Member Info for tedoby

Well said CF!

Nice one Longlad! Thank you.

Just to try to clarify what Prem is trying to achieve with the Government and to put it into perspective.

The restructure of RHA has been approved by default by changes to the law through the new Finace Act enshrined in around April time.

All that needs to happen to effect the changes is a revised Shareholder Agreement (that originally inter alia, provided protection from dilution and other pre-emptive rights) which is now in place needs signing off by the relevant Ministers and I believe we are very close to hearing that its been done. The new SA waives and amends the previously incorporated pre-emptive rights.

I believe it's not a big issue as far as the Governments concerned which is perhaps why ironically it's taking longer than it should.

Neither party will want to see this going an alternative route. Therefore there's hardly any chance at all of it going that way in my view. It's not a dispute after all. As frustrating as it is it's just a timing issue and more patience is needed .

AIMHO

GLA

NaPoM I haven't forgotten about exchanging our thoughts on Zulu and RHA valuations.

Before we do can I ask if you can help me with a missing piece in the Newco jigsaw please.

In the KDNC HofT's both parties agreed to recognise the inter-company loans on both Zulu and RHA.

They don't appear to have been mentioned so far in the Newco proposal as far as I can tell and I just wondered if you knew how they were being dealt with please?

In the round I think the one on Zulu is about $4m and after the restructuring on RHA there should in theory be a balance of around $10m still outstanding on that one.

These loans if they still exist in Newco have the effect of not just moving the potential value out of Newco into Prem but aslo they could have a positive impact on Prems cashflow. Repayments of either or both could provide Prem with a steady income stream if structured appropriately.

You may not know the answer but it would be really helpful if you did.

GLA

Charlie1984 I'm not convinced the milestone payments should be regarded as bonuses.

I think they're meant to be considered as part of a payment profile the parties are proposing to agree that represents the total purchase price of KME. So the total purchase price of $7m subject to fair valuation of KME's assets is going to be payable in the three tranches set out in the Heads of Terms. How the value converts into shares obviously depents upon the SP's at those times.

As I say I doubt we'll see the payments categorised as bonuses. I believe you'll find that bonus clauses cannot be incorporated into a contract in isolation. There should always be a corresponding penalty clause incorporated as well to bring balance to make either effective.

That's why lawyers are careful to categorise late completion payments on contracts where specific dates are set to as "damages" often termed " liquidated and ascertained damages" as opposed to "penalties" which as I say would be unenforceable in isolation..

Anyway I'm not sure if my thoughts change your perception but this is how I see the milestone payments in the Newco proposal. Exactly that "payments".

AIMHO

GLA

GLA

NaPoM I'll get back to you on that with a little bit of reasoning hopefully.

Have you counselled opinions from those within your group and could we compare a little later do you think?

GL

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I believe we are now about half way through both Prems and KME’s DD period and there’s about two weeks left to run. Both parties have shown signs of confidence in starting this process before the official sign off of Prems proposal by the Government. However small you judge those signs to be. So we should have news on how the procedure went along with a general update in just over two weeks time. There may be other news before then obviously.

As well as a show of confidence the parties have effectively removed the “Governments sign-off” from the critical path. So as it stands although it’s frustrating right now it’s not affecting Newco’s timeline.

I also believe that drilling and mapping the pit has been on going and we must now be quite close to Bara being able to complete their analysis and report. That will no doubt be a critical piece if information needed soon for in the Newco process which along with RHA’s revised ownership confirmation should enable a fair valuation to be placed on the mine.

From what’s been identified and can can be extrapolated we know that the ore strike in the pit runs generally on a line of latitude with grades being the weakest in the East and improving in a Westerly direction towards the underground shaft. We also know that the grades improve as the deeper blocks are identified. That also applies to the underground mine where it seems grades are improving at depth.

So the drilling campaign in the fit will be to delineate the ore bodies both on plan and depth which should then enable a reasonable valuation of RHA to be made, But perhaps more importantly to enable the design of the new pit walls and to develop a best value overall mining plan.

What the current Bara report and the cost appraisal tells us is that taking the worst case the mine can be profitable at today’s costs and values by just extracting from the underground mine which as far as it went has done what was intended. That is to say that in the worst case scenario RHA can be profitable and give the confidence needed to bring the mine back into production.

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The fact remains that there are savings on Cash Costs of around 25% anticipated from KME operating the mine which will help in the short term appraisal. As will any ore above a revised cut off grade from the pit along with the value of economic material from the tailings.

In the longer term no doubt the inclined mechanised shaft to extract from the underground mine will come into play as will improving ore grades extracted from new stopes at depth.

When the time comes to reassess the value at RHA in the coming weeks I’m hoping that there will be sufficient data to place a reasonably accurate value on the mine at both the proposed 16.000t/month ROM milestone in Newco. It could be useful to use that assessment as another way to value RHA the IPO consideration too.

The 16,000t’s/month ROM at RHA should produce at least 5,000 Mtu’s APT/month. The underground mine rate should be around 6.000t’s/month at roughly 0.55% grade and the other 10,000t’s from either or both the pit and tailings should produce grades of not less than 0 25%. The saving on cost with KME as the operator should reduce the breakeven point to around 1,500 Mtu’s/ month.

