Blencowe shares are up 30% year-to-date. In my view, the share price-re-rate has just begun.
As a long-term investor, I’m always looking for the next FTSE small cap share for long-term returns. Quality explorers in the battery metals sector remain severely undervalued in my view — and especially those with high grade deposits of copper, lithium, graphite, and REEs.
Between November 2022 and January 2023, I finished identifying my four top graphite small caps to watch in 2023 — Tirupati, Blencowe, Marula, and GreenRoc. Please re-read these pieces for my view on the case for investing in ex-China graphite supply, but for brevity, China controls 70% of global graphite supply and this leaves the west strategically weak.
This will not be allowed to stand given the Russian War, Taiwan stand-off, and generally intensified Sino-US tensions. These are multi-faceted and beyond complex, but the key point is that relying on China for continued supply as the world transitions to EVs is unlikely to be a good idea.
Quick round-up
Before I get to Blencowe, a quick note on the other three:
Tirupati — down 12.5% since my initial article, the shares remain fairly volatile. I was in the green a month ago when shares were changing hands for 37.25p, but I’m in for the long haul. Since my article, the company has commenced production at its 18,000tpa plant and has acquired the promising Suni Resources. Shares will re-rate eventually, but this is more a PR problem than about company fundamentals.
Marula — far too much to cover in great detail has changed since my initial piece, but shares have more than quadrupled since my initial analysis in early December. Multi-asset development is ongoing, and MARU is now debt-free. I expect further share price gains when the AIM listing completes and will write a seriously comprehensive review at that point.
GreenRoc — down around 25% since my January article. I’m not concerned by this fall. When I interviewed CEO Stefan Bernstein it was clear that this is a long-term play for GROC’s exceptionally promising Greenland graphite projects, located in an excellent jurisdiction both for regulatory safety and geography between the US and Europe.
The graphite picks have done very well overall, but MARU has done most of the heavy lifting. Of course, this is the nature of my strategy — the other two will get there but will take time. The next to lift-off could be Blencowe.
Blencowe Resources: time to rocket?
For your aperitif, please read my initial analysis for FxExplained here. Most of the figures are in date.
But here’s been what’s been happening recently:
23 January — Perth-based CPC Engineering is appointed as the manager of the Definitive Feasibility Study. The company notes that ‘CPC have extensive experience in African graphite projects and Blencowe will leverage this knowledge to refine the delivery of the Orom-Cross DFS.’
27 February — the previously promised 100 tonne bulk sample mining was completed, and the graphite was transported to Chinese graphite processing specialist Jilin Huiyang New Material Technology Company for final metallurgical testing at its existing facilities. An additional 150kgs sample had already been sent to Jilin for initial off-site testing.
27 April — Blencowe passes the ‘the key Project Screening test’ set by the US International Development Finance Corporation (DFC), ‘America’s leading development finance institution that partners with the private sector to provide finance solutions for project development in markets deemed as critical.’
DFC is designed to provide funding assistance as part of the US Government’s strategic drive for further access to critical minerals and metals. Perhaps the west is finally waking up to China’s dominance?
With the two parties now ‘moving to a binding Grant Agreement,’ key potential terms include:
- DFC will fund 50% of Project Definitive Feasibility Study costs by way of a Technical Assistance Grant
- Blencowe is seeking up to US$4.5 million in funding costs for Orom-Cross
- DFC gets a right of first refusal on debt finance for the full project implementation, which would give Blencowe a potential funding solution ahead with a major financial institution
Executive Chairman Cameron Pearce enthuses that ‘this milestone represents a significant step forward in the development of Orom-Cross. We have now further de-risked the Project by introducing a high quality funding partner… (DFC) may also deliver a debt funding solution for the construction of the plant and associated infrastructure once we move into the implementation stage.’
Better still, as the money comes in the form of a TAG, BRES retains 100% ownership of Orom-Cross.
Next steps
There will clearly be significant value add to the share price when the DFS reports back in H2. For context, BRES shares are already up 31% year-to-date to 5.82p. And the current JORC resource constitutes just under 2% of the total possible deposit.
The bulk sample results are due imminently, and the company still needs to select a JV or finance partner for the circa £62 million required to build the proposed mine. Of course, we are still at least a year from first production — in reality probably more.
My personal opinion — though I am only speculating — is that with the DFC funding half of the DFS costs, Jilin will want to jump in to fund the other 50%. Offtake rights could then be negotiated, with BRES retaining 100% ownership of its world-class asset.
Blencowe is hosting a shareholder webinar and Q&A on 9 May 2023, indicating confidence in its strategy.
The re-rate won’t take long.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.