Herencia #HER– past, present and future….

Herencia #HER– past, present and future….

I’ve got quite a history with my investments into Herencia. I well remember the Mike Bohm times when Herencia was 2p a share and folks talked about PCD’s and potential share prices of 20p.

At the time Herencia was full of possibilities, it had the excellent Patricia prospect, the silvery caps of Doris. The mystery of Guam with its shallow IOCG and copper gold elephants. We had Nyrstar one of the largest zinc players on the board, each drill was adding more new veins.

Then came the delays, the snowballing, the costs and wages, new prospects such as Picachos that were going to take a little while to get traction, new CEO and the prospects of a good 18 months of dilutions….

Herencia suffered from a CEO who imho didn’t really care about or understand the role of private investors on AIM.

So where are we now..

Firstly we need to separate those that have been invested for a while and those that are looking at Herencia as a new investment. For those current investors, it’s been hard, the SP has been diluted and has fallen down to a range of around .4. The news on the 1^st has hit it again taking it down to .27 to .29. I really do feel for those investors.

However for new investors the possibility of buying into a vastly undervalued company at a price below the BOD and below the placing is starting to ring profit alarms…

Herencia has, with Patricia, the highest, most secure JORC it’s possible to obtain, (Measured being the highest and inferred the lowest). In the higher categories of measured and indicated combined there is total of 4m tonnes of resource with 3.2-5% zinc, 1 to 1.8% lead and 70 to 98g/t of silver. Given current prices we still get £ hundreds of millions of resources. This has been taken to an advanced stage with a completed DFS and mine design, economic assessments are positive and its believed the project is only awaiting a recovery in the zinc and metal prices before production starts. For the purposes of this document a valuation of £15m seems fair, using a very heavy discount to NPV. Its important to note here that the geo-phys indicates that the resource has much more potential to come, with a likely total conservative commodity value of well in excess of £2bn once fully explored.

Added to this we have Guam, where Herencia have convinced a large, cash rich (just over $500m cash in hand) copper giant to invest into Guam. They are committed to spending $3m over the first period for 50%, given this a fair value of $6m seems reasonable. Existing drilling of Guam has delivered an IOCG but the wild cat drlling has uncovered copper, gold, moly  at depth, with 2g/t of gold from one drill. Considering the wild cat nature over such a large area, it was quite amazing that such gold and moly where found by random. Given this it’s hardly a surprize that Oz minerals have agreed to invest and explore and it’s highly likely imho that a very gold, moly rich PCD is situated in Guam with a greater total tonnage than SOLG.

Finally we have the Picachos copper project, again very advanced with a MOU to produce 1m tonnes a year of ore to be processed through a local plant. This isn’t a huge amount roughly 3000t a day given 50 down days. But would require minimal capex to pay for the simple extraction, crush and transport components. A capex of around 10m sounds reasonable. Income @2% copper(copper/silver equiv) would be 60t of copper per day, with a price pre mill, post costs of $1500 a tonne giving 90k a day.(approx. 40m a year) The economics of the project would mean a very quick pay back of initial capex and also allow Herencia to self fund Patricia in 2-3 years time.

It really does seem to be a very good strategy the BOD have embarked on. With first deliveries of copper ore to the mill plant in 12-14 months time, It’s not too long away either for the stock market.

Picachos is largely derisked re mining permits and environment permits due to the existing on site unapproved mining and the extensive mining operations in the local area.

As well as the above the Paguanta license area which hosts Patricia, also has shown evidence of a significant PCD with 2-3% copper, gold and silver. Where over the summer a number of interesting JV parties took viewings and expectation is high that a JV might well take place.

Funding is always a problem for an explorer, 10 months ago Herencia raised 1.8m, now it’s just raised 2.4m. This will go towards considerable development and exploration, however expectation is that funding will last now until around June time. Herencia has announced that it is in advanced funding for development of the production at Picachos. Funding will likely be majority debt with dilution minimal and restricted to around a 10% convertible. This will restrict further share issues and the current share issue is expected to be the last of the major dilutions thanks to the revenue coming on stream in 12-15 months time.

I have heard the rumours that the share issue was done now due to bad news from Guam, however this makes no sense at all. Most placings either happen after good news, if the company wants to raise capital cheaply or before good news, so that they can take part in cheap shares and grow the company’s market cap. The Herencia BOD would not issue shares, take part in the issue, just to see the SP drop on bad news and have their reputation ruined with the placing makers.

I personally think Guam has come in very favourably and the BOD want to use this as a spring board with any thoughts of dilution kicked well into the long grass. I can’t stress how strong the likelihood is that Oz minerals will further develop Guam on some very good results.

Looking at the trades it seems to be that a few shorts have been closed at around the .28 mark. AIM ain’t pretty at times like this.

So should you invest ?

Herencia has been well and truly pummelled by the markets for the factors already discussed, however as mentioned by Graeme over the last few months the Zinc market has started to turn and Patricia’s time is getting close, dilutions look to be over, a plan for a significant revenue stream which most explorers would kill for is firm and being progressed. The significant assets of Herencia could turn it into a mid tier miner over the next 2-4 years.

News flow is very strong over the next 2 months.

For new investors getting it at .28 or around this looks to be very risk free.  A rise to .4 or .5 would not see a great deal of selling from private investors, making a 75-100% return short term likely.

If folks are happy to wait for 8-10 weeks then they get the benefit of the funding to production announcement for Picachos which could see .7 to .9 with supporting news flow.

Existing shareholders will need to grin and bare it with an average of .5 to .7 and would be ill advised to sell at such a low point. Dilutions are horrible things, but can provide fantastic advantages for new investors and for existing investors to average down. This is unmistakably one of those opportunities.