Still in the outback with limited comms but I thought some might be interested in a fuller version of the recent interview.
Below is my direct response to the questions I was asked.
·Q1. Kalenn, firstly explain to me who the“PIG” is and why you founded it?
The foundations of the Private Investor Group (P.I.G)were established in 2012 when a number of investors in Avanco Resources met atan AGM in Perth. P.I.G quickly grew to approximately 60 members. The groupincludes professionals, many in the resources industry and investors from allstates of Australia, New Zealand and expats living overseas.
Essentially, we were tired of being the last toknow about the companies we were invested in and wanted better access tomanagement as well as amplifying our research through the collective effort. Westarted sharing our research and then began pooling our votes on AGM agendaitems. As a consequence, the Avanco Board began to reach out and communicatewith us as it would any other major shareholder or fund.This allowed us to ask the hard questions and investigate topics not usually highlighted by companies in their presentations. Our group shareholding grew to 12% of Avanco Resources. Ultimately, Avanco was taken over by Oz Minerals. Because of our numbers we were in communication with other major shareholders throughout the negotiation period and we collectively walked away with approximately 12% of the A$444 offer price.
Q2. Youmentioned there are approximately 60 private investors in your group.Collectively,
how much capital does the group have invested in ASX stocks, and whichstocks in particular
are youmost impressed by?
I can’t tell you precisely.As a group we make a point of keeping a tally of the shares we collectively hold in our focus companies but everyone owns shares of other ASX companies. I can tell you we walked away with approximately $50 million from the Oz Minerals takeover. Some people still hold Oz Minerals shares but many members have diversified into other companies. We hold a significant volume of shares in Canyon Resources, about 15% of the company, and around 10% of Myanmar Metals. We also have several other companies that we watch closely, some members slowly building a position. My personal favorite is Myanmar Metals for a variety of reasons.
Q3. MyanmarMetals (MYL) is one stock you’ve been very closely following and have invested
heavily in. What is it specifically about this company that attractedyou and keeps you actively invested?
Yes, I’m a Top 20 shareholder, as are other P.I.Gmembers. The first thing that attracted me to Myanmar Metals was thedeposit.While the majority of my research and investment is in the resources sector, I prefer to invest in projects that have certainty of development and the potential to grow enormously. Bawdwin is an extraordinary deposit and it has continued to grow as MYL have undertaken development. They have already defined an operation that will be one of the world’s largest lead/silver mines and each drilling campaign increases the scope of the project. Recent drilling campaigns are turning up significant copper, cobalt and nickel intersections with no doubt more to come. I have walked the tenement a number of times in the past 2 years and each time I am further surprised by the volume of mineralogy at surface, in historical adits and in the cuttings made for access tracks.This sort of evidence reinforces the geological information provided by the company and leaves our group in a wonderful position to appreciate the ongoing prospectivity and potential for growth on top of the 100 Million tonnes of ore already identified.
I’m also attracted by the enormousvolume of historical information available to management. Samples from aditsand the mined stopes have been put into a database which has informed MYL’sdrilling over the past 2 years. Some of this data is more than a century old.Collected at a time when miners were chasing silver and leaving lead, zinc,copper, etc behind.This sort of data can’t be used by the company in JORC estimates but it is a very powerful tool and partially explains the great success the company has had in their drilling campaigns and the rapid development of a resource model. Personally, I have no doubt that the resource will grow much further in time.Meingtha Gap, Meingtha Hill, ER Valley, Pangyun Junction, Chin, PR Valley etc, there are kilometers of open strike and the orebody is open at depth all along strike. It’s quite possible that the deposit will be mined for the next century.
Then there is the experience of themanagement team. The early decision by John Lamb and the board to structure theBawdwin Joint Venture (BJV) with two reputable local partners and the decisionto have Perilya as a cornerstone investor in MYL speak to the vision to build abusiness with many winners. The local partners are large Burmese companies withmulti-faceted businesses. They have provided pathways to the Myanmaradministration due to their own experience in country. I’ve also had access tointerview locals on site at the Bawdwin village. These people have been waitingdecades for the project to find a new life. The anticipation they have of beingpart of a thriving community supporting the mine and being supported in turn isextremely encouraging. There will be many winners from the rebirth of theBawdwin mine and that is down to the vision of management.
Finally, there are the economics ofthe project. A PFS has been published with sound returns on a 2 million tonneplant. MYL have since flagged that the soon to be released DFS will increasethe scale of the project and I personally believe the likely target will be a 3 million tonne plant. Iam keenly awaiting the DFS.
