MININGAIM.CO.UK

Good morning investors of MINING AIM and welcome to your stock of the week.

Today we’re going to take a look at Alien Metal’s exploratory portfolio. Last week, I cast a critical eye over Hancock — this remains the flagship and the company’s share price, at least in the near term, will be dictated by whether Alien gets a deal for this asset over the line in the near term. The full report is below.

But the focus for this secondary piece is the exploratory portfolio. Interestingly, the name Alien Metals is perhaps a misnomer for a company whose future rests on iron ore (the most commonly mined element), but the exploring perhaps better justifies the name.

Assuming Hancock gets over the line (and yes, this remains an assumption), there’s plenty more to be positive about — and you can consider the exploration as a bonus.

Before we get started, please remember this is not financial advice, and you should only consider investing in small caps from a position of financial resilience and within a diversified portfolio.

Let’s dive in.

Pinderi Hills

The first thing to understand, which Alien has not explained particularly well in press releases/RNSs is what the exploratory portfolio actually is.

So here’s the breakdown — Pinderi Hills is the wider tenement area. Elizabeth Hill and Munni Munni are licences within Pinderi Hills — and Alien has consolidated these two projects into a single tenement alongside surrounding assets in the Pinderi Hills geographical area into a 100%-owned 180.25 square kilometre parcel of land.

So when Alien says Pinderi Hills, they may be talking about what’s going on at Elizabeth Hill, or Munni Munni, or other exploring outside of these two tenements, or all of it as a whole.

It’s not confusing if you’ve been following the story for years, but understandably is not ideal if

you’re approaching Alien for the first time. The problem is that all of these tenements were previously owned by different owners — but now, as a unified resource, Alien is better positioned than past owners to deliver value.

And they’ve already identified walk up targets across nickel, copper, PGMs and other critical minerals through a comprehensive geological review.

Let’s go asset by asset.

Errawarra Resources Lithium Joint Venture

On 29 April, Alien executed a JV agreement with Errawarra, respecting solely the lithium rights on the Pinderi Hills project within West Pilbara.

Here’s the breakdown:

Errawarra can earn up to a 50% interest in the lithium rights in the project by spending up to AU$4 million, with the first AU$500,000 being by way of a subscription for UFO shares, gaining the lithium rights for 60 months.
These shares, admitted on 3 May, were bought at 0.2p (the 10-day VWAP, but now a hefty premium to the current share price).
It allows some development of the Project whilst also allowing Alien to remain focussed on the development of the Hancock Project and Pinderi Hills nickel, copper, and platinum group metals projects.
The Pinderi Hills area covers a major ultramafic/mafic complex which is potentially prospective for lithium bearing pegmatites.

West Pilbara is a prospective emerging lithium province, with interpreted pegmatite dykes which the Directors of Alien believe are comparable to the recently discovered Lithium Caesium Tantalum pegmatites within the Andover intrusive mafic-ultramafic Complex located 35km to the north-east.

Executive Director Guy Robertson, at the time, noted that ‘Errawarra has immediate plans to commence exploration for lithium on the project.’ You’d assume there has now been circa six weeks of initial work.

In Stage 1 of the venture, Errawarra will earn 25% of the JV by spending AU$1 million within 24 months.
In Stage 2 of the venture, Errawarra can earn a further 25% (total 50%) by spending an additional AU$2.5 million within 60 months. Importantly, some of that additional AU$2.5 million can be spent within the first 24 months.

Once Stage 2 completes, both companies are expected to contribute 50:50 financially to further exploration or potentially development — Alien better have that Hancock free cash flow by then! If Errawarra doesn’t meet the spend, its interest in the JV will simply be adjusted proportionally downwards.

If Alien subsidiary AMA chooses not to contribute financially post-stage 2, its own 50% interest will dilute on a pro rata basis and if it falls to 10% this will be converted to a 2% gross revenue royalty.

Errawarra also retains the first right of refusal to buy the royalty from Alien — and importantly, Errawarra also enjoys first right of refusal to acquire all the remaining mineral rights to the Pinderi Hills nickel, copper, and platinum group metals projects.

Interestingly, this is all positive news as the lithium rights had a zero carrying value on Alien’s balance sheet — and yet the area is clearly prospective, being relatively close to other viable discoveries.

For the technical minded, the JV area is filled with granites belonging to the Orpheus suite of rocks — the legendary Greek could even charm stones with his music — and these granites are associated with lithium pegmatite emplacement in the significantly mineralised lithium pegmatite corridor located 20km to the north.

For context, at the Maitland Intrusive Complex, there may even be pegmatite dyke swarms comparable to the recently discovered LCT pegmatites within the Andover Intrusive Complex located 35km to the north-east.

It’s worth pointing out that the JV data will be freely available to Alien, covering all metals — not just lithium. This will be invaluable.

