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Auking Mining Ltd Limited

(ASX:AKN)


Investment Memo: AuKing Mining Limited (ASX:AKN)

What we want to see from our investment in AKN during 2022

4th Feb 2022


This investment memo is a short, high level summary of why we continue to hold LCL and what we expect the company to deliver in 2022. The purpose is to record our current thinking as a benchmark to assess the company's performance against our expectations 12 months from now.


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 behind AKN?

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.

Why did we invest in AKN?

  1. 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.
  2. 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.
  3. 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.
  4. 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 the company to deliver in 2022?

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.

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.

Objective #3: Test its 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.

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.

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.


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.




AKN: Early metallurgical results promising

ASX:AKN May 10, 2022 Announcement

Our junior base metals investment AuKing Mining (ASX:AKN), which has a sizable resource at its flagship Koongie Park project in WA, today provided an update on the project’s Onedin deposit.

Koongie Park has an existing JORC resource of 8.9Mt at 1.01% copper, 3.67% zinc, 0.77% lead, 0.16g/t gold, and 26g/t silver, with drilling programs planned to expand this further.

The key question is whether AKN can liberate the valuable commodities here, as the metallurgy is complex. This is what we want to see next from AKN, along with our #2 Objective from our AKN Investment Memo, namely the met results:

Today, AKN provided a progress update on the met results for its most advanced deposit at its flagship, Onedin.

Initial testwork has established the existence of secondary carbonate species in the Onedin mineralised zone, as well as the potential to achieve recovery rates above 75% for the copper, zinc and other minerals hosted within those carbonates

Although more work is required, this is promising as it supports the fundamental basis that AKN acquired Koongie Park - that much of the resource would be hosted in carbonate material. That being the case, AKN is confident of being able to leach out much of the valuable base metals.

This testwork also showed that shallower, heavily weathered Onedin material containing lower grade copper and zinc appears to be dominated by the existence of iron oxide/hydroxide material.

Traditional leaching is not very effective with this material, hence another processing path is required to recover the copper and zinc (and other minerals) here - this is a focus of current met testwork.

We anticipate the next update on met work in early June, which should shed some light on whether a processing solution can be found.


AKN: Promising geophysics ahead of new drilling campaign

ASX:AKN May 04, 2022 Announcement

Our base metals junior investment AuKing Mining (ASX:AKN) is about to commence its next round of drilling at its flagship Koongie Park project in WA.

Ahead of this, AKN today announced promising results from downhole geophysics (essentially testing for conductive sources down drill holes, as opposed to on surface) of previous holes from its two most advanced prospects, Onedin and Sandiego. The survey has identified two key zones of potential significant mineralisation which remain untested, but will be incorporated in the upcoming drill campaign, set to commence later this month.

What this means is that there could be the potential to discover extensions to the existing resources at AKN’s flagship. This matters as our initial appeal to Koongie Park is that it already has an an existing JORC resource of 8.9Mt at 1.01% Cu, 3.67% Zn, 0.77% Pb, 0.16g/t Au, and 26g/t Ag - the discovery of extensions would certainly add more value to this deposit. However, with several valuable commodities with some in oxide form, the metallurgy at the project is complex.

In a nutshell, AKN has its hands on a significant deposit that could grow further - and importantly, could transition to the mining phase fairly rapidly… IF a processing solution can be found.

Which feeds into what we want to see next from AKN - and our #2 Objective from our AKN Investment Memo, namely the met results:

The met results will provide more clarity in terms of whether the valuable commodities within Koongie Park can be processed. We anticipate that these results are a few weeks away.


AKN: Cobalt- Another in-demand commodity to be added to flagship

ASX:AKN Apr 26, 2022 Announcement

Our base metals junior investment AuKing Mining (ASX:AKN) added cobalt to the mix of commodities at its flagship Koongie Park project in WA.

