Member Info for observer842

@Bannor:
===[
however there's a long way to go (18 months or so IMO) before they get there IF (note big if) they ever do as they're going to need money, drilling & time to prove it up & changes in their SCAP & ours will effect the impact on their potential SP & consequently ours.
]===

I agree - however, it's possible the project might get acquired before then on the back of the Glencore announcement, which is the reason why I'm (still) looking into this.

Also, on the money front you mentioned above. I believe they have borrowed sufficient funds to complete the BFS in the form of a convertible loan:

"Macarthur Minerals Announces US$6 Million Financing to Complete Moonshine Magnetite and Ularring Hematite Iron Ore Bankable Feasibility Study" (March 19, 2019)
https://web.tmxmoney.com/article.php?newsid=6810804576807869&qm_symbol=MMS
===[
The Note can be converted at any time after 12 months into common shares of Macarthur at Noteholder’s option at a conversion price that reflects 80% of the average VWAP over 5 trading days immediately preceding a notice of conversion or at the greater of C$0.10 with attaching warrant offered for one fourth of the Commitment amount exercisable at the greater of C$0.10 or the average VWAP over 5 trading days immediately preceding the date of the Exercise Notice.
]===

In 12 months time the BFS SHOULD be complete and MMS's share price SHOULD be significantly higher than today's, meaning the additional dilution we would face SHOULD be lower, assuming it hasn't been acquired or the like by then.

Ob.

Some paragraphs of interest:

"Gold stars and black holes" (January 2019)
https://www.edisoninvestmentresearch.com/?ACT=19&ID=23211&dir=sectorreports&field=19
===[
The markets continue to discount PEA-stage projects significantly (even more so than in 2017) and as in 2017 we see value destruction at the PFS stage. While there are always exceptions, it appears prudent for companies to focus on getting to BFS stage as expeditiously as possible, as that is where equity markets offer valuations that reflect anything like the NPV of the underlying projects.
...
None of the above factors appear sufficient to confer ‘exceptional’ valuations on a company. By a process of elimination therefore, of the six principal risks facing a junior mining company (jurisdiction, geology, engineering, metallurgy, financing and management), we would posit that it is the last - management - that is likely to be responsible for a disproportionate valuation relative to the tangible and financial characteristics of a project. Within that context, it can be seen that, in 2018, the EV of a company at PFS and/or BFS stage can (apparently) be explained almost exclusively in terms of its IRR and size. At the earlier PEA stage however, there is a significant gap between the contribution that the tangible risk factors of a project make towards a company’s valuation and its actual valuation. It is at this point therefore that we would assert that the contribution of management to a junior’s valuation is at its most critical.
...
Simultaneously, considered on an undifferentiated basis (below), there is continued evidence of a discounted valuation being accorded to clay and clay-like deposits (eg Bacanora, Cadence and European Metals Holdings) and a median valuation being accorded to brines (eg Pure Energy).
...
On first impression, therefore, the average project has an NPV of US$648.8m (cf US$433.1m in 2017) and an IRR of 40.1% (vs 43.2%).
...
Once again however, in comparing the different distributions, we are probably able to invoke our hypothesis from 2017 that PEA stage projects with IRRs in the range 40–60% evolve into PFSs with IRRs in the range 20–30%, which themselves evolve into BFSs with IRRs in the range 30–40%
...
If a wholly ‘average’ company is considered, with 100% ownership of a project with an NPV of US$648.8m, an IRR of 40.1%, operating in a jurisdiction with an average Fraser Institute Investment Attractiveness rating of 61.97 (roughly the equivalent of South Africa in the latest survey), at PFS stage and using an 8% discount rate, then the implied EV of the company, as derived using the above equation, would be US$65.6m, or 10.1% of the NPV of the project. This compares with our earlier observation, that companies at PFS stage trade, on average, at 18.2% of the attributable NPV of their project or 9.9% if statistical outliers are excluded from the sub-sample.
]===

@ian12. Our initial target audience is commercial, but if it were residential, to put it simply: current boilers are replaced with the Inspirit Charger. When they are used (boilers get used right? ;-)), they also generate electricity cheaper than the grid. This electricity is either used at the point of generation, stored at the point of generation in household or car batteries (hence the word Charger) or exported to the grid for others to use or store.

