Three AIM-listed junior miners in particular have caught our attention: CleanTech Lithium (LON:CTL), Cadence Minerals (LON:KDNC), Power Metal Resources (LON:POW).
There is a huge disconnect between the valuation of some AIM-listing mining companies and their underlying fundamentals. Many companies have made extraordinary progress over the past two years, but this progress has not been reflected in their share prices.
The disconnect results from overarching macroeconomic influences and the general sogginess surrounding UK plc. Mining companies have been hit particularly hard by higher interest rates and the cost of living crisis which have sucked the capital available for juniors out of the market.
This, however, could all be about to change should the Bank of England cut rates this summer, enhancing capital flows amid improving sentiment around UK assets.
We highlight three AIM shares that will likely benefit from the return of capital to London’s junior markets as investors snap up undervalued, higher-risk shares.
Cadence Minerals
Cadence Minerals is a real head-scratcher. The mining firm’s flagship Amapa iron ore project, located in Brazil, was once valued at over $600 million by Anglo American.
Cadence, with a market cap of just £7m, holds a 33.6% equity stake in the project and is working towards the recommencement of production.
Of course, it is too simplistic a valuation exercise to assume Cadence’s stake is worth 33.6% of the amount Anglo American once accounted for on its balance sheet. It does, however, provide us with an idea of the project’s scale and its future potential.
The Amapa iron ore project already has much of the infrastructure required to recommence production in place.
In early 2024, Cadence Mineral announced it was working towards a revised Amapa PFS economic model after an optimisation study revealed the potential for higher production rates and lower costs.
The prior PFS highlights include a post-tax NPV of $949m using a 10% discount rate, a post-tax IRR of 34%, and a life of mine average annual EBITDA of $235m.
One would expect these already attractive metrics to improve in the revised PFS, further underpinning the value held in the Amapa iron ore mine.
Cadence has several other investments, including a stake in European Metal Holdings, Evergreen Lithium, and the Sonora lithium project in Mexico.
While these all have the potential to create value for Cadence Minerals shareholders, many will see them as a sideshow to Amapa, which is the main event for many investors.
CleanTech Lithium
Investors seeking an exciting, well-run lithium pure play will be hard pressed to find a better option than CleanTech Lithium on London’s markets.
CleanTech Lithium operates in the globally significant lithium triangle located in South American spanning Argentina, Chile, and Bolivia. CleanTech’s neighbours are the world’s largest lithium miners extracting lithium from the world’s biggest discovered lithium deposit.
The company is focused on the development of lithium brine assets in Chile. It has has two core license zones in the Chilean salt flats with a combined resource of 2.7mt of lithium carbonate. Laguna Verde is the standout license holding 1.8mt of lithium carbonate and the Francisco Bay license is estimated to hold a resource of 0.9mt.
The Llamara project provides additional exploration potential but hasn’t yet been developed to the scale of Laguna Verde or Francisco Bay.
It is a particularly interesting time for CleanTech Lithium shareholders as work to incorporate recent drilling results and direct lithium extraction (DLE) data into a Laguna Verde PFS gathers pace. The company said it is targeting a PFS release date in Q3 2024 which promises to be a pivotal moment for the company.
There have been problems with and the general softness in lithium markets and uncertainties around the Chilean government’s approach to lithium asset. However, these setbacks served to create a potential buying opportunty with the stock trading marginally above 20p valuing the company at just £30m.
Power Metal Resources
Power Metal Resources is a one-stop shop for mining investors seeking broad exposure to a range of precious, base, and battery metal exploration assets.
The company has carefully curated a portfolio of early-stage mining assets, including lithium, gold, copper, nickel, PGEs, and uranium.
Power Metal Resources’ strategy is to develop mining assets with a view to eventually crystallising the value through IPO, farm-outs, or disposal. The successful IPOs of First Class Metals and Golden Metal Resources have validated the strategy.
Golden Metal Resources has done exceptionally well since listing at 8.5p to trade at 14.9p. Power Metal Resources retains a 53% stake in Golden Metal Resources, worth around £7.5m at current market prices.
Considering that Power Metal Resources has a market cap of £14.6m, the value attributed to the rest of the portfolio stands in the region of £7m, which is clearly ludicrous given the quality of the assets.
Such is the confidence in Power Metal Resources held by some UK high net worth individuals and a Saudi Arabian strategic investor, the company secured funds by way of a placing at a premium to market prices in February.
Power Metal’s recent additions to the bank of mining assets include an earn-in agreement for the exploration of Saudi Arabian tenements, which is thought to be prospective for lithium, nickel, copper, and molybdenum. Power is contracted to contribute $350,000 towards exploration for 20% ownership of the 15 tenements.
The company has invested heavily in uranium with assets in Canada and Australia and is exploring the listing of their subsidiary, Uranium Energy Exploratio, in London.
