Copper is used in cars, housing, power lines, electronics and lots of other everyday stuff. That’s why it’s seen as a bellwether for the economy. Its price reflects economic activity.
Small cap biotech beats expectations
- Penny share Kiotech (ticker: KIO), a supplier of high-performance natural feed additives to enhance health, efficiency and sustainability in aquaculture and agriculture, reports a strong first half.
- 'Sales are running at levels well ahead of the comparable period in the previous year,' says chairman Richard Rose.
- Kiotech is up 137% since 22 January.
And copper has been staging an impressive rally this year. Having dipped below $3000 at the turn of the year it is now around the $5000 levels. That makes copper an interesting theme to look at in the small cap sector. After all, penny shares have the potential to turn ordinary themes into extraordinary profits.
So, I was interested to take a look at what has been described by broker FinnCap as ‘one of AIM’s best kept secrets.’ This is Kiwara (ticker: KIW), an exploration company that is focussed entirely on one license block in Zambia.
FinnCap estimates that Kiwara’s Kalumbila project could contain 8.7m tonnes of copper. That is more than ten times the size of any other AIM-listed copper miner. Furthermore, this copper appears to lie close to the surface. That means this has the potential for an open pit mining operation. That’s much cheaper and less fraught with technical difficulty than an underground mine.
Even after the recent price surge, this could still be undervalued
Little wonder that the value of Kiwara on the stock market has risen sharply since investors caught a glimpse of this, up 71% since 11 June. But at £67m this valuation is still low in relation to the value of all that copper. On the face of it the shares are an interesting gamble. But let’s look things in a little more detail.
If Kiwara manages to bring a major copper mine into production in Zambia, it would not be the first. Exploration of the Zambian copper belt began in the 1930s, and historically this area has produced up to 700,000 tonnes of copper per annum, as well as gold, uranium, nickel, lead-zinc, iron and manganese.
Having started in the east of this land-locked country, mining has gradually been edging to the west. Kiwara’s 1,425 sq km licensing block is in the north-west, close to the borders with Angola and the Congo and some five hours by road from the city of Kitwe. And Kiwara is not on virgin territory…
As is typical of so many of today’s small mining ventures, Kiwara is raking over land that has been explored before. In the early 1960s the Rhodesian company Roan Selection Trust drilled thirty-one holes; in the 1970s and 1980s Italy’s Agip drilled three hundred holes in a quest for uranium; and then in the 1990s Anglo American had its turn, looking for nickel and cobalt before plunging metal prices saw it withdraw from Zambia altogether.
Kiwara now has an 80% interest in the license and so long as the copper price stays where it is or moves higher, it could be on to a winner. FinnCap has calculated a net present value of the Kalumbila copper project of $608m, and even discounting this by 80% to allow for the many risks of failure, it still calculates that this is worth 44p per share.
Added to this is a possible uranium resource at Kawanga, also on the license area, and a nickel mine at Kawako. Last September the Kiwara team took two rock samples from the latter and these revealed surprisingly high grades of nickel sulphide. Although this was hardly an extensive survey, FinnCap argues that while ‘luck may have played a part in one hole returning high grade nickel, we do not think it possible to intersect similar grades in a second hold nine hundred metres away without the strong possibility of a major hydrothermal system being present.’
Shooting for a very large prize
So Kiwara has two main targets this year – the Kawako nickel prospect and the Kalumbila copper deposit. At the former it will conduct a geophysical survey in order to identify drilling targets, while at the latter more work is required to establish the full extent of the resource.
As that 80% discount applied by FinnCap suggests there are still plenty of hurdles to overcome. Defining the exact nature of the resources is one. Then there is the little matter of the required finance, the price of copper which could be anywhere by the time the mine comes into production and the attitude of the Zambian Government which only last year backed down from a proposed windfall tax on mining profits.
However, assuming Kiwara reaches the mining stage, the experience of other open pits nearby, operated by First Quantum Minerals and Equinox Minerals, suggests that exploitation of these promising new resources and sale to the international market should not be too difficult.
This is a mining junior shooting for a very large prize. I’ll be following this and other small cap commodity companies closely. Penny shares offer great potential for turning everyday stuff into extraordinary profits.
Good investing,
Tom Bulford
For The Penny Sleuth
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