Today AKN reported on the results of 10 historic holes they were able to re-assay from its Sandiego prospect, this time to include cobalt. Eight of the ten holes intersected anomalous cobalt mineralisation, including:

  • 60m @ 1.79% Cu, 5.96% Zn, 58g/t Ag & 0.1% Co from 191m
  • 21m @ 2.55% Cu, 0.18% Zn, 17g/t Ag & 0.13% Co from 289m
  • 18.4m @ 6.22% Cu, 1.02% Zn, 8g/t Ag & 0.07% Co from 108.6m
  • 8.87m @ 0.18% Cu, 9.41% Zn, 38g/t Ag & 0.14% Co from 156m

Typically grades above 0.1% Cobalt are considered good at current prices.

The market for cobalt is fairly tight, with the metal fetching over US$80,000/t on the LME of late.

On the back of these results, AKN intends to incorporate cobalt into its exploration programmes going forward.

Whilst we didn’t consider the cobalt potential of Koongie Park when we first invested (there’s plenty of copper and zinc already in place that appealed to us), adding cobalt - as well as the recently acquired Platinum Group Elements (PGE) rights - provides bonus upside should AKN be able to discover sufficient amounts.

The existing Koongie Park JORC resources of 8.9Mt at 1.01% Cu, 3.67% Zn, 0.77% Pb, 0.16g/t Au, and 26g/t Ag does not include provision for any cobalt mineralisation as yet.

AKN Rights Issue - Record Date is today

AKN is poised to be well funded for its next phase of exploration, with a further $7.1M set to be raised.

The funds will enable AKN to move from 75% to 100% ownership of its flagship Koongie Park project in WA, plus pick up the PGE rights over the ground.

There will still be a decent amount of cash left to then accelerate drilling at its most advanced prospects.

The $7.1M total raise is priced at 14 cents per share, and for each three new shares allocated will come with a free option with a 25 cents exercise price and 30 June 2023 expiry date.

The raise is roughly split 50:50 between institutional and sophisticated investors putting in ~$3.61M, and $3.5M that is planned to come in from shareholders on the register as of the record date of 7pm (AEST) Tuesday 26 April 2022 (today).

We like it when our investments increase their ownership position of their key assets, as it speaks to management’s confidence in unlocking value from those assets.

We also like it when companies allow all existing investors to participate in new capital raises on the same terms as the institutional and sophisticated investors.

We now turn our attention to our #2 Objective from our AKN Investment Memo that we want to see the company deliver this year, namely the met results:

In essence, AKN already has its hands on a significant deposit that could transition to the mining phase fairly rapidly, especially at its Onedin prospect.

But as there is a combination of oxide material and several other metals, the metallurgy at the project is complex.

If a processing solution can be determined to extract the valuable metals within the ore, this would clear a pathway to fastrack production and cashflow generation - this is speculation, and we have invested in the hope that this can be delivered.

We should hopefully know in May following the results of the met work.

We consider AKN’s move to full ownership of the project a positive signal (i.e. if they thought that a solution was not forthcoming, it is unlikely they would increase their ownership).

We look forward to seeing what can be delivered here.

What’s coming up next

On the corporate side, the capital raise will be completed with the new shares issued by the end of May.

As we mentioned earlier, we also anticipate the met results to be delivered sometime in May - which we see as a key catalyst in the stock.

We will be tracking AKN’s progress for the rest of 2022, and May is shaping up to be a pivotal month in the company’s journey.


Raising $7.1M to move to full ownership of flagship project

ASX:AKN Apr 21, 2022 Announcement

Yesterday, our Catalyst Hunter copper exploration investment AuKing Mining (ASX:AKN) detailed its planned capital raise for upto $7.1M @ 14c per share.

The capital raise has been split into two:

  1. $3.61M to be raised via a placement.
  2. $3.51M to be raised via a one for three non-renounceable rights issue open to all existing shareholders.

Funds raised will enable AKN to move from 75% to full ownership of its flagship Koongie Park project in WA and accelerate drilling at its most advanced prospects.

