Member Info for ShearClass

Money of Mine is quality, completely different style from UK fund managers etc, however they ask all the right questions and cover some excellent topics with notable guests.

My view is that yesterday's deal highlights how important the exploitation contract was, and it won't just have been the streamers that will have been impressed with such a milestone. When you compare the equity value vs NAV of SOLG vs the likes of Filo it becomes very attractive as a long term hold, downside appears limited due to market dynamics & peer undervaluation, whilst the bid upside is surely in the region of 300-400%.

The fact Gina Reinhart has been spending a lot of time in Ecuador is a further reason to hold...

Jason Attew, President & CEO of Osisko commented: “Cascabel is a world-class copper-gold project that has the potential to become a multi-generational mine. SolGold’s focus on sustainable development has generated very strong support from the Government of Ecuador and the local communities near the Project. This new stream investment, which complements Osisko’s existing royalty on Cascabel, further enhances Osisko’s peer leading growth profile at an attractive rate of return. We are excited to be partnering with Franco-Nevada to continue to support SolGold and the development of this exceptional asset.”

Find me another copper gold asset valued at less than 10% NAV that has that kind of backing...

Gallmat, LCM don't negotiate deals with such steps, the % commission gradually increases over the life of the arbitration, as detailed in the Feb 23 conditional funding deal.

From the 3rd anniversary of the deal to the 4th, it's the higher of a 3.75x multiple of their invested capital or 12.5% commission. After 4 years it's 4.25x and 15%

Between now and then the commission increases by 2.5% PA from the current 5%

The reality is that these increases will be more or less offset by interest accruing on any potential award

I also have absolutely no idea what you are talking about with regard to corporation tax & the timing of the settlement

Anyone negative on this is off their rocker.

From the PFS;

"Average production[2] of 123ktpa of copper, 277kozpa of gold and 794kozpa of silver - 182ktpa copper equivalent ("CuEq")[3] - with peak[4] copper production of 216ktpa (370ktpa CuEq)"

At current spot rates of $9672/t copper and $2400 oz gold, annual revenues would be $1.2b for copper and $664m for gold, to get nearly half the construction costs + $100m working cap for just 20% of annual gold production is sensational.

Gallmat, one example is that they may sell the gold to downstream buyers (I.e. the jewellery industry) at a significant mark up to the spot price. Jewellery margins can presumably absorb the additional input cost...

This is also a really positive article on the implications of the 2021 law change;

https://m.economictimes.com/industry/indl-goods/svs/metals-mining/removal-of-certain-section-of-mining-act-may-lead-to-irreparable-loss-of-investors-confidence-fimi/amp_articleshow/80431869.cms

"The cancellation of saved cases under Section 10A(2)(b) implies that government of India has faltered on its Act and is bound to lead to irreparable loss of investors' confidence in Indian mineral sector, apart from multiple litigations in courts resulting in such an exercise of the government being rendered completely futile."

@gallmat, finally found an article that explains the logic of the auction premium;

https://www.financialexpress.com/policy/economy-mineral-auctions-how-fair-is-the-game-2238058/lite/

"A total of 103 auctions have been executed since 2015. Many of the auctions, particularly iron ore mines, have had high bids, even higher than the estimated value of resources. On average, the estimated auction premium cumulated over 50 years amounts to about 86% of the value of the estimated resources. Additional payment commitments on royalties, District Mineral Foundation (DMF) funds, and National Mineral Exploration Trust (NMET) funds are about 17% of the value of the estimated resources. Hence there is a total commitment of 103% of the value of the estimated resources, which does not include corporate taxes, forest and wildlife protection payments and stamp duties."

"Despite being aware of the impact of high bids on their operations, captive mining companies are amenable to bidding more than the theoretical value of the mineable resources as it would assure them of mineral supply. These higher costs can be absorbed in their downstream operations, and, in the case of steel production, the cost of iron ore constitutes only 10% of the manufacturing cost."

Reading between the lines, it feels as if there is someone interested in a material deal but perhaps they'll only execute if the historic drill holes are proved up?

- Couldn't drill on 6th June as wanted to minimise dilution

- Kalaka Met test results released on 13th June

- £1m raise on 17th June (was this conditional on the Met results?

- Drilling commences on 9th July

Regardless, none of these RNS's move the market, investors are here for Bhukia and a comprehensive update is well overdue now.

Heading for a year since the LCM funding was made unconditional, 18 months since it was conditional and still the notice of arbitration has been submitted.

I can't believe they aren't discussing some sort of settlement, otherwise the delay in filing is inexplicable.

