SMALL CAP IDEA: URA flip to Gravelotte emerald mine in Limpopo

URA Holdings CEO Bernard Olivier and his colleagues, including chairman Edward Nealon, are veterans of the mining sector.

With gemstone success stories at Tanzanite One (T1) and experience at Bezant Resources, Olivier knows the industry on a granular level.

Nealon, meanwhile, founded and built Aquarius Platinum before moving on to Sylvania Platinum and was also in on the ground floor with T1.

Both are familiar with moving mining assets quickly along the value trail, which probably explains how they – and an experienced supporting cast – have been able to take a historic emerald operation from acquisition, through maiden JORC resource and to production in little over two years and on a budget of around £2million.

The mine is Gravelotte in the Limpopo Province of South Africa, around 50 kilometres from the world-famous Kruger National Park.

An open pit mine in Limpopo Province, South Africa

It was the largest operation of its kind during the 1960s and historically has yielded nearly 113 million carats.

It was sold to URA by Australia’s Mangum Mining for an initial £100,00 in shares and payments of £100,000 for every five million carats mined up to a maximum of £1m.

The team didn’t hang about after buying the asset. It compiled a JORC resource estimate for the Cobra and Discovery deposits that has identified around 29 million carats of contained emeralds, giving an initial life of mine of almost a decade.

To add a little sizzle, URA’s team has also compiled a list of exploration targets that could add a further 168 million to 344 million carats to that total.

Instead of following the traditional process of feasibility studies, financing and building, URA has taken a fast-track and phased approach.

So, on a shoestring, the company sourced and installed crushing equipment, screens, conveyors and dewatering pumps along with an optical sorter – in other words, everything required to get into production.

It has been helped by the fact that Gravelotte is a historic mine with infrastructure such as civil works, water storage, accommodation, roads into the site, and, crucially, access to grid electricity, which lowers the capex as well as the day-to-day costs. Going forward, URA intends to invest future profits to expand and grow output.

With production underway, URA’s first trial auction will take place in the second half. Olivier says he is currently putting the finishing touches to an agreement with a well-known auction house, formerly used by Gemfields, the preeminent source of coloured stones, and the owner of the Kagem emerald mine in Zambia, which has generated over $1 billion of sales since inception.

The URA CEO says Gemfields provides a template for what URA is trying to achieve as it effectively self-funded growth as it created its own market for ethically sourced emeralds.

‘We are a lot smaller and have a way to go before we catch up Gemfields. But they, I would say, are who we’d like to emulate,’ says Olivier.

Taking a closer look at the industry dynamics, the Gemval Aggregate Index shows a strong and healthy market for coloured gemstones that has decoupled from diamond values, which have effectively flat-lined for more than a decade now.

The Gemval Aggregate Index shows a strong and healthy market for coloured gemstones that

So, Anglo American’s decision to offload De Beers diamond business, amid supply-side issues and the challenge from man-made alternatives, should not be conflated with the market for emeralds, rubies and sapphires, where the demand dynamics are governed by different and separate drivers, says Olivier.

He won’t be drawn on the prospects for URA’s first auction. That’s because there are many imponderables: Mix and the quality of the lots, which can vary from sale to sale, and characteristics such as size, colour, clarity fashion and market demand all affect the outcome of an auction.

CEO Olivier explains: ‘Prices can and will vary from the lower category to the top instances where $300-$400 a carat. At this point we don’t know what we’ll get, so there is no point in speculating.

‘That’s why I’ve been very careful not to do any forecasts on the first sales. You know, it’s a very gradual process; it’s about getting sales exposure. And as the auction house that we are working with said to me, you know, we should limit our expectations.’

Outside of South Africa, the mine developer has a Zambian strategic minerals project prospective for caesium, tantalum, niobium yttrium fluorine. Now that production is underway at Gravelotte, the asset is non-core, the URA CEO says.

‘[Zambia] is really greenfield exploration so we are in discussions with some interested parties regarding a joint venture or something like that,’ he explains.

‘Our focus is very much the Gravelotte operation going into production and then expanding production.’

Core to any mining programme in South Africa is the black economic empowerment (BEE) legislation, which compels project owners to bring in indigenous investors.

With that in mind, a 26% share of Gravelotte has been ceded to local communities and black employees to ensure a good slug of the value created in the area is ploughed back.

‘We truly can say it is a community-sponsored mining operation, and in my view, that’s what it [BEE] is supposed to be all about,’ says Olivier.

Having made rapid progress towards production and ultimately very quickly into the revenue generation phase, it is surprising that progress is yet to be recognised.

However, Olivier is unperturbed. Time and further progress towards revenue generation will help. It has some patient capital on the shareholder register having been able to attract institutional investment, including small-cap guru Gervais Williams’ Premier Miton.

So what attracted these funds? ‘I think the one thing that was singled out was management track record,’ says Olivier.

‘Tanzanite One was successful; Ed [Nealon] has done it in platinum. We were also able to get some of the key team from Tanzanite One, whom I have known for 15 or 20 years to join us. We have a small team, but a very experienced one.’