Many people I want to reply to here, but I'm on holiday so posting from the airbnb
Today's announcement is absolutely insane. No offence to people here who expected better and are disgruntled with how management handled this, but you are not seeing the full picture here. I'll try to cover the main points and when I'm back home I can try clarify better. This is a good deal beyond a shadow of a doubt. Company making in my opinion.
1. Look what happened to the original peer during discussions with their korean partners. Horrible and destroyed the company. With that in mind, ARL required even crazier amounts of capex and therefore had in some perspectives a bigger hurdle to overcome. Management has not ruined a good deal by being too stubborn and greedy. We don't know what happened with the original discussions over at the peer but what we do know is that no deal is horrible for shareholders.
2. 50/50 is not a bad deal. As I outlined a few weeks back, it is the most honorable and true partnership you could have. When attempting a project like this, you want things done in good faith. Now is it a good deal for the consortium as well? Of course, they are not a charity and they have to win too out of this.
3. People thinking ARL has "given this away" need to think about this scenario, which looks a lot more likely now:
- As of today's announcement consortium is o board for the long haul it seems. Our share we have to worry about is 1.5b now, so half the problem removed. Conversely, we are going to get roughly 400m ebitda (remember the gold and scandium is still uncounted). This is double our current MC, for 40 years. Not a small return at all.
- DFS is no longer an issue for us. The Japanese are pretty much paying for it, so we can expect no dilution until FID.
- If we assume a traditional 60% debt 40% equity split, that's around 600 million we need to raise. We will have zero issues in raising this with the partners we have, I am sure everyone will agree. If we raised that at say 200m MC, we would end up walking away roughly 100m EBITDA as the original shareholders (since we issue triple in new shares).
- That means we are still looking at 100m ebitda for 40 years and since most of us bought around 100m MC, that is something roughly around the 40 bags mark for goongarrie alone.
- But this does not take into account pre-payment of offtake reducing the equity amount, government support (can you think of a better project to help out?) and most importantly of all that
MARKETS ARE FORWARD LOOKING so we likely will not be raising 3x our SOI. Everything I've described now will be getting thought over by much smarter people than me for the next year while we move towards FID. We're not raising the money tomorrow, we have
TONS of time between now and when we actually would need to raise. There are even blue sky scenarios where we might not need to raise.
- Also, the DFS being paid for adds value to the MC.
But let's shy away from the speculation because we are still waiting on a number of details and all my above math is pretty napkin. Take it with a grain of salt, it's supposed to be rough.
The facts of what we know as of today and have de-risked:
- We have the technical expertise on board and the Japanese are confident to sign a binding deal with us. Huge deal for this end of the market.
- Capex is no longer going to be an issue. With these partners, the question is just how it's done, not if it's done.
- We know our share (assuming no dilution) is going to be 400m EBITDA (without gold or scandium) and we still have heaps more tenements to go once we're cashed up. Extremely positive news and DYOR, don't take my word for it. Go model a variety of scenarios as to how we might end up dealing with the 1.5b capex. Could be 30% prepayment of offtake, 60% debt and 10% equity at a 500m MC when we have to raise.
Or it could be your normal 60/40 split like I outlined above.
Or it could be 50% government loan, 35% debt, 5% equity, 10% prepayment
See how wild the scenarios can change? But the key takeaway is that no matter the scenario, if this goes ahead the company is making very good cash. Which can then be redeployed into the other crazy tenements we have, to generate serious long term value.
So this is why I completely disagree with any negative sentiment.
(20min delay)
