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Irish charm: Connemara Mining plc

Wednesday, June 04, 2008

John Teeling knows a thing or two about risk. For the last 25 years he’s backed oil and mining companies in some of the most hostile and politically sensitive regions in the world.

So the irony isn’t lost on him that despite digging for gold in the likes of Zimbabwe and Iran and drilling for oil in Iraq, one of his biggest discoveries to date is about half an hour down the road from his office in Dublin.

For the affable Irish serial entrepreneur, a zinc find around five years ago on his own doorstep marked something of a homecoming. This week, Connemara Mining plc – the company that holds that find – announced another positive set of drill testing results. And Teeling is clear on what he thinks is under the ground on the company’s Limerick licence.

“The chances of a commercial zinc mine in Limerick are now odds on,” he says. “There are two companies down there – Connemara and Minco plc, which has a discovery about 1km away. You’re looking at a 60, 70, 80pc chance of a commercial discovery somewhere there. The Connemara one could be 30 or 40pc at this stage from just two holes drilled. That’s as good as you get in mining.”

Originally an academic, Teeling cut his teeth crunching numbers for a zinc smelter back in the early 1970s. Harvard trained and the only person in Ireland at the time that could get his head around discounted cashflows, it was there that Teeling developed an affection for mining and resources.

By the early 1980s he was setting up small companies in a move to capitalise on high risk / high reward opportunities anywhere he saw them. Today he heads recognised AIM-listed companies including Pan Andean Resources plc, Petrel Resources plc, African Diamonds plc, West African Diamonds plc, Persian Gold plc and the latest, Connemara Mining.

In the past he’s played a hand in establishing Kenmare Resources plc, now on London’s Official List and Arcon International Resources plc, which was taken over by TSX-listed Lundin Mining Corp. Another, Ovoca Gold plc, is still on AIM, as is Minco plc and African Gold, now called Mwana Africa plc.

Easy sell

While Connemara’s operations in Ireland are a world away from digging in the sands of the Iranian desert, the risk / reward speculation is exactly the same. On the back of a recommendation by a consulting geologist five years ago, Teeling began picking up licences around the Emerald Isle after resurrecting the name of an ancient Irish mining firm – Connemara.

“What’s happened in Limerick is very peculiar. Our geologist came up with the idea that we should look for zinc in Ireland – and that was an easy sell to me because I’ve been in and out of it all my life. He said we should look close to existing discoveries in Limerick, which made complete sense, and that we should start to take ground close to discoveries in the rest of Ireland. So in other words we would be looking for look-a-likes.

“Now there’s a great rule in mining that the best place to find a mine is where there is a mine or was a mine. The ancients knew what they were doing, but sometimes they didn’t do it well enough. So you go to where there is a mine or was a mine and you look next door.”

But with a collection of licences under its arm, it wasn’t until a chance meeting with Canadian zinc miner Teck Cominco that things moved any further for Connemara.

“They are a superb company,” Teeling says. “We were sitting in the office drinking tea and talking about gold in Ghana, of all things. I showed them the plans and we did a deal on the spot – Can$3m for 75pc, and that was that.”

Two years later Teck Cominco started drilling and the fourth hole got the discovery they were after. “And that’s a very big discovery,” he says.

Further finds, including one at Lisheen were also a surprise, serving up what Teeling calls lower grade “indicator” mineralisation. “That says there’s something somewhere and we have to go off following it,” he says. “But the Limerick hole is a real genuine discovery - 30pc zinc is good by world standards.

“Now mining is always odds against and two holes don’t make a mine, but the probability of a discovery there would have come down from 100/1 to maybe 3/1.”

Zinc in Ireland

But why get excited about a zinc mine in Ireland? “Ireland is the third or fourth biggest zinc producer in the world,” Teeling says. “Irish zinc mines are always big – they’re all 20m tonnes plus, whereas zinc mines in, say, Mexico would be 2 or 3 million tonnes. It’s the nature of the geology.

“In terms of regulation Ireland is good because it’s a zinc province so everyone knows what you’re talking about. Second, the rules are very clear for licences, so your title is good. Commercial terms are very strong with no state participation and good tax rates of 25pc.

“What’s wrong with it is that it’s an expensive country. Ireland is high cost for operational expenditure and capex. Likewise, there are strict and strong environmental controls, which you don’t mind, but that adds to your capex.”

Staying with costs, Teeling also has issues with the regulations and costs connected with London’s AIM market, but acknowledges that chairing six companies on the junior market leaves him open to criticism.

“I’m very much a fan of AIM. I was a member of AIM’s grandfather – what was then known as Rule 163 and then after that USM and then AIM.

“The first problem with running a group of six companies on AIM is that it’s very costly. Originally, an AIM listing might have cost you £50,000 per year now you’re looking at close to £200,000 per year.

“The second negative – that I could be accused of – is a lack of focus. I believe I can roll from one to the other but others may say there’s a lack of focus. Third, is the perception that you are spread too thinly. That is definitely a weakness although we add management teams as we need them.”

As far as Connemara is concerned, current overheads are low, with Teck Cominco currently doing all the financial running. With test drilling turning out promising results Teeling is clear that the next stage will be to hire a CEO to manage projects and introduce investors.

Returning to AIM, Teeling raises concerns over the burgeoning rulebook governing the market. His gripe concerns what he sees as a gradual tightening of the rules combined with increased costs. He believes the market’s remit to promote small, entrepreneurial businesses in all sectors has been diluted.

“I think AIM was exceptional but is now becoming sclerotic and bureaucratic and is not as good as it was. I think you will see another market opening up in the near future.

“AIM was set up as a market for young companies that would need capital for what was going to be more speculative than the Main Market, such it needed lighter regulation. What’s happening now, and like any organisation, is that it’s becoming middle-aged and that means more regulation. And more regulation means more cost. The two things that upset start up companies are regulation and cost.

“If you see an RNS announcement we issue now – it goes through the Nomad who then gives it to a technical advisor, and then it needs to have your competent person to approve it and then each director must approve it. It’s becoming bureaucratic and that’s a bad thing. Start up companies need a looser market and one which will attract speculative investors.”

Ben Hobson, SmallCapNews.co.uk