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Angel Mining – Finance in place to fund the construction and commission of the cable car at Black Angel: Strong Buy at 3.375p with a 6p target price

Angel Mining, the Greenland-focused mining company updated the market on its finances on 27th April. At the beginning of April, the company announced that it has requested a drawdown of $8 million of its medium term note programme with its backer Socius CG II Ltd. This money will be used not just to fund the construction and commissioning of the cable car at Black Angel but also to meet operating costs incurred ahead of cash generation beginning at the Nalunaq gold mine and repay the FBC Holdings Sarl short term loan and accrued interest. To date, Angel has received $5 million of these funds with the remainder expected shortly. In exchange for Socius allowing early access to a majority of the funds and for also waiving certain conditions of the deal, the company will pay Socius a fee of $342,857 which will come from the second tranche of the drawdown. Nick Hall, CEO, was quick to point out that these funds will accelerate some work taking place at the Black Angel Mine.

Earlier on in the month, Angel was able to reassure investors about the progress at the Nalunaq gold plant which is now largely commissioned and operational. On site there is processed gold ready to be poured and then shipped off to the refinery. Management and staffing levels at Nalunaq have now been beefed up to allow for full production. While at the Black Angel lead, zinc and silver mine, rehabilitation has started which includes the erection of a new cable car. There is a full plan in place for Black Angel involved both bringing this mine back into production but also a new exploration plan for the Black Angel licences which is in process.

In Greenland, Angel Mining is the only mining company operating until recently and so has been well placed to pick up other projects in a country that has substantial potential for a variety of minerals. Sensibly, the company has chosen high grade opportunities and is now commencing production at its Nalunaq gold mine which should soon be producing at an annual rate of 25,000 ounces. Gold revenues could top $37 million on an annualised basis which could catapult Angel into profitability . This is likely to be followed by the development of the Black Angel lead zinc mine where production could come on stream as early as 2012; ahead of that time the Feasibility Study is being refreshed which should allow an up-to-date valuation to be placed on this project which could led to a further re-rating of the shares.

In total, more than $100 million was spent developing Nalunaq, before Angel bought the mine for $1.5 million. Crew Gold Corporation (Crew) had developed this mine with a targeted cut-off grade of 20g/t, in the end it achieved an average of 14.5g/t but that proved insufficient to make its operation profitable and so the mine was closed. Crew’s operation had been quite costly as there was no mill on the site and all the broken ore was shipped to Newfoundland and mine was staffed by contract miners flown in from Canada. Before commencing negotiations to acquire the mine, the Directors were able to gain a blessing for their innovative scheme of siting a mill and depositing the tailings safely underground in the old mine workings. The mine and plant have now been designed to ensure that cyanide will not enter the environment and that any trace of cyanide in the tailings can easily be monitored.

The entrance to the Black Angel mine is 600 metres up a sheer cliff face which will be accessed by a cable car across a 1.7km wide fjord. The ore body is a high grade, high quality (minimal containments) zinc and lead mine. The mine was operated by Cominco between 1973 and 1990 who extracted approximately 12 million tonnes of ore at an average grade of 12% zinc and 4% lead. When the mine closed 2.1 million tonnes of resources at similar grade left in the pillars. Since then the company has discovered a further 2.4 million tonnes of resource which has improved the fundamentals still further. The capital expenditure to get the mine back into production has been put at $100 million. The board is investigating a phased project in order to reduce the initial capex with production possibly set to commence in 2012.

Phase One of the company’s mining plan at Black Angel is to extract the old pillars from the mine which is planned to take between 4 and five years. In the summer, the Directors suggested that cash cost of production at the Black Angel mine to be less than $1,000 per tonne of lead and zinc. The cash cost per tonne is most sensitive to the cost of energy, which, in this case is diesel. Exploration on the remainder of the company’s 259 square kilometres licence area has shown that there are further zinc/lead deposits which s but further exploration is required to determine the full potential of the area.

Angel is the old Angus & Ross which under a new management has been successfully reinvigorated and turned from an explorer into, what bears all the hallmarks of becoming, a successful mining company. A number of specialised institutional investors have sought out Angel Mining as they are sufficiently attracted by the company’s future potential cashflow to advance serious sums of finance that have helped put Nalunaq into production and could probably allow the Black Angel mine to come on stream in the phased programme that the management is working on.

There have been a series of delays in bringing the Black Angel mine into production which might have tested the resolve of all but the most patient investor. Delays have also been experienced bringing the Nalunaq gold mine on stream, but now that has been achieved and gold is about to be poured the board ought be given the credit it deserves for turning Angus & Ross from a rag bag of unrelated assets into what looks like becoming a steadily profitable gold miner which has an opportunity to follow that with the opening of a high grade zinc and lead operation. A lot of the value that is being unlocked at Angel Mining does not seem to be fully reflected in the share price at present. At 3.375p our stance is strong buy with a 6p price target.

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