Capital Metals, CMET, Drops 6% On Project Update – Why?

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Tim Worstall
Updated: 23 Mar 2022

Key points:

Capital Metals (LON: CMET) shares fell 6% this morning off the back of their project update. That project is the mineral sands development in Sri Lanka. Normally we all rather hope that progress reports will indicate good progress, therefore a rise in the share price. Why hasn’t this happened here?

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The answer probably being that there’s not been as much progress as was hoped, or as had been hoped there would be.

It’s worth thinking back through what Capital Metals is trying to do. They’re exploring a mineral sands project in Sri Lanka. This will produce ilmenite (the ore for titanium, the biggest use is in white paint), rutile (for titanium again, different form of ore), zircon sand (for zirconia) and garnet. It’s said to be very rich and as is normal with mineral sands the actual mining process is not complex. The whole point here being that erosion has broken down the mountains of rock, water action over the millions of years has sorted the sands and so there’s no crushing necessary. Remove the overburden and scoop the sands up and separate.

The technology to do all of this is well known. So, there’s no technology risk, no new process that needs to be proven. The risk at Capital Metals is therefore slightly different. One is the usual one for any miner at this stage. How big, actually, is the resource? As the announcement itself says, they’ve really only confirmed the resource on 10% of their total claim – there could be much more out there.

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So, one thing that makes this announcement slightly disappointing is that globally there’s a backlog of samples at labs to be examined. This affects everyone, not just Capital. But that means that the results of Capital’s drilling programme are not yet known.

Another possible issue is simply unease about Sri Lanka. Mineral sands operations depend upon logistics – large volumes of lowish value materials do depend upon transport links and so on. The current economic situation in Sri Lanka does not indicate simple and easy conditions for such transport.

Which brings to the third possible issue in this announcement. Capital Metals awaits the Industrial Mining Licence. That’s the thing which would allow actual exploitation of the deposit. Given recent Sri Lankan government performance – for example, banning the use of fertiliser then being surprised when yields fell – doesn’t lead to thoughts that this will be granted in a timely and efficient manner.

The future of Capital Metal’s share price is thus likely to depend upon further news. Of the granting of the IML, or those drill results showing further extensive economic mineralisation. There’s little doubt that there’s something useful at the Eastern Minerals Project. The next big price movement is likely to be if and when it is known how much more there is, and whether Capital has the required licence to be able to exploit.

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