Member Info for esduk

Currently NT to buy

Another top up from me. Well done to those who got any in the low 40's, looks like that opportunity is now gone.

Thanks flundra. You can add that to the €360m grant that European Metal Holdings received for our fellow CRMA Strategic Project from the Czech government at the end of November! It does indeed look good for us with Pulawy...

This is looking highly orchestrated to me now. Drop the SP over the last few days on little volume and let in (so far) nearly half a million in big buys at discount prices. L2 has strengthened considerably, so news on Monday or not, it looks like we have bounced hard off 40p and could have a positive afternoon.

Over 1.5m traded so far today before noon on a Friday, with £26k and £35k buys also turning up just after the two 100k buys. Not normal Jimzi... someone being let in, before they take it back up or get news?

Apologies, statutory hold period is four months, not six months in Canada.

Two 100k delayed reported buys just turned up from around 9.30am...

I'm afraid you and Strangler are slightly missing the point here. All Canadian equity raises (apart from the new Life Offerings) have a statutory hold period of 6 months, but this only applies to shares that were issued to Canadian holders (trading on the TSX-V) and not to UK investors (who trade on AIM).

A large majority of our holders are not Canadian (as demonstrated by relative trading volumes) and this lock-in period therefore didn't apply to them in the first place, so there would be little or impact of this mandatory hold period expiring.

It was also clear from the price action in the run up to the raise that some of those taking part (in the UK not Canada) were either forward selling their new shares at higher prices, or just selling some of their existing shares at higher prices, knowing that they would be receiving the new shares at 30p. This was partly responsible for the SP moving from low 40's to low 30's.

Back to 42p on bid now though, they really are moving this around all over the place this morning.

Yeh Jimzi, that happened in the one minute it took me to write my post. Back to 3p spread, so you have to do dummy trades to actually see the true bid / ask.

We certainly seem to have bounced off 40p (biffa's double bottom), with the move to 40p this morning potentially looking orchestrated (based on the lack of volume). Just had a delayed reported 50k buy turn up and and we are now back to even for the day. News on Monday would be great, but I'm not holding my breath on that. That being said, we have a good technical set up to take advantage of any news or return to positive sentiment should these arrive.

Great post JK24, and good to see us coming out at similar-ish numbers using different methodologies. There is also the potential to add on the potential further international hubs and the other four US plants as well as a bonus. But even without these, by your (potentially conservative) numbers we are talking circa 8x upside, versus little downside (as per my last post). That's a pretty asymmetric bet imo! You are right to point out the technology scaling, feedstock supply, offtake demand and SPAC listing risks, but I think these are already diminishing with every milestone we hit.

While I would obviously love for the shares to be a lot higher, my experience of this management team is that they will not be overly concerned with a c. 20% drift in share price (remember, we were at these same levels before the Q3 results came out). They tend to release news as it comes and have never really massively promoted this share through regular updates and promises, like many AIM management teams do. I have said in the past that I would prefer more promotion, while we are still on AIM and using fundraises at least, but I have accepted that this is just the way they are.

The volume we have had on this drift lower does not concern me much, we are clearly in a lull because of delays to our three major catalysts and the SP is being punished.

Am I confident that we will be higher in 3 months time, very.

Am I confident that we will be significantly higher in 6 months time, extremely.

What is the downside from here?

Even if the SPAC was not successful (I believe it will be successful) we have commercial operations in UK and Germany ramping up, a FID for Hypromag USA and potential JV's for Japan, South Korea and Canada. The numbers I shared last night show that it's possible we wouldn't need another raise in this case, other than potentially for expansion of UK / German plants if not debt / grant funded. We have a potential SPAC of Hypromag USA later this year too.

On the other hand, if we have issues ramping up UK and Germany, and have delays to US FID, but we do get the MKAR SPAC away in April / May, then this would massively underpin our SP.

So for me, I don't see the obvious downside from these levels and will continue adding from silver miner profits if we drift any lower. The value here hasn't changed, just the short term sentiment and price.

As per my earlier post, I agree with you that our shares are the same class as Cotec’s, rather than preferred shares. Their 60%+ shareholding makes them the senior party in the JV. It would be an interesting JVA document to read to understand how their responsibility for funding the business works i.e. over what term, how many plants etc. I am also interested to know how it will be adapted for the SPAC.

Apologies, I’m not saying you’re misrepresenting what JT said, as I remember him saying something along those lines. What I was trying to say is that is not in fact how shareholder loans work and JT’s initial remark in answer to a question was off the cuff, poorly worded and misrepresentative of the actual situation.

