Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Morning Twogoals! I agree the Q2 results will be extremely helpful. I expect they will confirm production volumes, and while they may show a step up in ASIC due to COVID-19 I hope that will be ameliorated by lower fuel costs. With the gold price above $1,800, I expect cash in hand and the value of gold stocks for sale will be more than the outstanding debt - subject to movement on the margin of working capital - that’s major news and I expect it will be a catalyst to a major move in the share price. I also hope for an update on Kouroussa mobilisation works, Dugbe progress (ie approvals from Gov of Liberia, mobilisation of works etc). I doubt we’ll get dividend confirmation, if they do that it would be with the Interims due early mid August. I also think that drill results will be delayed - not because the drill rigs have been affected (they should have been cracking on), but the assay results will be taking more time in the current environment, so there’s a chance that it all takes a bit longer. Still, I hope we’ll get some results and a timeline can be established. Roll on Q2 results, interims and Q3 in this gold environment!
Q4 dividend as expected. Not 100% covered by earnings yet, so some ordinary dividend in there, but steady as she goes. Nice to see an RPI step up for the Q1 2021 dividend in September, when hopefully they will have delivered some more asset acquisitions and shown the full earnings of the new assets.
https://www.londonstockexchange.com/news-article/SUPR/dividend-declaration/14606943
Gold seems to have cracked $1,800 being at $1,801.85 on my screen. That’s some handsome margin on our production at Yanfolila. Great way to start Q3!
Also don’t forget they haven’t sold 50%. HUM have agreed an earn-in, whereby ARX can earn up to 49% of Dugbe from funding the various parts of the deal. So on day one, there is no dilution of HUM’s stake, only after they have spent time money, which I would assume will be capitalised into the project, will the HUM stake reduce. Any write off will therefore be minimal. This is a non-point FIFO
Positive to see the placing cash being deployed promptly. Looks like a good quality portfolio, with a very high quality tenant, although the yield perhaps feels a little low (despite it being “South East”) and the cap of 3% on the RPI inflator may well prove to be a bit on the low side over the next 10 years. Overall positive though.
@Northman1: trade payables are in the AISC to the extent that the cost of mining is in it, but there are timing differences on when items and suppliers are paid. So looking forward the cash impact of previous period creditor build up won’t be in ASIC but it still comes out of cash flow. As at December there c.$35m of payables / accruals that need to be paid, though of course as a going concern what they pay off will be replaced with new creditors month-by-month, given normalised working capital. So question is whether the $35m is normalised or if we’ll see much net cash outflow. I suspect there will be a bit, but hopefully not enough to mean we’re not actually net zero debt or very close to it as at 30 June.
Agreed. The subsequent announcement that they are in talks to buy a good size Waitrose portfolio is also positive - they will hopefully soon have deployed the placing cash and be earnings positive off it. Keep it up Atrato!
ARX - deal announced with Pasofino Gold - listed in Toronto Stock exchange. Happened a few days ago, not sure it’s come up here.
@techandy - what’s the thought process around $1,400? In what time period are you expecting this to happen?
Canaccord have also misunderstood the ARX deal. The $10m does NOT include the DFS works, which is likely to require $30m+ of investment. Demonstrates the need for better PR...
Very positive with elements clearly highly conservative. However it’s also very conservative on the non-use if debt in Kouroussa. It would be mad - absolutely mad - for HUM to finance the entire build from internal cash. Inefficient use of capital and delaying return of capital to shareholders. It’s not clear to me that fully funding with debt is the right approach despite an apparent willingness of Coris to fund $100m, but $0 is not the right answer. I can’t quite believe I’ve read that in an analyst report - unless it’s intended to be very very conservative and ultimately wrong.
No one regrets doubling their money.
Having thought long and hard on CORA, my view is:
- relatively small operation, which is less interesting to us
- we farmed out the licenses to accelerate pricing up and discovery, but that was always a signal that this wasn’t one for HUM.
