Member Info for observer842

Though I wonder if that corresponds to their share of the R$1.4B of debt, which, after hair cut, the majority is valued at NPV10 $106m payable from profits.

"Approval of Judicial Restructuring Plan Paves the way for the Restart of the Amapá Iron Ore Project." (30 August 2019)
http://irservices.netbuilder.com/ir/cadence/newsArticle.php?ST=REM&id=2887382
===[
The JRP schedule contemplates the majority of the historic liabilities will be paid from free cash flow in years 5 to year 17 of operations, which represents a discounted NPV10 debt value of approximately US$106 million. The JRP also caps the trade creditor liabilities.
]===

I hope you understand NPV's. If not, I highly recommend spending some times to get to grips with the concept of discounted Present Value of future money and cash flows.

Nice find @Cause17 - I checked the source and calculations: it does look like they had their percentage ownership of Amapa on their books as valued at $90m in March 2016 :-). There is a number 32 in the column next to the 59,461.26. I wonder if that is the percentage they held at the time? Iron ore prices were less than $60/t around then.

If this share doesn't re-rate sufficiently after we take 20% ownership of the project, the scoping study should put a rocket up it! :-))

Ob.

Cheers @Barksy. Admittedly I hope he's concentrating on the bigger picture at the moment! In particular, preparing for the court case - assuming he isn't already in it! :-)

I mostly look at the trend as the absolute values are a bit opaque being unclear whether they are talking about spot or contracts or what grade, and delivery. When I do want to refer to absolutes I typically look at:

https://www.lme.com/Metals/Minor-metals/Lithium-prices

You can toggle between carbonate and hydroxide. Though I suspect they may be over-egging the price a bit: $7,500, whereas:

https://tradingeconomics.com/commodity/lithium

is suggesting $5,500. It's probably somewhere between the two! LoL.

Ob.

And the plan stood a good chance of coming together nicely had the falling lithium prices not scuppered it... (you know our share price was massively overinflated at that point on hype and hope? - better get it converted into something a little more tangible!) I'm comforted that iron ore prices have been significantly higher than today's, which is already significantly above my estimate of break even, in the fairly recent past :-)))

@Barksy - did @Kiran ever get back to you about the Yangibana drilling: despite our RNS saying HAS don't intend to drill our areas we believe that in fact they do intend to: Bald Hill.

The suspense is killing me. A clarification on that would be better than nothing! LoL.

Ob.

Indeed @Bannor - our BoD, and pretty much every other BoD of Lithium junior's in the industry, called it wrong - I suppose to a degree it's in their interests to be optimistic! :-)

@degsie - Have you calculated the NPV's of Sonora and Cinovec based on today's lithium prices? Both PFS/DFS's present sensitivity studies so it's not difficult to do. The upside for Cinovec on improving lithium prices is eye watering :-))

Good links @Cause17: "Wouldn't Jinda group also need to assume ownership of debt which means they may have had to invest additional funds too?" I've not seen their JRP, but as is the case in ours, their's also likely pays off some (most?) of the assumed ownership of debt from proceeds of iron ore sales in later years.

I highly recommend you carefully go through our JRP - and if you are able, attempt to decipher the tables at the back, I've managed to decipher most.

Original source:
https://pje.trt8.jus.br/primeirograu/Processo/ConsultaDocumento/listView.seam
20012416350764800000023996777

Translation care of @Dallas
https://drive.google.com/file/d/1t_2GNdDBpqXrb9UszfuVFa63N6s_lHIA/view

One last thing - do not believe everything you read in the press: the journalists often (unintentionally!) misreport the true state of affairs, or leave out key facts, and I can't blame them: it's very complicated!

Ob.

Talking of graphs. The price of Lithium correlates quite nicely with our success/failures: the falling price of lithium contributes to a large part of the pain we've had the past several years as we over leveraged our plays (Yes @Bannor - CLN! ;-)). Both Sonora and Cinovec just aren't attractive at today's prices. If someone had said the lithium prices would be what they are today in 2015, they would have been laughed off this board. I'd have been laughing the loudest.

All LTH made the wrong bet in that respect IMHO. Me, perhaps more so than anyone.

Only time will tell whether we've (I've!) called it right on the future of iron ore prices and our ability to get the Amapa project going...

And for the avoidance of doubt, I think both Sonora and Cinovec are great lithium plays - when the price starts to recover, these should too, perhaps very strongly!

Ob.

@Cause17. I don't think we've ever compared our JRP with the previously failed JRP. Don't forget to share the links! :-) Also, our's requires at least $85m of debt to be sourced (DIP C), in addition to $30m equity (DIP A + B). How does that sway the comparison of the two?

Do you know what percentage of the company the BoD currently own in their names and in funds they control?

@jimb2 bit harsh! LoL.

I hope so! Seems a bit of a gift for some final top ups if I'm reading this correctly... :-)

LoL. And as if on queue. Prices up 1.5-2% last night :-)))

Based on what we have been told, I make it that every dollar increase above the baseline price ($61/t Fe 62%) will increase the pre-tax (plus minor other profit related outgoings) NPV10 of our 27% of the project above whatever baseline NPV10 is determined to be by around $7m. This is mind blowing. For balance, if the price falls below this central case, every dollar decrease below this will decrease the NPV10 of our holding by around $7m. Assuming my estimates are correct of course...

