Manuka Resources Limited

IPO to Raise a Minimum of $5 Million: Manuka Resources Limited (Proposed ASX Code: MKR), Australia’s newest precious metals producer, is planning to go public in July 2020. The company holds an interest in the Wonawinta project in the Colar Basin, which has been an area of interest for advanced explorers and established producers. The company’s Wonawinta mining lease contains an estimated resource of 52 million ounces of silver and 236,000 tonnes of lead. In 2019, the company acquired Mt Boppy Resources P/L, the holder of the high-grade historic Mt Boppy gold project.

Offer Details: The company recently opened its Initial Public Offering, targeting minimum proceeds of $5 million under its General Public Offer, with oversubscriptions acceptable to an extent of $2 million, raising a total of $7 million. The issued shares will be priced at $0.2 each. The company is also making a Conversion Share Offer, for new shares to be issued to all eligible existing Australian resident Noteholders on the conversion of their Convertible Notes, at a price of $0.1519 per share. 


Key Offer Dates – Indicative (Source: Company Reports)
 
Allocation of Funds: Funds raised from the IPO will be utilized for funding infill drilling and exploration programs at both the Mt Boppy Gold Project and the Wonawinta Silver Project, payment of outstanding interest on the Convertible Notes, working capital needs and payment of costs for the Offer.

Plans in Pipeline: The company has planned for three phases of activity over the short to medium-term. In Phase 1, the company intends to continue the processing of stockpiled and mined Mt Boppy gold ore for the next 12 months, aiming to recover around 22,000 to 24,000 ounces. In Phase 2, the company will commence processing the silver oxide stockpiles at the Wonawinta Silver Project, expected in the second quarter of 2021. In Phase 3, which is expected to begin the first quarter of 2022, the company will start mining and processing of the shallow silver oxide resource at the Wonawinta Silver Project.

Project Specific Strategies: At the Mt Boppy Gold Project, the company is initially focused on producing gold from the existing approximately 60,000t gold ore stockpiles and reserves in the pit of the historic Mt Boppy Gold Mine. Going forward, it plans to implement an exploration campaign for some targets within the project with the objective of potentially finding additional high-grade deposits. For the Wonawinta Silver Project, the company will initially process the existing approximately 500,000t silver oxide stockpiles. Apart from that, it intends to complete an infill drilling program and to commence mine planning on the silver Mineral Resource to potentially enable additional future production.

Debt Balance on Admission: The company is expected to have a debt balance of $24.66 million on admission, comprising a senior debt facility of US$14 million, to be paid in three tranches by April 2021. The company expects to repay the debt in three tranches as and when they fall due, by generating operating cash flow from the anticipated production of 22,000 – 24,000 ounces of gold, as per its Phase 1 activity plan. The company also had an Interim Debt Facility of ~$2.17 million, which was due on or before 11^th June 2020. Apart from the above debt facilities, the company also holds working capital loans which are repayable only after full repayment of the Core Debt Facility and Interim Debt Facility.

Key Risks: The company’s operations and fulfillment of the above targets are subject to several risks. Force majeure events, land claims and unforeseen mining and/or mechanical problems may hamper the company’s exploration and mining activities and can affect the profitability of the project estimated at the time of the development decision. Operational risks with respect to locating additional mineral deposits, failure to achieve predicted grades, mechanical failure or plant breakdown, are beyond the company’s control and can adversely affect the business. The company’s financial obligations, which are dependent on the company’s forecasted cash flows, pose another threat for the company to operate as a going concern. Moreover, the current operating environment due to COVID-19 may have a significant adverse impact on the company’s processing, exploration and administrative activities. 

Conclusion: Despite being a newbie in the industry, the company has some concrete plans in place for its operations in the short to medium-term, which will underpin its financial position and enable repayment of outstanding debt. The General Public Offer received great support and was closed on 11^th June 2020. However, the company’s future revenues are dependent on the market price of gold and silver, which is affected by several factors beyond control. These factors may include, aggregate global supply and demand, forward selling of these precious metals by producers, production cost levels, etc. Moreover, other risks with respect to hindrance to mining and exploration activities, repayment of financial obligations, the fulfillment of explorations targets, etc., cannot be ruled out. Hence, considering aforesaid parameters, the stock looks to be an interesting watch.

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