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The year 2020 has already delivered what HM Queen Elizabeth would refer to in her end of year speech as an Annus Horribilis. It is still only April 2020, and Covid-19 continues to wreak almost biblical levels of havoc and human tragedy across the globe. In our previous article on junior gold explorers, we stated that it seemed trite to discuss investment opportunities in the midst of the ongoing battle against CoronaVirus. But life does go on, and so does mining exploration, even with the movement restrictions currently in place.
Gold Set To Rebound Following Monetary Stimulus Measures
Although gold has retreated from the late March highs of $1700 oz, at $1646 the yellow metal still sits close to year highs, well above the 2019 highs of $1277 last August.
Kitco, a website dedicated to gold and metals believes a major rebound in gold is just around the corner as prices look ready to surge on massive global monetary policy stimulus and unprecedented fiscal policies. United Overseas Bank (UOB) head of markets strategy Heng Koon said their forecast is “for gold to rebound significantly in the quarters ahead to USD $1,650 in 2Q20, $1,700 in 3Q20, $1,750 in 4Q20 and $1,800 in 1Q21.”
“Once the USD funding crunch potentially dissipates across 2Q20, massive global monetary policy easing coupled with unprecedented fiscal policy stimulus will light the fuel for further gold strength.”
Heng also added that global central banks “have not only floored rates near zero but many have also entered into large Quantitative Easing programs. These significant stimuli bode well for gold and will be the fuel for gold’s rally once the USD funding crunch abates across 2Q.”
This compelling backdrop continues to drive healthy levels of investor interest in junior gold explorers. Across the globe, the focus on gold is manifesting itself in investor speculation into small cap explorers with quality projects. Most small explorers however only have one or two key project in their asset arsenal, leaving little room for any disappointment. However, there are a handful of micro-cap gold exploration plays offering a broad spread of assets, and consequentially an attractive risk profile with significant upside potential.
Once such company is AIM listed ECR Minerals (AIM: ECR), which has 100% ownership of five gold exploration projects in Central Victoria, Australia, and four exploration licences in the north-eastern Yilgarn region of Western Australia.
ECR’s Bailieston at the Centre of the Current Gold Exploration Boom
ECR’s Victoria projects include Bailieston, Avoca, Timor, Creswick and Moormbool. Indeed Bailieston, which targets epizonal / epithermal gold mineralisation of the Melbourne Zone, is at the epicentre of the current gold exploration boom in Victoria, being located close to the highly successful Fosterville mine owned by Kirkland Lake Gold. Recently, Australian mining giant Newmont arrived in the district with an application for ground immediately to the north of the Black Cat prospect.
Study Data Endorses Creswick Potential
During Q4 2019, ECR reported ‘nuggety gold mineralisation’ in the Dimocks Main Shale prospect at Creswick, some of which proved to be exceptionally high grade. Creswick has long been viewed as a potential pivot project for ECR after the highest grade duplicate result of 80.97 g/t gold came from a 1 metre interval that originally assayed 44.63 g/t, confirming the original findings announced on 8 May 2019.
On March 27th, ECR announced the results of a study carried out by Dr Dennis Arne, a pre-eminent consulting geochemist in Victoria, whose experience includes extensive consultancy at the highly successful Fosterville gold mine in Central Victoria owned by Kirkland Lake Gold.
The well-regarded Dr Arne’s involvement was seen as a solid endorsement of Creswick’s potential, and indeed the results did not disappoint, as ECR CEO Craig Brown pointed out.
“We are very pleased with the results of this study, which show good indications of hydrothermal fluid flow related to gold mineralisation in a number of drill holes at Creswick. Importantly, the variation in the results, with some areas ‘lighting up’ and others not, is potentially useful for identifying gold-bearing shoots.”
Brown added that the results “underline the significant gold exploration potential that we believe exists at Creswick, where our tenement position covers approximately seven kilometres of the Dimocks Main Shale (DMS) trend, of which our 2019 drilling tested only approximately 300 metres.”
ECR’s Windidda Gold Project, based in the Yilgarn region of Western Australia originally consisted of a package of nine exploration licence applications covering a 1,600 square kilometre area with the potential to host komatiite hosted nickel-copper-PGE (platinum group element) mineralisation, as well as orogenic gold. Five exploration licences have been granted, and in its full year results statement at the end of March 2020, ECR said the remaining four licence applications had been withdrawn, in light of objections to the expedited grant procedure from native title parties and the findings of preliminary desktop work to assess the prospectivity of the licence areas.
