Member Info for hazrat

Zwartkops i don't for a minute think that someone is going to make an investment decision because someone they don't know has made a general comment that they hope this isn't a buy the rumour sell the news scenario. Even if someone was that stupid, i doubt their trade would be enough to change the SP in the long term. I ignore comments by people who can only highlight the positives because that shows to me that they haven't fully considered the risks. Only a balanced debate can bring out the strengths of the investment case, otherwise it is all just hot air.

You are right Tiger, they have dropped lots of hints. While they haven't disclosed forecast data, they have let us know what 270 tonnes of mixed ore and concentrate cost to mine, at what point they think the project will start generating cash and so from that you can work out what price they are assuming. Then you can play around with profit at different prices and hey presto - if they discover what we all hope they will and prices stay where they are now, this mine will be generating over �700k a month at a run rate of 500 tonnes a month.

Time running out though. I just put a dummy sell of 10,000 shares through and was offered a price of 16.22.

Almost back to my entry price which is a relief. I hope whatever news is coming meets market expectations and that this is not a buy the rumour sell the news scenario.

Revenue per tonne at current price ($13,000) = circa. $3,666 (13k x 30% x 94% for royalty) Cost of mining per tonne of concentrate at current site = circa. $1,900 (270 tonnes of ore and concentrate on the BS at year end at a total production cost of $369k. Assumed 125 tonnes is concentrate and 145 tonnes is ore. 125 tonnes of concentrate @ 50% = 250 tonnes of ore. Total ore mining = 395 tonnes. Cost per tonne of ore = $934. Therefore, @50% 1 tonne of concentrate costs $1,868 to produce. It will be a bit higher as i have only included the processing cost of 125 tonnes of ore in this so rounded up to $1,900) Gross profit per tonne = $1,766 Low Admin expenses currently at $100k per month so only requires around 56 tonnes of concentrate a month to break even . When production hits 500 tonnes per month cash generation will be almost $700k assuming an increase in admin expenses of circa. $80k per month. I reckon the company model showing a breakeven point of 250 tonnes a month is based on a RE price per tonne of $7,500 so far below the current price. This is based on admin expenses of $100k per month and so the gross profit from 250 tonnes of concentrate can only be $100k.

ha yes indeed. Easy to get carried away but political trouble looks to be brewing in Burundi with the proposed changes to the constitution.

Need to be a bit careful - 42,000 tonnes a year would be going on for 25% of the current annual global market for RE. If we dump that much on the market without demand increasing considerably (which it could), the price would drop.

Maybe, but if a deal is done directly with the buyer, such as Apple is currently looking to do with Cobalt, then the discount would be pretty small. It could also be that they pay market price or a premium to secure supply.

MinorMiner, i am inclined to agree with you that there will be interest in buying the mine once the Jorc is confirmed. The only problem with selling is that given how many veins have been discovered and the expense that would be required to prove up each one, correctly valuing the whole licence area will be difficult - the risk of undervaluing is material.

While i fully understand the logic behind the offtake agreement - guaranteeing sales, removing credit risk, reducing political risk etc. i just wish it wasn't at such a heavy price. Giving away 70% of revenue is painful and on the first 10,000 tonnes a year. However, if money can be made on the first 10,000 tonnes despite this, then if production can exceed 10,000 tonnes the upside on the additional volume is huge.

I would think that the comment because RBW does not yet have a Jorc resource estimate and so we currently don't technically have anything. It is useful for comparison because it breaks down the basket price by element at October prices. They also breakdown the mining cost per tonne and kg. They claim to have an easy to mine resource but costs are much much higher than rbw. However, 50% vs 14% so this isn't unreasonable as they have to mine almost 4 times as much ore.

See the information memorandum

Especially the financial forecasts. And this for a mine with 87k tonnes of RE and having to mine a lot more as it is 14% not 50%.

www.steenkampskraalrareearths.co.za

Comparing $ and � when estimating multiples of current value in previous message. My point is more about using the accounts to estimate the project financials.

Am i missing something? If cash admin expenses are $100k per month and the project starts to generate a positive operating cash flow at 250 tonnes of concentrate sold, then the cash generated from mining and selling 250 tonnes of concentrate must be $100k per month. At the target run rate of 6,000 tonnes per annum in 2019, the company will only generate $1.2m of cash. However, my model built based on the information in the HY report indicates the following: 1. Cost per tonne of concentrate mined and processed is $1,868 2. Price per tonne of RE = $7,500 (it is possible to reverse engineer a lot of the costs per tonne and therefore, revenue per tonne from the information provided. The key information is that 270 tonnes of mixed concentrate and RoM ore cost �369k to mine. I have assumed that 125 tonnes was concentrate and the remainder RoM because 50 tonnes were dispatched but not sold in December and 75 tonnes in January). If that price increases to $13,000 per tonne as it is now, then the company will generate $916k per month. At a 20% DF (mid year), and assuming the mine can produce 6,000 tonnes for 10 years (so no terminal value), the discounted cash flow becomes $50.5m, double the current market cap. Obviously additional exploration and CAPEX will erode this if it fails to add additional value. In a blue sky scenario where an additional $6m of investment proves a resource for and sets up the infrastructure for a mine the produces 25,000 tonnes a year for 10 years, then the DCF becomes $189m, 7.6 times the current position.

Another placing is all but guaranteed. A run rate of 250 tonnes per month is required to start generating cash which is some way off. Only $1m of the last placing was to cover working capital which will last about 6 months. The $750k raised for the current drilling programme will be exhausted by its completion. Therefore, if the results are good, the company will have to raise more cash both to fund the JORC drilling and to cover future working capital requirements. However, if the results of the current exploration are positive, then i don't see this as a problem because the placing should be at a good price. Also, if the shipping run rate can ramp up quickly now that the plant is up and running, passing 250 tonnes by a month by the end of April, then further placings may not be required.

Tiger - $1.1m cash outflow is roughly �840k which is �140k per month. I rounded down on the basis that some of this outflow was for machinery and so won't be repeated.

However, I am suprised the bar is so high for generating cash. I can't make the maths work on that if costs are only £100k per month. Either costs are going to increase materially as production ramps up or the sales price we get is even worse that the 70% discount suggests.

Still very cagey on the financials. Convenient that the first shipment wasn't actually sold until January and so no information about sales price, revenue and margins revealed. Only really useful bit of information I could see is the comment that management forecast that the mine will be cash generative when sales reaches 250 tonnes per month. As the near term target is just over 400 tonnes a month, if achieved that indicates good cash inflow potential.