Akora Resources (AKO) VS Champion Iron (CIA)

I have done a number of posts comparing AKO to other companies at similar stages, and AKO has come out as my (likely biased but) preferred company to invest in.

A couple of people have suggested I compare AKO to CIA, given the trajectory of CIA since 2016 (7 years), and the expected trajectory of AKO.

Let me start out by saying that although I don't know a lot about CIA as I begin this comparison, I respect the work that the company has done to get to this point, and they seem to continue to do good things.

Check out their latest quarterly, a very strong result, the investment in their recent expansion is starting to pay off - https://hotcopper.com.au/threads/ann-quarterly-activities-report-march-2023.7349737/

Given some constraints I have on time right now, I am not going to do a deep dive for my first post, but I will post some stuff here for people to read and consider.

Shares on Issue
AKO - Currently in the middle of the capital raise, expected to be strongly adopted.

I have updated my spreadsheet to reflect the maximum total number of shares the company will have at the end of this raise.

For now I am running with the company raising the full $220m USD at $1.50 AUD per share in order to go DSO mining. As we have discussed, there is the option to go DSO mining for a lot less than $220m. There is also the option of off takes with a prepayment in return for sale price discounts in the early years, or the potential lure of long term supply agreement for DRI grade steel - once that has been proven up beyond inferred.

There are some options that the board have, and I have not counted these as "shares on issue" as they have not been converted as they are not in the money, so I am going with ~72m SOI.

Based on the prospectus (https://hotcopper.com.au/threads/ann-offer-document.7359511/page-18?post_id=67730595), there will be about 91.5m shares and 9.7m options if full entitlements are taken up. I have used these numbers for my "PFS" and "DFS" numbers.

Note: there is a small discrepancy in the USD and AUD shares on issue number, I think this has something to do with using whole numbers to 2 decimal places rather than 5 decimal places for the currency conversion.


CIA - Started out with fairly low 196m shares on issue, now have over 500m shares on issue.

You can see that the current share price is $6.31 (hitting a high of $8 this year), and they paid a $0.21c dividend on 516m shares.




Question: Could AKO get to similar production numbers via their DSO starter, and potentially as low as 170m shares on issue?
Using primary school mathematics that doesn't account for potential future dilution, that would be 1/3 the number of shares as CIA (170m x 3 = 521m - close enough).

Which would mean 3x the share price (~$20/share) and 3x the dividends (~$0.60c/share).

I worst case estimate DRI production in 2035 (12 years), but it could also be fast tracked to maybe as low as 7 years away or 2030 (if we skip the BFS and we have incentive to produce DRI).

For the record, for 2035, I estimate about 190m shares on issue if we get into DSO production with 160m shares as I shared above.

BUT
A little bit of context about CIA is needed here.

CIA didn't build, but acquired their mine that was producing 6Mt of 66% grade fines per year. The purchase was for all existing infrastructure that included rail assets. Kudos to management, they purchased the mine at long term lows with the IO price going under $60/t.



As a part of that deal, there were are few other things:

1) Purchase Agreement - https://hotcopper.com.au/threads/ann-acquisition-of-bloom-lake-financing.2661056/
Key points here are:
- The Bloom Lake assets and the Quinto Claims are being acquired for a cash consideration of C$10.5 million and the assumption of certain liabilities.
- CIA (Québec Iron Ore Inc.) will also become responsible for environmental obligations which include environmental reclamation liabilities presently assessed at approximately C$41.7 million by the Government of Québec
- As well as the replacement of certain bonds securing certain obligations of Bloom Lake totalling approximately C$1.1 million.

All up the company needed to spend about $52.3m. Admittedly the environmental reclamation liabilities probably didn't need to be paid upfront, and that could have potentially been lower (or higher) than estimated by the government.

Once they agreed and paid for the company needed to complete a feasibility study - https://hotcopper.com.au/threads/ann-champion-iron-bloom-lake-feasibility-study-app-5a.3233426/

One of the "highlights" was "Total capital costs of $326.8 million including mine upgrade capital cost of $157.2 million;"

The $52m from the purchase and the $326m from the feasibility study brings the initial cash outlay to about $380m Canadian dollars.

Plus whatever they've done since 2016 - which is a lot because that would include the expansion works, and the DRI pellet facility they are commissioning.

This is a pretty large chunk of change, but they are walking into 6Mt per year capacity of 66% Iron Ore at (in hindsight) long term lows.

Some other highlights are




More analysis to come at some stage.