Hi Contraindicator,
Your questions are simple, but quite profound!
"MNS seem to have a great story with a huge npv and payback period.
The differential suggests there is something the market doesn't yet believe.
I'm interested to know what it is."
None of us can ever give a definitive answer, but there are two clear issues may be causing institutional buyers to hold back. These are:
1. Assumed price. The BFS, and, from that, the NPV, is totally contingent on the assumption that a basket price of US$2200 per tonne can be achieved. That price is, in turn, dependent on the assumption that the market for large flake will expand considerably, so as to maintain that assumed premium price. But no new applications have been suggested for large flake - absolutely none - which cannot be met equally well by fine flake of equal grade, selling for a fraction of the price. So there is an unresolved issue as to the validity of the NPV, calculated using this assumed price.
2. Finance. The mine capex required is US$269m, and, with a probable construction time of 18 months or more, and the need to hire senior technical and administrative staff well before any production, an additional amount of US$40m will be required for working capital until cash flow. That makes about A$410m. Can they borrow that from banks? I don't know, but it looks as though Syrah tried to secure about half of that, and had to fall back on a Capital Raise. With a known major competitor shipping product, and establishing market contacts some two years before Nachu can produce, and a requirement for twice as much capital as Syrah, institutional investment managers could conclude that the prospects for bank finance are not good. So how about a Capital Raise, like Syrah did? With 393m shares currently on issue, that would mean a one-for-one issue to current shareholders, at a price very close to $1.00 per share. I'm not sure how many current holders would be prepared to put their hands in their pockets to subscribe that much to the company. (Would you?)
Contraindicator, your questions really go to the heart of the problem. Are the issues of Assumed Price, and Finance, the two which are causing some major investors to adopt a wait-and-see attitude? As you rightly say, it's been a good discussion, and we can look forward to much more.
Cheers,
Prime1
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