When assessing investment merit for SFX I'm working off the...

When assessing investment merit for SFX I'm working off the outlook based on the timeline presented by management that we could see a re-rating to between $0.60 and $0.90 before end of December. If that happens it would represent s a 82% - 173% increase in investment from the current 33c in a 5 month period, that's not a bad investment return.

I'm not suggesting that Drillingholes shouldn't move his rig to new ground and drill holes elsewhere, he might strike gold after all, but I am suggesting that it's not the obvious and only sensible move to make as he seems to be suggesting - frankly it sounds like someone ringing the bell.

End of December happens to be when Bruce G's performance rights lapse.

I am running with a re-rating assumption on the back of confirmation that:

- bank finance is finalised
- equity gap is filled
- Final plant/process design is finalised
- engineering contract is in place
- BFS complete

and then

- FID

Obviously the final values/quantums that fall out of the above completions will determine the net shareholder value that the final configuration represents, in other words we could see the NPV in a range of let's say $800mil - $1.2bil based on guidance from the company to date, and adjusting for various sensitivities.

I'm assuming/hoping that once the company realised it couldn't meet a 2021 dry season commencement (due to the JV only being finalised in March 2021) the need for an FID prior to December was seen to be unnecessary and if announced early, would be imprudent. As a result the need for a BFS wasn't urgent and management choose, instead of issuing a BFS in April '21 (one which would inevitably be subject to adjustment from several significant components which still hadn't been bedded down), to use the time between April and December to finalise all the components and present a robust and fresh DFS in late 2021.

I think it was a wise move with many positives and no fundamental negatives to the project.

Contrary to what many existing shareholders may feel, the move to hold off on the BFS has positives when considering the long term health of the share price too. New institutional money is key to re-rating the share price in a sustainable way, and those institutions want some degree of certainty and assurance before committing. Jumping in on the back of a BFS in April with many major components still in the air, plus a long lead time to FID in uncertain times was not I suspect, a the foundation on which new Bruce G would have wanted to be approaching his trusted investment contacts or the broader institutional field. There was much upside in waiting, wearing the minor pullback due to existing shareholder disappointment, allowing a final purge to happen and then announcing from a low clean base. That way, the story on the table in November/December is fresh, concentrated and compelling. It also means that New Bruce comes out firing on all cylinders smelling of roses issuing his first significant set of announcements only months after his appointment to the head position. Much more favourable than amendments to old Bruces stale and then outdated April 2021 BFS.

Can you imagine what would have happened in the SFX market if a half arsed BFS was put out in April with a list of things to be finalised? a spike in the SP with a heavy sustained selloff afterwards I suspect. And then another BFS iteration (the forth by then). Compare that to what might be inspired by the issue of a robust and complete DFS in late 2021 highlighting the real long term value of the project just prior to FID and then rolling into construction, - Well done Bruce G.

I suspect/optimistically hope, reading in between the lines, that there are some significant positive process developments that needed exploration and confirmation (maybe highlighted after the appointment of the new technical expert to the KMS board who I believe is a world expert who may have identified something previously unconsidered). I feel that a optimisation component up their sleeve is one of the significant reasons on holding off from publishing the BFS and for management's confidence that the final numbers should not be lower than previously announced. These optimised numbers should they eventuate, will also be useful when negotiating the final bank financing contracts.

So, for what its worth, I'm running with the fact that there aren't any deal breakers lurking in the background, but rathe the company is using this time to get everything finalised and will successfully do so eventually.

In conclusion, there is very much the possibility that the numbers surprise on the upside (and not only remain constant of disappoint to the downside) given current positive movement of exchange rates, mineral sands pricing, possible optimisation of recoveries and process, possible increase in NAIF funding, lower capex than previous (counter balanced to an extent by rising labour costs, but maybe not so much by then), and maybe a loosening of the labour market by December etc. I acknowledge that we could be surprised on the downside too, but I note that to date any public statements from the company do not indicate a net worsening from the previous BFS.

For anyone wondering why I've picked $0.60 - $0.90 as my re-rating range at FID, it's because there needs to be scope for the price to increase overtime as the construction milestones are met up to eventually an NPV or earnings multiple valuation at the end of the construction period. I'm working on a number of circa $1.20 - $1.70 as a value for an SFX share when it represents NPV or a 6x - 10x EBITDA valuation. So, if the BFS supports a $1.20 price post construction then $0.60 seems like a good investment rationale for an institution riding out the construction period, and if its value should be $1.70 post construction then $0.90 at FID looks like a good investment discount to compensate for the risk during construction.

Sure we might see this thing never fly, but it doesn't seem like that's where this will end. Remember we're in an industry where supply is looking tight, and prices are rising, Thunderbird is a world class asset that has been plagued by funding obstacles and seems to be coming to the end of that road.

All the best.