After converting the 20% option, if SFX completes all...

After converting the 20% option, if SFX completes all 'subsequent' stages, including project funding and commencement of project construction, they "may earn up to at least 80% of RMG with further option to acquire remaining 20%"... no disclosure of terms for acquisition of the next 60% or the final 20%, def a question to ask Bruce on webcast imo. Can't believe the last 80% will cost the same as first 20% (US$15M or A$21.5M @ 70c US), and this is material... What will the asset cost to acquire a controlling stake of 80% as a minimum, given you would probably want the local connections to retain skin in the game to decrease the sovereign risk for SFX.

I don't mind the asset after a closer look. Cheap dredge mining opex (though high capex) on good THM grades and reasonable VHM quality, but not great. Basically similar to Kenmare's Moma deposits on US$/t ore value subject to Sth Atlantic recoveries etc. Kenmare have slightly lower grades, higher Ilm, lower zircon... but a bloody huge resource of 8Bt or so. Kenmare had a lot of trouble getting their dredges to nameplate production and costs, but they do have higher slimes and Mozambique power issues.

Sth Atlantic deal is contingent on approvals being granted amongst other things, so this deal is low risk to SFX. A lot of work has been done in the past, enough work SFX thinks 18 months will deliver a DFS which in traditional terms can be an expensive 5-7 process. Clearly the project is potentially economic and with the work done to date, with a DFS and mining approvals under it's belt is valuable. How valuable though is critical, because at minimum SFX have signed up to paying A$80M to purchase 80% and maybe more depending on the terms to buy next 60%. A$100M is not cheap for a project cum-funding if it ends up marginal, but not necessarily expensive if it is highly profitable on NPV, IRR basis. A$3.5M is cheap pay to play, won;t distract KMS from their TB development, and provides a growth option should Stage 2 get delayed for some reason (including possibility YS doesn;t want to for some reason).

I wasn't born cynical and negative, it's long experience in business and the markets. STA half yearly dropped this morning and it allowed me to mark reality against their claims during development over the last year. Makes for interesting reading, and the analogy to SFX won;t be lost on readers I'm sure. At a similar development stage as TB last April, STA went for a $50M "Growth Project" CR for their Fungoni project development and studies for other Tanzania projects and future Coburn expansion. This statement a few days before the CR TH.



Reading from the bottom up, you can see the rapid progress and first shipment of payable HM con in December earlier than budgeted. All the way project was on time and budget etc, good job team. Now let's check the facts. End Dec'22 the project loans were fully drawn ($15M NAB line of credit open).



End DEc22 had $66M cash (incl $6.5M from sale of first shipment, which could easily have been delayed if commissioning didn't go so well). Trade and Acc Payable was $22M, usually payable in a month or so, so Net Cash-invoices outstanding is actually only $44M. If the first shipment was delayed that would be $38M. The EPC Contractor Dispute from 28 Dec is claiming $13.5M extra beyond the contract price... if that is valid then STA only have $30M net cash end Dec22 and could have easily been $24M if the first shipment of HM was delayed with commissioning problems.


So where would STA have been end Dec22 without the $50M "Growth Project" CR in Apr22... well underwater and trading insolvent without another CR later in the year. Of course, later in the year running out of cash, brokers wouldn't have been so keen to raise big money at good share price in a distressed 'need a top up to get over the line' Cr as for the sex appeal of a go-early Growth Project CR. I don;t mind the Sth Atlantic Project as such, or the cheap option cost to play, but can;t help seeing this as a safety first CR more than a growth option CR. Especially at the cheap 50c price given everyone's expectations the share price was about to breakout into 'fair value' as the year progressed.

Nobody except new shareholders are ever happy with a heavily discounted CR that dilutes and creates an overhang to share price appreciation. Strategically, I cannot fault the CR timing or it being rolled into a cheap growth option that actually might have legs. New Bruce has played every card and situation perfectly given what's been thrown at him so far as I can tell... hat tip from me.

GLTAH