The Placement is in two tranches, with the first tranche of 18.822 million shares to be settled shortly, with the remaining 7 million shares to be settled after shareholder approvals next month - this covers firm commitments that have already been received for ~$3.61M from sophisticated and professional investors.

The non-renounceable rights issue on the other hand entitles existing shareholders to purchase 1 new share @ 14c for every three AKN shares held as at the record date of 26th April 2022. This means that any new investors that invest in AKN between now and Tuesday 26th April should be eligible to participate in the rights issue.

The key dates for the entitlement offer can be seen below with the offer opening on Wednesday, 27 April 2022 and closing on Monday, 16 May 2022.

Both the placement and rights issue shares will also have one free option for every three new shares applied for. The options will be listed and will have an exercise price of 25c per share with a 30 June 2023 expiry date

The raise is priced at 14 cents per share, representing a 12.5% discount to AKN’s trading price on 13 April 2022 and a 23.5% discount to the 15-day VWAP (18.3c) - whilst the discount might seem a little steep, we like that the placement is fully underwritten, which means that AKN is guaranteed the total $7.1M.

We suspect that trading in AKN will remain near the placement price until the raise is completed.

With funding secured to move to full ownership, the next key milestone we await are the metallurgical testwork results which is the key to unlocking the value in AKN’s JORC resource - with preliminary results likely in the next few weeks.

Our detailed take on AKN’s prospects and what else we are anticipating in the year ahead can be found at our AKN Investment memo.


AKN delivers 30% upgraded JORC resource at base metals flagship

ASX:AKN Apr 07, 2022 Announcement

Today our Catalyst Hunter junior base metals investment Auking MIning Ltd (ASX:AKN) announced a substantially upgraded mineral resource estimate (MRE) at its flagship Koongie Park copper / zinc project in Western Australia.

Following last season’s drilling program, AKN delivered a 30% increase to the MRE, which now stands at:

8.9Mt @ 1.01% Cu, 3.67% Zn, 0.16g/t Au, 32g/t Ag and 0.77% Pb

This ties in with the #1 Objective we wanted to see AKN deliver this year, as per our Investment Memo.

The initial market reaction to today’s news has been lacklustre, given AKN is down ~20% to be trading at ~ 17 cents per share. Despite the resource upgrade being positive, we suspect that the touted upcoming capital raise to fund AKN’s move to full ownership of Koongie Park could be holding the share price back.

We suspect once that transaction is completed and all new shares are issued, it will provide the AKN share price a base to hopefully start moving upwards as AKN kicks more goals.

We like that the upgrade to the JORC resource has been substantial - furthermore, almost all the MRE is now in the Indicated classification (97%), improving the confidence level of the resource estimate.

The new MRE also indicates a seriously large deposit, especially for such a small company, currently capped at $15.8M.

AKN’s flagship copper project comprises several mining, exploration and prospecting licences covering over 500 km2 in the highly mineralised Halls Creek region of Western Australia.

AKN’s Koongie Park project


AKN’s JORC resource sits across two deposits:

  1. the “Sandiego” deposit which is at depth and would be mined using underground mining methods, and;
  2. The “Onedin” deposit which is a shallow high-grade copper deposit starting basically from surface.

The resource upgrade primarily comes on the back of drilling at these two most advanced prospects, which are within existing mining licences and granted pre Native Title Act - which will be useful for fast-tracking development.

With the upgraded MRE, the new total metal values now include:

  • 90k tonnes copper;
  • 326k tonnes zinc;
  • 46koz gold;
  • 9.1Moz silver; and
  • 68k tonnes lead.

With the upgraded MRE now crossed off our list, the next key objective we’d like to see achieved are the results from stage 1 of the metallurgical test work on the Onedin prospect.

As there is a combination of oxide material and several other metals, the metallurgy at the project is complex. Hence a metallurgical solution could unlock the shallow near-surface ore at Onedin, potentially providing an early path to production and cashflow generation.

