The Colin Bird Portfolio

Good morning MINING AIM, and welcome to your mid-week update. Today, we’re considering Kendrick Resources — which has risen from 0.45p when I first covered the stock on 26 March to 1.1p today, which is not a bad return in a little over three months.

Of course, the company remains relatively illiquid so unlocking this value will requires a further move upwards, attracting more buyers — but fortunately, this seems to be the most likely outcome.

Let’s dive in.

Kendrick Resources: finances

Usually, I’d start with the assets — but having gone depth on these recently, it’s probably more useful to consider the money first.

In the most recent financials, covering the 12 months to 29 December 2023, Kendrick generated a £1.1 million loss before tax (broadly the same as in 2022). It held circa £200,000 in cash at the end of the year but enjoyed a net asset value of £4.58 million against a market cap that even after the rise stands at just £2.7 million.

It’s worth noting that the £1.1 million loss included a one-off impairment charge of circa £450,000 against relinquished licences, so the real loss for going-forward calculations is £650,000.

Of course, if you’re spending around £50,000 a month you were going to need more funding about four months into 2024 given the £200,000 cash position — happily, rather than go down the standard placing route, on 22 April Kendrick entered into an unsecured convertible loan funding facility for £500,000 with long term investor Sanderson Capital Partners. 

The company can draw down £500,000 in four equal tranches of £125,000, and is convertible at 0.75p per share, with the company noting this was ‘a standby facility as a potential additional source of working capital for the Company in a period when the funding market for junior exploration companies is subject to market volatility.’

The last tranche must be drawn down within six months of 7 November 2024, and 

Kendrick will let investors know if it chooses to use the facility.

Here’s some of the key details:

• The conversion price of 0.75p per share represented a 87% premium to the closing share price of the day before the deal, but is now a discount to the current share price.
• The Company may at any time during the Loan Period elect to convert all or part of Tranche One to Tranche Four if the Share price exceeds 1p for a period of five or more business days (we are now firmly above 1p).
• The Loan is interest free. Sanderson was paid an arrangement fee of 10% of the amount of the Facility to be settled by the issue of 11,764,706 new shares credited at 0.425p per share.
• Warrants were attached to the deal at 1.5p and 2p per share, and remain out of the money at present.

This leaves Kendrick with a decent cash runway, with the loan to converted into shares which will be held by a supportive partner — effectively not increasing the free float (though reducing the NAV per share). The litmus test will be whether the NAV can be increased further than the cost of the loan, but I think all can agree this financing is far better than the standard raise at present.

Kendrick has just updated investors on the flagship projects in Norway and Sweden. 

Espedalen is now developing into a prospective nickel camp, with two prospects each with a resource larger than one million tonnes. As a reminder, the project is perfectly placed — 50km from Lillehammer in Norway, 3 hours from Oslo, and served by tarmac roads and rail links to ports in southern Norway and to Glencore’s Nikkelverk nickel refinery 350km to the south. 

Espedalen enjoys nickel mineralisation hosted within differentiated mafic and ultramafic bodies which have intruded anorthositic country rocks — and the age range of these rocks are considered analogous to the Voisey’s Bay nickel deposit in Canada. 

Of course, everyone’s trying to find the next Voisey-like jackpot — consider Amaroq’s exploratory portfolio. But it’s also worth noting that Espedalen and Voisey’s Bay share tectonic plate reconstructions which place southern Norway in relatively close proximity during the time of formation of Voisey’s Bay and with the two regions undergoing similar tectonic developments.

Historical production from the Espedalen region is estimated at 100,000 tonnes @ 1.0% Ni, 0.4% Cu and 0.06% Co — but significant recent exploration has also been conducted in the area. Overseen predominantly by Falconbridge and Blackstone Ventures, 134 drill holes across the project area have already evidenced significant accumulations of nickel sulphides at the Stormyra and Dalen prospects and generating numerous other quality targets.

For context, Blackstone published an inferred mineral resource at both Stormyra and Dalen back in 2009 — but was forced to give up the assets after the 2008 Global Financial Crisis. They were taken on by what is now Ragnar Metals during 2012 — which refined the JORC 2012 Mineral Resources at Stormyra to 1.16Mt @ 1% Ni, 0.42% Cu & 0.04% Co and at Dalen to 7.8Mt @ 0.28% Ni, 0.12% Cu & 0.02% Co. 

Kendrick drilled Stormyra in early 2023, covering 19 boreholes across 1,650 metres — assays came back with up to 8.2% nickel in a high grade core which needs to be further drilled to be fully defined — alongside a further target in the form of a ground geophysical conductor which extends 500m to the south-east of the currently defined limits of the Stormyra Mineral Resource.

