MYL Potentially phenomenal poly-metallic deposit - KJ

Write up of and a little history of MYL's current deposit located in Myanmar including risks and potential that may lie underneath, as always just my opinion not advice so DYOR and i encourage you to fact check anything i have written, thankyou.

MYL - Myanmar Metals

SOI: 1.6bn (+175m listed options (exp. 31/12/19) + 48.5m unlisted options)
SP: 6.3c
MC: $100.8m

Contents
1 - Bawdwin Project
1.1 - History
1.2 - Resource
1.3 - Sovereign Risk
1.4 - Future plans
2 - Finances
3 - People
3.1 - John Lamb
3.2 - Yandal/Creasy
3.3 - Perilya
3.4 - Other top 20 holders
4 - MYL’s potential/conclusion
5 - Further Reading


1 - Bawdwin Project
Myanmar Metals currently hold 51% of the Bawdwin mine located in Shan state in the centre-east of Myanmar, 230km by road from the Chinese border. According to the Myanmar department of mines Shan state currently hosts over 300 mining operations -- although no other mines in Myanmar produce refined lead and silver.
The Bawdwin mine hosts a polymetallic resource containing the world’s largest primary lead resource, and the world’s 9th largest primary silver resource. The mine has also been shown to contain zinc, copper and nickel, and is the first JORC (2012) compliant resource in Myanmar. MYL have described it as the “World’s most significant undeveloped polymetallic project", and said it “should be viewed as mineral field rather than a deposit”.
The projects JV partners are Win Myint Mo industries (24.5%) and EAP Global mining company (24.5%).


1.1 - History
Silver was first extracted from the site as early as the 15th century. The Chinese conducted primitive mining operations up until the 19th century when rebellions forced them to abandon the site.
In the 19th century the Bawdwin mine was under Burmese ownership, although the mining work was actually carried out by the Chinese. It was initially abandoned when the ore was mined down to the ground water level only for the British to re-open the mine at the start of the 20th century. During the 1920s and 30s it was said to be the highest earning mine in the entire British Empire.
In the 1960s the mine became nationalised and the government sought guidance in how to improve production in the face of declining ore grades. At this time there was a shift from underground mining to open-pit mining.
In the 1980s the mine was said to be producing 500 tonnes per day of ore concentrate, but by 2009 this number had fallen to 50 tonnes per day.
It was in 2009 that Win Myint Mo industries acquired the mine, in joint ownership with the ministry of mines, and it was placed into care and maintenance. This was after problems emerged on account of the government being “unprepared for the huge cost of stripping overburden to create the open pit.”
In 2016 Win Myint Mo undertook a drilling programme to establish an inferred mineral resource. From this programme a resource of 41.4m tonnes was established. The following year Top End Metals (now Myanmar Metals) secured an option to acquire an interest in the lease. In June of 2018 Myanmar metals exercised their option to acquire 51% of the project.
MYL originally found the Bawdwin project via Mark Creasy, whose Yandal Investments are the 2nd largest shareholder at Myanmar metals owning 12.5% (as of the most recent Annual report).


1.2 - Resource
According to John Lamb (Executive chairman and CEO of MYL), 50% of the value from the open-cut will come from lead, a further 30% from silver, and the remainder to come from zinc, with a small amount from copper. There could potentially be more value from the copper though, depending on how certain exploration targets play out.

The maiden JORC probable ore reserve totalled 18.4m tonnes at 6.4% lead, 169g/t silver, and 3.4% zinc. The total indicated and inferred resource is 94.15m tonnes at 4.19% lead, 107g/t silver, 2.05% zinc, and 0.22% copper.



A DFS is currently being conducted along with further drilling that will clarify/expand the resource size. Following the recent $20.8m placement MYL are fully funded through the DFS, right up until the decision to mine.

Below is a comparison table taken from the latest MYL investor presentation. Whilst it is often difficult to truly evaluate the value of projects at this stage it seems clear from the data that either MYL is undervalued compared to their peers, or the sovereign risk is rated as severe.




1.3 - Sovereign Risk
Myanmar is regarded as quite a risky country for conducting business in. It is seen as a credit risk by the OECD, and ranks 171 out of 190 in the world bank’s ease of doing business gauge, ranking below many other countries in the region.




Government effectiveness and regulatory quality are seen as particularly poor when compared to other emerging and developing economies in Asia.



The most significant risk to MYL will be the risk of expropriation or the government deciding to change the terms of the production sharing contract if the project is seen to be doing well.

They will also have to obtain permitting from the Myanmar Investment commission (MIC).