If all of that’s about right we’re looking at a monthly net profit of $600 and an annualised profit of over $7m. Applying the earnings metric that would give RHA a Market Cap of $70m if the p/e ratio was 10.

AIMHO

GLA

Malkster77 - To answer your question as best I can some time early this year Prem applied for approval from the Minister Of Mines to its proposal to revise the Governments equity/debt position as we know. Effectively it was a swap that was proposed..

Shortly afterwards there were amendments made to the Indigenisation and Economic Empowerment Act and those amendments were subsequently incorporated in the revised Finance Act that in turn was enshrined in law in Zimbabwe around April time. Those laws affected the proposal under negotiation at that time.

Having continued to chase the approval Prem was told effectively by the MOM on behalf of the Goverment in August that the approval to the swap wasn't actually needed - and effectively it was in fact approved by default. This was RNS'd on 13th August. Viz:-

"that under the amended Indigenisation and Economic Empowerment Act, RHA is no longer required to comply with indigenisation policies and that the proposed restructuring of RHA can proceed without approval"

In the same RNS Prem also confirmed "In light of the reassurances received from the Ministries, Premier will continue to work with the Ministries while the procedural Governmental approvals are dealt with." Emphasis on PROCEDURAL Approvals. Which is where we are now.

So having had the equity change approved by default under the new Finance Act there was nevertheless clearly a need to amend the "Shareholder Agreement" which Prem did and as a matter of PROCEDURE have that document signed to confirm it reflected the equity/debt changes accurately in the agreed proposal. This shouldn't be confused with the equity/debt change itself. That happened by default when the Finance Act came into force.

Where we are now I believe is that the new contract between the parties in the form of a revised "Shareholders Agreement" needs to be signed by the Government perhaps by just one or possibly two signatories to enable further agreements/contracts such those in the Newco proposal to be executed.

It goes without saying I think that the revised agreement will have been through the necessary checks by lawyers etc before placing in front of the signatories. That will have taken time as will the disruption through the changes in law together with the delay caused by the national election and ministerial changes

I've checked my understanding of what's been RNS's and I believe what I'm saying is about right although I'm not not so sure my comments help.

AIMHO

GLA

Welshie7 it's the Minister of Industry I believe.

GLA

I'm not a member of NaPoM's group but I do my best to stay in touch with what's going on especially during critical times such as this. So although I may not have the awareness of NaPoMs group to the extent that I'm able to judge I also believe what he's posting is absolutely correct.

The signing off process in the Government has been complicated and long winded that's for sure. The proposal would have needed input from a number of departments and signatures from the heads of those departments in the protocol.

Nevertheless Prem's proposal has been approved and I believe the last signatories at the end of the chain either have or are in the process of signing the document that ratifies it. I'm not excluding the Presidents signature being required in this.

We shouldn't dismiss lightly the importance of this proposal to the Government. They're sure to have been taking into account the direction Prem want to go with all it's assets in Zimbabwe and not just the changes at RHA as one of it's significant shareholders. I have little doubt about that.

Anyway FWIW I'm in total support of the Newco proposal and I firmly believe we should hear news to end the frustration on the RHA equity change any time within the next few days.

GLA

Thanks for the feedback CF!

Fingers crossed for some positive news soon.

GLA

Thanks CF. There's a few typo's in my post too ! Ha ha

Some will no doubt get the gist though.

GLA

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Valuing RHA is slightly more complicated but I’ll put forward two alternatives to think about just as I have on Zulu. Firstly we know Prems loan to RHA is in excess of $20m and in the proposal of “equity swap” with the Government the deal is 51% of the loan in exchange for 41% of the equity. So $20m x % 51% would give us $10.2m and from there places a value on RHA of $25.5m

Alternatively at the first milestone in six months after Newco’s IPO RHA could have a notional Market Cap in the region of $70m. This being derived from 16kt’s of ore above cut-off grades delivered to the ROM pad from the underground mine together with either the pit or tailings or a combination of both. I personally think that’s quite a soft target for KME but that’s another debate.

So at the first milestone delivering 16kt’s of ore at say 0.35% average grade to the ROM pad could see RHA producing 5k Mtu’s APT/month giving it a revenue of $1.2m/month or thereabouts. The nett profit from that should be in the region of $600k/m or $7m/annum. From there sing the earnings metric and a price to earnings ratio of between 8 and 10 that would place a Market Cap valuation on RHA of not less than $56m.

Working back to the Newco’s IPO launch and using say a 40% ROI figure that would place a similar value on RHA of $25m in my view. Not forgetting RHA’s production will be in its infancy and the increase in its value in should be exponential following a logarithmic growth curve more or less.

So what then should Newco be valued at IPO stage? For me I think the “gross” value should be $16m for Zulu + $25m for RHA + $7m representing the value placed on KME (4+1.5 +1.5) + $6m raised at the IPO’s launch . So say $54m gross.

