AMAROQ MINERALS: UNDERSTANDING NALUNAQ

As per usual with these EDIT pieces, this is a going to be a seriously lengthy read — so make a couple of crumpets and a cup of tea. Sink into a squashy chair and get comfortable. These pieces cannot ever hope to cover everything, but the general idea is that they are comprehensive enough that anyone with zero prior knowledge will by the end understand the key details and nuances.

I will be updating this article over the next few weeks as even after several hours, it doesn't quite do justice to the investment case.

I have covered Amaroq Minerals a handful of times since the IPO and have backed the company as a core portfolio stock since day one. As a reminder, core portfolio stocks are companies we consider to be lower risk but with substantial upside potential — and are signposted by three key characteristics: an exceptional asset, a high quality management team, and serious finance.

Check, check and check.

For some perspective, the only other companies on AIM that enjoy this designation are Sovereign Metals and Jubilee Metals. Greatland Gold will join this elite grouping once financing for Havieron is decided, but for now it only meets two of three criteria.

Let’s start by considering Amaroq’s share price performance; the stock launched its AIM IPO originally as AEX Gold in late July 2020, at price of 45p per share, raising £42.5 million. 

At the time, founder and CEO Eldur Ólafsson noted:

‘Our ambition is to become a full-cycle gold mining business of scale in Greenland, with Nalunaq the first project in what we believe could be many from our existing portfolio of gold assets.’

Two years later, the company rebranded to Amaroq — reflecting both its multicommodity exploration venture with ACAM, and a desire to be recognised foremost as a Greenlandic business. For context, ‘Amaroq’ means ‘Arctic Wolf’ in Greenland; you can perhaps recognise an outline of the creature in the company’s logo. 

And this wolf is ready to howl at the moon.

AMRQ shares were changing hands for more than 80p earlier in 2024, but they have since fallen to around the 60p level, reflecting the standard profit-taking that tends to occur pre-production. But this 60p level is seeing significant support — and there is a whole host of catalysts coming its way.

AMRQ now has group liquidity of $62.2 million consisting of cash balances, undrawn revolving credit facilities, and undrawn revolving credit overrun facility less trade payables - while the Gardaq Joint Venture that comprises the Strategic Minerals business has available liquidity of $13.5 million as of 30 June 2024.

The July refinancing with Landsbankinn for US$35 million in three Revolving Credit Facilities was important on two fronts; this gives AMRQ the cash it needs to get into production comfortably, but is also a strong signal of confidence from a major creditor. 

Let’s dive into the largest licence holder in Greenland.

For what it's worth, this is all simply my speculation. With copper, or lithium, or helium, there are massive supply gaps coming down the tracks over the next couple of decades, and in the much longer term, you will see similar problems with the hydrocarbons as easily accessible sources of oil and gas start to run dry. 

Gold is different, because while yes, there are many industrial applications, its value is derived from its status as a store of value. For thousands of years, gold has ever been the real asset inflation hedge of choice, and most investors hold at least some of the precious metal in their portfolios.

Why is this? Well, to an extent, it's an insurance policy against widespread financial hellfire. In an apocalyptic scenario where the US empire collapses like every empire before it, an electronic record that you owned shares in a company that used to exist in the former empire will be worthless. Physical gold won't be though.

There's also the fraternity argument. I hold gold. You hold gold. Everyone holds gold. It underperforms equities over time, but if everyone has some, then you should too. To an extent, many hold Bitcoin for the same reason - very few holders could explain how a blockchain works, but nobody wants to be the odd one out.

And gold does tend to hold its value against inflation; the US has been printing dollars like no tomorrow, so in a sense, gold has not risen in dollar terms but simply continues to command a similar proportion of dollars in circulation. 

But other than gold, you have a few choices.