As you also set out in your original post, JT went on to say that the Cotec funding of Hypromag USA had been delivered through shareholder loans and that they would get first priority over distributable cash flow (available after debt service), and so would be paid out before general shareholder dividends. Mkango will not be paying anything back to Cotec, instead Cotec will have first priority over cashflow after debt service until its shareholder loans are paid off. My calcs suggest this should be done within the first year of nameplate operations.

The UK and German plants have the capacity to do 330 tpa with current infrastructure and machinery. The variable is how many shifts they run at the factory. If it’s one shift it’s 100-110 tpa, two shifts 200-220 tpa and three shifts up to 330 tpa. Machinery / fixed cost is the same in all cases, staffing and feedstock the biggest variable costs. If they needed to expand to 1k tpa and 700 tpa respectively there would obviously be a substantial capital outlay, although to date the UK plant has been funded through grants and the German plant has been 50% grant funded, so I’d expect we may be able to access further grants and probably some reasonable debt financing (possibly subsidised) too if we need it.

I watched that particular investor call with JT but I think this is slightly misrepresented in the first part of your post. Mkango will not actually be paying back its share of the costs of the project, although he said something along those lines off the cuff. Cotec has provided a shareholder loan (subordinated debt) to Hypromag USA and this will be treated as junior to any senior debt i.e. from EXIM, but senior to distributions to equity holders i.e. Maginito and Cotec. So Mkango won't be paying anything back to Cotec, but its receipt of dividends through Maginito is likely to be delayed when compared to a scenario where there was no shareholder loan from Cotec.

I used to work in structured finance, so have seen a lot of these kinds of arrangements. Based on the calcs the company have done for the US plant we are talking about a delay in dividends to Maginito/Mkango which may only be around a year or less (from start of commercial operations) given how high the operating margins will be for Hypromag USA. At 1k tpa profit after tax would be well over $30m at current pricing, so paying back $10-15m in shareholder loans would be very quick.

I think the afternoon sell off we have been seeing pretty regularly is potentially being driven by US / North American investors, but I don't think it has anything to do with TSX arbitrage personally, given volumes there are so low.

JK, here are my thoughts on the numbers below.

i) MKAR - pro-forma value of MKAR is $470m, with Mkango's share being $400m and CPTK's share being $70m. I think $400m is a reasonably safe assumption here given current market sentiment and peer comparisons in the US. Upside scenario $600-800m for Mkango's share, worst case scenario $200m for Mkango's share (I don't think they would go ahead with the listing below this level).

ii) Hypromag USA - think your $200m NPV per hub to Mkango is quite conservative, and I assume it was based on current rather than forecast prices. Spot prices of Neodymium have gone up about 8% since the RNS and an additional 25% tariff on Chinese magnets has since come in. The NPV is calculated using a 7% discount rate, but we should get the bulk of our financing at a discounted rate from EXIM and we have a good chance of receiving grant funding too. There are also a large number of tax breaks we can potentially access. So in reality equity returns should be much higher than stated in the latest valuation. If we take the forecast prices and don't apply any uplift from the above factors, we get 39.6% x $780m = $309m, without any of the likely value enhancers. They are designing three plants, which could be close to $1bn NPV for MKAR and JT has talked about 7 plants overall in the US.

iii) - iv) Nameplate capacity of UK and German plants is 330tpa (based on running three shifts), and the company has confirmed that they have great demand for their product and are planning to expand to 1k tpa and 700 tpa respectively. So I think using 24tpa (they mention 25tpa in the RNS) is very much on the low side and is just for the ramp up stage. I think a reasonable base assumption for this year would be 125tpa for UK and 75tpa for Germany given they will both be ramping up from 25tpa to between 100-330tpa (depending on how many shifts they run), with the UK having a head start. I think longer term, 330tpa is a pretty conservative assumption, given expansion plans for both plants. Running at nameplate capacity in the UK and Germany I get an after tax NPV for Mkango's share of $164m and $140m respectively, using the same assumptions as the US, which probably understate operating costs a bit but overstate tax substantially.

v) Yes who knows about further international expansion but I reckon you could assume plants of at least the same size and spec as the US, with similar economics. Though we should also get a better equity share deal in the JV's now as we have proven the tech, are in a better RE market and are no longer a minnow and have government interest, in which case the economics would be considerably better.

Right on queue Jimzi...