Over at Money Morning Trader, we don’t issue specific trade recommendations.
Instead, we look at the background of listed companies and profile their stories. This provides information on useful trading ideas and charts for your own study and risk analysis.
Today we look at a mining company that changed directions a number of times after listing. It tried its hand at exploring in a couple of regions around the world before focusing on assets back home in New South Wales.
A closer look at Augur Resources
After developing a proprietary licensed extraction method, it changed direction again.
Back in 2007, a junior miner raised $5 million via an IPO and listed as Augur Resources Ltd [ASX:AUK].
It wanted funds to explore its copper/gold and nickel/cobalt tenements in central New South Wales.
The GFC quickly arrived and the bust of the mining boom soon followed.
After listing at 20 cents, the share price sank to one cent during the GFC. It rallied to 46.5 cents during the mining boom in 2011, but the company was yet to reach production. By 2015, the share was back down to one cent and remained near this level for a couple of years.
Along the way, Augur picked up some gold mining projects in Chile and Indonesia. It sold off the Becker gold project in Chile last year and retains a 45% interest in the Wonogiri gold/copper project in Indonesia. It’s actively looking to sell its remaining interests there.
This leaves it with a nickel/cobalt/scandium project in the Collerina region of New South Wales. In May 2017, shareholders recognised the importance of the major asset and unanimously approved a change of name to Collerina Cobalt Ltd [ASX:CLL].
The drilling program proceeded with significant discoveries of aluminium, nickel and cobalt. These materials are all used in making batteries and other technology products.
The company worked diligently on developing processes to remove impurities and deliver higher grades of its metals. Preliminary tests using proprietary technology in November 2017 achieved recoveries of 98% nickel and 97% cobalt.
An important breakthrough
Around the same time, the company applied its proprietary technology to refining aluminium. It was able to achieve purity in the range of 99.984%–99.991%. This was an important breakthrough.
High purity alumina (HPA) is a processed premium product characterised by its level of purity. Grades of at least 99.99% are classified as 4N, while grades of 99.999% are classified as 5N.
HPA has superior properties. It’s resistant to corrosion and scratches, has high brightness and can withstand extreme temperatures. It’s the critical ingredient for making synthetic sapphire.
Synthetic sapphire is used as a base material in making light emitting diodes (LEDs); sapphire glass for smart phones, televisions and watch faces; the separator in batteries; semiconductor wafers in electronic components; and various components in the space and aeronautics industry.
There is no substitute for HPA in making synthetic sapphire.
Management of Collerina Cobalt decided to change direction. Its ‘HPA First’ process initially came from the development of the nickel/cobalt project. It now wants to move ahead with HPA production first and develop the mine later on.
Another name change
Recognising the shift in direction, shareholders unanimously voted for yet another name change. In December last year, the company changed its name to Alpha HPA Ltd [ASX:A4N].
Managing Director Rimas Kairaitis said its proprietary technology uses a solvent extraction process. There’s no acid leach component and the process doesn’t use vessels under pressure. It’s performed under conditions of atmospheric, or normal, pressure.
This means there’s a lower risk and a relatively lower cost.
Let’s bring up the daily chart over the last couple of years:
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Alpha 4N is a fairly thinly traded stock with a market cap of $62.4 million.
The share price rocketed from two cents to a high of 17.5 cents after the company announced test results from its HPA First process.
The company completed a rights issue last year and in October, Kairaitas said it had about $3 million in the bank. He said this was enough to fund the pilot plant and proceed through to the completion of the affinity feasibility study.
Alpha HPA has already proven it can produce 4N purity HPA. This can fetch healthy prices of US$25,000 per tonne and higher.
There’s still a way to go before the company reaches commercial production.
A pre-feasibility study highlighted capital expenditure of $215 million for the HPA First project. The company will need to raise some serious capital. I think it’s more likely to look for a partner.
The study said the project is expected to deliver annual EBITDA of $248 million and similar free cash flow.
The current market for HPA is around 25,000 tonnes per annum. It’s expected to more than triple by 2025 with growth in the use of LEDs and a stronger uptake of electric vehicles.
For now, this stock remains confined in a trading range. Support at nine cents held on a number of occasions last year. The market recovered from a brief break below the same level in January.
We’ll keep watching for a break and a strong close above 16 cents. This could be a sign of good news to come.
Editor, Money Morning Trader
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