• Real estate? At record highs and due a crash.
• US Dollars? Money printer go brrrrrrr. The deficit is completely unsustainable, and inflation is destroying the value of the dollar.
• Cryptocurrency? Did you see yesterday? Bitcoin et al are proxies for the S&P 500, whether you like it or not.
• Bonds? Yes fairly decent but requires a sovereign currency to retain value, also can underperform inflation.
• Collectibles (think wine, whisky, cars, coins, art etc)? Yes, actually you can get great returns and are decent stores of value. However generally a lot less accessible than gold investing.

Indeed, investing in physical gold coins from a reputable seller like the Royal Mint is attractive not only because there is no capital gains tax to pay, but because it's easy. 

Managing a rental property, staying on top of the bond market, or building a cellar for your wines is all effort - gold is truly passive and requires nothing more than a safe place to store it.

Gold vs Bitcoin

But why gold in the first place? Plenty of people think that Bitcoin is the future and more and more investors are picking BTC over GOLD. On the other hand, detractors believe crypto is little more than a Ponzi Scheme, destined for eventual collapse

In one sense, crypto sceptics have a point. Anybody can create a cryptocurrency, and there are already more than 12,000 in circulation. But only a handful of these are serious contenders to become currencies or challenge gold, and of these, even fewer are secure or consistently upgraded.

But this is perhaps a misdirection. Taking a step back, what gives any currency value? The US Dollar, backed by the US government, is currently the world’s reserve currency. But it isn’t tied to any gold standard, any other currency, or backed by any physical asset. 

Instead, it holds value because consumers globally accept that it does, as they value the credibility of the US government. 

For now.

Cowrie shells, cacao beans, and cattle have all been used as forms of money through history. Multiple agricultural products are still important traded commodities to this day. Yet they all have problems as currencies.

This is because all money (in general) utilises six tangible, physical assets. It must be durable, portable, divisible, fungible, scarce, and accepted by the masses. And — absolutely critical — money becomes more widely adopted the better it fulfils these criteria.

Gold is relatively portable in smaller amounts. It’s fungible, in that one kilogram of gold is chemically very similar if not identical to another. It’s certainly scarce enough, and expensive to get out of the ground. And it has been accepted for millennia as a form of payment, despite issues with fakes.

It is on the other hand tricky to divide. This made the old gold standard a necessary evil, where issued currency is backed by physically deposited gold at central bank locations. 

Eventually the gold standard was abandoned altogether, to be replaced with ‘fiat’ or currency based on faith in the issuer.

And the key argument is that cryptocurrency will one day eclipse the current fiat systems of pound, dollar, and euro, because it offers advantages across the six money-defining categories.

Let’s take Bitcoin, by far the most valuable and well-known cryptocurrency, as an example.

1. It’s more durable than fiat currency. It cannot be destroyed as long as its blockchain is maintained on even one computer. And it has gone ten years now without an outage. For context, the Federal Reserve money transfer system cut out for several hours in February 2021. And unlike a fiat currency, Bitcoin will not end, for example, if there’s a war or economic collapse.
2. It’s as portable as fiat. It can be sent anywhere with an internet connection in seconds, and unlike a bank account, a user needs only memorise their private key to access it anywhere in the world. Further, it’s usually cheaper to send internationally.
3. It’s divisible, as one Bitcoin consists of 100 million Satoshis, far more than is found in most fiat.
4. It’s fungible. One Bitcoin is identical to another. And unlike gold or fiat, it cannot be counterfeited as it runs on blockchain technology.
5. It’s scarce. There can only ever be 21 million Bitcoins, meaning it will ultimately be deflationary. And anyone can check the Bitcoin protocol code to confirm this limit. To change it would require the vast majority of nodes to act against their own economic self-interest.

The only true problem Bitcoin has is acceptability. While 200 million people use the 'currency,' most use it as an investment rather than as a payments system. But through regulatory change and institutional investment, this is changing rapidly.

Most importantly, it has credibility as its open source, decentralised nature has stood the test of time since its inception.

Of course, various crypto programs, from Ethereum to Cardano, are trying to solve differing financial problems with varying levels of success.