The market has not fully appreciatedthe unique nature of this resource and its scale. John Lamb and his team keepexpanding the size of the resource and have not failed to miss a target. Wethink this is not only attractive to P.I.G. but also to the major miners andcommodities traders. Many of whom have visited site. With MIC approval and apublished DFS at say 3 million tonnes production capacity we will be getting toa point where a takeover becomes a real possibility. This should addconsiderable value to the share price whether MYL mines or is sold. This upsideis attractive to us.
Q4. In terms ofMYL, what upcoming events or milestones do you see as driving value for the
company?
The company is currently awaiting thesubmission of their MIC application. In Myanmar, for large significantprojects, the investing company must apply to the Myanmar Investment Commission(MIC) for permission to bring foreign capital into Myanmar. That submissionprocess incorporates decisions on tax relief/holidays, duration of mininglicenses, production sharing agreements, etc and puts in place protections forMyanmar and for the Foreign company. In a recent Australian Chamber of CommerceMyanmar Zoom conference at which three senior Ministers spoke. It was stated bya gentleman who also happened to be the chairman of the MIC, that an Australianmining project would be accelerated through the MIC process under Myanmar’s Covid-19Economic Response Plan.It’s my understanding that there is only one Australian company at that stage of development, Myanmar Metals.Hence, I expect the MIC application to be submitted in coming weeks. Typically, it takes a further six weeks for formal approval. Myanmar Metals have already stated that the DFS will be published close on the heels of the MIC license being granted. I would expect both events to occur during the third quarter and perhaps sooner rather than later. This will be extremely significant for Myanmar Metals and the BJV. It will concretise the future of the project and allow investors, off take partners, potential predators and banks to move forward. To date, the market has under valued MYL because they do not understand it and because some are waiting upon the certainty that will come with MIC/DFS/PSA announcements. These events have the potential to have a significant impact.
Q5 What isyour own personal expectation in terms of the share price impact of MYLreceiving
MICapprovals and releasing the feasibility study in the coming months/ weeks?
I always find short term share price predictiona fraught business. However, my thinking is that a combination of MIC and DFSwill give far greater clarity to what MYL have in Bawdwin. The PFS based on a 2Mtplant gave MYL an NPV with an 8% discount of A$414 million. ..and that’sMyanmar Metals share of the project. Total operating costs were pegged atUS$108 per tonne and they had a 30% IRR. This put the project in the lowestquartile for costs. Given I now expect an upgrade to a 3Mt plant, I’d expect operating costs to be lower and overall economics to improve as well of course as the 50% uplift in plant capacity. So conservatively, an A$621 million NPV or approximately 34.5c per share. As the prospectivity and upside are so substantial with this orebody I’d expect that value to be keenly appreciated and the market should start to value the company appropriately. Of course, any suggestion of a takeover would accelerate that process. Given the current share price there is significant upside, multiples of today’s share price.
Q6Given you are an independent investor, what risks have you identifiedwith Myanmar, and
what is MYLdoing to mitigate those risks?
The biggest single action thatMyanmar Metals have taken to mitigate risk is to adopt a win/win philosophy onthe project from day one. The introduction of local partners with a significantshare of the project and a Chinese backed cornerstone investor in Perilya was amaster stroke. That same attitude of ensuring success for all and at all levelsfrom the local Bawdwin village to central government will serve them well. Ithink the risk profile on this project is very poorly understood. The commonperception is that generated by western press, Myanmar is simply the Rohingaissue and Daw Aung San Suu Kyi. My first degree was inAsian studies and I have spent many years in those parts of the world. I do notsee these types of issues impacting the Bawdwin Joint Venture. In reality,Bawdwin is a very significant project for Myanmar. Their revenue share,whatever the final agreements we see in the MIC license, will be worth billionsin foreign exchange, generate many hundreds of jobs and help propel the miningindustry in Myanmar down the path towards an Australian model of mining withall that means for the environment, labour practices etc.The flow on effects to local economies will be significant as well. Bawdwin will also be a major client of the rail system in coming years, utilizing the OBOR or Belt Road Initiative corridor that China and Myanmar have developed. Chinese smelters to the north, ports to the south, I suspect both could be utilized as this project will produce large quantities of concentrate. Only overnight significant announcements were made in Myanmar that will directly support logistics for Myanmar Metals.