For examples of where this could go:

Artemis Resources has an AU$30 million market capitalisation.
Raiden Resources has an AU$100 million market capitalisation.
And for the dreamers, Azure sold for AU$3 billion, without a resource of even a DFS.

All three are in the nearby region.

Today investors were treated to an update:

Reconnaissance soil sampling on a 400m x 100m grid comprising 926 samples is almost completed
Reconnaissance stream sampling comprising 124 samples is almost completed
Rock chip sampling of pegmatites with some 80 samples collected
Photogrammetry completed over the NE portion of E47/4422
A historical drone survey is being reprocessed to assist in the targeting of pegmatites
Over half of the samples have been dispatched to Australian Laboratory Services Perth
Complete surface mapping and sampling of pegmatites

Ongoing work will pause after the current reconnaissance program is complete, with the final batch of samples being dispatched within the coming fortnight. The first set of results will be ready by the end of the month, with all results available by the end of July 2024.

A follow-up program will then be planned and is expected to be implemented during Q4 2024.

Munni Munni…

Munni. It’s a rich man’s world.

The good news for Munni Munni (and also Elizabeth Hill) is that an independent review by Resource Potentials Pty recently reported back — covering recent activities and exploration works planned for later this year at Pinderi Hills (and also Hancock — but that’s below).

As a reminder, Pinderi Hills as a complex hosts a combination of PGMs and gold within Munni Munni, silver within Elizabeth Hill, and multiple other nickel-copper and lithium targets — these last metals covered to various degrees via the JV with Errawarra.

Munni Munni has a JORC 2004 resource of 24Mt @ 2.9g/t PGM and gold for 2.2Moz PGM.
Elizabeth Hill has a pre-JORC resource of 46.8kt @ 2,700g/t Ag for 4.05Moz Ag.

However, Alien believes that reverse circulation drilling from the campaign of November 2022 is sufficient evidence that the resource at these assets can be ‘significantly expanded’ and they could:

‘potentially host a Tier 1 Precious Metals and Ni-Cu project.’

This view is reinforced by a government-backed Geoscience Australia 2016 report, which highlighted Munni Munni as a ‘high-priority area for a world-class ultramafic hosted Ni-Cu-PGE Sulphide deposit.’ The whole thing is located close to major infrastructure — just 50km from mining regional city Karratha. And this is Australia, the best mining jurisdiction on earth.

Resource Potential principal consultant and geoscientist extraordinaire Dr Jason Meyers’ review means Alien is confident enough to expedite exploration, with a plan to increase the current resource base and even potentially find new deposits. Exploration is planned for Q3 — that is, next month — starting with soil geochemical surveys over the main Ni-Cu target areas and Judy's Reef PGM trends.

Technical Director Robert Mosig enthused:

‘Further to Resource Potentials' review of Pinderi Hills, including encouraging silver, base and precious metals drilling results from Elizabeth Hills (AIM: 20 February 2023), the Company has fast-tracked plans to develop the Elizabeth Hills Silver Mine, as well as furthering our understanding of base metals deposits as we explore new opportunities in the area. The region's recent history has not been explored, so we are delighted, based on the review and the Company's previous drilling program, to announce our plans for the next phase of exploration in the region.’

The Meyers factor

Australian government department Geoscience Australia has highlighted Pinderi Hills as having a high potential for intrusion-hosted Ni-Cu-PGM sulphide deposits in mafic/ultramafic complexes.

In terms of silver, previous drilling by Alien in 2022 identified exceptional broad intersections of native silver.

These mafic/ultramafic complexes of the West Pilbara are some of the most fertile rock types for significant discoveries — if you don’t believe this then just look at any map of mining assets in Australia. They’re igneous rock formations that form when magma cools and crystallises underground, with the composition of the magma determining the specific minerals that form within the complex.

Alien is planning a comprehensive exploration programme led by Mosig — who has over 40 years of experience and has already explored the Pinderi Hills location as MD of Helix Resources (NOT Helix Exploration) and Platina Resources.

To expedite the programme, Meyers — who spent a decade as an Associate Professor in Exploration Geophysics at the WA School of Mines — will be assisting closely. He and his team have completed a comprehensive study on the mineral potential of Pinderi Hills and provided a recommended exploration plan.

The plan for Q3 2024 is centred around soil geochemical surveys over the nickel-copper targets and Judy's Reef PGM trends. As both mineralisations overlap, Alien should be able to test for both styles in one program — with the results to be used to help decide where to conduct geophysical work and future drilling. Alien also plans to target larger silver ore bodies at depth at Elizabeth Hill — along the strike from the known silver deposit/mine zone.

Once again, the data from Errawarra from the current fieldwork is expected to provide critical information which will assist in the analysis and drill targeting for silver, base and precious metals at Pinderi Hills.