The likelihood is that of the thousands currently online, a handful with develop into full blown currencies. This could help solve the acceptability problem, as more credibility becomes assigned to fewer cryptos. Of course, there are no guarantees in crypto investing. Bitcoin and Ethereum could become the Yahoos of tomorrow. Detractors could also be right, and crypto itself may collapse in the coming global recession.

The vast majority of Bitcoin is held within a small number of wallets - and a mass offloading could be a future problem.

But for people looking for a hedge, consider that the recent market chaos saw Bitcoin, Ethereum and the top tech stocks tank well into the double digits. By contrast, gold fell by 1%.

And whether you like it or not, this makes gold a better HEDGE than Bitcoin at present. 

This does not mean Bitcoin will collapse, or that it is a scam...but that claiming it is a hedge is not fair. Every time the equities run scared, Bitcoin falls with them.

Gold demand

There are tons of tailwinds that should see the metal remain elevated: 

• Huge geopolitical instability — Russia/Ukraine, Israel/Hamas, China/US/Taiwan etc etc.
• Inflation — which is not defeated by any means. It's just taking a breather.
• Monetary activity — states are starting to cut rates, making gold relatively more attractive. They also like to print money like no tomorrow.
• Central Bank activity — central banks are buying gold at a record pace. For context, they added a whopping 1,136 tonnes of gold worth some $70 billion to their stockpiles in 2022, by far the most of any year in records going back to 1950, according to the World Gold Council. They then added 1,037 tonnes in 2023.
• Debt — Public and private sector debt is unmanageable. This will haunt the west, but gold will keep its value in any event.
• Supply issues — there are fewer gold operations coming online and the ones that are, are coming online at a lower grade than historically. This is partially due to political issues in South America, but also due to generic permitting and financing problems.

But the big question is on how gold responds into the future. The received wisdom has always been that when the Federal Reserve increases rates, this makes the return on US dollars more attractive and therefore gold should fall. This hasn't happened. Gold has hit record highs instead.

With rates now starting to fall, theory dictates that gold should rise - but in this topsy turvy world...who knows? 

The answer, I suspect, is that trust in other stores of value (and particularly the US dollar) is collapsing. Gold is decoupling from its relationship with the dollar. 

Just on an individual level, there is much lower trust in state governments, and by extension, non-gold assets. Consider the average Chinese worker, who has grown up believing that property is the key to wealth.

That worker is watching their worldview crumble with China's buckling real estate sector. But gold doesn't lie.

And as uncertainty grows, so does gold's allure.

The tl;dr version is that everything is firmly on track. 95% of key contract packages are already complete — with contracts for the flotation recovery and dry stack tailings sections building and equipment also due to be completed by the end of this quarter.

At the end of June, the process plant detail design and engineering for phase one was 96% complete, while engineering for phase two has already started and will be done by the end of September. 

But much of the mine build is already 100% completed, including plant pad earthworks, civil construction, and the plant building structural steel. The cladding is 94% there, mechanical installation of the crushing circuit is 68% done, and installation of the civil foundations/retaining walls, stockpile reclaimer and stacker conveyor have begun. The TMM and light vehicle workshop construction is also finished and electrical installation by now should be over 80% finished. 

Overall, process plant construction is 56% complete.

In terms of mine development, new equipment including two new ST7 scoops and one 

new Jumbo drill has arrived. The all-important ramp has been completed to 732 metres, with the first ore round was blasted on June 30th. Amaroq has also continued the sump development which is 75% complete. 

Both Mine Arc refuge stations have been commissioned. Construction of the underground main heating system on the 300ml portal has commenced, while the exhaust raise fans for Target Block have been commissioned in preparation for the development of the exploration drift as drilling is planned to commence in September.

Recent exploration

At Nalunaq, all the additional 75 vein sampling from historical core housed has been completed and submitted to ALS for assaying. Meanwhile, drill crews and equipment for surface exploration drilling to enlarge the mineralised zone at the Target Block have mobilised to site.