The tension is almost unbearable! Like waiting for Christmas day as a child, but not knowing what day it is today! LoL.

Ob.

For all we know the banks might have capitulated today avoiding the hearing...

Here's another step towards understanding the potential value of the Amapa project to us which some might find useful.

If we assume the project has a certain (currently unknown) Net Present Value based on $61/t Fe 62% and other factors, then how much additional pre-tax NPV might come our way for the other prices of interest, $80/t, $100/t, $120/t, for a range of NPV discounts, 5%, 8%, 10%? To keep it simple, assume no production between now and year 4 (a conservative estimate), then 14 years of full production @5.3Mt (it's been mentioned that both the rate and mine life could be increased, IIRC double the rate?).

This might help: https://www.calculatorsoup.com/calculators/financial/net-present-value-calculator.php

Hint - As stated earlier given what we know about the project each additional $10/t rise in the 62% price should result in an additional $53m EBITDA per year.

@degsie - aren't you qualified to wield a calculator? LoL.

@Dallas - if you've already produced these sensitivity graphs do share! I'll be impressed if you've included sensitivity to more variables than the iron ore price alone. ;-)

Ob.

Thanks for the kind words @Cause17. If you ever see me state something without sufficient supporting evidence please pull me up on it. IMHO you should trust nothing posted on here that you can't verify yourself, so if I ever do that - you know the drill: link please. ;-)

@mr.james: not wanting to go over old ground, but my understanding of the contract with Tesla (which I read several times) would have meant as the CapEx/OpEx of the project increased significantly since the agreement, so would the price they would have paid - probably more than today's. i.e. although it was never stated as such in public, reading between the lines of the project it was cost+, but based on the prevailing market prices at the time of the contract, and estimates of the CapEx and OpEx - and only if we could justify to Tesla why our costs had increased. i.e. our profit margin was intended to be fixed, probably insisted upon by Elon himself IMHO. Make no mistake about it, the Tesla project, had it gone ahead, would have been very beneficial to KDNC. Whether it would have been overall beneficial to BCN I don't know. All my own take. Others will disagree.

Personally I think BCN will announce 50ktpa in writing when the Lithium prices start to recover (this is the main reason for their continued delays IMHO as they need their share price to be higher to complete), then it will be calculators at the ready for how much that is worth to us. ;-)

As to Amapa. I think I have a greater level of excitement than I did with Tesla even, but this time it's accompanied by an unprecedented level of trepidation! Hopefully that will subside on the announcement we own 20% of this potentially company changing project! :-)))

Ob.

@Cause17 - If the courts wanted absolute transparency they would indeed insist that all transactions go through them. Perhaps this will be the case. It doesn't matter too much to us. But for what it's worth it looks to me that they are really only interested in the details of what leaves the account, not how it gets in there. For us the bigger picture is getting to 20%, then to 27% and possibly 49% of a project potentially worth billions - which is very much dependent on USD:BRL, shipping costs, and iron ore prices - plus other factors!

For KDNC this project appears to be very different to others you might have come across which face serious dilution at the CapEx stage - see BCN and EMH for example. We are led to believe that when we get to 27% we will not be diluted. Furthermore we may be able to increase our share of the project to 49%. I don't think the market appreciates the non dilutive aspects of the agreement - probably because it was deduced from what was said verbally, not written in black and white in an RNS! :-)

Absolutely nothing is nailed on though. I was saying great things about our lithium investments (primarily BCN and EMH) several years back. And great things could have come of these, however firstly the lithium price rose rapidly effectively making our deal with Tesla dead in the water, as the agreement was based on fixed lower prices (so the market believed), and then lithium prices have fallen steadily for the past 4 or 5 years - effectively meaning that new projects are finding it hard to complete their CapEx requirements. This will hopefully change soon though. EMH in particular is quite sensitive to the Lithium price (both down and up!) so any hint of an upturn in prices could lead to continued sentiment improvement over there, benefiting us too.

Anyway, the point is although I could produce some very impressive NPV's based on what we know, many things could work against us. Similarly though, many things could work in our favour. Perhaps shipping costs will fall with reduced coal and oil requirements longer term? Perhaps the Brazilian Real will stay weak against the US dollar? Perhaps iron ore prices will enter a new golden age fuelled by a construction boom?

But that doesn't mean we shouldn't try to work out the value of a project to us - it's what gives the canny investor the edge over those who would rather wait to be told IMHO. ;-)

Ob.

How are you with a calculator? How do those EBITDA's sound to you? I'm not making a fundamental mistake am I? Have you managed to read the tables at the back of the JRP? Deduced the BRL:USD, shipping rates, sale prices used?

Since $10m is only ever mentioned, which we know is net, my conclusion is that "the proceeds" refers to net proceeds of the sale, not gross proceeds.

That's a good question @Cause17. My take on the below is that the net $10m goes into the account controlled by the court:

"Referred to DJE" (4/15/2020)
https://esaj.tjsp.jus.br/cpopg/show.do?processo.codigo=2S000I22C0000&processo.foro=100
===[
The proceeds obtained from the sale of iron ore will be deposited in court and will only be released with the authorization of this Doubtful Judgment, which will allow due transparency to all interested parties.
]===

Though definitely worth a read in full so you can make up your own mind!