Member Info for pickedpeck

Hazbeen,

I agree up to a point. There have been a lot of twists and turns, but up until three weeks ago there was a universal direction of travel.

My view is that at a macro level there are compelling factors that align towards the mine(s) being built. I'm assessing from here not from where we were two months ago.

Without numbers and second guesses...

- the mine is now mining. That's happening today.

- the company put more effort into this morning's RNS than any similar ones. That implies an interest in what the market thinks.

- there is too much spent and too many moving parts for this to go pop.

- The number needed is relatively small compared to what has already been spent.

From here there is an opportunity to make money. All public companies have complexity, and we never know everything. We can just go on what the company tells us and make decisions accordingly.

Yes it's impossible to know the nature of the finance deal until its announced. The point I was making is that massive dilution is both the worst case and very unlikely, and being priced for that makes it possible to make money from here.

On your theory they could buy the whole company at today's market cap, stump up the extra cash and own the lot fully funded for $250m.

La Mancha need to buy the remaining 73%, if they could do it at today's mkt cap that would be £50m x 0.73 = £36m, call it $50m. That's cheaper than buying 7% at 4:1 dilution, wow it is a bargain! Now they own 100%, so putting up the extra funding suddenly becomes a lot less painful.

Really?

You think the investors that have put up the money so far will go 'yeah OK, glad to be out...phew, lesson learned there... '.

The reality is the market has massively over reacted to the extra funding requirement. They aren't going under, there are lots of funding options, many we don't know about. The interests of the large equity holders are weirdly and either by accident or strategy inextricably aligned with PIs. The current market cap in no way reflects what you could buy the company for, and the massive equity dilution this is already priced at is very unlikely to happen.

No, I don't think there is a white knight. I think the solution will be made up of several types of funding. No one party is going to try or be allowed to fix this alone.

My guess would be debt extension, hence the visit on the 4th, a smallish royalty sale, maybe to Orion or Ecora, CLNs at painful interest rates but with buy back terms to existing investors, and maybe an equity element but nowhere near the dilution or price this is priced at by he market. I would also half expect those funding mechanisms to be staggered in time in some way, with potentially equity last. They will have the equity book underwritten by some investment bank, Barclays would make sense.

So 25 - 40% debt, 25% ish from royalty, 25% from CLNs, the rest from equity.

Bebeto, yeah that was just a passing randomer trying to spread a rumour. Was almost funnily incompetent.

OK, so all the cornerstones have to put in a large amount of money for relatively small % increase against their existing stakes in the company. Given they are probably unwilling to do that, why would they collectively allow 3rd parties to come in and take huge % holdings diluting the cornerstones?

La Mancha decide not to buy 6.8%. more of the company for $60m, but would support a position where someone new comes in and buys a 25% stake for just $60m, diluting La Mancha down to 6%?

Also doesn't make sense.

Nope, they can't, not with losing a load of money. Do the actual sums.

La Mancha have 23% now. 4:1 dilution takes that down to 6%, buying 24% of the fund raise would cost them a quarter of the raise, say $60m? They end up with 30%.

But that's a 7% increase compared to what they have now, and cost them more than the current mkt cap to buy it. Does that make sense to you?

Spike :

Tell me how the cornerstones invest heavily in the next round of deep dilution without massively diluting their already significant investments. Use actual numbers to illustrate your answer, build a nice sum to show how it might work rather be a doom mongering smart a*se.

Clue : La Mancha have 23.2% now. How do they keep below 30% and having to make an offer for the lot?

Clue 2: With CLNs Orion are in almost the same position

Clue 3: Glencore have only 18% or so, but are still in the same boat as the other two regarding dilution.

Clues provided as you plainly don't have any of your own.

The single biggest cost with a Nickel mine is electricity. HZM have a deal for fixed price hydropower for the next ten years at a price way below what the FS would have used. That will offset some of the other inflationary factors.

At the time of the FS the split for opex costs was:

Direct costs (all per ton of Ni)

Power : $2410

Coal : $1620

Other directs : $1348

Labour : $588

Indirects: $772

Mining Opex : $1584

Total per ton Ni : $8322

Labour hasn't doubled, coal is flat, power is down. Other directs may have gone up, and mining opex will have risen, but none of them have gone up anywhere near doubling.

In mining investment Time To Payback is a critical factor. 'How long after I put this money into your pit do I get it back?', that is how long am I exposed to risk for and how long before I start making a profit.

Extra finance gives a longer time to payback, but the underlying mine economics trump that. TTP may be 3.5 years vs 2.5 previously, but with a minimum 28 year mine life that's not such a big issue. Debt payback period does not last the life of the mine, AISC does.

I always expected an offer for HZM between A1 nameplate and A2 construction. That's the point where TTP vs cost is optimal, especially if V has a completed investable FS by then also. However the current price could possibly tempt an early offer. The market wasn't valuing HZM appropriately before this all kicked off, it certainly isn't and won't now. But maybe the cornerstone shareholders don't plan an exit here, maybe they are in this for income, in which case any offer would have to be tempting for them.

Headder, interest on corporate finance is not included in AISC, companies use AISC for EBITDA calculation, interest on debt finance is applied at the gross profit level.

If you want to argue EBITDA at $100-150m p.a won't be enough to build line 2 that's a different matter. I also think this may be true as La Mancha will want to accelerate the income rather than wait the extra year for debt paydown.

Headder,

You keep talking the AISC up without explanation. Coal is down, electricity fixed price, water on site, only labour has varied and that's less than 25% of the total, and even there Inflation in Brazil has been running at less than 5% this year. I'd expect AISC under $11k. LME Dc 26 price for Ni is still $22k.

No it won't. You couldn't buy 10 million shares at the current price without spiking the market, why on earth would you be able to buy half the company?

