Dear reader
Perhaps unlike me you are already highly familar with Power Metal’s Saudi Arabia Projects - Balthaga, Block 8 and Qatan.
Or perhaps not.
For those who say perhaps not (and I’ve not seen any decent coverage of these elsewhere) I hope this article proves useful.
1 of 3 - Balthaga
The results on a big pile of samples (66) from the 15 tenements stretching 1,500 Km2 are imminently due and indications of Lithium, Nickel, Rare Earths, Copper and Molybdenum are hoped for.
POW has a 30% earn in agreement with EV Metals Group Plc (EVM) in return for sole funding $500k of expenditure. That implies the project has a $1.66m for now.
POW geologists have been out sniffing (more on that later) the Martian landscape and expect to return again in the winter months. So are returning soon. Desktop work has been done on potential targets to define the next steps and exploration work.
What is interesting here is the 70% JV partner EVM is not a miner but a processor. They are imminently building a 50KTPA chemicals plant for producing Lithium Hydroxide as a way to diversify KSA’s reliance on selling oil. A 50KTPA Lithium processing plant is fairly enormous (equates to 6.25m EVs per year), and the intention is to triple it to 150KTPA in the future (18.75m EVs).
If POW can find Lithium there is a ready market for it because the Saudi’s are imminently building processing for it. If no Lithium is found in the KSA then they will have to import it. Potentially they will expand the plant too. So the Lithium processing could triple the demand for Ore if they expand it to 150KTPA.
At a supposed 1% purity, even 50KTPA would be a monster 5m tons of ore per year mine and discovering a 50m-100m JORC resource would support a 20 year mine life.
If I compare this theoretical mine which doesn’t exist yet to European Metal Holdings, which at a $17k/t LiOH price is only 60% the size an operation (once they proceed) at 30KTPA but even that delivers a $2bn post tax net present value (at 8% discount) and a 36.3% IRR.
Now POW are nowhere near as far advanced as EMH are, but that’s actually a compelling pressure. With the potential imminent build out of capacity, finding a resource to feed that plant is going to quickly need to happen. Will KSA throw some money at POW to solve that problem? Seems a likely outcome. POW could be a beneficiary to this urgency.
Owning 30% of a tenement that could support a 50KTPA operation supposing it was a similar $2bn NPV8 is equivalent to paying $0.5m to get ($2bn* 50/30 * 30% = a $1bn NPV return back. So a theoretical 200 bagger. Just theoretical for now.
Obviously all of the above is just conjecture of the possible but I do know that Saudi Arabia are set on securing Lithium…. that’s not news, err well yes it is from Reuters for example. They want to be in the Sauidi Arabia of Oil for Lithium, if you follow me. They are spending billions.
2 of 3 - Block 8 (Awtad Copper-Gold)
A 12.5% earn in is based on a $740k spend so implies a $5.92m valuation to Block 8 overall. ASX-listed Alara (£12m marcap) is also involved there with a 10% holding and an option to increase to 70% and at other places nearby.
One place is Al Wash-hi nearby has been in open-pit production since 1Q24 where Alara owns 51% so is GENERATING CASH.
21.8Koz of gold is £45m (at $2700/oz), and 79.3Kt of copper at an assumed US$9.5k/tonne is £580m. A$31.2/tonne for a 1Mtpa operation is £62.5m revenue and £15.6m cost over 10 years and £60m Capex, it would seem there’s good money to be made. So an EBIT of perhaps £40m a year. Surely that’s too high… or is it?
In fact a stonking 43% IRR according to this RNS at $9,500 copper (today it’s $9,600) and while the gold credits aren’t shown you can bet back in 2021 it was not based on $2700/oz!!! :).
So a JV with a partner who is highly cash generative, with a nearby Copper-Gold (40Km away from Block 8) which has phenomenal economics. This one looks to be pretty exciting too. Even 12.5% of a prospective find which turns into a Project NPV of US$137m equates to £13m …. nearly POW’s current market cap.
But the positivity doesn’t end there. Read on reader, read on!
US$0.74m is what POW needs to speculate but…. think about your neighbours
Alara also owns Block 7 cunningly named because it’s immediately west of Block 8. And Block 7 contains Daris East measured and indicated: 240,024 tonnes @2.37% Cu
Err reader, that’s 3x more Copper by tonnage than Al Washi. And 2.37% Cu?! Most copper mines are mining at a sub 0.5% grade!
