Emmerson Resources Limited (ASX:ERM) shares recently surged as much as 50% after entering a strategic alliance with NT Bullion Ltd for the Northern Project Area (NPA) at the Tennant Creek Mineral Field in the Northern Territory.
NT Bullion will invest $2 million in Emmerson shares at a minimum of 14 cents per share, representing a significant premium to Emmerson’s recent share price.
The first tranche of shares will raise around $200,000 and the second tranche will raise around $1.8 million, with the completion of both tranches of the placement due by May 31, 2020.
Formation of an exploration earn-in and joint venture will also see NT Bullion fund the next $5 million of NPA exploration.
Hartleys has maintained its Speculative Buy recommendation on Emmerson, with its latest price target raised to 16 cents per share from 14 cents.
Following is an extract from Hartleys’ research update:
A new strategic partner, more potential gold royalties
Emmerson (ERM) has entered into new Strategic Alliance with NT Bullion Ltd for its Northern Project Area (NPA) located near Tennant Creek, NT.
Under the terms of the agreement, NT Bullion plan to invest A$2m in ERM at a minimum price of 14cps, representing a significant premium (+90%) to current trading levels. The two companies will also form an Exploration Earnin JV and Mining JV over the NPA. Upon completion of the placement, ERM will have 439.1m shares on issue (settlement in May), and is expected to have ~A$4m in available cash for ongoing activities, which will be now be largely directed towards greenfield exploration within the Macquarie Arc of NSW.
All exploration costs across ERM’s Tennant Creek tenements (~1,300km2 ) are now covered by earn-in partners, with NT Bullion in the north and Territory Resources in the south. In addition, mining agreements provide a clear pathway to commercialise some of the high-grade mining options within the field, with ERM retaining a profit share/gold royalty on any future production.
A$5m earn-in for exploration over the NPA
Under the Exploration Earn-In JV, NT Bullion plans to funds the next $5m of exploration over the NPA. The NPA contains a number of small, high-grade prospects notably Mauretania and Jasper Hills. ERM will continue to manage the exploration activities and also anticipates that an advanced payment of A$1m will be made before the end of May 2020. Out of the first instalment of A$1m, ERM will be refunded for previous drilling costs at Mauretania, which we would estimate to be ~A$400k, increasing ERM’s cash position to ~A$4m.
Another mining JV and another potential processing solution
A Mining JV over the NPA (excluding Edna Beryl) will also be formed with ERM to receive: 12% gross revenue gold royalty from the Mauretania and Jasper Hills projects, in addition 25% profit share of associated cobalt and copper credits; and a 25% profit share from any other mine developed within the NPA (NT Bullion to develop, mine and process at their cost).
NT Bullion is a private company, 90% of its shareholders are NT based, and the Company is ~45% Indigenous owned. NT Bullion recently purchased the Peko Tails project and has an agreement with Elmore Ltd (ELE.asx) to establish a portable modular mill at the Peko site. Two processing centres are proposed for Tennant Creek, which is a great outcome for ERM, considering they control the vast amount of deposits within the field.
Drilling planned to commence in NSW in late May
Covid-19 related travel restrictions has delayed the start of drilling at the Kiola gold-copper project in NSW. Drilling was previously planned to commence in April but is now scheduled to commence late May. Kiola contains favourable Ordovician-age intrusions (porphyry potential) within the highly-prized Molong Belt, which hosts NCM’s Cadia-Ridgeway mine and ALK’s Boda discovery.
Emerging gold royalty company: Maintain Speculative Buy
The latest Strategic Alliance builds upon ERM’s emerging gold royalty strategy which aims to generate funds for ongoing exploration.
We maintain our Speculative Buy recommendation on ERM, with our latest price target of 16cps. We also look forward to the start of high impact drilling (high-risk but high-reward) in NSW.