Member Info for Happyhaddock

Well all the recent talk about JV's has been focused on getting another one for our iron ore, I don't think anybody forecast the next JV news would be about ending the only one we had.

Yet another indication that junior minerals explorers are high risk high reward.

I've posted this before but it may still be relevant.

Many have predicted what our iron ore MAY do for our share price. I'd hope all agree that the numbers you get out of calculations are dependent upon those fed in.

We don't know future ore prices or how they would be normalised to allow for our specific grades. Nor do we know what it may cost to extract/ship in the future. Conflicting forecasts suggest higher and lower future iron ore prices. Most imply inflation will drive energy costs higher - hence average production costs may rise.

Assume in two years average mining/shipping costs are $150/t. For a bullish example say by then our ore fetches $300/t equating to a profit of $150/t. For a bearish case say our ore only fetches $150/t making it uneconomic to mine at $150/t production cost. A more prudent example using current prices may value our ore at $180/t and production costs at $100/t; that's a profit of $80/t.

We don't know how shared ownership with Windfield may affect the terms potential partners may want or the percentage profits we relinquish to get to production. However assume this could leave us anywhere from $75/t profit for our bullish case, down to no profit in our bearish case or $20/t for a prudent example.

I'm not suggesting estimates of in-ground tonnage of DSO are irrelevant. However if calculating share prices for a productive mine, then so long as there is still plenty of ore left in the ground to keep a mine running in future years then what counts most to a share price is the tons/year actually being extracted and sold. If we price an asset upon values of ore sitting in the ground we must use much lower prices per ton.

If for our bullish case we assume an extraction rate of 10mt/y at a profit to us of $75/t that is $750m/year. Our bearish case still generates no profit. A more prudent extraction rate of 2mt/year at $20/t profit equates to $40m/year profit.

Many will debate what constitutes a sensible P/E ratio for a miner. If for our bullish case we say miners sustain the strong P/E ratios other industries currently display, then a P/E ratio of 20 on a profit of $750m/y arrives at a $15bn contribution to our mkt cap. Our bearish case still contributes nothing. For our prudent example let's use a more cautious P/E ratio of just 10 on a $40m/y profit to arrive at $400m contribution to our mkt cap.

We don't know what the $:£ exchange rate will be at the time we are actually mining, nor how many more shares we may have issued by then. However for our bullish case assume $15bn equates to £10bn spread over 5bn shares adding £2 to our future share price. Our bearish case adds nothing to the share price. For our prudent example assume $400m equates to about £250m spread over 5bn shares contributing 5p to the share price once in production.

The point of the above is to suggest there are too many unknowns to narrowly define predictions. We can however make prudent estimates and hope to exceed them.

@smiller - as I say I'm merely trying to present the internal logic TP have used so others can follow it.

@Max - Following TP's own methods I would get the same prices you now display. However by my own reasoning I would suggest that your first figures may be more representative.

However, at the end of the day it is all estimates.

@Max11 - that part I can agree as being wrong -if you quote a 60% discount for risk than that is what you should use, similarly if you quote 245mt of ore for an upper case then that is what you should use in your calculations.

However I hope we've cleared up how TP get from our estimated tonnes of ore to the tons of pure iron they use in their calculations and why to fall in line with TP's methods I believe your own values needed to be halved.

The UFO presentation states, for example, that we have an upper case estimate of 245mt of ore at an estimated grade of of 50-63%

It doesn't say we have an upper case estimate of 245mt of pure iron. The presentation acknowledges the grade but doesn't actually calculate an equivalent weight of pure iron which is what TP go on to base a value around.

245mt of ore at 50% grade is the equivalent of 122.5 t tons of pure iron.

245mt of ore at 63% grade is the equivalent of 155 tons of pure iron.

Max - we disagreed about this previously when @smiller first raised the point so I'll copy and paste the relevant line straight from Turner Pope again.

"Several junior companies that own iron projects in Western Australia currently trade on an average market capitalisation per attributable tonne of iron [not iron ore} of £8/t."

The mkt cap of the company is effectively how the iron is valued in ground, rather than its sale price once mined which will be much higher than £8/t.

Turner Pope use half the values you quote because they credit us with a 50% grade. In other words we only have half as many attributable tonnes of iron as we have tonnes of iron ore.

