Member Info for StarBright

@Z - the answer is that a sale of part (or all) of GGP’s interest in Hav might or might not require shareholder consent, depending on the size/materiality of the proposed transaction assessed using something called the “class tests”. The class tests examine a proposed transaction using 5 measures: Gross Assets, Profits, Turnover, Consideration & Gross Capital. Each measure utilises a specified numerator and denominator to derive a percentage indicating the materiality of the proposed transaction. Timing also matters; if such an asset disposal were structured in tranches over time there are provisions that require the aggregation of transactions in the preceding twelve months. A “substantial transaction” is one which exceeds 10% in any of the class tests. It triggers a shareholder notification. Only a disposal exceeding 75% (thus considered a "fundamental change of business") in any of the class tests would require shareholder consent (50% of those voting, tbc*), via a GM.

So the correct answer is that it depends upon the %, the price, the timing and upon how the class tests are applied. It is not straightforward! Based on today’s figures, an asset disposal (of whatever %) at <£475m *could* be below the 75% level on all of the class tests, and thus subject to shareholder notification only.

If you wanted to add back 50% of the initial CapEx (not sure why..?) then you can't just add it back at the end of the calculation as you have; it will still be reflected in every oz including any oz subsequently discovered/mined. The NPV's published with the PFS can only be used in the context of the specific initiative contemplated. They don't form a useful basis for a valuation of the Hav project as a whole.

@Z, yep - multi-factorial as someone likes to say…

Setting out scenarios that work from bean to cup - in this case a traceable path from oz in the ground to a future SP - is the best way to tease out out what really matters..The output is typically less valuable than the journey itself. Thinking about your model has prompted me to consider whether some oz might be worth more than other oz in profit terms, for example. Thank you for that.

This board has some great posters on geo/mining, and plenty posting noise about price/volume action etc. And plenty who mainly post about other posters… But the relevant content is doughnut shaped - there is a hole in the middle. Beside yourself, only a few posters have attempted to draw the line from bean to cup - @BiggL and @petejh spring to mind. Their contributions are valuable even if their conclusions are sometimes obscured by the noise they attract. I would welcome more input from those able to articulate a view on how oz in the ground might be converted into free cashflow over time. Especially those who acknowledge the realities of taxation, risk and the time value of money…

@Zoros, thank you for setting out a credible scenario and a related valuation model. This is what investment is really about…

I agree with you regarding the intent of NCM, and the likelihood/timing of them moving for 100%. Also that this event will likely create the opportunity for GGP holders to exit at a premium one way or another. My investment thesis is based on a similar narrative scenario.

If I have understood your thinking, you use a baseline of 10moz - equating this with an SP of 25p - and then scale up from there, 20moz = 50p etc.

When sell-side analysts propose 25p this is generally intended as a “within 12m” price target. The target is tied more to time than it is to events - it’s not proposed as “post-MRE2” or “post-DFS” for example. It’s certainly not tied to oz.

A couple of thoughts on using it as you have:

1. The start-point (10moz = 25p) may reflect more or less than you implicitly permit. It is always difficult to “prove” what is and isn’t priced in to any SP. If the start point isn’t correct (in either direction) then building on it as you propose will enlarge the impact of any underlying error. And I am intrinsically wary of any methodology that starts and finishes with an SP as there is a risk that there is some circularity embedded. We are also a long way from 25p today.
2. Your methodology implicitly assumes a linear relationship between discovered-oz and SP. This may not be accurate. Some would say that later (block-cave mined?) oz will generate more profit/oz, so perhaps a doubling of oz would lead to more than a doubling of SP. Or the converse, where more oz equals extended LOM but processing or similar constraints mean that annual FCF (thus “dividend power”) generation has no headroom.

So… I am onboard with your narrative, but a little less sanguine with regard to how your SP forecast is built.

