Hi guys, here are more insights from my analysis of the 2018 financial report and my discussion with management regarding "land access acquisition/payments" :
Note : for a background on this subject, please read my previous following posts :
https://hotcopper.com.au/posts/35017496/single
https://hotcopper.com.au/posts/35017304/single
My analysis of the annual report :
"Page 11" of the annual report : "
During the year, the Group announced an addition to the funding arrangements previously provided by RCF. The additional funding was established as a 3-year US$61m Term Loan to be drawn in 2 Tranches, with Tranche A drawn down on 31 May 2018. Funds of US$53.5m from Tranche A were received and were applied to repay all amounts owing under the Additional Working Capital Facility, to support working capital requirements of the business and to continue planned capital expenditure programs and land access payments."
"Page 39" of the annual report (Note 5 Table : Revenue and Expenses) :
Royalties and landowner payments
(full year 2018) : 3.5 Million $
Royalties and landowner payments (full year 2017) : 1.2 Million $
"Page 49" of the annual report (Note b Table : Property, Plant and Equipment) :
Value of Land owned by MZI at 30 june 2018 net of accumulated depreciation : 26.7 Million$
Value of Land owned by MZI at 30 june 2017 net of accumulated depreciation : 17.4 Million $
"Land represents lots at Keysbrook which the Group has acquired."
WOW MZI spent a whopping 9.2 Million$ on land acquisition during the 2018 financial year !
My discussion with management :
My understanding from current new management is that given the high amount of expenditures on land acquisition in Keysbrook (it seems previous management "Trevor & Friends" choosed to acquire land instead of leasing/paying royalties to land owners which turned out to be very expensive to the company and a drag on cash, especially that first payments were made in small tranches as mortgages and now those mortgages dates are progressively maturing and should be fully paid, which explainss why the company spent 9.2 Million$ of cash in 2018 financial year just to acquire land !), instead, the new management are choosing a different approach, less expensive in the long run for the company and more conservative/econcomic for its cash expenses, opting instead for leasing/paying royalties.
It should be noted that the land in the keysbrook mineral sands deposit is private free hold land and not governement owned land, that is why there is no royalties to be paid to the governement. Generally if the land is governement owned, the royalty is 5%, management are now negotiating with the private land owners to pay them royalties (the amount is being negotiated) instead of buying their lands. IMO a win-win situation (land owners share the benefits/gain from a successful project/higher revenue/higher mineral sands prices and management reduces cash outflows to acquire the expensive lands).
This is IMO another example of how current new management are transforming the company (MZI resources) into a sustainable profitable business. The mistakes/poor decisions/lack of foresight of previous management are being progressively corrected (especially the badly designed in a hurry plant at the lowest capital cost absolutely possible and as a result compromises were made and corners were cut, therefore resulting in performance issues, inefficiencies, delays achieving steady production, additional capex expenditures (the failed Mining Feed Unit 1 was replaced by a Mining Feed Unit 2, a Trommel was added, 48 spirals were added, and many modifications to the MSP circuit were implemented), hence loss of confidence by the market and a collapse of market cap with tens of millions of $ of losses recorded each year on the balance sheet since the project started producing in october 2015), while the good decisions made by previous management (stage 2 expansion) are being consolidated and gradually and incrementally improved upon.
IMO this balanced positive approach pursued by the new management (correcting previous mistakes, consolidating/improving upon previous good decisions/achievements) if the right way to go and will pay huge dividends for the company going forward.
Hope that helped,
Happy multi-bagger investing to all !
