Member Info for wasarunner

Miners are highly geared to economic cycles and macro events - this is most obvious if you look at for e.g. Glencore's shareprice 119p when Russia invaded Ukraine Mar 20 -> 575p Jan 23. Did Glencore own materially less or more assets at the two points - probably not, it's the outlook on the world economy which drove investor appetite to the stocks that track commodity prices.

So the question becomes what's your time horizon - if it is 1-3 months then depending on these factors Horizonte's shareprice could be less than it is today. The bet is that in 1-3 years it will be more, because the recession will be over, the war will be over, and commodities will be fuelling the energy transition. Horizonte will have expanded the current mine, be producing, and be building the second mine.

The downside risk is that the prevailing economic conditions at the time make it hard to finance expansion. This is a risk but mitigated by the project economics which are strong at relatively low commodity prices. Araguaia 1 will be profitable into the single digit $k/t nickel price at which point most other nickel miners can mothball their mines as they can't produce profitably.

So as ever - short term is anybody's guess. Long term, barring a mishap with this current mine build out to nameplate, which is absolutely critical, Horizonte will be a win almost irrespective of macro conditions. How big a win will be determined by macro. GLA

The phase every investor likes:

https://twitter.com/HorizontePLC/status/1691328873903099904?s=20

"We will have a low carbon footprint with our product, which is key in the marketplace today, and we are moving into a re-rating phase in terms of our valuation as we complete construction"

Every investment in an AIM company is waiting for something. A contract from Tesla. Funding from Barcap. An offtake deal from Glencore. In our case it's regulation from Tanzania and capex spend by a bigger company. You know you invested in rural Tanzania? Dirt roads / no roads? Right and not Dubai/New York etc.etc.

But in case you were unaware, here's Mahenge, and there's Dar es Salaam an international port:

https://www.google.com/maps/search/mahenge+tanzania+Makanga/@-7.8359967,37.288836,443558m/data=!3m1!1e3?entry=ttu

Main thing I care about - he hasn't sold, believes in the project, family et al still hold significant here and that's good enough for me. Graphite is going to be a thing. Whether Tanzania wants to pull its finger out and wants to be one of the producers, or will they dilly dally long enough for another country to produce the goods - that's the gamble. That's the same gamble Blackrock are facing right now.

Invest in a country which isn't producing it yet -> that's the risk you take. I'm finding exactly the same risk (no different, the same) with my lithium investment in Ghana. Both countries figuring out how to get maximum returns on their resources, both working at africa pace.

>>There were 14.7m shares outstanding at the end of 2022

Options outstanding, that should say

Just to complete the picture then - again from the annual report:

https://horizonteminerals.com/news/en_20230427-2022-annual-report.pdf

Page 97:

Outstanding at 31 December 14,716,250

There were 14.7m shares outstanding at the end of 2022. So ~310m shares adding in the Orion/La Mancha convertible assuming a reasonable FX, then add 14.7m shares for outstanding end of 2022, then add another 750k options awarded 13 July 23 gives an enlarged share capital of c. 325.5m shares if everything gets exercised/converted.

330m was not a bad guesstimate but blimey it's hard to work it out exactly! I like 330m because it divides multiples of £1bn really nicely! GLA

The price is in the latest annual report:

"The Company issued convertible loan notes

to the value of US$65 million at an interest

rate of 11.75% with interest accruing quarterly

in arrears. The convertible loan notes were

issued at a discount of 5.75%. The maturity

date of the instruments is 15 October 2032.

At any time until the Maturity Date, the

Noteholder may, at its option, convert the

notes, partially or wholly, into a number

of ordinary shares up to the total amount

outstanding under the Convertible Note

divided by the Conversion Price. The conversion

price is £1.268/US$1.71."

So I guess £1.268p and the number of shares actually issued at conversion will depend on how the $ denominated loan note converts FX at the time.

So FX is the variable I don't understand. If the number of shares actually issued depends on prevailing USDGBP when the conversion happens, then the number of shares can't be accurately calculated at the moment. I will seek to clarify this on an investor call.

I've had a go at the calc, but I don't know if the formula is right:

77945627 shares were issued in second fundraise

Post fundraise La Mancha controlled 62297182 shares deemed to be 23.21% of the company hence around

268,406,000 shares in issue

So the dilution 77.9m shares on top of pre existing 190.4m shares was 40.9% additional shares issue

Proportionately this reduces an 8.5p option price to 6.03p which is 120.6p after 20x share consolidation.

I don't know how FX affects the figure but working on $1.3usd = £1 currently (maybe FX was fixed at some point) I make it 41.6m additional shares which would bring us to 310m shares (269.4m currently issued).

