Mining in the UK and Ireland is well and truly alive

The mining industry in the UK and Ireland may be past its prime, but there are still a number of new and revitalised mines being developed, both big and small. The coal pits may have closed and the industry we once knew may have gone, but mining remains well and truly alive.

Miners
Source: Bloomberg

‘If you can’t grow it, it has to be mined,’ – an old mining truism.

The UK and Ireland have a rich history of mining. The industrial revolution was fuelled by vast deposits of coal and iron and when underground mining was at its peak between the middle of the 19th century until the early part of the 20th century the UK was not only self-sufficient in many minerals and metals but also a world-leading producer of several crucial materials.

Over 35 different commodities have been extracted from the UK, with the mining industry resonating with several regions, including but not limited to, tin and copper in Cornwall and West Devon, ochre and iron ore in the Forest of Dean, and limestone in Staffordshire.

But as low-cost competition began to emerge from countries around the world and the cost of extraction began to rise, the UK’s mining scene slowly began to falter, with many seeing the closure of the country’s last deep coal mine in 2015 as the end of the UK’s mining industry. 

However, with new technology making old deposits attractive once again and demand shifting toward the new-age metals needed to power the likes of energy storage and electric vehicles, the industry is starting to see a revival.

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With geopolitical tensions rising amid international trade wars and the UK about to step out into the world on its own after Brexit, those digging for crucial minerals and metals could become vital for the country in the coming years and are an opportunity for the UK to secure exposure to important supply chains of growing markets.

The large scale mining operations that spanned the UK and Ireland may have gone, but today there are thousands of mines and quarries (mostly small scale operations) still active today. In recent years the UK has become home to the world’s largest polyhalite project, the location of one of the biggest tin and tungsten resources in the Western world, and seen the first commercially produced gold poured in Scotland.

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With the ability to gain exposure to a wide variety of mining projects in the UK and Ireland, we have a look at some of the most exciting prospects for investors to choose from.

Sirius Minerals: the largest polyhalite project in the world

‘Our project area contains the largest, highest grade resource of polyhalite to be found anywhere in the world,’ – Sirius Minerals.

The mine can be found near Whitby in North Yorkshire, where Sirius Minerals has huge ambitions to build the deepest ever mine in the UK, capable of producing large quantities of potash and a multi-nutrient fertiliser for over a century from 2021 onwards. The product will be used in agriculture, aimed at helping to improve crop growth around the world, with expectations for booming population growth to spur future demand.

Since acquiring York Potash at the start of 2011 the company has defined a huge resource, secured all necessary approvals, started construction and locked-in a swathe of take-or-pay supply agreements ready to kick-in once production begins.

If its dreams become reality then it will own the largest and highest-grade polyhalite project in the world – the 2.66 billion tonnes identified so far covers just 7% of the project’s total area - and much of it will be hidden away under the North Yorkshire Moors National Park.

But it is a big if. Big aspirations means big funding. The cost of such a project is so large that it is having to conduct it in stages. Sirius raised the first round of funds by the end of November 2016, securing $1.2 billion to allow construction to formally start in the middle of last year. That involved raising £370 million through a placing and open offer priced at 20p per share, issuing a $400 million convertible note, and signing a royalty deal worth $300 million. That is the largest convertible note to have been issued by an AIM-listed company (although it has now moved to the premium segment of the main market and joined the FTSE 250) and the largest ever royalty transaction to be conducted in the UK.

The next stage will be launched later this year and will be considerably larger, up to $3 billion, comprised mostly of debt rather than the equity-based funding raised in the first round. This will finance the next stage of construction, including a tunnel spanning 23 miles in order to connect the mine to a port in Teeside. The big piece of the jigsaw, described by Sirius as essential to its future, is $2 billion worth of government debt guarantees from the Treasury that it is yet to secure. Whatever shortfall is left is expected to be plugged by the banks, whose attitude toward any financing will be markedly different, depending on the government’s decision. It would be another record considering that the department hoarding the guarantee, the Infrastructure and Projects Authority, has only underwritten £1.8 billion of loans in its lifetime.

Sirius Minerals has been doubted since day one, and despite having proven it can overcome huge hurdles many in the market are still questioning whether Sirius can deliver on its promises. The company is a long way from generating any revenue and will have to spend big before getting any return (like investors have had to do). Proving it can raise the eye-watering sums it needs and delivering the project on time and in budget will be integral to keeping any doubts at bay. But challenges will remain even if it gets the mine up and running, as it will have to prove that the demand it has forecast for its polyhalite is real and that it can produce it at the low cost it has promised.

Israel Chemicals: the world’s first polyhalite mine

One of the reasons there is debate about the future of Sirius’s product is because the polyhalite market is currently comprised of just one other company named Israel Chemicals, which trades as ICL and operates the Boulby mine. ICL’s operations are also in North Yorkshire and, although it was mining for potash, it has been switching to mining a new fertiliser which it markets as polysulphate as its polyhalite reserves dwindled.

