Oracle Power's (LON: ORCP) share prices surge 23% as it acquires gold projects

Summary

• The AIM-listed company has bought two drill ready gold mines in Australia, which is its second international foray outside of the UK
• The company also owns a coal mine project in the Thar Desert in Pakistan
• Oracle Power’s foray into gold mining is significant as it was under pressure from the government and investors to move away from fossil fuel-based power

Shares of Oracle Power shot up by 23.3 per cent on 16 November as it announced the acquisition of two prominent gold projects. The AIM-listed small-scale natural resource company Oracle Power plc has made its second international foray by buying two nearly ready gold mining projects in Australia. These two mines -- Jundee East and the Northern Zone projects -- add significant value to the company. 

The rich reserves of these projects have generated significant shareholder interest in the company.  Further, they will help the company shift focus to a country with a relatively stable political environment. 

 There has been rising pressure on the UK-listed companies from government and investors to actively move away from coal-based power projects. Earlier, the company had acquired a coal mining project in Pakistan.

 It is worth noting that Oracle Power has not delivered any revenue since inception. While it may not be immediately possible to move away from coal projects, the mining at new gold projects should help generate its first profits.

Project details

The mines are located in western Australia, close to other large and established gold reserves. So far, the drill intercepts conducted on the mines revealed that they contain a high content of target reserves. These evaluation results put the new assets of the company among tier 1 gold mines internationally. 

The Northern Zone and Jundee East projects were purchased through a cash and equity combination deal. While £90,000 was paid in cash, Oracle Power issued 42,857,143 new ordinary shares of 0.1 pence per share each in the company’s capital towards equity. 

Additionally, warrants to subscribe 42,857,143 ordinary shares exercisable at a price of 1.1p per share for 24 months would also be issued to the vendors of the two mines. The shares shall have a lock-in period of 3 months from the date of issue. 

Britain’s go green initiative

Lately, the company’s existing line of business based out of Pakistan has been facing major issues. Oracle Power owns a coal mine in the Thar desert in Pakistan’s Sindh province where it also has a mine-mouth-power plan and an extensive setup for a fertilizer plant along with active plans for a coal-to-liquid plant. 

The projects are located in a high-security region and are expected to deliver relatively lower margins. 

Fossil fuel-based businesses are being actively discouraged by the UK and the European Union. Therefore, the company might not have a long-term future in the Thar project.  

On the other hand, the purchase of gold mines is seen as a starting point for becoming a global natural resource producer. The company also has a few projects under evaluation in Africa, which could improve the firm’s investment profile. 

The rise of gold as a commodity

Gold prices have seen a significant growth this year. Ever since the pandemic broke out, there has been a mad rush among investors to buy gold to hedge against the volatile state of markets. 

On 20 March, the gold prices were hovering around £1264.36 per ounce. On 23 March, when the lockdown was announced in the UK, the prices registered a sharp rise of 9.20 per cent. 

Since then the prices have moved up steadily and reached a peak of £1563.89 per ounce on 10 August before a correction took place. Gold prices have been in a consolidation phase since then. Performance of gold producers listed on the LSE has been more or less in line with the gold prices. 

Most companies have generated good revenue for the year despite their mining operations being adversely affected due to the pandemic.

The share price performance of Oracle power plc (LON:ORCP) over past one month

(Source: Thomson Reuters)  

On 17 November, the shares of Oracle power plc (LON:ORCP) were trading at GBX 0.65 per share (10.25 AM GMT+1), losing 1.22 per cent points over the previous day’s close.

Outlook

Oracle Power plc’s diversification into gold mining was a much-needed step for its growth and development. The existing line of business was narrow and offered little shareholders value in a shrinking industry. 

At this time, the best prospect for the company would be to divest out of coal assets at the earliest and redeploy resources into other natural ventures that are rapidly expanding. 

A diversification into renewable energy could also be a good option. This field not only offers a variety of new options, but also attracts government grants and concessions that could help stabilize the business.