Other companies are planning mCHP products and some are selling them. The economics for some products just don't add up (e.g. flow's proposition - which I commented on here several years back). I believe ours do. Though it is possible it's all just exaggerated hot air though...

Ob.

Thanks @Bannor. Certainly a sensible approach in terms of what it means for shareholders!

Latest Edison report, which I have to read, at:

"Gold stars and black holes" (January 2019)
https://www.edisoninvestmentresearch.com/?ACT=19&ID=23211&dir=sectorreports&field=19
===[
In keeping with recent tradition, Edison has conducted, augmented and added to three major analyses in this
report. The first is to derive in-situ vales for 19 metals and minerals, listed across three markets, differentiated by
resource category. The second is a study of EV/NPV ratios for junior explorers at PEA, PFS and BFS stages of
development. The third is a series of multiple regression analyses used to both corroborate our in-situ valuations
and to derive specific empirical equations to predict the valuations of junior mining exploration companies with
respect to five factors, namely project location, IRR, NPV, discount rate and stage of development.
]===

@HoundofHell. If debt financing were at 8% then for all intense and purposes then for all intense and purpose the NPV8 would be unchanged. If it were at 10% paid back in years 2-7 say (assuming year 0-1 is construction) it reduces the NPV by a few 10's of millions. Pretty inconsequential really.

In terms of how the NPV is reflected in the share price as the project progresses, take a read of:

"Mining overview: Unlocking the price to NPV discount" (November 2017)
https://www.edisoninvestmentresearch.com/?ACT=19&ID=19909&dir=sectorreports&field=19

Oh a contract existed alright. I read it several times! And in my view at the time it was signed it was a fair win-win contract for both parties. BCN/KDNC had limited downside (win for them), but also limited upside (win for Tesla) as the general consensus was that the sale price to Tesla was around the $5-6k/t LCE mark. What the mood at the time didn't seem to appreciate was that Tesla appeared amenable to cover (or was that negotiate?) increasing costs (the limited downside for BCN/KDNC) - in essence, the profit to BCN/KDNC appeared to be fixed per tonne at the time the contract was signed.

With spot increasing to $20k/t LCE, external funding had their eyes on far bigger returns, and unfortunately (or fortunately if you didn't like the deal or Tesla!) Tesla weren't in a position or willing to fund the project themselves. And the deal fell through, presumably because BCN were in a stronger position to play hardball in any re-negotiations in the light of significantly increased LCE prices - and besides, by then BCN firmly had their eye on the Asia market.

Since I'm a fan of Elon I still lament the deal falling through. It would have been great to see Tesla receive a low cost supply of Lithium from a project which could be scaled up quickly to meet their exponentially growing demands. I just hope for BCN's sake it turns out to have been the right decision to focus on Asia long term. I think it will be OK: sometimes being greedy is the right thing to do in the long term interests of shareholders. I just hope too many bridges weren't burnt in the process!

Perhaps the separation was quite amicable after all? I suspect we'll never know, as from what I can see neither BoD dare mention the T word in public! Perhaps it'll all come out in memoirs ;-)

Ob.

De-waffled that equates to me estimating up to £100m in value to KDNC from this project alone. ;-)

What we have been told:

"Macarthur Minerals Signs 10 Year Iron Ore Off-Take Agreement for the Lake Giles Iron Project in Australia With Glencore International A.G." (March 21, 2019)
https://web.tmxmoney.com/article.php?newsid=6303739202199099&qm_symbol=MMS
===[
Metallurgical test work on the Lake Giles’s Moonshine Magnetite Project indicates that an export product of high margin +65% Fe can be achieved. Current market price for 65% Fe product is quoted at US$98/tonne (A$140 per tonne). The value of the initial 10-year Glencore off-take at current market price for Moonshine iron ore would be ~US$4 billion.
...
The Capex for a combined Moonshine Magnetite and Ularring Hematite operation is now estimated to be US$335 million. Magnetite Opex costs are estimated to be A$55/tonne free on board (“FOB”) and Opex costs of A$42/tonne FOB for hematite.
]===

