Member Info for pickedpeck

Oh and did I miss where JM gets a £1.7m salary? I thought his salary was £325k but I admit I haven't checked for a long time. Are we sure the £1.7m isn't for the whole leadership team?

Bear in mind the options have an exercise price which was 10% higher than the then market price. I think from memory the options granted were at an exercise price of 170p but would have to check and CBA, the actual price is irrelevant as it is several multiples of the current price in any case.

The point is that JM, SR & Co only have options and hardly any shares, and due to the exercise price those options are effectively worthless unless there is a huge recovery.

The C suite effectively had their stakes wiped out to pretty much zero.

Yep, the (real) spread is maybe the the tightest it has ever been. A little bizarre, maybe the big orders have dried up a bit? Can't see L2 order book, but when a 100k trade has gone through in the last few days it has really nudged the price either way.

Headder,

I agree and disagree with your post. Firstly I don't think A2 will be funded just by FCF anymore either, particularly if the cornerstones want to accelerate it to get to payback quicker. It will likely be funded by equity, just not at these prices. I don't think the current round of financing will include A2, but you never know, it might.

Nickel price trajectory is notoriously hard to call. Analysts did predict a fall towards the end of 2023 but sharp price rises later in 2024 and beyond as supply constraints come up as demand increases. You still see the longer contract prices far higher than the spot price which supports this view. Nickel has also been hit less hard than some other metals, HSBC indicated this week that the worst of China's internal financial crisis is past and that economy is expected to return to growth, potentially spiking demand again. For now the chart looks to be levelling off at $18k a ton.

A large royalty would be a wild card here. I am sure royalty has to play a part in the fund raise as equity dilution at these prices still makes no sense as we have kicked around endlessly. Too big a royalty compromises profitability, too small and it leaves too much left to get over the line. I'd bet on a fixed term higher (10%) royalty leaving long term profits in play. 10% @ 5 years is 1800 x 14500 x 5 = $130m if nickel flatlines, so you would expect maybe $100m to buy it.

Nickel at $18k gives:

$18k - existing royalties and production taxes - Glencore discount = ~$16k

$16k - AISC (~$10k) = $6k a ton to pay debt and royalties.

$6k - 10% new royalty = $4200

$4200 x 14500 nameplate = $61m p.a. to pay down debt and bottom line profit.

Nickel back to $22k gives:

$22k - existing royalties and production taxes - Glencore discount = ~$20k

$20k - AISC (~$10k) = $10k a ton to pay debt and royalties.

$10k - 10% new royalty = $7800

$7800 x 14500 nameplate = $113m p.a. to pay down debt and bottom line profit.

Relatively small price rises and falls in Ni create a disproportionate outcome. It really comes down to the macroeconomic environment.

One scenario is definitely Glencore just buying the company. Fortunately for us they would have to make an offer that would satisfy the other two cornerstone investors as i can't see a deal going through that would leave them with their holdings in situ.

No idea what the number might be, but doubt it will begin with a 1 both happily and sadly!

Interesting article on where Glencore are up to with Nickel production. I wonder where they could find some more?

https://www.proactiveinvestors.co.uk/companies/news/1031355/glencore-cuts-full-year-nickel-output-forecast-as-last-year-s-strikes-still-weigh-1031355.html

(With thanks to Troajan on the Glencore message board)

Agree, and looks like they are reading these boards too!

Apologies for jinxing the mini rally 🙏

They will all be buys. There is more than one market maker offering and bidding more than one price, the spread indicated on here is very rarely the actual buy and sell price.

More interesting is the price starting to edge up a little

Welcome Strow,

The reality is on the funding gap is that firstly we don't know the exact figure and can only go off what the company has indicated with it's 'at least 35% of capex'.

If they had added the phrase 'half of which could come from existing resources' then we wouldn't be speculating about it, but they didn't so we are. Past experience of raises suggests they have generally been bigger as the banks and cornerstones demand additional contingency. You would like to think this is exactly what that contingency is for though so who knows?

Secondly they have us an indication in the last RNS on the some of the sources of cost:

'Electromechanical (EM) assembly: increased equipment and materials quantities have resulted from the completion of the critical detailed engineering, and the shift of more EM activities into the wet season given the expected delay to 3Q-2024. This represents a significant percentage of the cost increase given the lower productivity in the wet season and increased quantities'

The last RNS was rich in details but still didn't finalise the figure needed. Like Wasa I am expecting in the region of $200m anything less will be a pleasant surprise, anything more will be disappointing. I'm also hoping for a large part of the funding to not be equity at this ridiculous market price, if it is and everyone is painfully diluted then there will be a lot of disappointed cornerstones, institutions, and PIs.

