Member Info for Boffin

The other key variable, though as TD2 says its not in WTI's control, is the exchange rate. When C1 costs at Tschudi fell to $3429 the exchange rate was around 16.5:1 compared to just under 12:1 today. That difference has meant something like a $1000 a tonne increase to the C1 cost. There are quite good reasons to think that the FX may well move back in our favour over the next year or so. The tightening of $ liquidity around the world by reduction in QE by central banks plus the forecast increase in interest rates is pressure pressure on BRICS type economies. That pressure looks only likely to increase in the next year or two. The ZAR has fallen from 11.4 to nearly 12 to the US$ in the past few weeks . It may not seem much but that is circa $200 per tonne decrease in the C1. Plus a well placed contact I have in Cape Town thinks that policy makers in SA wouldn't mind a 10-20% fall in the Rand. Many think that local prices for eg hotels are too high and inhibiting tourism. Local costs in agriculture for eg wine production are going through the roof because of the multi year drought decimating yields and quality and yet the exchange rate is making them relatively poor value for money vs many other southern hemisphere vintners. It will probably never be official policy but even though it has a lot of goodwill the new government is in a massive economic bind. Huge deficits in state enterprises need to be handled and yet there is little room for tax increases (although VAT has recently risen) because that will take already weak demand out of the economy, as would raising interest rates to defend the Rand. Quietly allowing a significant devaluation is probably the only option they have.

Jenny. Yes I commented on it at the time. My reasoning they didn't was the distinct possibility that it would from a strict accounting perspective have pushed WTI into a "non going concern" announcement which would have almost certainly led to share suspension and insolvency.

If Orion want to take over WTI today is a pretty good time to do so. With an existing holding of 25% they could in theory buy the rest for under �5M at the current SP. OK there would have to be some sort of premium but why wait for it to get back to 1-2p before initiating a bid? But then again why would they do it? They would in principle end up owing themselves $125M in debt and they would still need a local management team to actually run the mine. Buying it solves nothing for them, in fact it makes it even more complicated than it is already. Simpler for them to get a place back on the board once the restructure is done and hold managements feet to the fire from there.

At least Cu prices seem to be returning from the dead this morning and there are some signs that the tightening of global money supply (ie US$) is beginning to impact the ZAR exchange rate as it is already decimating the Turkish Lira. OK its just a few days move but I thought we needed something positive here!

TD2 . When Craig came on board the SP was near 1.2p, I can't recall it ever being near 12p so I suspect someone got their decimal point in the wrong place.

If it was Orion pushing him out almost certainly they would have a successor already lined up and he would be gone today. It looks like a reasonably amicable parting with time to have a constructive, well at least non destructive, transition

I don't think there is any prospect of a debt for equity swap for two obvious reasons. 1 If Orions total shareholding took them to 30% or more of the issued share capital then the LSE rules would require them to make a bid for the company. I really don't think they want the hassle of a bid and they still need a management team to run the "hands on" elements of operating a mine. Plus if it was successful they essentially end up owing themselves the $125m of debt! 2 Lets say they only a D:E swap of circa 5% to bring them up to just under the 30%bid trigger. At the current market cap that raises about �400k ie $560k . Thats not going to make much of an impression on $125M of debt.

for those who wish to ride with this a bit longer. Sell some this week and transfer to next years ISA on the 6th. At the current low price shifting a couple of million is possible.

Well I would say I for one didn't see this as negative. As I said the numbers haven't changed from those we all Knew and Orion continue to support the company on terms that seem entirely reasonable. In fact by not taking up their purchase of 700 tonnes a month at $6000 I would say they are being more than reasonable. Even though that may be tinged by a bit of enlightened self interest in not wishing to push WTI into receivership and having a $125 write down on their books. On the more positive fron we should get the latest quarterly update in about 3 weeks time which should confirm where volumes and C1 costs are at the moment. Plus some of the low price fixes fell away at the start of the quarter so we should see a higher average revenue per tonne ( although that may not be confirmed then) and thus improved cash on hand position.

Agreed there, I find Orion not using the off take option a bit odd too, but I'm not complaining. The only reason I can come up with is that Orion were worried that it may have pushed WTI into a non going concern position and thus forcing Orion to take a $125m hit onto their books. But I also find the negative market sentiment today a bit odd too. Its not as if there is anything substantially new in the financial position. If anything it shows that Orion are continuing to support WTI and can see a route through to recovery. OK its not great but its a hell of a lot better than 12 months ago.