Looks like the seller was taken out yesterday as this is now trading in more typical IES fashion. Currently no quote for 75k shares at 23p. Those who have taken profits have seen their shares snapped up by new buyers, some of whom are likely to have spotted the break of the near 12 month downtrend...

Loads of catalysts moving forward, starting with the formal launch of GB Energy next week, then the capital markets event. Having watched last weeks presentation there is also the potential for a huge deal to drop any day...

@Glowacki, based on the year end net financial debt of £182m (which excludes office leases), and adding back £62m from Fera + £207m from today's disposal, I have them in a net cash position of ~£87m

I wasn't fully aware of how much the debt situation had improved, but the vox interview with the guy from Rockwood cleared things up...

The auction outcome makes some form of settlement offer far more likely IMO. The timeline is worth reviewing again;

- 26/02/24 - Bhukia Jagpura gold block auction formally announced on Rajasthan mining website

- 27/02/24 - Owais Metal & Mineral Processing IPO's at a price range of 83-87, opening at 231

- Share price rises vertically for 4 months, peaking at 1569 on 26/06/24, a 1700% rise from IPO

- 22/06/24 - Owais announced as preferred bidder for the Bhukia mining license pending payment of a $60m fee + $60m bond + 65.3% royalty premium paid

Owais pledge to have the mine operational by 2026 & to create up to 50,000 local jobs...

IF the indian / rajasthan government know that they are facing a stonewall legal case, then they had two main options;

1. Do nothing, allow the court to stay the PAT appeal & wait for the arbitration to progress. This appears to be lose lose, as they make nothing from the mine and are open to a large claim

2. Find a willing buyer who has no reputation to lose (i.e. a new IPO), extract some money from them & get the mine into production ASAP. If they lose the case then any settlement can be paid from the proceeds of the mine operations. This appears a far better bet.

It's also more palatable for any government to make a settlement payment when it can be framed in the context of freeing up an asset which will create up to 50,000 local jobs...

I very much doubt this asset would have been auctioned if PAT hadn't successfully won $13.7m in litigation funding, the timing seems too coincidental given how long PAT kept the licenses stayed in court (2008 through to September 2023...)

All in all, things are moving rapidly. Of course I'd take a settlement tomorrow, however part of me thinks this is a once in a lifetime type of situation, one which has been created by tectonic shifts in Indian FDI policy over the last 20 years and that a pre judgement settlement of say 25% of the claim value could land in 2026-27. If Bhukia reaches production by that time then the likelihood of a significant settlement will increase substantially given the royalty premium the gov will by receiving...

Certainly, if the India defence goes along the 'the company changed their name so the legal entity changed' line of argument then they are surely going to be taken to the cleaners!

All to play for & hopefully the next milestone is on the doorstep

"India may tear up its Australia agreement - its a superpower in the making and at some point will flex its muscles - who is to say that an international trade agreement with a non-BRIC power will not be caught in the crossfire and with that our claim withers on the vine"

They already tore up legacy BIT's are 5 years ago - they are in the process of renegotiating a new deal, you can't run from the implications of previous agreements though, hence why we are here...

The 65.3% royalty premium paid by Owais was something I found difficult to comprehend, however it appears to be completely normal in Indian mining post the 2015 MMDR regulatory change, and even on the low side.

This is worth reading;

https://gyaniminer.com/is-mining-still-profitable-after-auctions/

The key point being that had the Bhukia license been granted to Panthera, no royalty premium would have been payable to the government because the prospecting license was issued pre 2015 & covered by the 1957 MMDR rules, which were in place when the Australia - India BIT was signed in 1999

This would have meant that the India government missed out on 65.3% of the value of Bhukia's gold output

So based on the in ground value of $16.7b quoted in yesterday's RNS, expropriating the license / deposit will earn India / Rajasthan an additional $10.9b over the life of the mine

Is this the crux of the case?

Gallmat, my opinion is that the CEO will be under strict instruction not to disclose anything relevant to the case, so constantly badgering him with questions which are price sensitive is wasting his time.

There is some new info on the Owais website; https://www.ommpl.com/gold_mines_news.html

"We are thrilled to announce that our Managing Director and Promoter, Mr. Saiyyed Owais Ali, has been declared the Preferred Bidder for the Bhukia-Jagpura Gold Mining Lease Block in the Banswara district of Rajasthan. Mr. Saiyyed Owais Ali (MSTC Regn. Number: 502742), Director of Owais Metal and Mineral Processing Limited, has successfully submitted the Highest Final Price Offer, positioning us as the Preferred Bidder for this significant block. We are pleased to share this remarkable progress in our operations."

