Emerging Metals now depended on uranium spot price developments
Emerging Metals Ltd, established in 2007, is based in the British Virgin Islands, and was listed in August 2008 on the Alternative Investment market at 12 pence per share, raising approx £13.5m, whilst closing at
15 pence on its first day.
Who is behind Emerging Metals?
Emerging Metals was set up and is still managed (and part-owned) by Jim Mellon and Stephen Dattels. Jim Mellon and Dattles are best known for their success with UraMin, which they set up in 2005 with apparently just £0.1m split between them.
Initially, the UraMin team sought out previously explored uranium properties all over Africa that had been neglected, securing them at discount prices. They subsequently re-drilled and re-engineered the properties and waited for uranium prices to “catch up” to $140 a pound, promptly selling UraMin to Areva, the French uranium giant, in 2007, for $2.5bn, netting approx $130m between them.
Emerging Metals Inital Strategy
Mellon and Dattels planned to do what they did with UraMin to Emerging Metals but then instead with a focus on minor metals and rare earth metals by investing in projects with exposure to these metals.
Mellon has stated several times that he is keen on solar energy and that Emerging Metals originally was set up as a vehicle to invest in materials that are used in solar panels.
The Tsumeb slag stock piles episode
Based on the above strategy, EML secured an option on the Tsumeb slag stock piles in Namibia in January 2008 for a cash consideration of £1.4m as well as 22m Emerging Metals shares.
Under the option agreement Emerging Metals were allowed 24 months to complete an initial program to assess how to extract Germanium, Zinc and Gallium from the slag stockpiles. However, since, not a lot of newsflow followed about the progress of this project. That is, until April 2009.
In April, 2009, EML announced that, given the (then) market conditions for Germanium, Zinc and Gallium, that it may well need to consider exiting the Tsumeb slag stock piles project altogether.
This was indeed confirmed by year end - 31 March, 2010 - when the company disclosed that it had decided to exit the Tsumeb Slag Stockpiles Project, writing down its Tsumeb Option to £nil at year end (taking a hit of £4,818,455) to anticipate the expiry of the option agreement at end July 2010.
In the meantime: Returning to Uranium!
Due to the uranium spot price downturn, during 2008 – early 2010, and the postponement of many new uranium exploration and uranium mining projects, Mellon and Dattels spotted what they believed was a “too good to be true” opportunity and started to invest in Extract Resources and Kalahari Minerals.
During 2008, they used Emerging Metals’ cash reserves to invest in Kalahari Minerals, where they purchased 15.8m shares at an average of 54pence, as well as a direct stake in Extract Resources at an average price of AUS $1.19 per share.
Some 16 months later, in April 2010, Emerging Metals announced that it had agreed terms to sell its shareholdings in both Kalahari Minerals as well as Extract Resources to Itochu Corp, via its wholly owned Australian subsidiary, Nippon Uranium Resources, returning 7.13 pence per share to Emerging Metals' shareholders as a Special Dividend.
Clearly, this transaction re-confirmed Mellon and Dattels’ credentials as successful "uranium value unlockers" when they secured a 340+ per cent profit in Kalahari Minerals (sold at 185 pence per share) for EML shareholders, whilst also securing a nearly six-fold increase in the value of EML’s shareholding in Extract Resources when they sold these shares at AUS $7.
Implementation of a New Investment Policy
Following the sale of shares in Kalahari Minerals and Extract Resources, Emerging Metals was reclassified as an "investing company" (as defined by AIM Rules).
After the payment of the Special Dividend, in May 2010, and following the write-down of its Tsumeb Option to £nil, Emerging Metals’ cash reserves amounted to approx £10 million.
In a statement, the Board anticipated that
- the cash it has retained will provide sufficient working capital for the Directors to continue to develop opportunities for investment in situations which are, in their opinion, undervalued or capable of producing a satisfactory return and the Board intends therefore to continue to implement its Investing Policy.
- the Company plans to target exposure to Investment Metals which include all metals other than base metals (such as copper and lead, but excluding for these purposes zinc) and bulk commodities metals (such as iron, potassium and aluminium) in addition to minor metals.
- in evaluating possible additional opportunities in Investment Metals the Directors will take into account the goal of achieving a diversified exposure to different Investment Metals as well as the market outlook for individual elements, although there will be no maximum exposure limits. The Directors estimate that investments will be held for periods of up to five years, and
- the Directors believe that their collective experience in the areas of mining, acquisitions, accounting and corporate and financial management, together with the opinion of expert consultants in the evaluation and exploitation of Investment Metals opportunities, will enable the Company to achieve its objectives.
Emerging Metals the start of a 'mini' UPM?
The Uranium Participation Corporation allows you to capitalise on the upward or downward movement of uranium’s spot price, rather than on the profits (or losses) of one or more uranium mining companies.
On November 12th, 2010, Emerging Metals announced its first move into physical quantities of uranium for investment purposes when it announced that it had:
- contracted for the physical delivery of 25,000lbs of U3O8, priced at US$58.00 per pound U3O8, and
- taken an option on a further 200,000lbs of U3O8 with a strike price at US$59.00 per pound U3O8, or a total US$11,800,000 (equivalent to £7,313,747 at £/$ 1.6134). An option premium of US$500,000 (equivalent to £309,905 at £/$ 1.6134) is payable on 17 November 2010.
Delivery of the 25,000lbs of U3O8 is to a conversion facility in Canada, due on 17 January 2011 with cash payment (equivalent to £898,723 at £/$ 1.6134) by no later than 18 January 2011.
Overall, a potential commitment of £8.5m in physical uranium!
uranium spot price hit $60.50!
Stephen Dattels, Emerging Metals’ Chairman commented:
"Uranium pricing prospects remain strong. The ability for the Company to invest in physical quantities of investment metals as well as mining projects gives us the flexibility to capitalise on shorter term pricing movements with the objective of generating meaningful returns to shareholders.
Whilst cash available for investments remains strong, we are confident this first physical commodity investment will rapidly demonstrate the value of our broader investing policy to shareholders."
Double check the
current spot price for uranium.
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1.√the above mentioned companies, Emerging Metals Ltd, Kalahari Minerals Plc and Extract Resources Ltd (hereinafter "the Companies")
are solely examples of listed companies involved in (future) resources mining operations and commodities investing and is not to be construed as a share recommendation. Neither Early Retirement Investor nor EMAR Publishing are registered as an investment advisor or as an independent financial advisor and do not provide individualised advice
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