Where Sirius has plans to churn out ten million tonnes of polyhalite each year, with ambitions to double that in the future, the Financial Times (FT) reported ICL’s chief finance officer, Kobi Altman, as stating that polysulphate would be a ‘solid niche product’ at an investor conference in May, adding ‘it’s not going to be huge’. ICL plans to up production to just one million tons by 2020 (from about 300,000 tons last year) with long-term ambitions of three million tonnes.

Altman was further cited as saying: ‘I know that others might think that the potential of these products can be ten million, 15 million tons. We don’t believe that’. Chris Fraser, managing director and chief executive of Sirius, claimed Altman’s comments represented that of a competitor seeking to get ahead in the market and believes Sirius will ultimately be better at marketing and selling its product, pointing to offtake deals for over 5.7 million tonnes of its polyhalite already signed.

Now that ICL owns what is now the only active polyhalite mine anywhere, and because Sirius is developing the biggest polyhalite mine, it is unsurprising that the pair, despite obvious friction between them, have been linked with mergers and acquisitions (M&A). However, Sirius splashing out more money on another mine could raise eyebrows, considering its spending is already racking up, and within the last week ICL’s president and chief executive Raviv Zoller denied his business was in talks with Sirius. 

The story here is worth following: the future of the polyhalite market, whether it takes off or falters, will be played out almost solely in North Yorkshire, and with billions at stake it will not be one for the fainthearted.

Scotgold: the first-ever commercially produced gold in Scotland

Scotgold Resources’s flagship development is the Cononish project near Tyndrum, which will be ‘the first commercial gold mine in Scotland’s history’ once in operation. Still, it has technically already produced the country’s first commercial gold while it was conducting trials last year, auctioning-off individual gold rounds as well as gold in concentrate.

The company recently secured planning permission from the Loch Lomond and the Trossachs National Park Authority, which has almost paved the way for development to allow for full-scale production, supported with the £9 million of equity (£4 million at 27.5p per share) and debt (£5 million from non-executive chairman and substantial shareholder Nathaniel le Roux) it raised in May.

However, development cannot get into full swing until it completes the permitting process. Although ‘all substantive matters’ have been progressed with the National Park Authority it is also waiting for approvals from third parties. It hopes to have all this in place by ‘the end of September 2018’. Scotgold chief executive, Richard Gray, has conceded the last part of the permitting process is taking longer than expected, but said he doesn’t expect it to impact its financial position nor its expectations to start production next year.

It is taking a phased approach to development in order to save cash, looking to produce more than 175,000 ounces of gold equivalent over an initial eight-nine years - and Scotgold believes it can demand a premium price for ‘genuine Scottish, hallmarked gold’. However, it also has high hopes for its Grampian project, which it believes holds the vital additional resources it needs to lengthen Cononish’s lifespan, stating earlier this year that ‘it is clear that the Grampian licenses hold the longer term future for Cononish and the company’.

Dalradian Resources: developing the Curraghinalt mine in Northern Ireland

Dalradian has been leading modern development of gold mining in Northern Ireland, which has seen numerous players begin their search in the historically underexplored country for the vast gold that is likely to lie underneath. This is demonstrated by Dalradian’s slogan for the Curraghinalt deposit: ‘high grade’ and ‘open in all directions’.

Six years down the line, Dalradian has built over six million ounces of mineral resources (not reserves, which have been proven to be economically viable). Work this year is focused on mine planning and engineering work, which will let Dalradian update the feasibility study that it released last year.

However, all attention is currently on the proposed acquisition of the miner by a firm owned by commodities investment giant Orion Resource Partners, for CAD$1.47 per share in cash. Dalradian shareholders will vote on the deal on the last day of August, with the miner needing at least two-thirds of all votes cast to be in favour of the deal for it to go through. The deal values Dalradian at CAD$537 million and is priced at a 62% premium to its share price, prior to the recommended offer being announced, and is likely to go through as it has secured support from various shareholders already with over 30% of its voting  rights. But, and a big but for some shareholders, is that the Dalradian board has not only recommended the deal and gathered support to push it through before informing investors, but said they plan to keep their stakes in the business. For the bulls, the directors clearly see upside in Dalradian and that’s why they have made sure they keep their shares, but have forced almost everyone else to sell up (key investor Osisko Gold Royalties is also keeping hold of its stake).

Galantas Gold: producing Irish gold from the Omagh mine

Galantas Gold is building an underground mine in Northern Ireland. The mine did have a producing open pit (excavating the surface rather than underground) not too long ago and therefore the miner already has an existing processing plant and tailings facility on site to utilise.

