Results of Strategic Review
Regency Mines PLC
("Regency" or the "Company")
Results of Strategic Review
24 July 2019
Regency Mines Plc (LON: RGM) the natural resource exploration and development company with interests in energy storage, battery metals and natural gas announces the conclusions of its strategic review of operations.
On 15 April 2019 the Company announced it would conduct a strategic review of its operations with the goal of reviewing the existing portfolio and business systems to streamline the investor proposition and ultimately drive investor returns. This work has been accelerated following the announcement of the revised board and management team on 24 June 2019 and has now been brought to a conclusion, the results of which are laid out here.
o Revised Company to be refocused around mineral interests in nickel and vanadium alongside existing business in UK energy storage development
o Interests in metallurgical coal and natural gas to be held as non-core for future realisation
o Directors believe the Company now positioned for onward development
The Company holds two major interests in the mining and battery metals space, that of its historic nickel-cobalt project in Papua New Guinea, and the 50% interest in the Dempster Vanadium project in the Yukon, Canada, acquired in January 2019.
Mambare Nickel-Cobalt Project - Papua New Guinea
The Mambare nickel project is the Company's largest historic project, and one which saw the majority of the Company's focus and expenditure prior to 2017. Regency currently holds a 50% interest in the project through a stake in Oro Nickel Vanuatu ("ONV"), which owns 100% of the operating entity, Oro Nickel Ltd ("ONL"). The Company's partner in the project, originally called Direct Nickel Pty Ltd ("DNI"), has recently been supplanted by Battery Metals Pty Ltd ("BMA"). BMA has signed an agreement with the Company by which it has been substituted for DNI as a member of all agreements previously in place. BMA has further assumed all obligations of DNI including those that had arisen prior to the effective date and is owned and operated by former members of DNI.
The Mambare project sits on licence EL1390 and, as previously announced, contains a JORC Indicated and Inferred Mineral Resource Estimate of 162.5m tonnes at 0.94% Ni and 0.09% Co. With only 3% of the 80 square kilometre (km2) main plateau target tested by drill to date, the joint venture partners have long indicated the project's potential to be a large nickel laterite deposit with by-product credits in the form of cobalt.
Currently, the ONL JV awaits renewal of its exploration licences for Mambare, having recently renewed for the prior two-year period June 2017 to June 2019, only in Q2 2019. A work programme was put forward for the 2019-20 programme to the Mineral Resources Authority ("MRA") in Papua New Guinea.
Current plans sent to the MRA include a revised ground penetrating radar ("GPR") work programme, estimated to complete in the second half of 2019. To date, track and road clearing to support this effort has been largely completed with some bank cutting remaining. Spot gravelling and stump removal is scheduled for later this summer utilising heavier earth moving and bulldozer equipment. The two existing exploration camps have been put in good order and additional telecoms equipment is being installed.
GPR walking is now, subject to JV funding, scheduled to start by September, with proposals from Canadian service providers under consideration. The ONV JV's environmental permit has been released by the PNG Cultural Department, so the Commonwealth Environment Protection Agency ("CEPA") environmental assessment team has recently begun work on site at the project.
Given the recent recovery in nickel prices, the JV partners will seek to convert the current exploration licence to a mining licence based on a direct shipping ore ("DSO") operation plan presently in development. Proposals call for a DSO operation exporting a minimum of 1.2m wet tonnes of laterite a year as an alternative to a much more complex local processing operation that might require over $1bn in capital expenditure.
This DSO operation would consist of a relatively simply flow sheet with no processing plant, pipeline or tailings. As a result, this plan would be both environmentally friendly and uncontroversial in comparison with similar efforts in the region. A definitive feasibility study is planned covering this DSO operation following the conclusion of this year's work programme.
Dempster Vanadium Project
An option to acquire a 50% interest in the Dempster vanadium project was first announced on 6 December 2018, and following a diligence process the Company exercised this option on 24 January 2019.
The project includes 196 claims covering 40.96 km2 with up to a 20km potential strike. The entirety of the property lies alongside the Dempster Highway, some 65km north of the Eagle River Lodge, in the Northern Yukon, Canada.
The goal of the project is to further identify and exploit vanadium in black shales, a potentially ideal source of material for the battery metal markets. Previous work on the property was focused primarily on nickel, and it was from existing drill-holes that vanadium results were initially identified.
The Board believes that demand for vanadium is only likely to increase given its traditional use as an additive to steel and in the chemical industries, now being expanded due to its use in super alloys in the aeronautics and ceramics industries, and in particular the expected growth of its use in vanadium redox flow batteries. These batteries provide efficient storage and controlled release of energy in renewable power generation systems and are expected to be an increasing component of energy storage infrastructure solutions across the world.
The Company is currently engaged with the 50% partners in the project to develop both short and longer term plans for geological activities in the Yukon, with the focus being on relatively inexpensive rock-chip sampling designed to provide more information on the geology of the project and ultimately to develop drill-ready targets.
