Happy Easter all. Ok, I said I’d give my reasons for taking up...

Happy Easter all. Ok, I said I’d give my reasons for taking up my entitlement and for acquiring. Here goes.

Firstly let me get this out of the way. I’m not happy about the deal FMS has entered into but OCJ had every right to vote whatever way they chose as did other minority shareholders. The deal is done and there is simply no point bitching and moaning about it. Yes, I think we could have got a better deal but that is now totally irrelevant. For Shareholders they have a simple choice now of wether to sell, hold or hold and acquire. My FMS share holding strategy is to hold or hold and acquire when the SP seems excessively low.

If I hold a stock I want to make a good return on that investment and do my best to support companies CRs that I think will lead my investment to grow in the future. For me, McA going is great news (but I will be very upset if he was to move to BBIG or PIOPmineco!!). So as to the future. We finally have a director that has shown he is prepared to put his own cash in the game. I have met with that director on more than one occasion and found him to be a logical and sensible person. Not pro minority shareholders but not a TIO puppet either. Frankly I’d still like to see NW go as I believe his position is untenable given the recent history of the company. That is just my view.

Now, let’s talk facts and figures. Remember I am not a financial advisor and my assumptions and calculations may be incorrect so make sure you do your own research and by all means post any errors or corrections.

During the roadshows when asked about the poor 2.5% royalty option the directors clearly said that they thought going to production was a much better way forward for shareholders. The implication was that the royalty, whilst an option, was the worst case scenario. So if that is really the worst case, let us explore it further.

The IER gave an opinion as to the long term average price of IO and a likely average for the Oz dollar.

That IO price was US$75/t for 62% benchmark and an A$ rate of 75c I believe.

So @US$75/t the realised price would likely be around 85% of that sum (RIO’s last quarter was 86%).

Realised price would be around US$63.75.

@A$ 75c , US$=A$1.34. Realised price = A$85.425/t

Multiply that by 50 Mtpa = A$4,271,250,000

A royalty of 2.5% on that could give FMS A$106,781,250

Shares on issue will be around 4billion after this CR.

That gives a return of about A$0.02669531/share. Or just over 26cps!

Remember with the royalty option there should be very little running expenses for the company.

What would the company shares be worth that gave dividends of say 2-2.5cps? Arguably at least 20cps and maybe 30cps?

I would also argue that the SP will not suddenly jump up the royalties start. No, indeed we should expect to see increased interest as milestones are met, BFS, FID, Construction, Production. The big risk as I see it is that for some reason the project doesn’t go ahead. Although BBIG have to keep paying for BFS of $15m pa and that info has value and becomes FMS property if the project is not a goer. The fallout from Covid 19 may be a major risk here.

So I see the deal this way. Invest and support the company now for a possible 10+ bagger in the future. Remember they have said that they believe the royalty is the worse case scenario.

Now do the same calculations on today’s IO price and A$ exchange rate. My calculations suggest around 3.6cps!

What other investments do you know that could give you a ten bagger in maybe 5 years but if held up maybe 10 years?

Finally, my crystal ball is not perfect and I do make errors in assumptions and calculations. Please check everything and double check before making your investment decisions. Do not take my post as financial advice. The post is just my layman’s view.

Good lust to you all.