Technical detail

Let’s take a deeper look at the current resources, including key drill results:

1m @ 3.98% Cu, 12 troy ounces ("ozt") Ag, 0.95% Ni from 35m in EC002
1m @ 3.5% Cu, 125ozt Ag, 0.58% Ni from 2m in UGD063
5.2m @ 2.18% Ni, 166ozt Ag, 0.76% Cu from 3m in UGD069
1.05m @ 1.90% Ni, 114ozt Ag, 1.25% Cu, from 5.05m in UGD072

The Elizabeth Hill Silver Mine has a pre-JORC compliant resource of circa 4.05Moz of silver and in the past was once Australia's highest-grade silver mine.

Over 1 million ounces of silver was produced in 1999-2000 from a shaft and on-site processing plant before the mine was closed during a dispute between the previous joint venture partners back in 2000. The mine is now 100% owned outright by Alien, and prior historical drilling has been compiled into a secure geological database.

Long-time readers will know that this is one of my favourite strategies; buying decent assets for cheap when there is already a massive database, where the asset has been sold for non-technical reasons.

Indeed, this idea has been used to great effect by other companies in Southern Africa.

The main silver mineralisation is located south of the Volcanogenic Massive Sulphide anomalism, which has been targeted with several historical reverse circulation holes. It lies on a structurally controlled fault contact between granite and ultramafic rocks, with the main zone of mineralisation plunging steeply to the south. Drilling of the interpreted parallel structures is in the long-term plan.

It’s also worth noting that Elizabeth Hill has previously recorded values of up to 2.09% — and Alien thinks it could also add gold, platinum and palladium credits to the resource through further exploration.

For example, at Munni Munni, Alien already thinks more PGMs can be found. The current (2004) resource (not JORC-2012 compliant) stands at 24Mt @ 2.9g/t Platinum Group Element and gold for 2.2Moz PGM. This includes 1.14Moz of palladium, 0.83Moz of platinum, 152koz gold and 76koz of rhodium.

And Munni Munni is already considered to be one of the country’s largest platinum group deposits.

The current Munni Munni resource mineralisation is on the Hunter/Ferguson Reef. However, field mapping and geophysical interpretation have together highlighted a lower reef — Judy's Reef — that has seen very limited drilling and only needs some basic soil sampling to advance it towards drill target status. And previous metallurgy test work on the asset can arguably be upgraded via modern techniques.

Alien reported decent reverse circulation drilling results in April 2023, which targeted Judy’s Reef; the takeaway was that a reef similar to the Hunter/Ferguson Reef at Munni Munni is located further west of this drilling. They reported anomalous PGEs, nickel, copper and elevated chromium units of a similar tenor form and orientation, with a similar dip to the granite contact as seen at the Munni Munni Resource area.

The asset’s intrusive complex is tilted onto its side, so the base of the intrusion is located along the northern edge and eastern edges, where Judy's Reef West and Judy's Reef PGM reefs form along the basal contact with the surrounding granite.

The base of the intrusion is largely under-explored for intrusive Ni-Cu-PGE sulphide deposits and the company notes that it requires soil geochemical surveying, mapping, EM surveying and drilling. The nickel-copper mineralisation could be similar to the successfully mined deposit at Radio Hill, located around 15km to the north.

One last target — the Cadgerina Dyke is a magma conduit for the Munni Munni intrusion, and remains untested by electromagnetic surveying or drilling, despite having strong geochemical anomalism. This could be a very interesting target to explore.

Further Elizabeth Hill considerations

In the 18 months that the previous operator mined silver at Elizabeth Hill, the price was just US$5 per troy ounce, and the metal is now trading six times higher at circa US$30 — arguably this is still too low given the disconnect between silver and gold and its historical price pairing.

It also focused on mining and selling specimen silver nuggets, as these command a more than tenfold price premium compared to standard silver. This includes the pictured silver specimen owned by junior explorer magnate Mark Creasy and the 145kg Queen Karratha nugget which can be viewed in the Perth Mint— Australia’s largest ever found.

Sadly, the mine was pillaged for specimen silver with the day to day production never specifically for the normal silver grades.

For context, high grade silver mines remain rare — most silver mines are at grades running into the 100s of grams per tonne and use silver equivalent credits (including lead and zinc) to bolster the investment case. Elizabeth Hill remains predominantly silver at 1000s of grams per tonne and was historically Australia’s highest grade silver mine.

There’s also the potential to start up some small scale silver production while also exploring the wider resource. You could see a scenario where Elizabeth Hills is producing silver while the asset size is increased via exploration — potentially paid for by the silver sales.

In this single year of operation between 1999 and 2000, the operation mined 1.2Moz @ 70.6ozt/t Ag (2195g/t Ag) — and mining stopped in a single day due to the JV partners falling out with each other. A large untapped resource could be out there, waiting to be discovered.

Alien’s initial drilling hit some 19.7m @ 113ozt/t Ag, in additions to bulk tonnage suggesting intercepts such as 52m @ 22.6ozt/t Ag.

