The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
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Thanks everyone for your consider views. Interesting thought that the other, unexplored licenses around BR may have considerable value just via their location.
Well, that livened things up a bit after ~36 hours with no messages !
In GLR and AFP Colin has clauses in projects which pay out "success" payments if further exploration meets certain targets. These deals are with Sandfire and FQ. They save on the exploration cost and risk but gives shareholders a chance to profit on success. Maybe he is thinking on the same lines with Ascot etc.
This is my take on things (and for the record I want this deal sealed at the earliest opportunity ... onwards and upwards ... !).
My understanding is that the purpose of the AA agreement, from AA's point of view, is that it gives them the uncontested opportunity to buy BR back by offering a decent/acceptable amount of cash. If XTR disputes the value offered then it goes to an independent assessment. This may recommend a higher or indeed lower price. But XTR is not compelled to go ahead with a sale to AA at this independently assessed value either.
By rejecting AA twice in this manner XTR can then take their chances on the wider open market, and I presume AA could continue their interest by participating in competitive bidding.
The general assumption is that the large miners such as AA are in dire need of copper resources to sustain their future in this area. And we are all aware how few new resources are in the pipeline.
Therefore, AA should have a very strong interest in making an attractive offer when they get their uncontested chance. Formulating an 'attractive offer' no doubt entails projecting the value of BR as a resource into the future and not shooting themselves in the foot by quibbling over week by week, month by month present movement in the spot price of copper.
If AA want to capitalise on their 'first mover' advantage they need to make it easy for XTR to accept the offer. And at the same time XTR would appreciate a simple and uncomplicated sale. However, I have no doubt that XTR is prepared to take the sale to the open market if it feels appropriate to do so. For this reason I feel XTR is in a fairly strong position.
Agree Andrew >>>I guess the balance is time v cost v profit and maybe CB thinks we are now at the "sweet spot" re those three factors?
Hi Cygnus, it is very easy to agree with what you are saying in principle. But there is a bigger picture to consider beyond bushranger. There is a large degree of supporting evidence that will propel the value of the asset beyond simply the in ground resource value. That is how I understand it, with consideration to the statement in the audited report regarding the project being high up the value curve now. It would generally mean that any further ‘risky’ exploration phases would not necessarily increase further value up that value curve based on the cost of exploration, there will also be all the contractual obligations that would go with it. Geologists, project managers drilling crews and support staff etc. It’s not just a case of carry on drilling a few/lot more holes while we wait for something that, we have no idea on what may or may not happen. There is also the time it would take, when there will be great opportunities now, in these difficult times, to pick up some prime JV’s that fall into the criteria set out by the company as they look for growth on their production side. There will be so many more now of these small deposit owners that will find it much harder to raise funds to get their projects to final production that xtract are counting on.
The company has had a big leg up with Manica coming online, it is imperative the company can now sustain that growth going forward. The proceeds of a sale now will have greater implications in the mid to long term growth.
I, as a newbie ( post BR acquisition ) can understand this, im sure the long term holders can appreciate the need for sustained growth.
Hi Cygnus - For me, the potential saving grace will an early sale is that the AA buy-back only applies to EL5574. Although that licence is home to Racecourse, Ascot, Footrot and other yet-to-be-named anomalies, we also hold three yet-to-be-drilled neighbouring licences. If, as the evidence points to, we are sitting on a multi-porphyry system similar to Cadia (just up geological the road in the same fold), then AA (or any other buyer) is obviously going to want to acquire those licences too. And the negotiation for those licences will not be subject to any buy-back terms or any code used for valuation purposes.
Racecourse may only be worth 15p currently based on a Valmin valuation... but what price Bushranger?
It is also worth remembering that they are still making large discoveries at Cadia after 30+ years. It is therefore likely that half of us currently invested in XTR will be pushing up the copper before they finish proving up what is at Bushranger. So we obviously need to draw a line at some point and just make the sale. That point, IMO, should be when there is enough evidence to convince a AA (or other) that Bushranger is indeed another Cadiaesque discovery. And CB and the team don't need to guess when that might be because they know people in AA and I would hope are having informal conversations with them to establish just that. I am therefore hopeful the decision to put up the 'for sale' sign is an informed decision - CB certainly came across as very calm and confident in the last interview. Maybe wishful thinking on my part... time will tell.