The results are expected within the next few weeks.


AuKing to move to full ownership of flagship project

ASX:AKN Apr 05, 2022 Announcement

Today our Catalyst Hunter base metals junior investment AKN announced a deal to move to full ownership of its flagship Koongie Park project in WA.

AKN will acquire Anglo Australian Resources’ remaining 25% stake in Koongie Park for A$6M payable in 3 tranches:

  • $3M cash in May 2022;
  • $1.5M in AKN shares to be issued after shareholder approval on or before 30 June 2022; and
  • $1.5M cash by 31 October 2022.

The AKN shares will be issued to Anglo Australian at an issue price that is calculated by references to the 20 day VWAP for AKN’s shares on the ASX prior to the date of issue, and will be escrowed for 3 months from the date of issue.

Importantly, the transaction provides AKN the PGE rights to the project.

This matters as the project is next to Pantoro’s Lamboo PGE Deposit. Pantoro has delivered several outstanding platinum group element (PGE) drill results over the past year, leading to the company green lighting a further 20,000m of drilling for 2022. Pantoro is currently capped at $464M.

We like that AKN has moved to a 100% ownership prior to the important metallurgical testwork program completing, because should a processing solution for its shallow copper resource be found, AKN gets to keep 100% of it. This ties in with our Objective #2 we would like to see AKN deliver this year.

Objectives

This also should simplify development funding options down the track.

We also like the acquisition of the PGE rights, although this sits outside of our 2022 Investment memo.

We mentioned in our initial investment note that AKN’s neighbour Pantoro went from a share price of ~21.5¢ to a high of ~42.5¢ off the back of its PGE discovery next door to AKN. We also note that the market for platinum and palladium has been soaring for a while now, and further aggravated by sanctions against Russia, which formerly provided some 40% of global palladium supply.

Palladium market

We are still primarily interested in seeing the results from the metallurgical testing which AKN expects to take ~6-8 weeks to complete, with the results expected in April.

To see why we are invested in AKN and what we want to see the company achieve in 2022 click here to read our 2022 Investment Memo.

Of note, AKN proposes to conduct a rights issue to existing shareholders in order to raise most of the funds needed in order to complete the transaction. This raising will be complemented by a strategic private placement to certain sophisticated investors.


Updated JORC on the cards at copper-zinc project

ASX:AKN Mar 25, 2022

Yesterday we caught up with the CEO of our copper/zinc exploration investment AuKing Mining (ASX: AKN), Paul Williams, following his presentation at this week’s Brisbane Mining and Energy Conference.

We like that AKN’s flagship asset, the Koongie Park copper/ zinc project in WA, is well advanced.

Paul and the team echoed this, noting that Koongie Park already has a JORC resource residing across two granted mining licenses, meaning that AKN is only a few steps away from transitioning to production (and cashflow). There is a systematic approach to the further exploration, so it will be with interest that we watch for the fruits of this to flow on through more drilling and assays.

We’re keen to see how the flagship advances in the year ahead. Below are the key objectives we want to see delivered.

Objective 1 is nearing completion already, and we suspect it won’t be too long before the JORC resource update is announced to market.


Final assays from infill drilling program received

ASX:AKN Mar 02, 2022

On Wednesday AKN released the final assay results from its infill drilling program at its Onedin deposit.

With the drilling program mostly focussed on gathering samples to be used in the upcoming metallurgical testing program AKN delivered some decent copper hits as expected.

  • 66m @ 1.67% copper from 77m
  • 82m @ 0.46% copper from 98m
  • 60m @ 1.04% copper from 92m

Our key objective for our 2022 AKN Investment Memo is to see AKN get its metallurgical testwork done and see if a processing solution can be found for the shallow JORC resource at the Onedin deposit.

AKN is expecting stage 1 of the metallurgical testing to take ~6-8 weeks to complete, with the results expected in April.