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Morning Mike - thanks for additional info and yep completely forgot about recycled PGMs! Nornickel's Platinum production guidance isn't much changed at around 600 - 650k mark, it just appears to be their palladium that is heavily impacted.

Notwithstanding furnace repairs, it will be interesting to see if Nornickel can maintain normal production levels under western sanctions. I keep close eye on POLY as I'm still a shareholder (luckily I averaged down at £1.20 and sold out of most my holding on 1st bounce, so not as exposed as once was) and they've had to completely change all their supply chains. There remains a big question mark on whether Chinese spares and equipment can operate as efficiently as their usual western equipment, albeit they have also maintained normal production guidance for 2023. May be same issues / concerns at Nornickel too.

Closer to home, good news on Chrome and potential dividend yield this pumps out for THS!

Why are HMI registered in Australia - is there a historic reason for this?

With operations in Brazil and being listed on LSE (AIM) (Cant see 2nd listing on their website for an Oz exchange), surely with operations on right track, it would be time to redomicile to UK, before any dividends are paid? Otherwise being subject to Oz WHT seems a bit ridiculous / inefficient...

In 2022, Nornickel produced 2,790k oz of palladium. That is immense amount when the stats we have for global palladium production in 2021 was circa 200 tonnes, or 6.34m oz p.a.

Nornickel's 2023 is guidance is significantly lower, at a ranger of 2,407 – 2,562k oz, some 228-383k oz lower, or 3.6% - 6% impact to global production of palladium. With SA underground PGM mining likely significantly impacted by ongoing Eskom power cuts, supply side of PGMs could be quite significant. I'd of course prefer if the corrupt Eskom is sorted and the people and industry of SA can go on with their lives unimpeded.

Demand side is harder to judge. On one side you have recession + continued inflation risks. On other side there doesn't seem to be an issue with semi-conductor supply anymore to impede autos production. You also have China re-opening.

Norma - I already confirmed yesterday that the locked box date is a red herring. There is no magical "leakage" monies from 1st Jan 2022 onwards coming back to Serica to make this deal any less palatable. The figure to work with remains the £277m Tailwind Net Debt and that will not change.

Since 1st Jan 2022, there was a carve for "leakage" whereby known "permitted leakages" were allowed. And of course the 12 Jan 2022 Tailwind dividend of $95m was one of those permitted leakages. The circular fails to mention this as it doesn't provide a definition for leakage, whereas the far more detailed SPA would cover this.

If you based part of your Yes decision on the lockbox date of 1st Jan 2022 changing anything regarding Serica paying £61m to TAIL, taking on their £277m Net Debt as of Nov 2022 and diluting our shares with 111m new ones, you're going to be bitterly disappointed.

Banburyboy - after receiving clarification, my initial suspicion regarding carve-outs and caveats from "leakages" and your post that TAIL 2021 div paid on 12 Jan 2022 is probably out of scope is indeed correct. So the whole lockbox date and leakages can broadly be disregarded, wont change the valuation and calcs we've all done here, why we came to our individuals decisions etc.

Banbury - cash generated since 1st Jan 2022 is not the important metric, as we already know net debt was £277m in Nov 2022. The only metric that changes any valuation of this acquisition is "leakage".

We already know a huge dividend of $95m was paid on 12 Jan 2022 straight after the lockbox date. Based on very limited knowledge of "leakage" in the circular (in legal terms, we are provided no real definition of leakage), most investors would assume this $95m would class as a "leakage" and will be paid back by Mercuria to Serica. Unless the SPA has a far more detailed definition of "leakage" with caveats and carve-outs? It seems bizarre that a leakage that happened over a year ago and known, is not taken account in the final agreement in Jan 2023. For example, why is SQZ paying TAIL £61m (£57m + interest), when there is already a known leakage of $95m as far back as 12 Jan 2022, a year before the final agreement is drawn up.

The other question is has there been any other leakages from Jan - Nov 2022 impacting TAIL's Net Debt metric of £277m? All other metrics are known so does not matter if there is any leakage post Nov 2022, as we have £277m Net Debt baseline to work with and TAIL's production numbers and cost per boe thereafter.