The project is located over the eastern part of the Munni Munni Intrusive Complex, at the contact of basement granites and the Munni Munni sequence. The Munni Munni fault is a major north-south regional structure with a horizontal displacement in excess of 500m, along which the Elizabeth Hill Mineralisation has been intersected over only a 100 m north-south zone along the boundary of the fault.

Alien’s maiden drilling totalled 19 holes covering 1.991m, spread across the Project and comprising 4 diamond drilled holes totalling 211m, and 15 holes and 1780m of reverse circulation drilling.

Interpretation of the diamond core results suggest the mineralised envelope at Elizabeth Hill may be larger than work by previous explorers has suggested, with the mineralisation starting at surface in easily extractable material.

Diamond drill results include:

19.7m @ 102.8ozt/t Ag (3198g/t Ag) from 5m with end of hole mineralisation of 1.7m @ 638.7ozt/t Ag (19,865g/t Ag) from 23m, in drillhole 21EHDD003.
24.8m @ 28.2ozt/t Ag (877g/t Ag) from 2m in drillhole 21EHDD001.

RC drill results include:

52m @ 22.6ozt/t Ag (703g/t Ag) and 0.009% Pb from 38m in drillhole AMEHRC009
2m @ 49.8ozt/t Ag (1,550 g/t Ag) from 108m, in drillhole AMEHRC012, which represents a potential new mineralised zone 400m south of the Elizabeth Hill mine along the Munni Munni Fault.

In November 2022 Alien completed a follow up drilling program comprised of 12 holes for 1,370 metres designed to test the down dip, plunge and depth extension to the known high grade silver mineralisation. However, due to water inflow some holes did not reach their target depths.

Regardless, Alien reported:

42m @ 12.1ozt/t Ag (377g/t Ag) and 0.52% Pb from a depth of 8m in drillhole 22AMC001.
Including 13m @ 35.4ozt/t Ag (1102g/t Ag), 1.11% Pb and 0.48 g/t Au-Pt-Pd from 16m.

This result confirmed extensions to the main silver lode, which when combined with a re-evaluation and re-interpretation of historical data available strongly suggests the original EH high-grade, narrow silver vein is in fact the high-grade core of a much larger mineralised halo.

As a result of multiple holes not reaching there target depth, the programme is considered unfinished and further drilling remains warranted.

Grant funding?

It’s probably worth considering some of the key quotes from Mosig’s interview on the Dig Deep Mining Podcast — posted out on 13 June.

Here’s the key quotes:

‘Naturally, I guess, Alien's vision is to become a miner in the very near term.’
‘Right now we have iron ore and it's imminent into production.’
‘With iron ore, we have a lot of the larger companies sniffing around now thinking about...let's see if we can't do some form of negotiation.’
Maybe iron ore might be shared, and with both Elizabeth Hill and Munni Munni...these could be mined together.’

We’re not hanging about for the Lassonde Curve weakness; that part of the journey is over. With a ‘super team’ in place, and huge advances in geophysical and drilling tech, Alien seems set for exploratory growth.

Unsurprisingly to anyone in mining, West Australia is booming in terms of exploration — and importantly Mosig noted that ‘the Australian government is looking particularly at helping juniors and the more advanced companies in terms of funding.’

It’s possible this could apply to Pinderi Hills because while there’s some impetus for silver exploration, it’s also clear that more widely, the Australian government would like to develop more PGM mines outside of South Africa to help develop its own independent supply.

The bottom line

Mosig notes that the plan is to be ‘doing an aggressive drilling program out on Pinderi Hills later this year or early next year.’

We know that the plan is to get Hancock over the line within the next few weeks/months — so there is a future where Q3 sees a JV partner come in to run the show at Hancock, while Pinderi Hills exploratory work gets going.

Q4-Q1 then sees drilling start at Pinderi while the cash rolls in from Hancock.

That’s the plan anyway.

Bonus: Hancock update

Today’s RNS continues to tease a near-term funding deal — Alien is ‘is actively progressing the ongoing review of strategic funding options with regards to the Hancock Project, including possible funding by way of joint venture and or debt funding.’

Approvals to explore sufficient to expand the resources and reserves to circa 20-50Mt (up from 8.4Mt @ 60.20% Fe) are being finalised — and the company is undertaking bulk sample collection for testing to end users (steel mills).

Engineering and transport logistics are advancing well, and are scoped for mining, crushing, road haulage, and port loading — with the intent to further develop and then move towards a tender process.

Robertson noted that ‘As negotiations continue with potential funding partners with regards to the Hancock Project, Alien is working hard on progressing developmental milestones and expanding the existing iron ore resource significantly in Q4 2024 with additional exploration at the Mallina Target west of the Hancock Mining Lease.’

Of course, with BCI Minerals recently selling its iron ore assets to Mineral Resources’ subsidiary Polaris Metals — for $60.1 million certain + $12.5 million potential — it’s fair to consider whether this major could be the partner in mind.

