Beating around the Bushveld

Shares in South African tin and iron ore explorer Bushveld Minerals enjoyed a decent first day on AIM on Monday, opening at 21.5p and closing at 22.5p, having hit a high of 23.25p at one point.

The owner of the Bushveld iron ore and Mokopane tin projects came to the market having raised £5.7m through a placing of 28.67m new ordinary shares at 20p, so the shares are already trading at a premium to the placing price.

Though the company has only just emerged into the spotlight, the team behind it has been together for six years and boasts "incredibly detailed knowledge of the geology of the Bushveld," according to Chief Executive Officer Fortune Mojapelo.

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Included in that team are what Mineweb described as the "highly regarded South African twin brothers Richard and Maurice Viljoen," professors both.

Broker Merchant Securities noted that the portfolio of assets "comes with a truly historic postcode, and their scalability, especially for iron ore, will appeal to a wide external audience."

As Mojapelo told Sharecast, the Bushveld area is no good for growing crops, but it certainly has a track record for mineral resources, which is why so many companies are located in and around the area. With heavy mining company interest comes vitally important infrastructure, such as roads and port facilities.

The port facilities, some 45 kilometres away from Bushveld Minerals' assets, are scheduled to be upgraded to increase capacity. Bushveld's management is convinced that the government is committed to honouring its pledge to invest in infrastructure to help the mining industry.

Also of interest is the fact that the iron ore assets are surrounded by coal fields. In a part of the world where power cuts have not been unknown, access to a fuel supply may prove to be a trump card for the company further down the road.

"The iron ore could easily justify the market cap alone, but the tin is interesting in its own right and so effectively comes for free at current share price levels!" suggested Merchant Securities.

As Executive Director Anthony Viljoen told Sharecast, there are no listed tin miners in London, despite the price of tin going through the roof over the last year or two, so Bushveld will offer UK investors a unique opportunity to gain equity exposure to tin. One day, Viljoen speculated, the company might even contemplate spinning off the tin assets as a separate company.

"This is an opportunity for investors to get in on the ground floor," Mojapelo responded when asked why investors should be interested in investing in the company.

As is the way with exploration companies, nothing is certain in terms of the viability of the assets, but the team seems highly confident that the mines can be developed to the point where a bigger partner will become interested when the heavy-duty investment is required.

In the meantime, the company says it has enough money to achieve what it wants to do over the next 12 to 18 months, which is essentially to "de-risk" the projects, so that when Bushveld returns to the market for its next slug of financing, it can get more money at a cheaper price.

The current iron ore resource stands at 633m tonnes of magnetite, and this represents just the first 4.5km of 18km of total strike length within the company's tenements. Bushveld is looking to get that number over 1bn tonnes, and to start producing in 2015.

JH