Morning Guys,
A good announcement IMO and one that will provide the Company with many options going forward.
Mark is currently in London, where Tembo is based, and I imagine they are progressing their plans subsequent to this deal.
IMO this deal has a lot more than meets the eye. I would not be surprised to see a much larger game plan emerge for NZC now, that will benefit shareholders enormously.
I speculate that the DMS Stage I plan was prepared for the FS as a result of the reality/ perception of tight capital markets to fully fund Stage II from the get-go. Whilst Stage I is 'capex light' there are also large penalties in terms of the recoveries and payability of the metal produced. Consider this, from the latest NZC presentation:
View attachment 878924
If you work out the differential between the Stage II and Stage I recoveries x payability for Cu and Co the uplift to revenue is HUGE - i.e. 7x for Co and 3x for Cu :
Cu
Stage I = Recovery 0.64 x Payability 0.49 = 0.3136
Stage II = Recovery 0.95 x Payability 0.95 = 0.9025
Uplift = 2.9x
Co
Stage I = Recovery 0.40 x Payability 0.15 = 0.06
Stage II = Recovery 0.65 x Payability 0.65 = 0.4225
Uplift = 7x
So, based on the above assumptions, by going straight to Stage II NZC will earn 7x the amount of revenue from their Co sales and nearly 3x for their Cu sales.
I speculate that the constraint, previously, has been capital availability and, if sourced, the potentially prohibitive cost of that capital and punitive additional terms.
Whilst I am speculating, I would think that:
(1) A FS based on Stage II from Day 1 would provide a much greater IRR and NPV for shareholders due to the massive uplift in metal recoveries and payability.
(2) The new cornerstone shareholder has access to cheap debt funding and a supply chain for NZC to utilise to go straight to Stage II in a cost effective way.
The rationale for assumption (2) is, like with solar, China Inc has decided it will dominate the global battery market. In meeting this objective, securing exclusive supplies of critical raw materials ahead of potential competitors is key (think what just happened to VW - a very public F#@k off when it tried to secure Co supplies).
Thus, whilst many Chinese corporates are experiencing capital controls for global investments, those that are deemed strategically important are being allowed to invest offshore.
An example of a Chinese partner funding a large project is in PNG and HIG's Ramu project. Whilst there are obvious differences between this globally significant Ni-Co project and NZC's project, HIG's partner were able to provide debt funding to the project for 5% cost of capital.
This will likely allow NZC, if it so chooses, to apply a much higher % of debt to their project, and on favourable terms relative to what would be offered by a Western Investment Bank. This in turn means less dilutive equity raisings to build the project and thus a much greater return per share for investors.
Whilst I am not saying this will occur, this deal has opened up huge opportunities for value uplift IMO for patient shareholders.
Cheers
John
