Member Info for StarBright

Readers will form their own conclusions on ramping & de-ramping Max..!

I like UFO. It’s one of the most interesting holdings in the sex & violence compartment of my portfolio. I think it has the potential to multi-bag over the next few years, and I am intending to enjoy the ride.

Hi Max. Not negative at all. Just - as always - looking to bring some grounded reality. What I have set out above would be a 75x return on investment within a short period. That’s a fantastic result for shareholders. As EWT says it may be possible that it can be nudged a little further along the curve with good drilling results. This is what good explorers do. But realising the theoretical NPV of such projects is incredibly difficult. It requires significant risk capital, extended timeframes and the successful negotiation of many commercial and regulatory agreements for extraction, handling, transportation etc, all of which are underpinnned by a commodity which exhibits extreme price volatility. That is why in situ reserves are worth just a fraction of those in production. UFO’s scope as an explorer is - realistically - confined to the early parts of the curve. It can make significant returns from proving up the potential of projects like this, but realism must be retained.

It’s not for you to “clarify” my position. I am always consistent, always realistic and I always share my thought processes and workings. I am here to discuss, not to manipulate or - to use one your own playbook phrases - to “support my investment”. Don’t make the mistake of ascribing your own motivations and methods to me. Clear?

Smiller, 0.25% of $15bn is $37.5m not $375m. $37m = £27m

EWT - thank you so much for sharing your analysis in this way. I agree with the methodology you have adopted for your NPV calculations on the Hamersley projects. However, in working through to Mcap/SP terms you have embedded an implicit assumption that project NPV will be translated into company EV at a 1:1 ratio. Unfortunately the harsh reality is that this is very much not the case. For mining projects at the PEA or PFS stage, it is typical to see only company EV's reflect only 10% of the NPV's of their underlying projects. My view is that you will need to divide your outputs by ten to get close to anything that will pass a reasonableness test. At a spot price of $150 that's an EV contribution of $41m [£30m] not $414m [£300m], $0.12 [0.9p] per share. I appreciate that this is a long way from your current 9p.

I think it's important to remember that UFO's 51% interest was acquired last year for around £400k*. If it might soon be worth £30m that is an extraordinary return on invested capital. It is - frankly - unrealistic to propose that £400k might have been turned into £300m in such a short period!

According to info I gathered in conversation with a former fund manager colleague who is a well known mining expert, we should be looking (at EV level) at something like 0.25% of spot price for in-situ high-grade iron ore reserves.

Taking your 100M tons @ $150 x 0.25% gives £27m. Again this is a fabulous return on the initial investment.


* As best as I can make out - Max your input would be welcome here - 51% was acquired for a total of 267m shares plus £100k. SP was 0.11p at that point, so 267m * 0.11p = £294k. Adding in the £100k gives an acquisition cost of roughly £400k.

He’s very good. Clear, with a good grasp of detail. My understanding is that he hasn’t previously had an opportunity to make as much money as he might here. This is a cracking opportunity for him. If he prospers, so will we. I hope he makes out like an absolute bandit..!

philke60. The jv contract will include:

1. a change of control clause giving NEM rights to protect its interests in the jv in the event that OMI itself is acquired.
2. a clause expressly prohibiting OMI from selling the optioned 51% whilst NEM is in compliance with the jv agreement

This is how jv contracts work. They are designed to protect the commercial interests of both parties.

There is zero chance that OMI would be able to sell the 51% interest optioned to NEM as you propose, other than with NEM's express consent or if NEM was in material breach of the jv agreement.

If OMI itself were to be acquired, it is likely that NEM would have a choice of either (1) continuing the JV with OMI's owners or (2) accelerating the payments and taking their % early.

You said I mentioned twelve years. Here's what I actually said:

"This says they can get from 51% to 65% just by spending $22m and waiting four years. Miners genuinely operate to long term timeframes; they'll sit tight for a period if doing that is NPV positive."

It's not incorrect at all. The 51% is not ours to sell whilst the JV terms are being met.

Your original question: "What would there be to stop us selling the majority stake to Chinese before it earns out?"
The answer: The JV agreement. If we tried to sell a "majority stake" NEM would prevent us from proceeding.

The wording around that will be pretty tight...

philke60 - Newmont are in compliance with the terms of the JV deal that gives them 51% in a couple of years time. Do you think we can sell that 51% to someone else..?

https://www.orosur.ca/files/2018-09-10-Orosur-Newmont-PR-FINAL.pdf

Maybe safest to use the "Anti-Covid Holy Water" I see pop-up ads for on this site..?

Rob1967 - let's hope that NEM feel that way and engage early against a background of good drilling results!
philke60 - we don't have a majority stake to sell sadly. Competitive tension (ie your Chinese buyer) will be massively helpful...
Prof1 - I agree re insto shareholders. Preferably including an industry participant with deep pockets...
Vrocky - As per my response to Rob above, let's hope so. I am not familiar with the Newmont/GGP story - what happened there?