I am also not sure the current price of copper will have to negative an impact on the valuation. This is a long term play for any buyer and all the majors know where the price of copper is going in the long term.
>> Is there a link to his last interview please? Have not been following for a while, sorry.
Found it, not to worry, thanks
I agree with Cygnus in principle and with Andrew in terms of time and motivations.
Cygnus
As ever, CB's time scales may well start drifting to the right so we may not be selling in a depressed Cu price but fast rising rising POC. CB's own expectations are that Cu will be higher next year and we may not end up selling until Q3? POC should be much higher then.
If the sale is in Q2/ Q3 CB will be vey nearly 80. Maybe hes taking that into account and would be happy for another year or 2 if he was a younger man?
I guess the balance is time v cost v profit and maybe CB thinks we are now at the "sweet spot" re those three factors?
Is there a link to his last interview please? Have not been following for a while, sorry.
Colin Bird said in his last interview XTR have not reached the 2MT mark, but that doesn't mean we won't have 2MT when the final result are released, I've listened to the interview 4 times and I am convinced he is holding something back as he was so confident in what XTR have.
What ever anyone says there is no way this will be mined by XTR and most investors will want a return for there money.
Exciting times good luck everyone ??
I think the mood of this board is that most want XTR to do the deal and sell RC on to a willing bidder ASAP. I am of a different opinion and I'll set out my reasons.
I've have just retired and although I'm not short of cash and should have a confortable retirement BR could be life changing as I have a sizable holding here. The general feeling is that RC has come in a tad shy of the 2MT we all hoped for. Ascot is obviously very useful but is only partially drilled while it appears new anomalies have been found which will not be drilled, but do implied value - i.e leaving something for the customer to explore. To me XTR is a rare beast indeed. It is self financing. Most small exploration companies are in a race to find treasure before they dilute themselves into the ground. XTR could theoretically explore until the cows come home.
Now, what with the world economy going down the toilet and the price of Cu dropping we really seem to have picked a poor time to put BR on the market. My fear is that we will sell BR for the equvilent of 10 to 15 p a share when there is clearly a lot more Cu in the license area. As we as shareholder are unlieky to find many, if any, explorers in the situation that XTR find themselves just now, doesn't it make sense to ring the neck of this chicken while the opportunity exists? Yes, it means waiting a year or so more but in the current market, owning a cash generating company that is continually finding more Cu, gold, silver & moly knowing that in time it will be a screaming buy for any large miner that wants to fight over it seems a safer place for our cash.
Personally I would be willing to wait to create that wealth. So, possibly my dream situation would be for AA to turn down the offer (or CB turns down AA's offer) and have all other miners too preoccuopied with current market issues to make an offer. The sensible thing to do then would be for XTR to continue drilling Ascot and some of the new anomalies and create a resource that demands the attention of the big miners.
I may be in a minority but my dream situation seems more preferable than selling into market chaos when the Cu price is dropping and we have unexplored sources of more Cu.
I would be interested in other opinions.
Cheers howezap.
I'm thinking that Colin Bird might take his time for a while to see if the price of copper increases as this could make quite a difference to any sale price.
To others - I wouldn't worry about XTR finding a buyer for their 'world-class' asset. This isn't South America, Russia or even Africa. Australia is as good as it gets for a safe and booming jurisdiction and Australian companies like to buy big assets that lie in their own country and they are not afraid to pay a fair market value for them. Besides, who knows, if AA opt out and the For Sale sign goes up we might have another EUA style rise.
Cool, thanks for the responses.
Couple of more months to wait, could be a fat goose for Xmas, we all need it, tough times at mo and more to come
F100
" i wonder if the sp will take a hammering if they don’t make an offer?"
I doubt it as very little is priced in for Bushranger. Because of failed forward guidance and indications by CB the market wants to see delivery before it acts as its sceptical - for good reason. The advantage we have is that the sp has not got ahead of its self and all that is priced in is Fairbride and other assets - not bushranger.
That said, I can't believe we wont find a buyer. Even if its at substantial discount to what we all think. But at a higher price than current sp
I don't think they will, why would you squander the opportunity to make a fair offer for something when you may have to pay more in an open auction ?
