I have re-watched the video a couple of times now and I figured I'd give my take on the significant comments in each section.
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Strategy for raising the current share pricesPaul takes complete accountability for the performance of the share price, and the lack of engagement with the market and investors.
It is this type of integrity and accountability that I appreciate about him, and why I continue to be a staunch supporter of him and the company.
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Overview of the low CapEx route into productionA gentle reminder that we have very high grade iron ore at surface.
An extremely low strip ratio will mean the company will start making money from the first rock they pick up.
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Geology of the deposit at MadagascarNothing really new in this section for me
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Projected start of Direct shipping ore (DSO) component of the operation
Nothing really new in this section for me
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Geological expectations at Madagascar
Paul does an indicative breakdown of the numbers.
He makes a mistake and says revenue, but it is actually PROFIT.
At the end of this section, and this is the first time I have heard this type of thing in the context of an accelerated timeline, Paul also mentions that the funds would allow the company to buy additional equipment and do additional processing to produce higher grade material IN THE SECOND AND THIRD YEAR. My interpretation is the demand and margins for DRI grade ore will more than justify the capital reinvestment. It will also provide greater margins and returns to investors.
62% Iron Ore Price: $126 USD
3% Grade Premium $18 USD (or $6 USD per 1%)
Lump Premium: $12 - $15 USD
Total: $126 + $18 + $12 = $156 UDS per tonne.
Cost to mine (and presumably ship?) and margins per tonne.
Estimate: $42 = $156-$42=$114
Conservative: $50 = $156-50=$106
Profit Margins on Various Tonnages
$42 Cost
- 1Mt = $114m USD
- 1.5Mt = $171m USD
- 2Mt = $228m USD
$50 Cost
- 1Mt = $106m USD
- 1.5Mt = $159m USD
- 2Mt = $212m USD
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CapEx number in the scoping study
Only talking in round numbers due to the mineral resource estimate not being released.
$200m to do the capital works that includes a $40m - $50m contingency - so about $150m estimated cost.
$80m - Mining, processing, accommodation and infrastructure
$30m - $40m - Road and bridges
$60m - Port. This could be a much smaller number as more detailed studies are conducted (stockpiling, conveyor, ship loading etc).
Re-iterates these are conservative numbers.
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Reason for not publishing the scoping study
Nothing really new in this section for me
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Explaining the current mining code in Madagascar
Proposed 4% royalty.
No estimates on timelines.
Nothing really new in this section for me
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Updates on the visit of Toliara Port in Madagascar
There is a lot of new information and insights in this section.
The port is small, predominantly inbound container port with very little outgoing traffic.
The depth of the port is suitable for Supermax vessels, which are about 58,000t vessels.
Given a 10 month loading year, a 2Mt loading capacity will take about 4 ships per month, or 40 ships per year.
2Mt could be completed on a conveyor and ship loading facility on the current port.
I am assuming it is the main port for almost all supplies into the region, and I assume as such, the usage / capacity at the port may have restrictions if AKO were to want to leverage this infrastructure for bulk loading.
They would also need to build a lot of infrastructure to support bulk material loading, and as such I believe using the current port would unlikely be a suitable / viable solution.
The current thinking is to build a 5km to 6km conveyor system to deeper water that will allow the company to have 1 - 2 ship loading berths for 100,000 tonne vessels.
The interviewer is vocal about having even smaller capex than what Paul has described, and whilst that would be great in theory, I believe there are a number of reasons why this is impractical in reality.
I don't know how long it would take to load a 100,000t vessel, but assuming the capacity of a custom loading facility that has no constraints on operation, the company may be able to load 3 - 4 x 100,000t ships per month for 3Mt to 4Mt loading capacity.
I would also assume this facility would be able to operate year round (12 months instead of 10 month), which would bring annual shipping capacity closer to 5Mt per annum.
Given what Paul said above about accelerating timelines for processing DRI material, there could be the potential to load both DSO and DRI material concurrently.
We know the 30% grade material has a 30%+ recovery rate, so building a 10Mt DRI processing plant would result in 3Mt of DRI concentrate.
2Mt of DSO over how many years given the potential 40km of strike
3Mt of DRI from 10Mt of processing
Total = 5Mt per year, on a potentially accelerated timeline of 5 - 7 years.
The main constraint I see in this scenario is the transporting 5Mt of ore ~350kms from the mine to the port.
The more I think about the realities of the situation, the more I think taking the hit up front and accelerating everything else down stream is the right way to go.
There is plenty of money made, and I'd personally accept an extra 100m shares on the register if it meant 5Mt of production - and PROFITS - with 7 years of breaking ground.
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Work plan for the rest of 2023 and plans for funding it
Jan - Mar is currently low expenditure due to weather
2 budgets
$2 - $3m would fund approx 15 months work at Bekisopa and a magnetic survey of Satrokala
$6m would the above works, as well as a magnetic survey and exploratory works at Tratramarina.
Tratramarina is an exciting project due the to 16km proximity to the coast / shipping, and does not have the logistical constraints / considerations of Bekisopa. This would also likely mean a significant increase in margins (I estimate at least $10USD per tonne).
There does not appear to be DSO at Tratramarina, and whilst a lot of work would need to be done to understand the mineralisation, the operation could be up and running relatively quickly.
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Overview of Bekisopa Exploration
The host asks if the work at Bekisopa could be done for less than $3m, and Paul suggests the money in the bank now and a raise perhaps as low as $1.5m could be suitable to progress Bekisopa only.
Paul and the company are aware of the economic climate, and that perhaps the larger budget for Tratramarina is not suitable for this time.
Paul also reiterates they are mindful of dilution for shareholders.
Personally I think it is striking a balance between dilution and accelerating timelines for return on investment. Getting to production and dividends 2 years sooner by adding more shares is preferable. I would likely re-invest my dividends to acquire more shares to offset the initial dilution.
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Composition of the company’s shareholder register
Only about 500 share holders on the register.
150 shareholders where brought across when the company listed. These guys are stable long term holders.
Top 20 has evolved and built up sizeable positions.
People are interested in getting a larger position in the company, but the lack of volume (read this as tightness of the register), can make it difficult.
Paul believes many shareholders in the Top 20 would be supportive of a placement, as would other holders outside of the Top 20.
Given $3m is probably the sweet spot for the raise, and other investors may want to buy in to the company by way of the next raise, I think I could comfortably participate with $15k ($10k cash and $5k from my SMSF), and potentially up to $30k if the moon aligns on the timing of another investment I have.
$3m / 500 holders = $6,000 per person to get it across the line.
Given the additional incentives of options, rights issue or whatever, this raise could and should be funded extremely easily.
In theory this raise could be done with existing holders where some people would get less shares than the $6k allocation, and some would want more - but this is highly unlikely as Paul states he is keen to bring in new investors.
Admittedly there has been some fairly large volumes relative to last year, but the market has cooled significantly, but in the context of total shares on issue, only a small percentage of shares have been turned over.
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Upcoming capital raise as a catalyst for the company
Paul and the company have a very clean plan and path forward.
I am really excited by this update as there is a lot of new information and considerations.
On a final note Paul once again acknowledges "his failure" in engaging the market and potential investors.
I don't think he has failed, and whilst a 50% drop is a very bitter pill to swallow, many companies who are making money and turning a profit are down than 50%.
Let's get this resource upgrade, the upgraded scoping studies, and learn the details of the raise.
Bring it on!
