viewKincora Copper Ltd

Kincora Copper’s deep value opportunity attracts new cornerstone investor

Series of off-market transactions have seen a 28.7% interest and strategic position in Mongolian copper-gold explorer Kincora transition from weak to strong hands, strengthening its existing exploration and expansion strategy. Despite significant uncertainty and shareholder overhang removed following new cornerstone investor Kincora’s share price has not re-rated – yet.

Looking at the big picture: Kincora’s team overlooking part of its dominant position in the world-class Southern Gobi copper-gold belt

In a market where most exploration juniors are struggling to attract new institutional investors to their shareholder registers, Kincora Copper Ltd (CVE:KCC) has cleared a major overhang by bringing a third high profile institutional investor, providing clear endorsement of its assets, team and strategy, reducing funding risk going forward.

Kincora’s former major shareholder, Origo Partners PLC (LON:OPP), who last invested new capital in 2014, sold its entire stake on June 22 concurrently with its original partner and other co-founding director.

A quick glance at the latest set of accounts of the London-listed investment company reveals a recent change of personnel at the top that is now selling what they can at fire sale prices or writing assets off ahead of a public record November 2018 liquidation deadline for Origo’s entire asset portfolio.

Not surprising then that Kincora chief Sam Spring is feeling optimistic, having gained strong support from shareholders at the recent AGM, following a number of board changes as well as bringing in a cornerstone investor to support Kincora’s strategy.

Furthermore, the new cornerstone shareholder is well known and respected in the market place, LIM Advisors, a pre-eminent expat Hong Kong-based fund manager.

LIM has been investing in Mongolia for more than 15 years and has a strong presence across wider East Asia. What’s more, it has more than US$1bn under management and has one of the longest track records in the region.

Kincora raised C$5.9 mln only in the third quarter of 2017 at C$0.33, with funders not having representation on the board. The public overhang of Origo then revealed itself and the strategy that underpinned this capital raising was put at risk.

A resulting turbulent period saw the turnover of three former board members (including the two who have now sold their shares) with these significant uncertainties weighing on Kincora’s share price. Obvious red flags for those not intimately close to the story and you can see why LIM jumped at this deep value opportunity, buying out these distressed sellers at market at C$0.13 once an un-conflicted board was restored with the existing technical team, management and strategy endorsed.

The investment by LIM when added to that of other institutional and sophisticated investors from Kincora’s non-brokered private placement late last year, which included the European Bank for Reconstruction and Development (EBRD) and Resource Capital Fund (RCF), totals the equivalent of the company’s market capitalisation, with Kincora still having a healthy C$2.85 mln in the bank. Clearly the market is still trying to work out what has happened, or too busy watching the World Cup.

So definitely a major step up for Kincora, a further vote of confidence from smart money, and a development that allows the company to get back to focussing on its exploration and expansion plans after a period of uncertainty.

“In September and October of last year we raised C$5.9mln at C$0.33,” says Spring.

“It was the first meaningful raising we’d done since a number of milestones: expanding our portfolio with the IBEX deal, which gave us the dominant position in this belt; forming an industry leading technical team, adding key members who have previously found Tier 1 copper projects and looking to do that again; and, again consolidating our Bronze Fox project.”

So after these transformation steps and having just rolled out the first of a two-phase multiple target exploration program it was frustrating for Spring that the overhang and board issues developed so soon afterwards.

But, in the end, Kincora has come out of this in much better shape, probably the best shape it has ever been in in terms of asset portfolio, team, targets and share register, not that this is yet reflected in the valuation.

“We have been prudently advancing our targets, with plans for how we are to now ramp this up providing a positive pipeline of news flow in the near term, and benefiting from existing funding in the bank,” says Spring.

“We have got to get on with explaining the positive shape we are now in, outlining our exploration and expansion strategy, and getting the drill rigs turning again.”

One of the key projects that will now be the focus of attention is Bronze Fox, which in the previous commodity cycle supported Kincora having a C$40-50 mln market capitalisation. With results like 37 metres at greater than 1% copper equivalent within an 800 metre mineralized hit within a extensive size system, it is unsurprising Kincora had 14 NDAs, a period of exclusivity and a separate offer from industry players. But that was back in 2011/12 and the market has clearly forgotten about that (for the moment).