This is especially viable as MinRes has a history of getting in bed with partners before conducting a full buyout. But there’s also Hancock Prospecting — John Hancock (Gina Rinehart’s son) used to own the project.

But it’s not like there’s only one buyer for Western Australian iron ore assets out there.

Macarthur Minerals is selling the rights to mine and develop its Lake Giles Ularring iron ore project to Gold Valley Yilgarn in a deal that could be worth up to $89 million.

And CZR Resources has agreed to sell its majority interest in the Robe Mesa iron ore project in Western Australia to a subsidiary of China’s Shenzhen Naao Jianglan Investment Company for some $102 million.

Time to get this over the line.

Good morning investors of FTSEAIM.CO.UK and welcome to your midweek stock!

Today, I’m going to cast a critical eye on retail favourite Alien Metals (AIM: UFO), a company like so many in this sector, which seems perennially on the verge of delivering tomorrow’s jam today.

Before we get into the details, I do insist on the usual caveats. As your thousands of eyeballs start to collectively roll upwards, it’s worth remembering that the basics — like investing from a position of financial resilience or diversifying your investments — which may be old hat to you, is often new news to a new investor attempting to navigate the junior resource sector for the first time.

Alien Metals shares have lost two-thirds of their value over the past year and have been falling from all-time highs for longer than that.

Of course, this kind of share price action is fantastic news if you happen to specialise in finding underloved shares with strong fundamentals and weak sentiment. Alien now sports a £8.8 million market capitalisation and a set of projects that could arguably be sold on the market, right now, for substantially more.

This is part one, covering the iron ore. Tune in within the next fortnight for part two.

Let’s dive in.

Alien Metals: the flagship

The vast majority of FTSE AIM mining sector businesses pin their hopes on a single company-making asset, and Alien is not an exception to the rule.

Alien’s flagship is the 90%-owned Hancock Iron Ore Project, and while there is some uncertainty surrounding the company, what is clear is that the iron at this asset will be mined, processed and sold at some point. It really is only a matter of time — which is perhaps little comfort to long-term holders but helps a lot if you’re new to the stock.

Alien has conducted significant exploration across the asset:

Maiden drilling consisting of 3,350m over 53 RC holes targeting the Sirius Extension, Kalgan and Western Ridges targets
Phase II drilling in June 2021, covering 2,175m over 40 RC holes
Phase III drilling in November 2021, 1,146m over 46 holes, both infill and extension targets
Phase IV drilling, 2,237m of RC holes, facilitating maiden ore reserve
Phase V drilling, 13 diamond core holes over 1,049m adding to the 2082m already drilled at the Sirius Extension.

There is a JORC Resource on the asset for 8.4Mt @ 60.20% Fe (including an upgraded indicated resource of 4.5Mt @ 60.2% Fe), and a mining inventory of 3.9Mt @ 58.5% Fe — with ore reserves of 1.9Mt @ 60.2% Fe. That’s a very high grade of iron, and a perfectly reasonable resource size.

To understand why an indicated resource matters, click here.

Alien subsidiary, Iron Ore Company of Australia (IOCA) boasts a strategic landholding covering 75km2 at Hancock and released a development study for the asset only in February. Key stats for the base case include:

Mine rate of 1.25 million tonnes per annum (with only 20% of tenement explored)
8Mt mineable resource
6 year mine life
1:2.2 strip ratio on ridge orebodies, 1:0.8 on Sirius (incredibly low)
Open pit operation
Simple mining, mobile crushing, screening and processing
AU$28 million capex requirement
C1 operating costs of less than US$65/t FOB
Opex all in US$85/t
Pre-tax net present value of AU$146 million (10% discount rate)
Pre-tax IRR of 133%

The key positive to understand is that building this mine is (and for the love of God, please don’t come back to bite me) going to be quick, cheap and relatively easy.

This is a direct shipping ore project, which in technical terms means that all the bits of a mine that require that dreaded word, ‘optimisation’ simply aren’t going to be at site. Alien is literally going to blow up the rock with explosives, crush it down to manageable size, screen out some of the waste, and send the resulting rock out of the gate.

Somebody else with deeper pockets can do all the fiddly bits.

And for context, 62% iron ore is currently trading for an elevated US$120/tonne (Hancock will produce 60% grade so this will be slightly lower) but regardless the profit margins are fantastic. $120 is only a little above the long-term five year average for iron ore.

If you assume the high case over the base case, you have a 10Mt mining inventory with

additional tonnage and extended mine life both possible — and the pre-tax IRR could jump from 133% to some 228%.

It’s probably important to note that other than continued exploration of current targets, Alien also has the Mallina target (Hancock West) to the west of the Hancock Mining lease application — the company describes it as a ‘classic host for further iron ore deposits to be located,’ with similar geology and iron ore formation to the Sirius deposit.

