Mining investors that have tried to make money out of rare or untested geological deposits know there are gains to be made early on in the piece. But once momentum fades and the realities of financing set in, prices can quickly tumble.
The industry has been hit time and time again by fraudsters and exaggeration artists. The most famous of all is the Bre-X scandal, which saw company bosses shave off wedding-ring gold to spoof the gold testing process. But less egregious examples are widespread, and this is why there are clear rules in place for resource and reserves reporting. The most common of these are known as JORC and NI 43-101, from Australia and Canada respectively. The difficulty is that this scrutiny comes relatively late in the game, once share price gains have largely been made (and even lost again).
It’s not just retail buyers who get caught up in unsound mining projects. In 2013, Newmont (US:NEM) took a stake in a company promoting a “watermelon seed” nugget deposit. It turned out to have more relevance for hobbyists with metal detectors than an industrial operator, and the company’s market cap has fallen from C$1bn (£600mn) to C$49mn.
But again and again, strange deposits catch the eye. Sometimes for good reason.
Empire Metals (EEE) has seen its market cap rise from £7mn in June 2023 to £60mn as of this week. The company has discovered a significant titanium deposit in Western Australia, which it stumbled upon when looking for copper. Management says it is 10 times the grade found in mineral sands operations such as the one run by Kenmare Resources (KMR).
UK retail shareholders were thrilled at the development, and around 37 per cent of the company is now held through the major share-buying platforms. The question is how the company can hold onto these gains and build a business case for a mine, given there are no similar operations to provide a guide.
Empire boss Shaun Bunn is well aware of this reality. He told me the Pitfield project was a “freak of nature” and would not involve the usual development structure. "We need to demonstrate the efficacy of this process", he said. That process would be via a demonstration plant, with the titanium oxide extracted directly from the ore due to the grades of 5-7 per cent titanium oxide. Rainbow Rare Earths (RBW) is a recent example of this staged development approach working well, but it has the added attraction of providing rare earths from a non-Chinese source, thereby bringing in investors with an eye on geopolitics.
There are occasional examples of companies reaching institutions with oddball projects. Taseko Mines (TKO) pulled in loans from Societe Generale and Bank of America for its in-situ leaching project in the US. The Florence project involves drilling down into the deposit for oil or natural gas, injecting leaching fluids and then pumping a “copper-rich solution” back to the surface. Its location on private soil in the US is an advantage (there's that geopolitics angle once again), but the extraction of copper from that soil is also a unique proposition for funders. Empire and its hefty retail shareholder base will hope they can secure a deal of their own, and thereby ensure this is not yet the peak for its shares.