Other key issues against:
1) UK Political & Tax Regime: 2 words… “sh*t show”. The only sensible position under this current Tory Government and an even worse potential Labour Government in less than 2yrs is to take HBR’s conservative and sensible position. And if you are going to expand in UK, it’s certainly not to pay top dollar.
2) Mercuria + TAIL board 30% holding – covered eloquently by NewKOTB and others herein on the political corporate governance side, where Mercuria will effectively control the voting and direction of SQZ, whose interests will not always be aligned with interests of other shareholders.

Whatever way you vote, yes or no, take the 5mins and any chasing with your broker to vote. And that goes for every share.

Decreasing the valuation gap:
1) Tax Offsets “Credits” of £470m against Corp Tax, in which Mitch stated at around 30min mark of presentation “Expect those tax losses to be utilized within the next 3yrs against the assets in current Tailwind portfolio”. I like that he explicitly stated “assets in current Tailwind portfolio”, as it’s the more conservative position and appears to directly answer one of my queries to SQZ on taxes, with heavy inference that their base case is you can’t transfer tax offsets post acquisition across other assets. However at $85boe (and with 33% oil production hedged at $57), I don’t believe they can utilize £470m of tax losses over 3yrs as implied. If they hit 20k boepd top end TAIL guidance, I would say they could utilize $330m over 3yrs, at 17.5k boepd, $288m. So my numbers appear to be broadly in line with Steve’s ones earlier in week. You also have to take in to account SQZ’s £70-90m EPL offsets for North Eigg drilling in any case. Additionally based on political risk, tax risk and internal breakdown of TAIL’s own tax credits which may be ring-fenced to specific assets or TAIL subsidiaries, as many of us have said previously you need to discount the Tax offsets accordingly. So the net value attributable for tax credits once taking into account SQZ’s own would be circa £150m ($288m converted to GBP and deduct SQZ own offsets from N.Eigg costs). Still nowhere close to the £329m valuation gap which is even wider when taking into account 1) thru 4) in post prior to this.

So with a complete and utter valuation mis-match, the only way to value the acquisition is calculating payback period in terms of how long it takes for SQZ to earn back Net £644m from TAIL assets and all value thereafter is “profit” to SQZ. Here it’s also not a pretty picture. Based on $85 (and taking into account TAIL hedges in place), it would take SQZ over 4yrs to earn the £644m. Back of packet I see them earning back $642-734m over 4yrs (that range is based on 17.5k boepd – 20kboepd and that is taking into account no corp tax paid at all of $395-451m over 4yrs) Based on TAIL 2P Reserves covering 6yrs production at 17.5k boepd, that is a terrible deal – to reach zero sum after 4yrs and only have 2yrs upside left, particularly in this uncertain political environment. Whilst I accept there are opportunities to increase reserves to 2030+, you must remember as told repeatedly by Mitch, the base case of the valuation was the existing 2P Reserves. The technical and political risks of increasing reserves must be completely discounted in such an acquisition.

For those reaching a higher profit or free cashflow for TAIL assets, I would expect it's because people are simply using an extremely low $20 boe for TAIL assets, which is not correct based on all info and costs we have on TAIL assets from TAIL's own audited accounts. They are well in to the high $40 cost per boe, even when pro-rating costs for higher 2023 production guidance.

After digesting the last investor call 10 Jan, which I did think Mitch was very transparent and did add some more meat to the bones, I am still a No vote. But for those particularly bullish on Oil over Gas I can understand why many would vote yes, when the positives of TAIL are exaggerated, the negatives ignored, whilst also downplaying the SQZ positives.

TAIL EV = £644m (£58.7m + 111m SQZ shares x £2.78 + £277m Net Debt)
SQZ EV = £315m (SQZ market cap at £2.78 x 273m shares - Net Cash £460m).

So how to bridge the £329m valuation gap? Or failing that, what is the “payback period” for the deal (being conservative) and is it reasonable on the basis of existing 2P Reserves of circa 6yrs?

