLD PLC
(“Tectonic” or the “Company”)
Unaudited Interim Results to 31 December 2022
MANAGING DIRECTOR’S STATEMENT
Dear Shareholder,
The half year to December 2022 saw a significant milestone for the Company with the successful completion of our drilling campaign at Specimen Hill. After fires, floods and COVID over the past few years, access to drilling rigs and crew was limited, but we managed to secure a team to complete core testing of the continuity of mineralisation below the old Goldsmith’s Reef mine. Assays returned grades of over 8g/t gold and 5.99 g/t silver at 110 meters down hole, with additional intersections at 240 meters. Goldsmith’s Reef is approximately mid-way along the 4km+ strike that has delivered multiple discoveries for Tectonic between the Main Lodes historic mine in the northeast where we started field work and the Southern Copper discovery in the southwest which is our most recent rediscovery.
These grades are in line with the medium to high grade production reports from historic mining of Goldsmith’s Reef in the early 1900’s. The mine was operated on a small scale down to approximately 30 meters but was abandoned during World War I and never reworked. Tectonic’s advanced geophysical surveying program prior to COVID indicated that the textbook Intrusive Related Gold System (IRGS) structure at Goldsmith’s Reef plunged to over 500 meters depth. With positive gold and copper assays from diamond drilling now confirming continuity of mineralisation, we have been able to extend our database and attract parties into due diligence to discuss a farm out investment into the project. This is well underway and we hope to report progress in the coming weeks. Our objective is to have a well-funded group complete initial resource definition on Specimen Hill with a view to developing it as a copper-gold mining project. Tectonic will utilise all of the experience from Specimen Hill in prosecuting our next project area, Mt Cassidy. This is another textbook IRGS target which has historic workings and drilling. We have conducted our advanced geophysics reconnaissance and identified major structures below the old workings which we expect to see continuity of mineralisation at depth in. We are also in discussion to take our IRGS expertise into international gold exploration opportunities.
…
..The half year saw the team supporting our partnership with London listed Kazera Global Plc (“Kazera”) (LSE:KZG) on the Heavy Mineral Sands (HMS) and Diamond project site in South Africa. Our joint venture with Kazera in HMS in was awarded a mining license. This is the first and so far, only mining license inside Alexkor, the South African Government controlled and operated diamond fields at Alexander Bay. Previous testing has returned exceptional grades of HMS and independent studies conducted for Kazera valued this project at £150 million.
Tectonic holds a 40% economic interest in this project via a non-diluting 10% equity holding in Whale Head Minerals Pty Ltd (Whale Head) and a further 30% economic interest via a sale and loan agreement with a Black Economic Empowerment (BEE) consortium. In order to ensure compliance with South Africa’s BEE regulations requiring mining projects to have a 30% holding by qualifying local investors, when Tectonic sold 60% of Whale Head to Kazera, the Company sold a further 30% to a syndicate of local investors. Pricing for this 30% was based on the £150 million independent valuation conducted on behalf of Kazera. The BEE investor syndicate includes a South African private equity group headed by a highly respected business leader, two experienced South African entrepreneurs, a local community group and an employee group. Tectonic has financed this 30% syndicate with a share loan program under which 80% of the returns to the syndicate are paid to Tectonic until the £45 million in agreed loan value has been repaid.
Tectonic holds a 10% non-diluting interest in Deep Blue Minerals Pty Ltd, Whale Head’s sister company that operates an alluvial diamond concession in the Alexkor mine site. Diamond extraction is a regulated pre-requisite before the tailings containing heavy minerals can be processed by Whale Head. Kazera has announced that both Deep Blue and Whale Head are now funded to bring into production. This could be a significant source of cash flows for Tectonic to fund Mt Cassidy and new projects for the portfolio.
With success in our existing projects, real value being cemented in our joint ventures and new opportunities to take our pioneering work in IRGS exploration offshore, Tectonic is very optimistic about the future for our shareholders
Re-iterating my answer from 29th December but revising based on today's results:
1. Whales Head (40%) and Deep Blue (10%) are in the FY2022 accounts at cost (£1 and £2). These will be revalued at fair value once operational (i.e. in the FY2023 accounts). (Should equate to a £0.5m gain** - or 10% of TTAU's market cap - this is based on KZG's book value - but not based on the independent valuation)
2. Clarification on the sale of Deep Blue 30% to the Black Economic Empowerment local community. The independent valuation is £150m. This values TTAU's 40% at £60m (12x current market cap). 80% of profits repay the £45m loan made to BEE. On the basis that the 30% share of net income is £0.9m/year (conservatively) then £0.72m flows to TTAU reducing from the £45m balance. If you compare my previous answer "what, if anything, we get for the 30%" this revelation is DYNAMITE! In my opinion.
4. Income from the 10% Whale Head and Deep Blue begins. (Worth around £0.3m/year)
5. Meanwhile We await assays on Specimin Hill and news of the JV.... "in the next couple of weeks" so during April 2023?!
6. Kazera is cash rich and investing strongly into the HMS and Diamond operations, has a strategic partner who (guess what) operates a HMS business nearby, is buying Align's 29.9% stake at over 50% premium to KZG's share price.
This share is an incredible bargain right now. The hidden value should reveal itself in the next set of results and on the JV news "in a few weeks". But holders need to remain patient. Bear Grylls could use this share to light a fire after keeping it in his rucksack for a few years it's such a slow burner..... but that's not to say the value isn't there. The catalysts for this to rerate are coming together, not least thanks to Dennis Edmonds leadership over at KZG.
GLA... I'm excited!