Thor Explorations [LON:THX] is doing something that a lot of firms have found difficult in the last 60 years; carving out a large-scale, commercial and modern mining business in Nigeria, a country so-heavily dominated by the oil and gas industry.
Mining used to be the country’s biggest modern industry during the colonial period and under the British colonial administration started earnestly at the beginning of the twentieth century. By the time of the Second World War, Nigeria was exporting significant amounts of tin, coal and columbite (a source of niobium used in steel fabrication).
However, a decade after the end of the war, a group of geologists from Shell D’Arcy, Shell’s [LON:SHEL], first incarnation in Nigeria were poking around in a creek in Oloibiri in Bayelsa State at the mouth of the Niger Delta, which up to that point was a quiet fishing and farming backwater, when they found the first spots of oil.
The discovery of oil
Within two years in February 1958, Shell exported its first barrel of oil. Quickly Shell was pumping 5,000 barrels of oil a day from Oloibiri and would, before the well was exhausted, increase this production to 200,000 bpd.
That first barrel changed the nature of the Nigerian economy (and arguably politics and society) and had a detrimental effect for the mining industry, which was banished to the coal shed like a ginger stepchild. After all mining is a slow, capital-intensive and time-consuming industry and isn’t built for quick money. Currently, from its prime position in the economy at the turn of the last century, mining contributes 0.3% of Nigerian gross domestic product.
But, given the way that society is moving to retire oil and its derivates as the world’s principal source of fuel, replacing it with new kids on the block – not least lithium-ion batteries – Africa’s most populous nation may well need a new principal source of income to keep its economy developing.
Thor Explorations lithium first-mover advantage
Segun Lawson, chief executive of Thor Explorations wants to be at the vanguard of that transition. Thor is already at the forefront of the Nigerian mining sector, having developed the AIM-listed miner’s Segilola Gold mine in Osun State, a territory about 120km north of Nigeria’s biggest city, Lagos.
But the company’s new ace in the hand is its potentially significant lithium concessions in Oyo, Kwara, Osun, Ogun and Ekiti states, which Lawson believes will put Thor on a pathway to becoming a leading supplier of lithium and installing Nigeria as a key player in the global lithium supply chain, something, to date, West Africa has not participated in in any meaningful way.
The lithium project will be developed under Thor subsidiary, Newstar Minerals, founded in 2022 and encompasses a 600 square kilometre exploration portfolio in south-west Nigeria. Lawson said: “Historically mining was a champion of the Nigerian economy prior to the arrival of the oil & gas industry […] today the [mining] sector is chronically underexplored and undeveloped and has significant untapped mineral potential.”
Segilola is the first modern, advanced and commercial gold mine established in Nigeria this century, and just completed its first calendar year of production, announcing in the company’s latest results for the three months to March 31st 2023, that it produced 20,629 ounces (oz) of gold with an average gold price of USD1,902/oz and an all-in sustaining cost of USD1,346/oz sold.
The company reported revenues of USD40.3m in 1Q23, up from USD24.9m from the corresponding period in 2022, with EBITDA of USD16.1m, up 20.1% on 1Q22 and net profit of USD4.3m, up from USD3.5m in the corresponding period of 2022. Over the calendar year, Thor produced 98,000oz of gold with EBITDA of USD71m and operating profit of USD40m. The company had cash-in-hand of USD4.5m at the end of March.
Operating above capacity
The Segilola operating units performed above capacity, better-than-expected, but Lawson noted that costs were at the higher end of scale because geologically the area that the miner was operating in during the period was difficult, which he hoped would reduce as the team on the ground pushes through into more easily mineable rocks. The company also uncovered a new prospective geological formation close to the main mine, where Thor has stated drilling exploration holes to assess the potential of the new formation. Lawson said: “Our main focus remains to expand and extend the gold operation at Segilola,” to continue the firm’s sustainable growth and equip it for future expansion.
Thor released production guidance of 85,000oz to 95,000oz for 2023, weighted towards the second half of the year, with an AISC guidance of USD1,150 to USD1,350/oz.
