Ann: Entitlement Issue Results, page-24

Let me preface this by saying that I share the frustrations of fellow shareholders in here.

Execution has been poor, but that has mainly been around timing & communication.

With that out of the way (and for the benefit of newbies who haven’t been through a financing process before), it is important to understand just how difficult it is to raise finance (both debt & equity) on capital markets.

For many investors, capex is just a number. It is easy to be seduced by NPV or FCC numbers, but unless a company has a realistic chance of raising the necessary finance to fund capex, then a project will remain at a development stage.

Only a handful of companies at the mining development stage make it every year. Trust me, it is a very small number. And there is an art/skill to finding those rare few. I think most of us in here have that skill.

Here is an exercise I have found useful over a long period of time.

The ASX is currently comprised of 2,116 companies at present. Of these, 807 are in the materials (includes mining) space. In other words, 38% of all companies listed. If you were to build a spreadsheet (as I have), you could separate them into three columns. One column for producers (operating entities), second for developers & lastly for explorers.

The producers will (generally) have the larger market caps, followed by the developers and then explorers. If one is playing around in the development space, they are saying that they are prepared to take on more risk than buying a producer, but not the levels associated with explorers - which is ultimately just gambling.

OK, so what is the numero uno risk involved in buying a mining developer? It is the finance risk. How then can one assess which developers have the greatest financing risk? Well, we look at and compare capex numbers. And we can even assign a score to each of these companies based on multiple criteria.

The majority of developers have huge capex numbers - some $500m, others well into the multiple billions. If you are a company capped around $100-$200m, with no balance sheet and no ability to provide a completion guarantee to a financier, then you pretty much have Buckley’s and none of raising those funds regardless of how flashy the NPV or FCC numbers are. There is one popular developer out there who has been chasing finance for almost 7 years now. Imagine that? They’ve consolidated, they’ve changed their name, but still no finance. So many punters have stranded capital in this company because they never truly understood what it meant to raise the multiple billions it requires in capex. Look at all the deals that have been done in this space across a number of years and one will better understand how difficult it is to raise finance.

What I look for when performing initial due diligence are three things: 1/ low to very modest capex requirements (under $100m if possible - but never more than a few hundred million - even this amount is prolly too much for me to consider). If it is an exceptional project requiring a lot more than this, the majors would have already scooped it up. 2/ sunk capital advantages - preferably an existing mine with a plant/infrastructure 3/ strong management teams with runs on the board.

Cyprium ticked all of those boxes when I first discovered it.

Admittedly, the capex numbers were much higher than I had originally calculated, so I was caught out a bit here, but not significantly enough for me to sell my position.

And Barry has consistently sounded confident that they wouldn’t have much difficulty raising this amount predominantly via debt. I had to assess whether he was being overly exuberant or whether he could still pull it off. I haven’t wavered in my belief that he can and that this is very close to the line.

Sometimes, we need to look at it through the eyes of the financiers.

Imagine a company comes in capped around $100m and they want to borrow double or triple that MC. They have no balance sheet, can’t provide a completion guarantee or much else - except for some collateral over existing assets. What are you going to say?

The first thing is that you will ask them to shore up their balance sheet via an equity raise. And if they can secure a deep-pocketed partner via an off-take, etc - it will improve the risk metrics.

While there was some dilution via the institutional raise and this tiny rights, the lion’s share of the finance is still going to be debt. So, I disagree with those claiming they have heavily diluted us. They haven’t. And regardless, you cop it to get the debt over the line.

The institutional raise and rights make up only a tiny fraction of the overall debt package. My read on it is that the Glencore off-take is the key to precipitate the debt finance. Not a LOI, but a binding agreement. And Baz has alluded to this in an interview and also mentioned it on page 27 of the recent quarterly. I draw your attention to the following words “in conjunction with”. They are clearly linked. Having Glencore sign a binding off-take with Cyrpium is a MASSIVE boon for the company. And the financiers are most likely waiting for that.

Now, I know a little bit about Glencore. If they wanted to, they could easily stonewall Cyprium or even pull out altogether and take us out. As one former executive is want to say “We used to nail them (referring to smaller companies with projects) to the wall and take away their keys”. Saying that, our project is likely too small for them to bother with from an operational perspective. They would prefer just to take the copper and on-sell it. That is the trader’s mentality.

It isn’t management’s fault that macro turned to garbage, due to ripping global inflation and reserve banks raising rates to control the inflation beast. Subsequently, the copper price collapsed. Go slow is always the result when volatility ramps up. Unlucky timing.

Management are still sticking with H2 2023 to plate copper. Yes, it isn’t mid-2023, but it is thereabouts. If they had moved this timeline out to 2024, we would know that finance was still some way off.

Baz fell into the same trap that almost all mining executives fall into and that was promising finance in a shorter timeframe. To repeat what I said in an earlier post, I am heavily invested in another mining company and their finance was delayed by 12 months. They still managed to finance it eventually, so that is all that matters. See the forest for the trees. I’ve learnt not to trust anything mining executives say when it comes to timelines. I do not catastrophise, though, when things are delayed. I listen very carefully to what Baz has to say. And he remains super confident that they are in the final stages.

I’m confident that they will secure Glencore’s signature soon, then announce the debt finance. Maybe, they will be announced together?

And I believe the total amount will be more than sufficient to see them restart Nifty and concurrently work on their other projects as well. And in this environment with capital markets tightening up, it will be an incredible feat. Most of us will feel relieved, but raising the amount we are seeking with our balance sheet and in the current macro environment will be a herculean effort. And a massive vote of confidence in the project and our management team.

Other companies out there chasing finance are in for a torrid time. Many won’t make it. Once we secure the finance, they will get cracking straight away and I’m confident they will complete the refurb on time & budget. They’ve already done quite a bit of work. So, I am not overly worried about the execution risk.

Mining is capital-intensive - there is no getting around that. Not having to tap the market again for funds for a long time is what I expect of them. If it takes a bit longer at this stage, I would prefer that. They aren’t mugs. This is nothing more than a psychological test and one of patience. Impatience is my greatest weakness, however, I am working on it. Every investing mistake I have ever made involved me losing patience. Not this time.

I’ve left a message for Baz to contact me back and I will let you know if he offers up anything of interest. And I will remind him to stop complaining about the labor pains and just show us the bloody baby.