Uru Metals (LON: URU) shares are up 25% this morning, a 100% rise in a week, on the back of drilling results from the company’s 74% owned project at Zebediela with Zeb Nickel.
Long-term holders will recall that Zebediela, a highly prospective nickel deposit, was swapped over to Zeb Nickel, in return for that 74% stake held by Uru Metals. This provided the exploration capital required at a lower dilution to shareholders than trying to raise capital directly. In detail: “ URU Metals …the company completed the sale of the Zebediela Nickel Company to Blue Rhino Capital. Blue Rhino has now changed its name to ZEB Nickel Corp…”
As with all junior miners Uru Metals shares have been volatile in the past. This is just the way that it goes in this risky, but potentially rewarding, sector.
As to the details of the announcement, Zeb Nickel is reporting a significant upgrade to the mineralisation at Zebediela as a result of the drilling programme. To strip the results of the drilling of their technical jargon, there was an historical resource identified at the site. The drilling program now upgrades that by some 76%. Note that this is not proof of viability, this is an earlier stage of exploration than that. But it is an advance.
The entire geology here is thought to be an extension of what is mined close by, significant nickel and platinum group metals. Significant mines, too, with substantial output.
It’s also possible to take a contrary view of Uru Metals. This is very early, very early, in the sequence of trying to prove the economic viability of the mine. South Africa is having significant energy problems at present, the mining unions are pushing up pay. Not all South African miners are highly profitable at present, despite the geology. There are those many steps between now, initial drilling results and the proof of a reserve which is when capital to actually mine must be found. But then each step along that path of proving the reserve is value additive, that’s how this sector works.
We might also note that the spread on Uru is some 25%. We need significant – like the moves of this past week – price moves in URU shares to be able to profit.
The big question in the short term therefore is likely to be how other investors view nickel. That Chinese bear position on the LME led to that massive short squeeze in nickel. That pumped the price up 300%, to $100,000 a tonne at one point, in mere minutes. The LME nickel contract is closed as a result. Other events are creating worries about both nickel and palladium supply to the global market.
So, the short term price movements in Uru Metal shares are most likely to be influenced by how much those changes in potential output, some years down the line, might impact upon the current valuation of the developing project at Zebediela.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.