Auking Mining Ltd (ASX:AKN)

Investment Memo:

Auking Mining Ltd (ASX:AKN)

- LIVE

Opened: 04-Feb-2022

Shares Held at Open: 1,515,152

What does AKN do?

AuKing Mining (ASX: AKN) owns 75% of a JORC copper/zinc resource near Halls Creek in WA. AKN is focused on exploring and developing this resource.

What is the macro theme?

Copper is already the third most widely used metal in the world - and with demand set to increase from things such as electric vehicles and semiconductor wiring — we see it as leveraged to the global electrification boom and anticipated commodities super cycle over the coming decade.

Our Big Bet for AKN

AKN delivers a 10x return by discovering and defining a significant enough deposit to move into development studies for one of its projects.

Why did we invest in AKN?

Metallurgical solution away from production

AKN has an already established JORC resource that sits across 2 already granted mining licenses. If metallurgical testwork is positive, then AKN can put the shallow-near surface resource into production quickly.

Promising met results for WA base metals project [13-Oct-2022]

Established JORC with upgrade upside

A recently completed drilling program together with prospective areas have the potential to increase the resource significantly. Any additional tonnage for the resource will mean the base valuation of AKN increases.

Project acquired at a time when copper prices were depressed

AKN acquired its core asset at a time when copper prices were trading at ~US$2.60/lb, with copper now trading at US$4.49/Lb just shy of its all time high of US$4.90/Lb. If a processing solution for the Onedin deposit is found the company could quickly put the project into production selling into high copper prices.

Low enterprise value (EV) means leverage to a discovery

Company has ~75 million shares on issue with ~7 million under escrow. With a market cap of $11.6M and Cash in the bank of $2.5M the enterprise value is only $9.1M.

What do we expect AKN to deliver?

Objective #1: More drilling at the Copper-Zinc project to upgrade the JORC resource.

More drilling at both the Onedin and Sandiego deposits. We want to see deeper drilling at the Sandiego deposit to test the most recent mineralisation found under the known resource zone and some extensional drilling at the Onedin deposit.
We want to see the drilling eventuate into an upgraded JORC resource.

⏯️ Drilling update at flagship base metals project [13-Jul-2022]
More copper at Emull - resource update pending. [14-Nov-2022]
Substantial resource increase at base metals asset [01-Dec-2022]

Objective #2: Complete metallurgical testwork on the Onedin deposit

We want to see AKN push forward aggressively with metallurgical test-work testing, this is the key to unlocking the shallow near-surface ore at the Onedin deposit.

Promising met results for WA base metals project [13-Oct-2022]

Objective #3: Test regional prospects

We want to see AKN go in and test the Emull prospect where Northern Star Resources had previously identified an open-pittable resource of ~4.7mt @4.5% Zinc +0.33% Copper + 0.2% Lead.

Confirmation of shallow Cu/Zn mineralised system at flagship, WA [12-Aug-2022]
Copper mineralisation at Cosmo prospect, sulphides at Onedin [24-Aug-2022]
More copper at Emull - resource update pending. [14-Nov-2022]

Objective #4: Complete the Tanzanian uranium assets acquisition

[Update 19 October 2022] AKN needs the vendor to confirm the formal grant of twelve Prospecting Licenses, plus finalise its due diligence in order to complete the deal.

Tanzanian uranium asset acquisition on track [19-Dec-2022]
Tanzanian uranium assets acquisition completed [31-Jan-2023]
Exploration poised to commence at advanced U project [14-Feb-2023]
Out of Trading Halt; seeking to have licenses reinstated [28-Feb-2023]

What could go wrong?

Metallurgical risk

The shallow part of the JORC resource that can be quickly mined by AKN at the Onedin deposit is made up of oxide-hosted Copper mineralisation. Oxide-ore is more complex to process, and with AKN’s resource in particular, previous attempts to find a processing solution have failed. There is a chance a solution is not able to be found and this part of the resource is deemed stranded.

Commodity pricing

Copper is a highly industrial metal that is reliant on buoyant economic growth, if there is any significant decline in economic activity globally then copper prices are likely to de-rate.

Funding risk

AKN is still doing a lot of exploration work and so is reliant on financing from investors who are willing to fund high risk exploration programs. Market conditions turning negative could mean getting these type funds may be difficult.

Additional risks related to Tanzanian uranium projects acquisition

[Update 19 October 2022]

Permitting/deal risks - one of the terms of the acquisition is that the deal is subject to “the grant of twelve (12) PLs from this group of applications” - if they are not granted then the deal could fall through.

Stakeholder risk - assuming the potential uranium acquisition is completed, we think AKN will need to build strong relationships with stakeholders in Tanzania to (1) secure the permits and (2) then go and explore the projects. Every project needs a social license to operate.

Exploration / development risk - these are early stage assets, and a significant amount of work needs to be done to prove a uranium resource and its potential for development. Success is no guarantee.

Out of Trading Halt; seeking to have licenses reinstated [28-Feb-2023]

What is our investment plan?

AKN is a new investment and this is the initial investment memo for AKN.

Consistent with all of our investments in exploration companies, we will look to partially sell some of our holdings (~20%) if the share price runs to partially de-risk our position, in line with our investment plan detailed in our 2022 investment memo.

We have in place a mandatory 90 day trading blackout on all our new investments prior to being able to sell a maximum of 20% of our position, which gives the company time to deliver some material announcement towards its plan.

Our plan is to review our investment thesis based on the progress the company makes with respect to our 2022 investment memo.

AKN - new license, drilling to start in Tanzania [24-May-2023]

Disclosure: The authors of this article and owners of Catalyst Hunter, S3 Consortium Pty Ltd, and associated entities, own 1,515,152 AKN shares at the time of writing this memo. S3 Consortium Pty Ltd has been engaged by AKN to share our commentary on the progress of our investment in AKN over time.