In Sweden, there are two projects acquired in 2023 with an update and acquired from royalty partner EMX Royalty Corporation:

Njuggträskliden — this Ni-Cu-Co-PGE Project enjoys a non-JORC resource of 0.6Mt @ 0.71% Ni, 0.26% Cu & 0.04% Co. However, peak intercepts have come back with:

• 24.35m @ 1.01% Ni, 0.51% Cu, 1.0g/t Pt & 0.56g/t Pd
• 23.01m @ 1.04% Ni, 0.6% Cu, 0.51g/t Pt & 0.23g/t Pd
• 12.3m @ 0.9% Ni, 0.79% Cu, 0.3g/t Pt & 5.34g/t Pd

Further, assay data garnered by Kendrick indicates that PGMs may be recoverable as a by-product of any mining operation. The entire project is located on the Nickel Line in central eastern Sweden with a 16km long prospective strike length defined by historic geochemical surveys and mineralised boulder fields. The assets hosts magmatic mineralisation featuring intrusive breccias and phased mafic–ultramafic host rocks (gabbro, pyroxenite and peridotite) indicative of multiple pulses of magmatic activity. 

Mjövattnet — this Ni-Cu-PGE licence was discovered in 1971 and was one of the first to ever be found along the Nickel Line. It’s a nickel-sulphide deposit that occurs along the same corridor as the Lappvattnet, Brannorna, and Lappbacken zones to the southwest, each of which have drill defined zones of mineralisation, with the latter two lying within the licence area.

There are already two mineralisation zones (drill-defined) hosting a non-JORC resource of 0.17Mt @ 1.29% Ni, 0.19% Cu and 0.02% Co — and a further 15km of prospective strike length still needs to be tested. Importantly, the asset enjoys drill intercepts including:

• 76.18m @ 0.60% Ni
• 27.7m @ 0.64% Ni
• 11.6m @ 0.82% Ni

This ‘feeder style’ nickel-copper mineralisation remains open at depth — migmatised paragneiss host rock is interbedded with graphitic schist and intrusive breccias — meaning that unlike Njuggträskliden, there is an absence of compositional layering results.

This potentially makes this second asset more attractive for further exploration, especially when combined with drill-defined mineralisation, the open in all directions nature of the asset, and the upside potential associated with nearby the clusters of mineralised boulders.

Both assets remain amenable to open-pit mining — Njuggträskliden currently boasts a non-JORC nickel equivalent grade of up to 2.42% Ni, equivalent to $419 per tonne of ore — and combined the assets offer 25km of prospective strike length.

European Commission movement

The European Union is clearly becoming a bit worried about access to critical minerals, especially given the overwhelming dominance of China in Africa and South-east Asian emerging operations. In 2011, the EC produced its first Critical Raw Minerals list — this has been updated to some 34 CRMs — based on the twin pillars of economic importance and supply risk.

While nickel does not make the cut at present, it is included as a Strategic Raw Material as part of the Critical Raw Materials Act — which came into force as recently as 24 May 2024. The well-reported European Green Deal triggered the development of the CRMA, specifically to strengthen the production, processing, and recycling of strategic raw materials in Europe to diversify supply chains. 

As its nickel projects advance, Kendrick plans to apply for strategic project status under this new act, quickening permitting, and crucially, providing support to secure project finance.

For context, sulphide nickel deposits are preferred on almost every metric compared to other sources like laterite ores. They have much higher nickel content (perhaps 1-5% compared to as low as 0.5%-2% for laterites), which is good both for the bottom line and for the environment. Extraction via floatation is also much simpler than the acid leaching laterite deposits require, and you also usually get byproducts like copper or cobalt (both already known to be within Kendrick’s assets).

These assets are also in Norway and Sweden, which are very favourable jurisdictions — indeed, the biggest issue has historically been an overzealous regulatory system — which is now being overcome by the political need to secure supply of metals as the world decarbonises and electrifies. In particular, Kendrick has secured assets at the geographical centre of Nordic car and battery-making industries.

Executive Chairman Colin Bird enthuses that ‘Our Swedish nickel projects are exceptional in as much as they offer higher grade nickel with copper notwithstanding the contributions of PGEs and cobalt. Njuggträskliden and Mjövattnet are located a few kilometres from the battery manufacturer Northvolt and are only 100 kilometres by sea from the Kokkola nickel smelter that can selectively extract these metals…Work at Espedalen in Norway will continue with the focus being on the drill-ready additional strike length expected to add to the existing mineral resource.’

The microcap may be due a further run north.