So good economics whilst not guaranteed certainly appear exciting! May I say the word compelling.
This is a 16th century fort nearby, called Nizwa. It sits in an Oasis luscious green in stark contrast to the surrounding desert.
3 of 3 - Qatan
Speaking of neighbours, good neighbours, how about having a Houthi for a neighbour? They have a reputation to drone on, but on the bright side there’s guaranteed fireworks every day and every night. So don’t take your dog with you! Or a UK, US or Israeli Flag. Perhaps don’t go there by boat either. Anyway enough silliness, let’s get back to mining.
The partner here AMAK is a £255m market cap generating £51m annual net profit (based on its 2Q24 P&L) and about £100m annual FCF.
The POW RNS does kind of say this but it’s good to understand who you’re working with.
So this one is a bigger stretch - for POW - in cash terms: An almighty US$3m spend but to earn 49% in the Qatan licence. So a £4.7m valuation. And Qatan is just one of 21 tenements which AWAK hold (cough cough this could be 21X the opportunity in time).
AWAK has two mines already.
Its Al Masane mine is a 0.8Mtpa underground Copper/Zinc mine with gold/silver and produces a ~£24m/year net profit.
Its Mount Guyan is a 0.4Mtpa Gold/Silver only open pit and a net profit ~£18m/year.
Moyeath is a 0.4Mtpa extension to Al Masan which will drive a 50% increase to Copper but 80% increase to Zinc. So prospectively a £12m+ operation.
Will Qatan prove just as lucrative?
49% of an operation generating even just a fraction say £10m a year at 6X earnings is a £60m x 49% = ~£30m prospective valuation. Meanwhile knowing there is a mine to the west demonstrates that the Saudis are well able to defend their borders (and do) and this business is thriving also.
Conclusion
So billions spent on Lithium with a Lithium Processor waiting for Ore, a well-funded Copper operator partner with a monster Copper resource next door, and cash generative to move it forward, and finally a Gold/Copper Miner generating £100m cash/year offering a 49% partnership.
Each one an exciting prospect. Each of these 3 could (easily) in time be worth more than the whole of POW today. These opportunities are not worth zero - I know that much. But there is simply nothing in the price today given the 4 listed holdings and the recent UCAM deal which can be valued at the resulting valuation of the subsidiary. Technically even the listed holdings, cash and UCAM more than cover the current market cap so Saudi Arabia has a negative valuation.
What?
Once (and if) there’s a find, each one of the partners have the deep enough pockets to deal with the commercialisation of any JORC and POW can enjoy the proceeds albeit just because you are a partner it doesn’t mean your share stays that way if you can’t raise the JV share of the Capex. So POW would probably sell its stake rather than become a miner, but who knows. Sean Wade is a deal maker.
It’s like dealing with Truffles. Each one of the 3 is an established cash-rich Truffle distributor. They already sell truffles. And each one has rather extensive undeveloped Woodland dominated with oak, hazel, beech, and hornbeam trees, perfect for finding Truffles. Yum yum.
Each one has been persuaded by a certain Mr Sean Wade to unleash the POW truffle dogs to win a slice of the action. Find the black and white funghi, quantify them, sell the stake and go find other truffles in another wood. Sell that stake that cost you less than zero. It’s barking*.
*14.2p offer price this afternoon is buying POW at £15.8m. The fair value of POW’s gains on listed holdings plus the prior shareholder’s equity is £27.7m before considering Power Arabia. So a 42% discount to NAV.
The fair value is derived from the last accounts plus gains to listed holdings and the recent fair value gain on UCAM (private) but with £10m cash.
If you sold the two main listed holdings and stripped out the cash you get to a 78.4% discount to NAV. (I’m not advocating that by the way, exciting times ahead for both GMET and FCM)
Even the smaller listed holdings and UCAM could be blockbusters based on current Gold, Copper and Uranium prices.
For example AAJ - Aruma - a £1.5m mar cap. A £41k holding for POW. So what? The geophys is underway and the drilling programme is 3 months away and look at the sampling they announced here.
Let’s not forget as I covered in “POW-ting it out there” that POW’s holding triples if that drilling finds 20m of copper above 0.8% and there’s a 0.4% NSR too.
Barking.
Regards
The Oak Bloke
Disclaimers:
This is not advice - make your own investment decisions.
Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"