Summarising that and making some estimates and assumptions:

CapEx = US$335m
Revenue = US$100/t
OpEx = US$40/t
Revenue after OpEx = US$60/t
High margin +65%Fe sold per year = 4,000kt
Revenue after OpEx per year = US$240m

Tool to calculate NPV's at:
https://www.calculatorsoup.com/calculators/financial/net-present-value-calculator.php

Entering the following values:

8% discount
CapEx of $335m in period 0
Cash Flow of $240m in periods 1-19

gives an NPV8 of $1,969.86 = 2 billion US dollars. This is before taxes & royalties. The discount rate which results in zero NPV is 71.7%.

Page 118 of the PFS (dated 25 March 2011) suggests royalties of 5% and tax of 30%, so we might expect that $2B NPV8 to equate to something like £1B. Around 10% of which is attributable to KDNC = £100m at this point in time.

I chose 19 years and an 8% NPV to be able to loosely compare to the Sonora project. Increasing the life of mine to 40 years (I believe the resource to be there) results in a pretax NPV8 of $2.5B.

The above assumes construction over a single year (perhaps a little optimistic?) and is from project go-ahead/start of construction - which is usual in NPV calculations. If the CapEx is spread equally over the first 2 years (and then equal cash flows for 19), the NPV8 reduces to $1.8B, and the IRR to 56%.

Seems impressive - and looks to me that it can be easily expanded as they were initially planing a project significantly larger than this (over double?). This plan *significantly* reduces CapEx.

The BFS is planned to be delivered this year and funding talks are in progress. I wouldn't be surprised if MMS sold the project to enable them to rapidly pursue their lithium projects - but only for the right price... It's crazy to think that the current discount to that NPV is something like 98.5%. Is the market insane? ;-)

I present the above in the hope others can comment or correct my mistakes/naivety/bad assumptions. All IMHO. DYOR.

Ob.

I'm slightly perplexed that in the CLN agreement the previous trading day's closing price is used to determine the conversion price. Normally it's the volume weighted average price spread over 5 to 10 days or so. I've yet to decide if using the previous day's price is good or bad for me personally! And who decides when to convert? For instance, imagine AIM did its thing and 10 bag spiked the closing price to say 0.4p from say 0.04p, the CLN's could, and likely should, be converted based on this price @0.3p. But the question is then, who decides when the CLN's are converted? The dynamics on this aren't simple to unravel no matter the answer to that question!

For instance, if the CLN holders don't have a say, and let's say it is someone fairly impartial, but connected to INSP that does (Anthony?), then it is in the CLN holder's interests to forward sell/short the share price to prevent it from rising too high. But that is a very risky play if there is massive demand from external buyers pushing the price up past their artificial selling pressure.

If the CLN holders do have a say, then as before it is in their interest to forward sell or short the share price down, but this time it isn't so risky for them, as if they are unable to bring the share price down to their liking, they don't have to convert the following day, and may wait it out, or decide to even up their shorting game the following days and weeks?

Fortunately we don't have to think about these scenarios just yet! Perhaps we should find out in advance the exact rules of engagement so we are prepared when (if!) the time comes. No doubt this board will be awash of "what's happening" and "I'm in" and "boom!" posts and the like, and these concerns will have long been forgotten. In fact if we get to a point were the CLN's might get converted no-one, including me, will likely care any more. And besides, perhaps they deserve their reward for supporting us through the hard times?

Note to self: don't get too greedy! Sell on the spike... ;-)

Ob.

OK - let's explore what an NDA would mean, and whether we could detect or infer one was in place.

My understanding is that if you are in possession of inside information, be it as part of an NDA, or through business as usual, or market soundings, or even by word of mouth, you are not able to trade securities which could reasonably be expected to be influenced by that information if it were in the public domain. This is the fundamental tenet of MAR as I see it.