- HUM should be focussed on getting Kouroussa built over the next two years, not the distraction of another small mine, in the same jurisdiction as the larger Yanfolila - Tom much Mali concentration. Who knows what other surprises Yanfolila will hold in the meantime for management too
- If there’s room to spare for a third wholly owned operation (I suspect that’s really two to three years away), then make it another 100-120k operation rather than a minnow. That’s a better use of our capital.
- nonetheless, good news on financing, which should mean we’ll make a good return on the existing stake, which is valued at zero in the current market cap.
With Q2 update or interim results which should be August / September, I want to see a formally announced capital allocation policy. This should set out:
- Amount of cash buffer the board feels it appropriate to build (if any) and how that interacts with the RCF from Coris to provide sufficient liquidity;
- Reiteration of LOM extension spend for drilling and exploration at Yanfolila;
- Expected equity investment in Kouroussa until debt funding can be utilised, plus cost of additional exploration programme and when that would start; what LTV / LTC do they think is prudent on mine development / what will Coris or other lenders commit?
- Other cash requirements or investment requirements? Are they holding any additional liquidity for BunkerHill, Dugbe?
- In what time scale would they look at new mines / projects?
- Excess capital use - do they see different levels of gold price as changing any of the above? Do they need to retain all of the windfall from a high POG or can that be distributed as extraordinary? How will they decide when to start a dividend subject to the above.
The ability to return capital in one form or another in the short / medium term depends on a few things: 1) cash generation from Yanfolila - this should be very strong as we know in this gold environment (tick), 2) the size of cash buffer the board wish to keep once net cash position reached (unknown - I suspect after the pit wall / heavy rainy season they have become more conservative on this point, but we don’t know), 3) the cash equity requirement of Kouroussa - we know Coris are supportive, but will they debt fund the full $90m construction cost? Just because $100m is available doesn’t mean it will be lent or suitable for borrowing. What are the costs over the next 6 months to get to construction readiness? Can the team take cost out of the $90m? Will Coris debt fund 100% or do they require more HUM skin in the game? I suspect that HUM don’t fully know yet, but safe to assume some equity needs to be invested over the $10m cost of the project, 3) how much cash will be invested in the drill programme (they previously said 10% of free cash flow, is that still true? How has COVID-19 affected the programme and timing of LOM extension this year?), 4) other cash needs (Bunker Hill? :-s, Cora, other opportunities?). Fortunately the spectre of a big cash requirement at Dugbe does not give us a 5) for the next 2 years. All shareholders should appreciate that there’s quite a range of possible answers to numbers 2, 3 and 4, and 1 of course is dependent on gold price. I do not think it’s necessary for HUM to dividend this year, but as I have written before, whether it does or doesn’t, it is crucial that the board gives shareholders a framework for understanding what decisions will be made on 1) to 4), so that they can model the business and determine value generation assuming Kouroussa proceeds etc. If projects like Kouroussa are as value enhancing as I expect, then I don’t need a dividend, I want the team to keep investing my money. However the market currently does not fully trust HUM (whether fairly or unfairly) post pit wall and a few other blunders and that the explanation of some of their deals could be better set out. A detailed capital allocation policy that addresses the points set out above, would be a major step in dealing with that trust and helping investors think through the value scenarios that are likely over the next 2-3 years. A key point for me, is understanding how allocation might be affected by gold price (which is obviously outside of the company’s control) - what difference would a lower gold price have on their plans, or perhaps more pertinently, what price do they consider a “windfall” that opens the possibility of an extraordinary dividend (cash or buyback) given there’s more cash than they expected and distribute that to demonstrate confidence in their plans.
That would most certainly be inside information and there’s no way Betts snr would have been allowed to buy. I can’t rule out a takeover over the medium, but frankly I don’t see it at this stage.
Afraid I don’t read ADVFN anymore - good luck to BT, whoever they are, in all that they do.