It's worth bearing in mind that BlackRock Group:- owns about...

It's worth bearing in mind that BlackRock Group:

- owns about 6.6% of SFX (worth about $8mil based on today's share price of $0.35).

- owns about 6.1% of ILU (worth about $257mil based on today's share price of $8.93).

ILU has a market capitalisation of around $3.8bil. That market cap is predicated on the assumption that the company will continue to generate profit from sales of mineral sands into the future.

ILU's current projects are maturing, and the project they acquired in 2016/17 (Sierra Rutile) to add strength to their earnings stream is looking like it will be divested shortly due to underperformance.

In order to maintain a robust market cap, ILU must ensure ongoing revenue to underpin the company's valuation and prevent the erosion of shareholder value, 3.8 billion dollars worth of it.

You'll see from the following comparisons that Thunderbird's (TB) Zircon and Ti02 production is not insignificant relevant to ILU's productions figures, ie, it's a sizeable asset.

The global market for Zircon is about 1.2 Mtpa and ILU supply about 25% of that (300Ktpa)
The forecast supply of Zircon from Thunderbird phase 1 is approx 90Ktpa (equivalent to 30% of ILU's annual sale quantity)

The global market for Ti02 is about 2.3Mtpa and ILU supply about 13% of that (295Ktpa)
The forecast supply of Ti02 from Thunderbird phase 1 is approx 300Ktpa (equivalent to over 100% of ILU's annual sale quantity)

Let's remember that the reason the SFX timeline since 2016 has unfolded the way it has, started with the assumption by major shareholders and management that TB would be acquired by ILU, RIO, Tronox, Lomons etc.

The October 2018 BFS was crafted with the view of presenting TB such that it looked as attractive as possible to the majors, and to provide SFX shareholders with the biggest sale price. In other words show the the biggest project financially viable, underpinned by testing and analysis from respected experts that couldn't be questioned, eg, Hatch, GR engineering etc.

The assumption taken by management back then, that SFX would never be the ones developing TB, can't really be criticised (except with the benefit of hindsight) because it seemed like the best way at the time, given the lay of the land, to extract the best value for shareholders.

Well, with the benefit of hindsight, we see that:

- ILU had their hands full battling political and technical issues with Sierra Rutile (June 2016 - current day),
- RIO was occupied with Richards Bay,
- Tronox was all tied up jumping through hoops trying to get the regulators to allow them to acquire Cristal (from August 2017 - May 2019, they finally managed).

The majors were all tied up.

For good reason following the failure of the Sierra Rutile asset, ILU needed to exercise excessive caution with how they move forward regarding future acquisitions. They couldn't afford to acquire another dud without seriously hurting their rep. And if choosing the other approach of developing an asset from within their existing portfolio they need to exercise the same caution because there aren't any stand out, simple and worthy candidates that don't each come with their specific risks and downsides.

I suspect that ILU, in around 2017/18 when SFX released their ambitious BFS, took the stance of "let's see if they can pull it off, and if not, we'll mop up the mess."

If they do manage to fund this or some other major jumps in, which is unlikely, then we'll pay up, but no need now, because we'll probably get to mop up the mess."
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Well two years down the track SFX have modified the project design to make it a project that a junior has managed to fund. I'm sure Yansteel stepping up to the plate was a fly in the ointment if what I outline was an approach that ILU was taking, but not necessarily the end of TB/ILU story by any means, everyone has their price.

So let's get back to the fact that ILU will at some point need to shore up earnings to keep the market cap from eroding, in other words - keep shareholder value in tact. As I mentioned earlier, what is good for ILU is good for BlackRock because they own $257mil worth of that cake.

Did BlackRock become a major shareholder of SFX in 2017 just because some enthusiastic broker sold them a story of buying into a mineral sands junior in WA, or were they interested in getting in because of how the SFX asset tied into a much bigger slice of cake they owned, and maybe how having a major stake could assist in a marriage at some point?

What would have happened if ILU, back in 2017 took a 10% stake of SFX? The price would have rocketed because the signal would be that ILU are interested, SFX would then have a built in TO premium and gets set up as a seller's market, and not a buyers market. Not what ILU would want if they wanted the asset, in distressed form ideally, but also f it came to a hostile T/O.

We know that SFX currently far from commands a premium, maybe this has come about solely because of the sequence of events, and maybe because of something more than just that.

Would it be unfortunate for a major shareholder in a company (let's say BlackRock in SFX) if SFX was taken over for a low end price (let's say by ILU)? Let's add, that the major shareholder in SFX also owns a much larger stake of the predator company (ILU), and that predator company's value proposition was strategically linked to the acquisition of SFX?

For those who watch the SFX daily share trading closely you may have marvelled at how at times the price seems to follow very discernible, repeated and long term patterns. These patterns have been fairly unfavourable to investor performance over a fairly extended period, and that starts to take its toll on sentiment, its painful. Over time, the stock receives less and less outside interest "because it just doesn't ever seem to move, even on good news, it must be a dud".

In the event that certain parties would like to have an influence over how the sp moves over an extended period, this lack of external interest in the stock is a very useful factor because it limits the amount of buying or selling that shows up in the market following good news,. Given the limited buying, it then becomes feasible to throw enough selling at any spikes to take the upward momentum off the table, and then existing shareholders do the rest of the job when they see the stock is stalling.

As a major shareholder this approach hardly seems problematic if they are the ones doing it, they can buy back the stock when the price drifts down (being on both sides of the market means no change of shareholder notice needs to be issued) and also when a capital raising comes about, the major shareholders get first crack at the cherry and why not take the stock at a discount rather than at a premium (I suspect thats what happening in VR8 at the moment).

The good news for anyone who did want to have influence over the stock like this is that they can explain their buying and selling as nothing more than buying or selling on technical and fundamental basis.

Furthermore the sequence of events over the last 4 years, on the one hand, could explain lack lustre sp performance, but also the asset has done nothing but get better and better, and the prevailing overall market has been bullish. So, maybe the price is where it is just because of the fundamentals, or maybe it's a little but more than just natural share trading of a randomised group of shareholders.

So, what's my point?

Let's not underestimate that sometimes a long game gets played, especially when it comes to money or revenge. And let's not confuse the share price range as absolutely indicative of value.

I maintain that TB is an asset that will get developed and when it does, and especially if/when:
- WA labour market opens up
- mineral sands prices start to move up and the sector gets hot,
- the AUD/USD is a little softer than it is now (between 0.67 - 0.70),
- capex debt has been paid off

you will see an NPV at those times multiples of what an NPV at this snap shot in time looks like, and the sp will reflect this, $2.50 $4.00 is not out of the question by any stretch of the imagination if the above factors line up. I also re-iterate that NPV for a long life project highly undervalues the real worth of the asset.

On a different note, the delays to the release of the BFS I suspect was based on a sensible and strategic reason given what transpired following the JV formation in mid March. Ultimately that decicion will be beneficial for shareholders (other than those that wanted to trade out). This decision makes even more sense when assessed through the objectives of new Bruce rather than old Bruce who I'm sure would have preferred an interim BFS was put out in April.

If the markets hold up, what I'm hoping to see in the DFS later this year is the unveiling of a very comprehensive and robust project that has been 10 years in the making with a post-tax NPV of $1.1bil , with no need for additional capital. That, should it transpire, will light up the sp in a way that happens when new money comes flooding into a share because it is now seen as something very different to what it was before - but that's another post.

Hold strong, and buy more on the dips if you have capacity.