african iron, page-13

There seems to be a bit of confusion, myself included, regarding the purchase price. Different sources seem to be touting different numbers. This is from CFE's presentation:

"In December 2008, Cape Lambert Resources Limited ("Cape Lambert") issued a convertible note to DMC that
when converted in July 2009 enabled Cape Lambert to take a 37% stake in DMC and subsequently participated
on a pro rata basis in a $4M share placement in September 2009.
DMC was acquired by Cape Lambert in August 2010 for approximately A$55 million after a bidding war between
Meijin Energy Group Ltd and Cape Lambert"

Th convertible note was for 2m (that really was as a sensational pick up) + the 4m placemment + 55m = 61m.

Sloanrunner - I think, by and large, we all agree that the new policy of retaining equities of around 25% in projects sold is a very good one. The question is whether you sell 75% now for 47m (plus royalty), or in keeping with company policy, take the project closer to a mine ready state through drilling and sell 75% for at least 10 times more. This is, after what CFE is all about. For whatever reason, no further drilling was carried out, even though they were expecting even more DSO, which is the mother load. This is where the largest pre-mining gains are to be made according to TS himself. If it makes sense to extract maximum value this way with Marampa, Leichhardt and so on, why not Mayoko? If it was just a cash issue, I still beleive there were several options.

There's a psychology experiment with young children whereby the child may have a piece of chocolate now or the whole block in 15 minutes. Those that have reached the developmental milestone wait, whereas those that haven't take the piece now. A good analogy IMHO.

As far as tax goes, it's always better to make more and pay more tax than make less and pay less tax IMO. Death and taxes and all that. Again, I agree that retaining the equity makes sense for all sorts of reasons, including tax.

Proofreeder - "...thank goodness CFE's business model changed and we're still leveraged into it in a major way with 25%."

Wholeheartedly agree with you on this one. I think not doing so previously has put a hand brake on the SP.

There's any number of single project companies with huge MC's a lot larger than CFE. The market just loves the big numbers that those that go into production can generate. Mayoko will be generating gross revenue of around 750mpa at the projected 2011 prices of around 150 per tonne. As they say, the first tonne of ore costs billions and subsequent tonnes cost around $20 per tonne. Mayoko has the dual advantage of having a DSO resource close to a rail.

The more projects are sold whilst equity is retained, the more CFE will have the "ooh-ah!, check out the big numbers" income streams in the pipeline as well and in addition to the large profits made on "most" projects. Previously the market has got a bit excited when a project is sold but goes to sleep awaiting the next deal. Now, we have similar advantages to those other single project comapnies with huge revenue possibilities that will be getting ever closer yet the crucial advantage of having risk spread across geography, companies and resources.

Large upstream revenue + large profits from sales is the double whammy that needed to happen for CFE.