"Market Abuse Regulation" (Last updated: 25/03/2019)
https://www.fca.org.uk/markets/market-abuse/regulation

If there was an NDA in place for INSP, almost certainly all of the BoD would be party to it, meaning they couldn't trade in INSP. I believe the last director trade was this one:

"Results of GM, Placing and Director's Subscription" (06 September 2017)
https://www.investegate.co.uk/inspirit-energy-hlds/rns/results-of-gm--placing-and-director-s-subscription/201709061223369897P/
===[
The Director of the Company, namely John Gunn, has subscribed for a total of 41,666,666 Ordinary Shares on the same terms (the "Director's Shares") for a sum of £50,000 following the announcement of the Placing.
]===

Therefore it's very likely that if there is a price sensitive NDA with a third party in place, it was agreed after 06 September 2017. From the key dates thread we know that around this time:

21 Aug 2017: Argentarius arranged funding apparently falls through
14 Nov 2017: Accelerated redemption of all securities related to Argentarius by year end

We also know the following key dates:

24 Apr 2018: Anthony Samaha appointed who was "also expected to sit on the Company's Audit and Remuneration Committees."
04 May 2018: Issue of £845k of Convertible Loan Notes raising £530k in cash, the balance converting existing debt

So in terms of an NDA which the Convertible Loan Note holders are aware of, and possibly party to, it was likely signed sometime between 06 Sep 2017 and 04 May 2018.

This might explain why the company needed to bring on board Anthony Samaha, to make an independent decision on whether it was fair to existing shareholders that the BoD were (essentially) remunerated in company shares despite them (possibly) being in possession of inside information via a (possible) NDA, and that the terms of the CLN were fair.

Bringing Anthony on board and the likely decision he made re the CLN's seems fair in the absence of an NDA. But this course of events doesn't seem so fair if there is an NDA in place as the share price likely would have been boosted significantly had it been in the public domain - perhaps pointing to no NDA?

If there is an NDA, perhaps this dilemma was recognised, leading to the terms of the CLN being reasonably favourable to existing shareholders with the minimum backstop of 0.07p?

And it seems especially favourable to any one buying in at today's prices! ;-)

All IMHO!

Ob

I'm not sure why you think we haven't been funding the R&D. That's presumably what we are paying Paul Booker to do as our "Design & Development Director" - the word "Design" being synonymous to "Research" in this context.

Here's a thought: it's possible we need to prove we have an efficiency greater than 92% (UK legal requirement), and perhaps we are just bordering on this value? Hence the continued re-redesign? Alternatively if we are unable to meet 92% ErP we might need to look wider afield.

https://www.potterton.co.uk/legislation/boiler-plus
https://www.worcester-bosch.co.uk/professional/support/troubleshooting/faqs/erp-faqs/what-is-erp

I presume the 92% only applies to residential, not commercial, which is our initial target audience. It may not apply to mCHP either...

If only our BoD kept us informed like they used to. Why so quiet!? I presume NDA is your answer? ;-)

Ob.

@jimb2. You know it has always been in the back of my mind that it might not have been a coincidence that the agreement with Tesla fell through in the same month that Trump was elected... Although it's probably more likely that the deal fell through with Tesla because BCN management didn't want to supply them, always stating Asia as the target audience, and since KDNC failed to "persuade" them through M&A, Tesla had no option but to look elsewhere...

Timelines:

30 September 2016: Rebuttal of Proposed Merger
8 November, 2016: Trump wins the election
24 November 2016: Deal with Tesla falls through

I'm trying to find something similar to this recent report for iron ore:

"Copper M&A: The Cupboard is Nearly Bare" (November 2018)
https://www.kincoracopper.com/media/downloads/media/RFC_Ambrian_Copper_MandA_November_2018_web.pdf
===[
The overall deal values reflect the average price paid for the acquisition of company shares, and the acquisition of assets. These values have varied over time and for copper equivalent resources the price paid has varied between US$119-254/t (US¢5-11/lb) for the past seven years. The overall average for the period 2008-2018 was US$196/t (US¢9/lb).