Increasing the £329m valuation gap even further:
1) Reserves: SQZ 2P 62mmboe versus TAIL 42mmboe. The recent presentation does flesh out many growth prospects for TAIL for possible conversion to 2P, but irrespective any conversion of 2P Reserves will still be far less than SQZ reserves and we’ve been told many times the valuation of TAIL was not based on possible conversions.
2) Annual Production: SQZ 25-27k boepd (Nov ’22 29k boepd) versus TAIL 15-20k boepd (Q4 ’22 20k boepd, Dec 24k boepd). Many pro the deal will simply point to the high TAIL Q4 numbers, whilst also ignoring the SQZ high Nov ’22 production number. However guidance has already been provided for TAIL assets at lower 15-20k boepd, due to many factors, one being extended FPSO shutdown for maintenance already flagged. Whatever way you cut it, SQZ production is higher anyway. What I did like about the last presentation though is it gave me confidence the TAIL portion of guidance should sufficiently cover the FPSO shutdown maintenance schedule.
3) Hedges: SQZ Hedges very small now (amortised 6-7% of production) until Sep-23 where they will be nothing. TAIL has 33% of oil 2022-2024 at $57bbl, 80% Gas at 260p/ therm.
4) Cost of Production: SQZ cost per boe is far lower than TAIL’s as I and others have highlighted in many posts. Even with TAIL increasing production you can’t just pro-rata their 2021 costs to the higher production (even if you did it still pumps out higher cost than SQZ!), their costs will also be increasing too (inflation, interest costs likely doubling due to increased gross debt + higher interest rates, the new fields with their own opex costs etc.)

BattleFIS - thanks for rundown. To add one more issue with such analysis of the deal of those posting on Twitter and other spaces who are in favour, they never appear to take in to account the TAIL cost of sales per boe is far far higher than SQZ. It's not hard to look at TAIL's Accounts and work out a cost per boe. Either it's being sloppy, it's intentionally ignoring it or it's simply buying SQZ management statement that costs are broadly the same, when the audited numbers show a completely different picture.

On all metrics the TAIL's costs per boe are far in excess of SQZ's as we have discussed previously here on all metrics: cost of sales (stripping out non-cash items), full cost of sales (incl. non cash items like depreciation, depletion etc.) and TAIL's General & Admin costs are in excess of SQZ's too, not to mention they have large interest costs on debt which of course SQZ do not, which you have to take in to account to normalise the 2 entities actual costs. Even if you were to pro-rata TAIL's costs from 14K boepd to 17.5 boepd, you have to remember their interest costs would have near doubled since 2021 (increased gross debt + increased interest rates), inflation in 2022 would have pushed up costs (particularly linked to FPSO), FPSO maintenance and life extension works, and bringing on new fields that that require their own working capital. So the increase production may push costs down slightly in comparison to 2021 once you pro-rata, but not by much when you factor in all those other variables.

I've been travelling and haven't had time to look at all the new analysis on Twitter, so happy to be corrected, but haven't yet seen a pro-acquisition analysis looking at SQZ standalone versus SQZ-TAIL standalone using the actual accurate costs for each entity. Every single one seems to just amalgamate the 2 entities costs to pump out a projection this is a good deal, when that relies on SQZ's lower costs per barrel.

As you and others have also shown his view on the tax position is completely wrong: "One last disclosure on the value of Tax Losses Carried Forward (TLCF) of $2.6bn for the 3 relevant tax income statements as charged by the UK. Without TLCF, the merged entity would pay $1bn (£850m) more taxes bw 2024-2025 IMHO. We discounted that at 8% for the present". From that very post, it calls in to question his entire analysis right there. SQZ have already confirmed best case scenario, there are £470m of theoretical/ potential tax offsets. Why he states "Without TLCF, the merged entity would pay $1bn (£850m) more taxes bw 2024-2025 IMHO". $1bn?! I know he discounts it at 8%, but his starting basis and statement runs completely contrary to even best case scenario put forward by SQZ on tax position of £470m.

Ultimately the circular doesn't provide the necessary justification on complete mis-match in valuations between SQZ and TAIL highlighted by the respective EVs at a SQZ £2.78sp. This is a share price that already is a near 5-month low and largely undervalues SQZ true value:

SQZ’s EV of £315m (SQZ market cap at £2.78 minus £460m Net Cash)
TAIL's EV of £644m (£58.7m purchase price + 111m SQZ shares x £2.78 + £277m Net Debt).

