Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
I also hold, it is one of my bigger positions - great fundamentals + technically strong mgmt - only issue is lack of investor marketing - this company could be trading 2-3x higher if they marketed it more widely, had a Twitter IR channel etc
TigerBytheTail -
Another very important point:
Impala bought 15% in Waterberg in late 2017 for $30m (=$190m for the whole thing) - when Pd price was $700 / oz - Rh was lower than Pd today.
That's basically betting on long-term appreciation of metal - hardly any margin at those price levels. Basket price is radically different today - and in an M&A scenario that 15% is worth way more than $30m (even tho PGM's mcap is $100m) - i think it is safe to say it is at least 2-3x more valuable in an M&A scenario than in 2017 (= prob worth $500m+ in an M&A scenario).
Taking PGM as a comp - this would suggest MT shld be valued much much higher than any of your estimates.
TigerBytheTail -
1. Re building a mine - key difference is open pit vs underground. Things about health problems etc - are these not applicable to South Africa too and more of a sector issue?
2. Speaking of capital - maybe 15 years ago yes - however in current environment South Africa is really not looking good on many levels (junk status, physical security issues which are huge, possibly more downgrades in the pipeline, massive budget deficit, very high debt loan - in a few years you could be looking at a Sovereign default), while Russia's financial position is stable. Check out the rates Russian corporates are able to finance themselves at - seeing a lot of 5-7% (in RUB) cost of capital and cheaper in USD for those able to access the USD market. That's not to say Russia is the perfect place from capital access / issues mentioned in point 1, and legal possession - however big miners operate in the country relatively smoothly. Besides - if the asset gets acquired by large miner - they can always call up RDIF to take a stake to alleviate a lot of the 'Russia risk'
You're talking as if we are comparing Nevada and Congo - in my view question of 'which is easier to deal with' comes down to expertise of the individuals. For someone/company who has worked their whole career in South Africa and knows nothing about Russia except that it's cold and there's a lot of bears - South Africa would most certainly be the preferred location. For someone with experience / connections / a real link to Russia - there have been a lot of successful investments in Russia despite certain challenges in the country.
3. I don't know enough to comment
4. No one is saying it is a slam dunk with flanks - but there is a strong possibility there is substantial value in them
We entered suspension in a very different world - Pd was @ 3k, physical metal deficit was massive - now we are dealing with an unprecedented global crisis, riots in the US - and a very high level of general uncertainty and negativity. Pd price remains solid @ 2k (good chance to head back to 3k once this all blows over) - let's see how the company wait out all these global crises in suspension and hopefully overcome the challenges. Medium-term fundamentals remain (very) solid.
While we are debating valuation, what is your view of WK?
Why valuation of PGM Waterberg ($100m mcap of PGM) shldn't be used as a 100% base for EUA:
- High capex: per DFS project capex is over $1bn
- Higher cost: $767 / oz cost vs $300-400 in MT
- Start of production: 2024 - underground pit is harder to build vs open pit MT
- Country risk: South Africa is junk-rated, obtaining capital is hard. Electricity cuts are regular. Security situation is very bad - mine attacks are very common, the murder rate is one of the highest in the world. South Africa has intense affirmative action regulations which are cumbersome. Capital controls, strikes. Not a single one of these factors is an issue in Russia.
- Post tax IRR per DFS of only 20%
- EUA has no need to build own concentrator and can rely on NN's Severonickel facility nearby -- another capex cut
- Covid risk: EUA's mine is open pit easier social distancing. WK has started to produce when South African mines have been shut / semi operational since covid began
Also EUA has WK which is producing + generating CF + low cost open pit
--> EUA should trade at a significant premium vs PGM
'South Africa better than Russia' - that's absolutely ridiculous
Russia is a much much better place to do business + safe and secure
Also huge cost advantage in Russia - at least 2x cheaper to mine + open pit - not covid-prone
Hence a floor of several hundred $mln for MT even ex flanks
This stock is one of my long term holds, I expect it to go to 100p by year end, and 200p within 2 years
- Cash generation is around 1/6th of market cap per quarter
- Rh and Pd prices are likely to go back to pre-covid levels by year-end
- Very low cost base
- No debt
- Potential upside from Volspruit monetization
However, I wish the management were more public with their marketing / investor relations efforts! Stock would double!
like get a twitter or something, install more solar / other temp power sources so that investors aren't concerned about the power custs
Great post Ian.
Very good points on going private. If they had wanted to go private, they'd have done it a while back - they don't need retail cash from AIM investors to operation - and they could've bought out the minority shareholders earlier without their shares being expensive as they are now.
it increases the incentive for Russia / Russian govt-backed banks to organize a deal on this and fast-track to development
More mineral extraction taxes + more jobs + export USD non-oil revenue. Dominant position in global Palladium supply especially given how South Africa is doing.