Before giving my realistic overview, I want to say that I'm committed with ARL and waiting for future growth while holding and definitely buying on the way.
Last week I pointed out 3 scenarios and probable SP action. I'm having opposite opinion to optimism shared today. News weren't bad, but they also weren't great, which means a lot of concernes are still in the air.
Only positive thing I took from announcement was scale of DFS - pretty massive, 100 mil, which will provide really accurate details for FID.
Now offtake rights - JC will earn 80%. For what ? For what ? Funding the DFS has got a lot of attention and JC is like growned with golden crown by caesar for funding it. ARL has put many many years of effort, not to mention HRR before that, to explore such reserves. ARL made massive and expensive drilling happen, funded PFS on top of other important works necessary. In my honest opinion, JC funding DFS is more than logical, may be even minimum to compensate works done so far, especially when forming 50/50 JV. It would've been big thing to be proud of if ARL share in the project would've been 70% with remaining 30% to JC and equal offtake rights according to JC share - 30%. But with 50/50 JV they funding DFS and get 80% offtake is something that market didn't expect and is rather negative. What negotiation room we have now ? For what such high offtake rights ?
This announcment today makes me feel that ARL didn't earn anything, all they have was given by JC. With 50/50 JV we have to find 1.5 bln. 1.5 BILLION BUCKS. And again, it's not a question if we get it, biggest concern is what is the price for getting that capital. And markets are forward looking, todays news definitely didn't provide any valuable details and driving force for SP until 2028 when mine becomes operational.
Only good sources would be government and it's backed institutions, because traditional funding sources expect assets and own investment capital - which we actually have none. ARL has lease agreements and permission to advance works towards opening mine, we don't own the land. So far we have banging the chest that no debt and no debt. Ok, good, but do we achieve by that ? Junior miners who have debt, also have much lower capex. We don't have debt but capex is massive. So it makes current no debt pretty useless aspect. For 1.5 bln we might, saying again, in good fortune we might get half of that funding as loan from government backed institutions. And we have read that they are really keen to provide capital for project, also banks etc. Of course they are, it's never the question getting access to capital and paying it back, very low risk. So they get good secure payback with interest + government gets massive export article + jobs, and then there are ARL investors. In my eyes, only ones winning right now are JC with massive offtake rights, banks, institutions, government and traditional owners of land. If we have to raise about half, or 40% capital, it makes 600 - 750 mil. With todays news and outlook, it's going to be very bloody. Can't see significant SP run, unless some external factors happening ( Indonesia policy change, nickel price improves etc). I think getting past 1$ SP requires external drivers. If not happening, then have to issue up to 750 mln new shares which would take us to nice 1 bln SOI. With 50/50 JV we might get mkt cap around 1.5 bln, which in current SOI means 7-8$ a share, but in future, only 1.5 $ a share and what is the time lapse to get another mine running to increase production and mkt cap.
Many have pointed out that we get institutional investors attention and that's the key SP driver. Unfortunately I have to take that hope off the shoulders. What I know is that it's forbidden for institutions to invest in penny stocks with invisible mkt cap.
Another worrying thing is from Q1 announcement that ARL is in negotiation with companies, which have shown high interest for offtake, to form JV for other tenements. So we get current mine running, get good cashflow and still looking for JV parterns, not only to dilute SH, but also proven reserves.
At least we have something on the way to give a slight lift on SP. We still have major drillings coming and if we improve reserves, then it might push SP a bit. But I think it's going to be long and bloody 4 years with stagnant SP.
Everyone, please provide Your opinions and discussion. I wish to see other opinions on that
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