It's a huge opportunity2 Sep 2020 20:24
It's a huge opportunity, I won't go back through all the reasons but this is shaping up to be the kind of investment you only come across at the right time and right place a couple of times in your life I believe. Not because they don't exist, just because it is hard to look everywhere at once and for 9 that get away you need to pick the big one. This is one of the big ones.
I always try to be a realist because being a fantasist doesn't necessarily achieve your goals in life. I made an investment case for myself here back in the day at the 4-4.5p area and my long term goal, at production or on sale, was 15-20p. I knew I had to put a lot of money (for me) in to make my goal, lets call it £millions low. To make £2m on a 4-5 bag you invest £400k which is what I did. Lot of money for me.
I underestimated two fundamental things:
- Vermelho. I had imperfect information at the time, all my focus was on Araguaia and we didn't have a PFS yet and we didn't know it was battery grade.
- the nickel market. It is going to be better than I hoped when I first invested and I believe majors will take positions earlier than I expected. I don't think we have to wait till 2025. Probably not till 2023.
I added with more conviction post Orion and during Covid but I think now the endgame is much higher than I initially invested for so if I'm right I've (luckily) won on two fronts - I've roughly twice as much invested in as I thought I needed, and we could easily outperform long term my targets by a factor of 2 or 3, best case more.
FWIW I still think something along the following lines will happen:
- Vermelho will be unencumbered. Horizonte probably won't progress it much, they probably don't have the bandwidth and by not progressing it they put pressure on a buyer to buy us early in the cycle to get it ready for the cycle.
- Araguaia will get developed to add bargaining power. It will be built or shovel ready.
- then either Vermelho will be sold or the company will be sold at the right time. Lets say a developed Araguaia is worth x, an undeveloped Vermelho (the better asset) is worth x, we might get x or 2x.
I think x could be easily north of £500m. I think there will be 2bn or less shares. Therefore the exit (Vermelho sale vs company sale) looks like potentially 25p / 50p. But anything up to twice that valuation at the correct point in the nickel cycle is also possible so 50p / £1. 3.5m tonnes commands premium.
Looking back at ample opportunities to buy this share at 2p that makes very much a 10/20/50 bag play. Yes they exist but they don't come around often. I'm now convinced I won't exit with less than £5m (we touched £2m yesterday) and equally likely £10m+. It really is that good and we have the management team to bring it home. GLA
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