Following completion of the underground rehabilitation, exploration will now be conducted from underground as well as surface. The 2024 exploration programme aims to provide additional information and data on the Mountain Block and Target Block extensions to the Main Vein as well as assessing continuity and form of the 75 Vein. 

Underground drilling locations have been designed and a rig is to be mobilised for operations in Q4 2024. Amaroq intends to continue its target generation programmes in the regions near to Nalunaq and Vagar licences.

Next steps

There are effectively two key catalysts to consider when it comes to Nalunaq: first gold in Q4 2024, and a mineral resource update in Q4 2025. However, the recent quarterly investment call gave the impression that a mineral resource update could be sooner than this, with a 2 million ounce exploration target. 

To give an impression of the personnel scale, an additional accommodation wing is also due to be added in Q3 2024 to accommodate up to 120 people on site. 

Between June and November, AMRQ will continue to develop new ore drives on levels 732-756, and continue to develop the ramp. The planned development and production rate starts at 110t/day of ore, ramping up significantly over the next couple of years. 

I’ll tell you dear children. 

Just across the Labrador Sea, Vale (the massive titan of industry) operates a genuinely massive nickel and copper/cobalt operation., called Voisey’s Bay mine. For nickel, consider the impact of Stendalen (below) — but before we get there, let’s look at the capex it took to get this mine up and running.

In Canadian Dollars? $3.1 BILLION. In early 2000s money. Mining operations were set to close around 2020 but the company has extended its life until latest 2034 by investing significantly in underground operations. 

But closure is at most only a decade away. The cost of decommissioning is probably causing Vale management a few nightmares. Imagine if there were a convenient new massive deposit just across the sea — analogous with your own copper/nickel? Possibly an extension of your own mineralogy? 

You’d probably not even have to adjust the thermostat. 

How much would Vale pay not just for fresh supply, but to delay the inevitable for another decade or three?

On 31 May (a week ago), Amaroq released another update on the copper. Gilbertson noted:

‘With the assistance of leading independent copper industry experts, we continue to define the emerging South Greenland Copper Belt. This work has now confirmed the region's first copper porphyry system as well as helped to identify 24 further high-potential targets across this belt. Amaroq, through its Gardaq Joint venture, believes that these results warrant further exploration efforts across a broader area of the belt to identify further targets. Our 2024 field program will leverage the knowledge developed so far on Target West and direct exploration efforts on these new high-potential targets.’

With expert support, of results to date from Target West, the company has now CONFIRMED the project as a copper-molybdenum porphyry/intrusion related body, significantly strengthening the case for a major copper belt.

And the share price? It did nothing. 

Nothing.

Excitingly, the data now suggests that there may be greater potential to the East (thanks to the excellent work of geologist Steve Garwin), with up to 17 significant new targets defined within the Johan Dahl Land area. For context, a new data review into 2023 Kobberminebugt geophysics has also highlighted the potential for further high-grade copper mineralisation at depth and across two newly defined targets.

The company also combined its Stendalen discoveries (read below) with target generation studies to highlight five more copper-nickel sulphide targets within the same mineral belt. Amaroq is now finalising details for the 2024 exploration programme which:

‘will concentrate on the discovery and development of copper resources.’

Next targets will be identified from 10,000 line km geophysical data collected in 2023 with particular attention paid to the new porphyry targets identified within the eastern reaches of the copper belt. It’s probably also important to note that Amaroq has the capital (both in terms of money and personnel) to be operationally ready for follow-up work be required on anything significant found.

I have spent the past year or so banging the drum for Amaroq’s gold. And yes, the gold is excellent. 

But as a thought experiment, I invite you to consider a world where Nalunaq, Nanoq and Vagar Ridge do not exist — and the company was valued solely on the exploratory copper-nickel assets.

Voisey’s Bay, the deposit not the mine, sold for CAD$4.3 BILLION in 1996. Add in the CAD$3.1 billion in capex costs to develop the project, and then billions more to extend the mine life…

And wonder whether further upside is imminent.

The gold might be a sideshow.