Looking more closely at the stage of development of the underlying assets, the data shows that the price paid for operating assets has been US$307/t (US¢14/lb), preproduction US$211/t (US¢10/lb), feasibility US$193/t (US¢9/lb) and exploration US$74/t (US¢3/lb).
]===

Any help appreciated.

Well if we are entering the realm of conspiracy theories... ;-) Mine is that the CLN holders figured out (or got wind...) on how the Inspirit Charger will be funded to commercialisation. Which I suppose is similar to your theory, except mine doesn't involve NDA's. But it does involve waiting until the plan comes together. Let me know if you haven't figured out what I think the plan is yet. I don't want to mention it directly. Might jinx it like I suspect we did with the Argentarius plan! LoL! ;-)

In summary (yes I don't half waffle!) the possibility is that Glencore wanted 100% of the off-take guaranteed for them and were willing to fund the CapEx, but MMS believed they could get better terms, so Glencore agreed to 70% being competitively tendered, for which they have the option to compete.

All IMHO!

Get yourself 3% of an unloved company for just £11,594

That's 42,624,205 shares @0.0272p, less than half the *minimum* share price (0.07p) the convertible loan can be converted into shares at.

If this share rockets on good news like it should, someone re-post this post will they? ;-)

Ob.

We know that last May some undisclosed "private investor" were willing to essentially fund INSP £530k to keep itself afloat another year. Are you suggesting that it is these that are party to the NDA? I wonder just how much is going on behind our backs that we know nothing of!? It might explain why the share price continues to drift if insiders can't buy in.

I'm hoping for company defining news in April or May! Popular months for news for INSP ;-)

@tomcat & @ivybush. Thanks both, I think it is clearer to me now.

We know that there is a
===[
binding Life-of-Mine Off-Take Agreement
===]

and that:

===[
Glencore secures life-of-mine of the project with commercial terms for approximately 4 million tonnes per annum average for the first 10 years, with the option to extend for a following 10 years for all tonnes of future Lake Giles iron ore production.
]===

and that:

===[
Terms and conditions have been competitively negotiated reflecting strong forward demand.
]===

A reminder of the paragraph in question:

===[
Glencore agrees to release up to 70% of their off-take volume where Macarthur secures project financing from a Strategic Industry Investor, subject to their securing off-take of the product produced.
]===

Clearly there are other aspects to the negotiation, but that 70% would have been one of them. I am now of the opinion that had there not been "strong forward demand" MMS's hand would have been weaker and Glencore would have been able to insist on a lower number, perhaps as low as 30%.

So to me, what this deal has done is use Glencore as a backstop guarantor off-taker of up to 100% of production for the first 10 years. We know that:

===[
Macarthur’s management is pursuing debt financing discussion with European banks and international financial institutions
]===

This doesn't preclude partial equity financing. However, assuming it will be all debt, it appears to me that the bargaining chip that MMS has goes something along the lines of if the third party or parties arrange debt for the CapEx of US$335 million they would be eligible for to 70% of the off-take for the first 10 years.

The negation variables would then be payback time, interest rates, and how much of that 0-70% they get - potentially not all, and especially so if multiple parties are required to fund the CapEx.

But in addition to this, by backstopping the off-take of up to 100%, Glencore, at this point, do not need to fund any of the CapEx - this was their negotiation point. i.e. MMS negotiated them up to a 100% backstop (as this is good for MMS), and Glencore negotiated them down from 100% of how much they would have to release down to 70%.

By doing this, I imagine Glencore will be on equal competitive terms with the "European banks and international financial institutions" when it comes to funding the CapEx. i.e. that up to 70% in the first 10 years will be competitively negotiated between all players and because of this, MMS could find itself with very attractive debt terms.

If the case is as the above, then it is a fantastic deal. Demand must really be strong.

I might do an NPV calculation, I'm beginning to think MMS shareholders haven't figured out just what a good deal this is, or perhaps it's because the shorts are strong over there!

Could be entering (potentially aggressive) M&A territory...

Ob.

Nice find. Correct link is:

https://stockhead.com.au/resources/could-wesfarmers-love-for-lynas-spark-more-interest-in-rare-earths/

;-)

Do you really type them out? Why not copy and paste?