Valuation & some long-term perspective

Per my previous post, on June 6th:

'Amidst much excitement over pending news,please do not lose sight of the mostimportant thing: TVN acquired Speewah for AUD 20 million, withshares that at the time were worth zero, & with cash TVN did not have. And what a deal it was, because it seemsincreasingly likely that Speewah is a resource asset of global significance.This may yet go down as one of the greatest acquisitions in Australianresources history - something of which Charles Rasp could be proud. So let us not overlook the fact we have anoutstanding management team at TVN, who know how to solve very difficult problems. Onwards’

The MoU with Sumitomo Corporation represents seven months of close collaboration and negotiation between the parties, as well as sustained effort by our Executive Chairman & his team. To them we should be immensely grateful.

'Without precedent' is too often a lazy phrase, that ought be used sparingly. Yet (hat tip: ChatGPT) it is correct that today's announcement from Tivan is without precedent.

The Speewah Project was announced only this year, yet by Christmas Tivan has reached terms with a major Japanese trading house, even with the Speewah Project only at PFS.

Those stating 'it's only a MOU' miss the point. Sumitomo would never go public on terms of any JV without exhaustive due diligence, & an iron-clad intent to proceed. Sumitomo's public reputation is worth much more than their initial AUD 60 million commitment.

The MOU structure also reflects the need to obtain FIRB approval, & the second paragraph of the press release reads as though JOGMEC will join the deal in Q1, 2025. Naturally, & for good & the right reasons, the wheels of government (JOGMEC) turn a little slower than the private sector (Sumitomo). Nevertheless, both parties have proceeded at pace. It is a demonstration of mutual trust, & mutual respect.

The valuation uplift from today's announcement is extraordinary. Tivan acquired all of Speewah for AUD 20 million, using worthless TNG shares & deferred cash.

The corporate restructuring also announced today clearly separates the fluorite from the vanadium at Speewah, with Tivan owning 100% of the latter.

Sumitomo are putting down AUD 60 million for just 22.5% of the Speewah Project. That means Sumitomo's entry valuation of the Speewah Project is AUD 266 million.

Let's clear something up: if Sumitomo thought the entire Speewah Project was only worth AUD 266 million, then their 22.5% share would only be worth the AUD 60 million they have committed. In other words, a zero return on equity.

And no investor would commit any capital to a project that assumed a zero return on equity, would they.

Assuming standard return on equity on top of their entry valuation, Sumitomo's Speewah Project valuation must be in excess of AUD 500 million.
This would suggest that Sumitomo are focussed on resource expansion ahead. One should debate where that puts Tivan's share price: even excluding the other projects Tivan is working on, it is an astonishing uplift in the implied valuation of the company.

And consider for a moment the return on capital: TVN acquired Speewah for AUD 20 million, with shares that at the time were worth zero, & with cash TVN did not have. Given Sumitomo's Speewah Project valuation must be in excess of AUD 500 million, that's a (minimum) 25x return on capital for TVN.

Who knows what the return on capital of the Sandover Fluorite Project will be.

Overlooked amidst today's understandable excitement is that our Chairman's letter confirms the pathway to final investment decision (FID) is fully funded. Tivan's path to free cash flow has been secured, & as we know, with multiple other low risk / high reward opportunities in the pipeline.

Our Chairman mentioned at the AGM that as the Speewah Project matures, Tivan can raise any Project equity gap at a higher valuation.

At a guess, in time that project equity gap could foot to AUD 50 million, based on projected CAPEX and an assumption of a 60/40 mix of debt to equity.

This means existing shareholders are set to participate in the future cashflow at Speewah, and whatever other projects that TVN levers into, without dilution. This is an extraordinary platform form which to build a proper company.

So here we are; an extraordinary achievement from a phenomenal team of operators to whom we owe great thanks. I think they are just getting started.

Final point.

I notice some chatter about 'share price predictions'. All well & good, but investors are probably best advised to start with an implied valuation of the business, think about shares outstanding (stable), then back out an implied share price from those two.

A conservative approach (which is always the best way to approach these things) would suggest that, excluding other projects our outstanding team are working on, the implied valuation of Tivan is far higher than yesterday. I would imagine the institutional investors now follow.

Onwards.

Merry Christmas & best wishes to all.

JA