Great Western Mining (GWMO) - September Outlook

3 September 2018

Disclosure: I hold 8.80% of the shares in Great Western Mining (GWMO) as at 26th July 2018

It’s no secret that the last few months have been difficult for GWMO shareholders. As the largest shareholder I have had numerous messages from other people, some supportive and some less so. A few of the messages have been a little upsetting and reconfirmed my view that money really does bring out the worst in people and sadly many people prefer to see someone “failing” than “winning”. I have no worries with my investment here, in fact I am excited about the next few months. The reality is that investing in a micro-cap explorer is rarely going to be smooth and I believe that it is simply a matter of stock market sentiment and short-term trading.

M2 ST

Last week saw an RNS that I don’t think anyone was expecting. Following on from the disappointing RNS several weeks ago, where the company decided to abandon the first drill hole (M2-041) and at the same time released initial assays showing no mineralisation, the most recent RNS confirmed that the second hole (M2-042) had started and informed us that the directors had “introduced several operational changes at M2-042, including a night shift, to speed up the rate of drilling and improve performance”.

With this RNS we also learnt that the second set of assays from M2-041 did show mineralisation with copper, nickel and cobalt. The reference to cobalt, all be it in low quantities, is the first time I recall GWMO mentioning cobalt and a simple google search will tell you that nickel and cobalt are often found with copper. Interestingly for me though the Democratic Republic of the Congo (DRC) currently produces 63% of the world’s cobalt and so if GWMO does find meaningful quantities as the M2 ST drill program continues it will be a very welcome angle from this USA focused explorer.

The RNS quoted the mineralisation in parts per million rather than the usual percentage but by my calculations the copper was over 0.5% which considering that the expected source of the copper could not be reached, due to the harder than expected caprock and I believe depth of drilling, I felt it was extremely positive and in the RNS David Fraser announces that it “is very encouraging and a good indicator that our geological model remains valid”.

I am looking forward to seeing how M2-042 progresses and have outlined some suggestions on what we could expect in terms of timescales based on various RNS announcements.

My estimates based on the above is as follows:

  • So we don’t know if hole 2 will go smoothly but I think it is optimistic to expect them to hit the target in the first 7 or 8 days
  • Alternatively looking at it negatively but assuming that they can drill through, 3 weeks
  • This would give us a range of Tuesday 4th September (i.e. as soon as this week) to Tuesday 18th September for expect an update (i.e. target hit and awaiting assays RNS)
  • I can’t see that they won’t want to RNS hitting it especially after everything that has happened over the last few months, but we don’t know what the management plans are with this

M2

The last update on M2, where the issue earlier this year saw the JORC estimate of 16.99 million tonnes of 0.52% CU withdrawn, was 23rd May. This left us with an earlier lower JORC consisting of 3.7 million tonnes of 0.44% CU. I have been keen to understand if the company is working to obtain an updated JORC especially given the drilling that has been completed since April. I have asked the company to confirm via RNS if this is the intention but to date have not had full clarity.

My hope is that the company is working towards a new JORC report and if this is the case I believe that one will be released in the next few weeks. Clearly we have no idea what this could show but it would be positive if they could restate at least similar to the withdrawn numbers and although the M2 target is not as exciting as the potential at M2 ST or M4 my view is that having a resource with JORC status is massively different to without and therefore encouraging news on M2 will start to see some value attributed to the share price. Taking a positive view, it is perfectly possible that the new JORC will be above the previous JORC which would certainly make this extremely interesting as my view is that then M2 alone would be an economically viable mine.

Other Targets

M4 and M1 are the other more developed targets for the company but I have always said that I view M1 as a side project and to date we know very little about how M4 is progressing. As such there is little more to say about either of these at this stage. The company has mentioned M8 in recent announcements as well but as with M1 and M4 I am keen to see them progress M2 and M2 ST further as in common with most smaller companies they only have so much time with a small team.

Management

I have been critical of the management over the last few months but generally they seem to be doing an okay job. They clearly don’t want to promote the company’s shares which is very different to many of the other companies that I follow. To me this is both a positive and a negative. Short term it is clearly negative but longer term it will be a positive as I hope this will mean that they will let the assets speak for themselves. I do invest in the “promoted” side of AIM but it is a very different beast to companies like GWMO where the management do not wish to engage with certain parties.

The fact that David Fraser bought stock shortly after the placing in July and all directors exercised options shortly after shows to me that they believe the long-term story for GWMO is very much intact and clearly they have access to much more information than any external shareholders. Today you can buy shares at roughly half of where David Fraser invested and combined with my estimate of around 50% of the current market capitalisation being cash I take that as encouraging. Whilst some of the recent RNSs have been disappointing I am pleased with the tone of most and although I would manage the business differently to David I do believe that he is an honest director and therefore take the tone of the announcements along with the directors financial commitment as a positive.

Summary

I have been investing in AIM companies for around 20 years and I consider myself a long-term investor rather than a short-term trader. There have been many times when my shareholdings have shown a paper loss before showing a significant gain. Whilst it is always disappointing and can be mentally challenging it is the reality of investing in companies like this and for me as the long-term story is still intact it is not a massive issue.

I do feel that the market has been incredibly harsh to the company and perhaps the short-term nature of many AIM investors is something that I need to factor more into my investment decisions, however I don’t see myself changing my strategy as it was worked very well for me over the years.

I am optimistic about the coming weeks and months with GWMO and if it plays out as I expect I plan to hold a significant stake in the company for many years. In the immediate future I hope that we will hear about the JORC status of M2 and also that the drilling of the second hole at M2 ST goes much better than the first! Let’s see what the company announces from here.