The Company created its EsTeq (Energy Storage Technologies) subsidiary in 2017 in order to pursue opportunities in the battery storage, battery metals, and energy storage technology arenas, complementing the historic focus on mineral exploration activities. EsTeq invested in Allied Energy Services Ltd ("AES") in 2018 with a view towards developing a holding with a deep pipeline of energy related projects in the United Kingdom, and has invested a total of £150,000 to date in support of that initiative.
AES spent most of 2018 refining its pipeline of energy storage projects, putting each through a series of gates to determine their suitability for further development. The nature of such a process is that many projects will appear promising for initial development, and in many cases planning permissions might be applied for as a first step, but ultimately will not meet all the criteria required for final investment. Projects once formally approved are to be developed via individual special purpose vehicles set up for each site or phase, with a reliance on the significant availability of debt funding in this sector.
The current focus of the business is on a single large development site near Liverpool, where two potential stages of development are envisioned under the name of the Southport Energy Centre ("SEC"). Phase 1 of the SEC is expected to consist of the leasing and installation of 9MW of gas-powered electricity generation accompanied by the installation of containerised batteries with 2MW of storage capacity.
Commonly known as "Peaker Plants", these types of plants are equipped to generate electricity and sell into the UK electricity market when electricity prices are high or renewable production low, and to buy and store electricity when prices are low or when electricity generation is higher than had been anticipated. Anticipated revenue streams include electricity trading, Short Term Operating Reserve ("STOR") and Fast Frequency Response.
Current plans call for the establishment of both gas and electricity grid connections, the latter being facilitated by the SEC location's adjacency to a major regional substation. Once these connections are in place and leased gas generators and batteries have been delivered, it is estimated that the site can start generating revenue in approximately six months.
A follow-on Phase II development of the existing site would involve the removal of the existing waste management site, which will not be disrupted during Phase 1, and its replacement with a new waste reception and anaerobic digestion plant. This potential second phase, which would be subject to technical and commercial due diligence and the availability of funding, constitutes a significantly larger and more complex overall development, but provides an additional pathway for growth within the existing site footprint. Beyond this initial SEC site, the current AES project pipeline consists of an additional 3-4 sites that include a mix of peaker plants, bio-gas, and combined heat and power opportunities at various stages of review.
The Board believes that the growth of renewables in the UK energy mix will only increase the demand for flexible storage and generation solutions of the kind being developed by AES and that additional development of this existing investment complements mineral exploration activities in PNG and the Yukon. As such, building out the AES framework and operations team will remain an area of focus for the Company.
The Company retains two major investment holdings, an 8.55% stake in Curzon Energy Plc ("Curzon"), listed on the Standard List of the London Stock Exchange and a 25.89% stake in Mining Equity Trust ("MET"), owner of a metallurgical coal asset in Virginia in the United States.
Curzon Energy has announced that it is currently focused on the investment and development of a second natural gas project in Texas, designed to supplement its historic interests in the Coos Bay coal bed methane project in Oregon, USA. Curzon, and its Houston based partners, Pared Energy LLC, are planning to drill two wells in the Claiborne formation in southeast Texas, on the thesis of applying current horizontal drilling and modern completion methods to known gas bearing horizons where outdated technologies have long remained in use primarily by small local operators.
As announced on 9 July 2019, Regency retains a minority non-operating interest in MET, which owns 100% of the Omega Holdings coal assets in southwestern Virginia. Given the obstacles in putting together adequate financing to fund the purchase of the business in 2018, and the subsequent impact on operations, significant doubt remains over the availability of the additional capital required to develop these assets into a successful US based coal producer. The Company retains a 25.84% stake in MET, however beyond residual board representation, has little influence on day-to-day operations of the business.
Following the results of the strategic review the Board has decided that the Curzon and MET holdings will continue to be held as non-core assets, with the ultimate goal of achieving an exit and maximising value to investors as appropriate, but will no longer be an area of significant focus or resource expenditure going forward. As an equity holder in both investments, the Company has nominal residual obligations going forward.
The Board believes that metallurgical coal and natural gas, while potentially attractive in their own rights, do not constitute the best deployment of the Company's available resources.
Scott Kaintz, CEO, comments: "Having spent several months putting together a strengthened board and management team and analysing the existing portfolio alongside considering external options, the Board has come to the conclusion that a core business exists within Regency that can be developed.
This core will consist of a combination of our existing mining interests coupled with the investment in energy storage space, offering investors potential exposure to the battery story and energy revolution from the raw materials in the ground to their ultimate deployment in the modern UK electricity grid.
We believe the revised business is a compelling combination and proposition for UK investors. Funding will be required to develop our projects and we look forward to announcing further details of these plans in due course. With our corporate debt now refinanced out over five years, and our projects and focus now clearly delineated and streamlined, all of the pieces have been put in place to take the business onward."
This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
For further information, please contact:
Scott Kaintz 020 7747 9960 Chief Executive Regency Mines Plc
Roland Cornish/ Rosalind Hill Abrahams 020 7628 3396 NOMAD Beaumont Cornish Limited
Jason Robertson 020 7374 2212 Broker First Equity Limited
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