The current price is a reflection of the free float price, dumped by PIs and small instis, less than 20% of the total.

RNS reads well, and explains the current position well. It gives no reason to believe this won't be funded.

Captain - I half expect a midway RNS clarifying the problem and progress on the approach. If that comes separate to the finance deal that would make it likely this week.

I agree about the out come if there is mass dilution, but I don't see whose interests such a dilution would be in. The cornerstone investors, the management, and all smaller current investors would all lose in such a scenario, the only possinle winners would be new investors. Persuading them may be hard plus why would the existing holders vote for it

Dan,

Incurred expenditure of the capex was $329m at June 30th. Here is a short excerpt from the operational update fir Q2:

- US$329 million has been spent on the Araguaia construction out of the budgeted capital requirement of US$537 million

....

· Liquidity and funding sources of US$344 million as of 30 June 2023

In addition the company spent over $25m on the Araguaia project prior to construction starting, mainly on Feasibility studies.

They also have a second project, Vermelho, which is currently undergoing a feasibility study due to be published next year.

The Net Present Value of the two projects combined is in the region of $5Bn. They have 3.9Mt of contained Nickel, enough to produce 100kt of Ni per annum for 40 years. At current Nickel prices that would be about $1.85Bn revenue per annum.

Recently the company announced technical problems discovered in the build phase of the first production line A1, which means they need to raise at least 35% more capex against the original budget, or in the region of $200m.

The announcement of this caused many private investors and smaller institutional holders to sell, collapsing the share price from around 170p in the summer to under 20p today.

Some people feel this is an over reaction to the situation, whilst others feel that there is a risk the company will not find a route to raising the $200m and will fall further as a result.

Personally I think the current market cap value represents a good risk to possible reward scenario as there are asset values and recovery opportunity, but accept that one or more of the big holders may find a way to minimise the outcome for smaller investors somehow.

I also think it is inevitable with such a large financial prize available the mine(s) will get built.

The AIM is already the wild west of investing. Whatever the outcome here won't affect that one way or another.

You never know what the finance deal may be. ThePublandlord / DJRyan point about waiting to see what it is before buying is without doubt the lowest risk strategy, but potentially has also zero reward. He is also right that one of the cornerstone investors may decide to try and take the company private, buying out the other two cornerstones and by default making a recommended offer. It is possible that there could be an agreement to buy all the shares except those held by the strategic investors.

The thing is more than one of the cornerstones have form for that. Glencore have bought junior partners but Orion have also taken over several companies they have invested in.

Maybe the best parallel is Dalradian AIM:DALR in 2018. They made an offer at 63% over the previous (depressed) night closing price. Still under the highest 12 month price for the share though. It was agreed by the largest holder and was effectively a done deal before it was announced. Some of the holders were allowed to keep their shares as part of the agreed offer.

The shares immediately flatlined at the offer price, with no opportunity for anyone to get in and make a profit after it was announced..

https://www.pehub.com/orion-mine-finance-to-buy-dalradian-resources-in-537-mln-deal/

Circumstances were somewhat different, but the same people as connected to HZM were involved.

Future maximum production from heap leaching laterite resource envisaged as 25kt Ni from resources at 0.74% contained Ni.

Ecora have a 1.25% royalty bought at very early stage for not much, plus have an option to pay $70m for a 4.25% gross royalty for LoM.

Sorry pressed post too quickly there, was going to add based on existing known resources you could run 100kt production for 40 years.

Headder,

Cut off for Araguaia and Serra Do Tapa is 0.9%. Vermelho cutoff is 0.7%.

Technical reports including the feasibility studies are here: https://horizonteminerals.com/uk/en/technical_reports/

With those cutoffs they have just short of 4Mt contained Nickel across the existing estate.

It is also worth noting that the Araguaia license area is very large and lightly explored. Araguaia is over 100,000Ha from memory, whilst Vermelho which has been much more thoroughly explored is just 2,500Ha or so. I am sure someone will correct me if I got this wrong.

I think on RMM you shoulder a lot of blame for ramping it up and sucking more naive investors in with your psuedo knowledge. When you bailed and flipped attitude (the order of that is important) how grateful were they all to you?

This is nothing like RMM, other than it is a mine.

The asset values are different when Nickel is $18.5k per ton rather than $8k. Do you accept that?

The value of a mine with a power like, low cost power contract, civils work done, and all major equipment components ordered, paid for and delivered to site is different to a bare field. Do you accept that?

Mines in a similar state have been sold many times. Turquoise Hill is a good example. They are not sold for peanuts. Have you researched that, found any contradictory examples?

The cornerstone investors don't win with massive dilution. They can't, it's not mathematically possible. La Mancha control 23.2% now. If each of them ends up owning nearly 30% they all lose compared to where they are now. Do the maths, work it out for yourself.

There are many options on the table, some of which can be offset in time and risk. Royalty, CLNs, opco % sale, warrants, debt and more. Do you accept that? Do you understand many of them are preferable to the major stakeholders than massive dilution?

Stop posting as if you actually know the outcome. You no more do here than when you ramped and cross ramped RMM.

See the post below dj with the dilution maths. Glencore, Orion, and La Mancha have all got more in than they could put in against a new dilutive raise at these or even lower prices. That means the bigger the dilution the more they lose, regardless of what percentage they end up owning.

Even if one of them wanted to buy it at these daft prices they couldn't without the agreement of the other two. You would have to get two out of three of the turkeys to vote for Christmas whilst the other one warmed the oven.

So here we are all stuck. Except obviously not as there are loads of ways to raise money other than 100% equity. Even if they can't raise the money then the net asset value far exceeds the current market cap, and a 100% offer would have to reflect that or be rejected out if hand.