Consolidation, R&D Cash Refund and Focus
A micro-cap gold explorer can only operate so many projects and licenses, and indeed with the burgeoning potential of Creswick now at front and centre, the board took the decision to sell its wholly owned Argentine subsidiary Ochre Mining SA, which holds the SLM gold project in La Rioja, Argentina. The sale to Hanaq Argentina SA still sees ECR retain a Net Smelter Royalty of up to 2% to a maximum of US$2.7m in respect of future production from the SLM gold project, while removing ongoing costs associated with acquiring and running an exploration license.
There has been further good news on the funding front too, as the group also received a significant cash refund under the Australian government’s R&D Tax Incentive scheme. A$318,972 (approximately £171,000) was received in relation to the financial year ended 30 June 2018, and received a further refund of A$555,212 (approximately £295,515) in relation to the fifteen month period ended 30 September 2019.
The qualifying R&D activities relate to research into turbidite-hosted gold deposits within the Company’s exploration licences in Victoria. It goes without saying that these two refunds have also provided a significant boost to ECR’s cash position.
The biggest boost however came on Monday 6 April 2020, when, in the midst of the upheaval and disruption caused by COVID-19, ECR announced that it had raised a further GB£500,000 in a placing at 0.5p. That ECR was able raise funds in some of the most challenging stock market conditions in living memory more than anything else underscores the quality of the asset portfolio.
Still trading on a miserly GB£2.5m capitalisation, the market has ascribed little more than the value of the administrative work undertaken to secure the licenses, with no premium whatsoever for the results from Creswick or any of the other work undertaken to ascertain the prospectivity and value of ECR’s projects.
Selected Junior Gold Explorers Offer Great Value
Amid unprecedented efforts to limit the spread of CoronaVirus, the fiscal and monetary stimulus measures announced by the world’s major economies over the past month are global policy events without precedent in peacetime. Gavyn Davies of the FT pointed out that the increase in fiscal spending and loans in the US this year alone “will reach more than 10 percent of GDP, larger than the rise in the federal deficit through 2008 and 2009.”
This wholly supports the UOB / Kitco view that the gold price is set for a major rebound in the months ahead. As such, this rebound is likely to be reflected in the valuations of junior gold mining explorers with strong project portfolios. Fully funded for the coming year, and with nine projects and licenses in key territories across Australia, ECR Minerals should be integral to any junior gold explorer portfolio as the world grapples with the challenges and uncertainties of the Covid-19 pandemic.
Kitco – Here’s how gold prices will get to $1800 in the next three quarters – https://www.kitco.com/news/2020-04-01/Here-s-how-gold-prices-are-going-to-1-800-in-the-next-three-quarters-UOB.html
FT – Gavyn Davies: Can the world afford fiscal and monetary stimulus on this scale? – https://www.ft.com/content/0f289d20-6e97-11ea-89df-41bea055720b
Investors seeking to capitalise on a bullish gold market in 2020, and in particular the next raft of discoveries, will no doubt be aware of the impact that the easing in monetary policy by the Peoples Bank of China (PBOC) has had across markets in China, still reeling from the CoronaVirus.
With the yellow metal long viewed as the definitive safe haven investment, markets have also seen a surge in interest at the more speculative end of the gold spectrum, most specifically across junior gold explorers. AIM listed ECR Minerals (AIM: ECR) is one such company currently in focus.
Creswick Potentially Transformational for ECR
Prior to the recent surge in the gold price, ECR had already seen a transformational 2019 in regard to developments across it’s six flagship projects.The final quarter saw developments across the explorer’s key Creswick project in Victoria, Australia, with ‘nuggety gold mineralisation’ confirmed in the Dimocks Main Shale (DMS) prospect at Creswick, some of which proved to be exceptionally high grade.
Creswick is viewed as a potentially transformational project for the company, particularly given that the highest grade duplicate result of 80.97 g/t gold came from a 1 metre interval that originally assayed 44.63 g/t, confirming the original findings announced on 8 May 2019.
On February 20th, ECR announced it had appointed Dr Dennis Arne to carry out a lithogeochemical study of cuttings (chips) generated by reverse circulation (RC) drilling at Creswick in 2019. Dr Arne is a preeminent consulting geochemist in Victoria, whose experience includes extensive consultancy at the highly successful Fosterville gold mine in Central Victoria owned by Kirkland Lake Gold. Bringing someone of this calibre in to review the drilling samples is a solid endorsement of Creswick’s potential, and has set tongues wagging amongst the investing cognoscenti across social media channels. In typical understated fashion, ECR said the results of the study “are anticipated to be valuable for the purposes of future exploration at the Creswick.”
