Investors must not lose sight of the fact that we are primarily an exploration company, VANE Minerals (LON:VML) chief executive David Newton told Proactive Investors.
Newton explains that even though it is among a select group of AIM firms to actually have an operating mine it is best to think of VANE as an exploration company with production, rather than a producer with exploration potential.
While this is a fairly subtle point, it is an important one. The exploration portfolio has the potential to significantly increase the companys current market valuation, which at a meagre £3mln doesnt even account for the mining operations in Mexico.
It has been tough for most of AIMs mining companies, and VANE is no exception, particularly after its promising near-term uranium development projects were shelved by the Obama administration.
Nevertheless value remains in VANEs gold production and its potentially high impact copper exploration portfolio.
Producing gold at a rate of almost 5,000 ounces a year (and 100,000 ounces of silver) VANE’s production profile is modest but strategically valuable.
It is expected to throw off revenues of more than $8mln a year, which makes the mining operation the solid foundation of the exploration business.
Having cash flow means the company doesnt have to continually tap investors for cash – a significant plus in these tough and often dilutive times.
If you look at the other exploration companies that have come to AIM over the years, many of them have failed. Having the protection of production and the cashflows it provides, has helped set us apart, Newton said.
It gives us the means to fund the business. So it is very valuable.
If production is VANEs lifeblood, the groups exploration portfolio presents the blue sky potential and ultimately its long term future.
In this area of south west America more than 30 porphyry systems have already been unearthed by the mining industry so far, largely from outcropping prospects, but as around 60% the areas geology is in hidden beneath the terrain there is thought to be much more untapped potential here.
We are hunting big copper porphyry systems. And the potential upside if we find one of those is very significant.
Copper porphyries are massive, Newton explains. In Arizona there are some porphyries which contain over $40 bln worth of copper.
VANE has also added more projects to the portfolio recently. Notably, earlier this year it bought 38 unpatented clAIMs in Idaho. Newton describes these assets as exciting but early stage.
VANE will initially pay just US$20,000 for the assets (via a royalty) in the first year and this will rise by US$10,000 a year to a maximum of US$100,000.
It [the area] has historical drilling from 1969 that has shown some copper. But our technical view is that additional drilling is needed to assess whether there might be a copper porphyry, we’ll also assay the gold, silver and moly (molybdenum) that’s present.
It is an exploration play. It will now slot into our prospective landbank and we’ll drill it at some point in the near future.
VANE has yet to clarify its exploration drilling plans across the portfolio for next year and such plans are likely to provide catalysts as they emerge.
Although VANE is primarily an exploration company, Newton says it is important that the company still balances its spending to maximise the production from the Mexican joint venture.
To do this it has agreed with its partner, Met-Sin, to develop additional mines to start production next year.
We have enough resource to continue production through the medium term and we are now looking to grow that part of the business and therefore increase revenues.
