Member Info for Jiving

Delayed from 8.23 today = 302k @ 8.13

Well nibj, part of me wants there to be a done deal, & lets face it many of us (myself included) have been thinking there has been a done deal for at least a year - not least because of the RNS aiming to obtain a strategic investor by end Q1 2024. But we also surely want the best deal, ie the one that gives us the highest price, and that always comes from competitive bids.

In our circumstances we needed to de-risk the project - crucially by obtaining the power & port MOU's - before we agree final terms with a strategic investor. Because de-risking the project opens it up to more competing bidders than a project without those critical MOU's. Marty made his May/June trip to maximise investor interest & that potentially set us up for multiple bidders once the critical port MOU came in - ideally thats how we maximise value - after - the critical de-risking has taken place. There are a number of matters still not public - for example the optimisation study follow up that Shaun mentioned on 24 December - that we & third parties still await. But as you say 'who knows' and I will happily take whatever deal Elphick/Glencore have negotiated.

ATG thats my take as well. When AT emphasised the port announcement de-risked the project, I took that to mean de-risked from the perspective of some/all potential strategic investors. We know Marty presented to some 5-6 potential strategics in his 2024FS marketing trip, it is quite possible some expressed conditional interest - ie deliver the port MOU (as we already have power MOU) & then we talk price/terms. So with that now in place we maximise the number of interested potential strategic bidders.

We may well shorty get further announcements on: 2024FS pelletisation update (v important for steel companies); power now we have port update; others? - in an effort to build momentum & force interested parties to show their hand & submit their bids.

Looks very likely we will clear the 7p's today & into the 8p's. Then Monday/Tuesday work through 8p's & 9p's.

Not crazy to think 10p-ish by New Year - pretty much a re-run of last Xmas/NY.

Good point Shaun, it's possible one of our early New Year announcements could be a positive revision to the already stunning 2024 FS figures including IRR & NPV's.

Watching yesterdays trading closely (like others I am sure) it looked to me as if one or more large buyers were carefully accumulating probably via a broker/dealer. The first sign of serious accumulation was around 9.45 with the 578k @ 7.48 - the full offer price at the time. After that the large trades came in well under the full offer, as if the loose holders in the high 6's & low 7's were being systematically shaken out. Only in the last 30 odd minutes did we break above 7.50. It will be interesting to see if today & Friday, a similar pattern occurs with the high 7's & low 8's being taken out. If they are, we could be in line for adzeds 10p target by New Year - a replay of last year where we briefly traded above 10p on the last day, the 29 December.

"Looks to be something one might set up for friends and insiders."

Like Guava & Garbet/Strata?

All those figures make sense Extrader.

1. I always play cautious & give a range of likely NPV based ‘sales’ to strategic investor. So I would also work on a basis of a sale of 50% of Stage 1 at a @50% discount to Stage 1 NPV which gives a significantly lower special divi. Actually due to the port de-risking & the implications of the Nippon/Champion deal I am increasingly thinking a buy-in/buyout price is going to be closer to 100% NPV than 50% NPV….

2. Small point, on share count I always work on a fully diluted basis including all outstanding option/warrants. I believe we still have just north of 7m options outstanding and I use 683m as my fully diluted share count. Incidentally, in another post you mentioned we must be running low on funding, indeed we are on fumes. An interesting play by someone as canny as Elphick would be to persuade some of the option holders to exercise early - i.e. the local manager has 3m at 7.5p that would be an inflow to ZIOC of GBP225,000. (Of course with current share price not a great deal for him…)

3. Thats an interesting point on the free carry. In some respects it’s worse than a 10% dilution, the existing shareholders will have to pay 100% of Stage 1, once complete we should assume RoC will exercise their option & henceforth will own 10% & receive 10% of any distributed profits. Its analogous to the fully diluted share capital point above, and as a simple material fact they will definitely lose 10% of the share capital - just before profits flow!

4.I have always thought Elphick (now age 64) & Glencore want a full exit & have been manoeuvring towards that end. Likewise I think its highly likely any strategic investor (s) will want 100% ownership & control immediately; & not want any minority investors hanging around just to secure a bigger payout in the future.

Always, I have always thought the Saudis were likely the lead contender to be our core strategic investor, and that negotiations/haggling have been ongoing for some 2 years. However, my hunch is that any delayed announcement is not because the Saudis are waiting for final 'boxes to be ticked' (esp given they likely had AD ports as their port solution) but because they are still haggling over price. But, I think its highly likely other competing strategic investors may indeed have been waiting for 'boxes to be ticked' & those boxes were finding/naming actual, real (not theoretical) providers of port & power solutions to be signed up in MOUs. Once the project was de-risked with those MOU's, the pool of potential strategic investors increases significantly & sets the scene for a de-facto bidding contest. This is why the Nippon Steel JV with Champion Iron is so important - a steel producer is buying into a pre-development project and committing to part financing Stage 1, because they have no alternative.

