W Resources – One to watch

W Resources. Current Price 0.38p.

This morning WRES.L confirmed a capital raise of approx £1m at 0.375p a share. The chairman dipped in his pocket (not for the first time) and took on £100k himself.

Mr Masterman is not the type of man to invest lightly and has an exceptional track record in establishing and financing new resources companies. He completed the US$1.15bn sale of a 31% interest in the Fortescue Metals Group’s majority – owned FMG Iron Bridge iron ore company to Formosa Plastics Group. Following 9 years at McKinsey, and 8 years as an Executive Director of Anaconda Nickel, he has been a founding shareholder at Fortescue Metals Group, Po Valley Energy and Atacama Metals.

Now, I will confess that I am no specialist when it comes to Tungsten (although I do confess to owning a very nice set of Tungsten darts) even a novice can see the rising demand in the metal up from US$190 / mtu (concentrate) in late Dec 16 to levels near $300 / mtu today. This is clearly significant to a small miner like WResources and surely increases their chances of raising the $30m required to advance the mine operations to 2,700 tonnes of tungsten concentrate and 500 tonnes of tin concentrate per annum.

The company reminds me a little of the early stages of Hummingbird Resources (a Gold miner). WRES small market cap reflects a company with a great asset but a low chance of being able to fund it. Hummingbird was in a similar position in Q3 2016 but were able to get that vital $60m loan agreed. WRES have calculated they need just $30m and that the project should breakeven in year 2 which suggests with prices where they are currently, it will be generating significant cash flows for a minnow miner.

Like Hummingbird Resources, the development is likely to take 12months+ from funding deal. Of course, sharehub readers will know that Hummingbird are now just under 3 months from first gold pour. The share price has almost doubled from Jan 2017 prices and looks like doubling again once the cash rolls in. All small miners carry huge risk and until they get funding in place are relatively cheap compared to the in-ground resource value. Hence, Mr Masterman (what a great name!) may well be sending a message to investors with this recent equity raise. The sum is not much in the grand scheme of things but it may well prove to be the precursor to offtake deals and the final $30m debt agreement. Finance companies have a habit of wanting to see some ‘skin’ in the game from management and Mr M has certainly shown that confidence. In this mornings RNS WRES hints at the staged progress to finance Eg; Sign customer contracts, then get funding…

W is also pleased to announce that it has identified two large investment grade customers for approximately 80% of its planned T2 production of 2,700 tonnes per annum of tungsten concentrate. A Letter of Intent (“LOI”) has been signed by one of the potential customers and a further LOI is expected to be signed by the second potential customer shortly. W’s intention would be to convert the LOI’s into formal contracts in Q4 to provide support for the proposed debt financing announced with the interim results.

Q4 is the company’s target for final debt deal. If they get formal contracts sorted, then I would hedge a guess the funding package will follow. According to the company this will not involve any equity dilution, although today’s small placing does go against that …. although it is minor. In fact, it looks a little like ‘nest feathering’ to me. Look no further than the Frontera Resources CEO (0.09p placing – price now 0.7p) for an example of how to ‘line ones pockets’ before the big events take place!

W Resources has plenty of potential and I would urge sharehub readers to spend sometime looking into the business, including usual risks etc.

If they do get funding secured, then 2018 could certainly be a year of multiple share price progress for this little minnow.

WRES.L is on the short list for TheShareHub’s 2018 top picks.

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