Member Info for Tornadotony

Gold just broke higher $2022.

Possible reason is that China has put in a large order for gold delivery from the New York Comex to supply physical gold. If Comex can not supply gold then the metal has to be revalued so that China can import more gold from the global market. Yuan may possibly be backed by gold standard. (source was zero hedge earlier in the week).

Book value is over 14p. A long way to get anywhere near its correct share value.

Tuan have you booked your loss on HZM as a capital gains asset yet and found better things to invest in as a recovery plan? If not get on with it.

A question of whether they use a rights issue model.

La Mancha are probably reviewing the mistakes made by Jeremy Martin and his team. I suspect it was a case of not knowing all the unknowns that could arise and whether poor modelling was to blame. All the errors will have been in other nickel projects before so Glencore and La Mancha can and know how to fix them. Why they did not see them coming earlier is another issue.

Goldgnome

I got caught out on HZM, but it was mid single digits in the portfolio and had traded a significant percentage to create free carry for some of it. The problem in HZM was having the banks and major funders making sure that HZM only had the minimum spare capacity of $30M (5%) in case anything went wrong. The company did extremely well on the build for 15 months. They then hit one problem after another in very quick succession. The problems were a reservoir dam which is essential for a nickel mine and they noticed soil at depth had changed water retention properties properties and so they had a big earthworks job, they discovered with new kilns installed that refactory requirements were underestimated (was incompetence), but a really big key hit was a major contractor unable to deliver causing a raft of other work to be delayed. The banks immediately stopped all funding and the company was to run out on its own resources in mid December. The cost of building nickel mines has absolutely rocketed in the past year, far more than gold mines. I suspect Glencore who are now in the driving seat are happy to get a mine 70% built on the cheap. McKinsley have done articles showing only 25% of all mine builds end on budget and time. 50% of them have issues like HZM. I should mention La Mancha who own 23% of HZM were on the board. HZM employed first rate contractors throughout the project. However, if you have several 1000 people on-site things can and do go wrong.

Tuan

The share price this morning is probably telling us something. Likely to go for 10p. The total debt is quite possibly going to hit $900M and at 10p , $960M is what it probably costs to build a mine. HZM is going back to the value of acquisitions it purchased before funding was worked up to generate production. HZM is to lose all liabilities eventually, but get only a little back for the assets to compensate PIs.

It is useful to review important facts.

1. $135M has been spent on mining process hardware which is all on site.

2. At least $80M was probably spent on transmission lines covering 126Km with all the cabling and so forth.

3. At least $80M was spent on all the foundation and earthworks that are complete that include over 510 concrete pilings as of December 2022 where construction was said to be 28% complete and before the first draw down arose.

4. Delivery kilns, producing the plant for them to sit on and welding it it costed a lot of money. Pre-stripping 138,000 tonnes of ore costs so much per tonne to do. Constructing all the furnace work with around 30% or so electro-magnetic contract during the summer. around $9M will have been spent on oversight administration since 1 April. In essence what we know is that the funders have received value for money on all that was completed that amassed to $429M spend.

The company had declared they had only $19M to spend on any construction earth works before the dam was being constructed. The last area they examined was the base of the reservoir and found they had a new problem. They had only $18M left for equipment interfacing back in June 2023.

Jeremy Martin appointed Leonardo Vianna to deliver the mine building project as he had 24 years’ experience and had just completed a $1.9B build of the Bahopi Nickel project this was February 2022 and built up a team of 85 people around him very quickly and that was 150 staff in March 2023. On 24 March 2022 Vincent Benoit was appointed on the HZM Board with financial expertise and clearly representing the 23% La Mancha interest in the project and company. He should have been following the money very closely.

Independent reports have been published that verified the cost of building nickel mines has increased sharply. They were published at the time $80M was raised and this was a huge underestimate of what was now needed to deliver a class 1 mine. If HZM began the project today and they just broke ground the cost of the mine would be over $1B to deliver just a line 1.

Another factor is that USD value is about to fall and it is quite likely to increase nickel prices to a base case of $21,000 imop. Hopefully, common sense will prevail and the project is funded across the line. Things went wrong fast as the contingency was hopelessly inadequate and all the existing funders had a part to play in that. A funding source to provide around $10M which is all they need to get to main financing in Q1 is what we need to hear in the coming two weeks.

Https://aheadoftheherd.com/copper-mines-becoming-more-capital-intensive-and-costly-to-run/

The current cost in building new nickel mines is following the same path as copper mine construction projects. The capital intensity for nickel is at least $35 per pound as a mean cost apparently. For 14,000 tonnes of nickel per annum this equates 30,864,716 pounds of nickel. This equates to a cost of capex spend to build such a mine today would be $1,080M to give the mean $35 per pound capital intensity price. This finding was published late 2022. In short expecting the HZM mine to be built at half the average mean capital intensity of all future nickel mine construction projects was expecting the impossible. The capital intensity has risen greatly after the Covid pandemic. The issue this raises for both copper and nickel is that it is unrealistic to expect lower future prices as the costs of replacing mines that have depleted all their resources is magnitude greater than in 2000 or 2012.

