On 1 August, Executive Chair Bronwyn Barnes ("BB") provided a Webinar update on the recently announced settlement with Tanzania. This cleared up alot of uncertainty for me. I am sharing my thoughts here, because I'm sure many of you will have had similar uncertainties...
I have prepared a back-of-the-envelope Valuation based on this updated information. The range I calculate is between 12.2 and 16.6 cents per share. These amounts should be discounted to allow for timing as the capital return component (10.5c to 15.0c of total value) will occur in two tranches on Nov 2024 and Apr 2025.
There is an on-going discussion between the claimants as to how the settlement money will be distributed. Our worst case scenario is in proportion to shareholdings and our best case is in proportion to each parties sunk costs i.e. IDA should receive somewhere between 69.5% and ~95% of the settlement money after legal costs. BB discussed the argument for proportionality on sunk costs in some detail and I have read the ICISD Award and I consider there to be considerable merit to her argument. For those of you who are interested, I'd encourage you to watch the Webinar and read the ICISD Award. Also remember that BB is our 2nd largest shareholder. She is highly motivated to negotiate the very best deal for us!
It is my impression there will be no tax payable on the settlement. BB was emphatic that the first $82m of the $90m award was tax free. And I believe the company has sufficient tax credits to fully offset any residual amount that needs to be recognised as income (as at 31 Dec 2023, IDA was carrying $29.2m accumulated losses).
Other key takeaways:
1. BB has absolutely no desire to acquire any new assets i.e. they're not going to blow our dough
2. BB intends that AU$ 10m will be retained. This will be sufficient to fund the next 2-years of exploration in South Australia
I have created a spreadsheet detailing my calculations which is available here - https://docs.google.com/spreadsheets/d/1KTUrBKphy2WNfi8PI7zGDgr03vYAKSwr8cd9w8s0xD4/edit?usp=sharing
There are two worksheets. One is editable, feel free to play with it and try out your own assumptions. The other is locked, to retain a record of my original assumptions.
As I see it, the investment thesis is:
1. Buy IDA today (currently available at 8.9c)
2. Receive somewhere between 10.5c and 15c back as cash (capital returns) over the next 3-7 months
3. Continue to own the stub consisting of the companies existing assets and their $10m cash to fund 2-years exploration in South Australia (together worth another ~1.7c per share)
STRONG BUY!!
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