"The Bhukia-Jagpura Gold Mine is located in Bhukia Jagpura, Tehsil- Ghatol & Ganoda, District- Banswara, Rajasthan. It spans 940.26 hectares (9.40 sq km) with an estimated reserve of 113.52 million tons valued at ₹110000 crore."

- 110000 crore = $13.2b

"We plan to commence operations in April 2026, utilizing advanced underground mining techniques and automation, backed by our extensive industry experience."

From a claim perspective this looks close to the best possible scenario IMO, as you have a preferred bidder boasting about how massive the resource is & when it will be in production. Quite why you want to ask the company about whether the result will stand is anyone's guess, an auction is an auction...

In terms of our case, it will surely have a positive impact as it underpins any claim value & shows that PAT have exhausted every reasonable avenue prior to submitting the NoA.

It's now about finalising the claim methodology & getting things moving properly, however I think PAT is now a significantly better investment proposition than it was last August post LCM funding.

Wow, a delayed trade for 1.282m landed just now at 7.14p... that is definitely interesting!

No, my understanding is that unless the preferred bidder doesn't follow through with the payment then nobody else can enter now.

On the cash flows @prof, it depends on how much gold they produce per annum, no reason why they can't get to 500k+ oz as it's open pittable, which based on the 65.3% royalty would earn the gov $750m PA at $2.3k gold price. However, if it's in production in 3-5 years then gold could be way higher. At $3k the gov would earn nearly $1b PA

You can see why in theory the deal makes sense. You can also see why PAT / LCM / Faskens have been waiting to see what happened with the auction...

Some more great info on P20;

"In the case of limestone blocks, the bid fluctuates widely from 5.2% to 138.25%, with the all-India average being

about 46% (refer to Table 3). Two limestone blocks (one each in Chhattisgarh and Maharashtra) have attracted a

premium of more than 100%. The bid ranges from 12.55% to 38.25% in case of gold and diamond, whereas, it varies

widely as low as 2.1% in copper to as high as 200.05% in graphite (refer to Tables 4 and 5)."

So a 65.3% is high for gold, but not in the context of other minerals. It's a very unorthadox system, where the cash flow is effectively nationalised, however the winning entity can then use the cash flow profile to lend against, and presumably acquire assets on a non auction basis...

This is the type of info I'd been looking for on the auction process;

https://www.teriin.org/sites/default/files/2020-03/mineral-auctions-india-dp.pdf

Loads of detail on the step by step process & commentary on whether it's good or bad...

From page 12;

"After the grant of mining lease and commencement of production, the lessee (i.e., successful bidder) shall pay

to the State Government an amount (called ‘auction amount’) equal to the product of: (i) the percentage

quoted as the final price offer; and (ii) the value of mineral despatched. This payment is made on a monthly basis."

The key point is the impact that this has on cashflow for Owais - they'll get the money first and will be able to take out huge debt, which can then be used for other assets that the own. On a 65.3% royalty basis they'll not make much profit unless gold climbs to over $3k (more than possible), however it's still highly attractive for them.

They don't need to make a large up front payment beyond the $120m figure, half of which is a bond which they'll get back.

Also, consider the fact that had we got the mining lease that the GoI / GoR wouldn't have received anything like this type of royalty... so as far as I see it, it's yet more motive for expropriation.

And yes @prof, such a high royalty is win win for both parties if they have considered the cost of settling the pending arbitration..

Struggling to get my head around the fact that they've effectively bid $10.9b for our resource - the mind boggles!

Also, happy to be corrected but this is the first time I think we've seen the below stated with clarity;

"From the results of its earlier work at Bhukia, coupled with the evaluation of the subsequent GSI reports, the Company believes that the mineral resource potential of Bhukia significantly exceeds that reported by the GSI."

'Significantly exceeds' 7.15Moz is some statement, it suggests a strong likelihood that the claim could refer to a resource in the 10Moz+ range, the impact of that on claim value is very material.

I suspect they will plough on and develop it, I agree that Owais does look like a front given the fact it's a new IPO which has mushroomed in value over the past year. At the end of they day, if they get $16b+ out of the ground over the next decade or two then a $1b+ settlement with PAT will be irrelevant to them.

Not so irrelevant to the band of early investors who have persevered through thick and thin on these boards though!

Currently NT for 1k shares at 6.5p - looks like we are about to take off.

Great post Pk73, connecting in ground value to claim size is on the money.

Regarding trading volumes, it was exactly the same on 28/02/23, the first day that PAT announced they had received conditional funding from LIT, in fact there were no trades the entire day!

I read the RNS, thought it was interesting but didn't want to take a punt with no volume. 3 days later shares jumped nearly 100%

I'll be surprised if we don't see 8-10p in the coming weeks, longer term this has the potential to became the stuff of AIM legend...