Junior miner Mwana Africa operates in two of the riskiest locations in the world - Zimbabwe and the Democratic Republic of Congo. However, such is the quality of its projects that some City analysts think its shares are worth nearly five times their current price.
- Decently-performing gold mine
- Game-changing nickel project
- Exploration potential
- Good local connections
- Ultra-high political risk
- Nickel project needs finance
Mwana's portfolio strikes a good balance between production, development and exploration. The asset that could transform its fortunes is its 53 per cent stake in Bindura Nickel Corporation. Bindura is an integrated nickel mine, smelter and refinery in Zimbabwe, whose shares are listed on the Zimbabwe Stock Exchange. The smelter and refinery were built by a major miner, Anglo American, and started operating in 1968, but closed in 2008 when Zimbabwe's political and economic troubles were compounded by a collapse in nickel prices.
Mwana has carried out care-and-maintenance work at Bindura to maintain the assets and prepare them for a phased re-start. Operations are planned to resume first at the Trojan mine. Following some drilling to access ore and the re-start of the ore processing system last year, Trojan could be started up quickly once finance of $30m (£19m) is secured. The company is in discussions with potential financiers. These include commodities trader Glencore, with whom Mwana has an agreement to sell nickel concentrate.
| MWANA AFRICA (MWA) | ||||
|---|---|---|---|---|
| ORD PRICE: | 4.4p | MARKET VALUE: | £31.6m | |
| TOUCH: | 3.9-4.4p | 12-MONTH HIGH: | 12p | LOW: 3.3p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 7p | NET CASH: | £5.33m | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 121.9 | 39 | 5.4 | nil |
| 2008 | 79.3 | -29 | -9.6 | nil |
| 2009 | 28.3 | -228 | -48.6 | nil |
| 2010 | 18.8 | -14 | -3.6 | nil |
| 2011 | 27.3 | -4 | -0.4 | nil |
| % change | +45 | – | – | – |
Normal market size: 50,000 Matched bargain trading Beta: 1.34 £1=$1.561 | ||||
Meanwhile, Mwana's producing asset is the refurbished Freda Rebecca gold mine in Zimbabwe, in which it has an 85 per cent interest. The mine has been performing ahead of expectations and has transformed Mwana into a cash-generating business. There is also potential to raise production at Freda Rebecca, though that's likely to be incremental rather than transformational. In the six months to September, Freda Rebecca produced 21,893 ounces of gold, and in the September quarter achieved its monthly target of 4,167 ounces, a respectable running rate of 50,000 ounces a year.
The biggest challenge miners face in Zimbabwe is the country's so-called indigenisation law, which requires them to make available a 51 per cent stake to a local partner. Its implications for Mwana remain unclear and the company's bosses continue talks with the Zimbabwean government to agree a solution.
Chief executive Kalaa Mpinga has excellent connections in southern Africa. He was responsible for the Bindura and Freda Rebecca deals that set up the company and his fix-it influence remains vital to securing new business opportunities.
The company's third main asset is the Zani-Kodo gold project in the Congo, in which Mwana holds an 80 per cent interest. Drilling at Zani-Kodo has demonstrated a resource of 1.4m ounces of gold, with further results to come. The ore body has the potential to prove much larger than Freda Rebecca.