Independent experts consider a large tonnage exploration target may be present, and exploration should start up at some point in Q4 2024.

But for perspective, the base case has a 5.2x NPV/capex multiple, which rises to 12.3x under the high case (though of course the reality is probably somewhere in the middle).

But the best news is that the payback period is less than 12 months under all scenarios. This is understandably very compelling.

At this juncture, it’s also worth noting Hancock’s neighbours — just look at that map. If you were going to pick a spot on a map to have an iron ore deposit, it would be hard to find anything better.

Rio Tinto, Fortescue, Hancock Prospecting (Gina), BHP, Rio again — the titans with their world class deposits are clustered around Alien and it would not be hard to see a buyout once operations get underway. Indeed, Rio and BHP both explored Alien’s tenure at one point.

A project mining agreement has been executed with the traditional owners, and a miscellaneous licence has been granted through the Mallina tenement, conceding access to the Great Northern Highway, enabling site infrastructure access for imminent construction. The mining lease has also been granted, leaving the way clear for the mining proposal and heritage clearances — with construction and operations contractors already hand-picked….

And now all that is left is for negotiations with offtake and finance partners to conclude, I’m assuming in the near term — with ongoing discussions for export capacity through UTAH point (that includes an MoU with E25) which is the last component needed in the transport plan.

For context, the asset is just 17km from BHP/Rio mining hub Newman, and 412km from Port Hedland (where you send iron ore to go to China). Opex costs could even be reduced further by utilising ultra quad trucks, a plan currently under negotiation — with conditional approval already granted for an intersection construction. Another option is third party rail, which is only 100km away.

Understanding technical detail

Okay, so let’s break down what this all means. Mallina hugely adds to the resource potential of Hancock. The company has also secured a bunker at Utah Point in Port Headland — allowing for the stockpiling of iron ore — and has signed an MoU to secure a berth at the port, an impressive move given that space is fiercely contested.

Contractor REGROUP has been selected as the preferred primary contractor, responsible for construction, mine operations and haulage, while RCSC is the preferred crushing and screening operator. These are two extremely well known contractors in the space.

The heritage agreements have been signed with Karlka Nyiyaparli Aboriginal Corporation and cover the entirety of IOCA’s Hancock tenements.

Let’s also consider the minimalism of the project properly, because it needs to be highlighted.

This is a direct shipping ore (DSO) operation. The ore is dug up/blasted out of the ground, crushed, and then shipped to the customer via road or rail. That’s it. There are no tailings to worry about. No upgrading. Virtually no technical risk.

The ore is simply hauled to a ROM pad and blended to get the necessary grade and impurity combination. Processing is just a mobile dry crushing and screening plant. Then the product is loaded onto quad trailer road trains and taken to the bunker at the port — and then dunked on a ship bound to customers.

At present, the idea is for a single shift to process 1.25Mt of iron ore but moving this to a continuous operation could increase production to 3Mt per annum — which would be economic if the exploration at Mallina produces the goods.

A competent 10-year-old child could put this Lego set together, and the contractors have done

this 1000 times before.

The AU$28 million capex costs is broken down into AU$18 million on roads and site access, AU$2.5 million establishing the site, and AU$6.5 million for owners’ cost, contingency and working capital. It’s important to note this is exceptionally low capex compared to most operations, including those with lower grades that are in operation nearby.

But you could be looking at US$25 million in free cash flow per year. Alien’s market capitalisation is a paltry £8.8 million.

Next steps & comparators

I don’t like to put price targets on companies at FTSEAIM.CO.UK, but what I can do is look at what other companies in the area are up to, amid a potential value disconnect.

To start with, the company’s corporate presentation implies that Hancock is planned to be funded during Q3 — or within the next four months at most.

Of course, there’s tons of exploration to be getting on with at the asset — including at Mallina — which has an informal exploration target of between 20Mt and 40Mt. Add that to the current NPV of Hancock and the value disconnect fast becomes apparent.

Arguably, CSA Global considers that the Alien has only really scratched the surface of what’s at Hancock, noting:

Tenement E47/3954 — significant exploration potential identified, in addition to the 8.4Mt Mineral Resource outside of the known Mineral Resource area.
Tenement E47/3954 — walk up drill targets, with a potential to increase the existing Mineral Resource
Hancock Project Tenements E47/3954 and E47/5001 — significant strike lengths of Weeli Wolli Formation BIF and Boolgeeda Iron Formations identified and yet to be adequately explored.

Alien has also independently completed an additional internal review of Project Tenement E47/5001, identifying ‘significant underlying geological lithologies that are suitable hosts for iron ore mineralisation and exploration potential.’

It’s worth noting that in April, the Western Australian Department of Mines granted the mining lease (M47/1633) for the project, giving security of tenure for a 21 year term through to 17 April 2045, and allowing for site development to commence in 2024.

The company has also made no secret of the fact that it would prefer to be a non-operator, with a JV partner coming in to manage the site, leaving Alien highly capitalised and with no management risk.

