RE: Cannacord Genuity reiterates 90p target4 Oct 2023 15:48
Hi Martin,
We do understand the frustration you will be feeling, this is also very much shared by us as a management team, having built up the business and value over the last 5 to 8 years to see the rapid value destruction in the market over the last 48 hours is deeply frustrating, when the underlying value in the assets is still compelling despite the requirement for the additional capital.
Construction continues to proceed apace at Araguaia with significant progress made over the last 2 quarters. All key equipment packages are now either on site or being transported to site. Mining is underway with the stockpiling activities having begun last quarter, with the run of mine build-up progressing on schedule.
However, a review of the detailed engineering and design has resulted in a number of changes in the design and execution scope which as per the release on Monday are expected to increase the overall capex requirement and delay the first production to 3Q 2024.
As per the release, HZM engaged Reta Engenharia to undertake a detailed capital costs review and whilst that work remains ongoing, the Company estimates that capital cost will increase by at least 35% against the current capex budget of US$537m.
Going forwards, we expect to publish an update in mid Q4 2023 once the capital costs review is completed and the company is working on a plan with its various financial institutions together with the cornerstone shareholders for a financing solution to complete construction. We are confident in delivering this plan and we currently don’t foresee any delays to ongoing construction.
Despite the capital cost increase and first production pushed to 3Q 2024, the Company expects Araguaia Line 1 to still deliver strong returns, with lower quartile cash cost and a mine life of 28 years. Further, the results from the Feasibility Study on Araguaia Line 2 remain on track to be published in Q4-2023 which is expected to further enhance the overall economics of Araguaia.
Additional value for the Company will also be generated as the Vermelho project is advanced through to the completion of a feasibility study.
Once again I want to re-iterate our frustration over these events and as a team we are working hard to ensure we deliver Araguaia and re build the value in the business.
Best
My reply same as others gla
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