Power Metal Resources PLC (LON: POW) has updated on its Selta Project, held through the FDR subsidiary. The announcement looks like it’s just a general update on progress but there’s a little part of it that means we might be seeing a value crystallisation moment in the near future. This needs a little thinking about how junior miners work to understand.
The specific target materials here at Selta are uranium and rare earths, That’s fine, the two are often found together. The uranium extraction process can – depending on the decision on how to extract – lead to the rare earths being there in solution so why not extract as well?
The specific announcement from Power Metal is that the licences have all been secured for the prospecting. A junior miner is usually defined as a mining company not currently producing anything. The decision tree to get to that production state is long and has a number of off-ramps.
First, there’s the obvious decision of what to look for and where. Then there’s securing the rights to do so – the stage Power Metal is at with Selta. Then there’s finding something worth mining, followed by really checking, in detail, that it is worth mining. Then raise the capital and actually mine and produce. It’s possible to fail at any of these stages. But the opposite is also obviously true – if it’s possible to fail at any one stage then having achieved that stage must add value.The removal of that uncertainty about whether the stage will be failed adds value.
So, Power Metal now has those rights to prospect – and ownership of the rights to get to the next stage when something is found – secured, that’s value additive.
The next part to understand is that it’s possible to cash in that value add at any of these stages. A prospect can be sold on, a resource (minerals found but not proven), a reserve (actually proven to be economic minerals) and so on. Each value ad stage can be bundled and sold, what we might call value crystallisation at each stage.
Which is what Power Metal Resources intends to do with Selta. As their announcement says: “Selta is held within URE Metals Pty Limited, an Australian private company and a wholly-owned subsidiary of First Development Resources Limited which is planning to list on the London capital markets in Q2 2022. Power Metal currently holds a 96.15% interest in FDR.”
Now, how much value that flotation is going to add to Power Metal is the big question. But it is obviously true that there’s going to be significant thought put into the Power Metal valuation in the run-up to that flotation. We’ve got, that is, one of those value crystallisation moments coming.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.