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The April presentation set out a 12 month plan. The budget allowed for upgraded IP survey ($150k) and drilling ($200k) on the other prospects. I wonder if the limited budget for drilling the other prospects was not to scare investors, a recognition of the limits of what could be achieved in 12 months or some idea that this would add value without fully proving all the prospects.
Copper futures market still flying
I take your point re more drill holes could potentially means more dilution so in the case its maybe best to focus on racecourse. However, we should have at least £600K a month coming fcf from Fairbride + Eureka+GF+alluvials mk2 in the next 6 months, certainly by the end of the year.
If it wasnt for that additional income then I would say its a no brainer and just drill out racecourse only to get to 2mt. I would be very annoyed if the value of bushranger less racecourse was higher then racecourse alone and we end up 'giving away' most of bushranger asset to AA just because we trigger the 2mt buy-out early.
£300M to £400M is great but we may find that we have given away more value at bushranger than the value we could get from focusing on Eureka and Kalengwa . And the other Bushranger assets would be from a buy-out and do not require a long duration to build a mine as per Kalengwa and Eureka.
In addition, maybe the additional income by end of the year could enable us to progress africa projects and keep drilling other deposits at bushranger? You can do a lo with £600k fcf a month !
All speculation, and an alternative view.
So, upshot of these good discussions...... we need to spend some of that last placing working up Footrot as well... if we are to explode on the scene in a timely manner...... do the next JORC on Bushranger only but with an update to follow shortly a few months later (if Footrot proves good)
Andrew- just one more consideration as well for longer term. If AA do act and buy 80% and we option to retain and fund our 20% then the valuation methodology for that 20% changes. The money AA would pay for acquiring the 80% wouldn’t be paid unless clear intention to develop into a mine. Look at GGP, their share of the asset and value to inground gold. Becomes much more about likely npv and a discount from that rather than the usual 1%-5% range of inground value. Focus today has just been on acquisition, at what contained copper amount etc
Andrew - yep spot on what I’m getting at. All about possibilities of maximizing our upside from the licence that Bushranger and footrot sit within. It’s more academic at this time (just as frog says) hopefully though future news and comments from CB might give clues though.
It’s certainly not a criticism either of what just 2mt then being cut to 20% or 0.75% NSR would mean to Xtract, that alone would obviously be truly transformational for Xtract, especially if you consider where we were just a few months back. Nice to be so confident already looking at possibilities beyond!
Andrew. My point is there is a trade-off. If XTR want more drill holes in more prospects that costs money and potentially means more dilution. That may be a sensible strategy if those additional drill holes result in a sufficiently higher valuation from the independent expert to compensate for the dilution. Alternatively XTR could aim to reach the 2mt with as few drill holes as possible (perhaps Racecourse only) and trigger the Anglo option. Anglo has to fund 80% of further exploration costs from that point on.
If the option didn't exist I think it would make sense to prove multiple prospects before negotiating with a major. However with the pre-agreed option, it may make more sense to trigger it asap with as little dilution as possible, and get Anglo funding 80% asap.
These are all hypothetical and "high quality" issues, but interesting to consider. The assays and further drilling in this phase will be important as they will indicate how close to 2mt XTR might be able to get from Racecourse.
What we are talking about here are possible strategies, and as we all know, there are as many of them as there are moves in a game of chess.
Proving up 2m+ tonnes of Cu equivalent in the short term will be worth $300m-$400m to XTR, and as a micro- cap company why would we want to hold out for a higher price?
Once monetized Bushranger would provide ample finance to quickly progress both Eureka and Kalengwa, with Eureka offering similar value to Busheanger once additional adjoining land to our current licence has been acquired.
Bring it on, is what I say, and turn XTR into a mid cap company as quickly as possible so that we can all benefit from jam today rather than hanging around for it to go sour at some time in the future.
-Just one more possible sequence of moves in that ubiquitous game of chess...
Re your last para where you ask the question if it’s better to drill other deposits or try and get to racecourse to 2mt jorc asap. If I’ve understood Dcat correctly, he seems to have already answered that and confirmed that once we hit 2m jorc, AA can exercise the buy-out and then get all of any extra copper value in the other resources.
I assume I’ve understood Dcat correctly?
If so, we should not try and get to 2mt at racecourse but keep just below that threshold and drill footrot and prove that up before we hit 2mt at racecourse.
When AA left Zambia they relinquished the licences and it was grabbed by company called Zamsort who Arcm took a position in and ultimately took majority ownership of. There is no buy back clause/right (leaving Arcm open to negotiate with others and turn down any AA offer), however also at different stages of discovery with a small high grade deposit easily monetized, signs of potential large system, but at this time no actual large scale discovery such as racecourse.
