Analysis and comments, page-32

Myth Busters

I have noticed a number of myths circulating in social media and via email regarding Red Hawk. I think it is time they were laid to rest and buried (except for some die hard conspiracy theorists who will want to hang on to every negative whether true or not).

Myth 1 - RH has 27,030,522 Performance shares to hand out as it pleases.

This is incorrect. Shareholders should read the Notice of AGM and refer to the Explanatory Notes for the Resolutions. Read them. Particularly section 4 and clauses 4.1 to 4.6 for SM. Note his shares are not coming from the performance pool (ESIP). Then read clauses 7.4 and 7.5 and it states that Resolution 5 was conditional on Resolution 4 being passed. It states that the 6,145,695 employee performance shares come out of the 16,884,857 pool.

So remaining shares in the pool that MAY be used is up to 10,739,162. But they can only be issued for performance purposes. None, some or all MAY be allocated at some time in the future. Because those shares are available it does not mean they will be allocated to current or future employees. They cannot just be handed to majority shareholders TIO or OCJ.

Myth 2 - RH can hand out any unused performance shares from the allocated performance share pool (ESIP) to TIO at any time.

No it can’t. There are ASX rules about this.

Myth 3 - RH’s lower grade ore has disappeared or is to be sold (to TIO) to fund the RH road haulage project.

RH’s lower grade ore hasn’t disappeared. RH have decided that shipping a “fines” product (60%+ fe) is their best way forward. So that alters the resource pool. Note the cut off grade for the ore is now 57.5%fe. There is ore above 60% and ore below 60% down to 57.5% that RH plans to mine making the average ore about 60%fe. What ore remains in the ground will be mostly below 57.5%fe and have higher impurities. No one would want to buy it with the better ore (above 57.5%fe) removed.

When trucking to Port Hedland moving the lower grade high impurity ore is not viable. Simple economics.

You can be pretty sure that RH will mine every ton of viable ore it can. So even if studies show say 200m tons at 60%fe, RH may well mine more if economic circumstances allow or that find more in situ than the study predicted.

Myth 4 - RH almost 1.5b tons of resource has disappeared or is being ignored to downplay the resource value.

The original almost 1.5b tons of resource was at a cut off grade of 52%. As per Myth 3 that has changed as we are not going to ship via rail but higher cost per ton road haulage. This doesn’t downplay the value but is purely because rail cost gives more margin because it is cheaper per ton of ore to move than road haulage. Why isn’t RH using rail? Simple, time to market and unlikely to be able to raise the huge capital required.

Myth 5 - RH Balcksmith project has been priced at $89/t for low ball offer to be made by TIO.

Oh dear…. The $89/t is the long term Platts forecast. This is required for finance. I noticed that other IO companies have also been using it in recent studies. Financiers are conservative and will want supported forecast by reputable and recognised organisation. Financiers will be mindful of the current IO price. The Platts figure is not a for sale price.

Myth 6 - It is claimed by some that at some time in the past SM said Andrew Forrest (or Fortescue) wouldn’t be interested in RH’s low grade ore.

Yep. If that is what was said it is probably correct. Fortescue have an abundance of ore similar to our deposits so probably wouldn’t be interested in the lower grade stuff (just like RH). They may well be interested in our “fines” product though particularly with rail nearby. Maybe that is what SM may have been eluding to. Nothing sinister, nothing to see here.

The above is from my research (and some common sense) and can be wrong so do your own research and due diligence. Corrections and comments are welcome.