To make the IPO attractive and well supported I image the gross should be discounted by say 25% and if right that would produce a nett value on Newco of $40m which at todays exchange rate would give the company a notional Market Cap initially of £30m which in turn would give “today's” a contribution to it’s M.C. of £18m assuming 5 to 60% of the overall value is retained as we’re told.

Some might argue that Circum is worth at least £10m and I could imagine that’s right based again on what we’re told. If all this is about right Prems shareholders in theory could well see the value of Newco and Circum being reflected in the SP shortly after newco’s IPO if it’s well supported at around 0.5op to 0.60p as a direct comparison to today’s SP of 0.16p and that in itself following the logarithmic curve to well over the equivalent of 1p in six to nine months running on the curve to over 5p in three years

The reason for the disconnect in values between “Prem today” and Prem at IPO is mainly because RHA has been fully impaired and has little perceived value and the value of $7m for KME has yet to be included along with the $6m fund raise. All before the 50% to 60% fundamental is applied.

In the likelihood of this proposal being accepted there

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Wile. E. Coyote re your post just after midnight. I think you’re right to try to value the constituent parts any to then tial them to get an overall picture in my view. I’m not sure I agree with the sum of the parts not capable of being greater than the whole though simply because in the spin out process value will inevitably be added.

But I doing it is difficult without knowing more of the details. But there are a couple of ways.

If we take Zulu first and just consider the resource in the Scope Study that's SAMREC for now although it may only be a very small part at probably less than 15%. So we have just over 20kt’s Li2O at a tested grade if over 6% Spodumene in concentrate which is battery grade in the main. I'll not make any adjustment for the Petalite quantity for now given there's Tantalum credits that should be counted too and the quantity if Li2O is greater than 20kt’s in any event being derived from 2mt's of ore at over 1% grade.

So if we say 20kt’s of Li2O initially that’s about 50kt’s of LCE given the conversion rate is 2.473. 50kt’s at today’s price of say $16k’s/t gives us an “in-ground” value value in the region of $800m. Some Analysts and Bankers would argue on that basis the “business value” should be around 2% of the “in-ground” and if that’s right that would place a current value on Zulu of $16m at this stage.

If you accept that the Cadence deal fell through because of their weak financial situation then the “in-ground” perceived value of $16m is underpinned by the valuation of Zulu in that deal at $17m

Nice one CF!

LOL.

CF This is how the Cambridge English Dictionary defines dilution in business terms .

"the process or action of making a company's shares less valuable by making more shares available"

So it follows that if new shares are issued in a transaction and the nett effect is to increase a company's value then the transaction can't be categorised as dilution. In fact it's quite the opposite. It's accretion.

Take for example the initial purchase of KME. In this example we know the value is $4m and the cost will be 20% in shares . So in today's terms roughly 20% of Prems MC excluding Circum which I would suggest is no more than $2m. So with a cost of $2m and a value of $4m it's going to be accretive and therefore shouldn't be regarded dilution.

Take also the case of the further payment totalling $3m to KME on reaching the two set milestones. It's inconceivable that the additional value those stages will be less than cost as a direct consequence of issuing more shares. So those stage payments will not be dilutive either. They'll also be accretive.

I hope my thoughts help.

GLA

Great posts today as ever CF!

I couldn't agree more Snowking!

It seems to me that shareholders and the markets may be overly concerned about raising the $6m finance stated in the restructuring RNS issued on Wednesday. For me they shouldn't be too concerned and here's a couple of the many reasons reasons why:-

1) Although the RNS implies it's a "Condition Precedent" to the agreement that's not quite correct as GR explained more fully in the Webinar. It's true to say there must be a fund-raising to finance start up but the $6m figure is misleading.

As GR said it should be done in at least two stages. Stage one would be to get RHA profitable and to start work on Zulu. Stage two would be to get Zulu to DFS stage and to progress the other projects in the portfolio at the same time.

As I see it Stage one should be about half the estimated total. So $3m or £2.6m at todays exchange rate. $1.8m roughly of it we know should cover RHA's cost up to profitability and the remainder $1.2m should be sufficient to cover the IPO costs etc along with the enabling works such as the hard access route's etc for the drill rigs and the initial drilling on Zulu.

I'm guessing as we all are but manage meant seem to agree the fund-raising will be split and FWIW my guess is Stage two cash will be needed around three months after Stage one. The Stage two amount will be at large for a while yet in the process as it will need to be planned better as things become much clearer.

2) The finance needed shouldn't be regarded as "dilution" in my view . It's not dilutive. It'll be accretive and therefore should be seen as an investment. It's needed not just to develop Newco's considerable assets but also to complete the purchase of KME who in turn has the capability of reducing Cash Costs on all the projects by around 25% we're told which is potentially huge.

With KME in control of operations the cost saving on RHA alone is likely to be roughly $2.5m a year when the mines fully operational at a ROM of 40,000t's/ month. And on Zulu the saving could easily be over $30m a year going the concentrate route even in the first year of production.

This all helps to put the $6m figure in perspective for me and I hope some of my comments are of interest.

AIMHO

GLA