Cutting through all the noise, it's impossible to square this circle. In fact the circular clarifies the overpayment by confirming the amount of tax offsets is a maximum £470m only. It doesn't even matter if some of this can be carried over to SQZ fields/assets or not (doubt it can), this value is not enough to value Tailwind at double SQZ's EV!!! Particularly when I believe SQZ still has its own tax offsets from the North Eigg Drilling Costs you would then also need to value in acquisition too (SQZ has already paid EPL 2022 costs, but doubt North Eigg costs were finalised at that stage or used in any volume to offset the 2022 EPL costs, so they should show up by significantly offsetting the 2023 EPL payments).

TAIL's seemingly positive £470m tax offsets are also completely nullified by other negatives: much higher opex and all-in costs per boe compared to SQZ, lower production p.a., lower 2P Reserves etc. etc.

I'm all for diversification into oil, even in UK for existing producing assets (not for developing assets as risks and costs of development don't merit the measly reward after 75% tax!), but not at any cost... Not at this cost.

Whilst I’ll admit the circular has provided some additional positives and clarifications (particularly Tailwind’s growth prospects), it's telling in what it doesn't say and doesn't change my overall opinion and weekend analysis that we are significantly overpaying for this acquisition.

Banbury - agree with yours and others overall assessment, the cherry picking and silence on key metrics where it doesn’t suit! For example, it doesn't play up the benefits of SQZ at all, in fact it underplays them. And vice versa with Tailwind - it overplays the benefits.

1) It states SQZ's average annual 2022 boepd of 26k, yet doesn't clarify going forward why our guidance wouldn't be in the 30k+ boepd range (27,100 - 33,600 boe was original 2022 guidance before Rhum outage in March and Rhum outage and planned BKR maintenance shut down in July / August). We know SQZ November 2022 SQZ production was 29K boepd from last Ops update.

2) On the complete flipside and showing the rank hypocrisy, it states Tailwind Q4 2022 production is 19.5k and Dec 24.5k, but stays completely silent on Tailwind's Annual production. That is because Tailwind’s production even with Q4 2022 production, is an average 12K only! Down from 14K in 2021. This is due to significant FPSO shutdowns and maintenance, of which shutdowns are also planned for 2023.
Pick a time period for each entity and go with it, don’t cherry pick to make one entity look better than the other to try and justify the price because you were out-negotiated.

3) It doesn’t have any of the usual metrics a company would provide when making an acquisition: a) cost per 2P boe reserves; 2) NAV; and 3) EVs etc. This is because they would all highlight how expensive this deal is.

4) stating operational costs “Combined operating costs projected to remain below $20 per boe with objective of future reductions” is extremely misleading and disingenuous. Operating costs are not the actual “all-in costs” as it does not include admin costs, interest costs, decommissioning costs, sustaining capex. This statement also mixes SQZ’s low operational ($16.5 boe) and all-in costs ($22.4 boe) compared to Tailwind’s high operational ($34.2 boe) and all-in costs ($53.5 boe).

Indeed the tax losses of £470m are far below the price I stated in my wkend posts (just shy of £700m) for this deal to even “break-even”, not even “value accretive”.

These type of examples are throughout the circular, cherry picking datasets or time periods and ignoring others, to make Tailwind look better than they are and SQZ to look worse, to justify this deal we're significantly overpaying for.

It shows Malcy doesn't know much about the detail of both companies and that what happens when you have to cover so many shares and you're only 1 person. It does not matter only 20 [sic - 19 people actually] Tailwind staff are coming over, when they're paid a ridiculous $10m+ p.a. (avg $500k per person)! Well above industry standards. This could cause huge problems and wage price inflation across the board in any new company.

SQZ+TAIL Combined

Shares: 383,830,695 (272,782,571 existing SQZ shares + 111,048,124 new shares to TAIL)
Production: 45,000 boe (57% Gas, 43% Oil)
Annual Production: 15.72mmboe (9.35mmboe SQZ assets + 6.37mmboe TAIL)
Composite / Basket Price: $101.6 boe (for 2025 onwards post TAIL hedging, below figures take in to account lower TAIL 2023-2024 price due to hedging)
All-in Cost per boe: $35 boe (Opex $23.7 boe).