Mining isn't my area of specialist expertise (I am just an extinction-threatened value investor...) so I am very keen to hear from posters with greater familiarity with mining JV's. Specifically to learn how exits from comparable situations have been achieved in the past.

Yes, I agree NEM will prefer to own 100% if this is even half as good as we all hope. What will help us - as always! - the most is if good drilling results come quickly. Too quickly for NEM to have the luxury of choosing the moment that suits them best. As you say we will want to be negotiating from a position of strength.

The phased structure of the JV is interesting. The company presentation says:

"Phase 1, earning 51% interest by spending US$10.0 million over 4 years & making cash payments equaling US$2.0 million during the first 2 years. After Phase 1, Newmont may elect to form a JV"

The word "elect" catches my eye. Does it mean that there are some (formulaic or similar) pre-negotiated terms that NM can invoke?

It then says:

"In Phase 2, earning additional 14% interest by sole-funding US$20.0 million within 4 years, completing an NI 43-101 prefeasibility study & making cash payments to Orosur equaling a total of US$2.0 million."

NEM aren't going to pay top dollar for anything that will be theirs for cents if they simply wait and conform to the JV agreement. This says they can get from 51% to 65% just by spending $22m and waiting four years. Miners genuinely operate to long term timeframes; they'll sit tight for a period if doing that is NPV positive. There is a premium for outright ownership, but it may be hard for OMI to realise.

The good news is that the interests of our CEO and his team are aligned with ours. They have infinitely more information and expertise/experience than any of us. I am content to sit tight and let them crack on...

100% agreed! The value we all see here will be realised in time. There'll be a buyout at some point. As is always the case we have groups of investors with varied motivations. I am inclined to sit tight and wait for the buyout. I'm not looking for an early exit from my position; others on this board clearly are! That's fine with me. Different strategies - particularly different time horizons - make the market work.

Russky - the market-makers aren’t driving the bus! They are more like old-fashioned conductors, making their living clipping our tickets. But they are going where the bus is going, not dictating its direction of travel...

Ha ha. A former colleague of mine had a fat-finger-moment in his first week on our fixed income desk, and pretty much cornered the Bund. In his case he mistook “lots” for “contracts” resulting in a trade with nominal value 1 million times what he intended. Luckily we were able to rewind it...

Guerillainvestor - what I was trying to do was to provoke an evidenced debate on valuation methodologies. I’m not wedded to any one in particular at this point. But “because GGP” isn’t enough for me. It’s evidently not the week for debate though! I’ll wait and enjoy watching the crew hard at work here. When it has all died down there will be a better opportunity for those looking to discuss rather than simply to “get the herd over”.

On reflection I think he’s trolling me...

tuan6, I am going to cut and paste the post I made after you last posted on this topic:

“Tuan6 - can you stop repeating the falsehood regarding stock lending please? Here is a link to the Halifax T&C; I have copied below the relevant clause. There is no grey area or doubt on this matter. Please just give it a rest - you are making yourself look stupid, or mischievous. Perhaps both.

https://www.halifax.co.uk/assets/pdf/filestore/HalifaxShareDealing_TermsandConds.pdf

“10.10 We will not lend or deposit by way of collateral any investments in your account to a third party”

None of the major/reputable UK retail platforms lend investors shares. This is clearly stated in their t&c’s. Two more examples:

Hargreaves A25: “Investments will not be lent to a third party and we will not borrow money against your investments.”

Barclays 13.1: “ We will not engage in stock lending for any Asset in your Account.””

“...approximately 2,000 volunteers...”

https://www.omegadiagnostics.com/Portals/0/200907%20-%20UK-RTC%20Self-use%20utilisation%20COMPLETED.pdf

Just wondering whether Avacta will have to test in similar scale. Anyone?

What was the sample size in the Ulster test discussed so much here last year. Was it 200?

SimonShares. Private investors are the only meaningful holders of ODX. The collective impact of OUR activities has driven the volatility we have all enjoyed. We have translated our hopes and fears into buys and sells, and created the price action. The other actors discussed endlessly on LSE - the market-makers, L&G (who must have sold their last 3m thirty times over since their final TR1 according to posters here!), the “city boyos” beloved of one frequent poster are only extras in this drama. Any impacts they have are transient in the face of the volume driven by private investors. The market-makers in particular are very much price-takers in anything other than the very short run; their interests served best simply by finding the price at which both buyers and sellers willingly transact. And boy do we transact! In 100 trading days since the end of September we have bought and sold the entire company three times. That’s 540m shares traded at an average price of 70p, gifting the market-makers nearly £6M (assuming a spread of 1.5%). Our frenetic activity has made this a dream share for them...