going forward

A few on HC have complained of dilution. Two points; firstly, AVB had no choice secondly they actually did very well. Directors would have been caught between a rock and a hard place. What do they do? Announce the Blackrock deal with its 3% approx dilution and then say "oh, by the way we need to do a cap raising for a further $18 million so that we can fast track to 40,000 tonnes and look for the next 40,000 tonnes" ??? The price would have tanked and the resultant raising would have been done at 5c!
I think they have done very well and I would argue that as the share price is having trouble getting down to the 7.5c issue price, others have similar thoughts. As Glen Archer noted, retail issues can create overhangs that keep the market depressed for months. By doing this institutional placement, backed by Blackrock and Glencore/Xtrata, AVB have made a very positive statement to the market. Given both of these companies have recently stated they were not spending on new developments, and were in fact actively reducing their exposure, the fact that they have come on board AVB in a big way should be a loud signal to everyone. (Blackrock just sold down their substantial holding in DML at the bottom of the market, ie they see more upside in AVB from here than DML) If they with their resources and a deeper look inside AVB than we will ever get can come to this decision I believe it is a no-brainer. Rumours are that Blackrock won't be far behind Glencore/Xtrata on the register and of course Blackrock is the largest share holder of Glencore :) Look at what AVB now have; $20 million in the bank, great technical team, biggest and best industry partners on the register. Industry partners who are cutting back elsewhere and NOT investing in "speccies" are choosing to take a chunk of AVB.

The $18.1 million raised has been ear marked for some very specific tasks. If you survey that task list you'll note that quite a bit is dedicated to tasks that would have been paid for as part of the draw down from Banco Votorantim. As a consequence there will be less debt down the track and that revenue will end up in the coffers, not paying interest bills. There is also talk of a few other techniques that will allow share holders to drag back the dilution effect. I don't think we will end up as diluted as some imagine, even if the theoretical dilution currently is close to 25%. Further money is dedicated to ensuring stage 2 starts as quickly as possible after stage 1 cash flow while not jeopardising the company's future by moving too fast and trying to build multiple mines simultaneously. The staged approach has been maintained but the foot is on the accelerator.

The balance of the money is allocated to regional exploration. This is essential to ensure AVB keep their exploration permits in good order. If they do not steadily progress the exploration on these areas they run a substantial risk of losing permit areas. Something we do not want happening. Hence, AVB have done exactly what was required, no more, no less. I believe we will soon see new substantial holder notices and top 20 holders as a result of the raising. I for one will be scanning the top of the list of holders with much interest. Rumours I have heard and joining the dots...suggests Glencore/Xtrata have subscribed to maintain their holding at 15% and Blackrock will have moved up the register, possibly in number 2 position now?

I believe the infill drilling for stage 1 and the new JORC will not take long, probably before xmas. I've also been led to believe that the ramp up on stage 1 mine will be brief, the equipment is already selected and we may see a few nice surprises there and 3 months should see hem hit their 12,000 tonne target once basic construction is complete. Wet season is unlikely to slow them down much. Delays in the above are possible of course but that is an indicative timetable. In terms of "risk" for AVB, the only real risk now is the mining licence. A few points to keep in mind when weighing that. Banco Votorantim is 49% owned by the Brazilian government. The Brazilian government is helping to fast track AVB. If you remember the post I did about the Blister smelter some months back, there was a photo of 3 men having a meeting in a restaurant. Those men were Luis Azervedo AVB solicitor/director, the secretary of Para state where the mines are located and most importantly, the third man which I couldn't name at the time was the state secretary of the Brazilian mining department DNPM. My point with all of the above is that Brasil wants AVB to mine and create jobs every bit as much as we share holders do. I believe the "risk" around the full license is only one of time slippage as it wends its way through the bureaucracy, not a risk of failure. AVB management have been careful to build good relationships, even delaying some of their own interests at times to facilitate the building of the mines and commencement of cash flow ( Think TN delays...join the dots).

In terms of likely revenue after production. Indicative only, if you don't like my PE change it.

Stage 1 Target 1st Q 2015?

Volume of copper 26145204.00
Volume of Gold 7798.00
Cu price per lb. 3.310
Au price per oz. 1281.00
Interest charges 10% ? -5800000.00
costs excludes admin etc -25000000.00
shares on issue 1400000000.00
cash receipts 96529863.24
Earnings 65729863.24
earnings per share US$ $0.0469
earnings per share A$ $0.0492
Less BR royalties approx A$/share $0.046
PE 15 (stage2 coming) $0.696


Stage 1 and 2 combined: (without any possible additional bonus tonnage but rough) Target 1st Q 2017?

Volume of copper 40000.00
Volume of Gold 26400.00
Cu price per lb. 3.310
Au price per oz. 1281.00
Interest charges 10%? -5800000.00
costs excludes admin etc -84000000.00
shares on issue 1400000000.00
cash receipts 325628000.00
Earnings 235828000.00
earnings per share US$ $0.1684
earnings per share A$ $0.1764
Less BR royalties approx A$/share 0.1711
PE 12 $2.117


With the above production targets keep in mind that most industry professionals under promise and over deliver. We could reasonably expect to see each stage "improve" over the first 12 months of production as wrinkles are ironed out and the plant is fine tuned. Ultimately I believe we will see a decent uplift in production rates but I would suggest we just take that as a bonus when the time comes rather than count on it now. I also suspect that we might see a modest hit to the copper price over the next 12 months but feel we will be back to at least current levels, if not higher, once we are in full production. Given the above, I still think my $1 target is very safe and I have also allowed options for directors later in the above calcs. The following quote from yesterday's Coppo report worth thinking about as well,

"... China’s Communist Party will meet next month for a major policy setting session which is being eagerly awaited by China watchers since it is likely to set the tone of the administration’s ambitions over the next five years. Many expect continued emphasis on improving human capital through supports for the consumer sector, healthcare, technology and social security. Infrastructure development and affordable housing provision are also likely to feature."

We could be heading back to copper consumption growth sooner than some expect.


PS a little picture of the stage 1 mine area: No forests to cut down...just a farmers cow paddock :) The dam is I believe where they will place the tailings dam, a natural depression.