The experience of Win Myint Mo in dealing with local governments and permit applications is likely to prove highly valuable. It is in this area that having a local JV partner seems essential as a 100% foreign owned project would presumably face further challenges.

In the last year Myanmar have made changes designed to encourage investors into the mining sector. Part of these changes involve the speeding up of permit applications and allowing for longer leases. New strict timelines for applications have been set, including 40 days to process an MIC endorsement application.

There is another risk in Myanmar. Since transitioning to democracy the country has been beset by internal conflicts, particularly in the west of Myanmar where the local muslim population have been targeted. Despite the majority of this being restricted to the west of Myanmar, last July there were clashes in Shan state where there are large groups of civilians currently held in displacement camps. It should be noted that these clashes have occurred in the Northern part of Shan state and not in the immediate vicinity of the Bawdwin site.
Also, given that the government are trying to encourage foreign investment within the mining industry, it would seem likely that they would make extra efforts in ensuring the safety of foreign owned mining projects and avoiding any negative publicity at this time.
Whilst there does not appear to be any immediate danger to the project from the conflicts that have impacted the north of the state, it is still slightly disconcerting, and may be off-putting to some investors.


1.4 - Future plans
MYL have a timeline in place that should see them through to 2021 and the commencement of production. They have enough cash on hand to see them through to the decision to mine but further project financing will need to be secured post-DFS. Part of the cash could come from Perilya who did sign a non-binding letter of support for up to US$150m of future construction at Bawdwin.

The timeline and metrics from the latest investor presentation are included below.






Recent EM and IP surveys have yielded multiple promising exploration targets. Of the 7 identified targets the 2 that have been drilled have yielded positive assay results confirming the mineralisation.

Drilling at Yegon ridge returned significant Lead, silver, and zinc results, in addition to copper, cobalt and nickel finds. The dimensions of the anomaly appear to be similar to that of the China lode, where the current open-pit is located.








The potential for copper, cobalt, and nickel also exists within the major lodes. A 2017 London geological society paper analysed the geology of the Bawdwin mine and stated that it may be more copper rich than previously presumed. John Lamb has said that if the ER valley and China lode can reveal further resources of good grades then they will potentially have enough mill feed for a 3rd concentrate stream. This would certainly have a large positive impact on the profitability of the project.
The first drill hole from ER valley returned 13m at 5.5% Cu, 79g/t Ag, 0.3% Co, and 0.5% Ni. Similar mineralisation was found at Meingtha which is located just 400m away, and other targets that have showed a similar geophysical response still await drilling.

If the mine does make it to production it is located near the Chinese border where it can then be delivered by train. John Lamb has stated that there is an “obvious market for our product” in China, and as such it seems like that would almost certainly be where the product is sold.


2 - Finances
Before the $20.8m from the recent raising MYL had $7.9m in cash. Factoring in the money from the placement this would now give them $28.7m. $5.2m was spent in the previous quarter, with $4.8m expected to be spent in the current quarter.
In 2018 MYL made a loss of $11.7m, with the largest single expense being exploration at $3.8m. In the FY 2019 exploration costs have more than doubled with $8.9m having been spent in the first 9 months of the FY. With $673k spent on staff costs over the previous 9 months it appears that the company are not unnecessarily overspending in this area.


3 - People
3.1 - John Lamb
John Lamb was appointed CEO and executive Chairman in October 2017 and has plenty of experience in the mining industry. He has held management roles at the Century zinc mine (2nd largest Zinc producing mine at the time), and the Rosebery zinc/polymetallic mine (which John has said is the only deposit he’s ever seen comparable to Bawdwin). In addition to this he has held chief executive roles at Shaw contracting and Lloyds North.
John currently holds 12.5m FPOs and 6m in performance rights.

3.2 - Yandal/Mark Creasy
The 2nd largest shareholder in MYL is Mark Creasy’s Yandal investments. Creasy was ranked at number 11 in the 2018 Australia rich list and has made his fortune from mining.
Initially making his money from gold and the sale of the bronzewing and Jundee deposits, Mr. Creasy, whilst still retaining multiple gold interests, has since branched out into other metals: Owning companies that focus on Scrap metals, iron ore, and Uranium. Recently he appears to be focusing on polymetallic nickel deposits; in the last few years he has notably been involved with Galileo mining (Nickel/Copper/Cobalt) and Legend mining (Nickel/Copper/Gold). This occurred on the back of the 2015 sale of one of Creasy’s previous companies: Sirius Resources. Their Nova nickel deposit was acquired by the Independence Group as part of a $1.8bn takeover. Before this sale Sirius resources had been a 100 bagger going from 5c to $5 in months (and from $2 to $5 in days) on the strength of their nickel deposits.
Given this success it’s no surprise that Mark Creasy is still taking an interest in nickel. The most interesting question here is whether his interest in MYL is due to seeing a great resource and a desire to diversify his mineral interests, or whether he knows more about the potential Nickel/Copper/Cobalt potential that exists at Bawdwin. It is again worth noting that it was Creasy who brought the project to MYL, finding the project, putting MYL in touch with the vendors, and assisting them in obtaining ownership.