I understand why you don't agree with Turner Pope's calculations as other companies with approximately similar grades to us have mkt caps of about £8/t of iron ore, rather than £8/t of attributable iron which suggests something illogical about how TP arrived at £8/t per attributable tonne of iron when I'd suggest that figure may be better placed at about £13-£14/t

However, I'm merely pointing out the internal logic and reasoning within this aspect of TP's calculations, not suggesting I actually agree with them.

@smiller - I am sure much of the reasoning will be obscure legalities that we may never know about, but I'd say it is highly indicative the wheels have been in motion for us to increase our holdings of Brockman and Hanc*ck for some time before we actually got an RNS to announce the 90% deal, and that today's announcement of the sale increases the likelihood of the 90% acquisition deal actually going ahead.

Tymers - most logical guess is that it's part of the deal for use to increase our holdings through purchasing Winfield - maybe there's some complication in buying a company that already own us?

@max111 we'd previously discussed the "anomaly" over how TP treat iron ore grades, they quote £8/t in ground value for pure iron and adjust down to half that for approx 50% grades - so following that logic the prices you quote would need halving.

However they arrive at the £8/t through comparative methods where the main example they tend to quote is valued at approx £8/t at 62% grade so I get the reason for you not wanting to half the £8/t. On that basis if we value UFO at 50% grade then that would lead to a value of approx £6.5/t and even that may not be relevant if our grades do average closer to 60%.

The selling of Winfield's holding does bring one question to mind. If it amounts to almost quarter of a billion shares and our typical trading volume of late has been 10-20million a day. Even flat out without other trades form other people that would be 10-20 days of really heavy selling that would have killed the SP.

The downward pressure has been subtle enough to dampen the price but not kill it, so would anybody care to guess when this may have been first agreed and set in motion as it is possible, maybe even probable, that it's been in play months rather than weeks?

I was beginning to doubt if there were any Python fans left out there - my faith is renewed.

and as I said I'm not he messiah but I was once accused of being a very naughty boy!

that fell on stony ground last time I said it, we'll see if anybody picks it up this time?

@picuzawinnah - should July 1st be some sort of trigger for "HH-H2" and the SP rockets then I'll look a genius through sheer luck.

As it is I'm merely expecting sentiment to start changing and things to start ticking up in the second half of the year.

If you want a left of field bold prediction then for the sake of whimsy I'll say we've heard nothing about Greenland for ages so July would be a good time for news... remember folks if it comes to pass you heard it here first. If it doesn't I'll deny everything and claim a bigger boy said it and ran away!

I think we all know that macro-economics are in the twilight zone of uncharted territory at the moment.

Everywhere you look there are huge levels of debt where insolvency is masked only by extreme and essentially free excess liquidity. That is a recipe for a huge deflationary crash.

Even the threat of such a crash has central banks and politicians in fear. Hence the huge currency printing to add to that liquidity which itself is a huge inflationary risk.

Navigating between the two is like piloting a space ship between binary stars, one gravitational pull or the other will almost certainly crash you, and if they don't you'll likely be ripped in half.

I don't think there are any safe bets left out there, but I agree that real assets like commodities are potentially the least risky "risk" at such times.

I know no more than the next man about when things might get crazy, but since the start of the year I've been telling most who have been predicting big rises "by the end of the month" that I personally don't expect to see any major changes until into the second half of 2021.

EWT98 - I know the Chinese have been fearing this sort of thing for some time - I think I even read some while I go that they changed their formal stance on raising large families so as to try and produce an even larger workforce to keep competition for jobs high and hence prices down.

By most regular measures sentiment for precious metals and minerals explorers is high right now, it 's just that compared to the "mania" for them last summer things are still calming down.

Many got so overvalued it's going to take while to shake of the ill feeling and sense of risk that comes from sentiment going down.

If you offer a kid an ice cream they get excited, give them an ice cream truck to play with they are over the moon - take the truck away again and being ONLY given two ice creams suddenly seems disappointing.

We're really doing great just now when you look at how far we've come in the last 12-18months.

If I may misquote the eminent Neil Degrasse Tyson "the markets are under no obligation to make sense"

when sentiment takes over on AIM it is not worth trying to make sense of anything. We're trading in very low volume just wait it out and the fundamentals will eventually re-assert themselves.

BB - glad you like.

it was a choice between a little light hearted and gently mocking humor or the more pompous and high brow "Speak only when your words are more meaningful than the silence they destroy."

There once was an ill mannered investor
whose anger took root and did fester
to further his greed
others he'd try to mislead
to the ire of many a protester