Two junior miners poised to hit the big time

These two junior mining companies could be global powerhouses of the future, says Tom Bulford. Both have made significant discoveries - and more importantly, have struck big partnership deals with larger rivals. Tom takes a look at their prospects here.

By Tom Bulford

published 18 August 2010

in Features

Junior mining companies have two big problems. The first is finding anything worth digging out of the ground. The second is actually doing so.

Mine development takes an awful lot of time and money. And junior miners usually lack the financial muscle and the expertise to go it alone.

The solution is to bring in a bigger partner - and two juniors which have recently shown what can be done are Horizonte Minerals (LSE: HZM) and Kryso Resources (LSE: KYS).

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Both have made significant discoveries. And having just struck partnerships with some mining giants, these minnows could soon emerge as global powerhouses.

Take Horizonte.

A strange deal that could transform a forgottenminer

Led by the youthful Jeremy Martin, Horizonte has built a portfolio of exploration projects in Brazil and Peru for which it has already found partners. But it has not so far made much of an impression on the stock market. This could be about tochange.

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Horizonte recently announced a major and unusual deal with the Canadian mining giant, Teck Resources (TSE: TCK). This will combine Horizonte's Lontra nickel mining project in Brazil with the Araguaia project of Teck to create a major mine.

According to Martin, Teck has been in financial difficulties and was threatened by Brazil's 'use it or lose it' regulation that prevents miners from simply sitting on land without doing any work. In return for combining Araguaia with the Lontra project, Teck gets a 50% equity stake in Horizonte.

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However, unlike in the case of a typical joint venture, Horizonte gets to keep control over the development of the project. And with Teck's major financial muscle, it now plans to bring the mine into production in just three years time.

And this is a high quality prospect. European Nickel's (LSE: ENK) Turkish project, for instance, has 33m tonnes of ore grading 1.13%. While the Tanzanian project of African Eagle (LSE: AFE) has 92m tonnes but a grade of only 0.92%. But the Horizonte/Teck project trumps both of these - with an estimated 100m tonnes of ore grading 1.3%.

With China and India driving global nickel demand at a pace of 7.6% per year, this deal could be the making of Horizonte. And we could soon be saying the same about Kyrso Resources.

How Kyrso got the muscle to develop its 'stonking' goldmine

Kryso Resources has been sitting on a 3m oz gold mine in Tajikistan for some time. And with a catalogue of problems in recent years, it looked an unlikely candidate for penny share glory.

In the past, it has struggled with a shady Russian shareholder, delays to the production of the all-important bankable feasibility study, and the sacking of a chief executive.

But throughout these distractions Kryso has been developing Pakrut, a large resource on the rich central Asian Tien Shan gold belt that has, in the words of one director, produced 'stonking gold grades'.

Now it has its big break. Despite previous Russian involvement in Tajikistan's mines industry it has more recently been obvious that the advance of the industry would require Chinese participation. China is on the door-step of central Asia, has a thirst for raw materials of all kinds, and it is ready to finance the roads and power lines without which even the richest mines cannot be exploited.

With this in mind Kryso contracted the Beijing General Research Institute to prepare the Bankable Feasibility Study. And with this due to appear shortly it is probably no coincidence that another Chinese entity, the China Nonferrous Metals Mining Group (CNMM), has chosen to subscribe for £11m of new shares in return for a 29.9% stake in Kryso.

CNMM has also promised to procure the necessary debt funding, again no doubt from Chinese banks, to cover 70% of the cost of constructing and commissioning the mine, suggesting that Kryso shareholders are likely to have to stump up the remainder.

All the same this is a major step forward for Kryso, just as the deal with Teck is for Horizonte. Both of these mining juniors seem to have struck deals with bigger partners at reasonable prices and both can now look forward to developing major mines. As the day of first production draws near, the shares of each should do well.

This article was first published in Tom Bulford's twice-weekly small-cap investment email The Penny Sleuth.

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Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.