Fundamentals always win, page-67

I see that just before Christmas St Barbara announced they were mounting an all scrip take over of Bardoc at a calculated value of $157m. That is, they are not burning any cash on the deal.

Bardoc has a mineral resource of 1.8g/t Au for 3.07Moz of contained gold, including about 1m oz at 3.7 g/t underground. Bardoc was all ready to go ahead into development of its main project but pulled the pin at the Final Investment Decision, citing credit tightness and materials and labour shortages. Those factors should not be such an issue for something the size of St Barbara.

In contrast the Bob Vassie led Ramelius paid $181m for an early stage exploration project in the form of Apollo and Lake Rebecca. The project has resources of 1.1m oz at 1.2 g/t but we are assured that it really has a lot of potential (never heard Mark Zeptner blue sky talk before). Also Ramelius burnt about $100m in cash in sealing the deal (though about $35m would have come from Apollo and Ramelius had collected another $30m by giving away royalties to a lithium project it described as world class). Ramelius also assured the market that paying $181m for a project which was not actually part of their stated step change growth strategy would not in any way distract them from that strategy. Just as a reminder, the step change growth strategy was first articulated in September 2020 and they continue to sit on their hands on implementing that strategy.

Seems to me that Ramelius paid overs for a project they weren't actually looking for, a bit like a Mars bar at the servo. In the supermarket trade that is described as impulse buying.

Over the end of year break, I've had a rethink on why I am holding what I hold. My opinion is that Ramelius continues to perform well operationally but had a suck-full year strategically. Any improvement in share price seems to be dependent on sector direction rather than on company actions. Ramelius continues to have two left feet when it comes to the m&a dance. I rate their failure to deliver on their step change growth strategy a major fail. More specifically their giving away a lithium royalty stream for Kathleen Valley for $30m was a mis-step imo. Their failure to pick up another 2.5mtpa processing capacity near to Mt Magnet by acquiring Gascoyne for say $150m is just being pig-headed (at a time when they are looking to expand their Checkers mill at a cost north of $30m). And I rate their impluse buy of Apollo to be the Mars bar transaction of 2021.

Normally I would sheet the blame for all of this onto the managing director, in this case Mark Zeptner. But I note that not only has the company lost the guidance of long-term chair, Bob Kennedy a while back now and of long-term director and chair, Kevin Lines, a bit more recently but they brought in a new chair, Bob Vassie, at the end of 2020. So BV's been around for the whole of 2021. Perhaps he needs to gets some tips from his old mates over at St Barbara about how to negotiate a deal and not pay overs.

So, yes, fundamentals count but I'd rather have an average company being run by good managers than a good company being run by average managers. MZ and the Ramelius board have not been average over the last 7 years or so, but they did have a poor 2021 imo.