Very different positions albeit AA potentially involved in both. Only thing I’d read over from there is part of AA process I.e. they’ll want their technical team to review all data then their deal team will either accept the terms of independent valuation, or if before 2mt offer an alternative not tied to independent valuation.
Personally I’ve held Arcm for over 4 years and knowledge gained during that time on wider copper exploration plays enough that when I saw XTR initial deal on Bushranger and the presentation on it I knew to wait for placing (1.2p) and loaded up then.
The_Frog - valid point - Thanks.
The buyout process for Racecourse is different to ARCM because under the XTR / Anglo option agreement a third party independent expert will determine the price once the 2mt is JORC'd, and Anglo just have to decide yes or no. There is no negotiation of price or transaction structure between XTR and Anglo. Anglo will clearly want to do DD but the negotiation process is more straightforward in theory.
If I was Anglo I would not be looking to buy in earlier - let XTR spend the money and bear the risk of drilling and proving up resource.
The interesting strategic question which Dcat was alluding to is: is it better for XTR to spend extra money drilling other prospects within the EL5574 licence (e.g. Footrot) to get some more value attributed to them in the independent valuation? Or is it better to get to the 2mt as quickly and cheaply as possible? The answer to that question must depend on the JORC / Valmin valuation methodology and to what extent it ascribes value to prospects beyond the JORC resource.
Interesting with regards to ARCM and Anglo as that also appears to be in relation to an ex Anglo asset.
In the event what you says happened, what would that mean for the shareholders?
The April 2020 presentation is very useful, items such as $1m to drill 4000m for example does make me chuckle when someone pops up and says we’re now be short of cash!
The £5m placing certainly gives options now to amend development plans. Size of that placing surprised me out as I thought more likely pace would be dictated by success of the legacy manica assets providing income. That’s clearly not the case now, although still need to be prudent with cash.
Question is why raise the amount we did? Either it was a matter of Colin wanting to take funding when offered or a matter of striking whilst the irons hot i.e. with the excitement on the project accelerate plans.
No doubt makes sense to get a more basic understanding of what is at racecourse first (not necessarily drill out entirely, then plan after. Hopefully updated plans and insight into strategy will follow in the coming month or two.
We've been over this before but I think it's an interesting and important conversation to have, especially clarifying CB's intentions in the near future.
From the Bushranger Presentation on the company website, it states the 12 month objectives:
1. Confirm potential for 200-300 Mt Mineral Resources. I think that's why Colin under impressed a lot of us during a conversation with Zak 3-4 weeks ago when he talked about only doubling or trebling resources.
2. Discover additional mineralised porphyry systems in close proximity to existing mineralisation. I believe this would start with Racecourse North, then move onto Footrot.
There is further information as to how they intend to do this: More detailed IP survey, then drilling to test certain targets.
3. Advance understanding of adjacent ELs.
This was a 12 month plan drawn up in April 2020. Obviously Covid has put paid to meeting all of these targets but I do feel number 3 has been put on the back burner. I think CB intends to do the IP survey, especially in EL5574 and hopefully using funds from Eureka or Manica, he can do drills on targets analysed from the survey.
On a side note, I have written before about how frustrating it is that people and CB in particular seem to interchange Racecourse and Bushranger and don't differentiate between the two. I also, like Dcat, would like some clarification about CB's intentions for exploring further prospects but I don't think it will be until after we have completed the drill programme at Racecourse.
Andrew - the buy back is undoubtedly over the whole EL5574 licence (its a defined area for starters, which racecourse happens to be in and has only current jorc) so after 2mt of AA exercise their right then they benefit more from any copper over 2mt, whereas if we drill and don’t jorc until much later we get the benefit of that 80% uplift.
It’s where our best interest and AAs are clearly different and probably the crux of icebergs thoughts on amend deal before so pace of exploration can be increased, whilst still giving Xtract good uplift to anything priced up later.
Questions that would be good to hear from Colin are
1) is he considering deploying another drill to test the other targets?
2) do AA geologists have access to our drill data/will they be given access to our drill assays as and when they come in? This matters as their own technical team will need to review the data and provide input to AAs commercial team.
At another play AA are in discussions (Arcm) their technical team were given 6months for a review in the form of exclusivity deal, then upto another 6months for the deal team to negotiate. Believe 6months was how long GGP gave newmont when they looked at them number of years back. Point being talks can take time and we’re also not sure how long AA have to consider within the buy back option or if we could for example drill footrot or other targets during this window.
Have a look at the suceess payments GLR have attached to the sale of the KCB licences. It ocurred to me today that if Racecourse gets proved to 2m tonnes cu then the whole licence could be sold for the value of Racecourse plus a success payment based on drilling the other prospects. It's all pie in the sky at the moment but it is interesting to speculate on the outcomes..
In the past there has been some debate whether the AA buy-back agreement covers just racecourse or all of the licence EL5574.
