Member Info for observer842

Good questions @Ivybush, it's now not clear to me the current situation. My understanding is that as part of recommissioning we have budgeted $7m of the CapEx on the tailings dam as mentioned in the end of August RNS. I had presumed that $7m was towards making the necessary improvements to the existing dam to make it safe and usable once more - but perhaps it is to construct a new downstream one as you question? And if so, this opens the question of who is liable for the existing dam?

Are we certain the abandoned dam is of upstream design? And if so, is it at our mining site, or is it somewhere else?

Ob.

Oh, and Fe 62% futures are currently greater than $80/t out to December 2020. December 2019 is $92/t

https://www.cmegroup.com/trading/metals/ferrous/iron-ore-62pct-fe-cfr-china-tsi-swap-futures.html

Let's get that deal signed, get that ore sold, get that $60m@Fe 62%@$80/t flowing into the project.

News could land imminently given the expectation back in August was for ore to be shipping by the end of this month.

Yet another reason why the state needs this deal to get done:

"AP's banned and abandoned tailings dam leaves bodies on alert for stability" (12/16/2019)
https://g1.globo.com/ap/amapa/noticia/2019/12/16/barragem-de-rejeitos-interditada-e-abandonada-no-ap-deixa-orgaos-em-alerta-sobre-estabilidade.ghtml

It's a good article, with many links to the history of the project I recommend following.

The sooner this deal is signed off the sooner we can make a start on improving the tailings dam as outlined on page 19 of our corporate presentation:

https://www.cadenceminerals.com/wp-content/uploads/2019/07/Corporate-Presentation-KDNC-June-PPT-PUBLIC.pdf

LoL @tomcat. I suppose it's possible that they meant to say: "The valuation of any additional investment in the Project Level Company by GFL would be based on the share price of Bacanora [and number of shares in issue] at the time of the additional purchase." i.e. the market cap. Maybe the "[and number of shares in issues]" is so obviously implied that they felt it wasn't worth mentioning?

Has anyone got further information relating to this? Perhaps it was clarified at the AGM?

Second attempt...

£76m * 27.5% / 77.5% = £27m

Never trust anything I write without checking it. LoL :-)

There are multiple ways to look at it. How about this for one? If BCN is valued on Sonora alone then with a market cap of £76m that makes the additional 27.5% of the SLL currently worth:

£76m * 27.5% / 72.5% = £15m

I suspect the market cap will be multiples of this when the time comes. However, the price they pay is stated to be based on the share price not the market cap: "The valuation of any additional investment in the Project Level Company by GFL would be based on the share price of Bacanora at the time of the additional purchase." so an increasing share price is more important than an increasing market cap if this sale is to help fund BCN's share of the CapEx.

Here's food for thought @tomcat. What if the agreement with Ganfeng has always been in anticipation of them taking their JV holding to 50% in return for them reducing CapEx per tonne of production of a 35ktpa plant which rapidly increases to 70ktpa. Sounds like a great win-win scenario if so for both companies. From BCN's point of view they may well have sold half of their share of the Sonora Lithium project but in return for an unchanging, perhaps even an increased NPV on what remains?

I like it :-)

I know the feeling @Bannor. I don't particularly like the thought of people making investment decisions based on what I write on here, but I concluded a long time ago that if I am to write on here (LSE in general, not just KDNC) and to try to write informatively and honestly to the best of my abilities then I'm just going to have to accept that everyone who reads what I write will be influenced by it by differing degrees. Why do I write? To share information, to have others challenge my beliefs and logic and to point out errors in my understanding or indeed my naivety.

So I pay attention to what others write who I have good reason to believe they (mostly!) know what they are talking about. and I mostly ignore idiots except when many of them congress together in an attempt to alter sentiment, which seems to work on thinly traded AIM shares...

I try to ignore your belittling name calling of the BoD, but it does influence me. I do wonder if we are being taking for fools. On balance I think not, but without your voice (and others) influencing general sentiment I wonder more often than I would otherwise whether I'm being too trusting.

As to my opinion of "Strong Buy" to me that is the best way I can think of to mark to those reading this that I am very likely biased in my positive views towards the company, even though I try my damnedest not to be.

Anyway, I'm sure you'll be back commenting on the performance of the BoD regardless of what you say today, influencing my decisions. LoL. ;-)

Ob.

Exactly @tomcat. It's as clear as day why they stopped at 19 years.