I guess I adjusted for options too to get to fully diluted 330m but I'm not sure how many options are outstanding (and some more have just been granted). Maybe 330m is an overestimate, that would be good news but I do prefer to work with an overestimate anyway when trying to calculate mcap/NAV multiples etc.

If anyone can see anything wrong with my workings please correct.

Theorist looks like you might be right the interest is payable in cash. That's interesting because in theory it allows the conversion price to be precisely calculated now (and hence the fully diluted share count), I just don't know what the formula to use is. My estimate assumed a bit of interest. Suffice to say I think a lot more than 30m shares will be issued, certainly more in the 50-60m range.

My total estimate of 330m also included options I think when I did the calculation - still a fair few of those floating around.

The terms of the convertible were that if there were to be any subsequent shares issued/dilution (which there then were) then the convertible price would be correspondingly lower. I haven't worked it out exactly, and it is impossible in practice to know the full number of convertibles anyway because of the interest accrued to the point of conversion, but roughly 5p/£1 / 60m shares bringing issued capital to c. 330m at point of conversion.

"At any time until the maturity date (being the later of September 30, 2032 and 3 months after the final maturity date of Tranche A of Horizonte’s proposed US$346.2 million senior debt facility), La Mancha may, at its option, convert the Convertible Note, partially or wholly, into Ordinary Shares of Horizonte at a conversion price equal to 125% of 7 pence, being 8.75 pence per Ordinary Share (the “Conversion Price”), subject to customary anti-dilution rights."

Maybe I did? Give me just 1 good reason to share our conversation here when all I get is moaning in return. It's obvious right? Blackrock are spending more than our balance sheet to progress and until they progress we ain't got the same cash to frontrun it. But this has been posted already so many times and all you see in response is dozens of green boxes so why should I bother? Can't wait why did ypu invest in africa?

Spoke to MB hasn't sold any so most likely the website isn't up to date with the latest warrant conversion, he will look into it. So shareholding probably higher as a % of the co than listed

Indeed. my exposure is sthg like £300k/p so I'm looking forward to it kicking off also!

Haffy, yes there's some discrepancy then somewhere. I'm using the latest figure from 3 May 22 RNS (last time warrants converted):

587,529,895

https://www.lse.co.uk/rns/ACP/issue-of-equity-under-block-admission-arrangements-eyh1d44hflc7uz6.html

and the website:

http://armadalecapitalplc.com/shareholder-information/

8.1% of 587,529,895 does not 53m shares make - he could have sold some, but I doubt it (if he had sold some he has to declare that I think) so maybe the website is wrong.

If the 8.1% holding listed at the company website is correct (it should be), around 47.6m shares based on the latest issued shares in issue (which incidentally I check to see if I stay under 3% in my own account). On the grapevine I heard something like 1-1.5p average but I didn't hear that from Matt so no idea really. I suspect his 8.1% cost him less than the 5% cost me but so it should he got it earlier.... so if you're brave, you can get an average lower than the director average right now.

When the rate cycle has run its course I think commodities and markets will rally. They don't keep hilkng forever and actually recession tends to ease the pressure to keep hiking. There is some pain to come (will be worse in the uk) but by the time we are producing at nameplate I think this cycle will be done - best time to produce lots of nickel will be as the price is rising! The end to the war (it has to end at some point surely) will also help but I've given up guessing when that might be.

Also - we're still at a daft shareprice. Initially the dilutive effect of the +20% shares on conversion bothered me - when will Orion/La Mancha convert and will it cause a 20% fall in our sp or similar.

In effect this concern is completely gone, because I don't believe they will convert before 2026 and I believe A2 will be built by 2026. So you'll have a producing NPV of, say, conservatively $2bn+ against a potential shares in issue of 330m assuming no more dilution to fund A2. At current exchange rates at 100% NPV A1 + A2 with 330m shares at $2bn yields an SP of £4.77 so the extra dilution really will not be an issue by then.

Yes well I don't consider the convertible debt debt because I believe it will convert, which leaves the senior debt ($340m+).

You obviously have to pay it back at the agreed rate and I haven't studied the detail of whether you can overpay. It only makes sense to overpay if there is literally nothing better to use the cash being generated by the mine (for example but not limited to, building A2, building A3, building A4 etc).

There is a further aspect to this - I do believe you can refinance the debt because the initial terms of such debt are always worse than what you can get as a producer - the risk to the banks is a lot less. So maybe they can restructure it on better terms, _hopefully_ increate the total debt to allow rapid construction of A2 etc.

Maybe the A2 DFS is too soon for such an announcement (i.e. we will get A2 DFS in Q4 but not a concrete finance package around it) but I imagine they will have a very good idea of how to finance it pending how the A1 ramp up goes of course through 2024.....

I say we, I mean the company of course.