I think the wording in the agreement is, possibly, a little confusing. It states.
Anglo Buy-Back Option To Monetise Project Value
Racecourse Deposit - EL 5574 1.
EL5574 was purchased 100% by ProspectOre from Anglo American (“AA”) via a Sale and Purchase Agreement 2.
AA have a “buy-back” opportunity, giving ProspectOre a mechanism to monetise exploration success:
If the agreement was for all of the licence EL5574, then why specifically reference racecourse in the title heading? Why not just state the licence only?
If the buy-back clause does cover all other deposits under EL5574 licence, then it could be that this buy-back only applies when each individual deposit within EL5574 hits the threshold of 2mt contained Cu Eq?
The reason why I think the buy-back agreement wont need to be exercised for all the licence (if racecourse gets to 2mt) is because it will be impossible to value the whole licence and other deposits, without drilling. By the time we hit 2mt at racecourse, I doubt any or much drilling will have been done at say footrot, or the other deposits. Footrot could be worth the same as racecourse..... or nothing.
AA will surely want to wait before giving other deposits a value?
But are AA, or indeed Xtract really going to want to wait until all the deposits have been drilled extensively before a buy-back takes place?
So my gut feeling is that if / when racecourse gets to 2mt, this deposit will only be valued re buy-out and the other deposits will only be valued on a case by case basis IF they get to same 2mt threshold?
Obviously that’s assuming the other deposits are within this buy-back agreement and it is possible they are not and it is just racecourse – hence the reason for only racecourse being referenced in the subject heading of the agreement.
My best guess is that this agreement does apply to all of the licence, but AA may only need to exercise the buy-back agreement on a case by case basis for each deposit as and when they hit 2mt threshold.
Of course I may be wrong.
It’s quite possible. If AA are keen they’d want to expedite progress for sure. As with any deal possibility just have to keep an open mind as both parties will have own views on how they would like to monetize and preferred way to do so. They’ll be compromise from both and it’s definitely in our advantage to have a keen major on board and not to say cut our noses off by being unreasonable in discussions. One thing for sure is the pie seems to getting big enough for both parties to do very very well.
There is a deficit of copper world wide, no one was exploring for it due to its low sale value. Miners now want proven reserves, right time right place right metal for us. Win win win
The other option is to hopefully drill Racecourse to prove 2 million tonnes of contained copper and negotiate JV or sale with a success payment clause for the other prospects. CB negotiated a success payment in the sale of the GLR KCB licences to Sandfire. The big question is are AA In need of additional resource at the moment.
This is just an opinion, my guess would be a renegotiation of the agreement...AA steps in and earns 60% for funding the project and a xxm payment, to a mine decision..after that time AA has to buy a further 20% at market value taking it there share to 80%.
It does mean we give up 60% but it also means it's developed very quickly at no cost... This is obviously just for bushranger and xtr can explore further on the licneses.
AAs right is to acquire 80% of the deposit at fair market value. After that further development costs are dealt with pro-rata or we can elect to move to 0.75% net smelter royalty.
Those further development costs would include considerable infill drilling, potentially drilling of other targets within the licence, economics studies, permitting costs, economic studies and equity portion of any mine build financing.
Agreement could be made for Anglo to purchase 100% of mutually agreed by both parties, their right is for 80% that doesn’t mean terms can’t be agreed for 100%. How deposit would be acquired hasn’t been mentioned, however with a £37b MC and H2 2029 EBITDA of over $6b Anglo aren’t exactly short of funds...
If not 100% it’s for CB to decide if he wants is to be in for the long term, ensuring we always have funds to pay out portion of costs which has risks with AA then being project leader and dictating development speed of the project. Or to take the NSR option which whilst probably less beneficial in the long term would provide some more certainty and less risk.
If we sell 80% or 100% to AA then it’s upto Xtract what they do with the money. Return to shareholders via special dividend in part (less likely whole), or use the cash elsewhere.
There is no point bringing AA in before 2mt, unless there is a fundamental change to the buy back right. Nor is any other major or mid tier likely to get involved unless AA decide not to take up the buy back upon a jorc of 2mt contained copper being achieved or decision to mine made. They get just one opportunity to make that decision..
IF Racecourse is as good as it currently looks and the licence has additional prospects that also look very promising then it doesn't appear to be obtaining best value for shareholders to sell the licence with only one prospect drilled. Even IF Racecourse is greater than 2 million tonnes of copper equivalent then other prospects in the vicinity if proven, seem bound to add value, not only to the licence but to Racecourse itself. This would suggest that even if splitting the licence was possible it probably would be more valuable kept in tact.
Is there anything that dictates a need for rapid progress? Obviously we would all like our jam today and I think Colin would also like to have plenty of time to bask in the glory of a major discovery but I'm not sure there are any significant drivers for a rapid rate of progress.