The company has been producing gold from the ore extracted during development, although this has been a bit stop and start as it tinkers with the plant and equipment. Having recently dug its way to the main Kearney gold vein it lately began feeding the plant development ore from the area, but the plant will only be in action part time until ‘late 2018 or early 2019’, when it hopes to have started bulk mining operations. Having already fallen slightly behind schedule, Galantas will need to show it can deliver its guidance on schedule as it moves forward.

However, the big potential hurdle to clear will be seeing off an appeal that has been made against the planning permission Galantas was awarded for its mine back in in 2015. A hearing was held in February, but a decision will be made at a later date which is ‘currently unknown’.

Conroy Gold: developing the Clontibret mine in Northern Ireland

Conroy Gold is exploring a swathe of gold targets in Northern Ireland, with a primary focus on Clontibret which it hopes can become a central hub and fed further down the line by secondary targets named Clay Lake and Glenish.

The miner recently expanded the amount of gold it is targeting at the three deposits combined to 8.8 million ounces of gold from the previous five million ounce target, which excludes the existing defined resource it has of 517,000 ounces. Although the lift to its target is significant, it states it is a ‘realistic estimate’ because it has used ‘conservative interpretations’: such as using the 5% drill success it has seen to date and basing it on a grade of two grams of gold per tonne of ore, matching the grade of its defined resource at Clontibret.

Drilling as much as possible in order to grow the resource is the main aim for the foreseeable future. The entire area it operates in is underexplored, and while the likes of Dalradian have had success it has been over time. The expansion to the exploration target is the result of Conroy speeding up work since late last year when it raised £1 million through a subscription priced at 12.75p (with warrants attached exercisable at 22p for a possible further £1.7 million).

It is worth noting that, with many smaller miners on the hunt for gold in a fairly small area in Northern Ireland, Orion’s bid for Dalradian opens up the possibility that the giant may be looking to consolidate its position in the area, possibly leading to more takeovers in the future.

Connemara Mining: exploring for zinc and gold in Northern Ireland

Connemara Mining is exploring for zinc and gold across the island of Ireland, mostly in the Republic. Its ‘operational highlight’ last year was at its Stonepark zinc and lead project in Limerick, which it owns alongside partner and controlling shareholder of the operation, Group Eleven Resources, which owns over 76%.

Group Eleven is listed in Toronto and bought-out Connemara’s former partner, Teck Resources, in 2017. Connemara had the option to sell-up its interest, but chose to participate in a new round of drilling, yielding a mineral resource estimate of five million tons of ore graded at 10.3% lead and zinc combined, with the deposit open on all sides. What will be a boon to investors is the fact that giant Glencore owns a resource over eight times the size of Stonepark (in tonnage) at its own adjacent project, where it too has been drilling. Glencore restarted work at the Pallas Green prospect in May 2017, exciting investors told in 2013 that the project could have as much as 42 million tonnes of recoverable resources. Connemara believes its own deposit is open towards Pallas Green, meaning it could hold the same potential.

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It also holds a similar level of interest in another joint venture with Teck, consisting of five lead and zinc licenses in the Oldcastle area of Meath/Cavan where Teck, having to fund drilling to earn its interest, has been so far slow to get things going. Its third zinc interest is the Derrykearn block of six licenses, but no drilling has been done to date.

Connemara also has a bulging portfolio of gold licenses, with 20 in total (11 in the Donegal area and nine in the Wicklow/Wexford area). Connemara is a good example of the challenges that explorers looking to dig deep in Ireland are having. Significant grades are waiting to be found (up to 14.25 grams per tonne of ore for Connemara) but due to the geology of Ireland, most of the gold is held in long but very narrow veins, which means pinpointing where it lies is no easy feat. This explains why Conroy Gold has seen a drill success of 5% so far, and why Connemara readjusted its portfolio last year by dropping ten licenses south of Donegal and picking up six new ones. This has given it a continuous block of licenses in Donegal, allowing it to follow veins better. Work such as sampling is being done this year but overall it is at a ‘very early stage in this campaign’. As for the other nine licenses, known as the Mine River Block, most of the strike length has left to be tested.

Connemara raised £900,000 in late February through a placing at 4.15p per share, £200,000 of which came from miner and natural resource investment firm Metal Tiger (all shares came with a warrant for a further share exercisable at 7p, worth up to an additional £1.5 million). It shook up its board at the same time, with Patrick Cullen becoming chief executive, John Teeling becoming non-executive chairman and Metal Tiger representatives also joining the board.

Anglesey Mining: exploring for copper, zinc, lead and gold in Wales

Anglesey Mining’s primary project is on the island of Anglesey off the coast of North Wales, where it has a mineral resource of 2.1 million tons of ore at 6.9% combined base metals, and a further 4.1 million tonnes at 5.0% at its Parys Mountain operation.