@Bannor. You can't tell me what I should and should not do (well you can, but I won't listen). The decision I take are influenced by what you write. End of. LoL ;-)

Indeed @tomcat. And then there is this news:

"Tesla Gigafactory 4 Third Phase - 750,000 Car Capacity" (December 14th, 2019)
https://cleantechnica.com/2019/12/14/tesla-gigafactory-4-third-phase-750000-car-capacity/

Now that's a lot of lithium! Join the dots time? Tesla have a supply agreement with Ganfeng. Ganfeng have a target ownership of BCN of 29.9%. BCN have an option to take their ownership from 50% to 100% of Zinnwald (until February 2020). Zinnwald is close to Tesla plant (in the grand scheme of things).

I'm not exactly sure what's going to trigger the re-rate back towards (and over!) a pound, but I feel it coming :-) But. It is possible there is one more corner to the stone to be completed @25p first. However, the cornerstone investors won't be selling any time soon so it really shouldn't matter to the market at what price they are let in at. Admittedly if 25p has been agreed the share price will very likely head back down in that direction by hook or crook IMHO, unless an outsiders decides they want in, and in volume on market, scuppering plans.

Question is: is the future fortunes of BCN built on a triangular or rectangular foundation?

What do you reckon @tomcat?

Thanks for the reply @Bannor. Let me assure you that as @mrcautious has pointed out and @Frankie has confirmed, that mine and pretty much everyone else who takes in information from various sources has their opinion swayed by those sources to a degree which depends on how much they value them, from pure logic to pure sentiment. Sure some sources are discounted to zero, but others are not. I do not discount your opinion (logic + sentiment) to zero, as I'm sure many on here do not either, so like it or not, what you say on here *does* affect my decisions and no doubt others - in particular how much risk I estimate and consequently how much I add when I do.

I was part joking when I said: "Of course I'll be thanking him if we fall flat on our face and cursing his negatively if we fly in the coming weeks! LoL.". Only part joking as we all know it's perfectly acceptable to thank someone if they helped you arrive at a decision which later transpired to be a good one (i.e. money was made), but if that decision later transpired to have been a bad one (i.e. money was lost), then it was your own fault and you should blame no others. Weird, but seemingly true, in polite company at least! :-) Ideally we'd neither thank or blame as ultimately it was only yourself that decided to buy, sell or hold. Sadly we aren't Vulcans.

As to my "calculations". I find them *very* useful, not just on this share but others, to get a good feel off the top of my head for the range of returns or NPV from a particular project and that really can only come from ball park range calculations as I demonstrated for Amapa yesterday and previously too. Forethought is forearmed. But I'm quite cognisant that £100-500m is far from being realised today. There is risk, and there is time, and there is sentiment to overcome. Point being I now don't have to get my calculator out to have a good feeling for how much a changing iron ore price impacts the project finances.

Here's another example. No doubt you will, as I do, have a feel for how much Sonora is worth to us if they start at 25kt and quickly increase to 50kt. My feel is rooted on back of the envelope calculations:

If they stick at 35ktpa and never increase beyond 19 years (yeah, right!), then at production Sonora is perhaps worth £10-20m to us - today I've got it down as worth £2-4m based on BCN's share price and percentage ownership (Ganfeng @22.5%)

Very ball park Sonora @50ktpa calculation: Assume the additional 15ktpa comes from JV area on average: 15kt * 0.3 * 17 = 75kt of our LCE mined. After tax profit might be say £2-4,000/t = £150-300m. Discount by 2 to 3 as mined later on average. Results in my ballpark value for Sonora @50ktpa to KDNC as being £50-150m. If your gut feel is £100m, then well done :-)

At confirmation of an increase to 50ktpa those who realise the consequences will likely be diving in here. Good luck buying on that day! :-)

Ob.

Of the total measured and indicated Sonora reserves of 5,038kt LCE:

https://www.bacanoralithium.com/projects/sonora-lithium/

I make the current distribution (Ganfeng @22.5%) as:

KDNC: 919kt (18.2%)
Ganfeng: 926.8kt (18.4%)
BCN: 3,192.2kt (63.4%)

and if Ganfeng were to increase to 50% this would be:

KDNC: 919kt (18%)
Ganfeng: 2059.5kt (41%)
BCN: 2059.5kt (41%)

Unless/until the mine life is defined beyond 19 years or the mining rate is increased beyond the current target rate of 35ktpa KDNC's share is pretty much inconsequential as the vast majority of the initial 19 year life of mine @ up to 35ktpa comes from the BCN/Ganfeng Joint Venture area.

I'm confident the mining rate will be increased beyond 35ktpa and the life of mine defined beyond 19 years: Sonora is very cheap and scaleable. By stalling, Secker might just have played an (accidental IMHO!) blinder waiting for the market demand to catch up, and with future demand increasingly being recognised by mainstream outlets a re-rate is on the cards around the time of full funding IMHO. 35ktpa will seem a tiddler and ridiculously small if/when we see plans for 50-100ktpa plant(s).

