Hi marcus A, apologies about the delayed reply. I tend to agree...

Hi marcus A, apologies about the delayed reply. I tend to agree with your second reading of the JV structure. I see it is an earn-in JV, where Energy Fuels will contribute the lesser of $180M or 49% of the total eventual cost of phase 1 for a proportional interest in the Donald JV.

The capital estimate of phase 1 is $364.7M (per the DFS), unlikely coincidentally 49% of that is $178.7M or almost exactly UUUU’s earn-in amount for the JV.

However, the DFS predicts a total funding requirement for phase 1 of $392M (inclusive working capital, startup costs and a 12% contingency). So, it is likely Energy Fuels will have to contribute more than the $180M or risk reducing their interest in the JV proportionally.

From this basis I’ve been trying to figure out whether it is a good deal for investors.

Quick math

Shares on issue - 171,136,071

Stage 1 EBITA $148M (from DFS)

• Per Share (current SOA / 100%) - $0.86
• Per Share (51% JV) - $0.44

Stage 1 FCF $103M (from DFS)

• Per Share (current SOA / 100%) - $0.60
• Per Share (51% JV) - $0.31

Alternative solo development scenario

If Astron were to instead pursue the venue alone and perform a capital raise for the $206m. For the result to be approximately equal to the JV proposal, by my math Astron would have to raise 164,424,853 shares at $1.25:

• Current SOA - 171,136,071
• New shares issued - 164,424,853
• Total - 335,560,924

EBITA $148M

• Per Share (335,560,924) - $0.44

FCF $103M

• Per Share (335,560,924) - $0.31

At the time of the MOU announcement Astron was trading at 0.45c, so one could argue it is a 177% premium to Astron’s last closing price (I’m sure this is how they will try and sell it). This premium is also about equal to the 188% premium Energy Fuels offered Base Resources.

Funding gap

Debt

The total funding requirement for phase 1 per the DFS was $392M (inclusive working capital, startup costs and a 12% contingency):

• Astron - $200M (51%)
• Energy Fuels - 192M (49%)

Assuming the JV goes through, it would leave the approximate funding gap to positive cash flow as:

• UUUU - $12M
• ATR - $190M
• $16M debt (per quarterly)
• $26M cash (from sale of UUUU shares)
• Net Cash position of $10M
• Funding gap - $190M

A big unknown for me is how the debt component will be structured. Will it be through the JV or will Astron be required to source the debt for its 51% of the JV itself.

The difference is that the JV would be borrowing 54% ($392 - $180) of the funding requirement. Astron would then be responsible for servicing 51% of the debt and Energy Fuels 49%.

Alternatively, if Astron must source the debt itself, as it stands it would need to borrow an unachievable 95% ($200 – $10) of it’s 51% of the funding requirement. Astron would also then be responsible for servicing the whole of that debt.

Equity

Either way, ATR will likely need to perform a cap raise or find a cornerstone investor to fund its portion of the debt and capital requirements. However, the cap raise would be significantly less if the debt was through the JV.

From the wording of the announcement, I’m guessing the debt would be through the JV as Astron states it “is expected to satisfy most of the equity capital requirements for the construction of the phase 1 project”.

Assuming the JV goes through, I imagine Astron would sell the UUUU shares immediately given the 0.84 estimated quarters of funding available (per last quarterly) and pay off some of its short-term debt. It would then be logical for Astron to allow the VWAP to exceed 75c for 25 days to force the conversion of the CSAM note to further reduce debt overhang.

Following that, for the purpose of this totally made up scenario I’ll factor in a 40M cap raise at 80c (absolute guess work, I just pulled the figure from the conversion rights in the CSAM convertible note extension announcement on 18/03/24 as I have nothing better to base it on). I would also expect Kang Rong to attempt to convert her $4.474M interest free loan at this time.

The JV should allow ATR to potentially access low-cost US and Australian Government funding.

I’m not factoring in much here, primarily due to Astron still being domiciled in Hong Kong maybe $10-40M. An upside here is that the JV structure dilutes Astron’s high “foreign entity of concern” ownership (~21% known to be held by Ruiqing Tan & Kang Rong) to 10.6%, though I haven’t looked up UUUU’s FEOC ownership.

All this means the JV will likely need to find around $150M debt funding which seems achievable.

Offtake

REEC

The MOU it somewhat vague in its pricing mechanism but given Astron would be required to sell 100% of the phase 1 and 2 REEC production to Energy Fuels, I’d want to make sure the terms are favourable unlike say the Piedmont / Sayona JV.

In the long-term Aston could potentially go down the lines of a phase 3 development of its 100% owned Jackson deposit (not included in the JV) but Energy Fuels retains first right of refusal over it. Hopefully the terms of the first right of refusal are also favourable.

HMC

I haven’t looked closely at the Ilmenite, Rutile and Zircon component of the business for some time, but Astron may separately be able to access European, Japanese or Korean funding if they enter into offtakes in those jurisdictions as those elements are on the respective country’s critical minerals lists. Under the MOU Astron is under no obligation to enter into an offtake for the HMC with Energy Fuels.

Peripheral consideration

The JV covers MIN5532 and RL2002 (green) with a first right of refusal only to participate in the development of the Jackson Deposit (RL2003). Jackson deposit contained 823Mt at 4.8% HM as of 2016 – for comparison MIN5532 contains 525Mt at 4%.

In November 2022, Blue Ocean Equities valued Jackson and EL5186 (in orange) at approximately $40M of which ATR would retain 100% under the JV. Take the valuation with a gain of salt but it shows the potential uncaptured value.

Potential value

This is little more than absolute guess work and is no way intended as financial advice (DYOR), but if the scenario above plays out there should be about 235,000,000 shares on issue.

Using the Phase 1 DFS figures leaves us with:

EBITA $75.50 (51% of $148M)

• Per Share (235,000,000) - $0.32

FCF $52.50 (51% of $103M)

• Per Share (235,000,000) - $0.22

Apply whatever multiple you want and add in BOEQ's $40M for Jackson and EL5186

• Per Share (235,000,000) - $0.17

Using the Phase 2 DFS figures leaves us with:

EBITA $185 (51% of $363M)

• Per Share (235,000,000) - $0.79

FCF $117 (51% of $230M)

• Per Share (235,000,000) - $0.50

Apply whatever multiple you want and add in BOEQ's $40M for Jackson and EL5186

• Per Share (235,000,000) - $0.17

Hopefully this goes without saying, but my math may be completely wrong, I may be completely wrong. No one should ever make financial decisions based on the online musings of a random person.