Net Cash over 3yrs: $989m (assumes no Corp Tax on Tail Assets ($219.5m “saving”), but haven’t applied any tax losses to SQZ assets/ field activities)
Existing Net Cash: SQZ £460m + £90m (N.Eigg EPL Credits which I haven’t deducted from EPL 35% above) minus £277m TAIL Net Debt & minus £57 TAIL purchase price = £216m or $259.2m
Total Net Cash after 3yrs = $1.248bn or £1.034bn / 383,830,695 shares = £2.71/ share. Complete destruction of shareholder value when comparing like for like.

To get to £3.95/share that the relatively low risk “do nothing” SQZ standalone would be valued at on same metrics ($80 brent, £1.7/therm NS gas), you would have to assume £475m tax losses (effectively £0.5bn!) can be applied mutatis mutandis to SQZ fields/ assets over 3yrs, on top of the $219.5m (£183m) I’ve already applied to the TAIL assets/fields. I really don’t want to say I told you so in hindsight, as strongly prefer this deal not to proceed, but I believe based on the current legal and tax framework on top of political environment will demonstrate post acquisition you can not apply such tax losses across to different fields/assets. It’s not in accordance with existing recent laws nor “in spirit” of older legislation on subject for O&G industry. As others have pointed out, even post acquisition the level of tax losses that can be applied to the TAIL assets/ fields themselves may be debatable whether it will erase 100% of all corp taxes alone! So arguably I’ve been generous here.

If you apply £2/ therm and $100 oil using same methodology, you get to £3.46 compared to SQZ standalone £4.40 in that scenario…

Popping out for day, but happy to deep dive any of numbers or clarify where taken figures from, correct any “copy and paste” numbers (as I have kept updating oil and gas prices over week in my spreadsheet!), what I’ve included from what page of accounts etc. so people can double-check over days ahead. I know others have slightly different figures, but they’re all in same ballpark. It is also completely wrong to apply same cost per boe to the SQZ and TAIL entities and their respective fields.

TAIL standalone (shown only to help understand of next methodology of SQZ-TAIL combination)

Production: 17,500 boe (86% Oil, 14% Gas)
Annual Production: 6.37mmboe (17.5k boepd x 364 days). TAIL stated avg. boepd and total production does align with 364 days.
Composite / Basket Price: $85.4 boe ($80.6 boe for 2023-2024 when 33% oil hedged at $57 and 20% gas hedged at £2.6/therm)
All-in Cost per boe: $53.5 boe (Opex $34.2 boe).

Gross Profit: 6.37mmboe x ($80.6 - $53.5 (for next 2yrs w/ hedging prices)) or ($85.4 – 53.5 (for 3rd year 2025)) = $112.3m and $132m respectively
Corp Tax (40%): $0m (let’s be generous and assume entire $69m p.a. (next 2yrs w/ oil hedged) and $81m (3rd year) respectively can be offset against tax losses - $219.5m saving in total, £183m)
EPL (35%): $60m p.a. (2023 & 2024) and $70m (2025) respectively
Net Cashflow: $112.3m p.a. & $132m respectively

Net Free Cashflow over 3yrs: $112.3 x 2yrs + $132m x 1yr = $357m
Existing Net Debt: £277m = $332m
Total Cash: $357m - $332m = $25m . So TAIL with their huge debt pile, could merely generate a Net Cash position of $25m after 3yrs. When you boil it all down, in pure terms that’s all its worth. And for this SQZ management are giving them £57m and 111m SQZ shares at undervalued £2.78 (£309m)!