We had some debate earlier this week about why bother with Brazil when Indonesia is causing a surplus in the Nickel market. Well...

https://www.mining.com/web/indonesias-high-grade-nickel-ore-reserves-may-be-depleted-in-6-years/

6 years until Indonesian high grade ore is depleted x and that high grade is 1.7%, HZM are mining 1.92% so far at Araguaia.

It's easy to think that Indonesia will just go find more ore sites, but it has already been pretty well explored and the easy to get at stuff is already starting to play out. That's part of the reason for Indonesia importing Ni ore from the Philippines now.

Lots of nickel needed for them too 😊

Theorist,

With regard to the wet season comments, I know it hasn't started yet, but any over run on the project, like what we now have, would cross over into it. In particular, and related to TDTs comments is the paragraph below from the latest update:

Electromechanical (EM) assembly: increased equipment and materials quantities have resulted from the completion of the critical detailed engineering, and the shift of more EM activities into the wet season given the expected delay to 3Q-2024. This represents a significant percentage of the cost increase given the lower productivity in the wet season and increased quantities.

This seems like a major source of the cost increase and definitely the time delay, more so than in the RNS of the 2nd. The latest release feels like they have a better handle on what's going on.

Anyway the root cause is all a bit moot for us lot, everything depends on if there is a sensible finance deal and what it means for all investors. The waiting is excruciating, hopefully tensions on here don't start to reflect that.

Theorist,

I agree on the time line of when this was suspected if not known. There seems to have been a turning point in early August in the share price.

I also think the nature of the delay has the rainy season superimposed on it. The original schedule was hard up against the start of the rainy season to start commissioning, with lower productivity and access problems particularly working on water systems it's easy to see why a 3 or 4 month delay can turn into 6 months which is what we have. Contingency planning should have accounted for time impact as well as budget, it looks like it didn't.

That extra duration will have an impact on the money needed, they have recruited and staffed up for production only to find a hefty amount of thumb twiddling may be in the new starter's job descriptions. Its not easy to stand a workforce down for a few months whilst project time lines catch up with each other.

Regarding trade volumes - I suspect most have taken their positions in or out and are waiting for the company's next move before committing change either way.

One thing I have been wondering is if the company has had left field in bound interest, if they had would they share that any offers are in progress rather than just announcing the finance deal. The big defensive three would have to agree an offer, or at least two of them would.

Pub,

You don't understand how the funds work at all. You're thinking of them as individual entities spending their own money, they are clearly not. They invest on behalf of LLPs in specific funds. For example the Orion fund used here has 54 investors I believe. Orion administer the fund, the LLPs provide the money under their guidance. As long as Orion and La Mancha remain credible as long term investment managers they won't run out of money. LLPs put money in to either open ended or fixed term funds. This one is open ended I believe. Returns are not calculated daily, they are five or ten year calculations. Because the way the funds work they don't need to sell, they can wait out any storm as log as they remain convinced of long term value.

As for Glencore wanting this to happen, that's paranoid claptrap. Glen sold the Xstrata nickel assets in Para to Horizonte. Glen however could make an offer for the lot that's true. Whether Glen at that point would be the only bidder is debatable, Vale would definitely be interested, so would the Chinese amongst others. We may get a bidding war., wouldn't that be fun.

Money dwindling. A week ago you were saying it was gone and they couldn't draw down any more. The latest update says they have $122m cash and have continued to draw down debt as construction on many parts of the mine nears completion. The update contradicts your facts from last week.

Last week you also said it wasn't a mine, in the update they said they had mined and stockpiled 138,000 tons of wet ore with 1.9% contained Ni. I think that makes it a mine now. The processing plant isn't finished.

I not even going to address the sirius comment other than to say it's irrelevant. I understand its one of your three miners you know much about.

You also still haven't learned how to do the equity sums. You keep saying things like 'massive dilution' and 'reload equity' with no actual clue how that could happen or how the money could or couldn't work. Explain it with some maths or leave it alone.

If you want to pick on what I am actually worried about and the things I am looking out for you are going to have to read back a bit. I am not repeating myself. You haven't even touched on them though.

The absolute worst case scenario is that they say they have not been able to raise the funds required and are putting part or all of Araguaia opco up for sale. Even in that context the current price is way below the distressed asset net value so even in the worst case there is something of a safety net.

Calling me a gambler is quite entertaining. If you are so sure of your 'facts' why don't you put a big short on? I would guess three weeks until we know the outcome. I guess you prefer to sit on the sidelines pontificating though.

