By Dr. Michael Green

Interims out this morning from Ironveld brought a ray of sunshine. All the overheads incurred during the period reflected a continued low level of activity whilst negotiations for development funding continued. However, the results brought welcome news that talks are at an advanced stage with a major partner seeking to take a strategic equity stake in the company at a premium to the current share price.

Better than that, these talks could be wrapped up shortly as CEO Martin Eales explained “The six months to December 2020 ultimately proved frustrating and despite best efforts, we were unable to conclude the envisaged transaction with IIG. We have, however, made material progress on a possible alternative transaction in the early part of this year, which we hope to conclude in the coming weeks…..”

Announcements like these by AIM companies need to be thoroughly vetted by the Nomad and there is no way that Ironveld would have been allowed to make such a very interesting comment unless the board could provide clear evidence that they had a reasonable level of confidence in saying this. We believe Chris Raggett of Finncap to be up there as one of the best in the business too. The same can be said of the choice to use the word “premium”- if you can’t justify it, you can’t say it. Reading between the lines, it does look as though Ironveld is marking investors’ cards and in our view it look as though this story is just about to kick off.

For those not in the know, Ironveld has a hugely exciting asset in its unique project that is located on the Northern Limb of South Africa’s Bushveld Complex. This project has a JORC-compliant resource of 56.3Mt grading at 68.6% Fe2O3, 14.7% TiO2 and 1.12% V2O5. When in operation, the project should attract a lot of attention as it would be first project in South Africa that is capable of producing high purity iron (HPI), vanadium and titanium. There is huge potential that is ready to be unlocked by near term financing.

Good as that maybe, it does look as though time has stood still at Ironveld for the last three or four years. The end result is that stock market fell out of love with the company and the share price fell to uncharted depths. This all meant that when Ironveld raised £1 million back in November 2020, it had to be done at some derisory shell company type valuation of £2 million. But as we sensed back then, this time around there looked to be the real desire to do a deal.

Last year, the company had a deal with Inclusive Investment Group (IIG) to find the necessary finance, but it came to nothing. Freeing themselves from IIG’s clutches served to put the company back in play and reading the interims statement shows that there has been interest. The form of any possible deals could be another strategic partnership taking a stake and securing finance (but once bitten twice shy), traditional project finance or an investment equity at asset level into the project.

There is no doubt that Ironveld has a tremendous competitive advantage when it comes down to HPI production, which is used in 3D printing. There are only a handful of major HPI producers, and most do not have their own mines, instead using scrap stainless steel which accounts for up to 70% of production costs. The company’s big advantage is that not only is it cheaper to mine rather than grinding up stainless steel but also Ironveld’s HPI does not have the impurities that exist in stainless steel as it has not processed. The compelling combination of having its own mine together with by-product credits represents a huge competitive advantage. All of this firmly places Ironveld in the lowest quartile of the HPI cost curve. It has to be said that when you consider by-product credits the company may well be the world’s lowest cost producer.

The project has well-planned near, mid and long-term opportunities. Phase 1 is the near-term opportunity provided by the pending acquisition of an existing 7.5MW smelter, where a deal has been agreed. To start the mine and buy the smelter will require R300 million (£15 million). Ironveld’s resource in the Bushveld in Phase 1 mining at 40,000tpa would take 25 years to mine 1Mt of the 56Mt, leaving 98% of the resource intact. Its crying out for a far larger project that could really begin to make the most of this cracking potential and that’s where Phase 2 and Phase 3 come in.

There is a clear opportunity for even earlier cash flow at this project, even though acquiring the Middelburg smelter is still the prime strategy. Magnetite ore could be simply dug up, crushed and without any further processing be used in dense media separation (DMS) for coal washing. Such a move could generate some handy cash flow which would give the company more breathing space to do a better big deal.

A joint venture here could lead to the rapid start of simple mining and crushing of the magnetite ore with a third party for coal washing where it is the most commonly used material. This looks to us very much like Kazera Mark II as it’s amazing how the investment profile changes when cash flow starts – suddenly the stock market begins to believe in you again. All this potential comes along with a highly experienced board and senior management team based in South Africa and the UK which are well adapted at pushing projects rapidly up the valuation curve.

Align initiated coverage on Ironveld in December 2020 when the stock was trading at 0.685p with a Conviction Buy recommendation and a target price of 3.26p. Given the potential here plus the newsflow, Ironveld was one of our chosen stocks for 2021. At the current level of 0.57p, we believe this is another rare “gift” being offered by the market and have no hesitation in reconfirming our stance at the current price.

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Ironveld  is a research client of Align Research. Align Research & it’s Director are the largest combined shareholders in Ironveld and cannot be seen to be impartial in relation its outcome. At all times both are bound to the company’s dealing policy ensuring open and adequate disclosure. Full details can be found on our website here (“Legals”).

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