HZM argued that their production would be on the lower end of the mean and the bottom quartile of capital intensity. If the total Capex was rising to $800M it actually may remain true when compared to the cost of construction of future mine constructions unless someone can find a way to process nickel production more efficiently.

If I was Vale or Glencore, I would over pay for an asset HZM had for sale providing it was repaid at the same price plus inflation later when things on funding were all resolved and the monies when returned would then be used to buy shares in the company. Eventually the purchaser could trade out their monies back at a profit.

Strow, other readers,

HZM management have come under a lot of criticism and I believe it has a lot to do with communications. I agree about Jeremy Martin qualities as a business person and what he has put into the project and I believe he acted as fast as he could as things changed.

It is useful to look at the huge list of things completed that have gone right and are 100% or nearly complete and all the kit purchased on site. The $429M spent was not a mistake and that consumption to build the mine to the level we are at was broadly as expected.

If additional works and costs are necessary to deliver a class 1 mine and they are above the original budget, it is far better to be truthful about it and the funders to see why it is so. There are unknowns in any building project. Marino just redeveloped an existing mine and found ways for it to operate more effectively. New interface technologies have probably arrived on the market that cost more, the additional physical works on the reservoir and re-engineering of pipework probably to incorporate line two were new. Losing a contractor may have been beyond what anyone could have done. If key people in the contractor company were injured at another site what can HZM do but redeploy the contract to someone else. The only issue they could have done better on was not underestimating refractory costs.

I believe Jeremy Martin will find a deal to tidy things over.

The final point I would make is my own rule on a company like HZM that does not have an on-going income. It is a high risk stock and if it is held at 6% in a portfolio it is possible that 94% elsewhere can absorb a set back like this if they incorporate a lot of companies paying divis etcetera. New investors need to develop portfolio rules and keep as best as they can to them for their own health benefit on how they manage risk.

Tony

It all depends on time frames as any miner can hit an issue at a particular time.

For example 5 yrs and 2 yrs give performance league as follows;

Shanta Gold, Centamin, HoC, Fresnillo and Hummingbird.

1 year has HoC, Hummingbird, Shanta, Centamin, Fresnillo

6 months

Hoc, Shanta, Centamin, Fresnillo and Hummingbird

1 month has HoC, Centamin, Shanta, Fresnillo and Hummingbird.

one week has HoC Shanta and Hummingbird all up 6% and Centamin and Fresnillo performing at zero change.

Why the changes well Hummingbird have failed to get a new mine running well, and HoC had the biggest collapse in share price awhile back and clawed their way back in delivering a new mine on schedule (how it works out is awaited). Fresnillo had a nightmare with a new silver mine with severe delays. Centamin we know about. What we can guarantee is if Centamin build a new mine the share price could be volatile as whether they get it right (price goes up a lot) or wrong (the price goes down).

My bet is that Centamin possibly goes up 3p when USA has a holiday and catches up with more junior miners.

Can not get a quote for an actual sell, but for a buy its 15.18. Dummy testing the bid and ask with 50,000 shares.

Steven

It confirms that USA, China and Europe are in a recession. The recession should fade away by this time next year or lessen. The time to be building nickel mines is now when commodity prices are low and to be ready when demand recovers for future growth which everyone needs it to happen. Tony

We should know if it has passed due diligence process end of January. The rest of the quarter is coordinating the finance. Once due diligence is known some monies to keep HZM going have the confidence to materialise. They need six weeks funding to keep critical staff going. They have the assets available to loan against to do it or sell it on.

When the work completed is examined it is crazy for this to go into administration. The geotechnical issues of the reservoir dam could not have been fully expected by HZM. To be penalised on overrun on that aspect is infuriating. If the company ignored the problem it would have been a major headache on full build. The interfacing costs between equipment is a modernisation to keep it a class1 build. They could have opted to do a lower class on old stuff but did not do so. Sell the available asset and bridge to finance. The company was expected to do the impossible on the budget given. It is now realistic for the mine of its size.

Book value is now 16p. Broker analyst lifted annual earnings by $2M last week.

Https://www.gold-eagle.com/article/gold-stocks-outperformance-begins-now

The liquidity is certainly back. Not the best of timing with the rebuy, but again all it takes is someone like Vale not wanting it to go into administration as the costs to acquire the assets are considerable. The asset also has a huge powerline assembled and connected to it. They also do not have to deliver huge Kilns through kingdom come.

Hi Pam,

Centamin bad times involved issues of waste not being cleared up. A programme that began two years ago will be complete by June next year. Clearing waste added to costs and it is 80% finished and this will mean lower costs of production in 2024 for Centamin. The company also spent $50M from its cash to build a solar farm and so it uses 16% less diesel in production in future years also reducing energy costs. The company also completed $125M out of $150M cost reducing programme and the maximum benefits of this will be seen in 2024. The company has Nugris drilling results to be given soon and so a new Egypt discovery of gold is possible which and is located not far from the Sukari Centamin gold mine.

Gold Eagle news recently had an article which had the sentiment on gold miners at a rock bottom low of just 5%. in other words the market hates gold miners at present and that is the best time to buy them. Centamin and other gold miners are inexpensive on many stock picking criteria. Centamin gold production in 2024 is likely to be higher than in 2023.

Tony