Here is another telling quote from the Nippon Steel MD who dubs the JV ore deal a "critical strategic advantage". This has been my contention for some time, given the dire state of supply of high quality ore, all potential green steel producers have to obtain high quality iron ore offtake BEFORE they start building all their new v expensive plant & infrastructure. Essentially you cant have a green steel industry without securing a guaranteed source of high quality iron ore.

"Securing the supply of direct reduction quality iron ore is a critical strategic advantage for Nippon as we pursue our transition to reduce emissions in steelmaking. Kami benefits from one of the best resources and is one of the most advanced direct reduction quality iron ore projects globally," Nippon Steel's Managing Executive Office Ryuichi Nagai said."

As a sign of how far behind Zanaga, the Kami project is, it turns out they won't even have a feasibility study until mid 2026;

"The funds will support permitting a definitive feasibility study (DFS) expected by mid-2026, and eventual construction costs."

https://www.investing.com/news/stock-market-news/champion-iron-jumps-on-deal-with-nippon-steel-sojitz-to-develop-kami-project-3780890

The Saudis have already flagged hydrogen driven green steel as one of their key future industries. They recently expanded their JV with Baosteel to increase future production. They will have the world's cheapest solar power which will drive the lowest cost hydrogen BUT they lack the high grade iron ore needed as the essential feedstock. Now other future green steel makers are investing in greenfield projects - and note this Kami project is at a less developed stage than our own: still to produce a Feasibility Study.

There are simply no other high quality iron ore mines in the world at our stage of development - the Saudis & others need to act quickly or we will be snapped up. Now we have de-risked the critical power & port infrastructure we potentially could face our dream scenario - competing bids from serious global players.

More specifically linking the purchase to future hydrogen based green steel production:

"The Tokyo-based company is developing steel manufacturing technologies using hydrogen for net zero carbon emissions. It aims to secure high-quality iron ore stably over the long term through the project.'

https://www.japantimes.co.jp/business/2024/12/19/nippon-steel-iron-mine-canada/

A very notable deal from our perspective. A leading global steelmaker - Nippon Steel - has just purchased a key stake in a greenfield 67.5% iron ore mine in Canada, specifically for future DRI. The project is at pre-feasibility stage, yet they have not only committed to buy a minority JV stake, but also once it has a satisfactory FS, to pay proportionate development costs for Stage 1 & beyond.

Salient points:

Greenfield Development. We have a leading steelmaker entering as minority partner in the JV & committing to paying proportionate development costs going forward. Nippon Steel normally enter brownfield developments in iron ore & coking coal for hedging purposes, this is the first time I have seen them go greenfield. They have to go into greenfield given the lack of existing brownfield mines to secure offtake for their green steel future plans.

Glencore connections. Glencore is also involved with Champion Iron having bought a convertible from the company some time ago & also entered into offtake arrangements with them on another development. Nippon Steel joined with Glencore in the purchase of Teck’s coking coal interests a year ago.

Basic Figures. Nowhere near as attractive as Zanaga (except its in Canada!). Aiming for 9m tonnes pa of 67.5%. CapEx C$3.8b = US$2.64b; NPV C$541m; IRR9.8% in scenario 1 or NPV C$2.2b & IRR 14.8% in a second higher ore price scenario 2.

Marty. In his 2024FS marketing trip in May-June 2024, Marty included Japan in his itinerary. Maintaining a flourishing steel industry is a key strategic aim of Japan Inc. Nippon Steel is not the only big Japanese steel producer....

““Iron ore to be produced at Kami will be used for hot briquetted iron (HBI), not as conventional iron ore for blast furnaces… so this is an investment for future production,” Shingo Nakamura, a senior executive at Nippon Steel, told reporters in Tokyo.”

https://www.mining.com/web/nippon-steel-sojitz-to-take-49-stake-in-champion-irons-project-in-canada/

https://newsroom.championiron.com/2024-12-18-CHAMPION-IRON-ANNOUNCES-A-PARTNERSHIP-WITH-NIPPON-STEEL-AND-SOJITZ-TO-ADVANCE-THE-FEASIBILITY-ASSESSMENT-AND-POTENTIAL-DEVELOPMENT-OF-THE-KAMI-PROJECT

After 15 years as a listed company the company has finally indicated we are on the brink of obtaining the critical strategic investor who will either finance Stage 1 of the project or negotiate a 100% buyout. The implied multiple from today's price could/should be stunning.

Andrew Trahar has gone on record (Proactive 14.12.24) that there will be a series of announcements in early 2025, each one of which is likely to propel the share price to ever higher levels - essentially creating a laddered effect. From t’horses mouth: “But we now have a string of announcements planned for the early part of next year that we are going to be hitting milestones on and getting into the public domain for our shareholders.”

What happened at the end of last year is likely to be repeated in the last few trading days of 2024 - particular with the same Saudi conference coming in mid January - namely a scramble to get shares before the 2025 investors get on board & before the first promised announcement.

Given it is 'highly' likely some 75% are in the hands of Glencore/Elphick/ex-Garbet syndicate/management, at a maximum that leaves under 25% in the market. But an awful lot of those remaining 25% are concentrated in the hands of longstanding LTH: we have at least two posters with over 1% & a far higher number with 1m+ - who are all awaiting buyout/buy-in news & wont be selling until then. So the actual available liquidity is far lower - in single figure % I would guess.