Let’s say the company gets financing on favourable terms via a term sheet within the next few weeks. They could get an operation up and running in less than 12 months, and perhaps as few as six. Arguably, this time next year, Alien Metals will be producing iron ore — generating millions in free cash flow.

Or they just sell it for many multiples of the current market cap.

In terms of comparators, there are several companies that are worth mentioning. I’d advise potential investors to look these up in depth.

1. Fenix Resources (ASX: FEX)

Let’s consider, briefly, the Iron Ridge development timeline. Another Western Australia DSO project, with similar grades and tonnage (9.8 Mt @ 64.4% Fe) — main construction started in September 2020, production started in December 2020 and first sales occurred in February 2021. This means that on a comparable timescale, Alien could be circa nine months from profitability.

It’s notable that Alien has appointed CSA Global to consult on Hancock, as this firm was integral to Fenix’s success and rise to AU$250 million.

The company even has a chart detailing the possible performance. Just look at that share price: Alien appears to be tracking Fenix in the pre-development phase, with the comparator enjoying 1,400% increase in a matter of months - and is now producing iron ore.

2. Macro Metals (ASX: M4M)

Macro sports an AU$113 million market capitalisation and has 10 projects, mostly in the iron ore space. But they’re all exploratory and none are close to production.

3. Arrow Minerals (ASX: AMD)

Controls the Simandou North Iron Ore Project, with first assays coming back with a circa 60% grade in May 2024. Close to Rio Tinto’s Simandou deposit. Five rigs turning, producing hundreds of samples. Market cap of AU$19 million, but only in the exploratory stage.

4. GWR Group (ASX: GWR)

Recently sold the remainder of Wiluna West, which held 130.3 million tonnes at an average iron grade of 60% Fe, including 69.2M tonnes of Probable Reserves at 60.3% Fe, to Gold Valley West for AU$30 million and a $2 dmt royalty.

Looking back

While I specialise in finding shares where sentiment is low and fundamentals are strong, it’s worth considering the issues shareholders highlighted repeatedly to me:

Why is Alien now exploring for silver and PGMs rather than focusing solely on Hancock? Why is there still no CEO in place, and why did the previous CEO leave without warning? Are you planning on listing on the ASX anytime soon? Why has the deal for Hancock taken so long?

The general answer — and I would like to conduct a podcast to put these questions to management publicly — is (in my words) that while the silver and PGMs are the subject of the next article, a deal to get Hancock over the line is hopefully forthcoming within the next few weeks. This deal will involve the counter signatory being the operator of Hancock and therefore there will be little for Alien to do other than sit back and reap the profits.

It may simply be the case that the company is almost ready to focus its operational capacity at other projects.

There’s no new CEO because the company is once burnt, twice shy. Filling the role with just a figurehead would be a mistake and they would rather operate without a CEO for now than fill the role for the sake of it. And not having one saves money. In terms of the previous CEO exiting, there isn’t much any company could say other than that it was a disappointing outcome for all concerned.

Alien is actively considering an ASX listing, but getting Hancock over the line is currently taking up all available manpower and once a JV operator is signed on, then there will be time to consider this step. And as to how long the deal has taken — my view is that Alien was simply overly optimistic in how long due diligence and regulatory procedure takes.

Iron Ore pricing

This is basic stuff, but it’s important to know what you’re investing in.

Iron ore pricing is driven by global demand, in particular in China which is the world’s largest consumer of the metal. Supply is dictated by production levels of major companies like Rio Tinto, Vale or BHP — alongside disruptions such as operational issues or geopolitical meltdowns.

Iron ore is strongly tied to the global economy; when all is going well, the metal tends to rise as steel demand remains high — and in particular, iron can increase when countries like China or India commit to mass infrastructure projects.

Tied into this is speculative trading on iron ore futures which can amplify volatility in the global market — and also move investor sentiment.

You also need to consider tariffs, taxes and regulations. In particular, Australia has implemented ever stricter ESG requirements on miners, though you could also argue the recently announced ‘Future Made In Australia’ policies could bring some benefits.

Iron ore is also priced in US dollars, Alien is presumably often working in Australian dollars, and AIM investor profits will be in sterling. This means that fluctuating exchange rates can have an effect on profitability.

Present factors you should be thinking about include:

Chinese post-pandemic stimulus to boost construction, balanced by stricter environmental regulation
Russia-Ukraine and the effect of sanctions on iron ore pricing
The increasingly tense Sino-US political relationship
Mining disruption in Brazil, a major supplier
The positive impact on pricing due to the global focus on decarbonisation
Green steel technology development, which uses less iron ore
The effect of higher inflation and interest rates generally

But the absolute critical factor to understand is that iron ore pricing is effectively dictated by Chinese demand. There’s good news on that front; the People’s Bank of China has now removed the national minimum mortgage interest rate and lowered down payment rates, while reports indicate the government is closer to enacting a program to acquire unsold property inventory at reasonable prices.

