View from the top: Sula Iron & Gold interview

With Sula Iron & Gold's share price regaining ground, Julie Fisher speaks to chief executive Nick Warrell and non-executive director Matt Wood about their plans for the company's sole project in Sierra Leone.

What's happening with your Ferensola iron and gold project in Sierra Leone?

Nick Warrell: There is a defined dual development programme in place with the aim to delineate a JORC-compliant iron resource [a resource which is classified under the Australasian Joint Ore Reserves Committee Code] by the end of this year. We have a conservative exploration target of 500 million tonnes at 55% iron in haematite and 30.4% iron in magnetite, given by our mining consultants SRK Exploration Services.

In terms of the gold, on 16 December 2013 we completed quite an extensive geophysics and geochemical programme, the results of which will come in by the end of the first quarter, enabling us to identify drill targets.

What is the outlook for the company?

NW: The idea is to raise our profile. We're going to take on some junior management who will do the CEO's role in terms of marketing. That will be twinned, we hope, with raising the share price, and to do that the trigger is to get SRK to do a valuation of the property as it is now [SRK is willing to do this prior to a JORC-compliant resource being defined because the project is contiguous to African Minerals' operational Tonkolili Iron Ore Mine, which has a JORC-compliant iron resource of 12.8 billion tonnes].

Key facts

Operating areas: Sierra Leone

Asset(s): 153 sq km Ferensola Iron and Gold project

Market cap: £7.18 million

Upcoming newsflow: Results of geophysics and geochemical programme on gold resource, further drilling on iron and gold, delineation of JORC-compliant resource.

Matt Wood: As a small exploration company, because we've got no interest in being a developer or a producing company, we're there to find a resource. We then hope to get it up the value chain as quickly as possible and that's our plan for the next 12-18 months.

If you're not taking the project into development, do you plan to dispose of it?

MW: It will be open. In order for us to take it to the next level the only thing that we could really do is get the JORC-compliant resource, so if we've done the iron and haven't got the gold yet, and we're able to strike a deal which will allow us to do the gold, we might, but a lot of it overlaps each other so realistically it would be easier to try to sell both of them at the same time.

NW: Logistically it would be nigh impossible to separate the two. So the sensible thing to do is to flip to, for example, an iron ore producer which sees the gold as a bonus.

At that point would you look for other projects or would you sell the entire company?

NW: Speaking for myself, I think the entire company would have to go. I don't see how we could possibly split it. What we could do, and what I could see us doing, is that we would sell to an iron ore producer.

If iron stays flavour of the month in 12-18 months' time and we're ready to sell and have a willing buyer, I would play hardball and say "we've got a 3-5 million ounce proven JORC-compliant resource which is worth a lot less than the iron but it's still worth $250 million (£150.6 million), so we'll sell you the company based on an agreeable value for the iron ore, you get the gold for bunce, but you pay us a royalty on the gold for the next 7, 14, or 21 years", that's the way to do it.

What specific plans do you have for the next 12-18 months?

There is a huge land rush so the government has been cracking down which has got rid of all the cowboys, and benefited the bona fide companies. The last 6.5 years have been amazing, transformational. So it's the right time and right space to get in and get out within two years."Nick Warrell

NW: The next stage operationally is to carry on where we left off with the scout drilling programme. We will extend the length and width and infill-drill for the iron ore JORC-compliant resource and also the DSO JORC-compliant resource.

We also have a drilling programme for the gold as well. We'd love to run all three programmes co-terminously but whether we can raise all of the money to do that remains to be seen and the first step towards doing that is to get people to realise that the value of Sula is far below what it should be.

So you believe that you're undervalued?

NW: Northcote, a previous broker of ours, said on 30 December 2013 said that our shares should be 10.2p and it doesn't have the knowledge we have. The share price has been rather a cross that we've had to bear ever since initial public offering (IPO) but SRK valuations are accepted internationally, and we hope it will make people sit up and take notice.

What are your funding options?

MW: We have multiple options, including a straight placing, structured products, convertible, a joint venture or a strategic investor coming in. Those are the options that are circulating around and we won't jump straight into the first option that comes along, because we know that that valuation isn't going to change in the short term and it gives us time to continue to reduce that gap between the valuation and the share price so that it is the least dilutive for shareholders.

Nick, you mentioned that you have a strong relationship in-country. Can you elaborate?

NW: I was adopted by the late Paramount chief [local Sierra Leonean tribal chief] in 1989, making me an honorary Paramount chief and the only non-Sierra Leonean to sit on the Council of Tribal Heads which reports to the President. It does give me enormous kudos, as the local politics are very important. The Paramount chief's word is absolute law. The government issues the licence, but you have to make your agreement and peace with the local landowners, so you need both sides of the coin. It's exactly the same as having a local partner; really I am the local partner though I'm white.

Politically, is it a supportive climate for mining?

It's a junior exploration company, it was always going to need more money, so there was always going to be an element of dilution."Matt Wood

NW: Massive. There is a huge land rush so the government has been cracking down which has got rid of all the cowboys, and benefited the bona fide companies. The last 6.5 years have been amazing, transformational. So it's the right time and right space to get in and get out within two years.

What is the investment case for the company?

MW: Firstly, there's the dual-commodity exposure, and the location of the project in a known mineral-rich region. We've got an experienced board, and it's very much in partnership with the local community. We've been given the amount of money we think we need to spend to get it to a JORC-compliant resource and the plan is to get the share price to a level where we think it makes a lot of sense for us to consider financing options.

I think there's a lot of potential uplift, we're coming back towards the float price of 6p which is where we should be based on the money we've spent but in reality based on some of the comparables we should be up at 15p.

And you're a large shareholder yourself Nick, are you not?

NW: Well it's dwindling every day.

MW: It's about 27.8% I think.

NW: It's not enough, for the money I've put in and the work I do, it's not enough. But yes, I'm quite a large shareholder; they'd have a job to get rid of me.

Is most of the remainder of your shareholder structure retail?

MW: A good chunk of it is. We recently had an ex-director looking to sell a 20+% holding. That took a lot of digestion from the market, but it's now over and done, it's in the hands of the people that want it and the share price is coming up. But we would like to get some long-term institutions in, of course we would.

Do you have any message for shareholders?

MW: It's a junior exploration company, it was always going to need more money, so there was always going to be an element of dilution. One of my jobs has been to get the story out there and then to raise money at a suitable level to get people back to the float price. I always think if you get back to the float price, anything above that we're in clover, as they say. So hang on in there.

NW: The people that have sold are the people who came in at 2p in October when we raised £800,000, and they've doubled their money at least. You can never stop people profit-taking, but the hardcore people who came in at 4p pre-IPO and 6p at IPO, they're in for the longer ride and hopefully they'll see the uplift in the next quarter.