Well the 700 tonnes a month off take option at $6000 runs out in a month so it becomes irrelevant. But yes all sales at whatever price go through Orion. I think its part of their "cash sweep" position but it also substantially frees WTI from the market trading decisions which Orion are more skilled at and better placed to undertake. I don't see it as anything sinister.

It may be that they already have significant cash in hand and should of course have more by June which would help. But yes its certainly a tight leash as I said. Lets hope it isn't a noose! I think this is all the rescheduling/restructuring we will see for a while now.

the lack of further fixes either of Cu or currency. The latter is interesting in the light of the rapidly tightening global money supply, especially of US$, as central banks slow down quantitative easing ( ie printing "free money" to enable debt to rise). Its discussed in an article in today's Telegraph business news which makes the point that this could severely hit emerging economies and the cost of their debt. Turkey, albeit for wider reasons, is already seeing its exchange rate plunge and it won't be the only one.

on a very tight leash. At least there are no new other penalties or offtake deals but the BOD's ability to spend the profits on items of their choice requires Orion's approval.

I think the issue is that 31March ie sunday is the end date one of the loan repayment tranches. They have to either pay, say it has been rolled over yet again or as we all hope a fundamental restructure has been approved. They have to say something soon. I suppose they could get away with a statement first thing Tuesday but that might look a bit desperate.

To give this Saudi project some perspective its interesting to note that the average UK electrical generation is around 35GW but obviously the installed capacity is higher to cope with peaks. I'm not quite sure what the Saudis plan to do with it all but if they plan to send it long distances that could be even more Cu.

TD2. Agree entirely. It would seem very risky to me to sell today when we know a probably positive ( we seriously hope) RNS on debt rescheduling may appear tomorrow. and push the SP to who knows what. OK you transfer the money to an ISA next week but then get only a fraction of the number of shares sold today. If the news tomorrow is good or even good+ it will be easy to sell �20k worth after lunch tomorrow after the price has recovered. Shame we didn't get the RNS today though to give it a bit more time!

My observations on the fall in Cu and exchange rate issues are substantially after the Kitumba and Berg Aukas deals will have been underway. We didn't hear about them until January but there must have been a significant period of negotiations before then which Orion will have sanctioned and will have been essentially completed before the fall in Cu and exchange rate. But just because there is a short term drop in margin and ongoing repayment pressure doesn't mean WTI isn't a going concern , at least for the foreseeable future. Orion will I believe bide their time so long as it doesn't get much worse. However it won't help the short term SP, which was the original question I was responding to. Patters the $600 per tonne estimate arises as follows. Latest c1 costs ( in round numbers) $5000 per tonne of which circa 80% is in ZAR/Nab$ ( according to BFS) ie $4000 . A 15% adverse in the exchange rate is thus and on cost of 15% of $4000 ie $600. Of course this is a broad brush estimate but it shows just how vulnerable WTI is to things over which it has no control beyond making opportunistic fixes .

Over the year the US$ has been weak against most currencies including the Euro and �. That's largely down to Trump who many don't find too impressive. But the main reason for the more recent accelerated fall against the ZAR is probably due to getting rid of Zuma and his corrupt cronies from governing South Africa and hopefully a more competent and straight set of people taking over. Can it last? Difficult to say but if the US keeps raising interest rates it will put a squeeze on. Plus if the vast pool of US corporate cash currently sitting off shore and oiling many emerging markets lending needs starts to be repatriated because of the new tax policies in the USA then exchange rates could change rapidly. Its already happening to the Turkish Lira over worries of too much $ debt vs GDP and SA whilst not as bad is well up the list of those who could be next in line if the new government there doesn't start to deliver.

Debt restructuring may help somewhat but its tonnes of Cu x margin that will pay off the debt. And margin at current Cu prices and particularly the ZAR:US$ exchange rate which are rather spoiling the picture. For most of 2017 the exchange rate was between about 13 and its peak at 14.5 in November whilst it has fallen in the past few months to as low as 11.5. Peak to peak thats over 25% but probably averages around 15%. That gives an increase in C1 costs of around $600 per tonne. If I add that to the C1 costs for the Oct-Dec quarter that means current C1 costs could well be running at $5500 per tonne! With Cu prices now down to $6500 a tonne that means the gross margin at the moment may well be down to $1000 a tonne. Which won't leave much after interest and overheads to repay the debt. OK I know in the short term we are protected to some extent by both Cu and currency fixes. However that all runs out in a few months and the market will look at the prospects for the next year or two not just the next Quarter. And yes Cu prices and exchange rates can change back in our favour but that's uncertain and the market always prices uncertainty down.