Thor, which is dual-listed on the Toronto Stock Exchange under the ticket ‘THX’ also has two other projects: seventy percent of the Douata Licence in Senegal, a 15.3 million tonne resource with inferred resources of 730,000oz and the Central Houndé Project in Burkina Faso, which given the current political climate is mothballed with no activity on the site.
Lawson is excited about the prospects of Douata, he said: “Douata is our hidden gem […] we’re generally regarded as ‘a Nigerian gold mining business,’ and in many ways [the Douata Project in] Senegal is discounted, but if this was held in another portfolio it would have a [standalone] market cap of its own.”
Drill programme to at Douata to complete by July
The Vancouver-headquartered exploration company is hoping to complete a pre-feasibility study by the end of the year. Lawson said: “…we’re hoping to have completed the drill programme [at Douata] by the end of July, before the rainy season. Then we’ll send off the results to the lab and do the desk work over the next few months with a view to presenting a PFS by the year’s end.”
The lithium project, however, could propel Thor to new levels and Lawson is confident that the company will be able to get it in motion with the resources that it has available without having to resort to raising additional capital in the market.
Huge potential for lithium in Nigeria
The miner already has a good relationship with Africa Finance Corporation, a Nigeria-based development finance bank and has support from its Chinese EPC contractor. Thor has first-mover advantage in Nigeria, having its team of geologists, mining engineers and drill rigs already on the ground in-country, and has an ongoing relationship with the Nigerian government cadastre and Lawson said: “it would be a real shame seeing we’re operating here already and someone else came in [to Nigeria] and exploited the huge potential for lithium in the country.”
Thor is carrying out initial exploration work on its tenements, seeking high grade spodumene and lepidolite mineralisation and beginning with exploration at its West Oyo Lithium Project exploring pegmatite deposits in the 38km2 area, through a 5,000-metre scout drilling program.
Thor Explorations is ‘one to watch’ this year. Its founder got to where the company is today through doing the hard yards. Training as a geologist at Imperial College and cutting his teeth in the O&G sector before segueing into banking, Lawson started off in consultancy before realising that it was as much effort getting a mining licence for another company as it was for himself secured his first mining licence in Senegal.
Legal dispute between co-owners at Segilola gold mine
Using a listed cash-shell Lawson reversed the licence and his company into Thor Exploration. Applications for licences in Burkina Faso followed. However in 2013/14 the gold price slumped and it became difficult for Thor to raise pre-production capital for Senegal and the company was forced to make tough decisions including redundancies and the immediate future looked bleak, until a Nigerian lifeline was thrown due to a legal dispute between co-owners at Segilola gold mine.
Thor stepped in, managed to quickly raise finance and bought one of the partners out and the miner was once again back on track, but on a new footing.
The company opened trading today (2nd June) at 17.15p and has offered a 15.9% year-to-date return and a -3.4% one-year return with shares ranging between 13p and 20.4p over a 52-week period. The company has a market capitalisation of GBP111m.
Nigeria has undoubtedly been blessed as well as cursed with vast natural resources. Mining has been a neglected part of the economy, despite the country being rich in mineral deposits. First-mover advantage strongly favours Thor Explorations. They are on the ground, mining product and have most of their ducks in a row and any new entrants will have a steep curve to negotiate should they come prospecting in the neighbourhood, which will eat up a lot of time, or a lot of capital – and potentially both.
Nigeria’s lithium potential is an unknown quantity, but the right rocks appear in the right places at first look, and Thor’s promise to develop what could be a vast lithium project at no risk (initially) to shareholders out of their own pocket seems like an offer of free money.
The company’s geographical and geological diversification strategy is shrewd. Segilola is banked and production should accelerate from here-on-in. With Senegal yet to come online and the potential lithium story playing out in the background, Thor could soon well be a much bigger, more profitable entity with a good news story coming out of Africa’s largest market. Nigeria does have risks, political, social and economic, as does Thor. Being the only player in the game can leave one exceptionally exposed should anything go wrong, but Thor Explorations is certainly a stock we’ll be watching closely in the coming years.