XTR know what they have got, AA will know what they've got, they have the chance to pay a fair price and not more than the last bid which obviously would be the fair price as it's the last bid.
There won't be many companies who have that luxury when buying a world class copper play.
Indeed. There is no guarantee that AA will make an offer. I'm thinking of Newcrest Mining recently, when they decided NOT to take up their 5% further option in GGP's Haveiron gold project. Everyone was flabbergasted, but the sp spoke.
I wonder if the sp will take a hammering if they don’t make an offer? Or this will cause a more significant rise, as AA will definitely offer less than full market price
Hi ART the buy back is summarised at the end of the bushranger presentation
https://xtractresources.com/wp-content/uploads/Bushranger-Summary-Presentation_April-2020.pdf
It is generally accepted and has been suggested by Colin bird that any major will want to buy all 100% interest in the project. The 80/20% split is to give optionality to both parties.
However it is only the first 80% of the project that may be subject to third party valuation under the valmin code if both parties cannot agree on value. The remaining 20% will just be subject to negotiations between Xtr and AA, where Xtr could potentially command a higher premium.
As it is not a company buy out (xtr) shareholders will retain all their shares after a sale.
The subsidiary (Prospect Ore) that hold the license’s will be taken over where a dividend payment or a part divi and part new shares issued from the acquiring company will be transferred directly into your share trading accounts where your xtract shares are held. If you have multiple accounts, then you will receive contributions to each acc held as per shares held of course.
You will not be subject to capital gains tax outside of SiPPs or ISA until shares are sold and / or funds are transferred into your linked bank account.
Having listened to the podcast a second time I'm actually quite impressed. Why continue to drill to prove up an asset that is already big enough. That is music to my ears. Even without the answers to the questions in my last post, it is great to have a CEO who wants to monetarize the asset, and in a safe and mining-mad jurisdiction a buyer (whether AAL or another) shouldn't be too far away.
Can someone please remind me of the conditions of the Anglo American buy back in clause. In particular the % AAL would take, how the value of the asset is set, is it a cash payment, etc. And what would XTR do with their remaining % - could they still sell that or do they have to stay involved.
Cheers in advance.
A timeline is a good question, sooner rather than later perhaps, based on the potential reasoning behind the podcast. But could well be getting the wrong idea. Oct/nov was mentioned.
The one thing I would go as far to suggest is, that as AA have first right of refusal, it may well be that the market and particularly any other interested parties, will not be shown any of the modelling or conceptual study until after AA have been formally approached and a decision of their intent is made.
I don’t know, but it sounds the likely scenario to me ???
Just my opinion but I think copper is the best play out there and it would be crazy to sell this now on the cheap.
Thankyou for clearing that up somewhat everyone so what's people's thoughts on timeliness for modelling etc?
>>>correct me if I’m wrong,
Not at all, really good synopsis zero matrix.
It would have put them in a stronger position around the negotiating table to have hit the 2mt and to have declared the decision to mine together, which is a Oz term ( iceberg first noted) but as long as one of the criteria is met, that it what matters.
Certainly worth pointing out that Xtract have ‘no’ inclination or intention to mine the project themselves whatsoever, either solely or through a joint venture.
Far too big an undertaking in sheer scale and amount of finance required to even take it to feasibility let alone the 1.5 or so billion to take it to production.
What makes this a compelling investment, is the ‘high probability’ that it will be sold, as there is a very good chance Bushranger will go on to be mined, unlike the many projects that get parked up in the hope one day they will become viable.
Is in a mining nation, a friendly jurisdiction with a government that is openly supportive of big mining projects.
Within a fertile porphyry region of NSW nearby to Cadia ridgeway.
Multi mineralised, multi porphyry system similar to Cadia.
200km from main port of Sydney.
Close to the big town of Oberon
Nearby a dam with high voltage power line that cuts across the license.
No disputes over land rights in the area.
Not in an environmentally sensitive area that is likely to cause conflict with protective species.
I could easily go on…
Decision to mine, is I believe, just another mechanism that is there. So Xtr can approach AA & formally ask them if they want to activate the buy back clause.
I am sure that AA would know that a junior miner, such as Xtr would not take a project on, as big as BR will be.