@SaS. The MM’s found themselves faced with determined sellers in volume as soon as the RNS was released that day. From 08:00 to 10:40 there were about 300 trades; from 10:40 to 11:20 there were over 2,300! For deals below NMS the MM’s are compelled to trade at quote, so for around 40 minutes they were force-fed everything offered by a febrile PI community (check the chat on this ‘board that day). Not wanting material long positions (too much capital/cost/risk etc), the MM’s kept dropping the quoted price to try to deter sellers and encourage some buyers out of the woodwork. They had to drop it a long long way to find the point (around 24p, 40 mins after the RNS) at which both buyers and sellers were prepared to transact. The MM’s actions that day were driven by fear, not by greed.

@Hydro - I’d tell to you talk with your broker ;>

@SaS - my professional background is buy-side (fund management). I am no defender of market makers; rather a veteran of some big fights with them. One of GGP’s MM’s in particular would roar with laughter at the suggestion that I might have their best interests in mind…

There are murky practices in all markets, and AIM is perhaps one of the worst. But the popular rhetoric of the LSE ‘boards re MM’s - “they want your shares” etc is just borne of lack of understanding. The MM’s don’t “want your shares”, they are not building a secret hoard of GGP shares on the sly. They want your flow, your trades. They are not interested in “making buys look like sells” in the hope that this will encourage others to sell. They want to find the price at which you will buy and ANO will sell. That way they can clip risk-free the spread without exposing their precious/expensive capital. They are essentially price-takers, not price-setters. In truth they couldn’t care less what the SP of a particular company is - only that their quote puts them where they need to be to compete for buys and sells without exposing themselves.

The true risks of AIM for PI’s lie elsewhere - particularly around placings and other corporate actions associated with capital raising, and especially around related-party transactions. These - in my opinion - are areas to which PI attention would be better directed.

@SaS - in your model, the quoted price is set only by small retail trades processed online. If the quoted price doesn’t follow the reported trades you propose manipulation as the cause.

I am trying to explain that what you are choosing to look at is only part of the picture. In reality there are other trades taking place, and other factors impacting upon the prices quoted by the MM’s. For example, there are different regulatory obligations for telephone deals than there are for online trades , so the prices you might be quoted if you ring for a quote could be different to those you see on L2, or when you try what is aptly named a “dummy trade”

Remember also that there are multiple (6 I think for GGP?) market-makers, and that the quoted spread is set by their best bids and offers. One MM moving their own marks might or not affect the quoted spread. Believe me the MM’s are in vicious competition with each other for flow, and are not arranging 6-way calls or WhatsApps to collaborate in showing prices designed to trick retail investors into selling their “golden tickets”.

MM’s move prices in response to exogenous data. For example - most equity spreads were widened around the time of the US jobs report this afternoon as the risk of volatility was heightened. MM’s are also sometimes told by their internal risk teams that they have to square their positions before a certain time.

You are right to observe that the trade data you can see on L2, and the prints on LSE/ADVFN etc do not always readily explain movements in the quoted spread. You are wrong to characterise everything you can’t see through this window as “manipulation”. There are many many reasons why quoted prices change. It’s futile to look - as you are - at a small subset of data and try to draw universal conclusions.

@SaS. Please consider the following:

1. The pricing and depth quoted for online “at market” trades won’t represent what is truly achievable. This pricing and depth is not only available as what LSE posters like to call “mates rates”. If you’d placed a genuine limit order this morning for (say) 500k shares you would likely achieve similar execution. Especially for a telephone order oddly enough.

2. The times on those prints are the times that the trades were “reported”. They may - particularly the larger ones - have been placed hours or even the day before they are reported. The quoted spreads on each trade are those for the time of reporting not execution, so are simply not useful in determining whether such a trade is a buy or sell.

You are effectively looking at just one part of the market whilst wearing a set of blinkers, and then ascribing “manipulation” to what you can’t see.

@PQ; I’m not (yet) proposing a range let alone a figure. Not enough data + a simple average is too simple!