Elsewhere in Central Victoria
Activity continues across ECR’s other projects in Central Victoria, with a number of potential exploration programmes for the Bailieston project, (including further drilling at the Blue Moon prospect), are under consideration, along with soil and stream sediment sampling in the Cherry Tree South and Ponting’s areas.
ECR Interests Realigned
With six key projects across Australia, a country estimated to have the largest gold reserves globally, ECR’s CEO Craig Brown and the board have taken the decision to realign the group’s many interests to focus on Victoria Gold Projects, (Creswick, Bailieston, Avoca, Timor & Moormbool) and the Western Australia Windidda Project.
In this regard, on February 5th the group announced the sale of the SLM Gold Project in Argentina to Hanaq Argentina SA, a Chinese-owned company engaged in lithium, base and precious metals exploration.
The move sees ECR retain an NSR (Net Smelter) royalty of up to 2% to a maximum of US$2.7 million in respect of future production from the SLM gold project. Craig Brown stated that he was.. pleased to retain exposure to potential upside from the SLM gold project in the form of a royalty on future production..we believe that Hanaq has the operational capabilities and access to Chinese investment capital necessary to put the SLM project into production. And more importantly, it aligns the group’s operational activities exclusively across the six key Australian projects.
While activities across the Victoria projects are well documented, (not least because of the the Bailieston project is adjacent to a prospect territory acquired in 2018 by global mining giant Newmont), ECR has been pushing ahead its Windidda Gold Project based in the Yilgarn region of Western Australia. This consists of a package of nine exploration licence applications covering a 1,600 square kilometre area with the potential to host orogenic gold deposits. At the end of January ECR published an update on Windidda, stating that four exploration licences had been granted in the north-eastern Yilgarn, and announced a further license award on February 20th.
Aside from Gold, the region is also highly prospective for nickel-copper-PGE (platinum group element) mineralisation, so consequently ECR has commissioned a consultant to complete additional geophysical modelling and a review of historical activity reports for areas to the south of Windidda to better understand the potential prospectivity of the project.
The sale of the SLM Gold project has certainly saved ECR from the ongoing costs associated with acquiring and running an exploration license. There was further good news on the funding front too, as the group also received a cash refund for research and development (R&D) expenditure of AU$555,212 (approx GB£295,515), added to which for the year to 30 September 2019, the group carried forward corporate income tax losses of AU$ 66,341,587 (approximately GB£35.3 million) which are expected to be available for offset against future taxable gains.
Despite this, the current market capitalisation of GB£3.6 million reflects little more than the value of the administrative work undertaken to secure the licenses, with no premium whatsoever for the results from Creswick or any of the other work undertaken to ascertain the prospectivity and value of ECR’s projects.
While it seems trite to discuss investment opportunities in the midst of the shock, havoc and terrible human cost wrought on China and the world by CoronaVirus, the event has already significantly impacted on many of the larger resource and energy groups who provide raw materials to satisfy China’s enormous burgeoning economy.
As already highlighted, the impact on the China stock market (and global markets) has to some degree been mitigated by quantitative easing measures by the PBOC, but the consequential weakness in resource and energy stocks has inevitably driven investors to seek returns elsewhere, i.e. gold. So on February 20th, Beijing cut the one-year loan prime rate to 4.05% from 4.15%, prompting China’s banks to further lower the benchmark borrowing costs for new corporate and household loans.
On the subject of rate cuts and easing, Neils Christensen, a journalist at leading bullion website Kitco stated on February 17th that analysts “remain optimistic that (gold) prices can push higher as easing from the People’s Bank of China could ignite a further drop in global interest rates.”
This view is backed by other pundits too. Ole Hansen, head of commodity strategy at Saxo Bank, said that economists are still trying to estimate the full impact the spreading virus will have on the global economy. He added that this uncertainty will continue to support gold prices. “We have seen monumental demand destruction this past month and that won’t be resolved anytime soon,” he said. “Central banks will be forced to ease again, but the question is just how much impact further easing will have.”
As China and the world struggles to get to grips with limiting the spread of CoronaVirus, the strength in the gold price looks likely to be sustained throughout the year. This strength is likely to be reflected in across junior gold mining explorers with strong project portfolios. With the raft of project developments and drilling updates scheduled for early 2020, ECR is likely to benefit from this continued focus.
by Alan Green
LSE interview – Cathal Friel refocuses Open Orphan #ORPH as he raises 5m and buys virology specialist hVIVO
In a wide-ranging interview with London South East, Open Orphan Executive Chairman Cathal Friel outlines his vision for the business and explains how the combined talents of Open Orphan, hVivo and Venn Life Sciences will create a soon to be profitable pharmaceutical services one-stop shop.
