Ann: Landmark Resource Upgrade at Ohmgebirge, page-9

What a day!

So why invest in SHP? Well… because I think it’s worth way more than it’s valued right now. Which brings a number of key questions:

·What could it be worth?

·When could it be worth that?

·Why is it worth that?

·What’s the chances it really gets to that?

What’s my point of view worth? Not much, to be fair, but check out Cenkos, Far East Capital, and I’m sure there’ll be more to come. Be warned, what I’ve written below are my thoughts, not advice. If you read it, research it, be critical.

So what could it be worth?

Let’s start at the top. On a really bad day, $40m (8.8c). But that was a mid June low, swept up in the delay of drilling results alongside the global markets filling their pants. Those days are passed us (for SHP, perhaps less so for the markets).

But on a good day, a very good day… north of $1bn?

“Bull sh1t” I hear you say. Well, perhaps, that is the best case, but let’s talk more realistically:

• Near term (Q1 FY23) – $150m / 30c
• Medium term (FY23) – $300m+ / 60c+
• Longer term (FY23/H1 FY24) - $500m+ / $1.10+
• Best case (FY24/FY25) - $1bn+ / $2+

What’s the downside potential? In my honest opinion, I think the only downside this has comes from a black swan/nuclear war, in which case any investment decisions you make will do badly.

Now to explain myself

What is SHP, and why’s it a potentially goodinvestment?

For those who are new here, there’s so much to cover here that I can only pull out the key points. Other posters on SHP have also done great deeds in sharing their info (@CatalystDriven, @T.E.P., etc).

• ASX listed, Germany located potash ‘explorer’. Whilst officially an explorer, they have one of the largest potash deposits in Europe (outside Belarus – we’ll come to that)
• It used to be mined in great scale across the region, so we know it’s there.
• It holds the largest MOP (muriate of potash, not SOP) deposit in Europe with 5.3bn tonnes at 10.8% K2O. A life of mine potential of literally hundreds of years
• BUT! Only a tiny percentage, as of today, is in the Indicated category – we’ve only assessed about 8% of the total Inferred resource that SHP owns
• Why is so much Inferred only? Because JORC 2012 compliance meant that the ~$500m equivalent data value for 100s drill holes drilled prior to these regulations, across their 4 key resource areas, could not categorise an Indicated resource. To do this, they need proving up… 2-3 holes per region can validate the data to then feed into their scoping studies
• For Project O / Ohmgeburge, these holes are complete, the assays are complete, and we now have our resource estimate.
• Another 2-3 holes on the 3 remaining areas will expand the value of SHP over time
• SHP holds the license for perpetual mining rights without royalties or rental, as the license was created back in the Soviet era but remains true today. Unique!
• The region itself is CRYING for industry and mining to return. The Prime Minister of the region has publicly stated his desire for mining to return, and an x-environmental/MP is now the in-country representative for SHP. Solid backing.
• They used to mine this resource – as a result, waste can be put back underground into the existing and new rooms created. Also… that ‘risk’ on the Inferred category is academic – the salt IS THERE!

Why is it worth so much more?

What’s the competition?

BHP’s Jansen

This is a true monster. Most famous deposit on Earth in the north of Canada, BHP is putting $10bn+ USD to bringing this online. BHP has also called out in their FY22 & FY23 market announcements that potash will play a key strategic role in the company’s future.

• Jansen is 6.5 Bt @ 25.64% K2O. That means that SHPs identified resource is about 40% of BHP’s global monster
• Once setup, it will print money, but it’s in the far north of Canada, and frozen for half the year.
• Shipping costs (not even the in-Canada rail costs) are $70 USD/t to get potash to Europe
• SHP is in Europe – not only benefiting from the lack of transportation needs, but also the ESG credentials
• Point being, if BHP spent all those billions getting this up and running, they or others might well see SHP as an opportunity. And at what price?

Allana resources (2015)

This company had a resource at about 40% of SHPs back in 2015, with a small market cap and needing $800m funding to develop. Instead of dilute, they were bought out for $200m AUD at a time of low interest in potash ($300USD/t) when today’s pricing is $550USD/t. I would imagine that were this SHP and transacted today, it would be at least $250mbut could be in the region of $500m AUD

Highfield Resources HFR ASX

These guys are north Spain based. A smaller resource but further along the project cycle, with funding and construction commenced. They are valued at $350-400m AUD, with agreements in place. Their resource is approx. 6-7% of SHPs. They have used $390 USD in their DFS.

Macro economics

Those valuations earlier from various brokers were not considering the recent global events. Here’s why I believe potash is a great strategic play now and over the next few years

• Global supply shock
• Belarus & Russia supplied 40% of global supply. The former was sanctioned in 2021, but now both nations are
• China banned potash and fertiliser exports late 2021 (I’ll let you think on your own conspiracies there)
• Brazil is also holding its own supplies
• I assume that the BRICS nations (Brazil, Russia, India, China, South Africa) and not just looking to destabilise the USD (as they’ve publicly announced). I highly doubt they’ll be sharing their resources
• Lack of European supply – projects across Europe and Africa will supply, and at some point, Jansen likely will. But with high fuel costs and ESG awareness, it’s all about being in central Europe
• Deglobalisation – even if the war stops in the Ukraine tomorrow and we all forgive Russia and Belarus, we’ve turned a corner. The West will never fully rely on resources from these nations again, particularly not with something that underpins your ability to feed the population. No food is what starts civil wars.
• Challenging growing environments from global warming are increasing the need for dependable food growth all over the world
• Rising potash prices – in mid-2021, analysts were modelling using $300-320/t but HFR has used $390/t.

And so… NPV and market cap

If SHP used the $390 USD/t in their feasibility study for just Project O, that’s an NPV of about $2bn AUD. Take your pick on p/NAV ratio – a harsh view of 10% gives you $150m, a fairer view of 20% gives $300m market cap.

And that’s just Project O… the smallest of the 4.

SHP have already stated they expect to be lowest quartile opex, and with central European geography they don’t expect the likes of Jansen’s volume to hinder their profitability. They do not currently have an MD, this is a risk. But I think today's announcement unlocks access to the calibre we are after

In my opinion, SHP has a lot of multiples to grow. Question is now, will they be bought out, or go it themselves