This is generous 1) assuming TAIL will pay no Corp Tax at all due to their Tax losses; 2) not taking into account any technical production downside risks considering Dana’s FPSO Triton shutdown maintenance schedules and the like. If you look at past Tailwind Accounts, there have been years where shutdowns have caused production issues impacting guidance. Also assuming they can successfully increase with no issues from 12k in 2022 to 17.5k in 2023 (middle range of the 15-20k guidance in RNS) 3) Using costs from 2021 Accounts when with increased Gross Debt + Interest Rates, the £14m interest costs will likely more than double. However I have applied the high non-cash depletion costs, when for TAIL their “sustaining capex” + decommissioning costs going forward may be bit less than their past capital costs now being depleted/depreciated in Accounts.

If you apply £2/ therm and $100 oil using same methodology, TAIL would have Total Net Cash after 3yrs of $221m. Still nowhere close to £366m ($439m) purchase price. And this is a purchase price based on a significantly undervalued SQZ share price causing unnecessary excessive dilution. Companies only apply such dilution at discount to share price when they’re doing a placing in urgent need of cash!

SQZ standalone

Shares: 272,782,571
Production: 27,500 boe (85% Gas, 15% Oil)
Annual Production: 9.35mmboe (27.5k boepd x 340 days). SQZ stated avg. boepd and total production in Accounts never equates to 365 days, more like 340.
SQZ Composite / Basket Price: $112.6 boe
All-in Cost per boe: $22.4 (Opex $16.5 boe). 1H 2022 Interims confirms these 2021 audited numbers still close to 1H 2022.

Gross Profit p.a: 9.35mmboe x ($112.6 – 22.4) = $843m
Corp Tax (40%) p.a: $337m
EPL (35%) p.a: $295m
Net Profit: $211m

Net Profit/ Cash over 3yrs: $211m x 3yrs = $632m
Existing Net Cash: £460m + £90m (N.Eigg EPL Credits which I haven’t deducted from EPL 35% above) = $660m
Total = $1.292bn or £1.076bn / 272,782,571 shares = £3.95/ share

If you apply £2/ therm and $100 oil using same methodology = £4.40/ share.

Of course if a company was made up completely of Net Cash, the share price itself will of course be more, with 2-4yrs of producing life left after 3yrs, if you simply remain “as is”. But when both companies have circa 6yrs of production based on 2P Reserves, you have to discount.

Basis of Calcs
- Using Brent $80, Gas £1.7/therm, GBP USD Forex 1.2, Volume 58.0064 therm to boo conversion

- Calculate “All-in” cost per boe using 2021 Accounts: Cost of Sales + Admin Expenses + Interest Costs (if any) from Annual Accounts, including non-cash items like depletion etc., but stripping out hedging costs, inventory movements. Depletion charges represent the allocation of field capital costs over the estimated producing life of each field and comprise costs of asset acquisitions and subsequent investment programmes. Historically these non-cash items are actually very good at predicting future sustaining capital expenditures and decommissioning costs too.

- For this exercise and considering I’m including non-cash items in “all-in cost”, we’ll assume Net Profit and Net Cash are broadly aligned, with future sustaining capital expenditure + decommissioning the same cost as past capital expenses making up depletion + depreciation and amortised in the “all-in cost”.

- Opex: If you take only the lower opex figure (cost of sales less non-cash items + admin expenses + interest costs), it’s not actually the true total cost. However if you did want to be a bit less conservative than me for both entities and do it this way, be sure to add back in estimates of sustaining capex p.a. and decommissioning costs for each entity.

To see if SQZ are better or worse off with this deal, I've done some very basic back of the packet calcs over next 3yrs on SQZ standalone versus SQZ-TAIL combined entity.

To only "break even" on the deal (with large number of technical + tax risk factors along the way), over next 3yrs we need to be allowed to use TAIL tax losses of at least £158m p.a. (near £0.5bn over 3yrs!) against SQZ assets/fields, on top of £183m tax credits over 3yrs for TAIL assets! I'm really not sure in what world people think HMRC will stand idly by and allow £0.5bn to be used across assets post-acquisition, the precedent this will set and when they have recent legislation in place already to counter this. They have tools and untested recent legislation in their ****nal already they can utilize to combat this, on top of political environment that will support them with new guidance + laws if needed.