Add in the CNY 1 trillion in long-dated bonds about to be sold, and these measures together have significantly improved the outlook for distressed Chinese property developers, which are the major purchasers of ferrous metals in the communist country. Accordingly, recent data shows that Chinese steel export volumes surged by nearly 30% for the second month in a row in April.

On the other hand, Beijing is continuing to control crude steel output with ESG requirements, including a plan to reduce the carbon dioxide emissions of key industries by an amount equivalent to about 1% of the 2023 national total.

Finances, Management & Shareholders

Guy Robertson is the Chair — Guy has nearly 40 years of experience across the ASX, NZX and AIM markets. Guy holds board positions in Hastings Technology Metals, Artemis Resources and Metal Bank.

Three weeks ago, Alien announced it had appointed highly experienced mine operator Nathan Douglas as General Manager of Operations for Hancock. The man has over 25 years of experience, including as CEO of Leichardt Industrials Group, Operational Manager at BCI Minerals Limited (Iron Ore) and Dampier Salt Limited (Rio Tinto).

Alwyn Vorster has stepped back from his director role but is still part of the Technical Advisory Board —he’s held positions including Interim Chief Executive Officer of Hastings Technology Metals, Managing Director of BCI Minerals and Managing Director of Iron Ore Holdings, as well as senior roles with Aquila Resources and Rio Tinto Iron Ore.

Under Vorster’s tenure at Iron Ore Holdings, the company’s market capitalisation increased by multiples, and he received the coveted Diggers and Dealers award in 2012 as ‘Dealer of the Year’ for completing multiple tenement and project transactions with large international companies resulting in more than US$500m cash and royalty value.

For context, Vorster is the ex-MD of BCI iron ore which struck a deal with Australian iron ore major MinRes — involving the sale of BCI projects for an innovative production royalty, with an end result of more than $400m in cash profits to BCI over two to three years — and arguably, a similar strategic result could happen at Alien if all goes to plan.

Elizabeth Henson is one of two non-executive directors — an experienced international lawyer, who is also on the board of Future Metals and Alba Mineral Resources. Always good to have one at hand.

Robert Mosig is the second — he was a founder and Managing Director of Helix Resources from 1986 to 2006 and then Managing Director of Platina Resources Limited from 2006 to 2018. The man was ‘instrumental’ in introducing Lonmin, a major platinum and palladium producer, as a joint venture partner in the Munni Munni project in the late 1990s.

It’s also worth mentioning Bennelong, which controls 7.24% of Alien’s shares. The principals at the company were responsible for changing AIM’s iron ore-based Aztec Resources minnow into a beast that sold for AU$300 million. The company was bought by Mt Gibson which is now producing 4mt of DSO iron ore in Western Australia.

The team at Alien have been involved in multiple iron ore companies from exploration to production – not many junior companies have such track records.

In terms of the financial position, we know that the company raised £2 million at 0.2p per share in August 2023 — and spent only $500,000 of July 2023’s facility.

In mid-March, Alien entered into another short-term facility, with Bennelong, and while the details are freely available in the RNS, the bottom line is that this facility is a helpful line of credit to have at hand.

In FY23 results the company lost $3,721,000, though this included a non-cash share based payment expense of $216,000, a write down of the carrying value of the Mexico exploration of $794,000, and the write down of other assets totaling $140,000.

However, the Chair has cut overhead costs significantly — there is nobody in the UK anymore and all the key management and team are in Australia — and you can argue that the cash burn has potentially as much as halved since last year. For context, in addition to the personnel changes, 2023 also saw significant expenditure on exploration, approvals and traditional owner negotiations and fees.

So far in 2024, you’ve had (in Australian Dollars) the $500,000 JV partner Errawarra injection at 0.2p (higher than the current share price) — and another $500k at Pinderi Hills which is money to the bottom line as Alien doesn’t have to spend the cash itself — and then the $1.2 million from the recent placing.

This placing took place at 0.135p, a hefty discount, but on other hand, it only represented 6.7% of the total issued share capital once enlarged by the placing — so any bounce should be fast.

We also know that there was $676,000 cash in the bank at the end of last year.

Of course, there is a fair question to be asked on why the company chose to raise at this time when the loan from Bennelong was on the table — and the company-making deal as little as a few weeks away — at which point they could have raised from a position of operational strength.

Regardless, for anyone considering an entry now, fundamentally the company now has a decent cash runway. Therefore, it’s a question of whether Alien can get the Hancock deal over the line in this time.

I think it will.

The bottom line

The company is assembling a team to get Hancock over the line — and while the delay has been long and the journey arduous, the finish line is now in sight.

The share price may re-rate accordingly.

Part II covering the exploratory portfolio will be out within the next couple of weeks.

Alien Metals: exploring the exploratory assets

3/10/2024