Ob

Indeed @Ivybush. I hope @Bannor won't mind me saying but I personally might have added even more than I have since the end of August as I recently I had an opportunity to significantly increase my holding (perhaps by as much double today's) which I might have taken had his constant postings reiterating the past performance of the BoD not made me think twice. And of course he's right, the BoD to date have had a disastrous run when viewed in the cold hard light of day. We don't know the full story behind the decisions that were taken and whether they were required to protect our Sonora JV's - I like to think so but it could equally have been a gamble that just didn't pan out.

Anyway, the point being my estimate of success for KDNC is hovering around the 20-30% mark when without @Bannor's and perhaps a few other posters I respect tempering remarks it might be more like 40-60%. That's a reasonable risk IMHO for potential 5-20 times return in the short to medium term, and perhaps more longer term if we are able to snowball returns to our other investments - as was always the plan: to cadence our investments together.

Of course I'll be thanking him if we fall flat on our face and cursing his negatively if we fly in the coming weeks! LoL. In all seriousness I hold myself to account and I have probably already made the right decision to hold off attempting to double up - so thanks for that @Bannor, regardless of what happens next. :-)

Ob.

62% Fe fines is the benchmark value that is typically quoted mainstream. I thought it might be interesting to see what price that would have to fall to for the optimistic potential £500m of value to KDNC from holding 27% of Amapa (we currently hold 0%) associated with today's spot prices to become the conservative £100m value I estimated in the previous post.

From the previous post:

=====[
http://www.custeel.com/en/csi.jsp
===[
Date Seaborne index 62% Fe fines Seaborne index 65% Fe concentrates premium Seaborne index 65% Fe fines Seaborne index 65% Fe pellets premium
2019-12-12 93.75 2.40 104.55 23.05
]===

Applying the 65% concentrates premium to the 62% fines price the conservative $323.3m revenue increases to:

4.4 * (104.55 + 23.05) + 0.9 * (93.75 + 2.4) = 561.5m + 86.5m = $648m
]=====

If we say 65% Fe pellet feed premium continues to be around 120% of the 65% Fe fines price, and 62% Fe concentrates around 102% of the 62% Fe fines price. And that 65% Fe fines continues to be around 112% of 62% Fe fines then I think we are trying to solve:

https://www.emathhelp.net/calculators/algebra-2/simultaneous-equation-solver/?s=323.3%3D4.4+*+1.2f+%2B+0.9+*+1.02t%2C+f%3D1.12t&v=f%2Ct
===[
323.3=4.4 * 1.2f + 0.9 * 1.02t, f=1.12t
]===
f (for five): 65% Fe fines
t (for two): 62% Fe fines

which results in:

f=53.0 , t=47.3

Which means by this measure the oft quoted benchmark 62% Fe fines can fall from it's current $93/t to as low as $47/t and we'd still have an estimated £100m of value to us @27% interest in the project based on a 10 times multiplier - which is a reasonable measure IMHO as life of mine is 14 years with scope for lengthening. Another way of looking at it is the $61/t quoted in the 30th August RNS, is probably more like $47/t. I can see why they used 62% Fe fines @$61/t as to do otherwise would have involved a fair few assumptions, as can be seen above!

But I can't emphasise enough just how risky the project is at the moment. We derisked considerably on August 30th, and again this week, but to start buying outfits based on these calculation would be madness. LoL! Admittedly, over sextupling my holding based (partially!) on these calculations might be as equally mad. But they are my calculations, so that's OK. I think. :-)

The risk is still large (we may even be forced to walk away completely!), but the rewards at this point considerable outweigh them IMHO, perhaps by a factor of 10 or more. DYOR. Please. LoL.

Ob.

Starts about 21 minutes in:

"Xtract Resources, Russ Mould, Alan Green" (13 Dec)
https://audioboom.com/posts/7450796-xtract-resources-russ-mould-alan-green
===[
I just want to talk about Cadence because I believe this company is fundamentally undervalued right now and I'm going to tell you why.
]===

Sure he's got a vested interest, but I find it interesting that with all his optimism surrounding our investments he doesn't seem to have picked up on that the $136m EBITDA is based on a quite conservative ore sale price. I suspect his eyes might pop if he does the calculation of what the flow to KDNC might be based on today's prices. (which could move in either direction)

At full production the conservative estimate is based on if we sold the 5.3Mt @ $61/t = $323.3m. Net shipping costs this becomes US$266m, and after OpEx the EBITDA is the stated $136m.

