globe lights up in mining’s gloomy world

Globe lights up in mining’s gloomy world
13 June 2012

FOR those of brave persuasion who haven’t given up entirely or been forcibly institutionalised, Globe Metals & Mining looks an interesting little play in the exotic and completely opaque world of metals you can neither pronounce nor picture. Reassuringly though, the word is this rare earths company is firmly sticking to the basics when it comes to its overriding strategy – making shareholders money!

Earlier this month the company came out with some eye watering drill results from its Mount Muambe rare earths-fluorite project in Mozambique.

Well at least that’s how some who claim to understand such things describe the drill hits – to most of the rest of the world including standard resource sector investors, they look like little more than googly goop.

Naturally the market was completely unmoved. (Clearly a company could almost announce the discovery of a mountain of pure gold and struggle not to be sold down given current sentiment – though if said-mountain was graphite it could enjoy a little bit of a run no doubt!).

Anyways, the pertinent points for those still interested are said to include the following:

- It is early days (ie, the standard caveat emptor), but a case can apparently be made for a resource of about 30-odd million tonnes for each of the three zones thus far drilled – with plenty more anomalous zones to still be drilled.

- As a headline comparison on a resource and enterprise value basis, it has been suggested one could look at the admittedly far more advanced Arafura Resources, which this month reported a 47Mt resource, half of which is in the measured and indicated category. Arafura has a current enterprise value of about $A55 million, though it was worth five-times that amount 12 months ago – and eight-times, 15 months ago. Globe this week had an enterprise value of about $A30 million.

- Another headline comparison could be made with Peak Resources, with Globe-bulls suggesting Globe should notionally be worth double its current value if its currently expected resource is confirmed over the months ahead.

- Metallurgically, Mount Muambe could be good given it features fresh rock without indications of clay. If the non-existence of common contaminants like uranium and phosphate is confirmed, that will be another tick in the easy flowsheet check list. Again, it’s very early days, but a relatively simple flow sheet can’t be ruled out on what has been seen to date.

- In any case, Globe has no intention of doing this project off its own bat, Arafura-style (historically at least). Processing and marketing are the killers in the rare earths space, with the IP (and supply and demand) overwhelmingly residing in China – and to China is where Globe will look. It is, as they say, better to ride the dragon than fight the dragon.

- Mount Muambe is very close to both power and transport infrastructure.

- It is extremely early days.

Corporately, the aim is to spin Mount Muambe into a separate vehicle this year and release a maiden resource early next year.

An entitlement issue is seen as a possibility for Globe investors, thus enabling them to retain exposure to the project when the new rare earths company raises the funds it needs to continue work at Mount Muambe. Globe, it is said, wants to make as much of the fund raising in-house as is possible – though market conditions will of course be the ultimate arbiter on all spin-out plans and timeframe.

Meanwhile, Globe’s current flagship project, the Kanyika niobium project in Malawi, will also need major financing in late 2013. A listing in Canada would appear on the cards, given well known IAMGOLD has a niobium project (with similarities to the planned Kanyika development) generating earnings (EBITDA) of $C70-80 million per annum.

The splitting of the projects into separate vehicles will give investors the choice of a pure exposure.

And exposure to hopefully ensure they get the exposure they truly covet – exposure to major share price appreciation!