Ann: Grange Resources Limited Appendix 4E - 31 December 2023, page-12

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dsgm

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01/03/24

08:41

Post #: 72685528
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Originally posted by dsgm: ↑

Revisiting the base case from the UG, I thought it would be good to share some thoughts:
It appears that FCF looks good for 2024, but from 2025-28 they probably will need to raise capital or debt to fund the UG works?
Whilst I am not over-worried with the assumptions, some concerns aroung the IO price which is impossible to predict - hence, capital raise/debt thesis might get strengthened?
CAPEX is 891M and according to their report they have ~285M - 300M in cash or equivalents ( ~30%).
GRR management appears to be conservative, which makes me more comfortable. I believe an FID for this needs to come this year or latest early next year to optimize the structure/indirect costs and ensure smooth transition from current OP to UG - Construction takes 4 years (2025 to 2028) and delay might affect production costs significantly.

UG decreases C1 costs (at least on paper), which is great - doesn't look competitive to have C1 at $130-140 AUD / ton
If IO/Concentrate goes up, it is a mix of growth with dividend payment - if IO prices remain around the assumptions level dividends might be threatened (believe the approach would be build up cash to fund UG rather than paying out). Excess Cash might be distributed, but I would not expect this go to more than 4 cents per year (and I am ok with that)
I still think the SP is somehow cheap, but not overly cheap as I thought (because of FCF). As the UG progresses and its CAPEX gets capitalized on the balance sheet, P/B ratio might go even lower - looks like the market has been pricing this risk, and, therefore, the intrinsic discount and lack of move, despite positive short-term news shown in the report.
It appears to be crucial to decide on this project in 2024
My take: Long Term view: Moderate Buy; Short/Medium term: Hold

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Forgot to mention - my view is that SD is on the shelves - they might refine the studies now (CAPEX, Constructability, Engineering, etc.), but from what I see from GRR BoD/mangement, I would be prone to believe that the long-term plan is fund SD with the FCF from the UG, which is a conservative approach - It doesn't look like they have the appetite/greed to become a "big" IO player, which I am ok with as well.
GRR Price at posting: 43.0¢ Sentiment: Hold Disclosure: Held
4 Upvote

0 Great analysis

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