On pure finance and risk/reward, under this long-term political and tax regime (Tory or Labour) of existing EPL with effective 75% tax rate here until at least 2028, this does appear to be the worst deal I have seen in North Sea, as many have said. The only possible way I could see Hardy and other major investors voting for this if they have some additional firm (not wishy washy) legal confirmation that this leads to another acquisition at a great price, of say Dana’s assets at fire sale prices, that only Tailwind legally has “first right of refusal” to for whatever reason, at agreed guaranteed price or guaranteed metrics that pump out a very good price. Not “Letter of Intent” or a promise that has no legal basis, but a firm legal commitment and 1st right of refusal type agreement. Otherwise we are buying TAIL at sky high prices valuing it at excessive EV, valuing SQZ at very low EV, in a EPL 75% world, a rocky Q1 2023 (I have to admit I am bullish post 1H 2023 on oil). As reminder of this completely skewed deal metrics, when SQZ has larger annual production, far larger 2P reserves, Net Cash position, lower opex per boe etc etc:

TAIL EV = £644m (£57m + 111m SQZ shares x £2.78 + £277m Net Debt)
SQZ EV = £315m (SQZ market cap at £2.78 minus x 273m shares - Net Cash £460m). Doesn’t even take in to account £70-90m EPL offsets in 1H 2023 for North Eigg drilling

It does feel like a deal that was started pre EPL 75% and SQZ have not negotiated effectively to update it to accept new political + tax regime. Also feels they’ve just drunk the Mercuria koolaid (which Mercuria themselves may not believe internally amongst themselves as TAIL Accounts imply!) to accept tax losses are “tax credits” for a joint company across all assets and again not accepting the huge legal/tax/political risk that could completely nullify this perceived positive. More fool us if we accept unaudited untested theoretical tax loss figures from a SQZ RNS as basis of an overvalued deal.

It appears Dave Freeman (COO of Tailwind) has the ultimate controlling interest of Tailwind: Cavendish Energy has controlling interest over Tailwind, of which NVSE Holdings has controlling interest of Cavendish, which in turn DRSG Limited has controlling interest over (Director David Freeman and Freeman has controlling interest over DRSG).

From all this, whilst there is dilution through each company step, David Freeman/ Freeman family may have the ultimate controlling interest over Tailwind. So internally within Tailwind, what side deal do Freeman family have with Mercuria for Mercuria to be the main benefactor between Tailwind & SQZ?

The Karo Project has evolved this year from:
1) 150k p.a. PGMs at $310m Capex (Karo March 2022 Presentation); to
2) 190k p.a. PGMs at $397m Capex (Latest presentations with increased production estimates). Includes $45m Working Capital and $45m contingency, so on face of it, appears a robust and conservative estimate, with much risk built in.

I do believe the increased production appears better optimised and worth the extra capex, which will also take in to account inflation since March 2022 anyway, which would have impacted original base case.

Investment to date is circa $70m, not all of which would be classified as Capex nor I assume can be fully deducted from the above $397m, but at least $60m should be (only activities I've stripped out our acquisition costs + Phase 1 exploration capital). So let's say there's $337m of Capex left to fund over 24 months (actual development only 21 months, however 3rd party invoices always lagging and provides time to pay off post completion).

THS have $80m Net Cash, $32m VFEX Bond ($112m total). THS will no doubt also have debt facilities not fully drawn down and their Gross Cash position is actually $140m+ (albeit some of this needed to cover Gross Debt positions).

Based on current THS PGM Basket Price $2,340 & Chrome $250/tn with PGM 180k oz p.a. and Chrome 1.8MT p.a. production, USD ZAR 17, Corp Tax 25%, Sustaining Capex costs of $79.8m, a very rough ballpark figure is THS could have net free cashflow per annum of $120-130m ($240 - 260m over 24 months).

So with this organic net free cashflow over next 24 months, existing net cash position and VFEX bond we should have circa $352m-$372m to cover Karo Project capex, more if you take in to account Gross Cash position and that existing debt facilities can be rolled over. However as we all know we can't rely on commodity prices at whim of markets which can go up and down. It would be nice at some point to receive a financing update (new debt facility) to assist with Karo Capex, to completely de-risk the finance side. Or a crystal clear update to lay out how Karo will be funded, even if organically, as believe some investors may be worried about this side of things.