“With the full Bronze Fox license portfolio restored it is an obvious target to revisit both from a technical and commercial perspective,” says Spring.

“We only had unencumbered access to that full portfolio for less than a year, but since then there has been an independent defined exploration target for the equivalent of 1.3-1.5Mt of contained copper, the 24,000 metres of drill core has been relogged (including 8,000 metres by a copper major), further surface mapping undertaken, a detailed induced polarisation survey undertaken and a comprehensive geophysical review completed by Barry de Wet.”

He adds: “With Barry assisting with the geophysics and our Senior VP of Exploration, Peter Leaman, we are fortunate to have rebuilt key members of the former BHP joint venture with Ivanhoe team who undertook the last district scale exploration in this belt, and coupled with our board member John Holliday, certainly know what is needed to make significant scale discoveries.”

Resuming successful drilling at the western section of the West Kasulu target at Bronze Fox, where in the last drilling program 3 of 4 holes returned higher grade intersections, should remind the market of Kincora’s previous valuations that Bronze Fox underpinned.

“We now also have the dominant position in this belt with the medium outlook for copper prices probably never having looked better and stage 2 of Oyu Tolgoi is being built,” says Spring.

The current capitalisation of Kincora is just under C$9mln, testimony to the effect a serious overhang and 3 of an original 5 man board departing can have on a share price, even if the block in question eventually crossed off-market and a strong board is now being installed.

Another obvious valuation parameter missed by the wider market, but most likely not LIM, is Xanadu Mines (ASX:XAM) which in the last month raised A$10 mln at a A$100 mln pre-money underpinned by its flagship Kharmagtai asset, which it owns 76.5%.

Earlier in the year Xanadu had four rigs operational at Kharmagtai, returning some nice looking core, and this asset, which is less than 200km from Bronze Fox, has a 2014 JORC resource of 1.1mln tonnes of copper equivalent based on 108,000 metres of drilling with a further 50,000 metres drilled since. This is relative to only 24,000 metres drilled at Kincora’s wholly owned Bronze Fox and the 1.3-1.5 mln tonne independently defined exploration target.

Another target that will likely be the subject of attention before too long by Kincora is East Tsagaan Suvarga (East TS), a project located in a brownfield environment on the eastern end of a the same intrusion that hosts the Serven Shuait open pit development project and expected to produce up to 316,000 tonnes of copper per year. Last years’ first phase exploration activities, including a maiden drilling program at the target, supports four large-scale conceptual intrusive bodies, as Kincora looks to test the analogue for East TS hosting an equivalent preserved high grade Hugo or Heruga orebody or series of orebodies as at Oyu Tolgoi.

Set in the wider context of the giant Oyu Tolgoi mine, controlled and operated by Rio Tinto, which is set to soon be the worlds third largest copper mine and located in the same Devonian age belt, the whole region could end up being highly prolific. Generally copper porphyries occur in clusters on key structures within established belts – they do not occur in isolation.

Oyu Tolgoi is the key growth project for Rio Tinto, where they are now also exploring earlier stage exploration projects and further corporate opportunities having opened a specific Mongolian based support office earlier in the year, but is also the largest expansion project in the industry globally.

So it will be a very interesting year for Kincora, which, despite the obvious red flags to the uninformed investor over the last few months, has funds, the team, plans and now a shareholder register and board in place to make a serious progress with its copper portfolio and with the first modern systematic exploration approach in this belt could generate some really significant hits.

Successful drilling at Bronze Fox alone could support a 4-5x return for investors based on Kincora’s previous valuations and 10x based on its current peer Xanadu. Successful proof of concept drilling at East TS would likely support a much larger prize, with Kincora looking to systematically advance and add value to its pipeline of earlier stage stages and expansion opportunities.

“Now that the corporate side of things is shored up its time to get on with the day job again, outlining our plans, and ramping up exploration and expansion activities,” says Spring.

“Hopefully the wider market starts understanding the very positive shape Kincora is now in and follows these sophisticated investors who have put meaningful capital to work backing our strategy.”

Quick facts: Kincora Copper Ltd


Price: 0.14 CAD

Market Cap: $16.9 m

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