What I would like to do is this:

1. Confirm the 3 base data items (consideration, reserve_oz, resource_oz) for the 3 transactions I’ve highlighted
2. Add further comparable transactions with the same 3 items of base data for each, sourced back to deal RNS or similar
3. Perform a simple (2-factor) regression analysis to estimate implied consideration ranges for reserve and resource oz
4. From this construct a simple but evidenced model that can be used for everyone’s preferred combo of reserves/resources

Working with an IB they’d use a subscription service like Dealogic to identify a set of comparable transactions. I think we can “crowd-source” that info here given the many knowledgeable posters. If we can find (say) 6-10 such transactions from the last few years (each supported by RNS or similar) it will be possible to build a fact-based model of USD/oz for public transactions. I’m not sufficiently familiar with deals in the sector to find the right comparables. But I can regularise the data and perform the necessary regression analysis.

So…. If you can highlight transactions in the (say) 5-50moz range from the last 3(?) years and post a link to their public announcement here, I will pull a transparent picture together.

I’ve been looking over some recent transactions, with valuation of the 5% in mind. All of these are decent size transactions (10-20moz) occasionally referenced in discussion on this ‘board. I am a generalist not a mining expert so am posting these figures in the hope that one (or more) of the resident mining experts can confirm or correct as appropriate. Transaction details are not published in a consistent/coherent way, so I am effectively trying to summarise them within a common framework. Plenty of scope for error, hence this request. In particular I am keen to avoid pitfalls such as Au vs AuEq, complications around secondary minerals etc.

A. NCM negotiated the purchase of 70% of Red Chris in Aug ‘19 for USD806.5m. At that point, RC had:

Reserves
- None 0moz

Resources
- Measured + Indicated 12moz
- Inferred 8moz

Total 20moz @ USD58 per “included oz”

B. Regis negotiated the purchase of a 30% non-operating stake in Tropicana in April ‘21 for USD650m. At that point, Tropicana had:

Reserves
- Proven 0.8moz
- Probable 1.9moz

Resources
- Measured 1.2moz
- Indicated 2.4moz
- Inferred 3.0moz

Total 10.3moz @ USD210 per “included oz”

C. NCM negotiated the acquisition of Pretium in Nov ‘21 at a price valuing 100% at USD2,800m. At that point, Pretium had:

Reserves
- Prov+Prob 4.3moz (incl 29.6moz Ag converted at 80:1)

Resources
- Meas+Ind 8.0moz (incl. 48.8moz Ag converted at 80:1)
- Inferred 3.3moz (incl. 13.4moz Ag converted at 80:1)

Total 15.6moz @ USD179 per “included oz”

[Why is the Red Chris figure so different to the other two? I am inclined to attribute this to the fact that P&P reserves were nil at the point of negotiation. Today, RC reports 8moz as reserves and 12moz as resources. My interpretation is that NCM moved early here and will have benefitted from exploration upside in the years since the deal was done.]

If I can gain some comfort over the figures above (ie correct any mistakes I may have made) I will extend/adapt this analysis to estimate an implied valuation range for the 5%. I’d like to settle the base numbers first though.

I am also interested to be pointed toward any other recent-ish transactions of similar scale/nature.

Thank you in advance.

Thank you @Bamps. This is another interesting illustration of the potential impact of the secondary mineralisations on AISC. I wonder whether there will be an industry-wide “custom & practice” change at some point to the current norm of reducing AISC rather than showing the revenue from the copper etc separately. With the rise in prices of many metals, AISC in its present shape is becoming less useful as a means of comparison between projects.

@L-A, the ‘E” in P/E is (by definition) after taxes. Using Hannam’s 33%; USD256m * 0.67 = USD171.5m = GBP127m. MCap GBP607m, so 4.8x. Still very cheap at 4.8x however were that to prove to be the case..!

