Arc Minerals: it's all coming together

Is this the jackpot we've all been waiting for?

Nov 07, 2024

Good Morning Team and welcome back.

Before we get started, I want to make sure all readers are aware that I will be hosting an investment call with management today, on Thursday 7 November 12 Noon, UK time on Zoom:

https://us05web.zoom.us/j/85294720966?pwd=6ebPDm13jUNcyQJdHFaL4pCsBF8zE4.1

Please leave any questions you may have at the end of this article - or DM me on Twitter/Telegram etc.

Perhaps it’s best to start with the basics: the Large Scale Mining License Application submitted by Handa has been reinstated, and that Arc has had confirmation from the Ministry of Mines that the large scale mining application submitted by Zaco is being rectified.

It’s worth noting that uncertainty over these licenses was the reason behind the suspension - and share price crater - earlier this year.

But reinstatement sends the optimistic message: Arc and Anglo will be here for a long time, and are both very much wanted in country. All is well.

And for the wider investment case: click here.

Now to today’s RNS: an update on exploration activities at the Arc Joint Venture with a subsidiary of Anglo American in Zambia:

Copper mineralisation observed at all targets drilled
Priority target confirmed
Alteration consistent with known deposits in the Domes Region with copper mineralisation observed
Three new targets identified and drilled
Drilling at fourth target underway

Nick von Schirnding, Executive Chairman of Arc Minerals, commented:

‘I am very encouraged by the progress made during the drilling campaign by our JV partner, Anglo American, notably the identification of a new priority target and the fact that drilling is set to continue into the wet season.

One new target in particular, close to Muswema, has moved to the top-ranked priority and exhibits alteration mineralogy comparable to known deposits within the Domes Region, with visible copper mineralisation observed in the core.

I look forward to reporting back on assay results from the core sent to the laboratory as they become available.’

This new priority target’s lithologies have been compared to ‘known deposits in the Domes Region’ - almost certainly Enterprise and Sentinel - and this may be the jackpot we’ve all been waiting for.

Most importantly, from what I understand, this target is very close to the local road - which opens up the possibility of continuing to explore through the rainy season (though Zambia definitely needs significant rain after the drought).

It’s also worth remembering the size of the Zambia JV: it covers 870 square kilometres - New York City is about 783 square kilometers- and are some of the last Domes areas to be explored in detail, within the trending arm of the major geological structure known as the Lufilian Arc (Copperbelt), on the western flank of the Kabompo Dome.

There’s tons of tenure to explore and we’ve only really just got started. This is an important point to consider: phase 1 alone allows for $14.5 million in staged cash payments to the JV vehicle, alongside $24 million in exploration spend over three years.

This is a multi-year exploration program where the circa $90 million total may barely scratch the surface of the potential - and as this first year has seen limited spend, you can expect significant activity in years 2 and 3.

As a reminder, the assets were previously explored through an Equinox Minerals and Anglo American Joint Venture during the late 1990s as part of the Kabompo Project. ARCM’s areas under license encompass nine of 30 exploration ranked targets, including the top seven ranked targets.

FQM’s Sentinel copper mine — which produces over 250,000 tonnes of copper per year — was originally ranked number 22 of the original 30 targets. At the time, it had an exploration target size of six million tonnes of ore, but this was eventually upgraded to a gigantic one billion tonnes.

And now…

We have another top ranked target.

Let’s consider the activity:

Yes, drilling got off to a late start this year and it’s important for Arc to press Anglo to start far faster in 2025. But there’s still been a decent amount of activity.

Consider the three targets in the RNS:

Cheyeza Target

Drilling started 1 km east of the known oxide occurrence at Cheyeza.
The first hole targeted a copper-nickel anomaly identified through recent soil sampling.
Copper mineralisation over a 45m thickness in the saprolite zone.
Pending lab results, the hole shows potential to expand the known oxide mineralization at Cheyeza.

A few things to unpack here: a 45 metre intercept of copper mineralisation suggests a substantial mineralised zone, which is encouraging for potential resource estimation. For context, 10-20 metres is fairly common in Zambian exploration.

Better yet, a saprolite zone is generally weathered, so typically contains oxidised materials. This is good news on two levels; copper in the intercept is likely to be easier to extract than normal - and as the drillhole is a whole kilometre from the previously known oxide occurrence, this is strong evidence of a large, connected mineralised system at Cheyeza.

What’s needed now is presumably an infill hole between the two.

Nkwazhi Target

Two holes drilled between Cheyeza and Muswema to explore a thickened Lower Roan unit.
The first hole intersected 20m of copper mineralisation at the base of the Upper Roan.
Anomalous nickel was detected in a marker talc-schist unit in the Lower Roan; no further mineralization observed below this.
The second hole, drilled 400m away, did not intersect any mineralization.

The lower Roan formation is well-known as a host for copper mineralisation, so this target was very promising. However, my perception is that while 20 metres of copper mineralisation might indicate copper is present near the Lower Roan boundary (alongside the nickel in the talc-schist unit within the Lower Roan), the bottom line is that no mineralisation below this zone means you are likely only going to see localised enrichment rather than a broad zone of mineralisation.