Of that $136m there might be around $20-40m of historic debt and $15-30m of CapEx debt to repay each year. $35-70m. Both of these depend on the repayment schedule. It could be quite front loaded in early years, or it might be spread out more equally. Paying off debt quickly from free cash flow is good for overall project value but the creditors may insist on a longer pay back to maximise the returns on their investment. The $35-70m reduces the $136m to $66-101m and after tax we might be talking say $45-70m. 27% of that is £9-14m worth of after tax free cash flow associated with our holding. This may flow to KDNC or be reinvested in the project, e.g. to increase the ktpa from 5.3Mt as has been hinted at in recent news stories and announcements.

With a 10x multiplier that gives a value to KDNC of £90-140m, call it £100m

This is the conservative scenario.

But what about if we use today's spot on what we are actually planning on selling?

Steady state production in 2024 is an "estimated 4.4 Mt of 65% Fe and 0.9 Mt of 62% Fe per annum."

and

"The beneficiation plant consists of a crushing circuit followed by screening, flotation, thickener and filtering to produce a 65% Fe Pellet Feed and a 62% Fe Spiral Concentrate."

According to Custeel:

http://www.custeel.com/en/csi.jsp
===[
Date Seaborne index 62% Fe fines Seaborne index 65% Fe concentrates premium Seaborne index 65% Fe fines Seaborne index 65% Fe pellets premium
2019-12-12 93.75 2.40 104.55 23.05
]===

Applying the 65% concentrates premium to the 62% fines price the conservative $323.3m revenue increases to:

4.4 * (104.55 + 23.05) + 0.9 * (93.75 + 2.4) = 561.5m + 86.5m = $648m

Meaning the EBITDA increases to:

$136m + (648m - 323.3m) = $461m

Take away the $35-70m and after tax this might be around: $270-300m. 27% of that is £55-60m worth of after tax free cash flow associated with our holding.

On a 10x multiplier call it £500m.

DYOR. Could contain mistakes. Much risk still present.

Oh, and we have an option to take our holding to 49% :-)

Fingers crossed!

Ob.

I've been wondering about that - the old calculator stays sheathed for now but it could play an important part in the end game, and besides if a company believes it is undervalued and it has cash on hand then logically it should repurchase its shares - the ideal scenario for existing shareholders being: company repurchase shares at low share price; company reissues them at high share price; Repeat. LoL. :-)

In terms of market dynamics, I suspect a company buying its own shares on market on AIM might have little effect on the share price, unless there is more to it than meets the eye such as it been seen as a starting gun for a share re-rate with others joining in (cornerstone investors?) to take the share price up to a pre-agreed level followed by which the final joint fund raising takes place to agreed final percentages of the company - as previously discussed.

All sounds like fantasy to me, but forethought is forearmed in my experience... I wouldn't want to be the poor soul attempt to short on the back of the company buying its own shares believing they know more about AIM dynamics than the company, if the company has a half decent plan up its sleeve. LoL.

Just idle speculation.

Ob.

@CHRH. With everyone sounding so upbeat about the proposed agreement I do hope they rubber stamp it as it stands. So many jobs are on the line if they derail the project at this late stage.

"ANGLO WILL PAY 47 MILLION FOR ENVIRONMENTAL AND SOCIAL DAMAGES IN AGREEMENT WITH STATE AND FEDERAL PROSECUTORS" (12/05/2019 - last week)
http://www.amapadigital.net/politica_amapa_view.php?id_noticia=126264

Indeed @wolfi_at, and it's good to see the lithium price forecasts updated on page 5 of the latest corporate presentation:

https://www.bacanoralithium.com/cms/wp-content/uploads/2019/12/BCN-Presentation-Dec-2019.pdf

Personally I think the rise back to $15,000/t will start well before 2024.

Zinnwald news soon? Option expires February 2020. Sonora CapEx funding gap could be bridged and especially so if the news triggers a re-rate of the share price as I explored a couple of weeks back.

Ob.

As I mentioned @CHRH, we have to be prepared to walk during the final most financially important negotiations of stage 1 which would lead to us owning 20% of the project. In terms of this "new" development if it's any reassurance we currently own 0% of the project = 0% of the liabilities.

And if you want more than reassurance, perhaps a reminder of the prize might help: I presume you've estimated the EBITDA based on the current spot and seabourne future prices of what we are intending to ship at full production, not the conservative estimates used in the RNS - it's a straightforward calculation. And from this an estimate of potential yearly cash flow to us from the project post yearly CapEx debt and historical debt repayments and tax, some of which will likely be reinvested in the project to increase the ktpa? It's an eye watering cash flow ;-)

Ob.