Toyota is the world's biggest car manufacturer and has so far only dabbled with EVs, sticking instead to a range of hybrids. However it is getting closer to going all electric with solid state batteries with muhc higher range and shorter charging times, not to mention a better safety record.

Toyota make millions (~9m) of cars a year, and by 2028 they will likely pretty much all be electric.

It seems like the solid state batteries it intends to use need higher and purer Ni content to deliver the performance Toyota is aiming for.

You can go ogle loads of news on this, but here is a starter article or two:

https://electrek.co/2023/06/13/toyota-claims-solid-state-ev-battery-tech-breakthrough/

Talks a bit about the chemistry:

https://www.ft.com/content/6224f235-568c-4e2f-8247-e7dacf0ef20c

Talking about ramping up production :

Toyota nears mass production of solid-state batteries - https://www.ft.com/content/6224f235-568c-4e2f-8247-e7dacf0ef20c

Even if only half of Toyota production goes electric in the next five years, that's 225,000 tons of class 1 Ni demand a year that doesn't exist now.

Who do you mean by the big boys? The 'a big boy did it and ran away' type?

For the cornerstones to pump in money via equity they dilute their own positionsnfor little gain. I just don't see the rationale for why they would even consider that.

There are a variety of opinions on where Indonesia will go.

Firstly the smelted nickel all goes to China, Tsingshan in particular. Nickel from Brazil may not end in the same products.

Secondly Indonesia has been hitting it's high grade resources hard. I saw an article a while back that claimed Indonesia only had 5-6 years of high grade resource available and that would start to play out and tail off quickly.

In August Indonesian smelters started importing lower grade ore from the Philippines as a cheaper option than local supply. Interesting phenomenon.

https://www.reuters.com/markets/commodities/indonesian-nickel-smelters-turn-philippines-ore-local-supply-tightens-2023-08-30/

Indonesian Nickel is also notoriously dirty, both in mining and energy supply. Coal powered power stations are no longer the flavour of the month anywhere, even China is thinking twice about them. Coal is also a much more expensive power source than hydro, hence HZM lowest quartile production cost profile.

You never answered the post that broke down the opex structure as it undermined (pun absolutely intended) your argument for inflated AISC.

Spike,

You're still not thinking about the actual mechanism, who has to support it, and how the numbers work.

The three cornerstones control 51%, they decide what happens. They can each only subscribe for part of any subsequent dilution without passing 30% ownership, and having to make a bid. One of them may decide to do exactly that, but why do it via dilution rather than a straight offer?

It is not in their interest to allow a large new entrant to take a big new percentage and therefore change effective control of the company. I agree they have little or no interest in any private investors, and in fact probably are frustrated at small instis and PIs collapsing the price to this level. Of the top 60% only Helikon have sold a small number, the sell off and subsequent price collapse was done by smaller investors.

It is also not in their collective interests to pump more equity money in for relatively small percentage gains in ownership.

Straight equity dilution doesn't work at this low price level for anyone, large or smallx and the company cannot impose it on the big three without their agreement.

That leaves other routes which could be even more painful. CLNs are a trap. They will be issued at high (punitive) interest rates reflecting the perceived risk.

Royalty could dilute income for the life of the mine depending on the deal done.

Straight Bank Debt, again on punitive interest rates will almost certainly play a part given how painful the other routes are.

Stakeholder loan? Any one or more of the cornerstones could offer a bond or loan. If they go this route then foreclosure would change control should there be any further fly and ointment issues.

Sale of a % of the Araguaia opco, dilutes income, but could be a part of the approach.

Warrant issue - not in three circumstances likely to raise much money. The current share price is effectively at warrant level.

So who knows what they will do, but I don't see how massive dilution benefits anyone regardless of what this part of the market is pricing in.

Ramp up and commissioning has not changed, just moved back in time. The company had planned and gained the financial support for Commissioning, it is not a surprise.

Funding is needed for what has changed. They have said that what it needs is to fund the capex gap for the roughly six month delay and material changes. The wording of today's RNS makes that pretty clear:

'Schedule extension: given the above and the expected schedule delay of around six months, there is an associated increase in costs and working capital linked to the increased schedule duration.'

Hazbeen,

'These changes require additional financing resulting in an expected increase in the overall Project capital requirement by at least 35% (from the current capex budget of US$537m)'

So to me that clearly says at least $188m needed for the project.

The source of that is very debatable as has been done to death here for three weeks. The company itself probably has a skeleton of a deal in place now in order to predict mid Q4, but until everything is finalised they can't know or say anything.