This is confirmed to an extent by the second hole which intersected nothing - the area may warrant another hole or two, but it looks like this target may not deliver. 20 metres of copper mineralisation is encouraging, but you need to replicate this at another hole.

And that’s okay! Exploration is hit and miss - and far better for Anglo to move on. Because when it did, it got this:

Target South-East of Muswema

Located 4 km southeast of Muswema, targeting a second order soil geochemical anomaly.
Initial drilling encountered lithologies and alteration similar to known deposits in the Copperbelt's Domes Region.
Observed copper mineralisation with multiple generations of chalcopyrite in the drill core.
This target is prioritised for follow-up drilling due to encouraging initial findings.

This target may be what we’ve all been waiting for. What David Wood was talking about all those years ago. Anglo is the one calling the shots, so must have seen something in a ‘second order’ soil geochemical anomaly that was not there in the primaries - and this target was clearly the reason why senior personnel were called out to inspect the ground.

To make life easier…

Lithologies = rock types

Alteration = changes in the rock due to chemical reactions

The basic point is that we are seeing multiple generations of chalcopyrite, meaning copper mineralisation was formed in different stages during the formation of the rock. This means an ongoing, rich, mineralising process - exactly what happened at Enterprise and Sentinel.

For context, the presence of multiple generations of chalcopyrite aligns with these major Domes Region mines’ geological history of tectonic activity and hydrothermal processes, that have contributed to the formation of their significant mineral resources.

And as we do not have assays, then clearly this is information must be visible.

For some context, early generation chalcopyrite would form during the initial cooling of hydrothermal fluids rich in copper and sulphur, associated with the early stages of volcanic activity or the movement of magma. Subsequent generations would form due to changes in pressure or temperature, or the introduction of new fluids that modify the chemistry of the mineralising environment.

The early generations would likely host larger crystals while later generations could show finer-grained textures (due to faster cooling or changes in fluid chemistry). Later generations might also be coloured differently as they would contain inclusions of other minerals, or show other signs of alteration.

You need multiple generations to get the grade you need, as it implies that the deposit has been active over a significant geological time, allowing for a substantial accumulation of extensive, complex and more easily recoverable copper.

No wonder it’s being prioritised for follow-up drilling.

There is very real chance this target is the jackpot.

Soil Sampling

But it’s not just been drilling. The JV boasts:

‘an extensive soil sampling programme was completed along traverses and focussed on the basin margin and in particular the Lower Roan. Over 12,000 samples were collected and analysed with the principal aim being to better understand the architecture of the Roan stratigraphy, source rocks and vectors to potential reductants.’

The information garnered from this soil sampling program, integrated with historical data has resulted in a more robust surface geological map for the basin and has supported the current drill targeting.

I’d imagine that during the rainy season, Anglo will use these samples to come back with pinpointed new targets - and tens of millions in expenditure to burn through to meet its commitments.

The bottom line

It’s important to remember that while Botswana is exciting, it’s the sideshow to the main event. The JV cash instalment is coming in shortly - and we have all but official confirmation that the Royal Visit will occur next week.

President Hakainde Hichilema’s special assistant for finance and investment recently noted that more than 40 permits have been reserved by the nation’s Mines Ministry, to be transferred to a state company, which will then ‘negotiate agreements with partners.’

The President himself recently enthused on 7 October at the inaugural Zambia Insaka he wanted a transaction with Anglo American - this may be what he means - though I have also speculated on other potential plans.

Arc was even highlighted by PwC at the same event alongside other majors. Perhaps that logo will look different next year:

There is even a license adjacent to the JV area, which Anglo had previously applied for - and another license between ARC and FQM.

I wonder what the subject of next week’s visit might be? A few days ago, Minister of Mines Paul C. Kabuswe advised in a lengthy speech of:

‘d) ESTABLISHMENT OF A SPECIAL PURPOSE VEHICLE (SPV)
GOVERNMENT IS IN THE PROCESS OF ESTABLISHING A SPECIAL PURPOSE VEHICLE (SPV) CALLED THE ZAMBIA MINERALS INVESTMENT CORPORATION LIMITED.

THIS WILL ENABLE GOVERNMENT OWN AND RUN MINES THROUGH JOINT VENTURES WITH LOCAL AND FOREIGN INVESTORS THEREBY, FACILITATING AND ENSURING VALUE ADDITION AND BENEFICIATION AS WELL AS GUARANTEEING INCREASED BENEFITS FOR THE PEOPLE OF ZAMBIA.’

If Anglo takes on the licence areas surrounding the JV, then it’s going to be spending significantly more than $90 million in Zambia - and it will be marketing this just before BHP can try for another bid.

As for BHP? The major’s Chairman Ken MacKenzie has made clear:

‘We made an approach to Anglo American earlier this year … we thought there was an opportunity here to create something unique and special, a bit of a sort of a ‘one plus one equals three’ opportunity. Unfortunately, Anglo American shareholders had a different view, and they thought there was more value in the plan that their management wanted to execute. And so they moved on. And quite frankly, so have we.’

Whether you believe him or not, Anglo needs a new angle.

And we have a new priority target.

Start getting excited.