Very speculative16 Nov 2014 14:28
Connemara, a contrarian resource play?
Although most commodities have fallen in price over the last year, one commodity to buck the trend is zinc. With several large mines scheduled to close next year, such as the Century mine in Australia and Lisheen Mine in Ireland, and also a lack of new and large zinc mines scheduled to come on stream in the near future, zinc prices have risen by 19% in the last 12 months. Several of Connemara Mining’s projects are prospective for zinc, including Oldcastle, which we believe could be drilled in the coming months by JV partner Teck.
The oversubscribed £400K (gross) Placing at 2p in September 2014 provides Connemara with sufficient funds to meet current project commitments in Ireland for around 12 to 24 months. The interests of directors who own (together with family) around 26% of the Company are closely aligned with those of shareholders. Two of the directors supported the recent Placing, subscribing for £50K of shares in total.
An ultra low cost exploration strategy that involves farming out larger projects to JV partners, ensures cash burn is minimised and shareholder value maximised.
Many of the Group’s projects are near existing discoveries and mines. The Donegal project is close to Dalradian’s Curraghinalt 3.5m oz gold deposit. Other licences have been secured by Connemara due to their close proximity or similar geology to the mines at Galmoy, Lisheen and Tara, or near discoveries such as Pallas Green.
The recent addition of the Rapla licence could prove timely, as it is surrounded by ground held by Vedanta. We believe the mining major will increase exploration activity in the area over the coming year with the goal of locating new zinc discoveries, as its Lisheen mine its due to cease production next year.
Potential drilling and exploration newsflow results within the next few months could come on the Teck JV at Oldcastle, where the main exploration target is zinc and also the gold prospective Hendrick JV in Wicklow/Wexford.
As Connemara’s projects are at the pre-resource defintion stage, it is not possible to compute a share valuation. Further exploration work at Stonepark by JV partner Teck, a discovery at Oldcastle (zinc/lead?) or Mine River (gold?) could justify a valuation calculation. We nevertheless believe a market cap of £0.84m seems far too low considering the exposure it provides to a Group with 30 licences in a proven mineral rich island. Some of these projects have potential to surprise the market, should a discovery be made on Connemara’s licences or by other prospectors on adjacent acreage. We are also aware the management are seeking to add new projects to the Group, which could be either in Ireland or elsewhere in the world. Again, depending on what they are and the terms, they may have potential to surprise the market.
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