The miner published a scoping study for the project in the middle of 2017, laying out early-stage plans to build a project capable of processing 1000 tonnes of ore daily and producing an average of 14,000 tonnes of zinc concentrate, 7200 tonnes of lead concentrate and 4000 tonnes of copper concentrate over an initial eight-year period.

The four key elements that Anglesey needs in place to get into production are: converting its scoping study into a definitive feasibility study (DFS) that would allow it to attract financing, securing that finance, completion of an environmental impact assessment, and hiring key staff. However, the miner believes the project is not ready for a DFS, so is instead working toward a preliminary feasibility study with a view of completing a DFS further down the line.

Cash at the end of March stood at just £137,113, but the firm is in discussion with ‘potential financiers’ about funding further development work, which will be taken in phases. It has also started considering entering long-term supply agreements for future production. As long as it can provide it with some cash that can help move the project forward now.

Wolf Minerals: one of the largest tungsten resources in the West

Wolf Minerals has one of the most advanced mining projects in the UK of any London-listed company, having spent just over a year on construction before starting shipments of specialty metals to customers in September 2015. The Drakelands mine, according to the British Geological Survey, is the world’s fourth largest tungsten resource with a useful additional stream of revenue coming from the tin it also produces.

As one of only two mines outside of China that has the capacity to produce over 3000 tons of tungsten concentrate annually, the location (near Plymouth in Devon) is not only significant for the UK but for Europe as a whole - particularly with tensions between China and the west being tested by US President Donald Trump.

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In the 12 months to the end of June 2018, the mine produced 156,015 metric ton units of tungsten and 324 tons of tin, up 41% and 67% year-on-year, respectively. However, Wolf Minerals is still far from profit. In the full-year to the end of June 2016, Wolf generated revenue of AUD $8.6 million and made a pre-tax loss of AUD $65.1 million. The following year saw revenue jump to AUD $24.7 million, but also loss swell to AUD $74.5 million.

Revenue has continued to rise, partly thanks to better prices, but the firm is still in the red. While its annual report for the latest year is still to be published, revenue in the first half was AUD $23.1 million, and the loss was AUD $35.4 million. Revenue in the second half totalled AUD $25.9 million (for full-year revenue of AUD51.8 million).

Output has wobbled quarter-to-quarter over the last year but has continued to rise overall, with further enhancements expected as it looks to continue improving recovery rates and throughput levels, particularly with tungsten prices heading higher at present.

However, funding has been a problem. Most of its cash was restricted as it had earmarked a considerable chunk for its noise and vibration management plan that was agreed with the Environment Agency. Although it expects the cost of the work to be less than it has put aside, it was left short of cash for the rest of the business – enough so that it had to start talks with financiers urgently to ensure it could stay open.

It said it had to secure funding before the end of July and on the penultimate day of the month it secured £2 million under an existing bridge loan facility, access to up to £1.7 million of its restricted cash, and a standstill agreement from its senior lenders to halt all debt repayments until October 28, 2018. Wolf is now completing a strategic review of its funding arrangements before that standstill deal expires, meaning that the next couple of months will be crucial for the miner.

Strategic Minerals: drilling for tin and tungsten in Cornwall

Strategic Minerals, already producing magnetite in the US and prospecting for various metals in Australia, raised its stake in a former tin and tungsten project in Cornwall in early 2017, upping its holding to 50% from just 16.4% for just over $1 million in cash. With its partner that holds the other half of the project, New Age Exploration Resources, it immediately upgraded the mineral resource through a drill programme and in May it published its drill plans for the site this year.

Strategic Minerals and New Age started drilling in June, with the aim of further expanding the inferred resource of 4.5 million tonnes graded at 1% tin equivalent. The drill work is funded and is targeting a four million to six million ton target. It believes that drilling deeper holes will result in better grades, and expects to complete drill and test work before the year is out.

Cash at the end of June 2018 of $2.1 million had fallen from $3.1 million as it continues to use any cash flow from its Cobre magnetite operations to invest in Australia and the UK. However, it expects to be fully funded for the rest of the year after receiving $375,000 from a major client after their sales were suspended, stating it ‘expects to have surplus funds’ at the end of 2018.

Wildcard: Compass Minerals International finds use for old UK mines

Compass Minerals is primarily a producer of salt, plant nutrients and magnesium chloride for the North American market but it also has a quirky business that lies behind the UK. The company has a division named DeepStore which has found an innovative use for the abandoned mines up and down the country, turning them into bespoke ‘sustainable storage’ blocks for companies looking for high-security underground facilities (placing valuables 500 feet underground is a pretty good deterrent).

Its own facility is an old salt mine in Winsford, Cheshire, with an additional over-ground facility in London. Mostly, these are used to store documents (lack of light and a cool, dry place make it perfect), including large historical library collections.

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