There are ALWAYS compelling reasons not to invest! This article includes a list from 1989 on, together with some data on market performance each year.

https://www.cazenovecapital.com/uk/financial-adviser/insights/strategy-and-economics/32-reasons-not-to-invest-in-the-stock-market/

The Russia/Ukraine “issue” is widely known by market participants so will (to some degree) already be reflected in equity prices at the index level. It’s the arrows you don’t see that kill you!

It’s also just too difficult to step out and then back in the way you describe - especially at single share level where the considerations are (to use someone else’s favourite phrase…) multi-factorial. You might sell up 10 days before Putin says “go”, and miss an MRE upgrade RNS in the meantime…

If you want to play the global macro investing game then open an IG or IBKR account and buy some OOTM index puts. Limited risk and the prospect of big upside if your timing is good..!

@LoggyLogbot - both routes get you to the same place. The difference between the 175 and 167 arises because I have used 33% and you have used 30%. Aus corporate tax is payable at 30%, but there are other state taxes/royalties, levies for indigenous people, enviro etc that add the additional 3%. Hannam (I think) showed a breakdown of these in one of their early valuation notes. It is possible that some of these are incorporated within the AISC - without a breakdown of that it isn't possible to say. I've gone with 33% because that's what Hannam are using.

@SaS - I've (correctly) applied the 33% to the profit after paying wages etc. These running costs are all part of the AISC.

Take another look at my simple calc perhaps.

@daveri007 - I'm afraid not. The capitalised costs included in the AISC* will be offset against revenue over the life of the project in tax terms. It really isn't me that is "failing to understand" anything here. The important point is that only post-tax profits accrue to shareholders, so the impact of taxes is fundamental when valuations are being considered.

* capital costs included in AISC:
- Sustaining CapEx
- Sustaining Exploration CapEx
- Sustaining Stripping and Underground Development CapEx
- Sustaining Exploration and Study costs (likely the costs SD was discussing)
- Site reclamation and remediation costs

@SaS - yes, we could see anything from 4.2m to 42m+ oz being used. Your guess is as good as mine, I'm not expressing any view. However for every oz of gold that eventually comes out of the ground we'll see something like this (I've assumed NCM move to 75%):

Revenue 1800
Costs (800)
Pre-tax profit 1000
Taxes (333) ------> to Aus tax authorities
Post-tax profit 667
NCM 75% 500 -------> to NCM s/h for divis, reinvestment etc
GGP 25% 167 -------> to GGP s/h for divis, reinvestment etc

It is a sobering reality that the Aus tax authorities will ultimately retain twice as much of the profit from Hav as GGP shareholders.

So... all back-of-an-envelope estimates based on SpotPOG - AISC should additionally include the impact of taxes as these are a material allocation of profit. Financing costs and and the time value of money (not all of the gold will be mined on day 1!) also act to reduce the value that shareholders can realise from gold in the ground, but they are topics for another day as they are far harder to estimate.

The various broker SP estimates (Hannam etc) always appear low compared to valuations discussed on this board precisely because they incorporate the impacts of taxes, financing costs and the time value of money.

I hope this makes sense.

@SaS - don’t forget that AISC doesn’t allow for taxes (Hannam uses 33%) and financing costs (which will depend on how the mine is financed). To be clear; the value of 10m oz in the ground using your back-off-envelope method might be $10bn, but the value of this to a shareholder (of either GGP or NCM) is reduced by the amount that will be paid to the Australian government in tax. NCM will be looking at post-tax profits when determining what they are prepared to pay. It would be appropriate to reduce your $10bn by 33%.

Wrong. NCM hold an option over the 5%. If they wish to acquire it at the value chosen by the independent expert (in the absence of agreement), GGP are unable to decline.

How many times has this been covered here?

Too much detail. It’s an overtly politicised environment with little context for most. You want the Brexiteer element in the audience onside as they are always vocal. Short, open questions in the present tense are the most effective: “Why on earth are we spending £bn’s of taxpayers money on lateral flow tests from China when superior British developed and manufactured alternatives are available?”