Friel says this acquisition is the last however, as he is a major shareholder and he doesn’t want to see his own shareholding diluted along with everyone elses. The focus has been on reducing head count and building revenues at Venn Life Sciences since the Open Orphan IPO last June. Now, with the £13M bolt-on acquisition of hVivo, the London-based virology specialist company, the game has changed once again.
Friel says he sees hVivo as a loss-making and hugely undervalued asset. hVIVO went from being a vaccines and virology specialist to a drugs discovery business five years ago, with Neil Woodford and other investors putting in 113m of investment. “I really like Trevor Phillips and Tim Sharpington who came in 18 month ago to turn it around. But the previous management team got lost and we have picked up a bargain”. So how much are the assets worth today? “It’s very hard to say” explained Cathal, “113M in five years is a lot to spend but you can’t blow it all.
We have a 24 bed quarantine clinic facility which is worth 25 million or so on replacement value, we have a virology lab with the world’s largest stock of virology models likewise worth 25 million, and 7 or 8 million, so we 50 or 60 million of real assets”.
It’s been an exceptionally busy few months for Open Orphan (ORPH) and its Executive Chairman Cathal Friel.
Since reversing into Venn Life Sciences last summer, Open Orphan has set it’s sights on a series of acquisitions to forge a specialist pharmaceutical services group with a focus on orphan drugs. In raising the money to complete the Venn Life Sciences and recent hVIVO acquisitions, Friel has invested over £2m of his own money through his investment vehicle Raglan Capital into Open Orphan. His investments are locked in until three years after the IPO in June 2019.
In 2018, over 50% of new FDA approved drugs were classed as ‘orphan’, i.e. treat rare diseases.
With this in mind, Friel and his team have constructed a vehicle to acquire and consolidate a number of smaller companies into a larger profitable pharma services company. Within this there is Open Orphan Genomic Health Data, using AI tools to build a valuable database of patient information using a low cost data collection methodology.
In the run up to the end of 2019, ORPH struck several three year contract agreements and collaborations lucrative partnership agreements and collaborations, most notably with French pharma giant Ipsen Group, Japanese pharma company Carna and a Tier 1 German pharma company as part of moving the original Venn business away from short term ad-hoc contracts towards longer more sustainable contracts.
The acquisition promised at Open Orphan’s launch last summer came to fruition in December, when the company announced the acquisition of hVIVO, a world leader in the provision of viral challenge study services to companies developing vaccines for viruses.
The deal offered 2.47 shares for each hVIVO share, providing its shareholders with a 33% uplift. Open Orphan also broke the mould by moving fast in a slow moving sector as this takeover was recorded as one of the fastest in 7 years for the London market, completing as it did in just 38 days. More importantly, the economies of scale the merger delivers greatly broadens Open Orphan’s in-house clinical offering and opportunities to commercialise the existing deal pipeline.
Both Venn and more importantly hVIVO had been chronically loss making, however given the compelling synergies, the Open Orphan team led by Friel are optimistic that the enlarged Group will be profitable by June 2020 if not before.
To maximise on the opportunities generated by the acquisition, a further £5.3m fundraise was completed at the end of January 2020, conducted at a small premium to market price and with a minimum fundraise of £2.5m once again underwritten by Friel’s investment vehicle. The raise was oversubscribed, predominantly funded by institutional investors and at a good premium to the IPO fundraise in June 2019. Added to this, Friel personally invested £300k.
As part of the hVIVO acquisition, Open Orphan now owns the largest quarantine facility in N Europe, with 24 quarantine bedrooms at Queen Mary’s Hospital in London.
As things currently stand, this facility may potentially be used for ill patients patients during the current Coronavirus crisis that is gripping China and slowly spreading to other countries.
Professor John Oxford, one of the original founders of hVIVO is also a world-leading expert on Coronavirus and virology. In this capacity he has appeared across numerous TV and radio programmes over the past week, and is also an advisor and consultant to Cathal Friel and the enlarged Open Orphan Group.
The coming days will see more information emerge about Open Orphan and hVivo’s capabilities surrounding virology, vaccines and the quarantine facility.
To keep up to speed with this fast moving company, the latest copy of the Open orphan investor presentation is now available to view on https://www.openorphan.com/investors/reasons-invest.
Alan Green – February 2020