Hi Extrader

The RoC 10% interest mean we have to use a 0.9 deflator on our NPV share price predictions. This is the effect on mine:

Based on a weighted Stage 1 NPV 50% + Stage 2 NPV 50%

At 100% NPV originally = 636p now 572p

At 50% NPV originally = 318p now 286p

RoC also receive a 3% Royalty payment from the Zanaga mine. However this is normally incorporated into 'costs' in Feasibility Studies & is therefore usually incorporated into the stated NPV figures. This was certainly the case with the 2014FS and whilst we have been given no breakdown for the 2024FS it seems likely to have been compiled on the same basis.

Mauritius used to have one of the easiest regimes for non-disclosure of underlying shareholders in their corporate structures. That changed recently but for a long time it was the primary rationale for choosing it vs BVI & Cayman.

Nibj. My take is we have essentially been put back one calendar year. End 2023 we were given end Q1 2024 for port & strategic investor news - that didn't happen but the two announcements were interestingly placed together on the time scale - and now in Dec 2024 we have the key port news.

This time last year many were expecting the port to be the AD Port option that had been widely publicised, many also tied that in with Saudi/UAE emerging as our core strategic investors (& perhaps AD Ports acted as effectively a block on competing strategic investors??). Now we have ('independent') Aspire as our port operator, possibly we are now essentially open to all bidders regarding our eventual strategic investors - ie the dream scenario from shareholders perspective & likely worth a one year wait?

Interesting Chat GPT response, largely confirming my hunch that Jumelles rather than MPD would be the likely entry entity for a new strategic. You would want to keep as many ownership, organisation & financial matters offshore vs onshore & out of the reach of local players.

It would be interesting to see Chat GPT's response to the advantages/disadvantages of a strategic investor investing via Jumelles vs MPD Congo. My hunch is they wanted to put a non-Congolese company between the owners & the Congolese license holding entity. This would allow for relatively easy transfers of interest & also keep Congolese courts & 'others' out of ownership & indeed management matters. If that were the case it strikes me as v likely any new strategic investor would want a similar arrangement.

Couple of points on MMs Stage 1 buy-in.

1. This of course is a standard mining buy-in structure & was used by Xstrata when they initially bought in 2010 (albeit to finance the drilling programme rather than Stage 1). Xstrata bought in via the Jumelles entity - is there any reason a strategic investor would not wish to do likewise? Perhaps there are tax/security behind that decision & structure.

2. On the funding of the Stage 1 CapEx. This would inevitably be primarily financed by project (ie debt) finance. Edison in its last 2014 ZIOC report estimated that project finance would contribute some 60-70% of the Stage1 CapEx, leaving only some 30-40% to be funded by the mine owners. On that basis it implies a $582-776m 'equity' contribution from strategic/ZIOC. Making ZIOC's 50%: $291-388m, so even allowing for a necessary cash reserve etc, there would be considerably more funds for a special dividend than if they had to fund 50% of 'all' of Stage1 CapEx expenditure.

There has been an understandable debate about the relationship any eventual buyout (or buy-in) price will have between the bombed out share price & the high theoretical NPV. For 99% of listed companies with a ‘normal’ shareholding structure the share price will have a strong influence on the buyout price & it would be extremely rare to see a multiple over say 5x. But crucially this really only applies to companies where the outstanding shares are predominantly retail/institutional investors & not concentrated with a few large holders. As our shareholding structure is extremely highly concentrated there is essentially no capping of any buyout price: it can be whatever price is obtained by Glencore/Elphick & will be based solely on the NPV.

Expanding on Extrader’s post. Any market based takeover is typically trying to achieve one of 3 outcomes:

1. Obtain 50%+1 = majority ownership & control of BOD

2. Obtain 75%+1 = sufficient votes at an EGM to pass all resolutions including sale of assets/dissolve company

3. Obtain 25%+1 = sufficient votes to block resolutions at an EGM (ie inverse of (2) above)

Looking at our shareholding structure it is immediately apparent that (1) cannot be obtained by a purchaser buying in the market as Elphick/Glencore control over the 50%+1 on their own. It is highly likely that if the remaining shares held by the dissolved Garbet syndicate, together with the targeted placing that took place on 1 July 2024, that Elphick/Glencore can now count on 75%+1 of the votes. Which means a purchaser buying in the market obviously can’t obtain (2) but also can’t obtain a blocking minority (3) as a means to disrupt a buyout or leverage themselves into someone else’s deal.

The upshot of the above is that any interested purchaser/developer whether interested in a buyout or buy-in, has to negotiate with Elphick/Glencore on their terms, & their terms will be all based around the NPV’s found in the 2024 FS. Whatever NPV related price (Stage 1/2 & what discount being big variables) is negotiated between those parties will then be translated into a per share buyout price for all shareholders. Thus in our particular circumstances it is the NPV that entirely determines the eventual buyout price and not the share price.