Creasy’s initial investment came from the conversion of loans worth $2.75m. He further committed $4.2m at 6c per share, at the same time Perilya became the largest shareholder of MYL.


3.3 - Perilya/Zhongjin Lingnan
Perilya Limited became the main shareholder with a cornerstone investment of $14.9m (at 6c/share). In addition to the investment MYL and Perilya also entered into a strategic alliance which allowed for Perilya CEO Paul Arndt to join the MYL board to advise on various aspects of the project. Paul Arndt has previously held managerial positions at Newcrest’s Telfer project (gold/copper), Pasminco’s cockle creek smelter (lead/zinc), and MIM holding’s Britannia zinc and lead operation.
It was also agreed that a standstill will take place where Perilya will not acquire more than a 25% holding of MYL within 2 years (from announcement dated 25/5/18).

Perilya are a private mining company focusing on base metals with projects in Australia, the Dominican Republic, and Malaysia. After a friendly takeover in 2013 they now operate as a subsidiary of Zhongjin Lingnan Mining company (a subsidiary of Zhongjin Lingnan Nonfemet), who are a Chinese company focusing on lead, zinc, and a portfolio of non-ferrous metals. Zhongjin Lingnan Nonfemet have a $5.97bn market cap (using an exchange rate of 4.83CNY to 1AUD).

Perilya have an anti-dilution right enabling them to maintain their 19.9% share in the case of any dilution event occurring. Within this is a clause stating that the anti-dilution right may be transferred to an entity in the wholly owned group of Perilya.

4 - MYL’s potential and my interpreted conclusion.
At first glance the opportunities at Bawdwin almost seem too good to be true. Acquiring a resource of this size and this potential with a mine already in place raises the question of why is it available and how did an ASX listed explorer come across the opportunity?
Having studied the history of the mine and seeing how the opportunity presented itself, the narrative makes sense. An unstable country, short on money inherited the mine yet lacked the mining expertise to truly progress the project. Now the country has began to stabilise and is seeking to encourage a growing mining industry, and -- while wanting to maintain an interest in the project -- require foreign expertise to get it running again. The renowned miner/explorer Mark Creasy finds the project and brings it to John Lamb - a man with the experience of managing large polymetallic mines.
One of the most interesting aspects of this project is the truly enormous exploration potential at a site that can be producing in 2 years. Either of these factors alone would make Bawdwin of interest, but both together puts it into another tier. It can then progress even further when you add to this the possibility of not just producing lead, silver and zinc, but also applying modern exploration methods to unearth the copper, nickel and cobalt potential. A possibility I believe both Yandal and Perilya are both highly aware of giving the levels at which they will have studied all available geological data, and the previous interest in such products shown by Mark Creasy.
The exploration work is likely to take some time to show the true potential of the project with 8km of untested strike and up to 30 known outcrops of mineralisation, but with a well managed plan of drilling this could lead to a relatively steady positive news flow.

It also seems that interest from institutional investors is increasing. This is evidenced by the recent placement. Initially it was mooted that the raising would have an entitlement offer for existing holders however the $20.8m was raised from “leading domestic and international institutional investors”, in addition to Perilya and Yandal. This shows that institutional interest was high enough that there was no room within the raising for smaller existing holders.

While there is currently a standstill agreement in place, a future takeover from Perilya -- or their parent company -- is something worth considering. They conspicuously hold 19.9%, just below the 20% acquisition limit under section 606. There are exceptions to this rule (see page 18 of the above link) however it seems likely that Perilya (or parent company) would most likely try a friendly takeover, as they did when Zhongjin Lingnan tookover Perilya, assuming it is financially viable for them once the standstill period ends. Given that Zhongjin Lingnan reported falling revenues and profits in their most recent quarterly (based on a quarter for quarter comparison) they may not be seeking to make any big outlays and just continue in their role as main shareholder. Of course this is pure speculation, but possibly worth keeping in mind.



5 - Further reading
-Fluctuating fortunes of the Bawdwin mine
-Bawdwin: Review of Geological setting and genesis (free but requires sign up)
-Recent MYL investor presentation
-Triple C report from 2017
mce-anchor-MYL ownership