A large part of my role in P.I.G. isto take myself and my knowledge and experience of resource companies on site. Ihave regular communication with stakeholders beyond just board and management.That means travelling to site, visiting mines and core sheds, meeting withgovernment ministers, bureaucrats, embassy representatives, local community,other investors, potential offtake partners, funds etc. In addition, we oftenhave members of our group who will be able to add valuable knowledge. Nothingis guaranteed but we believe all of this substantially mitigates risk and givesus opportunities that others will miss. We run the numbers, test the viabilityof what board and management are saying as any fund manager would but unlikesome analysts and fund managers, I will travel halfway around the world to seethe resource and speak to local stakeholders myself. For example, on my mostrecent site visit to Bawdwin in February I spoke with engineers and geologists representinga global commodities trader. We can all make guesses at why they were on site.I also spoke with senior and junior geologists, country managers and projectmanagers for Myanmar Resources. I had private interviews with localrepresentatives of the community. Went down into the historic mine, travelledthe rail system that will become the private access for building the mine andshipping out the concentrate. Upon return to Yangon, we had meetings withbureaucrats, Australian Embassy trade officials and substantial time over severaldays with the senior members of the MYL board. I then spent a further two weeksin Yangon including seminars with the Australian Chamber of Commerce in Myanmarin the company of reps from Woodside, ANZ, SCM Legal and others who have runbusinesses in Myanmar for many years. The presenter at the main Austchamevent was the special economics advisor to the country’s de-facto leader State Counsellor Daw Aung San Suu Kyi. These are opportunities that few others have taken. All of these experiences have led me to conclude that Bawdwin is not just a great resource but also that the Bawdwin Joint Venture has created a relatively risk free operation which will be a lucrative investment.
Q7 There are reports of significant interest in the Bawdwin project froma number of major
resources houses, specifically Glencore and Trafigura. Do youanticipate MYL might become
the target of a takeover bid, assuming they get the MIC export licencepermit and all the
otherregulatory approvals are granted?
I know for a fact that both Trafigura andGlencore have been to site. One site visit I did was in the company ofTrafigura. My reading of that visit was that they were very impressed with thepotential at Bawdwin. I also note they have port facilities in Yangon and ownsmelters around the world including Australia and Asia. I had some veryinteresting but very private conversations with them. Now whether that interesttranslates into a takeover offer or a serious partnership around offtake Ican’t say but I would expect it is a real possibility. I also know that manyother multinational groups and national groups have expressed interest. I thinkit is significant that both Japan and Korea are establishing large industrialestates on the coast in Myanmar so it’s not just a China game. It’s worthmentioning also that Perilya, who holds approximately 20% of MYL stock but isunder a standstill agreement that is about to expire might be interested inensuring that the concentrate goes north into China and the nearby smeltersrather than south to other countries. I’m sure that MYL would be on the radarof some larger mining companies. A 50 year life of mine is the sort of securitythat might wet their appetite. The granting of an MIC license, the detail overfinancials and security of tenure could gain their interest as well. So do Iexpect corporate action? I think there is a strong chance. Given the upside inthe project I’d expect offers to be close to current full value. Everyone willknow there is upside, a lot of upside.
Q8 You’ve beento Myanmar recently and visited the Bawdwin mine site and seen the terrain
for yourself. Tell me what your impressions are of the mine siteitself, and the supporting
infrastructure.
My overwhelming impression of Bawdwin is theextent of the geology. Without visiting it is impossible to convey how good theprospects are here. They have defined a world class resource and there is everychance that it will grow by 100% or more over the next 5 to 10 years. There areareas at Bawdwin that have yet to see exploration but where I have no doubtthere will be substantial discoveries. I’ve been excited by the recent start onuncovering the copper/cobalt/nickel potential as well.I know I’m not the only person that is excited by the upside here, on field trips I get to see the reactions of and converse with those geologists and engineers from the ‘big boys’. They get excited too.
I believe Bawdwin will be a much larger open pit than is currently in the studies. They continue to extend along strike in both directions. So from an infrastructure perspective, the biggest factor is that they are in a sparsely populated area with good access and on an existing mining lease. Although it is amazing to see the historical mine infrastructure still in place and working, including a hydro generation plant.
Q9 What roledoes the PIG play in influencing or shaping perceptions among other investors
towardsstocks that PIG support?
P.I.G is relatively well known to some sectionsof the investment community.I think our integrity is known to those that follow and read our shared information on social media sites. Some have been aware of us for years and have been able to make their own call on the value of our opinion. Hence, we do have a following and our influence is greater than just our groups shareholdings. Of the companies we take a large position in, these other investors do know I have travelled to several exploration and production sites including in Australia, Africa, Asia and the Americas. I am often happy to share what we find on the ground. I have been to Myanmar on a number of analyst visits to view the growing operations of Myanmar Metals and happily share my thoughts on platforms such as Hot Copper. The group and its influence with proxy votes is also in the awareness of the companies we invest heavily in.
Q10 Finally,for anyone interested in joining the PIG, what would they need to do to become part
of the PIG,and are you accepting new members?
P.I.G is for the most part a closed group. Werarely take in new members but are happy to share our research with others viasocial media. The simplest way to see what we are interested in is to follow Kalennon Hot Copper.
